Cruz vs. Sun Holidays, Inc.

A resort operator that provides ferry services to transport guests to and from the resort as part of a tour package is a common carrier under Article 1732 of the Civil Code, irrespective of whether the transportation is merely ancillary to its principal business, offered occasionally, or limited to resort guests; as such, it is bound to exercise extraordinary diligence for the safety of its passengers, and the presumption of negligence applies when a passenger dies during carriage, which presumption can only be overcome by proof that the carrier exercised extraordinary diligence.

The case arose from the capsizing of the boat M/B Coco Beach III on September 11, 2000, which resulted in the death of Ruelito Cruz and his wife. The couple had stayed at Coco Beach Island Resort from September 9 to 11, 2000 under a tour package-contract that included transportation to and from the resort. The incident occurred during stormy weather conditions despite storm warnings issued by the Philippine Atmospheric, Geophysical and Astronomical Services Administration (PAGASA).

• Ruelito Cruz and his wife stayed at Coco Beach Island Resort from September 9 to 11, 2000 under a tour package-contract that included transportation to and from the resort.
• On September 11, 2000, despite windy conditions, 25 resort guests including Ruelito and his wife boarded M/B Coco Beach III to travel to Batangas.
• Shortly after sailing, rain and wind intensified; the captain left the wheel to a crew member and moved to the front of the boat.
• After being hit by two big waves which came one after the other, the boat capsized.
• The captain abandoned the passengers, telling them to save themselves ("Iligtas niyo na lang ang sarili niyo").
• Eight passengers died, including Ruelito (28 years old) and his wife; 22 survived after being rescued by boats from Asia Divers approximately 45 minutes later.
• At the time of his death, Ruelito was employed as a contractual worker for Mitsui Engineering & Shipbuilding Arabia, Ltd. in Saudi Arabia with a basic monthly salary of $900.
• PAGASA had issued 24-hour public weather forecasts and tropical cyclone warnings on September 10 and 11, 2000 advising of tropical depressions in Northern Luzon which would affect Mindoro.
• The boat captain claimed that a squall (subasco) suddenly occurred causing the capsizing, and that four conditions were met before sailing: calm sea, Coast Guard clearance, captain clearance, and Resort assistant manager clearance.
• Evidence showed the boat suffered engine trouble before it capsized.

• Sun Holidays, Inc. is a common carrier because transporting guests is an integral part of its resort business under the tour package contract, and Article 1732 of the Civil Code makes no distinction between principal and ancillary activities.
• The respondent was negligent in allowing the boat to sail despite storm warning bulletins issued by PAGASA as early as 5:00 a.m. of September 11, 2000.
• Another division of the Court of Appeals held the respondent liable for damages to other survivors of the same incident.

• It is not a common carrier but a private carrier because its boats only ferry resort guests and crew members, not the general public, and the ferry service is not ancillary to its business as no separate income is derived therefrom.
• It exercised extraordinary diligence by requiring four conditions to be met before allowing the boat to sail: calm sea, Coast Guard clearance, captain clearance, and Resort assistant manager clearance.
• The incident was caused by a fortuitous event (squall) without any contributory negligence on its part.
• The other case involving other survivors involved different plaintiffs, issues, and evidence.

• Procedural: N/A
• Substantive Issues:
  • Whether respondent is a common carrier or a private carrier.
  • Whether respondent exercised the extraordinary diligence required of common carriers.
  • Whether the incident was caused by a fortuitous event that would exempt respondent from liability.
  • Whether petitioners are entitled to damages and in what amounts.

• Procedural: N/A
• Substantive:
  • Respondent is a common carrier under Article 1732 of the Civil Code because its ferry services are ancillary to its resort business, available to anyone who can afford the tour package, and the law deliberately refrains from making distinctions between principal and ancillary activities, regular or occasional services, or services offered to the general public versus a limited clientele.
  • Common carriers are bound to observe extraordinary diligence for the safety of passengers under Articles 1733 and 1755 of the Civil Code, and the death of a passenger creates a presumption of negligence under Article 1756 which the carrier must overcome by proving extraordinary diligence.
  • Respondent failed to exercise extraordinary diligence because a very cautious person would not have braved the stormy weather given the PAGASA warnings; the captain also abandoned the passengers during the emergency.
  • The incident was not a fortuitous event because squalls were foreseeable under the weather conditions, and the boat suffered engine trouble before capsizing, indicating human intervention; furthermore, respondent failed to prove due diligence to prevent or minimize loss.
  • Petitioners are entitled to P50,000 indemnity for death, P8,316,000 for loss of earning capacity, P100,000 moral damages, P100,000 exemplary damages, and 10% attorney's fees, plus 12% interest per annum from finality of decision until full payment.

