G.R. No. 1963BAER SENIOR & CO.’S SUCCESSORS, plaintiff-appellee,vs.LA COMPAÑIA MARITIMA, defendant-appellant.

Chicote, Miranda and Sierra, for appellant.Pillsbury and Sutro, for appellee.

WILLARD, J.:The plaintiff, being the owner of the launch Mascota, which was then

at Aparri, made a contract with the defendant about the 2d of February, 1903, by the terms of which the defendant agreed to tow the launch from Aparri to Manila. In accordance with this agreement the launch was delivered to the defendant at Aparri on the day named, and the defendant’s steamer Churruca left Aparri on that day with the launch in tow. The steamer, with the launch in tow, arrived safely at Vigan. Two or three hours after leaving Vigan the wind increased in violence, with a rough sea. The speed of the streamer was decreased so that the tow might travel more easily. About half-past 11 at night the lookout, who was stationed in the stern of the steamer for the purpose of watching the launch, reported to the officer of the deck that the launch had disappeared. The steamer was stopped and search was made the rest of the night for the launch, but without success, and in the morning the steamer proceeded on her way to Manila. This action was brought to recover the value of the launch. Judgment was rendered in the court below in favor of plaintiff. The defendant moved for a new trial, which was denied, and it has brought the case here by bill of exceptions.

The first question to be determined is as to the nature of the liability of the defendant. Articles 1601 and 1602 of the Civil Code are as follows:

ART. 1601. Carriers of goods by land or by water shall be subject with regard to the keeping and preservation of the things intrusted to them, to the same obligations as determined for in keepers by articles 1783 and 1784.

The provisions of this article shall be understood without prejudice to what is prescribed by the Code of Commerce with regard to transportation by sea and land.

ART. 1602. Carriers are also liable for the loss of and damage to the things which they receive, unless they prove that the loss or damage arose from a fortuitous event or force majuere.

Article 618 of the Code of Commerce is in part as follows:ART. 618. The captain shall be civilly liable to the agent and the latter

to the third persons who may have made contracts with the former -1. For all the damages suffered by the vessel and its cargo by reason

of want skill or negligence on his part. If a misdemeanor with the Penal Code.

Article 620 of the same code is in part as follows:ART. 620. The captain shall not be liable for the damages caused to

the vessel or to the cargo by reason of force majuere; but he shall always be so – no agreement to the contrary being valid – for those arising through his own fault.

These articles treat of the liability of a carrier of goods, but we do not think that the defendant was a carrier of goods in respect to this launch. The reasons for so holding under the American law found in the case of The J. P. McDonaldson (167 U. S., 599, 602, 603) are equally cogent when applied to the Spanish law. The court there said:

While the tug is performing her contract of towing the barges they may indeed be regarded as part of herself, in the sense that her master is bound to use due care to provide for their safety as well as her own and to avoid collision, either of them or of herself, with other vessels. (The Syracuse, 9 Wall., 672, 675, 676; The Civilta, 103 U. S., 699, 701.)

But the barges in tow are by no means put under the control of the master of the tug to the same extent as the tug herself, and the cargo, if any, on board of her.

A general ship carrying goods for hire, whether employed in internal, in coasting, or in foreign commerce, is a common carrier; and the ship and her owners, in the absence of a valid agreement to the contrary, are liable to the owners of the goods carried as insurers against all losses, excepting only such irresistible causes as the act of God and public enemies. (Liverpool Steamship Co. vs. Phoenix Ins. Co., 129 U. S., 397, 437.) But a tug and her owners are subject to no such liability to the owners of the vessels towed, or of the cargoes can not maintain any action for the loss of either against the tug of her owners, without proving negligence on her part. As was said by Mr. Justice Strong, and repeated by the present Chief Justice: “An engagement to tow does not impose either an obligation to insure or the liability of common carriers. The burden is always upon him who alleges the breach of such a contract to show either that there has been no attempt at performance, or that there has been negligence or unskillfulness to his injury in the performance. Unlike the case of common carriers, damage sustained by the tow does not ordinarily raise a presumption that the tug has been in fault. The contract requires no more than that he who undertakes to tow shall carry out his undertaking with that degree of caution and skill which prudent navigators usually employ in similar services.” (The Webb, 14 Wall., 406, 414; The Burlington, 137 U. S., 386, 391. See also The L. P. Dayton, 120 U. S., 337, 351.)

The obligation of the defendant grew out of a contract made between it and the plaintiff, and the liability of the former is defined in articles 1101 and 1104 of the Civil Code, which are as follows:

ART. 1101. Those who in fulfilling their obligations are guilty of fraud, negligence, or delay, and those who in any manner whatsoever act in contravention of the stipulations of the same, shall be subject to indemnify for the losses and damages caused thereby.

ART. 1104. The fault or negligence of the debtor consists of the omission of the steps which may be required by the character of the obligation, and which may pertain to the circumstances of the persons, time, and place.

Should the obligation not state what conduct is to be observe in its fulfillment, that observed by a good father of a family shall be required.

We do not think that the provisions of articles 1902 and 1903 are applicable to this case. (Manresa’s Commentaries on the Civil Code, vol. 8, pp. 29, 69.)

By the terms of articles 1104 the defendant was bound to exercise what is known in the American law as ordinary diligence, taking into consideration the nature of the obligation and the circumstances of persons, time, and place. We think the evidence in the case shows that the defendant did exercise the diligence required of it by law. As we understand the evidence the towing line was passed from the steamer to the launch, around the stern of the launch once or twice, and one or two other lines passed entirely around the bow of the launch and under the keel. These lines were fastened to a post in the bow of the launch, which post, according to the testimony of the defendant’s witnesses, was used for fastening ropes in cases of towing, and, according to one witness of the plaintiff, for the purpose of fastening the launch to the wharf. At the time the loss occurred the towing line did not break, but this post did, and was found fastened to the towing lines when they were pulled on board the steamer. The captain of the steamer and the first mate, both men of experience in the matter, testified that the lines were properly adjusted and the tow properly made fast to the steamer. The only evidence to the contrary was the evidence furnished by one witness of the plaintiff, who testified that he was present when the towing lines were made fast by the captain himself, of the steamer; that he then told the captain it should be done another way. The captain denied this. This witness had no experience, according to his own testimony, in the matter of towing; had never had occasion to make fast a tow to a tug, and had never seen it done, with one exception; and that when this same launch was towed from Manila to Aparri. We do not think his evidence is sufficient to overcome the evidence of the defendant.

The judgment of the court below is reversed, and judgment entered for the defendant, absolving it from the complaint, with the costs of the lower court. No costs will be allowed to either party in this court. After the expiration of twenty days final judgment will be entered in accordance herewith and ten days thereafter the case remanded to the lower court for proper procedure. So ordered.

Arellano, C.J., Torres, Mapa and Carson, JJ., concur.

G.R. No. 159617 August 8, 2007ROBERTO C. SICAM and AGENCIA de R.C. SICAM, INC.,

petitioners, vs.LULU V. JORGE and CESAR JORGE, respondents.D E C I S I O NAUSTRIA-MARTINEZ, J.:Before us is a Petition for Review on Certiorari filed by Roberto C.

Sicam, Jr. (petitioner Sicam) and Agencia de R.C. Sicam, Inc. (petitioner corporation) seeking to annul the Decision1 of the Court of Appeals dated March 31, 2003, and its Resolution2 dated August 8, 2003, in CA G.R. CV No. 56633.

It appears that on different dates from September to October 1987, Lulu V. Jorge (respondent Lulu) pawned several pieces of jewelry with Agencia de R. C. Sicam located at No. 17 Aguirre Ave., BF Homes Parañaque, Metro Manila, to secure a loan in the total amount of P59,500.00.

On October 19, 1987, two armed men entered the pawnshop and took away whatever cash and jewelry were found inside the pawnshop vault. The incident was entered in the police blotter of the Southern Police District, Parañaque Police Station as follows:

Investigation shows that at above TDPO, while victims were inside the office, two (2) male unidentified persons entered into the said office with guns drawn. Suspects(sic) (1) went straight inside and poked his gun toward Romeo Sicam and thereby tied him with an electric wire while suspects (sic) (2) poked his gun toward Divina Mata and Isabelita Rodriguez and ordered them to lay (sic) face flat on the floor. Suspects asked forcibly the case and assorted pawned jewelries items mentioned above.

Suspects after taking the money and jewelries fled on board a Marson Toyota unidentified plate number.3

Petitioner Sicam sent respondent Lulu a letter dated October 19, 1987 informing her of the loss of her jewelry due to the robbery incident in the pawnshop. On November 2, 1987, respondent Lulu then wrote a letter4 to petitioner Sicam expressing disbelief stating that when the

robbery happened, all jewelry pawned were deposited with Far East Bank near the pawnshop since it had been the practice that before they could withdraw, advance notice must be given to the pawnshop so it could withdraw the jewelry from the bank. Respondent Lulu then requested petitioner Sicam to prepare the pawned jewelry for withdrawal on November 6, 1987 but petitioner Sicam failed to return the jewelry.

On September 28, 1988, respondent Lulu joined by her husband, Cesar Jorge, filed a complaint against petitioner Sicam with the Regional Trial Court of Makati seeking indemnification for the loss of pawned jewelry and payment of actual, moral and exemplary damages as well as attorney's fees. The case was docketed as Civil Case No. 88-2035.

Petitioner Sicam filed his Answer contending that he is not the real party-in-interest as the pawnshop was incorporated on April 20, 1987 and known as Agencia de R.C. Sicam, Inc; that petitioner corporation had exercised due care and diligence in the safekeeping of the articles pledged with it and could not be made liable for an event that is fortuitous.

Respondents subsequently filed an Amended Complaint to include petitioner corporation.

Thereafter, petitioner Sicam filed a Motion to Dismiss as far as he is concerned considering that he is not the real party-in-interest. Respondents opposed the same. The RTC denied the motion in an Order dated November 8, 1989.5

After trial on the merits, the RTC rendered its Decision6 dated January 12, 1993, dismissing respondents’ complaint as well as petitioners’ counterclaim. The RTC held that petitioner Sicam could not be made personally liable for a claim arising out of a corporate transaction; that in the Amended Complaint of respondents, they asserted that "plaintiff pawned assorted jewelries in defendants' pawnshop"; and that as a consequence of the separate juridical personality of a corporation, the corporate debt or credit is not the debt or credit of a stockholder.

The RTC further ruled that petitioner corporation could not be held liable for the loss of the pawned jewelry since it had not been rebutted by respondents that the loss of the pledged pieces of jewelry in the possession of the corporation was occasioned by armed robbery; that robbery is a fortuitous event which exempts the victim from liability for the loss, citing the case of Austria v. Court of Appeals;7 and that the parties’ transaction was that of a pledgor and pledgee and under Art. 1174 of the Civil Code, the pawnshop as a pledgee is not responsible for those events which could not be foreseen.

Respondents appealed the RTC Decision to the CA. In a Decision dated March 31, 2003, the CA reversed the RTC, the dispositive portion of which reads as follows:

WHEREFORE, premises considered, the instant Appeal is GRANTED, and the Decision dated January 12, 1993,of the Regional Trial Court of Makati, Branch 62, is hereby REVERSED and SET ASIDE, ordering the appellees to pay appellants the actual value of the lost jewelry amounting to P272,000.00, and attorney' fees of P27,200.00.8

In finding petitioner Sicam liable together with petitioner corporation, the CA applied the doctrine of piercing the veil of corporate entity reasoning that respondents were misled into thinking that they were dealing with the pawnshop owned by petitioner Sicam as all the pawnshop tickets issued to them bear the words "Agencia de R.C. Sicam"; and that there was no indication on the pawnshop tickets that it was the petitioner corporation that owned the pawnshop which explained why respondents had to amend their complaint impleading petitioner corporation.

