LYDIA L. GERALDEZ vs.

COURT OF APPEALS and KENSTAR TRAVEL CORPORATION

G.R. No. 108253
February 23, 1994

PONENTE: Regalado, J.

petitioner came to know about private respondent from numerous advertisements in newspapers of general
circulation regarding tours in Europe. She then contacted private respondent by phone and the latter sent its
representative, Alberto Vito Cruz, who gave her the brochure for the tour and later discussed its highlights. The
European tours offered were classified into four, and petitioner chose the classification denominated as
“VOLARE 3”

FACTS: Petitioner Geraldez filed an action for damages by reason of contractual breach against respondent
Kenstar Travel Corp.

Petitioner booked the Volare 3 tour with Kenstar. The tour covered a 22-day tour of Europe for
$2,990.00 which she paid the total equivalent amount of P190,000.00 charged by private respondent for her and
her sister, Dolores. At the tour, petitioner claimed that what was alleged in the brochure was not what they
experienced. There was no European tour manager as stated in the brochure, the hotels where they stayed in
which were advertised as first class were not, the UGC leather factory which was specifically included as a highlight
of the tour was not visited and The Filipino tour guide provided by Kenstar was a first timer thus inexperienced.
The Quezon City RTC rendered a decision ordering respondent Kenstar to pay moral, nominal, and exemplary
damages totalling P1,000,000 and P50,000 attorney’s fees. On appeal, respondent Court of Appeals deleted the
award for moral and exemplary damages and reduced the nominal damages and attorney’s fees to P30,000 and
P10,000 respectively.

ISSUES: (1) Whether or not Kenstar acted in bad faith or with gross negligence in discharging its obligations in the
contract?

(2)Whether or not the Court of Appeals erred in removing the moral and exemplary damages

HELD: (1) Yes, Kenstar acted in bad faith and with gross negligence in discharging its obligation.

Kenstar’s choice of the tour guide is a manifest disregard of its specific assurances to the tour group, and
which deliberate omission is contrary to the rules of good faith and fair play.
Providing the Volare 3 group with an inexperienced first timer as a tour guide, Kenstar manifested indifference to
the satisfaction, convenience and peace of mind to its clients. The election of the tour guide was a deliberate and
conscious choice on the part of Kenstar in order to afford her on-the job-training making the tour group her
unknowing guinea pigs, furthermore the inability to visit the UGC leather factory is reflective of the ineptness and
neglect of the tour guide. The failure of Kenstar to provide a European Tour Manager although it specifically
advertised and promised to do so is also a contractual breach. Kenstar expressly stated in its advertisement that
a European Tour Manager would be present. Kenstar’s contention that the European Tour Manager does not refer
to a natural person but a juridical personality does not hold because a corporate entity could not possibly
accompany the tour group. Lastly Kenstar committed grave misrepresentation when it assured in its tour package
that the hotels provided would provide complete amenities and would be conveniently located along the way for
the daily itineraries. Testimonies by petitioner and private respondent show that the hotels were unsanitary and
sometimes did not even provide towels and soap. Further testimonies claim that the hotels were also located in
locations far from the city making it difficult to go to. The fact that Kenstar could only book them in such hotels
because of budget constraints is not the fault of the tour group. Kenstar should not have promised such
accommodations if they couldn’t afford it. Kenstar should have increased the price to ensure accommodations.
 (2) Yes, the Court of Appeals erred in removing the moral and exemplary damages.

Moral damages may be awarded in breaches of contract where the obligor acted fraudulently or in bad
faith. Kenstar can be faulted with fraud in the inducement which is employed by a party in securing the consent
of the other. This fraud or dolo which is present or employed at the time of birth or perfection of the contract may
either be dolo causante or dolo incidente. The first, or causal fraud referred to in Article 1338 are those deceptions
or misrepresentations of a serious character employed by one party and without which the other party would not
have entered into the contract, Dolo incidente, or incidental fraud which is referred to in Article 1344, are those
which are not serious in character and without which the other party would still have entered into the contract.
In either case, whether Kenstar has committed dolo causante or dolo incidente, it is liable for damages both moral
and exemplary.

