THIRDDIVISION

[G.R.No.121171.December29,1998]

ASSET PRIVATIZATION TRUST, petitioner, vs., COURT OF APPEALS, JESUS S.

CABARRUS, SR., JESUS S. CABARRUS, JR., JAIME T. CABARRUS, JOSE
MIGUELCABARRUS,ALEJANDROS.PASTOR,JR.,ANTONIOU.MIRANDA,
and MIGUEL M. ANTONIO, as Minority Stock Holders of Marinduque Mining
andIndustrialCorporation,respondents.

DECISION
KAPUNAN,J.:

ThepetitionforreviewoncertioraribeforeusseeksustoreverseandsetasidethedecisionoftheCourtof
Appeals which denied due course to the petition for certiorari filed by the Asset Privatization Trust (APT)
assailingtheorderoftheRegionalTrialCourt(RTC)Branch62,MakatiCity.TheMakatiRTCsorderupheld
and confirmed the award made by the Arbitration Committee in favor of Marinduque Mining and Industrial
Corporation (MMIC) and against the Government, represented by herein petitioner APT for damages in the
amountofP2.5BILLION(orapproximatelyP4.5BILLION,includinginterest).
Ironically,thestaggeringamountofdamageswasimposedontheGovernmentforexercisingitslegitimate
rightofforeclosureascreditoragainstthedebtorMMICasaconsequenceofthelattersfailuretopayitsoverdue
andunpaidobligationofP22billiontothePhilippineNationalBank(PNB)andtheDevelopmentBankofthe
Philippines(DBP).

Theantecedentfactsofthecase

The development, exploration and utilization of the mineral deposits in the Surigao Mineral Reservation
havebeenauthorizedbyRepublicActNo.1828,asamendedbyRepublicActsNo.2077and4167,byvirtueof
whichlaws,aMemorandumofAgreementwasdrawnonJuly3,1968,wherebytheRepublicofthePhilippines
thrutheSurigaoMineralReservationBoard,grantedMMICtheexclusiverighttoexplore,developandexploit
nickel,cobaltandothermineralsintheSurigaomineralreservation.[1]MMICisadomesticcorporationengaged
inminingwithrespondentsJesusS.Cabarrus,Sr.asPresidentandamongitsoriginalstockholders.
ThePhilippineGovernmentundertooktosupportthefinancingofMMICbypurchaseofMMICdebenture
and extension of guarantees.Further, the Philippine Government obtained a firm, commitment from the DBP
and/orothergovernmentfinancinginstitutionstosubscribedinMMICandissueguarantee/sforforeignloansor
deferred payment arrangements secured from the US Eximbank, Asian Development Bank, Kobe Steel, of
amountnotexceedingUS$100Million.[2]
DBP approved guarantees in favor of MMIC and subsequent requests for guarantees were based on the
unutilized portion of the Government commitment. Thereafter, the Government extended accommodations to
MMICinvariousamounts.
On July 13, 1981, MMIC, PNB and DBP executed a Mortgage Trust Agreement[3] whereby MMIC, as
mortgagor,agreedtoconstituteamortgageinfavorofPNBandDBPasmortgagees,overallMMICsassets,
subject of real estate and chattel mortgage executed by the mortgagor, and additional assets described and
identified,includingassetsofwhateverkind,natureordescription,whichthemortgagormayacquirewhetherin
substitutionof,inreplenishment,orinadditionthereto.
ArticleIVoftheMortgageTrustAgreementprovidesforEventsofDefault,whichexpresslyincludesthe
eventthattheMORTGAGORshallfailtopayanyamountsecuredbythisMortgageTrustAgreementwhendue.
[4]

ArticleVoftheMortgageTrustAgreementprescribesindetail,andinadditiontotheenumeratedeventsof
defaults,circumstances by which the mortgagor may be declared in default, theproceduretherefor,waiverof
periodtoforeclose,authorityofTrusteebefore,duringandafterforeclosure,includingtakingpossessionofthe
mortgagedproperties.[5]
Invariousrequestforadvances/remittancesofloansofhugeamounts,DeedsofUndertakings,Promissory
Notes, Loans Documents, Deeds of Real Estate Mortgages, MMIC invariably committed to pay either on
demand or under certain terms the loans and accommodations secured from or guaranteed by both DBP and
PNB.
By1984,DBPandPNBsfinancialexposurebothinloansandinequityinMMIChadreachedtremendous
proportions,andMMICwashavingadifficulttimemeetingitsfinancialobligations.MMIChadanoutstanding
loan with DBP in the amount of P13,792,607,565.92 as of August 31, 1984 and in the amount of
P8,789,028,249.38 as of July 15, 1984 or a total Government exposure of Twenty Two Billion Six Hundred
SixtyEight Million Five Hundred ThirtySeven Thousand Seven Hundred Seventy and 05/100
(P22,668,537,770.05), Philippine Currency.[6] Thus, a financial restructuring plan (FRP) designed to reduce
MMIC'interestexpensethroughdebtconversiontoequitywasdraftedbytheSycipGorresVelayoaccounting
firm.[7] On April 30, 1984, the FRP was approved by the Board of Directors of the MMIC.[8] However, the
proposedFRPhadneverbeenformallyadopted,approvedorratifiedbyeitherPNBorDBP.[9]
InAugustandSeptember1984,asthevariousloansandadvancesmadebyDBPandPNBtoMMIChad
become overdue and since any restructuring program relative to the loans was no longer feasible, and in
compliancewiththedirectiveofPresidentialDecreeNo.385,DBPandPNBasmortgageesofMMICassets,
decidedtoexercisetheirrighttoextrajudiciallyforeclosethemortgagesinaccordancewiththeMortgageTrust
Agreement.[10]
The foreclosed assets were sold to PNB as the lone bidder and were assigned to three newly formed
corporations, namely, Nonoc Mining Corporation, Maricalum Mining and Industrial Corporation, and Island
CementCorporation.In1986,theseassetsweretransferredtotheAssetPrivatizationTrust(APT).[11]
On February 28, 1985, Jesus S. Cabarrus, Sr., together with the other stockholders of MMIC, filed a
derivative suit against DBP and PNB before the RTC of Makati, Branch 62, for Annulment of Foreclosures,
Specific Performance and Damages.[12] The suit, docketed as Civil Case No. 9900, prayed that the court: (1)
annultheforeclosure,restoretheforeclosedassetstoMMIC,andrequirethebankstoaccountfortheiruseand
operationintheinterim(2)directthebankstohonorandperformtheircommitmentsundertheallegedFRP
and(3)paymoralandexemplarydamages,attorneysfees,litigationexpensesandcosts.
Inthecourseofthetrial,privaterespondentsandpetitionerAPT,assuccessoroftheDBPandPNBsinterest
in MMIC, mutually agreed to submit the case to arbitration by entering into a Compromise and Arbitration
Agreement,stipulating,interalia:

NOW,THEREFORE,forandinconsiderationoftheforegoingpremisesandthemutualcovenantscontain
herein,thepartiesagreedasfollows:

1.WithdrawalandCompromise.ThepartieshaveagreedtowithdrawtheirrespectiveclaimsfromtheTrial
CourtandtoresolvetheirdisputethrougharbitrationbyprayingtotheTrialCourttoissueaCompromise
JudgmentbasedonthisCompromiseandArbitrationAgreement.

Inwithdrawingtheirdisputeformthecourtandinchoosingtoresolveitthrougharbitration,thepartieshave
agreedthat:
(a)theirrespectivemoneyclaimsshallbereducedtopurelymoneyclaimsand

(b)assuccessorandassigneeofthePNBandDBPinterestinMMICandtheMMICaccounts,APTshall
likewisesucceedtotherightsandobligationsofPNBandDBPinrespectofthecontroversysubjectofCivil
CaseNo.9900tobetransferredtoarbitrationandanyarbitralaward/orderagainsteitherPNBand/orDBPshall
betheresponsibilityof,bedischargedbyandbeenforceableagainstAPT,thepartiedhavingagreedtodrop
PNBandDBPfromthearbitration.