The CA further held that the corresponding diligence required of a pawnshop is that it should take steps to secure and protect the pledged items and should take steps to insure itself against the loss of articles which are entrusted to its custody as it derives earnings from the pawnshop trade which petitioners failed to do; that Austria is not applicable to this case since the robbery incident happened in 1961 when the criminality had not as yet reached the levels attained in the present day; that they are at least guilty of contributory negligence and should be held liable for the loss of jewelries; and that robberies and hold-ups are foreseeable risks in that those engaged in the pawnshop business are expected to foresee.

The CA concluded that both petitioners should be jointly and severally held liable to respondents for the loss of the pawned jewelry.

Petitioners’ motion for reconsideration was denied in a Resolution dated August 8, 2003.

Hence, the instant petition for review with the following assignment of errors:

THE COURT OF APPEALS ERRED AND WHEN IT DID, IT OPENED ITSELF TO REVERSAL, WHEN IT ADOPTED UNCRITICALLY (IN FACT IT REPRODUCED AS ITS OWN WITHOUT IN THE MEANTIME ACKNOWLEDGING IT) WHAT THE RESPONDENTS ARGUED IN THEIR BRIEF, WHICH ARGUMENT WAS PALPABLY UNSUSTAINABLE.

THE COURT OF APPEALS ERRED, AND WHEN IT DID, IT OPENED ITSELF TO REVERSAL BY THIS HONORABLE COURT, WHEN IT AGAIN ADOPTED UNCRITICALLY (BUT WITHOUT ACKNOWLEDGING IT) THE SUBMISSIONS OF THE RESPONDENTS IN THEIR BRIEF WITHOUT ADDING ANYTHING MORE THERETO

DESPITE THE FACT THAT THE SAID ARGUMENT OF THE RESPONDENTS COULD NOT HAVE BEEN SUSTAINED IN VIEW OF UNREBUTTED EVIDENCE ON RECORD.9

Anent the first assigned error, petitioners point out that the CA’s finding that petitioner Sicam is personally liable for the loss of the pawned jewelries is "a virtual and uncritical reproduction of the arguments set out on pp. 5-6 of the Appellants’ brief."10

Petitioners argue that the reproduced arguments of respondents in their Appellants’ Brief suffer from infirmities, as follows:

(1) Respondents conclusively asserted in paragraph 2 of their Amended Complaint that Agencia de R.C. Sicam, Inc. is the present owner of Agencia de R.C. Sicam Pawnshop, and therefore, the CA cannot rule against said conclusive assertion of respondents;

(2) The issue resolved against petitioner Sicam was not among those raised and litigated in the trial court; and

(3) By reason of the above infirmities, it was error for the CA to have pierced the corporate veil since a corporation has a personality distinct and separate from its individual stockholders or members.

Anent the second error, petitioners point out that the CA finding on their negligence is likewise an unedited reproduction of respondents’ brief which had the following defects:

(1) There were unrebutted evidence on record that petitioners had observed the diligence required of them, i.e, they wanted to open a vault with a nearby bank for purposes of safekeeping the pawned articles but was discouraged by the Central Bank (CB) since CB rules provide that they can only store the pawned articles in a vault inside the pawnshop premises and no other place;

(2) Petitioners were adjudged negligent as they did not take insurance against the loss of the pledged jelweries, but it is judicial notice that due to high incidence of crimes, insurance companies refused to cover pawnshops and banks because of high probability of losses due to robberies;

(3) In Hernandez v. Chairman, Commission on Audit (179 SCRA 39, 45-46), the victim of robbery was exonerated from liability for the sum of money belonging to others and lost by him to robbers.

Respondents filed their Comment and petitioners filed their Reply thereto. The parties subsequently submitted their respective Memoranda.

We find no merit in the petition.To begin with, although it is true that indeed the CA findings were

exact reproductions of the arguments raised in respondents’ (appellants’) brief filed with the CA, we find the same to be not fatally infirmed. Upon examination of the Decision, we find that it expressed clearly and distinctly the facts and the law on which it is based as required by Section 8, Article VIII of the Constitution. The discretion to decide a case one way or another is broad enough to justify the adoption of the arguments put forth by one of the parties, as long as these are legally tenable and supported by law and the facts on records.11

Our jurisdiction under Rule 45 of the Rules of Court is limited to the review of errors of law committed by the appellate court. Generally, the findings of fact of the appellate court are deemed conclusive and we are not duty-bound to analyze and calibrate all over again the evidence adduced by the parties in the court a quo.12 This rule, however, is not without exceptions, such as where the factual findings of the Court of Appeals and the trial court are conflicting or contradictory13 as is obtaining in the instant case.

However, after a careful examination of the records, we find no justification to absolve petitioner Sicam from liability.

The CA correctly pierced the veil of the corporate fiction and adjudged petitioner Sicam liable together with petitioner corporation. The rule is that the veil of corporate fiction may be pierced when made as a shield to perpetrate fraud and/or confuse legitimate issues. 14 The theory of corporate entity was not meant to promote unfair objectives or otherwise to shield them.15

Notably, the evidence on record shows that at the time respondent Lulu pawned her jewelry, the pawnshop was owned by petitioner Sicam himself. As correctly observed by the CA, in all the pawnshop receipts issued to respondent Lulu in September 1987, all bear the words "Agencia de R. C. Sicam," notwithstanding that the pawnshop was allegedly incorporated in April 1987. The receipts issued after such alleged incorporation were still in the name of "Agencia de R. C. Sicam," thus inevitably misleading, or at the very least, creating the wrong impression to respondents and the public as well, that the pawnshop was owned solely by petitioner Sicam and not by a corporation.

Even petitioners’ counsel, Atty. Marcial T. Balgos, in his letter16 dated October 15, 1987 addressed to the Central Bank, expressly referred to petitioner Sicam as the proprietor of the pawnshop notwithstanding the alleged incorporation in April 1987.

We also find no merit in petitioners' argument that since respondents had alleged in their Amended Complaint that petitioner corporation is the present owner of the pawnshop, the CA is bound to decide the case on that basis.

Section 4 Rule 129 of the Rules of Court provides that an admission, verbal or written, made by a party in the course of the proceedings in the same case, does not require proof. The admission may be contradicted

only by showing that it was made through palpable mistake or that no such admission was made.

Thus, the general rule that a judicial admission is conclusive upon the party making it and does not require proof, admits of two exceptions, to wit: (1) when it is shown that such admission was made through palpable mistake, and (2) when it is shown that no such admission was in fact made. The latter exception allows one to contradict an admission by denying that he made such an admission.17

The Committee on the Revision of the Rules of Court explained the second exception in this wise:

x x x if a party invokes an "admission" by an adverse party, but cites the admission "out of context," then the one making the "admission" may show that he made no "such" admission, or that his admission was taken out of context.

x x x that the party can also show that he made no "such admission", i.e., not in the sense in which the admission is made to appear.

That is the reason for the modifier "such" because if the rule simply states that the admission may be contradicted by showing that "no admission was made," the rule would not really be providing for a contradiction of the admission but just a denial.18 (Emphasis supplied).

While it is true that respondents alleged in their Amended Complaint that petitioner corporation is the present owner of the pawnshop, they did so only because petitioner Sicam alleged in his Answer to the original complaint filed against him that he was not the real party-in-interest as the pawnshop was incorporated in April 1987. Moreover, a reading of the Amended Complaint in its entirety shows that respondents referred to both petitioner Sicam and petitioner corporation where they (respondents) pawned their assorted pieces of jewelry and ascribed to both the failure to observe due diligence commensurate with the business which resulted in the loss of their pawned jewelry.

Markedly, respondents, in their Opposition to petitioners’ Motion to Dismiss Amended Complaint, insofar as petitioner Sicam is concerned, averred as follows:

Roberto C. Sicam was named the defendant in the original complaint because the pawnshop tickets involved in this case did not show that the R.C. Sicam Pawnshop was a corporation. In paragraph 1 of his Answer, he admitted the allegations in paragraph 1 and 2 of the Complaint. He merely added "that defendant is not now the real party in interest in this case."

It was defendant Sicam's omission to correct the pawnshop tickets used in the subject transactions in this case which was the cause of the instant action. He cannot now ask for the dismissal of the complaint against him simply on the mere allegation that his pawnshop business is now incorporated. It is a matter of defense, the merit of which can only be reached after consideration of the evidence to be presented in due course.19

Unmistakably, the alleged admission made in respondents' Amended Complaint was taken "out of context" by petitioner Sicam to suit his own purpose. Ineluctably, the fact that petitioner Sicam continued to issue pawnshop receipts under his name and not under the corporation's name militates for the piercing of the corporate veil.

We likewise find no merit in petitioners' contention that the CA erred in piercing the veil of corporate fiction of petitioner corporation, as it was not an issue raised and litigated before the RTC.

Petitioner Sicam had alleged in his Answer filed with the trial court that he was not the real party-in-interest because since April 20, 1987, the pawnshop business initiated by him was incorporated and known as Agencia de R.C. Sicam. In the pre-trial brief filed by petitioner Sicam, he submitted that as far as he was concerned, the basic issue was whether he is the real party in interest against whom the complaint should be directed.20 In fact, he subsequently moved for the dismissal of the complaint as to him but was not favorably acted upon by the trial court. Moreover, the issue was squarely passed upon, although erroneously, by the trial court in its Decision in this manner:

x x x The defendant Roberto Sicam, Jr likewise denies liability as far as he is concerned for the reason that he cannot be made personally liable for a claim arising from a corporate transaction.

This Court sustains the contention of the defendant Roberto C. Sicam, Jr. The amended complaint itself asserts that "plaintiff pawned assorted jewelries in defendant's pawnshop." It has been held that " as a consequence of the separate juridical personality of a corporation, the corporate debt or credit is not the debt or credit of the stockholder, nor is the stockholder's debt or credit that of a corporation.21

Clearly, in view of the alleged incorporation of the pawnshop, the issue of whether petitioner Sicam is personally liable is inextricably connected with the determination of the question whether the doctrine of piercing the corporate veil should or should not apply to the case.

The next question is whether petitioners are liable for the loss of the pawned articles in their possession.

Petitioners insist that they are not liable since robbery is a fortuitous event and they are not negligent at all.

We are not persuaded.Article 1174 of the Civil Code provides:

Art. 1174. Except in cases expressly specified by the law, or when it is otherwise declared by stipulation, or when the nature of the obligation requires the assumption of risk, no person shall be responsible for those events which could not be foreseen or which, though foreseen, were inevitable.

