Transpo Cases Subsection 4.docx

G.R. No. 170141

to rigid immigration and security routines.13 After passing through said immigration and security procedures, respondent was allowed by JAL to enter its airplane. 14

April 22, 2008

JAPAN vs. JESUS SIMANGAN, respondent.

AIRLINES, petitioner,

DECISION REYES R.T., J.: WHEN an airline issues a ticket to a passenger confirmed on a particular flight on a certain date, a contract of carriage arises, and the passenger has every right to expect that he would fly on that flight and on that date. If he does not, then the carrier opens itself to a suit for breach of contract of carriage.1 The power to admit or not an alien into the country is a sovereign act which cannot be interfered with even by Japan Airlines (JAL).2 In this petition for review on certiorari,3 petitioner JAL appeals the: (1) Decision4 dated May 31, 2005 of the Court of Appeals (CA) ordering it to pay respondent Jesus Simangan moral and exemplary damages; and (2) Resolution5 of the same court dated September 28, 2005 denying JAL's motion for reconsideration. The Facts In 1991, respondent Jesus Simangan decided to donate a kidney to his ailing cousin, Loreto Simangan, in UCLA School of Medicine in Los Angeles, California, U.S.A. Upon request of UCLA, respondent undertook a series of laboratory tests at the National Kidney Institute in Quezon City to verify whether his blood and tissue type are compatible with Loreto's.6 Fortunately, said tests proved that respondent's blood and tissue type were well-matched with Loreto's.7

While inside the airplane, JAL's airline crew suspected respondent of carrying a falsified travel document and imputed that he would only use the trip to the United States as a pretext to stay and work in Japan.15 The stewardess asked respondent to show his travel documents. Shortly after, the stewardess along with a Japanese and a Filipino haughtily ordered him to stand up and leave the plane.16 Respondent protested, explaining that he was issued a U.S. visa. Just to allow him to board the plane, he pleaded with JAL to closely monitor his movements when the aircraft stops over in Narita.17 His pleas were ignored. He was then constrained to go out of the plane.18In a nutshell, respondent was bumped off the flight. Respondent went to JAL's ground office and waited there for three hours. Meanwhile, the plane took off and he was left behind.19 Afterwards, he was informed that his travel documents were, indeed, in order.20 Respondent was refunded the cost of his plane ticket less the sum of US$500.00 which was deducted by JAL.21 Subsequently, respondent's U.S. visa was cancelled. 22 Displeased by the turn of events, respondent filed an action for damages against JAL with the Regional Trial Court (RTC) in Valenzuela City, docketed as Civil Case No. 4195-V-93. He claimed he was not able to donate his kidney to Loreto; and that he suffered terrible embarrassment and mental anguish.23 He prayed that he be awarded P3 million as moral damages, P1.5 million as exemplary damages and P500,000.00 as attorney's fees.24 JAL denied the material allegations of the complaint. It argued, among others, that its failure to allow respondent to fly on his scheduled departure was due to "a need for his travel documents to be authenticated by the United States Embassy"25 because no one from JAL's airport staff had encountered a parole visa before.26 It posited that the authentication required additional time; that respondent was advised to take the flight the following day, July 30, 1992. JAL alleged that respondent agreed to be rebooked on July 30, 1992.27 JAL also lodged a counterclaim anchored on respondent's alleged wrongful institution of the complaint. It prayed for litigation expenses, exemplary damages and attorney's fees.28

Respondent needed to go to the United States to complete his preliminary work-up and donation surgery. Hence, to facilitate respondent's travel to the United States, UCLA wrote a letter to the American Consulate in Manila to arrange for his visa. In due time, respondent was issued an emergency U.S. visa by the American Embassy in Manila. 8

On September 21, 2000, the RTC presided by Judge Floro P. Alejo rendered its decision in favor of respondent (plaintiff), disposing as follows:

Having obtained an emergency U.S. visa, respondent purchased a round trip plane ticket from petitioner JAL for US$1,485.00 and was issued the corresponding boarding pass. 9 He was scheduled to a particular flight bound for Los Angeles, California, U.S.A. via Narita, Japan.10

WHEREFORE, judgment is hereby rendered ordering the defendant to pay the plaintiff the amount of P1,000,000.00 as moral damages, the amount of P500,000.00 as exemplary damages and the amount of P250,000.00 as attorney's fees, plus the cost of suit.29

On July 29, 1992, the date of his flight, respondent went to Ninoy Aquino International Airport in the company of several relatives and friends.11 He was allowed to check-in at JAL's counter.12 His plane ticket, boarding pass, travel authority and personal articles were subjected

The RTC explained: In summarily and insolently ordering the plaintiff to disembark while the latter was already settled in his assigned seat, the defendant violated the contract of carriage;

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that when the plaintiff was ordered out of the plane under the pretext that the genuineness of his travel documents would be verified it had caused him embarrassment and besmirched reputation; and that when the plaintiff was finally not allowed to take the flight, he suffered more wounded feelings and social humiliation for which the plaintiff was asking to be awarded moral and exemplary damages as well as attorney's fees. The reason given by the defendant that what prompted them to investigate the genuineness of the travel documents of the plaintiff was that the plaintiff was not then carrying a regular visa but just a letter does not appear satisfactory. The defendant is engaged in transporting passengers by plane from country to country and is therefore conversant with the travel documents. The defendant should not be allowed to pretend, to the prejudice of the plaintiff not to know that the travel documents of the plaintiff are valid documents to allow him entry in the United States. The foregoing act of the defendant in ordering the plaintiff to deplane while already settled in his assigned seat clearly demonstrated that the defendant breached its contract of carriage with the plaintiff as passenger in bad faith and as such the plaintiff is entitled to moral and exemplary damages as well as to an award of attorney's fees.30 Disagreeing with the RTC judgment, JAL appealed to the CA contending that it is not guilty of breach of contract of carriage, hence, not liable for damages. 31 It posited that it is the one entitled to recover on its counterclaim.32

The CA ratiocinated: While the protection of passengers must take precedence over convenience, the implementation of security measures must be attended by basic courtesies. In fact, breach of the contract of carriage creates against the carrier a presumption of liability, by a simple proof of injury, relieving the injured passenger of the duty to establish the fault of the carrier or of his employees; and placing on the carrier the burden to prove that it was due to an unforeseen event or to force majeure. That appellee possessed bogus travel documents and that he might stay illegally in Japan are allegations without substantiation. Also, appellant's attempt to rebook appellee the following day was too late and did not relieve it from liability. The damage had been done. Besides, its belated theory of novation, i.e., that appellant's original obligation to carry appellee to Narita and Los Angeles on July 29, 1992 was extinguished by novation when appellant and appellant agreed that appellee will instead take appellant's flight to Narita on the following day, July 30, 1992, deserves little attention. It is inappropriate at bar. Questions not taken up during the trial cannot be raised for the first time on appeal.40 (Underscoring ours and citations were omitted) Citing Ortigas, Jr. v. Lufthansa German Airlines,41 the CA declared that "(i)n contracts of common carriage, inattention and lack of care on the part of the carrier resulting in the failure of the passenger to be accommodated in the class contracted for amounts to bad faith or fraud which entitles the passengers to the award of moral damages in accordance with Article 2220 of the Civil Code."42

CA Ruling Nevertheless, the CA modified the damages awarded by the RTC. It explained: In a Decision33 dated May 31, 2005, the CA affirmed the decision of the RTC with modification in that it lowered the amount of moral and exemplary damages and deleted the award of attorney's fees. The fallo of the CA decision reads: WHEREFORE, the appealed Decision is AFFIRMED with MODIFICATION. Appellant JAPAN AIR LINES is ordered to pay appellee JESUS SIMANGAN the reduced sums, as follows: Five Hundred Thousand Pesos (P500,000.00) as moral damages, and Two Hundred Fifty Thousand Pesos (P250,000.00) as exemplary damages. The award of attorney's fees is hereby DELETED.34 The CA elucidated that since JAL issued to respondent a round trip plane ticket for a lawful consideration, "there arose a perfected contract between them."35 It found that respondent was "haughtily ejected"36 by JAL and that "he was certainly embarrassed and humiliated"37 when, in the presence of other passengers, JAL's airline staff "shouted at him to stand up and arrogantly asked him to produce his travel papers, without the least courtesy every human being is entitled to";38 and that "he was compelled to deplane on the grounds that his papers were fake."39

Fundamental in the law on damages is that one injured by a breach of a contract, or by a wrongful or negligent act or omission shall have a fair and just compensation commensurate to the loss sustained as consequence of the defendant's act. Being discretionary on the court, the amount, however, should not be palpably and scandalously excessive. Here, the trial court's award of P1,000,000.00 as moral damages appears to be overblown. No other proof of appellee's social standing, profession, financial capabilities was presented except that he was single and a businessman. To Us, the sum of 500,000.00 is just and fair. For, moral damages are emphatically not intended to enrich a complainant at the expense of the defendant. They are awarded only to enable the injured party to obtain means, diversion or amusements that will serve to alleviate the moral suffering he has undergone, by reason of the defendant's culpable action.

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Moreover, the grant of P500,000.00 as exemplary damages needs to be reduced to a reasonable level. The award of exemplary damages is designed to permit the courts to mould behavior that has socially deleterious consequences and its imposition is required by public policy to suppress the wanton acts of the offender. Hence, the sum of P250,000.00 is adequate under the circumstances.

B. ASSUMING ARGUENDO THAT JAL WAS GUILTY OF BREACH, JAL DID NOT ACT IN A WANTON FRAUDULENT, RECKLESS, OPPRESSIVE OR MALEVOLENT MANNER AS TO ENTITLE RESPONDENT TO EXEMPLARY DAMAGES. III.

The award of P250,000.00 as attorney's fees lacks factual basis. Appellee was definitely compelled to litigate in protecting his rights and in seeking relief from appellant's misdeeds. Yet, the record is devoid of evidence to show the cost of the services of his counsel and/or the actual expenses incurred in prosecuting his action.43(Citations were omitted) When JAL's motion for reconsideration was denied, it resorted to the petition at bar.

ASSUMING ARGUENDO THAT RESPONDENT WAS ENTITLED TO AN AWARD OF DAMAGES, WHETHER OR NOT THE COURT OF APPEALS AWARD OF P750,000 IN DAMAGES WAS EXCESSIVEAND UNPRECEDENTED. IV. WHETHER OR NOT THE COURT OF APPEALS ERRED IN NOT FINDING FOR JAL ON ITS COUNTERCLAIM.44 (Underscoring Ours)

Issues JAL poses the following issues I. WHETHER OR NOT THE COURT OF APPEALS ERRED IN RULING THAT RESPONDENT WAS ENTITLED TO MORAL DAMAGES, CONSIDERING THAT:

Basically, there are three (3) issues to resolve here: (1) whether or not JAL is guilty of contract of carriage; (2) whether or not respondent is entitled to moral and exemplary damages; and (3) whether or not JAL is entitled to its counterclaim for damages. Our Ruling This Court is not a trier of facts.

A. JAL WAS NOT GUILTY OF BREACH OF CONTRACT. B. MORAL DAMAGES MAY BE AWARDED IN BREACH OF CONTRACT CASES ONLY WHEN THE BREACH IS ATTENDED BY FRAUD OR BAD FAITH. ASSUMING ARGUENDO THAT JAL WAS GUILTY OF BREACH, JAL DID NOT ACT FRAUDULENTLY OR IN BAD FAITH AS TO ENTITLE RESPONDENT TO MORAL DAMAGES. C. THE LAW DISTINGUISHES A CONTRACTUAL BREACH EFFECTED IN GOOD FAITH FROM ONE ATTENDED BY BAD FAITH. II. WHETHER OR NOT THE COURT OF APPEALS ERRED IN RULING THAT RESPONDENT WAS ENTITLED TO EXEMPLARY DAMAGES CONSIDERING THAT: A. EXEMPLARY DAMAGES ARE NOT RECOVERABLE IN BREACH OF CONTRACT OF CARRIAGE UNLESS THE CARRIER IS GUILTY OF WANTON, FRAUDULENT, RECKLESS, OPPRESSIVE OR MALEVOLENT CONDUCT.

Chiefly, the issues are factual. The RTC findings of facts were affirmed by the CA. The CA also gave its nod to the reasoning of the RTC except as to the awards of damages, which were reduced, and that of attorney's fees, which was deleted. We are not a trier of facts. We generally rely upon, and are bound by, the conclusions on this matter of the lower courts, which are better equipped and have better opportunity to assess the evidence first-hand, including the testimony of the witnesses.45 We have repeatedly held that the findings of fact of the CA are final and conclusive and cannot be reviewed on appeal to the Supreme Court provided they are based on substantial evidence.46 We have no jurisdiction, as a rule, to reverse their findings.47 Among the exceptions to this rule are: (a) when the conclusion is a finding grounded entirely on speculations, surmises or conjectures; (b) when the inference made is manifestly mistaken, absurd or impossible; (c) where there is grave abuse of discretion; (d) when the judgment is based on a misapprehension of facts; (e) when the findings of facts are conflicting; (f) when the CA, in making its findings, went beyond the issues of the case and the same is contrary to the admissions of both appellant and appellee.48 The said exceptions, which are being invoked by JAL, are not found here. There is no indication that the findings of the CA are contrary to the evidence on record or that vital testimonies of

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JAL's witnesses were disregarded. Neither did the CA commit misapprehension of facts nor did it fail to consider relevant facts. Likewise, there was no grave abuse of discretion in the appreciation of facts or mistaken and absurd inferences.

Moreover, the reason behind the bumping off incident, as found by the RTC and CA, was that JAL personnel imputed that respondent would only use the trip to the United States as a pretext to stay and work in Japan.59

We thus sustain the coherent facts as established by the courts below, there being no sufficient showing that the said courts committed reversible error in reaching their conclusions.

Apart from the fact that respondent's plane ticket, boarding pass, travel authority and personal articles already passed the rigid immigration and security routines,60 JAL, as a common carrier, ought to know the kind of valid travel documents respondent carried. As provided in Article 1755 of the New Civil Code: "A common carrier is bound to carry the passengers safely as far as human care and foresight can provide, using the utmost diligence of very cautious persons, with a due regard for all the circumstances."61 Thus, We find untenable JAL's defense of "verification of respondent's documents" in its breach of contract of carriage.