2.Submission.Thepartiesherebyagreethat(a)thecontroversyinCivilCaseNo.9900shallbesubmitted
insteadtoarbitrationunderRA876and(b)thereliefsprayedforinCivilCaseNo.9900shall,withtheapproval
oftheTrialCourtofthisCompromiseandArbitrationAgreement,betransferredandreducedtopure
pecuniary/moneyclaimswiththepartieswaivingandforegoingallotherformsofreliefswhichtheyprayedfor
orshouldhavepayedforinCivilCaseNo.9900.[13]

TheCompromiseandArbitrationAgreementlimitedtheissuestothefollowing:

5.Issues.TheissuestobesubmittedfortheCommitteesresolutionshallbe:(a)WhetherPLAINTIFFShavethe
capacityorthepersonalitytoinstitutethisderivativesuitinbehalfoftheMMICoritsdirectors(b)Whetheror
nottheactionsleadingto,andincluding,thePNBDBPforeclosureoftheMMICassetswereproper,validand
ingoodfaith.[14]

Thisagreementwaspresentedforapprovaltothetrialcourt.OnOctober14,1992,theMakatiRTC,Branch
62,issuedanorder,towit:

WHEREFORE,thisCourtorders:

1.SubstitutingPNBandDBPwiththeAssetPrivatizationTrustaspartydefendant.

2.ApprovingtheCompromiseandArbitrationAgreementdatedOctober6,1992,attachedasAnnexC
oftheOmnibusMotion.

3.ApprovingtheTransformationofthereliefsprayedfor[by]theplaintiffsinthiscaseintopure
moneyclaimsand

4.TheComplaintisherebyDISMISSED.[15]

The Arbitration Committee was composed of retired Supreme Court Justice Abraham Sarmiento as
Chairman, Atty. Jose C. Sison and former Court of Appeals Justice Magdangal Elma as Members. On
November24,1993,afterconductingseveralhearings,theArbitrationCommitteerenderedamajoritydecision
infavorofMMIC,thepertinentportionsofwhichreadasfollows:

Since,asthisCommitteefinds,thereisnoforeclosureatallwasnotlegallyandvalidlydone,theCommittee
holdsandsodeclaresthattheloansofPNBandDBPtoMMIC,forthepaymentandrecoveryofwhichthevoid
foreclosuresaleswereundertaken,continuetoremainoutstandingandunpaid.DefendantAPTasthesuccessor
ininterestofPNBandDBPtothesaidloansisthereforeentitledandretainstheright,tocollectthesamefrom
MMICpursuanttoandbasedontheloandocumentssignedbyMMIC,subjecttothelegalandvaliddefenses
thatthelattermaydulyandseasonablyinterpose.Suchloansshall,however,bereducedbytheamountwhich
APTmayhaverealizedfromthesaleoftheseizedassetsofMMICwhichbyagreementshouldnolongerbe
returnedeveniftheforeclosurewerefoundtobenullandvoid.

Thedocumentaryevidencesubmittedandadoptedbybothparties(Exhibits3,3BExhibits100andalso
ExhibitZZZ)astheirexhibitswouldshowthatthetotaloutstandingobligationduetoDBPandPNBasofthe
dateofforeclosureisP22,668,537,770.05,moreorless.
Therefore,defendantAPTcan,andisstillentitledto,collecttheoutstandingobligationsofMMICtoPNBand
DBPamountingtoP22,668.537,770.05,moreorless,withinterestthereonasstipulatedintheloandocuments
fromthedateofforeclosureuptothetimetheyarefullypaidlesstheproportionateliabilityofDBPasownerof
87%ofthetotalcapitalizationofMMICundertheFRP.Simplyput,DBPshallshareintheawardofdamages
to,andinobligationsofMMICinproportiontoits87%equityinthetotalcapitalstockofMMIC.

xxx.

AsthisCommitteeholdsthattheFRPisvalid,DBPsequityinMMICisraisedto87%.Sopursuanttotheabove
provisionoftheCompromiseandArbitrationAgreement,the87%equityofDBPisherebydeductedfromthe
actualdamagesofP19,486,118,654.00resultinginthenetactualdamagesofP2,531,635,425.02plusinterest.

DISPOSITION

WHEREFORE,premisesconsidered,judgmentisherebyrendered:

1.OrderingthedefendanttopaytotheMarinduqueMiningandIndustrialCorporation,excepttheDBP,thesum
ofP2,531,635,425.02withinterestthereonatthelegalrateofsixpercent(6%)perannumreckonedfrom
August3,9,and24,1984,paripassu,asandforactualdamages.Paymentoftheseactualdamagesshallbe
offsetbyAPTfromtheoutstandingandunpaidloansoftheMMICwithDBPandPNB,whichhavenotbeen
convertedintoequity.ShouldtherebeanybalanceduetotheMMICaftertheoffsetting,thesameshallbe
satisfiedfromthefundsrepresentingthepurchasepriceofthesaleofthesharesofIslandCementCorporationin
theamountofP503,000,000.00heldunderescrowpursuanttotheEscrowAgreementdatedApril22,1988orto
suchsubsequentescrowagreementthatwouldsupercede[sic]itpursuanttoparagraph(9)oftheCompromise
andArbitrationAgreement

2.OrderingthedefendanttopaytotheMarinduqueMiningandIndustrialCorporation,excepttheDBP,thesum
ofP13,000,000.00asandformoralandexemplarydamages.Paymentofthesemoralandexemplarydamages
shallbeoffsetbyAPTfromtheoutstandingandunpaidloansofMMICwithDBPandPNB,whichhavenot
beenconvertedintoequity.ShouldtherebeanybalanceduetoMMICaftertheoffsetting,thesameshallbe
satisfiedfromthefundsrepresentingthepurchasepriceofthesaleofthesharesofIslandCementCorporationin
theofP503,000,000.00heldunderescrowpursuanttotheEscrowAgreementdatedApril22,1988ortosuch
subsequentescrowagreementthatwouldsupercede[sic]itpursuanttoparagraph(9)oftheCompromiseand
ArbitrationAgreement

3.Orderingthedefendanttopaytotheplaintiff,JesusCabarrus,Sr.,thesumofP10,000,000.00,tobesatisfied
likewisefromthefundsheldunderescrowpursuanttotheEscrowAgreementdatedApril22,1988ortosuch
subsequentescrowagreementthatwouldsupercedeit,pursuanttoparagraph(9)oftheCompromiseand
ArbitrationAgreement,asandformoraldamagesand

4.Orderingthedefendanttopayarbitrationcosts.

ThisDecisionisFINALandEXECUTORY.

ITISSOORDERED.[16]

Motionsforreconsiderationswerefiledbybothparties,butthesameweredenied.
OnOctober17,1994,privaterespondentsfiledinthesameCivilCaseNo.9900anApplication/Motionfor
Confirmation of Arbitration Award. Petitioner countered with an Opposition and Motion to Vacate Judgment
raisingthefollowinggrounds:

1.TheplaintiffsApplication/MotionisimproperlyfiledwiththisbranchoftheCourt,consideringthatthesaid
motionisneitherapartnorthecontinuationoftheproceedingsinCivilCaseNo.9900whichwasdismissed
uponmotionoftheparties.Infact,thedefendantsinthesaidCivilCaseNo.9900weretheDevelopmentBank
ofthePhilippinesandthePhilippineNationalBank(PNB)

2.UnderSection22ofRep.Act876,anarbitrationunderacontractorsubmissionshallbedeemedaspecial
proceedingsandapartytothecontroversywhichwasarbitratedmayapplytothecourthavingjurisdiction,(not
necessarilywiththisHonorableCourt)foranorderconfirmingtheaward

3.Theissuessubmittedforarbitrationhavebeenlimitedtotwo:(1)proprietyoftheplaintiffsfilingthe
derivativesuitand(2)theregularityoftheforeclosureproceedings.Thearbitrationawardsoughttobe
confirmedhereinfarexceededtheissuessubmittedandevengrantedmoraldamagestooneoftheherein
plaintiffs

4.UnderSection24ofRep.Act876,theCourtmustmakeanordervacatingtheawardwherethearbitrators
exceededtheirpowers,orsoimperfectlyexecutedthem,thatamutualfinalanddefiniteawarduponthesubject
mattersubmittedtothemwasnotmade.[17]

PrivaterespondentsfiledaREPLYANDOPPOSITIONdatedNovember10,1984,arguingthatadismissal
ofCivilcaseNo.9900wasmerelyaqualifieddismissaltopavethewayforthesubmissionofthecontroversyto
arbitration, and operated simply as a mere suspension of the proceedings. They denied that the Arbitration
Committeehadexceededitspowers.
InanOrderdatedNovember28,1994,thetrialcourtconfirmedtheawardoftheArbitrationCommittee.
Thedispositiveportionofsaidorderreads:

WHEREFORE,premisesconsidered,andinthelightoftheparties[sic]CompromiseandArbitration
AgreementdatedOctober6,1992,theDecisionoftheArbitrationCommitteepromulgatedonNovember24,
1993,asaffirmedinaResolutiondatedJuly26,1994,andfinallysettledandclarifiedintheSeparateOpinion
datedSeptember2,1994ofCommitteeMemberElma,andthepertinentprovisionsofRA876,alsoknownas
theArbitrationLaw,thisCourtGRANTSPLAINTIFFSAPPLICATIONANDTHUSCONFIRMSTHE
ARBITRATIONAWARD,ANDJUDGMENTISHEREBYRENDERED:

(a)OrderingthedefendantAPTtotheMarinduqueMiningandIndustrialCorporation(MMIC,excepttheDBP,
thesumofP3,811,757,425.00,asandforactualdamages,whichshallbepartiallysatisfiedfromthefundsheld
underescrowintheamountofP503,000,000.00pursuanttotheEscrowAgreementdatedApril22,1988.The
Balanceoftheaward,aftertheescrowfundsarefullyapplied,shallbeexecutedagainsttheAPT

(b)OrderingthedefendanttopaytotheMMIC,excepttheDBP,thesumofP13,000,000.00asandmoraland
exemplarydamages

(c)OrderingthedefendanttopaytoJesusS.Cabarrus,Sr.,thesumofP10,000,000.00asandformoral
damagesand

(d)Orderingthedefendanttopaythehereinplaintiffs/applicants/movantsthesumofP1,705,410.22as
arbitrationcosts.

InreiterationofthemandatesofStipulationNo.10andStipulationNo.8paragraph2oftheCompromiseand
ArbitrationAgreement,andthefinaledictoftheArbitrationCommitteesdecision,andwiththisCourts
Confirmation,theissuanceoftheArbitrationCommitteesAwardshallhenceforthbefinalandexecutory.

SOORDERED.[18]

On December 27, 1994, petitioner filed its motion for reconsideration of the Order dated November 28,
1994.Privaterespondents,inturn,submittedtheirreplyandoppositionthereto.
On January 18, 1995, the trial court handed down its order denying APTs motion for reconsideration for
lackofmeritandforhavingbeenfiledoutoftime.Thetrialcourtdeclaredthatconsideringthatthedefendant
APT through counsel, officially and actually received a copy of the Order of this Court dated November 28,
1994onDecember6,1994,theMotionforReconsiderationthereoffiledbythedefendantAPTonDecember
27,1994,orafterthelapseof21days,wasclearlyfiledbeyondthe15dayreglementaryperiodprescribedor
providedforbylawforthefilingofanappealfromfinalorders,resolutions,awards,judgmentsordecisionsof
anycourtinallcases,andbynecessaryimplicationforthefillingofamotionforreconsiderationthereof.
On February 7, 1995, petitioner received private respondents motion for Execution and Appointment of
CustodianofProceedsofExecutiondatedFebruary6,1995.
Petitioner thereafter filed with the Court of Appeals a special civil action for certiorari with temporary
restrainingorderand/orpreliminaryinjunctiondatedFebruary13,1996toannulanddeclareasvoidtheOrders
oftheRTCMakatidatedNovember28,1994andJanuary18,1995forhavingbeenissuedwithoutorinexcess
ofjurisdictionand/orwithgraveabuseofdiscretion.[19]Asgroundtherefor,petitionerallegedthat:
I

THERESPONDENTJUDGEHASNOTVALIDLYACQUIREDJURISDICTIONMUCHLESS,HASTHE
COURTAUTHORITY,TOCONFIRMTHEARBITRALAWARDCONSIDERINGTHATTHEORIGINAL
CASE,CIVILCASENO.9900,HADPREVIOUSLYBEENDISMISSED.

II

THERESPONDENTJUDGECOMMITTEDGRAVEABUSEOFDISCRETIONANDACTEDWITHOUT
ORINEXCESSOFJURISDICTION,INISSUINGTHEQUESTIONEDORDERSCONFIRMINGTHE
ARBITRALAWARDANDDENYINGTHEMOTIONFORRECONSIDERATIONOFORDEROFAWARD.

III

THERESPONDENTJUDGEGROSSLYABUSEDHISDISCRETIONANDACTEDWITHOUTORIN
EXCESSOFANDWITHOUTJURISDICTIONINRECKONINGTHECOUNTINGOFTHEPERIODTO
FILEMOTIONFORRECONSIDERATION,NOTFROMTHEDATEOFSERVICEOFTHECOURTS
COPYCONFIRMINGTHEAWARD,BUTFROMRECEIPTOFAXEROXCOPYOFWHAT
PRESUMABLYISTHEOPPOSINGCOUNSELSCOPYTHEREOF.[20]

On July 12, 1995, the Court ofAppeals, through its fifth Division denied due course and dismissed the
petitionforcertiorari.
Hence,theinstantpetitionforreviewoncertiorariimputingtotheCourtofAppealsthefollowingerrors.

ASSIGNMENTOFERRORS
I

THECOURTOFAPPEALSERREDINNOTHOLDINGTHATTHEMAKATIREGIONALTRIAL
COURT,BRANCH62WHICHHASPREVIOULSYDISMISSEDCIVILCASENO.9900HADLOST
JURISDICTIONTOCONFIRMTHEARBITRALAWARDUNDERTHESAMECIVILCASEANDIN
NOTRULINGTHATTHEAPPLICATIONFORCONFIRMATIONSHOULDHAVEBEENFILEDAS
ANEWCASETOBERAFFLEDOFFAMONGTHEDIFFERENTBRANCHESOFTHERTC.

II

THECOURTOFAPPEALSLIKEWISEERREDINHOLDINGTHATPETITIONERWASESTOPPED
FROMQUESTIONINGTHEARBITRATIONAWARD,WHENPETITIONERQUESTIONEDTHE
JURISDICTIONOFTHERTCMAKATI,BRANCH62ANDATTHESAMETIMEMOVEDTO
VACATETHEARBITRALAWARD.
III
 THECOURTOFAPPEALSERREDINNOTHOLDINGTHATTHERESPONDENTTRIALCOURT
SHOULDHAVEEITHERDISMISSED/DENIEDPRIVATERESPONDENTSMOTION/PETITIONFOR
CONFIRMATIONOFARBITRATIONAWARDAND/ORSHOULDHAVECONSIDEREDTHE
MERITSOFTHEMOTIONTOVACATEARBITRALAWARD.
IV

THECOURTOFAPPEALSERREDINNOTTREATINGPETITIONERAPTSPETITIONFOR
CERTIORARIASANAPPEALTAKENFROMTHEORDERCONFIRMINGTHEAWARD

THECOURTOFAPPEALSERREDINNOTRULINGONTHELEGALISSUEOFWHENTO
RECKONTHECOUNTINGOFTHEPERIODTOFILEAMOTIONFORRECONSIDERATION.[21]

Thepetitionisimpressedwithmerit.
I

TheRTCofMakati,Branch62,didnothavejurisdictiontoconfirmthearbitralaward

Theuseofthetermdismissedisnotameresemanticimperfection.ThedispositiveportionoftheOrderof
thetrialcourtdatedOctober14,1992statedinnouncertainterms:
4.TheComplaintisherebyDISMISSED.[22]
The term dismiss has a precise definition in law.To dispose of an action suit, or motion without trial on the
issuesinvolved.Conclude,discontinue,terminate,quash.[23]
Admittedlythecorrectprocedurewasforthepartiestogobacktothecourtwherethecasewaspendingto
have the award confirmed by said court.However, Branch 62 made the fatal mistake of issuing a final order
dismissingthecase.WhileBranch62shouldhavemerelysuspendedthecaseandnotdismissedit,[24]neitherof
thepartiesquestionedsaiddismissal.Thus,bothpartiesaswellassaidcourtareboundbysucherror.
Itiserroneousthentoargue,asprivaterespondentsdo,thatpetitionerAPTwaschargedwiththeknowledge
thatthecasewasmerelystayeduntilarbitrationfinished,asagain,theorderofBranch62inveryclearterms
stated that the complaint was dismissed. By its own action, Branch 62 had lost jurisdiction over the vase. It
couldnothavevalidlyreacquiredjurisdictionoverthesaidcaseonmeremotionofoneoftheparties.TheRules
of Court is specific on how a new case may be initiated and such is not done by mere motion in a particular
branchoftheRTC.Consequently,astherewasnopendingactiontospeakof,thepetitiontoconfirmthearbitral
awardshouldhavebeenfiledasanewcaseandraffledaccordinglytooneofthebranchesoftheRegionalTrial
Court.
II

PetitionerwasnotestoppedfromquestioningthejurisdictionofBranch62oftheRTCofMakati.

