Unformatted text preview: VOL. 399, MARCH 14, 2003
Cathay Pacific Airways, Ltd. vs. Vasquez 207 G.R. No. 150843. March 14, 2003.
CATHAY PACIFIC AIRWAYS, LTD., petitioner, vs. SPOUSES DANIEL VAZQUEZ
and MARIA LUISA MADRIGAL VAZQUEZ, respondents.
* Common Carriers; Air Transportation; Contracts; Requisites; Words and Phrases; A
contract is a meeting of minds between two persons whereby one agrees to give something or
render some service to another for a consideration.—A contract is a meeting of minds
between two persons whereby one agrees to give something or render some service to
another for a consideration. There is no contract unless the following requisites concur: (1)
* FIRST DIVISION. 208 208 SUPREME COURT REPORTS ANNOTATED
Cathay Pacific Airways, Ltd. vs. Vasquez consent of the contracting parties; (2) an object certain which is the subject of the
contract; and (3) the cause of the obligation which is established. Undoubtedly, a contract of
carriage existed between Cathay and the Vazquezes. They voluntarily and freely gave their
consent to an agreement whose object was the transportation of the Vazquezes from Manila
to HongKong and back to Manila, with seat: in the Business Class Section of the aircraft,
and whose cause or consideration was the fare paid by the Vazquezes to Cathay.
Same; Same; Same; Words and Phrases; “Breach of Contract” is defined as the “failure
without legal reason to comply with the terms of a contract,” or the failure, without legal
excuse, to perform any promise which forms the whole or part of the contract.”—The only
problem is the legal effect of the upgrading of the seat accommodation of the Vazquezes. Did
it constitute a breach of contract? Breach of contract is defined as the “failure without legal
reason to comply with the terms of a contract.” It is also defined as the “[f]ailure, without
legal excuse, to perform any promise which forms the whole or part of the contract.” In
previous cases, the breach of contract of carriage consisted in either the bumping off of a
passenger with confirmed reservation or the downgrading of a passenger’s seat
accommodation from one class to a lower class. In this case, what happened was the reverse.
The contract between the parties was for Cathay to transport the Vazquezes to Manila on a
Business Class accommodation in Flight CX-905. After checking-in their luggage at the Kai
Tak Airport in Hong Kong, the Vazquezes were given boarding cards indicating their seat
assignments in the Business Class Section. However, during the boarding time, when the
Vazquezes presented their boarding passes, they were informed that they had a seat change
from Business Class to First Class. It turned out that the Business Class was overbooked in
that there were more passengers than the number of seats. Thus, the seat assignments of
the Vazquezes were given to waitlisted passengers, and the Vazquezes, being members of
the Marco Polo Club, were upgraded from Business Class to First Class.
Same; Same; Same; Upgrading; Airline passengers have every right to decline an
upgrade and insist on the accommodation they had booked, and if an airline insists on the
upgrade, it breaches its contract of carriage with the passengers.—We note that in all their
pleadings, the Vazquezes never denied that they were members of Cathay’s Marco Polo
Club. They knew that as members of the Club, they had priority for upgrading of their seat accommodation at no extra cost when an opportunity arises. But, just like other privileges,
such priority could be waived. The Vazquezes should have been consulted first whether they
wanted to avail themselves of the privilege or would consent to a change of seat
accommodation before their seat assignments were given to other passengers. Normally, one
would appreciate and accept an upgrading, for it would mean a better accommo209 VOL. 399, MARCH 14, 2003
Cathay Pacific Airways, Ltd. vs. Vasquez 209 dation. But, whatever their reason was and however odd it might be, the Vazquezes had
every right to decline the upgrade and insist on the Business Class accommodation they
had booked for and which was designated in their boarding passes. They clearly waived
their priority or preference when they asked that other passengers be given the upgrade. It
should not have been imposed on them over their vehement objection. By insisting on the
upgrade, Cathay breached its contract of carriage with the Vazquezes.
Same; Same; Same; Same; Words and Phrases; “Bad Faith” and “Fraud,” Explained;
Bad faith and fraud are allegations of fact that demand clear and convincing proof.—We are
not, however, convinced that the upgrading or the breach of contract was attended by fraud
or bad faith. Thus, we resolve the second issue in the negative. Bad faith and fraud are
allegations of fact that demand clear and convincing proof. They are serious accusations
that can be so conveniently and casually invoked, and that is why they are never presumed.
