G.R. No.

L-22415 March 30, 1966

FERNANDO LOPEZ, ET AL., plaintiffs-appellants,
vs.
PAN AMERICAN WORLD AIRWAYS, defendant-appellant.

Facts :

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 . Subsequently on March 30, 1960,
two other Rufinos secured reservations and were given a separate reservation card . A new reservation card consisting of
two pages was then made for the original of eight passengers, namely, Senator Lopez and party and four members of the
Rufino family, the first page referring to 2 Lopezes, 2 Montelibanos and 1 Rufino and the second page 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. 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 1960 Herranz discovered his mistake, upon seeing the reservation card newly prepared by his co-
employee Pedro Asensi for Sen. Lopez and party to the exclusion of the Rufinos 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 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

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 .
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" phone 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. Said message was reiterated by Jose in his telex wire of May 19, 1960 . 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 . 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 . 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 . Also on May 20, the Tokyo office of PAN-AM wired Jose
stating it will do everything possible
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.

Issue: WON Pan Am should be held liable for damages to Lopez et al.
Held:

Yes.
The actuation of Pan Am may 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. Self-enrichment or fraternal interest, and not personal ill-will, may well have been the motive; but it is malice
nevertheless.
There being a clear admission in defendants evidence of facts amounting to a 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
defendants bad faith.
Among others, Lopez et al can be awarded moral damages (where the defendant acted fraudulently or in bad faith) and
exemplary damages (where the defendant acted in a wanton, fraudulent, reckless, oppressive or malevolent manner).

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, L-12163, March 4, 1959; Necesito v. Paras, L-10605-06, June 30,
1958). Firstly, notwithstanding the entries in the reservation cards 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. 108-109, 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 it was assumed
and taken for granted that reinstatement would be made. Thirdly, Armando Davila confirmed plaintiff's reservations in a
phone call on April 27, 1960 to defendant's ticket sellers, when at the time it appeared in plaintiffs' reservation card 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 a 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, Rule 129,
Rules of Court).

Addressing ourselves now to the question of damages, it is well to state at the outset those 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).

DAMAGES

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 attackedby 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

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 agreedto 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 service rendered by him, shows that said amount provided for in the written agreement is reasonable.

Second Case

Spouses Quisumbing vs Meralco

G.R 142943 April 3, 2002

FACTS :

The plaintiff, spouses Antonio and Lorna Quisumbing are the owners of a house located at #94
Greenmeadows Avenue , Quezon City. Around 9am on March 3, 1995, defendant's inspectors headed by Emmanuel C.
Orlino were assigned to conduct a routine on the spot inspection of all single phase meters at the house and observed as
standard operating procedure to ask permissio and was granted by the plaintiff's secretary . After the inspection,it was found
that the meter had been tampered with. The result was relayed to the secretary who conveyed the information to the owners
of the house. The inspectors advised that the meter be brought in their laboratory for further verifications. In the event that
the meter was indeed tampered, defendant had to temporarily disconnect the electric services of the couple . After an hour,
inspectors returned and informed the findings of the laboratory and asked the couple that unless they pay the amount of
P178,875.01 representing the differential bill their electric supply will be disconnected . The Plaintiff filed complaint for
damages with a prayer for the issuance of a writ of preliminary injunction despite the immediate reconnection.

Ruling of the Trial Court

The trial court held that Meralco (herein respondent) should have given the Quisumbing spouses (herein petitioners) ample
opportunity to dispute the alleged meter tampering.
It held that respondent had acted summarily and without procedural due process in immediately disconnecting the electric
service of petitioners. Respondent's action, ruled the RTC, constituted a quasi delict.

