Korean Airlines Co., Ltd. vs. Juanito C. Lapuz

A wait-listed passenger's status is upgraded to that of a confirmed passenger when his name is entered in the passenger manifest and he is cleared through immigration and customs, and the carrier's subsequent refusal to board him — especially when accompanied by rude and insolent conduct — constitutes a breach of the contract of carriage entitling the passenger to actual, moral, and exemplary damages. Legal interest on unliquidated damages runs from the date of the trial court's judgment, not from the filing of the complaint.

Juanito C. Lapuz, an automotive electrician, was contracted for employment in Jeddah, Saudi Arabia, for a period of one year through Pan Pacific Overseas Recruiting Services, Inc. His deployment was scheduled for November 8, 1980, via Korean Airlines (KAL) Flight No. KE 903. The employment contract was for one year, renewable annually for up to five years, subject to the foreign employer's consent. Lapuz was initially classified as a "wait-listed" passenger, meaning he could be accommodated only if confirmed passengers failed to appear before departure.

Sometime in 1980, Juanito C. Lapuz, an automotive electrician, was contracted for employment in Jeddah, Saudi Arabia, for a period of one year through Pan Pacific Overseas Recruiting Services, Inc. He was scheduled to depart on November 8, 1980, via Korean Airlines (KAL) Flight No. KE 903. Initially classified as a "wait-listed" passenger, Lapuz could be accommodated only if any of the confirmed passengers failed to show up before departure. When two confirmed passengers did not appear, Lapuz and another person named Perico were given the two unclaimed seats.

According to Lapuz, he was allowed to check in at the KAL counter with one suitcase and one shoulder bag. He passed through customs and immigration for routine inspection and was cleared for departure as Passenger No. 157 of KAL Flight No. KE 903. Together with the other passengers, he boarded the shuttle bus and proceeded to the ramp of the KAL aircraft. However, when he was at the third or fourth rung of the boarding stairs, a KAL officer pointed at him and shouted "Down! Down!" He was thus barred from taking the flight. When he later asked for another booking, his ticket was canceled by KAL. Consequently, he was unable to report for work in Saudi Arabia within the stipulated two-week period and lost his employment.

KAL presented a different account. According to the airline, Pan Pacific coordinated with KAL for the departure of 30 contract workers, of whom only 21 were confirmed and 9 were wait-listed. Pan Pacific's agent, Jimmie Joseph, after being informed of the possibility of one or two seats becoming available, gave priority to Perico, who was a supervisor of the hiring company in Saudi Arabia. The other seat was won by Lapuz through a lottery. However, only one seat ultimately became available, and pursuant to the earlier agreement that Perico was to be given priority, Perico alone was allowed to board.

After trial, the Regional Trial Court of Manila, Branch 30, found KAL liable for breach of contract of carriage, crediting Lapuz's account that he had checked in, cleared immigration and customs, and was already at the boarding stairs when he was summarily prevented from boarding. The trial court awarded P272,160 as actual/compensatory damages, representing five years' lost earnings, plus P25,000 as attorney's fees and costs. On appeal, the Court of Appeals affirmed the finding of liability but reduced the actual damages to P60,000, limiting recovery to one year's lost earnings, and awarded P100,000 as moral and exemplary damages, with 6% interest per annum from the date of filing of the complaint. Both KAL and Lapuz filed motions for reconsideration, which were denied, prompting the present consolidated petitions.

• Existence of Contract of Carriage: KAL argued that the Court of Appeals erred in concluding that it committed a breach of contract of carriage notwithstanding the lack of proper, competent, and sufficient evidence of the existence of such contract.
• Evidentiary Weight: KAL maintained that the Court of Appeals failed to accord proper evidentiary weight to certain evidence and that Lapuz did not have any boarding pass to prove he was allowed to board or that his airline ticket was confirmed.
• Standby to Confirmed Status: KAL argued that the Court of Appeals erred in concluding that Lapuz's standby passenger status was changed to confirmed status merely by entry of his name in the passenger manifest, contending that the manifest and immigration clearance were merely means of facilitating boarding of a chance passenger in case his status was confirmed.
• Award of Moral and Exemplary Damages: KAL contended that the Court of Appeals abused its discretion in awarding P100,000 as moral and exemplary damages, as there was no basis for the award and Lapuz neither stated such amount in his complaint nor proved the said damages.
• Dismissal of Counterclaims: KAL argued that the Court of Appeals erred in dismissing its counterclaims, including its counterclaim against Pan Pacific Overseas Recruiting Services, Inc.
• Commencement of Legal Interest: KAL argued that the Court of Appeals erred in ruling that the 6% per annum legal interest should be computed from the filing of the complaint.

