Sweet Lines, Inc. vs. Court of Appeals

A common carrier that deliberately bypasses a port of call without a fortuitous event or force majeure is liable for indemnity to passengers under Articles 614 and 698 of the Code of Commerce; mechanical defects of the carrier are not a fortuitous event that exempts the carrier from responsibility, and exculpatory conditions printed on a ticket cannot override the statutory provisions of the Code.

Private respondents Micaela B. Quintos, Fr. Jose Bacatan, S.J., Marciano Cabras, and Andrea Veloso purchased first-class tickets from petitioner Sweet Lines, Inc. at its Cebu City office for passage on the vessel M/V Sweet Grace to Catbalogan, Western Samar. The scheduled midnight departure on July 8, 1972 was delayed; the vessel sailed at 3:00 A.M. on July 9, 1972, but soon developed engine trouble and was towed back to Cebu by 4:00 P.M. the same day. Repairs were completed, and the vessel lifted anchor again at 8:00 A.M. on July 10, 1972. Instead of calling at Catbalogan—the first port of call—the vessel proceeded directly to Tacloban, arriving at around 9:00 P.M. on July 10, 1972, without giving the passengers any prior notice.

• Purchase and Initial Voyage: Private respondents purchased first-class tickets from petitioner’s Cebu City office for passage on M/V Sweet Grace to Catbalogan, Western Samar. The vessel was scheduled to depart at about midnight on July 8, 1972 but sailed only at 3:00 A.M. on July 9, 1972. Shortly after departure, the vessel suffered engine trouble and was towed back to Cebu, arriving at approximately 4:00 P.M. on the same day.
• Repairs and Second Departure: Repairs were completed by the following day. The vessel lifted anchor again on July 10, 1972 at around 8:00 A.M.
• Bypass of Catbalogan: Instead of docking at Catbalogan, the first port of call under its normal schedule, the vessel sailed directly to Tacloban, arriving at about 9:00 P.M. on July 10, 1972. No prior notice of this route change was given to private respondents.
• Commercial Motive: Petitioner’s General Manager admitted that the reason for bypassing Catbalogan was to enable the vessel to catch up with its schedule for the following week. The vessel carried 50 passengers for Tacloban and only 20 for Catbalogan, so management decided that the Catbalogan leg could be scrapped without too much financial loss.
• Effect on Passengers: Private respondents were forced to disembark at Tacloban and take a ferryboat to Catbalogan at their own arrangement and expense. Petitioner neither cancelled their tickets, refunded their value, nor offered to transport them to Catbalogan at its own cost.
• Lower Court Findings of Bad Faith: Both the trial court and the Court of Appeals found that petitioner acted in bad faith: (1) no notice was given of the change in the vessel’s schedule or route; (2) during the engine repair delay, petitioner’s employees repeatedly made false assurances that the vessel would leave shortly, inducing the passengers to wait; and (3) petitioner did not offer to refund the tickets or provide onward transportation from Tacloban to Catbalogan.

• Fortuitous Event: Petitioner argued that the engine failure constituted a fortuitous event or force majeure that excused its obligation to call at Catbalogan and thus barred any award of damages under Articles 614 and 698 of the Code of Commerce.
• Ticket Conditions: Petitioner invoked the conditions printed in small bold type at the back of the ticket, particularly Clause 3 (reserving the right to bring the passenger to his destination at the carrier’s expense or to cancel the ticket and refund its value if the vessel cannot complete the trip for any cause whatsoever) and Clause 11 (providing that the sailing schedule is subject to change without previous notice).
• Mitigation and Damages: Petitioner maintained that the award of moral and exemplary damages was unwarranted and excessive, and that the passengers derived a benefit from being transported to Tacloban rather than Catbalogan, warranting equitable mitigation of damages under Article 2215(2) of the Civil Code.

