FACTS:

The case involves an Agreement between Philcomsat and Globe Telecom for the lease of an earth station in Subic Naval Base. After the US military forces left Subic Naval Base, Philcomsat demanded payment of its outstanding obligations under the Agreement from Globe. However, Globe refused to pay.

Philcomsat filed a Complaint against Globe, seeking payment of liquidated damages, interest, exemplary damages, attorney's fees, and costs of suit. Globe argued that it was exempted from paying rentals 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.

The trial court rendered a decision ordering Globe to pay Philcomsat the rentals for December 1992 and attorney's fees. Both parties appealed the trial court's decision.

The Court of Appeals dismissed Philcomsat's appeal but affirmed the trial court's finding that certain events constituted force majeure and exempted Globe from paying rentals for the remainder of the term. However, the court ruled that Globe is still liable to pay rentals for December 1992.

Both parties filed petitions for review before the Supreme Court. Philcomsat argued that the termination of the RP-US Military Bases Agreement was not a fortuitous event and that Globe should be liable for rentals for the remaining term. Philcomsat also questioned the deletion of attorney's fees and exemplary damages by the Court of Appeals.

ISSUES:

1. Whether the termination of the RP-US Military Bases Agreement and the withdrawal of US military forces from Cubi Point constitute force majeure that would exempt Globe Telecom from complying with its obligation to pay rentals under the Agreement with Philcomsat.

2. Whether Globe Telecom is liable to pay rentals under the Agreement for the month of December 1992.

3. Whether Philcomsat is entitled to attorney's fees and exemplary damages.

4. Whether the events that occurred constitute force majeure or fortuitous events under the agreement.

5. Whether Globe is exempt from paying the rentals for the remaining term of the contract.

6. Whether the fortuitous events exempt Globe from payment of rentals for the remainder of the term of the Agreement.

7. Whether Globe is liable for payment of rentals until December 1992.

8. Whether Philcomsat is entitled to attorney's fees and exemplary damages.

RULING:

1. The Court of Appeals did not commit any reversible error in its Decision; thus, the petitions are denied.

2. The Court ruled that the events that occurred, such as the non-renewal of the RP-US Military Bases Agreement and the subsequent withdrawal of US military forces and personnel, constitute force majeure or fortuitous events under the agreement. The Court found that these events were beyond the control of the parties and rendered it impossible for Globe to fulfill its obligations in a normal manner.

3. The Court held that Globe is exempt from paying the rentals for the remaining term of the contract. The Court found that due to the termination of the RP-US Military Bases Agreement and the withdrawal of US military forces and personnel, there was no longer any necessity for Globe to continue maintaining the facility, and thus, the obligation to pay rentals was no longer applicable.

4. Yes, Globe is correct in claiming that the fortuitous events exempt it from payment of rentals for the remainder of the term of the Agreement.

5. Yes, Globe is liable for payment of rentals until December 1992 as it failed to establish the date when they actually ceased using the earth station subject of the Agreement. The US military forces and personnel completely withdrew from Cubi Point only on 31 December 1992, and until that date, the USDCA had control over the earth station and had the option of using the same.

6. No, Philcomsat is not entitled to attorney's fees and exemplary damages. An award of attorney's fees is the exception rather than the rule, and must be supported by factual, legal and equitable justifications. In this case, both parties had legitimate claims against each other, and no party actually prevailed. Exemplary damages may be awarded if the erring party acted in a wanton, fraudulent, reckless, oppressive or malevolent manner, which was not proven in this case.

PRINCIPLES:

• A fortuitous event under Article 1174 of the Civil Code must be unforeseen in order to exempt a party from complying with its contractual obligations.

• Whether an event constitutes force majeure and exempts a party from fulfilling its obligations depends on the specific terms of the contract and the circumstances surrounding the event.

• A provision in a contract that defines force majeure does not expand the concept of a fortuitous event under Article 1174 as long as it is not contrary to law or public policy.

• Article 1174 of the Civil Code exempts an obligor from liability on account of fortuitous events or force majeure, whether unforeseeable or foreseeable yet inevitable.

• Parties to a contract may establish stipulations, clauses, terms, and conditions as they deem fit, as long as they do not run counter to the law, morals, good customs, public order, or public policy, under Article 1306 of the Civil Code.

• Obligations arising from contracts have the force of law between the contracting parties and should be complied with in good faith, as stated in Article 1159 of the Civil Code. Courts cannot stipulate for the parties nor amend their agreement unless it contravenes the above-mentioned legal principles.

• Obligations arising from contracts have the force of law between the contracting parties, and there must be mutuality between them based essentially on their equality under which it is repugnant to have one party bound by the contract while leaving the other party free therefrom.

• An award of attorney's fees must be supported by factual, legal and equitable justifications, and is not warranted when both parties have legitimate claims against each other.

• Exemplary damages may be awarded if the erring party acted in a wanton, fraudulent, reckless, oppressive or malevolent manner.