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G.R. No.

143581

January 7, 2008

KOREA TECHNOLOGIES CO., LTD., petitioner,


vs.
HON. ALBERTO A. LERMA, in his capacity as Presiding
Judge of Branch 256 of Regional Trial Court of Muntinlupa
City, and PACIFIC GENERAL STEEL MANUFACTURING
CORPORATION, respondents.
DECISION
VELASCO, JR., J.:
In our jurisdiction, the policy is to favor alternative methods of
resolving disputes, particularly in civil and commercial
disputes. Arbitration along with mediation, conciliation, and
negotiation, being inexpensive, speedy and less hostile
methods have long been favored by this Court. The petition
before us puts at issue an arbitration clause in a contract
mutually agreed upon by the parties stipulating that they would
submit themselves to arbitration in a foreign country.
Regrettably, instead of hastening the resolution of their dispute,
the parties wittingly or unwittingly prolonged the controversy.
Petitioner Korea Technologies Co., Ltd. (KOGIES) is a Korean
corporation which is engaged in the supply and installation of
Liquefied Petroleum Gas (LPG) Cylinder manufacturing plants,
while private respondent Pacific General Steel Manufacturing
Corp. (PGSMC) is a domestic corporation.
On March 5, 1997, PGSMC and KOGIES executed a
Contract1 whereby KOGIES would set up an LPG Cylinder
Manufacturing Plant in Carmona, Cavite. The contract was
executed in the Philippines. On April 7, 1997, the parties
executed, in Korea, an Amendment for Contract No. KLP970301 dated March 5, 19972 amending the terms of payment.
The contract and its amendment stipulated that KOGIES will
ship the machinery and facilities necessary for manufacturing
LPG cylinders for which PGSMC would pay USD 1,224,000.
KOGIES would install and initiate the operation of the plant for
which PGSMC bound itself to pay USD 306,000 upon the
plants production of the 11-kg. LPG cylinder samples. Thus,
the total contract price amounted to USD 1,530,000.
On October 14, 1997, PGSMC entered into a Contract of
Lease3 with Worth Properties, Inc. (Worth) for use of Worths
5,079-square meter property with a 4,032-square meter
warehouse building to house the LPG manufacturing plant.
The monthly rental was PhP 322,560 commencing on January
1, 1998 with a 10% annual increment clause. Subsequently,
the machineries, equipment, and facilities for the manufacture
of LPG cylinders were shipped, delivered, and installed in the
Carmona plant. PGSMC paid KOGIES USD 1,224,000.
However, gleaned from the Certificate4 executed by the parties
on January 22, 1998, after the installation of the plant, the
initial operation could not be conducted as PGSMC
encountered financial difficulties affecting the supply of
materials, thus forcing the parties to agree that KOGIES would
be deemed to have completely complied with the terms and
conditions of the March 5, 1997 contract.
For the remaining balance of USD306,000 for the installation
and initial operation of the plant, PGSMC issued two postdated
checks: (1) BPI Check No. 0316412 dated January 30, 1998

for PhP 4,500,000; and (2) BPI Check No. 0316413 dated
March 30, 1998 for PhP 4,500,000.5
When KOGIES deposited the checks, these were dishonored
for the reason "PAYMENT STOPPED." Thus, on May 8, 1998,
KOGIES sent a demand letter6 to PGSMC threatening criminal
action for violation of Batas Pambansa Blg. 22 in case of
nonpayment. On the same date, the wife of PGSMCs
President faxed a letter dated May 7, 1998 to KOGIES
President who was then staying at a Makati City hotel. She
complained that not only did KOGIES deliver a different brand
of hydraulic press from that agreed upon but it had not
delivered several equipment parts already paid for.
On May 14, 1998, PGSMC replied that the two checks it issued
KOGIES were fully funded but the payments were stopped for
reasons previously made known to KOGIES.7
On June 1, 1998, PGSMC informed KOGIES that PGSMC was
canceling their Contract dated March 5, 1997 on the ground
that KOGIES had altered the quantity and lowered the quality
of the machineries and equipment it delivered to PGSMC, and
that PGSMC would dismantle and transfer the machineries,
equipment, and facilities installed in the Carmona plant. Five
days later, PGSMC filed before the Office of the Public
Prosecutor an Affidavit-Complaint for Estafa docketed as I.S.
No. 98-03813 against Mr. Dae Hyun Kang, President of
KOGIES.
On June 15, 1998, KOGIES wrote PGSMC informing the latter
that PGSMC could not unilaterally rescind their contract nor
dismantle and transfer the machineries and equipment on
mere imagined violations by KOGIES. It also insisted that their
disputes should be settled by arbitration as agreed upon in
Article 15, the arbitration clause of their contract.
On June 23, 1998, PGSMC again wrote KOGIES reiterating
the contents of its June 1, 1998 letter threatening that the
machineries, equipment, and facilities installed in the plant
would be dismantled and transferred on July 4, 1998. Thus, on
July 1, 1998, KOGIES instituted an Application for Arbitration
before the Korean Commercial Arbitration Board (KCAB) in
Seoul, Korea pursuant to Art. 15 of the Contract as amended.
On July 3, 1998, KOGIES filed a Complaint for Specific
Performance, docketed as Civil Case No. 98-1178 against
PGSMC before the Muntinlupa City Regional Trial Court (RTC).
The RTC granted a temporary restraining order (TRO) on July
4, 1998, which was subsequently extended until July 22, 1998.
In its complaint, KOGIES alleged that PGSMC had initially
admitted that the checks that were stopped were not funded
but later on claimed that it stopped payment of the checks for
the reason that "their value was not received" as the former
allegedly breached their contract by "altering the quantity and
lowering the quality of the machinery and equipment" installed
in the plant and failed to make the plant operational although it
earlier certified to the contrary as shown in a January 22, 1998
Certificate. Likewise, KOGIES averred that PGSMC violated
Art. 15 of their Contract, as amended, by unilaterally rescinding
the contract without resorting to arbitration. KOGIES also
asked that PGSMC be restrained from dismantling and
transferring the machinery and equipment installed in the plant
which the latter threatened to do on July 4, 1998.
On July 9, 1998, PGSMC filed an opposition to the TRO
arguing that KOGIES was not entitled to the TRO since Art. 15,
the arbitration clause, was null and void for being against

public policy as it ousts the local courts of jurisdiction over the


instant controversy.

Code and as held by this Court in Chung Fu Industries (Phils.),


Inc.15

On July 17, 1998, PGSMC filed its Answer with Compulsory


Counterclaim9 asserting that it had the full right to dismantle
and transfer the machineries and equipment because it had
paid for them in full as stipulated in the contract; that KOGIES
was not entitled to the PhP 9,000,000 covered by the checks
for failing to completely install and make the plant operational;
and that KOGIES was liable for damages amounting to PhP
4,500,000 for altering the quantity and lowering the quality of
the machineries and equipment. Moreover, PGSMC averred
that it has already paid PhP 2,257,920 in rent (covering
January to July 1998) to Worth and it was not willing to further
shoulder the cost of renting the premises of the plant
considering that the LPG cylinder manufacturing plant never
became operational.

In the meantime, PGSMC filed a Motion for Inspection of


Things16 to determine whether there was indeed alteration of
the quantity and lowering of quality of the machineries and
equipment, and whether these were properly installed.
KOGIES opposed the motion positing that the queries and
issues raised in the motion for inspection fell under the
coverage of the arbitration clause in their contract.

After the parties submitted their Memoranda, on July 23, 1998,


the RTC issued an Order denying the application for a writ of
preliminary injunction, reasoning that PGSMC had paid
KOGIES USD 1,224,000, the value of the machineries and
equipment as shown in the contract such that KOGIES no
longer had proprietary rights over them. And finally, the RTC
held that Art. 15 of the Contract as amended was invalid as it
tended to oust the trial court or any other court jurisdiction over
any dispute that may arise between the parties. KOGIES
prayer for an injunctive writ was denied.10 The dispositive
portion of the Order stated:

On October 2, 1998, KOGIES filed an Urgent Motion for


Reconsideration17 of the September 21, 1998 RTC Order
granting inspection of the plant and denying dismissal of
PGSMCs compulsory counterclaims.

WHEREFORE, in view of the foregoing consideration, this


Court believes and so holds that no cogent reason exists for
this Court to grant the writ of preliminary injunction to restrain
and refrain defendant from dismantling the machineries and
facilities at the lot and building of Worth Properties,
Incorporated at Carmona, Cavite and transfer the same to
another site: and therefore denies plaintiffs application for a
writ of preliminary injunction.
On July 29, 1998, KOGIES filed its Reply to Answer and
Answer to Counterclaim.11 KOGIES denied it had altered the
quantity and lowered the quality of the machinery, equipment,
and facilities it delivered to the plant. It claimed that it had
performed all the undertakings under the contract and had
already produced certified samples of LPG cylinders. It averred
that whatever was unfinished was PGSMCs fault since it failed
to procure raw materials due to lack of funds. KOGIES, relying
on Chung Fu Industries (Phils.), Inc. v. Court of
Appeals,12 insisted that the arbitration clause was without
question valid.
After KOGIES filed a Supplemental Memorandum with Motion
to Dismiss13 answering PGSMCs memorandum of July 22,
1998 and seeking dismissal of PGSMCs counterclaims,
KOGIES, on August 4, 1998, filed its Motion for
Reconsideration14 of the July 23, 1998 Order denying its
application for an injunctive writ claiming that the contract was
not merely for machinery and facilities worth USD 1,224,000
but was for the sale of an "LPG manufacturing plant" consisting
of "supply of all the machinery and facilities" and "transfer of
technology" for a total contract price of USD 1,530,000 such
that the dismantling and transfer of the machinery and facilities
would result in the dismantling and transfer of the very plant
itself to the great prejudice of KOGIES as the still unpaid
owner/seller of the plant. Moreover, KOGIES points out that the
arbitration clause under Art. 15 of the Contract as amended
was a valid arbitration stipulation under Art. 2044 of the Civil

On September 21, 1998, the trial court issued an Order (1)


granting PGSMCs motion for inspection; (2) denying KOGIES
motion for reconsideration of the July 23, 1998 RTC Order; and
(3) denying KOGIES motion to dismiss PGSMCs compulsory
counterclaims as these counterclaims fell within the requisites
of compulsory counterclaims.

Ten days after, on October 12, 1998, without waiting for the
resolution of its October 2, 1998 urgent motion for
reconsideration, KOGIES filed before the Court of Appeals
(CA) a petition for certiorari18 docketed as CA-G.R. SP No.
49249, seeking annulment of the July 23, 1998 and September
21, 1998 RTC Orders and praying for the issuance of writs of
prohibition, mandamus, and preliminary injunction to enjoin the
RTC and PGSMC from inspecting, dismantling, and
transferring the machineries and equipment in the Carmona
plant, and to direct the RTC to enforce the specific agreement
on arbitration to resolve the dispute.
In the meantime, on October 19, 1998, the RTC denied
KOGIES urgent motion for reconsideration and directed the
Branch Sheriff to proceed with the inspection of the
machineries and equipment in the plant on October 28, 1998.19
Thereafter, KOGIES filed a Supplement to the Petition20 in CAG.R. SP No. 49249 informing the CA about the October 19,
1998 RTC Order. It also reiterated its prayer for the issuance of
the writs of prohibition, mandamus and preliminary injunction
which was not acted upon by the CA. KOGIES asserted that
the Branch Sheriff did not have the technical expertise to
ascertain whether or not the machineries and equipment
conformed to the specifications in the contract and were
properly installed.
On November 11, 1998, the Branch Sheriff filed his Sheriffs
Report21 finding that the enumerated machineries and
equipment were not fully and properly installed.
The Court of Appeals affirmed the trial court and declared
the arbitration clause against public policy
On May 30, 2000, the CA rendered the assailed
Decision22 affirming the RTC Orders and dismissing the petition
for certiorari filed by KOGIES. The CA found that the RTC did
not gravely abuse its discretion in issuing the assailed July 23,
1998 and September 21, 1998 Orders. Moreover, the CA
reasoned that KOGIES contention that the total contract price
for USD 1,530,000 was for the whole plant and had not been
fully paid was contrary to the finding of the RTC that PGSMC
fully paid the price of USD 1,224,000, which was for all the

machineries and equipment. According to the CA, this


determination by the RTC was a factual finding beyond the
ambit of a petition for certiorari.
On the issue of the validity of the arbitration clause, the CA
agreed with the lower court that an arbitration clause which
provided for a final determination of the legal rights of the
parties to the contract by arbitration was against public policy.
On the issue of nonpayment of docket fees and nonattachment of a certificate of non-forum shopping by PGSMC,
the CA held that the counterclaims of PGSMC were
compulsory ones and payment of docket fees was not required
since the Answer with counterclaim was not an initiatory
pleading. For the same reason, the CA said a certificate of
non-forum shopping was also not required.
Furthermore, the CA held that the petition for certiorari had
been filed prematurely since KOGIES did not wait for the
resolution of its urgent motion for reconsideration of the
September 21, 1998 RTC Order which was the plain, speedy,
and adequate remedy available. According to the CA, the RTC
must be given the opportunity to correct any alleged error it
has committed, and that since the assailed orders were
interlocutory, these cannot be the subject of a petition for
certiorari.
Hence, we have this Petition for Review on Certiorari under
Rule 45.
The Issues
Petitioner posits that the appellate court committed the
following errors:

CERTIORARI AND PROHIBITION FOR BEING


"INTERLOCUTORY IN NATURE;"
f. NOT GRANTING THE RELIEFS AND REMEDIES PRAYED
FOR IN HE (SIC) PETITION AND, INSTEAD, DISMISSING
THE SAME FOR ALLEGEDLY "WITHOUT MERIT."23
The Courts Ruling
The petition is partly meritorious.
Before we delve into the substantive issues, we shall first
tackle the procedural issues.
The rules on the payment of docket fees for
counterclaims
and cross claims were amended effective August 16, 2004
KOGIES strongly argues that when PGSMC filed the
counterclaims, it should have paid docket fees and filed a
certificate of non-forum shopping, and that its failure to do so
was a fatal defect.
We disagree with KOGIES.
As aptly ruled by the CA, the counterclaims of PGSMC were
incorporated in its Answer with Compulsory Counterclaim
dated July 17, 1998 in accordance with Section 8 of Rule 11,
1997 Revised Rules of Civil Procedure, the rule that was
effective at the time the Answer with Counterclaim was filed.
Sec. 8 on existing counterclaim or cross-claim states, "A
compulsory counterclaim or a cross-claim that a defending
party has at the time he files his answer shall be contained
therein."

a. PRONOUNCING THE QUESTION OF OWNERSHIP OVER


THE MACHINERY AND FACILITIES AS "A QUESTION OF
FACT" "BEYOND THE AMBIT OF A PETITION FOR
CERTIORARI" INTENDED ONLY FOR CORRECTION OF
ERRORS OF JURISDICTION OR GRAVE ABUSE OF
DISCRETION AMOUNTING TO LACK OF (SIC) EXCESS OF
JURISDICTION, AND CONCLUDING THAT THE TRIAL
COURTS FINDING ON THE SAME QUESTION WAS
IMPROPERLY RAISED IN THE PETITION BELOW;

On July 17, 1998, at the time PGSMC filed its Answer


incorporating its counterclaims against KOGIES, it was not
liable to pay filing fees for said counterclaims being compulsory
in nature. We stress, however, that effective August 16, 2004
under Sec. 7, Rule 141, as amended by A.M. No. 04-2-04-SC,
docket fees are now required to be paid in compulsory
counterclaim or cross-claims.

b. DECLARING AS NULL AND VOID THE ARBITRATION


CLAUSE IN ARTICLE 15 OF THE CONTRACT BETWEEN
THE PARTIES FOR BEING "CONTRARY TO PUBLIC
POLICY" AND FOR OUSTING THE COURTS OF
JURISDICTION;

As to the failure to submit a certificate of forum shopping,


PGSMCs Answer is not an initiatory pleading which requires a
certification against forum shopping under Sec. 524 of Rule 7,
1997 Revised Rules of Civil Procedure. It is a responsive
pleading, hence, the courts a quo did not commit reversible
error in denying KOGIES motion to dismiss PGSMCs
compulsory counterclaims.

c. DECREEING PRIVATE RESPONDENTS


COUNTERCLAIMS TO BE ALL COMPULSORY NOT
NECESSITATING PAYMENT OF DOCKET FEES AND
CERTIFICATION OF NON-FORUM SHOPPING;
d. RULING THAT THE PETITION WAS FILED
PREMATURELY WITHOUT WAITING FOR THE
RESOLUTION OF THE MOTION FOR RECONSIDERATION
OF THE ORDER DATED SEPTEMBER 21, 1998 OR
WITHOUT GIVING THE TRIAL COURT AN OPPORTUNITY
TO CORRECT ITSELF;
e. PROCLAIMING THE TWO ORDERS DATED JULY 23 AND
SEPTEMBER 21, 1998 NOT TO BE PROPER SUBJECTS OF

Interlocutory orders proper subject of certiorari


Citing Gamboa v. Cruz,25 the CA also pronounced that
"certiorari and Prohibition are neither the remedies to question
the propriety of an interlocutory order of the trial court."26 The
CA erred on its reliance on Gamboa.Gamboa involved the
denial of a motion to acquit in a criminal case which was not
assailable in an action for certiorari since the denial of a motion
to quash required the accused to plead and to continue with
the trial, and whatever objections the accused had in his
motion to quash can then be used as part of his defense and
subsequently can be raised as errors on his appeal if the
judgment of the trial court is adverse to him. The general rule is
that interlocutory orders cannot be challenged by an

appeal.27 Thus, in Yamaoka v. Pescarich Manufacturing


Corporation, we held:

We now go to the core issue of the validity of Art. 15 of the


Contract, the arbitration clause. It provides:

The proper remedy in such cases is an ordinary appeal from


an adverse judgment on the merits, incorporating in said
appeal the grounds for assailing the interlocutory orders.
Allowing appeals from interlocutory orders would result in the
sorry spectacle of a case being subject of a
counterproductive ping-pong to and from the appellate court as
often as a trial court is perceived to have made an error in any
of its interlocutory rulings. However, where the assailed
interlocutory order was issued with grave abuse of discretion or
patently erroneous and the remedy of appeal would not afford
adequate and expeditious relief, the Court allows certiorari as a
mode of redress.28

Article 15. Arbitration.All disputes, controversies, or


differences which may arise between the parties, out of or in
relation to or in connection with this Contract or for the breach
thereof, shall finally be settled by arbitration in Seoul, Korea in
accordance with the Commercial Arbitration Rules of the
Korean Commercial Arbitration Board. The award rendered
by the arbitration(s) shall be final and binding upon both
parties concerned. (Emphasis supplied.)

Also, appeals from interlocutory orders would open the


floodgates to endless occasions for dilatory motions. Thus,
where the interlocutory order was issued without or in excess
of jurisdiction or with grave abuse of discretion, the remedy is
certiorari.29
The alleged grave abuse of discretion of the respondent court
equivalent to lack of jurisdiction in the issuance of the two
assailed orders coupled with the fact that there is no plain,
speedy, and adequate remedy in the ordinary course of law
amply provides the basis for allowing the resort to a petition for
certiorari under Rule 65.
Prematurity of the petition before the CA
Neither do we think that KOGIES was guilty of forum shopping
in filing the petition for certiorari. Note that KOGIES motion for
reconsideration of the July 23, 1998 RTC Order which denied
the issuance of the injunctive writ had already been denied.
Thus, KOGIES only remedy was to assail the RTCs
interlocutory order via a petition for certiorari under Rule 65.
While the October 2, 1998 motion for reconsideration of
KOGIES of the September 21, 1998 RTC Order relating to the
inspection of things, and the allowance of the compulsory
counterclaims has not yet been resolved, the circumstances in
this case would allow an exception to the rule that before
certiorari may be availed of, the petitioner must have filed a
motion for reconsideration and said motion should have been
first resolved by the court a quo. The reason behind the rule is
"to enable the lower court, in the first instance, to pass upon
and correct its mistakes without the intervention of the higher
court."30
The September 21, 1998 RTC Order directing the branch
sheriff to inspect the plant, equipment, and facilities when he is
not competent and knowledgeable on said matters is evidently
flawed and devoid of any legal support. Moreover, there is an
urgent necessity to resolve the issue on the dismantling of the
facilities and any further delay would prejudice the interests of
KOGIES. Indeed, there is real and imminent threat of
irreparable destruction or substantial damage to KOGIES
equipment and machineries. We find the resort to certiorari
based on the gravely abusive orders of the trial court sans the
ruling on the October 2, 1998 motion for reconsideration to be
proper.
The Core Issue: Article 15 of the Contract

Petitioner claims the RTC and the CA erred in ruling that the
arbitration clause is null and void.
Petitioner is correct.
Established in this jurisdiction is the rule that the law of the
place where the contract is made governs. Lex loci contractus.
The contract in this case was perfected here in the Philippines.
Therefore, our laws ought to govern. Nonetheless, Art. 2044 of
the Civil Code sanctions the validity of mutually agreed arbitral
clause or the finality and binding effect of an arbitral award. Art.
2044 provides, "Any stipulation that the arbitrators award
or decision shall be final, is valid, without prejudice to
Articles 2038, 2039 and 2040." (Emphasis supplied.)
Arts. 2038,31 2039,32 and 204033 abovecited refer to instances
where a compromise or an arbitral award, as applied to Art.
2044 pursuant to Art. 2043,34 may be voided, rescinded, or
annulled, but these would not denigrate the finality of the
arbitral award.
The arbitration clause was mutually and voluntarily agreed
upon by the parties. It has not been shown to be contrary to
any law, or against morals, good customs, public order, or
public policy. There has been no showing that the parties have
not dealt with each other on equal footing. We find no reason
why the arbitration clause should not be respected and
complied with by both parties. In Gonzales v. Climax Mining
Ltd.,35 we held that submission to arbitration is a contract and
that a clause in a contract providing that all matters in dispute
between the parties shall be referred to arbitration is a
contract.36 Again in Del Monte Corporation-USA v. Court of
Appeals, we likewise ruled that "[t]he provision to submit to
arbitration any dispute arising therefrom and the relationship of
the parties is part of that contract and is itself a contract."37
Arbitration clause not contrary to public policy
The arbitration clause which stipulates that the arbitration must
be done in Seoul, Korea in accordance with the Commercial
Arbitration Rules of the KCAB, and that the arbitral award is
final and binding, is not contrary to public policy. This Court has
sanctioned the validity of arbitration clauses in a catena of
cases. In the 1957 case ofEastboard Navigation Ltd. v. Juan
Ysmael and Co., Inc.,38 this Court had occasion to rule that an
arbitration clause to resolve differences and breaches of
mutually agreed contractual terms is valid. In BF Corporation v.
Court of Appeals, we held that "[i]n this jurisdiction, arbitration
has been held valid and constitutional. Even before the
approval on June 19, 1953 of Republic Act No. 876, this Court
has countenanced the settlement of disputes through
arbitration. Republic Act No. 876 was adopted to supplement
the New Civil Codes provisions on arbitration."39 And in LM