JAL is contract of carriage.

guilty

of

breach

of

That respondent purchased a round trip plane ticket from JAL and was issued the corresponding boarding pass is uncontroverted. 49 His plane ticket, boarding pass, travel authority and personal articles were subjected to rigid immigration and security procedure.50 After passing through said immigration and security procedure, he was allowed by JAL to enter its airplane to fly to Los Angeles, California, U.S.A. via Narita, Japan.51 Concisely, there was a contract of carriage between JAL and respondent. Nevertheless, JAL made respondent get off the plane on his scheduled departure on July 29, 1992. He was not allowed by JAL to fly. JAL thus failed to comply with its obligation under the contract of carriage. JAL justifies its action by arguing that there was "a need to verify the authenticity of respondent's travel document."52 It alleged that no one from its airport staff had encountered a parole visa before.53 It further contended that respondent agreed to fly the next day so that it could first verify his travel document, hence, there was novation.54 It maintained that it was not guilty of breach of contract of carriage as respondent was not able to travel to the United States due to his own voluntary desistance.55 We cannot agree. JAL did not allow respondent to fly. It informed respondent that there was a need to first check the authenticity of his travel documents with the U.S. Embassy. 56 As admitted by JAL, "the flight could not wait for Mr. Simangan because it was ready to depart."57 Since JAL definitely declared that the flight could not wait for respondent, it gave respondent no choice but to be left behind. The latter was unceremoniously bumped off despite his protestations and valid travel documents and notwithstanding his contract of carriage with JAL. Damage had already been done when respondent was offered to fly the next day on July 30, 1992. Said offer did not cure JAL's default. Considering that respondent was forced to get out of the plane and left behind against his will, he could not have freely consented to be rebooked the next day. In short, he did not agree to the alleged novation. Since novation implies a waiver of the right the creditor had before the novation, such waiver must be express. 58 It cannot be supposed, without clear proof, that respondent had willingly done away with his right to fly on July 29, 1992.

It bears repeating that the power to admit or not an alien into the country is a sovereign act which cannot be interfered with even by JAL.62 In an action for breach of contract of carriage, all that is required of plaintiff is to prove the existence of such contract and its non-performance by the carrier through the latter's failure to carry the passenger safely to his destination.63Respondent has complied with these twin requisites. Respondent is entitled to moral and exemplary damages and attorney's fees plus legal interest. With reference to moral damages, JAL alleged that they are not recoverable in actions ex contractu except only when the breach is attended by fraud or bad faith. It is contended that it did not act fraudulently or in bad faith towards respondent, hence, it may not be held liable for moral damages. As a general rule, moral damages are not recoverable in actions for damages predicated on a breach of contract for it is not one of the items enumerated under Article 2219 of the Civil Code.64 As an exception, such damages are recoverable: (1) in cases in which the mishap results in the death of a passenger, as provided in Article 1764, in relation to Article 2206(3) of the Civil Code; and (2) in the cases in which the carrier is guilty of fraud or bad faith, as provided in Article 2220.65 The acts committed by JAL against respondent amounts to bad faith. As found by the RTC, JAL breached its contract of carriage with respondent in bad faith. JAL personnel summarily and insolently ordered respondent to disembark while the latter was already settled in his assigned seat. He was ordered out of the plane under the alleged reason that the genuineness of his travel documents should be verified. These findings of facts were upheld by the CA, to wit: x x x he was haughtily ejected by appellant. He was certainly embarrassed and humiliated when, in the presence of other passengers, the appellant's airline staff

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shouted at him to stand up and arrogantly asked him to produce his travel papers, without the least courtesy every human being is entitled to. Then, he was compelled to deplane on the grounds that his papers were fake. His protestation of having been issued a U.S. visa coupled with his plea to appellant to closely monitor his movements when the aircraft stops over in Narita, were ignored. Worse, he was made to wait for many hours at the office of appellant only to be told later that he has valid travel documents.66 (Underscoring ours) Clearly, JAL is liable for moral damages. It is firmly settled that moral damages are recoverable in suits predicated on breach of a contract of carriage where it is proved that the carrier was guilty of fraud or bad faith, as in this case. Inattention to and lack of care for the interests of its passengers who are entitled to its utmost consideration, particularly as to their convenience, amount to bad faith which entitles the passenger to an award of moral damages. What the law considers as bad faith which may furnish the ground for an award of moral damages would be bad faith in securing the contract and in the execution thereof, as well as in the enforcement of its terms, or any other kind of deceit.67 JAL is also liable for exemplary damages as its above-mentioned acts constitute wanton, oppressive and malevolent acts against respondent. Exemplary damages, which are awarded by way of example or correction for the public good, may be recovered in contractual obligations, as in this case, if defendant acted in wanton, fraudulent, reckless, oppressive, or malevolent manner.68 Exemplary damages are designed by our civil law to permit the courts to reshape behaviour that is socially deleterious in its consequence by creating negative incentives or deterrents against such behaviour. In requiring compliance with the standard of extraordinary diligence, a standard which is, in fact, that of the highest possible degree of diligence, from common carriers and in creating a presumption of negligence against them, the law seeks to compel them to control their employees, to tame their reckless instincts and to force them to take adequate care of human beings and their property.69 Neglect or malfeasance of the carrier's employees could give ground for an action for damages. Passengers have a right to be treated by the carrier's employees with kindness, respect, courtesy and due consideration and are entitled to be protected against personal misconduct, injurious language, indignities and abuses from such employees.70 The assessment of P500,000.00 as moral damages and P100,000.00 as exemplary damages in respondent's favor is, in Our view, reasonable and realistic. This award is reasonably sufficient to indemnify him for the humiliation and embarrassment he suffered. This also serves as an example to discourage the repetition of similar oppressive acts. With respect to attorney's fees, they may be awarded when defendant's act or omission has compelled plaintiff to litigate with third persons or to incur expenses to protect his interest.71 The Court, in Construction Development Corporation of the Philippines v. Estrella,72 citing Traders Royal Bank Employees Union-Independent v. National Labor Relations Commission,73 elucidated thus:

There are two commonly accepted concepts of attorney's fees, the so-called ordinary and extraordinary. In its ordinary concept, an attorney's fee is the reasonable compensation paid to a lawyer by his client for the legal services he has rendered to the latter. The basis of this compensation is the fact of his employment by and his agreement with the client. In its extraordinary concept, an attorney's fee is an indemnity for damages ordered by the court to be paid by the losing party in a litigation. The basis of this is any of the cases provided by law where such award can be made, such as those authorized in Article 2208, Civil Code, and is payable not to the lawyer but to the client, unless they have agreed that the award shall pertain to the lawyer as additional compensation or as part thereof.74 It was therefore erroneous for the CA to delete the award of attorney's fees on the ground that the record is devoid of evidence to show the cost of the services of respondent's counsel. The amount is actually discretionary upon the Court so long as it passes the test of reasonableness. They may be recovered as actual or compensatory damages when exemplary damages are awarded and whenever the court deems it just and equitable,75 as in this case. Considering the factual backdrop of this case, attorney's fees in the amount of P200,000.00 is reasonably modest. The above liabilities of JAL in the total amount of P800,000.00 earn legal interest pursuant to the Court's ruling in Construction Development Corporation of the Philippines v. Estrella,76 citing Eastern Shipping Lines, Inc. v. Court of Appeals,77 to wit: Regarding the imposition of legal interest at the rate of 6% from the time of the filing of the complaint, we held in Eastern Shipping Lines, Inc. v. Court of Appeals, that when an obligation, regardless of its source, i.e., law, contracts, quasi-contracts, delicts or quasi-delicts is breached, the contravenor can be held liable for payment of interest in the concept of actual and compensatory damages, subject to the following rules, to wit 1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or forbearance of money, the interest due should be that which may have been stipulated in writing. Furthermore, the interest due shall itself earn legal interest from the time it is judicially demanded. In the absence of stipulation, the rate of interest shall be 12% per annum to be computed from default, i.e., from judicial or extrajudicial demand under and subject to the provisions of Article 1169 of the Civil Code. 2. When an obligation, not constituting a loan or forbearance of money, is breached, an interest on the amount of damages awarded may be imposed at the discretion of the court at the rate of 6% per annum. No interest, however, shall be adjudged on unliquidated claims or damages except

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when or until the demand can be established with reasonable certainty. Accordingly, where the demand is established with reasonable certainty, the interest shall begin to run from the time the claim is made judicially or extrajudicially (Art. 1169, Civil Code) but when such certainty cannot be so reasonably established at the time the demand is made, the interest shall begin to run only from the date the judgment of the court is made (at which time the quantification of damages may be deemed to have been reasonably ascertained). The actual base for the computation of legal interest shall, in any case, be on the amount finally adjudged. 3. When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be 12% per annum from such finality until its satisfaction, this interim period being deemed to be by then an equivalent to a forbearance of credit.78 (Emphasis supplied and citations omitted) Accordingly, in addition to the said total amount of P800,000.00, JAL is liable to pay respondent legal interest. Pursuant to the above ruling of the Court, the legal interest is 6% and it shall be reckoned from September 21, 2000 when the RTC rendered its judgment. From the time this Decision becomes final and executory, the interest rate shall be 12% until its satisfaction. JAL is not entitled to its counterclaim for damages. The counterclaim of JAL in its Answer79 is a compulsory counterclaim for damages and attorney's fees arising from the filing of the complaint. There is no mention of any other counter claims. This compulsory counterclaim of JAL arising from the filing of the complaint may not be granted inasmuch as the complaint against it is obviously not malicious or unfounded. It was filed by respondent precisely to claim his right to damages against JAL. Well-settled is the rule that the commencement of an action does not per se make the action wrongful and subject the action to damages, for the law could not have meant to impose a penalty on the right to litigate.80 We reiterate case law that if damages result from a party's exercise of a right, it is damnum absque injuria.81 Lawful acts give rise to no injury. Walang perhuwisyong maaring idulot ang paggamit sa sariling karapatan. During the trial, however, JAL presented a witness who testified that JAL suffered further damages. Allegedly, respondent caused the publications of his subject complaint against JAL in the newspaper for which JAL suffered damages.82 Although these additional damages allegedly suffered by JAL were not incorporated in its Answer as they arose subsequent to its filing, JAL's witness was able to testify on the same

before the RTC.83 Hence, although these issues were not raised by the pleadings, they shall be treated in all respects as if they had been raised in the pleadings. As provided in Section 5, Rule 10 of the Rules of Court, "(w)hen issues not raised by the pleadings are tried with the express or implied consent of the parties, they shall be treated in all respects as if they had been raised in the pleadings." Nevertheless, JAL's counterclaim cannot be granted. JAL is a common carrier. JAL's business is mainly with the traveling public. It invites people to avail themselves of the comforts and advantages it offers.84 Since JAL deals with the public, its bumping off of respondent without a valid reason naturally drew public attention and generated a public issue. The publications involved matters about which the public has the right to be informed because they relate to a public issue. This public issue or concern is a legitimate topic of a public comment that may be validly published. Assuming that respondent, indeed, caused the publication of his complaint, he may not be held liable for damages for it. The constitutional guarantee of freedom of the speech and of the press includes fair commentaries on matters of public interest. This is explained by the Court in Borjal v. Court of Appeals,85 to wit: To reiterate, fair commentaries on matters of public interest are privileged and constitute a valid defense in an action for libel or slander. The doctrine of fair comment means that while in general every discreditable imputation publicly made is deemed false, because every man is presumed innocent until his guilt is judicially proved, and every false imputation is deemed malicious, nevertheless, when the discreditable imputation is directed against a public person in his public capacity, it is not necessarily actionable. In order that such discreditable imputation to a public official may be actionable, it must either be a false allegation of fact or a comment based on a false supposition. If the comment is an expression of opinion, based on established facts, then it is immaterial that the opinion happens to be mistaken, as long as it might reasonably be inferred from the facts.86 (Citations omitted and underscoring ours) Even though JAL is not a public official, the rule on privileged commentaries on matters of public interest applies to it. The privilege applies not only to public officials but extends to a great variety of subjects, and includes matters of public concern, public men, and candidates for office.87 Hence, pursuant to the Borjal case, there must be an actual malice in order that a discreditable imputation to a public person in his public capacity or to a public official may be actionable. To be considered malicious, the libelous statements must be shown to have been written or

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published with the knowledge that they are false or in reckless disregard of whether they are false or not.88 Considering that the published articles involve matters of public interest and that its expressed opinion is not malicious but based on established facts, the imputations against JAL are not actionable. Therefore, JAL may not claim damages for them. WHEREFORE, the petition is DENIED. The appealed Decision of the Court of Appeals is AFFIRMED WITH MODIFICATION. As modified, petitioner Japan Airlines is ordered to pay respondent Jesus Simangan the following: (1) P500,000.00 as moral damages; (2) P100,000.00 as exemplary damages; and (3) P200,000.00 as attorney's fees. The total amount adjudged shall earn legal interest at the rate of 6% per annum from the date of judgment of the Regional Trial Court on September 21, 2000 until the finality of this Decision. From the time this Decision becomes final and executory, the unpaid amount, if any, shall earn legal interest at the rate of 12% per annum until its satisfaction. SO ORDERED.

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G.R. No. 150843

March 14, 2003

CATHAY PACIFIC AIRWAYS, LTD., petitioner, vs. SPOUSES DANIEL VAZQUEZ and MARIA LUISA MADRIGAL VAZQUEZ, respondents. DAVIDE, JR., C.J.: Is an involuntary upgrading of an airline passenger’s accommodation from one class to a more superior class at no extra cost a breach of contract of carriage that would entitle the passenger to an award of damages? This is a novel question that has to be resolved in this case. The facts in this case, as found by the Court of Appeals and adopted by petitioner Cathay Pacific Airways, Ltd., (hereinafter Cathay) are as follows: Cathay is a common carrier engaged in the business of transporting passengers and goods by air. Among the many routes it services is the Manila-Hongkong-Manila course. As part of its marketing strategy, Cathay accords its frequent flyers membership in its Marco Polo Club. The members enjoy several privileges, such as priority for upgrading of booking without any extra charge whenever an opportunity arises. Thus, a frequent flyer booked in the Business Class has priority for upgrading to First Class if the Business Class Section is fully booked. Respondents-spouses Dr. Daniel Earnshaw Vazquez and Maria Luisa Madrigal Vazquez are frequent flyers of Cathay and are Gold Card members of its Marco Polo Club. On 24 September 1996, the Vazquezes, together with their maid and two friends Pacita Cruz and Josefina Vergel de Dios, went to Hongkong for pleasure and business. For their return flight to Manila on 28 September 1996, they were booked on Cathay’s Flight CX-905, with departure time at 9:20 p.m. Two hours before their time of departure, the Vazquezes and their companions checked in their luggage at Cathay’s check-in counter at Kai Tak Airport and were given their respective boarding passes, to wit, Business Class boarding passes for the Vazquezes and their two friends, and Economy Class for their maid. They then proceeded to the Business Class passenger lounge. When boarding time was announced, the Vazquezes and their two friends went to Departure Gate No. 28, which was designated for Business Class passengers. Dr. Vazquez presented his boarding pass to the ground stewardess, who in turn inserted it into an electronic machine reader or computer at the gate. The ground stewardess was assisted by a ground attendant by the name of Clara Lai Han Chiu. When Ms. Chiu glanced at the computer monitor, she saw a message that there was a "seat change" from Business Class to First Class for the Vazquezes. Ms. Chiu approached Dr. Vazquez and told him that the Vazquezes’ accommodations were upgraded to First Class. Dr. Vazquez refused the upgrade, reasoning that it would not look nice for them as hosts to travel in First Class and their guests, in the Business Class; and moreover, they were going to discuss business matters during the flight. He also told Ms. Chiu that she

