FERNANDO LOPEZ, ET AL.

, plaintiffs-appellants,
vs.
PAN AMERICAN WORLD AIRWAYS, defendant-appellant.

G.R. No. L-22415             March 30, 1966

FACTS:

In 1960, Senator Fernando Lopez and his family have reservations for first class accommodation
reservation for a flight under Pan American World Airways from Tokyo to San Francisco. PAN-AM's
San Francisco head office confirmed the reservations and first class tickets for the flight were
subsequently issued by PAN-AM. The total fare of P9,444 for all of them was fully paid before the
tickets were issued.

As scheduled Senator Lopez and party left Manila by and arrived in Tokyo. As soon as they arrived
Senator Lopez requested Minister Busuego of the Philippine Embassy to contact PAN-AM's Tokyo
office regarding their first class accommodations for that evening's flight. However, even after
showing the first class tickets issued to them, PAN-AM's Tokyo office informed Minister Busuego
that PAN-AM could not accommodate Senator Lopez and party in that trip as first class passengers
because first class seats therein were all booked up and could only go in that flight if they take tourist
class.

Due to pressing engagements, Senator Lopez and party were constrained to take PAN-AM's flight
from Tokyo to San Francisco as tourist passengers and sent a letter to PAN-AM's Tokyo office that
they did so "under protest" and without prejudice to further action against the airline.

Later on, Senator Lopez and party filed a suit for damages in the CFI against PAN-AM alleging
breach of contracts in bad faith. PAN-AM filed its answer asserting that its failure to provide first
class accommodations to plaintiffs was due to honest error of its employees. The CFI ruled in favor
of the plaintiff, awarding moral and exemplary damages as well as attorney’s fees and costs of the
action. Both parties appealed the decision.

ISSUE:

Whether the defendant acted in bad faith for deliberate refusal to comply with its contract to provide
first-class accommodation to the plaintiff

RULING:

YES.

Defendant, as stated, has from the start admitted that it breached its contracts with plaintiffs to
provide them with first class accommodations in its Tokyo-San Francisco flight. From the foregoing
evidence of defendant it is in effect admitted that defendant — through its agents — first cancelled
plaintiffs, reservations by mistake and thereafter deliberately and intentionally withheld from plaintiffs
or their travel agent the fact of said cancellation, letting them go on believing that their first class
reservations stood valid and confirmed.

All the time, in legal contemplation such conduct already amounts to action in bad faith. For bad faith
means a breach of a known duty through some motive of interest or ill-will (Spiegel vs. Beacon
Participations, 8 NE 2d 895, 907). As stated in Kamm v. Flink, 113 N.J.L. 582, 175 A. 62, 99 A.L.R.
1, 7: "Self-enrichment or fraternal interest, and not personal ill-will, may well have been the motive;
but it is malice nevertheless."

At the time plaintiffs bought their tickets, defendant, therefore, in breach of its known duty, made
plaintiffs believe that their reservation had not been cancelled. Such willful-non-disclosure of the
cancellation or pretense that the reservations for plaintiffs stood — and not simply the erroneous
cancellation itself — is the factor to which is attributable the breach of the resulting contracts. And,
as above-stated, in this respect defendant clearly acted in bad faith. As if to further emphasize its
bad faith on the matter, defendant subsequently promoted the employee who cancelled plaintiffs'
reservations and told them nothing about it.

ADDITIONAL NOTES FOR DAMAGES

Addressing ourselves now to the question of damages, it is well to state at the outset those rules and
principles.

First, moral damages are recoverable in breach of contracts where the defendant acted fraudulently
or in bad faith (Art. 2220, New Civil Code).

Second, in addition to moral damages, exemplary or corrective damages may be imposed by way of
example or correction for the public good, in breach of contract where the defendant acted in a
wanton, fraudulent, reckless, oppressive or malevolent manner (Articles 2229, 2232, New Civil
Code).

And, third, a written contract for an attorney's services shall control the amount to be paid therefor
unless found by the court to be unconscionable or unreasonable (Sec. 24, Rule 138, Rules of Court).

