G.R. No. 123560 - Spouses Yu vs. Pan American World Airways, Inc.

Case Summary (G.R. No. 123560)

Factual Background as Found by the Trial Court

Petitioners purchased two round-trip Pan Am tickets through respondent Tagunicar on July 10, 1978, for an itinerary Manila–Hongkong–Tokyo–San Francisco (intended destination Fairfield, New Jersey) for an agreed amount (P25,000 per petitioners’ check). The Tokyo–San Francisco segment of the tickets bore an “RQ” (request/wait-list) status. Tagunicar allegedly obtained confirmation information from TWSI/Canilao and affixed validation/confirmation stickers to the tickets. Before departure petitioners and their son repeatedly inquired about confirmation with Tagunicar and with Pan Am offices in Manila, Hongkong and Tokyo. Upon arrival in Tokyo petitioners were told their names were not on the Pan Am manifest; they were therefore unable to proceed to the United States, accepted alternative travel to Taipei (incurring expense) and ultimately returned to Manila on August 3, 1978. Japan Airlines refunded P2,602 to petitioners. Petitioners asserted they lost a business opportunity (possible profit of P300,000–P400,000) because they could not complete the intended inspection and purchase of equipment by the agreed deadline.

Trial Court Judgment

The Regional Trial Court of Manila found Pan Am, TWSI and Tagunicar jointly and severally liable (except Canilao, in her official capacity) and awarded: P200,000 actual damages (minus the P2,602 refund), P200,000 moral damages, P100,000 exemplary damages, attorney’s fees equivalent to 20% of the award, and P30,000 litigation expenses. Defendants’ counterclaims were dismissed.

Court of Appeals Ruling on Appeal

On appeal by Pan Am and Tagunicar, the Court of Appeals set aside the trial court decision and held Tagunicar solely liable. The CA ordered Tagunicar to pay moral damages of P50,000, exemplary damages of P25,000, and attorney’s fees of P10,000 plus costs; it deleted the award of actual damages for lack of proof. The CA found Tagunicar to be an independent travel solicitor, not an authorized agent of TWSI or Pan Am; concluded she lacked authority to confirm bookings or to issue validation stickers; and absolved Pan Am and TWSI from liability.

Petitioners’ Assignments of Error on Supreme Court Review

Petitioners urged that the Court of Appeals misapplied the standard for judicial decision-making in Nicos Industrial Corp. v. CA and that the CA’s findings (that the ticket reservations were not confirmed and that there was no agency relationship among Pan Am, TWSI and Tagunicar) contradicted alleged judicial admissions by respondents and the trial court’s factual findings.

Supreme Court’s Review of Trial Court’s Form and Duty under the Constitution

The Supreme Court agreed with the CA that the trial court’s disposition was deficient in form and substance. Citing Article VIII, Section 14 of the 1987 Constitution and applicable precedents, the Court reiterated that decisions must clearly and distinctly state the facts and law on which they are based. The trial court’s single-paragraph conclusion that Pan Am was principal and TWSI and Tagunicar were agent and sub-agent lacked the required factual and legal exposition; accordingly the Court examined the evidentiary record itself.

Analysis of Agency and Evidentiary Burdens

The Court applied the legal elements of agency (New Civil Code, Art. 1868 and related authorities) and the settled rule that a party who contends that a person is agent of another bears the burden of proving the fact and scope of authority where contested. The Court emphasized the inferior probative force of ex parte affidavits relative to in-court testimony. Tagunicar’s affidavit asserting agency with TWSI was contradicted by her in-court testimony, and the circumstances of the affidavit’s preparation (prepared by petitioners’ counsel’s secretary while counsel was present) undermined its voluntariness and value. The Court held that the agent’s own declaration is ordinarily insufficient alone to establish authority and that petitioners failed to meet their burden.

