FERNANDO LOPEZ, MARIA J. LOPEZ, ALFREDO MONTELIBANO, JR. AND MILAGROS L. MONTELIBANO, PLAINTIFFS AND APPELLANTS, VS. PAN AMERICAN WORLD AIRWAYS, DEFENDANT AND APPELLANT.

Plaintiffs and defendant appeal from a decision of the Court of
First Instance of Rizal. Since the value in controversy exceeds
P200,000 the appeals were taken directly to this Court upon all
questions involved (Sec. 17, par. 3[5], Judiciary Act).

Stated briefly the facts not in dispute are as follows. Reservations
for first class accommodations in Flight No. 2 of Pan American World
Airways—hereinafter otherwise called PAN AM—from Tokyo to San
Francisco on May 24, 1960 were made with PAN AM on March 29, 1960, by
“Your Travel Guide” agency, specifically, by Delfin Faustino, for then
Senator Fernando Lopez, his wife Maria J. Lopez, his son-in-law Alfredo
Montelibano, Jr., and his daughter Mrs. Alfredo Montelibano, Jr.
(Milagros Lopez Montelibano). PAN AM’s San Francisco head office
confirmed the reservations on March 31, 1960.

First class tickets for the abovementioned flight were subsequently
issued by PAN AM on May 21 and 23, 1960, in favor of Senator Lopez and
his party. 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 Northwest
Airlines on May 24, 1960, arriving in Tokyo at 5:30 P.M. of that day.
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. For the given
reason that the first class seats therein were all booked up, however,
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. Senator Lopez thereupon gave their first class tickets to
Minister Busuego for him to show the same to PAN AM’s Tokyo office, but
the latter firmly reiterated that there was no accommodation for them
in the first class, stating that they could not go in that flight
unless they took the tourist class therein.

Due to pressing engagements awaiting Senator Lopez and his wife in
the United States—he had to attend a business conference in San
Francisco the next day and she had to undergo a medical check-up in
Mayo Clinic, Rochester, Minnesota, on May 28, 1960 and needed three
days rest before that in San Francisco—Senator Lopez and party were
constrained to take PAN AM’s flight from Tokyo to San Francisco as
tourist passengers. Senator Lopez however made it clear, as indicated
in his letter to PAN AM’s Tokyo office on that date (Exh. A), that they
did so “under protest” and without prejudice to further action against
the airline.

Suit for damages was thereafter filed by Senator Lopez and party
against PAN AM on June 2, 1960 in the Court of First Instance of Rizal.
Alleging breach of contracts in bad faith by defendant, plaintiffs
asked for P500,000 actual and moral damages, P100,000 exemplary
damages, P25,000 attorney’s fees, plus costs. PAN AM filed its answer
on June 22, 1960, asserting that its failure to provide first class
accommodations to plaintiffs was due to honest error of its employees.
It also interposed a counterclaim for attorney’s fees of P25,000.

Subsequently, further pleadings were filed, thus: plaintiffs’ answer
to the counterclaim, on July 25, 1960; plaintiffs’ reply attached to
motion for its admittance, on December 2, 1961; defendant’s
supplemental answer, on March 8, 1962; plaintiffs’ reply to
supplemental answer, on March 10, 1962; and defendant’s amended
supplemental answer, on July 10, 1962.

After trial—which took twenty-two (22) days ranging from November
25, 1960 to January 5, 1963—the Court of First Instance rendered its
decision on November 13, 1963, the dispositive portion stating:

“IN VIEW OF THE FOREGOING CONSIDERATION, judgment is hereby rendered in favor of the plaintiffs and against the
defendant, which is accordingly ordered to pay the plaintiffs the
following: (a) P100,000.00 as moral damages; (b) P20,000.00 as
exemplary damages; (c) P25,000.00 as attorney’s fees, and the costs of
this action.

“So ordered.”