The Court of Appeals ruled that APT was already estopped to question the jurisdiction of the RTC to
confirmthearbitralawardbecauseitsoughtaffirmativereliefinsaidcourtbyaskingthatthearbitralawardbe
vacated.
TheruleisthatWherethecourtitselfclearlyhasnojurisdictionoverthesubjectmatterorthenatureofthe
action,theinvocationofthisdefensemaydedoneatanytime.Itisneitherforthecourtsnorforthepartiesto
violateordisregardthatrule,letalonetoconferthatjurisdiction,thismatterbeinglegislativeincharacter.[25]As
arulethe,neitherwaivernorestoppelshallapplytoconferjurisdictionuponacourtbarringhighlymeritorious
andexceptionalcircumstances.[26]OnesuchexceptionwasenunciatedinTijamvs.Sibonghanoy,[27] where it
washeldthataftervoluntarilysubmittingacauseandencounteringanadversedecisiononthemerits,itistoo
lateforthelosertoquestionthejurisdictionorpowerofthecourt."
Petitionerssituationisdifferentbecausefromtheoutset,ithasconsistentlyheldthepositionthattheRTC,
Branch62hadnojurisdictiontoconfirmthearbitralawardconsequently,itcannotbesaidthatitwasestopped
from questioning the RTCs jurisdiction. Petitioners prayer for the setting aside of the arbitral award was not
inconsistentwithitsdisavowalofthecourtsjurisdiction.
III

AppealofpetitionertotheCourtofAppealsthrucertiorariunderRule65wasproper.

The Court of Appeals in dismissing APTs petition for certiorari upheld the trial courts denial of APTs
motionforreconsiderationofthetrialcourtsorderconfirmingthearbitralaward,onthegroundthatsaidmotion
wasfiledbeyondthe15dayreglementaryperiodconsequently,thepetitionforcertioraricouldnotberesorted
toassubstitutetothelostrightofappeal.
Wedonotagree.
Section29ofRepublicActNo.876,[28]providesthat:

xxxAnappealmaybetakenfromanordermadeinaproceedingunderthisAct,orfromajudgment
entereduponanawardthroughcertiorariproceedings,butsuchappealsshallbelimitedtoquestionoflaw.
xxx.

The aforequoted provision, however, does not preclude a party aggrieved by the arbitral award from
resortingtotheextraordinaryremedyofcertiorariunderRule65oftheRulesofCourtwhere,asinthiscase,
theRegionalTrialCourttowhichtheawardwassubmittedforconfirmationhasactedwithoutjurisdiction,or
withgraveabuseofdiscretionandthereisnoappeal,noranyplain,speedyremedyinthecourseoflaw.
Thus,Section1ofRule65provides:

SEC1.PetitionforCertiorari:Whenanytribunal,boardorofficerexercisingjudicialfunctions,hasacted
withoutorinexcessofitsorhisjurisdiction,orwithgraveabuseofdiscretionandthereisnoappeal,norany
plain,speedy,andadequateremedyintheordinarycourseoflaw,apersonaggrievedtherebymayfileaverified
petitioninthepropercourtallegingthefactswithcertaintyandprayingthatjudgmentberenderedannullingor
modifyingtheproceedings,asthelawrequires,ofsuchtribunal,boardorofficer.

Intheinstantcase,therespondentcourterredindismissingthespecialcivilactionforcertiorari,itbeing
from the pleadings and the evidence that the trial court lacked jurisdiction and/or committed grave abuse of
discretion in taking cognizance of private respondent motion to confirm the arbitral award and, worse, in
confirming said award which is grossly and patently not in accord with the arbitration agreement, as will be
hereinafterdemonstrated.
IV

ThenatureandlimitsoftheArbitratorspowers.

Asarule,theawardofanarbitratorcannotbesetasideformereerrorsofjudgmenteitherastothelaworas
tothefacts.[29]Courtsarewithoutpowertoamendoroverrulemerelybecauseofdisagreementwithmattersof
laworfactsdeterminedbythearbitrators.[30]Theywillnotreviewthefindingsoflawandfactcontainedinan
award,andwillnotundertaketosubstitutetheirjudgmentforthatofthearbitrators,sinceanyotherrulewould
makeanawardthecommencement,nottheend,oflitigation.[31]Errorsoflawandfact,oranerroneousdecision
ofmatterssubmittedtothejudgmentofthearbitrators,areinsufficienttoinvalidateanawardfairlyandhonestly
made.[32]Judicialreviewofanarbitrationis,thus,morelimitedthanjudicialreviewofatrial.[33]
Nonetheless,thearbitratorsawardsisnotabsoluteandwithoutexceptions.The arbitrators cannot resolve
issues beyond the scope of the submission agreement.[34] The parties to such an agreement are bound by the
arbitrators award only to the extent and in the manner prescribed by the contract and only if the award is
rendered in conformity thereto.[35] Thus, Sections 24 and 25 of the Arbitration Law provide grounds for
vacating, rescinding or modifying an arbitration award. Where the conditions described in Articles 2038,[36]
2039[37]and2040[38]oftheCivilCodeapplicabletocompromisesandarbitrationareattendant,thearbitration
awardmayalsobeannulled.
InChungFuIndustries(Phils.)vs.CourtofAppeals,[39]weheld:

xxx.ItisstatedexplicitlyunderArt.2044oftheCivilCodethatthefinalityofthearbitratorsawardsisnot
absoluteandwithoutexceptions.WheretheconditionsdescribedinArticles2038,2039,and2040applicableto
bothcompromisesandarbitrationareobtaining,thearbitrators'awardmaybeannulledorrescinded.
Additionally,underSections24and25,oftheArbitrationLaw,therearegroundsforvacating,modifyingor
rescindinganarbitratorsaward.Thus,ifandwhenthefactualcircumstancesreferredtointheabovecited
provisionsarepresent,judicialreviewoftheawardisproperlywarranted.

Accordingly,Section20ofR.A.876provides:

SEC.20.Formandcontentsofaward.Theawardmustbemadeinwritingandsignedandacknowledgedbya
majorityofthearbitrators,ifmorethanoneandbythesolearbitrator,ifthereisonlyone.Eachpartyshallbe
furnishedwithacopyoftheaward.Thearbitratorsintheirawardmaygrantanyremedyorreliefwhichthey
deemjustandequitableandwithinthescopeoftheagreementoftheparties,whichshallinclude,butnotbe
limitedto,thespecificperformanceofacontract.

xxx

Thearbitratorsshallhavethepowertodecideonlythosematterswhichhavebeensubmittedtothem.Theterms
oftheawardshallbeconfinedtosuchdisputes.(Underscoringours).

xxx.
Section24ofthesamelawenumeratingthegroundsforvacatinganawardstates:

SEC.24.Groundsforvacatingaward.Inanyoneofthefollowingcases,thecourtmustmakeanordervacating
theawarduponthepetitionofanypartytothecontroversywhensuchpartyprovesaffirmativelythatinthe
arbitrationproceedings:

(a)Theawardwasprocuredbycorruption,fraud,orotherunduemeansor

(b)Thattherewasevidentpartialityorcorruptioninarbitratorsoranyofthemor

(c)Thatthearbitratorswereguiltyofmisconductinrefusingtopostponethehearinguponsufficientcause
shown,orinrefusingtohearevidencepertinentandmaterialtothecontroversythatoneormoreofthe
arbitratorswasdisqualifiedtoactassuchundersectionninehereof,andwillfullyrefrainedfromdisclosingsuch
disqualificationsoranyothermisbehaviorbywhichtherightsofanypartyhavebeenmateriallyprejudicedor

(d)Thatthearbitratorsexceededtheirpowers,orsoimperfectlyexecutedthem,thatamutual,finalanddefinite
awarduponthesubjectmattersubmittedtothemwasnotmade.(Underscoringours).
 xxx.
Section25whichenumeratesthegroundsformodifyingtheawardprovides:

SEC.25.GroundsformodifyingorcorrectingawardInanyoneofthefollowingcases,thecourtmustmakean
ordermodifyingorcorrectingtheaward,upontheapplicationofanypartytothecontroversywhichwas
arbitrated:

(a)Wheretherewasanevidentmiscalculationoffigures,oranevidentmistakeinthedescriptionofanyperson,
thingorpropertyreferredtointheawardor

(b)Wherethearbitratorshaveawardeduponamatternotsubmittedtothem,notaffectingthemeritsofthe
decisionuponthemattersubmittedor

(c)Wheretheawardisimperfectinamatterofformnotaffectingthemeritsofthecontroversy,andifithad
beenacommissionersreport,thedefectcouldhavebeenamendedordisregardedbythecourt.

xxx.
Finally, it should be stressed that while a court is precluded from overturning an award for errors in
determinationoffactualissues,nevertheless,ifanexaminationoftherecordrevealsnosupportwhateverforthe
arbitratorsdeterminations,theirawardmustbevacated.[40]Inthesamemanner,anawardmustbevacatedifit
wasmadeinmanifestdisregardofthelaw.[41]
Againstthebackdropoftheforegoingprovisionsandprinciples,wefindthatthearbitratorscameoutwith
anawardinexcessoftheirpowersandpalpablydevoidoffactualandlegalbasis.
V

Therewasnofinancialstructuringprogramforeclosureofmortgagewasfullyjustified.

