conflict of laws batch 2

8/17/2019 Conflict of Laws Batch 2

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The authority of the ' to enter into compromise agreements in civil

cases and to grant immunity, under certain circumstances, in criminal cases is

no# settled and established. n Republi( of te Pilippines and 2ose O.Campos#

2r . s. )andiganba"an# et al. (1C3 %$ C-, D1/E), this ourt categorically

stated that amicable settlements and compromises are not only allo#ed but

actually encouraged in civil cases. specic grant of immunity from criminal

prosecutions #as also sustained. n Benedi(to s. Board of !dministrators of

/eleision )tations RPN# BBC# and BC (-!C %$ ?0 D1-E), the ourt ruled

that the authority of the ' to validly enter into compromise agreement for

the purpose of avoiding litigation or putting an end to one already commenced

#as indisputable. The court too2 cogni=ance of the fact that the compromise

agreement #hich is no# the subect of the present petitions #as pending before

the %andiganbayan for determination and approval and, therefore, dismissed the

petition directed against the agreement>s implementation and enforcement.

%ince this ourt specically ordered the %andiganbayan to act on the

compromise agreement bet#een the ' and &enedicto, #hat remains to be

done is to ascertain the propriety of the action of the %andiganbayan in

approving the agreement, and the validity of the agreement itself.

The %andiganbayan stated in its decision that the contract on its face

does not appear to be contrary to la#, morals, or public policy and that it #as

entered into freely and voluntarily by the parties (p. C, Rollo in .$. No.

1!/--). There is no intimidation of vitiated consent on the part of the '. n

its nding that the compromise agreement #as entered into by the parties freely,

voluntarily, and #ith full understanding of its conseBuences, respondent court

stated that the agreement is conclusive and binding upon it.

He agree #ith the follo#ing observations of the %andiganbayanI

party that availed himself of and complied #ith the provisions of a

udicial compromise is under estoppel to Buestion its validity. (%errano vs. +iave,

13 %$ 4?1). n the regime of la# and order, repudiation of an agreement

validly entered into cannot be made #ithout any ground or reason in la# or in

fact for such repudiation. ($odrigue= vs. li2pala, 0C %$ 400).

t is in conseBuences of this that the %upreme ourt in $a"uga s. Court

of !ppeals, 104 %$ 3!, held that a (ompromise upon its perfe(tion be(ame

binding upon te parties and as te ee(t and autorit" of res 4udi(ata een if

not 4udi(iall" approed. (6mphasis supplied)

n this connection, therefore, He hold that plainti7 is in estoppel to

Buestion the validity of the herein ompromise greement since it had already

received benets thereunder, such asI

1. 5ull ta2e over and control of riental 'etroleum shares of stoc2s

o#ned by 'iedras +ining and the e"cercise by the latter company of the pre

emptive rights granted by riental 'etroleum. %aid shares have a total

value no of P1#0-+#81#35-.00 ('.!?C0 and '.!CC0Jper and & shares,

respectively.

-. 5ull ta2e over, control and management of &roadcast ity, (hannel

13) inspite of %upreme ourt decision in .$.

No. %,85510 that the &oard of dministration, created under 6"ecutive rder No.

11, continued management is no longer legally possible, upon formal

representation and that &enedicto #ill comply fully #ith the terms and conditions

of the ompromise greement. %aid assets have a total estimated value of '40!

million.

3. omplete turnover of alifornia verseas &an2, #ith capital account

of 8%K1/ +illion ('4!? million), to the 'hilippine overnment #hich #as in turn

sold by the 'hilippine overnment to the 'N&.

4. $eceipt of 8%K1?.-C1 million ('3/?.! million @ '-3.C1JK1.!!). The

total value of the aforesaid assets transferred to the 'hilippine overnment

amount to '-.33? &illion.

n 6atipunan %abor 7nion s. Calte , 1!1 'hils. 1--4, the %upreme

ourt, through


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said compromise. t is clear from the language of the la#, specically rticle

-!41 of the Ne# ivil ode that one of the parties to a compromise has t#o

optionsI 1) to enforce the compromiseG or -) to rescind the same and insist upon

his original demand. The respondentappellee in the case herein before 8s #ants

to avail of both of these options. This can not be done. The respondentappellee

cannot as2 for rescission of the compromise agreement after it has already

enoyed the rst option of enforcing the compromise by as2ing for a #rit of

e"ecution resulting thereby in the garnishment of the 'asay ity funds deposited

#ith the 'hilippine National &an2 #hich eventually #as delivered to the

respondentappellee. (at p. 1?/)t is eBually puerile for the ' to contend that the agreement is

congenitally defective from the mere happenstance that the agreement #as not

authenticated before the consular oFcials abroad and #ithout the participation

of #itnesses and of the %olicitor eneral. Hhile the rule of le lo(i

(elebrationis generally governs forms and solemnities of contracts under rticle

1C of the ivil ode (;itug, ompendium of ivil ;a# and s assets need to be stated in the four corners of the agreement since

his duty to disclose all his property is supposed to be madebefore the ' or to

the %andiganbayan #hen called upon to testify as a vital #itness on other ill

gotten #ealth cases under %ection 0 of 6 14. t is needless to stress that the

series of negotiations #hich culminated in the signing of the agreement on

November 3, 1! a7orded every opportunity for &enedicto to reveal his assets

3


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for the '>s evaluation in conunction #ith its general function to collate

evidence relative to illgotten #ealth (&ataan %hipyard and 6ngineering o., nc.

vs. ' (10! %$ 1/1 D1/CE).

The fact that certain details peculiar in other compromise agreements,

such as those found in the 5onacier, $a=on and 5loirendo deals, are not reMected

in the &enedicto agreement does not mean that the settlement is susceptible to

challenge, especially so #hen the ' itself concedes that any future

agreement need not follo# the pattern "ed in previous contracts (p. 33, 'etitionG

p. 3/, Rollo in . $. No. 1!/--).

To support the thesis that the agreement per se is contrary to la#, the' shifts discussion to the salient portions of $epublic ct No. 3!1, the nti

raft and orrupt 'ractices ct, particularly those #ith respect to acts allegedly

causing undue inury to the government, resulting into a manifestly

disadvantageous contract and leading to un#arranted priveleges (p. 30, 'etitionG

p. 4!, Rollo in . $. No. 1!/--). &ut these assumptions remain mere

verisimilitudes, unsupported by evidence that indeed the contract #as entered

into under circumstances #hich #ould invite reasonable suspicion of bad faith on

the part of those privy thereto.

To bac2trac2 from the e7ects of the settlement, the ' relies on the

principle that the %tate is never estopped by acts of its agents, as applied in

cases #hich reBuire no citation, and as aFrmed by %ection 10, rticle 11 of the

1/C onstitutionI

The right of the %tate to recover properties unla#fully acBuired by public

oFcials or employees, from them or from their nominees or transferees, shall not

be barred by prescription, laches or estoppel.

He agree #ith the statement that the %tate is immune from estoppel

but this concept is understood to refer to acts and mista2es of its oFcials

especially those #hich are irregular (%harp nternational +ar2eting vs. ourt of

ppeals, -!1 %$ -G 3!? D11EG $epublic vs. Buino, 1-! %$ 1/? D1/3E,

#hich peculiar circumstances are absent in the case at bar. lthough the %tate>s

right of action to recover illgotten #ealth is not vulnerable to estoppel, it is non

se=uitur to suggest that a contract, freely and in good faith e"ecuted bet#een

the parties thereto is susceptible to disturbance ad in>nitum. di7erent

interpretation #ill lead to the absurd scenario of permitting a party to unilaterally

ettison a compromise agreement #hich is supposed to have authority of res

4udi(ata ( !rti(le ?035, Ne# ivil ode), and li2e any other contract, has the force

of la# bet#een privies thereto ( !rti(le 11*-, Ne# ivil odeG Lernae= vs. ao, 1C

%$ -? D1??EG ? Padilla, ivil ode annotated, Cth ed., 1/C. p. C11G

3 !=uino, ivil ode, 1! ed., p. 4?3) Thus, as empha=ised by


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The %andiganbayan had ample opportunity to e"amine the validity of

the compromise agreement and to loo2 into any iniBuitous or illegal features,

e"press, implied, or hidden. T#o years elapsed from the time the agreement #as

e"ecuted up to the time it #as udicially approved. The oint motion to approve

the compromise agreement led by the ' and &enedicto dated November

--, 1! #as follo#ed seven days later by an opposition from %olicitor eneral

5ran2 have=. omments, replies, various motions, a temporary restraining order

of the ourt inGuingona s. PCGG and our decision in that case @ -!C %$ ?0

(1-), memoranda, hearings set for ugust 11, 1-, %eptember 1, 1-, and

%eptember 1C, 1-, oppositions, manifestations, and the %eptember 1C, 1-resolution of the %andiganbayan preceded its no# Buestioned ctober -, 1-

decision. 6very Buestion regarding the legality and propriety of the compromise

agreement #as fully threshed out before the %andiganbayan by the parties. He

are not dealing #ith the usual compromise agreement perfunctorily submitted to

a court and approved as a matter of course. The '&enedicto agreement #as

throughly and, at times, disputatiously discussed before the respondent court.

