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**Facts:**
In October 1998, Dr. Jose M. Tiongco, a prominent surgeon invited by the UN-WHO to speak in Kazakhstan, experienced an issue with his luggage during transit. Dr. Tiongco’s travel included several connecting flights, starting from Singapore Airlines from Manila to Singapore, then KLM from Singapore to Amsterdam and from Amsterdam to Frankfurt, and finally, Lufthansa from Frankfurt to Almaty.
On November 25, 1998, he checked in his suitcase in Manila, which contained important materials for his speech. Upon arrival in Amsterdam, the KLM flight to Frankfurt was delayed, causing Dr. Tiongco to miss his connecting Lufthansa flight to Almaty. KLM re-routed him via Istanbul with Turkish Airlines. Throughout this process, he was reassured multiple times that his suitcase would follow him to Almaty.
Upon arriving in Almaty, his suitcase was not found, leading him to attend the conference without his prepared materials and appropriate attire. Despite repeated attempts to trace his luggage, including a formal demand letter sent on March 15, 1999, the suitcase was never recovered. Hence, Dr. Tiongco filed a Complaint for Damages and Attorney’s Fees against KLM, Turkish Airlines, Singapore Airlines, and Lufthansa.
The RTC of Davao held KLM solely liable and awarded various damages to Dr. Tiongco, which KLM contested but the Court of Appeals upheld with modifications.
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**Issues:**
1. Whether KLM’s actions constituted gross negligence, bad faith, or willful misconduct to warrant the awarded damages.
2. The propriety and amount of the damages awarded: moral, exemplary, nominal/temperate damages, and attorney’s fees.
3. Applicability of the Warsaw Convention limitations on liability.
4. Whether the imposition of legal interest on the damages was justified.
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**Court’s Decision:**
**Issue 1: Gross Negligence, Bad Faith, or Willful Misconduct**
The Supreme Court found that KLM had displayed bad faith and gross negligence. Despite Dr. Tiongco’s repeated follow-ups, KLM failed to inform him that his suitcase was found and took no steps to ensure its return. The Court found that KLM’s assurances regarding the suitcase were misleading, and its subsequent inaction justified the finding of bad faith.
**Issue 2: Damages**
– **Moral and Exemplary Damages:** The Court affirmed the award based on KLM’s bad faith but reduced the amounts. Moral damages were reduced to Php 300,000 considering Dr. Tiongco’s social and financial standing, while exemplary damages were reduced to Php 100,000.
– **Nominal/Temperate Damages:** As Dr. Tiongco suffered pecuniary loss but failed to substantiate the amount, the Court awarded Php 50,000 as temperate damages in lieu of nominal damages.
– **Attorney’s Fees:** The award was deemed justified under Article 2208 of the Civil Code due to the award of exemplary damages.
**Issue 3: Warsaw Convention Limitations**
The Court ruled that the limitations under the Warsaw Convention do not apply due to the presence of bad faith and willfulness in KLM’s actions.
**Issue 4: Legal Interest**
The Supreme Court upheld the imposition of legal interest. The interest rate of 12% per annum from the RTC decision date (January 16, 2006) to June 30, 2013, and 6% per annum thereafter until full payment was imposed, following the guidelines in Nacar v. Gallery Frames.
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**Doctrine:**
1. **Extraordinary Diligence in Contracts of Carriage:** Common carriers must exercise utmost diligence and care in transporting passengers and their belongings.
2. **Bad Faith and Damages:** Bad faith in contractual breaches extends beyond compensatory damages to moral and exemplary damages.
3. **Article 2208 of the Civil Code:** Provides specific instances when attorney’s fees can be awarded, including fraudulent or bad faith breaches of contract.
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**Class Notes:**
– **Contract of Carriage Principles:** Article 1732 (Civil Code) obliges carriers to extraordinary diligence and care.
– **Factual Findings Review:** Rule 45 limits the Supreme Court’s review to legal questions unless exceptional circumstances justify factual review.
– **Moral vs. Exemplary Damages:** Moral damages compensate for psychological suffering, while exemplary damages serve as a deterrent.
– **Attorney’s Fees:** Awards must be justified under Article 2208 and detailed in judicial decisions.
– **Interest on Awards:** Distinction on interest based on compensatory damages and other forms as per BSP Circular No. 799 and Nacar case precedent.
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**Historical Background:**
This case underscores the judiciary’s evolution in holding international carriers to high standards of care, especially amidst the globalized transport and rigorous contractual obligations towards passengers. The ruling reinforces consumer rights in aviation and the accountability of carriers and their duty to act in good faith.
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