Ruling of the Court of Appeals

The Court of Appeals overturned the trial court's ruling and dismissed the Complaint. It held that respondent's
representatives had acted in good faith when they disconnected petitioners' electric service. Citing testimonial and
documentary evidence, it ruled that the disconnection was made only after observing due process. Further, it noted that
petitioners had not been able to prove their claim for damages. The appellate court likewise upheld respondent's
counterclaim for the billing differential in the amount of P193,3325 representing the value of petitioners' used but
unregistered electrical consumption, which had been established without being controverted.
Hence, this Petition.6

Issue : WON Meralco is accountable for damages

Held : The Supreme Court partly granted the petition and ordered plaintiff to pay respondent the billing differential of
P193,332.96 while latter is ordered to pay petitioners moral and exemplary damages including attorneys fees. Moral
damages may be recovered when rights of individuals including right againts the deprivation of property without due
process of law are violated. Exemplary damages on the other hard are imposed by way of example or correction for public.
SC recognized the effort of Meralco in preventing illegal use of electricity . However, any action must be done in strict
observeance of the rights of the people. Under the law, the Manila Electric Company may immediately disconnect electric
service on the ground of alleged meter tampering ,but only if the discovery of the cause is personally witnessed and attested
to by an officer of the law or by a duly authorized representative of the Energy Regulatory Board During the inspection ,
no government official or ERB representative was present .

Neither may respondent rely on its alleged contractual right to disconnect electrical service based on Decisions of the Board
of Energy (now the Energy Regulatory Board). The relevant portion of these documents concerns discontinuance of service.
It provides:
"The Company reserves the right to discontinue service in case the Customer is in arrears in the payment of bills or for
failure to pay the adjusted bills in those cases where the meter stopped or failed to register the correct amount of energy
consumed, or for failure to comply with any of these terms and conditions, or in case of or to prevent fraud upon the
Company. Before disconnection is made in case of or to prevent fraud, the Company may adjust the bill of said Customer
accordingly and if the adjusted bill is not paid, the Company may disconnect the same. In case of disconnection, the
provisions of Revised Order No. 1 of the former Public Service Commission (now the Board of Energy) shall be observed.
Any such suspension of service shall not terminate the contract between the Company and the Customer."
Petitioners' situation can fall under disconnection only "in case of or to prevent fraud upon the Company." However, this too
has requisites before a disconnection may be made. An adjusted bill shall be prepared, and only upon failure to pay it may
the company discontinue service. This is also true in regard to the provisions of Revised Order No. 1 of the former Public
Service Commission, which requires a 48-hour written notice before a disconnection may be justified. In the instant case,
these requisites were obviously not complied with.

Having ruled that the immediate disconnection effected by Meralco lacks legal, factual or contractual basis, we will now
pass upon on the right of petitioners to recover damages for the improper disconnection.
Petitioners are asking for the reinstatement of the RTC Decision, which awarded them actual, moral and exemplary damages
as well as attorney's fees. All these were overturned by the CA.
As to actual damages, we agree with the CA that competent proof is necessary before our award may be made. The
appellate court ruled as follows:
"Considering further, it is a settled rule that in order for damages to be recovered, the best evidence obtainable by the
injured party must be presented. Actual and compensatory damages cannot be presumed but must be duly proved and
proved with reasonable degree and certainty. A court cannot rely on speculation, conjecture or guess work as to the fact and
amount of damages, but must depend upon competent proof that they have been suffered and on evidence of actual amount
thereof. If the proof is flimsy and unsubstantial, no damages will be awarded."
Actual damages are compensation for an injury that will put the injured party in the position where it was before it was
injured.They pertain to such injuries or losses that are actually sustained and susceptible of measurement.Except as provided
by law or by stipulation, a party is entitled to an adequate compensation only for such pecuniary loss as it has duly proven.
Basic is the rule that to recover actual damages, not only must the amount of loss be capable of proof; it must also be
actually proven with a reasonable degree of certainty, premised upon competent proof or the best evidence obtainable
Third Case

[G.R. No. 97785. March 29, 1996]

PHILIPPINE COMMERCIAL INTERNATIONAL BANK, petitioner, vs. COURT OF APPEALS and RORY W.
LIM, respondents