There could be no deception or misrepresentation foisted on either the ' or

the %andiganbayan.

n !raneta s . Pere9 (C %$ -3 D1?3E), #e ruled that a compromise

once approved by nal orders of the court has the force of res 4udi(ata bet#een

the parties and should not be disturbed e"cept for vices of consent or forgery. t

is a long established doctrine that the la# does nor relieve a party from the

e7ects of an un#ise, foolish, or disastrous constract, entered into #ith all the

reBuired formalities and #ith full a#areness of #hat he #as doing (Tanda vs.

ldaya, / 'hil. 4C D101E). ourts have no po#er to relieve parties from

obligations voluntarily assumed, simply because their contracts turned out to be

disastrous deals or un#ise investments (Aillacorte vs. +ariano, / 'hil. 341

D101E).

n the case at bar, the compromise agreement, as stated by

%andiganbayan, #as signed and e"ecuted by the parties :#ith their eyes #ide

open: (*ecision, p. -3G p. 1!1, Rollo in .$. No. 1!/--). The ' 2ne# the

strength of the evidence in its hands, the advantages of immediate recovery, the

proected income if forth#ith privati=ed, and other benets to the overnment.

The %andiganbayan itself in t#o years of proceedings and deliberations reected

the allegations of fraud, deception, illegality, and contrariness to morals, good

customs, public policy and public order no# raised again before us.

There is another aspect of these petitions presented by petitioners

#hich appears inconsistent and infeasible. The original prayer of the ne# '

hairman #as to :renegotiate a more ust, fair and eBuitable agreement: (nne"

of 'etition in .$. No. 1!/--, p. 11, Rollo). t the ris2 of being redundant, #e

once again must emphasi=e that the government has already ta2en over

everything ceded to it by &enedicto. n fact, it is already selling if it has not yet

sold various ceded property under the privati=ation program. n other #ords, the

agreement has not only been e"ecuted, it has been implemented. 6ven as the

' see2s to nullify and declare void the compromise agreement, it has no

intention of returning any of the pieces of property #hich it received under the

agreement. t states that the rules on the Buestion of :restitution: are not those

on rescissible contracts but those on void and ine"istent contracts in the ivil

ode.

The ' seemingly forgets that the o#nership of the ceded property

has been vested in the government not because it #on its cases in the courts

and the true o#nership or illegal acBuisition has been denitely established. t

cannot assume that its allegations have been sustained by the %andiganbayan.

#nership has been transferred because of the compromise agreement, not

because of any evidence presented in court by either side on the merits or

demerits of the reconveyance and reversion cases. The ompromise greement itself declaresI

HL6$6%, follo#ing the termination of the 8nited %tates and %#iss

cases, and also #ithout admitting the merits of their respective claims and

counterclaims presently involved in uncertain, protracted, and e"pensive

litigation, the $epublic of the 'hilippines, solely motivated by the desire for

immediate accomplishment of its recovery mission and

+r. &enedicto, being interested to lead a peaceful and normal pursuit of his

endeavors, the parties have decided to #ithdra# andJor dismiss their mutual

claims and counterclaims under the cases pending in the 'hilippines earlier

referred toG

n other #ords, the overnment #anted to recover as much as it could

and as fast as possible #hile &enedicto #anted to buy peace #ithout admitting

guilt. f the ' #ants to nullify the agreement it entered into freely and

voluntarily, it must be #illing to return all the property ceded to it because of the

greement and recover them by proving its cases in the course of udicial

proceedings. This is an essential rst step. t cannot renege on the agreement

#hile holding on to property #hich it received as a result of said agreement.

+ore than any person or institution, the government should honor its

solemn commitments. t #ould set a bad precedent and result in public

disenchantment #ith government if every ne# head of a government agency is

allo#ed to freely diso#n the legitimate agreements of his predecessors,

especially those bearing court approval and, even as everything is already nal

and implemented, insist on further rounds of negotiations. 8nder the '>s

theory, there #ould be nothing to prevent any of its future hairman from

repudiating and revo2ing acts of his predecessors. The vital element of trust,

honor, and stability in dealing #ith the government #ould be lost.

The petitioners in .$. Nos. 1!/04/4 and 1!/00! led their petitions

to set aside the denial of their motion to intervene. They raise essentially the

same grounds as the ' in the t#o other cases in their bid to set aside the

compromise agreement. ccording to said petitioners, they are intervening

because &enedicto should compensate them and the sugar industry for the

systematic plunder of the industry. He agree #ith the %andiganbayan that their

rights can be fully protected in a separate proceeding.

There is no doubt that interested parties #ho claim o#nership of some

assets embraced in the settlement can participate in pending litigations involving

il lgotten #ealth before the %andiganbayan as held in Republi(

0


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s.)andiganba"an (1/4 %$ 3/- D1!E) #ith reference to incidents arising

from, incidental to, or inter#oven #ith, cases falling #ithin respondent court>s

e"clusive and original urisdiction (' vs. 'eOa, 10 %$ 00? D1//E). &ut

inasmuch as the petitioners in .$. No. 1!/04/0! led their motion for leave to

intervene and to admit memorandum in intervention on November 13, 1- (p.

C, 'etitionG p. /, Rollo in .$. No. 1!/04/4G p. C, 'etitionG p. C, Rollo in .$. No.

1!/00!) or after promulgation of the impugned decision on ctober -, 1-, it

cannot be gainsaid that the intended intrusion #as not seasonably raised before

or during the trial spo2en of by %ection -, $ule 1- of the $evised $ules of ourt,

to #itI%ec. - @ ntervention @ person may, before or during a trial, be

permitted by the court, in its discretion to intervene in an action, if he has legal

interest in the matter in litigation, or in the success of either of the parties, or an

interest against both, or #hen he is so situated as to be adversely a7ected by a

distribution or other disposition of property in the custody of the court or of an

oFcer thereof.

t any rate, availability of a separate proceeding for petitioners as third

persons to the compromise agreement before the %andiganbayan, in accordance

#ith the ruling of this ourt in Republi( s. )andiganba"an (1/4 %$ 3/-

D1!E) and in PCGG s. Pe@a (10 %$ 00? D1//E), proscribes intervention

under %ection -(b), $ule 1- of the $evised $ules of ourtI

%ec. -(b) @ *iscretion of court @ n allo#ing or disallo#ing a motion for

intervention, the court, in the e"cercise of discretion, shall consider #hether ornot the intervention #ill unduly delay or preudice the adudication of the rights

of the original parties and #hether or not the intervenor>s rights may be fully

protected in a separate proceeding.

HL6$65$6, the petitions in .$. Nos. 1!/--, 1!/3?/, 1!/04/4,

and 1!/00! are hereby dismissed. The restraining orders issued in the respective

cases dated +arch 1!, 13, +arch -3, 13, and +arch -4, 13, are hereby

lifted and the parties to the compromise agreement are ordered to comply

strictly #ith the terms thereof.

% $*6$6*.

G.R. No. 92013 7& 2, 1990

S+L6+OR H. L+UREL, petitioner,

'!.

R+/ON G+RCI+, %! e%# o: te +!!et Pr"'%t";%t"o$ Tr7!t, R+UL

/+NGL+PUS, %! Se


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The $eparations greement provides that reparations valued at K00!

million #ould be payable in t#enty (-!) years in accordance #ith annual

schedules of procurements to be "ed by the 'hilippine and capital goods and services

in the event of sale, lease or disposition. The four properties in s contention by

saying that the subect property is not governed by our ivil ode but by the

la#s of


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Las the intention of the government regarding the use of the property

been changed because the lot has been dle for some yearsR Las it become

patrimonialR

The fact that the $oppongi site has not been used for a long time for

actual 6mbassy service does not automatically convert it to patrimonial property.

ny such conversion happens only if the property is #ithdra#n from public use

(ebu "ygen and cetylene o. v. &ercilles, ?? %$ 4/1 D1C0E). property

continues to be part of the public domain, not available for private appropriation

or o#nership until there is a formal declaration on the part of the government to

#ithdra# it from being such (gnacio v. *irector of ;ands, 1!/ 'hil. 330 D1?!E). The respondents enumerate various pronouncements by concerned

public oFcials insinuating a change of intention. He emphasi=e, ho#ever, that an

abandonment of the intention to use the $oppongi property for public service

and to ma2e it patrimonial property under rticle 4-- of the ivil ode must be

de>nitebandonment cannot be inferred from the nonuse alone specially if the

nonuse #as attributable not to the government>s o#n deliberate and indubitable

#ill but to a lac2 of nancial support to repair and improve the property (%ee

Leirs of 5elino %antiago v. ;a=aro, 1?? %$ 3?/ D1//E). bandonment must be

a certain and positive act based on correct legal premises.

mere transfer of the 'hilippine 6mbassy to Nampeidai in 1C? is not

relinBuishment of the $oppongi property>s original purpose. 6ven the failure by

the government to repair the building in $oppongi is not abandonment since as

earlier stated, there simply #as a shortage of government funds. The recentdministrative rders authori=ing a study of the status and conditions of

government properties in


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The subseBuent approval on ctober 4, 1// by 'resident Buino of the

recommendation by the investigating committee to sell the $oppongi property

#as premature or, at the very least, conditioned on a valid change in the public

character of the $oppongi property. +oreover, the approval does not have the

force and e7ect of la# since the 'resident already lost her legislative po#ers. The

ongress had already convened for more than a year.

ssuming for the sa2e of argument, ho#ever, that the $oppongi

property is no longer of public dominion, there is another obstacle to its sale by

the respondents.

/ere is no la autori9ing its (one"an(e.%ection C (f) of the $evised dministrative ode of 11C provides

%ection C (f ) Cone"an(es and (ontra(ts to i( te Goernment is a

part". D n cases in #hich the overnment of the $epublic of the 'hilippines is a

party to any deed or other instrument conveying the title to real estate or to any

other property the value of #hich is in e"cess of one hundred thousand pesos,

the respective *epartment %ecretary shall prepare the necessary papers #hich,

together #ith the proper recommendations, sall be submitted to te Congress

of te Pilippines for approal b" te same. %uch deed, instrument, or contract

shall be e"ecuted and signed by the 'resident of the 'hilippines on behalf of the

overnment of the 'hilippines unless the overnment of the 'hilippines unless

the authority therefor be e"pressly vested by la# in another oFcer. (6mphasis

supplied)

The reBuirement has been retained in %ection 4/, &oo2 of thedministrative ode of 1/C (6"ecutive rder No. --).

