Philcomsat vs. Globe Telecom, Inc.

A fortuitous event under Article 1174 of the Civil Code includes not only unforeseeable events but also those which are foreseeable but inevitable, and contractual stipulations expanding the concept of force majeure are valid provided they do not contravene law, morals, good customs, public order, or public policy.

Globe Telecom, as a local service provider for the US Defense Communications Agency (USDCA), contracted with Philcomsat to establish and operate an earth station at Cubi Point, Zambales, for the exclusive use of the USDCA under a 60-month agreement. At the time of execution, both parties were aware that the RP-US Military Bases Agreement was set to expire in 1991. The Philippine Senate subsequently rejected the treaty extending the US military presence, and the government issued a Note Verbale terminating the bases agreement effective December 31, 1992, leading to the complete withdrawal of US forces from Cubi Point.

• The Agreement: On May 7, 1991, Philcomsat and Globe entered into a 60-month agreement for an IBS Standard B earth station at Cubi Point for the exclusive use of the USDCA. Section 7 (Discontinuance of Service) required Globe to pay rentals for the remaining life of the agreement if it discontinued use. Section 8 (Default) exempted either party from liability for failure to perform obligations resulting directly or indirectly from force majeure, defined to include circumstances beyond the party's control, such as any law, order, regulation, direction, or request of the Philippine Government.
• Political Developments: On September 16, 1991, the Senate adopted Resolution No. 141, declining to concur in the ratification of the Treaty of Friendship, Cooperation and Security. On December 31, 1991, the Philippine Government sent a Note Verbale to the US Government, terminating the RP-US Military Bases Agreement effective December 31, 1992.
• Termination of Services: Globe notified Philcomsat on August 6, 1992, of its intention to discontinue use of the earth station effective November 8, 1992, invoking Section 8 of the Agreement. Philcomsat insisted Globe was still obligated to pay rentals for the remaining term under Section 7. US military forces and personnel completely withdrew from Cubi Point on December 31, 1992.
• Demand and Refusal: On November 24, 1993, Philcomsat demanded payment of outstanding obligations amounting to US$4,910,136.00. Globe refused.

• Philcomsat:
  • Validity of Force Majeure Stipulation: Section 8 of the Agreement unduly expands the legal definition of a fortuitous event under Article 1174 of the Civil Code and is therefore invalid, as the events in question were foreseeable.
  • Liability for Remaining Term: Section 7 expressly obligates Globe to pay rentals for the remaining life of the agreement upon discontinuance, irrespective of the reason.
  • Damages: Philcomsat is entitled to attorney's fees and exemplary damages due to Globe's refusal to pay.
• Globe:
  • Liability for December 1992 Rentals: Philcomsat's services were effectively terminated on November 8, 1992; thus, no liability exists for December 1992 rentals.

• Globe:
  • Validity of Force Majeure Stipulation: Article 1174 does not prohibit parties from stipulating additional instances of exemption. The termination of the MBA constitutes force majeure.
  • Damages: Globe acted in accordance with its rights and should not be liable for attorney's fees or exemplary damages.
• Philcomsat:
  • Factual Issue: Globe's petition raises a factual issue regarding the termination date, which is not cognizable in a Petition for Review on Certiorari.

• Force Majeure: Whether the termination of the RP-US Military Bases Agreement, the non-ratification of the Treaty of Friendship, Cooperation and Security, and the consequent withdrawal of US military forces constitute force majeure exempting Globe from paying rentals for the remaining term.
• December 1992 Rentals: Whether Globe is liable for rentals for the month of December 1992.
• Damages: Whether Philcomsat is entitled to attorney's fees and exemplary damages.

