Cathay Pacific Airways, Ltd. vs. Spouses Fuentebella

A common carrier that issues First Class tickets but boards the passenger in a lower class breaches its contract of carriage; the aggrieved passenger need only prove the existence of the contract and the fact of its nonperformance by the carrier, and not the carrier's fault or negligence. Moral and exemplary damages in breach of contract cases are recoverable only where the breach is wanton and deliberately injurious or attended by fraud, malice, or bad faith, and the amounts awarded must be commensurate with prevailing jurisprudence.

Petitioner Cathay Pacific Airways, Ltd. is a foreign corporation licensed to do business in the Philippines and engaged in international air carriage. Respondents Arnulfo and Evelyn Fuentebella were passengers holding tickets for a Manila–Sydney–Manila itinerary routed through Hong Kong, purchased in connection with an official congressional mission to Australia. The dispute concerns the class of accommodation to which those tickets entitled them and the treatment they received from the carrier's ground personnel.

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

From that point the parties presented divergent versions of the facts, the overarching disagreement being whether respondents should have been given First Class seat accommodations for all segments of their itinerary. According to respondents, their travel arrangements, including the request for the upgrade, were made through Cong. Lopez, who corroborated the allegation. Petitioner, on the other hand, claimed that a certain Carol Dalag had transacted on behalf of the congressmen and their spouses, and that on 23 October 1993 one of the passengers called to request that the booking be divided into two — one for the Spouses Lopez and Spouses Fugoso, and a separate booking for respondents. Cong. Lopez denied knowing a Carol Dalag and was not questioned regarding the request for two separate bookings, although in his testimony he gave the impression that the travel arrangements had been made for them as one group. He admitted that he had called up petitioner, but only to request an upgrade of their tickets from Business Class to First Class, and testified that upon assurance that their group would be able to travel First Class upon cash payment of the fare difference, he sent a member of his staff that same afternoon to pay. Petitioner admits that First Class tickets were issued to respondents but clarifies that the tickets were open-dated (waitlisted). There was no showing whether the First Class tickets issued to the Spouses Lopez and Spouses Fugoso were open-dated or otherwise, but it appears that they were able to fly First Class on all the segments of the trip while respondents were not.

On 25 October 1993, respondents queued in front of the First Class counter at the airport. They were issued boarding passes for Business Class seats on board CX 902 bound for Hong Kong from Manila and Economy Class seats on board CX 101 bound for Sydney from Hong Kong. They discovered that they had not been given First Class seats only when they were denied entry into the First Class lounge. Respondent Fuentebella went back to the check-in counter to demand that they be given First Class seats or, at the very least, access to the First Class Lounge; he recalled that he was treated by the ground staff in a discourteous, arrogant, and rude manner and was allegedly told that the plane would leave with or without them. Both the trial court and the Court of Appeals gave credence to his testimony.

During trial, petitioner offered the transcript of the deposition of its senior reservation supervisor, Nenita Montillana. She said that based on the record locator, respondents had confirmed reservations for Business Class seats for the Manila–Hong Kong, Sydney–Hong Kong, and Hong Kong–Manila flights, but that the booking for Business Class seats for the Hong Kong–Sydney leg was "under request" and, due to the flight being full, petitioner was not able to approve the request. Montillana admitted that First Class tickets had been issued to respondents but qualified that those tickets were open-dated, referring to the plane tickets which bore the annotations "OPEN F OPEN" for all sectors of the flight. Petitioner explained that while respondents expressed their desire to travel First Class, they could not be accommodated because they had failed to confirm and the sections were full on the date and time of their scheduled and booked flights. Petitioner also denied that its personnel exhibited arrogance in dealing with respondents; on the contrary, it was allegedly respondent Fuentebella who was hostile in dealing with the ground staff.

Respondents alleged that during transit through the Hong Kong airport on 25 October 1993, they were treated with far less respect and courtesy by the ground staff: the first employee they approached completely ignored them and turned her back on them; the second did not even give them any opportunity to explain why they should be given First Class seats, but instead brushed aside their complaints and told them to just fall in line in Economy Class; and the third employee they approached shoved them to the line for Economy Class passengers in front of many people. Petitioner used the depositions of Manuel Benipayo, airport service officer, and Raquel Galvez-Leonio, airport services supervisor, to contradict these claims. Benipayo identified himself as the ground staff who had dealt with respondents' complaint and testified that around five o'clock on 25 October 1993, respondent Fuentebella loudly insisted that he be accommodated on First Class, but upon checking their records he found out that respondents were only booked on Business Class; he tried to explain this in a very polite manner and exerted his best effort to secure First Class seats for them, but the plane was already full. He presented a telex sent to their Hong Kong office requesting assistance to accommodate respondents in First Class for the Hong Kong–Sydney flight, and claimed that he was intimidated by respondent Fuentebella into making the notations "Involuntary Downgrading" and "fare difference to be refunded" on the tickets. For her part, Galvez-Leonio testified that it was company policy not to engage passengers in debates or drawn-out discussions, but to address their concerns in the best and proper way; she admitted, however, that she had no personal knowledge of compliance in airports other than NAIA.

