Cervantes vs. Court of Appeals

An airline ticket's one-year validity is binding as the contract between the parties, and confirmation of a flight by airline employees without authority does not extend that validity, especially where the passenger knew that only a written request to PAL's legal counsel could secure an extension.

Cervantes and PAL had previously litigated Civil Case Nos. 3392 and 3451 before the RTC in Surigao City, where a Compromise Agreement approved in a joint decision dated Nov. 15, 1988 governed PAL's issuance of tickets to Cervantes. Paragraph 4 of that agreement required PAL to issue tickets only upon written advice of Cervantes or counsel, with the same conditions as revenue tickets except that they were non-refundable and non-endorsable, and valid for one year from issuance.

On March 27, 1989, Philippine Air Lines, Inc. (PAL) issued to Nicholas Cervantes a round-trip plane ticket for Manila-Honolulu-Los Angeles-Honolulu-Manila, which expressly provided an expiry date of one year from issuance, or until March 27, 1990. The ticket was issued in compliance with a Compromise Agreement entered into between the contending parties in two previous suits, docketed as Civil Case Nos. 3392 and 3451 before the RTC in Surigao City.

On March 23, 1990, four days before the expiry date, Cervantes used the ticket. Upon his arrival in Los Angeles on the same day, he immediately booked his Los Angeles-Manila return ticket with the PAL office, and it was confirmed for the April 2, 1990 flight. Upon learning that the same PAL plane would make a stop-over in San Francisco, and considering that he would be there on April 2, 1990, he made arrangements with PAL to board the flight in San Francisco instead of boarding in Los Angeles.

On April 2, 1990, when Cervantes checked in at the PAL counter in San Francisco, he was not allowed to board. The PAL personnel concerned marked the following notation on his ticket: "TICKET NOT ACCEPTED DUE EXPIRATION OF VALIDITY." Aggrieved, Cervantes filed a Complaint for Damages for breach of contract of carriage, docketed as Civil Case No. 3807 before Branch 32 of the RTC of Surigao del Norte in Surigao City. The complaint was dismissed for lack of merit.

The trial court found that the ticket itself provided that it was not valid after March 27, 1990, and that paragraph 8 of the Conditions of Contract stated that the ticket was good for carriage for one year from date of issue, except as otherwise provided in the ticket, in carrier's tariffs, conditions of carriage, or related regulations. The CA found that on March 23, 1990, Cervantes was aware of the risk that his ticket could expire before he returned to the Philippines; that both PAL employees had no authority to extend the ticket's validity; that Cervantes knew from the very start, when he called up PAL's Legal Department in the Philippines before leaving for the United States, that the ticket would expire on March 27, 1990 and that to secure an extension he would have to file a written request at PAL's office in the Philippines; and that despite this knowledge he persisted in using the ticket.

• Extension of Ticket Validity: Petitioner theorized that the confirmation by PAL's agents in Los Angeles and San Francisco of his return flight and his arrangement to board in San Francisco extended the period of validity of his ticket and changed the Compromise Agreement between the parties.
• Waiver of Lack of Authority: Petitioner maintained that PAL's defense of lack of authority on the part of its employees was deemed waived under Rule 9, Section 2 of the Revised Rules of Court because it was neither raised in the answer nor in a motion to dismiss.
• Damages: Petitioner argued that the denial of the award for damages was improper.

• Extension of Ticket Validity: Whether the act of the PAL agents in confirming subject ticket extended the period of validity of petitioner's ticket.
• Waiver of Lack of Authority: Whether the defense of lack of authority was correctly ruled upon.
• Damages: Whether the denial of the award for damages was proper.

• Extension of Ticket Validity: No. The ticket was the contract between the parties and was valid only until March 27, 1990; the PAL agents had no authority to extend it, and petitioner knew that a written request to PAL's legal counsel was required.
• Waiver of Lack of Authority: No. Although PAL did not plead lack of authority, the issue was tried with the parties' implied consent, so it was treated as if raised in the pleadings under Rule 10, Section 5.
• Damages: No. Moral, exemplary, and attorney's fees were improper because petitioner failed to show that PAL acted in bad faith; the employees' act was at most simple negligence.