• Definition of Common Carrier (Article 1732, Civil Code): The article makes no distinction between one whose principal business activity is carrying persons or goods and one who does such carrying only as an ancillary activity, nor between regular/scheduled and occasional/episodic services, nor between carriers offering services to the general public and those offering to a narrow segment. Applied to hold the resort operator is a common carrier despite arguments that transportation was merely ancillary and limited to guests.
• Extraordinary Diligence (Articles 1733 and 1755, Civil Code): Common carriers must exercise the utmost diligence of very cautious persons with due regard for all circumstances. Applied to find respondent liable for failing to observe such diligence by sailing despite storm warnings and abandoning passengers.
• Presumption of Negligence (Article 1756, Civil Code): When a passenger dies or is injured in the discharge of a contract of carriage, it is presumed that the common carrier is at fault or negligent, and this presumption may only be overcome by evidence that the carrier exercised extraordinary diligence. Applied to shift the burden of proof to respondent.
• Fortuitous Event: To fully free a common carrier from any liability, the fortuitous event must have been the proximate and only cause of the loss, and the carrier should have exercised due diligence to prevent or minimize the loss before, during and after the occurrence. Applied to reject the squall defense because it was foreseeable and engine trouble indicated human intervention.
• Loss of Earning Capacity Computation: The formula is life expectancy x (gross annual income - reasonable living expenses), where life expectancy = 2/3 x (80 - age at death), and living expenses are fixed at half of gross income when no showing is made that they constitute a smaller percentage. Applied to compute damages of P8,316,000.

• "Article 1732 also carefully avoids making any distinction between a person or enterprise offering transportation service on a regular or scheduled basis and one offering such service on an occasional, episodic or unscheduled basis."
• "That respondent does not charge a separate fee or fare for its ferry services is of no moment. It would be imprudent to suppose that it provides said services at a loss."
• "The intent of the law is thus to not consider such distinctions. Otherwise, there is no telling how many other distinctions may be concocted by unscrupulous businessmen engaged in the carrying of persons or goods in order to avoid the legal obligations and liabilities of common carriers."
• "A very cautious person exercising the utmost diligence would thus not brave such stormy weather and put other people's lives at risk."
• "To fully free a common carrier from any liability, the fortuitous event must have been the proximate and only cause of the loss."

• De Guzman v. Court of Appeals — Controlling precedent establishing that Article 1732 makes no distinction between principal and ancillary transportation activities, nor between regular and occasional services; followed in holding respondent is a common carrier.
• Diaz v. Court of Appeals — Cited for the rule that when a passenger dies, it is presumed the common carrier is at fault, and this presumption is overcome only by proof of extraordinary diligence.
• Lea Mer Industries, Inc. v. Malayan Insurance Co., Inc. — Cited for the four elements of a fortuitous event.
• Smith Bell Dodwell Shipping Agency Corp. v. Borja — Cited for the rule that when there is no showing that living expenses constituted the smaller percentage of gross income, living expenses are fixed at half of the gross income.
• Candano Shipping Lines, Inc. v. Sugata-on and Lambert v. Heirs of Ray Castillon — Cited for the formula to compute life expectancy (2/3 x [80 - age at death]).
• Eastern Shipping Lines, Inc. v. Court of Appeals — Cited for the rules on the computation of legal interest on damages.
• Tiu v. Arriesgado — Cited for fixing the indemnity for death at P50,000.
• Yobido v. Court of Appeals and Victory Liner, Inc. v. Gammad — Cited for the award of moral and exemplary damages.

• Article 1732, Civil Code — Defines common carriers without distinction as to principal or ancillary nature of business.
• Article 1733, Civil Code — Requires common carriers to observe extraordinary diligence for safety of passengers.
• Article 1755, Civil Code — Mandates common carriers to carry passengers safely using utmost diligence of very cautious persons.
• Article 1756, Civil Code — Establishes presumption of negligence against common carriers when passenger dies or is injured.
• Article 1764, Civil Code — Provides that damages for breach of contract of carriage are awarded in accordance with Title XVIII on Damages and Article 2206.
• Article 2206, Civil Code — Prescribes damages for death including indemnity for death, loss of earning capacity, and moral damages.
• Article 2208, Civil Code — Allows recovery of attorney's fees when exemplary damages are awarded.
• Article 1169, Civil Code — Relevant to computation of interest from time of demand.
• Commonwealth Act No. 1416 (Public Service Act), Section 13(b) — Defines public service to include transportation of passengers, supplementing Article 1732.