Respondents narrated that for their trip from Hong Kong to Sydney, they were squeezed into very narrow seats for eight and a half hours and, as a result, felt groggy and miserable upon landing. They were able to travel First Class for their trip from Sydney to Hong Kong on 30 October 1993, but on the last segment of the itinerary from Hong Kong to Manila on 2 November 1993, they were issued boarding passes for Business Class. Upon arrival in the Philippines, respondents demanded a formal apology and payment of damages from petitioner, which conducted an investigation and thereafter maintained that no undue harm had been done to them. The trial court gave full faith and credence to the testimonies of respondents and Cong. Fugoso, observing their demeanor on the witness stand as frank, spontaneous, positive, and forthright, and found the credibility of Montillana, who appeared to be reading a note, affected; the appellate court, reviewing the records, found that respondents were entitled to First Class accommodation throughout the trip, gave weight to Cong. Lopez's testimony that the fare difference had been paid, treated the handwritten notation "fare difference to be refunded" as proof of the downgrade, and found that there were no conditions stated on the face of the tickets.

• Performance of the Contract: Petitioner maintained that respondents had flown on the sections and sectors they had booked and confirmed, and that the First Class tickets issued to them were open-dated and therefore subject to the availability of seats.
• Respondents' Familiarity with Open-Dated Tickets: Petitioner argued that respondents were seasoned travelers and therefore familiar with the concept of open-dated tickets, invoking Sarreal, Jr. vs. JAL to the effect that an airline could not be faulted for the negligence of a passenger aware of the restrictions carried by his ticket.
• Self-Serving Testimonial Evidence: Petitioner argued that the testimonial evidence of the treatment accorded by its employees to respondents was self-serving and should not have been the basis for the finding of bad faith.
• Excessive Damages: Petitioner prayed that the Complaint be dismissed or, in the alternative, that the damages be substantially and equitably reduced.

• Breach of Contract of Carriage: Whether petitioner breached its contract of carriage with respondents when they were denied First Class accommodations despite holding First Class tickets.
• Bad Faith: Whether petitioner acted in bad faith so as to warrant an award of moral and exemplary damages.
• Amount of Damages: Whether the amounts of moral and exemplary damages awarded by the trial and appellate courts were excessive.

• Breach of Contract of Carriage: Yes. Both the trial and appellate courts found that respondents were entitled to First Class accommodations under the contract of carriage and that petitioner failed to perform its obligation; in an action based on a breach of contract of carriage, the aggrieved party need only prove the existence of the contract and the fact of its nonperformance by the carrier.
• Bad Faith: Yes. Bad faith is a question of fact that must be proven by clear and convincing evidence, and both the trial and the appellate courts found that petitioner had acted in bad faith; no reason appeared to deviate from that finding.
• Amount of Damages: The awards were excessive. Moral damages were reduced to P500,000 and exemplary damages to P50,000, consistent with the highest amount ever awarded by the Court for moral damages in airline cases and with prevailing jurisprudence on exemplary damages.

