Conflict of Laws – Contracts

FACTS:

Mr. Kawawa together with his wife and two children, all of whom are Filipinos, were
saving for a vacation in the Bahamas. After more than three years of saving, they finally have
enough money to realize their dream vacation. Finally being able to realize their dream, they
purchased tickets to and from the Bahamas from Pan Am Airlines, through a ticketing office here
in the Philippines. The transaction showed that they are to have a connecting flight as follows:
Manila to Miami, USA then Miami to the Bahamas.

The day finally came. They boarded their aircraft to Miami and arrived there safely.
However, when they were about to board the aircraft to the Bahamas, the crew in the check-in
counter asked them to step aside and wait despite being supposedly the third group in line. They
were entertained only after everyone else was issued boarding passes. They were not issued
boarding passes but were escorted to board the plane anyway. In the aircraft, they were told to
occupy vacant seats. There were only two vacant seats available which they had their children
occupy. Mr. and Mrs. Kawawa, since no seat was available were made to sit in the foldable seats
supposedly for the cabin crew. Mr. Kawawa was very disgruntled about the turn of events that it
ruined his dream vacation. When they got back to the Philippines he filed a case against Pan Am
Airlines for overbooking, which under our law is illegal. Pan Am on the other hand alleged that
since the flight took off from the US from which overbooking is perfectly legal, they cannot be
held liable as it is another contract by itself, depriving Philippines of jurisdiction over the case.

ISSUE:

Whether Pan Am may be made liable for overbooking.

RULING:

Overbooking of flights amounts to fraud or bad faith and entitles the Kawawa family to
damages for breach of contract. The holding that overbooking was allowed under US laws was
found erroneous because the rule of lex loci contractus negated its application. According to this
rule, the law of the place where the airline ticket was issued should be applied by the court where
the passengers are residents and nationals of the forum and the ticket is issued in such State by
the defendant airline. Since tickets were sold and issued in the Philippines, the applicable law in
this case would be Philippine law. Furthermore, it is a settled doctrine that connecting flights
shall be considered as continuous and uninterrupted rendering an allegation that such flight falls
under a different contract untenable. Under our jurisprudence, the overbooking of flights is
considered bad faith. Pan Am should therefore pay for damages.