Philcomsat v. Globe Telecom
REITERATIONFacts
The Antecedents: Globe Mckay Cable and Radio Corporation (Globe) had been providing communication facilities for US military bases in the Philippines. On May 7, 1991, Globe and Philippine Communications Satellite Corporation (Philcomsat) entered into an Agreement for Philcomsat to provide an earth station for the exclusive use of the US Defense Communications Agency (USDCA) at Cubi Point for 60 months. Both parties were aware of the impending expiration of the RP-US Military Bases Agreement. Procedural History: The Senate did not concur in the ratification of the treaty extending the RP-US Military Bases Agreement, leading to the Philippine Government's notification to the US of the termination of the agreement. Globe, citing Section 8 (Default) of their Agreement concerning force majeure, notified Philcomsat of its intention to discontinue the use of the earth station effective November 8, 1992, due to the withdrawal of US military personnel. Philcomsat insisted on Globe's commitment to pay rentals for the remaining term, referencing Section 7 of the Agreement. After the US forces left, Philcomsat demanded payment of outstanding obligations, which Globe refused. Philcomsat filed a complaint for payment of liquidated damages, interest, attorney's fees, and costs. The Regional Trial Court (RTC) ordered Globe to pay US$92,238.00 for December 1992 rentals, plus interest, and P300,000.00 for attorney's fees, dismissing Globe's counterclaim. Both parties appealed. The Court of Appeals (CA) affirmed the RTC's finding of force majeure but ruled Globe liable for December 1992 rentals. Both parties filed petitions for review. The Petition: Philcomsat sought to hold Globe liable for the entire remaining term of the Agreement, arguing that the events constituting force majeure were foreseeable and that Section 8 of the Agreement was invalid as it expanded the definition of fortuitous events under Article 1174 of the Civil Code. Globe, in its petition, argued it should not be liable for December 1992 rentals as services were terminated earlier.
Issue(s)
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 and personnel from Cubi Point constitute force majeure exempting Globe from its obligation to pay rentals. Whether Globe is liable to pay rentals under the Agreement for the month of December 1992. Whether Philcomsat is entitled to attorney's fees and exemplary damages.
Ruling
The Supreme Court denied both petitions, affirming the Court of Appeals' Decision. It held that the events constituting force majeure indeed occurred, exempting Globe from paying rentals for the remainder of the contract term after the US withdrawal. However, Globe was held liable for rentals for December 1992. Philcomsat was not entitled to attorney's fees and exemplary damages.
Ratio Decidendi
On the issue of force majeure: The Court held that Section 8 of the Agreement, which enumerated events constituting force majeure, was valid and did not contravene Article 1174 of the Civil Code. Article 1174 allows for events that are either unforeseeable or foreseeable but inevitable. The non-ratification of the treaty extending the RP-US Military Bases Agreement, the Philippine Government's termination notice, and the subsequent withdrawal of US forces were events beyond the control of the parties. These events rendered it impossible for Globe to fulfill its obligation to pay rentals in the normal manner, and Globe was free from participation in or aggravation of the situation. Therefore, these circumstances qualified as force majeure, exempting Globe from paying rentals for the remainder of the contract term after the US withdrawal. On Globe's liability for December 1992 rentals: The Court affirmed the appellate court's ruling that Globe was liable for rentals for December 1992. Although Globe intended to terminate services by November 8, 1992, the US military forces and personnel completely withdrew from Cubi Point only on December 31, 1992. Until that date, the USDCA had control over the earth station, and Philcomsat could not remove or render the facility ineffective. Thus, Globe remained liable for rentals until the complete withdrawal of US forces. On attorney's fees and exemplary damages: The Court ruled that Philcomsat was not entitled to attorney's fees and exemplary damages. Attorney's fees are awarded only in exceptional circumstances, and Globe had valid grounds for refusing to comply with its contractual obligations after 1992 due to the force majeure events. Exemplary damages require proof of wanton, fraudulent, reckless, oppressive, or malevolent conduct, which was not established against Globe. Globe acted based on valid grounds arising from the force majeure events.
Main Doctrine
The termination of the RP-US Military Bases Agreement and the subsequent withdrawal of US military forces, which were events beyond the control of the parties and rendered the performance of the contract impossible, constituted force majeure, exempting Globe Telecom from paying rentals for the remainder of the contract term. However, Globe remained liable for rentals for the period the facility was still under the control of US forces.