G.R. No. 147324 ; May 25, 2004
PHILIPPINE COMMUNICATIONS SATELLITE CORPORATION, petitioner, vs. GLOBE TELECOM, INC., respondent. (Consolidated with G.R. No. 147334)

FACTS

Petitioner Philippine Communications Satellite Corporation (Philcomsat) and respondent Globe Telecom, Inc. (Globe) entered into a five-year Agreement on May 7, 1991. Philcomsat obligated itself to establish and operate an earth station at Cubi Point for the exclusive use of the U.S. Defense Communications Agency (USDCA), with Globe promising to pay monthly rentals. Both parties were aware that the RP-US Military Bases Agreement, the legal basis for the U.S. presence at Subic Naval Base, was set to expire in 1991. In September 1991, the Philippine Senate rejected a new treaty extending the bases. Consequently, the U.S. military withdrew, and Globe notified Philcomsat in August 1992 of its intent to discontinue service, invoking the force majeure clause (Section 8) of their Agreement.
Philcomsat demanded continued payment under Section 7 of the Agreement, which stipulated that if Globe discontinued use, it must still pay rentals for the remaining contract term, subject to potential reduction if Philcomsat re-sold or re-used the equipment. Globe refused, leading Philcomsat to file a complaint for liquidated damages. The Regional Trial Court ruled in favor of Philcomsat, but the Court of Appeals reversed, holding that the withdrawal of U.S. forces constituted a fortuitous event that excused Globe from further performance.

ISSUE

Whether the withdrawal of U.S. military forces from Subic Naval Base constituted a fortuitous event that excused Globe from its contractual obligations under the Agreement with Philcomsat.

RULING

No, the event was not a fortuitous event that excused performance. The Supreme Court reversed the Court of Appeals and reinstated the RTC decision, ordering Globe to pay Philcomsat.
The legal logic centers on the interpretation of the contract and the nature of a fortuitous event. A fortuitous event under Article 1174 of the Civil Code must be an unforeseeable occurrence, independent of human will, and absolutely insurmountable. The Court found that the termination of the RP-US Military Bases Agreement was not unforeseeable. The parties contracted in May 1991 with full knowledge of the impending expiration of the treaty and the constitutional requirements for its extension. The Senate’s subsequent rejection was a political act within the realm of ordinary business risk for such an enterprise, not an extraordinary and unforeseeable event.
Furthermore, the Court applied the specific provisions of the contract. Section 7 explicitly governed “Discontinuance of Service,” mandating continued payment for the agreement’s remaining life even after discontinuance of use. This specific stipulation controlled over the general force majeure clause in Section 8. The contract allocated the risk of the bases’ closure to Globe, as evidenced by Section 7. The law respects the autonomy of contracts, and the parties are bound by their clear and mutually agreed-upon terms. Therefore, Globe remained liable for the stipulated rentals for the unexpired portion of the five-year contract.