could have other passengers instead transferred to the First Class Section. Taken aback by the refusal for upgrading, Ms. Chiu consulted her supervisor, who told her to handle the situation and convince the Vazquezes to accept the upgrading. Ms. Chiu informed the latter that the Business Class was fully booked, and that since they were Marco Polo Club members they had the priority to be upgraded to the First Class. Dr. Vazquez continued to refuse, so Ms. Chiu told them that if they would not avail themselves of the privilege, they would not be allowed to take the flight. Eventually, after talking to his two friends, Dr. Vazquez gave in. He and Mrs. Vazquez then proceeded to the First Class Cabin. Upon their return to Manila, the Vazquezes, in a letter of 2 October 1996 addressed to Cathay’s Country Manager, demanded that they be indemnified in the amount of P1million for the "humiliation and embarrassment" caused by its employees. They also demanded "a written apology from the management of Cathay, preferably a responsible person with a rank of no less than the Country Manager, as well as the apology from Ms. Chiu" within fifteen days from receipt of the letter. In his reply of 14 October 1996, Mr. Larry Yuen, the assistant to Cathay’s Country Manager Argus Guy Robson, informed the Vazquezes that Cathay would investigate the incident and get back to them within a week’s time. On 8 November 1996, after Cathay’s failure to give them any feedback within its self-imposed deadline, the Vazquezes instituted before the Regional Trial Court of Makati City an action for damages against Cathay, praying for the payment to each of them the amounts of P250,000 as temperate damages; P500,000 as moral damages; P500,000 as exemplary or corrective damages; and P250,000 as attorney’s fees. In their complaint, the Vazquezes alleged that when they informed Ms. Chiu that they preferred to stay in Business Class, Ms. Chiu "obstinately, uncompromisingly and in a loud, discourteous and harsh voice threatened" that they could not board and leave with the flight unless they go to First Class, since the Business Class was overbooked. Ms. Chiu’s loud and stringent shouting annoyed, embarrassed, and humiliated them because the incident was witnessed by all the other passengers waiting for boarding. They also claimed that they were unjustifiably delayed to board the plane, and when they were finally permitted to get into the aircraft, the forward storage compartment was already full. A flight stewardess instructed Dr. Vazquez to put his roll-on luggage in the overhead storage compartment. Because he was not assisted by any of the crew in putting up his luggage, his bilateral carpal tunnel syndrome was aggravated, causing him extreme pain on his arm and wrist. The Vazquezes also averred that they "belong to the uppermost and absolutely top elite of both Philippine Society and the Philippine financial community, [and that] they were among the wealthiest persons in the Philippine[s]." In its answer, Cathay alleged that it is a practice among commercial airlines to upgrade passengers to the next better class of accommodation, whenever an opportunity arises, such as when a certain section is fully booked. Priority in upgrading is given to its frequent flyers, who are considered favored passengers like the Vazquezes. Thus, when the Business Class Section of Flight CX-905 was fully booked, Cathay’s computer sorted out the names of favored

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passengers for involuntary upgrading to First Class. When Ms. Chiu informed the Vazquezes that they were upgraded to First Class, Dr. Vazquez refused. He then stood at the entrance of the boarding apron, blocking the queue of passengers from boarding the plane, which inconvenienced other passengers. He shouted that it was impossible for him and his wife to be upgraded without his two friends who were traveling with them. Because of Dr. Vazquez’s outburst, Ms. Chiu thought of upgrading the traveling companions of the Vazquezes. But when she checked the computer, she learned that the Vazquezes’ companions did not have priority for upgrading. She then tried to book the Vazquezes again to their original seats. However, since the Business Class Section was already fully booked, she politely informed Dr. Vazquez of such fact and explained that the upgrading was in recognition of their status as Cathay’s valued passengers. Finally, after talking to their guests, the Vazquezes eventually decided to take the First Class accommodation. Cathay also asserted that its employees at the Hong Kong airport acted in good faith in dealing with the Vazquezes; none of them shouted, humiliated, embarrassed, or committed any act of disrespect against them (the Vazquezes). Assuming that there was indeed a breach of contractual obligation, Cathay acted in good faith, which negates any basis for their claim for temperate, moral, and exemplary damages and attorney’s fees. Hence, it prayed for the dismissal of the complaint and for payment of P100,000 for exemplary damages and P300,000 as attorney’s fees and litigation expenses. During the trial, Dr. Vazquez testified to support the allegations in the complaint. His testimony was corroborated by his two friends who were with him at the time of the incident, namely, Pacita G. Cruz and Josefina Vergel de Dios. For its part, Cathay presented documentary evidence and the testimonies of Mr. Yuen; Ms. Chiu; Norma Barrientos, Comptroller of its retained counsel; and Mr. Robson. Yuen and Robson testified on Cathay’s policy of upgrading the seat accommodation of its Marco Polo Club members when an opportunity arises. The upgrading of the Vazquezes to First Class was done in good faith; in fact, the First Class Section is definitely much better than the Business Class in terms of comfort, quality of food, and service from the cabin crew. They also testified that overbooking is a widely accepted practice in the airline industry and is in accordance with the International Air Transport Association (IATA) regulations. Airlines overbook because a lot of passengers do not show up for their flight. With respect to Flight CX-905, there was no overall overbooking to a degree that a passenger was bumped off or downgraded. Yuen and Robson also stated that the demand letter of the Vazquezes was immediately acted upon. Reports were gathered from their office in Hong Kong and immediately forwarded to their counsel Atty. Remollo for legal advice. However, Atty. Remollo begged off because his services were likewise retained by the Vazquezes; nonetheless, he undertook to solve the problem in behalf of Cathay. But nothing happened until Cathay received a copy of the complaint in this case. For her part, Ms. Chiu denied that she shouted or used foul or impolite language against the Vazquezes. Ms. Barrientos testified on the amount of attorney’s fees and other litigation expenses, such as those for the taking of the depositions of Yuen and Chiu. In its decision1 of 19 October 1998, the trial court found for the Vazquezes and decreed as follows:

WHEREFORE, finding preponderance of evidence to sustain the instant complaint, judgment is hereby rendered in favor of plaintiffs Vazquez spouses and against defendant Cathay Pacific Airways, Ltd., ordering the latter to pay each plaintiff the following: a) Nominal damages in the amount of P100,000.00 for each plaintiff; b) Moral damages in the amount of P2,000,000.00 for each plaintiff; c) Exemplary damages in the amount of P5,000,000.00 for each plaintiff; d) Attorney’s fees and expenses of litigation in the amount of P1,000,000.00 for each plaintiff; and e) Costs of suit. SO ORDERED. According to the trial court, Cathay offers various classes of seats from which passengers are allowed to choose regardless of their reasons or motives, whether it be due to budgetary constraints or whim. The choice imposes a clear obligation on Cathay to transport the passengers in the class chosen by them. The carrier cannot, without exposing itself to liability, force a passenger to involuntarily change his choice. The upgrading of the Vazquezes’ accommodation over and above their vehement objections was due to the overbooking of the Business Class. It was a pretext to pack as many passengers as possible into the plane to maximize Cathay’s revenues. Cathay’s actuations in this case displayed deceit, gross negligence, and bad faith, which entitled the Vazquezes to awards for damages. On appeal by the petitioners, the Court of Appeals, in its decision of 24 July 2001,2 deleted the award for exemplary damages; and it reduced the awards for moral and nominal damages for each of the Vazquezes to P250,000 and P50,000, respectively, and the attorney’s fees and litigation expenses to P50,000 for both of them. The Court of Appeals ratiocinated that by upgrading the Vazquezes to First Class, Cathay novated the contract of carriage without the former’s consent. There was a breach of contract not because Cathay overbooked the Business Class Section of Flight CX-905 but because the latter pushed through with the upgrading despite the objections of the Vazquezes. However, the Court of Appeals was not convinced that Ms. Chiu shouted at, or meant to be discourteous to, Dr. Vazquez, although it might seemed that way to the latter, who was a member of the elite in Philippine society and was not therefore used to being harangued by anybody. Ms. Chiu was a Hong Kong Chinese whose fractured Chinese was difficult to understand and whose manner of speaking might sound harsh or shrill to Filipinos because of cultural differences. But the Court of Appeals did not find her to have acted with deliberate malice, deceit, gross negligence, or bad faith. If at all, she was negligent in not offering the First

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Class accommodations to other passengers. Neither can the flight stewardess in the First Class Cabin be said to have been in bad faith when she failed to assist Dr. Vazquez in lifting his baggage into the overhead storage bin. There is no proof that he asked for help and was refused even after saying that he was suffering from "bilateral carpal tunnel syndrome." Anent the delay of Yuen in responding to the demand letter of the Vazquezes, the Court of Appeals found it to have been sufficiently explained.

The only problem is the legal effect of the upgrading of the seat accommodation of the Vazquezes. Did it constitute a breach of contract?

The Vazquezes and Cathay separately filed motions for a reconsideration of the decision, both of which were denied by the Court of Appeals.

In previous cases, the breach of contract of carriage consisted in either the bumping off of a passenger with confirmed reservation or the downgrading of a passenger’s seat accommodation from one class to a lower class. In this case, what happened was the reverse. The contract between the parties was for Cathay to transport the Vazquezes to Manila on a Business Class accommodation in Flight CX-905. After checking-in their luggage at the Kai Tak Airport in Hong Kong, the Vazquezes were given boarding cards indicating their seat assignments in the Business Class Section. However, during the boarding time, when the Vazquezes presented their boarding passes, they were informed that they had a seat change from Business Class to First Class. It turned out that the Business Class was overbooked in that there were more passengers than the number of seats. Thus, the seat assignments of the Vazquezes were given to waitlisted passengers, and the Vazquezes, being members of the Marco Polo Club, were upgraded from Business Class to First Class.

Cathay seasonably filed with us this petition in this case. Cathay maintains that the award for moral damages has no basis, since the Court of Appeals found that there was no "wanton, fraudulent, reckless and oppressive" display of manners on the part of its personnel; and that the breach of contract was not attended by fraud, malice, or bad faith. If any damage had been suffered by the Vazquezes, it was damnum absque injuria, which is damage without injury, damage or injury inflicted without injustice, loss or damage without violation of a legal right, or a wrong done to a man for which the law provides no remedy. Cathay also invokes our decision in United Airlines, Inc. v. Court of Appeals3 where we recognized that, in accordance with the Civil Aeronautics Board’s Economic Regulation No. 7, as amended, an overbooking that does not exceed ten percent cannot be considered deliberate and done in bad faith. We thus deleted in that case the awards for moral and exemplary damages, as well as attorney’s fees, for lack of proof of overbooking exceeding ten percent or of bad faith on the part of the airline carrier. On the other hand, the Vazquezes assert that the Court of Appeals was correct in granting awards for moral and nominal damages and attorney’s fees in view of the breach of contract committed by Cathay for transferring them from the Business Class to First Class Section without prior notice or consent and over their vigorous objection. They likewise argue that the issuance of passenger tickets more than the seating capacity of each section of the plane is in itself fraudulent, malicious and tainted with bad faith. The key issues for our consideration are whether (1) by upgrading the seat accommodation of the Vazquezes from Business Class to First Class Cathay breached its contract of carriage with the Vazquezes; (2) the upgrading was tainted with fraud or bad faith; and (3) the Vazquezes are entitled to damages.

Breach of contract is defined as the "failure without legal reason to comply with the terms of a contract."5 It is also defined as the "[f]ailure, without legal excuse, to perform any promise which forms the whole or part of the contract."6

We note that in all their pleadings, the Vazquezes never denied that they were members of Cathay’s Marco Polo Club. They knew that as members of the Club, they had priority for upgrading of their seat accommodation at no extra cost when an opportunity arises. But, just like other privileges, such priority could be waived. The Vazquezes should have been consulted first whether they wanted to avail themselves of the privilege or would consent to a change of seat accommodation before their seat assignments were given to other passengers. Normally, one would appreciate and accept an upgrading, for it would mean a better accommodation. But, whatever their reason was and however odd it might be, the Vazquezes had every right to decline the upgrade and insist on the Business Class accommodation they had booked for and which was designated in their boarding passes. They clearly waived their priority or preference when they asked that other passengers be given the upgrade. It should not have been imposed on them over their vehement objection. By insisting on the upgrade, Cathay breached its contract of carriage with the Vazquezes. We are not, however, convinced that the upgrading or the breach of contract was attended by fraud or bad faith. Thus, we resolve the second issue in the negative.

We resolve the first issue in the affirmative. A contract is a meeting of minds between two persons whereby one agrees to give something or render some service to another for a consideration. There is no contract unless the following requisites concur: (1) consent of the contracting parties; (2) an object certain which is the subject of the contract; and (3) the cause of the obligation which is established.4 Undoubtedly, a contract of carriage existed between Cathay and the Vazquezes. They voluntarily and freely gave their consent to an agreement whose object was the transportation of the Vazquezes from Manila to Hong Kong and back to Manila, with seats in the Business Class Section of the aircraft, and whose cause or consideration was the fare paid by the Vazquezes to Cathay.

Bad faith and fraud are allegations of fact that demand clear and convincing proof. They are serious accusations that can be so conveniently and casually invoked, and that is why they are never presumed. They amount to mere slogans or mudslinging unless convincingly substantiated by whoever is alleging them. Fraud has been defined to include an inducement through insidious machination. Insidious machination refers to a deceitful scheme or plot with an evil or devious purpose. Deceit exists where the party, with intent to deceive, conceals or omits to state material facts and, by reason

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of such omission or concealment, the other party was induced to give consent that would not otherwise have been given.7

The Court of Appeals awarded each of the Vazquezes moral damages in the amount of P250,000. Article 2220 of the Civil Code provides:

Bad faith does not simply connote bad judgment or negligence; it imports a dishonest purpose or some moral obliquity and conscious doing of a wrong, a breach of a known duty through some motive or interest or ill will that partakes of the nature of fraud.8

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

We find no persuasive proof of fraud or bad faith in this case. The Vazquezes were not induced to agree to the upgrading through insidious words or deceitful machination or through willful concealment of material facts. Upon boarding, Ms. Chiu told the Vazquezes that their accommodations were upgraded to First Class in view of their being Gold Card members of Cathay’s Marco Polo Club. She was honest in telling them that their seats were already given to other passengers and the Business Class Section was fully booked. Ms. Chiu might have failed to consider the remedy of offering the First Class seats to other passengers. But, we find no bad faith in her failure to do so, even if that amounted to an exercise of poor judgment. Neither was the transfer of the Vazquezes effected for some evil or devious purpose. As testified to by Mr. Robson, the First Class Section is better than the Business Class Section in terms of comfort, quality of food, and service from the cabin crew; thus, the difference in fare between the First Class and Business Class at that time was $250. 9Needless to state, an upgrading is for the better condition and, definitely, for the benefit of the passenger. We are not persuaded by the Vazquezes’ argument that the overbooking of the Business Class Section constituted bad faith on the part of Cathay. Section 3 of the Economic Regulation No. 7 of the Civil Aeronautics Board, as amended, provides: Sec 3. Scope. – This regulation shall apply to every Philippine and foreign air carrier with respect to its operation of flights or portions of flights originating from or terminating at, or serving a point within the territory of the Republic of the Philippines insofar as it denies boarding to a passenger on a flight, or portion of a flight inside or outside the Philippines, for which he holds confirmed reserved space. Furthermore, this Regulation is designed to cover only honest mistakes on the part of the carriers and excludes deliberate and willful acts of non-accommodation. Provided, however, that overbooking not exceeding 10% of the seating capacity of the aircraft shall not be considered as a deliberate and willful act of nonaccommodation. It is clear from this section that an overbooking that does not exceed ten percent is not considered deliberate and therefore does not amount to bad faith. 10 Here, while there was admittedly an overbooking of the Business Class, there was no evidence of overbooking of the plane beyond ten percent, and no passenger was ever bumped off or was refused to board the aircraft. Now we come to the third issue on damages.