Power Engineering Corporation v. Capitol Industrial


Construction Groups, Inc., we declared that:
Being an inexpensive, speedy and amicable method of settling
disputes, arbitrationalong with mediation, conciliation and
negotiationis encouraged by the Supreme Court. Aside from
unclogging judicial dockets, arbitration also hastens the
resolution of disputes, especially of the commercial kind. It is
thus regarded as the "wave of the future" in international civil
and commercial disputes. Brushing aside a contractual
agreement calling for arbitration between the parties would be
a step backward.
Consistent with the above-mentioned policy of encouraging
alternative dispute resolution methods, courts should liberally
construe arbitration clauses. Provided such clause is
susceptible of an interpretation that covers the asserted
dispute, an order to arbitrate should be granted. Any doubt
should be resolved in favor of arbitration.40
Having said that the instant arbitration clause is not against
public policy, we come to the question on what governs an
arbitration clause specifying that in case of any dispute arising
from the contract, an arbitral panel will be constituted in a
foreign country and the arbitration rules of the foreign country
would govern and its award shall be final and binding.
RA 9285 incorporated the UNCITRAL Model law
to which we are a signatory
For domestic arbitration proceedings, we have particular
agencies to arbitrate disputes arising from contractual
relations. In case a foreign arbitral body is chosen by the
parties, the arbitration rules of our domestic arbitration bodies
would not be applied. As signatory to the Arbitration Rules of
the UNCITRAL Model Law on International Commercial
Arbitration41 of the United Nations Commission on International
Trade Law (UNCITRAL) in the New York Convention on June
21, 1985, the Philippines committed itself to be bound by the
Model Law. We have even incorporated the Model Law in
Republic Act No. (RA) 9285, otherwise known as the
Alternative Dispute Resolution Act of 2004 entitled An Act to
Institutionalize the Use of an Alternative Dispute Resolution
System in the Philippines and to Establish the Office for
Alternative Dispute Resolution, and for Other Purposes,
promulgated on April 2, 2004. Secs. 19 and 20 of Chapter 4 of
the Model Law are the pertinent provisions:
CHAPTER 4 - INTERNATIONAL COMMERCIAL
ARBITRATION
SEC. 19. Adoption of the Model Law on International
Commercial Arbitration.International commercial arbitration
shall be governed by the Model Law on International
Commercial Arbitration (the "Model Law") adopted by the
United Nations Commission on International Trade Law on
June 21, 1985 (United Nations Document A/40/17) and
recommended for enactment by the General Assembly in
Resolution No. 40/72 approved on December 11, 1985, copy of
which is hereto attached as Appendix "A".
SEC. 20. Interpretation of Model Law.In interpreting the
Model Law, regard shall be had to its international origin and to
the need for uniformity in its interpretation and resort may be
made to the travaux preparatories and the report of the
Secretary General of the United Nations Commission on

International Trade Law dated March 25, 1985 entitled,


"International Commercial Arbitration: Analytical Commentary
on Draft Trade identified by reference number A/CN. 9/264."
While RA 9285 was passed only in 2004, it nonetheless
applies in the instant case since it is a procedural law which
has a retroactive effect. Likewise, KOGIES filed its application
for arbitration before the KCAB on July 1, 1998 and it is still
pending because no arbitral award has yet been rendered.
Thus, RA 9285 is applicable to the instant case. Well-settled is
the rule that procedural laws are construed to be applicable to
actions pending and undetermined at the time of their passage,
and are deemed retroactive in that sense and to that extent. As
a general rule, the retroactive application of procedural laws
does not violate any personal rights because no vested right
has yet attached nor arisen from them.42
Among the pertinent features of RA 9285 applying and
incorporating the UNCITRAL Model Law are the following:
(1) The RTC must refer to arbitration in proper cases
Under Sec. 24, the RTC does not have jurisdiction over
disputes that are properly the subject of arbitration pursuant to
an arbitration clause, and mandates the referral to arbitration in
such cases, thus:
SEC. 24. Referral to Arbitration.A court before which an
action is brought in a matter which is the subject matter of an
arbitration agreement shall, if at least one party so requests not
later than the pre-trial conference, or upon the request of both
parties thereafter, refer the parties to arbitration unless it finds
that the arbitration agreement is null and void, inoperative or
incapable of being performed.
(2) Foreign arbitral awards must be confirmed by the RTC
Foreign arbitral awards while mutually stipulated by the parties
in the arbitration clause to be final and binding are not
immediately enforceable or cannot be implemented
immediately. Sec. 3543 of the UNCITRAL Model Law stipulates
the requirement for the arbitral award to be recognized by a
competent court for enforcement, which court under Sec. 36 of
the UNCITRAL Model Law may refuse recognition or
enforcement on the grounds provided for. RA 9285
incorporated these provisos to Secs. 42, 43, and 44 relative to
Secs. 47 and 48, thus:
SEC. 42. Application of the New York Convention.The New
York Convention shall govern the recognition and enforcement
of arbitral awards covered by said Convention.
The recognition and enforcement of such arbitral awards shall
be filed with the Regional Trial Court in accordance with the
rules of procedure to be promulgated by the Supreme Court.
Said procedural rules shall provide that the party relying on the
award or applying for its enforcement shall file with the court
the original or authenticated copy of the award and the
arbitration agreement. If the award or agreement is not made
in any of the official languages, the party shall supply a duly
certified translation thereof into any of such languages.
The applicant shall establish that the country in which foreign
arbitration award was made in party to the New York
Convention.

SEC. 43. Recognition and Enforcement of Foreign Arbitral


Awards Not Covered by the New York Convention.The
recognition and enforcement of foreign arbitral awards not
covered by the New York Convention shall be done in
accordance with procedural rules to be promulgated by the
Supreme Court. The Court may, on grounds of comity and
reciprocity, recognize and enforce a non-convention award as
a convention award.
SEC. 44. Foreign Arbitral Award Not Foreign Judgment.A
foreign arbitral award when confirmed by a court of a foreign
country, shall be recognized and enforced as a foreign arbitral
award and not as a judgment of a foreign court.
A foreign arbitral award, when confirmed by the Regional Trial
Court, shall be enforced in the same manner as final and
executory decisions of courts of law of the Philippines
SEC. 47. Venue and Jurisdiction.Proceedings for recognition
and enforcement of an arbitration agreement or for vacations,
setting aside, correction or modification of an arbitral award,
and any application with a court for arbitration assistance and
supervision shall be deemed as special proceedings and shall
be filed with the Regional Trial Court (i) where arbitration
proceedings are conducted; (ii) where the asset to be attached
or levied upon, or the act to be enjoined is located; (iii) where
any of the parties to the dispute resides or has his place of
business; or (iv) in the National Judicial Capital Region, at the
option of the applicant.
SEC. 48. Notice of Proceeding to Parties.In a special
proceeding for recognition and enforcement of an arbitral
award, the Court shall send notice to the parties at their
address of record in the arbitration, or if any part cannot be
served notice at such address, at such partys last known
address. The notice shall be sent al least fifteen (15) days
before the date set for the initial hearing of the application.
It is now clear that foreign arbitral awards when confirmed by
the RTC are deemed not as a judgment of a foreign court but
as a foreign arbitral award, and when confirmed, are enforced
as final and executory decisions of our courts of law.
Thus, it can be gleaned that the concept of a final and binding
arbitral award is similar to judgments or awards given by some
of our quasi-judicial bodies, like the National Labor Relations
Commission and Mines Adjudication Board, whose final
judgments are stipulated to be final and binding, but not
immediately executory in the sense that they may still be
judicially reviewed, upon the instance of any party. Therefore,
the final foreign arbitral awards are similarly situated in that
they need first to be confirmed by the RTC.
(3) The RTC has jurisdiction to review foreign arbitral
awards
Sec. 42 in relation to Sec. 45 of RA 9285 designated and
vested the RTC with specific authority and jurisdiction to set
aside, reject, or vacate a foreign arbitral award on grounds
provided under Art. 34(2) of the UNCITRAL Model Law. Secs.
42 and 45 provide:
SEC. 42. Application of the New York Convention.The New
York Convention shall govern the recognition and enforcement
of arbitral awards covered by said Convention.

The recognition and enforcement of such arbitral awards shall


be filed with the Regional Trial Court in accordance with the
rules of procedure to be promulgated by the Supreme Court.
Said procedural rules shall provide that the party relying on the
award or applying for its enforcement shall file with the court
the original or authenticated copy of the award and the
arbitration agreement. If the award or agreement is not made
in any of the official languages, the party shall supply a duly
certified translation thereof into any of such languages.
The applicant shall establish that the country in which foreign
arbitration award was made is party to the New York
Convention.
If the application for rejection or suspension of enforcement of
an award has been made, the Regional Trial Court may, if it
considers it proper, vacate its decision and may also, on the
application of the party claiming recognition or enforcement of
the award, order the party to provide appropriate security.
SEC. 45. Rejection of a Foreign Arbitral Award.A party to a
foreign arbitration proceeding may oppose an application for
recognition and enforcement of the arbitral award in
accordance with the procedures and rules to be promulgated
by the Supreme Court only on those grounds enumerated
under Article V of the New York Convention. Any other ground
raised shall be disregarded by the Regional Trial Court.
Thus, while the RTC does not have jurisdiction over disputes
governed by arbitration mutually agreed upon by the parties,
still the foreign arbitral award is subject to judicial review by the
RTC which can set aside, reject, or vacate it. In this sense,
what this Court held in Chung Fu Industries (Phils.), Inc. relied
upon by KOGIES is applicable insofar as the foreign arbitral
awards, while final and binding, do not oust courts of
jurisdiction since these arbitral awards are not absolute and
without exceptions as they are still judicially reviewable.
Chapter 7 of RA 9285 has made it clear that all arbitral awards,
whether domestic or foreign, are subject to judicial review on
specific grounds provided for.
(4) Grounds for judicial review different in domestic and
foreign arbitral awards
The differences between a final arbitral award from an
international or foreign arbitral tribunal and an award given by
a local arbitral tribunal are the specific grounds or conditions
that vest jurisdiction over our courts to review the awards.
For foreign or international arbitral awards which must first be
confirmed by the RTC, the grounds for setting aside, rejecting
or vacating the award by the RTC are provided under Art. 34(2)
of the UNCITRAL Model Law.
For final domestic arbitral awards, which also need
confirmation by the RTC pursuant to Sec. 23 of RA 87644 and
shall be recognized as final and executory decisions of the
RTC,45 they may only be assailed before the RTC and vacated
on the grounds provided under Sec. 25 of RA 876.46
(5) RTC decision of assailed foreign arbitral award
appealable
Sec. 46 of RA 9285 provides for an appeal before the CA as
the remedy of an aggrieved party in cases where the RTC sets

aside, rejects, vacates, modifies, or corrects an arbitral award,


thus:
SEC. 46. Appeal from Court Decision or Arbitral Awards.A
decision of the Regional Trial Court confirming, vacating,
setting aside, modifying or correcting an arbitral award may be
appealed to the Court of Appeals in accordance with the rules
and procedure to be promulgated by the Supreme Court.
The losing party who appeals from the judgment of the court
confirming an arbitral award shall be required by the appellate
court to post a counterbond executed in favor of the prevailing
party equal to the amount of the award in accordance with the
rules to be promulgated by the Supreme Court.
Thereafter, the CA decision may further be appealed or
reviewed before this Court through a petition for review under
Rule 45 of the Rules of Court.
PGSMC has remedies to protect its interests
Thus, based on the foregoing features of RA 9285, PGSMC
must submit to the foreign arbitration as it bound itself through
the subject contract. While it may have misgivings on the
foreign arbitration done in Korea by the KCAB, it has available
remedies under RA 9285. Its interests are duly protected by
the law which requires that the arbitral award that may be
rendered by KCAB must be confirmed here by the RTC before
it can be enforced.
With our disquisition above, petitioner is correct in its
contention that an arbitration clause, stipulating that the arbitral
award is final and binding, does not oust our courts of
jurisdiction as the international arbitral award, the award of
which is not absolute and without exceptions, is still judicially
reviewable under certain conditions provided for by the
UNCITRAL Model Law on ICA as applied and incorporated in
RA 9285.
Finally, it must be noted that there is nothing in the subject
Contract which provides that the parties may dispense with the
arbitration clause.

and installed were properly installed and operational in the


plant in Carmona, Cavite; the ownership of equipment and
payment of the contract price; and whether there was
substantial compliance by KOGIES in the production of the
samples, given the alleged fact that PGSMC could not supply
the raw materials required to produce the sample LPG
cylinders, are matters proper for arbitration. Indeed, we note
that on July 1, 1998, KOGIES instituted an Application for
Arbitration before the KCAB in Seoul, Korea pursuant to Art. 15
of the Contract as amended. Thus, it is incumbent upon
PGSMC to abide by its commitment to arbitrate.
Corollarily, the trial court gravely abused its discretion in
granting PGSMCs Motion for Inspection of Things on
September 21, 1998, as the subject matter of the motion is
under the primary jurisdiction of the mutually agreed arbitral
body, the KCAB in Korea.
In addition, whatever findings and conclusions made by the
RTC Branch Sheriff from the inspection made on October 28,
1998, as ordered by the trial court on October 19, 1998, is of
no worth as said Sheriff is not technically competent to
ascertain the actual status of the equipment and machineries
as installed in the plant.
For these reasons, the September 21, 1998 and October 19,
1998 RTC Orders pertaining to the grant of the inspection of
the equipment and machineries have to be recalled and
nullified.
Issue on ownership of plant proper for arbitration
Petitioner assails the CA ruling that the issue petitioner raised
on whether the total contract price of USD 1,530,000 was for
the whole plant and its installation is beyond the ambit of a
Petition for Certiorari.
Petitioners position is untenable.
It is settled that questions of fact cannot be raised in an original
action for certiorari.49 Whether or not there was full payment for
the machineries and equipment and installation is indeed a
factual issue prohibited by Rule 65.

Unilateral rescission improper and illegal


Having ruled that the arbitration clause of the subject contract
is valid and binding on the parties, and not contrary to public
policy; consequently, being bound to the contract of arbitration,
a party may not unilaterally rescind or terminate the contract
for whatever cause without first resorting to arbitration.
What this Court held in University of the Philippines v. De Los
Angeles47 and reiterated in succeeding cases,48that the act of
treating a contract as rescinded on account of infractions by
the other contracting party is valid albeit provisional as it can
be judicially assailed, is not applicable to the instant case on
account of a valid stipulation on arbitration. Where an
arbitration clause in a contract is availing, neither of the parties
can unilaterally treat the contract as rescinded since whatever
infractions or breaches by a party or differences arising from
the contract must be brought first and resolved by arbitration,
and not through an extrajudicial rescission or judicial action.
The issues arising from the contract between PGSMC and
KOGIES on whether the equipment and machineries delivered

However, what appears to constitute a grave abuse of


discretion is the order of the RTC in resolving the issue on the
ownership of the plant when it is the arbitral body (KCAB) and
not the RTC which has jurisdiction and authority over the said
issue. The RTCs determination of such factual issue
constitutes grave abuse of discretion and must be reversed
and set aside.
RTC has interim jurisdiction to protect the rights of the
parties
Anent the July 23, 1998 Order denying the issuance of the
injunctive writ paving the way for PGSMC to dismantle and
transfer the equipment and machineries, we find it to be in
order considering the factual milieu of the instant case.
Firstly, while the issue of the proper installation of the
equipment and machineries might well be under the primary
jurisdiction of the arbitral body to decide, yet the RTC under
Sec. 28 of RA 9285 has jurisdiction to hear and grant interim

measures to protect vested rights of the parties. Sec. 28


pertinently provides:
SEC. 28. Grant of interim Measure of Protection.(a) It is not
incompatible with an arbitration agreement for a party to
request, before constitution of the tribunal, from a Court to
grant such measure. After constitution of the arbitral tribunal
and during arbitral proceedings, a request for an interim
measure of protection, or modification thereof, may be made
with the arbitral or to the extent that the arbitral tribunal has
no power to act or is unable to act effectivity, the request
may be made with the Court. The arbitral tribunal is deemed
constituted when the sole arbitrator or the third arbitrator, who
has been nominated, has accepted the nomination and written
communication of said nomination and acceptance has been
received by the party making the request.
(b) The following rules on interim or provisional relief shall be
observed:
Any party may request that provisional relief be granted
against the adverse party.

(2) An interim measure is any temporary measure, whether in


the form of an award or in another form, by which, at any time
prior to the issuance of the award by which the dispute is finally
decided, the arbitral tribunal orders a party to:
(a) Maintain or restore the status quo pending determination of
the dispute;
(b) Take action that would prevent, or refrain from taking action
that is likely to cause, current or imminent harm or prejudice to
the arbitral process itself;
(c) Provide a means of preserving assets out of which a
subsequent award may be satisfied; or
(d) Preserve evidence that may be relevant and material to the
resolution of the dispute.
Art. 17 J of UNCITRAL Model Law on ICA also grants courts
power and jurisdiction to issue interim measures:
Article 17 J. Court-ordered interim measures

Such relief may be granted:


(i) to prevent irreparable loss or injury;
(ii) to provide security for the performance of any obligation;

A court shall have the same power of issuing an interim


measure in relation to arbitration proceedings, irrespective of
whether their place is in the territory of this State, as it has in
relation to proceedings in courts. The court shall exercise such
power in accordance with its own procedures in consideration
of the specific features of international arbitration.

(iii) to produce or preserve any evidence; or


(iv) to compel any other appropriate act or omission.
(c) The order granting provisional relief may be conditioned
upon the provision of security or any act or omission specified
in the order.
(d) Interim or provisional relief is requested by written
application transmitted by reasonable means to the Court or
arbitral tribunal as the case may be and the party against
whom the relief is sought, describing in appropriate detail the
precise relief, the party against whom the relief is requested,
the grounds for the relief, and the evidence supporting the
request.
(e) The order shall be binding upon the parties.
(f) Either party may apply with the Court for assistance in
implementing or enforcing an interim measure ordered by an
arbitral tribunal.
(g) A party who does not comply with the order shall be liable
for all damages resulting from noncompliance, including all
expenses, and reasonable attorney's fees, paid in obtaining the
orders judicial enforcement. (Emphasis ours.)
Art. 17(2) of the UNCITRAL Model Law on ICA defines an
"interim measure" of protection as:
Article 17. Power of arbitral tribunal to order interim
measures

In the recent 2006 case of Transfield Philippines, Inc. v. Luzon


Hydro Corporation, we were explicit that even "the pendency of
an arbitral proceeding does not foreclose resort to the courts
for provisional reliefs." We explicated this way:
As a fundamental point, the pendency of arbitral proceedings
does not foreclose resort to the courts for provisional reliefs.
The Rules of the ICC, which governs the parties arbitral
dispute, allows the application of a party to a judicial authority
for interim or conservatory measures. Likewise, Section 14 of
Republic Act (R.A.) No. 876 (The Arbitration Law) recognizes
the rights of any party to petition the court to take measures to
safeguard and/or conserve any matter which is the subject of
the dispute in arbitration. In addition, R.A. 9285, otherwise
known as the "Alternative Dispute Resolution Act of 2004,"
allows the filing of provisional or interim measures with the
regular courts whenever the arbitral tribunal has no power to
act or to act effectively.50
It is thus beyond cavil that the RTC has authority and
jurisdiction to grant interim measures of protection.
Secondly, considering that the equipment and machineries are
in the possession of PGSMC, it has the right to protect and
preserve the equipment and machineries in the best way it
can. Considering that the LPG plant was non-operational,
PGSMC has the right to dismantle and transfer the equipment
and machineries either for their protection and preservation or
for the better way to make good use of them which is
ineluctably within the management discretion of PGSMC.
Thirdly, and of greater import is the reason that maintaining the
equipment and machineries in Worths property is not to the
best interest of PGSMC due to the prohibitive rent while the
LPG plant as set-up is not operational. PGSMC was losing

PhP322,560 as monthly rentals or PhP3.87M for 1998 alone


without considering the 10% annual rent increment in
maintaining the plant.
Fourthly, and corollarily, while the KCAB can rule on motions or
petitions relating to the preservation or transfer of the
equipment and machineries as an interim measure, yet on
hindsight, the July 23, 1998 Order of the RTC allowing the
transfer of the equipment and machineries given the nonrecognition by the lower courts of the arbitral clause, has
accorded an interim measure of protection to PGSMC which
would otherwise been irreparably damaged.
Fifth, KOGIES is not unjustly prejudiced as it has already been
paid a substantial amount based on the contract.
Moreover, KOGIES is amply protected by the arbitral action it
has instituted before the KCAB, the award of which can be
enforced in our jurisdiction through the RTC. Besides, by our
decision, PGSMC is compelled to submit to arbitration
pursuant to the valid arbitration clause of its contract with
KOGIES.
PGSMC to preserve the subject equipment and
machineries
Finally, while PGSMC may have been granted the right to
dismantle and transfer the subject equipment and machineries,
it does not have the right to convey or dispose of the same
considering the pending arbitral proceedings to settle the
differences of the parties. PGSMC therefore must preserve
and maintain the subject equipment and machineries with the
diligence of a good father of a family51 until final resolution of
the arbitral proceedings and enforcement of the award, if any.
WHEREFORE, this petition is PARTLY GRANTED, in that:
(1) The May 30, 2000 CA Decision in CA-G.R. SP No. 49249
is REVERSED and SET ASIDE;
(2) The September 21, 1998 and October 19, 1998 RTC
Orders in Civil Case No. 98-117 are REVERSED andSET
ASIDE;
(3) The parties are hereby ORDERED to submit themselves to
the arbitration of their dispute and differences arising from the
subject Contract before the KCAB; and
(4) PGSMC is hereby ALLOWED to dismantle and transfer the
equipment and machineries, if it had not done so,
and ORDERED to preserve and maintain them until the finality
of whatever arbitral award is given in the arbitration
proceedings.
No pronouncement as to costs.

G.R. No. 185582

February 29, 2012

TUNA PROCESSING, INC., Petitioner,


vs.
PHILIPPINE KINGFORD, INC., Respondent.