First, then, as to moral damages. As a proximate result of defendant's breach in bad faith of its
contracts with plaintiffs, the latter suffered social humiliation, wounded feelings, serious anxiety and
mental anguish. For plaintiffs were travelling with first class tickets issued by defendant and yet they
were given only the tourist class. At stop-overs, they were expected to be among the first-class
passengers by those awaiting to welcome them, only to be found among the tourist passengers. It
may not be humiliating to travel as tourist passengers; it is humiliating to be compelled to travel as
such, contrary to what is rightfully to be expected from the contractual undertaking.

Senator Lopez was then Senate President Pro Tempore. International carriers like defendant know
the prestige of such an office. For the Senate is not only the Upper Chamber of the Philippine
Congress, but the nation's treaty-ratifying body. It may also be mentioned that in his aforesaid office
Senator Lopez was in a position to preside in impeachment cases should the Senate sit as
Impeachment Tribunal. And he was former Vice-President of the Philippines. Senator Lopez was
going to the United States to attend a private business conference of the Binalbagan-Isabela Sugar
Company; but his aforesaid rank and position were by no means left behind, and in fact he had a
second engagement awaiting him in the United States: a banquet tendered by Filipino friends in his
honor as Senate President Pro Tempore (Tsn., pp. 14-15, Nov. 25, 1960). For the moral damages
sustained by him, therefore, an award of P100,000.00 is appropriate.

Mrs. Maria J. Lopez, as wife of Senator Lopez, shared his prestige and therefore his humiliation. In
addition she suffered physical discomfort during the 13-hour trip,(5 hours from Tokyo to Honolulu
and 8 hours from Honolulu to San Francisco). Although Senator Lopez stated that "she was quite
well" (Tsn., p. 22, Nov. 25, 1960) — he obviously meant relatively well, since the rest of his
statement is that two months before, she was attackedby severe flu and lost 10 pounds of weight
and that she was advised by Dr. Sison to go to the United States as soon as possible for medical
check-up and relaxation, (Ibid). In fact, Senator Lopez stated, as shown a few pages after in the
transcript of his testimony, that Mrs. Lopez was sick when she left the Philippines:

A. Well, my wife really felt very bad during the entire trip from Tokyo to San Francisco. In the
first place, she was sick when we left the Philippines, and then with that discomfort which
she [experienced] or suffered during that evening, it was her worst experience. I myself, who
was not sick, could not sleep because of the discomfort. (Tsn., pp. 27-28, Nov. 25, 1960).

It is not hard to see that in her condition then a physical discomfort sustained for thirteen hours may
well be considered a physical suffering. And even without regard to the noise and trepidation inside
the plane — which defendant contends, upon the strengh of expert testimony, to be practically the
same in first class and tourist class — the fact that the seating spaces in the tourist class are quite
narrower than in first class, there beingsix seats to a row in the former as against four to a row in the
latter, and that in tourist class there is very little space for reclining in view of the closer distance
between rows (Tsn., p. 24, Nov. 25, 1960), will suffice to show that the aforesaid passenger indeed
experienced physical suffering during the trip. Added to this, of course, was the painfull thought that
she was deprived by defendant — after having paid for and expected the same — of the most
suitable, place for her, the first class, where evidently the best of everything would have been given
her, the best seat, service, food and treatment. Such difference in comfort between first class and
tourist class is too obvious to be recounted, is in fact the reason for the former's existence, and is
recognized by the airline in charging a higher fare for it and by the passengers in paying said higher
rate Accordingly, considering the totality of her suffering and humiliation, an award to Mrs. Maria J.
Lopez of P50,000.00 for moral damages will be reasonable.