Moral damages include physical suffering, mental anguish, fright, serious anxiety, besmirched reputation, wounded feelings, moral shock, social humiliation, and similar injury. Although incapable of pecuniary computation, moral damages may be recovered if they are the proximate result of the defendant’s wrongful act or omission.11 Thus, case law establishes the following requisites for the award of moral damages: (1) there must be an injury clearly sustained by the claimant, whether physical, mental or psychological; (2) there must be a culpable act or omission factually established; (3) the wrongful act or omission of the defendant is the proximate cause of the injury sustained by the claimant; and (4) the award for damages is predicated on any of the cases stated in Article 2219 of the Civil Code.12 Moral damages predicated upon a breach of contract of carriage may only be recoverable in instances where the carrier is guilty of fraud or bad faith or where the mishap resulted in the death of a passenger.13 Where in breaching the contract of carriage the airline is not shown to have acted fraudulently or in bad faith, liability for damages is limited to the natural and probable consequences of the breach of the obligation which the parties had foreseen or could have reasonably foreseen. In such a case the liability does not include moral and exemplary damages.14 In this case, we have ruled that the breach of contract of carriage, which consisted in the involuntary upgrading of the Vazquezes’ seat accommodation, was not attended by fraud or bad faith. The Court of Appeals’ award of moral damages has, therefore, no leg to stand on. The deletion of the award for exemplary damages by the Court of Appeals is correct. It is a requisite in the grant of exemplary damages that the act of the offender must be accompanied by bad faith or done in wanton, fraudulent or malevolent manner.15 Such requisite is absent in this case. Moreover, to be entitled thereto the claimant must first establish his right to moral, temperate, or compensatory damages.16 Since the Vazquezes are not entitled to any of these damages, the award for exemplary damages has no legal basis. And where the awards for moral and exemplary damages are eliminated, so must the award for attorney’s fees.17 The most that can be adjudged in favor of the Vazquezes for Cathay’s breach of contract is an award for nominal damages under Article 2221 of the Civil Code, which reads as follows: Article 2221 of the Civil Code provides: Article 2221. Nominal damages are adjudicated in order that a right of the plaintiff, which has been violated or invaded by the defendant, may be vindicated or

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recognized, and not for the purpose of indemnifying the plaintiff for any loss suffered by him.

Nonetheless, we agree with the injunction expressed by the Court of Appeals that passengers must not prey on international airlines for damage awards, like "trophies in a safari." After all neither the social standing nor prestige of the passenger should determine the extent to which he would suffer because of a wrong done, since the dignity affronted in the individual is a quality inherent in him and not conferred by these social indicators. 19

Worth noting is the fact that in Cathay’s Memorandum filed with this Court, it prayed only for the deletion of the award for moral damages. It deferred to the Court of Appeals’ discretion in awarding nominal damages; thus: As far as the award of nominal damages is concerned, petitioner respectfully defers to the Honorable Court of Appeals’ discretion. Aware as it is that somehow, due to the resistance of respondents-spouses to the normally-appreciated gesture of petitioner to upgrade their accommodations, petitioner may have disturbed the respondents-spouses’ wish to be with their companions (who traveled to Hong Kong with them) at the Business Class on their flight to Manila. Petitioner regrets that in its desire to provide the respondents-spouses with additional amenities for the one and one-half (1 1/2) hour flight to Manila, unintended tension ensued.18

We adopt as our own this observation of the Court of Appeals. WHEREFORE, the instant petition is hereby partly GRANTED. The Decision of the Court of Appeals of 24 July 2001 in CA-G.R. CV No. 63339 is hereby MODIFIED, and as modified, the awards for moral damages and attorney’s fees are set aside and deleted, and the award for nominal damages is reduced to P5,000. No pronouncement on costs.

Nonetheless, considering that the breach was intended to give more benefit and advantage to the Vazquezes by upgrading their Business Class accommodation to First Class because of their valued status as Marco Polo members, we reduce the award for nominal damages to P5,000.

SO ORDERED.

Before writing finis to this decision, we find it well-worth to quote the apt observation of the Court of Appeals regarding the awards adjudged by the trial court: 110 We are not amused but alarmed at the lower court’s unbelievable alacrity, bordering on the scandalous, to award excessive amounts as damages. In their complaint, appellees asked for P1 million as moral damages but the lower court awarded P4 million; they asked for P500,000.00 as exemplary damages but the lower court cavalierly awarded a whooping P10 million; they asked for P250,000.00 as attorney’s fees but were awarded P2 million; they did not ask for nominal damages but were awarded P200,000.00. It is as if the lower court went on a rampage, and why it acted that way is beyond all tests of reason. In fact the excessiveness of the total award invites the suspicion that it was the result of "prejudice or corruption on the part of the trial court." The presiding judge of the lower court is enjoined to hearken to the Supreme Court’s admonition in Singson vs. CA (282 SCRA 149 [1997]), where it said: The well-entrenched principle is that the grant of moral damages depends upon the discretion of the court based on the circumstances of each case. This discretion is limited by the principle that the amount awarded should not be palpably and scandalously excessive as to indicate that it was the result of prejudice or corruption on the part of the trial court…. and in Alitalia Airways vs. CA (187 SCRA 763 [1990], where it was held:

Phil.

346

DIZON, J.: At about 1:00 p.m. on June 18, 1952, Bus No. 133 of the Laguna Tayabas Bus Company hereinafter referred to as the LTB driven by Alfredo Moncada, left its station at Azcarraga St., Manila, for Lilio, Laguna, with Edgardo Cariaga, a fourth-year medical student of the University of Santos Tomas, as one of its passengers. At about 3:00 p.m., as the bus reached that part of the poblacion of Bay, Laguna, where the national highway crossed a railroad track, it bumped against the engine of a train then passing by with such terrific force that the first six wheels of the latter were derailed, the engine and front part of the body of the bus were wrecked, the driver of the bus died instantly, while many of its passengers, Edgardo among them, were severely injured. Edgardo was first confined at the San Pablo City Hospital from 5:00 p.m., June 18, 1952, to 8:25 a.m., June 20 of the same year when he was taken to the De los Santos Clinic, Quezon City. He left that clinic on October 14 to be transferred to the University of Santo Tomas Hospital where he stayed up to November 15. On this last date he was taken back to the De los Santos Clinic where he stayed until January 15, 1953. He was unconscious during the first 35 days after the accident; at the De los Santos Clinic Dr. Gustilo removed the fractured bones which lacerated the right frontal lobe of his brain and at the University of Santo Totnas Hospital Dr. Gustilo performed another operation to cover a big hole on the right frontal part of the head with, a tantalum plate. The LTB paid the sum of P16.964.45 for all the hospital, medical and miscellaneous expenses incurred from June 18, 1952 to April 1953. From January 15, 1953 up to April of the same year

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Edgardo stayed in a private house in Quezon City, the LTB having agreed to give him a subsistence allowance of P10.00 daily during his convalescence, having spent in this connection the total sum of P775.30 in addition to the amount already referred to. On April 24, 1953 the present action was filed to recover for Edgardo Cariaga, from the LTB and the MER Co., the total sum of P312,000.00 as actual, compensatory, moral and exemplary damages, and for his parents, the sum of P18,000.00 in the same concepts. The LTB disclaimed liability claiming that the accident was due to the negligence of its co-defendant, the Manila Railroad Company, for not providing a crossing bar at the point where the national highway crossed the railway track, and for this reason filed the corresponding cross-claim against the latter company to recover the total sum of P18,194.75 representing the expenses paid to Edgardo Cariaga. The Manila Railroad Company, in turn, denied liability upon the complaint and cross-claim, alleging that it was the reckless negligence of the bus driver that caused the accident. The lower court held that it was the negligence of the bus driver that caused the accident and, as a result, rendered judgment sentencing the LTB to pay Edgardo Cariaga the sum of PIO',490.00 as compensatory damages, with interest at the legal rate from the filing of the complaint, and dismissing the cross-claim against the Manila Railroad Company. From this decision the Cariagas and the LTB appealed. The Cariagas claim that the trial court erred: in awarding only P10.490.00 as compensatory damages to Edgardo; in not awarding them actual and moral damages, and in not sentencing appellant LTB to pay attorney's fees. On the other hand, the LTB's principal contention in this appeal is that the trial court should have held that the collision was due to the fault of both the locomotive driver and the bus driver and erred, as a consequence, in not holding the Manila Railroad Company liable upon the cross-claim filed against it.

bus and it was his duty and concern to observe such fact in connection with the safe operation the vehicle. The other L.T.B. bus which arrived ahead at the crossing, heeded the warning by stopping and allowing the train to pass and so nothing happened to said vehicle. On the other hand, the driver of the bus No. 133 totally ignored the whistle and "noise produced by the approaching train and instead he tried to make the bus pass the crossing before the train by not stopping a few meters from the railway track and in proceeding ahead." The above findings of the lower court are predicated mainly upon the testimony of Gregorio Ilusondo, a witness for the Manila Railroad Company. Notwithstanding the efforts exerted by the LTB to assail his credibility, we do not find in the record any fact or circumstance sufficient to discredit his testimony. We have, therefore, no other alternative but to accept the findings of the trial court to the effect, firstly, that the whistle of the locomotive was sounded four times two long and two short "as the train was approximately 300 meters from the crossing"; secondly, that another LTB bus which arrived at the crossing ahead of the one where Edgardo Cariaga was a passenger, paid heed to the warning and stopped before the "crossing", while as the LTB itself now admits (Brief p. 5) the driver of the bus in question totally disregarded the warning. But to charge the MRR Co. with contributory negligence, the LTB claims that the engineer of the locomotive failed to ring the bell altogether, in violation of section 91 of Article 1459, incorporated in the charter of the said MRR Co. This contention as is obvious is the very foundation of the cross-claim interposed by the LTB against its co-defendant. The former, therefore, had the burden of proving it affirmatively because a violation of law is never presumed. The record discloses that this burden has not been satisfactorily discharged. The Cariagas, as appellants, claim that the award of P10,000.00 compensatory damages to Edgardo is inadequate considering the nature and the after effects of the physical injuries suffered by him. After a careful consideration of the evidence on this point we find their contention to be well founded.

After considering the evidence presented by both parties, the lower court expressly found:

From the deposition of Dr. Romeo Gustilo, a neurosur-geon, it appears that, as a result of the injuries suffered by Edgardo, his right forehead was fractured necessitating the removal of practically all of the right frontal lobe of his brain. From the testimony of Dr. Jose A. Fernandez, a psychiatrist, it may be gathered that, because of the physical injuries suffered by Edgardo, his mentality has been so reduced that he can no longer finish his studies as a medical student; that he has become completely misfit for any kind of work; that he can hardly walk around without someone helping him, and has to use a brace on his left leg and feet.

"* * * While the train was approximately 300 meters from the crossing, the engineer sounded two long and two short whistles and upon reaching a point about 100 meters from the highway, he sounded a long whistle which lasted up to the time the train was about to cross it. The bus proceeded on its way without slackening its speed and it bumned against the train engine, causing the first six wheels of the latter to be derailed."

Upon the whole evidence on the matter, the lower court found that the removal of the right frontal lobe of the brain of Edgardo reduced his intelligence by about 50% ; that due to the replacement of the right frontal bone of his head with a tantalum plate Edgardo has to lead a quite and retired life because "if the tantalum plate is pressed in or dented it would cause his death."

*******

The impression one gathers from this evidence is that, as a result of the physical injuries suffered by Edgardo Cariaga, he is now in a helpless condition, virtually an invalid, both physically and mentally.

We shall first dispose of the appeal of the bus company. Its first contention is that the driver of the train locomotive, like the bus driver, violated the law, first, in sounding the whistle only when the collision was about to take place instead of at a distance at least 300 meters from the crossing, and second, in not ringing the locomotive bell at all. Both contentions are without merits.

"* * * that the train whistle had been sounded several times before it reached the crossing. All witnesses for the plaintiffs and the defendants are uniform in stating that they heard the train whistle sometime before the impact and considering that some of them were in the bus at the time, the driver thereof must have heard it because he was seated on the left front part of the

Appellant LTB admits that under Art. 2201 of the Civil Code the damages for which the obligor, guilty of a breach of contract but who acted in good faith, is liable shall be those that are the

13

natural and probable consequences of the breach and which the parties had foreseen or could have reasonably foreseen at the time the obligation was constituted, provided such damages, according to Art. 2199 of the same Code, have been duly proved. Upon this premise it claims that only the actual damages suffered by Edgardo Cariaga consisting of medical; hospital and other expenses in the total sum of P17,719.75 are within this category. We are of the opinion, however, that the income which Edgardo Cariaga could earn if he should finish the medical course and pass the corresponding board examinations must be deemed to be within the same category because they could have reasonably been foreseen by the parties at the time he boarded the bus No. 133 owned and operated by the LTB. At that time he was already a fourthyear student in medicine in a reputable university. While his scholastic record may not be first rate (Exhibits 4, 4-A to 4-C), it is, nevertheless, sufficient to justify the assumption that he could have finished the course and would have passed the board test in due time. As regards the income that he could possibly earn as a medical practitioner, it appears that, according to Dr. Amado Doria, a witness for the LTB, the amount of P300.00 could easily be expected as the minimum monthly income of Edgardo had he finished his studies. Upon consideration of all the facts mentioned heretofore, this Court is of the opinion, and so holds, that the compensatory damages awarded to Edgardo Cariaga should be increased to P25,000.00. Edgardo Cariaga's claim for moral damages and attorney's fees was denied by the trial court, the pertinent portion of its decision reading as follows: "Plaintiffs' claim for moral damages cannot also be granted. Article 2219 of the Civil Code enumerates the instances when moral damages may be covered and the case under consideration docs not fall under any one of them. The present action cannot come under paragraph 2 of said article because it is not one of quasi-delict and cannot be considered as such because of the pre-existing contractual relation between the Laguna Tayabas Bus Company and Edgardo Cariaga. Neither could defendant Laguna Tayabas Bus Company be held liable to pay moral damages to Edgardo Cariatfa under Article 2220 of the Civil Code on account of breach of its contract of carriage because said defendant did not act fraudulently or in bad faith in connection therewith. Defendant Laguna Tayabas Bus Company had exercised due diligence in the selection and supervision of its employees like the drivers of its buses in connection with the discharge of their duties and so it must be considered an obligor in good faith. "The plaintiff Edgardo Cariaga is also not entitled to recover for attorney's fees, because this case does not fall under any of the instances enumerated in Article 2208 of the Civil Code." We agree with the trial court and, to the reasons given above, we add those given by this Court in Cachero vs. Manila Yellow Taxicab Co., Inc' (101 Phil., 523, 530, 533) : "A mere perusal of plaintiff's complaint will show that his action against the defendant is predicated on an alleged breach of contract of carriage, "i.e., the failure of the defendant to bring him 'safely and without mishaps' to his destination, and it is to be noted that the chauffeur of defendant's taxicab that plaintiff used when he received the injuries involved herein, Gregorio Mira, has not even been made a party defendant to this case.

