SPOUSES FERNANDO AND LOURDES VILORIA, PETITIONERS, VS. CONTINENTAL AIRLINES, INC., RESPONDENT.

Viloria versus Continental Airlines

The Case

This is a petition for review under Rule 45 of the Rules of Court brought by Spouses Fernando and Lourdes Viloria against Continental Airlines, Incorporated. The spouses sued for a refund of the price of two round trip airline tickets, plus damages, claiming that the airline's travel agent misled them into buying the tickets and that the airline later dealt with them in bad faith. The case matters because the Supreme Court uses it to draw the line between a contract of agency and a contract of sale, to restate the elements of agency and the doctrine of estoppel, and to remind common carriers that they cannot hide behind printed fine print when their own conduct has led passengers to rely on them.

Procedural History

The Spouses Viloria filed their complaint for sum of money and damages before the Regional Trial Court of Antipolo City, Branch 74. After a full trial, the trial court ruled in their favor, holding that the travel agent, Margaret Mager, was the airline's agent and that her misrepresentation vitiated the spouses' consent, and that the airline acted in bad faith in its later dealings. The airline appealed to the Court of Appeals, which reversed and set aside the trial court's decision, denied the airline's counterclaim, and taxed costs against the spouses. The Court of Appeals held that no principal-agent relationship existed between the airline and the travel agency, that the transaction was a sale, that the tickets were plainly non-refundable, and that the airline's pricing was a matter of business judgment. The spouses then came to the Supreme Court by petition for review under Rule 45, asking that the appellate decision be set aside.

Facts

On or about July 21, 1997, while in the United States, Fernando Viloria bought two round trip tickets from San Diego, California to Newark, New Jersey on board Continental Airlines, at 400 dollars each, from a travel agency called Holiday Travel, where he was attended to by Margaret Mager. According to the spouses, Fernando agreed to buy the tickets after Mager told them that there were no available seats at Amtrak, the intercity passenger train service. The tickets were scheduled for a flight to Newark on August 13, 1997 and a return to San Diego on August 21, 1997.

Fernando later asked Mager to move the flight to an earlier date, August 6, 1997. Mager said Continental flights to Newark were fully booked and offered a round trip via Frontier Air, which cost more, 526 dollars per passenger, and meant traveling by night. Fernando asked for a refund, but Mager refused, saying the tickets were non-refundable and the only option was re-issuance of new tickets within one year from issue. Fernando reserved two seats with Frontier Air. Still having second thoughts, he went to the Greyhound Station, saw an Amtrak station nearby, and learned that Amtrak had seats available anytime and any day. He bought two tickets for Washington, D.C., returned to Holiday Travel, confronted Mager with the Amtrak tickets, and demanded a refund, which she again refused.

Back in the Philippines, Fernando wrote the airline on February 11, 1998 demanding a refund. Continental Micronesia replied on February 24, 1998 that the complaint had been referred to the airline's Customer Refund Services in Houston, Texas, and on March 24, 1998 denied the refund but advised that the tickets could be brought to any Continental ticketing location for re-issuance of new tickets within two years from issue, and could be used as payment for another Continental ticket, subject to a re-issuance fee. On June 17, 1999, Fernando went to the airline's Makati office to have the tickets replaced by a single round trip ticket to Los Angeles under his name. He was told that Lourdes' ticket was non-transferable and could not be used for a ticket in his favor, and that a round trip ticket to Los Angeles cost 1,867.40 dollars, so he would have to pay the difference. On June 21, 1999, he demanded a refund, claiming the airline breached its undertaking in its March 24, 1998 letter. On September 8, 2000, the spouses filed their complaint.

Issues

• Whether or not a principal-agent relationship exists between Continental Airlines and Holiday Travel.
• Whether or not, assuming such agency exists, Continental Airlines is bound by the acts of Holiday Travel's agents and employees such as Margaret Mager.
• Whether or not, assuming the airline is so bound, Mager's representation that Amtrak seats were unavailable was fraudulent and vitiated the spouses' consent.
• Whether or not Continental Airlines is justified in insisting that the tickets are non-transferable and non-refundable.
• Whether or not Continental Airlines is justified in pegging a different price for the round trip ticket to Los Angeles requested by Fernando.
• Whether or not, alternatively, Continental Airlines acted in bad faith or reneged on its undertaking to apply the value of the tickets to new ones when it refused to let Fernando use Lourdes' ticket and charged a higher price.

