[G.R. No. 152134.

  June 4, 2004]

ENDREO MAGBANUA, VALLACAR TRANSIT, INC., and its

Present Corporate Official RICARDO YANSON,  petitioners,
vs.JOSE TABUSARES, JR., EVA T. LAFIGUERA, NONA C.
TABUSARES, JUN C. TABUSARES, FE C. TABUSARES and JAX C.
TABUSARES, respondents.

D E C I S I O N

PUNO, J.:

The case at bar arose from the complaint for damages filed by
spouses Jose Tabusares, Sr. and Rebecca Tabusares against
petitioners, Endreo A. Magbanua, Vallacar Transit, Inc., and/or its
corporate officials for the tragic death of their son, Jury Tabusares,
in a vehicular mishap involving a Ceres Liner Bus owned and
operated by petitioners.  The case was docketed as Civil Case No.
4654 before the Regional Trial Court of Negros Occidental, Branch
48, Bacolod City.

The facts, as found by the trial court, are as follows:

At about 4:30 o’clock in the afternoon of October 25, 1986, a Ceres

Liner Bus No. 154 with Plate No. GVG 469, driven by Endreo
Magbanua and owned and operated by Vallacar Transit, Inc., and an
Amante Type Jeepney bearing Plate No. FBN 996, driven by Felipe
Palacios and owned by Salvador Algara, Sr. figured in a vehicular
accident along the national road at Hda. Mabuhay, Gil Montilla,
Sipalay, Negros Occidental.  The Ceres Liner Bus bumped the rear
portion of the Amante Type Jeepney while both vehicles were
running downhill on the same direction towards the town of Sipalay
from the North.  Due to the impact, several passengers of the
Amante Type Jeepney were thrown out and ran over by the Ceres
Liner Bus and died as a result of the injuries they sustained. (O)ne
of those killed was Jury Tabusares, 27 years of age, single, an
employee of  the Maricalum Copper Mines as Oiler 2B and was then
receiving P 1,256.00 monthly salary plus P 510.00 cost of living
allowance (COLA) or a total monthly income of P 1,766.00.  Jury
Tabusares was the son of the plantiffs Jose Tabusares, Sr. and
Rebecca Tabusares.  Immediately before the bumping accident, the
Ceres Liner Bus’s driver, Endreo Magbanua, was trying to overtake
the Amante Type Jeepney ahead of him and he said that he did not
apply his brakes because he cannot overtake if he will slow down. 
 The Amante Type Jeepney was overloaded with 35 passengers and
some of them clinging on its sides and some were riding on the
roof.  While the Ceres Liner (B)us was about one and a half (1½)
meters from the Amante Type Jeepney, the bus driver saw that the
jeepney went zigzagging on the middle of the road and since he
could not control the bus anymore it bumped the rear portion of the
jeep.

After a careful perusal of the circumstances of the case, the (c)ourt

finds that the Amante Type Jeepney, as testified to by its own
driver, Felipe Palacios, was not a passenger jeepney but a private
vehicle which is used by its owner Salvador Algara, Sr., who is an
ambulant peddler in his peddling business.  But, although not for
passengers, it was carrying 35 passengers at the time of the
bumping accident on October 25, 1986 as testified to by Traffic
Investigator Pfc. Praxedes Campillanos of the Sipalay Police
Command, Sipalay, Negros Occidental.  This jeep had a seating
capacity of only 16 passengers but it was made to accommodate
passengers on its roof and some were clinging on its side.  This act
is not only gross negligence but it was violative of the traffic rules
and regulations.  On the other hand, the (c)ourt also finds that  the
driver of the Ceres  Liner Bus was driving his vehicle negligently and
recklessly because Endreo Magbanua testified and admitted that
while driving the bus downhill and following the Amante type
Jeepney ahead of him, he did not apply his brakes because he was
trying to overtake when he bumped the jeep on its rear portion. 
This act was negligent and reckless because Endreo Magbanua
could have avoided the bumping of the jeepney had he applied his
brakes considering that he has the last clear chance to prevent a
collision by slowing down and reducing speed.[1]

The trial court found that the negligent acts of the drivers of both
the jeepney and the Ceres Liner Bus combined in directly causing
the death of Jury Tabusares.  It therefore held both drivers
solidarily liable for damages.  The court ruled:

WHEREFORE, in view of the foregoing considerations, judgment is

hereby rendered ordering and condemning the defendants Endreo A.
Magbanua, Vallacar Transit, Inc., thru and represented by its
corporate official Ricardo Yanson, Felipe T. Palacios and Salvador
Algara, Sr. to pay jointly and severally to the plantiffs, as follows:

1.            The sum of P 50,000.00 as indemnity for the death of Jury
Tabusares;
2.            The amount of P 699,336.00 as indemnity for the loss of
the earning capacity of the late Jury Tabusares;

3.            The amount of P 27,600.00 as reimbursement for actual

expenses in connection with the death and burial of the said
deceased;

4.            The amount of P 10,000.00 as moral damages;  and

5.            The sum of P 10,000.00 as reasonable attorney’s fees.

The cross-claim of defendant Salvador Algara, Sr. against the

defendants Endreo A. Magbanua and Vallacar Transit, Inc.,
represented by its corporate official Ricardo Yanson, is hereby
allowed and defendants Endreo A. Magbanua and Vallacar Transit,
Inc., represented by it (sic) corporate official Ricardo Yanson are
hereby ordered to indemnify Salvador Algara, Sr. in such amount as
he may be required to pay as damages to the herein plaintiffs.

The counterclaims of the defendants against the plaintiffs are

hereby dismissed for lack or merit.

SO ORDERED.[2]

Petitioners appealed to the Court of Appeals.  They prayed that the

decision of the trial court be reversed insofar as their liabilities are
concerned.[3]

During the pendency of the appeal, Jose Tabusares, Sr. and his wife,
Rebecca, passed away. On May 18, 1999, the Court of Appeals
approved the substitution of the late spouses by their heirs,
namely:  Jose Tabusares, Jr., Eva T. Lafiguera, Nona C. Tabusares,
Jun C. Tabusares, Fe C. Tabusares and Jax C. Tabusares.[4]

On March 13, 2001, the Court of Appeals rendered its decision.   It

affirmed the factual findings of the trial court, but modified the
award of damages, reducing the amount of lost earning
to P 374,392.00.  It made the following computation:

In the case at bar, the victim Jury Tabusares was twenty- seven
(27) years old at the time of death.  With 65 years as the given life
expectancy in the Philippines, the victim was expected to live for
another thirty-eight (38) years.  In respect of income, the victim
was receiving the amount of P 1,766.00 as total monthly income or a
gross yearly income of P 21,192.00.  Multiplied by 38, the number of
years the victim is expected to continue living, the amount arrived
at is P 748,784.00 using the formula 2/3 x [80-27] x 21,192.00. 
From the said figure must be deducted the reasonable amount
of P 374,392.00 or 50% thereof representing the living and other
necessary expenses of the deceased had he continued to live. 
Hence, the lost earnings of the deceased should be P 374,392.00.[5]

Petitioners filed a partial motion for reconsideration of the decision

of the Court of Appeals, praying for a reduction of the amount of
damages for loss of earning capacity.  The Court of Appeals denied
the motion.[6] Hence, this petition.

Petitioners, while accepting the factual findings of the trial court and
the appellate court, now assail the latter’s computation of the award
of damages for loss of earning capacity. They contend that there are
varying computations used in the decisions of this Court.   In People
vs. Lopez,[7] the Court applied the following formula:

2/3 x (80-27) x  P 21,192.00 – 50%

However, the following formula was employed in People vs. Muyco,

et al.:[8]

2/3 x (80 – 27) x P 21,192.00 – 80%

The difference lies in the computation of the net income of the

victim.  In the Lopez case, net income was derived by deducting
50% of the gross annual income, while in the Muyco case, the
amount deducted was 80% of the gross annual income.   The Court
of Appeals followed the computation in People vs. Lopez as it was
“the prevailing case law at the time of the decision appealed from
was promulgated and unmistakably more favorable to the heirs of
the deceased xxx.”[9] Petitioners argue that the instant case was
decided by the Court of Appeals one year and six months after the
promulgation of People vs. Muyco,therefore, the Court should
apply the computation in the latter case.[10]

On the other hand, the respondents, in their comment, cite other

cases decided after the Muyco case where the Court applied the
formula in the Lopez case.  They submit that the computation
in People vs. Lopez[11] should be applied in this case.

The petition is devoid of merit.

Article 2205 of the New Civil Code allows the recovery of damages
for “loss or impairment of earning capacity in cases of temporary or
permanent personal injury.”  Such damages covers the loss
sustained by the dependents or heirs of the deceased, consisting of
the support they would have received from him had he not died
because of the negligent act of another.  The loss is not equivalent
to the entire earnings of the deceased, but only that portion that he
would have used to support his dependents or heirs.  Hence, we
deduct from his gross earnings the necessary expenses supposed to
be used by the deceased for his own needs.   The Court explained
in Villa Rey Transit, Inc. vs. Court of Appeals [12] that:

(the award of damages for loss of earning capacity is)  concerned

with the determination of the losses or damages sustained by the
private respondents, as dependents and intestate heirs of the
deceased, and that said damages consist, not of the full amount of
his earnings, but of the support they received or would have
received from him had he not died in consequence of the negligence
of petitioner’s agent.  In fixing the amount of that support, we must
reckon with the ‘necessary expenses of his own living’, which should
be deducted from his earnings.  Thus, it has been consistently held
that earning capacity, as an element of damages to one’s estate for
his death by wrongful act is necessarily his net earning capacity or
his capacity to acquire money, ‘less the necessary expense for his
own living.’  Stated otherwise, the amount recoverable is not loss of
theentire earning, but rather the loss of that portion of the earnings
which the beneficiary would have received.  In other words, only net
earnings, not gross earning are to be considered that is, the total of
the earnings less expenses necessary in the creation of such
earnings or income and less living and other incidental expenses.

Aside from the loss sustained by the heirs of the deceased, another
factor considered in determining the award of loss of earning
capacity is the life expectancy of the deceased which takes into
account his work, lifestyle, age and state of health prior to the
accident.[13]

Thus, the formula for the computation of unearned income is:

Net                            life                                gross

living

Earning         =          expectancy      x          annual            

less     expenses
Capacity                                                       income

Life expectancy is determined in accordance with the formula:

2/3     x          [80 – age of deceased]

The bone of contention in this case is the amount of living expenses

that should be deducted from the deceased’s gross annual income –
whether 50% or 80%.

A survey of more recent jurisprudence shows that the Court

consistently pegged the amount at 50% of the gross annual income.
[14] We held in Smith Bell Dodwell Shipping Agency Corp. vs.
Borja[15] that when there is no showing that the living expenses
constituted a smaller percentage of the gross income, we fix the
living expenses at half of the gross income, thus:

In other words, only net earnings, not gross earnings, are to be

considered; that is, the total of the earnings less expenses
necessary in the creation of such earnings or income, less living and
other incidental expenses.  When there is no showing that the
living expenses constituted a smaller percentage of the gross
income, we fix the living expenses at half of the gross
income.  To hold that one would have used only a small part
of the income, with the larger part going to the support of
one’s children, would be conjectural and
unreasonable. (emphasis supplied)

There is no evidence in the case at bar whether the living expenses

of the victim, Jury Tabusares, constituted a bigger or smaller
percentage of his gross income.  In such case, it is fair to assume
that it is 50% of his gross annual income.  Hence, we find that the
Court of Appeals did not err in its computation of the award of loss
of unearned income to petitioner.

IN VIEW WHEREOF, the petition is DENIED.  The assailed decision

of the Court of Appeals is AFFIRMED.

SO ORDERED.
G.R. No. L-12163             March 4, 1959

PAZ FORES, petitioner, 
vs.
IRENEO MIRANDA, respondent.

Alberto O. Villaraza for petitioner.

Almazan and Ereneta for respondent.

REYES, J.B.L., J.:

Defendant-petitioner Paz Fores brings this petition for review of the decision of the Court of Appeals
(C.A. Case No. 1437-R) awarding to the plaintiff-respondent Ireneo Miranda the sums of P5,000 by
way of actual damages and counsel fees, and P10,000 as moral damages, with costs.