Plaintiffs, however, on November 21, 1963, moved for reconsideration
of said judgment, asking that moral damages be increased to P400,000
and that six per cent (6%) interest per annum on the amount of the
award be granted. And defendant opposed the same. Acting thereon the
trial court issued an order on December 14, 1963, reconsidering the
dispositive part of its decision to read as follows:

“IN VIEW OF THE FOREGOING CONSIDERATION, judgment is hereby rendered in favor of the plaintiffs and against the
defendant, which is accordingly ordered to pay the plaintiffs the
following: (a) P150,000.00 as moral damages; (b) P25,000.00 as
exemplary damages; with legal interest on both from the date of the
filing of the complaint until paid; and (c) P25,000.00 as attorney’s
fees; and the costs of this action.

“So ordered.”

It is from said judgment, as thus reconsidered, that both parties have appealed.

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 of May 24, 1960. In
its appeal, however, it takes issue with the finding of the court a quo that it acted in bad faith in the breach of said contracts. Plaintiffs, on the other hand, raise questions on the amount of damages awarded in their favor, seeking that the same be increased to a total of P650,000.

Anent the issue of bad faith the records show the respective contentions of the parties as follows.

According to plaintiffs, defendant acted in bad faith because it
deliberately refused to comply with its contract to provide first class
accommodations to plaintiffs, out of racial prejudice against
Orientals. And in support of its contention that what was done to
plaintiffs is an oft-repeated practice of defendant, evidence was
adduced relating to two previous instances of alleged racial
discrimination by defendant against Filipinos in favor of “white”
passengers. Said previous occasions are what allegedly happened to (1)
Benito Jalbuena and (2) Cenon S. Cervantes and his wife.

And from plaintiffs’ evidence this is what allegedly happened.
Jalbuena bought a first class ticket from PAN AM on April 13, 1960; he
confirmed it on April 15, 1960 as to the Tokyo-Hongkong flight of April
20, 1960; PAN AM similarly confirmed it on April 20, 1960. At the
airport, he and another Oriental—Mr. Tung – were asked to step aside
while other passengers—including “white” passengers—boarded PAN
AM’s plane. Then PAN AM officials told them that one of them had to
stay behind. Since Mr. Tung was going all the way to London, Jalbuena
was chosen to be left behind. PAN AM’s officials could only explain by
saying there was “some mistake”. Jalbuena thereafter wrote PAN AM to
protest the incident (Exh. B).

As to Cenon S. Cervantes it would appear that in Flight No. 6 of PAN
AM on September 29, 1958 from Bangkok to Hongkong, he and his wife had
to take tourist class, although they had first class tickets, which
they had previously confirmed, because their seats in first class were
given to “passengers from London.”

Against the foregoing, however, defendant’s evidence would seek to establish its theory of honest mistake, thus:

The first class reservations of Senator Lopez and party were made on
March 29, 1960 together with those of four members of the Rufino
family, for a total of eight (8) seats, as shown in their joint
reservation card (Exh. 1). Subsequently, on March 30, 1960, two other
Rufinos secured reservations and were given a separate reservation card
(Exh. 2). A new reservation card consisting of two pages (Exhs. 3 and
4) was then made for the original group of eight passengers, namely,
Senator Lopez and party and four members of the Rufino family, the
first page (Exh. 3) referring to 2 Lopezes, 2 Montelibanos and 1 Rufino
and the second page (Exh. 4) referring to 3 Rufinos. On April 18, 1960
“Your Travel Guide” agency cancelled the reservations of the Rufinos. A
telex message was thereupon sent on that date to PAN AM’s head office
at San Francisco by Mariano Herranz, PAN AM’s reservations employee at
its office in Escolta, Manila. (Annex A-Acker’s to Exh. 6) In said
message, however, Herranz mistakenly cancelled all the seats that had
been reserved, that is, including those of Senator Lopez and party.