ThepointneednotbebelaboredthatPNBandDBPhadthelegitimaterighttoforecloseofthemortgagesof
MMICwhoseobligations were past due.The foreclosure was not a wrongful act of the banks and, therefore,
couldnotbethebasisofanyawardofdamages.Therewasnofinancialrestructuringagreementtospeakofthat
couldhaveconstitutedanimpedimenttotheexerciseofthebanksrighttoforeclose.
As correctly stated by Mr. Jose C. Sison, a member of the Arbitration Committee who wrote a separate
opinion:

1.ThevariousloansandadvancesmadebyDBPandPNBtoMMIChavebecomeoverdueandremainunpaid.
ThefactthataFRPwasdrawnupisenoughtoestablishthatMMIChasnotbeencomplyingwiththetermsof
theloanagreement.Restructuringsimplyconnotesthattheobligationsarepastduethatiswhyitis
restructurable

2.WhenMMICthruitsboardandthestockholdersagreedandadoptedtheFRP,itonlymeansthatMMIChad
beeninformedornotifiedthatitsobligationswerepastdueandthatforeclosureisforthcoming

3.Atthatstage,MMICalsoknewthatPNBDBPhadtheoptionofeitherapprovingtheFRPorproceedingwith
theforeclosure.Cabarrus,whofiledthiscasesupposedlyinbehalfofMMICshouldhaveinsistedontheFRP.
YetCabarrushimselfopposedtheFRP

4.SowhenPNBDBPproceededwiththeforeclosure,itwasdonewithoutbadfaithbutwithhonestandsincere
beliefthatforeclosurewastheonlyalternativeadecisionfurtherexplainedbyDr.PlacidoMapawhotestified
thatforeclosurewas,inthejudgmentofPNB,thebestmovetosaveMMICitself.
 Q:NowinthisportionofExh.LwhichwasmarkedasExh.L1,andweadoptedasExh.37Afortherespondent,
may I know from you, Dr. Mapa what you meant by that the decision to foreclose was neither precipitate nor
arbitrary?
A:Well,itisnotawhimsicaldecisionbutratherdecisionarrivedatafterweightyconsiderationsoftheinformation
that we have received, and listening to the prospects which reported to us that we had assumed would be the
premisesofthefinancialrehabilitationplanwasnotmaterializednorexpectedtomaterialized.
Q : And this statement that it was premised upon the known fact that means, it was referring to the decision to
foreclose,waspremisedupontheknownfactthattherehabilitationplanearlierapprovedbythestockholderswas
nolongerfeasible,justwhatismeantbynolongerfeasible?
A : Because the revenue that they were counting on to make the rehabilitation plan possible, was not anymore
expectedtobeforthcomingbecauseitwillresultinashortfallcomparedtothepricesthatwereactuallytaking
placeinthemarket.
Q:AndIsupposedthatwasyouwerereferringtowhenyoustatedthattheproductiontargetsandassumedpricesof
MMICsproducts,amongotherprojections,usedinthefinancialreorganizationprogramthatwillmakeitviable
werenotmetnorexpectedtobemet?
A:Yes.
xxx

Whichbringsmetomylastpointinthisseparateopinion.WasPNBandDBPabsolutelyunjustifiedin
foreclosingthemortgages?

Inthisconnection,itcanreadilybeseenanditcannotquitebedeniedthatMMICaccountsinPNBDBPwere
pastdue.ThedrawingupoftheFRPisthebestproofofthis.WhenMMICadoptedarestructuringprogramfor
itsloan,itonlymeantthattheseloanswerealreadydueandunpaid.Iftheseloanswererestructurablebecause
theywerealreadydueandunpaid,theyarelikewiseforecloseable.TheoptioniswiththePNBDBPonwhat
stepstotake.

ThemerefactthatMMICadoptedtheFRPdoesnotmeanthatDBPPNBlosttheoptiontoforeclose.Neither
doesitmeanthattheFRPislegallybindingandimplementable.ItmustbepointedthatsaidFRPwill,ineffect,
supersedetheexistingandpastdueloansofMMICwithPNBDBP.Itwillbecomethenewloanagreement
betweenthelendersandtheborrowers.Asinallothercontracts,theremustthereforebeameetingofmindsof
thepartiesthePNBandDBPmusthavetovalidlyadoptandratifysuchFRPbeforetheycanbeboundbyit
beforeitcanbeimplemented.Inthiscase,notaniotaofproofhasbeenpresentedbythePLAINTIFFSshowing
thatPNBandDBPratifiedandadoptedtheFRP.PLAINTIFFSsimplyreliedonalegaldoctrineofpromissory
estoppeltosupportitsallegationinthisregard.[42]

Moreover,PNBandDBPhadtoinitiateforeclosureproceedingsasmandatedbyP.D.No.385,whichtook
effect on January 31, 1974. The decree requires government financial institutions to foreclose collaterals for
loanswherethearrearagesamountto20%ofthetotaloutstandingobligations.Thepertinentprovisionsofsaid
decreereadasfollows:

SEC.1.Itshallbemandatoryforgovernmentfinancialinstitutions,afterthelapseofsixty(60)daysfromthe
issuanceofthisDecreetoforeclosethecollateralsand/orsecuritiesforanyloan,credit,accommodations,and/or
guaranteesgrantedbythemwheneverthearrearagesonsuchaccount,includingaccruedinterestandother
charges,amounttoatleasttwentypercent(20%)ofthetotaloutstandingobligations,includinginterestand
othercharges,asappearinginthebooksofaccountand/orrelatedrecordsofthefinancialinstitutionsconcerned.
Thisshallbewithoutprejudicetotheexercisebythegovernmentfinancialinstitutionsofsuchrightsand/or
remediesavailabletothemundertheirrespectivecontractswiththeirdebtor,includingtherighttoforeclosure
onloans,credits,accommodationsand/orguaranteesonwhichthearrearagesarelessthantwentypercent
(20%).
SEC.2.Norestrainingorder,temporaryorpermanentinjunctionshallbeissuedbythecourtagainstany
governmentfinancialinstitutioninanyactiontakenbysuchinstitutionincompliancewiththemandatory
foreclosureprovidedinSection1hereof,whethersuchrestrainingorder,temporaryorpermanentinjunctionis
soughtbytheborrower(s)oranythirdpartyorparties,exceptafterduehearinginwhichitisestablishedbythe
borrowerandadmittedbythegovernmentfinancialinstitutionconcernedthattwentypercent(20%)ofthe
outstandingarrearageshasbeenpaidafterthefilingofforeclosureproceedings.(Underscoringsupplied.)

