G.R. No. L-22415 March 30, 1966
FERNANDO LOPEZ, ET AL., plaintiffs-appellants, vs. PAN AMERICAN WORLD AIRWAYS, defendant-appellant.

FACTS

Plaintiffs, then Senator Fernando Lopez, his wife, son-in-law, and daughter, secured confirmed first-class reservations and fully paid for tickets on defendant Pan American World Airways’ (PAN-AM) Flight No. 2 from Tokyo to San Francisco on May 24, 1960. Upon arrival in Tokyo, PAN-AM’s Tokyo office informed them that no first-class seats were available and they could only board as tourist passengers. Due to pressing engagements in the United States, plaintiffs were constrained to take the flight as tourist passengers “under protest.” Plaintiffs filed a suit for damages alleging breach of contract in bad faith. PAN-AM admitted the breach but asserted it was due to an honest error by its employees. The trial court awarded moral damages, exemplary damages, attorney’s fees, and costs. Both parties appealed: plaintiffs sought an increase in the damages awarded, and PAN-AM contested the finding of bad faith.

ISSUE

The main issues were: (1) Whether PAN-AM acted in bad faith in breaching the contract of carriage; and (2) Whether the amounts of damages awarded were proper.

RULING

The Supreme Court found that PAN-AM acted in bad faith. The breach resulted from a negligent cancellation by an employee, but PAN-AM subsequently deliberately withheld this information from the plaintiffs, allowing them to believe their reservations were confirmed and even issuing them first-class tickets. This intentional concealment constituted fraud and bad faith. The Court increased the awards: moral damages to P200,000 (apportioned among the plaintiffs based on their standing), exemplary damages to P75,000, attorney’s fees to P50,000 (pursuant to a written contract found reasonable), and legal interest on the moral and exemplary damages from the date of the amended trial court decision. PAN-AM’s counterclaim was dismissed.