Respondent was one of the passengers on a jeepney driven by Eugenio Luga. While the vehicle
was descending the Sta. Mesa bridge at an excessive rate of speed, the driver lost control thereof,
causing it to swerve and to his the bridge wall. The accident occurred on the morning of March 22,
1953. Five of the passengers were injured, including the respondent who suffered a fracture of the
upper right humerus. He was taken to the National Orthopedic Hospital for treatment, and later was
subjected to a series of operations; the first on May 23, 1953, when wire loops were wound around
the broken bones and screwed into place; a second, effected to insert a metal splint, and a third one
to remove such splint. At the time of the trial, it appears that respondent had not yet recovered the
use of his right arm.

The driver was charged with serious physical injuries through reckless imprudence, and upon
interposing a plea of guilty was sentenced accordingly.

The contention that the evidence did not sufficiently establish the identity of the vehicle as the
belonging to the petitioner was rejected by the appellate court which found, among other things, that
is carried plate No. TPU-1163, SERIES OF 1952, Quezon City, registered in the name of Paz Fores,
(appellant herein) and that the vehicle even had the name of "Doña Paz" painted below its wind
shield. No evidence to the contrary was introduced by the petitioner, who relied on an attack upon
the credibility of the two policemen who went to the scene of the incident.

A point to be further remarked is petitioner's contention that on March 21, 1953, or one day before
the accident happened, she allegedly sold the passenger jeep that was involved therein to a certain
Carmen Sackerman.

The initial problem raised by the petitioner in this appeal may be formulated thus — "Is the approval
of the Public Service Commission necessary for the sale of a public service vehicle even without
conveying therewith the authority to operate the same?" Assuming the dubious sale to be a fact, the
court of Appeals answered the query in the affirmative. The ruling should be upheld.

Section 20 of the Public Service Act (Commonwealth Act No. 146) provides:
 Sec. 20. Subject to established limitations and exceptions and saving provisions to the
contrary, it shall be unlawful for any public service or for the owner, lessee or operator
thereof, without the previous approval and authority of the Commission previously had —

xxx     xxx     xxx

(g) To sell, alienate, mortgage, encumber or lease its property, franchises, certificates,
privileges, or rights, or any part thereof; or merge or consolidate its property, franchises,
privileges or rights, or any part thereof, with those of any other public service. The approval
herein required shall be given, after notice to the public and after hearing the persons
interested at a public hearing, if it be shown that there are just and reasonable grounds for
making the mortgage or encumbrance, for liabilities of more than one year maturity, or the
sale, alienation, lease, merger, or consolidation to be approved and that the same are not
detrimental to the public interest, and in case of a sale, the date on which the same is to be
consummated shall be fixed in the order of approval: Provided, however, That nothing herein
contained shall be construed to prevent the transaction from being negotiated or completed
before its approval or to prevent the sale, alienation, or lease by any public service of any of
its property in the ordinary course of its business.

Interpreting the effects of this particular provision of law, we have held in the recent cases
of Montoya vs. Ignacio, *50 Off. Gaz. No. 1, p. 108; Timbol vs. Osias, et al., G. R. No. L-7547, April
30, 1955, and Medina vs. Cresencia, 99 Phil., 506; 52 Off. Gaz. No. 10, p. 4606, that a transfer
contemplated by the law, if made without the requisite approval of the Public Service Commission, is
not effective and binding in so far as the responsibility of the grantee under the franchise in relation
to the public is concerned. Petitioner assails, however, the applicability of these rulings to the instant
case, contending that in those cases, the operator did not convey, by lease or by sale, the vehicle
independently of his rights under the franchise. This line of reasoning does not find support in the
law. The provisions of the statute are clear and prohibit the sale, alienation, lease, or encumbrance
of the property, franchise, certificate, privileges or rights, or any part thereof of the owner or operator
of the public service Commission. The law was designed primarily for the protection of the public
interest; and until the approval of the public Service Commission is obtained the vehicle is, in
contemplation of law, still under the service of the owner or operator standing in the records of the
Commission which the public has a right to rely upon.

The proviso contained in the aforequoted law, to the effect that nothing therein shall be construed "to
prevent the transaction from being negotiated or complete before its approval", means only that the
sale without the required approval is still valid and binding between the parties (Montoya vs.
Ignacio, supra). The phrase "in the ordinary course of its business" found in the other proviso" or to
prevent the sale, alienation, or lease by any public service of any of its property". As correctly
observed by the lower court, could not have been intended to include the sale of the vehicle itself,
but at most may refer only to such property that may be conceivably disposed or by the carrier in the
ordinary course of its business, like junked equipment or spare parts.

The case of Indalecio de Torres vs. Vicente Ona (63 Phil., 594, 597) is enlightening; and there, it
was held:

Under the law, the Public Service Commission has not only general supervision and
regulation of, but also full jurisdiction and control over all public utilities including the
property, equipment and facilities used, and the property rights and franchise enjoyed by
every individual and company engaged i the performance of a public service in the sense
this phrase is used in the Public Service Act or Act No. 3108). By virtue of the provisions of
said Act, motor vehicles used in the performance of a service, as the transportation of
 freight from one point to another, have to this date been considered — and they cannot but
be so considered-public service property; and, by reason of its own nature, a TH truck, which
means that the operator thereof places it at the disposal of anybody who is willing to pay a
rental of its use, when he desires to transfer or carry his effects, merchandise or any other
cargo from one place to another, is necessarily a public service property. (Emphasis
supplied)

Of course, this court has held in the case of Bachrach Motor co. vs. Zamboanga Transportation Co.,
52 Phil., 244, that there may be a nunc pro tunc authorization which has the effect of having the
approval retroact to the date of the transfer; but such outcome cannot prejudice rights intervening in
the meantime. It appears that no such approval was given by the Commission before the accident
occurred.

The P10,000 actual damages awarded by the Court of First Instance of Manila were reduced by the
Court of Appeals to only P2,000, on the ground that a review of the records failed to disclose a
sufficient basis for the trial court's appraisal, since the only evidence presented on this point
consisted of respondent's bare statement that his expenses and loss of income amounted to
P20,000. On the other hand, "it cannot be denied," the lower court said, "that appellee (respondent)
did incur expenses"' It is well to note further that respondent was a painter by profession and a
professor of Fine Arts, so that the amount of P2,000 awarded cannot be said to be excessive (see
Arts. 2224 and 2225, Civil Code of the Philippines). The attorney's fees in the sum of P3,000 also
awarded to the respondent are assailed on the ground that the Court of First Instance did not
provided for the same, and since no appeal was interposed by said respondent, it was allegedly
error for the Court of Appeals to award them motu proprio. Petitioner fails to note that attorney's fees
are included in the concept of actual damages under the Civil Code and may be awarded whenever
the court deems it is just and equitable (Art. 2208, Civil Code of the Philippines). We see no reason
to alter these awards.

Anent the moral damages ordered to be paid to the respondent, the same must be discarded. We
have repeatedly ruled (Cachero vs. Manila Yellow Taxicab Co. Inc., 101 Phil., 523; 54 Off. Gaz.,
[26], 6599; Necesito, et al vs. Paras, 104 Phil., 75; 56 Off. Gaz., [23] 4023, that moral damages are
not recoverable in damage actions predicted on a breach of the contract of transportation, in view of
Articles 2219 and 2220 of the new Civil Code, which provide as follows:

Art. 2219. Moral damages may be recovered in the following and analogous cases:

(1) A criminal offense resulting in physical injuries;

(2) Quasi-delicts causing physical injuries;

xxx     xxx     xxx

Art. 2220. Willful injury to property may be a legal ground for awarding moral damages if the
court should find that, under circumstances, such damages are justify due. The same rule
applies to breaches of contract where the defendant acted fraudulently or in bad faith.

By contrasting the provisions of these two article it immediately becomes apparent that:

(a) In case of breach of contract (including one of transportation) proof of bad faith or fraud (dolus),
i.e., wanton or deliberately injurious conduct, is essential to justify an award of moral damages; and
(b) That a breach of contract can not be considered included in the descriptive term "analogous
cases" used in Art. 2219; not only because Art. 2220 specifically provides for the damages that are
caused by contractual breach, but because the definition of quasi-delict in Art. 2176 of the Code
expressly excludes the cases where there is a "preexisting contractual relation between the parties."

Art. 2176. Whoever by act or omission causes damage to another, there being fault or
negligence, is obliged to pay for the damage dome. Such fault or negligence, if there is no
pre-existing contractual relation between the parties, is called a quasi-delict and is governed
by the provisions of this Chapter.

The exception to the basic rule of damages now under consideration is a mishap resulting in the
death of a passenger, in which case Article 1764 makes the common carrier expressly subject to the
rule of Art. 2206, that entitles the deceased passenger to "demand moral damages for mental
anguish by reason of the death of the deceased" (Necesito vs. Paras, 104 Phil., 84, Resolution on
motion to reconsider, September 11, 1958). But the exceptional rule of Art. 1764 makes it all the
more evident that where the injured passenger does not die, moral damages are not recoverable
unless it is proved that the carrier was guilty of malice or bad faith. We think it is clear that the mere
carelessness of the carrier's driver does not per se constitute of justify an inference of malice or bad
faith on the part of the carrier; and in the case at bar there is no other evidence of such malice to
support the award of moral damages by the Court of Appeals. To award moral damages for breach
of contract, therefore, without proof of bad faith or malice on the part of the defendant, as required by
Art. 220, would be to violate the clear provisions of the law, and constitute unwarranted judicial
legislation.

The Court of Appeals has invoked our rulings in Castro vs. Acro Taxicab Co., G.R. No. 49155,
December 14, 1948 and Layda vs. Court of Appeals, 90 Phil., 724; but these doctrines were
predicated upon our former law of damages, before judicial discretion in fixing them became limited
by the express provisions of the new Civil Code (previously quoted). Hence, the aforesaid rulings are
now inapplicable.

Upon the other hand, the advantageous position of a party suing a carrier for breach of the contract
of transportations explains, to some extent, the limitations imposed by the new Code on the amount
of the recovery. The action for breach of contract imposes on the defendant carrier a presumption of
liability upon mere proof of injury to the passenger; that latter is relieved from the duty to established
the fault of the carrier, or of his employees, and the burden is placed on the carrier to prove that it
was due to an unforseen event or to force majeure (Cangco vs. Manila Railroad Co., 38 Phil., 768,
777). Moreover, the carrier, unlike in suits for quasi-delict, may not escape liability by proving that it
has exercised due diligence in the selection and supervision of its employees (Art. 1759, new civil
code; Cangco vs. Manila Railroad Co., supra; Prado vs. Manila Electric Co., 51 Phil., 900).

The difference in conditions, defenses and proof, as well as the codal concept of quasi-delict as
essentially extracontractual negligence, compel us to differentiate between action ex contractu, and
actions quasi ex delicto, and prevent us from viewing the action for breach of contract as
simultaneously embodying an action on tort. Neither can this action be taken as one to enforce on
employee's liability under Art. 103 of the Revised Penal Code, since the responsibility is not alleged
to be subsidiary, nor is there on record any averment or proof that the driver of appellant was
insolvent. In fact, he is not even made a party to the suit.

It is also suggested that a carrier's violation of its engagement to safety transport the passenger
involves a breach of the passenger's confidence, and therefore should be regarded as a breach of
contract in bad faith, justifying recovery of moral damages under Art. 2220. This theory is untenable,
for under it the carrier would always be deemed in bad faith, in every case its obligation to the
passenger is infringed, and it would be never accountable for simple negligence; while under the law
(Art. 1756). the presumption is that common carriers acted negligently (and not maliciously), and Art.
1762 speaks of negligence of the common carrier.

ART. 1756. In case of death of or injuries to passengers, common carriers are presumed to
have been at fault or to have acted negligently, unless they prove that they observed
extraordinary diligence as prescribed in article 1733 and 1755.

ART. 1762. The contributory negligence of the passenger does not bar recovery of damages
for his death or injuries, if the proximate cause thereof is the negligence of the common
carrier, but the amount of damages shall be equitably reduced.

The distinction between fraud, bad faith or malice in the sense of deliberate or wanton wrong doing
and negligence (as mere carelessness) is too fundamental in our law to be ignored (Arts. 1170-
1172); their consequences being clearly differentiated by the Code.

ART. 2201. In contracts and quasi-contracts, the damages for which the obligor who acted in
good faith is liable shall be those that are the natural and probable consequences of the
breach of the obligation, and which the parties have foreseen or could have reasonably
foreseen at the time the obligation was constituted.