DECISION
PEREZ, J.:
Can a foreign corporation not licensed to do business in the
Philippines, but which collects royalties from entities in the
Philippines, sue here to enforce a foreign arbitral award?
In this Petition for Review on Certiorari under Rule
45,1 petitioner Tuna Processing, Inc. (TPI), a foreign
corporation not licensed to do business in the Philippines,
prays that the Resolution2 dated 21 November 2008 of the
Regional Trial Court (RTC) of Makati City be declared void and
the case be remanded to the RTC for further proceedings. In
the assailed Resolution, the RTC dismissed
petitioners Petition for Confirmation, Recognition, and
Enforcement of Foreign Arbitral Award3 against respondent
Philippine Kingford, Inc. (Kingford), a corporation duly
organized and existing under the laws of the Philippines,4 on
the ground that petitioner lacked legal capacity to sue.5
The Antecedents
On 14 January 2003, Kanemitsu Yamaoka (hereinafter referred
to as the "licensor"), co-patentee of U.S. Patent No. 5,484,619,
Philippine Letters Patent No. 31138, and Indonesian Patent
No. ID0003911 (collectively referred to as the "Yamaoka
Patent"),6 and five (5) Philippine tuna processors, namely,
Angel Seafood Corporation, East Asia Fish Co., Inc., Mommy
Gina Tuna Resources, Santa Cruz Seafoods, Inc., and
respondent Kingford (collectively referred to as the
"sponsors"/"licensees")7 entered into a Memorandum of
Agreement (MOA),8 pertinent provisions of which read:
1. Background and objectives. The Licensor, co-owner of
U.S.Patent No. 5,484,619, Philippine Patent No. 31138, and
Indonesian Patent No. ID0003911 xxx wishes to form an
alliance with Sponsors for purposes of enforcing his three
aforementioned patents, granting licenses under those patents,
and collecting royalties.
The Sponsors wish to be licensed under the aforementioned
patents in order to practice the processes claimed in those
patents in the United States, the Philippines, and Indonesia,
enforce those patents and collect royalties in conjunction with
Licensor.
4. Establishment of Tuna Processors, Inc. The parties
hereto agree to the establishment of Tuna Processors, Inc.
("TPI"), a corporation established in the State of California, in
order to implement the objectives of this Agreement.
5. Bank account. TPI shall open and maintain bank accounts
in the United States, which will be used exclusively to deposit
funds that it will collect and to disburse cash it will be obligated
to spend in connection with the implementation of this
Agreement.
6. Ownership of TPI. TPI shall be owned by the Sponsors and
Licensor. Licensor shall be assigned one share of TPI for the
purpose of being elected as member of the board of directors.
The remaining shares of TPI shall be held by the Sponsors
according to their respective equity shares. 9

The parties likewise executed a Supplemental Memorandum of


Agreement10 dated 15 January 2003 and an Agreement to
Amend Memorandum of Agreement11 dated 14 July 2003.
Due to a series of events not mentioned in the petition, the
licensees, including respondent Kingford, withdrew from
petitioner TPI and correspondingly reneged on their
obligations.12 Petitioner submitted the dispute for arbitration
before the International Centre for Dispute Resolution in the
State of California, United States and won the case against
respondent.13 Pertinent portions of the award read:
13.1 Within thirty (30) days from the date of transmittal of this
Award to the Parties, pursuant to the terms of this award, the
total sum to be paid by RESPONDENT
KINGFORD to CLAIMANT TPI, is the sum of ONE MILLION
SEVEN HUNDRED FIFTY THOUSAND EIGHT HUNDRED
FORTY SIX DOLLARS AND TEN CENTS ($1,750,846.10).
(A) For breach of the MOA by not paying past due
assessments, RESPONDENT KINGFORD shall
payCLAIMANT the total sum of TWO HUNDRED TWENTY
NINE THOUSAND THREE HUNDRED AND FIFTY FIVE
DOLLARS AND NINETY CENTS ($229,355.90) which is 20%
of MOA assessments since September 1, 2005[;]
(B) For breach of the MOA in failing to cooperate
with CLAIMANT TPI in fulfilling the objectives of the MOA,
RESPONDENT KINGFORD shall pay CLAIMANT the total
sum of TWO HUNDRED SEVENTY ONE THOUSAND FOUR
HUNDRED NINETY DOLLARS AND TWENTY CENTS
($271,490.20)[;]14 and
(C) For violation of THE LANHAM ACT and infringement of
the YAMAOKA 619 PATENT, RESPONDENT
KINGFORD shall pay CLAIMANT the total sum of ONE
MILLION TWO HUNDRED FIFTY THOUSAND DOLLARS
AND NO CENTS ($1,250,000.00). xxx
To enforce the award, petitioner TPI filed on 10 October 2007
a Petition for Confirmation, Recognition, and Enforcement of
Foreign Arbitral Award before the RTC of Makati City. The
petition was raffled to Branch 150 presided by Judge Elmo M.
Alameda.
At Branch 150, respondent Kingford filed a Motion to
Dismiss.16 After the court denied the motion for lack of
merit,17 respondent sought for the inhibition of Judge Alameda
and moved for the reconsideration of the order denying the
motion.18 Judge Alameda inhibited himself notwithstanding
"[t]he unfounded allegations and unsubstantiated assertions in
the motion."19 Judge Cedrick O. Ruiz of Branch 61, to which
the case was re-raffled, in turn, granted respondents Motion
for Reconsideration and dismissed the petition on the ground
that the petitioner lacked legal capacity to sue in the
Philippines.20
Petitioner TPI now seeks to nullify, in this instant Petition for
Review on Certiorari under Rule 45, the order of the trial court
dismissing its Petition for Confirmation, Recognition, and
Enforcement of Foreign Arbitral Award.
Issue

The core issue in this case is whether or not the court a


quo was correct in so dismissing the petition on the ground of
petitioners lack of legal capacity to sue.
Our Ruling
The petition is impressed with merit.
The Corporation Code of the Philippines expressly provides:
Sec. 133. Doing business without a license. - No foreign
corporation transacting business in the Philippines without a
license, or its successors or assigns, shall be permitted to
maintain or intervene in any action, suit or proceeding in any
court or administrative agency of the Philippines; but such
corporation may be sued or proceeded against before
Philippine courts or administrative tribunals on any valid cause
of action recognized under Philippine laws.
It is pursuant to the aforequoted provision that the court a
quo dismissed the petition. Thus:
Herein plaintiff TPIs "Petition, etc." acknowledges that it "is a
foreign corporation established in the State of California" and
"was given the exclusive right to license or sublicense the
Yamaoka Patent" and "was assigned the exclusive right to
enforce the said patent and collect corresponding royalties" in
the Philippines. TPI likewise admits that it does not have a
license to do business in the Philippines.
There is no doubt, therefore, in the mind of this Court that TPI
has been doing business in the Philippines, but sans a license
to do so issued by the concerned government agency of the
Republic of the Philippines, when it collected royalties from
"five (5) Philippine tuna processors[,] namely[,] Angel Seafood
Corporation, East Asia Fish Co., Inc., Mommy Gina Tuna
Resources, Santa Cruz Seafoods, Inc. and respondent
Philippine Kingford, Inc." This being the real situation, TPI
cannot be permitted to maintain or intervene in any action, suit
or proceedings in any court or administrative agency of the
Philippines." A priori, the "Petition, etc." extant of the plaintiff
TPI should be dismissed for it does not have the legal
personality to sue in the Philippines.21
The petitioner counters, however, that it is entitled to seek for
the recognition and enforcement of the subject foreign arbitral
award in accordance with Republic Act No. 9285 (Alternative
Dispute Resolution Act of 2004),22 the Convention on the
Recognition and Enforcement of Foreign Arbitral Awards
drafted during the United Nations Conference on International
Commercial Arbitration in 1958 (New York Convention), and
the UNCITRAL Model Law on International Commercial
Arbitration (Model Law),23 as none of these specifically requires
that the party seeking for the enforcement should have legal
capacity to sue. It anchors its argument on the following:
In the present case, enforcement has been effectively refused
on a ground not found in the [Alternative Dispute Resolution
Act of 2004], New York Convention, or Model Law. It is for this
reason that TPI has brought this matter before this most
Honorable Court, as it [i]s imperative to clarify whether the
Philippines international obligations and State policy to
strengthen arbitration as a means of dispute resolution may be
defeated by misplaced technical considerations not found in
the relevant laws.24

Simply put, how do we reconcile the provisions of


the Corporation Code of the Philippines on one hand, and
theAlternative Dispute Resolution Act of 2004, the New York
Convention and the Model Law on the other?

Article V of the New York Convention. Any other ground raised


shall be disregarded by the regional trial court.

In several cases, this Court had the occasion to discuss the


nature and applicability of the Corporation Code of the
Philippines, a general law, viz-a-viz other special laws. Thus,
in Koruga v. Arcenas, Jr.,25 this Court rejected the application of
the Corporation Code and applied the New Central Bank Act. It
ratiocinated:

Sec. 19. Adoption of the Model Law on International


Commercial Arbitration. International commercial arbitration
shall be governed by the Model Law on International
Commercial Arbitration (the "Model Law") adopted by the
United Nations Commission on International Trade Law on
June 21, 1985 xxx."

Korugas invocation of the provisions of the Corporation Code


is misplaced. In an earlier case with similar antecedents, we
ruled that:

Now, does a foreign corporation not licensed to do business in


the Philippines have legal capacity to sue under the provisions
of the Alternative Dispute Resolution Act of 2004? We answer
in the affirmative.

"The Corporation Code, however, is a general law applying to


all types of corporations, while the New Central Bank Act
regulates specifically banks and other financial institutions,
including the dissolution and liquidation thereof. As between a
general and special law, the latter shall prevail generalia
specialibus non derogant." (Emphasis supplied)26
Further, in the recent case of Hacienda Luisita, Incorporated v.
Presidential Agrarian Reform Council,27 this Court held:
Without doubt, the Corporation Code is the general law
providing for the formation, organization and regulation of
private corporations. On the other hand, RA 6657 is the special
law on agrarian reform. As between a general and special law,
the latter shall prevailgeneralia specialibus non derogant.28
Following the same principle, the Alternative Dispute
Resolution Act of 2004 shall apply in this case as the Act, as its
title - An Act to Institutionalize the Use of an Alternative
Dispute Resolution System in the Philippines and to Establish
the Office for Alternative Dispute Resolution, and for Other
Purposes - would suggest, is a law especially enacted "to
actively promote party autonomy in the resolution of disputes
or the freedom of the party to make their own arrangements to
resolve their disputes."29 It specifically provides exclusive
grounds available to the party opposing an application for
recognition and enforcement of the arbitral award.30
Inasmuch as the Alternative Dispute Resolution Act of 2004, a
municipal law, applies in the instant petition, we do not see the
need to discuss compliance with international obligations under
the New York Convention and theModel Law. After all, both
already form part of the law.
In particular, the Alternative Dispute Resolution Act of
2004 incorporated the New York Convention in the Act by
specifically providing:
SEC. 42. Application of the New York Convention. - The New
York Convention shall govern the recognition and enforcement
of arbitral awards covered by the said Convention.
xxx
SEC. 45. Rejection of a Foreign Arbitral Award. - A party to a
foreign arbitration proceeding may oppose an application for
recognition and enforcement of the arbitral award in
accordance with the procedural rules to be promulgated by the
Supreme Court only on those grounds enumerated under

It also expressly adopted the Model Law, to wit:

Sec. 45 of the Alternative Dispute Resolution Act of


2004 provides that the opposing party in an application for
recognition and enforcement of the arbitral award may raise
only those grounds that were enumerated under Article V of
the New York Convention, to wit:
Article V
1. Recognition and enforcement of the award may be refused,
at the request of the party against whom it is invoked, only if
that party furnishes to the competent authority where the
recognition and enforcement is sought, proof that:
(a) The parties to the agreement referred to in article II were,
under the law applicable to them, under some incapacity, or
the said agreement is not valid under the law to which the
parties have subjected it or, failing any indication thereon,
under the law of the country where the award was made; or
(b) The party against whom the award is invoked was not given
proper notice of the appointment of the arbitrator or of the
arbitration proceedings or was otherwise unable to present his
case; or
(c) The award deals with a difference not contemplated by or
not falling within the terms of the submission to arbitration, or it
contains decisions on matters beyond the scope of the
submission to arbitration, provided that, if the decisions on
matters submitted to arbitration can be separated from those
not so submitted, that part of the award which contains
decisions on matters submitted to arbitration may be
recognized and enforced; or
(d) The composition of the arbitral authority or the arbitral
procedure was not in accordance with the agreement of the
parties, or, failing such agreement, was not in accordance with
the law of the country where the arbitration took place; or
(e) The award has not yet become binding on the parties, or
has been set aside or suspended by a competent authority of
the country in which, or under the law of which, that award was
made.
2. Recognition and enforcement of an arbitral award may also
be refused if the competent authority in the country where
recognition and enforcement is sought finds that:

(a) The subject matter of the difference is not capable of


settlement by arbitration under the law of that country; or

Law prescribes substantially identical exclusive grounds for


refusing recognition or enforcement.40

(b) The recognition or enforcement of the award would be


contrary to the public policy of that country.

Premises considered, petitioner TPI, although not licensed to


do business in the Philippines, may seek recognition and
enforcement of the foreign arbitral award in accordance with
the provisions of the Alternative Dispute Resolution Act of
2004.

Clearly, not one of these exclusive grounds touched on the


capacity to sue of the party seeking the recognition and
enforcement of the award.

II
Pertinent provisions of the Special Rules of Court on
Alternative Dispute Resolution,31 which was promulgated by
the Supreme Court, likewise support this position.
Rule 13.1 of the Special Rules provides that "[a]ny party to a
foreign arbitration may petition the court to recognize and
enforce a foreign arbitral award." The contents of such petition
are enumerated in Rule 13.5.32 Capacity to sue is not included.
Oppositely, in the Rule on local arbitral awards or arbitrations
in instances where "the place of arbitration is in the
Philippines,"33 it is specifically required that a petition "to
determine any question concerning the existence, validity and
enforceability of such arbitration agreement"34 available to the
parties before the commencement of arbitration and/or a
petition for "judicial relief from the ruling of the arbitral tribunal
on a preliminary question upholding or declining its
jurisdiction"35 after arbitration has already commenced should
state "[t]he facts showing that the persons named as petitioner
or respondent have legal capacity to sue or be sued."36
Indeed, it is in the best interest of justice that in the
enforecement of a foreign arbitral award, we deny availment by
the losing party of the rule that bars foreign corporations not
licensed to do business in the Philippines from maintaining a
suit in our courts. When a party enters into a contract
containing a foreign arbitration clause and, as in this case, in
fact submits itself to arbitration, it becomes bound by the
contract, by the arbitration and by the result of arbitration,
conceding thereby the capacity of the other party to enter into
the contract, participate in the arbitration and cause the
implementation of the result. Although not on all fours with the
instant case, also worthy to consider is the

The remaining arguments of respondent Kingford are likewise


unmeritorious.
First. There is no need to consider respondents contention
that petitioner TPI improperly raised a question of fact when it
posited that its act of entering into a MOA should not be
considered "doing business" in the Philippines for the purpose
of determining capacity to sue. We reiterate that the foreign
corporations capacity to sue in the Philippines is not material
insofar as the recognition and enforcement of a foreign arbitral
award is concerned.
Second. Respondent cannot fault petitioner for not filing a
motion for reconsideration of the assailed Resolution dated 21
November 2008 dismissing the case. We have, time and
again, ruled that the prior filing of a motion for reconsideration
is not required in certiorari under Rule 45.41
Third. While we agree that petitioner failed to observe the
principle of hierarchy of courts, which, under ordinary
circumstances, warrants the outright dismissal of the
case,42 we opt to relax the rules following the pronouncement
in Chua v. Ang,43 to wit:

wisdom of then Associate Justice Flerida Ruth P. Romero in


her Dissenting Opinion in Asset Privatization Trust v. Court of
Appeals,37 to wit:

[I]t must be remembered that [the principle of hierarchy of


courts] generally applies to cases involving conflicting factual
allegations. Cases which depend on disputed facts for decision
cannot be brought immediately before us as we are not triers
of facts.44 A strict application of this rule may be excused when
the reason behind the rule is not present in a case, as in the
present case, where the issues are not factual but purely
legal.1wphi1 In these types of questions, this Court has the
ultimate say so that we merely abbreviate the review process if
we, because of the unique circumstances of a case, choose to
hear and decide the legal issues outright.45

xxx Arbitration, as an alternative mode of settlement, is gaining


adherents in legal and judicial circles here and abroad. If its
tested mechanism can simply be ignored by an aggrieved
party, one who, it must be stressed, voluntarily and actively
participated in the arbitration proceedings from the very
beginning, it will destroy the very essence of mutuality inherent
in consensual contracts.38

Moreover, the novelty and the paramount importance of the


issue herein raised should be seriously considered.46Surely,
there is a need to take cognizance of the case not only to
guide the bench and the bar, but if only to strengthen
arbitration as a means of dispute resolution, and uphold the
policy of the State embodied in theAlternative Dispute
Resolution Act of 2004, to wit:

Clearly, on the matter of capacity to sue, a foreign arbitral


award should be respected not because it is favored over
domestic laws and procedures, but because Republic Act No.
9285 has certainly erased any conflict of law question.

Sec. 2. Declaration of Policy. - It is hereby declared the policy


of the State to actively promote party autonomy in the
resolution of disputes or the freedom of the party to make their
own arrangements to resolve their disputes. Towards this end,
the State shall encourage and actively promote the use of
Alternative Dispute Resolution (ADR) as an important means
to achieve speedy and impartial justice and declog court
dockets. xxx

Finally, even assuming, only for the sake of argument, that the
court a quo correctly observed that the Model Law, not
the New York Convention, governs the subject arbitral
award,39 petitioner may still seek recognition and enforcement
of the award in Philippine court, since the Model

Fourth. As regards the issue on the validity and enforceability


of the foreign arbitral award, we leave its determination to the

court a quo where its recognition and enforcement is being


sought.

Holders of Marinduque Mining and Industrial


Corporation, respondents.

Fifth. Respondent claims that petitioner failed to furnish the


court of origin a copy of the motion for time to file petition for
review on certiorari before the petition was filed with this
Court.47 We, however, find petitioners reply in order. Thus:

KAPUNAN, J.:

26. Admittedly, reference to "Branch 67" in petitioner TPIs


"Motion for Time to File a Petition for Review on Certiorari
under Rule 45" is a typographical error. As correctly pointed out
by respondent Kingford, the order sought to be assailed
originated from Regional Trial Court, Makati City, Branch 61.
27. xxx Upon confirmation with the Regional Trial Court, Makati
City, Branch 61, a copy of petitioner TPIs motion was received
by the Metropolitan Trial Court, Makati City, Branch 67. On 8
January 2009, the motion was forwarded to the Regional Trial
Court, Makati City, Branch 61.48
All considered, petitioner TPI, although a foreign corporation
not licensed to do business in the Philippines, is not, for that
reason alone, precluded from filing the Petition for
Confirmation, Recognition, and Enforcement of Foreign Arbitral
Award before a Philippine court.
WHEREFORE, the Resolution dated 21 November 2008 of the
Regional Trial Court, Branch 61, Makati City in Special
Proceedings No. M-6533 is hereby REVERSED and SET
ASIDE. The case is REMANDED to Branch 61 for further
proceedings.

The petition for review on certiorari before us seeks to reverse


and set aside the decision of the Court of Appeals which
denied due course to the petition for certiorari filed by the Asset
Privatization Trust (APT) assailing the order of the Regional
Trial Court (RTC) Branch 62, Makati City. The Makati RTC's
order upheld 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 amount of P2.5
BILLION (or approximately P4.5 BILLION, including interest).
Ironically, the staggering amount of damages was imposed on
the Government for exercising its legitimate right of foreclosure
as creditor against the debtor MMIC as a consequence of the
latter's failure to pay its overdue and unpaid obligation of P22
billion to the Philippine National Bank (PNB) and the
Development Bank of the Philippines (DBP).
The antecedent facts
of the case.
The development, exploration and utilization of the mineral
deposits in the Surigao Mineral Reservation have been
authorized by Republic Act No. 1528, as amended by Republic
Acts Nos. 2077 and 4167, by virtue of which laws, a
Memorandum of Agreement was drawn on July 3, 1968,
whereby the Republic of the Philippines thru the Surigao
Mineral Reservation Board, granted MMIC the exclusive right
to explore, develop and exploit nickel, cobalt and other
minerals in the Surigao mineral reservation. 1 MMIC is a
domestic corporation engaged in mining with respondent Jesus
S. Cabarrus, Sr. as President and among its original
stockholders.
The Philippine Government undertook to support the financing
of MMIC by purchase of MMIC debenture bonds and extension
of guarantees. Further, the Philippine Government obtained a
firm commitment form the DBP and/or other government
financing institutions to subscribe in MMIC and issue
guarantee/s for foreign loans or deferred payment
arrangements secured from the US Eximbank, Asian
Development Bank, Kobe Steel, of amount not exceeding
US$100 Million. 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 MMIC in various amounts.

G.R. No. 121171 December 29, 1998


ASSET PRIVATIZATION TRUST, petitioner,
vs.
COURT OF APPEALS, JESUS S. CABARRUS, SR., JESUS
S. CABARRUS, JR., JAIME T. CABARRUS, JOSE MIGUEL
CABARRUS, ALEJANDRO S. PASTOR, JR., ANTONIO U.
MIRANDA, and MIGUEL M. ANTONIO, as Minority Stock-

On July 13, 1981, MMIC, PNB and DBP executed a Mortgage


Trust Agreement 3 whereby MMIC, as mortgagor, agreed to
constitute a mortgage in favor or PNB and DBP as
mortgagees, over all MMIC's assets; subject of real estate and
chattel mortgage executed by the mortgagor, and additional
assets described and identified, including assets of whatever
kind, nature or description, which the mortgagor may acquire
whether in substitution of, in replenishment, or in addition
thereto.
Article IV of the Mortgage Trust Agreement provides for Events
of Default, which expressly includes the event that the

MORTGAGOR shall fail to pay any amount secured by this


Mortgage Trust Agreement when due. 4
Article V of the Mortgage Trust Agreement prescribes in detail,
and in addition to the enumerated events of defaults,
circumstances by which the mortgagor may be declared in
default, the procedure therefor, waiver of period to foreclose,
authority of Trustee before, during and after foreclosure,
including taking possession of the mortgaged properties. 5
In various requests for advances/remittances of loans if huge
amounts, Deeds of Undertaking, Promissory Notes, Loan
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.
By 1984, DBP and PNB's financial both in loans and in equity
in MMIC had reached tremendous proportions, and MMIC was
having a difficult time meeting its financial obligations. MMIC
had an outstanding loan with DBP in the amount of
P13,792,607,565.92 as of August 31, 1984 and with PNB in
the amount of P8,789,028,249.38 as July 15, 1984 or a total
Government expose of Twenty Two Billion Six Hundred SixtyEight Million Five Hundred Thirty-Seven Hundred Seventy and
05/100 (P22, 668,537,770.05), Philippine Currency. 6 Thus, a
financial restructuring plan (FRP) designed to reduce MMIC's
interest expense through debt conversion to equity was drafted
by the Sycip Gorres Velayo accounting firm. 7 On April 30,
1984, the FRP was approved by the Board of Directors of the
MMIC. 8 However, the proposed FRP had never been formally
adopted, approved or ratified by either PNB or DBP. 9
In August and September 1984, as the various loans and
advances made by DBP and PNB to MMIC had become
overdue and since any restructuring program relative to the
loans was no longer feasible, and in compliance with the
directive of Presidential Decree No. 385, DBP and PNB as
mortgagees of MMIC assets, decided to exercise their right to
extrajudicially foreclose the mortgages in accordance with the
Mortgage Trust 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 Cement Corporation. In 1986, these
assets were transferred to the Asset Privatization Trust
(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) annul the foreclosures, restore the
foreclosed assets to MMIC, and require the banks to account
for their use and operation in the interim; (2) direct the banks to
honor and perform their commitments under the alleged FRP;
and (3) pay moral and exemplary damages, attorney's fees,
litigation expenses and costs.
In the course of the trial, private respondents and petitioner
APT, as successor of the DBP and the PNB's interest in MMIC,
mutually agreed to submit the case to arbitration by entering
into a "Compromise and Arbitration Agreement,"
stipulating, inter alia:

NOW THEREFORE, for and in consideration of the foregoing


premises and the mutual covenants contained herein the
parties agree as follows:
1. Withdrawal and Compromise. The parties have agreed to
withdraw their respective claims from the Trial Court and to
resolve their dispute through arbitration by praying to the Trial
Court to issue a Compromise Judgment based on this
Compromise and Arbitration Agreement.
In withdrawing their dispute from the court and in choosing to
resolve it through arbitration, the parties have agreed that:
(a) their respective money claims shall be reduced to purely
money claims; and
(b) as successor and assignee of the PNB and DBP interests
in MMIC and the MMIC accounts, APT shall likewise succeed
to the rights and obligations of PNB and DBP in respect of the
controversy subject of Civil Case No. 9900 to be transferred to
arbitration and any arbitral award/order against either PNB
and/or DBP shall be the responsibility be discharged by and be
enforceable against APT, the parties having agreed to drop
PNB and DBP from the arbitration.
2. Submission. The parties hereby agree that (a) the
controversy in Civil Case No. 9900 shall be submitted instead
to arbitration under RA 876 and (b) the reliefs prayed for in
Civil Case No. 9900 shall, with the approval of the Trial Court
of this Compromise and Arbitration Agreement, be transferred
and reduced to pure pecuniary/money claims with the parties
waiving and foregoing all other forms of reliefs which they
prayed for or should have prayed for in Civil Case No. 9900. 13
The Compromise and Arbitration Agreement limited the issues
to the following:
5. Issues The issues to be submitted for the Committee's
resolution shall be (a) Whether PLAINTIFFS have the capacity
or the personality to institute this derivative suit in behalf of the
MMIC or its directors, (b) Whether or not the actions leading to,
and including,. the PNB-DBP foreclosure of the MMIC assets
were proper, valid and in good
faith. 14
This agreement was presented for approval to the trial court.
On October 14, 1992, the Makati RTC, Branch 61, issued an
order, to wit:
WHEREFORE, this Court orders:
1. Substituting PNB and DBP with the Asset Privatization Trust
as party defendant.
2. Approving the Compromise and Arbitration Agreement dated
October 6, 1997, attached as Annex "C" of the Omnibus
Motion.
3. Approving the Transformation of the reliefs prayed for [by]
the plaintiffs in this case into pure money claims; and
4. The Complaint is hereby DISMISSED. 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 November 24, 1993, after conducting several
hearings, the Arbitration Committee rendered a majority
decision in favor of MMIC, the pertinent portions of which read
as follows:
Since, as this Committee finds, there is no foreclosure at all as
it was not legally and validly done, the Committee holds and so
declares that the loans of PNB and DBP to MMIC. for the
payment and recovery of which the void foreclosure sales were
undertaken, continue to remain outstanding and unpaid.
Defendant APT as the successor-in-interest of PNB and DBP
to the said loans is therefore entitled and retains the right, to
collect the same from MMIC pursuant to, and based on the
loan documents signed by MMIC, subject to the legal and valid
defenses that the latter may duly and seasonably interpose.
Such loans shall, however, be reduced by the amount which
APT may have realized from the sale of the seized assets of
MMIC which by agreement should no longer be returned even
if the foreclosures were found to be null and void.
The documentary evidence submitted and adopted by the
parties (Exhibits "3", "3-B"; Exhibit "100"; and also Exhibit
"ZZZ") as their exhibits would show that the total outstanding
obligation due to DBP and PNB as of the date of foreclosure is
P22,668,537,770.05, more or less.
Therefore defendant APT can, and is still entitled to, collect the
outstanding obligations of MMIC to PNB and DBP amounting
to P22,668,537,770.05, more or less, with interest thereon as
stipulated in the loan documents from the date of foreclosure
up to the time they are fully paid less the proportionate liability
of DBP as owner of 87% of the total capitalization of MMIC
under the FRP. Simply put, DBP shall share in the award of
damages to, and in the obligations of, MMIC in proportion to its
87% equity in tile total capital stock of MMIC.
As this Committee holds that the FRP is valid, DBP's equity in
MMIC is raised to 87%. So pursuant to the above provision of
the Compromise and Arbitration Agreement, the 87% equity of
DBP is hereby deducted from the actual damages of
P19,486,118,654.00 resulting in the net actual damages of
P2,531,635,425.02 plus interest.
DISPOSITION
WHEREFORE, premises considered, judgment is hereby
rendered:
1. Ordering the defendant to pay to the Marinduque Mining and
Industrial Corporation, except the DBP, the sum of
P2,531,635,425.02 with interest thereon at the legal rate of six
per cent (6%) per annum reckoned from August 3, 9, and 24,
1984, pari passu, as and for actual damages. Payment of
these actual damages shall be offset by APT from the
outstanding and unpaid loans of MMIC with DBP and PNB,
which have not been converted into equity. Should there be
any balance due to MMIC after the offsetting, the same shall
be satisfied from the funds representing the purchase price of
the sale of the shares of Island Cement Corporation in the
amount of P503,000,000.00 held under escrow pursuant to the
Escrow Agreement dated April 22, 1988 or to such subsequent
escrow agreement that would supercede [sic] it pursuant to
paragraph (9) of the Compromise and Arbitration Agreement;

2. Ordering the defendant to pay to the Marinduque Mining and


Industrial Corporation, except the DBP, the sum of
P13,000.000.00, as and for moral and exemplary damages.
Payment of these moral and exemplary damages shall be
offset by APT from the outstanding and unpaid loans of MMIC
with DBP and PNB, which have not been converted into equity.
Should there be any balance due to MMIC after the offsetting,
the same shall be satisfied from the funds representing the
purchase price of the sale of the shares of Island Cement
Corporation in the amount of P503,000,000.00 held under
escrow pursuant to the Escrow Agreement dated April 22, 1988
or to such subsequent escrow agreement that would
supercede [sic] it pursuant to paragraph (9) of the Compromise
and Arbitration Agreement;
3. Ordering the defendant to pay to the plaintiff, Jesus S.
Cabarrus, Sr., the sum of P10,000,000.00, to be satisfied
likewise from the funds held under escrow pursuant to the
Escrow Agreement dated April 22, 1988 or to such subsequent
escrow agreement that would supersede it, pursuant to
paragraph (9) of the Compromise and Arbitration Agreement,
as and for moral damages; and
4. Ordering the defendant to pay arbitration costs.
This Decision is FINAL and EXECUTORY.
IT IS SO ORDERED. 16
Motions for reconsideration were filed by both parties, but the
same were denied.
On October 17, 1993, private respondents filed in the same
Civil Case No. 9900 an "Application/Motion for Confirmation of
Arbitration Award." Petitioner countered with an "Opposition
and Motion to Vacate Judgment" raising the following grounds.
1. The plaintiffs Application/Motion is improperly filed with this
branch of the Court, considering that the said motion is neither
a part nor the continuation of the proceedings in Civil Case No.
9900 which was dismissed upon motion of the parties. In fact,
the defendants in the said Civil Case No. 9900 were the
Development Bank of the Philippines and the Philippine
National Bank (PNB);
2. Under Section 71 of Rep. Act 876, an arbitration under a
contract or submission shall be deemed a special proceedings
and a party to the controversy which was arbitrated may apply
to the court having jurisdiction, (not necessarily with this
Honorable Court) for an order confirming the award;
3. The issues submitted for arbitration have been limited to
two: (1) propriety of the plaintiffs filing the derivative suit and
(2) the regularity of the foreclosure proceedings. The
arbitration award sought to be confirmed herein, far exceeded
the issues submitted and even granted moral damages to one
of the herein plaintiffs;
4. Under Section 24 of Rep. Act 876, the Court must make an
order vacating the award where the arbitrators exceeded their
powers, or so imperfectly executed them, that a mutual, final
and definite award upon the subject matter submitted to them
was not made. 17

Private respondents filed a "REPLY AND OPPOSITION" dated


November 10, 1984, arguing that a dismissal of Civil Case No.
9900 was merely a "qualified dismissal" to pave the way for the
submission of the controversy to arbitration and operated
simply as "a mere suspension of the proceedings" They denied
that the Arbitration Committee had exceeded its powers.
In an Order dated November 28, 1993, the trial court confirmed
the award of the Arbitration Committee. The dispositive portion
of said order reads:
WHEREFORE, premises considered, and in the light of the
parties [sic] Compromise and Arbitration Agreement dated
October 6, 1992, the Decision of the Arbitration Committee
promulgated on November 24, 1993, as affirmed in a
Resolution dated July 26, 1994, and finally settled and clarified
in the Separate Opinion dated September 2, 1994 of
Committee Member Elma, and the pertinent provisions of RA
876, also known as the Arbitration Law, this Court GRANTS
PLAINTIFFS' APPLICATION AND THUS CONFIRMS THE
ARBITRATION AWARD, AND JUDGMENT IS HEREBY
RENDERED:
(a) Ordering the defendant APT to the Marinduque Mining and
Industrial Corporation (MMIC), except the DBP, the sum of
P3,811,757,425.00, as and for actual damages, which shall be
partially satisfied from the funds held under escrow in the
amount of P503,000,000.00 pursuant to the Escrow Agreement
dated April 22, 1988. The balance of the award, after the
escrow funds are fully applied, shall be executed against the
APT;
(b) Ordering the defendant to pay to the MMIC, except the
DBP, the sum of P13,000,000.00 as and for moral and
exemplary damages;
(c) Ordering the defendant to pay to Jesus S. Cabarrus, Sr.,
the sum of P10,000,000.00 as and for moral damages; and
(d) Ordering the defendant to pay the herein
plaintiffs/applicants/movants the sum of P1,705,410.23 as
arbitration costs.
In reiteration of the mandates of Stipulation No. 10 and
Stipulation No. 8 paragraph 2 of the Compromise and
Arbitration Agreement, and the final edict of the Arbitration
Committee's decision, and with this Court's Confirmation, the
issuance of the Arbitration Committee's Award shall henceforth
be final and executory.
SO ORDERED. 18
On December 27, 1994, petitioner filed its motion for
reconsideration of the Order dated November 28, 1994. Private
respondents, in turn, submitted their reply and opposition
thereto.
On January 18, 1995, the trial court handed down its order
denying APT's motion for reconsideration for lack of merit and
for having been filed out of time. The trial court declared that
"considering that the defendant APT, through counsel, officially
and actually received a copy of the Order of this Court dated
November 28, 1994 on December 6, 1994, the Motion for
Reconsideration thereof filed by the defendant APT on
December 27, 1994, or after the lapse of 21 days, was clearly
filed beyond the 15-day reglementary period prescribed

or provided for by law for the filing of an appeal from final


orders, resolutions, awards, judgments or decisions of any
court in all cases, and by necessary implication for the filing of
a motion for reconsideration thereof."
On February 7, 1995, petitioner received private respondents'
Motion for Execution and Appointment of Custodian of
Proceeds of Execution dated February 6, 1995.
Petitioner thereafter filed with the Court of Appeals a special
civil action for certiorari with temporary restraining order and/or
preliminary injunction dated February 13, 1996 to annul and
declare as void the Orders of the RTC-Makati dated November
28, 1994 and January 18, 1995 for having been issued without
or in excess of jurisdiction and/or with grave abuse of
discretion. 19 As ground therefor, petitioner alleged that:
I
THE RESPONDENT JUDGE HAS NOT VALIDLY ACQUIRED
JURISDICTION MUCH LESS, HAS THE COURT AUTHORITY,
TO CONFIRM THE ARBITRAL AWARD CONSIDERING THAT
THE ORIGINAL CASE, CIVIL CASE NO. 9900, HAD
PREVIOUSLY BEEN DISMISSED.
II
THE RESPONDENT JUDGE COMMITTED GRAVE ABUSE
OF DISCRETION AND ACTED WITHOUT OR IN EXCESS OF
JURISDICTION, IN ISSUING THE QUESTIONED ORDERS
CONFIRMING THE ARBITRAL AWARD AND DENYING THE
MOTION FOR RECONSIDERATION OF ORDER OF AWARD.
III
THE RESPONDENT JUDGE GROSSLY ABUSED HIS
DISCRETION AND ACTED WITHOUT OR IN EXCESS OF
AND WITHOUT JURISDICTION IN RECKONING THE
COUNTING OF THE PERIOD TO FILE MOTION FOR
RECONSIDERATION, NOT FROM THE DATE OF SERVICE
OF THE COURT'S COPY CONFIRMING THE AWARD, BUT
FROM RECEIPT OF A XEROX COPY OF WHAT
PRESUMABLY IS THE OPPOSING COUNSEL'S COPY
THEREOF. 20
On July 12, 1995, he Court of Appeals, through its FifthDivision, denied due course and dismissed the petition
forcertiorari.
Hence, the instant petition for review on certiorari imputing to
the Court of Appeals the following errors:
ASSIGNMENT OF ERRORS
I
THE COURT OF APPEALS ERRED IN NOT HOLDING THAT
THE MAKATI REGIONAL TRIAL COURT, BRANCH 62 WHICH
HAS PREVIOUSLY DISMISSED CIVIL CASE NO. 9900 HAD
LOST JURISDICTION TO CONFIRM THE ARBITRAL AWARD
UNDER THE SAME CIVIL CASE AND NOT RULING THAT
THE APPLICATION FOR CONFIRMATION SHOULD HAVE
BEEN FILED AS A NEW CASE TO BE RAFFLED OFF
AMONG THE DIFFERENT BRANCHES OF THE RTC.

II
THE COURT OF APPEALS LIKEWISE ERRED IN HOLDING
THAT PETITIONER WAS ESTOPPED FROM QUESTIONING
THE ARBITRATION AWARD, WHEN PETITIONER
QUESTIONED THE JURISDICTION OF THE RTC-MAKATI,
BRANCH 62 AND AT THE SAME TIME MOVED TO VACATE
THE ARBITRAL AWARD.
III
THE COURT OF APPEALS ERRED IN NOT HOLDING THAT
THE RESPONDENT TRIAL COURT SHOULD HAVE EITHER
DISMISSED/DENIED PRIVATE RESPONDENTS'
MOTION/PETITION FOR CONFIRMATION OF ARBITRATION
AWARD AND/OR SHOULD HAVE CONSIDERED THE
MERITS OF THE MOTION TO VACATE ARBITRAL AWARD.
IV
THE COURT OF APPEALS ERRED IN NOT TREATING
PETITIONER APT'S PETITION FORCERTIORARI AS AN
APPEAL TAKEN FROM THE ORDER CONFIRMING THE
AWARD.
V
THE COURT OF APPEALS ERRED IN NOT
RULING ON THE LEGAL ISSUE OF WHEN
TO RECKON THE COUNTING OF THE
PERIOD TO FILE A MOTION FOR
RECONSIDERATION. 21
The petition is impressed with merit.
I
The RTC of Makati, Branch 62,
did not have jurisdiction to confirm
the arbitral award.
The use of the term "dismissed" is not "a mere semantic
imperfection". The dispositive portion of the Order of the trial
court dated October 14, 1992 stated in no uncertain terms:

It is erroneous then to argue, as private respondents do, that


petitioner APT was charged with the knowledge that the "case
was merely stayed until arbitration finished," as again, the
order of Branch 62 in very clear terms stated that the
"complaint was dismissed." By its own action, Branch 62 had
lost jurisdiction over the case. It could not have validly
reacquired jurisdiction over the said case on mere motion of
one of the parties. The Rules of Court is specific on how a new
case may be initiated and such is not done by mere motion in a
particular branch of the RTC. Consequently, as there was no
"pending action" to speak of, the petition to confirm the arbitral
award should have been filed as a new case and raffled
accordingly to one of the branches of the Regional Trial Court.
II
Petitioner was not estopped from
questioning the jurisdiction of
Branch 62 of the RTC of Makati.
The Court of Appeals ruled that APT was already estopped to
question the jurisdiction of the RTC to confirm the arbitral
award because it sought affirmative relief in said court by
asking that the arbitral award be vacated.
The rule is that "Where the court itself clearly has no
jurisdiction over the subject matter or the nature of the action,
the invocation of this defense may be done at any time. It is
neither for the courts nor for the parties to violate or disregard
that rule, let alone to confer that jurisdiction this matter being
legislative in character." 25 As a rule then, neither waiver nor
estoppel shall apply to confer jurisdiction upon a court barring
highly meritorious and exceptional circumstances. 26 One such
exception was enunciated in Tijam vs. Sibonghanoy, 27 where it
was held that "after voluntarily submitting a cause and
encountering an adverse decision on the merits, it is too late
for the loser to question the jurisdiction or power of the court."
Petitioner's situation is different because from the outset, it has
consistently held the position that the RTC, Branch 62 had no
jurisdiction to confirm the arbitral award; consequently, it
cannot be said that it was estopped from questioning the
RTC's jurisdiction. Petitioner's prayer for the setting aside of
the arbitral award was not inconsistent with its disavowal of the
court's jurisdiction.
III

4. The Complaint is hereby DISMISSED. 22


Appeal of petitioner to the
The term "dismiss" has a precise definition in law. "To dispose
of an action, suit, or motion without trial on the issues involved.
Conclude, discontinue, terminate, quash." 23
Admittedly, the correct procedure was for the parties to go
back to the court where the case was pending to have the
award confirmed by said court. However, Branch 62 made
the fatal mistake of issuing a final order dismissing the case.
While Branch 62 should have merely suspended the case and
not dismissed it, 24 neither of the parties questioned said
dismissal. Thus, both parties as well as said court are bound
by such error.

Court of Appeals thru certiorari


under Rule 65 was proper.
The Court of Appeals in dismissing APT's petition
for certiorari upheld the trial court's denial of APT's motion for
reconsideration of the trial court's order confirming the arbitral
award, on the ground that said motion was filed beyond the 15day reglementary period; consequently, the petition
for certiorari could not be resorted to as substitute to the lost
right of appeal.

We do not agree.
Section 99 of Republic Act No. 876, 28 provides that:
. . . An appeal may be taken from an order made in a
proceeding under this Act, or from a judgment entered upon an
award through certiorari proceedings, but such appeals shall
be limited to questions of law. . . ..
The aforequoted provision, however, does not preclude a party
aggrieved by the arbitral award from resorting to the
extraordinary remedy of certiorari under Rule 65 of the Rules
of Court where, as in this case, the Regional Trial Court to
which the award was submitted for confirmation has acted
without jurisdiction or with grave abuse of discretion and there
is no appeal, nor any plain, speedy remedy in the course of
law.
Thus, Section 1 of Rule 65 provides:
Sec 1. Petition for Certiorari: When any tribunal, board or
officer exercising judicial functions, has acted without or in
excess of its or his jurisdiction, or with grave abuse of
discretion and there is no appeal, nor any plain, speed, and
adequate remedy in the ordinary course of law, a person
aggrieved thereby may file a verified petition in the proper court
alleging the facts with certainty and praying that judgment be
rendered annulling or modifying the proceedings, as the law
requires, of such tribunal, board or officer.
In the instant case, the respondent court erred in dismissing
the special civil action for certiorari, it being clear from the
pleadings and the evidence that the trial court lacked
jurisdiction and/or committed grave abuse of discretion in
taking cognizance of private respondents' 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 hereinafter demonstrated.
IV
The nature and limits of the
Arbitrators' power.
As a rule, the award of an arbitrator cannot be set aside for
mere errors of judgment either as to the law or as to the
facts. 29 Courts are without power to amend or overrule merely
because of disagreement with matters of law or facts
determined by the arbitrators. 30 They will not review the
findings of law and fact contained in an award, and will not
undertake to substitute their judgment for that of the arbitrators,
since any other rule would make an award the
commencement, not the end, of litigation. 31 Errors of law and
fact, or an erroneous decision of matters submitted to the
judgment of the arbitrators, are insufficient to invalidate an
award fairly and honestly made. 32 Judicial review of an
arbitration is thus, more limited than judicial review of a trial. 33
Nonetheless, the arbitrators' award is not absolute and without
exceptions. 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 and 1040 38 of the Civil Code applicable to
compromises and arbitration are attendant, the arbitration
award may also be annulled.
In Chung Fu Industries (Phils.) vs. Court of Appeals, 39 we held:
. . . . It is stated explicitly under Art. 2044 of the Civil Code that
the finality of the arbitrators' award is not absolute and without
exceptions. Where the conditions described in Articles 2038,
2039 and 2040 applicable to both compromises and
arbitrations are obtaining, the arbitrator's award may be
annulled or rescended. Additionally, under Sections 24 and 25
of the Arbitration Law, there are grounds for vacating,
modifying or rescinding an arbitrator's award. Thus, if and
when the factual circumstances referred to the above-cited
provisions are present, judicial review of the award is properly
warranted.
According, Section 20 of R.A. 876 provides:
Sec. 20. Form and contents of award. The award must be
made in writing and signed and acknowledge by a majority of
the arbitrators, if more than one; and by the sole arbitrator, if
there is only only. Each party shall be furnished with a copy of
the award. The arbitrators in their award may grant any remedy
or relief which they deem just and equitable and within the
scope of the agreement of the parties, which shall include, but
not be limited to, the specific performance of a contract.
The arbitrators shall have the power to decide only those
matters which have been submitted to them. The terms of the
award shall be confined to such disputes. (Emphasis ours).
Sec. 24 of the same law enumerating the grounds for vacating
an award states:
Sec. 24. Grounds for vacating award. In any one of the
following cases, the court must make an order vacating the
award upon the petition of any party to the controversy when
such party proves affirmatively that in the arbitration
proceeding:
(a) The award was procured by corruption, fraud, or other
undue means; or
(b) That there was evident partiality or corruption in the
arbitrators or any of them; or
(c) That the arbitrators were guilty of misconduct in refusing to
postpone the hearing upon sufficient cause shown, or in
refusing to hear evidence pertinent and material to the
controversy; that one or more of the arbitrators was disqualified
to act as such under section nine hereof, and willfully refrained
from disclosing such disqualifications or any other misbehavior
by which the rights of any party have been materially
prejudiced; or
(d) That the arbitrators exceeded their powers, or so
imperfectly executed them, that a mutual, final and definite
award upon the subject matter submitted to them was not
made. (Emphasis ours)

Section 25 which enumerates the grounds for modifying the


award provides:

or notified that its obligations were past due and that


foreclosure is forthcoming;

Sec. 25. Grounds for modifying or correcting award In


anyone of the following cases, the court must make an order
modifying or correcting the award, upon the application of any
party to the controversy which was arbitrated:

3. At that stage, MMIC also knew that PNB-DBP had the option
of either approving the FRP or proceeding with the foreclosure.
Cabarrus, who filed this case supposedly in behalf of MMIC
should have insisted on the FRP. Yet Cabarrus himself
opposed the FRP;

(a) Where there was an evident miscalculation of figures, or an


evident mistake in the description of any person, thing or
property referred to in the award; or
(b) Where the arbitrators have awarded upon a matter not
submitted to them, not affecting the merits of the decision upon
the matter submitted; or

4. So when PNB-DBP proceeded with the foreclosure, it was


done without bad faith but with the honest and sincere belief
that foreclosure was the only alternative; a decision further
explained by Dr. Placido Mapa who testified that foreclosure
was, in the judgment of PNB, the best move to save MMIC
itself.

(c) Where the award is imperfect in a matter of form not


affecting the merits of the controversy, and if it had been a
commissioner's report, the defect could have been amended or
disregarded by the court.

Q : Now in this portion of Exh. "L" which was marked as Exh.


"L-1", and we adopted as Exh. 37-A for the respondent, may I
know from you, Dr. Mapa what you meant by "that the decision
to foreclose was neither precipitate nor arbitrary"?