• Adequacy of Damages Award: Lapuz sought the setting aside of the Court of Appeals' decision insofar as it modified the award of damages, claiming the reduction was unwarranted.
• Actual and Compensatory Damages: Lapuz claimed actual and compensatory damages equivalent to five years' loss of earnings based on his monthly salary of 1,600 Saudi rials at the current conversion rate, plus the cost of baggage and personal belongings worth P2,000 and the service fee of P3,000 paid to the recruiting agency, all with legal interest from the filing of the complaint.
• Moral and Exemplary Damages: Lapuz prayed for moral damages of not less than P1 million and exemplary damages of not less than P500,000, both with interest at 6% per annum from the filing of the complaint, contending that the Court of Appeals' award of P100,000 was inadequate.
• Attorney's Fees: Lapuz sought attorney's fees equivalent to 30% of the total award of damages.
• Propriety of CA Ruling on Actual Damages: Lapuz argued that the Court of Appeals could not rule upon the propriety of the award of actual damages because the issue had not been assigned as an error by KAL.

• Factual Findings of the CA: Whether the factual findings of the Court of Appeals are binding upon the Supreme Court.
• Confirmation of Passenger Status: Whether Lapuz's status as a wait-listed passenger was changed to that of a confirmed passenger.
• Breach of Contract of Carriage: Whether KAL committed a breach of the contract of carriage with Lapuz.
• Moral and Exemplary Damages: Whether the award of moral and exemplary damages in the amount of P100,000 was proper.
• Adequacy of Damages Amount: Whether the amount of P100,000 as moral and exemplary damages was adequate or should be increased.
• CA Authority to Reduce Actual Damages: Whether the Court of Appeals could reduce the award of actual damages even though the issue was not assigned as an error by KAL.
• Commencement of Legal Interest: Whether the 6% legal interest on the damages awarded should commence from the filing of the complaint or from the date of the trial court's decision.
• Dismissal of Counterclaim Against Pan Pacific: Whether the Court of Appeals erred in sustaining the dismissal of KAL's counterclaim against Pan Pacific.

• Factual Findings of the CA: Yes. The factual findings of the Court of Appeals are binding upon the Supreme Court, subject to recognized exceptions, none of which were present in this case.
• Confirmation of Passenger Status: Yes. Lapuz's standby status was changed to confirmed when his name was entered in the passenger manifest and he was cleared through immigration and customs.
• Breach of Contract of Carriage: Yes. KAL committed a breach of the contract of carriage when it failed to transport Lapuz to his destination after his status had been confirmed, aggravated by the rude and insolent manner in which he was prevented from boarding.
• Moral and Exemplary Damages: Yes. The award of moral and exemplary damages was proper, as KAL acted in a wanton, fraudulent, reckless, oppressive, and malevolent manner in bumping off Lapuz and treating him rudely.
• Adequacy of Damages Amount: Yes. The award of P100,000 as moral and exemplary damages was reasonable and realistic; Lapuz's claim for P1.5 million was overblown.
• CA Authority to Reduce Actual Damages: Yes. The Court of Appeals was justified in reducing the award of actual damages even though the issue was not assigned as an error, as consideration was necessary for a just and complete resolution of the case.
• Commencement of Legal Interest: No, not from the filing of the complaint. The 6% legal interest should commence from the date of the trial court's decision, as the damages were unliquidated and not ascertainable until judicially determined.
• Dismissal of Counterclaim Against Pan Pacific: No. The Court of Appeals did not err in sustaining the dismissal of KAL's counterclaim against Pan Pacific, whose responsibility ended upon KAL's confirmation of Lapuz as a passenger.

• Factual Findings of the CA: The Court has consistently held that the findings of fact of the Court of Appeals and other lower courts are, as a rule, binding upon it, subject to certain exceptions. Nothing in the record indicated any of those exceptions, so the factual conclusions of the appellate court had to be affirmed.

• Confirmation of Passenger Status: KAL argued that entry of a chance passenger's name in the manifest and immigration clearance were merely means of facilitating boarding and did not constitute confirmation. The Court rejected this contention. The evidence showed that Lapuz had checked in at the departure counter, passed through customs and immigration, boarded the shuttle bus, and proceeded to the ramp of the aircraft. His baggage had already been loaded onto the aircraft. These acts collectively demonstrated that his standby status had been changed to confirmed, and the contract of carriage had been perfected when he was summarily prevented from boarding.