CATHAY PACFIC v. SPOUSES DANIEL VAZQUEZ and MARIA LUISA MADRIGAL VAZQUEZ
339 SCRA 207
Ponente: DAVIDE, JR, C.J.

FACTS

Private respondents were passengers of petitioner booked on its Flight CX-905 with the route of Manila to
Hongkong and back. They, along with their maid and two friends, went to HK for pleasure and business. While
the maid’s boarding pass was for the Economy Class, the spouses and their two friends indicated that they were
on the Business Class. However, while in Kai Tak Airport, after checking in their luggage and presenting their
boarding passes to the ground stewardess, they were informed by Ms. Chiu, a ground attendant, that there was a
seat change from Business to First Class for the spouses. It is to be noted that the Vasquezes are frequent flyers of
the airline and are Gold Card members of its Marco Polo Club. The Marco Polo Club is part of the marketing
strategy of Cathay through which it accords its frequent flyers several privileges, including priority for upgrading
of booking without any extra charge whenever an opportunity arises. Upon being informed of this change, Dr.
Vasquez refused the same, saying that it would not look nice for them as hosts to travel in First Class and their
guests, in Business Class, not to mention that they also had to discuss business matters during the flight. He asked
Ms. Chiu to have other passengers transferred instead. Shocked by this unusual reaction to a seat upgrade, Ms.
Chiu, after consulting with her supervisor, informed them that if they would not avail of the privilege, they would
not be allowed to take the flight. Eventually, after talking with his friends, Dr. Vasquez agreed. He and his wife
took the First Class Cabin. Back in Manila, after apparent inaction on the part of Cathay, the Vasquezes filed a
damage suit, asking for temperate, moral and exemplary damages, as well as attorney’s fees. They attributed
discourteous and humiliating behavior to Ms. Chiu. Cathay answered that seat upgrading is a common practice
among airlines.

The TC ruled for the spouses, awarding them nominal (P100,000 each), moral (P2M each), exemplary (P5M
each) and attorney’s fees (P1M each). The CA affirmed, but deleted the award of exemplary damages and reduced
the awards of moral and nominal damages and attorney’s fees.

ISSUE/s

1. WON Cathay breached its contract of carriage with the Vs when it upgraded their seat accommodation.

2. WON the upgrading was made in bad faith or with fraud.

3. WON the Vasquezes are entitled to damages.

RULING

1. YES. 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.

2. NO. 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.

3. YES. 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.

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. 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. 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. 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. 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.

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

H. O’ LEARY vs MACONDRAY Co. Inc.

45 Phil 812

It is alleged that on January 30, 1920, the plaintiff, who is a resident of Manila, and the defendant, a domestic
corporation, made the following agreement:
"MACONDRAY & CO.
"Manila, P. I.

"Through G. H. Hayward.

SIRS: Appertaining to the residence to be erected for your firm in Pasay, for which I have been requested by G.
H. Hayward to submit a proposition, I have the honor to state that I have examined the plans and site and would
undertake the work and complete the building in accordance with the plans and instructions, and under the
supervision of the said architect for the amount of the actual cost plus twelve and one-half per cent (12 ½%).
Payments to be made monthly on statements supported by vouchers, approved and certified to by the architect.
It is understood that time is an important provision, and with due consideration therefor materials suitable for the
work are to be purchased in such quantities and at such times as may appear to be to your best interest.
Very respectfully,
(Sgd.) "H. O'LEARY
Accepted for and on behalf of Macondray & Co.
By (Sgd.) "CARLOS YOUNG"
That plaintiff commenced the construction of the building under the supervision of the architect, and continued
the work thereon until near its completion, and kept and performed all the terms and provisions of the contract by
him to be kept and performed, and that pursuant to such agreement he paid out for labor and materials the sum of
P20,287.03, which was the actual cost; and that the defendant is indebted to him in the further sum of P2,535.83,
being 12 ½ per cent of the actual cost of such labor and materials, and for and on account of his services and
superintendence of the building, and he prays judgment for P22,822.86, with interest from the filing of the
complaint and costs.
In its second amended answer, after admitting the making of the contract and the formal all allegations of the
complaint, the defendant denies all other material allegations, and, as a special defense, alleges that, through
plaintiff's negligence in the construction of the building and the purchase of materials, the defendant was damaged
in the sum of P32,624.25, as specified in seven different counterclaims. It is then alleged that the plaintiff was
indebted to the Luneta Motor Company in the sum of P702.49, and to the Insular Lumber Company in the sum
P9,766.23, both of which claims are assigned to the defendant, and it prays judgment against the plaintiff for the
total of all of such claims amounting to P43,092.97.
The parties entered into a stipulation as to certain exhibits, and upon such issues, the trial court rendered judgment
in favor of the plaintiff for P12,201.99, with legal interest from the filing of the complaint and costs, from which
the defendant appeals, contending that the court erred in allowing interest from the filing of the complaint, and in
its computation and as to the duplicated item of the Tuason & Sampedro bill, in refusing to receive evidence of
the rental value of the house, in failing to make special findings of fact, and in failing to find that the delay caused
in the completion of the house was caused by plaintiff's negligence, in finding for the plaintiff on defendant's
second counterclaim for damages in the sum of P797, in finding for the plaintiff on defendant's third counterclaim
for damages in the sum of P5,440.11, and in finding for the plaintiff on defendant's fourth counterclaim for
damages in the sum of P13,407.25, the amount of the alleged increase in the cost of labor caused by plaintiff's
negligence.