They amount to mere slogans or mudslinging unless convincingly substantiated by whoever
is alleging them. Fraud has been defined to include an inducement through insidious
machination. Insidious machination refers to a deceitful scheme or plot with an evil or
devious purpose. Deceit exists where the party, with intent to deceive, conceals or omits to
state material facts and, by reason of such omission or concealment, the other party was
induced to give consent that would not otherwise have been given. Bad faith does not simply
connote bad judgment or negligence; it imports a dishonest purpose or some moral obliquity
and conscious doing of a wrong, a breach of a known duty through some motive or interest
or ill will that partakes of the nature of fraud.
Same; Same; Same; Same; An upgrading is for the better condition and, definitely for
the benefit of the passenger.—Neither was the transfer of the Vazquezes effected for some
evil or devious purpose. As testified to by Mr. Robson, the First Class Section is better than
the Business Class Section in terms of comfort, quality of food, and service from the cabin
crew; thus, the difference in fare between the First Class and Business Class at that time
was $250. Needless to state, an upgrading is for the better condition and, definitely, for the
benefit of the passenger.
Same; Same; Same; Overbooking; It is clear from Sec. 3 of Economic Regulation No. 7 of
the Civil Aeronautics Board, as amended, that an overbooking that does not exceed ten
percent is not considered deliberate and therefore does not amount to bad faith.—We are not
persuaded by the Vazquezes’ argument that the overbooking of the Business Class Section
constituted bad faith on the part of Cathay. Section 3 of the Economic Regulation No. 7 of
the Civil Aeronautics Board, as amended, provides: Sec. 3. Scope.—This regulation shall
apply to every Philippine and foreign air carrier with respect to its operation of flights or
portions of flights
210 210 SUPREME COURT REPORTS ANNOTATED
Cathay Pacific Airways, Ltd. vs. Vasquez originating from or terminating at, or serving a point within the territory of the
Republic of the Philippines insofar as it denies boarding to a passenger on a flight, or
portion of a flight inside or outside the Philippines, for which he holds confirmed reserved
space. Furthermore, this Regulation is designed to cover only honest mistakes on the part of
the carriers and excludes deliberate and willful acts of non-accommodation. Provided,
however, that overbooking not exceeding 10% of the seating capacity of the aircraft shall not
be considered as a deliberate and willful act of non-accommodation. It is clear from this
section that an overbooking that does not exceed ten percent is not considered deliberate
and therefore does not amount to bad faith. Here, while there was admittedly an
overbooking of the Business Class, there was no evidence of overbooking of the plane beyond
ten percent, and no passenger was ever bumped off or was refused to board the aircraft.
Same; Same; Same; Damages; Requisites for Award of Moral Damages.—Moral
damages include physical suffering, mental anguish, fright, serious anxiety, besmirched
reputation, wounded feelings, moral shock, social humiliation, and similar injury. Although
incapable of pecuniary computation, moral damages may be recovered if they are the
proximate result of the defendant’s wrongful act or omission. Thus, case law establishes the
following requisites for the award of moral damages: (1) there must be an injury clearly
sustained by the claimant, whether physical, mental or psychological; (2) there must be a
culpable act or omission factually established; (3) the wrongful act or omission of the
defendant is the proximate cause of the injury sustained by the claimant; and (4) the award
for damages is predicated on any of the cases stated in Article 2219 of the Civil Code.
Same; Same; Same; Same; Moral damages predicated upon a breach of contract of
carriage may only be recoverable in instances where the carrier is guilty of fraud or bad faith
or where the mishap resulted in the death of a passenger.—Moral damages predicated upon a
breach of contract of carriage may only be recoverable in instances where the carrier is
guilty of fraud or bad faith or where the mishap resulted in the death of a passenger. Where
in breaching the contract of carriage the airline is not shown to have acted fraudulently or
in bad faith, liability for damages is limited to the natural and probable consequences of the
breach of the obligation which the parties had foreseen or could have reasonably foreseen.
In such a case the liability does not include moral and exemplary damages.
Same; Same; Same; Same; Attorney’s Fees; It is a requisite in the grant of exemplary
damages that the act of the offender must be accompanied by bad faith or done in wanton,
fraudulent or malevolent manner; Where the awards for moral and exemplary damages are
211 VOL. 399, MARCH 14, 2003
Cathay Pacific Airways, Ltd. vs. Vasquez 211 must the award for attorney’s fees.—The deletion of the award for exemplary damages
by the Court of Appeals is correct. It is a requisite in the grant of exemplary damages that
the act of the offender must be accompanied by bad faith or done in wanton, fraudulent or
malevolent manner. Such requisite is absent in this case. Moreover, to be entitled thereto
the claimant must first establish his right to moral, temperate, or compensatory damages.