In case of fraud, bad faith, malice or wanton attitude, the obligor shall be responsible for all
damages which may be reasonably attributed to the non-performance of the obligation.

It is to be presumed, in the absence of statutory provision to the contrary, that this difference was in
the mind of the lawmakers when in Art. 2220 they limited recovery of moral damages to breaches of
contract in bad faith. It is true that negligence may be occasionally so gross as to amount to malice;
but that fact must be shown in evidence, and a carrier's bad faith is not to be lightly inferred from a
mere finding that the contract was breached through negligence of the carrier's employees.

In view of the foregoing considerations, the decision of the Court of Appeals is modified by
eliminating the award of P5,000.00 by way of moral damages. (Court of Appeals Resolution of May
5, 1957). In all other respects, the judgment is affirmed. No costs in this instance. So ordered.
G.R. No. 118664 August 7, 1998

JAPAN AIRLINES, petitioner, 
vs.
THE COURT OF APPEALS, ENRIQUE AGANA., MARIA ANGELA NINA AGANA, ADALIA B.
FRANCISCO and JOSE MIRANDA, respondents.

ROMERO, J.:

Before us is an appeal by certiorari filed by petitioner Japan Airlines, Inc. (JAL) seeking the reversal
of the decision of the Court of Appeals,   which affirmed with modification the award of damages
1

made by the trial court in favor of herein private respondents Enrique Agana, Maria Angela Nina
Agana, Adelia Francisco and Jose Miranda.

On June 13, 1991, private respondent Jose Miranda boarded JAL flight No. JL 001 in San Francisco,
California bound for Manila. Likewise, on the same day private respondents Enrique Agana, Maria
Angela Nina Agana and Adelia Francisco left Los Angeles, California for Manila via JAL flight No. JL
061. As an incentive for travelling on the said airline, both flights were to make an overnight stopover
at Narita, Japan, at the airlines' expense, thereafter proceeding to Manila the following day.

Upon arrival at Narita, Japan on June 14, 1991, private respondents were billeted at Hotel Nikko
Narita for the night. The next day, private respondents, on the final leg of their journey, went to the
airport to take their flight to Manila. However, due to the Mt. Pinatubo eruption, unrelenting ashfall
blanketed Ninoy Aquino International Airport (NAIA), rendering it inaccessible to airline traffic.
Hence, private respondents' trip to Manila was cancelled indefinitely.

To accommodate the needs of its stranded passengers, JAL rebooked all the Manila-bound
passengers on flight No. 741 due to depart on June 16, 1991 and also paid for the hotel expenses
for their unexpected overnight stay. On June 16, 1991, much to the dismay of the private
respondents, their long anticipated flight to Manila was again cancelled due to NAIA's indefinite
closure. At this point, JAL informed the private respondents that it would no longer defray their hotel
and accommodation expense during their stay in Narita.

Since NAIA was only reopened to airline traffic on June 22, 1991, private respondents were forced to
pay for their accommodations and meal expenses from their personal funds from June 16 to June
21, 1991. Their unexpected stay in Narita ended on June 22, 1991 when they arrived in Manila on
board JL flight No. 741.

Obviously, still reeling from the experience, private respondents, on July 25, 1991, commenced an
action for damages against JAL before the Regional Trial Court of Quezon City, Branch 104.   To 2

support their claim, private respondents asserted that JAL failed to live up to its duty to provide care
and comfort to its stranded passengers when it refused to pay for their hotel and accommodation
expenses from June 16 to 21, 1991 at Narita, Japan. In other words, they insisted that JAL was
obligated to shoulder their expenses as long as they were still stranded in Narita. On the other hand,
JAL denied this allegation and averred that airline passengers have no vested right to these
amenities in case a flight is cancelled due to "force majeure."

On June 18, 1992, the trial court rendered its judgment in favor of private respondents holding JAL
liable for damages, viz.:

WHEREFORE, judgment is rendered in favor of plaintiffs ordering the defendant

Japan Airlines to pay the plaintiffs Enrique Agana, Adalia B. Francisco and Maria
Angela Nina Agana the sum of One million Two Hundred forty-six Thousand Nine
Hundred Thirty-Six Pesos (P1,246,936.00) and Jose Miranda the sum of Three
Hundred Twenty Thousand Six Hundred sixteen and 31/100 (P320,616.31) as
actual, moral and exemplary damages and pay attorney's fees in the amount of Two
Hundred Thousand Pesos (P200,000.00), and to pay the costs of suit.

Undaunted, JAL appealed the decision before the Court of Appeals, which, however, with the
exception of lowering the damages awarded affirmed the trial court's finding,   thus:
3

Thus, the award of moral damages should be as it is hereby reduced to P200,000.00

for each of the plaintiffs, the exemplary damages to P300,000.00 and the attorney's
fees to P100,000.00 plus the costs.

WHEREFORE, with the foregoing Modification, the judgment appealed from is

hereby AFFIRMED in all other respects.

JAL filed a motion for reconsideration which proved futile and

unavailing. 4

Failing in its bid to reconsider the decision, JAL has now filed this instant petition.

The issue to be resolved is whether JAL, as a common carrier has the obligation to shoulder the
hotel and meal expenses of its stranded passengers until they have reached their final destination,
even if the delay were caused by "force majeure."

To begin with, there is no dispute that the Mt. Pinatubo eruption prevented JAL from proceeding to
Manila on schedule. Likewise, private respondents concede that such event can be considered as
"force majeure" since their delayed arrival in Manila was not imputable to JAL.  5

However, private respondents contend that while JAL cannot be held responsible for the delayed
arrival in Manila, it was nevertheless liable for their living expenses during their unexpected stay in
Narita since airlines have the obligation to ensure the comfort and convenience of its passengers.
While we sympathize with the private respondents' plight, we are unable to accept this contention.

We are not unmindful of the fact that in a plethora of cases we have consistently ruled that a contract
to transport passengers is quite different in kind, and degree from any other contractual relation. It is
safe to conclude that it is a relationship imbued with public interest. Failure on the part of the
common carrier to live up to the exacting standards of care and diligence renders it liable for any
damages that may be sustained by its passengers. However, this is not to say that common carriers
are absolutely responsible for all injuries or damages even if the same were caused by a fortuitous
event. To rule otherwise would render the defense of "force majeure," as an exception from any
liability, illusory and ineffective.

Accordingly, there is no question that when a party is unable to fulfill his obligation because of "force
majeure," the general rule is that he cannot be held liable for damages for non-
performance.  Corollarily, when JAL was prevented from resuming its flight to Manila due to the
6

effects of Mt. Pinatubo eruption, whatever losses or damages in the form of hotel and meal
expenses the stranded passengers incurred, cannot be charged to JAL. Yet it is undeniable that JAL
assumed the hotel expenses of respondents for their unexpected overnight stay on June 15, 1991.

Admittedly, to be stranded for almost a week in a foreign land was an exasperating experience for
the private respondents. To be sure, they underwent distress and anxiety during their unanticipated
stay in Narita, but their predicament was not due to the fault or negligence of JAL but the closure of
NAIA to international flights. Indeed, to hold JAL, in the absence of bad faith or negligence, liable for
the amenities of its stranded passengers by reason of a fortuitous event is too much of a burden to
assume.

Furthermore, it has been held that airline passengers must take such risks incident to the mode of
travel.   In this regard, adverse weather conditions or extreme climatic changes are some of the
7

perils involved in air travel, the consequences of which the passenger must assume or expect. After
all, common carriers are not the insurer of all risks.  8

Paradoxically, the Court of Appeals, despite the presence of "force majeure," still ruled against JAL
relying in our decision in PAL v. Court of Appeals,   thus:
9

The position taken by PAL in this case clearly illustrates its failure to grasp the
exacting standard required by law. Undisputably, PAL's diversion of its flight due to
inclement weather was a fortuitous event. Nonetheless, such occurrence did not
terminate PAL's contract with its passengers. Being in the business of air carriage
and the sole one to operate in the country, PAL is deemed equipped to deal with
situations as in the case at bar. What we said in one case once again must be
stressed, i.e., the relation of carrier and passenger continues until the latter has been
landed at the port of destination and has left the carrier's premises. Hence, PAL
necessarily would still have to exercise extraordinary diligence in safeguarding the
comfort, convenience and safety of its stranded passengers until they have reached
their final destination. On this score, PAL grossly failed considering the then ongoing
battle between government forces and Muslim rebels in Cotabato City and the fact
that the private respondent was a stranger to the place.

The reliance is misplaced. The factual background of the PAL case is different from the instant
petition. In that case there was indeed a fortuitous event resulting in the diversion of the PAL flight.
However, the unforeseen diversion was worsened when "private respondents (passenger) was left
at the airport and could not even hitch a ride in a Ford Fiera loaded with PAL personnel,"   not to
10

mention the apparent apathy of the PAL station manager as to the predicament of the stranded
passengers.   In light of these circumstances, we held that if the fortuitous event was accompanied
11

by neglect and malfeasance by the carrier's employees, an action for damages against the carrier is
permissible. Unfortunately, for private respondents, none of these conditions are present in the
instant petition.

We are not prepared, however, to completely absolve petitioner JAL from any liability. It must be
noted that private respondents bought tickets from the United States with Manila as their final
destination. While JAL was no longer required to defray private respondents' living expenses during
their stay in Narita on account of the fortuitous event, JAL had the duty to make the necessary
arrangements to transport private respondents on the first available connecting flight to Manila.
Petitioner JAL reneged on its obligation to look after the comfort and convenience of its passengers
when it declassified private respondents from "transit passengers" to "new passengers" as a result of
which private respondents were obliged to make the necessary arrangements themselves for the
next flight to Manila. Private respondents were placed on the waiting list from June 20 to June 24. To
assure themselves of a seat on an available flight, they were compelled to stay in the airport the
whole day of June 22, 1991 and it was only at 8:00 p.m. of the aforesaid date that they were advised
that they could be accommodated in said flight which flew at about 9:00 a.m. the next day.

We are not oblivious to the fact that the cancellation of JAL flights to Manila from June 15 to June
21, 1991 caused considerable disruption in passenger booking and reservation. In fact, it would be
unreasonable to expect, considering NAIA's closure, that JAL flight operations would be normal on
the days affected. Nevertheless, this does not excuse JAL from its obligation to make the necessary
arrangements to transport private respondents on its first available flight to Manila. After all, it had a
contract to transport private respondents from the United States to Manila as their final destination.

Consequently, the award of nominal damages is in order. Nominal damages are adjudicated in order
that a right of a plaintiff, which has been violated or invaded by the defendant, may be vindicated or
recognized and not for the purpose of indemnifying any loss suffered by him.   The court may award
12

nominal damages in every obligation arising from any source enumerated in article 1157, or in every
case where any property right has been invaded.  13

WHEREFORE, in view of the foregoing, the decision of the Court of Appeals dated December 22,
1993 is hereby MODIFIED. The award of actual, moral and exemplary damages is hereby
DELETED. Petitioner JAL is ordered to pay each of the private respondents nominal damages in the
sum of P100,000.00 each including attorney' s fees of P50,000.00 plus costs.

SO ORDERED.
G.R. No. 118664 August 7, 1998

JAPAN AIRLINES, petitioner, 
vs.
THE COURT OF APPEALS, ENRIQUE AGANA., MARIA ANGELA NINA AGANA, ADALIA B.
FRANCISCO and JOSE MIRANDA, respondents.

ROMERO, J.:

Before us is an appeal by certiorari filed by petitioner Japan Airlines, Inc. (JAL) seeking the reversal
of the decision of the Court of Appeals,   which affirmed with modification the award of damages
1

made by the trial court in favor of herein private respondents Enrique Agana, Maria Angela Nina
Agana, Adelia Francisco and Jose Miranda.

On June 13, 1991, private respondent Jose Miranda boarded JAL flight No. JL 001 in San Francisco,
California bound for Manila. Likewise, on the same day private respondents Enrique Agana, Maria
Angela Nina Agana and Adelia Francisco left Los Angeles, California for Manila via JAL flight No. JL
061. As an incentive for travelling on the said airline, both flights were to make an overnight stopover
at Narita, Japan, at the airlines' expense, thereafter proceeding to Manila the following day.

Upon arrival at Narita, Japan on June 14, 1991, private respondents were billeted at Hotel Nikko
Narita for the night. The next day, private respondents, on the final leg of their journey, went to the
airport to take their flight to Manila. However, due to the Mt. Pinatubo eruption, unrelenting ashfall
blanketed Ninoy Aquino International Airport (NAIA), rendering it inaccessible to airline traffic.
Hence, private respondents' trip to Manila was cancelled indefinitely.