%6. 4/. O'(ial !utori9ed to Cone" Real Propert" . @ Hhenever real

property of the overnment is autori9ed b" la to be (one"ed# the deed of

conveyance shall be e"ecuted in behalf of the government by the follo#ingI

(1) 5or property belonging to and titled in the name of the $epublic of

the 'hilippines, by the 'resident, unless the authority therefor is e"pressly vested

by la# in another oFcer.

(-) 5or property belonging to the $epublic of the 'hilippines but titled in

the name of any political subdivision or of any corporate agency or

instrumentality, by the e"ecutive head of the agency or instrumentality.

(6mphasis supplied)

t is not for the 'resident to convey valuable real property of the

government on his or her o#n sole #ill. ny such conveyance must be authori=edand approved by a la# enacted by the ongress. t reBuires e"ecutive and

legislative concurrence.

$esolution No. 00 of the %enate dated


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The petitioner in .$. No. -!4C also statesI

$oppongi is no ordinary property. t is one ceded by the importance and value, the la#s on conversion and

disposition of property of public dominion must be faithfully follo#ed.

HL6$65$6, N A6H 5 TL6 5$6N, the petitions are $NT6*.

#rit of prohibition is issued enoining the respondents from proceeding #ith the

sale of the $oppongi property in To2yo, s legal

authority to sell the $oppongi property. Hhen as2ed to do so at the hearing on

these petitions, the %olicitor eneral #as at best ambiguous, although must add

in fairness that this #as not his fault. The fact is that there is no such authority.

;egal e"pertise alone cannot conure that statutory permission out of thin air.6"ec. rder No. -?, #hich reads li2e so much legislative, double tal2,

does not contain such authority. Neither does $ep. ct No. ??0C, #hich simply

allo#s the proceeds of the sale of our properties abroad to be used for the

comprehensive agrarian reform program. %enate $es. No. 00 #as a mere reBuest

for the deferment of the scheduled sale of tile $oppongi property, possibly to

stop the transaction altogetherG and ill any case it is not a la#. The sale of the

said property may be authori=ed only by ongress through a duly enacted

statute, and there is no such la#.

nce again, #e have aFrmed the principle that ours is a government of

la#s and not of men, #here every public oFcial, from the lo#est to the highest,

can act only by virtue of a valid authori=ation. am happy to note that in the

several cases #here this ourt has ruled against her, the 'resident of the

'hilippines has submitted to this principle #ith becoming grace.

'*;;, 2.# concurringI

concur in the decision penned by +r.


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(1) 5or property belonging to and titled in the name of the $epublic of

the 'hilippines, by the 'resident, unless the authority therefor is e"pressly vested

by la# in another oFcer.

(-) 5or property belonging to the $epublic of the 'hilippines but titled in

the name of any political subdivision or of any corporate agency or

instrumentality, by the e"ecutive head of the agency or instrumentality.

(6mphasis supplied)

&ut the record is bare of any congressional decision or approval to sell

$oppongi. The record is li2e#ise bare of any congressional authority e"tended to

the 'resident to sell $oppongi thru public bidding or other#ise.t is therefore, clear that the 'resident cannot sell or order the sale of

$oppongi thru public bidding or other#ise #ithout a prior congressional approval,

rst, converting $oppongi from a public dominion property to a state patrimonial

property, and, second, authori=ing the 'resident to sell the same.

$*N;9, my vote is to $NT the petition and to ma2e

'6$+N6NT the temporary restraining order earlier issued by this ourt.

%$+6NT, 2.# concurringI

The central Buestion, as see it, is #hether or not the socalled

:$oppongi property> has lost its nature as property of public dominion, and

hence, has become patrimonial property of the %tate. understand that the

parties are agreed that it #as property intended for :public service: #ithin the

contemplation of paragraph (-), of rticle 43!, of the ivil ode, and accordingly,land of %tate dominion, and beyond human commerce. The lone issue is, in the

light of supervening developments, that is nonuser thereof by the National

overnment (for diplomatic purposes) for the last thirteen yearsG the issuance of

6"ecutive rder No. -? ma2ing it available for sale to any interested buyerG the

promulgation of $epublic ct No. ??0C, the omprehensive grarian $eform ;a#,

ma2ing available for the program>s nancing, %tate assets soldG the approval by

the 'resident of the recommendation of the investigating committee formed to

study the property>s utili=ationG and the issuance of $esolution No. 00 of the

'hilippine %enate reBuesting for the deferment of its disposition it, :$oppongi:, is

still property of the public dominion, and if it is not, ho# it lost that character.

Hhen land of the public dominion ceases to be one, or #hen the change

ta2es place, is a Buestion our courts have debated early. n a 1!? decision, 1 it

#as held that property of the public dominion, a public pla=a in this instance,becomes patrimonial upon use thereof for purposes other than a pla=a. n a later

case, - this ruling #as reiterated. ;i2e#ise, it has been held that land, originally

private property, has become of public dominion upon its donation to the to#n

and its conversion and use as a public pla=a. 3 t is notable that under these three

cases, the character of the property, and any change occurring therein, depends

on the actual use to #hich it is dedicated. 4

+uch later, ho#ever, the ourt held that :until a formal declaration on

the part of the overnment, through the e"ecutive department or the ;egislative,

to the e7ect that the land . . . is no longer needed for DpublicE service for public

use or for special industries, DitE continueDsE to be part of the public DdominionE,

not available for private e"propriation or o#nership.: 0 %o also, it #as ruled that a

political subdivision (the ity of ebu in this case) alone may declare (under its

charter) a city road abandoned and thereafter, to dispose of it. ?

n holding that there is :a need for a la# or formal declaration to

#ithdra# the $oppongi property from public domain to ma2e it alienable and a

land for legislative authority to allo# the sale of the property: C the maority lays

stress to the fact thatI (1) n aFrmative act @ e"ecutive or legislative @ is

necessary to reclassify property of the public dominion, and (-) a legislative

decree is reBuired to ma2e it alienable. t also clears the uncertainties brought

about by earlier interpretations that the nature of property#hether public orpatrimonial is predicated on the manner it is actually used, or not used, and in

the same breath, repudiates the overnment>s position that the continuous non

use of :$oppongi:, among other arguments, for :diplomatic purposes:, has

turned it into %tate patrimonial property.

feel that this vie# corresponds to e"isting pronouncements of this

ourt, among other things, thatI (1) 'roperty is presumed to be %tate property in

the absence of any sho#ing to the contraryG / (-) Hith respect to forest lands, the

same continue to be lands of the public dominion unless and until reclassied by

the 6"ecutive &ranch of the overnmentG and (3) ll natural resources, under

the onstitution, and subect to e"ceptional cases, belong to the %tate. 1!

am elated that the ourt has banished previous uncertainties.

56;N, 2.# dissentingHith regret, nd myself unable to share the conclusions reached by +r.


13/63


14/63

;a dicultad mayor en todo esto estriba, naturalmente, en ar el

momento en Bue los bienes de dominio publico dean de serlo. %i la

dministracion o la autoridad competente legislative reali=an Bun acto en virtud

del cual cesa el destino o uso publico de los bienes de Bue se trata naturalmente

la dicultad Bueda desde el primer momento resuelta. Lay un punto de partida

cierto para iniciar las relaciones uridicas a Bue pudiera haber lugar Pero puede

o(urrir =ue no a"a talde(lara(ion epresa# legislatia or administratia# "# sin

embargo# (esar de e(o el destino publi(o de los bienes G ahora bien, en este

(aso# y para los efectos uridicos Bue resultan de entrar la cosa en el comercio de

los hombres,> se entedera =ue se a eri>(ado la (onersion de los bienes patrimonialesM

6l citado tratadista $icci opina, respecto del antiguo odigo italiano, por

la armativa, y por nuestra parte creemos Bue tal debe ser la soluciion. 6l

destino de las cosas no depende tanto de una declaracion e"presa como del uso

publico de las mismas, y cuanda el uso publico cese con respecto de

determinados bienes, cesa tambien su situacion en el dominio publico. %i una

fortale=a en ruina se abandona y no se repara, si un tro=o de la via publica se

abandona tambien por constituir otro nuevo an meores condiciones....ambos

bienes cesan de estar odigo, y leyes especiales mas o memos administrativas.

(3 +anresa, omentarios al odigo ivil 6spanol, p. 1-/ DCa ed.G 10-) (6mphasis

supplied)

The maority opinion says that none of the e"ecutive acts pointed to by

the overnment purported, e"pressly or denitely, to convert the $oppongiproperty into patrimonial property @ of the $epublic. ssuming that to be the

case, it is respectfully submitted that (umulatie ee(t of the e"ecutive acts

here involved #as to convert property originally intended for and devoted to

public service into patrimonial property of the %tate, that is, property susceptible

of disposition to and appropration by private persons. These e"ecutive acts, in

teir totalit" if not each individual act, ma2e crystal clear the intent of the

6"ecutive *epartment to e7ect such conversion. These e"ecutive acts includeI

(a) dministrative rder No. 3 dated 11 ugust 1/0, #hich created a

ommittee to study the dispositionJutili=ation of the overnment>s property in

s o#n deliberate and indubitable #ill but to lac2 of nancial support

to repair and improve the property: (+aority pinion, p. 13). Hith respect, itmay be stressed that there is no abandonment involved here, certainly no

abandonment of property or of property rights. Hhat is involved is the charge of

the classication of the property from property of the public domain into property

of the private domain of the %tate. +oreover, if for fourteen (14) years, the

overnment did not see t to appropriate #hatever funds #ere necessary to

maintain the property in $oppongi in a condition suitable for diplomatic

representation purposes, such circumstance may, #ith eBual logic, be construed

as a manifestation of the crystali=ing intent to change the character of the

property.