Since the Vazquezes are not entitled to any of these damages, the award for exemplary
damages has no legal basis. And where the awards for moral and exemplary damages are
eliminated, so must the award for attorney’s fees.
Same; Same; Same; Same; The amount of damages awarded should not be palpably
and scandalously excessive as to indicate that it was the result of prejudice or corruption on
the part of the trial court; Passengers must not prey on international airlines for damages awards, like “trophies in a safari,” after all neither the social standing nor prestige of the
passenger should determine the extent to which he would suffer because of a wrong done,
since the dignity affronted in the individual is a quality inherent in him and not conferred by
these social indicators.—Before writing finis to this decision, we find it well-worth to quote
the apt observation of the Court of Appeals regarding the awards adjudged by the trial
court: We are not amused but alarmed at the lower court’s unbelievable alacrity, bordering
on the scandalous, to award excessive amounts as damages. In their complaint, appellees
asked for P1 million as moral damages but the lower court awarded P4 million; they asked
for P500,000.00 as exemplary damages but the lower court cavalierly awarded a whooping
P10 million; they asked for P250,000.00 as attorney’s fees but were awarded P2 million;
they did not ask for nominal damages but were awarded P200,000.00. It is as if the lower
court went on a rampage, and why it acted that way is beyond all tests of reason. In fact the
excessiveness of the total award invites the suspicion that it was the result of “prejudice or
corruption on the part of the trial court.” The presiding judge of the lower court is enjoined
to hearken to the Supreme Court’s admonition in Singson vs. CA (282 SCRA 149 ),
where it said: The well-entrenched principle is that the grant of moral damages depends
upon the discretion of the court based on the circumstances of each case. This discretion is
limited by the principle that the amount awarded should not be palpably and scandalously
excessive as to indicate that it was the result of prejudice or corruption on the part of the trial
court. . . . and in Alitalia Airways vs. CA (187 SCRA 763 ), where it was held:
Nonetheless, we agree with the injunction expressed by the Court of Appeals that
passengers must not prey on international airlines for damage awards, like “trophies in a
safari.” After all neither the social standing nor prestige of the passenger should determine
the extent to which he would suffer because of a wrong done, since the dignity affronted in
the individual is a quality inherent in him and not conferred by these social indicators.
212 212 SUPREME COURT REPORTS ANNOTATED
Cathay Pacific Airways, Ltd. vs. Vasquez PETITION for review on certiorari of a decision of the Court of Appeals.
The facts are stated in the opinion of the Court.
Quasha, Ancheta, Peña, Nolasco for petitioner.
Candelaria, Candelaria & Candelaria Law Firm for private respondents.
Bello, Gozon, Elma, Parel, Asuncion
DAVIDE, JR., C.J.:
Is an involuntary upgrading of an airline passenger’s accommodation from one class
to a more superior class at no extra cost a breach of contract of carriage that would
entitle the passenger to an award of damages? This is a novel question that has to
be resolved in this case.
The facts in this case, as found by the Court of Appeals and adopted by petitioner
Cathay Pacific Airways, Ltd., (hereinafter Cathay) are as follows:
Cathay is a common carrier engaged in the business of transporting passengers
and goods by air. Among the many routes it services is the Manila-Hongkong- Manila course. As part of its marketing strategy, Cathay accords its frequent flyers
membership in its Marco Polo Club. The members enjoy several privileges, such as
priority for upgrading of booking without any extra charge whenever an opportunity
arises. Thus, a frequent flyer booked in the Business Class has priority for
upgrading to First Class if the Business Class Section is fully booked.
Respondents-spouses Dr. Daniel Earnshaw Vazquez and Maria Luisa Madrigal
Vazquez are frequent flyers of Cathay and are Gold Card members of its Marco Polo
Club. On 24 September 1996, the Vazquezes, together with their maid and two
friends Pacita Cruz and Josefina Vergel de Dios, went to Hongkong for pleasure and
For their return flight to Manila on 28 September 1996, they were booked on
Cathay’s Flight CX-905, with departure time at 9:20 p.m. Two hours before their
time of departure, the Vazquezes and their companions checked in their luggage at
Cathay’s check213 VOL. 399, MARCH 14, 2003
Cathay Pacific Airways, Ltd. vs. Vasquez 213 in counter at Kai Tak Airport and were given their respective boarding passes, to
wit, Business Class boarding passes for the Vazquezes and their two friends, and
Economy Class for their maid. They then proceeded to the Business Class passenger
When boarding time was announced, the Vazquezes and their two friends went to
Departure Gate No. 28, which was designated for Business Class passengers. Dr.