'Art. 2219. Moral damages may be recovered in the following and analogous cases: 1. 2. 3. 4. 5. 6. 7. 8. 9. 10.

A criminal offense resulting in physical injuries; Quasi-delicts causing physical injuries; Seduction, abduction, rape, or other lascivious acts; Adultery or concubinage; Illegal or arbitrary detention or arrest; Illegal search; Libel, slander or any other form of defamation; Malicious prosecution; Acts mentioned in Article 309; Acts and actions referred to in Articles 21, 26, 27, 28, 29, 30, 32, 34 and 35.

***** "Of the cases enumerated in the just quoted Article 2219 only the first two may have any bearing on the case at bar. We find, however, with regard to the first that the defendant herein has not committed in connection with this case any 'criminal offense resulting in physical injuries'. The one that committed the offense against the plaintiff is Gregorio Mira, and that is why he has been already prosecuted and punished therefor. Altho (a) owners and Managers of an establishment or enterprise are responsible for damages caused by their employees in the service of the branches which the latter are employed or on the occasion of their functions; (b) employers are likewise liable for damages caused by their employees and household helpers acting within the scope of their assigned task (Article 218 of the Civil Code); and (c) employers and corporations engaged in any kind of industry are subsidiary civilly liable for felonies committed by their employees in the discharge of their duties (Art. 103, Revised Penal Code), plaintiff herein does not maintain this action under the provisions of any of the articles of the codes just mentioned and against all the persons who might be liable for the damages caused, but as a result of an admitted breach of contract of carriage and against the defendant employer alone. We, therefore, hold that the case at bar does not come within the exception of paragraph 1, Article 2219 of the Civil Code. "The present complaint is not based either on a 'quasi-delict causing physical injuries' (Art. 2219, par. 2, of the Civil Code). From the report of the Code Commission on the new Civil Code We copy the following: 'A question of nomenclature confronted the Commission. After a careful deliberation, it was agreed to use the term 'quasi-delict' for those obligations which do not arise from law, contracts, quasi-contracts, or criminal offenses. They are known in Spanish legal treatises as 'culpa aquiliana', culpa-extra-contractual' or 'cuasi-delitos'. The phrase 'culpa-extracontractual' or its translation 'extra-contractual-fault' was eliminated because it did not exclude quasi-contractual or penal obligations. 'Aquilian fault' might have been selected, but it was thought inadvisable to refer to so ancient a law as the 'Lex Aquilia'. So 'quasi-delict' was chosen, which more nearly corresponds to the Roman Law classification of obligations, and is in harmony with the nature of this kind of liability.'

"Considering, therefore, the nature of plaintiff's action in this case, is he entitled to compensation for moral damages? Article 2219 of the Civil Code says the following:

14

'The Commission also thought of the possibility of adopting the word "tort" from AngloAmerican law. But "tort" under that system is much broader than the Spanish-Philippine concept of obligations arising from non-contractual negligence. 'Tort' in Anglo-American jurisprudence includes not only negligence, but also intentional criminal act, such as assault and battery, false imprisonment and deceit. In the general plan of the Philippine legal system, intentional and malicious acts are governed by the Penal Code, although certain exceptions are made in the Project.' (Report of the Code Commission, pp. 161-162) "In the case of Cangco, vs. Manila Railroad, 38 Phil. 768, We established the distinction between obligation derived from negligence and obligation as a result of a breach of contract. Thus, we said: 'It is important to note that the foundation of the legal liability of the defendant is the contract of carriage, and that the obligation to respond for the damage which plaintiff has suffered arises, if at all, from the breach of that contract by reason of the failure of defendant to exercise due care in its performance. That is to say, its liability, is direct and immediate, differing essentially in the legal viewpoint from that presumptive responsibility for the negligence of its servants, imposed by Article 1903 of the Civil Code (Art. 2180 of the new), which can be rebutted by proof of the exercise of due care in their selection of supervision. Article 1903 is not applicable to obligations arising EX CONTRACTU, but only to extra-contractual obligations or to use the technical form of expression, that article relates only to CULPA AQUILIANA.' and not CULPA CONTRACTUAL.' "The decisions in the cases of Castro vs. Acro Taxicab Co., (82 Phil., 359; 46 Off. Gaz., No. 5, p. 2023) ; Lilius et al. vs. Manila Eailroad, 59 Phil., 7B8) and others, wherein moral damages were awarded to the plaintiffs, are not applicable to the case at bar because said decisions were rendered before the effectivity of the new Civil Code (August 30, 1950) and for the further reason that the complaints filed therein were based on different causes of action. "In view of the foregoing the sum of P2,000 awarded as moral damages by the trial court has to be eliminated, for under the law it is not a compensation awardable in a case like the one at bar." What has been said heretofore relative to the moral damages claimed by Edgardo Cariaga obviously applies with greater force to a similar claim (4th assignment of error) made by his parents. The claim made by said spouses for actual and compensatory damages is likewise without merits. As held by the trial court, in so far as the LTB is concerned, the present action is based upon a breach of contract of carriage to which said spouses were not a party, and neither can they premise their claim upon the negligence or quasi-delict of the LTB for the simple reason that they were not themselves injured as a result of the collision between the LTB bus and the train owned by the Manila Railroad Company. Wherefore, modified as above indicated, the appealed judgment is hereby affirmed in all other respects, with costs against appellant LTB. Paras, C.J., Bengzon, Bautista Angelo, Labrador, Reyes, J.B.L., Barrera, Gutierrez David, and Paredes, JJ., concur. Judgment affirmed with modification.

15

G.R. No. 179117

February 3, 2010

NORTHWEST AIRLINES, INC., Petitioner, vs. SPOUSES EDWARD J. HESHAN AND NELIA L. HESHAN AND DARA GANESSA L. HESHAN, REPRESENTED BY HER PARENTS EDWARD AND NELIA HESHAN, Respondents.

On September 24, 1998, respondents sent a letter to petitioner to demand indemnification for the breach of contract of carriage.8 Via letter of December 4, 1998, petitioner replied that respondents were prohibited to board Flight No. 972M for "verbally abus[ing] [the] flight crew."9 As their demand remained unheeded, respondents filed a complaint for breach of contract with damages at the Regional Trial Court (RTC) of Quezon City.10

DECISION CARPIO MORALES, J.: In July 1998, Edward Heshan (Edward) purchased three (3) roundtrip tickets from Northwest Airlines, Inc. (petitioner) for him, his wife Nelia Heshan (Nelia) and daughter Dara Ganessa Heshan (Dara) for their trip from Manila to St. Louis, Missouri, USA and back to attend an ice skating competition where then seven yearold Dara was to participate.1 When Dara’s participation in the ice skating event ended on August 7, 1998, the Heshans proceeded to the airport to take the connecting flight from St. Louis to Memphis on their way to Los Angeles. At the airport, the Heshans first checked-in their luggage at the airport’s "curbside check-in" near the entrance.2 Since they arrived three hours earlyfor their 6:05 p.m. flight (Flight No. 972M), the Heshans whiled away the time at a nearby coffee shop. At 5:15 p.m. when the check-in counter opened, Edward took to the line where he was second in the queue. When his turn came and presented the tickets to petitioner’s customer service agent Ken Carns (Carns) to get the boarding passes, he was asked to step aside and wait to be called again.3 After all the other departing passengers were given their boarding passes, the Heshans were told to board the plane without any boarding pass given to them and to just occupy open seats therein. Inside the plane, the Heshans noticed that only one vacant passenger seat was available, which was offered to Dara, while Edward and Nelia were directed to occupy two "folding seats" located at the rear portion of the plane. To respondents, the two folding seats were crew seats intended for the stewardesses.4 Upset that there were not enough passenger seats for them, the Heshans complained to the cabin crew about the matter but were told that if they did not like to occupy the seats, they were free to disembark from the plane. And disembark they did, complaining thereafter to Carns about their situation. Petitioner’s plane then departed for Memphis without respondents onboard.5 The Heshans were later endorsed to and carried by Trans World Airways to Los Angeles. Respondents arrived in Los Angeles at 10:30 p.m. of the same day but had to wait for three hours at the airport to retrieve their luggage from petitioner’s Flight No. 972M. 6 Respondents stayed for five days more in the U.S. before going back home to Manila.7

From the depositions of petitioner’s employees Carns, Mylan Brown (Brown) and Melissa Seipel (Seipel), the following version is gathered: The Heshans did not have reservations for particular seats on the flight. When they requested that they be seated together, Carns denied the request and explained that other passengers had pre-selected seats and that the computerized seating system did not reflect that the request could be accommodated at the time. Carns nonetheless assured the Heshans that they would be able to board the plane and be seated accordingly, as he in fact instructed them ten minutes before the plane’s departure, to board the plane even without boarding passes and to occupy "open seats" therein.11 By Seipel’s claim, as the Heshans were upset upon learning that they were not seated together on the plane, she told them that she would request other passengers to switch places to accommodate their demand; that she never had a chance to try to carry out their demand, however, as she first had to find space for their bags in the overhead compartment; and that the Heshans cursed her which compelled her to seek assistance from Brown in dealing with them.12 Brown averred that she went to the back portion of the plane to help out but she was brushed aside by Nelia who was cursing them as she stormed out of the plane followed by Edward and Dara.13 Petitioner denied that the Heshans (hereafter respondents) were told to occupy "folding seats" or crew seats since "[Federal Aviation Authority] regulations say no passengers are to sit there."14 As for respondents not having been given boarding passes, petitioner asserted that that does not in itself mean that the flight was overbooked, for [t]his is done on last minute boarding when flights are full and in order to get passengers on their way and to get the plane out on time. This is acceptable procedure.15 Branch 96 of the RTC, by Decision16 of August 20, 2002, rendered judgment in favor of respondents, disposing as follows: WHEREFORE, judgment is rendered ordering [petitioner] Northwest Airlines, Inc. to pay [respondents] Edward J. Heshan, Nelia L. Heshan and Dara Ganessa L. Heshan the following: 1. P3,000,000.00, as moral damages;

16

2. P500,000.00, as exemplary damages;

II

3. A sum equivalent of 20% of the foregoing amounts, as attorney’s fees; and,

. . . ERRED IN RULING THAT RESPONDENTS WERE ENTITLED TO EXEMPLARY DAMAGES…

4. Costs of suit.

III

SO ORDERED.17

. . . ERRED IN RULING THAT RESPONDENTS WERE ENTITLED TO ATTORNEY’S FEES…

In finding for respondents, the trial court noted:

IV

[T]hat the [respondents] held confirmed reservations for the St Louis-Memphis leg of their return trip to the Philippines is not disputed. As such, they were entitled as of right under their contract to be accommodated in the flight, regardless of whether they had selected their seats in advance or not. They had arrived at the airport early to make sure of their seating together, and, in fact, Edward was second in the queue for boarding passes. Yet, Edward was unceremoniously sidelined and curtly told to wait without any explanations why. His concerned seeking for explanations was repeatedly rebuffed by the airline employees. When, at last, they were told to board the aircraft although they had not yet been issued boarding passes, which they thought to be highly unusual, they soon discovered, to their dismay, that the plane was fully booked, with only one seat left for the 3 of them. Edward and Nelia rejected the offer [to take] the crew seats. [Respondents] were thus forced to disembark.(italics in the original; emphasis and underscoring supplied)

. . .ASSUMING ARGUENDO THAT RESPONDENTS WERE ENTITLED TO AN AWARD OF DAMAGES, [ERRED IN AWARDING EXCESSIVE DAMAGES TO RESPONDENTS] .

On appeal, the Court of Appeals, by Decision18 of June 22, 2007, sustained the trial court’s findings but reduced the award of moral and exemplary damages to ₱2 million and ₱300,000, respectively.19 In affirming the findings of the trial court, the appellate court held: … [I]t is clear that the only instances [sic] when the [petitioner] and its agents allow its passengers to board the plane without any boarding pass is when the flights are full and the plane is running late. Taking into account the fact that the [respondents] arrived at the airport early, checked-in their baggage before hand and were in fact at the gates of the boarding area on time, thus, it could not be said that they can fall under the exceptional circumstance [sic]. It bears stressing at this juncture that it becomes a highly irregular situation that despite the fact that the [respondents] showed up on time at the boarding area[,] they were made to go in last and sans any boarding passes. Thus, We hold that it can be logically inferred that the reason why no boarding passes were immediately issued to the [respondents] is because Flight 972 from St. Louis to Memphis is full and the [respondents] were "bumped off" from their flight. (emphasis, italics and underscoring supplied) Reconsideration having been denied by the appellate court,20 petitioner filed the present petition for review upon the issues of whether the appellate court I

V . . . ERRED IN NOT FINDING FOR [IT] ON ITS COUNTERCLAIM.21 To petitioner, the present petition offers compelling reasons to again review the congruent factual findings of the lower courts which, to it, are contrary to the evidence on record; that the lower courts disregarded vital testimonies of its witnesses; that the appellate court premised its decision on a misapprehension of facts and failed to consider certain relevant facts which, if properly taken into account, will justify a different conclusion; that the appellate court made several inferences which were manifestly mistaken and absurd; and that the appellate court exercised grave abuse of discretion in the appreciation of facts.22 Petitioner maintains that it did not violate the contract of carriage since respondents were eventually transported from Memphis to Los Angeles, albeit via another airline, and that respondents made no claim of having sustained injury during the carriage.23 Petitioner goes on to posit that if indeed crew seats were offered to respondents, its crew would have had nowhere to sit and the plane would not have been able to depart, 24 and that in reality, respondents voluntarily disembarked from the aircraft because they were not willing to wait to be seated together.25 At all events, petitioner finds the amount of damages imposed by the appellate court "excessive and unprecedented" and needing substantial reduction. 26 In their Comment, respondents counter that since the petition is predicated on questions of facts and the appellate court affirmed the trial court’s factual findings, these are entitled to great weight and respect.27 Respondents thus maintain that petitioner was guilty of breach of contract. They cite Singapore Airlines v. Fernandez,28 which ruled:

. . . ERRED IN RULING THAT RESPONDENTS WERE ENTITLED TO MORAL DAMAGES…

17

[W]hen an airline issues a ticket to a passenger, confirmed for a particular flight on a certain date, a contract of carriage arises. The passenger then has every right to expect that he be transported on that flight and on that date. If he does not, then the carrier opens itself to a suit for a breach of contract of carriage. The petition fails. As has repeatedly been underscored, in petitions for review on certiorari, the general rule is that only questions of law may be raised by the parties and passed upon by the Court.29 Factual findings of the appellate court are generally binding on the Court, especially when in complete accord with the findings of the trial court, as in the present case, save for some recognized exceptions.30 The issues raised by petitioner are predicated on the appreciation of factual issues. In weighing the evidence of the parties, the trial court found respondents’ more credible. An examination of the evidence presented by petitioner shows that it consisted only of depositions of its witnesses. It had in its possession and disposition pertinent documents such as the flight manifest and the plane’s actual seating capacity and layout which could have clearly refuted respondents’ claims that there were not enough passenger seats available for them. It inexplicably failed to offer even a single piece of documentary evidence. The Court thus believes that if at least the cited documentary evidence had been produced, it would have been adverse to petitioner’s case.31

x x x x [T]he fact that the Appellees still boarded the plane ten (10) minutes prior to the departure time, despite knowing that they would be seated apart, is a clear manifestation of the Appellees’ willingness to abandon their request and just board the plane in order to catch their flight. But as it turns out, there were not enough seats for the three of them as aptly found by the Court a quo, to which We subscribed [sic]. x x x x,33 merits the Court’s concurrence.1avvphi1 Nonetheless, the petition is in part meritorious. There is a need to substantially reduce the moral damages awarded by the appellate court. While courts are given discretion to determine the amount of damages to be awarded, it is limited by the principle that the amount awarded should not be palpably and scandalously excessive.34 Moral damages are neither intended to impose a penalty to the wrongdoer, nor to enrich the claimant. Taking into consideration the facts and circumstances attendant to the case, an award to respondents of ₱500,000, instead of ₱2,000,000, as moral damages is to the Court reasonable.35 WHEREFORE, the assailed Decision and Resolution of the Court of Appeals are AFFIRMED with MODIFICATION. The award of moral damages is reduced to ₱500,000. In all other respects, the Decision is AFFIRMED. Costs against petitioner. SO ORDERED.