(d) n 3! +arch 1/, a public bidding #as in fact held by the 6"ecutive

*epartment for the sale of the lot in $oppongi. The circumstance that this

bidding #as not successful certainly does not argue against an intent to convert

the property involved into property that is disposable by bidding. The above set of events and circumstances ma2es no sense at all if it

does not, as a ole, sho# at least the intent on the part of the 6"ecutive

*epartment (#ith the 2no#ledge of the ;egislative *epartment) to convert the

property involved into patrimonial property that is susceptible of being sold.

Laving reached an aFrmative ans#er in respect of the rst issue, it is

necessary to address the second issue of #hether or not there e"ists legal

authority for the sale or disposition of the $oppongi property.

The maority opinion refers to %ection C(f) of the $evised

dministrative ode of 11C #hich reads as follo#sI

14


15/63

%6. C (f). Cone"an(es and (ontra(ts to i( te Goernment is a

part" . @ n cases in #hich the overnment of the $epublic of the 'hilippines is a

party to any deed or other instrument(one"ing te title to real estate or to any

other property te alue of i( is in e(ess of one undred tousand pesos ,

the respective *epartment %ecretary shall prepare the necessary papers #hich,

together #ith the proper recommendations, shall be submitted to te Congress

of te Pilippines for approal b" te same . %uch deed, instrument, or contract

shall be e"ecuted and signed by the 'resident of the 'hilippines on behalf of the

overnment of the 'hilippines unless the authority therefor be e"pressly vested

by la# in another oFcer. (6mphasis supplied) The maority opinion then goes on to state thatI ( approal of ongress en te pri(e of te real

propert" being disposed of is in e(ess of One undred /ousand Pesos

P100#000.00 under the $evised dministrative ode of 11C, has been deleted

from )e(tion +8 of te 1-85 !dministratie Code . Hhat %ection 4/ of the present

dministrative ode refers to is autori9ation b" la for the conveyance. %ection

4/ does not purport to be itself a source of legal authority for conveyance of real

property of the overnment. 5or %ection 4/ merely species the oFcial

authori=ed to e"ecute and sign on behalf of the overnment the deed of

conveyance in case of such a conveyance.

%econdly, e"amination of our statute boo2s sho#s that authori=ation by

la# for disposition of real property of the private domain of the overnment, has

been granted by ongress both in the form of (a) a general, standingauthori=ation for disposition of patrimonial property of the overnmentG and (b)

specic legislation authori=ing the disposition of particular pieces of the

overnment>s patrimonial property.

%tanding legislative authority for the disposition of land of the private

domain of the 'hilippines is provided by ct No. 3!3/, entitled :n ct

uthori=ing the %ecretary of griculture and Natural $esources to %ell or

;ease %and of te Priate Fomain of te Goernment of te Pilippine

slands (no# $epublic of the 'hilippines):, enacted on +arch 1--. The full te"t

of this statute is as follo#sI

&e it enacted by the %enate and Louse of $epresentatives of the

'hilippines in ;egislature assembled and by the authority of the sameI

%6TN 1. The %ecretary of griculture and Natural $esources (no#

%ecretary of the 6nvironment and Natural $esources) is hereby authori=ed to sell

or lease land of the private domain of the overnment of the 'hilippine slands,

or any part thereof, to such persons, corporations or associations as are, under

the provisions of ct Numbered T#entyeight hundred and seventyfour, (no#

ommon#ealth ct No. 141, as amended) 2no#n as the 'ublic ;and ct, entitled

to apply for the purchase or lease or agricultural public land.

%6TN -. /e sale of te land referred to in the precedingsection sall, if such land is agricultural, be made in the manner and subect to

the limitations prescribed in chapters ve and si", respectively, of said 'ublic

;and ct, and if it be (lassi>ed dierentl"# in (onformit" it te proisions of

(apter nine of said !(t I 'rovided, ho#ever, That the land necessary for the

public service shall be e"empt from the provisions of this ct.

%6TN 3. This ct shall ta2e e7ect on its approval.

pproved, +arch , 1--. (6mphasis supplied)

;est it be assumed that ct No. 3!3/ refers only to agricultural lands of

the private domain of the %tate, it must be noted that hapter of the old 'ublic

;and ct (ct No. -/C4) is no# hapter of the present 'ublic ;and ct

(ommon#ealth ct No. 141, as amended) and that both statutes refer toI :any

tract of land of the public domain #hich being neither timber nor mineral land, is

intended to be used for residential purposes or for (ommer(ial or industrial purposes other than agricultural: (6mphasis supplied).it(,asl n other #ords,

the statute covers the sale or lease or residential, commercial or industrial land

of the private domain of the %tate.

mplementing regulations have been issued for the carrying out of the

provisions of ct No. 3!3/. n -1 *ecember 104, the then %ecretary of

griculture and Natural $esources promulgated ;ands dministrative rders Nos.

C? and CC #hich #ere entitled, respectivelyI :%upplementary $egulations

overning the %ale of the %ands of te Priate Fomain of the $epublic of the

'hilippines:G and :%upplementary $egulations overning the %ease of %ands of

Priate Fomain of the $epublic of the 'hilippines: (te"t in 01 .. -/- D100E).

t is perhaps #ell to add that ct No. 3!3/, although no# si"tyeight (?/)

years old, is still in e7ect and has not been repealed. 1

%pecic legislative authori=ation for disposition of particular patrimonialproperties of the %tate is illustrated by certain earlier statutes. The rst of these

#as ct No. 11-!, enacted on -? pril 1!4, #hich provided for the disposition of

the friar lands, purchased by the overnment from the $oman atholic hurch,

to bona >de settlers and occupants thereof or to other persons. n 2a(into .

Fire(tor of %ands (4 'hil. /03 D1-?E), these friar lands #ere held to be private

and patrimonial properties of the %tate. ct No. -3?!, enacted on -/ 5ebruary

114, authori=ed the sale of the )an %a9aro Estate located in the ity of +anila,

#hich had also been purchased by the overnment from the $oman atholic

hurch. n


16/63

;a=aro theretofor leased by private persons, and #hich #ere also acBuired by the

'hilippine overnment.

fter the enactment in 1-- of ct No. 3!3/, there appears, to my

2no#ledge, to be only one statute authori=ing the 'resident to dispose of a

specic piece of property. This statute is $epublic ct No. !0, enacted on -!

s refusal to accommodate

them in TH 5light !!C departing from Ne# 9or2 to ;os ngeles on s position, the trial court categorically ruled that respondent

TransHorld irlines (TH) breached its contract of carriage #ith petitioners and

that said breach #as :characteri=ed by bad faith.: n appeal, ho#ever, the

appellate court found that #hile there #as a breach of contract on respondent

TH>s part, there #as neither fraud nor bad faith because under the ode of

5ederal $egulations by the ivil eronautics &oard of the 8nited %tates of

merica it is allo#ed to overboo2 Mights. The factual bac2drop of the case is as follo#sI

'etitionersspouses esar . Palamea and %uthira Palamea, and their

daughter, ;iana Palamea, purchased three (3) airline tic2ets from the +anila

agent of respondent TransHorld irlines, nc. for a Might to Ne# 9or2 to ;os

ngeles on


17/63

6ven in the ne"t TH Might to ;os ngeles +rs. Palamea and her

daughter, could not be accommodated because it #as also fully boo2ed. Thus,

they #ere constrained to boo2 in another Might and purchased t#o tic2ets from

merican irlines at a cost of Nine Lundred 6ighteen (K1/.!!) *ollars.

8pon their arrival in the 'hilippines, petitioners led an action for

damages based on breach of contract of air carriage before the $egional Trial

ourt of +a2ati, +etro +anila, &ranch 140. s aforesaid, the lo#er court ruled in

favor of petitioners in its decision 1 dated s tic2et for TH 5light !!CG

(3) 6ight Thousand Nine Lundred Thirty5our 'esos and 5ifty entavos

('/,34.0!, 'hilippine urrency, representing the price of ;iana Palamea>s tic2et

for TH 5light !!C,

(4) T#o Lundred 5ifty Thousand 'esos ('-0!,!!!.!!), 'hilippine

urrency, as moral damages for all the plainti7s>

(0) ne Lundred Thousand 'esos ('1!!,!!!.!!), 'hilippine urrency, as

and for attorney>s feesG and(?) The costs of suit.

% $*6$6*. 2

n appeal, the respondent ourt of ppeals held that moral damages

are recoverable in a damage suit predicated upon a breach of contract of

carriage onl" #here there is fraud or bad faith. %ince it is a matter of record that

overboo2ing of Mights is a common and accepted practice of airlines in the

8nited %tates and is specically allo#ed under the ode of 5ederal $egulations

by the ivil eronautics &oard, no fraud nor bad faith could be imputed on

respondent TransHorld irlines.

+oreover, #hile respondent TH #as remiss in not informing petitioners

that the Might #as overboo2ed and that even a person #ith a conrmed

reservation may be denied accommodation on an overboo2ed Might,

nevertheless it ruled that such omission or negligence cannot under thecircumstances be considered to be so gross as to amount to bad faith.

