Spouses Fernando and Lourdes Viloria v. Continental Airlines, Inc. G.R. No. 188288, January 16, 2012

Can a multinational airline be held liable for the fraudulent acts of a travel agent it never explicitly authorized—but whose services it nonetheless benefited from and never disowned?

Spouses Fernando and Lourdes Viloria v. Continental Airlines, Inc.

G.R. No. 188288, January 16, 2012

 

FACTS OF THE CASE     

In July 1997, while in the United States, Spouses Fernando and Lourdes Viloria purchased two round-trip tickets from San Diego, California to Newark, New Jersey, through a travel agency named Holiday Travel. The tickets, worth $400 each, were for a Continental Airlines (CAI) flight. The Vilorias were informed by the agency's agent, Margaret Mager, that no Amtrak train seats were available, which led them to purchase the airline tickets instead.

However, when Fernando later checked at an Amtrak station, he discovered that seats were actually available. Feeling misled, he demanded a refund from Holiday Travel, which was denied, citing the tickets' “non-refundable” nature. Upon returning to the Philippines, he wrote to CAI demanding a refund. CAI replied that while the tickets were non-refundable, they could be used toward the purchase of new tickets within two years, albeit with a re-issuance fee.

In 1999, Fernando went to CAI’s Makati office to redeem the value of the tickets for a round-trip flight to Los Angeles. He was told that Lourdes’ ticket was non-transferable, and that a round-trip to Los Angeles cost $1,867.40—much higher than competitor rates. Displeased, he again demanded a refund.

Spouses Viloria filed a complaint for refund, moral and exemplary damages, and attorney’s fees. The RTC ruled in their favor, finding that Mager misrepresented facts to induce the purchase and acted as CAI’s agent. It held CAI liable for refund, moral damages of ₱100,000, exemplary damages of ₱50,000, and attorney’s fees of ₱40,000.

However, the Court of Appeals reversed this ruling, holding that there was no evidence of agency between CAI and Holiday Travel, and no bad faith on CAI’s part. The CA emphasized that the tickets clearly stated they were “non-refundable.”

 

LEGAL ISSUE BEFORE THE SUPREME COURT

Can Continental Airlines be held liable for refund and damages based on the fraudulent act of a travel agent, despite the airline’s claim that there was no principal-agent relationship?

 

SUPREME COURT’S RULING

The Supreme Court sided with the Court of Appeals, ruling that while an agency relationship did exist between CAI and Holiday Travel, the Vilorias failed to prove that CAI was liable for the alleged fraud committed by Mager.

The Court clarified that:

1. Agency may be implied from the principal’s failure to repudiate acts made on its behalf. In this case, CAI’s own letters and conduct affirmed Holiday Travel’s authority to act for it.

2. However, liability in quasi-delict requires fault or negligence by the principal, which the Vilorias failed to prove.
3. Even if fraud had occurred, the Vilorias ratified the contract by attempting to use the tickets later. Ratification bars annulment or refund claims.
4. There was no substantial breach by CAI that would justify rescission. The refusal to transfer a ticket was minor, and CAI retained the right to price its services.
5. No bad faith or fraud was proven on CAI’s part to justify moral or exemplary damages.

 

DISPOSITIVE PORTION

WHEREFORE, premises considered, the instant Petition is DENIED.

 

Should passengers bear the full risk of misrepresentation by third-party agents in the airline industry, even when the airline benefits from their services?

 

IMPORTANT DOCTRINES

1. “Agency may be express, or implied from the acts of the principal, from his silence or lack of action…”
   — Article 1869, Civil Code
   Agency may arise even without written authority if the principal acquiesces in the agent's acts.
2. “He who acts through another acts himself.”
   — Qui facit per alium facit per se
   A principal is bound by authorized acts of his agent.
3. “Fraud must be serious and proven by clear and convincing evidence.”
   — Sierra v. Court of Appeals
   Not all misstatements constitute actionable fraud; speculative claims are insufficient.
4. “Ratification extinguishes the action to annul a voidable contract.”
   — Article 1392, Civil Code
   Continued dealings under a disputed contract may bar a claim of invalidity.
5. “Contracts cannot be rescinded for a slight or casual breach.”
   — Barredo v. Leaño
   Rescission requires a fundamental breach that defeats the contract’s purpose.

 

CLASSIFICATION: Civil Law (Contract of Agency and Carriage; Quasi-delict; Contractual obligations)

 

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