Mr. and Mrs. Alfredo Montelibano, Jr., were travelling as immediate members of the family of
Senator Lopez. They formed part of the Senator's party as shown also by the reservation cards of
PAN-AM. As such they likewise shared his prestige and humiliation. Although defendant contends
that a few weeks before the flight they had asked their reservations to be charged from first class to
tourist class — which did not materialize due to alleged full booking in the tourist class — the same
does not mean they suffered no shared in having to take tourist class during the flight. For by that
time they had already been made to pay for first class seats and therefore to expect first class
accommodations. As stated, it is one thing to take the tourist class by free choice; a far different
thing to be compelled to take it notwithstanding having paid for first class seats. Plaintiffs-appellants
now ask P37,500.00 each for the two but we note that in their motion for reconsideration filed in the
court a quo, they were satisfied with P25,000.00 each for said persons. (Record on Appeal, p. 102).
For their social humiliation, therefore, the award to them of P25,000.00 each is reasonable.

The rationale behind exemplary or corrective damages is, as the name implies, to provide an
example or correction for public good. Defendant having breached its contracts in bad faith, the
court, as stated earlier, may award exemplary damages in addition to moral damages (Articles 2229,
2232, New Civil Code).

In view of its nature, it should be imposed in such an amount as to sufficiently and effectively deter
similar breach of contracts in the future by defendant or other airlines. In this light, we find it just to
award P75,000.00 as exemplary or corrective damages.

Now, as to attorney's fees, the record shows a written contract of services executed on June 1, 1960
(Exh. F) whereunder plaintiffs-appellants engaged the services of their counsel — Atty. Vicente J.
Francisco — and agreedto pay the sum of P25,000.00 as attorney's fees upon the termination of the
case in the Court of First Instance, and an additional sum of P25,000.00 in the event the case is
appealed to the Supreme Court. As said earlier, a written contract for attorney's services shall
control the amount to be paid therefor unless found by the court to be unconscionable or
unreasonable. A consideration of the subject matter of the present controversy, of the professional
standing of the attorney for plaintiffs-appellants, and of the extent of the service rendered by him,
shows that said amount provided for in the written agreement is reasonable. Said lawyer — whose
prominence in the legal profession is well known — studied the case, prepared and filed the
complaint, conferred with witnesses, analyzed documentary evidence, personally appeared at the
trial of the case in twenty-two days, during a period of three years, prepared four sets of cross-
interrogatories for deposition taking, prepared several memoranda and the motion for
reconsideration, filed a joint record on appeal with defendant, filed a brief for plaintiffs as appellants
consisting of 45 printed pages and a brief for plaintiffs as appellees consisting of 265 printed pages.
And we are further convinced of its reasonableness because defendant's counsel likewise valued at
P50,000.00 the proper compensation for his services rendered to defendant in the trial court and on
appeal.

In concluding, let it be stressed that the amount of damages awarded in this appeal has been
determined by adequately considering the official, political, social, and financial standing of the
offended parties on one hand, and the business and financial position of the offender on the other
(Domingding v. Ng, 55 O.G. 10). And further considering the present rate of exchange and the terms
at which the amount of damages awarded would approximately be in U.S. dollars, this Court is all
the more of the view that said award is proper and reasonable.

Wherefore, the judgment appealed from is hereby modified so as to award in favor of plaintiffs and
against defendant, the following: (1) P200,000.00 as moral damages, divided among plaintiffs, thus:
P100,000.00 for Senate President Pro Tempore Fernando Lopez; P50,000.00 for his wife Maria J.
Lopez; P25,000.00 for his son-in-law Alfredo Montelibano, Jr.; and P25,000.00 for his daughter Mrs.
Alfredo Montelibano, Jr.; (2) P75,000.00 as exemplary or corrective damages; (3) interest at the
legal rate of 6% per annum on the moral and exemplary damages aforestated, from December 14,
1963, the date of the amended decision of the court a quo, until said damages are fully paid; (4)
P50,000.00 as attorney's fees; and (5) the costs. Counterclaim dismissed.So ordered.

Bengzon, C.J., Bautista Angelo, Concepcion, Reyes, J.B.L., Barrera, Regala, Makalintal, Zaldivar
and Sanchez, JJ., concur.
Dizon, J., is on leave.