Finally, it should be stressed that while a court is precluded


from overturning an award for errors in the determination of
factual issues, nevertheless, if an examination of the record
reveals no support whatever for the arbitrators determinations,
their award must be vacated. 40 in the same manner, an award
must be vacated if it was made in "manifest disregard of the
law." 41

A : Well, it is not a whimsical decision but rather decision


arrived at after weighty consideration of the information that we
have received, and listening to the prospects which reported to
us that what we had assumed would be the premises of the
financial rehabilitation plan was not materialized nor expected
to materialize.

Against the backdrop of the foregoing provisions and


principles, we find that the arbitrators came out with an award
in excess of their powers and palpably devoid of factual and
legal basis.
V
There was no financial
structuring program:
foreclosure of mortgage
was fully justified.
The point need not be belabored that PNB and DBP had the
legitimate right to foreclose of the mortgages of MMIC whose
obligations were past due. The foreclosure was not a wrongful
act of the banks and, therefore, could not be the basis of any
award of damages. There was no financial restructuring
agreement to speak of that could have constituted an
impediment to the exercise of the banks' right to foreclose.
As correctly stated by Mr. Jose C. Sison, a member of the
Arbitration Committee who wrote a separate opinion:
1. The various loans and advances made by DBP and PNB to
MMIC have become overdue and remain unpaid. The fact that
a FRP was drawn up is enough to establish that MMIC has not
been complying with the terms of the loan agreement.
Restructuring simply connotes that the obligations are past due
that is why it is "restructurable";
2. When MMIC thru its board and the stockholders agreed and
adopted the FRP, it only means that MMIC had been informed

Q : And this statement that "it was premised upon the known
fact" that means, it was referring to the decision to foreclose,
was premised upon the known fact that the rehabilitation plan
earlier approved by the stockholders was no longer feasible,
just what is meant "by no longer feasible"?
A : Because the revenue that they were counting on to make
the rehabilitation plan possible, was not anymore expected to
be forthcoming because it will result in a short fall compared to
the prices that were actually taking place in the market.
Q : And I suppose that was what you were referring to when
you stated that the production targets and assumed prices of
MMIC's products, among other projections, used in the
financial reorganization program that will make it viable were
not met nor expected to be met?
A : Yes.
Which brings me to my last point in this separate opinion. Was
PNB and DBP absolutely unjustified in foreclosing the
mortgages?
In this connection, it can readily be seen and it cannot quite be
denied that MMIC accounts in PNB-DBP were past due. The
drawing up of the FRP is the best proof of this. When MMIC
adopted a restructuring program for its loan, it only meant that
these loans were already due and unpaid. If these loans were
restructurable because they were already due and unpaid, they
are likewise "forecloseable". The option is with the PNB-DBP
on what steps to take.
The mere fact that MMIC adopted the FRP does not mean that
DBP-PNB lost the option to foreclose. Neither does it mean
that the FRP is legally binding and implementable. It must be
pointed that said FRP will, in effect, supersede the existing and
past due loans of MMIC with PNB-DBP. It will become the new

loan agreement between the lenders and the borrowers. As in


all other contracts, there must therefore be a meeting of minds
of the parties; the PNB and DBP must have to validly adopt
and ratify such FRP before they can be bound by it; before it
can be implemented. In this case, not an iota of proof has been
presented by the PLAINTIFFS showing that PNB and DBP
ratified and adopted the FRP. PLAINTIFFS simply relied on a
legal doctrine of promissory estoppel to support its allegations
in this regard. 42
Moreover, PNB and DBP had to initiate foreclosure
proceedings as mandated by P.D. No. 385, which took effect
on January 31, 1974. The decree requires government
financial institutions to foreclose collaterals for loans where the
arrearages amount to 20% of the total outstanding obligations.
The pertinent provisions of said decree read as follow:
Sec. 1. It shall be mandatory for government financial
institutions, after the lapse of sixty (60) days from the issuance
of this Decree, to foreclose the collaterals and/or securities for
any loan, credit, accommodation, and/or guarantees granted
by them whenever the arrearages on such account, including
accrued interest and other charges, amount to at least twenty
percent (20%) of the total outstanding obligations, including
interest and other charges, as appearing in the books of
account and/or related records of the financial institutions
concerned. This shall be without prejudice to the exercise by
the government financial institutions of such rights and/or
remedies available to them under their respective contracts
with their debtors, including the right to foreclosure on loans,
credits, accommodations and/or guarantees on which the
arrearages are less than twenty percent (20%).
Sec. 2. No restraining order temporary or permanent injunction
shall be issued by the court against any government financial
institution in any action taken by such institution in compliance
with themandatory foreclosure provided in Section 1 hereof,
whether such restraining order, temporary or permanent
injunction is sought by the borrower(s) or any third party or
parties, except after due hearing in which it is established by
the borrower and admitted by the government financial
institution concerned that twenty percent (20%) of the
outstanding arrearages has been paid after the filing of
foreclosure proceedings. (Emphasis supplied.)
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
aliegation not borne out by the evidence. In any case, a
disputable presumption exists in favor of petitioner that official
duty has been regularly performed and ordinary course of
business has been followed. 43
VI
Not only was the foreclosure rightfully exercised by the PNB
and DBP, but also, from the facts of the case, the arbitrators in
making the award went beyond the arbitration agreement.
In their complaint filed before the trial court, private respondent
Cabarrus, et al. prayed for judgment in their favor:
1. Declaring the foreclosures effected by the defendants DBP
and PNB on the assets of MMIC null and void and directing
said defendants to restore the foreclosed assets to the
possession of MMIC, to render an accounting of their use

and/or operation of said assets and to indemnify MMIC for the


loss occasioned by its dispossession or the deterioration
thereof;
2. Directing the defendants DBP and PNB to honor and
perform their commitments under the financial reorganization
plan which was approved at the annual stockholders' meeting
of MMIC on 30 April 1984;
3. Condemning the defendants DBP and PNB, jointly and
severally to pay the plaintiffs actual damages consisting of the
loss of value of their investments amounting to not less than
P80,000,000, the damnum emergens and lucrum cessans in
such amount as may be established during the trial, moral
damages in such amount as this Honorable Court may deem
just and equitable in the premises, exemplary damages in such
amount as this Honorable Court may consider appropriate for
the purpose of setting an example for the public good,
attorney's fees and litigation expenses in such amounts as may
be proven during the trial, and the costs legally taxable in this
litigation.
Further, plaintiffs pray for such other reliefs as may be just and
equitable in the premises. 44
Upon submission for arbitration, the Compromise and
Arbitration Agreement of the parties clearly and explicitly
defined and limited the issues to the following:
(a) whether PLAINTIFFS have the capacity or the personality
to institute this derivative suit in behalf of the MMIC or its
directors;
(b) whether or not the actions leading to, and including, the
PNB-DBP foreclosure of the MMIC assets were proper, valid
and in good faith. 45
Item No. 8 of the Agreement provides for the period by which
the Committee was to render its decision, as well as the nature
thereof:
8. Decision. The committee shall issue a decision on the
controversy not later than six (6) months from the date of its
constitution.
In the event the committee finds that PLAINTIFFS have the
personality to file this suit and the extra-judicial foreclosure of
the MMIC assets wrongful, it shall make an award in favor of
the PLAINTIFFS (excluding DBP), in an amount as may be
established or warranted by the evidence which shall be
payable in Philippine Pesos at the time of the award. Such
award shall be paid by the APT or its successor-in-interest
within sixty (60) days from the date of the award in accordance
with the provisions of par. 9 hereunder. . . . . The PLAINTIFFS'
remedies under this Section shall be in addition to other
remedies that may be available to the PLAINTIFFS, all such
remedies being cumulative and not exclusive of each other.
On the other hand, in case the arbitration committee finds that
PLAINTIFFS have no capacity to sue and/or that the extrajudicial foreclosure is valid and legal, it shall also make an
award in favor of APT based on the counterclaims of DBP and
PNB in an amount as may be established or warranted by the
evidence. This decision of the arbitration committee in favor of
APT shall likewise finally settle all issues regarding the
foreclosure of the MMIC assets so that the funds held in

escrow mentioned in par. 9 hereunder will thus be released in


full in favor of
APT. 46
The clear and explicit terms of the submission notwithstanding,
the Arbitration Committee clearly exceeded its powers or so
imperfectly executed them: (a) in ruling on and declaring valid
the FRP; (b) in awarding damages to MMIC which was not a
party to the derivative suit; and (c) in awarding moral damages
to Jesus S. Cabarrus, Sr.
The arbiters overstepped
their powers by declaring as
valid the proposed Financial
Restructuring Program.
The Arbitration Committee went beyond its mandate and thus
acted in excess of its powers when it ruled on the validity of,
and gave effect to, the proposed FRP.
In submitting the case to arbitration, the parties had mutually
agreed to limit the issue to the "validity of the foreclosure" and
to transform the relief prayed for therein into pure money
claims.
There is absolutely no evidence that the DBP and PNB agreed,
expressly or impliedly, to the proposed FRP. It cannot be
overemphasized that a FRP, as a contract, requires the
consent of the parties thereto. 47 The contract must bind both
contracting parties. 48 Private respondents even by their own
admission recognized that the FRP had yet not been carried
out and that the loans of MMIC had not yet been converted into
equity. 49
However, the Arbitration Committee not only declared the FRP
valid and effective, but also converted the loans of MMIC into
equity raising the equity of DBP to 87%. 50
The Arbitration Committee ruled that there was "a commitment
to carry out the FRP" 51 on the ground of promissory estoppel.
Similarly, the principle of promissory estoppel applies in the
present case considering as we observed, the fact that the
government (that is, Alfredo Velayo) was the FRP's proponent.
Although the plaintiffs are agreed that the government
executed no formal agreement, the fact remains that the DBP
itself which made representations that the FRP constituted a
"way out" for MMIC. The Committee believes that although the
DBP did not formally agree (assuming that the board and
stockholders' approvals were not formal enough), it is bound
nonetheless if only for its conspicuous representations.
Although the DBP sat in the board in a dual capacity as
holder of 36% of MMIC's equity (at that time) and as MMIC's
creditor the DBP can not validly renege on its commitments
simply because at the same time, it held interests against the
MMIC.
The fact, of course, is that as APT itself asserted, the FRP was
being "carried out" although apparently, it would supposedly fall
short of its targets. Assuming that the FRP would fail to meet

its targets, the DBP and so this Committee holds can not,
in any event, brook any denial that it was bound to begin with,
and the fact is that adequate or not (the FRP), the government
is still bound by virtue of its acts.
The FRP, of course, did not itself promise a resounding
success, although it raised DBP's equity in MMIC to 87%. It is
not an excuse, however, for the government to deny its
commitments. 52
Atty. Sison, however, did not agree and correctly observed
that:
But the doctrine of promissory estoppel can hardly find
application here. The nearest that there can be said of any
estoppel being present in this case is the fact that the board of
MMIC was, at the time the FRP was adopted, mostly
composed of PNB and DBP representatives. But those
representatives, singly or collectively, are not themselves PNB
or DBP. They are individuals with personalities separate and
distinct from the banks they represent. PNB and DBP have
different boards with different members who may have different
decisions. It is unfair to impose upon them the decision of the
board of another company and thus pin them down on the
equitable principle of estoppel. Estoppel is a principle based on
equity and it is certainly not equitable to apply it in this
particular situation. Otherwise the rights of entirely separate
distinct and autonomous legal entities like PNB and DBP with
thousands of stockholders will be suppressed and rendered
nugatory. 53
As a rule, a corporation exercises its powers, including the
power to enter into contracts, through its board of directors.
While a corporation may appoint agents to enter into a contract
in its behalf, the agent should not exceed his authority. 54 In the
case at bar, there was no showing that the representatives of
PNB and DBP in MMIC even had the requisite authority to
enter into a debt-for-equity swap. And if they had such
authority, there was no showing that the banks, through their
board of directors, had ratified the FRP.
Further, how could the MMIC be entitled to a big amount of
moral damages when its credit reputation was not exactly
something to be considered sound and wholesome. Under
Article 2217 of the Civil Code, moral damages include
besmirched reputation which a corporation may possibly suffer.
A corporation whose overdue and unpaid debts to the
Government alone reached a tremendous amount of P22
Billion Pesos cannot certainly have a solid business reputation
to brag about. As Atty. Sison in his separate opinion
persuasively put it:
Besides, it is not yet a well settled jurisprudence that
corporations are entitled to moral damages. While the
Supreme Court may have awarded moral damages to a
corporation for besmirched reputation in Mambulao vs. PNB,
22 SCRA 359, such ruling cannot find application in this case.
It must be pointed out that when the supposed wrongful act of
foreclosure was done, MMIC's credit reputation was no longer
a desirable one. The company then was already suffering from
serious financial crisis which definitely projects an image not
compatible with good and wholesome reputation. So it could
not be said that there was a "reputation" besmirched by the act
of foreclosure. 55
The arbiters exceeded their

authority in awarding damages


to MMIC, which is not impleaded
as a party to the derivative suit.
Civil Case No. 9900 filed before the RTC being a derivative
suit, MMIC should have been impleaded as a party. It was not
joined as a party plaintiff or party defendant at any stage of the
proceedings. As it is, the award of damages to MMIC, which
was not a party before the Arbitration Committee, is a complete
nullity.
Settled is the doctrine that in a derivative suit, the corporation
is the real party in interest while the stockholder filing suit for
the corporation's behalf is only a nominal party. The
corporation should be included as a party in the suit.
An individual stockholder is permitted to institute a derivative
suit on behalf of the corporation wherein he holds stock in
order to protect or vindicate corporate rights, whenever the
officials of the corporation refuse to sue, or are the ones to be
sued or hold the control of the corporation. In such actions, the
suing stockholder is regarded as a nominal party, with the
corporation as the real party in interest. . . . . 56
It is a condition sine qua non that the corporation be impleaded
as a party because
. . . Not only is the corporation an indispensable party, but it is
also the present rule that it must be served with process. The
reason given is that the judgment must be made binding upon
the corporation in order that the corporation may get the
benefit of the suit and may not bring a subsequent suit against
the same defendants for the same cause of action. In other
words the corporation must be joined as party because it is its
cause of action that is being litigated and because judgment
must be a res ajudicata against it. 57

(5) it would involve confusion in a ascertaining the effect of


partial recovery by an individual on the damages recoverable
by the corporation for the same act. 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 corporation has a personality separate and
distinct from its individual stockholders or members. DBP's
alleged equity, even if it were indeed 87%, did not give it
ownership over any corporate property, including the monetary
award, its right over said corporate property being a mere
expectancy or inchoate right. 59 Notably, the stipulation even
had the effect of prejudicing the other creditors of MMIC.
The arbiters, likewise,
exceeded their authority
in awarding moral damages
to Jesus Cabarrus, Sr.
It is perplexing how the Arbitration Committee can in one
breath rule that the case before it is a derivative suit, in which
the aggrieved party or the real party in interest is supposedly
the MMIC, and at the same time award moral damages to an
individual stockholder, to wit:
WHEREFORE, premises considered, judgment is hereby
rendered:
3. Ordering the defendant to pay to the plaintiff, Jesus S.
Cabarrus, Sr., the sum of P10,000,000.00, to be satisfied
likewise from the funds held under escrow pursuant to the
Escrow Agreement dated April 22, 1988 or to such subsequent
escrow agreement that would supersede it, pursuant to
paragraph (9), Compromise and Arbitration Agreement, as and
for moral damages; . . . 60

The reasons given for not allowing direct individual suit are:
(1) . . . "the universally recognized doctrine that a stockholder
in a corporation has no title legal or equitable to the corporate
property; that both of these are in the corporation itself for the
benefit of the stockholders." In other words, to allow
shareholders to sue separately would conflict with the separate
corporate entity principle;
(2) . . . that the prior rights of the creditors may be prejudiced.
Thus, our Supreme Court held in the case of Evangelista v.
Santos, that "the stockholders may not directly claim those
damages for themselves for that would result in the
appropriation by, and the distribution among them of part of the
corporate assets before the dissolution of the corporation and
the liquidation of its debts and liabilities, something which
cannot be legally done in view of section 16 of the Corporation
Law . . .;
(3) the filing of such suits would conflict with the duty of the
management to sue for the protection of all concerned;
(4) it would produce wasteful multiplicity of suits; and

The majority decision of the Arbitration Committee sought to


justify its award of moral damages to Jesus S. Cabarrus, Sr. by
pointing to the fact that among the assets seized by the
government were assets belonging to Industrial Enterprise Inc.
(IEI), of which Cabarrus is the majority stockholder. It then
acknowledged that Cabarrus 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., may be awarded in this proceeding." 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 actual damages, he was barred by res
judicata from filing a similar case in another court, this time
asking for moral damages which he failed to get from the
earlier case. 62 Worse, private respondents violated the rule
against non-forum shopping.
It is a basic postulate that a corporation has a personality
separate and distinct from its stockholders. 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 claim those damages for himself that would
result in the appropriation by, and the distribution to, him part of
the corporation's assets before the dissolution of the
corporation and the liquidation of its debts and liabilities. The
Arbitration Committee, therefore, passed upon matters nor
submitted to it. Moreover, said cause 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 Jesus S. Cabarrus, Sr.
Atty. Sison, in his separate opinion, likewise expressed
befuddlement to the award of moral damages to Jesus S.
Cabarrus, Sr.:
It is clear and it cannot be disputed therefore that based on
these stipulated issues, the partiesthemselves have agreed
that the basic ingredient of the causes of action in this case is
the wrong committed on the corporation (MMIC) for the alleged
illegal foreclosure of its assets. By agreeing to this
stipulation, PLAINTIFFS themselves (Cabarrus, et al.) admit
that the cause of action pertains only to the corporation
(MMIC) and that they are filing this for and in behalf of MMIC.
Perforce this has to be so because it is the basic rule in
Corporation Law that "the shareholders have no title, legal or
equitable to the property which is owned by the corporation (13
Am. Jur. 165; Pascual vs. Oresco, 14 Phil. 83). In Ganzon &
Sons vs. Register of Deeds, 6 SCRA 373, the rule has been
reiterated that "a stockholder is not the co-owner of corporate
property." Since the property or assets foreclosed belongs [sic]
to MMIC, the wrong committed, if any, is done against the
corporation. There is therefore no direct injury or direct
violation of the rights of Cabarrus et al. There is no way, legal
or equitable, by which Cabarrus et al. could recover damages
in their personal capacities even assuming or just because the
foreclosure is improper or invalid. The Compromise and
Arbitration Agreement itself and the elementary principles of
Corporation Law say so. Therefore, I am constrained to dissent
from the award of moral damages to Cabarrus. 64
From the foregoing discussions, it is evident that, not only did
the arbitration committee exceed its powers or so imperfectly
execute them, but also, its findings and conclusions are
palpably devoid of any factual basis, and in manifest disregard
of the law.
We do not find it necessary to remand this case to the RTC for
appropriate action. The pleadings and memoranda filed with
this Court, as well as in the Court of Appeals, raised and
extensively discussed the issues on the merits. Such being the
case, there is sufficient basis for us to resolve the controversy
between the parties anchored on the records and the
pleadings before us. 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 REVERSED and SET ASIDE, and the decision
of the Arbitration Committee is hereby VACATED.
SO ORDERED.
Romero, J., Please see dissenting opinion.

Purisima, J., Concur and also with the separate concurring


opinion of Justice Pardo.
Pardo, J., With separate concurring opinion.

Separate Opinions

ROMERO, J., dissenting opinion;


In the instant petition for review on certiorari, petitioner. Asset
Privatization Trust (APT) is impugning the decision of
respondent Court of Appeals in CA-GR SP No. 36484 dated
July 17, 1995, grounded upon the following assigned errors
which it had allegedly committed:
1) The Court of Appeals erred in not holding that the Makati
Regional Trial Court, Branch 62, which had previously
dismissed Civil Case No. 9900, had lost jurisdiction to confirm
the arbitral award under the same civil case and in not ruling
that the application for confirmation should have been filed as
a new case to be raffled among the different branches of the
RTC;
2) The Court of Appeals likewise erred in holding that petitioner
was estopped from questioning the arbitration award, when
petitioner questioned the jurisdiction of the RTC-Makati,
Branch 62, and at the same time moved to vacate the arbitral
award;
3) The Court of Appeals erred in not holding that the
respondent Trial Court should have either dismissed/denied
private respondents' motion/petition for confirmation of
arbitration award and/or should have considered the merits of
the motion to vacate (the) arbitral award;
4) The Court of Appeals erred in not treating petitioner APT's
petition for certiorari as an appeal taken from the order
confirming the award; and
5) The Court of Appeals erred in not ruling on the legal issue of
when to reckon the counting of the period to file a motion for
reconsideration. 1
The resolution of these issues will ultimately test the process of
arbitration, how effective or ineffective it is as an alternative
mode of settling disputes, and how it is affected by judicial
review. My esteemed colleagues have taken the view that the
petition is impressed with merit and that the assailed decision
of the Court of Appeals should be reversed. In doing so, I
believe they have dealt arbitration a terrible blow and wasted
years, even decades, of development in this field. I beg to
differ and, therefore, dissent.
The controversy is actually simpler than it appears. The
Marinduque Mining and Industrial Corporation (MMIC)
obtained several loans from the Philippine National Bank
(PNB) and the Development Bank of the Philippines (DBP)
secured by mortgages over practically all of its assets. As of