Private respondents thesis that the foreclosure proceedings were null and void because of lack of
publication in the newspaper is nothing more than a mere unsubstantiated allegation not borne out by the
evidence.Inanycase,adisputablepresumptionexistsinfavorofpetitionerthatofficialdutyhasbeenregularly
performedandordinarycourseofbusinesshasbeenfollowed.[43]
VI

NotonlywastheforeclosurerightfullyexercisedbythePNBandDBP,butalso,fromthefactsofthecase,
thearbitratorsinmakingtheawardwentbeyondthearbitrationagreement.
In their complaint filed before the trial court, private respondent Cabarrus, et al. prayed for judgment in
theirfavor:

1.DeclaringtheforeclosureeffectedbythedefendantsDBPandPNBontheassetsofMMICnullandvoidand
directingsaiddefendantstorestoretheforeclosedassetstothepossessionofMMIC,torenderanaccountingof
theiruseand/oroperationofsaidassetsandtoindemnifyMMICforthelossoccasionedbyitsdispossessionor
thedeteriorationthereof

2.DirectingthedefendantsDBPandPNBtohonorandperformtheircommitmentsunderthefinancial
reorganizationplanwhichwasapprovedattheannualstockholdersmeetingofMMICon30April1984

3.CondemningthedefendantsDBPandPNB,jointlyandseverallytopaytheplaintiffsactualdamages
consistingofthelossofvalueoftheirinvestmentamountingtonotlessthanP80,000,000.00,thedamnum
emergesandlucrumcessansinsuchamountasmaybeestablishduringthetrial,moraldamagesinsuchamount
asthisHonorableCourtmaydeemjustandequitableinthepremises,exemplarydamagesinsuchamountasthis
HonorableCourtmayconsiderappropriateforthepurposeofsettinganexampleforthepublicgood,attorneys
feesandlitigationexpensesinsuchamountsasmaybeprovenduringthetrial,andthecostslegallytaxablein
thislitigation.

Further,Plaintiffsprayforsuchotherreliefsasmaybejustandequitableinthepremises.[44]

Upon submission for arbitration, the Compromise and Arbitration Agreement of the parties clearly and
explicitlydefinedandlimitedtheissuestothefollowing:
(a) whether PLAINTIFFS have the capacity or the personality to institute this derivative suit in behalf of the
MMICoritsdirectors
(b)whetherornottheactionsleadingto,andincluding,thePNBDBPforeclosureoftheMMICassets
wereproper,validandingoodfaith.[45]
ItemNo.8oftheAgreementprovidesfortheperiodbywhichtheCommitteewastorenderitsdecision,as
wellasthenaturethereof:
8.Decision.Thecommitteeshallissueadecisiononthecontroversynotlaterthansix(6)monthsfromthedate
ofitsconstitution.

IntheeventthecommitteefindsthatPLAINTIFFShavethepersonalitytofilethissuitandextrajudicial
foreclosureoftheMMICassetswrongful,itshallmakeanawardinfavorofthePLAINTIFFS(excludingDBP),
inanamountasmaybeestablishedorwarrantedbytheevidencewhichshallbepayableinPhilippinePesosat
thetimeoftheaward.SuchawardshallbepaidbytheAPToritssuccessorininterestwithinsixty(60)days
fromthedateoftheawardinaccordancewiththeprovisionsofpar.9hereunder.xxx.ThePLAINTIFFS
remediesunderthisSectionshallbeinadditiontootherremediesthatmaybeavailabletothePLAINTIFFS,all
suchremediesbeingcumulativeandnotexclusiveofeachother.

Ontheotherhand,incasethearbitrationcommitteefindsthatPLAINTIFFShavenocapacitytosueand/orthat
theextrajudicialforeclosureisvalidandlegal,itshallalsomakeanawardinfavorofAPTbasedonthe
counterclaimsofDBPandPNBinanamountasmaybeestablishedorwarrantedbytheevidence.Thisdecision
ofthearbitrationcommitteeinfavorofAPTshalllikewisefinallysettleallissuesregardingtheforeclosureof
theMMICassetssothatthefundsheldinescrowmentionedinpar.9hereunderwillthusbereleasedinfullin
favorofAPT.[46]

Theclearandexplicittermsofthesubmissionnotwithstanding,theArbitrationCommitteeclearlyexceeded
its powers or so imperfectly executed them: (a) in ruling on and declaring valid the FRP (b) in awarding
damagestoMMICwhichwasnotapartytothederivativesuitand(c)inawardingmoraldamagestoJesusS.
Cabarrus,Sr.

ThearbitersoversteppedtheirpowersbydeclaringasvalidproposedFinancialRestructuringProgram.

TheArbitrationCommitteewentbeyonditsmandateandthusactedinexcessofitspowerswhenitruledon
thevalidityof,andgaveeffectto,theproposedFRP.
Insubmittingthecasetoarbitration,thepartieshadmutuallyagreedtolimittheissuetothevalidityofthe
foreclosureandtotransformthereliefsprayedforthereinintopuremoneyclaims.
ThereisabsolutelynoevidencethattheDBPandPNBagreed,expresslyorimpliedly,totheproposedFRP.
It cannot be overemphasized that a FRP, as a contract, requires the consent of the parties thereto.[47] The
contractmustbindbothcontractingparties.[48]Privaterespondentsevenbytheirownadmissionrecognizedthat
theFRPhadyetnotbeencarriedoutandthattheloansofMMIChadnotyetbeenconvertedintoequity.[49]
However,thearbitrationCommitteenotonlydeclaredtheFRPvalidandeffective,butalsoconvertedthe
loansofMMICintoequityraisingtheequityofDBPto87%.[50]
The Arbitration Committee ruled that there was a commitment to carry out the FRP[51]onthegroundof
promissoryestoppel.

Similarly,theprincipleofpromissoryestoppelappliesinthepresentcaseconsideringasweobserved,thefact
thatthegovernment(thatisAlfredoVelayo)wastheFRPsproponent.Althoughtheplaintiffsareagreedthatthe
governmentexecutednoformalagreement,thefactremainsthattheDBPitselfwhichmaderepresentationsthat
theFRPconstitutedawayoutforMMIC.TheCommitteebelievesthatalthoughtheDBPdidnotformallyagree
(assumingthattheboardandstockholdersapprovalswerenotformalenough),itisboundnonethelessifonlyfor
itsconspicuousrepresentations.

AlthoughtheDBPsatintheboardinadualcapacityasholderof36%ofMMICsequity(atthattime)andas
MMICscreditortheDBPcannotvalidlyrenegeonitscommitmentssimplybecauseatthesametime,itheld
interestagainsttheMMIC.

Thefact,ofcourse,isthatasAPTitselfasserted,theFRPwasbeingcarriedoutalthoughapparently,itwould
supposedlyfallshortofitstargets.AssumingthattheFRPwouldfailtomeetitstargets,theDBPandsothis
Committeeholdscannot,inanyevent,brookanydenialthatitwasboundtobeginwith,andthefactisthat
adequateornot(theFRP),thegovernmentisstillboundbyvirtueofitsacts.

TheFRP,ofcourse,didnotitselfpromisearesoundingsuccess,althoughitraisedDBPsequityinMMICto
87%.Itisnotexcuse,however,forthegovernmenttodenyitscommitments.[52]
 Atty.Sison,however,didnotagreeandcorrectlyobservedthat:

Butthedoctrineofpromissoryestoppelcanhardlyfindapplicationhere.Thenearestthattherecanbesaidof
anyestoppelbeingpresentinthiscaseisthefactthattheboardofMMICwas,atthetimetheFRPwasadopted,
mostlycomposedofPNBandDBPrepresentatives.Butthoserepresentatives,singlyorcollectively,arenot
themselvesPNBorDBP.Theyareindividualswithpersonalitiesseparateanddistinctfromthebanksthey
represent.PNBandDBPhavedifferentboardswithdifferentmemberswhomayhavedifferentdecisions.Itis
unfairtoimposeuponthemthedecisionoftheboardofanothercompanyandthuspinthemdownonthe
equitableprincipleofestoppel.Estoppelisaprinciplebasedonequityanditiscertainlynotequitabletoapplyit
inthisparticularsituation.Otherwisetherightsofentirelyseparate,distinctandautonomouslegalentitieslike
PNBandDBPwiththousandsofstockholderswillbesuppressedandrenderednugatory.[53]

Asarule,acorporationexercisesitspowers,includingthepowertoenterintocontracts,throughitsboard
ofdirectors.Whileacorporationmayappointagentstoenterintoacontractinitsbehalf,theagent,shouldnot
exceedhisauthority.[54]Inthecaseatbar,therewasnoshowingthattherepresentativesofPNBandDBPin
MMICevenhadtherequisiteauthoritytoenterintoadebtforequityswap.Andiftheyhadsuchauthority,there
wasnoshowingthatthebanks,throughtheirboardofdirectors,hadratifiedtheFRP.
Further,howcouldtheMMICbeentitledtoabigamountofmoraldamageswhenitscreditreputationwas
not exactly something to be considered sound and wholesome. Under Article 2217 of the Civil Code, moral
damagesincludebesmirchedreputationwhichacorporationmaypossiblysuffer.Acorporationwhoseoverdue
andunpaiddebtstotheGovernmentalonereachedatremendousamountofP22BillionPesoscannotcertainly
haveasolidbusinessreputationtobragabout.AsAtty.Sisoninhisseparateopinionpersuasivelyputit:

Besides,itisnotyetawellsettledjurisprudencethatcorporationsareentitledtomoraldamages.Whilethe
SupremeCourtmayhaveawardedmoraldamagestoacorporationforbesmirchedreputationinMambulaovs.
PNB22SCRA359,suchrulingcannotfindapplicationinthiscase.Itmustbepointedoutthatwhenthe
supposedwrongfulactofforeclosurewasdone,MMICscreditreputationwasnolongeradesirableone.The
companythenwasalreadysufferingfromseriousfinancialcrisiswhichdefinitelyprojectsanimagenot
compatiblewithgoodandwholesomereputation.Soitcouldnotbesaidthattherewasareputationbesmirches
bytheactofforeclosure.[55]

ThearbitersexceededtheirauthorityinawardingdamagestoMMIC,whichisnotimpleadedasaparty
tothederivativesuit.

