Lopez v. Pan American World Airways

Facts:

Reservation for first class accommodation in Pan American Airlines from Tokyo to San Francisco was made by Delfin Faustino for then Senator Fernando Lopez and company. First class tickets were issued and paid for. The party left Manila for Tokyo as scheduled. Senator Lopez requested Minister Busuego to contact the airlines regarding their accommodation. However, they were informed that there was no accommodation for them. Because of some urgent matters to attend to in San Francisco, they were constrained to take the tourist flight “under protest”.

Issues:

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

(2) Whether moral and exemplary damages should be awarded

Held:

(1) From the 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 a foresaid 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.

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.

(2) 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.

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. 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.