5inally, it also held that there #as no bad faith in placing petitioners in

the #aitlist along #ith fortyeight (4/) other passengers #here fullfare rst class

tic2ets #ere given priority over discounted tic2ets.

The dispositive portion of the decision of respondent ourt of

ppeals 3 dated ctober -0, 11 states as follo#sI

HL6$65$6, in vie# of all the foregoing, the decision under revie# is

hereby +*56* in that the a#ard of moral and e"emplary damages to the

plainti7s is eliminated, and the defendantappellant is hereby ordered to pay the

plainti7 the follo#ing amountsI

(1) 8%K10.4, or its peso eBuivalent at the time of the payment,

representing the price of %uthira Palamea>s tic2et for TH 5light !!CG

(-) 8%K10.4, or its peso eBuivalent at the time of the payment,

representing the price of esar Palamea>s tic2et for TH 5light !!CG

(3) '0!,!!!.!! as and for attorney>s fees.

(4) The costs of suit.

% $*6$6*.

Not satised #ith the decision, petitioners raised the case on petition for

revie# on (ertiorari and alleged the follo#ing errors committed by the

respondent ourt of ppeals, to #itI.

. . . N L;*N TLT TL6$6 H% N 5$8* $ &* 5TL N TL6

'$T 5 $6%'N*6NT TH &68%6 T L% $LT T A6$& 5;LT%.

.

. . . N 6;+NTN TL6 H$* 5 6S6+';$9 *+6%.

.

. . . N NT $*6$N TL6 $658N* 5 ;N P;+6>% TH T6T

N* '9+6NT 5$ TL6 +6$N $;N6%

T6T%.

That there #as fraud or bad faith on the part of respondent airline #hen

it did not allo# petitioners to board their Might for ;os ngeles in spite of

conrmed tic2ets cannot be disputed. The 8.%. la# or regulation allegedly

authori=ing overboo2ing has never been proved. 5oreign la#s do not provethemselves nor can the courts ta2e udicial notice of them. ;i2e any other fact,

they must be alleged and proved. Hritten la# may be evidenced by an oFcial

publication thereof or by a copy attested by the oFcer having the legal custody

of the record, or by his deputy, and accompanied #ith a certicate that such

oFcer has custody. The certicate may be made by a secretary of an embassy or

legation, consul general, consul, viceconsul, or consular agent or by any oFcer

in the foreign service of the 'hilippines stationed in the foreign country in #hich

the record is 2ept, and authenticated by the seal of his oFce. @

$espondent TH relied solely on the statement of +s. #endolyn

;ather, its customer service agent, in her deposition dated s nding that overboo2ing isspecically allo#ed by the 8% ode of 5ederal $egulations has no basis in fact.

6ven if the claimed 8.%. ode of 5ederal $egulations does e"ist, the

same is not applicable to the case at bar in accordance #ith the principle of le

lo(i (ontra(tus #hich reBuire that the la# of the place #here the airline tic2et

#as issued should be applied by the court #here the passengers are residents

and nationals of the forum and the tic2et is issued in such %tate by the defendant

airline. 8 %ince the tic2ets #ere sold and issued in the 'hilippines, the applicable

la# in this case #ould be 'hilippine la#.

6"isting urisprudence e"plicitly states that overboo2ing amounts to bad

faith, entitling the passengers concerned to an a#ard of moral damages.

1C


18/63

n !litalia !ira"s . Court of !ppeals, 9 #here passengers #ith conrmed

boo2ings #ere refused carriage on the last minute, this ourt held that #hen an

airline issues a tic2et to a passenger conrmed on a particular Might, on a certain

date, a contract of carriage arises, and the passenger has every right to e"pect

that he #ould My on that Might and on that date. f he does not, then the carrier

opens itself to a suit for breach of contract of carriage. Hhere an airline had

deliberately overboo2ed, it too2 the ris2 of having to deprive some passengers of

their seats in case all of them #ould sho# up for the chec2 in. 5or the indignity

and inconvenience of being refused a conrmed seat on the last minute, said

passenger is entitled to an a#ard of moral damages.%imilarly, in 6orean !irlines Co.# %td. . Court of !ppeals, 10 #here

private respondent #as not allo#ed to board the plane because her seat had

already been given to another passenger even before the allo#able period for

passengers to chec2 in had lapsed despite the fact that she had a conrmed

tic2et and she had arrived on time, this ourt held that petitioner airline acted in

bad faith in violating private respondent>s rights under their contract of carriage

and is therefore liable for the inuries she has sustained as a result.

n fact, e"isting urisprudence abounds #ith rulings #here the breach of

contract of carriage amounts to bad faith. n Pan !meri(an Qorld !ira"s# n(. .

ntermediate !ppellate Court , 11 #here a #ouldbe passenger had the necessary

tic2et, baggage claim and clearance from immigration all clearly and

unmista2ably sho#ing that she #as, in fact, included in the passenger manifest

of said Might, and yet #as denied accommodation in said Might, this ourt did nothesitate to aFrm the lo#er court>s nding a#arding her damages.

contract to transport passengers is Buite di7erent in 2ind and degree

from any other contractual relation. %o ruled this ourt in Lulueta . Pan

!meri(an Qorld !ira"s# n(. 12 This is so, for a contract of carriage generates a

relation attended #ith public duty @ a duty to provide public service and

convenience to its passengers #hich must be paramount to selfinterest or

enrichment. Thus, it #as also held that the s#itch of planes from ;oc2heed 1!11

to a smaller &oeing C!C because there #ere only 13/ conrmed economy class

passengers #ho could very #ell be accommodated in the smaller planes, thereby

sacricing the comfort of its rst class passengers for the sa2e of economy,

amounts to bad faith. %uch inattention and lac2 of care for the interest of its

passengers #ho are entitled to its utmost consideration entitles the passenger to

an a#ard of moral damages. 13

6ven on the assumption that overboo2ing is allo#ed, respondent TH is

still guilty of bad faith in not informing its passengers beforehand that it could

breach the contract of carriage even if they have conrmed tic2ets if there #as

overboo2ing. $espondent TH should have incorporated stipulations on

overboo2ing on the tic2ets issued or to properly inform its passengers about

these policies so that the latter #ould be prepared for such eventuality or #ould

have the choice to ride #ith another airline.

$espondent TH contends that 6"hibit , the detached Might coupon

upon #hich #ere #ritten the name of the passenger and the points of origin and

destination, contained such a notice. n e"amination of 6"hibit does not bear

this out. t any rate, said e"hibit #as not o7ered for the purpose of sho#ing the

e"istence of a notice of overboo2ing but to sho# that 6"hibit #as used for Might

!!C in rst class of s position that the practice of overboo2ing and theairline system of boarding priorities are reasonable policies, #hich #hen

implemented do not amount to bad faith. &ut the issue raised in this case is not

the reasonableness of said policies but #hether or not said policies #ere

incorporated or deemed #ritten on petitioners> contracts of carriage. $espondent

TH failed to sho# that there are provisions to that e7ect. Neither did it present

any argument of substance to sho# that petitioners #ere duly apprised of the

overboo2ed condition of the Might or that there is a hierarchy of boarding

priorities in boo2ing passengers. t is evident that petitioners had the right to rely

upon the assurance of respondent TH, thru its agent in +anila, then in Ne#

9or2, that their tic2ets represented conrmed seats #ithout any Bualication. The

failure of respondent TH to so inform them #hen it could easily have done so

thereby enabling respondent to hold on to them as passengers up to the last

minute amounts to bad faith. 6vidently, respondent TH placed its selfinterestover the rights of petitioners under their contracts of carriage. %uch conscious

disregard of petitioners> rights ma2es respondent TH liable for moral damages.

To deter breach of contracts by respondent TH in similar fashion in the future,

#e adudge respondent TH liable for e"emplary damages, as #ell.

'etitioners also assail the respondent court>s decision not to reBuire the

refund of ;iana Palamea>s tic2et because the tic2et #as used by her father. n

this score, #e uphold the respondent court. 'etitioners had not sho#n #ith

certainty that the act of respondent TH in allo#ing +r. Palamea to use the

tic2et of her daughter #as due to inadvertence or deliberate act. 'etitioners had

also failed to establish that they did not accede to said agreement. The logical

conclusion, therefore, is that both petitioners and respondent TH agreed, albeit

impliedly, to the course of action ta2en.

The respondent court erred, ho#ever, in not ordering the refund of themerican irlines tic2ets purchased and used by petitioners %uthira and ;iana.

The evidence sho#s that petitioners %uthira and ;iana #ere constrained to ta2e

the merican irlines Might to ;os ngeles not because they :opted not to use

their TH tic2ets on another TH Might: but because respondent TH could not

accommodate them either on the ne"t TH Might #hich #as also fully

boo2ed. 1 The purchase of the merican irlines tic2ets by petitioners %uthira

and ;iana #as the conseBuence of respondent TH>s unustiable breach of its

contracts of carriage #ith petitioners. n accordance #ith rticle --!1, Ne# ivil

ode, respondent TH should, therefore, be responsible for all damages #hich

may be reasonably attributed to the nonperformance of its obligation. n the

1/


19/63

previously cited case of !litalia !ira"s . Court of !ppeals, 1 this ourt e"plicitly

held that a passenger is entitled to be reimbursed for the cost of the tic2ets he

had to buy for a Might to another airline. Thus, instead of simply being refunded

for the cost of the unused TH tic2ets, petitioners should be a#arded the actual

cost of their Might from Ne# 9or2 to ;os ngeles. n this score, #e di7er from the

trial court>s ruling #hich ordered not only the reimbursement of the merican

irlines tic2ets but also the refund of the unused TH tic2ets. To reBuire both

prestations #ould have enabled petitioners to My from Ne# 9or2 to ;os ngeles

#ithout any fare being paid.

