Published 30 March 2020, The Daily Tribune
In the first part of this article, I explained the concept of force majeure and how it can relieve obligors from contractual liability. While force majeure is indeed an exempting circumstance, the crux of the issue is the willingness of the parties to accept that indeed an event is force majeure. It is advisable to look closely at the parties’ stipulations.
Parties are not prevented from agreeing by themselves what would constitute force majeure events for purposes of their contract; hence, most commercial contracts contain force majeure clauses that identify events which can be considered as force majeure and the consequent effects these events would have on their agreement.
In Philcomsat vs Globe Telecom Inc. (GR 147324, 25 May 2004), Philcomsat and Globe entered into an agreement whereby Philcomsat obligated itself to install an earth station for the exclusive use of the US Defense Communications Agency (USDCA) for five years. In turn, Globe promised to pay Philcomsat monthly rentals for each leased circuit involved. At the time of the execution of the agreement, both parties knew that the Military Bases Agreement between the Philippines and the United States (RP-US Military Bases Agreement), which was the basis for the occupancy of Clark Air Base and Subic Naval Base in Cubi Point, was to expire in 1991.
On 31 December 1991, the Philippine government notified the US Embassy of the Philippines’ termination of the RP-US Military Bases Agreement on 31 December 1992, and the withdrawal of all US military forces from Subic Naval Base should be completed by said date. Thus, Globe discontinued the use of the earth station, invoking as basis Section 8 (default) of the agreement, which provides that 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.
Eventually, 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.
When the case reached the Supreme Court, it found that the parties 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. It rejected Philcomsat’s argument that the withdrawal of US military forces and personnel were not unforeseeable, but were possibilities known to it and Globe at the time they entered into the agreement; hence, such events cannot exempt Globe from performing its obligation of paying rentals for the entire five-year term thereof.
The Supreme Court reminded that 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.
Aside from that, Philcomsat and Globe agreed in Section 8 of the agreement that the following events shall be deemed events constituting force majeure: any law, order, regulation, direction or request of the Philippine government; strikes or other 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 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. 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, the stipulations that parties freely agreed upon have the force of law between them — including their agreement on what constitutes a force majeure event.
For comments and questions, please send an email to cabdo@divinalaw.com.