Vazquez presented his boarding pass to the ground stewardess, who in turn inserted
it into an electronic machine reader or computer at the gate. The ground stewardess
was assisted by a ground attendant by the name of Clara Lai Fun Chiu. When Ms.
Chiu glanced at the computer monitor, she saw a message that there was a “seat
change” from Business Class to First Class, for the Vazquezes.
Ms. Chiu approached Dr. Vazquez and told him that the Vazquezes’
accommodations were upgraded to First Class. Dr. Vazquez refused the upgrade,
reasoning that it would not look nice for them as hosts to travel in First Class and
their guests, in the Business Class; and moreover, they were going to discuss
business matters during the flight. He also told Ms. Chiu that she could have other
passengers instead transferred to the First Class Section. Taken aback by the
refusal for upgrading, Ms. Chiu consulted her supervisor, who told her to handle the
situation and convince the Vazquezes to accept the upgrading. Ms. Chiu informed
the latter that the Business Class was fully booked, and that since they were Marco
Polo Club members they had the priority to be upgraded to the First Class. Dr.
Vazquez continued to refuse, so Ms. Chiu told them that if they would not avail
themselves of the privilege, they would not be allowed to take the flight. Eventually,
after talking to his two friends, Dr. Vazquez gave in. He and Mrs. Vazquez then
proceeded to the First Class Cabin.
Upon their return to Manila, the Vazquezes, in a letter of 2 October 1996
addressed to Cathay’s Country Manager, demanded that they be indemnified in the
amount of P1 million for the “humiliation and embarrassment” caused by its employees. They also demanded “a written apology from the management of Cathay,
preferably a responsible person with a rank of no less than the Country Manager, as
well as the apology from Ms. Chiu” within fifteen days from receipt of the letter.
214 214 SUPREME COURT REPORTS ANNOTATED
Cathay Pacific Airways, Ltd. vs. Vasquez In his reply of 14 October 1996, Mr. Larry Yuen, the assistant to Cathay’s Country
Manager Argus Guy Robson, informed the Vazquezes that Cathay would investigate
the incident and get back to them within a week’s time.
On 8 November 1996, after Cathay’s failure to give them any feedback within its
self-imposed deadline, the Vazquezes instituted before the Regional Trial Court of
Makati City an action for damages against Cathay, praying for the payment to each
of them the amounts of P250,000 as temperate damages; P500,000 as moral
damages; P500,000 as exemplary or corrective damages; and P250,000 as attorney’s
In their complaint, the Vazquezes alleged that when they informed Ms. Chiu that
they preferred to stay in Business Class, Ms. Chiu “obstinately, uncompromisingly
and in a loud, discourteous and harsh voice threatened” that they could not board
and leave with the flight unless they go to First Class, since the Business Class was
overbooked. Ms. Chiu’s loud and stringent shouting annoyed, embarrassed, and
humiliated them because the incident was witnessed by all the other passengers
waiting for boarding. They also claimed that they were unjustifiably delayed to
board the plane, and when they were finally permitted to get into the aircraft, the
forward storage compartment was already full. A flight stewardess instructed Dr.
Vazquez to put his roll-on luggage in the overhead storage compartment. Because he
was not assisted by any of the crew in putting up his luggage, his bilateral carpal
tunnel syndrome was aggravated, causing him extreme pain on his arm and wrist.
The Vazquezes also averred that they “belong to the uppermost and absolutely top
elite of both Philippine Society and the Philippine financial community, [and that]
they were among the wealthiest persons in the Philippine[s].”
In its answer, Cathay alleged that it is a practice among commercial airlines to
upgrade passengers to the next better class of accommodation, whenever an
opportunity arises, such as when a certain section is fully booked. Priority in
upgrading is given to its frequent flyers, who are considered favored passengers like
Vazquezes. Thus, when the Business Class Section of Flight CX-905 was fully
booked, Cathay’s computer sorted out the names of favored passeng...
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