The next day—April 19—Herranz discovered his mistake, upon
seeing the reservation card newly prepared by his co-employee Pedro
Asensi for Senator Lopez and party to the exclusion of the Rufinos
(Exh. 5). It was then that Herranz sent another telex wire to the San
Francisco head office, stating his error and asking for the
reinstatement of the four (4) first class seats reserved for Senator
Lopez and party (Annex A-Velasco’s to Exh. 6). San Francisco head
office replied on April 22, 1960 that Senator Lopez and party are
waitlisted and that said office is unable to reinstate them (Annex
B-Velasco’s to Exh. 6).

Since the flight involved was still more than a month away and
confident that reinstatement would be made, Herranz forgot the matter
and told no one about it except his co-employee, either Armando Davila
or Pedro Asensi or both of them (Tsn., 123-124, 127, Nov. 17, 1961).

Subsequently, on April 27, 1960, Armando Davila, PAN AM’s
reservations employee working in the same Escolta office as Herranz,
phoned PAN AM’s ticket sellers at its other office in the Manila Hotel,
and confirmed the reservations of Senator Lopez and party.

PAN AM’s reservations supervisor, Alberto Jose, discovered Herranz’s
mistake after “Your Travel Guide” phoned on May 18, 1960 to state that
Senator Lopez and party were going to depart as scheduled. Accordingly,
Jose sent a telex wire on that date to PAN AM’s head office at San
Francisco to report the error and asked said office to continue holding
the reservations of Senator Lopez and party (Annex B-Acker’s to Exh.
6). Said message was reiterated by Jose in his telex wire of May 19,
1960 (Annex C-Acker’s to Exh. 6). San Francisco head office replied on
May 19, 1960 that it regrets being unable to confirm Senator Lopez and
party for the reason that the flight was solidly booked (Exh. 7). Jose
sent a third telex wire on May 20, 1960 addressed to PAN AM’s offices
at San Francisco, New York (Idlewild Airport), Tokyo and Hongkong,
asking all-out assistance towards restoring the cancelled spaces and
for report of cancellations at their end (Annex D-Acker’s to Exh. 6).
San Francisco head office reiterated on May 20, 1960 that it could not
reinstate the spaces and referred Jose to the Tokyo and Hongkong
offices (Exh. 8). Also on May 20, the Tokyo office of PAN AM wired Jose
stating it will do everything possible (Exh. 9).

Expecting that some cancellations of bookings would be made before
the flight time, Jose decided to withhold from Senator Lopez and party,
or their agent, the information that their reservations had been
cancelled.

Armando Davila having previously confirmed Senator Lopez and party’s
first class reservations to PAN AM’s ticket sellers at its Manila Hotel
office, the latter sold and issued in their favor the corresponding
first class tickets on the 21st and 23rd of May, 1960.

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. In so misleading plaintiffs
into purchasing first class tickets in the conviction that they had
confirmed reservations for the same, when in fact they had none,
defendant wilfully and knowingly placed itself into the position of
having to breach its aforesaid contracts with plaintiffs should there
be no last-minute cancellation by other passengers before flight time,
as it turned out in this case. Such actuation of defendant may indeed
have been prompted by nothing more than the promotion of its
self-interest in holding on to Senator Lopez and party as passengers in
its flight and foreclosing on their chances to seek the services of
other airlines that may have been able to afford them first class
accommodations. 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 v. 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.”

As of May 18, 1960 defendant’s reservations supervisor Alberto Jose
knew that plaintiffs’ reservations had been cancelled. As of May 20 he
knew that the San Francisco head office stated with finality that it
could not reinstate plaintiffs’ cancelled reservations. And yet said
reservations supervisor made the “decision”—to use his own word—to
withhold the information from the plaintiffs. Said Alberto Jose in his
testimony:

“Q—Why did you not notify them?