• Extension of Ticket Validity: The SC began from the rule that findings of fact of the trial court are entitled to great weight on appeal and should not be disturbed absent strong and cogent reasons. The ticket itself stated it was not valid after March 27, 1990, and paragraph 8 of the Conditions of Contract provided that the ticket was good for carriage for one year from date of issue except as otherwise provided in the ticket, carrier's tariffs, conditions of carriage, or related regulations. Applying Lufthansa vs. Court of Appeals, the SC held that the ticket constituted the contract between the parties and that, when its terms are clear and leave no doubt as to the intention of the contracting parties, contracts are to be interpreted according to their literal meaning. Petitioner's theory that the confirmations by PAL's agents in Los Angeles and San Francisco changed the Compromise Agreement could not prevail. The CA found that the agents had no authority to extend the ticket's validity and that petitioner knew from the start, after calling PAL's Legal Department before leaving for the United States, that the ticket would expire on March 27, 1990 and that a written request for extension had to be filed at PAL's office in the Philippines. Since the agents were not privy to the Compromise Agreement and petitioner knew that a written request to PAL's legal counsel was necessary, he could not use the agents' acts to his advantage. Under Article 1989 of the New Civil Code, as cited by the SC, acts of an agent beyond the scope of his authority do not bind the principal unless ratified, and when the third person knows that the agent was acting beyond his power or authority, the principal cannot be held liable; if the third person is aware of such limits, he is to blame and is not entitled to recover damages from the agent unless the latter undertook to secure the principal's ratification.
• Waiver of Lack of Authority: The SC rejected the argument that PAL waived the defense of lack of authority under Rule 9, Section 2 of the Revised Rules of Court, which provides that failure to put up defenses in the answer or in a motion to dismiss is a waiver. Records showed that the question of whether there was authority on the part of the PAL employees was acted upon by the trial court when Cervantes was presented as a witness and the depositions of PAL employees Georgina M. Reyes and Ruth Villanueva were presented. Cervantes's admission that PAL's legal counsel told him he had to submit a letter requesting an extension was tantamount to knowledge that the PAL employees had no authority and that only PAL's legal counsel was authorized to grant an extension. Even if PAL did not raise the defense in its answer or motion to dismiss, the omission was cured because the issue was litigated upon, as shown by petitioner's testimony during trial. Rule 10, Section 5 of the 1997 Rules of Civil Procedure provides that when issues not raised by the pleadings are tried with express or implied consent of the parties, they shall be treated as if raised in the pleadings; implied consent exists when the adverse party fails to object to the evidence.
• Damages: The SC held that an award of damages was improper because petitioner failed to show that PAL acted in bad faith in refusing to allow him to board in San Francisco. In awarding moral damages for breach of contract of carriage, the breach must be wanton and deliberately injurious, or the responsible party must have acted fraudulently or with malice or bad faith. Petitioner knew there was a strong possibility that he could not use the ticket, so much so that he bought a back-up ticket to ensure his departure; if there was bad faith, it should be on petitioner. What PAL's employees did was simple negligence, and no injury resulted because petitioner had a back-up ticket should PAL refuse to accommodate him. Exemplary damages could not be upheld because such damages are imposed by way of example or correction for the public good and require the existence of bad faith; the wrongful act must be accompanied by bad faith, and an award is allowed only if the guilty party acted in a wanton, fraudulent, reckless, or malevolent manner. There was no showing that PAL acted in such a manner. Attorney's fees were also improper.

