When Imposable: a.

) Criminal offenses exemplary damages as a part of the civil liability may be imposed when the crime was committed with one or more aggravating circumstances. Such damages are separate and distinct from fines and shall be paid to the offended party. (Art. 2230) It was held that where there was no treachery nor any other aggravating circumstance in the commission of the crime, the accused should not be made to pay for both moral and exemplary damages, but for moral damages only, aside, of course, from the actual damages involved. (Perez vs. Court of Appeals 13 SCRA 444) b.) Quasi-delicts exemplary damages may be granted if the defendant acted with gross negligence. (Art. 2231) Persons engaged in an illegal operation of a bus service, in competition with a legitimate operator were held liable for exemplary damages in addition to actual damages.

(Perez vs. Court of Appeals 13 SCRA 444)

c.) Contracts and quasi-contracts the court may award exemplary damages if the defendant acted in a wanton, fraudulent, reckless, oppressive, or malevolent manner. (Art. 2232) Where defendant airline company for reasons of self-interest cancelled plaintiffs first class ticket and compelled plaintiffs to travel in the tourist class to their embarrassment and humiliation because the persons welcoming them at the various airports expected to see them in the first and not in the tourist class, one of the plaintiffs being a very high government official, the defendant was ordered to pay the plaintiffs 75,000.00 as exemplary or corrective damages, the Supreme Court pointing out that the rationale behind exemplary or corrective damages was, as the name implies, to provide an example or correction for public good. (Lopez vs. Pan American World Airways, 16 SCRA 431) Exemplary damages in crimes, in quasi-delicts, in contracts and quasi-contracts:

Crime

Quasi-delicts

Contracts/QuQuasi-contracts

Committed with one or more aggravating circumstances (Art. 2230)

Defendant acted with gross negligence Defendant acDefendant acted in a WFROM manner (Art. 2232) (Art. 2231)

LOPEZ V PAN AM WORLD AIRWAYS 16 SCRA 431 March 30, 1966

FACTS - Sen Fernando Lopez, his wife, his son-in-law, and his daughter made reservations, through their agency, for first class accommodations in the Tokyo San Francisco flight of PAN-AM. PAN-AM's SF head office confirmed the reservations. First class tickets were subsequently issued, with the total fare having been fully paid before this. - As scheduled, they left Manila and as soon as they arrived in Tokyo, they contacted PAN-AM's Tokyo office regarding their accommodations. For the given reason that the first class seats were all booked up, PAN-AM's Tokyo office informed them that they could not go in that flight unless they took the tourist class. Due to pressing engagements in the US, they were constrained to take PAN-AM's flight as tourist passengers. - Sen Lopez filed suit for damages alleging breach of contracts in bad faith by defendant out of racial prejudice against Orientals. He asked for P500T actual and moral damages, P100T exemplary damages, P25T attorney's fees plus costs. - PAN-AM asserted that its failure to provide first class accommodations to plaintiffs was due to honest error of its employees. It interposed a counterclaim for atty's fees of P25T. - CFI Rizal decision: in favor of plaintiff and granted (a) P100T, moral damages; (b) P20T, exemplary damages; (c) P25T, atty's fees, and costs of the action. Plaintiffs filed MFR asking that moral damages be increased to P400T and for 6% interest per annum on amount to be granted. - CFI modified decision: (a) P150T, moral damages; (b) P25T, exemplary damages; with legal interest on both from date of filing of complaint until paid; (c) P25T, atty's fees; and costs of the action. - Both appealed: PAN-AM contended that there was NO bad faith; Lopez et al wanted a total of P650T as award for damages. ISSUES 1. WON there was bad faith on the part of PAN-AM 2. WON the amount of damages should be increased HELD 1. YES Reasoning - Defendant through its agents first cancelled plaintiffs, reservations by mistake and thereafter deliberately and intentionally withheld from plaintiffs or their travel agent such information. In so misleading plaintiffs into purchasing first class tickets in the conviction that they had confirmed reservations, when in fact they had none, defendant wilfully and knowingly placed itself into the position of having to breach its contracts with plaintiffs should there be no last-minute cancellation by other passengers before flight time, as it turned out in this case. Bad faith means a breach of a known duty through some motive of interest or ill-will . - 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. 2. YES Ratio Moral damages are recoverable in breach of contracts where the defendant acted fraudulently or in bad faith (Art. 2220). 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 (Art. 2229, 2232). 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, ROC). - Factors in determining Amount for Moral Damages: 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. The present rate of exchange and the terms at which the amount of damages awarded would approximately be in U.S. dollars has also been considered. (a) 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. 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. - Sen 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. He was also former Vice-President of the Philippines. (MD = P100T) - Mrs. Maria Lopez, as wife of the Senator, shared his prestige and therefore his humiliation. In addition she suffered physical discomfort during the 13-hour trip; her reason for going to the US was actually for medical check-up and relaxation. The fact that the seating spaces in the tourist class are quite narrower than in first class will suffice to show that she indeed experienced physical suffering during the trip. (MD = P50T) - Mr. and Mrs. Alfredo Montelibano, Jr., were travelling as immediate members of the family of Sen Lopez. Even if they initially wanted to change their seat reservations from first class to tourist class, they eventually paid for first class seats. Hence, they also suffered social humiliation. (MD = P25T each) (b) EXEMPLARY DAMAGES - In view of its nature, it should be imposed in such an amount as to effectively deter similar breach of contracts in the future by defendant or other airlines. (ED = P75T) (c) ATTORNEYS FEES

- Record shows a written contract of services wherein plaintiffs engaged the services of their counsel Atty. Francisco and agreed to pay the sum of P25T upon the termination of the case in the CFI, and another P25T if case is appealed to the SC. This is reasonable considering the subject matter of the present controversy, the professional standing of the attorney for plaintiffsappellants, and the extent of the service rendered by him. Disposition Judgment appealed from is hereby MODIFIED so as to award in favor of plaintiffs and against defendant, the following: (1) P200T as moral damages, divided among plaintiffs; (2) P75T as exemplary or corrective damages; (3) Interest at the legal rate of 6% per annum on the moral and exemplary damages, from date of amended CFI decision, until said damages are fully paid; (4) P50T as attorney's fees; and

(a)

(5) Costs of action. Counterclaim dismissed.