Applicable Provisions

Article 1868 of the Civil Code defines the contract of agency:

By the contract of agency a person binds himself to render some service or to do something in representation or on behalf of another, with the consent or authority of the latter.

This is the provision the Court uses to test whether Holiday Travel acted for the airline or for itself.

Article 1869 of the Civil Code provides:

Agency may be express, or implied from the acts of the principal, from his silence or lack of action, or his failure to repudiate the agency, knowing that another person is acting on his behalf without authority.

This is the textual anchor of the Court's holding that the airline's own letters and silence created an implied agency and estopped it from denying one.

Ruling

On the first issue, the Court ruled that a principal-agent relationship exists between the airline and Holiday Travel. Although the Court of Appeals treated this as a question of fact, the Court took the exception allowed when the findings of the trial court and the appellate court conflict. It applied the four essential elements of agency: consent, express or implied; an object that is the execution of a juridical act in relation to a third person; the agent acting as a representative and not for himself; and the agent acting within the scope of his authority. All four are present. The airline never denied its agreement with Holiday Travel for the conclusion of contracts of carriage on its behalf; Holiday Travel acted in a representative capacity; and the airline never alleged that Holiday Travel exceeded its authority, insisting instead on the validity of the tickets. The Court added that the airline's February 24 and March 24, 1998 letters impliedly recognized the contracts Holiday Travel had entered into, and that estoppel bars the airline from later denying the agency.

The Court also rejected the appellate court's characterization of the relationship as a sale. The primordial test is the transfer of ownership or title. In an agency, the principal retains ownership and control and the agent merely acts on the principal's behalf; in a sale, delivery relinquishes title, control, and ownership so that the recipient may do with the property as he pleases. The Court quoted its earlier formulation:

The difficulty in distinguishing between contracts of sale and the creation of an agency to sell has led to the establishment of rules by the application of which this difficulty may be solved. The decisions say the transfer of title or agreement to transfer it for a price paid or promised is the essence of sale. If such transfer puts the transferee in the attitude or position of an owner and makes him liable to the transferor as a debtor for the agreed price, and not merely as an agent who must account for the proceeds of a resale, the transaction is a sale; while the essence of an agency to sell is the delivery to an agent, not as his property, but as the property of the principal, who remains the owner and has the right to control sales, fix the price, and terms, demand and receive the proceeds less the agent's commission upon sales made.

Because agency exists, the airline is bound by the acts of Holiday Travel's employees, including Mager. The Court thus resolved the threshold issues in favor of the spouses, reversing the appellate court's premise that no agency existed.

Doctrine

First, agency is personal, representative, and derivative: the agent's act is the principal's act if done within the scope of authority, captured in the maxim qui facit per alium facit se, meaning he who acts through another acts himself. Second, the essential elements of agency are consent, an object that is a juridical act in relation to a third person, representation and not self-dealing, and action within the scope of authority. Third, the test to distinguish agency from sale is the transfer of title: the agent receives property as the principal's, the principal retaining ownership, control of price and terms, and the right to the proceeds less commission. Fourth, under Article 1869, agency may be implied from the principal's acts, silence, or failure to repudiate, and estoppel bars a principal who recognized the agent's authority from later denying it to the prejudice of a party who relied in good faith.

Disposition

The Supreme Court granted the petition, set aside the Court of Appeals decision, and reinstated the trial court's award to the Spouses Viloria of the ticket price in dollars or its peso equivalent, with legal interest, plus moral damages, exemplary damages, attorney's fees, and costs.

Remember This

Memorize the line that the agent's act is the principal's act when done within authority, and that agency may be implied from the principal's silence or failure to repudiate. Examiners use this case to test the agency-versus-sale distinction and estoppel against a principal who first accepts the agent's contracts and later disowns the agent.