Fortuitous events by definition are extraordinary events not foreseeable or avoidable. It is therefore, not enough that the event should not have been foreseen or anticipated, as is commonly believed but it must be one impossible to foresee or to avoid. The mere difficulty to foresee the happening is not impossibility to foresee the same. 22

To constitute a fortuitous event, the following elements must concur: (a) the cause of the unforeseen and unexpected occurrence or of the failure of the debtor to comply with obligations must be independent of human will; (b) it must be impossible to foresee the event that constitutes the caso fortuito or, if it can be foreseen, it must be impossible to avoid; (c) the occurrence must be such as to render it impossible for the debtor to fulfill obligations in a normal manner; and, (d) the obligor must be free from any participation in the aggravation of the injury or loss. 23

The burden of proving that the loss was due to a fortuitous event rests on him who invokes it.24 And, in order for a fortuitous event to exempt one from liability, it is necessary that one has committed no negligence or misconduct that may have occasioned the loss. 25

It has been held that an act of God cannot be invoked to protect a person who has failed to take steps to forestall the possible adverse consequences of such a loss. One's negligence may have concurred with an act of God in producing damage and injury to another; nonetheless, showing that the immediate or proximate cause of the damage or injury was a fortuitous event would not exempt one from liability. When the effect is found to be partly the result of a person's participation -- whether by active intervention, neglect or failure to act -- the whole occurrence is humanized and removed from the rules applicable to acts of God. 26

Petitioner Sicam had testified that there was a security guard in their pawnshop at the time of the robbery. He likewise testified that when he started the pawnshop business in 1983, he thought of opening a vault with the nearby bank for the purpose of safekeeping the valuables but was discouraged by the Central Bank since pawned articles should only be stored in a vault inside the pawnshop. The very measures which petitioners had allegedly adopted show that to them the possibility of robbery was not only foreseeable, but actually foreseen and anticipated. Petitioner Sicam’s testimony, in effect, contradicts petitioners’ defense of fortuitous event.

Moreover, petitioners failed to show that they were free from any negligence by which the loss of the pawned jewelry may have been occasioned.

Robbery per se, just like carnapping, is not a fortuitous event. It does not foreclose the possibility of negligence on the part of herein petitioners. In Co v. Court of Appeals,27 the Court held:

It is not a defense for a repair shop of motor vehicles to escape liability simply because the damage or loss of a thing lawfully placed in its possession was due to carnapping. Carnapping per se cannot be considered as a fortuitous event. The fact that a thing was unlawfully and forcefully taken from another's rightful possession, as in cases of carnapping, does not automatically give rise to a fortuitous event. To be considered as such, carnapping entails more than the mere forceful taking of another's property. It must be proved and established that the event was an act of God or was done solely by third parties and that neither the claimant nor the person alleged to be negligent has any participation. In accordance with the Rules of Evidence, the burden of proving that the loss was due to a fortuitous event rests on him who invokes it — which in this case is the private respondent. However, other than the police report of the alleged carnapping incident, no other evidence was presented by private respondent to the effect that the incident was not due to its fault. A police report of an alleged crime, to which only private respondent is privy, does not suffice to establish the carnapping. Neither does it prove that there was no fault on the part of private respondent notwithstanding the parties' agreement at the pre-trial that the car was carnapped. Carnapping does not foreclose the possibility of fault or negligence on the part of private respondent.28

Just like in Co, petitioners merely presented the police report of the Parañaque Police Station on the robbery committed based on the report of petitioners' employees which is not sufficient to establish robbery. Such report also does not prove that petitioners were not at fault.

On the contrary, by the very evidence of petitioners, the CA did not err in finding that petitioners are guilty of concurrent or contributory negligence as provided in Article 1170 of the Civil Code, to wit:

Art. 1170. Those who in the performance of their obligations are guilty of fraud, negligence, or delay, and those who in any manner contravene the tenor thereof, are liable for damages.29

Article 2123 of the Civil Code provides that with regard to pawnshops and other establishments which are engaged in making loans secured by pledges, the special laws and regulations concerning them shall be observed, and subsidiarily, the provisions on pledge, mortgage and antichresis.

The provision on pledge, particularly Article 2099 of the Civil Code, provides that the creditor shall take care of the thing pledged with the diligence of a good father of a family. This means that petitioners must take care of the pawns the way a prudent person would as to his own property.

In this connection, Article 1173 of the Civil Code further provides:Art. 1173. The fault or negligence of the obligor consists in the

omission of that diligence which is required by the nature of the obligation and corresponds with the circumstances of the persons, of time and of the place. When negligence shows bad faith, the provisions of Articles 1171 and 2201, paragraph 2 shall apply.

If the law or contract does not state the diligence which is to be observed in the performance, that which is expected of a good father of a family shall be required.

We expounded in Cruz v. Gangan30 that negligence is the omission to do something which a reasonable man, guided by those considerations which ordinarily regulate the conduct of human affairs, would do; or the doing of something which a prudent and reasonable man would not do.31

It is want of care required by the circumstances.A review of the records clearly shows that petitioners failed to

exercise reasonable care and caution that an ordinarily prudent person would have used in the same situation. Petitioners were guilty of negligence in the operation of their pawnshop business. Petitioner Sicam testified, thus:

Court:Q. Do you have security guards in your pawnshop?A. Yes, your honor.Q. Then how come that the robbers were able to enter the premises

when according to you there was a security guard?A. Sir, if these robbers can rob a bank, how much more a pawnshop.Q. I am asking you how were the robbers able to enter despite the

fact that there was a security guard?A. At the time of the incident which happened about 1:00 and 2:00

o'clock in the afternoon and it happened on a Saturday and everything was quiet in the area BF Homes Parañaque they pretended to pawn an article in the pawnshop, so one of my employees allowed him to come in and it was only when it was announced that it was a hold up.

Q. Did you come to know how the vault was opened?A. When the pawnshop is official (sic) open your honor the pawnshop

is partly open. The combination is off.Q. No one open (sic) the vault for the robbers?A. No one your honor it was open at the time of the robbery.Q. It is clear now that at the time of the robbery the vault was open

the reason why the robbers were able to get all the items pawned to you inside the vault.

A. Yes sir.32

revealing that there were no security measures adopted by petitioners in the operation of the pawnshop. Evidently, no sufficient precaution and vigilance were adopted by petitioners to protect the pawnshop from unlawful intrusion. There was no clear showing that there was any security guard at all. Or if there was one, that he had sufficient training in securing a pawnshop. Further, there is no showing that the alleged security guard exercised all that was necessary to prevent any untoward incident or to ensure that no suspicious individuals were allowed to enter the premises. In fact, it is even doubtful that there was a security guard, since it is quite impossible that he would not have noticed that the robbers were armed with caliber .45 pistols each, which were allegedly poked at the employees.33 Significantly, the alleged security guard was not presented at all to corroborate petitioner Sicam's claim; not one of petitioners' employees who were present during the robbery incident testified in court.

Furthermore, petitioner Sicam's admission that the vault was open at the time of robbery is clearly a proof of petitioners' failure to observe the care, precaution and vigilance that the circumstances justly demanded. Petitioner Sicam testified that once the pawnshop was open, the combination was already off. Considering petitioner Sicam's testimony that the robbery took place on a Saturday afternoon and the area in BF Homes Parañaque at that time was quiet, there was more reason for petitioners to have exercised reasonable foresight and diligence in protecting the pawned jewelries. Instead of taking the precaution to protect them, they let open the vault, providing no difficulty for the robbers to cart away the pawned articles.

We, however, do not agree with the CA when it found petitioners negligent for not taking steps to insure themselves against loss of the pawned jewelries.

Under Section 17 of Central Bank Circular No. 374, Rules and Regulations for Pawnshops, which took effect on July 13, 1973, and which was issued pursuant to Presidential Decree No. 114, Pawnshop Regulation Act, it is provided that pawns pledged must be insured, to wit:

Sec. 17. Insurance of Office Building and Pawns- The place of business of a pawnshop and the pawns pledged to it must be insured against fire and against burglary as well as for the latter(sic), by an insurance company accredited by the Insurance Commissioner.

However, this Section was subsequently amended by CB Circular No. 764 which took effect on October 1, 1980, to wit:

Sec. 17 Insurance of Office Building and Pawns – The office building/premises and pawns of a pawnshop must be insured against fire. (emphasis supplied).

where the requirement that insurance against burglary was deleted. Obviously, the Central Bank considered it not feasible to require insurance of pawned articles against burglary.

The robbery in the pawnshop happened in 1987, and considering the above-quoted amendment, there is no statutory duty imposed on petitioners to insure the pawned jewelry in which case it was error for the CA to consider it as a factor in concluding that petitioners were negligent.

Nevertheless, the preponderance of evidence shows that petitioners failed to exercise the diligence required of them under the Civil Code.

The diligence with which the law requires the individual at all times to govern his conduct varies with the nature of the situation in which he is placed and the importance of the act which he is to perform. 34 Thus, the cases of Austria v. Court of Appeals,35 Hernandez v. Chairman, Commission on Audit36 and Cruz v. Gangan37 cited by petitioners in their pleadings, where the victims of robbery were exonerated from liability, find no application to the present case.

In Austria, Maria Abad received from Guillermo Austria a pendant with diamonds to be sold on commission basis, but which Abad failed to subsequently return because of a robbery committed upon her in 1961. The incident became the subject of a criminal case filed against several persons. Austria filed an action against Abad and her husband (Abads) for recovery of the pendant or its value, but the Abads set up the defense that the robbery extinguished their obligation. The RTC ruled in favor of Austria, as the Abads failed to prove robbery; or, if committed, that Maria Abad was guilty of negligence. The CA, however, reversed the RTC decision holding that the fact of robbery was duly established and declared the Abads not responsible for the loss of the jewelry on account of a fortuitous event. We held that for the Abads to be relieved from the civil liability of returning the pendant under Art. 1174 of the Civil Code, it would only be sufficient that the unforeseen event, the robbery, took place without any concurrent fault on the debtor’s part, and this can be done by preponderance of evidence; that to be free from liability for reason of fortuitous event, the debtor must, in addition to the casus itself, be free of any concurrent or contributory fault or negligence.38

We found in Austria that under the circumstances prevailing at the time the Decision was promulgated in 1971, the City of Manila and its suburbs had a high incidence of crimes against persons and property that rendered travel after nightfall a matter to be sedulously avoided without suitable precaution and protection; that the conduct of Maria Abad in returning alone to her house in the evening carrying jewelry of considerable value would have been negligence per se and would not exempt her from responsibility in the case of robbery. However we did not hold Abad liable for negligence since, the robbery happened ten years previously; i.e., 1961, when criminality had not reached the level of incidence obtaining in 1971.

In contrast, the robbery in this case took place in 1987 when robbery was already prevalent and petitioners in fact had already foreseen it as they wanted to deposit the pawn with a nearby bank for safekeeping. Moreover, unlike in Austria, where no negligence was committed, we found petitioners negligent in securing their pawnshop as earlier discussed.

In Hernandez, Teodoro Hernandez was the OIC and special disbursing officer of the Ternate Beach Project of the Philippine Tourism in Cavite. In the morning of July 1, 1983, a Friday, he went to Manila to encash two checks covering the wages of the employees and the operating expenses of the project. However for some reason, the processing of the check was delayed and was completed at about 3 p.m. Nevertheless, he decided to encash the check because the project employees would be waiting for their pay the following day; otherwise, the workers would have to wait until July 5, the earliest time, when the main office would open. At that time, he had two choices: (1) return to Ternate, Cavite that same afternoon and arrive early evening; or (2) take the money with him to his house in Marilao, Bulacan, spend the night there, and leave for Ternate the following day. He chose the second option, thinking it was the safer one. Thus, a little past 3 p.m., he took a passenger jeep bound for Bulacan. While the jeep was on Epifanio de los Santos Avenue, the jeep was held up and the money kept by Hernandez was taken, and the robbers jumped out of the jeep and ran. Hernandez chased the robbers and caught up with one robber who was subsequently charged with robbery and pleaded guilty. The other robber who held the stolen money escaped. The Commission on Audit found Hernandez negligent because he had not brought the cash proceeds of the checks to his office in Ternate, Cavite for safekeeping, which is the normal procedure in the handling of funds. We held that Hernandez was not negligent in deciding to encash the check and bringing it home to Marilao, Bulacan instead of Ternate, Cavite due to the lateness of the hour for the following reasons: (1) he was moved by unselfish motive for his co-employees to collect their wages and salaries the following day, a Saturday, a non-working, because to encash the check on July 5, the

next working day after July 1, would have caused discomfort to laborers who were dependent on their wages for sustenance; and (2) that choosing Marilao as a safer destination, being nearer, and in view of the comparative hazards in the trips to the two places, said decision seemed logical at that time. We further held that the fact that two robbers attacked him in broad daylight in the jeep while it was on a busy highway and in the presence of other passengers could not be said to be a result of his imprudence and negligence.