• No Fortuitous Event: Private respondents countered that mechanical defects do not constitute a fortuitous event that exempts a common carrier from liability, and that even if the engine trouble caused the initial delay, the subsequent decision to bypass Catbalogan after the vessel was fully repaired was a deliberate commercial decision, not a force majeure.
• Breach and Bad Faith: They argued that the carrier breached the contract of carriage in bad faith by intentionally omitting the port of call without notice, making false assurances during the delay, and refusing to refund tickets or provide alternative transportation, thereby entitling them to moral and exemplary damages.
• Invalidity of Ticket Conditions: Private respondents asserted that the fine-print conditions on the ticket cannot override the mandatory provisions of the Code of Commerce, and that in any event, petitioner failed to comply with those conditions.

• Liability: Whether the carrier is liable for breach of contract of carriage under Articles 614 and 698 of the Code of Commerce, considering that the vessel bypassed its first port of call without any fortuitous event or force majeure.
• Ticket Conditions: Whether the conditions printed at the back of the passengers’ tickets exempted petitioner from liability for the deviation in route.
• Moral Damages: Whether the award of moral damages was proper and, if so, whether the amount fixed by the lower courts was reasonable.
• Exemplary Damages: Whether exemplary damages were correctly awarded in addition to moral damages, given the finding of bad faith.

• Liability: The carrier was liable. Mechanical defects in a common carrier are not considered a caso fortuito that excuses non-performance. Even assuming that the engine failure was a fortuitous event, it accounted only for the initial delay; once the vessel was fully repaired and left Cebu on July 10, 1972, no force majeure prevented it from calling at Catbalogan. The decision to bypass Catbalogan was a deliberate commercial choice to enable the vessel to catch up with its schedule for the next week and to minimize losses because there were more passengers for Tacloban. Under Article 698 of the Code of Commerce, where an interruption of a voyage already begun is caused by the captain exclusively, the passengers have a right to indemnity. The interruption was effected by the captain upon management’s instruction, and the ship owner and agent are civilly liable for the captain’s acts under Article 586 of the same Code.
• Ticket Conditions: The ticket conditions could not prevail over Articles 614 and 698 of the Code of Commerce. Even if those conditions were applicable, petitioner did not comply with them: it neither cancelled the tickets nor refunded their value, nor did it bring the passengers to their destination at its own expense. Moreover, the complaint was directed not at a mere change in sailing schedule but at the deliberate bypass of the passengers’ destination, Catbalogan. Had petitioner previously notified them and offered to transport them to Catbalogan at its expense or refunded the fares, the controversy would likely have been avoided.
• Moral Damages: The award of moral damages was proper under Article 2220 of the Civil Code because both lower courts found that petitioner acted in bad faith. Bad faith was evidenced by the failure to give notice of the route change, the repeated false assurances about an imminent departure during the repair delay, and the refusal to refund tickets or provide onward transportation. The factual finding of bad faith binds the Supreme Court and aligns with the definition that bad faith means a breach of a known duty through some motive or interest, even without personal ill-will. The amount, however, was excessive; the moral damages were reduced from a total of ₱175,000.00 to ₱3,000.00 for each private respondent.
• Exemplary Damages: The award of exemplary damages was deleted. Although bad faith was present, exemplary damages are not recoverable as a matter of right; under Article 2233 of the Civil Code, the court exercises discretion in deciding whether to award them. Given the reduction in moral damages and the carrier’s objective of meeting its schedule, exemplary damages were deemed inappropriate.