To accommodate the needs of its stranded passengers, JAL rebooked all the Manila-bound
passengers on flight No. 741 due to depart on June 16, 1991 and also paid for the hotel expenses
for their unexpected overnight stay. On June 16, 1991, much to the dismay of the private
respondents, their long anticipated flight to Manila was again cancelled due to NAIA's indefinite
closure. At this point, JAL informed the private respondents that it would no longer defray their hotel
and accommodation expense during their stay in Narita.

Since NAIA was only reopened to airline traffic on June 22, 1991, private respondents were forced to
pay for their accommodations and meal expenses from their personal funds from June 16 to June
21, 1991. Their unexpected stay in Narita ended on June 22, 1991 when they arrived in Manila on
board JL flight No. 741.

Obviously, still reeling from the experience, private respondents, on July 25, 1991, commenced an
action for damages against JAL before the Regional Trial Court of Quezon City, Branch 104.   To 2

support their claim, private respondents asserted that JAL failed to live up to its duty to provide care
and comfort to its stranded passengers when it refused to pay for their hotel and accommodation
expenses from June 16 to 21, 1991 at Narita, Japan. In other words, they insisted that JAL was
obligated to shoulder their expenses as long as they were still stranded in Narita. On the other hand,
JAL denied this allegation and averred that airline passengers have no vested right to these
amenities in case a flight is cancelled due to "force majeure."

On June 18, 1992, the trial court rendered its judgment in favor of private respondents holding JAL
liable for damages, viz.:

WHEREFORE, judgment is rendered in favor of plaintiffs ordering the defendant

Japan Airlines to pay the plaintiffs Enrique Agana, Adalia B. Francisco and Maria
Angela Nina Agana the sum of One million Two Hundred forty-six Thousand Nine
Hundred Thirty-Six Pesos (P1,246,936.00) and Jose Miranda the sum of Three
Hundred Twenty Thousand Six Hundred sixteen and 31/100 (P320,616.31) as
actual, moral and exemplary damages and pay attorney's fees in the amount of Two
Hundred Thousand Pesos (P200,000.00), and to pay the costs of suit.

Undaunted, JAL appealed the decision before the Court of Appeals, which, however, with the
exception of lowering the damages awarded affirmed the trial court's finding,   thus:
3

Thus, the award of moral damages should be as it is hereby reduced to P200,000.00

for each of the plaintiffs, the exemplary damages to P300,000.00 and the attorney's
fees to P100,000.00 plus the costs.

WHEREFORE, with the foregoing Modification, the judgment appealed from is

hereby AFFIRMED in all other respects.

JAL filed a motion for reconsideration which proved futile and

unavailing. 4

Failing in its bid to reconsider the decision, JAL has now filed this instant petition.

The issue to be resolved is whether JAL, as a common carrier has the obligation to shoulder the
hotel and meal expenses of its stranded passengers until they have reached their final destination,
even if the delay were caused by "force majeure."

To begin with, there is no dispute that the Mt. Pinatubo eruption prevented JAL from proceeding to
Manila on schedule. Likewise, private respondents concede that such event can be considered as
"force majeure" since their delayed arrival in Manila was not imputable to JAL.  5

However, private respondents contend that while JAL cannot be held responsible for the delayed
arrival in Manila, it was nevertheless liable for their living expenses during their unexpected stay in
Narita since airlines have the obligation to ensure the comfort and convenience of its passengers.
While we sympathize with the private respondents' plight, we are unable to accept this contention.

We are not unmindful of the fact that in a plethora of cases we have consistently ruled that a contract
to transport passengers is quite different in kind, and degree from any other contractual relation. It is
safe to conclude that it is a relationship imbued with public interest. Failure on the part of the
common carrier to live up to the exacting standards of care and diligence renders it liable for any
damages that may be sustained by its passengers. However, this is not to say that common carriers
are absolutely responsible for all injuries or damages even if the same were caused by a fortuitous
event. To rule otherwise would render the defense of "force majeure," as an exception from any
liability, illusory and ineffective.

Accordingly, there is no question that when a party is unable to fulfill his obligation because of "force
majeure," the general rule is that he cannot be held liable for damages for non-
performance.  Corollarily, when JAL was prevented from resuming its flight to Manila due to the
6

effects of Mt. Pinatubo eruption, whatever losses or damages in the form of hotel and meal
expenses the stranded passengers incurred, cannot be charged to JAL. Yet it is undeniable that JAL
assumed the hotel expenses of respondents for their unexpected overnight stay on June 15, 1991.

Admittedly, to be stranded for almost a week in a foreign land was an exasperating experience for
the private respondents. To be sure, they underwent distress and anxiety during their unanticipated
stay in Narita, but their predicament was not due to the fault or negligence of JAL but the closure of
NAIA to international flights. Indeed, to hold JAL, in the absence of bad faith or negligence, liable for
the amenities of its stranded passengers by reason of a fortuitous event is too much of a burden to
assume.

Furthermore, it has been held that airline passengers must take such risks incident to the mode of
travel.   In this regard, adverse weather conditions or extreme climatic changes are some of the
7

perils involved in air travel, the consequences of which the passenger must assume or expect. After
all, common carriers are not the insurer of all risks.  8

Paradoxically, the Court of Appeals, despite the presence of "force majeure," still ruled against JAL
relying in our decision in PAL v. Court of Appeals,   thus:
9

The position taken by PAL in this case clearly illustrates its failure to grasp the
exacting standard required by law. Undisputably, PAL's diversion of its flight due to
inclement weather was a fortuitous event. Nonetheless, such occurrence did not
terminate PAL's contract with its passengers. Being in the business of air carriage
and the sole one to operate in the country, PAL is deemed equipped to deal with
situations as in the case at bar. What we said in one case once again must be
stressed, i.e., the relation of carrier and passenger continues until the latter has been
landed at the port of destination and has left the carrier's premises. Hence, PAL
necessarily would still have to exercise extraordinary diligence in safeguarding the
comfort, convenience and safety of its stranded passengers until they have reached
their final destination. On this score, PAL grossly failed considering the then ongoing
battle between government forces and Muslim rebels in Cotabato City and the fact
that the private respondent was a stranger to the place.

The reliance is misplaced. The factual background of the PAL case is different from the instant
petition. In that case there was indeed a fortuitous event resulting in the diversion of the PAL flight.
However, the unforeseen diversion was worsened when "private respondents (passenger) was left
at the airport and could not even hitch a ride in a Ford Fiera loaded with PAL personnel,"   not to
10

mention the apparent apathy of the PAL station manager as to the predicament of the stranded
passengers.   In light of these circumstances, we held that if the fortuitous event was accompanied
11

by neglect and malfeasance by the carrier's employees, an action for damages against the carrier is
permissible. Unfortunately, for private respondents, none of these conditions are present in the
instant petition.

We are not prepared, however, to completely absolve petitioner JAL from any liability. It must be
noted that private respondents bought tickets from the United States with Manila as their final
destination. While JAL was no longer required to defray private respondents' living expenses during
their stay in Narita on account of the fortuitous event, JAL had the duty to make the necessary
arrangements to transport private respondents on the first available connecting flight to Manila.
Petitioner JAL reneged on its obligation to look after the comfort and convenience of its passengers
when it declassified private respondents from "transit passengers" to "new passengers" as a result of
which private respondents were obliged to make the necessary arrangements themselves for the
next flight to Manila. Private respondents were placed on the waiting list from June 20 to June 24. To
assure themselves of a seat on an available flight, they were compelled to stay in the airport the
whole day of June 22, 1991 and it was only at 8:00 p.m. of the aforesaid date that they were advised
that they could be accommodated in said flight which flew at about 9:00 a.m. the next day.

We are not oblivious to the fact that the cancellation of JAL flights to Manila from June 15 to June
21, 1991 caused considerable disruption in passenger booking and reservation. In fact, it would be
unreasonable to expect, considering NAIA's closure, that JAL flight operations would be normal on
the days affected. Nevertheless, this does not excuse JAL from its obligation to make the necessary
arrangements to transport private respondents on its first available flight to Manila. After all, it had a
contract to transport private respondents from the United States to Manila as their final destination.

Consequently, the award of nominal damages is in order. Nominal damages are adjudicated in order
that a right of a plaintiff, which has been violated or invaded by the defendant, may be vindicated or
recognized and not for the purpose of indemnifying any loss suffered by him.   The court may award
12

nominal damages in every obligation arising from any source enumerated in article 1157, or in every
case where any property right has been invaded.  13

WHEREFORE, in view of the foregoing, the decision of the Court of Appeals dated December 22,
1993 is hereby MODIFIED. The award of actual, moral and exemplary damages is hereby
DELETED. Petitioner JAL is ordered to pay each of the private respondents nominal damages in the
sum of P100,000.00 each including attorney' s fees of P50,000.00 plus costs.

SO ORDERED.
G.R. No. L-11154            March 21, 1916

E. MERRITT, plaintiff-appellant, 
vs.
GOVERNMENT OF THE PHILIPPINE ISLANDS, defendant-appellant.

Crossfield and O'Brien for plaintiff.

Attorney-General Avanceña for defendant..

TRENT, J.:

This is an appeal by both parties from a judgment of the Court of First Instance of the city of Manila
in favor of the plaintiff for the sum of P14,741, together with the costs of the cause.

Counsel for the plaintiff insist that the trial court erred (1) "in limiting the general damages which the
plaintiff suffered to P5,000, instead of P25,000 as claimed in the complaint," and (2) "in limiting the
time when plaintiff was entirely disabled to two months and twenty-one days and fixing the damage
accordingly in the sum of P2,666, instead of P6,000 as claimed by plaintiff in his complaint."

The Attorney-General on behalf of the defendant urges that the trial court erred: (a) in finding that
the collision between the plaintiff's motorcycle and the ambulance of the General Hospital was due
to the negligence of the chauffeur; (b) in holding that the Government of the Philippine Islands is
liable for the damages sustained by the plaintiff as a result of the collision, even if it be true that the
collision was due to the negligence of the chauffeur; and (c) in rendering judgment against the
defendant for the sum of P14,741.

The trial court's findings of fact, which are fully supported by the record, are as follows:

It is a fact not disputed by counsel for the defendant that when the plaintiff, riding on a
motorcycle, was going toward the western part of Calle Padre Faura, passing along the west
side thereof at a speed of ten to twelve miles an hour, upon crossing Taft Avenue and when
he was ten feet from the southwestern intersection of said streets, the General Hospital
ambulance, upon reaching said avenue, instead of turning toward the south, after passing
the center thereof, so that it would be on the left side of said avenue, as is prescribed by the
ordinance and the Motor Vehicle Act, turned suddenly and unexpectedly and long before
reaching the center of the street, into the right side of Taft Avenue, without having sounded
any whistle or horn, by which movement it struck the plaintiff, who was already six feet from
the southwestern point or from the post place there.

By reason of the resulting collision, the plaintiff was so severely injured that, according to Dr.
Saleeby, who examined him on the very same day that he was taken to the General
Hospital, he was suffering from a depression in the left parietal region, a would in the same
place and in the back part of his head, while blood issued from his nose and he was entirely
unconscious.
 The marks revealed that he had one or more fractures of the skull and that the grey matter
and brain was had suffered material injury. At ten o'clock of the night in question, which was
the time set for performing the operation, his pulse was so weak and so irregular that, in his
opinion, there was little hope that he would live. His right leg was broken in such a way that
the fracture extended to the outer skin in such manner that it might be regarded as double
and the would be exposed to infection, for which reason it was of the most serious nature.

At another examination six days before the day of the trial, Dr. Saleeby noticed that the
plaintiff's leg showed a contraction of an inch and a half and a curvature that made his leg
very weak and painful at the point of the fracture. Examination of his head revealed a notable
readjustment of the functions of the brain and nerves. The patient apparently was slightly
deaf, had a light weakness in his eyes and in his mental condition. This latter weakness was
always noticed when the plaintiff had to do any difficult mental labor, especially when he
attempted to use his money for mathematical calculations.