July 15, 1984, MMIC's obligation had ballooned to


P22,668,537,770.05, 2 and it had no way of making the
required payments. MMIC and its two creditor banks thus
ironed out a complex financial restructuring plan (FRP)
designed to drastically reduce MMIC's liability through a "debtto-equity" scheme. 3 This notwithstanding, the creditors opted
to sell MMIC's mortgaged properties through extrajudicial
foreclosure proceedings, where PNB turned out to be the lone
bidder. 4
Aggrieved by this apparent bad faith on the part of the creditor
banks, private respondents Jesus S. Cabarrus, Sr., and other
minority stockholders of MMIC filed a derivative suit 5 against
PNB and DBP before the Makati Regional Trial Court. They
prayed for the annulment of the foreclosure and for the
restoration of the company's assets, the recognition by the
creditor banks of their commitments under the FRP, and the
payment of damages, as well as attorney's fees and costs of
litigation. The case was raffled to Branch 62 and docketed as
Civil Case No. 9900.
In the meantime, the rights and interests of PNB and DBP,
including MMIC's indebtedness, were transferred to petitioner,
created by virtue of Proclamation No. 50, in relation to
Administrative Order No. 14. Hence, petitioner was substituted
as party defendant in Civil Case No. 9900.
On October 6, 1992, the parties entered into a Compromise
and Arbitration Agreement 6 providing, inter alia, that they were
withdrawing their respective claims, which would be reduced to
pure money claims, and that they were submitting the
controversy to arbitration under Republic Act No. 876. 7 The
issues for arbitration were thus limited to a determination of the
plaintiffs' capacity or right to institute the derivative suit in
behalf of the MMIC or its directors, and of the propriety of the
foreclosure. Of notable import was the provision on the nature
of the judgment that the arbitration committee might
render,viz.:
10. Binding Effect and Enforcement. The award of the
arbitration committee shall be final and executory upon its
issuance upon the parties to the arbitration and their assigns
and successors-in-interest. In the event the award is not
voluntarily satisfied by the losing party, the party in whose favor
the award has been made may, pursuant to Republic Act No.
876, apply to the proper Regional Trial Court for its
enforcement. (Emphasis supplied)
Upon motion of the parties, this agreement was presented to
the court a quo for its approval. 8 On October 14, 1992, said
court issued an order (a) dismissing the complaint; (b)
substituting the creditor banks with the APT as party
defendant; (c) "approving the Compromise and Arbitration
Agreement dated October 6, 1992"; and (d) "approving the
transformation of the reliefs prayed for by the plaintiffs in this
case into pure money claims." 9
On November 24, 1993, after more than six months of hearing,
the arbitration committee 10 concluded that the assailed
foreclosure was not valid and accordingly decided the case in
favor of MMIC. Hence, petitioner was ordered to pay MMIC
actual damages in the amount of P2,531,635,425.02, with legal
interest, and moral and exemplary damages amounting to
P13,000,000.00, and to pay Jesus S. Cabarrus, Sr., the sum of
P10,000,000.00 by way of moral damages, such awards to be
offset from the outstanding and unpaid obligations of MMIC
with the creditor banks, which have not been converted into

equity. The committee likewise decreed its decision to be "final


and executory." 11
Nearly a year later, MMIC filed in Civil Case No. 9900, a
verified "Application/Motion for Confirmation of Arbitration
Award." 12 This was opposed by petitioner on two grounds,
namely, that Branch 62 no longer had jurisdiction to act on said
motion after it "dismissed" the complaint in its order of October
14, 1992, and that the award "far exceeded the issues
submitted" for arbitration by the parties. 13 Not wanting to be
outdone, MMIC filed a "Reply and Opposition," arguing that the
"qualified dismissal" of Civil Case No. 9900 was merely
intended to expedite the submission of the controversy to
arbitration and was, therefore, "a mere suspension of the
proceedings," and that the arbitration committee did not
exceed its authority in making the award.
On November 28, 1994, the trial court issued an
order 14 confirming the award of the committee in all respects
except as to the award of actual damages to MMIC, which was
increased to P3,811,757,425.00. The order closed with the
following declaration:
In reiteration of the mandates of Stipulation No. 10 and
Stipulation No. 8 paragraph 2 of the Compromise and
Arbitration Agreement, and the final edict of the Arbitration
Committee's decision, and with this Court's Confirmation, the
issuance of the Arbitration Committee's Award shall henceforth
be final and executory.
Petitioner filed a "Motion for Reconsideration" of said order on
December 27, 1994; but this was denied by the court a quo in
its order dated January 18, 1995 for lack of merit and for
having been filed beyond the reglementary period. Thus, it
said:
. . . (C)onsidering that the defendant APT, through counsel,
officially and actually received a copy of the Order of this Court
dated November 28, 1994 on December 6, 1994, the Motion
for Reconsideration thereof filed by the defendant APT on
December 27, 1994, or after the lapse of 21 days, was clearly
filed beyond the 15-day reglementary period prescribed
or provided for . . . (by law) for the filing of an appeal from final
orders, resolutions, awards, judgments or decisions of any
court in all cases, and by necessary implication, for the filing of
a motion for reconsideration thereof.
Instead of appealing such denial, petitioner filed on February
15, 1995, an "Appeal by Certiorari . . . . under Sections 1 and 2
of Rule 65 of the Revised Rules of Court" before the Court of
Appeals, praying for the nullification of the trial court's orders
dated November 28, 1994 and January 18, 1995. It argued that
the trial court had no jurisdiction or authority to confirm the
arbitral award, "considering that the original case, Civil Case
No. 9900, had previously been dismissed," and that the trial
judge "acted with grave abuse of discretion in issuing the
questioned orders confirming the award and denying the
motion for reconsideration thereof." 15
On July 17, 1995, the Court of Appeals dismissed the petition
for lack of merit. 16 From this dismissal, petitioner elevated its
cause to this Tribunal for a review, raising the issues stated at
the outset.
I find it distressing that, in reaching the outcome of this
controversy, the majority has emasculated the process of

arbitration itself. This should not be the case for after all, the
decision of the arbitration committee is no longer the one being
attacked in these proceedings, but the judgment of the Court of
Appeals which herein petitioner found to be erroneous. The
Court has had occasion to trace the history of arbitration and to
discuss its significance in the case of Chung Fu Industries
(Phils.), Inc. v. Court of Appeals, 17 viz.:
Allow us to take a leaf from history and briefly trace the
evolution of arbitration as a mode of dispute settlement.
Because conflict is inherent in human society, much effort has
been expended by men and institutions in devising ways of
resolving the same. With the progress of civilization, physical
combat has been ruled out and instead, more specific means
have been evolved, such as recourse to the good offices of a
disinterested third party, whether this be a court or a private
individual or individuals.
Legal history discloses that "early judges called upon to solve
private conflicts were primarily the arbiters, persons not
specially trained but in whose morality, probity and good sense
the parties in conflict reposed full trust. Thus, in Republican
Rome, arbiter and judge (judex) were synonymous. The
magistrate of praetor, after noting down the conflicting claims
of litigants, and clarifying the issues, referred them for decision
to a private person designated by the parties, by common
agreement, or selected by them from an apposite listing
(the album judicium) or else by having the arbiter chosen by
lot. The judges proper, as specially trained state officials
endowed with (their) own power and jurisdiction, and taking
cognizance of litigations from beginning to end, only appeared
under the Empire, by the so-called cognitio extra ordinem."
Such means of referring a dispute to a third party has also long
been an accepted alternative to litigation at common law.
Sparse though the law and jurisprudence may be on the
subject of arbitration in the Philippines, it was nonetheless
recognized in the Spanish Civil Code; specifically, the
provisions on compromises made applicable to arbitrations
under Articles 1820 and 1821. Although said provisions were
repealed by implication with the repeal of the Spanish Law of
Civil Procedure, these and additional ones were reinstated in
the present Civil Code.
Arbitration found a fertile field in the resolution of labormanagement disputes in the Philippines. Although early on,
Commonwealth Act 103 (1936) provided for compulsory
arbitration as the state policy to be administered by the Court
of Industrial Relations, in time such a modality gave way to
voluntary arbitration. While not completely supplanting
compulsory arbitration which until today is practiced by
government officials, the Industrial Peace Act which was
passed in 1953 as Republic Act No. 875, favored the policy of
free collective bargaining, in general, and resort to grievance
procedure, in particular, as the preferred mode of settling
disputes in industry. It was accepted and enunciated more
explicitly in the Labor Code, which was passed on November
1, 1974 as Presidential Decree No. 442, with the amendments
later introduced by Republic Act No. 6715 (1989).
Whether utilized in business transactions or in employeremployee relations, arbitration was gaining wide acceptance. A
consensual process, it was preferred to orders imposed by
government upon the disputants. Moreover, court litigations
tended to be time-consuming, costly, and inflexible due to their

scrupulous observance of the due process of law doctrine and


their strict adherence to rules of evidence.
As early as the 1920's, this Court declared:
In the Philippines fortunately, the attitude of the court towards
arbitration agreements is slowly crystallizing into definite and
workable form . . . The rule now is that unless the agreement is
such as absolutely to close the doors of the courts against the
parties, which agreement would be void, the courts will look
with favor upon such amicable arrangements and will only with
great reluctance interfere to anticipate or nullify the action of
the arbitrator.
That there was a growing need for a law regulating arbitration
in general was acknowledged when Republic Act No. 876
(1953), otherwise known as the Arbitration Law, was passed.
"Said Act was obviously adopted to supplement not to
supplant the New Civil Code on arbitration. It expressly
declares that "the provisions of chapters one and two, Title XIV,
Book IV of the Civil Code shall remain in force."
In practice nowadays, absent an agreement of the parties to
resolve their disputes via a particular mode, it is the regular
courts that remain the fora to resolve such matters. However,
the parties may opt for recourse to third parties, exercising
their basic freedom to "establish such stipulations, clauses,
terms and conditions as they may deem convenient, provided
they are not contrary to law, morals, good customs, public
order or public policy." In such a case, resort to the arbitration
process may be spelled out by them in a contract in
anticipation of disputes that may arise between them. Or this
may be stipulated in a submission agreement when they are
actually confronted by a dispute. Whatever be the case, such
recourse to an extrajudicial means of settlement is not
intended to completely deprive the courts of jurisdiction. In fact,
the early cases on arbitration carefully spelled out the
prevailing doctrine at the time, thus: ". . . a clause in a contract
providing that all matters in dispute between the parties shall
be referred to arbitrators and to them alone is contrary to public
policy and cannot oust the courts of jurisdiction."
But certainly, the stipulation to refer all future disputes to an
arbitrator or to submit an ongoing dispute to one is valid. Being
part of a contract between the parties, it is binding and
enforceable in court in case one of them neglects, fails or
refuses to arbitrate. Going a step further, in the event that they
declare their intention to refer their differences to arbitration
first before taking court action, this constitutes a condition
precedent, such that where a suit has been instituted
prematurely, the court shall suspend the same and the parties
shall be directed forthwith to proceed to arbitration.
A court action may likewise be proper where the arbitrator has
not been selected by the parties.
. . . It is stated explicitly under Art. 2044 of the Civil Code that
the finality of the arbitrator's award is not absolute and without
exceptions. Where the conditions described in Articles 2038,
2039 and 204018 applicable to both compromises and
arbitrations are obtaining, the arbitrators' award may be
annulled or rescinded. Additionally, under Sections 24 and 25
of the Arbitration Law, there are grounds for vacating,
modifying or rescinding an arbitrator's award. Thus, if and
when the factual circumstances referred to in the above-cited
provisions are present, judicial review of the award is properly
warranted.

What if courts refuse or neglect to inquire into the factual milieu


of an arbitrator's award to determine whether it is in
accordance with law or within the scope of his authority? How
may the power of judicial review be invoked?
This is where the proper remedy is certiorari under Rule 65 of
the Revised Rules of Court. It is to be borne in mind, however,
that this action will lie only where a grave abuse of discretion or
an act without or in excess of jurisdiction on the part of the
voluntary arbitrator is clearly shown. For "the writ of certiorari is
an extraordinary remedy and that certiorari jurisdiction is not to
be equated with appellate jurisdiction. In a special civil action
of certiorari, the Court will not engage in a review of the facts
found nor even of the law as interpreted or applied by the
arbitrator unless the supposed errors of fact or of law are so
patent and gross and prejudicial as to amount to a grave abuse
of discretion or an exces de pouvoir on the part of the
arbitrator." 19
So, what are the issues that need to be addressed in this
action? Certainly not the capacity of the plaintiffs below to file
the derivative suit in behalf of MMIC nor the validity of the
extrajudicial foreclosure conducted by PNB and DBP. These
were the issues submitted for arbitration by the parties
and resolved with finality by the arbitration committee upon
agreement of the parties themselves. The issues, therefore, all
stemming from the judgment of the Court of Appeals, may be
narrowed down to three: (1) Was it right in upholding the trial
court's authority to confirm the arbitration award considering
that said court had earlier dismissed the complaint? (2) Was it
correct in finding that herein petitioner was estopped from
questioning such award? (3) Was it justified in not treating
petitioner's petition for certiorari as an appeal from the trial
court's order confirming said award?
(1) Petitioner overly stresses the fact that in the trial court's
order of October 14, 1992; the complaint was "dismissed" upon
approval of the Compromise and Arbitration Agreement
between the parties. Such dismissal, however, far from finally
disposing of the controversy as the term denotes, simply
"suspended" it during the period of arbitration. It is, as a
colleague pointed out during the deliberation of this action, a
mere "semantic imperfection." Here is a situation where the
intent of the tribunal was obviously not to end the case with
finality, but to place the proceedings in abeyance while the
parties breathed life into an alternative mode of settling their
differences in the most expeditious manner. Arbitration is not a
self-enforcing process. It focuses the direction of the hearing
and the reception and appreciation of evidence by assigning
these tasks to a group of persons chosen by the parties,
themselves. By this, a circuitous and time-consuming court trial
is avoided, leaving the court with the singular duty of
confirming the arbitrators' decision, and allowing it to devote
more of its time to resolving other cases. As the appellate court
correctly pointed out:
. . . (T)he dismissal of the Complaint in Civil Case No. 9900
was not intended by the parties and by the court a quo, despite
the phraseology in Item No. 4 or the dispositive portion of the
Order of October 14, 1992, as a dismissal that would put an
end to the case. Rather it was simply a pronouncement for the
cessation of the proceedings in the court and the
commencement of the arbitration proceedings. It was for all
intents and purposes a stay of the civil action until an
arbitration has been had or pending the return of the arbitral
award. This is evident since the parties submitted to the court
below not only an agreement to arbitrate but also a

compromise which is always submitted to the court for


approval and as a basis for a judgment. . . . 20
Regarding the trial court's authority to confirm the decision of
the arbitration committee, suffice it to say that such was not
merely its right but its duty as well. Under Section 22 of R.A.
No. 876, upon application or motion of any party to arbitration,
the court has the obligation of confirming the arbitrators' award
absent any specific ground to vacate, modify or correct the
same. Herein private respondents did apply for such
confirmation on February 7, 1995. This was even opposed by
petitioner on the ground that the judgment had not yet become
final and executory, in complete disregard of paragraph 10 of
the Compromise and Arbitration Agreement and the very
decision of the arbitration committee.
The award itself was properly made since it was not vacated,
modified or corrected upon any of the grounds enumerated
under Sections 24 and 25 of R.A. No. 876, to wit:
Sec. 24. Grounds for vacating award. In any one of the
following cases, the court must make an order vacating the
award upon the petition of any party to the controversy when
such party proves affirmatively that in the arbitration
proceedings:
(a) The award was procured by corruption, fraud, or other
undue means; or
(b) That there was evident partiality or corruption in the
arbitrators or any of them; or
(c) That the arbitrators were guilty of misconduct in refusing to
postpone the hearing upon sufficient cause shown, or in
refusing to hear evidence pertinent and material to the
controversy; that one or more of the arbitrators was disqualified
to act as such under section nine hereof, and willfully refrained
from disclosing such disqualifications or of any other
misbehavior by which the rights of any party have been
materially prejudiced; or
(d) That the arbitrators exceeded their powers, or so
imperfectly executed them, that a mutual, final and definite
award upon the subject matter submitted to them was not
made.
Where an award is vacated, the court, in its discretion, may
direct a new hearing either before the same arbitrators or
before a new arbitrator or arbitrators chosen in the manner
provided in the submission or contract for the selection of the
original arbitrator or arbitrators, and any provision limiting the
time in which the arbitrators may make a decision shall be
deemed applicable to the new arbitration and to commence
from the date of the court's order.
Where the court vacates, an award, costs, not exceeding fifty
pesos, and disbursements may be awarded to the prevailing
party and the payment thereof may be enforced in like manner
as the payment of costs upon the motion in an action
Sec. 25. Grounds for modifying or correcting award. In any
one of the following cases, the court must make an order
modifying or correcting the award, upon the application of any
party to the controversy which was arbitrated:

(a) Where there was an evident miscalculation of figures, or an


evident mistake in the description of any person, thing or
property referred to in the award; or
(b) Where the arbitrators have awarded upon a matter not
submitted to them, not affecting the merits of the decision upon
the matter submitted; or
(c) Where the award is imperfect in a matter of form not
affecting the merits of the controversy, and if it had been a
commissioner's report, the defect could have been amended or
disregarded by the court.
The order may modify and correct the award so as to effect the
intent thereof and promote justice between the parties.
(Emphasis supplied)
Petitioner utterly failed to prove the existence of any of these
grounds. Its strongest argument, that the arbitration award "far
exceeded the issue submitted for arbitration," apart from being
unsubstantiated, does not go into the merits of the award,
which is the only way its modification or correction could be
justified under the terms of Section 25, aforequoted.
Furthermore, petitioner violated several covenants by asking
the court a quo to vacate the arbitration award. First, in
paragraph 10 of the Compromise and Arbitration Agreement, it
agreed to abide by the arbitration committee's decision which
"shall be final and executory upon its issuance upon the parties
to the arbitration and their assigns and successors-in-interest."
Next, the decision that the arbitrators did render on November
24, 1993 specifically declared the same to be "final and
executory." Finally, in the court's confirmation order of
November 28, 1994, the finality of the award was reiterated by
the court. Arbitration, as an alternative mode of settlement, is
gaining adherents in legal and judicial circles here and abroad.
If its tested mechanism can simply be ignored by an aggrieved
party, one who, it must be stressed, voluntarily and actively
participated in the arbitration proceedings from the very
beginning, it will destroy the very essence of mutuality inherent
in consensual contracts.
2) Petitioner claims that it is not estopped from questioning the
arbitration award probably because, notwithstanding its
tenacious quest for affirmative relief, it did not translate this
pursuit into positive action. The Court of Appeals succinctly
puts it in this wise:
. . . The record shows that on its motion, petitioner APT was
able to postpone the hearing on therein plaintiffs'
application/motion for confirmation of arbitral award to a date
and time that it chose. However, when said matter was called
for hearing, only counsel for therein plaintiffs showed up.
Nonetheless, respondent Judge gave APT a period of seven
(7) days from notice within which to comment on the
application/motion for confirmation. At no time did petitioner
APT ask for a hearing to present its evidence. While petitioner
APT repeatedly sought to vacate the arbitral award, it made no
concrete move to pursue its cause. In fact, at the hearing on its
motion for reconsideration, both parties through their
respective counsels gave oral arguments and thereafter
agreed to submit the motion for reconsideration for resolution.
If petitioner APT honestly believed that the respondent Judge
erroneously took cognizance of plaintiffs Application/Motion for
Confirmation of Arbitration Award, then it should have limited
itself to challenging the jurisdiction of said court. The fact
remains that petitioner APT repeatedly sought affirmative relief

from the respondent Judge in the same Civil Case No. 9900.
Under the circumstances, petitioner APT may not be heard
now to complain that it was deprived of its right to question the
award made by the Arbitration Committtee. 21 (Emphasis
supplied)
3) The final issue which, to my mind, has particular relevance
to the case at bar, pertains to the alleged error of the Court of
Appeals in not treating APT's petition for certiorari as an appeal
from the trial court's confirmation order.
Petitioner's counsel received a copy of the confirmation order
dated November 28, 1994, on December 12, 1994.22 Said
order was, for review purposes, a "final order" because it finally
disposed of the case. Other than executing the confirmation
order, there was nothing else that the court was duty-bound to
perform. Petitioner's remedy, therefore, was to question the
order, by appeal on certiorari, not before the Court of Appeals,
but before the Supreme Court 23 within the reglementary period
of fifteen days which expired on December 27, 1994. Instead
of appealing, however, petitioner filed a motion for
reconsideration of the order on said deadline. Unfortunately,
this was denied by the court a quo in its order dated January
18, 1995, a copy of which was received by petitioner's counsel
on February 1, 1995. Under prevailing procedural laws, it had
just one day to perfect its appeal. On February 15, 1995,
petitioner opted to file with the Court of Appeals an "Appeal
by Certiorari . . . under Sections 1 and 2 of Rule 65 of the
Revised Rules of Court." The reason is obvious: It could no
longer file a regular appeal from the assailed order because
the period for doing so has lapsed. The Court of Appeals thus
made the following pertinent observation.
. . . Assuming arguendo that petitioner APT's counsel received
a copy (of the November 28, 1994, order), as claimed by them,
on December 12, 1994, then the petitioner had fifteen (15)
days therefrom or until December 27, 1994, within which to
appeal. The petitioner's motion for reconsideration was
admittedly filed on December 27, 1994, the last day of the
reglementary 15-day period, and the order dated January 18,
1995, denying the same was received by petitioner's counsel
on February 1, 1995. Petitioner APT had only the following day
to perfect his appeal. Instead, it chose to file the instant special
civil action of certiorari on February 15, 1995.
From the start, petitioner seemed unsure of its position on
appeal. While initially questioning the "order confirming the
award" of the arbitration committee, it later stated that it was
raising the issue of "filing by (herein private respondents) of a
Motion for Execution and Appointment of Custodian of
proceeds of Execution dated February 6, 1995." The latter
recourse is obviously erroneous, for no appeal under either
Rule 45 or Rule 65 may be taken from a "motion" or the "filing"
of one. Under Rule 45, only judgments or final orders of a court
or tribunal may be appealed to a higher court, while Rule 65
allows a special civil action where the acts of a tribunal, board
or officer are under attack for being performed with grave
abuse of discretion.
The applicable law, of course, is R.A. No. 876, which provides
for appeals from arbitration awards under Section 29
thereof, viz.:
. . . (A)n appeal may be taken from . . . a judgment entered
upon an award through certiorariproceedings, but such
appeals shall be limited to questions of law. The proceedings

upon such an appeal, including the judgment thereon, shall be


governed by the Rules of Court in so far as they are applicable.
The term "certiorari" in the aforequoted provision refers to an
ordinary appeal under Rule 45, not the special action
of certiorari under Rule 65. It is an "appeal," as Section 29
proclaims. The proper forum for this action is, under the old
and the new rules of procedure, the Supreme Court. Thus,
Section 2(c) of Rule 41 of the 1997 Rules of Civil Procedure
states that, "In all cases where only questions of law are raised
or involved, the appeal shall be to the Supreme Court by
petition for review on certiorari in accordance with Rule 45."
Moreover, Section 29 limits the appeal to "questions of law,"
another indication that it is referring to an appeal
by certiorari under Rule 45 which, indeed, is the customary
manner of reviewing such issues. On the other hand, the
extraordinary remedy of certiorari under Rule 65 may be
availed of by a party where there is "no appeal, nor any plain,
speedy, and adequate remedy in the course of law," and under
circumstances where "a tribunal, board or officer exercising
judicial functions, has acted without or in excess of its or his
jurisdiction, or with grave abuse of discretion." 24
Based on the foregoing, it is clear that petitioner had run out of
options after its motion for reconsideration was denied by the
trial court in its order dated January 18, 1995. To compound its
negligence, it filed the wrong action with the wrong forum.
These, to my mind, are serious procedural flaws. To rule
otherwise, as the majority did, would constitute a grave
injustice to private respondents.
I vote to DISMISS the petition.