• Breach of Contract of Carriage: Under Air France vs. Gillego, in an action based on a breach of contract of carriage the aggrieved party does not have to prove that the common carrier was at fault or was negligent; all that he has to prove is the existence of the contract and the fact of its nonperformance by the carrier. Both the trial and appellate courts found that respondents were entitled to First Class accommodations under the contract of carriage and that petitioner failed to perform its obligation, and the Court declined to delve more deeply into the issue than necessary in deference to those factual findings. The Court nevertheless pointed to a crucial fact uncovered from the records that further debunked petitioner's suggestion that two sets of tickets were issued to respondents — one for Business Class and another for open-dated First Class tickets. The First Class tickets issued on 25 October 1993 indicated that they were "issued in exchange for Ticket Nos. 160-401123987 and 160-4474920334/5"; the latter set corresponded to the Business Class tickets issued on 23 October 1993, which in turn originated from Ticket No. 160-4011239858 issued on 22 October 1993. While petitioner may have been telling the truth that the passengers made many changes in their booking, its claim that respondents held both Business Class tickets and open-dated First Class tickets was untrue. Petitioner still issued First Class tickets to respondents on the same day of the flight, and the incontrovertible fact was that respondents were holding First Class tickets on 25 October 1993. Citing FGU Insurance Corporation vs. G.P. Sarmiento Trucking Corporation, the Court recognized the injured party's expectation, reliance, and restitution interests in breach of contract cases. According to Montillana, a reservation is deemed confirmed when there is a seat available on the plane, and computer records were consulted upon inquiry; by issuing First Class tickets on the same day of the flight in place of Business Class tickets that indicated the preferred and confirmed flight, petitioner led respondents to believe that their request for an upgrade had been approved. Petitioner's attempt to downplay the finding that no explanation was given to respondents regarding the types of ticket issued, on the theory that respondents were seasoned travelers familiar with open-dated tickets, failed. Sarreal, Jr. vs. JAL was distinguishable because the plaintiff there was shown to be a well-travelled person who averaged two trips to Europe and two trips to Bangkok every month for 34 years; here, no evidence showed that respondents were familiar with the concept of an open-dated ticket, and the tickets did not even contain the term "open-dated."
• Bad Faith: Moral and exemplary damages are not ordinarily awarded in breach of contract cases; damages may be awarded only when the breach is wanton and deliberately injurious, or the one responsible had acted fraudulently or with malice or bad faith. Bad faith is a question of fact that must be proven by clear and convincing evidence. Both the trial and the appellate courts found that petitioner had acted in bad faith, and after review of the records the Court found no reason to deviate from that finding. Petitioner's argument that the testimonial evidence of the treatment accorded by its employees was self-serving and therefore an improper basis for the finding of bad faith was rejected: the Rules of Court do not require that the testimony of the injured party be corroborated by independent evidence, and even in criminal cases, where the standard of proof is higher, the testimony of even one witness may suffice to support a conviction — more so in this case, where petitioner had adequate opportunity to controvert the testimonies of respondents. In Singapore Airlines Limited vs. Fernandez, bad faith was imputed where the trial court found that the ground staff had not accorded the attention and treatment warranted under the circumstances, and the inattentiveness and rudeness of the ground staff were gross enough to amount to bad faith. The bad faith in the present case was even more pronounced because petitioner's ground staff physically manhandled the passengers by shoving them to the line, after another staff member had insulted them by turning her back on them.
• Amount of Damages: The award of P5 million as moral damages was excessive, considering that the highest amount ever awarded by the Court for moral damages in cases involving airlines is P500,000. As held in Air France vs. Gillego, "the mere fact that respondent was a Congressman should not result in an automatic increase in the moral and exemplary damages." On the facts established, P500,000 as moral damages was reasonable to obviate the moral suffering respondents had undergone, and jurisprudence showed that P50,000 in exemplary damages was sufficient to deter similar acts of bad faith attributable to airline representatives.

• Breach of contract of carriage — burden of proof — In an action based on a breach of contract of carriage, the aggrieved party does not have to prove that the common carrier was at fault or was negligent; all that must be proved is the existence of the contract and the fact of its nonperformance by the carrier. The Court applied the rule to sustain the finding of breach, since respondents proved the existence of the contract of carriage and petitioner's failure to perform its obligation to provide First Class accommodations.
• Expectation, reliance, and restitution interests — A breach of contract confers upon the injured party a valid cause for recovering that which may have been lost or suffered, a remedy that serves to preserve the promisee's expectation interest (being put in as good a position as if the contract had been performed), reliance interest (being reimbursed for loss caused by reliance on the contract), or restitution interest (having restored any benefit conferred on the other party). The Court cited the doctrine in recognizing respondents' entitlement to recover for petitioner's misperformance of the contract of carriage.
• Moral and exemplary damages in breach of contract — Moral and exemplary damages are not ordinarily awarded in breach of contract cases; they may be awarded only when the breach is wanton and deliberately injurious, or the one responsible acted fraudulently or with malice or bad faith. Bad faith is a question of fact that must be proven by clear and convincing evidence. Both lower courts found bad faith on petitioner's part, and the Court sustained that finding.
• Sufficiency of the injured party's testimony — The Rules of Court do not require that the testimony of the injured party be corroborated by independent evidence; even in criminal cases, where the standard of proof is higher, the testimony of even one witness may suffice to support a conviction. The Court applied this rule in rejecting petitioner's objection that respondents' testimonial evidence of the treatment they received was self-serving.
• Contracts of adhesion — An airline ticket is a contract of adhesion whose terms are construed against the party that drafted it. Both the trial court and the Court of Appeals characterized the ticket as a contract of adhesion and construed its terms against petitioner; the Supreme Court affirmed the appellate disposition, resolving the case on the ground of breach and reducing only the damages awarded.
• Damages in airline cases — benchmarks — The highest amount ever awarded by the Court for moral damages in cases involving airlines is P500,000, and P50,000 in exemplary damages is sufficient to deter similar acts of bad faith attributable to airline representatives. The Court applied these benchmarks in reducing the awards of P5 million in moral damages and P1 million in exemplary damages.
• Official position as basis for damages — The mere fact that the injured party was a Congressman should not result in an automatic increase in moral and exemplary damages. The Court invoked the principle in rejecting the trial court's consideration of respondent Fuentebella's prestigious position in setting the award of moral damages.