Unlike in Hernandez where the robbery happened in a public utility, the robbery in this case took place in the pawnshop which is under the control of petitioners. Petitioners had the means to screen the persons who were allowed entrance to the premises and to protect itself from unlawful intrusion. Petitioners had failed to exercise precautionary measures in ensuring that the robbers were prevented from entering the pawnshop and for keeping the vault open for the day, which paved the way for the robbers to easily cart away the pawned articles.

In Cruz, Dr. Filonila O. Cruz, Camanava District Director of Technological Education and Skills Development Authority (TESDA), boarded the Light Rail Transit (LRT) from Sen. Puyat Avenue to Monumento when her handbag was slashed and the contents were stolen by an unidentified person. Among those stolen were her wallet and the government-issued cellular phone. She then reported the incident to the police authorities; however, the thief was not located, and the cellphone was not recovered. She also reported the loss to the Regional Director of TESDA, and she requested that she be freed from accountability for the cellphone. The Resident Auditor denied her request on the ground that she lacked the diligence required in the custody of government property and was ordered to pay the purchase value in the total amount of P4,238.00. The COA found no sufficient justification to grant the request for relief from accountability. We reversed the ruling and found that riding the LRT cannot per se be denounced as a negligent act more so because Cruz’s mode of transit was influenced by time and money considerations; that she boarded the LRT to be able to arrive in Caloocan in time for her 3 pm meeting; that any prudent and rational person under similar circumstance can reasonably be expected to do the same; that possession of a cellphone should not hinder one from boarding the LRT coach as Cruz did considering that whether she rode a jeep or bus, the risk of theft would have also been present; that because of her relatively low position and pay, she was not expected to have her own vehicle or to ride a taxicab; she did not have a government assigned vehicle; that placing the cellphone in a bag away from covetous eyes and holding on to that bag as she did is ordinarily sufficient care of a cellphone while traveling on board the LRT; that the records did not show any specific act of negligence on her part and negligence can never be presumed.

Unlike in the Cruz case, the robbery in this case happened in petitioners' pawnshop and they were negligent in not exercising the precautions justly demanded of a pawnshop.

WHEREFORE, except for the insurance aspect, the Decision of the Court of Appeals dated March 31, 2003 and its Resolution dated August 8, 2003, are AFFIRMED.

Costs against petitioners.SO ORDERED.

[G.R. No. 141258. April 9, 2003]TOMASA SARMIENTO, petitioner, vs. SPS. LUIS & ROSE SUN-

CABRIDO and MARIA LOURDES SUN, respondents.D E C I S I O NCORONA, J.:This appeal by certiorari stems from the Decision[1] of respondent

Court of Appeals promulgated on November 26, 1999 in CA-G.R. SP No. 47431 declaring the private respondents not liable for damages.

Petitioner, Tomasa Sarmiento, states that sometime in April 1994, a friend, Dra. Virginia Lao, requested her to find somebody to reset a pair of diamond earrings into two gold rings.[2] Accordingly, petitioner sent a certain Tita Payag with the pair of earrings to Dingding’s Jewelry Shop,

owned and managed by respondent spouses Luis and Rose Cabrido,[3] which accepted the job order for P400.[4]

Petitioner provided 12 grams of gold to be used in crafting the pair of ring settings.[5] After 3 days, Tita Payag delivered to the jewelry shop one of Dra. Lao’s diamond earrings which was earlier appraised as worth .33 carat and almost perfect in cut and clarity.[6] Respondent Ma. Lourdes (Marilou) Sun went on to dismount the diamond from its original setting. Unsuccessful, she asked their goldsmith, Zenon Santos, to do it. Santos removed the diamond by twisting the setting with a pair of pliers, breaking the gem in the process.[7]

Petitioner required the respondents to replace the diamond with the same size and quality. When they refused, the petitioner was forced to buy a replacement in the amount of P30,000.[8]

Respondent Rose Cabrido, manager of Dingding’s Jewelry Shop, denied having entered into any transaction with Tita Payag whom she met only after the latter came to the jewelry shop to seek compensation from Santos for the broken piece of jewelry.[9] However, it was possible that Payag may have availed of their services as she could not have known every customer who came to their shop. Rose disclosed that she usually arrived at 11:00 a.m. When she was not around, her mother and sister tended the shop.[10]

Marilou admitted knowing Payag who came to Dingding’s Jewelry Shop to avail of their services regarding a certain piece of jewelry. After a short conversation, Payag went inside the shop to see Santos. When the precious stone was broken by Santos, Payag demanded P15,000 from him. As the latter had no money, she turned to Marilou for reimbursement apparently thinking that Marilou was the owner of the shop.[11]

For his part, Santos recalled that Payag requested him to dismount what appeared to him was a sapphire. While clipping the setting with the use of a small pair of pliers, the stone accidentally broke. Santos denied being an employee of Dingding’s Jewelry Shop.[12]

Attempts to settle the controversy before the barangay lupon proved futile.[13] Consequently, petitioner filed a complaint for damages on June 28, 1994 with the Municipal Trial Court in Cities (MTCC) of Tagbilaran City docketed as Civil Case No. 2339 which rendered a decision[14] in favor of the petitioner, the dispositive portion of which reads:

WHEREFORE, Decision is hereby rendered in favor of plaintiff Tomasa Sarmiento and against defendants Spouses Luis and Rose Sun-Cabrido, ordering defendants to pay jointly and severally the amount of Thirty Thousand Pesos (P30,000.00) as actual or compensatory damages; Three Thousand Pesos (P3,000.00) as moral damages; Five Thousand Pesos (P5,000.00) as attorney’s fees; Two Thousand Pesos (P2,000.00) as litigation expenses, with legal interest of 6% per annum from the date of this decision and 12% per annum from the date when this decision becomes final until the amounts shall have been fully paid and to pay the costs.

This case as against defendant Maria Lourdes Sun as well as defendants’ counterclaim are dismissed for lack of merit.

SO ORDERED.On appeal, the Regional Trial Court (RTC) of Tagbilaran City, Branch

3, reversed the decision of the MTCC, thus absolving the respondents of any responsibility arising from breach of contract.[15] Finding no reversible error, the Court of Appeals (CA) affirmed the judgment of the RTC in its Decision promulgated on November 26, 1999.[16]

Unable to accept the decision, the petitioner filed the instant petition for review with the following assigned errors:

ITHE COURT OF APPEALS ERRED IN MAINTAINING AND SO

HOLDING THAT ZENON SANTOS IS NOT AN EMPLOYEE OF DEFENDANT (herein respondent) ROSE SUN-CABRIDO, AND IS THEREFORE ANSWERABLE FOR HIS OWN ACTS OR OMISSIONS

IITHE HONORABLE COURT OF APPEALS ERRED IN SUSTAINING

THE REGIONAL TRIAL COURT’S PRONOUNCEMENTS THAT THERE EXISTS NO AGREEMENT BETWEEN THE PETITIONER AND RESPONDENTS THAT THE LATTER WOULD ANSWER FOR ANY LIABILITY SHOULD THE DIAMOND BE DAMAGED IN THE PROCESS OF DISMOUNTING THEM FROM THE EARRINGS.

Essentially, petitioner claims that the dismounting of the diamond from its original setting was part of the obligation assumed by the private respondents under the contract of service. Thus, they should be held liable for damages arising from its breakage. On the other hand, the version of the private respondents, upheld by the RTC and the CA, is that their agreement with the petitioner was for crafting two gold rings mounted with diamonds only and did not include the dismounting of the said diamonds from their original setting.[17] Consequently, the crux of the instant controversy is the scope of the obligation assumed by the private respondents under the verbal contract of service with the petitioner.

The Court notes that, during the trial, private respondents vigorously denied any transaction between Dingdings’ Jewelry Shop and the petitioner, through Tita Payag. Rose Cabrido, for instance, denied having ever met Payag before the latter came to seek reimbursement for the

value of the broken diamond. Likewise, while Marilou acknowledged acquaintance with Payag, she nevertheless denied accepting any job order from her. Debunking their protestations, however, the MTCC of Tagbilaran City rendered its decision on November 26, 1999 in favor of herein petitioner.

Apparently realizing the weakness and futility of their position, private respondents conceded, on appeal, the existence of an agreement with the petitioner for crafting a pair of gold rings mounted with diamonds. This apparent concession by the private respondents, however, was really nothing but an ingenious maneuver, designed to preclude, just the same, any recovery for damages by the petitioner. Thus, while ostensibly admitting the existence of the said agreement, private respondents, nonetheless denied assuming any obligation to dismount the diamonds from their original settings.[18]

The inconsistent position of the private respondents impugns their credibility. They cannot be permitted to adopt a certain stance, only to vacillate later to suit their interest. We are therefore inclined to agree with the MTCC in giving credence to the version of the petitioner. The MTCC had the unique opportunity to actually observe the behavior and demeanor of the witnesses as they testified during the trial.[19]

At any rate, the contemporaneous and subsequent acts of the parties[20] support the version of the petitioner. Thus, when Tita Payag asked Marilou of Dingding’s Jewelry Shop to reset a pair of diamond earrings, she brought with her the said pieces of jewelry so that the diamonds which were still mounted could be measured and the new ring settings crafted accordingly. On the said occasion, Marilou expressed no reservation regarding the dismounting of the diamonds which, after all, was an integral part of petitioner’s job order. She should have instructed Payag to have them dismounted first if Marilou had actually intended to spare the jewelry shop of the task but she did not. Instead, petitioner was charged P400 for the job order which was readily accepted. Thus, a perfected contract to reset the pair of diamond earrings arose between the petitioner, through Payag, and Dingding’s Jewelry Shop, through Marilou.

Marilou’s subsequent actuations were even more revealing as regards the scope of obligation assumed by the jewelry shop. After the new settings were completed in 3 days, she called up the petitioner to bring the diamond earrings to be reset.[21] Having initially examined one of them, Marilou went on to dismount the diamond from its original setting. Unsuccessful, she then delegated the task to their goldsmith, Zenon Santos. Having acted the way she did, Marilou cannot now deny the shop’s obligation to reset the pair of earrings.

Obligations arising from contracts have the force of law between the contracting parties.[22] Corollarily, those who in the performance of their obligations are guilty of fraud, negligence or delay and those who in any manner contravene the tenor thereof, are liable for damages.[23] The fault or negligence of the obligor consists in the omission of that diligence which is required by the nature of the obligation and corresponds with the circumstances of the persons, of the time and of the place.[24]

In the case at bar, it is beyond doubt that Santos acted negligently in dismounting the diamond from its original setting. It appears to be the practice of the trade to use a miniature wire saw in dismounting precious gems, such as diamonds, from their original settings.[25] However, Santos employed a pair of pliers in clipping the original setting, thus resulting in breakage of the diamond. The jewelry shop failed to perform its obligation with the ordinary diligence required by the circumstances. It should be pointed out that Marilou examined the diamond before dismounting it from the original setting and found the same to be in order. Its subsequent breakage in the hands of Santos could only have been caused by his negligence in using the wrong equipment. Res ipsa loquitur.