The a#ard to petitioners of attorney>s fees is also ustied under rticle--!/(-) of the ivil ode #hich allo#s recovery #hen the defendant>s act or

omission has compelled plainti7 to litigate or to incur e"penses to protect his

interest. Lo#ever, the a#ard for moral damages and e"emplary damages by the

trial court is e"cessive in the light of the fact that only %uthira and ;iana Palamea

#ere actually :bumped o7.: n a#ard of '0!,!!!.!! moral damages and another

'0!,!!!.!! e"emplary damages #ould suFce under the circumstances obtaining

in the instant case.

HL6$65$6, the petition is hereby $NT6* and the decision of the

respondent ourt of ppeals is hereby +*56* to the e"tent of adudging

respondent TransHorld irlines to pay damages to petitioners in the follo#ing

amounts, to #itI

(1) 8%K1/.!! or its peso eBuivalent at the time of payment

representing the price of the tic2ets bought by %uthira and ;iana Palamea frommerican irlines, to enable them to My to ;os ngeles from Ne# 9or2 ityG

(-) '0!,!!!.!! as moral damagesG

(3) '0!,!!!.!! as e"emplary damagesG

(4) '0!,!!!.!! as attorney>s feesG and

(0) osts of suit.

% $*6$6*.

G.R. No. 12110 +pr"& 20, 2001

UNITE +IRLINES, INC., 'etitioner

vs.

COURT OF +PPE+LS, +NICETO FONT+NILL+, in his personal capacity and in

behalf of his minor son /-CH+L +NRED FONT+NILL+, $espondents.

5+PUN+N, J.

n +arch 1, 1/, private respondent niceto 5ontanilla purchased frompetitioner 8nited irlines, through the 'hilippine Travel &ureau in +anila three (3)

:Aisit the 8.%..: tic2ets for himself, his #ife and his minor son +ychal for the

follo#ing routesI

a. %an 5rancisco to Hashinton (10 pril 1/)G

b. Hashington to hicago (-0 pril 1/)G

c. hicago to ;os ngeles (- pril 1/)G

d. ;os ngeles to %an 5rancisco (!1 may 1/ for petitionerUs #ife and

!0 +ay 1/ for petitioner and his son). 1

ll Mights had been conrmed previously by 8nited irlines. -

The 5ontanillas proceeded to the 8nited %tates as planned, #here they

used the rst coupon from %an 5rancisco to Hashington. n pril -4, 1/,

niceto 5ontanilla bought t#o (-) additional coupons each for himself, his #ife

and his son from petitioner at its oFce in Hashington *ulles irport. fter paying

the penalty for re#riting their tic2ets, the 5ontanillas #ere issued tic2ets #ith

corresponding boarding passes #ith the #ords :L6N $68$6*,: for 8nited

irlines 5light No. 11!/, set to leave from ;os ngeles to %an 5rancisco at 1!I3!

a.m. on +ay 0, 1/.3

The cause of the nonboarding of the 5ontanillas on 8nited irlines

5light No. 11!/ ma2es up the bone of contention of this controversy.1pi1.nSt 'rivate respondentsU version is as follo#sI

niceto 5ontanilla and his son +ychal claim that on +ay 0, 1/, upon

their arrival at the los ngeles irport for their Might, they proceeded to united

irlines counter #here they #ere attended by an employee #earing a nameplate

bearing the name :;N*.: ;inda e"amined their tic2ets, punched something into

her computer and then told them that boarding #ould be in fteen minutes.4

Hhen the Might #as called, the 5ontanillas proceeded to the plane. To

their surprise, the ste#ardess at the gate did not allo# them to board the plane,

as they had no assigned seat numbers. They #ere then directed to go bac2 to

the :chec2in: counter #here ;inda subseBuently informed them that the Might

had been overboo2ed and as2ed them to #ait.0

The 5ontanillas tried to e"plain to ;inda the special circumstances of

their visit. Lo#ever, ;inda told them in arrogant manner, : )o at# (an not doan"ting about it.


20/63

The 5ontanillas #ere not boo2ed on the ne"t Might, #hich departed for

%an 5rancisco at 11I!! a.m. t #as only at 1-I!! noon that they #ere able to

leave ;os ngeles on 8nited irlines 5light No. /!3.

'etitioner 8nited irlines has a di7erent version of #hat occurred at the

;os ngeles irport on +ay 0, 1/.

ccording to 8nited irlines, the 5ontanillas did not initially go to the

chec2in counter to get their seat assignments for 8 5light 11!/. They instead

proceeded to oin the Bueue boarding the aircraft #ithout rst securing their seat

assignments as reBuired in their tic2et and boarding passes. Laving no seat

assignments, the ste#ardess at the door of the plane instructed them to go tothe chec2in counter. Hhen the 5ontanillas proceeded to the chec2in counter,

;inda llen, the 8nited irlines ustomer $epresentative at the counter informed

them that the Might #as overboo2ed. %he boo2ed them on the ne"t available

Might and o7ered them denied boarding compensation. llen vehemently denies

uttering the derogatory and racist #ords attributed to her by the 5ontanillas.14

The incident prompted the 5ontanillas to le ivil ase No. /4-?/ for

damages before the $egional Trial ourt of +a2ati. fter trial on the merits, the

trial court rendered a decision, the dispositive portion of #hich reads as follo#sI

HL6$65$6, udgment is rendered dismissing the complaint. The

counterclaim is li2e#ise dismissed as it appears that plainti7s #ere not actuated

by legal malice #hen they led the instant complaint.10

n appeal, the ourt of ppeals ruled in favor of the 5ontanillas. The

appellate court found that there #as an admission on the part of 8nited irlinesthat the 5ontanillas did in fact observe the chec2in reBuirement. t ruled further

that even assuming there #as a failure to observe the chec2in reBuirement,

8nited irlines failed to comply #ith the procedure laid do#n in cases #here a

passenger is denied boarding. The appellate court li2e#ise gave credence to the

claim of niceto 5ontanilla that the employees of 8nited irlines #ere

discourteous and arbitrary and, #orse, discriminatory. n light of such treatment,

the 5ontanillas #ere entitled to moral damages. The dispositive portion of the

decision of the respondent ourt of ppeals dated - %eptember 10, states as

follo#sI

HL6$65$6, in vie# of the foregoing, udgment appealed herefrom is

hereby $6A6$%6* and %6T %*6, and a ne# udgment is entered ordering

defendantappellee to pay plainti7appellant the follo#ingI

a. '-!!,!!!.!! as moral damagesG

b. '-!!,!!!.!! as e"emplary damagesG

c. '0!,!!!.!! as attorneyUs feesG

No pronouncement as to costs.

% $*6$6*.1?

'etitioner 8nited irlines no# comes to this ourt raising the follo#ing

assignments of errorsG

$6%'N*6NT 8$T 5 ''6;% $A6;9 6$$6* N $8;N TLT TL6

T$; 8$T H% H$N N 5;N T N%*6$ TL6 ;;66* *+%%N

TLT '$AT6 $6%'N*6NT &%6$A6* TL6 L6N $68$6+6NT.

$6%'N*6NT 8$T 5 ''6;% $A6;9 6$$6* N $8;N TLT

'$AT6 $6%'N*6NTU% 5;8$6 T L6N H;; NT *656T L% ;+%

&68%6 TL6 *6N6* &$*N $8;6% H6$6 NT +';6* HTL.

$6%'N*6NT 8$T 5 ''6;% $A6;9 6$$6* N $8;N TLT'$AT6 $6%'N*6NT % 6NTT;6* T +$; *+6% 5 '-!!,!!!.

A

$6%'N*6NT 8$T 5 ''6;% $A6;9 6$$6* N $8;N TLT

'$AT6 $6%'N*6NT % 6NTT;6* T 6S6+';$9 *+6% 5 '-!!,!!!.

A

$6%'N*6NT 8$T 5 ''6;% $A6;9 6$$6* N $8;N TLT

'$AT6 $6%'N*6NT % 6NTT;6* T TT$N69U% 566% 5 '0!,!!!.1C

n the rst issue raised by the petitioner, the respondent ourt of

ppeals ruled that #hen $ule , %ection 1 of the $ules of ourt, 1/ there #as an

implied admission in petitionerUs ans#er in the allegations in the complaint that

private respondent and his son observed the :chec2in reBuirement at the ;os

ngeles irport.: ThusI perusal of the above pleadings led before the trial court disclosed

that there e"ist a blatant admission on the part of the defendantappellee that

the plainti7sappellants indeed observed the :chec2in: reBuirement at the ;os

ngeles irport on +ay 0, 1/. n vie# of defendantappelleeUs admission of

plainti7sappellantsU material averment in the complaint. He nd no reason #hy

the trial court should rule against such admission.1

He disagree #ith the above conclusion reached by respondent ourt of

ppeals. 'aragraph C of private respondentsU complaint statesI

C. n +ay 0, 1/ at I40 a.m., plainti7 and his son chec2ed in at

defendantUs designated counter at the airport in ;os ngeles for their scheduled

Might to %an 5rancisco on defendantUs 5light No. 11!/.-!