According to the various merchants who testified as witnesses, the plaintiff's mental and
physical condition prior to the accident was excellent, and that after having received the
injuries that have been discussed, his physical condition had undergone a noticeable
depreciation, for he had lost the agility, energy, and ability that he had constantly displayed
before the accident as one of the best constructors of wooden buildings and he could not
now earn even a half of the income that he had secured for his work because he had lost 50
per cent of his efficiency. As a contractor, he could no longer, as he had before done, climb
up ladders and scaffoldings to reach the highest parts of the building.

As a consequence of the loss the plaintiff suffered in the efficiency of his work as a
contractor, he had to dissolved the partnership he had formed with the engineer. Wilson,
because he was incapacitated from making mathematical calculations on account of the
condition of his leg and of his mental faculties, and he had to give up a contract he had for
the construction of the Uy Chaco building."

We may say at the outset that we are in full accord with the trial court to the effect that the collision
between the plaintiff's motorcycle and the ambulance of the General Hospital was due solely to the
negligence of the chauffeur.

The two items which constitute a part of the P14,741 and which are drawn in question by the plaintiff
are (a) P5,000, the award awarded for permanent injuries, and (b) the P2,666, the amount allowed
for the loss of wages during the time the plaintiff was incapacitated from pursuing his occupation. We
find nothing in the record which would justify us in increasing the amount of the first. As to the
second, the record shows, and the trial court so found, that the plaintiff's services as a contractor
were worth P1,000 per month. The court, however, limited the time to two months and twenty-one
days, which the plaintiff was actually confined in the hospital. In this we think there was error,
because it was clearly established that the plaintiff was wholly incapacitated for a period of six
months. The mere fact that he remained in the hospital only two months and twenty-one days while
the remainder of the six months was spent in his home, would not prevent recovery for the whole
time. We, therefore, find that the amount of damages sustained by the plaintiff, without any fault on
his part, is P18,075.

As the negligence which caused the collision is a tort committed by an agent or employee of the
Government, the inquiry at once arises whether the Government is legally-liable for the damages
resulting therefrom.

Act No. 2457, effective February 3, 1915, reads:

 An Act authorizing E. Merritt to bring suit against the Government of the Philippine Islands
and authorizing the Attorney-General of said Islands to appear in said suit.

Whereas a claim has been filed against the Government of the Philippine Islands by Mr. E.
Merritt, of Manila, for damages resulting from a collision between his motorcycle and the
ambulance of the General Hospital on March twenty-fifth, nineteen hundred and thirteen;

Whereas it is not known who is responsible for the accident nor is it possible to determine
the amount of damages, if any, to which the claimant is entitled; and

Whereas the Director of Public Works and the Attorney-General recommended that an Act
be passed by the Legislature authorizing Mr. E. Merritt to bring suit in the courts against the
Government, in order that said questions may be decided: Now, therefore,

By authority of the United States, be it enacted by the Philippine Legislature, that:

SECTION 1. E. Merritt is hereby authorized to bring suit in the Court of First Instance of the
city of Manila against the Government of the Philippine Islands in order to fix the
responsibility for the collision between his motorcycle and the ambulance of the General
Hospital, and to determine the amount of the damages, if any, to which Mr. E. Merritt is
entitled on account of said collision, and the Attorney-General of the Philippine Islands is
hereby authorized and directed to appear at the trial on the behalf of the Government of said
Islands, to defendant said Government at the same.

SEC. 2. This Act shall take effect on its passage.

Enacted, February 3, 1915.

Did the defendant, in enacting the above quoted Act, simply waive its immunity from suit or did it
also concede its liability to the plaintiff? If only the former, then it cannot be held that the Act created
any new cause of action in favor of the plaintiff or extended the defendant's liability to any case not
previously recognized.

All admit that the Insular Government (the defendant) cannot be sued by an individual without its
consent. It is also admitted that the instant case is one against the Government. As the consent of
the Government to be sued by the plaintiff was entirely voluntary on its part, it is our duty to look
carefully into the terms of the consent, and render judgment accordingly.

The plaintiff was authorized to bring this action against the Government "in order to fix the
responsibility for the collision between his motorcycle and the ambulance of the General Hospital
and to determine the amount of the damages, if any, to which Mr. E. Merritt is entitled on account of
said collision, . . . ." These were the two questions submitted to the court for determination. The Act
was passed "in order that said questions may be decided." We have "decided" that the accident was
due solely to the negligence of the chauffeur, who was at the time an employee of the defendant,
and we have also fixed the amount of damages sustained by the plaintiff as a result of the collision.
Does the Act authorize us to hold that the Government is legally liable for that amount? If not, we
must look elsewhere for such authority, if it exists.

The Government of the Philippine Islands having been "modeled after the Federal and State
Governments in the United States," we may look to the decisions of the high courts of that country
for aid in determining the purpose and scope of Act No. 2457.
In the United States the rule that the state is not liable for the torts committed by its officers or agents
whom it employs, except when expressly made so by legislative enactment, is well settled. "The
Government," says Justice Story, "does not undertake to guarantee to any person the fidelity of the
officers or agents whom it employs, since that would involve it in all its operations in endless
embarrassments, difficulties and losses, which would be subversive of the public interest." (Claussen
vs. City of Luverne, 103 Minn., 491, citing U. S. vs. Kirkpatrick, 9 Wheat, 720; 6 L. Ed., 199; and
Beers vs. States, 20 How., 527; 15 L. Ed., 991.)

In the case of Melvin vs. State (121 Cal., 16), the plaintiff sought to recover damages from the state
for personal injuries received on account of the negligence of the state officers at the state fair, a
state institution created by the legislature for the purpose of improving agricultural and kindred
industries; to disseminate information calculated to educate and benefit the industrial classes; and to
advance by such means the material interests of the state, being objects similar to those sought by
the public school system. In passing upon the question of the state's liability for the negligent acts of
its officers or agents, the court said:

No claim arises against any government is favor of an individual, by reason of the

misfeasance, laches, or unauthorized exercise of powers by its officers or agents. (Citing
Gibbons vs. U. S., 8 Wall., 269; Clodfelter vs. State, 86 N. C., 51, 53; 41 Am. Rep., 440;
Chapman vs. State, 104 Cal., 690; 43 Am. St. Rep., 158; Green vs. State, 73 Cal., 29; Bourn
vs. Hart, 93 Cal., 321; 27 Am. St. Rep., 203; Story on Agency, sec. 319.)

As to the scope of legislative enactments permitting individuals to sue the state where the cause of
action arises out of either fort or contract, the rule is stated in 36 Cyc., 915, thus:

By consenting to be sued a state simply waives its immunity from suit. It does not thereby
concede its liability to plaintiff, or create any cause of action in his favor, or extend its liability
to any cause not previously recognized. It merely gives a remedy to enforce a preexisting
liability and submits itself to the jurisdiction of the court, subject to its right to interpose any
lawful defense.

In Apfelbacher vs. State (152 N. W., 144, advanced sheets), decided April 16, 1915, the Act of 1913,
which authorized the bringing of this suit, read:

SECTION 1. Authority is hereby given to George Apfelbacher, of the town of Summit,

Waukesha County, Wisconsin, to bring suit in such court or courts and in such form or forms
as he may be advised for the purpose of settling and determining all controversies which he
may now have with the State of Wisconsin, or its duly authorized officers and agents, relative
to the mill property of said George Apfelbacher, the fish hatchery of the State of Wisconsin
on the Bark River, and the mill property of Evan Humphrey at the lower end of Nagawicka
Lake, and relative to the use of the waters of said Bark River and Nagawicka Lake, all in the
county of Waukesha, Wisconsin.

In determining the scope of this act, the court said:

Plaintiff claims that by the enactment of this law the legislature admitted liability on the part of
the state for the acts of its officers, and that the suit now stands just as it would stand
between private parties. It is difficult to see how the act does, or was intended to do, more
than remove the state's immunity from suit. It simply gives authority to commence suit for the
purpose of settling plaintiff's controversies with the estate. Nowhere in the act is there a
whisper or suggestion that the court or courts in the disposition of the suit shall depart from
well established principles of law, or that the amount of damages is the only question to be
 settled. The act opened the door of the court to the plaintiff. It did not pass upon the question
of liability, but left the suit just where it would be in the absence of the state's immunity from
suit. If the Legislature had intended to change the rule that obtained in this state so long and
to declare liability on the part of the state, it would not have left so important a matter to mere
inference, but would have done so in express terms. (Murdock Grate Co. vs.
Commonwealth, 152 Mass., 28; 24 N.E., 854; 8 L. R. A., 399.)

In Denning vs. State (123 Cal., 316), the provisions of the Act of 1893, relied upon and considered,
are as follows:

All persons who have, or shall hereafter have, claims on contract or for negligence against
the state not allowed by the state board of examiners, are hereby authorized, on the terms
and conditions herein contained, to bring suit thereon against the state in any of the courts of
this state of competent jurisdiction, and prosecute the same to final judgment. The rules of
practice in civil cases shall apply to such suits, except as herein otherwise provided.

And the court said:

This statute has been considered by this court in at least two cases, arising under different
facts, and in both it was held that said statute did not create any liability or cause of action
against the state where none existed before, but merely gave an additional remedy to
enforce such liability as would have existed if the statute had not been enacted. (Chapman
vs. State, 104 Cal., 690; 43 Am. St. Rep., 158; Melvin vs. State, 121 Cal., 16.)

A statute of Massachusetts enacted in 1887 gave to the superior court "jurisdiction of all claims
against the commonwealth, whether at law or in equity," with an exception not necessary to be here
mentioned. In construing this statute the court, in Murdock Grate Co. vs. Commonwealth (152
Mass., 28), said:

The statute we are discussing disclose no intention to create against the state a new and
heretofore unrecognized class of liabilities, but only an intention to provide a judicial tribunal
where well recognized existing liabilities can be adjudicated.

In Sipple vs. State (99 N. Y., 284), where the board of the canal claims had, by the terms of the
statute of New York, jurisdiction of claims for damages for injuries in the management of the canals
such as the plaintiff had sustained, Chief Justice Ruger remarks: "It must be conceded that the state
can be made liable for injuries arising from the negligence of its agents or servants, only by force of
some positive statute assuming such liability."

It being quite clear that Act No. 2457 does not operate to extend the Government's liability to any
cause not previously recognized, we will now examine the substantive law touching the defendant's
liability for the negligent acts of its officers, agents, and employees. Paragraph 5 of article 1903 of
the Civil Code reads:

The state is liable in this sense when it acts through a special agent, but not when the
damage should have been caused by the official to whom properly it pertained to do the act
performed, in which case the provisions of the preceding article shall be applicable.

The supreme court of Spain in defining the scope of this paragraph said:
That the obligation to indemnify for damages which a third person causes to another by his
fault or negligence is based, as is evidenced by the same Law 3, Title 15, Partida 7, on that
the person obligated, by his own fault or negligence, takes part in the act or omission of the
third party who caused the damage. It follows therefrom that the state, by virtue of such
provisions of law, is not responsible for the damages suffered by private individuals in
consequence of acts performed by its employees in the discharge of the functions pertaining
to their office, because neither fault nor even negligence can be presumed on the part of the
state in the organization of branches of public service and in the appointment of its agents;
on the contrary, we must presuppose all foresight humanly possible on its part in order that
each branch of service serves the general weal an that of private persons interested in its
operation. Between these latter and the state, therefore, no relations of a private nature
governed by the civil law can arise except in a case where the state acts as a judicial person
capable of acquiring rights and contracting obligations. (Supreme Court of Spain, January 7,
1898; 83 Jur. Civ., 24.)

That the Civil Code in chapter 2, title 16, book 4, regulates the obligations which arise out of
fault or negligence; and whereas in the first article thereof. No. 1902, where the general
principle is laid down that where a person who by an act or omission causes damage to
another through fault or negligence, shall be obliged to repair the damage so done,
reference is made to acts or omissions of the persons who directly or indirectly cause the
damage, the following articles refers to this persons and imposes an identical obligation
upon those who maintain fixed relations of authority and superiority over the authors of the
damage, because the law presumes that in consequence of such relations the evil caused
by their own fault or negligence is imputable to them. This legal presumption gives way to
proof, however, because, as held in the last paragraph of article 1903, responsibility for acts
of third persons ceases when the persons mentioned in said article prove that they employed
all the diligence of a good father of a family to avoid the damage, and among these persons,
called upon to answer in a direct and not a subsidiary manner, are found, in addition to the
mother or the father in a proper case, guardians and owners or directors of an establishment
or enterprise, the state, but not always, except when it acts through the agency of a special
agent, doubtless because and only in this case, the fault or negligence, which is the original
basis of this kind of objections, must be presumed to lie with the state.