Private respondents seek to avoid liability by passing the buck to Santos who claimed to be an independent worker. They also claim, rather lamely, that Marilou simply happened to drop by at Dingding’s Jewelry Shop when Payag arrived to place her job order.[26]

We do not think so.The facts show that Santos had been working at Dingding’s Jewelry

Shop as goldsmith for about 6 months accepting job orders through referrals from private respondents.[27] On the other hand, Payag stated that she had transacted with Dingding’s Jewelry Shop on at least 10 previews occasions, always through Marilou.[28] The preponderance of evidence supports the view that Marilou and Zenon Santos were employed at Dingding’s Jewelry Shop in order to perform activities which were usually necessary or desirable in its business.[29]

We therefore hold that an obligation to pay actual damages arose in favor of the petitioner against the respondents spouses who admittedly owned and managed Dingding’s Jewelry Shop. It was proven that petitioner replaced the damaged jewelry in the amount of P30,000.[30]

The facts of the case also justify the award of moral damages. As a general rule, moral damages are not recoverable in actions for damages predicated on a breach of contract for it is not one of the items enumerated under Article 2219 of the Civil Code.[31] Moral damages may be awarded in a breach of contract only when there is proof that defendant acted in bad faith, or was guilty of gross negligence amounting

to bad faith, or in wanton disregard of his contractual obligation.[32] Santos was a goldsmith for more than 40 years.[33] Given his long experience in the trade, he should have known that using a pair of pliers instead of a miniature wire saw in dismounting a precious stone like a diamond would have entailed an unnecessary risk of breakage. He went on with it anyway. Hence, respondent spouses are liable for P10,000 as moral damages due to the gross negligence of their employee.

However, private respondent’s refusal to pay the value of the damaged jewelry emanated from an honest belief that they were not responsible therefor, hence, negating any basis for the award of attorney’s fees.[34]

WHEREFORE, the instant petition is GRANTED and the assailed decision of the Court of Appeals dated November 26, 1999 is hereby reversed and set aside. Private respondents Luis Cabrido and Rose Sun-Cabrido are hereby ordered to pay, jointly and severally, the amount of P30,000 as actual damages and P10,000 as moral damages in favor of the petitioner.

No costs.SO ORDERED.

G.R. No. 138123 March 12, 2002MINDEX RESOURCES DEVELOPMENT, petitioner, vs.EPHRAIM

MORILLO, respondent.PANGANIBAN, J.:Attorney’s fees cannot be granted simply because one was compelled

to sue to protect and enforce one’s right. The grant must be proven by facts; it cannot depend on mere speculation or conjecture -- its basis must be stated in the text of the decision.

The CaseBefore us is a Petition for Review under Rule 45 of the Rules of

Court, assailing the March 26, 1999 Decision1 of the Court of Appeals (CA) in CA-GR CV No. 46967. The dispositive portion of the challenged Decision reads as follows:

"WHEREFORE, the appealed decision is AFFIRMED with MODIFICATION that the legal interest to be paid on the rentals of P76,000.00 and costs of repair in the amount of P132,750.00 is six (6%) percent per annum from June 22, 1994, the date of the decision of the court a quo to the date of its finality. Thereafter, if the amounts adjudged remain unpaid, the interest rate shall be twelve (12%) percent per annum from the date of finality of the decision until fully paid."2

The FactsThe factual antecedents of the case are summarized by the CA in this

wise:"On February 1991, a verbal agreement was entered into between

Ephraim Morillo and Mindex Resources Corporation (MINDEX for brevity) for the lease of the former’s 6 x 6 ten-wheeler cargo truck for use in MINDEX’s mining operations in Binaybay, Bigaan, San Teodoro, Oriental Mindoro, at the stipulated rental of ‘P300.00 per hour for a minimum of eight hours a day or a total of P2,400.00 daily.’ MINDEX had been paying the rentals until April 10, 1991.1âwphi1.nêt

"Unknown to Morillo, on April 11, 1991, the truck was burned by unidentified persons while it was parked unattended at Sitio Aras, Bigaan, San Teodoro, Oriental Mindoro, due to mechanical trouble. The findings of the Mindoro Oriental Integrated National Police in their investigation report read:

‘3. On 121005H April 1991, Mr Alexander Roxas, project coordinator of MINDEX MINING CORP. reported to this office that on the morning of 12 April 1991 while he was supposed to report for his Work at their office at Sitio Tibonbon, Bigaan, San Teodoro, Oriental Mindoro, he x x x noticed that their hired 6 x 6 Ten wheeler Cargo Truck temporarily parked at Sitio Aras, Bigaan, San Teodoro, Oriental Mindoro for aplha Engine Trouble was burned on the night of April 11, 1991 by still unidentified person.

‘x x x x x x x x x‘5. x x x Based also on the facts gathered and incident scene

searched it was also found out that said 6 x 6 Ten Wheeler Cargo Truck was burned by means of using coconut leaves and as a result of which said 6 x 6 was totally burned excluding the engine which was partially damaged by still undetermined amount.’

"Upon learning of the burning incident, Morillo offered to sell the truck to MINDEX but the latter refused. Instead, it replaced the vehicle’s burned tires and had it towed to a shop for repair and overhauling.

"On April 15, 1991, Morillo sent a letter to Mr. Arni Isberg, the Finance Manager of MINDEX, thru Mr. Ramoncito Gozar, Project Manager, proposing the following:

‘x x x x x x x x x‘I have written to let you know that I am entrusting to you the said

vehicle in the amount of P275,000.00 which is its cost price. I will not charge your company for the encumbrance of P76,800+ since you used it as my friendly gesture on account of the unforeseen adversity.

‘In view of the tragic happening, I am asking you to pay us, in a way which will not be hard for you to settle to pay us in four installment monthly as follows:

‘First payment - April 25/91

‘Second payment - May 15/91

‘Third payme(n)t - June 15/91

‘Fourth payme(n)t - July 15/91

TOTAL

‘I promise to relinquish all the necessary documents upon full payment of said account.

‘x x x x x x x x x"Through Mr. Gozar, MINDEX responded by a handwritten letter to

his cousin Malou (wife of Ephraim Morillo), expressing their reservations on the above demands due to their tight financial situation. However, he made the following counter offers:

‘a) Pay the rental of the 6 x 6 truck (actual) in the amount of P76,000.00.

‘b) Repair and overhaul the truck on our own expenses and;‘c) Return it to you on (A1) good running condition after repair.’"Morillo replied on April 18, 1991, (1) that he will relinquish to

MINDEX the damaged truck; (2) that he is amenable to receive the rental in the amount of P76,000.00; and (3) that MINDEX will pay fifty thousand pesos (P50,000.00) monthly until the balance of P275,000.00 is fully paid. It is noteworthy that except for his acceptance of the proffered P76,000.00 unpaid rentals, Morillo’s stand has virtually not been changed as he merely lowered the first payment on the P275,000.00 valuation of the truck from P150,000.00 to P50,000.00.

"The parties had since remained intransigent and so on August 1991, Morillo pulled out the truck from the repair shop of MINDEX and had it repaired elsewhere for which he spent the total amount of P132,750.00."3

(Citations omitted)Ruling of the Trial CourtAfter evaluating the evidence adduced by both parties, the Regional

Trial Court (RTC) found petitioner responsible for the destruction or loss of the leased 6 x 6 truck and ordered it to pay respondent (1) P76,000 as balance of the unpaid rental for the 6 x 6 truck with interest of 12 percent from June 22, 1994 (the rendition of the judgment) up to the payment of the amount; (2) P132,750 representing the costs of repair and overhaul of the said truck, with interest rate of 12 percent until fully paid; and (3) P20,000 as attorney’s fees for compelling respondent to secure the services of counsel in filing his Complaint.

Ruling of the Court of AppealsThe appellate court sustained the RTC’s finding that petitioner was

not without fault for the loss and destruction of the truck and, thus, liable therefor. The CA said:

"The burning of the subject truck was impossible to foresee, but not impossible to avoid. MINDEX could have prevented the incident by immediately towing the truck to a motor shop for the needed repair or by having it guarded day and night. Instead, the appellant just left the vehicle where its transfer case broke down. The place was about twelve (12) kilometers away from the camp site of the appellant corporation and was sparsely populated. It was guarded only during daytime. It stayed in that place for two (2) weeks until it was burned on April 11, 1991 while its transfer case was being repaired elsewhere. It was only after it had been burned that the appellant had it towed to a repair shop.

"The appellant [respondent] was thus not free from fault for the burning of the truck. It miserably failed to overcome the presumption of negligence against it. Neither did it rescind the lease over the truck upon its burning. On the contrary, it offered to pay P76,000.00 as rentals. It did not also complete the needed repair. Hence, the appellee was forced to pull out the truck and had it repaired at his own expense. Since under the law, the ‘lessee shall return the thing leased, upon the termination of the lease, just as he receive it, ‘the appellant stands liable for the expenses incurred for the repair in the aggregate amount of P132,750.00."4

Nevertheless, the appellate court modified the Decision of the trial court. The 12 percent interest rate on the P76,000 rentals and the

P132,750 repair costs, imposed by the RTC, was changed by the CA to 6 percent per annum from June 22, 1994 to the date of finality of the said Decision; and 12 percent per annum thereafter, if the amounts adjudged would remain unpaid from such date of finality until the rentals and the repair costs were fully paid. It affirmed the award of attorney’s fees.

Hence, this Petition.5

IssuesIn its Memorandum, petitioner raises the following issues for the

Court’s consideration:"4.1. Whether or not the Court of Appeals gravely erred in finding that

petitioner failed to overcome the presumption of negligence against it considering that the facts show, as admitted by the respondent, that the burning of the truck was a fortuitous event.

"4.2. Whether or not the Court of Appeals gravely erred in affirming the decision of the trial court finding petitioner liable to pay unpaid rentals and cost of repairs.

"4.3. Whether or not the Court of Appeals also erred in affirming the decision of the trial court finding petitioner liable to pay attorney’s fees."6

This Court’s RulingThe Petition is partly meritorious; the award of attorney’s fees should

be deleted.First Issue:Petitioner’s NegligencePetitioner claims that the burning of the truck was a fortuitous event,

for which it should not be held liable pursuant to Article 11747 of the Civil Code. Moreover, the letter of respondent dated April 15, 1991, stating that the burning of the truck was an "unforeseen adversity," was an admission that should exculpate the former from liability.

We are not convinced. Both the RTC and the CA found petitioner negligent and thus liable for the loss or destruction of the leased truck. True, both parties may have suffered from the burning of the truck; however, as found by both lower courts, the negligence of petitioner makes it responsible for the loss. Well-settled is the rule that factual findings of the trial court, particularly when affirmed by the Court of Appeals, are binding on the Supreme Court. Contrary to its allegations, petitioner has not adequately shown that the RTC and the CA overlooked or disregarded significant facts and circumstances that, when considered, would alter the outcome of the disposition.8 Article 1667 of the Civil Code9

holds lessees responsible for the deterioration or loss of the thing leased, unless they prove that it took place without their fault.