CivilCodeNo.9900filedbeforetheRTCbeingaderivativesuit,MMICshouldhavebeenimpleadedasa
party.Itwasnotjoinedasapartyplaintifforpartydefendantatanystageoftheproceedings.Asitis,theaward
ofdamagestoMMIC,whichwasnotapartybeforetheArbitrationCommittee,isacompletenullity.
Settled is the doctrine that in a derivative suit, the corporation is the real party in interest while the
stockholderfilingsuitforthecorporationsbehalfisonlynominalparty.Thecorporationshouldbeincludedasa
partyinthesuit.

Anindividualstockholderispermittedtoinstituteaderivativesuitonbehalfofthecorporationwhereinheholds
stockinordertoprotectorvindicatecorporaterights,whenevertheofficialsofthecorporationrefusetosue,or
aretheonestobesuedorholdthecontrolofthecorporation.Insuchactions,thesuingstockholderisregarded
asanominalparty,withthecorporationastherealpartyininterest.xxx.[56]

Itisaconditionsinequanonthatthecorporationbeimpleadedasapartybecause

xxx.Notonlyisthecorporationanindispensibleparty,butitisalsothepresentrulethatitmustbeservedwith
process.Thereasongivenisthatthejudgmentmustbemadebindinguponthecorporationandinorderthatthe
corporationmaygetthebenefitofthesuitandmaynotbringasubsequentsuitagainstthesamedefendantsfor
thesamecauseofaction.Inotherwordsthecorporationsmustbejoinedaspartybecauseitisitscauseofaction
thatisbeinglitigatedandbecausejudgmentmustbearesajudicataagainstit.[57]

Thereasonsgivenfornotallowingdirectindividualsuitare:

(1)xxxtheuniversallyrecognizeddoctrinethatastockholderinacorporationhasnotitlelegalorequitableto
thecorporatepropertythatbothoftheseareinthecorporationitselfforthebenefitofthestockholders.Inother
words,toallowshareholderstosueseparatelywouldconflictwiththeseparatecorporateentityprinciple

(2)xxxthatthepriorrightsofthecreditorsmaybeprejudiced.Thus,ourSupremeCourtheldinthecaseof
Evangelistav.Santos,thatthestockholdersmaynotdirectlyclaimthosedamagesforthemselvesforthatwould
resultintheappropriationby,andthedistributionamongthemofpartofthecorporateassetsbeforethe
dissolutionofthecorporationandtheliquidationofitsdebtsandliabilities,somethingwhichcannotbelegally
doneinviewofsection16oftheCorporationLawxxx

(3)thefilingofsuchsuitswouldconflictwiththedutyofthemanagementtosuefortheprotectionofall
concerned

(4)itwouldproducewastefulmultiplicityofsuitsand

(5)itwouldinvolveconfusioninaascertainingtheeffectofpartialrecoverybyanindividualonthedamages
recoverablebythecorporationforthesameact.[58]

If at all an award was due MMIC, which it was not, the same should have been given sans deduction,
regardless of whether or not the party liable had equity in the corporation, in view of the doctrine that a
corporationhasapersonalityseparateanddistinctfromitsindividualstockholdersormembers.DBPs alleged
equity, even if it were indeed 87%, did not give it ownership over any corporate property, including the
monetaryaward,itsrightoversaidcorporatepropertybeingamereexpectancyorinchoateright.[59]Notably,the
stipulationevenhadtheeffectofprejudicingtheothercreditorsofMMIC.

Thearbiters,likewise,exceededtheirauthorityinawardingmoraldamagestoJesusCabarrus,Sr.

ItisperplexinghowtheArbitrationCommitteecaninonebreathrulethatthecasebeforeitisaderivative
suit, in which the aggrieved party or the real party in interest is supposedly the MMIC, and at the same time
awardmoraldamagestoanindividualstockholder,towit:

WHEREFORE,premisesconsidered,judgmentisherebyrendered:

xxx.

3.Orderingthedefendanttopaytotheplaintiff,JesusS.Cabarrus,Sr.,thesumofP10,000,000.00,tobe
satisfiedlikewisefromthefundsheldunderescrowpursuanttotheEscrowAgreementdatedApril22,1988or
tosuchsubsequentescrowagreementthatwouldsupersedeit,pursuanttoparagraph(9),Compromiseand
ArbitrationAgreement,asandformoraldamagesxxx[60]

ThemajoritydecisionoftheArbitrationCommitteesoughttojustifyitsawardofmoraldamagestoJesusS.
Cabarrus,Sr.bypointingtothefactthatamongtheassetsseizedbythegovernmentwereassetsbelongingto
IndustrialEnterpriseInc.(IEI),ofwhichCabarrusisthemajoritystockholder.ItthenacknowledgethatCabarrus
had already recovered said assets in the RTC, but that he won no more than actual damages. While the
Committee cannot possibly speak for the RTC, there is no doubt that Jesus S. Cabarrus, Sr., suffered moral
damages on account of that specific foreclosure, damages the Committee believes and so holds, he Jesus S.
Cabarrus,Sr.,maybeawardedinthisproceeding.[61]
 Cabarrus cause of action for the seizure of the assets belonging to IEI, of which he is the majority
stockholder, having been ventilated in a complaint he previously filed with the RTC, from which he obtained
actualdamages,hewasbarredresjudicatafromfilingasimilarcaseinanothercourt,thistimeaskingformoral
damages which he failed to get from the earlier case.[62] Worse, private respondents violated the rule against
nonforumshopping.
Itisabasicpostulatethatscorporationhasapersonalityseparateanddistinctfromitsstockholders.[63]The
properties foreclosed belonged to MMIC, not to its stockholders. Hence, if wrong was committed in the
foreclosure, it was done against the corporation.Another reason is that Jesus S. Cabarrus, Sr. cannot directly
claimthosedamagesforhimselfthatwouldresultintheappropriationby,andthedistributionto,himpartofthe
corporationsassetsbeforethedissolutionofthecorporationandtheliquidationofitsdebtsandliabilities.The
ArbitrationCommittee,therefore,passeduponmattersnotsubmittedtoit.Moreover,saidcause of action had
already been decided in a separate case. It is thus quite patent that the arbitration committee exceeded the
authority granted to it by the parties Compromise and Arbitration Agreement by awarding moral damages to
JesusS.Cabarrus,Sr.
Atty. Sison, in his separate opinion, likewise expressed befuddlement to the award of moral damages to
JesusS.Cabarrus,Sr.:

Itisclearanditcannotbedisputedthereforethatbasedonthesestipulatedissues,thepartiesthemselveshave
agreedthatthebasicingredientofthecausesofactioninthiscaseisthewrongcommittedonthecorporation
(MMIC)fortheallegedillegalforeclosureofitsassets.Byagreeingtothisstipulation,PLAINTIFFSthemselves
(Cabarrus,etal.)admitthatthecauseofactionpertainsonlytothecorporation(MMIC)andthattheyarefiling
thisforandinbehalfofMMIC.

