KUWAIT AIRWAYS CORPORATION, - versus - PHILIPPINE AIRLINES, INC.

FACTS:

Kuwait Airways and Philippine Airlines entered into a Commercial Agreement, annexed to
which was a Joint Services Agreement. It was stipulated in the agreement that only 3rd and 4th
freedom traffic rights, which basically allow Kuwait Airways to board passengers in Kuwait and
deplane them in Manila, as well as to board passengers in Manila and deplane them in Kuwait,
will be exercised. Moreover, under Article 2.1 of the Commercial Agreement, Kuwait Airways
obligated itself to share with Philippine Airlines revenue earned from the uplift of passengers
between Kuwait and Manila and vice versa.

Then on April 12, 1995, delegations from the Philippine Panel and Kuwait Panel entered into a
Confidential Memorandum of Understanding (CMU). The following month, May 15, 1995,
Philippine Airlines received a letter from Kuwait Airways which stated that, pursuant to item 4
of the CMU, the latter is terminating the royalty for 3rd/4th freedom traffic effective April 12,
1995 stipulated in the Commercial Agreement. The Philippine Airlines then contended that
pursuant to Section 6.5 of the Commercial Agreement, the agreement could only be effectively
terminated on 31 October 1995, or the last day of the then current traffic period. Thus, it
insisted that the provisions of the Commercial Agreement shall be enforced until such date.
Subsequently, Philippine Airlines insisted that Kuwait Airways pay around 1 million USD as
revenue for the uplift of passengers and cargo for the period 13 April 1995 until 28 October
1995. When Kuwait Airways refused to pay, invoking that the Philippine Airlines had known
fully well that its rights under the Commercial Agreement would be limited by whatever
agreements the Philippine and Kuwait governments may enter into later considering the third
preambular whereas clause of their commercial agreement, Philippine Airlines filed a complaint
against the former with the RTC of Makati City.

ISSUE:

 Whether or not the third preambular whereas clause of the Commercial Agreement in
question can impose binding obligation or limitation

RULING

No. It was held that in the case of statutes, while a preamble manifests the reasons for the
passage of the statute and aids in the interpretation of any ambiguities, it is not an essential
part of an act, and it neither does it confer powers.

It must be noted that at the time of the execution of the 1981 agreements, Philippine Airlines
was controlled by the Philippine government However, at the time of the signing of the CMU,
Philippine Airlines was already privatized hence can no longer be controlled by the Government
and since Philippine Airlines had already become a private corporation, the question of
impairment of private rights may should be taken into consideration. While it is true that as of
the time of the execution of the Commercial Agreement, the Philippine government could
enter into an agreement with the Kuwait government that would prejudice the terms of the
commercial arrangements, that can no longer be done by the time of the privatization of the
Philippine Airlines because apparently, such act would infringe the vested rights of a private
individual.