Trans-Asia Shipping Lines, Inc. vs. Court of Appeals and Atty. Renato T. Arroyo

A common carrier that undertakes a voyage with a vessel it knows to be unseaworthy — here, sailing with only one functioning engine while the other was under repair — fails to exercise the utmost diligence required by Article 1755 of the Civil Code and acts with bad faith, rendering it liable for moral and exemplary damages to a passenger who suffers mental anguish and anxiety from the resulting engine failure and interruption of the voyage, even under the suppletory framework of Article 698 of the Code of Commerce.

Trans-Asia Shipping Lines, Inc., an inter-island shipping corporation, sold a ticket to Atty. Renato T. Arroyo, a public attorney, for the voyage of the M/V Asia Thailand from Cebu City to Cagayan de Oro City on November 12, 1991. Before departure, repair works were being conducted on the cylinder head of one of the vessel’s engines, a fact visible to passengers. The vessel nevertheless left port at around 11:00 p.m. with only one engine running. After sailing for about an hour, the vessel stopped near Kawit Island due to engine trouble, dropped anchor, and drifted. Passengers became alarmed and asked to return to Cebu City. The captain complied, and upon reaching the port, passengers who wished to disembark — including Arroyo — were allowed to do so. The vessel then proceeded to its destination. Arroyo boarded another of petitioner’s vessels the following day. He subsequently filed a complaint for damages.

• Nature of the Contract: Private respondent Atty. Renato T. Arroyo purchased a ticket from petitioner Trans-Asia Shipping Lines, a common carrier engaged in inter-island shipping, for the voyage of M/V Asia Thailand from Cebu City to Cagayan de Oro City on November 12, 1991.
• Condition of the Vessel Before Departure: On the afternoon of departure, petitioner was undertaking repairs on the cylinder head of one of the vessel’s engines. The private respondent observed the repairs before boarding. The vessel departed at around 11:00 p.m. with only one engine running; the second engine remained under repair.
• Voyage and Engine Failure: After approximately one hour of slow voyage, the vessel stopped near Kawit Island and dropped anchor. The logbook recorded “EMERGENCY STOP” and “DROP ANCHOR DUE TO ENGINE TROUBLE, 2 ENGINE STOP.” The vessel was adrift.
• Passengers’ Reaction and Return to Port: Some passengers, alarmed by the situation, demanded to return to Cebu City. The captain acceded. Upon reaching Cebu City, an announcement was made allowing passengers who wished to disembark ten minutes to do so. The private respondent disembarked, assuming the vessel would not proceed that night. The vessel thereafter departed and completed the voyage to Cagayan de Oro City. The private respondent took another of petitioner’s vessels the next day using the same ticket.
• RTC Findings: The trial court found that petitioner did not conceal the engine defect; the private respondent saw the repairs and could have chosen another vessel. It found that the return to port was at the passengers’ request, not due to unseaworthiness, and that there was no fraud, negligence, bad faith, or malice. It opined that the private respondent was himself negligent in disembarking without further inquiry, especially given the announcement implying that the vessel would continue.
• CA Findings: The Court of Appeals found that petitioner knew the vessel was unseaworthy before the voyage began, sailing with only one engine while the other was under repair. It held that petitioner breached its duty to exercise utmost diligence under Article 1755 of the Civil Code and acted with bad faith and wanton disregard for passenger safety, entitling the private respondent to moral and exemplary damages.

• Governing Law on Voyage Interruption: Petitioner argued that the passenger’s rights in case of interruption of a voyage and consequent delay should be governed by Article 698 of the Code of Commerce, a specific provision on voyage interruption, rather than the “vague” Civil Code provisions on common carriers. Under Article 698, if interruption is due to fortuitous event or force majeure, there is no right to damages; only if caused exclusively by the captain is indemnity due. Petitioner implied that the interruption here was not attributable to its fault.
• Safety Not Compromised: Petitioner contended that the safety of the vessel and passengers was never at stake because the sea was calm in the area where the vessel stopped, as recorded in the logbook. It characterized the private respondent’s reaction as an overreaction.

• Breach of Contract and Bad Faith: Private respondent maintained that his action was for damages arising from bad faith, breach of contract of carriage, and tort. He alleged that petitioner’s failure to transport him to his destination was accompanied by fraud, negligence, delay, and wanton attitude.
• Unseaworthiness and Breach of Utmost Diligence: Respondent argued that petitioner breached its duty under Article 1755 of the Civil Code by sailing with knowledge that the vessel was unseaworthy, with one engine inoperative and still under repair. The resulting engine failure caused mental anguish, fright, and serious anxiety, warranting moral and exemplary damages.
• Disregard for Passenger Safety: Respondent asserted that petitioner acted in bad faith and with malice, prioritizing its commercial interest over passenger safety, thus entitling him to moral damages under Article 2217 and exemplary damages under Article 2232 in relation to Article 2201 of the Civil Code.

