How Does Coup d’Etat Affect Business Contracts?
Introduction
Political unrest can interrupt construction, telecommunications, mining, transportation, energy, and other commercial operations. When a rebellion, insurrection, or military uprising prevents performance, the parties may ask whether the event qualifies as force majeure, excuses non-performance, extends contractual deadlines, or creates a right to recover additional costs.
Under Philippine law, the answer depends on two related but distinct questions: first, whether the event falls within the legal definition of rebellion or coup d’état; and second, whether the contract allocates the resulting risk to one of the parties. A political crisis does not automatically discharge a contractual obligation merely because performance becomes more difficult or commercially unprofitable.
What Is Coup d’Etat Under Philippine Law?
Republic Act No. 6968 introduced Article 134-A of the Revised Penal Code, defining coup d’état as a swift attack accompanied by violence, intimidation, threat, strategy, or stealth against duly constituted authorities, military camps or installations, communications networks, public utilities, or other facilities needed for the exercise and continued possession of state power.
The offense may be committed anywhere in the Philippines by persons belonging to the military or police, or by persons holding public office or employment. Civilian support or participation is not required. The purpose must be the seizure or diminution of state power. See Republic Act No. 6968.
Coup d’état is distinct from rebellion. Article 134 of the Revised Penal Code describes rebellion or insurrection as a public uprising and taking of arms against the Government for the purpose of removing territory, armed forces, or governmental powers from the allegiance of the Government, or depriving the Chief Executive or Legislature of their powers or prerogatives.
How Does Coup d’Etat Differ From Rebellion?
| Point of distinction | Rebellion or insurrection | Coup d’état |
|---|---|---|
| Principal conduct | Public uprising and taking of arms | Swift attack using violence, intimidation, threat, strategy, or stealth |
| Primary target | The Government, its territory, armed forces, or governmental powers | Constituted authorities and facilities supporting state power |
| Possible perpetrators | Persons who publicly rise and take arms against the Government | Military, police, public officers or employees, with or without civilian support |
| Required purpose | To remove territory, forces, or governmental powers from allegiance, or deprive officials of their powers | To seize or diminish state power |
For constitutional purposes, the Supreme Court has held that the term “rebellion” in Article VII, Section 18 of the 1987 Constitution carries the technical meaning given to rebellion under Article 134 of the Revised Penal Code. In Lagman, et al. v. Medialdea, et al., G.R. No. 231658, December 4, 2017, the Court explained that actual rebellion requires an actual assemblage of men in an armed public uprising for the purposes stated in Article 134. See Lagman, et al. v. Medialdea, et al..
What Is Force Majeure in Philippine Contract Law?
Article 1174 of the Civil Code provides that, except when the law or the parties provide otherwise, or when the nature of the obligation requires assumption of the risk, a person is generally not liable for events that could not be foreseen or that, although foreseen, were inevitable.
Fortuitous events may result from nature, such as floods and typhoons, or from human acts, such as riots, strikes, insurrections, and wars. Political rebellions and military uprisings may therefore qualify as force majeure, but qualification depends on the contract, the actual event, causation, and the parties’ conduct.
Article 1306 of the Civil Code permits contracting parties to establish the terms and conditions they consider appropriate, provided that the stipulations do not violate law, morals, good customs, public order, or public policy. Thus, parties may expressly identify insurrection, rebellion, civil disturbance, military action, or government orders as force majeure events. This principle was recognized in Philippine Communications Satellite Corporation v. Globe Telecom, Inc., G.R. No. 147324, May 25, 2004. See Philippine Communications Satellite Corporation v. Globe Telecom, Inc..
Does a Coup d’Etat Automatically Excuse Non-Performance?
No. The occurrence of a coup d’état or rebellion does not automatically release a party from every contractual obligation. The party invoking force majeure must establish that the event falls within the contract’s wording and materially caused the failure or delay in performance.