• Ticket as the Contract of Carriage — An airline ticket constitutes the contract between the passenger and the carrier; when its terms are clear and leave no doubt as to the intention of the contracting parties, the contract is interpreted according to its literal meaning. In this case, the ticket's one-year validity from issuance, ending March 27, 1990, controlled, and the confirmations by PAL's employees did not extend it.
• Acts of Agent Beyond Authority — Under the agency rule applied by the SC, an agent's act beyond the scope of his authority does not bind the principal unless the principal ratifies it expressly or impliedly; if the third person knows of the limits of the agent's authority, the principal is not liable, and the third person is to blame and cannot recover damages from the agent unless the agent undertook to secure the principal's ratification. The SC applied this because Cervantes knew that only PAL's legal counsel could grant an extension through a written request, so the confirmations by PAL employees did not bind PAL.
• Waiver of Unpleaded Defenses Cured by Trial of the Issue — Failure to raise a defense in the answer or motion to dismiss is a waiver under Rule 9, Section 2, but the defect is cured when the issue is tried with the express or implied consent of the parties; implied consent arises when the adverse party fails to object to the evidence. The SC applied this to PAL's lack-of-authority defense because the issue was litigated through Cervantes's testimony and the depositions of PAL employees.
• Bad Faith Requirement for Damages in Breach of Contract of Carriage — Moral damages for breach of a contract of carriage require that the breach be wanton and deliberately injurious or that the responsible party acted fraudulently or with malice or bad faith; exemplary damages require bad faith, and attorney's fees are likewise improper absent such a showing. The SC found at most simple negligence and no injury because Cervantes had a back-up ticket, so no damages were awarded.

• "This ticket is good for carriage for one year from date of issue, except as otherwise provided in this ticket, in carrier's tariffs, conditions of carriage, or related regulations." — The SC quoted this condition to establish that the ticket's one-year validity from issuance was part of the contract and supported the expiry on March 27, 1990.
• "ticket constitute the contract between the parties. It is axiomatic that when the terms are clear and leave no doubt as to the intention of the contracting parties, contracts are to be interpreted according to their literal meaning." — The SC adopted this ruling from Lufthansa vs. Court of Appeals to hold that the ticket's expiry term controlled and could not be overridden by the agents' confirmations.
• "Under Article 1989 of the New Civil Code, the acts an agent beyond the scope of his authority do not bind the principal, unless the latter ratifies the same expressly or impliedly." — The SC used this agency rule to reject the claim that PAL's employees bound PAL by confirming the flights.
• "In awarding moral damages for breach of contract of carriage, the breach must be wanton and deliberately injurious or the one responsible acted fraudulently or with malice or bad faith." — The SC applied this standard to deny moral damages because PAL's refusal to board Cervantes was not shown to be in bad faith.

• Lufthansa vs. Court of Appeals, 208 SCRA 708, p. 711 — Controlling precedent; the SC relied on it for the rule that the ticket is the contract between the parties and that clear terms are interpreted literally, which defeated the claim that the ticket's validity was extended.
• Donato vs. Court of Appeals, 217 SCRA 196 — Cited for the rule that the trial court's findings of fact are entitled to great weight on appeal and should not be disturbed absent strong and cogent reasons.
• Perez vs. Court of Appeals, 13 SCRA 137 — Cited as authority for the bad-faith requirement in awarding moral damages for breach of a contract of carriage.

• Article 1989, New Civil Code — The SC cited this agency provision to hold that an agent's acts beyond the scope of his authority do not bind the principal unless ratified, and that a third person aware of the limits of the agent's authority cannot hold the principal liable. The SC applied it to the PAL employees' confirmations, which did not bind PAL because Cervantes knew only PAL's legal counsel could extend the ticket.
• Rule 9, Section 2, Revised Rules of Court — Petitioner invoked this provision, which makes failure to put up defenses in the answer or motion to dismiss a waiver; the SC held the waiver was cured because the lack-of-authority issue was tried.
• Rule 10, Section 5, 1997 Rules of Civil Procedure — The SC applied this provision to treat the lack-of-authority issue as if raised in the pleadings because it was tried with the parties' express or implied consent, implied consent arising when the adverse party fails to object to the evidence.
• Paragraph 8, Conditions of Contract (ticket) — The SC quoted this condition stating that the ticket is good for carriage for one year from date of issue except as otherwise provided in the ticket, carrier's tariffs, conditions of carriage, or related regulations; it supported the holding that the ticket expired on March 27, 1990.