PerforcethishastobesobecauseitisthebasicruleinCorporationLawthattheshareholdershavenotitle,legal
orequitabletothepropertywhichisownedbythecorporation(13Am.Jur.165Pascualvs.Oresco,14Phil.
83).InGanzon&Sonsvs.RegisterofDeeds,6SCRA373,therulehasbeenreiteratedthatastockholderisnot
thecoownerofcorporateproperty.Sincethepropertyorassetsforeclosedbelongs[sic]toMMIC,thewrong
committed,ifany,isdoneagainstthecorporation.Thereisthereforenodirectinjuryordirectviolationofthe
rightsofCabarrusetal.Thereisnoway,legalorequitable,bywhichCabarrusetal.couldrecoverdamagesin
theirpersonalcapacitiesevenassumingorjustbecausetheforeclosureisimproperorinvalid.TheCompromise
andArbitrationAgreementitselfandtheelementaryprinciplesofCorporationLawsayso.Therefore,Iam
constrainedtodissentfromtheawardofmoraldamagestoCabarrus.[64]

Fromtheforegoingdiscussions,itisevidentthat,notonlydidthearbitrationcommitteeexceeditspowers
orsoimperfectlyexecutethem,butalso,itsfindingsandconclusionsarepalpablydevoidofanyfactualbasis
andinmanifestdisregardofthelaw.
We do not find it necessary to remand this case to the RTC for appropriate action. The pleadings and
memorandafiledwiththisCourt,aswellasintheCourtofAppeals,raisedandextensivelydiscussedtheissues
onthemerits.Suchbeingthecase,thereissufficientbasisforustoresolvethecontroversybetweentheparties
anchoredontherecordsandthepleadingsbeforeus.[65]
WHEREFORE, the Decision of the Court of Appeals dated July 17, 1995, as well as the Orders of the
Regional Trial Court of Makati, Branch 62, dated November 28, 1994 and January 19, 1995, is hereby
REVERSEDandSETASIDE,andthedecisionoftheArbitrationCommitteeisherebyVACATED.
SOORDERED
Romero(Chairman)J.,PleaseseeDissentingOpinion.
Purisima,J.,concurandalsojoinedtheseparateconcurringopinionofJ.Pardo.
Pardo,J.,seeseparateconcurringopinion.

[1]Rollo,pp.261262.
[2]Id.,at262263.

[3]CARollo,p.130.

[4]Rollo,p.264.

[5]Ibid.

[6]Id.,at261.

[7]Id.,at265.

[8]CARollo,p.134.

[9]Id.,at149.

[10]CARollo,pp.134135.

[11]Id.,at135136.

[12]Rollo,p.266.

[13]CARollo,pp.109110.

[14]Id.,at111112.

[15]Id.,at111.

[16]Id.,at168172.Underscoringintheoriginal.

[17]Id.,at287288.

[18]CARollo,pp.5152.

[19]Rollo,p.38.

[20]CARollo,p.18.

[21]Rollo,pp.2122

[22]CARollo,p.11

[23]WESTSLEGALTHESAURUSDICTIONARY,1986ed.

[24]Bengsonv.Chan,75SCRA112[1972].

[25]LaNavalDrugCo.v.CA,236SCRA78[1994].

[26]Ibid.

[27]23SCRA29[1968].

[28] Entitled AN ACT TO AUTHORIZED THE MAKING OF ARBITRATION AND SUBMISSION AGREEMENTS, TO
PROVIDE FOR THE APPOINTMENT OF ARBITRATORS AND THE PROCEDURE FOR ARBITRATION IN CIVIL
CONTROVERSIES,ANDOTHERPURPOSES,otherwiseknownasTheArbitrationLaw.
[29]TheHartbridge,62F.2d72[1932].

[30]JameRichardson&Sonsv.W.E.HedgerTransp.Corp.,98F.2d55[1938].

[31]GeneralConstructionCo.v.HeringRealtyCo.,201F.Supp.487[1962].

[32]ColemanCompanyv.InternationalUnion,Etc.,317P.2d831[1957].
[33]Bernhardtv.PolygraphicCo.,100Led199[1956].

[34]AllstateInsuranceCompanyv.Cook,519P.2d66[1974].

[35]ColemanCompanyv.InternationalUnion,Etc.,supra: Local 63, Textile Workers Unionv. Cheney Brothers, 109 A. 2d 240
[1954]
[36]ART.2038Acompromiseinwhichthereismistake,fraud,violence,intimidation,undueinfluence,orfalsityofdocuments,is
subjecttotheprovisionsofarticle1330ofthisCode.
[37]ART.2039.Whenthepartiescompromisegenerallyonalldifferenceswhichtheymighthavewitheachother,thediscoveryof
documentsreferringtooneormorebutnottoallofthequestionssettledshallnotitselfbeacauseforannulmentorrescissionofthe
compromise,unlesssaiddocumentshavebeenconcealedbyoneoftheparties.
Butthecompromisemaybeannulledorrescindedifitrefersonlytoonethingtowhichoneofthepartieshasnoright,asshownby
thenewlydiscovereddocuments.
[38]ART2040.Ifafteralitigationhasbeendecidedbyafinaljudgment,acompromiseshouldbeagreedupon,eitherorbothparties
beingunawareoftheexistenceofthefinaljudgment,thecompromisemayberescinded.
[39]206SCRA545,553555[1992].

[40]StorerBroadcastingv.AmericanFederationofTel.,600F.2d45[1979].

[41]SeeWilkovSwan,346U.S.427,74S.Ct.182,98L.168[1953].

Note:U.S.lawsonvoluntaryarbitrationasalternativemodeofsettingdisputesprovidesubstantiallysimilargroundstovacatean
awardasthoseinPhilippinelaws.UndertheUniformArbitrationAct,thegroundsforvacationofanawardareasfollows:
Procurementbycorruption,fraud,orotherunduemeans
Partialiltyonthepartofanarbitratorappointedasneutral
Misconductorcorruptionsofthearbitrators
Exceedingofpowersbythearbitrators
Refusalofarbitratorstohearmaterialevidence,ortogiveapostponementwheretherewassufficientcause
Prejudicialmisconductofthehearing
Lackofavalidarbitrationagreement,theissuenothavingbeendetermined
SimilargroundsforvacationoftheawardarestatedintheUnitedStatesArbitrationAct:
Corruption,fraudorunduemeans.
Evidentpartialityorcorruption.
Misconductinrefusaltopostponethehearingortohearmaterialevidence,oranyothermisbehaviorprejudicialtotherightsofany
party.
Thearbitratorsexceededtheirpowersorsoimperfectlyexecutedthemthatamutual,finalanddefiniteawardwasnotmade.[4Am
Jur2d.,235236]
[42]CARollo,pp.176179.

[43]Sec.3(m)and(q),Rule131,RulesofCourt.

[44]CARollo,pp.7677.Underscoringintheoriginal.

[45]Id.,at111112.

[46]Id.,at102.Underscoringintheoriginal.

[47]Article1318,CivilCode.
[48]Article1308,id.

[49]CARollop.140.

[50]InthecomputationoftheawardtheArbitrationCommitteedeductedtheshareofDBP,thus:

As this Committee holds that the FRP is valid, DBPs equity in MMIC is raised to 87%. So pursuant to the provision of the
CompromiseandArbitrationAgreement,the87%equityofDBPisherebydeductedfromtheactualdamagesxxx.(Seenote16.)
[51]CARollo,p.137.

[52]Id.,at148150.

[53]Id.,at179180.

[54]Article1887,CivilCode.

[55]CARollo,p.178.

[56]Gamboavs.Victoriano,90SCRA40,47[1979].

[57]AgbayanisCommercialLawofthePhilippines,Vol.III,p.566,citingBallantine,pp.366367.

[58]Id.,at565566.

[59]SeeEvangelistavs.Santos,86Phil.387[1950].

[60]CARollo,pp.170172.

[61]Id.,at167.
[62]Sec4oftheRulesoftheCourt(beforeitsamendmentbythe1998RulesofCourtProcedure)provides:
Sec.4.Effectofsplittingasinglecauseofaction.Iftwoormorecomplaintsarebroughtfordifferentpartsofasinglecauseofaction,
thefilingofthefirstmaybepleadedinabatementoftheotherorothers,inaccordancewithsection1(e)ofRule16,andajudgment
uponthemeritsinanyoneisavailableasabartotheother.
[63]Article2,CorporationCode.
[64]CARollo,pp.174175.Underscoringintheoriginal.
[65]Caneda,Jr.vs.CourtofAppeals,181SCRA762{1990]Quisumbingvs.CourtofAppeals,122SCRA703[1983]Boardof
Liquidatorsvs.Zulueta,115SCRA548[1982].