Evidence of Commission and the Characterization of the Transaction

Documents showing ticket sales reports and receipts reflecting commissions or payments to TWSI and listings of audited routes were insufficient to establish an agency relationship between Tagunicar and TWSI or between Tagunicar and Pan Am. Tagunicar’s testimony that she deducted her commission before remitting payment to TWSI supported the Court’s characterization of the arrangement as an arm’s‑length purchase and resale of tickets (a contract of sale) rather than a clear agency relationship binding a principal for the acts of a purported sub-agent.

Pan Am’s Alleged Liability and Parties’ Conduct after the Incident

The Court found no proof that Pan Am employed Tagunicar or authorized her to confirm bookings. Petitioners’ stated motivation to include Pan Am—that defendants TWSI, Canilao and Tagunicar might lack funds—was noted. The Court observed petitioners’ failure to protest to Pan Am’s Tokyo office contemporaneously or to send demand letters to Pan Am or TWSI; their acceptance of alternative routing offered in Tokyo and lack of immediate protest undermined the claim that Pan Am acted in bad faith or that it was contractually bound to carry petitioners on the Tokyo–San Francisco segment. The Court cautioned against abuse of judicial process in passenger suits against international carriers.

Standard for Carrier Liability and Application to the Record

The Court reiterated the presumption of good faith and that to recover damages a claimant must prove wanton, malevolent, or reckless misconduct by the carrier. Jurisprudence distinguishes cases where tickets were confirmed and the passenger listed in the manifest (where carriers have been held liable) from cases where tickets bore an “RQ” or similar wait‑list status (where carriers have not been held liable). Here petitioners’ tickets we

Case Syllabus (G.R. No. 123560)

Case Citation, Procedural Posture and Relief Sought

Supreme Court G.R. No. 123560, March 27, 2000; reported at 385 Phil. 453, First Division.
Petition for review filed by petitioners Spouses Yu Eng Cho and Francisco Tao Yu seeking reversal of the Court of Appeals' 31 August 1995 Decision and 11 January 1998 Resolution.
Petitioners sought reversal of the Court of Appeals' ruling that private respondent Claudia Tagunicar alone was liable for moral and exemplary damages and attorney’s fees, and sought restoration of the trial court’s award of actual damages (among other awards).
The appeal arises from a complaint for damages against respondents Pan American World Airways, Inc. (Pan Am), Tourist World Services, Inc. (TWSI), Julieta Canilao (Canilao) and Claudia Tagunicar (Tagunicar) for expenses and consequential losses allegedly incurred by petitioners because of non-confirmation of their booking with Pan Am.

Facts as Found by the Trial Court

Plaintiff Yu Eng Cho owned Young Hardware Co. and Achilles Marketing and traveled for business to Malaysia, Taipei, and Hong Kong.
On July 10, 1976, petitioners purchased plane tickets (Exhs. A & B) from Claudia Tagunicar, who represented herself as an agent of Tourist World Services, Inc. (TWSI), for a route stated as Hong Kong, Tokyo, San Francisco, U.S.A., for the amount of P25,000.00 as computed by Tagunicar (Exhs. C & C-1).
The purpose of the trip was to go to Fairfield, New Jersey, U.S.A., to buy two lines of infrared heating system processing textured plastic articles from Radiant Heat Enterprises, Inc. (Exh. K).
When tickets were issued, only the Manila–Hong Kong and Hong Kong–Tokyo passages were confirmed; the Tokyo–San Francisco segment of PAA Flight 002 showed status “RQ” meaning “on request.”
At Tagunicar’s instruction, petitioners returned a few days later for confirmation; Tagunicar, after calling Canilao of TWSI, told petitioners their flight was now confirmed and attached confirmation stickers to the tickets (Exhs. A & B).
A few days before departure, petitioners’ son Adrian called Pan Am’s office and was told petitioners’ bookings were confirmed.
Plaintiffs left Manila on July 23, 1978, stayed five days in Hong Kong, left for Tokyo on July 28, 1978, and upon arrival in Tokyo discovered their names were not on the manifest despite prior representations; Pan Am Tokyo office informed them their names were not listed.
Because Japan imposed a 72-hour limit on transients and Northwest Airlines was on strike, petitioners accepted JAL’s option to Taipei; they paid for the Taipei tickets.
Upon reaching Taipei, no onward flights were available; petitioners returned to Manila on August 3, 1978, instead of proceeding to the United States.
Japan Air Lines refunded a fare difference for Tokyo–Taipei and Tokyo–San Francisco in the amount of P2,602.00 (Exhs. I & J).
Radiant Heat Enterprises, Inc. canceled Yu Eng Cho’s option to buy the two lines of equipment because final inspection/arrangements were to be made not later than August 7, 1978; Yu Eng Cho expected profit from the transaction of P300,000.00 to P400,000.00 (Exh. K).