• Breach of Contract of Carriage: The Court emphasized that a contract to transport passengers is different in kind and degree from any other contractual relation, as the business of the carrier is mainly with the traveling public and generates a relation attended with a public duty. Passengers have the right to be treated with kindness, respect, courtesy, and due consideration, and any discourteous conduct by the carrier's employees gives the passenger an action for damages. The breach was aggravated when, instead of courteously informing Lapuz of his wait-listed status, a KAL officer rudely shouted "Down! Down!" while pointing at him, causing embarrassment and public humiliation. The Court also noted that KAL treated Lapuz as a "patay gutom na contract worker fighting Korean Air Lines," which showed malice and bad faith.

• Moral and Exemplary Damages: The Court of Appeals granted moral damages because KAL committed the breach in bad faith and in wanton disregard of Lapuz's rights as a passenger. The finding that KAL acted in a wanton, fraudulent, reckless, oppressive, or malevolent manner when it bumped off Lapuz and treated him rudely and arrogantly clearly showed malice and bad faith, entitling Lapuz to moral damages. Exemplary damages were also proper, as they may be awarded even though not expressly pleaded in the complaint, and to provide an example for the public good.

• Adequacy of Damages Amount: The well-entrenched principle is that moral damages depend upon the discretion of the court based on the circumstances of each case, limited by the principle that the amount awarded should not be palpably and scandalously excessive. Damages are not intended to enrich the complainant at the expense of the defendant but only to alleviate the moral suffering undergone. A review of the record showed that the injury suffered by Lapuz was not so serious or extensive as to warrant P1.5 million. The assessment of P100,000 as moral and exemplary damages was reasonable and realistic.

• CA Authority to Reduce Actual Damages: The general rule is that only errors specifically assigned and properly argued in the brief will be considered. However, the Court is clothed with ample authority to review matters not assigned as errors if their consideration is necessary in arriving at a just decision. Issues not specifically raised may be considered in the interest of justice if they are questions raised in the trial court and are matters of record having some bearing on the issues submitted. The Court of Appeals was therefore justified in decreasing the award of actual damages, as consideration was necessary for the just and complete resolution of the case. The reduction was warranted because the employment contract was for only one year, renewable annually for five years subject to the foreign employer's consent. Since Lapuz had not yet started working, there was no basis for determining whether the contract would be renewed. Damages representing lost earnings from renewal were speculative, and damages may not be awarded on the basis of speculation or conjecture. Lapuz was entitled only to lost earnings for one year, i.e., P60,000.

• Commencement of Legal Interest: The Court disagreed with the Court of Appeals on the date when legal interest should commence. The rule is that if the suit is for damages that are unliquidated and not known until definitely ascertained, assessed, and determined by the courts after proof, interest should run from the date of the decision. The obligation to pay interest on a sum fixed in a judgment exists from the date of the sentence, when so declared, because until the net amount of the debtor's liability has been determined, the debtor cannot be considered delinquent in the fulfillment of the obligation. Accordingly, the 6% legal interest should commence from the date of the trial court's decision on November 14, 1990, rather than from November 28, 1980, the date of filing of the complaint.

• Dismissal of Counterclaim Against Pan Pacific: The Court found no error in the dismissal of KAL's counterclaim against Pan Pacific, as the recruiting agency's responsibility ended with the confirmation by KAL of Lapuz as its passenger in Flight No. 903.

• Binding Effect of CA Factual Findings — The findings of fact of the Court of Appeals and other lower courts are, as a rule, binding upon the Supreme Court, subject to certain recognized exceptions. Where none of the exceptions are present, the factual conclusions of the appellate court must be affirmed.

• Special Nature of Contract of Passenger Carriage — A contract to transport passengers is different in kind and degree from any other contractual relation. The business of the carrier is mainly with the traveling public, and the contract of air carriage generates a relation attended with a public duty. Passengers have the right to be treated by the carrier's employees with kindness, respect, courtesy, and due consideration, and to be protected against personal misconduct, injurious language, indignities, and abuses from such employees. Any discourteous conduct on the part of these employees toward a passenger gives the latter an action for damages against the carrier.

• Confirmation of Wait-Listed Passenger Status — A wait-listed passenger's status is upgraded to that of a confirmed passenger when his name is entered in the passenger manifest and he is cleared through immigration and customs. The carrier's subsequent refusal to board him constitutes a breach of the contract of carriage.

• Discretion in Award of Moral Damages — Moral damages depend upon the discretion of the court based on the circumstances of each case. This discretion is limited by the principle that the amount awarded should not be palpably and scandalously excessive as to indicate prejudice or corruption. Damages are not intended to enrich the complainant at the expense of the defendant but only to alleviate the moral suffering undergone by reason of the defendant's culpable action.

• Exemplary Damages Without Express Plea — Exemplary damages may be awarded even though not expressly pleaded in the complaint, provided the entitlement to moral damages has been fully established by oral and documentary evidence.