PARDO, J., separate concurring opinion;


I concur. However, I wish to add a few points not particularly
emphasized in the majority opinion.
The petition before the Court is one for review via
certiorari under Rule 45 of the Revised Rules of Court seeking
to set aside the resolution of the Court of Appeals that denied
due course and dismissed APT's petition forcertiorari to annul
the proceedings had before the Regional Trial Court, Makati,
Branch 62, in Civil Case No. 9900, particularly the order
confirming the arbitration award, reading as follows:
WHEREFORE, premises considered, and in the light of the
parties Compromise and Arbitration Agreement dated October
6, 1992, the Decision of the Arbitration Committee promulgated
on November 24, 1993, as affirmed in a Resolution dated July
26, 1994, and finally settled and clarified in the Separate
Opinion dated September 2, 1994 of Committee Member
Elma, and the pertinent provisions of R.A. 876, also known as
the Arbitration Law, this Court GRANTS PLAINTIFFS'
APPLICATION AND THUS CONFIRMS THE ARBITRATION
AWARD AND JUDGMENT IS HEREBY RENDERED:
(a) Ordering the defendant APT to the Marinduque Mining and
Industrial Corporation (MMIC), except the DBP, the sum of
P3,811,757,425.00, as and for actual damages under escrow
in the amount of P503,000,000.00 pursuant to the Escrow
Agreement dated April 22, 1988. The balance of the award,
after the escrow funds are fully applied, shall be executed
against the APT;

(b) Ordering the defendants to pay to the MMIC, except the


DBP, the sum of P13,000.00 as and for moral and exemplary
damages;
(c) Ordering the defendant to pay to Jesus S. Caburrus, Sr.,
the sum of P10,000,000.00 as and for moral damages; and
(d) Ordering the defendant to pay the herein
plaintiff/applicants/movants the sum of P1,705,410.00 as
arbitration costs.
In reiteration of the mandates of Stipulation No. 10 and
Stipulation No. 8 paragraph 2 of the Compromise and
Arbitration Agreement, and the final edict of the Arbitration
Committee's decision, and with this Court's Confirmation, the
issuance of the Arbitration Committee's Award shall henceforth
be final and executory.
SO ORDERED.
Originally instituted on February 8, 1985, in the Regional Trial
Court, Makati, Metro Manila, private respondents, Jesus S.
Cabarrus, Sr., et al., a few of the numerous minority
stockholders of Marinduque Mining and Industrial Corp.
(hereafter MMIC), filed a complaint, later amended on March
13, 1995, for annulment of foreclosure, specific performance
and damages against the Philippine National Bank (PNB) and
the Development Bank of the Philippines (DBP) alleging that in
1984, the PNB and DBP effected illegally the extra-judicial
foreclosure of real estate and chattel mortgages constituted in
their favor by the MMIC by the latter's assets of real estate and
chattels, to satisfy an obligation amounting to
P22,668,537,770.05, and that prior to the extra-judicial
foreclosure, PNB and DBP had agreed to a financial
reorganization plan of MMIC to reduce the latter's
indebtedness to P3 billion and to convert the balance of its
obligation into equity.
In their joint answer to the amended complaint, defendants
PNB and DBP denied the material allegations of the amended
complaint but admitted that in August and September, 1984,
they foreclosed extra-judicially the mortgages on MMIC's
assets, with the qualification that the correct amount of
obligation owed by MMIC as of July 15, 1984, was
P22,083,313,168.29; that the foreclosure of the mortgages was
legal and valid as mandated by Presidential Decree No. 385
and by the provisions of the mortgage trust agreements
between PNB, DBP and MMIC; and, that the plaintiff's therein,
herein respondents Cabarrus, et al., were not entitled to actual
and moral damages.
In the course of the trial of Civil Case No. 9900, plaintiffs Jesus
S. Cabarrus, et al. and the Asset Privatization Trust (APT), as
successor-in-interest of the DBP and PNB's interest in MMIC
accounts, entered into a compromise and arbitration
agreement dated October 6, 1992, whereby they "agreed to
move for the dismissal of the case, to transform the reliefs
prayed for therein into pure money claims and to submit the
controversy to arbitration under Republic Act (RA) 876 before a
committee composed of three members" limiting the issues to
two, namely:
(a) whether plaintiffs have the capacity or the personality to
institute this derivative suit in behalf of the MMIC or its
directors, and

(b) whether or not the actions leading to, and including, the
PNB-DBP foreclosure of the MMIC assets were proper, valid
and in good faith.
Thus, the parties created an Arbitration Committee composed
of three (3) members, one (1) representative of the plaintiff;
one (1) representative of APT; and the Chairman to be agreed
upon by both parties. Consequently, APT nominated Atty. Jose
C. Sison, a trustee of APT and its counsel; MMIC nominated
former Justice of the Court of Appeals Magtanggol Elma; and
they selected retired Supreme Court Justice Abraham F.
Sarmiento as Chairman.
After conducting hearings and receiving voluminous evidence,
on November 24, 1993, the Arbitration Committee released
what purports to be its decision penned by the Chairman, the
dispositive portion of which reads as follows:
DISPOSITION
WHEREFORE, premises considered judgment is hereby
rendered:
1. Ordering the defendant to pay the Marinduque Mining and
Industrial Corporation, except the DBP, the sum of
P2,531,635,425,02 with interest thereon at the legal rate of six
(6%) per cent per annum reckoned from August 3, 9 and 24,
1984, pari passu, as and for actual damages. Payment of
these actual damages shall be offset by APT from the
outstanding and unpaid loans of MMIC with DBP and PNB,
which have not been converted into equity. Should there be
any balance due to MMIC after the offsetting, the same shall
be satisfied from the funds representing the purchase price of
the sale of the shares of Island Cement Corporation in the
amount of P503,000,000.00 held under escrow pursuant to the
Escrow Agreement dated April 22, 1988 or to such subsequent
escrow agreement that would supersede it pursuant to
paragraph (9) of the Compromise and Arbitration Agreement;
2. Ordering the defendant to pay to the Marinduque Mining and
Industrial Corporation, except the DBP, the sum of
P13,000,000.00, as and for moral and exemplary damages.
Payment of these moral and exemplary damages shall be
offset by APT from the outstanding and unpaid loans of MMIC
with DBP and PNB, which have not been converted into equity.
Should there be any balance due to MMIC after the offsetting,
the same shall be satisfied from the funds representing the
purchase price of the sale of the shares of island Cement
Corporation in the amount of P503,000,000.00 held under
escrow pursuant to the Escrow Agreement dated April 22, 1988
or to such subsequent escrow agreement that would
supersede it pursuant to paragraph (9) of the Compromise and
Arbitration Agreement;
3. Ordering the defendant to pay to the plaintiff, Jesus S.
Cabarrus, Sr., the sum of P10,000,000.00, to be satisfied
likewise from the funds held under escrow pursuant to the
Escrow Agreement dated April 22, 1988 or to such subsequent
escrow agreement that would supersede it, pursuant to
paragraph (9), Compromise and Arbitration Agreement, as and
for moral damages; and
4. Ordering the defendant to pay arbitration costs.
This Decision is FINAL and EXECUTORY.

IT IS SO ORDERED.
Member Elma submitted a separate concurring and dissenting
opinion reading as follows:
ELMA, concurring and dissenting:
I am in complete agreement with the findings of the Decision
on the principal issues submitted for the Committee's
resolution, viz: that plaintiffs Cabarrus, et al., have the capacity
or the personality to institute this derivative suit in behalf of
Marinduque Milling and Industrial Corporation (MMIC) and that
the actions leading to, and including, the PNB-DBP foreclosure
of the MMIC assets were improper, invalid and/or not done in
good faith. Consequently, there is concurrence on my part to
the award of actual, moral and exemplary damages to MMIC,
and moral damages to plaintiff Jesus S. Cabarrus, Sr.
However, I am unable to agree with and, therefore, regretfully
dissent as to the manner or method of computation and
amount of actual damages awarded to MMIC, particularly set
forth in paragraph 1 of the dispositive potion of the Decision.
Considering that under the "Compromise and Arbitration
Agreement", the parties agreed that their respective claims be
reduced to purely pecuniary/money claims, then MMIC and/or
plaintiffs on behalf of all the other stockholders of MMIC are
entitled to actual or compensatory damages equivalent to the
present value of their equity over the MMIC assets, i.e. the
total stockholders' equity of P20,826,700,952.00 as of
December 31, 1992. Further, since as held in the Decision that
the DBP would have an 87% equity in MMIC as a
consequence of the finding that the Financial Rehabilitation
Plan (FRP), is valid (p. 64 of the Decision), then the amount of
P18,119,229,828.24 (equivalent to DBP's 87% equity) should
be deducted from the total stockholders' equity of
P20,826,700,952.00 leaving a net amount of
P2,707,471,123.76 to be awarded to MMIC (excluding DBP's
share) as actual or compensatory damages.
It is to be noted that defendant APT did not present any
evidence rebutting the figures and computations made by
witness Pastor. Since the Decision finds the FRP valid, then
the stockholders of MMIC (excluding DBP) should be placed in
the same position that they would have been where not for the
fact that the FRP was improperly and illegally aborted by
PNB/DBP. Accordingly, it is my submission that defendant APT
should be ordered to pay MMIC (excluding DBP) the sum of
P2,707,471,123.76 with legal interest thereon per annum from
August 3, 1984 as and for actual damages.
Member Sison submitted a separate opinion reading as
follows:
SEPARATE OPINION
It is clear and it cannot be disputed therefore that based on
these stipulated issues, the parties themselves have agreed
that the basic ingredient of the causes of action in this case is
the wrong committed on the corporation (MMIC) for the alleged
illegal foreclosure of its assets. By agreeing to this stipulation,
PLAINTIFFS themselves (Cabarrus, et al.) admit that the
cause of action pertains only to the corporation (MMIC) and
that they are filing this for and in behalf of MMIC.

Perforce this has to be so because it is the basic rule in


Corporation Law that "the shareholders have no title, legal or
equitable to the property which is owned by the corporation (13
Am. Jur. 165; Pascual vs. Oresco, 14 Phil. 83). In Ganzon &
Sons vs. Register of Deeds, 6 SCRA 373, the rule has been
reiterated that "a stockholder is not the co-owner of the
corporate property." Since the property or assets foreclosed
belongs to MMIC, the wrong committed, if any, is done against
the corporation. There is therefore no direct injury or direct
violation of the rights of Cabarrus et al. There is no way, legal
or equitable by which Cabarrus et al, could recover damages
in their personal capacities even assuming or just because the
foreclosure is improper or invalid. The Compromise and
Arbitration Agreement itself and the elementary principles of
Corporation Law say so. Therefore, I am constrained to dissent
from the award of moral damages to Cabarrus.

to compel APT to pay such huge amount for such minor


technical infraction.

Neither could I agree to the award of moral damages to MMIC.


The acts complained of here in which the Committee based its
award of moral damages to MMIC is the foreclosure of the
various real estate and chattel mortgages. The majority of the
Committee believes that these foreclosure constitute a
violation on an agreement forged between PNB-DBP, on one
hand, and MMIC, on the other, regarding the restructuring of
the various past due loans of MMIC to what had been termed
as the Financial Restructuring Program (FRP).

Both parties moved for reconsideration of the "decision" of the


Arbitration Committee. In addition, respondents Cabarrus et al.
filed a motion for clarification and to re-open the case to
receive evidence. In a resolution dated July 26, 1984, with one
member dissenting, the Arbitration Committee denied the
motions for reconsideration of both parties as well as all other
pending motions.

In this connection, it can readily be seen and it cannot quite be


denied that MMIC accounts in PNB-DBP were past due. The
drawing up of the FRP is the best proof of this. When MMIC
adopted a restructuring program for its loan, it only meant that
these loans were already due and unpaid. If these loans were
restructurable because they were already due and unpaid, they
are likewise "forecloseable". The option is with the PNB-DBP
on what steps to take.
The mere fact that MMIC adopted the FRP does not mean that
DBP-PNB lost the option to foreclose. Neither does it mean
that the FRP is legally binding and implementable. It must be
pointed that said FRP will, in effect, supersede the existing and
past due loans of MMIC with PNB-DBP. It will become the new
loan agreement between the lenders and the borrowers. As in
all other contracts, there must therefore be a meeting of the
minds of the parties; the PNB and DBP must have to validly
adopt and ratify such FRP before they can be bound by it;
before it can be implemented. In this case, not an iota of proof
has been presented by the PLAINTIFFS showing that PNB and
DBP ratified and adopted the FRP. PLAINTIFFS simply relied
on a legal doctrine of promissory estoppel to support its
allegations in this regard.
All told, PNB and DBP had the right to foreclose and were
justified in doing so. But were the foreclosure legally done or
carried out? Were the requirements of notice, posting and
publication required by Acts 3135 and 1508 substantially
complied with?
I cannot, however, concur with the for holding that such minor
taint of illegality in the foreclosure is enough to justify the
award of damages, amounting to P19,486,118,654.00. "Rules
of law respecting the recovery of damages are framed with
reference to just rights or both parties, not merely what may be
right for an injured person to receive, but also what is just to
compel the other party to pay, to accord just compensation for
the injury" (Kennings vs. Kline Ind. 602). Following this
universally accepted rule on damage, I do not believe it is just

But while I do not agree with this pronouncement of the


Committee, I nevertheless concur with the result as far as the
disposition of the award for actual damages is concerned. I
agree that DEFENDANT APT can, and is still entitled to, collect
the outstanding obligations of MMIC to PNB and DBP
amounting to P22,668,537,770.05 with interest thereon as
stipulated in the loan documents from the date of foreclosure
until the time they are fully paid. The resultant effect of such a
disposition is that APT can offset the said obligation due from
MMIC such that ultimately no damages will be due and
payable to MMIC. As there may be damage without injury,
there can be injury without damage (15 Am. Jur., p. 388). This
case is a case of "injury without damage".

On October 17, 1984, respondents Cabarrus et al. filed directly


with the Regional Trial Court, Makati, Branch 62, in the same
Civil Case No. 9900, a pleading entitled application/motion for
confirmation of arbitral award.
On November 4, 1994, petitioner APT filed an opposition and
motion to vacate judgment, contending that respondents'
motion was improperly filed with the same branch of the court
in Civil Case No. 9900, which was previously dismissed, and
that the motion should have been filed as a separate special
proceedings in the Regional Trial Court to be docketed by the
Clerk of Court.
Nonetheless, acting on the application/motion, Judge Roberto
C. Diokno, presiding judge, Regional Trial Court, Makati,
Branch 62, on November 28, 1994, issued an order granting
plaintiffs' application confirming the arbitration award, and
rendering judgment as set out in the opening paragraph of this
opinion.
On December 12, 1994, petitioner APT received notice of the
lower court's order. On December 27, 1994, petitioner APT
filed a motion for reconsideration. By order dated January 18,
1995, the trial court denied the motion. On February 7, 1995,
respondents Cabarrus, et al. filed a motion for execution and
appointment of custodian of proceeds of execution. Petitioner
opposed the motion. It is apparently still unresolved.
On February 15, 1995, petitioner APT filed with the Court of
Appeals an original special civil action for certiorariwith prayer
for temporary restraining order or preliminary injunction 1 to
annul the two (2) orders of the respondent Regional Trial Court
above-mentioned confirming the arbitral award and denying its
reconsideration.
The issue presented in said petition was whether respondent
Judge Roberto C. Diokno, Regional Trial Court, Makati, Branch
62, had jurisdiction to act on private respondents'
application/motion for confirmation of arbitral award in the
same Civil Case No. 9900, which had been dismissed earlier

on motion of the parties, and thus the court gravely abused its
discretion in confirming the arbitral award.

Second, the Arbitration Committee did not actually reach a


valid decision on the subject controversy.

In its decision promulgated on July 17, 1995, the Court of


Appeals denied due course and dismissed the petition
for certiorari for lack of merit.

In the purported decision dated November 24, 1994, penned


by Chairman Sarmiento, the Committee ordered petitioner APT
to pay to MMIC the sum of P2,531,635,425.02, with interest
thereon at the legal rate at 6% per annum from August 3, 9 and
24, 1984, pari passu as actual damages; to pay MMIC P13
million, as moral and exemplary damages, and to pay Jesus S.
Cabarrus, Sr. P10 million, as moral damages.

Hence, this petition for review filed on September 07, 1995. 2


The petition is impressed with merit.
First, the Regional Trial Court, Makati, Branch 62, did not
validly acquire jurisdiction over the case by respondents' filing
of a mere motion in the same Civil Case No. 9900 because the
case had been dismissed earlier and such dismissal had
become final and unappealable. As heretofore stated, on
October 6, 1992, the parties entered into a compromise and
arbitration agreement expressly providing that they "have
agreed to withdraw their respective claims from the Trial Court
and to resolve their dispute through arbitration by praying to
the Trial Court to issue a compromise judgment based on this
Compromise and Arbitration agreement.
Clearly, the parties had withdrawn the action then pending with
the Regional Trial Court, Makati, Branch 62, in Civil Case No.
9900, and agreed that they would submit their dispute to
arbitration and reduce their respective claims to "purely money
claims", "waiving and foregoing all other forms of reliefs which
they prayed for or could have prayed for in Civil Case No.
9900." The parties "agreed to move for the dismissal of the
case, to transform the reliefs prayed for therein to pure money
claims and submit the controversy to arbitration under Republic
Act (RA) 876 before a committee composed of three
members."
In its order dated October 12, 1992, in Civil Case No. 9900, the
trial court presided over by respondent Judge categorically
decreed that "The complaint is hereby dismissed". Such
disposition terminated the case finally and irretrievably
disposed of the same. 3 The term "dismissed" has a definite
meaning in law. "A judgment of 'dismissed', without qualifying
words indicating a right to take further proceedings, is
presumed to be dismissed on the merits". 4 The dismissal could
not have been a suspension of action provided for in the
arbitration law, Republic Act No. 876.
Upon the finality of such order of dismissal, the case could no
longer be revived by mere motion. The trial court had lost its
authority over the case. 5 We cite as squarely applicable the
decision where this Court emphatically said "But after the
dismissal has become final through the lapse of the fifteen-day
reglementary period, the only way by which the action may be
resuscitated or 'revived,' is by the institution of a subsequent
action through the filing of another complaint and the payment
of the fees prescribed by law. This is so because upon
attainment of finality of a dismissal through the lapse of said
reglementary period, the Court loses jurisdiction and control
over it and can no longer make any disposition in respect
thereof inconsistent with such dismissal" 6 It is true that the
confirmation of an arbitral award is within the jurisdiction over
the subject matter of a regional trial court. Such jurisdiction
must be invoked by proper motion as a special proceedings
with notice to the parties filed in the proper court with the clerk
of court (and upon payment of the prescribed fees). 7

In the concurring and dissenting opinion of Member Elma, he


agreed with the finding on the principal issue submitted for
resolution. However, he dissented as to the manner or method
of computation and amount of actual damages awarded to
MMIC. He submitted that APT should be ordered to pay MMIC
the sum of P2,707,471,123.76, with legal interest thereon per
annum from August 3, 1984, as actual damages.
In his separate opinion, Member Sison stated that he
concurred with the result as far as the disposition of the award
of actual damage is concerned. He agreed that APT is entitled
to collect the outstanding obligations of MMIC to PNB and DBP
amounting to P22,668,537,770.05, with interest as stipulated in
the loan documents from the date of foreclosure until fully paid.
The resultant effect is that APT can offset said obligation due
from MMIC such that ultimately no damages shall be due and
payable to MMIC. He was against the award of moral and
exemplary damages to MMIC and Jesus S. Cabarrus, Sr.
It is obvious that the disposition in Chairman Sarmiento's
award and the concurring and dissenting opinion of Member
Elma do not tally and, hence, because of the dissent of
Member Sison, the Arbitration Committee did not reach a
majority decision constituting a valid judgment or fallo of the
Committee.
The powers and duties of boards and commissions may not be
exercised by the individual members separately. Their acts are
official only when done by the members convened in session
upon a concurrence of at least a majority and with at least a
quorum present. 8
Respondents Cabarrus, et al. considered the disposition as
confusing and incomplete as to the award of damages and
thereby requiring the reception of further evidence as to
necessitate the re-opening of hearings on the case. On May
20, 1994, they filed a motion for clarification seeking answer
from the arbitration committee as to the final amount of actual
damages the MMIC is entitled to, and, on June 9, 1994, they
filed a motion to reopen the case and to receive evidence.
Even the Arbitration Committee's resolution of the various
motions for reconsideration and other reliefs was conflicting.
For Chairman Sarmiento, respondents' motion for
reconsideration, dated December 15, 1993, and petitioner's
motion for reconsideration, dated January 3, 1994,
respondents' motion for clarification dated June 8, 1994, and
respondents' urgent motion to re-open the case and to receive
evidence were all DENIED for lack of merit.
Member Elma dissented from the denial of the parties' motion
for reconsideration, reiterating that MMIC is entitled to actual
damages in the sum of P2,707,471,123.76, with legal interest
thereon from August 3, 1984.

Member Azura (substituting Sison) concurred with the


Chairman in denying respondents' motion for reconsideration,
motion for clarification and motion to re-open the case but
favored granting petitioner's (APT) motion for reconsideration.
WHEREFORE, I vote to GRANT the petition at bench, reverse
the decision of the Court of Appeals 9 as well as the orders of
the Regional Trial Court, Makati, Branch 62, in Civil Case No.
9900, vacate the "decision" of the Arbitration Committee dated
November 24, 1993, and, finally, ENJOIN the trial court from
further acting on the case.
Separate Opinions
ROMERO, J., dissenting opinion;
In the instant petition for review on certiorari, petitioner. Asset
Privatization Trust (APT) is impugning the decision of
respondent Court of Appeals in CA-GR SP No. 36484 dated
July 17, 1995, grounded upon the following assigned errors
which it had allegedly committed:
1) The Court of Appeals erred in not holding that the Makati
Regional Trial Court, Branch 62, which had previously
dismissed Civil Case No. 9900, had lost jurisdiction to confirm
the arbitral award under the same civil case and in not ruling
that the application for confirmation should have been filed as
a new case to be raffled among the different branches of the
RTC;
2) The Court of Appeals likewise erred in holding that petitioner
was estopped from questioning the arbitration award, when
petitioner questioned the jurisdiction of the RTC-Makati,
Branch 62, and at the same time moved to vacate the arbitral
award;
3) The Court of Appeals erred in not holding that the
respondent Trial Court should have either dismissed/denied
private respondents' motion/petition for confirmation of
arbitration award and/or should have considered the merits of
the motion to vacate (the) arbitral award;
4) The Court of Appeals erred in not treating petitioner APT's
petition for certiorari as an appeal taken from the order
confirming the award; and
5) The Court of Appeals erred in not ruling on the legal issue of
when to reckon the counting of the period to file a motion for
reconsideration. 1
The resolution of these issues will ultimately test the process of
arbitration, how effective or ineffective it is as an alternative
mode of settling disputes, and how it is affected by judicial
review. My esteemed colleagues have taken the view that the
petition is impressed with merit and that the assailed decision
of the Court of Appeals should be reversed. In doing so, I
believe they have dealt arbitration a terrible blow and wasted
years, even decades, of development in this field. I beg to
differ and, therefore, dissent.
The controversy is actually simpler than it appears. The
Marinduque Mining and Industrial Corporation (MMIC)
obtained several loans from the Philippine National Bank
(PNB) and the Development Bank of the Philippines (DBP)
secured by mortgages over practically all of its assets. As of