That although in some cases the state might by virtue of the general principle set forth in
article 1902 respond for all the damage that is occasioned to private parties by orders or
resolutions which by fault or negligence are made by branches of the central administration
acting in the name and representation of the state itself and as an external expression of its
sovereignty in the exercise of its executive powers, yet said article is not applicable in the
case of damages said to have been occasioned to the petitioners by an executive official,
acting in the exercise of his powers, in proceedings to enforce the collections of certain
property taxes owing by the owner of the property which they hold in sublease.

That the responsibility of the state is limited by article 1903 to the case wherein it
acts through a special agent(and a special agent, in the sense in which these words are
employed, is one who receives a definite and fixed order or commission, foreign to the
exercise of the duties of his office if he is a special official) so that in representation of the
state and being bound to act as an agent thereof, he executes the trust confided to him. This
concept does not apply to any executive agent who is an employee of the acting
administration and who on his own responsibility performs the functions which are inherent in
and naturally pertain to his office and which are regulated by law and the regulations."
(Supreme Court of Spain, May 18, 1904; 98 Jur. Civ., 389, 390.)
 That according to paragraph 5 of article 1903 of the Civil Code and the principle laid down in
a decision, among others, of the 18th of May, 1904, in a damage case, the responsibility of
the state is limited to that which it contracts through a special agent, duly empowered by
a definite order or commission to perform some act or charged with some definite purpose
which gives rise to the claim, and not where the claim is based on acts or omissions
imputable to a public official charged with some administrative or technical office who can be
held to the proper responsibility in the manner laid down by the law of civil responsibility.
Consequently, the trial court in not so deciding and in sentencing the said entity to the
payment of damages, caused by an official of the second class referred to, has by erroneous
interpretation infringed the provisions of articles 1902 and 1903 of the Civil Code. (Supreme
Court of Spain, July 30, 1911; 122 Jur. Civ., 146.)

It is, therefore, evidence that the State (the Government of the Philippine Islands) is only liable,
according to the above quoted decisions of the Supreme Court of Spain, for the acts of its agents,
officers and employees when they act as special agents within the meaning of paragraph 5 of article
1903, supra, and that the chauffeur of the ambulance of the General Hospital was not such an
agent.

For the foregoing reasons, the judgment appealed from must be reversed, without costs in this
instance. Whether the Government intends to make itself legally liable for the amount of damages
above set forth, which the plaintiff has sustained by reason of the negligent acts of one of its
employees, by legislative enactment and by appropriating sufficient funds therefor, we are not called
upon to determine. This matter rests solely with the Legislature and not with the courts.
G. R. No. 188283

CATHAY PACIFIC AIRWAYS, LTD., Petitioner, 

vs.
SPOUSES ARNULFO and EVELYN FUENTEBELLA, Respondents.

DECISION

SERENO, CJ:

This is a Petition for Review on Certiorari filed by Cathay Pacific Airways Ltd. from the Court of
Appeals (CA) Decision  and Resolution  in CA-G.R. CV No. 87698. The CA affirmed with
1 2

modification the Decision  issued by the Regional Trial Court (RTC) Branch 30 in San Jose,
3

Camarines Sur, in Civil Case No. T-635.

THE CASE

The case originated from a Complaint  for damages filed by respondents Arnulfo and Evelyn
4

Fuentebella against petitioner Cathay Pacific Airways Ltd., a foreign corporation licensed to do
business in the Philippines. Respondents prayed for a total of P13 million in damages for the alleged
besmirched reputation and honor, as well as the public embarrassment they had suffered as a result
of a series of involuntary downgrades of their trip from Manila to Sydney via Hong Kong on 25
October 1993 and from Hong Kong to Manila on 2 November 1993.  In its Answer, petitioner
5 6

maintained that respondents had flown on the sections and sectors they had booked and confirmed.

The RTC ruled in favor of respondents and awarded P5 million as moral damages, P1 million as
exemplary damages, and P500,000 as attoney's fees. Upon review, the CA upheld the disposition
and the awards, with the modification that the attorney's fees be reduced to Pl00,000.

Petitioner prays that the Complaint be dismissed, or in the alternative, that the damages be
substantially and equitably reduced. 7

FACTS

In 1993, the Speaker of the House authorized Congressmen Arnulfo Fuentebella (respondent
Fuentebella), Alberto Lopez (Cong. Lopez) and Leonardo Fugoso (Cong. Fugoso) to travel on official
business to Sydney, Australia, to confer with their counterparts in the Australian Parliament from 25
October to 6 November 1993. 8

On 22 October 1993, respondents bought Business Class tickets for Manila to Sydney via Hong
Kong and back. They changed their minds, however, and decided to upgrade to First Class.  From
9 10

this point, the parties presented divergent versions of facts. The overarching disagreement was on
whether respondents should have been given First Class seat accommodations for all the segments
of their itinerary.

According to respondents, their travel arrangements, including the request for the upgrade of their
seats from Business Class to First Class, were made through Cong. Lopez.  The congressman
11

corroborated this allegation. On the other hand, petitioner claimed that a certain Carol Dalag had
12

transacted on behalf of the congressmen and their spouses for the purchase of airline tickets for
Manila-Hong Kong-Sydney-Hong Kong-Manila.  According to petitioner, on 23 October 1993, one of
13

the passengers called to request that the booking be divided into two: one for the Spouses Lopez
and Spouses Fugoso, and a separate booking for respondents.  Cong. Lopez denied knowing a
14

Carol Dalag.  He was not questioned regarding the request for two separate bookings.  However, in
15 16

his testimony, he gave the impression that the travel arrangements had been made for them as one
group.  He admitted that he had called up petitioner, but only to request an upgrade of their tickets
17

from Business Class to First Class.  He testified that upon assurance that their group would be able
18

to travel on First Class upon cash payment of the fare difference, he sent a member of his staff that
same afternoon to pay. 19

Petitioner admits that First Class tickets were issued to respondents, but clarifies that the tickets
were open-dated (waitlisted).  There was no showing whether the First Class tickets issued to Sps.
20

Lopez and Sps. Fugoso were open-dated or otherwise, but it appears that they were able to fly First
Class on all the segments of the trip, while respondents were not. 21

On 25 October 1993, respondents queued in front of the First Class counter in the airport.  They 22

were issued boarding passes for Business Class seats on board CX 902 bound for Hong Kong from
Manila and Economy Class seats on board CX 101 bound for Sydney from Hong Kong.  They only 23

discovered that they had not been given First Class seats when they were denied entry into the First
Class lounge.  Respondent Fuentebella went back to the check-in counter to demand that they be
24

given First Class seats or at the very least, access to the First Class Lounge. He recalled that he
was treated by the ground staff in a discourteous, arrogant and rude manner.  He was allegedly told
25

that the plane would leave with or without them.  Both the trial court and the CA gave credence to
26

the testimony of respondent Fuentebella.

During trial, petitioner offered the transcript of the deposition of its senior reservation supervisor,
Nenita Montillana (Montillana).  She said that based on the record locator, respondents had
27

confirmed reservations for Business Class seats for the Manila-Hong Kong, Sydney-Hong Kong, and
Hong Kong-Manila flights; but the booking for Business Class seats for the Hong Kong-Sydney leg
was "under request;" and due to the flight being full, petitioner was not able to approve the request. 28

Montillana admitted that First Class tickets had been issued to respondents, but qualified that those
tickets were open-dated.  She referred to the plane tickets, which bore the annotations "OPEN F
29

OPEN" for all sectors of the flight.  Petitioner explained that while respondents expressed their
30

desire to travel First Class, they could not be accommodated because they had failed to confirm and
the sections were full on the date and time of their scheduled and booked flights.  Petitioner also
31

denied that its personnel exhibited arrogance in dealing with respondents; on the contrary, it was
allegedly respondent Fuentebella who was hostile in dealing with the ground staff. 32

Respondents alleged that during transit through the Hong Kong airport on 25 October 1993, they
were treated with far less respect and courtesy by the ground staff.  In fact, the first employee they
33

approached completely ignored them and turned her back on them.  The second one did not even
34

give them any opportunity to explain why they should be given First Class seats, but instead brushed
aside their complaints and told them to just fall in line in Economy Class.  The third employee they
35

approached shoved them to the line for Economy Class passengers in front of many people. 36
Petitioner used the deposition of Manuel Benipayo (Benipayo), airport service officer, and Raquel
Galvez-Leonio (Galvez-Leonio ), airport services supervisor, to contradict the claims of respondents.
Benipayo identified himself as the ground staff who had dealt with respondents' complaint.  He 37

testified that around five o'clock on 25 October 1993, respondent Fuentebella loudly insisted that he
be accommodated on First Class. But upon checking their records, he found out that respondents
were only booked on Business Class.  Benipayo tried to explain this to respondents in a very polite
38

manner,  and he exerted his best effort to secure First Class seats for them, but the plane was
39

already full.  He presented a telex sent to their Hong Kong office, in which he requested assistance
40

to accommodate respondents in First Class for the Hong Kong-Sydney flight.  He claimed that he
41

was intimidated by respondent Fuentebella into making the notations "Involuntary Downgrading" and
"fare difference to be refunded" on the tickets.42

For her part, Galvez-Leonio testified that it was company policy not to engage passengers in
debates or drawn-out discussions, but to address their concerns in the best and proper way.  She 43

admitted, however, that she had no personal knowledge of compliance in airports other than NAIA. 44

Respondents narrated that for their trip from Hong Kong to Sydney, they were squeezed into very
narrow seats for eight and a half hours and, as a result, they felt groggy and miserable upon
landing. 45

Respondents were able to travel First Class for their trip from Sydney to Hong Kong on 30 October
1993. However, on the last segment of the itinerary from Hong Kong to Manila on 2 November
46

1993, they were issued boarding passes for Business Class. 47

Upon arrival in the Philippines, respondents demanded a formal apology and payment of damages
from petitioner. The latter conducted an investigation, after which it maintained that no undue harm
48

had been done to them. 49

RULING OF THE REGIONAL TRIAL COURT

In resolving the case, the trial court first identified the ticket as a contract of adhesion whose terms,
as such, should be construed against petitioner.  It found that respondents had entered into the
50

contract because of the assurance that they would be given First Class seats. 51

The RTC gave full faith and credence to the testimonies of respondents and Cong. Fugoso, who
testified in open court:

[T]he court was able to keenly observe [the] demeanor [of respondents' witnesses] on the witness
stand and they appear to be frank, spontaneous, positive and forthright neither destroyed nor
rebutted in the course of the entire trial... The court cannot state the same observation in regard to
those witnesses who testified by way of deposition [namely, Cong. Lopez all the witnesses of
petitioner], except those appearing in the transcript of records. And on record, it appears [that]
witness Nenita Montillana was reading a note. 52

xxxx

[Montillana' s] credibility, therefore, is affected and taking together [her] whole testimony based on
the so-called locator record of the plaintiffs spouses from the defendant Cathay Pacific Airways, the
same has become less credible, if not, doubtful, to say the least. 53
The trial court ordered petitioner to pay P5 million as moral damages, P1 million as exemplary
damages, and P500,000 as attorney's fees. In setting the award for moral damages, the RTC
considered the prestigious position held by respondent Fuentebella, as well as the bad faith
exhibited by petitioner.  According to the trial court, the contract was flagrantly violated in four
54

instances: first, when respondents were denied entry to the First Class lounge; second, at the check-
in counter when the airport services officer failed to adequately address their concern; third, at the
Hong Kong airport when they were ignored; and fourth, when respondents became the butt of jokes
upon their arrival in Sydney. 55

RULING OF THE COURT OF APPEALS

The CA affirmed the R TC Decision with the modification that the attorney's fees be reduced to
Pl00,000.  The appellate court reviewed the records and found that respondents were entitled to
1âwphi1

First Class accommodation throughout their trip.  It gave weight to the testimony of Cong. Lopez that
56

they had paid the fare difference to upgrade their Business Class tickets to First Class.  It also
57

considered the handwritten notation on the First Class tickets stating "fare difference to be refunded"
as proof that respondents had been downgraded. 58

With regard to the question of whether respondents had confirmed their booking, the CA considered
petitioner's acceptance of the fare difference and the issuance of the First Class tickets as proof that
the request for upgrade had been approved.  It noted that the tickets bore the annotation that
59

reconfirmation of flights is no longer necessary, further strengthening the fact of confirmation.