A force majeure clause may expressly include “insurrection,” “rebellion,” “riot,” “civil disturbance,” “military or usurped power,” “government action,” or similar events. Where the clause covers the event and the event prevents performance, the clause may excuse liability to the extent agreed by the parties.
In Philippine Communications Satellite Corporation v. Globe Telecom, Inc., the Supreme Court upheld a contractual provision treating government orders, insurrection, riots, national emergencies, war, and related circumstances as force majeure. The Court found that these events were either unforeseeable or beyond the parties’ control and were not inconsistent with Article 1174 of the Civil Code.
What Must the Affected Party Prove?
The party relying on a force majeure clause should ordinarily show the following:
- Covered event: The rebellion, coup d’état, military action, government order, or disturbance falls within the clause.
- External cause: The event was beyond the reasonable control of the affected party.
- Causal connection: The event actually prevented, delayed, or materially obstructed the specific contractual obligation.
- Compliance with notice requirements: The party gave timely notice and submitted the documents required by the contract.
- Mitigation: The party took reasonable steps to reduce the effects of the disruption.
- Absence of fault: The party did not cause, worsen, or strategically invoke the event to avoid an existing obligation.
The contract may also require proof of official declarations, security reports, site closures, government directives, police or military restrictions, evacuation orders, or records showing that access to the affected premises was impossible or unsafe.
Can Financial Difficulty Be Treated as Force Majeure?
Generally, no. Financial difficulty, reduced revenue, loss of a business purpose, or an unfavorable political climate does not by itself establish legal impossibility or force majeure.
In Philippine National Construction Corporation v. Court of Appeals, et al., G.R. No. 116896, May 25, 1997, the Supreme Court rejected the argument that political changes and poor financial condition made a lease contract impracticable. The Court emphasized that the party entered into the agreement with knowledge of the country’s deteriorating political and economic conditions.
Article 1267 of the Civil Code may release an obligor when the service has become so difficult as to be manifestly beyond the contemplation of the parties. The provision is applied only in exceptional circumstances because an unrestricted application would undermine the stability of contractual relations. Parties are generally presumed to have assumed ordinary commercial risks.
What If the Contract Assigns the Political Risk?
The contract controls, subject to law and public policy. A construction agreement, for example, may classify rebellion, insurrection, civil war, riot, or military action as an employer’s assumed risk. In that situation, the contractor may be entitled to payment for specified losses or additional costs if the contractual conditions are satisfied.
In Department of Public Works and Highways v. CMC/Monark/Pacific/Hi-Tri Joint Venture, G.R. No. 179732, June 7, 2017, the Supreme Court recognized that a contract may treat rebellion, revolution, insurrection, military or usurped power, civil war, and riot as employer-assumed risks. The peace-and-order situation at the project site supported the contractor’s claim for equipment and financial losses under the agreed conditions of contract. See Department of Public Works and Highways v. CMC/Monark/Pacific/Hi-Tri Joint Venture.
This does not mean that every loss during political unrest is recoverable. The claimant must still prove that the loss is within the clause, resulted from the covered event, and was supported by the required contractual certification, valuation, notice, and claims procedure.
How Are Government Orders and Security Restrictions Treated?
A force majeure clause may cover not only the uprising itself but also government orders, military restrictions, curfews, access limitations, evacuation directives, or the closure of public facilities. The legal effect depends on the precise language of the agreement.
For example, a telecommunications agreement may cover a government order that prevents access to a facility. A construction contract may cover suspension caused by a military operation or serious peace-and-order problem. A lease may not excuse rental payments merely because the surrounding political climate has become unfavorable, particularly where the premises remain legally and physically available for use.
What Are the Limits of a Force Majeure Defense?
A force majeure defense may fail when the event is only incidental to the non-performance. It may also fail where the party could have performed through reasonable alternative means, where the difficulty resulted from lack of funds, or where the party did not comply with notice and documentation requirements.