• "In an action based on a breach of contract of carriage, the aggrieved party does not have to prove that the common carrier was at fault or was negligent; all that he has to prove is the existence of the contract and the fact of its nonperformance by the carrier." — This passage, drawn from Air France vs. Gillego, states the ratio decidendi on liability: it fixes the passenger's burden of proof in breach of contract of carriage actions and dispenses with proof of fault or negligence.
• "The law, recognizing the obligatory force of contracts, will not permit a party to be set free from liability for any kind of misperformance of the contractual undertaking or a contravention of the tenor thereof." — Quoted from FGU Insurance Corporation vs. G.P. Sarmiento Trucking Corporation, this passage articulates the obligatory force of contracts and the availability of a cause of action upon breach, and it supplies the doctrinal basis for recognizing the injured party's expectation, reliance, and restitution interests.
• "Bad faith is a question of fact that must be proven by clear and convincing evidence." — This one-sentence formulation states the evidentiary standard governing the award of moral and exemplary damages in breach of contract cases, and it is the standard against which the Court reviewed the lower courts' finding of bad faith.
• "the mere fact that respondent was a Congressman should not result in an automatic increase in the moral and exemplary damages." — Quoted from Air France vs. Gillego, this passage is the basis for the Court's reduction of the moral damages award, rejecting the trial court's reliance on respondent Fuentebella's prestigious position in calibrating the award.

• Air France vs. Gillego, 653 Phil. 138 (2010) — Controlling precedent. Cited for the rule that in an action for breach of contract of carriage the aggrieved party need only prove the existence of the contract and its nonperformance, and for the principle that the injured party's official position does not automatically increase moral and exemplary damages; also cited as the source of the P500,000 benchmark for exemplary damages in airline cases.
• FGU Insurance Corporation vs. G.P. Sarmiento Trucking Corporation, 435 Phil. 333 (2002) — Cited for the recognition of the injured party's expectation, reliance, and restitution interests in breach of contract cases.
• Singapore Airlines Limited vs. Fernandez, 463 Phil. 145 (2003) — Followed. Cited for the ruling that the inattentiveness and rudeness of ground staff may be gross enough to amount to bad faith, a finding the Court found even more pronounced in the present case.
• Sarreal, Jr. vs. JAL, G.R. No. 75308, 23 March 1992, 207 SCRA 359 — Distinguished. Cited by petitioner for the proposition that an airline cannot be faulted for the negligence of a passenger aware of the restrictions on his ticket; distinguished because the plaintiff there was shown to be a well-travelled person, whereas no evidence established respondents' familiarity with open-dated tickets.
• Zulueta vs. Pan American World Airways, Inc., 150 Phil. 465 (1972); Japan Airlines vs. Martinez, 575 Phil. 359 (2008); Northwest Airlines, Inc. vs. Spouses Heshan, 625 Phil. 304 (2010) — Cited collectively as the jurisprudence establishing P500,000 as the highest moral damages awarded by the Court in airline cases.
• Cervantes vs. Court of Appeals, 363 Phil. 399 (1999) — Cited for the rule that damages may be awarded in breach of contract cases only when the breach is wanton and deliberately injurious, or the one responsible acted fraudulently or with malice or bad faith.
• China Airlines, Ltd. vs. Court of Appeals, G.R. Nos. 45985 & 46036, 18 May 1990, 185 SCRA 449 — Cited within Air France vs. Gillego as authority for the rule on the passenger's burden of proof in breach of contract of carriage.

• Article 2208(2), Civil Code — Allows the recovery of attorney's fees when the defendant's act or omission has compelled the plaintiff to litigate with third persons or to incur expenses to protect the latter's interest. The Court of Appeals sustained the award of attorney's fees on this basis, reducing the amount to P100,000; the Supreme Court affirmed the appellate disposition with modification only as to moral and exemplary damages.
• Rules of Court (rule on evidence) — The Court held that the Rules of Court do not require that the testimony of the injured party be corroborated by independent evidence, and that even in criminal cases, where the standard of proof is higher, the testimony of even one witness may suffice to support a conviction. The rule was applied to uphold the lower courts' reliance on respondents' testimonies in finding bad faith.

• Teresita J. Leonardo-de Castro
• Lucas P. Bersamin
• Estela M. Perlas-Bernabe
• Alfredo Benjamin S. Caguioa