Facts:
On March 13, 1986, private respondent Rory Lim delivered to his cousin Lim Ong Tian PCIB Check No. JJJ 24212467 in
the amount of P200,000.00 for the purpose of obtaining a telegraphic transfer from petitioner PCIB in the same amount. The
money was to be transferred to Equitable Banking Corporation, Cagayan de Oro Branch, and credited to private respondents
account at the said bank. Upon purchase of the telegraphic transfer, petitioner issued the corresponding receipt dated March
13, 1986

Subsequent to the purchase of the telegraphic transfer, petitioner in turn issued and delivered eight (8) Equitable Bank
checks[2] to his suppliers in different amounts as payment for the merchandise that he obtained from them. When the
checks were presented for payment, five of them bounced for insufficiency of funds,[3] while the remaining three were held
overnight for lack of funds upon presentment.[4] Consequent to the dishonor of these checks, Equitable Bank charged and
collected the total amount of P1, 100.00 from private respondent. The dishonor of the checks came to private respondents
attention only on April 2, 1986, when Equitable Bank notified him of the penalty charges and after receiving letters from his
suppliers that his credit was being cut-off due to the dishonor of the checks he issued.

Upon verification by private respondent with the Gingoog Branch Office of petitioner PCIB, it was confirmed that his
telegraphic transfer (T/T No. 284) for the sum of P200,000.00 had not yet been remitted to Equitable Bank, Cagayan de Oro
branch. In fact, petitioner PCIB made the corresponding transfer of funds only on April 3, 1986, twenty one (21) days after
the purchase of the telegraphic transfer on March 13,1986.

Aggrieved, private respondent demanded from petitioner PCIB that he be compensated for the resulting damage that
he suffered due to petitioners failure to make the timely transfer of funds which led to the dishonor of his checks. In a letter
dated April 23, 1986, PCIBs Branch Manager Rodolfo Villarmia acknowledged their failure to transmit the telegraphic
transfer on time as a result of their mistake in using the control number twice and the petitioner banks failure to request
confirmation and act positively on the disposition of the said telegraphic transfer.[5]

Nevertheless, petitioner refused to heed private respondents demand prompting the latter to file a complaint for
damages with the Regional Trial Court of Gingoog City[6] on January 16, 1987. In his complaint, private respondent
alleged that as a result of petitioners total disregard and gross violation of its contractual obligation to remit and deliver the
sum of Two Hundred Thousand Pesos (P200,000.00) covered by T/T No. 284 to Equitable Banking Corporation, Cagayan
de Oro Branch, private respondents checks were dishonored for insufficient funds thereby causing his business and credit
standing to suffer considerably for which petitioner should be ordered to pay damages.[7]

Answering the complaint, petitioner denied any liability to private respondent and interposed as special and affirmative
defense the lack of privity between it and private respondent as it was not private respondent himself who purchased the
telegraphic transfer from petitioner. Additionally, petitioner pointed out that private respondent is nevertheless bound by the
stipulation in the telegraphic transfer application/form receipt[8] which provides:
x x x. In case of fund transfer, the undersigned hereby agrees that such transfer will be made without any responsibility on
the part of the BANK, or its correspondents, for any loss occasioned by errors or delays in the transmission of message by
telegraph or cable companies or by correspondents or agencies, necessarily employed by this BANK in the transfer of this
money, all risks for which are assumed by the undersigned.
According to petitioner, they utilized the services of RCPI-Gingoog City to transmit the message regarding private
respondents telegraphic transfer because their telex machine was out of order at that time. But as it turned out, it was only
on April 3, 1986 that petitioners Cagayan de Oro Branch had received information about the said telegraphic transfer

