G.R. No. 118126 March 4, 1996
TRANS-ASIA SHIPPING LINES, INC., petitioner, vs. COURT OF APPEALS and ATTY. RENATO T. ARROYO, respondents.

FACTS

Private respondent Atty. Renato Arroyo purchased a ticket from petitioner Trans-Asia Shipping Lines for a voyage from Cebu City to Cagayan de Oro City on November 12, 1991. Upon boarding the M/V Asia Thailand, he observed repair work on the vessel’s engine. The vessel departed with only one engine operational. After an hour of slow travel, it stopped near Kawit Island. Some passengers, including Arroyo, requested to return to Cebu, which the captain allowed. Upon arrival back in Cebu, Arroyo disembarked. The vessel then proceeded to its original destination. Arroyo filed a complaint for damages, alleging breach of contract and claiming he was exposed to danger and suffered mental distress, additional expenses, and loss of income.
The Regional Trial Court dismissed the complaint, finding no fraud, negligence, bad faith, or malice on the part of the carrier’s employees. It held that Arroyo voluntarily disembarked and that the carrier was not at fault for the mechanical issue. The Court of Appeals reversed this decision, awarding Arroyo moral and exemplary damages, as well as attorney’s fees. The appellate court found the carrier negligent in undertaking the voyage with a known defective engine, constituting a breach of its contract of carriage and warranting an award of damages.

ISSUE

Whether the petitioner common carrier is liable for moral and exemplary damages arising from its negligence in undertaking a voyage with a known defective engine, which caused a disruption of the voyage and the private respondent’s voluntary disembarkation.

RULING

Yes, the petitioner is liable. The Supreme Court affirmed the Court of Appeals’ award of moral and exemplary damages but deleted the award for attorney’s fees for lack of sufficient justification. The Court clarified that the action was fundamentally one for breach of contract of carriage. A common carrier is bound to observe extraordinary diligence for the safety of its passengers. The petitioner breached this duty by allowing the vessel to sail with only one functioning engine despite known repairs, thereby failing to ensure a safe and timely voyage. This contractual breach, caused by the carrier’s negligence, directly resulted in the voyage’s interruption and the passengers’ distress.
Moral damages are recoverable in contractual breaches where the carrier acted fraudulently or in bad faith, or where the breach caused mental anguish, serious anxiety, and wounded feelings. The petitioner’s wanton disregard for passenger safety by sailing with a defective vessel constitutes bad faith, making moral damages appropriate. Exemplary damages are also warranted under Article 2232 of the Civil Code to set a corrective example, as the carrier’s negligence demonstrated a conscious indifference to the welfare of its passengers. The award of attorney’s fees, however, was set aside for lack of factual, legal, and equitable justification as required by jurisprudence.