PHILCOMSAT vs Globe Telecom Inc, G.R. No. 147324| 2004
G.R. No. 147324|May 25, 2004
PHILIPPINE
COMMUNICATIONS SATELLITE CORPORATION, (Philcomsat)
petitioner, vs GLOBE TELECOM, INC. (formerly and Globe
Mckay Cable and Radio Corporation), respondents.
Case summary:
Facts:
1.
On
07 May 1991, Philcomsat and Globe entered into an Agreement whereby Philcomsat
obligated itself to establish, operate and provide an IBS Standard B earth
station (earth station) within Cubi Point for the exclusive use of the USDCA.
2.
The
term of the contract was for 60 months, or five (5) years.
3. In
turn, Globe promised to pay Philcomsat monthly rentals for each leased circuit
involved.
4. At
the time of the execution of the Agreement, both parties knew that the Military
Bases Agreement between the Republic of the Philippines and the US (RP-US
Military Bases Agreement), which was the basis for the occupancy of the Clark
Air Base and Subic Naval Base in Cubi Point, was to expire in 1991.
5.
Subsequently,
Philcomsat installed and established the earth station at Cubi Point and the
USDCA made use of the same.
6.
On
16 September 1991, the Senate passed and adopted Senate Resolution No. 141,
expressing its decision not to concur in the ratification of the Treaty of
Friendship, Cooperation and Security and its Supplementary Agreements that was supposed to extend the term of
the use by the US of Subic Naval Base, among others.
7. On
31 December 1991, the Philippine Government sent a Note Verbale to the US
Government through the US Embassy, notifying
it of the Philippines termination of the RP-US Military Bases Agreement.
8. The
Note Verbale stated that since the RP-US Military Bases Agreement, as amended, shall terminate on 31 December 1992,
the withdrawal of all US military forces from Subic Naval Base should be
completed by said date.
9. In
a letter dated 06 August 1992, Globe
notified Philcomsat of its intention to discontinue the use of the earth
station effective 08 November 1992 in view of the withdrawal of US military
personnel from Subic Naval Base after the termination of the RP-US Military
Bases Agreement. Globe invoked as basis for the letter of termination
Section 8 (Default) of the Agreement, which provides:
a. Neither party shall
be held liable or deemed to be in default for any failure to perform its
obligation under this Agreement if such failure results directly or
indirectly from force majeure or fortuitous event. Either party is
thus precluded from performing its obligation until such force majeure or
fortuitous event shall terminate. For the purpose of this paragraph, force majeure shall mean circumstances
beyond the control of the party involved including, but not limited to, any
law, order, regulation, direction or request of the Government of the
Philippines, strikes or other labor difficulties, insurrection riots, national
emergencies, war, acts of public enemies, fire, floods, typhoons or other
catastrophies or acts of God.
10. Philcomsat
sent a reply letter dated 10 August 1992 to Globe, stating that we expect
[Globe] to know its commitment to pay the stipulated rentals for the remaining
terms of the Agreement even after [Globe] shall have discontinue[d] the use of
the earth station after November 08, 1992.
11.
Philcomsat
referred to Section 7 of the Agreement, stating as follows:
a.
DISCONTINUANCE
OF SERVICE
a.
Should
[Globe] decide to discontinue with the use of the earth station after it has
been put into operation, a written notice shall be served to PHILCOMSAT at
least sixty (60) days prior to the expected date of termination.
Notwithstanding the non-use of the earth station, [Globe] shall continue to pay
PHILCOMSAT for the rental of the actual number of T1 circuits in use, but in no
case shall be less than the first two (2) T1 circuits, for the remaining life
of the agreement. However, should PHILCOMSAT make use or sell the earth station
subject to this agreement, the obligation of [Globe] to pay the rental for the
remaining life of the agreement shall be at such monthly rate as may be agreed
upon by the parties.[8]
12.
After
the US military forces left Subic Naval Base, Philcomsat sent Globe a letter dated 24 November 1993 demanding
payment of its outstanding obligations under the Agreement amounting to
US$4,910,136.00 plus interest and attorneys fees.
13.
However,
Globe refused to heed Philcomsats
demand.
14.
On
27 January 1995, Philcomsat filed with the Regional Trial Court of Makati a
Complaint against Globe, praying that the latter be ordered to pay liquidated
damages under the Agreement, with legal interest, exemplary damages, attorneys
fees and costs of suit.