Contractual language must be read together with the nature of the obligation. An obligation to pay money is ordinarily not discharged merely because the debtor experiences financial hardship or because the transaction has become less profitable.
In mining agreements, the force majeure clause may include rebellion, insurrection, riots, civil disturbances, adverse government action, and other events beyond the contractor’s reasonable control. In Awayan v. Sulu Resources Development Corporation, G.R. No. 200474, August 5, 2020, the Supreme Court considered the contractual definition of force majeure and stressed the relevance of whether the asserted circumstance was beyond the claimant’s control. See Awayan v. Sulu Resources Development Corporation.
How Does Insurance Interact With Political-Uprising Risks?
Insurance policies may separately exclude losses caused by insurrection, rebellion, revolution, civil war, or usurped power. Even when a business interruption or property policy is described as “all-risk,” the insurer may avoid liability by proving that the loss resulted from an excluded peril.
In Platinum Group Metals Corporation v. The Mercantile Insurance Co., Inc., G.R. No. 253716, March 15, 2023, the Supreme Court recognized that an all-risk policy may exclude losses caused directly or indirectly by invasion, insurrection, rebellion, revolution, civil war, or usurped power. Because insurance contracts are contracts of adhesion, exclusions are strictly examined; however, a clearly established exclusion may defeat the claim. See Platinum Group Metals Corporation v. The Mercantile Insurance Co., Inc..
Businesses should therefore review force majeure provisions and insurance exclusions together. A contract may excuse a party from contractual damages while the insurance policy separately denies coverage for the same loss.
What Should Businesses Do During a Coup d’Etat or Rebellion?
- Review the contract immediately. Identify covered events, notice periods, suspension rights, extension provisions, payment obligations, termination rights, and claims procedures.
- Document the event and its effects. Preserve government orders, security advisories, incident reports, photographs, access records, payroll records, delivery records, and correspondence.
- Establish causation. Explain precisely how the uprising or government restriction prevented the particular obligation from being performed.
- Give contractual notice. Failure to provide notice within the agreed period may affect the right to invoke the clause or recover costs.
- Mitigate losses. Consider alternative routes, substitute suppliers, remote operations, temporary facilities, revised work schedules, or other reasonable measures.
- Separate covered and uncovered losses. Distinguish losses caused by the political event from losses caused by market decline, poor management, pre-existing default, or financial inability.
- Coordinate contract and insurance claims. Examine whether the same event is covered by the contract but excluded under the insurance policy.
Typical Commercial Scenarios
Construction project: If armed conflict or rebellion makes the project site inaccessible and the contract assigns rebellion-related losses to the employer, the contractor may seek an extension or compensation, subject to the claims procedure and proof of loss.
Commercial lease: A tenant generally cannot stop paying rent merely because political instability has reduced customer traffic or made the business less profitable. The tenant must show that the contract or applicable law provides a basis for suspension or release.
Telecommunications facility: A government order or military restriction that prevents access to a station may fall within a force majeure clause covering government acts and insurrection, provided the restriction actually caused the service interruption.
Mining operation: A dispute involving land access may not qualify as force majeure if the contractor had available legal remedies or if the real cause of the delay was financial inability to pursue those remedies.
Conclusion
Under Philippine law, a coup d’état, rebellion, or military uprising may constitute force majeure when the event is covered by the contract, lies beyond the affected party’s control, and directly prevents or materially delays performance. The legal classification of the event under Article 134-A of the Revised Penal Code is relevant, but it does not by itself determine contractual liability.
The parties’ written risk allocation remains decisive. Businesses should use specific language covering rebellion, insurrection, coup d’état, military action, civil disturbance, government restrictions, access prohibitions, and related consequences. During an actual disruption, timely notice, detailed documentation, causation evidence, mitigation, and compliance with the agreed claims process are essential.
About Nicolas and De Vega Law Offices
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