• Standard of Care and Unseaworthiness: Whether the petitioner breached its duty of utmost diligence as a common carrier by sailing with only one functioning engine while the other was under repair, thereby rendering the vessel unseaworthy.
• Applicable Law on Voyage Interruption: Whether the rights and liabilities of the parties for the interruption of the voyage are governed exclusively by Article 698 of the Code of Commerce, or by the Civil Code provisions on common carriers and damages, with the Code of Commerce applying only suppletorily.
• Liability for Moral and Exemplary Damages: Whether the petitioner acted with fraud, bad faith, or wanton attitude, entitling the private respondent to moral damages under Article 2220 and exemplary damages under Articles 2229 and 2232 of the Civil Code.
• Actual or Compensatory Damages: Whether actual or compensatory damages for loss of income were proved and properly awardable.
• Attorney’s Fees: Whether the award of attorney’s fees was factually and legally justified.

• Standard of Care and Unseaworthiness: The duty prescribed in Article 1755 of the Civil Code was breached. A common carrier must carry passengers safely using the utmost diligence of very cautious persons, with due regard for all circumstances. The vessel was allowed to depart with only one functioning engine while the other remained under repair, and even that lone engine subsequently failed at sea. A vessel to be seaworthy must be adequately equipped and manned for the voyage. Depriving it of a functioning engine rendered it plainly unseaworthy before the voyage began, which constitutes a clear breach of the statutory duty of extraordinary diligence.
• Applicable Law on Voyage Interruption: The Civil Code provisions on common carriers are the primary law, while the Code of Commerce applies suppletorily for matters not regulated by the Civil Code, pursuant to Article 1766. Article 698 of the Code of Commerce, which covers interruption of a voyage already begun, thus supplements the Civil Code. However, the interruption in this case resulted not from a fortuitous event but from the petitioner’s own failure to exercise extraordinary diligence. Consequently, Article 698 must be read alongside the damages provisions of the Civil Code — specifically Articles 2199, 2200, 2201, and 2208 — meaning the carrier is liable for any pecuniary loss or loss of profits the passenger may have suffered by reason of the interruption.
• Liability for Moral and Exemplary Damages: The petitioner acted with fraud and bad faith. Allowing an unseaworthy vessel to sail with full awareness of its condition showed wanton and reckless disregard for the safety of passengers. The private respondent suffered mental anguish, fright, and serious anxiety when the engine broke down and during the early-morning disembarkation. Moral damages are recoverable in a breach of contract of carriage where the common carrier is guilty of fraud or bad faith, even without death resulting, as provided in Article 2220. Exemplary damages, imposed under Articles 2229 and 2232 to deter socially deleterious conduct, were proper because petitioner’s acts were wanton, fraudulent, reckless, and oppressive. The prerequisite award of moral damages having been met, exemplary damages could be adjudicated. The amounts of P20,000 moral damages and P10,000 exemplary damages were sustained.
• Actual or Compensatory Damages: No actual or compensatory damages were awarded. The Court of Appeals correctly declined them because the private respondent failed to prove pecuniary loss or loss of income. The delay in his arrival was partly attributable to his own decision to disembark; had he remained on board, he would have reached his destination by noon the next day. Even assuming loss of half a day’s salary, no competent proof of such loss was offered.
• Attorney’s Fees: The award of attorney’s fees was set aside. Under Article 2208 of the Civil Code, attorney’s fees are recoverable only as actual damages, requiring both proof of the amount claimed and a specific prayer in the complaint. The private respondent neither pleaded attorney’s fees specifically nor proved the amount. A general prayer for “such other relief and remedy” could not support the award.

• Utmost Diligence and Seaworthiness of Vessels — Article 1755 of the Civil Code demands that common carriers observe utmost diligence of very cautious persons, with due regard for all circumstances. A vessel is seaworthy only if it is adequately equipped for the voyage and manned with a sufficient number of competent officers and crew. Allowing a vessel to sail with a known unseaworthy condition — such as operating on only one engine while the other is under repair — constitutes a clear breach of this duty and amounts to bad faith.
• Moral Damages in Breach of Contract of Carriage — Under Article 2220 of the Civil Code, moral damages are recoverable for breach of contract of carriage if the common carrier acted fraudulently or in bad faith, even without death resulting. The mental anguish, fright, and serious anxiety experienced by a passenger during an engine failure at sea constitute compensable moral damages.
• Exemplary Damages as Deterrent — Exemplary damages under Articles 2229 and 2232 may be imposed when the defendant in a contract or quasi-contract acted in a wanton, fraudulent, reckless, oppressive, or malevolent manner. They require a prior award of moral, temperate, or compensatory damages and serve to reshape socially deleterious behavior by creating negative incentives.
• Suppletory Application of the Code of Commerce — Pursuant to Article 1766 of the Civil Code, matters not regulated by the Civil Code provisions on common carriers are governed by the Code of Commerce and special laws. Article 698 of the Code of Commerce on interruption of a voyage already begun applies suppletorily, but when the interruption is caused by the carrier’s breach of extraordinary diligence rather than a fortuitous event, the damages provisions of the Civil Code concurrently govern the scope of liability.
• Proof and Prayer for Attorney’s Fees — Attorney’s fees under Article 2208 of the Civil Code are recoverable only in the concept of actual damages. The amount claimed must be proven, and the complaint must contain a specific prayer for them; a general prayer for “such other relief” is insufficient.

