Philippine Communications Satellite Corporation vs Globe Telecom, Inc.

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G.R. No. 147324 May 25, 2004

PHILIPPINE COMMUNICATIONS SATELLITE CORPORATION, petitioner,
vs.
GLOBE TELECOM, INC. (formerly Globe Mckay Cable and Radio Corporation), respondents.

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GLOBE TELECOM, INC., petitioner,
vs.
PHILIPPINE COMMUNICATION SATELLITE CORPORATION, respondent.

Facts:

Globe Telecom, Inc., formerly known as Globe McKay Cable and Radio Corporation installed and configured communication facilities for the exclusive use of the US Defense Communications Agency (USDCA) in Clark Air Base and Subic Naval Base. Globe Telecom later contracted the Philippine Communications Satellite Corporation (Philcomsat) for the provision of the communication facilities. As both companies entered into an Agreement, Globe obligated itself to operate and provide an IBS Standard B earth station with Cubi Point for the use of the USDCA. The term of the contract was for 60 months, or five (5) years. In turn, Globe promised to pay Philcomsat monthly rentals for each leased circuit involved.

As the saga continues, the Philippine Senate passed and adopted Senate Resolution No. 141 and decided not to ratify the Treaty of Friendship, Cooperation and Security, and its Supplementary Agreements to extend the term of the use by the US of Subic Naval Base, among others. In other words, the RP-US Military Bases Agreement was suddenly terminated.

Because of this event, 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.

After the US military forces left Subic Naval Base, Philcomsat sent Globe a letter in 1993 demanding payment of its outstanding obligations under the Agreement amounting to US$4,910,136.00 plus interest and attorney’s fees. However, Globe refused to heed Philcomsat’s demand. On the other hand, the latter with the Regional Trial Court of Makati a Complaint against Globe, however, Globe filed an Answer to the Complaint, insisting that it was constrained to end the Agreement due to the termination of the RP-US Military Bases Agreement and the non-ratification by the Senate of the Treaty of Friendship and Cooperation, which events constituted force majeure under the Agreement. Globe explained that the occurrence of said events exempted it from paying rentals for the remaining period of the Agreement.

Four years after, the trial court its decision but both parties appealed to the Court of Appeals.

Issues:

1. Whether or not 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. Whether Globe is not liable to pay the rentals for the remainder of the term of the Agreement; and

3. Whether Globe is liable to Philcomsat for exemplary damages.

Held:

Decision on Issue No. 1: Fortuitous Event under Article 1174

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 Government’s Note Verbale to the US Government, are acts, directions, or requests of the Government of the Philippines which constitute force majeure.

However, the Court of Appeals ruled that although Globe sought to terminate Philcomsat’s 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.

No reversible error was committed by the Court of Appeals in issuing the assailed Decision; hence the petitions are denied.

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:

A fortuitous event under Article 1174 may either be an "act of God," or natural occurrences such as floods or typhoons,24 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 catastrophes 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.

The Supreme 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.

Decision on Issue No. 2: Exemption of Globe from Paying Rentals for the Facility

The Supreme Court finds that the defendant is exempted from paying the rentals for the facility for the remaining term of the contract. As a consequence of the termination of the RP-US Military Bases Agreement (as amended) the continued stay of all US Military forces and personnel from Subic Naval Base would no longer be allowed, hence, plaintiff would no longer be in any position to render the service it was obligated under the Agreement.

The Court of Appeals was correct in ruling that the happening of such fortuitous events rendered Globe exempt from payment of rentals for the remainder of the term of the Agreement.

Decision on Issue No 3: No Exemplary Damages

Exemplary damages may be awarded in cases involving contracts or quasi-contracts, if the erring party acted in a wanton, fraudulent, reckless, oppressive or malevolent manner.

In the present case, it was not shown that Globe acted wantonly or oppressively in not heeding Philcomsat’s demands for payment of rentals. It was established during the trial of the case before the trial court that Globe had valid grounds for refusing to comply with its contractual obligations after 1992.

Ruling:

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.