15. Globe
filed an Answer to the Complaint, insisting that it was constrained to end the
Agreement due to (1) the termination of the RP-US Military Bases Agreement
and (2) the non-ratification by the Senate of the Treaty of Friendship and
Cooperation, which events
constituted force majeure under the Agreement.
16. Globe
explained that the occurrence of said events exempted it from paying rentals for the remaining period of the
Agreement.
17. On
05 January 1999, the trial court rendered its Decision against the defendant, Ordering
to:
a. pay the plaintiff the
amount of Ninety Two Thousand Two Hundred Thirty Eight US Dollars
(US$92,238.00) or its equivalent in Philippine Currency (computed at the
exchange rate prevailing at the time of compliance or payment) representing
rentals for the month of December 1992 with interest thereon at the legal rate
of twelve percent (12%) per annum starting December 1992 until the amount is
fully paid;
b. Ordering the
defendant to pay the plaintiff the amount of Three Hundred Thousand
(P300,000.00) Pesos as and for attorneys fees;
c. Ordering the
DISMISSAL of defendants counterclaim for lack of merit; and
d. With costs against
the defendant.
18.
Both
parties appealed the trial courts Decision to the Court of Appeals.
19.
Philcomsat
claimed that the trial court erred in ruling that:
(1) the
non-ratification by the Senate of the Treaty of Friendship, Cooperation and
Security and its Supplementary Agreements constitutes force majeure which
exempts Globe from complying with its obligations under the Agreement;
(2) Globe
is not liable to pay the rentals for the remainder of the term of the
Agreement; and
(3) Globe
is not liable to Philcomsat for exemplary damages.
20. Globe,
on the other hand, contended that the RTC erred in holding it liable for
payment of rent of the earth station for December 1992 and of attorneys fees.
It explained that it terminated Philcomsats services on 08 November 1992;
hence, it had no reason to pay for rentals beyond that date.
21. On
27 February 2001, the Court of Appeals promulgated its Decision dismissing
Philcomsats appeal for lack of merit and affirming the trial courts finding that certain events constituting
force majeure under Section 8 the Agreement occurred and justified the
non-payment by Globe of rentals for the remainder of the term of the Agreement.
22. The
appellate court ruled that the non-ratification by the Senate of the Treaty of
Friendship, Cooperation and Security, and its Supplementary Agreements, and the
termination by the Philippine Government of the RP-US Military Bases Agreement
effective 31 December 1991 as stated in the Philippine Governments Note Verbale
to the US Government, are acts,
directions, or requests of the Government of the Philippines which constitute
force majeure. In addition, there
were circumstances beyond the control of the parties, such as the
issuance of a formal order by Cdr. Walter Corliss of the US Navy, the issuance
of the letter notification from ATT and the complete withdrawal of all US
military forces and personnel from Cubi Point, which prevented further use of
the earth station under the Agreement.
23. However,
the Court of Appeals ruled that although Globe sought to terminate Philcomsats
services by 08 November 1992, it is
still liable to pay rentals for the December 1992, amounting to
US$92,238.00 plus interest, considering that the US military forces and
personnel completely withdrew from Cubi Point only on 31 December 1992.
24.
Both
parties filed their respective Petitions for Review assailing the Decision of
the Court of Appeals.
Issue/s:
(1)
Whether or not 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 which
would exempt Globe from complying with its obligation to pay rentals under its
Agreement with Philcomsat; - YES
(2)
Whether or not Section 8 of the
Agreement which Philcomsat and Globe freely agreed upon has the force of law
between them. - YES
(3)
Whether or not Globe is liable to
pay rentals under the Agreement for the month of December 1992; and - YES
(4)
Whether or not Philcomsat is
entitled to attorneys fees and exemplary damages. - NO
Held:
1.
No.
There
is no merit is Philcomsats argument that Section 8 of the Agreement cannot be
given effect because the enumeration of events constituting force
majeure therein unduly expands the concept of a fortuitous event under
Article 1174 of the Civil Code and is therefore invalid.
In support of its position, Philcomsat contends that under
Article 1174 of the Civil Code, an event must be unforeseen in order to exempt
a party to a contract from complying with its obligations therein. It
insists that since the expiration of the RP-US Military Bases Agreement, the non-ratification
of the Treaty of Friendship, Cooperation and Security and the withdrawal of US
military forces and personnel from Cubi Point were not unforeseeable, but were
possibilities known to it and Globe at the time they entered into the
Agreement, such events cannot exempt Globe from performing its obligation of
paying rentals for the entire five-year term thereof.
However, 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:
Art. 1174.
Except in cases 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.