Trial Court Findings and Judgment (Regional Trial Court, Manila, Branch 3)

After reviewing evidence, the trial court concluded Pan Am was the principal, and TWSI and Tagunicar its authorized agent and sub-agent, respectively; Julieta Canilao, as TWSI’s office manager, should not be held personally liable.
Judgment dated November 14, 1991 ordered Pan Am, TWSI and Claudia Tagunicar, jointly and severally, to pay:
- P200,000.00 as actual damages, less P2,602.00 already refunded;
- P200,000.00 as moral damages;
- P100,000.00 as exemplary damages;
- attorney’s fees equivalent to 20% of the award, plus P30,000.00 as litigation expenses.
Defendants’ counterclaims were dismissed.

Appeal to Court of Appeals and Its Ruling

Only respondents Pan Am and Tagunicar appealed to the Court of Appeals.
On 11 August 1995, the Court of Appeals SET ASIDE the trial court decision and entered a new judgment declaring Tagunicar solely liable as follows:
- Moral damages: P50,000.00;
- Exemplary damages: P25,000.00;
- Attorney’s fees: P10,000.00 plus costs of suit;
- The award of actual damages was DELETED.
The Court of Appeals found Tagunicar to be an independent travel solicitor and not a duly authorized agent or representative of Pan Am or TWSI; it concluded that the business dealings between Pan Am, TWSI and Tagunicar were insufficient to establish a principal–agent relationship and that Tagunicar was not authorized to confirm bookings or issue validation stickers.

Issues Presented to the Supreme Court

Whether the Court of Appeals misapplied the standards set in Nicos Industrial Corporation v. Court of Appeals et al. regarding the form and sufficiency of the trial court’s decision.
Whether the Court of Appeals’ findings that petitioners’ ticket reservations were not confirmed and that no agency relationship existed between Pan Am, TWSI and Tagunicar are contrary to judicial admissions and to the trial court’s findings of fact.

Supreme Court’s Review of Trial Court’s Decision Form and Sufficiency (Issue I)

The trial court’s factual narration was detailed, but its dispositive finding that Pan Am was principal and TWSI and Tagunicar were agent and sub-agent, respectively, was stated in a brief, one-paragraph conclusion without a clear explication of factual and legal bases.
The Supreme Court reiterated the requirement under Section 14, Article VIII of the Constitution that courts must clearly and distinctly state the facts and law on which decisions are based; decisions must sufficiently explain factual and legal bases to satisfy due process.
The trial court’s conclusion was found wanting in clarity and substantiation; the Court of Appeals’ reversal was thus permissible on the grounds of inadequate explanation.
The Court nonetheless proceeded to examine the sufficiency of the evidence to resolve the case on the merits rather than rely solely on form-based infirmities.

Legal Framework on Agency (Applicable Law and Elements) and Burden of Proof (Issue II)

By contract of agency, one person binds himself to render services or to act in representation of another with the latter’s consent (New Civil Code, Art. 1868).
Elements of agency: (1) consent of the parties (express or implied); (2) object is execution of a juridical act in relation to a third person; (3) agent acts as representative and not for himself; (4) agent acts within scope of authority (Tolentino).
Rule: persons dealing with an assumed agent must ascertain not only th