Title
Bacolod-Murcia Milling Co., Inc. vs. Court of Appeals
Case
G.R. No. 81100-01
Decision Date
Feb 7, 1990
BMMC failed to fulfill its milling contract obligations after losing railway access, leading to rescission by Gatuslao; no force majeure or bad faith found.
milling contract
railway lines
force majeure
A

Case Summary (G.R. No. 81100-01)

Factual Background

The parties entered into an amended milling contract dated May 24, 1957, by which petitioner Bacolod-Murcia Milling Co., Inc. (BMMC) undertook to mill and to haul by railway the sugarcane of adherent planters, including private respondent Alonso Gatuslao, owner of several hacienda lots known as Hda. San Roque. BMMC constructed and operated a railway system and cane cars across planters' lands pursuant to rights of way granted in milling contracts that were for fixed terms beginning in crop year 1920-1921. The conventional rights of way expired with the expiration of certain amended milling contracts at the end of the 1964-1965 crop year. Litigation involving the owner of Hacienda Helvetia (Angela Estate, Inc. and Fernando F. Gonzaga, Inc.) resulted in a judicial determination that the Central’s conventional right of way ceased upon expiration of the contracts, a temporary lifting of a writ of preliminary injunction to permit use of the rail for the 1967-1968 season only, and automatic reinstatement of the injunction beginning July 1, 1968. When the portion of the railway traversing Hacienda Helvetia was closed in 1968, BMMC could not operate its locomotives and cane cars for the 1968-1969 crop year.

Trial Court Proceedings

On October 30, 1968 plaintiffs Alonso and Maria Gatuslao filed Civil Case No. 8719 against BMMC for breach of contract, praying among others for rescission of the 1957 milling contract, preliminary mandatory injunctive relief to compel transportation, damages, and attorney’s fees. BMMC answered and counterclaimed, alleging it had sought alternatives and hired private trucks. On November 21, 1968 BMMC filed Civil Case No. 8745 seeking specific performance against Gatuslao, AIDSISA and BM-ACMA for alleged violation of the milling contract. The two cases were consolidated for trial. The trial court, after evidentiary hearings, found that BMMC failed to provide adequate hauling facilities for the 1968-1969 crop year and declared the 1957 milling contract rescinded, awarded plaintiffs P2,625.00 with legal interest as actual damages, P5,000.00 as attorney’s fees, and costs, dismissed BMMC’s counterclaim in No. 8719 and dismissed the complaint and counterclaims in No. 8745.

Issues Presented

The petition articulated four principal issues: (I) whether the closure of petitioner’s railroad lines constituted force majeure; (II) whether private respondent Gatuslao had the right to rescind the milling contract under Article 1191, Civil Code; (III) whether private respondent Gatuslao was justified in violating his milling contract with petitioner; and (IV) whether private respondents Gatuslao and BM-ACMA acted in bad faith and were estopped from questioning the adequacy of petitioner’s transportation facilities and capacity to mill and haul.

Parties' Contentions

Petitioner BMMC contended that the closure of its railroad lines was a fortuitous event or force majeure within the meaning of Article 1174, Civil Code, excusing nonperformance. Private respondent Gatuslao maintained that BMMC’s failure to provide hauling facilities constituted a substantial breach entitling him to rescind the reciprocal milling contract under Article 1191, Civil Code. AIDSISA averred that it entered into a milling arrangement in good faith after ascertaining that BMMC was incapable of hauling and milling adherent planters’ canes. BM-ACMA asserted that it organized to protect planters’ interests when BMMC could not give reasonable assurance of hauling.

Findings of Fact Relevant to Performance and Capacity

The courts found uncontradicted evidence that BMMC’s railway operation had previously used between nine hundred and one thousand cane cars and ten locomotives, each locomotive pulling thirty to fifty cars with eight-ton capacities. After the closure BMMC estimated that hauling the district’s production would require not less than seven hundred loaded trucks daily plus seven hundred empty trucks, yet BMMC had only about two hundred eighty trailers, twenty tractors, and a handful of trucks and later hired some units. Many trailers had been permanently leased to planters and by the season only about seventy trailers were available to the rest of the planters pulled by three trucks. Purchases of additional prime movers and trailers occurred in October 1968 and were too late for the crop. BMMC’s own communications warned planters that milling would be “greatly hampered” unless a solution was worked out and advised planters to explore alternatives. Planters repeatedly sought concrete commitments, including a requested performance bond of P13 million, but BMMC replied mainly with optimism about pending litigation and efforts to obtain injunctions.

Trial Court and Appellate Conclusions on Force Majeure and Breach

Both the trial court and the Court of Appeals concluded that the closure of the railway lines did not constitute force majeure. The courts applied the established elements for excusing performance under Article 1174—that the cause be independent of the debtor’s will, unforeseeable or unavoidable, render performance impossible in a normal manner, and that the debtor did not participate in or aggravate the injury—and found them unsatisfied. The courts emphasized that the expiration of adjoining milling contracts and possible refusal to renew were foreseeable events, particularly given notice from Angela Estate as early as 1965, and that BMMC failed to adopt adequate alternative measures. On the breach and rescission issue the courts held that milling contracts impose reciprocal obligations and that time is of the essence in sugar milling; BMMC’s failure to provide adequate hauling facilities was a substantial breach that defeated the object of the parties’ agreement, thus entitling Gatuslao to rescind under Article 1191.

Supreme Court Disposition

The Supreme Court, Second Division, denied the petition and affirmed the decision of the Court of Appeals in toto. The Court upheld the trial court’s rescission of the 1957 milling contract in favor of Alonso Gatuslao, the award of P2,625.00 with legal interest and P5,000.00 attorney’s fees, and the dismissal of BMMC’s claims.

Legal Basis and Reasoning

The Court restated the four-part test for force majeure derived from prior authorities, notably Vasquez v. Court of Appeals, 138 SCRA 553 (1985), and Juan F. Nakpil & Sons v. Court of Appeals, 144 SCRA 596 (1986): the cause must be independent of the obligor’s will; unforeseeable or unavoidable; render performance normally impossible; and the obligor must not have participated in or aggravated the injury. Applying these criteria, the Court found the closure of the railways foreseeable because the conventional rights of way had fixed terms and planters might refuse renewal; the Angela Estate’s notice of nonrenewal was known to BMMC as early as 1965. The Court held that BMMC assumed a calculated risk and failed to adopt adequate measures or provide sufficien

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