G.R. No. L-40597. June 29, 1979 (Case Brief / Digest)

### Title:
Ong Yiu v. Philippine Airlines, Inc. (1978): A Case of Breach of Contract for Misrouted Luggage

### Facts:
Agustino B. Ong Yiu, a lawyer and businessman, boarded Philippine Air Lines (PAL) Flight No. 463-R on August 26, 1967, from Mactan, Cebu, to Butuan City, carrying vital documents for a court trial. Upon arrival, his checked luggage was missing. Subsequent inquiries and demands ensued, detailing steps undertaken by both Ong Yiu and PAL to locate and deliver the luggage. Despite efforts, the luggage arrived late and with missing items. Ong Yiu filed a complaint against PAL for damages due to breach of contract, initially resulting in a favorable lower court decision awarding him substantial damages. Both parties appealed, and the Court of Appeals adjusted the compensation to a minimal amount based on the carrier’s printed conditions of carriage, sparking this Supreme Court review.

### Issues:
1. Whether PAL was guilty only of simple negligence and not bad faith in the breach of its contract of carriage.
2. Whether the Court of Appeals erred in reversing the lower court’s award for moral and exemplary damages, limiting liability to P100 based on the conditions printed on the ticket.
3. The validity of limitation of liability clauses in tickets as contracts of adhesion, and compliance with Article 1750 of the Civil Code.

### Court’s Decision:
The Supreme Court affirmed the Court of Appeals’ decision, holding that:
1. PAL did not act in bad faith but was guilty of simple negligence in mishandling Ong Yiu’s baggage. Efforts to rectify the situation, such as quickly tracing and attempting to deliver the luggage, did not constitute bad faith.
2. The limitation of liability to P100 as stated in the ticket’s conditions of carriage was valid, with Ong Yiu bound by these provisions despite not declaring a higher value for his luggage or paying additional charges.
3. Contracts of adhesion, including ticket conditions, are binding when freely entered into, even if the party did not participate in drafting the terms.

### Doctrine:
– Bad Faith vs. Simple Negligence: Airline carriers are not automatically considered to act in bad faith due to luggage mishandling if efforts are made to rectify the issue.
– Contracts of Adhesion: Passengers are bound by conditions printed on tickets, including limitations of liability, as these are considered contracts of adhesion that passengers have the freedom to reject or accept by choosing to fly with the carrier.
– Limitation of Liability: Airlines’ liability for lost or damaged baggage can be limited through conditions agreed upon in the ticket, as long as these limitations are reasonable, freely agreed upon, and compliant with applicable laws.

### Class Notes:
1. **Bad Faith**: Demonstrates a breach of a known duty through a motive of interest or ill will. Not proven if corrective actions are undertaken.
2. **Simple Negligence**: Failure to exercise the care that a reasonably prudent person would exercise in similar circumstances.
3. **Contracts of Adhesion**: A contract drafted by one party (usually the service provider) and accepted by the other (consumer) without negotiation. Binding if entered into freely.
4. **Limitation of Liability Clauses**: Legal provisions that limit the amount a party may be required to pay in case of breach of contract, which are enforceable if reasonable, just under the circumstances, and freely agreed upon.

### Historical Background:
The decision explores principles surrounding consumer contracts, notably in contexts where services involve standardized contracts such as those used by airlines. It underscores the balance between protecting consumer rights and recognizing the practicalities of commercial operations, reflecting on the broader implications of contract law in commercial practices.


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