Case Summary (G.R. No. 147511)
Contractual Arrangement between Philcomsat and Globe
On 7 May 1991 Philcomsat and Globe executed an agreement under which Philcomsat would establish, operate and provide an IBS Standard B earth station at Cubi Point for the exclusive use of the USDCA. The contract term was 60 months. Globe agreed to pay monthly rentals per leased circuit. Section 7 governed discontinuance of service and provided that Globe must give 60 days’ written notice, continue paying rentals for the actual number of T1 circuits in use but not less than the first two T1s for the remaining life of the agreement, subject to possible renegotiation if Philcomsat reallocated use of the facility. Section 8 defined force majeure broadly to include, among other things, any law, order, regulation, direction or request of the Government of the Philippines; strikes; insurrection; national emergencies; acts of public enemies; and other circumstances beyond the control of the parties.
Constitutional and Political Background Affecting Performance
Both parties were aware that the RP‑US Military Bases Agreement was to expire in 1991. Under Section 25, Article XVIII of the 1987 Constitution, foreign military bases, troops or facilities are not allowed unless a new treaty is concurred in by the Senate and ratified as required. On 16 September 1991 the Senate adopted Resolution No. 141 declining to concur in ratification of the Treaty of Friendship, Cooperation and Security and its Supplementary Agreements. On 31 December 1991 the Philippine Government sent a Note Verbale to the U.S. informing it that the RP‑US Military Bases Agreement would terminate on 31 December 1992 and requesting withdrawal of all U.S. military forces from Subic by that date.
Facts Following the Political Decisions
Philcomsat installed and operated the earth station and USDCA utilized it. Globe, receiving a formal order from Cdr. Corliss (31 July 1992) and a notification from AT&T (29 July 1992), notified Philcomsat on 6 August 1992 that it intended to discontinue use effective 8 November 1992, citing Section 8 (force majeure) as the basis. Philcomsat responded on 10 August 1992 that Globe remained obligated to pay rentals for the remaining term per Section 7. After the complete withdrawal of U.S. forces at year‑end 1992, Philcomsat demanded payment of outstanding obligations totaling US$4,910,136.00 plus interest and attorneys’ fees. Globe refused, and Philcomsat filed suit on 27 January 1995.
Lower Court Decisions and Relief Sought
Philcomsat’s complaint sought liquidated damages, interest, exemplary damages, attorneys’ fees and costs. The Regional Trial Court (Makati, Branch 59) rendered judgment on 5 January 1999 ordering Globe to pay US$92,238.00 (rent for December 1992) with legal interest from December 1992, attorney’s fees of P300,000.00, dismissed Globe’s counterclaim, and imposed costs against Globe. Both parties appealed to the Court of Appeals.
Court of Appeals Ruling
The Court of Appeals affirmed that the Senate’s non‑concurrence and the Philippine Government’s Note Verbale were acts/directions of the Government of the Philippines and thus constituted force majeure under Section 8 of the agreement. It also found other circumstances beyond the parties’ control (Cdr. Corliss’s order, AT&T notification, and the withdrawal of U.S. forces) which prevented further use of the earth station. The appellate court held Globe exempt from paying rentals for the remainder of the contract term but liable for rentals through December 1992 because the U.S. military retained control of Cubi Point until 31 December 1992.
Issues Presented to the Supreme Court
The Supreme Court considered three principal issues: (1) whether the Senate’s non‑ratification, the termination of the RP‑US Military Bases Agreement and the withdrawal of U.S. forces constitute force majeure exempting Globe from rental obligations; (2) whether Globe is liable for rentals for December 1992; and (3) whether Philcomsat is entitled to attorneys’ fees and exemplary damages.
Legal Principles Applied — Force Majeure and Contractual Autonomy
The Court applied Article 1174 of the Civil Code, which exempts obligors from liability for events that could not be foreseen or which, though foreseen, were inevitable. The Court emphasized that Article 1174 covers both natural (acts of God) and human acts (riots, strikes, war) and that parties may, under Article 1306, validly stipulate contractual definitions of force majeure provided they do not contravene law, morals, good customs, public order or public policy. Article 1159 (obligations from contract have the force of law between parties) was invoked to reiterate the binding effect of valid stipulations.
Application of Law to Facts — Existence of Force Majeure
The Court agreed with the lower courts that Section 8’s enumerated events fall within Article 1174’s concept of fortuitous events because they are either unforeseeable or foreseeable but inevitable. The Senate resolution and Note Verbale were acts of the Philippine Government beyond the parties’ control, and the formal order from Cdr. Corliss, AT&T’s notification, and the complete withdrawal of U.S. forces were further circumstances making performance impossible. The Court applied the three requisites for force majeure: independence from human will, impossibility of performance in the normal manner, and absence of the obligor’s participation or aggravation of the injury. Finding these elements satisfied, the Court concluded Globe was exempted from payment of rentals for the remaind
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Procedural Posture
- Two petitions for review to the Supreme Court (G.R. Nos. 147324 and 147334) assail the Court of Appeals Decision dated 27 February 2001 in CA-G.R. CV No. 63619.
- The trial court (RTC Makati, Branch 59) rendered judgment on 5 January 1999 ordering Globe to pay Philcomsat US$92,238.00 (rent for December 1992) with legal interest from December 1992, attorney’s fees P300,000.00, dismissing Globe’s counterclaim, and with costs against Globe.