• “Before commencing the contracted voyage, the petitioner undertook some repairs on the cylinder head of one of the vessel's engines. But even before it could finish these repairs, it allowed the vessel to leave the port of origin on only one functioning engine, instead of two. … Plainly, the vessel was unseaworthy even before the voyage began. … The failure of a common carrier to maintain in seaworthy condition its vessel involved in a contract of carriage is a clear breach of its duty prescribed in Article 1755 of the Civil Code.”
• “In allowing its unseaworthy M/V Asia Thailand to leave the port of origin and undertake the contracted voyage, with full awareness that it was exposed to perils of the sea, it deliberately disregarded its solemn duty to exercise extraordinary diligence and obviously acted with bad faith and in a wanton and reckless manner.”
• “[T]he petitioner should not expect its passengers to act in the manner it desired. The passengers were not stoics; becoming alarmed, anxious, or frightened at the stoppage of a vessel at sea in an unfamiliar zone as nighttime is not the sole prerogative of the faint-hearted. More so in the light of the many tragedies at sea resulting in the loss of lives … simply because common carriers failed in their duty to exercise extraordinary diligence in the performance of their obligations.”

• Chan Keep vs. Chan Gioco, 14 Phil. 5 (1909) — Defined seaworthiness: a vessel must be adequately equipped for the voyage and manned with a sufficient number of competent officers and crew.
• China Airlines Ltd. vs. Intermediate Appellate Court, 169 SCRA 226 (1989) — Cited by the Court of Appeals for the principle that moral damages are recoverable in a breach of contract of carriage where the carrier is guilty of fraud or bad faith, even if death does not result.
• Sabena Belgian World Airlines vs. Court of Appeals, 171 SCRA 620 (1989) — Same principle as above; cited for recoverability of moral damages upon proof of bad faith in contract of carriage.
• Necesito vs. Paras, 104 Phil. 75 (1958) — Cited for the rule that moral damages may be awarded under Article 2220 in a breach of contract of carriage when the carrier acted fraudulently or in bad faith.
• Mecenas vs. Court of Appeals, 180 SCRA 83 (1989) — Explained that exemplary damages are designed to reshape socially deleterious behavior by creating negative incentives or deterrents.
• De Leon vs. Court of Appeals, 165 SCRA 166 (1988) — Established that exemplary damages may be awarded once entitlement to moral damages has been established.
• Mirasol vs. de la Cruz, 84 SCRA 337 (1978) — Held that attorney’s fees are not recoverable as moral damages and cannot be granted under a general prayer; a specific prayer is required.
• Scott Consultants & Resource Development vs. Court of Appeals, 242 SCRA 393 (1995) — Required factual, legal, and equitable justification as the benchmark for awarding attorney’s fees.

• Article 1733, Civil Code — Common carriers are bound to observe extraordinary diligence for the safety of passengers.
• Article 1755, Civil Code — A common carrier must carry passengers safely as far as human care and foresight can provide, using the utmost diligence of very cautious persons, with due regard for all the circumstances.
• Article 1764, Civil Code — Damages in cases of breach of contract of carriage shall be awarded in accordance with Title XVIII on Damages.
• Article 1766, Civil Code — Matters not regulated by the Civil Code on common carriers are governed by the Code of Commerce and special laws (suppletory clause).
• Article 698, Code of Commerce — In case an already begun voyage is interrupted, passengers pay fare in proportion to distance covered; no right to damages if due to fortuitous event or force majeure, but right to indemnity if caused by the captain exclusively. Applied suppletorily and read together with the Civil Code damages regime because the interruption stemmed from the carrier’s breach of diligence.
• Article 2201, Civil Code — In cases of fraud, bad faith, malice, or wanton attitude, the obligor is responsible for all damages reasonably attributable to the non-performance.
• Article 2217, Civil Code — Moral damages include mental suffering, mental anguish, fright, serious anxiety, etc.
• Article 2220, Civil Code — Moral damages are recoverable in breaches of contract of carriage where the carrier acted fraudulently or in bad faith.
• Articles 2229 and 2232, Civil Code — Exemplary damages are imposed by way of example or correction for the public good and may be awarded in contracts where the defendant acted wantonly, fraudulently, recklessly, oppressively, or malevolently.
• Article 2208, Civil Code — Attorney’s fees are recoverable only as actual damages; they require a specific prayer and proof of the amount claimed.

Narvasa, C.J., Melo, Francisco, and Panganiban, JJ., concurred.

N/A (The decision of the Third Division was unanimous; no dissenting opinion was recorded.)