$esponding to the above allegations, petitioner averred in paragraph 4of its ans#er, thusI

4. dmits the allegation set forth in paragraph C of the complaint e"cept

to deny that plainti7 and his son chec2ed in at I40 a.m., for lac2 of 2no#ledge

or information at this point in time as to the truth thereof.-1

The rule authori=ing an ans#er that the defendant has no 2no#ledge or

information suFcient to form a belief as to the truth of an averment giving such

ans#er is asserted is so plainly and necessarily #ithin the defendantUs 2no#ledge

that his averment of ignorance must be palpably untrue.-- Hhether or not private

respondents chec2ed in at petitionerUs designated counter at the airport at I40

a.m. on +ay 0, 1/ must necessarily be #ithin petitionerUs 2no#ledge.

-!

http://www.lawphil.net/judjuris/juri2001/apr2001/gr_124110_2001.html#fnt18http://www.lawphil.net/judjuris/juri2001/apr2001/gr_124110_2001.html#fnt18http://www.lawphil.net/judjuris/juri2001/apr2001/gr_124110_2001.html#fnt22http://www.lawphil.net/judjuris/juri2001/apr2001/gr_124110_2001.html#fnt22http://www.lawphil.net/judjuris/juri2001/apr2001/gr_124110_2001.html#fnt18http://www.lawphil.net/judjuris/juri2001/apr2001/gr_124110_2001.html#fnt22


21/63

Hhile there #as no specic denial as to the fact of compliance #ith the

:chec2in: reBuirement by private respondents, petitioner presented evidence to

support its contention that there indeed #as no compliance.

'rivate respondents then are said to have #aived the rule on admission.

t not only presented evidence to support its contention that there #as

compliance #ith the chec2in reBuirement, it even allo#ed petitioner to present

rebutal evidence. n the case of Uu Cu( s.


22/63

surmise #hat really happened, suFce to say, private respondent #as not able to

prove his cause of action, for as the trial court correctly observedI

""" plainti7s claim to have been discriminated against and insulted in

the presence of several people. 8nfortunately, plainti7s limited their evidence to

the testimony of niceto 5ontanilla, #ithout any corroboration by the people #ho

sa# or heard the discriminatory remar2s and insultsG #hile such limited

testimony could possibly be true, it does not enable the ourt to reach the

conclusion that plainti7s have, by a preponderance of evidence, proven that they

are entitled to '1,?0!,!!!.!! damages from defendant.31

s to the a#ard of moral and e"emplary damages, #e nd error in thea#ard of such by the ourt of ppeals. 5or the plainti7 to be entitled to an a#ard

of moral damages arising from a breach of contract of carriage, the carrier must

have acted #ith fraud or bad faith. The appellate court predicated its a#ard on

our pronouncement in the case of Lalanea s. Court of !ppeals# supra# #here #e

statedI

6"isting urisprudence e"plicitly states that overboo2ing amounts to bad

faith, entitling passengers concerned to an a#ard of moral damages. n !litalia

!ira"s s. Court of !ppeals# #here passengers #ith conrmed boo2ing #ere

refused carriage on the last minute, this ourt held that #hen an airline issues a

tic2et to a passenger conrmed on a particular Might, on a certain date, a

contract of carriage arises, and the passenger has every right to e"cept that he

#ould My on that Might and on that date. f he does not, then the carrier opens

itself to a suit for breach of contract of carriage. Hhere an airline haddeliberately overboo2ed, it too2 the ris2 of having to deprive some passengers of

their seats in case all of them #ould sho# up for chec2 in. 5or the indignity and

inconvenience of being refused a conrmed seat on the last minute, said

passenger is entitled to moral damages. (6mphasis supplied).

Lo#ever, the ourtUs ruling in said case should be read in consonance

#ith e"isting la#s, particularly, 6conomic $egulations No. C, as amended, of the

ivil eronautics &oardI

%ec. 3. %cope. V This regulation shall apply to every 'hilippine and

foreign air carrier #ith respect to its operation of Mights or portions of Mights

originating from or terminating at, or serving a point #ithin the territory of the

$epublic of the 'hilippines insofar as it denies boarding to a passenger on a

Might, or portion of a Might inside or outside the 'hilippines, for #hich he holds

conrmed reserved space. 5urthermore, this $egulation is designed to cover onlyhonest mista2es on the part of the carriers and e"cludes deliberate and #illful

acts of nonaccommodation. 'rovided, ho#ever, that overboo2ing not e"ceeding

1!Q of the seating capacity of the aircraft shall not be considered as a deliberate

and #illful act of nonaccommodation.

Hhat this ourt considers as bad faith is the #illful and deliberate

overboo2ing on the part of the airline carrier. The abovementioned la# clearly

states that #hen the overboo2ing does not e"ceed ten percent (1!Q), it is not

considered as deliberate and therefore does not amount to bad faith. Hhile there

may have been overboo2ing in this case, private respondents #ere not able to

prove that the overboo2ing on 8nited irlines 5light 11!/ e"ceeded ten percent.

s earlier stated, the ourt is of the opinion that the private

respondents #ere not able to prove that they #ere subected to coarse and harsh

treatment by the ground cre# of united irlines. Neither #ere they able to sho#

that there #as bad faith on part of the carrier airline. Lence, the a#ard of moral

and e"emplary damages by the ourt of ppeals is improper. orollarily, the

a#ard of attorneyUs fees is, li2e#ise, denied for lac2 of any legal and factual

basis.

DHEREFORE, the petition is GR+NTE. The decision of the ourt of

ppeals in .$. A No. 3C!44 is herebyRE6ERSE and SET +SIE. The

decision of the $egional Trial ourt of +a2ati ity in ivil ase No. /4-?/ datedpril /, 11 is hereby REINST+TE.

SO ORERE.

G.R. No. 1381 %$7%r @, 2008

5ORE+ TECHNOLOGIES CO., LT., petitioner,

vs.

HON. +LBERTO +. LER/+, "$ "!


23/63

a 1!Q annual increment clause. %ubseBuently, the machineries, eBuipment, and

facilities for the manufacture of ;' cylinders #ere shipped, delivered, and

installed in the armona plant. '%+ paid 6% 8%* 1,--4,!!!.

Lo#ever, gleaned from the erticate4 e"ecuted by the parties on


24/63

already produced certied samples of ;' cylinders. t averred that #hatever

#as unnished #as '%+Us fault since it failed to procure ra# materials due to

lac2 of funds. 6%, relying on Cung :u ndustries Pils.# n(. . Court of

!ppeals,1- insisted that the arbitration clause #as #ithout Buestion valid.

fter 6% led a %upplemental +emorandum #ith +otion to

*ismiss13 ans#ering '%+Us memorandum of


25/63

c. *6$66N '$AT6 $6%'N*6NTU% 8NT6$;+% T &6 ;;

+'8;%$9 NT N66%%TTN '9+6NT 5 *6T 566% N*

6$T5TN 5 NN5$8+ %L''NG

d. $8;N TLT TL6 '6TTN H% 5;6* '$6+T8$6;9 HTL8T

HTN 5$ TL6 $6%;8TN 5 TL6 +TN 5$ $6N%*6$TN 5 TL6

$*6$ *T6* %6'T6+&6$ -1, 1/ $ HTL8T AN TL6 T$; 8$T N

''$T8NT9 T $$6T T%6;5G

e. '$;+N TL6 TH $*6$% *T6*


26/63

substantial damage to 6%U eBuipment and machineries. He nd the resort to

certiorari based on the gravely abusive orders of the trial court sans the ruling on

the ctober -, 1/ motion for reconsideration to be proper.

Te Core I!!7e +rt"


27/63

ssembly in $esolution No. 4!JC- approved on *ecember 11, 1/0, copy of

#hich is hereto attached as ppendi" ::.

%6. -!. nterpretation of $odel %a.VVn interpreting the +odel ;a#,

regard shall be had to its international origin and to the need for uniformity in its

interpretation and resort may be made to the traau preparatoriesand the

report of the %ecretary eneral of the 8nited Nations ommission on

nternational Trade ;a# dated +arch -0, 1/0 entitled, :nternational ommercial

rbitrationI nalytical ommentary on *raft Trade identied by reference

number JN. J-?4.:

Hhile $ -/0 #as passed only in -!!4, it nonetheless applies in theinstant case since it is a procedural la# #hich has a retroactive e7ect. ;i2e#ise,

6% led its application for arbitration before the & on


28/63

3* Te RTC %! J7r"!#"


29/63

arising from the contract must be brought rst and resolved by arbitration, and

not through an e"traudicial rescission or udicial action.

The issues arising from the contract bet#een '%+ and 6% on

#hether the eBuipment and machineries delivered and installed #ere properly

installed and operational in the plant in armona, aviteG the o#nership of

eBuipment and payment of the contract priceG and #hether there #as substantial

compliance by 6% in the production of the samples, given the alleged fact

that '%+ could not supply the ra# materials reBuired to produce the sample

;' cylinders, are matters proper for arbitration. ndeed, #e note that on


30/63

b Ta2e action that #ould prevent, or refrain from ta2ing action that is

li2ely to cause, current or imminent harm or preudice to the arbitral process

itselfG

( 'rovide a means of preserving assets out of #hich a subseBuent

a#ard may be satisedG or

d 'reserve evidence that may be relevant and material to the

resolution of the dispute.

rt. 1C < of 8NT$; +odel ;a# on also grants courts po#er and

urisdiction to issue interim measuresI

!rti(le 15 2. Court,ordered interim measures court shall have the same po#er of issuing an interim measure in

relation to arbitration proceedings, irrespective of #hether their place is in the

territory of this %tate, as it has in relation to proceedings in courts. The court

shall e"ercise such po#er in accordance #ith its o#n procedures in consideration

of the specic features of international arbitration.

n the recent -!!? case of /rans>eld Pilippines# n(. . %u9on "dro

Corporation, #e #ere e"plicit that even :the pendency of an arbitral proceeding

does not foreclose resort to the courts for provisional reliefs.: He e"plicated this

#ayI

s a fundamental point, the pendency of arbitral proceedings does not

foreclose resort to the courts for provisional reliefs. The $ules of the , #hich

governs the partiesU arbitral dispute, allo#s the application of a party to a udicial

authority for interim or conservatory measures. ;i2e#ise, %ection 14 of $epublicct ($..) No. /C? (The rbitration ;a#) recogni=es the rights of any party to

petition the court to ta2e measures to safeguard andJor conserve any matter

#hich is the subect of the dispute in arbitration. n addition, $.. -/0, other#ise

2no#n as the :lternative *ispute $esolution ct of -!!4,: allo#s the ling of

provisional or interim measures #ith the regular courts #henever the arbitral

tribunal has no po#er to act or to act e7ectively.0!

t is thus beyond cavil that the $T has authority and urisdiction to

grant interim measures of protection.