More. Petitioner failed to satisfactorily explain why it did not issue boarding passes to respondents who were confirmed passengers, even after they had checked-in their luggage three hours earlier. That respondents did not reserve seats prior to checking-in did not excuse the non-issuance of boarding passes. From Carns’ following testimony, viz: Q. Now you mentioned open seats, Mr. Carns, can you tell us what the phrase or term open seats mean? A. Well, about 10 minutes before boarding time when we cancel those who do not take reserve seats, we know how many passengers are on the plane and we just tell the other passengers to take whatever seat is available at that time, 32 it is gathered that respondents were made to wait for last-minute cancellations before they were accommodated onto the plane. This, coupled with petitioner’s failure to issue respondents their boarding passes and the eleventh-hour directive for them to embark, reinforces the impression that the flight was overbooked. Petitioner’s assertion that respondents disembarked from the plane when their request to be seated together was ignored does not impress. The observation of the appellate court, viz:

18

G.R. No. 157009

March 17, 2010

SULPICIO LINES, INC., Petitioner, vs. DOMINGO E. CURSO, LUCIA E. CURSO, MELECIO E. CURSO, SEGUNDO E. CURSO, VIRGILIO E. CURSO, DIOSDADA E. CURSO, and CECILIA E. CURSO, Respondents. DECISION BERSAMIN, J.: Are the surviving brothers and sisters of a passenger of a vessel that sinks during a voyage entitled to recover moral damages from the vessel owner as common carrier? This is the question presented in the appeal taken by the common carrier from the reversal by the Court of Appeals (CA) of the decision of the Regional Trial Court (RTC) dismissing the complaint for various damages filed by the surviving brothers and sisters of the late Dr. Cenon E. Curso upon a finding that force majeure had caused the sinking. The CA awarded moral and other damages to the surviving brothers and sisters. Antecedents On October 23, 1988, Dr. Curso boarded at the port of Manila the MV Doña Marilyn, an interisland vessel owned and operated by petitioner Sulpicio Lines, Inc., bound for Tacloban City. Unfortunately, the MV Doña Marilyn sank in the afternoon of October 24, 1988 while at sea due to the inclement sea and weather conditions brought about by Typhoon Unsang. The body of Dr. Curso was not recovered, along with hundreds of other passengers of the ill-fated vessel. At the time of his death, Dr. Curso was 48 years old, and employed as a resident physician at the Naval District Hospital in Naval, Biliran. He had a basic monthly salary of ₱3,940.00, and would have retired from government service by December 20, 2004 at the age of 65. On January 21, 1993, the respondents, allegedly the surviving brothers and sisters of Dr. Curso, sued the petitioner in the RTC in Naval, Biliran to claim damages based on breach of contract of carriage by sea, averring that the petitioner had acted negligently in transporting Dr. Curso and the other passengers. They stated, among others, that their parents had predeceased Dr. Curso, who died single and without issue; and that, as such, they were Dr. Curso’s surviving heirs and successors in interest entitled to recover moral and other damages.1 They prayed for judgment, as follows: (a) compensatory damages of ₱1,924,809.00; (b) moral damages of ₱100,000.00; (c) exemplary or corrective damages in the amount deemed proper and just; (d) expenses of litigation of at least ₱50,000.00; (e) attorney’s fees of ₱50,000.00; and (f) costs of suit. The petitioner denied liability, insisting that the sinking of the vessel was due to force majeure (i.e., Typhoon Unsang), which exempted a common carrier from liability. It averred that the MV Doña Marilyn was seaworthy in all respects, and was in fact cleared by the

Philippine Coast Guard for the voyage; and that after the accident it conducted intensive search and rescue operations and extended assistance and aid to the victims and their families. Ruling of the RTC On July 28, 1995, the RTC dismissed the complaint upon its finding that the sinking of the vessel was due to force majeure. The RTC concluded that the officers of the MV Doña Marilyn had acted with the diligence required of a common carrier; that the sinking of the vessel and the death of its passengers, including Dr. Curso, could not have been avoided; that there was no basis to consider the MV Doña Marilyn not seaworthy at the time of the voyage; that the findings of the Special Board of Marine Inquiry (SBMI) constituted to investigate the disaster absolved the petitioner, its officers, and crew of any negligence and administrative liability; and that the respondents failed to prove their claim for damages. Ruling of the CA The respondents appealed to the CA, contending that the RTC erred: (a) in considering itself barred from entertaining the case by the findings of fact of the SBMI in SBMI-ADM Case No. 08-88; (b) in not holding that the petitioner was negligent and did not exercise the required diligence and care in conducting Dr. Curso to his destination; (c) in not finding that the MV Doña Marilyn was unseaworthy at the time of its sinking; and (d) in not awarding damages to them.2 In its decision dated September 16, 2002,3 the CA held and disposed: Based on the events described by the appellee’s witness, the Court found inadequate proof to show that Sulpicio Lines, Inc., or its officers and crew, had exercised the required degree of diligence to acquit the appellee of liability. In the first place, the court finds inadequate explanation why the officers of the M.V. Doña Marilyn had not apprised themselves of the weather reports on the approach of typhoon "Unsang" which had the power of a signal no. 3 cyclone, bearing upon the general direction of the path of the M.V. Doña Marilyn. If the officers and crew of the Doña Marilyn had indeed been adequately monitoring the strength and direction of the typhoon, and had acted promptly and competently to avoid the same, then such a mishap would not have occurred. Furthermore, there was no account of the acts and decision of the crew of the ill-fated ship from 8:00 PM on October 23, 1988 when the Chief Mate left his post until 4:00 AM the next day when he resumed duty. It does not appear what occurred during that time, or what weather reports were received and acted upon by the ship captain. What happened during such time is important in determining what information about the typhoon was gathered and how the ship officers reached their decision to just change course, and not take shelter while a strong typhoon was approaching.

19

Furthermore, the Court doubts the fitness of the ship for the voyage, since at the first sign of bad weather, the ship’s hydraulic system failed and had to be repaired mid-voyage, making the vessel a virtual derelict amidst a raging storm at sea. It is part of the appellee’s extraordinary diligence as a common carrier to make sure that its ships can withstand the forces that bear upon them during a voyage, whether they be the ordinary stress of the sea during a calm voyage or the rage of a storm. The fact that the stud bolts in the ships hydraulic system gave way while the ship was at sea discredits the theory that the appellee exercised due diligence in maintaining the seaworthy condition of the M.V. Doña Marilyn. xxx.4

ARE THE BROTHERS AND SISTERS OF A DECEASED PASSENGER IN A CASE OF BREACH OF CONTRACT OF CARRIAGE ENTITLED TO AN AWARD OF MORAL DAMAGES AGAINST THE CARRIER? ASSUMING (THAT) THEY ARE ENTITLED TO CLAIM MORAL DAMAGES, SHOULD THE AWARD BE GRANTED OR GIVEN TO THE BROTHER OR SISTER NOTWITHSTANDING (THE) LACK OF EVIDENCE AS REGARDS HIS OR HER PERSONAL SUFFERING? Ruling

xxx Aside from these, the defendant must compensate the plaintiffs for moral damages that they suffered as a result of the negligence attending the loss of the M.V. Doña Marilyn. Plaintiffs, have established that they took great pains to recover, in vain, the body of their brother, at their own cost, while suffering great grief due to the loss of a loved one. Furthermore, Plaintiffs were unable to recover the body of their brother. Moral damages worth ₱100,000.00 is proper. WHEREFORE, premises considered, the appealed decision of the RTC of Naval, Biliran, Branch 16, rendered in Civil Case No. B-0851, is hereby SET ASIDE. In lieu thereof, judgment is hereby rendered, finding the defendant-appellee Sulpicio Lines, Inc, to have been negligent in transporting the deceased Cenon E. Curso who was on board the ill-fated M.V. Doña Marilyn, resulting in his untimely death. Defendant-appellee is hereby ordered to pay the plaintiffs heirs of Cenon E. Curso the following: (1) Death indemnity in the amount of ₱50,000.00; (2) Loss of Earning Capacity in the amount of ₱504,241.20; (3) Moral Damages in the amount of ₱100,000.00.

The petition is meritorious. As a general rule, moral damages are not recoverable in actions for damages predicated on a breach of contract, unless there is fraud or bad faith.8 As an exception, moral damages may be awarded in case of breach of contract of carriage that results in the death of a passenger, 9 in accordance with Article 1764, in relation to Article 2206 (3), of the Civil Code, which provide: Article 1764. Damages in cases comprised in this Section shall be awarded in accordance with Title XVIII of this Book, concerning Damages. Article 2206 shall also apply to the death of a passenger caused by the breach of contract by a common carrier. Article 2206. The amount of damages for death caused by a crime or quasi-delict shall be at least three thousand pesos, even though there may have been mitigating circumstances. In addition: (1) The defendant shall be liable for the loss of the earning capacity of the deceased, and the indemnity shall be paid to the heirs of the latter; such indemnity shall in every case be assessed and awarded by the court, unless the deceased on account of permanent physical disability not caused by the defendant, had no earning capacity at the time of his death;

(4) Costs of the suit.5 Hence, this appeal, in which the petitioner insists that the CA committed grievous errors in holding that the respondents were entitled to moral damages as the brothers and sisters of the late Dr. Curso; that the CA thereby disregarded Article 1764 and Article 2206 of the Civil Code, and the ruling in Receiver for North Negros Sugar Co., Inc. v. Ybañez,6 whereby the Supreme Court disallowed the award of moral damages in favor of the brothers and sisters of a deceased passenger in an action upon breach of a contract of carriage.7 Issues The petitioner raises the following issues:

(2) If the deceased was obliged to give support according to the provisions of article 291, the recipient who is not an heir called to the decedent's inheritance by the law of testate or intestate succession, may demand support from the person causing the death, for a period not exceeding five years, the exact duration to be fixed by the court; (3) The spouse, legitimate and illegitimate descendants and ascendants of the deceased may demand moral damages for mental anguish by reason of the death of the deceased. The foregoing legal provisions set forth the persons entitled to moral damages. The omission from Article 2206 (3) of the brothers and sisters of the deceased passenger reveals the legislative intent to exclude them from the recovery of moral damages for mental anguish by reason of the death of the deceased. Inclusio unius est exclusio alterius.10 The solemn power

20

and duty of the courts to interpret and apply the law do not include the power to correct the law by reading into it what is not written therein.11 Thus, the CA erred in awarding moral damages to the respondents. The petitioner has correctly relied on the holding in Receiver for North Negros Sugar Company, Inc. v. Ybañez,12 to the effect that in case of death caused by quasi-delict, the brother of the deceased was not entitled to the award of moral damages based on Article 2206 of the Civil Code. Essentially, the purpose of moral damages is indemnity or reparation, that is, to enable the injured party to obtain the means, diversions, or amusements that will serve to alleviate the moral suffering he has undergone by reason of the tragic event. According to Villanueva v. Salvador,13 the conditions for awarding moral damages are: (a) there must be an injury, whether physical, mental, or psychological, clearly substantiated by the claimant; (b) there must be a culpable act or omission factually established; (c) the wrongful act or omission of the defendant must be the proximate cause of the injury sustained by the claimant; and (d) the award of damages is predicated on any of the cases stated in Article 2219 of the Civil Code. To be entitled to moral damages, the respondents must have a right based upon law. It is true that under Article 100314 of the Civil Code they succeeded to the entire estate of the late Dr. Curso in the absence of the latter’s descendants, ascendants, illegitimate children, and surviving spouse. However, they were not included among the persons entitled to recover moral damages, as enumerated in Article 2219 of the Civil Code, viz: Article 2219. Moral damages may be recovered in the following and analogous cases: (1) A criminal offense resulting in physical injuries;

(10) Acts and actions referred to in articles 21, 26, 27, 28, 29, 30, 32, 34 and 35. The parents of the female seduced, abducted, raped or abused referred to in No. 3 of this article, may also recover moral damages. The spouse, descendants, ascendants and brothers and sisters may bring the action mentioned in No. 9 of this article, in the order named.1avvphi1 Article 2219 circumscribes the instances in which moral damages may be awarded. The provision does not include succession in the collateral line as a source of the right to recover moral damages. The usage of the phrase analogous cases in the provision means simply that the situation must be held similar to those expressly enumerated in the law in question15 following the ejusdem generis rule. Hence, Article 1003 of the Civil Code is not concerned with recovery of moral damages. In fine, moral damages may be recovered in an action upon breach of contract of carriage only when: (a) where death of a passenger results, or (b) it is proved that the carrier was guilty of fraud and bad faith, even if death does not result.16 Article 2206 of the Civil Code entitles the descendants, ascendants, illegitimate children, and surviving spouse of the deceased passenger to demand moral damages for mental anguish by reason of the death of the deceased.17 WHEREFORE, the petition for review on certiorari is granted, and the award made to the respondents in the decision dated September 16, 2002 of the Court of Appeals of moral damages amounting to ₱100,000.00 is deleted and set aside. SO ORDERED.