60

The CA found that there were no conditions stated on the face of the tickets; hence, respondents
could not be expected to know that the tickets they were holding were open-dated and were subject
to the availability of seats. It applied the rule on contracts of adhesion, and construed the terms
61

against petitioner.

Finding that there was a breach of contract when petitioner assigned Business Class and Economy
Class seats to First Class ticket holders, the CA proceeded to determine whether respondents were
entitled to moral damages. It said that bad faith can be inferred from the inattentiveness and lack of
concern shown by petitioner's personnel to the predicament of respondents.  The court also
62

considered as a badge of bad faith the fact that respondents had been downgraded due to
overbooking. 63

As regards the amount of moral damages awarded by the RTC, the CA found no prejudice or
corruption that might be imputed to the trial court in light of the circumstances.  The appellate court
64

pointed out that the trial court only awarded half of what had been prayed for. 65

The award of exemplary damages was sustained to deter a similar shabby treatment of passengers
and a wanton and reckless refusal to honor First Class tickets.  The award for attorney's fees was
66

likewise sustained pursuant to Article 2208(2) of the Civil Code which allows recovery thereof when
an act or omission of the defendant compelled the plaintiff to litigate or incur expense to protect the
latter’s interest. 67

RULING OF THE COURT

There was a breach of contract.

In Air France v. Gillego, this Court ruled that in an action based on a breach of contract of carriage,
68

the aggrieved party does not have to prove that the common carrier was at fault or was negligent; all
that he has to prove is the existence of the contract and the fact of its nonperformance by the carrier.
In this case, both the trial and appellate courts found that respondents were entitled to First Class
accommodations under the contract of carriage, and that petitioner failed to perform its obligation.
We shall not delve into this issue more deeply than is necessary because We have decided to
accord respect to the factual findings of the trial and appellate courts. We must, however, point out a
crucial fact We have uncovered from the records that further debunks petitioner's suggestion  that
69

two sets of tickets were issued to respondents - one for Business Class and another for open-dated
First Class tickets with the following entries:
70

Segment Business Class Tickets First Class Tickets Actual

Class
Date of Issue: 23 October 1993 Date of Issue: 25 October 1993 Boarded

Flight Class Status Flight Class Status

Manila- CX 902 C OK OPEN F - Business

Hong
Kong

Hong CX 101 C RQ OPEN F - Economy

Kong-
Sydney

Sydney – CX 100 C OK OPEN F - First

Hong
Kong

Hong CX 901 C OK OPEN F - Business

Kong –
Manila

The First Class tickets issued on 25 October 1993 indicate that they were "issued in exchange for
Ticket Nos. 160-401123987 and 160-4474920334/5."  The latter set of tickets numbered 160-
71

4474920334/5 correspond to the Business Class tickets issued on 23 October 1993, which in tum
originated from Ticket No. 160-4011239858 issued on 22 October 1993. 72

With this information, We can conclude that petitioner may have been telling the truth that the
passengers made many changes in their booking. However, their claim that respondents held both
Business Class tickets and the open-dated First Class tickets is untrue. We can also conclude that
on the same day of the flight, petitioner still issued First Class tickets to respondents. The
incontrovertible fact, therefore, is that respondents were holding First Class tickets on 25 October
1993.

In FGU Insurance Corporation v. G.P. Sarmiento Trucking Corporation, We recognized the interests
73

of the injured party in breach of contract cases:

x x x. The law, recognizing the obligatory force of contracts, will not permit a party to be set free from
liability for any kind of misperformance of the contractual undertaking or a contravention of the tenor
thereof. A breach upon the contract confers upon the injured party a valid cause for recovering that
which may have been lost or suffered. The remedy serves to preserve the interests of the promissee
that may include his "expectation interest," which is his interest in having the benefit of his bargain
by being put in as good a position as he would have been in had the contract been performed, or his
"reliance interest," which is his interest in being reimbursed for loss caused by reliance on the
contract by being put in as good a position as he would have been in had the contract not been
made; or his "restitution interest," which is his interest in having restored to him any benefit that he
has conferred on the other party.

According to Montillana, a reservation is deemed confirmed when there is a seat available on the
plane.  When asked how a passenger was informed of the confirmation, Montillana replied that
74

computer records were consulted upon inquiry.  By its issuance of First Class tickets on the same
75

day of the flight in place of Business Class tickets that indicated the preferred and confirmed flight,
petitioner led respondents to believe that their request for an upgrade had been approved.

Petitioner tries to downplay the factual finding that no explanation was given to respondents with
regard to the types of ticket that were issued to them. It ventured that respondents were seasoned
travelers and therefore familiar with the concept of open-dated tickets.  Petitioner attempts to draw a
76

parallel with Sarreal, Jr. v. JAL,  in which this Court ruled that the airline could not be faulted for the
77

negligence of the passenger, because the latter was aware of the restrictions carried by his ticket
and the usual procedure for travel. In that case, though, records showed that the plaintiff was a well-
travelled person who averaged two trips to Europe and two trips to Bangkok every month for 34
years. In the present case, no evidence was presented to show that respondents were indeed
familiar with the concept of open-dated ticket. In fact, the tickets do not even contain the term "open-
dated."

There is basis for the award of moral

and exemplary damages; however,
the amounts were excessive.

Moral and exemplary damages are not ordinarily awarded in breach of contract cases. This Court
has held that damages may be awarded only when the breach is wanton and deliberately injurious,
or the one responsible had acted fraudulently or with malice or bad faith.  Bad faith is a question of
78

fact that must be proven by clear and convincing evidence.  Both the trial and the appellate courts
79

found that petitioner had acted in bad faith. After review of the records, We find no reason to deviate
from their finding.

Petitioner argues that the testimonial evidence of the treatment accorded by its employees to
respondents is self-serving and, hence, should not have been the basis for the finding of bad
faith.  We do not agree. The Rules of Court do not require that the testimony of the injured party be
80

corroborated by independent evidence. In fact, in criminal cases in which the standard of proof is
higher, this Court has ruled that the testimony of even one witness may suffice to support a
conviction. What more in the present case, in which petitioner has had adequate opportunity to
controvert the testimonies of respondents.

In Singapore Airlines Limited v. Fernandez,  bad faith was imputed by the trial court when it found
81

that the ground staff had not accorded the attention and treatment warranted under the
circumstances. This Court found no reason to disturb the finding of the trial court that the
inattentiveness and rudeness of the ground staff were gross enough to amount to bad faith. The bad
faith in the present case is even more pronounced because petitioner's ground staff physically
manhandled the passengers by shoving them to the line, after another staff had insulted them by
turning her back on them.

However, the award of P5 million as moral damages is excessive, considering that the highest
amount ever awarded by this Court for moral damages in cases involving airlines is P500,000.  As 82
We said in Air France v. Gillego,  "the mere fact that respondent was a Congressman should not
83

result in an automatic increase in the moral and exemplary damages."

We find that upon the facts established, the amount of P500,000 as moral damages is reasonable to
obviate the moral suffering that respondents have undergone. With regard to exemplary damages,
jurisprudence shows that P50,000 is sufficient to deter similar acts of bad faith attributable to airline
representatives.84

WHEREFORE, the Petition is PARTIALLY GRANTED. The Court of Appeals Decision dated 31

March 2009 in CA-G.R. CV No. 87698 is hereby AFFIRMED with MODIFICATION in that moral and
exemplary damages are hereby reduced to P500,000 and P50,000.00, respectively. These amounts
shall earn legal interest of 6% per annum from the finality of this Decision until full payment.

G. R. No. 188283

CATHAY PACIFIC AIRWAYS, LTD., Petitioner, 

vs.
SPOUSES ARNULFO and EVELYN FUENTEBELLA, Respondents.

DECISION

SERENO, CJ:

This is a Petition for Review on Certiorari filed by Cathay Pacific Airways Ltd. from the Court of
Appeals (CA) Decision  and Resolution  in CA-G.R. CV No. 87698. The CA affirmed with
1 2

modification the Decision  issued by the Regional Trial Court (RTC) Branch 30 in San Jose,
3

Camarines Sur, in Civil Case No. T-635.

THE CASE

The case originated from a Complaint  for damages filed by respondents Arnulfo and Evelyn
4

Fuentebella against petitioner Cathay Pacific Airways Ltd., a foreign corporation licensed to do
business in the Philippines. Respondents prayed for a total of P13 million in damages for the alleged
besmirched reputation and honor, as well as the public embarrassment they had suffered as a result
of a series of involuntary downgrades of their trip from Manila to Sydney via Hong Kong on 25
October 1993 and from Hong Kong to Manila on 2 November 1993.  In its Answer, petitioner
5 6

maintained that respondents had flown on the sections and sectors they had booked and confirmed.

The RTC ruled in favor of respondents and awarded P5 million as moral damages, P1 million as
exemplary damages, and P500,000 as attoney's fees. Upon review, the CA upheld the disposition
and the awards, with the modification that the attorney's fees be reduced to Pl00,000.

Petitioner prays that the Complaint be dismissed, or in the alternative, that the damages be
substantially and equitably reduced. 7

FACTS

In 1993, the Speaker of the House authorized Congressmen Arnulfo Fuentebella (respondent
Fuentebella), Alberto Lopez (Cong. Lopez) and Leonardo Fugoso (Cong. Fugoso) to travel on official
business to Sydney, Australia, to confer with their counterparts in the Australian Parliament from 25
October to 6 November 1993. 8
On 22 October 1993, respondents bought Business Class tickets for Manila to Sydney via Hong
Kong and back. They changed their minds, however, and decided to upgrade to First Class.  From
9 10

this point, the parties presented divergent versions of facts. The overarching disagreement was on
whether respondents should have been given First Class seat accommodations for all the segments
of their itinerary.

According to respondents, their travel arrangements, including the request for the upgrade of their
seats from Business Class to First Class, were made through Cong. Lopez.  The congressman
11

corroborated this allegation. On the other hand, petitioner claimed that a certain Carol Dalag had
12

transacted on behalf of the congressmen and their spouses for the purchase of airline tickets for
Manila-Hong Kong-Sydney-Hong Kong-Manila.  According to petitioner, on 23 October 1993, one of
13

the passengers called to request that the booking be divided into two: one for the Spouses Lopez
and Spouses Fugoso, and a separate booking for respondents.  Cong. Lopez denied knowing a
14

Carol Dalag.  He was not questioned regarding the request for two separate bookings.  However, in
15 16

his testimony, he gave the impression that the travel arrangements had been made for them as one
group.  He admitted that he had called up petitioner, but only to request an upgrade of their tickets
17

from Business Class to First Class.  He testified that upon assurance that their group would be able
18

to travel on First Class upon cash payment of the fare difference, he sent a member of his staff that
same afternoon to pay. 19

Petitioner admits that First Class tickets were issued to respondents, but clarifies that the tickets
were open-dated (waitlisted).  There was no showing whether the First Class tickets issued to Sps.
20

Lopez and Sps. Fugoso were open-dated or otherwise, but it appears that they were able to fly First
Class on all the segments of the trip, while respondents were not. 21

On 25 October 1993, respondents queued in front of the First Class counter in the airport.  They 22

were issued boarding passes for Business Class seats on board CX 902 bound for Hong Kong from
Manila and Economy Class seats on board CX 101 bound for Sydney from Hong Kong.  They only 23

discovered that they had not been given First Class seats when they were denied entry into the First
Class lounge.  Respondent Fuentebella went back to the check-in counter to demand that they be
24

given First Class seats or at the very least, access to the First Class Lounge. He recalled that he
was treated by the ground staff in a discourteous, arrogant and rude manner.  He was allegedly told
25

that the plane would leave with or without them.  Both the trial court and the CA gave credence to
26

the testimony of respondent Fuentebella.