%econdly, considering that the eBuipment and machineries are in the

possession of '%+, it has the right to protect and preserve the eBuipment and

machineries in the best #ay it can. onsidering that the ;' plant #as non

operational, '%+ has the right to dismantle and transfer the eBuipment and

machineries either for their protection and preservation or for the better #ay toma2e good use of them #hich is ineluctably #ithin the management discretion of

'%+.

Thirdly, and of greater import is the reason that maintaining the

eBuipment and machineries in HorthUs property is not to the best interest of

'%+ due to the prohibitive rent #hile the ;' plant as setup is not

operational. '%+ #as losing 'h'3--,0?! as monthly rentals or 'h'3./C+ for

1/ alone #ithout considering the 1!Q annual rent increment in maintaining

the plant.

5ourthly, and corollarily, #hile the & can rule on motions or petitions

relating to the preservation or transfer of the eBuipment and machineries as an

interim measure, yet on hindsight, the


31/63

'etitioner Lerald *acasin (petitioner), merican, and respondent %haron

*el +undo *acasin (respondent), 5ilipino, #ere married in +anila in pril 14.

They have one daughter, %tephanie, born on -1 %eptember 10. n


32/63

separated because the la# provides for oint parental authority #hen spouses

live together.-1 Lo#ever, upon separation of the spouses, the mother ta2es sole

custody under the la# if the child is belo# seven years old and any agreement to

the contrary is void. Thus, the la# suspends the oint custody regime for (1)

children under seven of (-) separated or divorced spouses. %imply put, for a child

#ithin this age brac2et (and for commonsensical reasons), the la# decides for

the separated or divorced parents ho# best to ta2e care of the child and that is

to give custody to the separated mother. ndeed, the separated parents cannot

contract a#ay the provision in the 5amily ode on the maternal custody of

children belo# seven years anymore than they can privately agree that a mother#ho is unemployed, immoral, habitually drun2, drug addict, insane or aXicted

#ith a communicable disease #ill have sole custody of a child under seven as

these are reasons deemed compelling to preclude the application of the

e"clusive maternal custody regime under the second paragraph of rticle -13.--

t #ill not do to argue that the second paragraph of rticle -13 of the

5amily ode applies only to udicial custodial agreements based on its te"t that

:No child under seven years of age shall be separated from the mother, unless

the court nds compelling reasons to order other#ise.: To limit this provisionUs

enforceability to court sanctioned agreements #hile placing private agreements

beyond its reach is to sanction a double standard in custody regulation of

children under seven years old of separated parents. This e7ectively empo#ers

separated parents, by the simple e"pedient of avoiding the courts, to subvert a

legislative policy vesting to the separated mother sole custody of her childrenunder seven years of age :to avoid a tragedy #here a mother has seen her baby

torn a#ay from her.:-3 This ignores the legislative basis that :DnEo man can sound

the deep sorro#s of a mother #ho is deprived of her child of tender age.:-4

t could very #ell be that rticle -13Us bias favoring one separated

parent (mother) over the other (father) encourages paternal neglect, presumes

incapacity for oint parental custody, robs the parents of custodial options, or

hiac2s decisionma2ing bet#een the separated parents.-0 Lo#ever, these are

obections #hich Buestion the la#Us #isdom not its validity or uniform

enforceability. The forum to air and remedy these grievances is the legislature,

not this ourt. t any rate, the ruleUs seeming harshness or undesirability is

tempered by ancillary agreements the separated parents may #ish to enter such

as granting the father visitation and other privileges. These arrangements are

not inconsistent #ith the regime of sole maternal custody under the secondparagraph of rticle -13 #hich merely grants to the mother K$%& authority on

the care and custody of the minor under seven years of age, in case of

disagreements.1api1

5urther, the imposed custodial regime under the second paragraph of

rticle -13 is limited in duration, lasting only until the childUs seventh year. 5rom

the eighth year until the childUs emancipation, the la# gives the separated

parents freedom, subect to the usual contractual limitations, to agree on custody

regimes they see t to adopt. ;astly, even supposing that petitioner and

respondent are not barred from entering into the greement for the oint custody

of %tephanie, respondent repudiated the greement by asserting sole custody

over %tephanie. $espondentUs act e7ectively brought the parties bac2 to ambit of

the default custodial regime in the second paragraph of rticle -13 of the 5amily

ode vesting on respondent sole custody of %tephanie.

Nor can petitioner rely on the divorce decreeUs alleged invalidity not

because the llinois court lac2ed urisdiction or that the divorce decree violated

llinois la#, but because the divorce #as obtained by his 5ilipino spouse -? to

support the greementUs enforceability. The argument that foreigners in this

urisdiction are not bound by foreign divorce decrees is hardly novel. Aan *orn v.

$omillo-C settled the matter by holding that an alien spouse of a 5ilipino is bound

by a divorce decree obtained abroad.-/

There, #e dismissed the alien divorceeUs'hilippine suit for accounting of alleged postdivorce conugal property and

reected his submission that the foreign divorce (obtained by the 5ilipino spouse)

is not valid in this urisdiction in this #iseI

There can be no Buestion as to the validity of that Nevada divorce in

any of the %tates of the 8nited %tates. The decree is binding on private

respondent as an merican citi=en. 5or instance, private respondent cannot sue

petitioner, as her husband, in any %tate of the 8nion. Hhat he is contending in

this case is that the divorce is not valid and binding in this urisdiction, the same

being contrary to local la# and public policy.

t is true that o#ing to the nationality principle embodied in rticle 10 of

the ivil ode, only 'hilippine nationals are covered by the policy against

absolute divorces the same being considered contrary to our concept of public

policy and morality. Lo#ever, aliens may obtain divorces abroad, #hich may berecogni=ed in the 'hilippines, provided they are valid according to their national

la#. n this case, the divorce in Nevada released private respondent from the

marriage from the standards of merican la#, under #hich divorce dissolves the

marriage.

" " " "

Thus, pursuant to his national la#, private respondent is no longer the

husband of petitioner. Le #ould have no standing to sue in the case belo# as

petitionerUs husband entitled to e"ercise control over conugal assets. s he is

bound by the *ecision of his o#n countryUs ourt, #hich validly e"ercised

urisdiction over him, and #hose decision he does not repudiate, he is estopped

by his o#n representation before said ourt from asserting his right over the

alleged conugal property. (6mphasis supplied)

He reiterated Aan *orn in 'ilapil v. bay%omera-

to dismiss criminalcomplaints for adultery led by the alien divorcee (#ho obtained the foreign

divorce decree) against his former 5ilipino spouse because he no longer Bualied

as :o7ended spouse: entitled to le the complaints under 'hilippine procedural

rules. Thus, it should be clear by no# that a foreign divorce decree carries as

much validity against the alien divorcee in this urisdiction as it does in the

urisdiction of the alienUs nationality, irrespective of #ho obtained the divorce.

The 5acts of the ase and Nature of 'roceeding


33/63

Buestion of %tephanieUs custody. %tephanie is no# nearly 10 years old, thus

removing the case outside of the ambit of the mandatory maternal custody

regime under rticle -13 and bringing it #ithin coverage of the default standard

on child custody proceedings V the best interest of the child. 3! s the Buestion of

custody is already before the trial court and the childUs parents, by e"ecuting the

greement, initially sho#ed inclination to share custody, it is in the interest of

s#ift and eFcient rendition of ustice to allo# the parties to ta2e advantage of

the courtUs urisdiction, submit evidence on the custodial arrangement best

serving %tephanieUs interest, and let the trial court render udgment. This

disposition is consistent #ith the settled doctrine that in child custodyproceedings, eBuity may be invo2ed to serve the childUs best interest.31

HL6$65$6, #e $6A6$%6 the rders dated 1 +arch -!!0 and -3 application.

%ubseBuently, letters of guarantee/ #ere issued by 'hilguarantee to the $adain

&an2 of &aghdad covering 1!!Q of the performance and advance paymentbonds, but they #ere not accepted by %&. Hhat %& reBuired #as a letter

guarantee from $adain &an2, the government ban2 of raB. $adain &an2 then

issued a performance bond in favor of %& on the condition that another foreign

ban2, not 'hilguarantee, #ould issue a counterguarantee to cover its e"posure.

l hli &an2 of u#ait #as, therefore, engaged to provide a counterguarantee to

$adain &an2, but it reBuired a similar counterguarantee in its favor from the

petitioner. Thus, three layers of guarantees had to be arranged.

8pon the application of respondents 3'le" and A'6, petitioner

'hilguarantee issued in favor of l hli &an2 of u#ait ;etter of uarantee No.

/1145 1! ('erformance &ond uarantee) in the amount of *-C1,/!/J?1! and

33

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