Fortuitous EventIn order for a fortuitous event to exempt one from liability, it is

necessary that one has committed no negligence or misconduct that may have occasioned the loss.10 An act of God cannot be invoked to protect a person who has failed to take steps to forestall the possible adverse consequences of such a loss. One’s negligence may have concurred with an act of God in producing damage and injury to another; nonetheless, showing that the immediate or proximate cause of the damage or injury was a fortuitous event would not exempt one from liability. When the effect is found to be partly the result of a person’s participation -- whether by active intervention, neglect or failure to act -- the whole occurrence is humanized and removed from the rules applicable to acts of God.11

This often-invoked doctrine of "fortuitous event" or "caso fortuito" has become a convenient and easy defense to exculpate an obligor from liability. To constitute a fortuitous event, the following elements must concur: (a) the cause of the unforeseen and unexpected occurrence or of the failure of the debtor to comply with obligations must be independent of human will; (b) it must be impossible to foresee the event that constitutes the caso fortuito or, if it can be foreseen, it must be impossible to avoid; (c) the occurrence must be such as to render it impossible for the debtor to fulfill obligations in a normal manner; and (d) the obligor must be free from any participation in the aggravation of the injury or loss.12

Article 1174 of the Civil Code states that no person shall be responsible for a fortuitous event that could not be foreseen or, though foreseen, was inevitable. In other words, there must be an exclusion of human intervention from the cause of injury or loss.13

A review of the records clearly shows that petitioner failed to exercise reasonable care and caution that an ordinarily prudent person would have used in the same situation. Witness Alexander Roxas testified how petitioner fell short of ordinary diligence in safeguarding the leased truck against the accident, which could have been avoided in the first place. Pertinent portions of his testimony are reproduced hereunder:

"ATTY. ACERONQ Now, this Barangay Aras where the 6 x 6 truck had

transmission trouble, how far is it from the camp site of the defendant corporation?

ALEXANDER ROXASA Twelve (12) kilometers, more or less, sir.Q Is this Barangay Aras populated?A Not so many, sir.Q The place where the 6 x 6 truck had transmission trouble, how

far is the nearest house from it?A Perhaps three hundred meters, sir.

Q And how many houses are within the three hundred meter radius from the place where the truck had engine trouble?

A Ten, more or less, in scattered.Q You said that after hauling several sand to be used in the camp

site the 6 x 6 truck had transmission trouble, what did the company do after the truck had that engine trouble?

A For at least two weeks the truck was installed in the place where the said truck had engine trouble.

Q Meaning in Barangay Aras?A Yes, sir.Q Was there any guard in that place by the company during the

time that the truck was in that place?A Yes, sir, during daytime but at nighttime, there was no guard.Q What happened to that 6 x 6 truck?A In the month of March, 1991, the company dismissed thirteen

(13) to seventeen (17) employees and these employees came from Barangays Aras, Botolan, Calsapa, Camatis and Tibonbon and on Aril 11, 1991, the 6 x 6 truck was burned.

Q How did you come to know that the 6 x 6 truck was burned on April 11, 1991?

A I together with my daughter, I met the service of the company near the ORMECO and I was informed by the Project Engineer that the 6 x 6 truck was burned, so, we returned to San Teodoro and have the incident blottered at the police station.

Q Aside from that, what other action did you undertake in connection with the burning of the 6 x 6 truck?

A When we were at the police station, the Project Manager of the company arrived and from the police station we proceeded to the place where the 6 x 6 truck was burned and the Project Manager took pictures of the 6 x 6 truck.

Q Now, did you come to know who was responsible or who were responsible for the burning of the 6 x 6 truck?

A The responsible is the Mindex Resources Development Corporation, and as far as I know, the persons who actually burned the said 6 x 6 truck were the dismissed employees of the Mindex Resources Development Corporation.

Q These dismissed employees of the corporation, why were they employed by the corporation?

A Because we have to make a road going to the mining site and in the process of opening the road these dismissed employees happened to be the owners of the land where the road will pass, so, we paid the land. The corporation likewise gave jobs to the owners of the land."14

As can be gleaned from the foregoing testimony, petitioner failed to employ reasonable foresight, diligence and care that would have exempted it from liability resulting from the burning of the truck. Negligence, as commonly understood, is that conduct that naturally or reasonably creates undue risk or harm to others. It may be a failure to observe that degree of care, precaution or vigilance that the circumstances justly demand;15 or to do any other act that would be done by a prudent and reasonable person, who is guided by considerations that ordinarily regulate the conduct of human affairs.16

Second Issue:Unpaid Rentals and Cost of RepairsPetitioner proceeds to argue that "it should be deemed to have

already paid the unpaid rentals in the amount of P76,000.00," and that it should not be made to pay the P132,750 repair and overhaul costs. Nothing in the records, not even in the documentary evidence it presented, would show that it already paid the aforesaid amounts. In fact, it seeks to avoid payment of the rental by alleging that respondent already condoned it in his letter dated April 15, 1991. However, a perusal of the letter would show that his offer not to charge petitioner for the P76,000 rental was premised on the condition that it would buy the truck.17

Moreover, the RTC based the P76,000 rental and the costs of repair and overhaul on Exhibit "B," wherein Chito Gozar, the Project Manager of Mindex Resources Development Corporation, proposed through a letter dated April 17, 1991, the following: (1) to pay the P76,000 rental, (2) to repair the truck at the expense of petitioner, and (3) to return the truck in good running condition after the repair.

Likewise, the nonpayment of the said amount was corroborated by Roxas thus:

"Q During that time when the 6 x 6 truck was already burned and when you went to the Petron Gasoline Station to inform plaintiff about the burning, was the plaintiff paid any amount for the rental of the 6 x 6 truck?

A: Before the burning of the 6 x 6 truck, the plaintiff Morillo was already paid partially and there was a balance of P76,000.00."18

The P132,750 repair and overhaul costs was correctly granted by the lower courts. Article 1667 of the Civil Code holds the lessee responsible for the deterioration or loss of the thing leased. In addition, Article 1665 of the same Code provides that "the lessee shall return the thing leased, upon the termination of the lease, just as he received it, save what has been lost or impaired by the lapse of time, or by ordinary wear and tear, or from an inevitable cause."

Courts begin with the assumption that compensatory damages are for pecuniary losses that result from an act or omission of the defendant.

Having been found to be negligent in safeguarding the leased truck, petitioner must shoulder its repair and overhaul costs to make it serviceable again. Such expenses are duly supported by receipts; thus, the award of P132,750 is definitely in order.

Third Issue:Attorney’s FeesWe find the award of attorney’s fees to be improper. The reason

which the RTC gave -- because petitioner had compelled respondent to file an action against it -- falls short of our requirement in Scott Consultants and Resource Development v. CA,19 from which we quote:

"It is settled that the award of attorney’s fees is the exception rather than the rule and counsel’s fees are not to be awarded every time a party wins suit. The power of the court to award attorney’s fees under Article 2208 of the Civil Code demands factual, legal, and equitable justification; its basis cannot be left to speculation or conjecture. Where granted, the court must explicitly state in the body of the decision, and not only in the dispositive portion thereof, the legal reason for the award of attorney’s fees."

Moreover, a recent case20 ruled that "in the absence of stipulation, a winning party may be awarded attorney’s fees only in case plaintiff’s action or defendant’s stand is so untenable as to amount to gross and evident bad faith."

Indeed, respondent was compelled to file this suit to vindicate his rights. However, such fact by itself will not justify an award of attorney’s fees, when there is no sufficient showing of petitioner’s bad faith in refusing to pay the said rentals as well as the repair and overhaul costs.21

WHEREFORE, the Petition is DENIED, but the assailed CA Decision is MODIFIED by DELETING the award of attorney’s fees. Costs against petitioner.

SO ORDERED.

G.R. Nos. 81100-01 February 7, 1990BACOLOD-MURCIA MILLING CO., INC., petitioner, vs.HON. COURT

OF APPEALS AND ALONSO GATUSLAO, respondents.BACOLOD-MURCIA MILLING CO., INC., petitioner, vs.HON. COURT

OF APPEALS, ALONSO GATUSLAO, AGRO-INDUSTRIAL DEVELOPMENT OF SILAY-SARAVIA (AIDSISA) AND BACOLOD-MURCIA AGRICULTURAL COOPERATIVE MARKETING ASSOCIATION (BM-ACMA), respondents.

Jalandoni, Herrera, Del Castillo & Associates for petitioner.Tañada, Vico & Tan for respondent AIDSISA.San Juan, Gonzalez, San Agustin & Sinense for respondents Alfonso

Gatuslao and BM-ACMA.PARAS, J.:This is a petition for review on certiorari of the decision of the Court of

Appeals in CA-G.R. CV Nos. 59716-59717 promulgated on September 11, 1987 affirming in toto the decision of the Court of First Instance of Negros Occidental in two consolidated civil cases, the dispositive portion of which reads as follows:

PREMISES CONSIDERED, the decision appealed from is hereby affirmed in toto.

The uncontroverted facts of the case 1 are as follows:1. xxx xxx xxx2. BMMC is the owner and operator of the sugar central in Bacolod

City, Philippines;3. ALONSO GATUSLAO is a registered planter of the Bacolod-Murcia

Mill District with Plantation Audit No. 3-79, being a registered owner of Lot Nos. 310, 140, 141 and 101-A of the Cadastral Survey of Murcia, Negros Occidental, otherwise known as Hda. San Roque;

4. On May 24, 1957 BMMC and Alonso Gatuslao executed an 'Extension and Modification of Milling Contract (Annex 'A' of the complaint in both cases) which was registered on September 17, 1962 in the Office of the Register of Deeds of Negros Occidental, and annotated on Transfer Certificates of Title Nos. T-24207, RT-2252, RT-12035, and RT-12036 covering said Lot Nos. 310, 140, 141 and 101-A;

5. That since the crop year 1957-1958 up to crop year 1967-1968, inclusive, Alonso Gatuslao has been milling all the sugarcane grown and produced on said Lot Nos. 310, 140, 141 and 101-A with the Mill of BMMC;.

6. Since the crop year 1920-21 to crop year 1967-1968, inclusive, the canes of planters adhered to the mill of BMMC were transported from the plantation to the mill by means of cane cars and through railway system operated by BMMC;

7. The loading points at which planters Alonso Gatuslao was and should deliver and load all his canes produced in his plantation, Hda. San Roque, were at the Arimas Line, Switch 2, and from which loading stations, BMMC had been hauling planter Gatuslao's sugar cane to its mill or factory continuously until the crop year 1967-68;

8. BMMC had not been able to use its cane cars and railway system for the cargo crop year 1968-1969;

9. Planter Alonso Gatuslao on various dates requested transportation facilities of BMMC to be sent to his loading stations or switches for purposes of hauling and milling his sugarcane crops of crop year 1968-1969;

10. The estimated gross production of Hda. San Roque for the crop year 1968-1969 is 4,500 piculs.

The records show that since the crop year 1920-1921 to the crop year 1967-1968, the canes of the adhered planters were transported from the plantation to the mill of BMMC by means of cane cars and through a railway system operated by BMMC which traversed the land of the adherent planters, corresponding to the rights of way on their lands granted by the planters to the Central for the duration of the milling contracts which is for "un periodo de cuarenta y cinco anos o cosechas a contar desde la cosecha de 1920-1921" 2 (a period of 45 years or harvests, beginning with a harvest of 1920-1921).