• Speculative Damages — Damages may not be awarded on the basis of speculation or conjecture. Lost earnings from the renewal of an employment contract that is subject to the foreign employer's consent, where the employee had not yet commenced work, are speculative and cannot be recovered.

• Appellate Review of Unassigned Errors — Only errors specifically assigned and properly argued in the brief will be considered, except errors affecting jurisdiction over the subject matter and plain or clerical errors. However, the Court is clothed with ample authority to review matters not assigned as errors if their consideration is necessary in arriving at a just decision of the case, particularly where the issues were raised in the trial court and are matters of record bearing on the issues submitted.

• Legal Interest on Unliquidated Damages — If the suit is for damages that are unliquidated and not known until definitely ascertained, assessed, and determined by the courts after proof, interest should run from the date of the decision, not from the filing of the complaint. The obligation to pay interest on a sum fixed in a judgment exists from the date of the sentence, because until the net amount of the debtor's liability has been determined, the debtor cannot be considered delinquent.

• "The status of Lapuz as standby passenger was changed to that of a confirmed passenger when his name was entered in the passenger manifest of KAL for its Flight No. KE 903. His clearance through immigration and customs clearly shows that he had indeed been confirmed as a passenger of KAL in that flight." — This passage states the ratio decidendi on the confirmation of a wait-listed passenger's status, establishing the factual basis for finding a perfected contract of carriage.

• "The contract of air carriage generates a relation attended with a public duty. Passengers have the right to be treated by the carrier's employees with kindness, respect, courtesy and due consideration." — This formulation articulates the special nature of the contract of passenger carriage and the standard of conduct expected of common carriers, frequently cited in subsequent transportation law jurisprudence.

• "If suit were for payment of a definite sum of money, the contention might be tenable. However, if it is for damages, unliquidated and not known until definitely ascertained, assessed and determined by the courts after proof, interest should be from the date of the decision." — This passage defines the rule on when legal interest begins to run on unliquidated damages, distinguishing liquidated from unliquidated claims and controlling the modification of the Court of Appeals' ruling on interest.

• "This is still another case of the maltreatment of our overseas contract workers, this time by the airline supposed to bring the passenger to his foreign assignment." — This statement frames the Court's protective posture toward overseas contract workers and signals the policy basis for upholding the damages award.

• Air France vs. Carrascoso, 18 SCRA 155 — Cited for the doctrine that the contract of air carriage generates a relation attended with a public duty, and that passengers have the right to be treated with kindness, respect, courtesy, and due consideration. Followed as controlling authority on the special nature of passenger carriage contracts.

• Zulueta vs. Pan American World Airways Inc., 43 SCRA 397 — Cited alongside Pan American World Airways vs. IAC, 153 SCRA 521 and Air France vs. Carrascoso for the proposition that a contract to transport passengers is different in kind and degree from any other contractual relation. Followed.

• Kapoe vs. Masa, 134 SCRA 231 — Cited for the rule that exemplary damages may be awarded even though not expressly pleaded in the complaint. Followed.

• Armovit vs. Court of Appeals — Cited for the proposition that an award of exemplary damages is proper to provide an example for the public good. Followed.

• Gachalian vs. Delim, 203 SCRA 126 — Cited for the rule that damages may not be awarded on the basis of speculation or conjecture. Applied to bar recovery of lost earnings from speculative contract renewals.

• Vda. de Javellana vs. Court of Appeals, 123 SCRA 799 — Cited for the principle that the Court may review matters not assigned as errors if their consideration is necessary in arriving at a just decision. Followed to uphold the Court of Appeals' authority to reduce actual damages despite the issue not being assigned as error.

• Baquiran vs. Court of Appeals, 2 SCRA 873 — Cited for the rule that issues not specifically raised in the appellate court may be considered in the interest of justice if they were raised in the trial court and are matters of record bearing on the issues submitted. Followed.

• Rivera vs. Matute, 98 Phil. 516 — Cited for the rule that legal interest on unliquidated damages should run from the date of the decision, not from the filing of the complaint. Applied to modify the Court of Appeals' ruling on the commencement date of interest.

• Montilla vs. Augustinian Corp., 25 Phil. 447 — Cited for the principle that the obligation to pay interest on a sum fixed in a judgment exists from the date of the sentence, as the debtor cannot be considered delinquent until the net amount of liability has been determined. Applied.

• Section 7, Rule 51 of the Rules of Court — Cited for the rule that only errors specifically assigned and properly argued in the brief will be considered on appeal, except errors affecting jurisdiction over the subject matter and plain or clerical errors. The Court applied this provision with the qualification that unassigned errors may still be reviewed when necessary for a just decision.

Davide, Jr., Quiason, and Kapunan, JJ., concurred. Bellosillo, J., was on official leave.