(2) Quasi-delicts causing physical injuries; (3) Seduction, abduction, rape or other lascivious acts; (4) Adultery or concubinage; (5) Illegal or arbitrary detention or arrest; (6) Illegal search; (7) Libel, slander or any other form of defamation; (8) Malicious prosecution; (9) Acts mentioned in article 309;

21

G.R. No. 161909

April 25, 2012

PHILTRANCO SERVICE ENTERPRISES, INC., Petitioner, vs. FELIX PARAS AND INLAND TRAILWAYS, INC., AND HON. COURT OF APPEALS, Respondents. DECISION BERSAMIN, J.: In an action for breach of contract of carriage commenced by a passenger against his common carrier, the plaintiff can recover damages from a third-party defendant brought into the suit by the common carrier upon a claim based on tort or quasi-delict. The liability of the thirdparty defendant is independent from the liability of the common carrier to the passenger. Philtranco Service Enterprises, Inc. (Philtranco) appeals the affirmance with modifications by the Court of Appeals (CA) of the decision of the Regional Trial Court (RTC) awarding moral, actual and temperate damages, as well as attorney’s fees and costs of suit, to respondent Felix Paras (Paras), and temperate damages to respondent Inland Trailways, Inc. (Inland), respectively the plaintiff and the defendant/third-party plaintiff in this action for breach of contract of carriage, upon a finding that the negligence of the petitioner and its driver had caused the serious physical injuries Paras sustained and the material damage Inland’s bus suffered in a vehicular accident. Antecedents The antecedent facts, as summarized by the CA, are as follows: Plaintiff-appellant [respondent] Felix Paras (Paras for brevity), who hails from Cainta, Rizal is engaged in the buy and sell of fish products. Sometime on 08 February 1987, on his way home to Manila from Bicol Region, he boarded a bus with Body No. 101 and Plate No. EVE 508, owned and operated by Inland Trailways, Inc. (Inland for brevity) and driven by its driver Calvin Coner (Coner for brevity). At approximately 3:50 o’clock in the morning of 09 February 1987, while the said bus was travelling along Maharlika Highway, Tiaong, Quezon, it was bumped at the rear by another bus with Plate No. EVB 259, owned and operated by Philtranco Service Enterprises, Inc. (Philtranco for brevity). As a result of the strong and violent impact, the Inland bus was pushed forward and smashed into a cargo truck parked along the outer right portion of the highway and the shoulder thereof. Consequently, the said accident bought considerable damage to the vehicles involved and caused physical injuries to the passengers and crew of the two buses, including the death of Coner who was the driver of the Inland Bus at the time of the incident.

National Orthopedic Hospital. At the latter hospital, he was found and diagnosed by Dr. Antonio Tanchuling, Jr. to be affected with the following injuries: a) contusion/hematoma; b) dislocation of hip upon fracture of the fibula on the right leg; c) fractured small bone on the right leg; and d) close fracture on the tibial plateau of the left leg. (Exh. "A", p. 157, record) On 04 March 1987 and 15 April 1987, Paras underwent two (2) operations affecting the fractured portions of his body. (Exhs. "A-2" and "A-3", pp. 159 and 160 respectively, record) Unable to obtain sufficient financial assistance from Inland for the costs of his operations, hospitalization, doctors’ fees and other miscellaneous expenses, on 31 July 1989, Paras filed a complaint for damages based on breach of contract of carriage against Inland. In its answer, defendant Inland denied responsibility, by alleging, among others, that its driver Coner had observed an utmost and extraordinary care and diligence to ensure the safety of its passengers. In support of its disclaimer of responsibility, Inland invoked the Police Investigation Report which established the fact that the Philtranco bus driver of [sic] Apolinar Miralles was the one which violently bumped the rear portion of the Inland bus, and therefore, the direct and proximate cause of Paras’ injuries. On 02 March 1990, upon leave of court, Inland filed a third-party complaint against Philtranco and Apolinar Miralles (Third Party defendants). In this third-party complaint, Inland, sought for exoneration of its liabilities to Paras, asserting that the latter’s cause of action should be directed against Philtranco considering that the accident was caused by Miralles’ lack of care, negligence and reckless imprudence. (pp. 50 to 56, records). After trial, the RTC (Branch 71) in Antipolo, Rizal rendered its judgment on July 18, 1997,1 viz: WHEREFORE, third-party defendant Philtranco and Apolinar Miralles are hereby ordered to pay plaintiff jointly and severally, the following amounts: 1.₱54,000.00 as actual damages; 2.₱50,000.00 as moral damages; 3.₱20,000.00 as attorney’s fees and costs. SO ORDERED. All the parties appealed to the CA on different grounds. On his part, Paras ascribed the following errors to the RTC, to wit:

Paras was not spared from the pernicious effects of the accident. After an emergency treatment at the San Pablo Medical Center, San Pablo City, Laguna, Paras was taken to the

22

I. THE TRIAL COURT ERRED IN HOLDING THAT ONLY THIRD-PARTY DEFENDANTAPPELLANT PHILTRANCO IS LIABLE FOR THE DAMAGES SUFFERED BY APPELLANT PARAS. II. THE TRIAL COURT ERRED IN NOT HOLDING APPELLANT INLAND TRAILWAYS INC. TO BE JOINTLY AND SEVERALLY LIABLE FOR THE DAMAGES SUFFERED BY PARAS. III. THE TRIAL COURT ERRED IN NOT AWARDING UNEARNED INCOME AS ADDITIONAL ACTUAL DAMAGES SUFFERED BY APPELLANT PARAS AS HIS PHYSICAL DISABILITY IS PERMANENT IN NATURE. IV. THE TRIAL COURT ERRED IN NOT AWARDING EXEMPLARY DAMAGES IN FAVOR OF APPELLANT PARAS.

III THE COURT A QUO MISERABLY ERRED IN HOLDING THAT MIRALLES WAS THE ONE AT FAULT MERELY ON THE STRENGHT OF THE TESTIMONY OF THE POLICE INVESTIGATOR WHICH IS IN TURN BASED ON THE STATEMENTS OF ALLEGED WITNESSES WHO WERE NEVER PRESENTED ON THE WITNESS STAND. IV THE COURT A QUO COMMITTED A GRIEVOUS ERROR IN DISREGARDING THE TESTIMONY OF APPELLANTS’ WITNESSES WHO TESTIFIED AS TO THE DEFENSE OF EXERCISE OF DUE DILIGENCE IN THE SELECTION AND SUPERVISION OF EMPLOYEES PURSUANT TO ART. 2180, LAST PARAGRAPH, NEW CIVIL CODE.

On the other hand, Inland assigned the following errors to the RTC, namely:

On September 25, 2002, the CA promulgated its decision,2 disposing:

THE TRIAL COURT ERRED WHEN IT FAILED TO AWARD DAMAGES UNTO THE THIRD PARTY PLAINTIFF NOTWITHSTANDING CLEAR FINDING THAT:

WHEREFORE, in consideration of the foregoing premises, the assailed decision dated 18 July 19(9)7 is perforce affirmed with the following modifications:

‘It is clear from the evidence that the plaintiff sustained injuries because of the reckless, negligence, and lack of precaution of third party defendant Apolinar Miralles, an employee of Philtranco.’

1. Third party defendants-appellants Philtranco and Apolinar Miralles are ordered to pay plaintiff-appellant Felix Paras jointly and severally the following amounts: a) ₱1,397.95 as actual damages;

AND, COMPLETELY DISREGARDED THE UNCONTROVERTED ORAL AND DOCUMENTARY EVIDENCES ESTABLISHING THE EXTENT AND DEGREE OF DAMAGES SUSTAINED BY THE THIRD PARTY PLAINTIFF.

b) ₱50,000.00 as temperate damages; c) ₱50,000.00 as moral damages; and

Lastly, Philtranco stated that the RTC erred thuswise:

d) ₱20,000.00 as attorney’s fees and costs of suit.

I THE COURT A QUO MISERABLY ERRED IN AWARDING ACTUAL DAMAGES GREATER THAN WHAT WAS ALLEGED IN THE COMPLAINT ITSELF, AND EVEN MUCH MORE GREATER THAN WHAT WERE PROVED DURING THE TRIAL, HENCE, PERPETUATING UNJUST ENRICHMENT. II THE COURT A QUO SERIOUSLY ERRED IN AWARDING MORAL DAMAGES TO A CAUSE OF ACTION OF CULPA-CONTRACTUAL EVEN WITHOUT ANY EVIDENCE OF GROSS BAD FAITH; HENCE, CONTRARY TO THE ESTABLISHED DOCTRINE IN THE CASES OF PHIL. RABBIT BUS LINES VS. ESGUERRA; SOBERANO VS. BENGUET AUTO LINE AND FLORES VS. MIRANDA.

2. On the third party plaintiff-appellant Inland’s claims, the third party defendantappellants Philtranco and Apolinar Miralles are hereby ordered to pay the former (Inland) jointly and severally the amount of ₱250,000.00 as and by way of temperate damages. SO ORDERED. The CA agreed with the RTC’s finding that no trace of negligence at the time of the accident was attributable to Inland’s driver, rendering Inland not guilty of breach of contract of carriage; that faulty brakes had caused Philtranco’s bus to forcefully bump Inland’s bus from behind, making it hit the rear portion of a parked cargo truck; that the impact had resulted in considerable material damage to the three vehicles; and that Paras and others had sustained various physical injuries.

23

Accordingly, the CA:– (a) sustained the award of moral damages of ₱50,000.00 in favor of Paras pursuant to Article 2219 of the Civil Code based on quasi-delict committed by Philtranco and its driver; (b) reduced the actual damages to be paid by Philtranco to Paras from ₱54,000.00 to ₱1,397.95 because only the latter amount had been duly supported by receipts; (c) granted temperate damages of ₱50,000.00 (in lieu of actual damages in view of the absence of competent proof of actual damages for his hospitalization and therapy) to be paid by Philtranco to Paras; and (d) awarded temperate damages of ₱250,000.00 under the same premise to be paid by Philtranco to Inland for the material damage caused to Inland’s bus. Philtranco moved for reconsideration,3 but the CA denied its motion for reconsideration on January 21, 2004.4

The Court cannot uphold the petitioner’s contention. As a general rule, indeed, moral damages are not recoverable in an action predicated on a breach of contract. This is because such action is not included in Article 2219 of the Civil Code5 as one of the actions in which moral damages may be recovered. By way of exception, moral damages are recoverable in an action predicated on a breach of contract: (a) where the mishap results in the death of a passenger, as provided in Article 1764,6 in relation to Article 2206, (3),7 of the Civil Code; and (b) where the common carrier has been guilty of fraud or bad faith,8 as provided in Article 22209 of the Civil Code.

The appeal lacks merit.

Although this action does not fall under either of the exceptions, the award of moral damages to Paras was nonetheless proper and valid. There is no question that Inland filed its third-party complaint against Philtranco and its driver in order to establish in this action that they, instead of Inland, should be directly liable to Paras for the physical injuries he had sustained because of their negligence. To be precise, Philtranco and its driver were brought into the action on the theory of liability that the proximate cause of the collision between Inland’s bus and Philtranco’s bus had been "the negligent, reckless and imprudent manner defendant Apolinar Miralles drove and operated his driven unit, the Philtranco Bus with Plate No. 259, owned and operated by third-party defendant Philtranco Service Enterprises, Inc." 10 The apparent objective of Inland was not to merely subrogate the third-party defendants for itself, as Philtranco appears to suggest,11 but, rather, to obtain a different relief whereby the third-party defendants would be held directly, fully and solely liable to Paras and Inland for whatever damages each had suffered from the negligence committed by Philtranco and its driver. In other words, Philtranco and its driver were charged here as joint tortfeasors who would be jointly and severally be liable to Paras and Inland.

The Court does not disturb the unanimous findings by the CA and the RTC on the negligence of Philtranco and its driver being the direct cause of the physical injuries of Paras and the material damage of Inland.

Impleading Philtranco and its driver through the third-party complaint filed on March 2, 1990 was correct. The device of the third-party action, also known as impleader, was in accord with Section 12, Rule 6 of the Revised Rules of Court, the rule then applicable, viz:

Nonetheless, we feel bound to pass upon the disparate results the CA and the RTC reached on the liabilities of Philtranco and its driver.

Section 12. Third-party complaint. – A third-party complaint is a claim that a defending party may, with leave of court, file against a person not a party to the action, called the third-party defendant, for contribution, indemnity, subrogation or any other relief, in respect of his opponent’s claim.12

Issues Hence, this appeal, in which the petitioner submits that the CA committed grave abuse of discretion amounting to lack of jurisdiction in awarding moral damages to Paras despite the fact that the complaint had been anchored on breach of contract of carriage; and that the CA committed a reversible error in substituting its own judgment by motu proprio awarding temperate damages of ₱250,000.00 to Inland and ₱50,000.00 to Paras despite the clear fact that temperate damages were not raised on appeal by Paras and Inland. Ruling

1. damages

Explaining the application of Section 12, Rule 6, supra, the Court said in Balbastro v. Court of Appeals,13 to wit:

Philtranco contends that Paras could not recover moral damages because his suit was based on breach of contract of carriage, pursuant to which moral damages could be recovered only if he had died, or if the common carrier had been guilty of fraud or bad faith. It argues that Paras had suffered only physical injuries; that he had not adduced evidence of fraud or bad faith on the part of the common carrier; and that, consequently, Paras could not recover moral damages directly from it (Philtranco), considering that it was only being subrogated for Inland.