BMMC constructed the railroad tracks in 1920 and the adherent planters granted the BMMC a right of way over their lands as provided for in the milling contracts. The owners of the hacienda Helvetia were among the signatories of the milling contracts. When their milling contracts with petitioner BMMC expired at the end of the 1964-1965 crop year, the corresponding right of way of the owners of the hacienda Helvetia granted to the Central also expired.

Thus, the BMMC was unable to use its railroad facilities during the crop year 1968-1969 due to the closure in 1968 of the portion of the railway traversing the hacienda Helvetia as per decision of the Court in Angela Estate, Inc. and Fernando F. Gonzaga, Inc. v. Court of First Instance of Negros Occidental, G.R. No. L-27084, (24 SCRA 500 [1968]). In the same case the Court ruled that the Central's conventional right of way over the hacienda Helvetia ceased with the expiration of its amended milling contracts with the landowners of the hacienda at the end of the 1964-1965 crop year and that in the absence of a renewal contract or the establishment of a compulsory servitude of right of way on the same spot and route which must be predicated on the satisfaction of the preconditions required by law, there subsists no right of way to be protected.

Consequently, the owners of the hacienda Helvetia required the Central to remove the railway tracks in the hacienda occupying at least 3,245 lineal meters with a width of 7 meters or a total of 22,715 square meters, more or less. That was the natural consequence of the expiration of the milling contracts with the landowners of the hacienda Helvetia (Angela Estate, Inc. and Fernando Gonzaga, Inc. v. Court of First Instance of Negros Occidental, ibid). BMMC filed a complaint for legal easement against the owners of the hacienda, with the Court of First Instance of Negros Occidental which issued on October 4, 1965 an ex parte writ of preliminary injunction restraining the landowners from reversing and/or destroying the railroad tracks in question and from impeding, obstructing or in any way preventing the passage and operation of plaintiffs locomotives and cane cars over defendants' property during the pendency of the litigation and maintained the same in its subsequent orders of May 31, and November 26, 1966. The outcome of the case, however, was not favorable to the plaintiff BMMC. In the same case the landowners asked this Court to restrain the lower court from enforcing the writ of preliminary injunction it issued, praying that after the hearing on the merits, the restraining order be made permanent and the orders complained of be annulled and set aside. The Court gave due course to the landowner's petition and on August 10, 1967 issued the writ of preliminary injunction enjoining the lower court from enforcing the writ of preliminary injunction issued by the latter on October 4, 1965.

The writ of preliminary injunction issued by the Court was lifted temporarily on motion that through the mediation of the President of the Philippines the Angela Estate and the Gonzaga Estate agreed with the Central to allow the use of the railroad tracks passing through the hacienda Helvetia during the 1967-1968 milling season only, for the same purpose for which they had been previously used, but it was understood that the lifting of the writ was without prejudice to the respective rights and positions of the parties in the case and not deemed a waiver of any of their respective claims and allegations in G.R. No. L-27084 or in any other case between the same parties, future or pending. The Court resolved to approve the motion only up to and including June 30, 1968 to give effect to the agreement but to be deemed automatically reinstated beginning July 1, 1968 (Angela Estate, Inc. and Fernando F. Gonzaga, Inc. v. Court of First Instance of Negros Occidental, ibid.).

The temporary lifting of the writ of preliminary injunction assured the milling of the 1967-1968 crop but not the produce of the succeeding crop years which situation was duly communicated by the President and General Manager of the BMMC to the President of Bacolod-Murcia Sugar Farmers Corporation (BMSFC) on January 2, 1968. 3

On October 30, 1968, Alonso Gatuslao, one of private respondents herein, and his wife, Maria H. Gatuslao, filed Civil Case No. 8719 in the Court of First Instance of Negros Occidental, against petitioner herein, Bacolod-Murcia Milling Co., Inc. (BMMC), for breach of contract, praying among others, for the issuance of a writ of preliminary mandatory injunction ordering defendant to immediately send transportation facilities and haul the already cut sugarcane to the mill site and principally praying

after hearing, that judgment be rendered declaring the rescission of the milling contract executed by plaintiffs and defendant in 1957 for seventeen (17) years or up to crop year 1973-74, invoking as ground the alleged failure and/or inability of defendant to comply with its specific obligation of providing the necessary transportation facilities to haul the sugarcane of Gatuslao from plaintiffs plantation specifically for the crop year 1967-1968. Plaintiffs further prayed for the recovery of actual and compensatory damages as well as moral and exemplary damages and attorney's fees. 4

In answer, defendant BMMC claimed that despite its inability to use its railways system for its locomotives and cane cars to haul the sugarcanes of all its adhered planters including plaintiffs for the 1968-69 crop year allegedly due to force majeure, in order to comply with its obligation, defendant hired at tremendous expense, private trucks as prime movers for its trailers to be used for hauling of the canes, especially for those who applied for and requested transportation facilities. Plaintiffs, being one of said planters, instead of loading their cut canes for the 1968-69 crop on the cargo trucks of defendant, loaded their cut canes on trucks provided by the Bacolod-Murcia Agricultural Cooperative Marketing Association, Inc. (B-M ACMA) which transported plaintiffs' canes of the 1968-69 sugarcanes crop. Defendant prayed in its counterclaim for the dismissal of Civil Case No. 8719 for the recovery of actual damages, moral and exemplary damages and for attorney's fees. 5

On November 21, 1968, BMMC filed in the same court Civil Case No. 8745 against Alonso Gatuslao, the Agro-Industrial Development of Silay-Saravia (AIDSISA) and the Bacolod-Murcia Agricultural Cooperative Marketing Associations, Inc. (B-M ACMA), seeking specific performance under the mining contract executed on May 24, 1957 between plaintiff and defendant Alonso Gatuslao praying for the issuance of writs of preliminary mandatory injunction to stop the alleged violation of the contract by defendant Alonso Gatuslao in confederation, collaboration and connivance with defendant BM-ACMA, AIDSISA, and for the recovery of actual, moral and exemplary damages and attorney's fees. 6

Defendant Alonso Gatuslao and the Bacolod-Murcia Agricultural Cooperative Marketing Association, Inc. filed their answer on January 27, 1969 with compulsory counter-claims, stating by way of special and affirmative defense, among others, that the case is barred by another action pending between the same parties for the same cause of action. 7

Defendant Agro-Industrial Development Corporation of Silay-Saravia, Inc. filed its answer on February 8, 1969, alleging among others by way of affirmative defense that before it agreed to mill the sugarcane of its co-defendant Alonso Gatuslao, it carefully ascertained and believed in good faith that: (a) plaintiff was incapable of the sugarcane of AIDSISA's co-defendant planters as well as the sugarcane of other planters formerly adherent to plaintiff, (b) plaintiff had in effect agreed to a rescission of its milling contracts with its adhered planters, including the defendant planter, because of inadequate means of transportation. and had warned and advised them to mill their sugarcane elsewhere, and had thus induced them to believe and act on the belief, that it could not mill their sugarcane and that it would not object to their milling with other centrals; and (c) up to now plaintiff is incapable of hauling the sugarcane of AIDSISA's co-defendants to plaintiffs mill site for milling purposes.

The two cases, Civil Cases Nos. 8719 and 8745 were consolidated for joint trial before Branch II of the Court of First Instance of Negros Occidental. 8 On September 8, 1969, the parties in both civil cases filed their partial stipulation of facts which included a statement of the issues raised by the parties. 9

On February 6, 1976, the lower court rendered judgment declaring the milling contract dated May 24, 1957 rescinded. The dispositive portion of the decision 10 reads:

WHEREFORE, judgment is hereby rendered as follows:(1) In Civil Case No. 8719 the milling contract (Exh. "121") dated May

24, 1957 is hereby declared rescinded or resolved and the defendant Bacolod-Murcia Company, Inc. is hereby ordered to pay plaintiffs Alonso Gatuslao and Maria H. Gatuslao the amount of P2,625.00 with legal interest from the time of the filing of the complaint by way of actual damages; P5,000.00 as attorney's fees and the costs of the suit; defendant's counterclaim is dismissed; and

(2) The complaint in Civil Case No. 8745 as well as the counterclaims therein are ordered dismissed, without costs.

Bacolod-Murcia Milling Co., Inc. defendant in Civil Case No. 8719 and plaintiff in Civil Case No. 8745 appealed the case to respondent Court of Appeals which affirmed in toto (Rollo, p. 81) the decision of the lower court. The motion for reconsideration filed by defendant-appellant Bacolod-Murcia Milling Company, petitioner herein, was denied by the appellate court for lack of merit. 11 Hence, this petition.

The issues 12 raised by petitioner are as follows:IWHETHER OR NOT THE CLOSURE OF PETITIONER'S RAIL

ROAD LINES CONSTITUTE FORCE MAJEURE.IIWHETHER OR NOT PRIVATE RESPONDENT GATUSLAO HAS

THE RIGHT TO RESCIND THE MILLING CONTRACT WITH PETITIONER UNDER ARTICLE 1191 OF THE CIVIL CODE.

IIIWHETHER OR NOT PRIVATE RESPONDENT GATUSLAO WAS

JUSTIFIED IN VIOLATING HIS MILLING CONTRACT WITH PETITIONER.

IVWHETHER OR NOT PRIVATE RESPONDENTS GATUSLAO AND

B-M ACMA ARE GUILTY OF BAD FAITH IN THE EXERCISE OF THEIR DUTIES AND ARE IN ESTOPPEL TO QUESTION THE ADEQUACY OF THE TRANSPORTATION FACILITIES OF PETITIONER AND ITS CAPACITY TO MILL AND HAUL THE CANES OF ITS ADHERENT PLANTERS.

The crux of the issue is whether or not the termination of petitioner's right of way over the hacienda Helvetia caused by the expiration of its amended milling contracts with the landowners of the lands in question is a fortuitous event or force majeure which will exempt petitioner BMMC from fulfillment of its contractual obligations.

It is the position of petitioner Bacolod-Murcia Milling Co., Inc. (BMMC) that the closure of its railroad lines constitute force majeure, citing Article 1174 of the Civil Code, exempting a person from liability for events which could not be foreseen or which though foreseen were inevitable.

This Court has consistently ruled that when an obligor is exempted from liability under the aforecited provision of the Civil Code for a breach of an obligation due to an act of God, the following elements must concur: (a) the cause of the breach of the obligation must be independent of the wig of the debtor; (b) the event must be either unforseeable or unavoidable; (c) the event must be such as to render it impossible for the debtor to fulfill his obligation in a normal manner; (d) the debtor must be free from any participation in, or aggravation of the injury to the creditor (Vasquez v. Court of Appeals, 138 SCRA 553 [1985]; Juan F. Nakpil & Sons v. Court of Appeals, 144 SCRA 596 [1986]). Applying the criteria to the instant case, there can be no other conclusion than that the closure of the railroad tracks does not constitute force majeure.

The terms of the milling contracts were clear and undoubtedly there was no reason for BAMC to expect otherwise. The closure of any portion of the railroad track, not necessarily in the hacienda Helvetia but in any of the properties whose owners decided not to renew their milling contracts with the Central upon their expiration, was forseeable and inevitable.

Petitioner Central should have anticipated and should have provided for the eventuality before committing itself. Under the circumstances it has no one to blame but itself and cannot now claim exemption from liability.