- Both parties appealed to the Court of Appeals; the CA dismissed Philcomsat’s appeal for lack of merit and affirmed that force majeure occurred, exempting Globe from paying rentals for the remainder of the contract, but held Globe liable for rentals for December 1992.
- Both parties filed petitions for review to the Supreme Court: Philcomsat in G.R. No. 147324 and Globe in G.R. No. 147334.
- The Supreme Court issued Resolutions giving due course to both petitions and required consolidated memoranda from the parties.
Parties and Roles
- Philippine Communications Satellite Corporation (Philcomsat) — petitioner in one case, respondent in the other; contracted to establish, operate and provide an IBS Standard B earth station at Cubi Point for exclusive use of the U.S. Defense Communications Agency (USDCA).
- Globe Mckay Cable and Radio Corporation (now Globe Telecom, Inc.) — respondent in Philcomsat’s petition and petitioner in the reciprocal petition; coordinated provision of communications facilities for U.S. military bases and contracted with Philcomsat for provision of the earth station to serve USDCA clients.
- U.S. Defense Communications Agency (USDCA) and U.S. military forces — exclusive users of the earth station; their withdrawal from Subic Naval Base forms the factual and legal background.
Factual Background — Agreement and Purpose
- On 07 May 1991 Philcomsat and Globe executed an Agreement obligating Philcomsat to establish, operate and provide an IBS Standard B earth station within Cubi Point for the exclusive use of USDCA.
- Term of the contract: 60 months (five years) (Section 11).
- Globe agreed to pay monthly rentals for each leased circuit (Section 4).
- Both parties were aware that the RP-US Military Bases Agreement (basis for U.S. occupancy of Clark and Subic) was to expire in 1991.
- Under Section 25, Article XVIII of the 1987 Constitution, foreign military bases/troops/facilities are not allowed unless a new treaty is concurred in by the Senate and, if Congress so requires, ratified by majority vote in a national referendum, and the treaty is recognized by the U.S.
Contractual Provisions Relevant to Dispute
- Section 7 — Discontinuance of Service:
- Globe must serve written notice at least sixty (60) days prior to expected termination.
- Notwithstanding non-use, Globe shall continue to pay Philcomsat for the rental of the actual number of T1 circuits in use, but in no case less than the first two (2) T1 circuits for the remaining life of the Agreement.
- If Philcomsat uses or sells the earth station, Globe’s obligation to pay for the remaining life shall be at a monthly rate to be agreed upon.
- Section 8 — Default / Force Majeure:
- Neither party is liable for failure to perform if such failure results from force majeure or fortuitous events; parties are precluded from performing until such event terminates.
- Enumerated force majeure events include: any law/order/regulation/direction/request of the Government of the Philippines; strikes/labor difficulties; insurrection; riots; national emergencies; war; acts of public enemies; fire; floods; typhoons or other catastrophes or acts of God; and other circumstances beyond control of parties.
Chronology of Key External Events
- 16 September 1991 — Senate passed Resolution No. 141 expressing decision not to concur in ratification of the Treaty of Friendship, Cooperation and Security and its Supplementary Agreements (which would have extended U.S. use of Subic).
- 31 December 1991 — Philippine Government sent a Note Verbale to the U.S. Government notifying termination of the RP-US Military Bases Agreement and stating withdrawal of U.S. forces from Subic should be completed by 31 December 1992.
- 29 July 1992 — ATT issued a letter notification (referenced by Globe).
- 31 July 1992 — Cdr. Walter F. Corliss II, Commander USN, issued a formal order (referenced by Globe) directing termination of provision of T1 services effective 08 November 1992.
- 06 August 1992 — Globe notified Philcomsat of intention to discontinue use of the earth station effective 08 November 1992, invoking Section 8 (force majeure).
- 10 August 1992 — Philcomsat replied expecting Globe to know its commitment to pay stipulated rentals for remaining term, citing Section 7.
- 08 November 1992 — date Globe sought to discontinue services per its notice; the actual cessation of use was not established at trial.
- 31 December 1992 — trial court found complete withdrawal of U.S. military forces and personnel from Cubi Point occurred on this date.
- 24 November 1993 — Philcomsat demanded payment of US$4,910,136.00 plus interest and attorney’s fees for outstanding obligations; Globe refused.
Trial Court Findings and Disposition
- RTC Makati (5 January 1999) found for Philcomsat in part and ordered:
- Payment to Philcomsat of US$92,238.00 (rent for December 1992) or its peso equivalent, with 12% legal interest from December 1992 until full payment.
- Payment of attorney’s fees of P300,000.00.
- Dismissal of Globe’s counterclaim for lack of merit.
- Costs against Globe.
- Trial court’s factual findings included that U.S. military forces and personnel completely withdrew from Cubi Point only on 31 December 1992.
Court of Appeals Ruling and Reasoning
- CA Decision (27 February 2001) dismissed Philcomsat’s appeal for lack of merit and affirmed that force majeure events occurred, justifying Globe’s non-payment of rentals for the remainder of the Agreement’s term.
- CA held that:
- The Senate’s non-ratification (Resolution No. 141) and the Philippine Government’s Note Verbale terminating the RP-US Military Bases Agreement are acts/directions/requests of the Government of the Philippines constituting force majeure under Section 8.
- The formal order from Cdr. Corliss, the