• Mechanical Defects and Fortuitous Event — Mechanical defects in a common carrier do not constitute a caso fortuito or force majeure that exempts the carrier from liability for breach of contract of carriage.
• Right to Indemnity Under Article 698, Code of Commerce — When a voyage already begun is interrupted and the interruption is caused by the captain exclusively and not by fortuitous event or disability of the vessel, the passenger is entitled to indemnity. The ship owner and agent are civilly liable for the captain’s acts under Article 586.
• Bad Faith as Basis for Moral Damages — Under Article 2220 of the Civil Code, moral damages may be awarded in a breach of contract where the defendant acted fraudulently or in bad faith. Bad faith means a breach of a known duty through some motive or interest or ill-will; self-enrichment or fraternal interest constitutes malice even in the absence of personal ill-will.
• Exculpatory Ticket Conditions Cannot Override the Code of Commerce — Conditions printed on a passenger ticket that limit or exempt the carrier from liability cannot prevail over the mandatory provisions of the Code of Commerce. Moreover, the carrier must comply with those conditions to claim any benefit under them.
• Exemplary Damages Are Discretionary — Under Article 2233 of the Civil Code, exemplary damages cannot be recovered as a matter of right; the court has the discretion whether to award them even when bad faith is established.
• Non-Application of Mitigation Under Article 2215(2) — Article 2215(2) of the Civil Code, which allows equitable mitigation of damages where the plaintiff has derived some benefit from the contract, does not apply when the harm suffered outweighs any incidental benefit the plaintiff may have obtained.

• “Mechanical defects in the carrier are not considered a caso fortuito that exempts the carrier from responsibility.” — The controlling rule on equipment failure in common carriers.
• “The reason for by-passing the port of Catbalogan, as admitted by petitioner's General Manager, was to enable the vessel to catch up with its schedule for the next week. The record also discloses that there were 50 passengers for Tacloban compared to 20 passengers for Catbalogan, so that the Catbalogan phase could be scrapped without too much loss for the company.” — Illustrates the deliberate commercial motive behind the breach.
• “Bad faith means a breach of a known duty through some motive or interest or illwill. Self-enrichment or fraternal interest, and not personal illwill may have been the motive, but it is malice nevertheless.” — Frequently cited definition of bad faith in contractual relations.
• “Furthermore, the conditions relied upon by petitioner cannot prevail over Articles 614 and 698 of the Code of Commerce heretofore quoted.” — Establishes the primacy of statutory provisions over standard-form ticket clauses.

• Son v. Cebu Autobus Co., 94 Phil. 892 (1954); Necesito v. Paras, 104 Phil. 75 (1958); Landingin v. Pangasinan Transportation Co., 33 SCRA 284 (1970) — Followed for the rule that mechanical defects do not constitute a fortuitous event that relieves a common carrier of liability.
• Tiongco v. de la Merced, 58 SCRA 89 (1974) — Applied for the principle that factual findings of the lower courts, including the determination of bad faith, are binding on the Supreme Court and will not be re-examined on appeal.
• Lopez v. Pan American World Airways, 16 SCRA 431 (1966) — Cited as authority for the definition of bad faith as a breach of a known duty through motive, interest, or ill-will, even absent personal malice.

• Article 614, Code of Commerce — A captain who fails to fulfill his undertaking without fortuitous event or force majeure shall indemnify all losses. Applied to hold the carrier liable because no fortuitous event excused the failure to call at Catbalogan.
• Article 698, Code of Commerce — In case of interruption of a voyage, the passenger has a right to indemnity if the interruption was caused by the captain exclusively. Applied because the bypass was directed by management through the captain and was not due to force majeure or vessel disability.
• Article 586, Code of Commerce — The ship owner and ship agent are civilly liable for the acts of the captain. Used to anchor the carrier’s liability for the captain’s decision to bypass the port.
• Article 2220, Civil Code — Moral damages are recoverable in breaches of contract where the defendant acted fraudulently or in bad faith. Justified the award of moral damages, subject to reduction.
• Article 2233, Civil Code — Exemplary damages are not recoverable as a matter of right; their award lies within the court’s discretion. Applied to delete the award of exemplary damages.
• Article 2215(2), Civil Code — Allows equitable mitigation of damages if the plaintiff has derived some benefit as a result of the contract. Held inapplicable because the harm from being taken to Tacloban outweighed any benefit.

Teehankee (Chairman), Plana, Vasquez, Relova, Gutierrez, Jr., JJ.