• Force Majeure: The events constituted force majeure, exempting Globe from liability for the remaining term. Article 1174 encompasses events that are foreseeable but inevitable. The stipulation in Section 8 is valid under Article 1306, as it does not contravene law or public policy. The elements of a fortuitous event were present: the Senate rejection and government Note Verbale were independent of the parties' wills, they rendered the continuation of the service impossible, and Globe was free from participation in the injury. Furthermore, mutuality of contracts precludes requiring Globe to pay for a service Philcomsat could no longer render due to a government act beyond Globe's control.
• December 1992 Rentals: Liability for December 1992 rentals was properly imposed. Although Globe sought to terminate services on November 8, 1992, the actual date of cessation was not established. The US military retained control over Cubi Point and the option to use the earth station until their complete withdrawal on December 31, 1992, and Philcomsat could not have removed the facility earlier.
• Damages: The awards of attorney's fees and exemplary damages were correctly denied. Attorney's fees are the exception and are unwarranted where both parties have legitimate claims and neither fully prevails. Exemplary damages require wanton or oppressive conduct, which was absent given Globe's valid grounds for refusing payment.

• Fortuitous Event (Caso Fortuito) — Defined under Article 1174 of the Civil Code as an event that could not be foreseen, or which, though foreseen, was inevitable. To exempt the obligor, the following elements must concur: (1) the event must be independent of the human will; (2) the occurrence must render it impossible for the debtor to fulfill the obligation in a normal manner; and (3) the obligor must be free of participation in, or aggravation of, the injury to the creditor. The Court applied this doctrine to hold that the Senate's rejection of the treaty and the government's termination of the bases agreement, though arguably foreseeable, were inevitable and beyond the control of the parties.
• Freedom to Stipulate (Autonomy of Contracts) — Under Article 1306 of the Civil Code, contracting parties may establish such stipulations, clauses, terms, and conditions as they may deem convenient, provided they are not contrary to law, morals, good customs, public order, or public policy. The Court relied on this to uphold the parties' expanded definition of force majeure in Section 8 of their Agreement.
• Mutuality of Contracts — The binding effect of a contract on both parties is based on the principle that obligations arising from contracts have the force of law, requiring mutuality based essentially on equality. It is repugnant to bind one party while leaving the other free. The Court applied this to rule that it would be unjust and inequitable to require Globe to pay rentals when Philcomsat could not be compelled to perform its corresponding obligation due to the fortuitous event.

• "Article 1174, which exempts an obligor from liability on account of fortuitous events or force majeure, refers not only to events that are unforeseeable, but also to those which are foreseeable, but inevitable."
• "Courts cannot stipulate for the parties nor amend their agreement where the same does not contravene law, morals, good customs, public order or public policy, for to do so would be to alter the real intent of the parties, and would run contrary to the function of the courts to give force and effect thereto."
• "It will be grossly unfair and iniquitous to hold GLOBE liable for lease charges for a service that was not and could not have been rendered due to an act of the government which was clearly beyond GLOBE’s control."

• Allied Banking Corporation v. Court of Appeals, 284 SCRA 357 — Cited for the principle of mutuality of contracts, emphasizing that it is repugnant to bind one party while leaving the other free.
• Bacolod-Murcia Milling Co., Inc. v. Hon. Court of Appeals and Gatuslao, G.R. Nos. 81100-01, 07 February 1990 — Cited as authority for the requisite elements of a fortuitous event that must concur to exempt an obligor from liability.
• Heirs of Juan San Andres v. Rodriguez, G.R. No. 135634, 31 May 2000 — Cited for the proposition that courts cannot stipulate for the parties or amend their agreement when it does not contravene law or public policy.

• Article 1174, Civil Code — Defines fortuitous events as those which could not be foreseen, or which, though foreseen, were inevitable. Applied to classify the Senate rejection and government termination of the MBA as fortuitous events exempting Globe from liability.
• Article 1306, Civil Code — Allows contracting parties to establish stipulations not contrary to law, morals, good customs, public order, or public policy. Applied to uphold the validity of the expanded definition of force majeure in Section 8 of the Agreement.
• Article 1159, Civil Code — Provides that obligations arising from contracts have the force of law between the contracting parties and should be complied with in good faith.
• Article 2232, Civil Code — Governs the award of exemplary damages in contracts or quasi-contracts when the erring party acted in a wanton, fraudulent, reckless, oppressive, or malevolent manner. Applied to deny exemplary damages due to lack of bad faith.

Puno, Quisumbing, Austria-Martinez, Callejo, Sr.