“A—Well,
you see, sir, in my fifteen (15) years of service with the air lines
business my experience is that even if the flights are solidly booked
months in advance, usually the flight departs with plenty of empty
seats both on the first class and tourist class. This is due to late
cancellation of passengers, or because passengers do not show up in the
airport, and it was our hope others come in from another flight and,
therefore, are delayed and, therefore, missed their connections. This
experience of mine, coupled with that wire from Tokyo that they would
do everything possible prompted me to withhold the information, but
unfortunately, instead of the first class seat that I was hoping for
and which I anticipated only the tourists class was open on which
Senator and Mrs. Lopez, Mr. and Mrs. Montelibano were accommodated.
Well, I fully realize now the gravity of my decision in not advising
Senator and Mrs. Lopez, Mr. and Mrs. Montelibano nor their agents about
the erroneous cancellation and for which I would like them to know that
I am very sorry.

*     *     *     *    *     *     *

“Q—So it was not your duty to notify Sen. Lopez and parties that their reservations had been cancelled since May 18, 1960?

“A—As I said before it was my duty. It was my duty but as I said again
with respect to that duty I have the power to make a decision or use my
discretion and judgment whether I should go ahead and tell the
passenger about the cancellation.” (Tsn., pp. 17-19, 28-29, March 15,
1962)

At the time plaintiffs bought their tickets, defendant, therefore,
in breach of its known duty, made plaintiffs believe that their
reservations had not been cancelled. An additional indication
of this is the fact that upon the face of the two tickets of record,
namely, the ticket issued to Alfredo Montelibano, Jr. on May 21, 1960
(Exh. 22) and that issued to Mrs. Alfredo Montelibano, Jr., on May 23,
1960 (Exh. 23), the reservation status is stated as “OK”. Such wilfull
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. The record shows that said
employee—Mariano Herranz—was not subjected to investigation and
suspension by defendant but instead was given a reward in the form of
an increase of salary in June of the following year (Tsn., 86-88, Nov.
20, 1961).

At any rate, granting all the mistakes advanced by the defendant,
there would at least be negligence so gross and reckless as to amount
to malice or bad faith (Fores vs. Miranda,105 Phil. 266;
Necesito vs. Paras, 104 Phil. 75). Firstly, notwithstanding
the entries in the reservation cards (Exhs. 1 & 3) that the
reservations cancelled are those of the Rufinos only, Herranz made the
mistake, after reading said entries, of sending a wire cancelling all
the reservations, including those of Senator Lopez and party (Tsn., pp.
103-108, Nov. 17, 1961). Secondly, after sending a wire to San
Francisco head office on April 19, 1960 stating his error and asking
for reinstatement, Herranz simply forgot about the matter.
Notwithstanding the reply of San Francisco head office on April 22,
1960 that it cannot reinstate Senator Lopez and party (Annex
B-Velasco’s to Exh. 6), it was assumed and taken for granted that
reinstatement would be made. Thirdly, Armando Davila confirmed
plaintiffs’ reservations in a phone call on April 27, 1960 to
defendant’s ticket sellers, when at the time it appeared in plaintiffs’
reservation card (Exh. 5) that they were only waitlisted passengers.
Fourthly,defendant’s ticket sellers issued plaintiffs’ tickets on May
21 and 23, 1960, without first checking their reservations just before
issuing said tickets. And, finally, no one among defendant’s agents
notified Senator Lopez and party that their reservations had been
cancelled, a precaution that could have averted their entering with
defendant into contracts that the latter had already placed beyond its
power to perform.

Accordingly, there being a clear admission in defendant’s evidence
of facts amounting to bad faith on its part in regard to the breach of
its contracts with plaintiffs, it becomes unnecessary to further
discuss the evidence adduced by plaintiffs to establish defendant’s bad
faith. For what is admitted in the course of the trial does not need to
be proved (Sec. 2, Rules 129, Rules of Court).

Addressing ourselves now to the question of damages, it is well to
state at the outset these 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 attacked by 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
strength 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 being six 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 painful
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 changed 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 shame 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 agreed to 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 services 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 vs. Ng, 55 Off. Gaz. 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 afore-stated, 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.

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