In the language of the law, the event must have been impossible to foresee, or if it could be foreseen, must have been impossible to avoid. There must be an entire exclusion of human agency from the cause of the injury or loss (Vasquez v. Court of Appeals, supra). In the case at bar, despite its awareness that the conventional contract of lease would expire in Crop Year 1964-1965 and that refusal on the part of any one of the landowners to renew their milling contracts and the corresponding use of the right of way on their lands would render impossible compliance of its commitments, petitioner took a calculated risk that all the landowners would renew their contracts. Unfortunately, the sugar plantation of Angela Estate, Inc. which is located at the entrance of the mill was the one which refused to renew its milling contract. As a result, the closure of the railway located inside said plantation paralyzed the entire transportation system. Thus, the closure of the railway lines was not an act of God nor does it constitute force majeure. It was due to the termination of the contractual relationships of the parties, for which petitioner is charged with knowledge. Verily, the lower court found that the Angela Estate, Inc. notified BMMC as far back as August or September 1965 of its intention not to allow the passage of the railway system thru its land after the aforesaid crop year. Adequate measures should have been adopted by BMMC to forestall such paralyzation but the records show none. All its efforts were geared toward the outcome of the court litigation but provided no solutions to the transport problem early enough in case of an adverse decision.

The last three issues being inter-related will be treated as one. Private respondent Gatuslao filed an action for rescission while BMMC filed in the same court an action against Gatuslao, the Agro Industrial Development Silay Saravia (AIDSISA) and the Bacolod-Murcia Agricultural Cooperative Marketing Associations, Inc. (B-M ACMA) for specific performance under the milling contract.

There is no question that the contract in question involves reciprocal obligations; as such party is a debtor and creditor of the other, such that the obligation of one is dependent upon the obligation of the other. They are to be performed simultaneously so that the performance of one is conditioned upon the simultaneous fulfillment of the other (Boysaw v. Interphil Promotions, Inc., 148 SCRA 643 [1987]).

Under Article 1191 of the Civil Code, the power to rescind obligations is implied in reciprocal ones in case one of the obligors should not comply with what is incumbent upon him. In fact, it is well established that the party who deems the contract violated may consider it revoked or rescinded pursuant to their agreement and act accordingly, even without previous court action (U.P. v. de los Angeles, 35 SCRA 102 [1970]; Luzon Brokerage Co., Inc. v. Maritime Building Co., Inc., 43 SCRA 94 [1972]).

It is the general rule, however, that rescission of a contract will not be permitted for a slight or casual breach, but only for such substantial and fundamental breach as would defeat the very object of the parties in making the agreement. The question of whether a breach of a contract is substantial depends upon the attendant circumstances (Universal Food Corporation v. Court of Appeals, et al., 33 SCRA 1 [1970]).

The issue therefore, hinges on who is guilty of the breach of the milling contract.

Both parties are agreed that time is of the essence in the sugar industry; so that the sugarcanes have to be milled at the right time, not too early or too late, if the quantity and quality of the juice are to be assured. As found by the trial court, upon the execution of the amended milling contract on May 24, 1957 for a period of 17 crop years, BMMC undertook expressly among its principal prestations not only to mill Gatuslao's canes but to haul them by railway from the loading stations to the mill. Atty. Solidum, Chief Legal Counsel and in Charge of the Legal-Crop Loan Department of the BMMC Bacolod City admits that the mode of transportation of canes from the fields to the mill is a vital factor in the sugar industry; precisely for this reason the mode of transportation or hauling the canes is embodied in the milling contract. 13 But BMMC is now unable to haul the canes by railways as stipulated because of the closure of the railway lines; so that resolution of this issue ultimately rests on whether or not BMMC was able to provide adequate and efficient transportation facilities of the canes of Gatuslao and the other planters milling with BMMC during the crop year 1968-1969. As found by both the trial court and the Court of Appeals, the answer is in the negative.

Armando Guanzon, Dispatcher of the Transportation Department of BMMC testified that when the Central was still using the railway lines, it had between 900 to 1,000 cane cars and 10 locomotives, each locomotive pulling from 30 to 50 cane cars with maximum capacity of 8 tons each. 14 This testimony was corroborated by Rodolfo Javelosa, Assistant Crop Loan Inspector in the Crop Loan Department of petitioner. 15 After the closure of the railway lines, petitioner on February 5, 1968 through its President and General Manager, informed the National Committee of the National Federation of Sugarcane Planters that the trucking requirement for hauling adherent planters produce with a milling average of 3,500 tons of canes daily at an average load of 5 tons per truck is not less than 700 trucks daily plus another 700 empty trucks to be shuttled back to the plantations to be available for loading the same day. 16 Guanzon, however, testified that petitioner had only 280 units of trailers, 20 tractors and 3 trucks plus 20 trucks more or less hired by the Central and given as repartos (allotments) to the different planters. 17 The 180 trailers that the Central initially had were permanently leased to some planters who had their own cargo trucks while out of the 250 BMMC trailers existing during the entire milling season only 70 were left available to the rest of the planters pulled by 3 trucks. 18

It is true that BMMC purchased 20 units John Deere Tractors (prime movers) and 230 units, Vanguard Trailers with land capacity of 3 tons each but that was only on October 1968 as registered in the Land Transportation Commission, Bacolod City. 19

The evidence shows that great efforts had been exerted by the planters to enter into some concrete understanding with BMMC with a view of obtaining a reasonable assurance that the latter would be able to haul and mill their canes for the 1968-1969 crop year, but to no avail. 20

As admitted by BMMC itself, in its communications with the planters, it is not in a position to provide adequate transportation for the canes in compliance with its commitment under the milling contract. Said communications 21 were quoted by the Court of Appeals as follows:

We are sorry to inform you that unless we can work out a fair and equitable solution to this problem of closure of our railroad lines, the milling of your canes for the crop year 1968-69 would be greatly hampered to the great detriment of our economy and the near elimination of the means of livelihood of most planters and the possible starvation of thousands of laborers working in the sugar District of Bacolod-Murcia Milling Co.

andWe are fully conscious of our contractual obligations to our existing

Milling Contract. But, if prevented by judicial order we will find ourselves unable to serve you in the hauling of the canes through our railroad lines. It is for this reason that we suggest you explore other solutions to the problem in the face of such an eventuality so that you may be able to proceed with the planting of your canes with absolute peace of mind and the certainty that the same will be properly milled and not left to rot in the fields.

also,In the meantime, and before July 1, 1968, the end of the temporary

arrangement we have with Fernando Gonzaga, Inc. and the Angela Estate, Inc. for the use of the rights of ways, our lawyers are studying the possibility of getting a new injunction from the Supreme Court or the Court of First Instance of Negros Occidental based on the new grounds interposed in said memorandum not heretofore raised previously nor in the Capitol Subdivision case. And if we are doing this, it is principally to prevent any injury to your crops or foreclosure of your property, which is just in line with the object of your plans.

On March 26, 1968 the President of the Bacolod-Murcia Sugar Farmer's Corporation writing on behalf of its planter-members demanded to know the plans of the Central for the crop year 1968-1969, stating that if they fail to hear from the Central on or before the 15th of April they will feel free to make their own plans in order to save their crops and the possibility of foreclosure of their properties. 22

In its letter dated April 1, 1968, the president of BMMC simply informed the Bacolod-Murcia Sugar Farmer's Corporation that they were studying the possibility of getting a new injunction from the court before expiration of their temporary arrangement with Fernando Gonzaga, Inc. and the Angela Estate, Inc. 23

Pressing for a more definite commitment (not a mere hope or expectation), on May 30, 1968 the Bacolod-Murcia Sugar Farmer's Corporation requested the Central to put up a performance bond in the amount of P13 million within a 5-day period to allay the fears of the planters that their sugar canes can not be milled at the Central in the coming milling season. 24

BMMC's reply was only to express optimism over the final outcome of its pending cases in court.

Hence, what actually happened afterwards is that petitioner failed to provide adequate transportation facilities to Gatuslao and other adherent planters.

As found by the trial court, the experience of Alfonso Gatuslao at the start of the 1968-1969 milling season is reflective of the inadequacies of the reparto or trailer allotment as well as the state of unpreparedness on the part of BMMC to meet the problem posed by the closure of the railway lines.

It was established that after Gatuslao had cut his sugarcanes for hauling, no trailers arrived and when two trailers finally arrived on October 20, 1968 after several unheeded requests, they were left on the national highway about one (1) kilometer away from the loading station. Such fact was confirmed by Carlos Butog the driver of the truck that hauled the trailers. 25

Still further, Javelosa, Assistant Crop Loan Inspector, testified that the estimated production of Gatuslao for the crop year 1968-1969 was 4,400 piculs hauled by 10 cane cars a week with a maximum capacity of 8 tons. 26 Compared with his later schedule of only one trailer a week with a maximum capacity of only 3 to 4 tons, 27 there appears to be no question that the means of transportation provided by BMMC is very inadequate to answer the needs of Gatuslao.

Undoubtedly, BMMC is guilty of breach of the conditions of the milling contract and that Gatuslao is the injured party. Under the same Article 1191 of the Civil Code, the injured party may choose between the fulfillment and the rescission of the obligation, with the payment of damages in either case. In fact, he may also seek rescission even after he had chosen fulfillment if the latter should become impossible.

Under the foregoing, Gatuslao has the right to rescind the milling contract and neither the court a quo erred in decreeing the rescission claimed nor the Court of Appeals in affirming the same.

Conversely, BMMC cannot claim enforcement of the contract. As ruled by this Court, by virtue of the violations of the terms of the contract, the offending party has forfeited any right to its enforcement (Boysaw v. Interphil Promotions, Inc., 148 SCRA 645 [1987]).

Likewise, the Bacolod-Murcia Agricultural Cooperative Marketing Association, Inc. (B-M ACMA) cannot be faulted for organizing itself to take care of the needs of its members. Definitely, it was organized at that time when petitioner could not assure the planters that it could definitely haul and mill their canes. More importantly, as mentioned earlier in a letter dated January 12, 1968, J. Araneta, President & General Manager of the Central itself suggested to the Bacolod-Murcia Sugar Farmer's Corporation that it explore solutions to the problem of hauling the canes to the milling station in the face of the eventuality of a judicial order permanently closing the railroad lines so that the planters may be able to proceed with their planting of the canes with absolute peace of mind and the certainty that they will be properly milled and not left to rot in the fields. As a result, the signing of the milling contract between private respondents AIDSISA and B-M-ACMA on June 19, 1968 28 was a matter of self-preservation inasmuch as the sugarcanes were already matured and the planters had crop loans to pay. Further delay would mean tremendous losses. 29

In its defense AIDSISA stressed as earlier stated, that it agreed to mill the sugarcanes of Gatuslao only after it had carefully ascertained and believed in good faith that BMMC was incapable of milling the sugarcanes of the adherent planters because of inadequate transportation and in fact up to now said Central is incapable of hauling the sugarcanes of the said planters to its mill site for milling purposes.

As an extra precaution, AIDSISA provided in paragraph 15 30 of its milling contract that—

If any member of the planter has an existing milling contract with other sugar central, then this milling contract with the Central shall be of no force and effect with respect to that member or those members having such contract, if that other sugar central is able, ready and willing, to mill said member or members' canes in accordance with their said milling contract. (Emphasis supplied)

The President of BANC himself induced the planters to believe and to act on the belief that said Central would not object to the milling of their canes with other centrals.

Under the circumstances, no evidence of bad faith on the part of private respondents could be found much less any plausible reason to disturb the findings and conclusions of the trial court and the Court of Appeals.

PREMISES CONSIDERED, the petition is hereby DENIED for lack of merit and the decision of the Court of Appeals is hereby AFFIRMED in toto.

SO ORDERED.