A fortuitous event under Article 1174 may either be an act
of God, or natural occurrences such as floods or typhoons, or an act of man,
such as riots, strikes or wars.
Philcomsat and Globe agreed in Section 8 of the Agreement
that the following events shall be deemed events constituting force
majeure:
1. Any law, order, regulation,
direction or request of the Philippine Government;
2. Strikes or other labor
difficulties;
3. Insurrection;
4. Riots;
5. National emergencies;
6. War;
7. Acts of public enemies;
8. Fire, floods, typhoons or
other catastrophies or acts of God;
9. Other circumstances beyond
the control of the parties.
Clearly,
the foregoing are either unforeseeable, or foreseeable but beyond the control
of the parties. There is nothing
in the enumeration that runs contrary to, or expands, the concept of a
fortuitous event under Article 1174.
In order that Globe may be exempt from non-compliance with
its obligation to pay rentals under Section 8, the concurrence of the following
elements must be established:
(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 agrees with the Court of Appeals and the trial
court that the abovementioned
requisites are present in the instant case. Philcomsat and Globe had no
control over the non-renewal of the term of the RP-US Military Bases Agreement
when the same expired in 1991, because the prerogative to ratify the treaty
extending the life thereof belonged to the Senate. Neither did the parties have
control over the subsequent withdrawal of the US military forces and personnel
from Cubi Point in December 1992:
Obviously
the non-ratification by the Senate of the RP-US Military Bases Agreement (and
its Supplemental Agreements) under its Resolution No. 141. (Exhibit 2) on September 16, 1991 is
beyond the control of the parties. This resolution was followed
by the sending on December 31, 1991 o[f] a Note Verbale (Exhibit 3) by the Philippine
Government to the US Government notifying the latter of the formers termination
of the RP-US Military Bases Agreement (as amended) on 31 December 1992 and that
accordingly, the withdrawal of all U.S. military forces from Subic Naval Base
should be completed by said date. Subsequently, defendant [Globe] received
a formal order from Cdr. Walter F. Corliss II Commander USN dated July 31, 1992
and a notification from ATT dated July 29, 1992 to terminate the provision of
T1s services (via an IBS Standard B Earth Station) effective November 08,
1992. Plaintiff [Philcomsat] was furnished with copies of the said order
and letter by the defendant on August 06, 1992.
Resolution
No. 141 of the Philippine Senate and the Note Verbale of the Philippine
Government to the US Government are acts, direction or request of the Government
of the Philippines and circumstances beyond the control of the defendant. The
formal order from Cdr. Walter Corliss of the USN, the letter notification from
ATT and the complete withdrawal of all the military forces and personnel from
Cubi Point in the year-end 1992 are also acts and circumstances beyond the
control of the defendant.
Considering the foregoing, the Court finds and so holds that
the afore-narrated circumstances constitute force majeure or fortuitous
event(s) as defined under paragraph 8 of the Agreement.
2.
Yes.
Furthermore, under Article 1306 of the Civil Code,
parties to a contract may establish such stipulations, clauses, terms and
conditions as they may deem fit, as long as the same do not run counter to the
law, morals, good customs, public order or public policy.
Article 1159 of the Civil Code also provides that
[o]bligations arising from contracts have the force of law between the
contracting parties and should be complied with in good faith. 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.
Not
being contrary to law, morals, good customs, public order, or public policy,
Section 8 of the Agreement which Philcomsat and Globe freely agreed upon has
the force of law between them.
3.
Yes.
The US military forces and personnel completely withdrew
from Cubi Point only on December 31, 1992. Thus, until that date, USDCA had
control over the earth station and had the option of using the same.
Furthermore, Philcomsat could not have removed or rendered ineffective said
communication facility until after December 31, 1992 because Cubi Point was
accessible only to US naval personnel up to that time.
4.
No.
The award of attorney’s fees is the exemption rather than
the rule. In cases where both parties have legitimate claims against each other
and no party actually prevailed, such as in the present case where the claims
of both parties were sustained in part, an award of attorney’s fees would not
be warranted.
Exemplary damages may be awarded in cases involving
contracts, if the erring party acted in wanton, fraudulent, reckless,
oppressive or malevolent manner. It was not shown that Globe acted wantonly or
oppressively in not heeding Philcomsats demands for payment of rentals. Globe
had valid grounds for refusing to comply with its contractual obligations after
1992.
Dispositive portion:
WHEREFORE,
the Petitions are DENIED for lack of merit. The
assailed Decision of the Court of Appeals in CA-G.R. CV No.
63619 is AFFIRMED.
SO ORDERED.