PHILIPPINE EXPORT AND FOREIGN LOAN GUARANTEE CORPORATION vs. V.P. EUSEBIO CONSTRUCTION, INC. | G.R. No. 140047 | July 13, 2004

PHILIPPINE EXPORT AND FOREIGN LOAN GUARANTEE CORPORATION vs. V.P. EUSEBIO CONSTRUCTION, INC.
G.R. No. 140047, July 13, 2004 
 
Facts 

On November 8, 1980, State Organization of Buildings, Ministry of Housing, and Construction, Baghdad, Iraq, awarded the construction of the Institute of Physical Therapy–Medical Rehabilitation Center, Phase II, in Baghdad, Iraq, to Ajyal Trading and Contracting Company, a firm duly licensed with the Kuwait Chamber of Commerce. 
 
On March 7, 1981, in behalf of Spouses Eduardo and Iluminada Santos, 3-Plex International, Inc a local contractor engaged in construction business, entered into a joint venture agreement with Ajyal. However since it was not accredited under the Philippine Overseas Construction Board, it had to assign and transfer all its right to VPECI and entered into an agreement that the execution of the project will be under their joint management. To comply with the requirements of performance bond, 3-Plex and VPECI applied for the issuance of a guarantee with Philguarantee, a government financial institution empowered to issue guarantees for qualified Filipino contractors to secure the performance of approved service contracts abroad. Subsequently, letters of guarantee were issued by Philguarantee to the Rafidain Bank of Baghdad. Al Ahli Bank of Kuwait was engaged to provide a counter-guarantee to Rafidain Bank, but it required a similar counter-guarantee in its favor from the Philguarantee. The Surety Bond was later amended to increase the amount of coverage and to change the bank in whose favor the petitioner's guarantee was issued, from Rafidain Bank to Al Ahli Bank of Kuwait. SOB and the joint venture VPECI and Ajyal executed the service contract for the construction of the project. However, they were not able to start the project on schedule because of that surety bond was also extended and the Advance Payment Guarantee was extended three times more until it was cancelled for reimbursement. 
 
On 26 October 1986, Al Ahli Bank of Kuwait sent a telex call to the petitioner demanding full payment of its performance bond counter-guarantee. VPECI advised the Philguarantee not to pay Al Ahli Bank because efforts were being exerted for the amicable settlement of the Project. VPECI received another telex message from Al Ahli Bank stating that it had already paid to Rafidain Bank but VPEIC insisted on not paying however Central Bank authorized the remittance to Al Ahli Bank. Philguarantee informed VPECI that it would remit payment to Al Ahli Bank, and reiterated the joint and solidary obligation of the respondents to reimburse the Philguarantee for the advances made on its counter-guarantee but they failed to pay so a case was filed.  
 
Issue
 
Whether or not the Philippine laws or Iraq‘s laws should be applied in determining VPECI's failure to pay in the performance of its obligations under the service contract. 
 
Ruling

Yes. In this case, the laws of Iraq bear important link to the contract, since one of the parties is the Iraqi Government and the place of performance is in Iraq. Consequently, the problem of whether respondent VPECI evaded its obligations may be determined by the laws of Iraq. However, those foreign laws of Iraq were not properly alleged and prove. Under the doctrine of processual presumption, where a foreign law is not pleaded or, even if pleaded, is not proved, the presumption is that foreign law is the same as ours. Further, the Supreme Court held that the petitioner guarantor should have waited for the natural course of guaranty. Petitioner as a guarantor cannot be compelled to pay the creditor SOB unless the property of the debtor VPECI has been exhausted and all legal remedies against the said debtor have been resorted to by the creditor. It could also set up compensation as regards what the creditor SOB may owe the principal debtor VPECI. In this case, however, the petitioner has clearly waived these rights and remedies by making the payment of an obligation that was yet to be shown to be rightfully due the creditor and demandable of the principal debtor. 

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