JOHNS, J.:
Plaintiff's cause of action is founded upon the contract above quoted, the making of which defendant admits. By
its express terms, plaintiff says that he "would undertake the work and complete the building in accordance with
the plans and instructions, and under the supervision of the said architect for the amount of the actual cost plus
twelve and one-half per cent (12 ½%)." Payments are to be made on monthly statements accompanied by
vouchers to be approved and certified by the architect. It then recites:
It is understood that time is an important provision, and with due consideration therefor materials suitable for the
work are to be purchased in such quantities and at such times as may appear to be to your best interest.
To say the least, the contract was very loosely drawn. No date is specified in which the building is to be
completed, and time is not made the essence of the contract. It is true that the materials were to be purchased in
such quantities and at such times as may appear to be to the defendant's interest.
The defense is founded upon the theory that the labor was not furnished and that the materials were not purchased
for its best interest. There is no claim or pretense of fraud, or that the plaintiff was dishonest. In its final analysis,
defendant's counterclaims are founded upon plaintiff's mistakes and errors of judgment in the employment of
labor and the purchase of materials.
Assuming that there were mistakes and errors of judgment only, the plaintiff would not be liable for them under
the contract. The fact that the price of lumber or of labor went up or down, or was cheaper at a certain time, would
not make the plaintiff liable for a breach of contract, so long as he was exercising his best judgment and acting in
good faith.
It will be noted that the materials were to be purchased "in such quantities and at such times as may appear to be
to your best interest." That vested in the plaintiff a discretionary power as to the time and manner for the purchase
of materials, for which he would not be liable for honest mistakes or errors of judgment. The same thing is true as
to the employment of labor. It is true that the contract recites "that time is an important provision." But it does not
say when the building is to be completed, or that time is of the essence of the contract. In other words, under the
terms of the contract, the employment of labor, the purchase of materials and the completion and construction of
the building were all matters which were largely left to the discretion of the plaintiff, for which he would not be
liable for honest mistakes or errors of judgment.
Pending the trial the judge of the lower court made a personal inspection of the building and of the labor and
materials used in its construction, and upon all of such questions, we agree with the trial court.
Although this action is founded upon contract, the amount of plaintiff's claim was vigorously disputed. In fact the
defendant claimed judgment against the plaintiff for a much larger amount. Upon such a state of facts, and under
recent decisions of this court, plaintiff is only entitled to interest from the date of the judgment, and defendant's
first assignment of error must be sustained. It also appears that a clerical error was made in computing 12 1/2 per
cent on P1,772.14, and that the amount which should be deducted was P221.52 and not P22.15, as found by the
trial court. Correcting this error, the amount of plaintiff's judgment should be P12,002.63.
The judgment of the lower court will be modified, and instead of P12,201.00, the amount of plaintiff's judgment
will be P12,002.63, which will draw interest at the rate of 6 per cent per annum from the first day of August,
1923, the date of the judgment in the lower court. In all other respects, the judgment is affirmed, with costs in
favor of the appellant in this court. So ordered.