Lopez v.

Pan American World Airways (1966)

Bengzon, J.P, J.

FACTS:
Sen. Lopez and his party (wife Maria, daughter Milagros, and son-in-law Alfredo Montelibano) booked first class
tickets for Flight No. 2 from Narita to San Francisco via Pan-Am.
o They booked their tickets through Your Travel Guide agency, specifically by Delfin Faustino.
o Tickets were issued on May 21 and 23, 1960, flight on May 24)
o Total fare = P9,444.
Upon their arrival at Tokyo, Sen. Lopez asked Min. Busuego of the Philippine Embassy to contract Pan-Ams
Tokyo office regarding their first class accommodations.
o Office stated that first class was already full.
o Sen. Lopez, through Min. Busuego, presented their first class tickets to the 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.
Lopez and his companions were thus constrained to take the flight on tourist class as they had important
engagements to attend to in the US.
o Sen. Lopez had a business conference in San Francisco and medical check-up at the Mayo Clinic.
o They flew coach under protest, as indicated in a letter by Sen. Lopez to the airline.
Petitioner filed an action for damages against Pan-Am. He prayed for P500,000 actual and moral damages,
P100,000 exemplary damages, P25,000 attorneys fees and costs.
Pan-Ams defense: it was an honest mistake on the part of its employees.
Trial court decided in favor of plaintiffs; awarded P100,000 moral damages, P20,000 exemplary damages and
P25,000 attorneys fees.
MR: increased award of moral damages to P150k, versus petitioners request that it be increased to P400k.
Pan-Am admits that it breached its contract with petitioners. However, it takes issue with the finding of the court a
quo that it did so in bad faith so as to warrant the award of moral damages.
On the other hand, petitioners ask the Court to increase the award of damages to a total of P650,000.

ISSUES + RULING:

Did respondent Pan-Am act in bad faith? YES.
Petitioners allege that defendant refused to comply with its contract out of racial prejudice against Orientals.
o Proof:
Benito Balbuena bought a first class ticket from Tokyo-Hong Kong. At the airport, he and
another oriental, Mr. Tung, were told that one of them had to stay behind. Since Tung was going
all the way to London, Balbuena had to be bumped off.
Cenon Cervantes he and his wife had first class tickets BKK-HKG. They had to fly coach
because their seats were given to passengers from London.
Respondent however claims that it made an honest mistake:
o Lopez and his party made a joint reservation with Rufino.
o Later, two other Rufinos made reservations so a new reservation card was issued.
o Your Travel Guide agency called Pan-Am to cancel the booking of the Rufinos, but Pan-Ams employee
Herranz mistakenly cancelled the Lopezes reservations as well.
o Upon discovery of the mistake, Herranz telexed the San Francisco office asking the latter to reinstate
Sen. Lopezs reservations. However, the flight was already full so petitioners had to be placed on the
waitlist.
o 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.
o As the date of the flight was fast approaching, Your Travel Guide agency called Pan-Am asking for the
confirmation of the Lopezes booking. Mr. Jose, Pan-Ams reservations supervisor, discovered the
mistake on May 18, 1960.
o He then proceeded to telex the SFO main office asking the latter to confirm the petitioners bookings.
o On May 20, Pan-Ams head office in SFO said with finality that it could not reinstate petitioners.
o 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.
From the foregoing evidence of defendant, it is in effect admitted that it, through its agents, cancelled plaintiffs
reservations by mistake and thereafter deliberately and intentionally withheld from plaintiffs or their travel
agency the fact of said cancellation.
o Defendant Pan-Am willfully 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.
o All the time, in legal contemplation such conduct already amounts to action in bad faith.
o For bad faith means a breach of a known duty through some motive of interest or ill-will.
As early as May 20, Jose of Pan-Am already knew for sure that petitioners would not be accommodated in first
class.
o In his testimony, he stated that the reason why he did not tell the Lopezes of the cancellation was
because in his experience, there are people who do not show up to their flights due to delayed connecting
flights.
o He admitted that it is in fact his duty to inform petitioners of the cancellation.
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.
o The tickets issued to them even had the words Reservation: OK on them.
o Such willful-non-disclosure of the cancellation or pretense that the reservations for plaintiffs stoodand not
simply the erroneous cancellation itselfis the factor to which is attributable the breach of the resulting
contracts.
To make matters worse, the erring employee, Herranz, was even given a salary increase. He was not subjected
to any investigation or suspension by Pan-Am.

Award of damages:
Principles:
o First, moral damages are recoverable in breach of contracts where the defendant acted fraudulently or in
bad faith.
o 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.
o Third, a written contract for an attorneys services shall control the amount to be paid therefor unless
found by the court to be unconscionable or unreasonable.

As to moral damages: As a proximate result of defendants breach in bad faith of its contracts with plaintiffs, the
latter suffered social humiliation, wounded feelings, serious anxiety and mental anguish.
o While there is nothing wrong with being tourist class passengers, it is humiliating to be compelled to travel
as such, contrary to what is rightfully to be expected from the contractual undertaking.
o Sen. Lopez P100,000.
Senate President Pro Tempore, former Vice-President of the Philippines.
Going to attend private business conference of a sugar company.
Was to attend a banquet in his honor hosted by Filipino friends.
o Mrs. Maria J. Lopez P50,000.
Shared his prestige and therefore his humiliation.
Was previously sick with the flu and lost 10 lbs.
When they left MNL, she was sick.
Suffered physical discomfort during the 13-hour flight.
Differences between first and tourist class.
o Mr. and Mrs. Alfredo Montelibano, Jr. P25,000 each.
Members of immediate family, likewise shared his prestige and humiliation.
They paid for first class.
It is one thing to take tourist class by choice, but a far different thing to be compelled to take it.
As to exemplary damages: 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.
o P75,000.
As to attorneys fees: there was a written contract of services which shall prevail.
o P50,000.

DISPOSITION: Judgment modified.