During trial, petitioner offered the transcript of the deposition of its senior reservation supervisor,
Nenita Montillana (Montillana).  She said that based on the record locator, respondents had
27

confirmed reservations for Business Class seats for the Manila-Hong Kong, Sydney-Hong Kong, and
Hong Kong-Manila flights; but the booking for Business Class seats for the Hong Kong-Sydney leg
was "under request;" and due to the flight being full, petitioner was not able to approve the request. 28

Montillana admitted that First Class tickets had been issued to respondents, but qualified that those
tickets were open-dated.  She referred to the plane tickets, which bore the annotations "OPEN F
29

OPEN" for all sectors of the flight.  Petitioner explained that while respondents expressed their
30

desire to travel First Class, they could not be accommodated because they had failed to confirm and
the sections were full on the date and time of their scheduled and booked flights.  Petitioner also
31

denied that its personnel exhibited arrogance in dealing with respondents; on the contrary, it was
allegedly respondent Fuentebella who was hostile in dealing with the ground staff. 32

Respondents alleged that during transit through the Hong Kong airport on 25 October 1993, they
were treated with far less respect and courtesy by the ground staff.  In fact, the first employee they
33

approached completely ignored them and turned her back on them.  The second one did not even
34
give them any opportunity to explain why they should be given First Class seats, but instead brushed
aside their complaints and told them to just fall in line in Economy Class.  The third employee they
35

approached shoved them to the line for Economy Class passengers in front of many people. 36

Petitioner used the deposition of Manuel Benipayo (Benipayo), airport service officer, and Raquel
Galvez-Leonio (Galvez-Leonio ), airport services supervisor, to contradict the claims of respondents.
Benipayo identified himself as the ground staff who had dealt with respondents' complaint.  He 37

testified that around five o'clock on 25 October 1993, respondent Fuentebella loudly insisted that he
be accommodated on First Class. But upon checking their records, he found out that respondents
were only booked on Business Class.  Benipayo tried to explain this to respondents in a very polite
38

manner,  and he exerted his best effort to secure First Class seats for them, but the plane was
39

already full.  He presented a telex sent to their Hong Kong office, in which he requested assistance
40

to accommodate respondents in First Class for the Hong Kong-Sydney flight.  He claimed that he
41

was intimidated by respondent Fuentebella into making the notations "Involuntary Downgrading" and
"fare difference to be refunded" on the tickets.42

For her part, Galvez-Leonio testified that it was company policy not to engage passengers in
debates or drawn-out discussions, but to address their concerns in the best and proper way.  She 43

admitted, however, that she had no personal knowledge of compliance in airports other than NAIA. 44

Respondents narrated that for their trip from Hong Kong to Sydney, they were squeezed into very
narrow seats for eight and a half hours and, as a result, they felt groggy and miserable upon
landing. 45

Respondents were able to travel First Class for their trip from Sydney to Hong Kong on 30 October
1993. However, on the last segment of the itinerary from Hong Kong to Manila on 2 November
46

1993, they were issued boarding passes for Business Class. 47

Upon arrival in the Philippines, respondents demanded a formal apology and payment of damages
from petitioner. The latter conducted an investigation, after which it maintained that no undue harm
48

had been done to them. 49

RULING OF THE REGIONAL TRIAL COURT

In resolving the case, the trial court first identified the ticket as a contract of adhesion whose terms,
as such, should be construed against petitioner.  It found that respondents had entered into the
50

contract because of the assurance that they would be given First Class seats. 51

The RTC gave full faith and credence to the testimonies of respondents and Cong. Fugoso, who
testified in open court:

[T]he court was able to keenly observe [the] demeanor [of respondents' witnesses] on the witness
stand and they appear to be frank, spontaneous, positive and forthright neither destroyed nor
rebutted in the course of the entire trial... The court cannot state the same observation in regard to
those witnesses who testified by way of deposition [namely, Cong. Lopez all the witnesses of
petitioner], except those appearing in the transcript of records. And on record, it appears [that]
witness Nenita Montillana was reading a note. 52

xxxx
[Montillana' s] credibility, therefore, is affected and taking together [her] whole testimony based on
the so-called locator record of the plaintiffs spouses from the defendant Cathay Pacific Airways, the
same has become less credible, if not, doubtful, to say the least. 53

The trial court ordered petitioner to pay P5 million as moral damages, P1 million as exemplary
damages, and P500,000 as attorney's fees. In setting the award for moral damages, the RTC
considered the prestigious position held by respondent Fuentebella, as well as the bad faith
exhibited by petitioner.  According to the trial court, the contract was flagrantly violated in four
54

instances: first, when respondents were denied entry to the First Class lounge; second, at the check-
in counter when the airport services officer failed to adequately address their concern; third, at the
Hong Kong airport when they were ignored; and fourth, when respondents became the butt of jokes
upon their arrival in Sydney. 55

RULING OF THE COURT OF APPEALS

The CA affirmed the R TC Decision with the modification that the attorney's fees be reduced to
Pl00,000.  The appellate court reviewed the records and found that respondents were entitled to
1âwphi1

First Class accommodation throughout their trip.  It gave weight to the testimony of Cong. Lopez that
56

they had paid the fare difference to upgrade their Business Class tickets to First Class.  It also
57

considered the handwritten notation on the First Class tickets stating "fare difference to be refunded"
as proof that respondents had been downgraded. 58

With regard to the question of whether respondents had confirmed their booking, the CA considered
petitioner's acceptance of the fare difference and the issuance of the First Class tickets as proof that
the request for upgrade had been approved.  It noted that the tickets bore the annotation that
59

reconfirmation of flights is no longer necessary, further strengthening the fact of confirmation.

60

The CA found that there were no conditions stated on the face of the tickets; hence, respondents
could not be expected to know that the tickets they were holding were open-dated and were subject
to the availability of seats. It applied the rule on contracts of adhesion, and construed the terms
61

against petitioner.

Finding that there was a breach of contract when petitioner assigned Business Class and Economy
Class seats to First Class ticket holders, the CA proceeded to determine whether respondents were
entitled to moral damages. It said that bad faith can be inferred from the inattentiveness and lack of
concern shown by petitioner's personnel to the predicament of respondents.  The court also
62

considered as a badge of bad faith the fact that respondents had been downgraded due to
overbooking. 63

As regards the amount of moral damages awarded by the RTC, the CA found no prejudice or
corruption that might be imputed to the trial court in light of the circumstances.  The appellate court
64

pointed out that the trial court only awarded half of what had been prayed for. 65

The award of exemplary damages was sustained to deter a similar shabby treatment of passengers
and a wanton and reckless refusal to honor First Class tickets.  The award for attorney's fees was
66

likewise sustained pursuant to Article 2208(2) of the Civil Code which allows recovery thereof when
an act or omission of the defendant compelled the plaintiff to litigate or incur expense to protect the
latter’s interest. 67

RULING OF THE COURT

There was a breach of contract.

In Air France v. Gillego, this Court ruled that in an action based on a breach of contract of carriage,
68

the aggrieved party does not have to prove that the common carrier was at fault or was negligent; all
that he has to prove is the existence of the contract and the fact of its nonperformance by the carrier.
In this case, both the trial and appellate courts found that respondents were entitled to First Class
accommodations under the contract of carriage, and that petitioner failed to perform its obligation.
We shall not delve into this issue more deeply than is necessary because We have decided to
accord respect to the factual findings of the trial and appellate courts. We must, however, point out a
crucial fact We have uncovered from the records that further debunks petitioner's suggestion  that
69

two sets of tickets were issued to respondents - one for Business Class and another for open-dated
First Class tickets with the following entries:
70

Segment Business Class Tickets First Class Tickets Actual

Class
Date of Issue: 23 October 1993 Date of Issue: 25 October 1993 Boarded

Flight Class Status Flight Class Status

Manila- CX 902 C OK OPEN F - Business

Hong
Kong

Hong CX 101 C RQ OPEN F - Economy

Kong-
Sydney

Sydney – CX 100 C OK OPEN F - First

Hong
Kong

Hong CX 901 C OK OPEN F - Business

Kong –
Manila

The First Class tickets issued on 25 October 1993 indicate that they were "issued in exchange for
Ticket Nos. 160-401123987 and 160-4474920334/5."  The latter set of tickets numbered 160-
71

4474920334/5 correspond to the Business Class tickets issued on 23 October 1993, which in tum
originated from Ticket No. 160-4011239858 issued on 22 October 1993. 72

With this information, We can conclude that petitioner may have been telling the truth that the
passengers made many changes in their booking. However, their claim that respondents held both
Business Class tickets and the open-dated First Class tickets is untrue. We can also conclude that
on the same day of the flight, petitioner still issued First Class tickets to respondents. The
incontrovertible fact, therefore, is that respondents were holding First Class tickets on 25 October
1993.

In FGU Insurance Corporation v. G.P. Sarmiento Trucking Corporation, We recognized the interests
73

of the injured party in breach of contract cases:

x x x. The law, recognizing the obligatory force of contracts, will not permit a party to be set free from
liability for any kind of misperformance of the contractual undertaking or a contravention of the tenor
thereof. A breach upon the contract confers upon the injured party a valid cause for recovering that
which may have been lost or suffered. The remedy serves to preserve the interests of the promissee
that may include his "expectation interest," which is his interest in having the benefit of his bargain
by being put in as good a position as he would have been in had the contract been performed, or his
"reliance interest," which is his interest in being reimbursed for loss caused by reliance on the
contract by being put in as good a position as he would have been in had the contract not been
made; or his "restitution interest," which is his interest in having restored to him any benefit that he
has conferred on the other party.

According to Montillana, a reservation is deemed confirmed when there is a seat available on the
plane.  When asked how a passenger was informed of the confirmation, Montillana replied that
74

computer records were consulted upon inquiry.  By its issuance of First Class tickets on the same
75

day of the flight in place of Business Class tickets that indicated the preferred and confirmed flight,
petitioner led respondents to believe that their request for an upgrade had been approved.

Petitioner tries to downplay the factual finding that no explanation was given to respondents with
regard to the types of ticket that were issued to them. It ventured that respondents were seasoned
travelers and therefore familiar with the concept of open-dated tickets.  Petitioner attempts to draw a
76

parallel with Sarreal, Jr. v. JAL,  in which this Court ruled that the airline could not be faulted for the
77

negligence of the passenger, because the latter was aware of the restrictions carried by his ticket
and the usual procedure for travel. In that case, though, records showed that the plaintiff was a well-
travelled person who averaged two trips to Europe and two trips to Bangkok every month for 34
years. In the present case, no evidence was presented to show that respondents were indeed
familiar with the concept of open-dated ticket. In fact, the tickets do not even contain the term "open-
dated."

There is basis for the award of moral

and exemplary damages; however,
the amounts were excessive.

Moral and exemplary damages are not ordinarily awarded in breach of contract cases. This Court
has held that damages may be awarded only when the breach is wanton and deliberately injurious,
or the one responsible had acted fraudulently or with malice or bad faith.  Bad faith is a question of
78

fact that must be proven by clear and convincing evidence.  Both the trial and the appellate courts
79

found that petitioner had acted in bad faith. After review of the records, We find no reason to deviate
from their finding.

Petitioner argues that the testimonial evidence of the treatment accorded by its employees to
respondents is self-serving and, hence, should not have been the basis for the finding of bad
faith.  We do not agree. The Rules of Court do not require that the testimony of the injured party be
80

corroborated by independent evidence. In fact, in criminal cases in which the standard of proof is
higher, this Court has ruled that the testimony of even one witness may suffice to support a
conviction. What more in the present case, in which petitioner has had adequate opportunity to
controvert the testimonies of respondents.

In Singapore Airlines Limited v. Fernandez,  bad faith was imputed by the trial court when it found
81

that the ground staff had not accorded the attention and treatment warranted under the
circumstances. This Court found no reason to disturb the finding of the trial court that the
inattentiveness and rudeness of the ground staff were gross enough to amount to bad faith. The bad
faith in the present case is even more pronounced because petitioner's ground staff physically
manhandled the passengers by shoving them to the line, after another staff had insulted them by
turning her back on them.
However, the award of P5 million as moral damages is excessive, considering that the highest
amount ever awarded by this Court for moral damages in cases involving airlines is P500,000.  As 82

We said in Air France v. Gillego,  "the mere fact that respondent was a Congressman should not
83

result in an automatic increase in the moral and exemplary damages."

We find that upon the facts established, the amount of P500,000 as moral damages is reasonable to
obviate the moral suffering that respondents have undergone. With regard to exemplary damages,
jurisprudence shows that P50,000 is sufficient to deter similar acts of bad faith attributable to airline
representatives.84

WHEREFORE, the Petition is PARTIALLY GRANTED. The Court of Appeals Decision dated 31

March 2009 in CA-G.R. CV No. 87698 is hereby AFFIRMED with MODIFICATION in that moral and
exemplary damages are hereby reduced to P500,000 and P50,000.00, respectively. These amounts
shall earn legal interest of 6% per annum from the finality of this Decision until full payment.