RTC : In its decision dated July 27, 1988[10] the Regional Trial Court of Gingoog City held petitioner liable for breach of
contract and struck down the aforecited provision found in petitioners telegraphic transfer application form/receipt
exempting it from any liability and declared the same to be invalid and unenforceable. As found by the trial court, the
provision amounted to a contract of adhesion wherein the objectionable portion was unilaterally inserted by petitioner in all
its application forms without giving any opportunity to the applicants to question the same and express their conformity
thereto.[11]Thus, the trial court adjudged petitioner liable to private respondent for the following amounts:
WHEREFORE, judgment is hereby rendered in favor of plaintiff and against the defendant, ordering the latter to pay the
former as follows:
P960,000.00 as moral damages;
P50,000.00 as exemplary damages;
P40,000.00 as attorneys fees; and
P1,100.00 as reimbursement for the surcharges paid by plaintiff to the Equitable Banking Corporation, plus costs, all with
legal interest of 6% per annum from the date of this judgment until the same shall have been paid in full

CA :

Upon appeal by petitioner to the Court of Appeals, respondent court affirmed with modifications the judgment of the trial
court and ordered as follows:
WHEREFORE, premises considered, judgment is hereby rendered affirming the appealed decision with modification, as
follows:
The defendant-appellant is ordered to pay to the plaintiff-appellee the following:

1. The sum of Four Hundred Thousand (P400,000.00) Pesos as/for moral damages;

2. The sum of Forty Thousand (P40,000.00) Pesos as exemplary damage to serve as an example for the public
good;

3. The sum of Thirty Thousand (P30,000.00) Pesos representing attorneys fees;

4. The sum of One Thousand One Hundred (P1,100.00) Pesos as actual damage, and

5. To pay the costs.

ISSUE : WON Petitioner acted with Bad Faith

Held : The factual backdrop of the instant case, however, militates against applying the aforestated pronouncements. That
petitioner failed to discharge its obligation to transmit private respondents telegraphic transfer on time in accordance with
their agreement is already a settled matter as the same is no longer disputed in this petition. Neither is the finding of
respondent Court of Appeals that petitioner acted fraudulently and in bad faith in the performance of its obligation, being
contested by petitioner. Perforce, we are bound by these factual considerations.
Having established that petitioner acted fraudulently and in bad faith, we find it implausible to absolve petitioner from
its wrongful acts on account of the assailed provision exempting it from any liability. In Geraldez vs. Court of Appeals,
[23] it was unequivocally declared that notwithstanding the enforceability of a contractual limitation, responsibility arising
from a fraudulent act cannot be exculpated because the same is contrary to public policy. Indeed, Article 21 of the Civil
Code is quite explicit in providing that [a]ny person who willfully causes loss or injury to another in a manner that is
contrary to morals, good customs or public policy shall compensate the latter for the damage. Freedom of contract is subject
to the limitation that the agreement must not be against public policy and any agreement or contract made in violation of
this rule is not binding and will not be enforced.[24]

The prohibition against this type of contractual stipulation is moreover treated by law as void which may not be
ratified or waived by a contracting party. Article 1409 of the Civil Code states:
ART. 1409. The following contracts are inexistent and void from the beginning:
(1) Those whose cause, object or purpose is contrary to law, morals, good customs, public order or public policy;

These contracts cannot be ratified. Neither can the right to set up the defense of illegality be waived.

Undoubtedly, the services being offered by a banking institution like petitioner are imbued with public interest. [25] The use
of telegraphic transfers have now become commonplace among businessmen because it facilitates commercial
transactions. Any attempt to completely exempt one of the contracting parties from any liability in case of loss
notwithstanding its bad faith, fault or negligence, as in the instant case, cannot be sanctioned for being inimical to public
interest and therefore contrary to public policy. Resultingly, there being no dispute that petitioner acted fraudulently and in
bad faith, the award of moral[26] and exemplary damages were proper.

But notwithstanding petitioners liability for the resulting loss and damage to private respondent, we find the amount of
moral damages adjudged by respondent court in the sum of P400,000.00 exorbitant. Bearing in mind that moral damages are
awarded, not to penalize the wrongdoer, but rather to compensate the claimant for the injuries that he may have suffered,we
believe that an award of Two Hundred Thousand Pesos (P200,000.00) is reasonable under the circumstances.