Section 12 of Rule 6 of the Revised Rules of Court authorizes a defendant to bring into a lawsuit any person "not a party to the action . . . for contribution, indemnity, subrogation or any other relief in respect of his opponent's claim." From its explicit language it does not compel the defendant to bring the third-parties into the litigation, rather it simply permits the inclusion of anyone who meets the standard set forth in the rule. The secondary or derivative liability of the third-party is central — whether the basis is indemnity, subrogation, contribution, express or implied warranty or some other theory. The impleader of new parties under this rule is proper only when a right to relief exists under the applicable substantive law. This rule is

Paras can in this suit based on quasi-delict

recover

moral

24

merely a procedural mechanism, and cannot be utilized unless there is some substantive basis under applicable law. Apart from the requirement that the third-party complainant should assert a derivative or secondary claim for relief from the third-party defendant there are other limitations on said party’s ability to implead. The rule requires that the third-party defendant is "not a party to the action" for otherwise the proper procedure for asserting a claim against one who is already a party to the suit is by means of counterclaim or cross-claim under sections 6 and 7 of Rule 6. In addition to the aforecited requirement, the claim against the third-party defendant must be based upon plaintiff's claim against the original defendant (third-party claimant). The crucial characteristic of a claim under section 12 of Rule 6, is that the original "defendant is attempting to transfer to the third-party defendant the liability asserted against him by the original plaintiff." Accordingly, the requisites for a third-party action are, firstly, that the party to be impleaded must not yet be a party to the action; secondly, that the claim against the third-party defendant must belong to the original defendant; thirdly, the claim of the original defendant against the third-party defendant must be based upon the plaintiff’s claim against the original defendant; and, fourthly, the defendant is attempting to transfer to the third-party defendant the liability asserted against him by the original plaintiff.14 As the foregoing indicates, the claim that the third-party complaint asserts against the thirdparty defendant must be predicated on substantive law. Here, the substantive law on which the right of Inland to seek such other relief through its third-party complaint rested were Article 2176 and Article 2180 of the Civil Code, which read: Article 2176. Whoever by act or omission causes damage to another, there being fault or negligence, is obliged to pay for the damage done. Such fault or negligence, if there is no preexisting contractual relation between the parties, is called a quasi-delict and is governed by the provisions of this chapter. (1902a) Article 2180. The obligation imposed by article 2176 is demandable not only for one’s own acts or omissions, but also for those of persons for whom one is responsible. xxx Employers shall be liable for the damages caused by their employees and household helpers acting within the scope of their assigned tasks, even though the former are not engaged in any business or industry. xxx The responsibility treated of in this article shall cease when the persons herein mentioned prove that they observed all the diligence of a good father of a family to prevent damage. (1903a)

Paras’ cause of action against Inland (breach of contract of carriage) did not need to be the same as the cause of action of Inland against Philtranco and its driver (tort or quasi-delict) in the impleader. It is settled that a defendant in a contract action may join as third-party defendants those who may be liable to him in tort for the plaintiff’s claim against him, or even directly to the plaintiff.15 Indeed, Prof. Wright, et al., commenting on the provision of the Federal Rules of Procedure of the United States from which Section 12, supra, was derived, observed so, to wit:16 The third-party claim need not be based on the same theory as the main claim. For example, there are cases in which the third-party claim is based on an express indemnity contract and the original complaint is framed in terms of negligence. Similarly, there need not be any legal relationship between the third-party defendant and any of the other parties to the action. Impleader also is proper even though the third party’s liability is contingent, and technically does not come into existence until the original defendant’s liability has been established. In addition, the words ‘is or may be liable’ in Rule 14(a) make it clear that impleader is proper even though the third-party defendant’s liability is not automatically established once the third-party plaintiff’s liability to the original plaintiff has been determined. Nor was it a pre-requisite for attachment of the liability to Philtranco and its driver that Inland be first declared and found liable to Paras for the breach of its contract of carriage with him.17 As the Court has cogently discoursed in Samala v. Judge Victor:18 Appellants argue that since plaintiffs filed a complaint for damages against the defendants on a breach of contract of carriage, they cannot recover from the third-party defendants on a cause of action based on quasi-delict. The third party defendants, they allege, are never parties liable with respect to plaintiff s claim although they are with respect to the defendants for indemnification, subrogation, contribution or other reliefs. Consequently, they are not directly liable to the plaintiffs. Their liability commences only when the defendants are adjudged liable and not when they are absolved from liability as in the case at bar. Quite apparent from these arguments is the misconception entertained by appellants with respect to the nature and office of a third party complaint. Section 16, Rule 6 of the Revised Rules of Court defines a third party complaint as a "claim that a defending party may, with leave of court, file against a person not a party to the action, called the third-party defendant, for contribution, indemnification, subrogation, or any other relief, in respect of his opponent’s claim." In the case of Viluan vs. Court of Appeals, et al., 16 SCRA 742 [1966], this Court had occasion to elucidate on the subjects covered by this Rule, thus: ... As explained in the Atlantic Coast Line R. Co. vs. U.S. Fidelity & Guaranty Co., 52 F. Supp. 177 (1943:) ‘From the sources of Rule 14 and the decisions herein cited, it is clear that this rule, like the admiralty rule, ‘covers two distinct subjects, the addition of parties defendant to the main cause of action, and the bringing in of a third party for a defendant’s remedy over’. xxx

25

‘If the third party complaint alleges facts showing a third party’s direct liability to plaintiff on the claim set out in plaintiff’s petition, then third party ‘shall’ make his defenses as provided in Rule 12 and his counterclaims against plaintiff as provided in Rule 13. In the case of alleged direct liability, no amendment (to the complaint) is necessary or required. The subject-matter of the claim is contained in plaintiff's complaint, the ground of third party’s liability on that claim is alleged in third party complaint, and third party’s defense to set up in his answer to plaintiff's complaint. At that point and without amendment, the plaintiff and third party are at issue as to their rights respecting the claim. The provision in the rule that, ‘The third-party defendant may assert any defense which the third-party plaintiff may assert to the plaintiffs claim,’ applies to the other subject, namely, the alleged liability of third party defendant. The next sentence in the rule, ‘The third-party defendant is bound by the adjudication of the third party plaintiffs liability to the plaintiff, as well as of his own to the plaintiff or to the third-party plaintiff applies to both subjects. If third party is brought in as liable only to defendant and judgment is rendered adjudicating plaintiff's right to recover against defendant and defendant’s rights to recover against third party, he is bound by both adjudications.That part of the sentence refers to the second subject. If third party is brought in as liable to plaintiff, then third party is bound by the adjudication as between him and plaintiff. That refers to the first subject. If third party is brought in as liable to plaintiff and also over to defendant, then third party is bound by both adjudications. xxx Under this Rule, a person not a party to an action may be impleaded by the defendant either (a) on an allegation of liability to the latter; (b) on the ground of direct liability to the plaintiff; or, (c) both (a) and (b). The situation in (a) is covered by the phrase "for contribution, indemnity or subrogation;" while (b) and (c) are subsumed under the catch all "or any other relief, in respect of his opponent’s claim." The case at bar is one in which the third party defendants are brought into the action as directly liable to the plaintiffs upon the allegation that "the primary and immediate cause as shown by the police investigation of said vehicular collision between (sic) the above-mentioned three vehicles was the recklessness and negligence and lack of imprudence (sic) of the third-party defendant Virgilio (should be Leonardo) Esguerra y Ledesma then driver of the passenger bus." The effects are that "plaintiff and third party are at issue as to their rights respecting the claim" and "the third party is bound by the adjudication as between him and plaintiff." It is not indispensable in the premises that the defendant be first adjudged liable to plaintiff before the third-party defendant may be held liable to the plaintiff, as precisely, the theory of defendant is that it is the third party defendant, and not he, who is directly liable to plaintiff. The situation contemplated by appellants would properly pertain to situation (a) above wherein the third party defendant is being sued for contribution, indemnity or subrogation, or simply stated, for a defendant's "remedy over".19 It is worth adding that allowing the recovery of damages by Paras based on quasi-delict, despite his complaint being upon contractual breach, served the judicial policy of avoiding multiplicity of suits and circuity of actions by disposing of the entire subject matter in a single litigation.20 2.

Award of temperate damages was in order Philtranco assails the award of temperate damages by the CA considering that, firstly, Paras and Inland had not raised the matter in the trial court and in their respective appeals; secondly, the CA could not substitute the temperate damages granted to Paras if Paras could not properly establish his actual damages despite evidence of his actual expenses being easily available to him; and, thirdly, the CA gravely abused its discretion in granting motu proprio the temperate damages of ₱250,000.00 to Inland although Inland had not claimed temperate damages in its pleading or during trial and even on appeal. The Court cannot side with Philtranco. Actual damages, to be recoverable, must not only be capable of proof, but must actually be proved with a reasonable degree of certainty. The reason is that the court "cannot simply rely on speculation, conjecture or guesswork in determining the fact and amount of damages," but "there must be competent proof of the actual amount of loss, credence can be given only to claims which are duly supported by receipts."21 The receipts formally submitted and offered by Paras were limited to the costs of medicines purchased on various times in the period from February 1987 to July 1989 (Exhibits E to E-35, inclusive) totaling only ₱1,397.95.22 The receipts by no means included hospital and medical expenses, or the costs of at least two surgeries as well as rehabilitative therapy. Consequently, the CA fixed actual damages only at that small sum of ₱1,397.95. On its part, Inland offered no definite proof on the repairs done on its vehicle, or the extent of the material damage except the testimony of its witness, Emerlinda Maravilla, to the effect that the bus had been damaged beyond economic repair.23 The CA rejected Inland’s showing of unrealized income worth ₱3,945,858.50 for 30 months (based on alleged average weekly income of ₱239,143.02 multiplied by its guaranteed revenue amounting to 55% thereof, then spread over a period of 30 months, the equivalent to the remaining 40% of the vehicle’s un-depreciated or net book value), finding such showing arbitrary, uncertain and speculative.24 As a result, the CA allowed no compensation to Inland for unrealized income. Nonetheless, the CA was convinced that Paras should not suffer from the lack of definite proof of his actual expenses for the surgeries and rehabilitative therapy; and that Inland should not be deprived of recourse to recover its loss of the economic value of its damaged vehicle. As the records indicated, Paras was first rushed for emergency treatment to the San Pablo Medical Center in San Pablo City, Laguna, and was later brought to the National Orthopedic Hospital in Quezon City where he was diagnosed to have suffered a dislocated hip, fracture of the fibula on the right leg, fracture of the small bone of the right leg, and closed fracture on the tibial plateau of the left leg. He underwent surgeries on March 4, 1987 and April 15, 1987 to repair the fractures.25 Thus, the CA awarded to him temperate damages of ₱50,000.00 in the absence of definite proof of his actual expenses towards that end. As to Inland, Maravilla’s testimony of the bus having been damaged beyond economic repair showed a definitely substantial pecuniary loss, for which the CA fixed temperate damages of ₱250,000.00. We cannot disturb the CA’s determination, for we are in no position today to judge its reasonableness on account of the lapse of a long time from when the accident occurred.26

26

In awarding temperate damages in lieu of actual damages, the CA did not err, because Paras and Inland were definitely shown to have sustained substantial pecuniary losses. It would really be a travesty of justice were the CA now to be held bereft of the discretion to calculate moderate or temperate damages, and thereby leave Paras and Inland without redress from the wrongful act of Philtranco and its driver.27 We are satisfied that the CA exerted effort and practiced great care to ensure that the causal link between the physical injuries of Paras and the material loss of Inland, on the one hand, and the negligence of Philtranco and its driver, on the other hand, existed in fact. It also rejected arbitrary or speculative proof of loss. Clearly, the costs of Paras’ surgeries and consequential rehabilitation, as well as the fact that repairing Inland’s vehicle would no longer be economical justly warranted the CA to calculate temperate damages of ₱50,000.00 and ₱250,000.00 respectively for Paras and Inland. There is no question that Article 2224 of the Civil Code expressly authorizes the courts to award temperate damages despite the lack of certain proof of actual damages, to wit: Article 2224. Temperate or moderate damages, which are more than nominal but less than compensatory damages, may be recovered when the court finds that some pecuniary loss has been suffered but its amount cannot, from the nature of the case, be proved with certainty. The rationale for Article 2224 has been stated in Premiere Development Bank v. Court of Appeals28 in the following manner: Even if not recoverable as compensatory damages, Panacor may still be awarded damages in the concept of temperate or moderate damages. When the court finds that some pecuniary loss has been suffered but the amount cannot, from the nature of the case, be proved with certainty, temperate damages may be recovered. Temperate damages may be allowed in cases where from the nature of the case, definite proof of pecuniary loss cannot be adduced, although the court is convinced that the aggrieved party suffered some pecuniary loss. The Code Commission, in explaining the concept of temperate damages under Article 2224, makes the following comment: In some States of the American Union, temperate damages are allowed. There are cases where from the nature of the case, definite proof of pecuniary loss cannot be offered, although the court is convinced that there has been such loss. For instance, injury to one’s commercial credit or to the goodwill of a business firm is often hard to show with certainty in terms of money. Should damages be denied for that reason? The judge should be empowered to calculate moderate damages in such cases, rather than that the plaintiff should suffer, without redress from the defendant’s wrongful act. 3. Paras’ loss must be compensated

of

earning

capacity

In the body of its decision, the CA concluded that considering that Paras had a minimum monthly income of ₱8,000.00 as a trader he was entitled to recover compensation for unearned income during the 3-month period of his hospital confinement and the 6-month period of his recovery and rehabilitation; and aggregated his unearned income for those periods to ₱72,000.00.29 Yet, the CA omitted the unearned income from the dispositive portion. The omission should be rectified, for there was credible proof of Paras’ loss of income during his disability. According to Article 2205, (1), of the Civil Code, damages may be recovered for loss or impairment of earning capacity in cases of temporary or permanent personal injury. Indeed, indemnification for damages comprehends not only the loss suffered (actual damages or damnum emergens) but also the claimant’s lost profits (compensatory damages or lucrum cessans).30 Even so, the formula that has gained acceptance over time has limited recovery to net earning capacity; hence, the entire amount of ₱72,000.00 is not allowable. The premise is obviously that net earning capacity is the person’s capacity to acquire money, less the necessary expense for his own living.31 To simplify the determination, therefore, the net earning capacity of Paras during the 9-month period of his confinement, surgeries and consequential therapy is pegged at only half of his unearned monthly gross income of ₱8,000.00 as a trader, or a total of ₱36,000.00 for the 9-month period, the other half being treated as the necessary expense for his own living in that period. It is relevant to clarify that awarding the temperate damages (for the substantial pecuniary losses corresponding to Paras’s surgeries and rehabilitation and for the irreparability of Inland’s damaged bus) and the actual damages to compensate lost earnings and costs of medicines give rise to no incompatibility. These damages cover distinct pecuniary losses suffered by Paras and Inland,32 and do not infringe the statutory prohibition against recovering damages twice for the same act or omission.33 4. Increase in award of attorney’s fees Although it is a sound policy not to set a premium on the right to litigate, 34 we consider the grant to Paras and Inland of reasonable attorney’s fees warranted. Their entitlement to attorney’s fees was by virtue of their having been compelled to litigate or to incur expenses to protect their interests,35 as well as by virtue of the Court now further deeming attorney’s fees to be just and equitable.36 In view of the lapse of a long time in the prosecution of the claim, 37 the Court considers it reasonable and proper to grant attorney’s fees to each of Paras and Inland equivalent to 10% of the total amounts hereby awarded to them, in lieu of only ₱20,000.00 for that purpose granted to Paras. 5.

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Legal interest on the amounts awarded Pursuant to Eastern Shipping Lines, Inc. v. Court of Appeals,38 legal interest at the rate of 6% per annum accrues on the amounts adjudged reckoned from July 18, 1997, the date when the RTC rendered its judgment; and legal interest at the rate of 12% per annum shall be imposed from the finality of the judgment until its full satisfaction, the interim period being regarded as the equivalent of a forbearance of credit. WHEREFORE, the Court AFFIRMS WITH MODIFICATION the decision of the Court of Appeals promulgated on September 25, 2002, by ordering PHILTRANCO SERVICE ENTERPRISES, INC. and APOLINAR MIRALLES to pay, jointly and severally, as follows: 1. To Felix Paras: (a) ₱1,397.95, as reimbursement for the costs of medicines purchased between February 1987 and July 1989; (b) ₱50,000.00 as temperate damages; (c) ₱50,000.00 as moral damages; (d) ₱36,000.00 for lost earnings; (e) 10% of the total of items (a) to (d) hereof as attorney’s fees; and (f) Interest of 6% per annum from July 18, 1997 on the total of items (a) to (d) hereof until finality of this decision, and 12% per annum thereafter until full payment. 2. To Inland Trailways, Inc.: (a) ₱250,000.00 as temperate damages; (b) 10% of item (a) hereof; and (c) Interest of 6% per annum on item (a) hereof from July 18, 1997 until finality of this decision, and 12% per annum thereafter until full payment. 3. The petitioner shall pay the costs of suit. SO ORDERED.

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