The Taal Volcano eruption prompts a review of existing business contracts to make sure they contain provisions on “fortuitous events” for their own protection, according to an Alabang-based consulting firm.
Atty. Neil Noe Reyes, the legal management director of Aclan Reyes Alcaraz Consulting, says a provision on fortuitous events (force majeure) in business contracts such as lease, insurance coverage, loan terms, financial agreements, procurement contracts, employment agreements, supply arrangements and business deals will help companies and property owners around Taal Volcano mitigate their exposure to financial risks.
“Based on contracts submitted to us by clients for review, probably 90 percent of the contracts had no provisions on fortuitous events. There should always be provisions on these events for their protection,” says Reyes, a 31-year-old resident of Silang, Cavite which was also affected by ash fall spewed by the volcano.
Atty. Pauline Alcaraz, also of ARA Consulting and a faculty at Philippine Women’s University, says while the Civil Code of the Philippines has general provisions covering natural disasters, “it is safer for businesses to have those stipulations in their contracts”.
“It is better to list all events under the fortuitous event provision in contracts such as volcanic eruption, earthquakes, typhoons, declaration of war, riots, etc.,” Alcaraz says. “Fortuitous events are those which cannot be foreseen or those which can be foreseen but inevitable. They are either acts of men or acts of God. Acts of men include war or riots while acts of God include disasters such as typhoons, earthquakes, volcano eruption.Thus, should a fortuitous event happen, it can exempt the parties from liabilities,” she says.
“From our point of view, what the small businesses lack is the provision in their contracts that would protect them against these fortuitous events,” says Alcaraz.
ARA Consulting, a part of the Aclan Group of Companies, is a full-suite business consulting enterprise with solid legal expertise and comprehensive commercial services. The legal services ARA Consulting provides include contract drafting and reviews, assistance on immigration concerns, accounting and tax management.
“Right now, the target of the firm is to get local entrepreneurs, start-ups as clients. That’s one half of the clientele and the other half is foreign companies wanting to establish businesses here in the Philippines,” says Atty. Neil Reyes.
Reyes says several clients were in fact affected by the ash fall following the phreatic eruption of Taal Volcano on Jan. 12.
“Some establishments in Tagaytay are complaining that they have to pay rent when their restaurants are not operating. That basically is a problem for them. For businesses that haven’t engaged a lawyer to review a contract, they will be forced to pay rent even if their businesses haven’t been operating,” he says.
“For clients who have contracts prepared by lawyers, their businesses are somewhat protected because they are exempted from paying rent in events like volcanic eruption and other calamities,” he says.
Impact of eruption
Taal Volcano’s unrest led to the relocation of more than 200,000 people from communities surrounding the volcano and forced the lockdown of several Batangas towns within the 14-kilometer radius which are considered high-risk. Residents and businesses within the 14-km danger zone as identified in the Taal Volcano Base Surge Hazard Map were told to evacuate.
In its initial estimate, the National Economic and Development says Taal’s unrest resulted in P4.3 billion in economic losses within the 14-km radius, representing 0.17 percent of the gross regional domestic product of CALABARZON. Sixteen towns and cities are within the 14-km radius, including San Nicolas, Agoncillo, Talisay, Laurel, Tanauan City, Tagaytay City, Cuenca, Mataas na Kahoy, Balete, Lemery, Taal, Lipa City, Santa Teresita, Malvar, Alitagtag and San Jose.
Ten more towns would join the list if the danger zone would be expanded to a 17-km radius, including Alfonso, Calaca, Bauan, Lian, Nasugbu, San Luis, San Pascual, Sto. Tomas, Tuy and Balayan.
Many companies operating in Batangas and Cavite reported a temporary disruption of one to two days after Taal Volcano released thick ashes that posed threat to human health. It also forced the cancellation of flights at the Ninoy Aquino International Airport for two days.
Alcaraz says it is important that employers discuss with their employees the provisions on fortuitous events in contracts or in their respective company policies. “Remember that you have to explain that provision to your employees. What usually happens is that the employees do not read the contract. It is better for the employers to make sure that they explain everything,” she says.
Alcaraz says businesses and enterprises which had to close operations as a result of a natural disaster can also temporarily stop paying salaries to their employees. “In the Philippines, we adopt the ‘no work, no pay’ principle. It is unfair for employers to continue to pay their employees once the company ceased operations, only that they have to follow the proper procedures. There should be notices sent to DOLE [Department of Labor and Employment,” she says.
“So long as employees work, they should be paid. But if they decide not to go to work which is their right because it will be detrimental to their health and safety, and there was a determination by DOLE than an imminent danger situation exists, then they should not be paid because they are not in the workplace, unless the company policy provides otherwise,” says Atty. Pauline Alcaraz.
“ If determined by DOLE, employees can refuse to go to work, without fear of losing their jobs permanently. The employers cannot do that,” she says.
Reyes says establishments affected by the calamity can also ask for leeway from banks in terms of loan repayments. “Basically the contract with banks is a contract of adhesion. It is a ‘take it or leave it’ contract. Usually, even in the face of a fortuitous event, you still have to continue paying the loans or amortizations. One can ask banks or financial institutions to give leeway for the restructuring of the loans or you can ask for several months of non-payment because the non-operation of the establishment means it has no income,” he says.
Reyes says the same is true with lease. “If it is not in the lease contract, the advice is that when the renewal of the contract comes, you should review the terms and insert provisions on fortuitous events,” he says.
He says that in terms of contributions to state-run agencies, businesses can also avail of condonation programs extended by the Social Security System, PhilHealth and Pag-IBIG to victims of calamities. Individuals and companies in the affected areas must stay tune to updates from these firms. Some private insurance companies recently announced an extended payment period for insurance premiums.
Reyes says Taal’s unrest has also highlighted the importance of having a comprehensive insurance coverage. “If cars have comprehensive insurance, real estate properties should also have comprehensive insurance coverage,” he says.
Alcaraz agrees, saying that insurance is often overlooked in the Philippines. “The usual insurance products are life insurance, fire insurance and car insurance. But coffee and pineapple farmers and fisher folks were also affected. There should also be crop insurance,” she says.
The two lawyers also point to the need for businesses and households to secure their documents. “If birth certificates or passports are destroyed or lost, it would be easy to get duplicate copies from the Philippine Statistics Authority and DFA. But in the case of original certificates of titles or transfer certificates of titles, it is not as easy to file an action for the reconstitution of title. It is still a hassle, so we have to focus on the importance of safekeeping the documents,” Reyes says.
Alcaraz advises property owners to avail of the Voluntary Title Standardization Program of the Land Registration Authority. The program provides title owners the option to upgrade manually-issued titles to eTitles. “Once you have eTitles, they are already registered in the system of LRA. This is important so you would not worry about losing your paper titles anymore,” she says.
Data from LRA, however, show that more than 11 million titles or 71 percent of the total titles nationwide are still in paper title status.
Reyes says natural disasters such as the Taal Volcano eruption should change Filipinos’ view of contracts and insurance. “Usually, we wait for these calamities before we act. We overlook insurance and we overlook contract reviews. In case of leased properties, the lessee only looks at the amount and does not bother to review the other terms of the contract,” he says.
Alcaraz says people in areas vulnerable to fortuitous events can minimize their financial risks if they are protected by contracts and comprehensive insurance coverage. “The phrase ‘prevention is better than cure’ also applies in the legal field. It is better that you are protected by well-prepared contracts or insured instead of having to negotiate with much effort later,” she says.
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