July 15, 1984, MMIC's obligation had ballooned to


P22,668,537,770.05, 2 and it had no way of making the
required payments. MMIC and its two creditor banks thus
ironed out a complex financial restructuring plan (FRP)
designed to drastically reduce MMIC's liability through a "debtto-equity" scheme. 3 This notwithstanding, the creditors opted
to sell MMIC's mortgaged properties through extrajudicial
foreclosure proceedings, where PNB turned out to be the lone
bidder. 4
Aggrieved by this apparent bad faith on the part of the creditor
banks, private respondents Jesus S. Cabarrus, Sr., and other
minority stockholders of MMIC filed a derivative suit 5 against
PNB and DBP before the Makati Regional Trial Court. They
prayed for the annulment of the foreclosure and for the
restoration of the company's assets, the recognition by the
creditor banks of their commitments under the FRP, and the
payment of damages, as well as attorney's fees and costs of
litigation. The case was raffled to Branch 62 and docketed as
Civil Case No. 9900.
In the meantime, the rights and interests of PNB and DBP,
including MMIC's indebtedness, were transferred to petitioner,
created by virtue of Proclamation No. 50, in relation to
Administrative Order No. 14. Hence, petitioner was substituted
as party defendant in Civil Case No. 9900.
On October 6, 1992, the parties entered into a Compromise
and Arbitration Agreement 6 providing, inter alia, that they were
withdrawing their respective claims, which would be reduced to
pure money claims, and that they were submitting the
controversy to arbitration under Republic Act No. 876. 7 The
issues for arbitration were thus limited to a determination of the
plaintiffs' capacity or right to institute the derivative suit in
behalf of the MMIC or its directors, and of the propriety of the
foreclosure. Of notable import was the provision on the nature
of the judgment that the arbitration committee might
render,viz.:
10. Binding Effect and Enforcement. The award of the
arbitration committee shall be final and executory upon its
issuance upon the parties to the arbitration and their assigns
and successors-in-interest. In the event the award is not
voluntarily satisfied by the losing party, the party in whose favor
the award has been made may, pursuant to Republic Act No.
876, apply to the proper Regional Trial Court for its
enforcement. (Emphasis supplied)
Upon motion of the parties, this agreement was presented to
the court a quo for its approval. 8 On October 14, 1992, said
court issued an order (a) dismissing the complaint; (b)
substituting the creditor banks with the APT as party
defendant; (c) "approving the Compromise and Arbitration
Agreement dated October 6, 1992"; and (d) "approving the
transformation of the reliefs prayed for by the plaintiffs in this
case into pure money claims." 9
On November 24, 1993, after more than six months of hearing,
the arbitration committee 10 concluded that the assailed
foreclosure was not valid and accordingly decided the case in
favor of MMIC. Hence, petitioner was ordered to pay MMIC
actual damages in the amount of P2,531,635,425.02, with legal
interest, and moral and exemplary damages amounting to
P13,000,000.00, and to pay Jesus S. Cabarrus, Sr., the sum of
P10,000,000.00 by way of moral damages, such awards to be
offset from the outstanding and unpaid obligations of MMIC
with the creditor banks, which have not been converted into

equity. The committee likewise decreed its decision to be "final


and executory." 11
Nearly a year later, MMIC filed in Civil Case No. 9900, a
verified "Application/Motion for Confirmation of Arbitration
Award." 12 This was opposed by petitioner on two grounds,
namely, that Branch 62 no longer had jurisdiction to act on said
motion after it "dismissed" the complaint in its order of October
14, 1992, and that the award "far exceeded the issues
submitted" for arbitration by the parties. 13 Not wanting to be
outdone, MMIC filed a "Reply and Opposition," arguing that the
"qualified dismissal" of Civil Case No. 9900 was merely
intended to expedite the submission of the controversy to
arbitration and was, therefore, "a mere suspension of the
proceedings," and that the arbitration committee did not
exceed its authority in making the award.
On November 28, 1994, the trial court issued an
order 14 confirming the award of the committee in all respects
except as to the award of actual damages to MMIC, which was
increased to P3,811,757,425.00. The order closed with the
following declaration:
In reiteration of the mandates of Stipulation No. 10 and
Stipulation No. 8 paragraph 2 of the Compromise and
Arbitration Agreement, and the final edict of the Arbitration
Committee's decision, and with this Court's Confirmation, the
issuance of the Arbitration Committee's Award shall henceforth
be final and executory.
Petitioner filed a "Motion for Reconsideration" of said order on
December 27, 1994; but this was denied by the court a quo in
its order dated January 18, 1995 for lack of merit and for
having been filed beyond the reglementary period. Thus, it
said:
. . . (C)onsidering that the defendant APT, through counsel,
officially and actually received a copy of the Order of this Court
dated November 28, 1994 on December 6, 1994, the Motion
for Reconsideration thereof filed by the defendant APT on
December 27, 1994, or after the lapse of 21 days, was clearly
filed beyond the 15-day reglementary period prescribed
or provided for . . . (by law) for the filing of an appeal from final
orders, resolutions, awards, judgments or decisions of any
court in all cases, and by necessary implication, for the filing of
a motion for reconsideration thereof.
Instead of appealing such denial, petitioner filed on February
15, 1995, an "Appeal by Certiorari . . . . under Sections 1 and 2
of Rule 65 of the Revised Rules of Court" before the Court of
Appeals, praying for the nullification of the trial court's orders
dated November 28, 1994 and January 18, 1995. It argued that
the trial court had no jurisdiction or authority to confirm the
arbitral award, "considering that the original case, Civil Case
No. 9900, had previously been dismissed," and that the trial
judge "acted with grave abuse of discretion in issuing the
questioned orders confirming the award and denying the
motion for reconsideration thereof." 15
On July 17, 1995, the Court of Appeals dismissed the petition
for lack of merit. 16 From this dismissal, petitioner elevated its
cause to this Tribunal for a review, raising the issues stated at
the outset.
I find it distressing that, in reaching the outcome of this
controversy, the majority has emasculated the process of

arbitration itself. This should not be the case for after all, the
decision of the arbitration committee is no longer the one being
attacked in these proceedings, but the judgment of the Court of
Appeals which herein petitioner found to be erroneous. The
Court has had occasion to trace the history of arbitration and to
discuss its significance in the case of Chung Fu Industries
(Phils.), Inc. v. Court of Appeals, 17 viz.:
Allow us to take a leaf from history and briefly trace the
evolution of arbitration as a mode of dispute settlement.
Because conflict is inherent in human society, much effort has
been expended by men and institutions in devising ways of
resolving the same. With the progress of civilization, physical
combat has been ruled out and instead, more specific means
have been evolved, such as recourse to the good offices of a
disinterested third party, whether this be a court or a private
individual or individuals.
Legal history discloses that "early judges called upon to solve
private conflicts were primarily the arbiters, persons not
specially trained but in whose morality, probity and good sense
the parties in conflict reposed full trust. Thus, in Republican
Rome, arbiter and judge (judex) were synonymous. The
magistrate of praetor, after noting down the conflicting claims
of litigants, and clarifying the issues, referred them for decision
to a private person designated by the parties, by common
agreement, or selected by them from an apposite listing
(the album judicium) or else by having the arbiter chosen by
lot. The judges proper, as specially trained state officials
endowed with (their) own power and jurisdiction, and taking
cognizance of litigations from beginning to end, only appeared
under the Empire, by the so-called cognitio extra ordinem."
Such means of referring a dispute to a third party has also long
been an accepted alternative to litigation at common law.
Sparse though the law and jurisprudence may be on the
subject of arbitration in the Philippines, it was nonetheless
recognized in the Spanish Civil Code; specifically, the
provisions on compromises made applicable to arbitrations
under Articles 1820 and 1821. Although said provisions were
repealed by implication with the repeal of the Spanish Law of
Civil Procedure, these and additional ones were reinstated in
the present Civil Code.
Arbitration found a fertile field in the resolution of labormanagement disputes in the Philippines. Although early on,
Commonwealth Act 103 (1936) provided for compulsory
arbitration as the state policy to be administered by the Court
of Industrial Relations, in time such a modality gave way to
voluntary arbitration. While not completely supplanting
compulsory arbitration which until today is practiced by
government officials, the Industrial Peace Act which was
passed in 1953 as Republic Act No. 875, favored the policy of
free collective bargaining, in general, and resort to grievance
procedure, in particular, as the preferred mode of settling
disputes in industry. It was accepted and enunciated more
explicitly in the Labor Code, which was passed on November
1, 1974 as Presidential Decree No. 442, with the amendments
later introduced by Republic Act No. 6715 (1989).
Whether utilized in business transactions or in employeremployee relations, arbitration was gaining wide acceptance. A
consensual process, it was preferred to orders imposed by
government upon the disputants. Moreover, court litigations
tended to be time-consuming, costly, and inflexible due to their

scrupulous observance of the due process of law doctrine and


their strict adherence to rules of evidence.
As early as the 1920's, this Court declared:
In the Philippines fortunately, the attitude of the court towards
arbitration agreements is slowly crystallizing into definite and
workable form . . . The rule now is that unless the agreement is
such as absolutely to close the doors of the courts against the
parties, which agreement would be void, the courts will look
with favor upon such amicable arrangements and will only with
great reluctance interfere to anticipate or nullify the action of
the arbitrator.
That there was a growing need for a law regulating arbitration
in general was acknowledged when Republic Act No. 876
(1953), otherwise known as the Arbitration Law, was passed.
"Said Act was obviously adopted to supplement not to
supplant the New Civil Code on arbitration. It expressly
declares that "the provisions of chapters one and two, Title XIV,
Book IV of the Civil Code shall remain in force."
In practice nowadays, absent an agreement of the parties to
resolve their disputes via a particular mode, it is the regular
courts that remain the fora to resolve such matters. However,
the parties may opt for recourse to third parties, exercising
their basic freedom to "establish such stipulations, clauses,
terms and conditions as they may deem convenient, provided
they are not contrary to law, morals, good customs, public
order or public policy." In such a case, resort to the arbitration
process may be spelled out by them in a contract in
anticipation of disputes that may arise between them. Or this
may be stipulated in a submission agreement when they are
actually confronted by a dispute. Whatever be the case, such
recourse to an extrajudicial means of settlement is not
intended to completely deprive the courts of jurisdiction. In fact,
the early cases on arbitration carefully spelled out the
prevailing doctrine at the time, thus: ". . . a clause in a contract
providing that all matters in dispute between the parties shall
be referred to arbitrators and to them alone is contrary to public
policy and cannot oust the courts of jurisdiction."
But certainly, the stipulation to refer all future disputes to an
arbitrator or to submit an ongoing dispute to one is valid. Being
part of a contract between the parties, it is binding and
enforceable in court in case one of them neglects, fails or
refuses to arbitrate. Going a step further, in the event that they
declare their intention to refer their differences to arbitration
first before taking court action, this constitutes a condition
precedent, such that where a suit has been instituted
prematurely, the court shall suspend the same and the parties
shall be directed forthwith to proceed to arbitration.
A court action may likewise be proper where the arbitrator has
not been selected by the parties.
. . . It is stated explicitly under Art. 2044 of the Civil Code that
the finality of the arbitrator's award is not absolute and without
exceptions. Where the conditions described in Articles 2038,
2039 and 204018 applicable to both compromises and
arbitrations are obtaining, the arbitrators' award may be
annulled or rescinded. Additionally, under Sections 24 and 25
of the Arbitration Law, there are grounds for vacating,
modifying or rescinding an arbitrator's award. Thus, if and
when the factual circumstances referred to in the above-cited
provisions are present, judicial review of the award is properly
warranted.

What if courts refuse or neglect to inquire into the factual milieu


of an arbitrator's award to determine whether it is in
accordance with law or within the scope of his authority? How
may the power of judicial review be invoked?
This is where the proper remedy is certiorari under Rule 65 of
the Revised Rules of Court. It is to be borne in mind, however,
that this action will lie only where a grave abuse of discretion or
an act without or in excess of jurisdiction on the part of the
voluntary arbitrator is clearly shown. For "the writ of certiorari is
an extraordinary remedy and that certiorari jurisdiction is not to
be equated with appellate jurisdiction. In a special civil action
of certiorari, the Court will not engage in a review of the facts
found nor even of the law as interpreted or applied by the
arbitrator unless the supposed errors of fact or of law are so
patent and gross and prejudicial as to amount to a grave abuse
of discretion or an exces de pouvoir on the part of the
arbitrator." 19
So, what are the issues that need to be addressed in this
action? Certainly not the capacity of the plaintiffs below to file
the derivative suit in behalf of MMIC nor the validity of the
extrajudicial foreclosure conducted by PNB and DBP. These
were the issues submitted for arbitration by the parties
and resolved with finality by the arbitration committee upon
agreement of the parties themselves. The issues, therefore, all
stemming from the judgment of the Court of Appeals, may be
narrowed down to three: (1) Was it right in upholding the trial
court's authority to confirm the arbitration award considering
that said court had earlier dismissed the complaint? (2) Was it
correct in finding that herein petitioner was estopped from
questioning such award? (3) Was it justified in not treating
petitioner's petition for certiorari as an appeal from the trial
court's order confirming said award?
(1) Petitioner overly stresses the fact that in the trial court's
order of October 14, 1992; the complaint was "dismissed" upon
approval of the Compromise and Arbitration Agreement
between the parties. Such dismissal, however, far from finally
disposing of the controversy as the term denotes, simply
"suspended" it during the period of arbitration. It is, as a
colleague pointed out during the deliberation of this action, a
mere "semantic imperfection." Here is a situation where the
intent of the tribunal was obviously not to end the case with
finality, but to place the proceedings in abeyance while the
parties breathed life into an alternative mode of settling their
differences in the most expeditious manner. Arbitration is not a
self-enforcing process. It focuses the direction of the hearing
and the reception and appreciation of evidence by assigning
these tasks to a group of persons chosen by the parties,
themselves. By this, a circuitous and time-consuming court trial
is avoided, leaving the court with the singular duty of
confirming the arbitrators' decision, and allowing it to devote
more of its time to resolving other cases. As the appellate court
correctly pointed out:
. . . (T)he dismissal of the Complaint in Civil Case No. 9900
was not intended by the parties and by the court a quo, despite
the phraseology in Item No. 4 or the dispositive portion of the
Order of October 14, 1992, as a dismissal that would put an
end to the case. Rather it was simply a pronouncement for the
cessation of the proceedings in the court and the
commencement of the arbitration proceedings. It was for all
intents and purposes a stay of the civil action until an
arbitration has been had or pending the return of the arbitral
award. This is evident since the parties submitted to the court
below not only an agreement to arbitrate but also a

compromise which is always submitted to the court for


approval and as a basis for a judgment. . . . 20
Regarding the trial court's authority to confirm the decision of
the arbitration committee, suffice it to say that such was not
merely its right but its duty as well. Under Section 22 of R.A.
No. 876, upon application or motion of any party to arbitration,
the court has the obligation of confirming the arbitrators' award
absent any specific ground to vacate, modify or correct the
same. Herein private respondents did apply for such
confirmation on February 7, 1995. This was even opposed by
petitioner on the ground that the judgment had not yet become
final and executory, in complete disregard of paragraph 10 of
the Compromise and Arbitration Agreement and the very
decision of the arbitration committee.
The award itself was properly made since it was not vacated,
modified or corrected upon any of the grounds enumerated
under Sections 24 and 25 of R.A. No. 876, to wit:
Sec. 24. Grounds for vacating award. In any one of the
following cases, the court must make an order vacating the
award upon the petition of any party to the controversy when
such party proves affirmatively that in the arbitration
proceedings:
(a) The award was procured by corruption, fraud, or other
undue means; or
(b) That there was evident partiality or corruption in the
arbitrators or any of them; or
(c) That the arbitrators were guilty of misconduct in refusing to
postpone the hearing upon sufficient cause shown, or in
refusing to hear evidence pertinent and material to the
controversy; that one or more of the arbitrators was disqualified
to act as such under section nine hereof, and willfully refrained
from disclosing such disqualifications or of any other
misbehavior by which the rights of any party have been
materially prejudiced; or
(d) That the arbitrators exceeded their powers, or so
imperfectly executed them, that a mutual, final and definite
award upon the subject matter submitted to them was not
made.
Where an award is vacated, the court, in its discretion, may
direct a new hearing either before the same arbitrators or
before a new arbitrator or arbitrators chosen in the manner
provided in the submission or contract for the selection of the
original arbitrator or arbitrators, and any provision limiting the
time in which the arbitrators may make a decision shall be
deemed applicable to the new arbitration and to commence
from the date of the court's order.
Where the court vacates, an award, costs, not exceeding fifty
pesos, and disbursements may be awarded to the prevailing
party and the payment thereof may be enforced in like manner
as the payment of costs upon the motion in an action
Sec. 25. Grounds for modifying or correcting award. In any
one of the following cases, the court must make an order
modifying or correcting the award, upon the application of any
party to the controversy which was arbitrated:

(a) Where there was an evident miscalculation of figures, or an


evident mistake in the description of any person, thing or
property referred to in the award; or
(b) Where the arbitrators have awarded upon a matter not
submitted to them, not affecting the merits of the decision upon
the matter submitted; or
(c) Where the award is imperfect in a matter of form not
affecting the merits of the controversy, and if it had been a
commissioner's report, the defect could have been amended or
disregarded by the court.
The order may modify and correct the award so as to effect the
intent thereof and promote justice between the parties.
(Emphasis supplied)
Petitioner utterly failed to prove the existence of any of these
grounds. Its strongest argument, that the arbitration award "far
exceeded the issue submitted for arbitration," apart from being
unsubstantiated, does not go into the merits of the award,
which is the only way its modification or correction could be
justified under the terms of Section 25, aforequoted.
Furthermore, petitioner violated several covenants by asking
the court a quo to vacate the arbitration award. First, in
paragraph 10 of the Compromise and Arbitration Agreement, it
agreed to abide by the arbitration committee's decision which
"shall be final and executory upon its issuance upon the parties
to the arbitration and their assigns and successors-in-interest."
Next, the decision that the arbitrators did render on November
24, 1993 specifically declared the same to be "final and
executory." Finally, in the court's confirmation order of
November 28, 1994, the finality of the award was reiterated by
the court. Arbitration, as an alternative mode of settlement, is
gaining adherents in legal and judicial circles here and abroad.
If its tested mechanism can simply be ignored by an aggrieved
party, one who, it must be stressed, voluntarily and actively
participated in the arbitration proceedings from the very
beginning, it will destroy the very essence of mutuality inherent
in consensual contracts.
2) Petitioner claims that it is not estopped from questioning the
arbitration award probably because, notwithstanding its
tenacious quest for affirmative relief, it did not translate this
pursuit into positive action. The Court of Appeals succinctly
puts it in this wise:
. . . The record shows that on its motion, petitioner APT was
able to postpone the hearing on therein plaintiffs'
application/motion for confirmation of arbitral award to a date
and time that it chose. However, when said matter was called
for hearing, only counsel for therein plaintiffs showed up.
Nonetheless, respondent Judge gave APT a period of seven
(7) days from notice within which to comment on the
application/motion for confirmation. At no time did petitioner
APT ask for a hearing to present its evidence. While petitioner
APT repeatedly sought to vacate the arbitral award, it made no
concrete move to pursue its cause. In fact, at the hearing on its
motion for reconsideration, both parties through their
respective counsels gave oral arguments and thereafter
agreed to submit the motion for reconsideration for resolution.
If petitioner APT honestly believed that the respondent Judge
erroneously took cognizance of plaintiffs Application/Motion for
Confirmation of Arbitration Award, then it should have limited
itself to challenging the jurisdiction of said court. The fact
remains that petitioner APT repeatedly sought affirmative relief

from the respondent Judge in the same Civil Case No. 9900.
Under the circumstances, petitioner APT may not be heard
now to complain that it was deprived of its right to question the
award made by the Arbitration Committtee. 21 (Emphasis
supplied)
3) The final issue which, to my mind, has particular relevance
to the case at bar, pertains to the alleged error of the Court of
Appeals in not treating APT's petition for certiorari as an appeal
from the trial court's confirmation order.
Petitioner's counsel received a copy of the confirmation order
dated November 28, 1994, on December 12, 1994.22 Said
order was, for review purposes, a "final order" because it finally
disposed of the case. Other than executing the confirmation
order, there was nothing else that the court was duty-bound to
perform. Petitioner's remedy, therefore, was to question the
order, by appeal on certiorari, not before the Court of Appeals,
but before the Supreme Court 23 within the reglementary period
of fifteen days which expired on December 27, 1994. Instead
of appealing, however, petitioner filed a motion for
reconsideration of the order on said deadline. Unfortunately,
this was denied by the court a quo in its order dated January
18, 1995, a copy of which was received by petitioner's counsel
on February 1, 1995. Under prevailing procedural laws, it had
just one day to perfect its appeal. On February 15, 1995,
petitioner opted to file with the Court of Appeals an "Appeal
by Certiorari . . . under Sections 1 and 2 of Rule 65 of the
Revised Rules of Court." The reason is obvious: It could no
longer file a regular appeal from the assailed order because
the period for doing so has lapsed. The Court of Appeals thus
made the following pertinent observation.
. . . Assuming arguendo that petitioner APT's counsel received
a copy (of the November 28, 1994, order), as claimed by them,
on December 12, 1994, then the petitioner had fifteen (15)
days therefrom or until December 27, 1994, within which to
appeal. The petitioner's motion for reconsideration was
admittedly filed on December 27, 1994, the last day of the
reglementary 15-day period, and the order dated January 18,
1995, denying the same was received by petitioner's counsel
on February 1, 1995. Petitioner APT had only the following day
to perfect his appeal. Instead, it chose to file the instant special
civil action of certiorari on February 15, 1995.
From the start, petitioner seemed unsure of its position on
appeal. While initially questioning the "order confirming the
award" of the arbitration committee, it later stated that it was
raising the issue of "filing by (herein private respondents) of a
Motion for Execution and Appointment of Custodian of
proceeds of Execution dated February 6, 1995." The latter
recourse is obviously erroneous, for no appeal under either
Rule 45 or Rule 65 may be taken from a "motion" or the "filing"
of one. Under Rule 45, only judgments or final orders of a court
or tribunal may be appealed to a higher court, while Rule 65
allows a special civil action where the acts of a tribunal, board
or officer are under attack for being performed with grave
abuse of discretion.
The applicable law, of course, is R.A. No. 876, which provides
for appeals from arbitration awards under Section 29
thereof, viz.:
. . . (A)n appeal may be taken from . . . a judgment entered
upon an award through certiorariproceedings, but such
appeals shall be limited to questions of law. The proceedings

upon such an appeal, including the judgment thereon, shall be


governed by the Rules of Court in so far as they are applicable.
The term "certiorari" in the aforequoted provision refers to an
ordinary appeal under Rule 45, not the special action
of certiorari under Rule 65. It is an "appeal," as Section 29
proclaims. The proper forum for this action is, under the old
and the new rules of procedure, the Supreme Court. Thus,
Section 2(c) of Rule 41 of the 1997 Rules of Civil Procedure
states that, "In all cases where only questions of law are raised
or involved, the appeal shall be to the Supreme Court by
petition for review on certiorari in accordance with Rule 45."
Moreover, Section 29 limits the appeal to "questions of law,"
another indication that it is referring to an appeal
by certiorari under Rule 45 which, indeed, is the customary
manner of reviewing such issues. On the other hand, the
extraordinary remedy of certiorari under Rule 65 may be
availed of by a party where there is "no appeal, nor any plain,
speedy, and adequate remedy in the course of law," and under
circumstances where "a tribunal, board or officer exercising
judicial functions, has acted without or in excess of its or his
jurisdiction, or with grave abuse of discretion." 24
Based on the foregoing, it is clear that petitioner had run out of
options after its motion for reconsideration was denied by the
trial court in its order dated January 18, 1995. To compound its
negligence, it filed the wrong action with the wrong forum.
These, to my mind, are serious procedural flaws. To rule
otherwise, as the majority did, would constitute a grave
injustice to private respondents.
I vote to DISMISS the petition.

PARDO, J., separate concurring opinion;


I concur. However, I wish to add a few points not particularly
emphasized in the majority opinion.
The petition before the Court is one for review via
certiorari under Rule 45 of the Revised Rules of Court seeking
to set aside the resolution of the Court of Appeals that denied
due course and dismissed APT's petition forcertiorari to annul
the proceedings had before the Regional Trial Court, Makati,
Branch 62, in Civil Case No. 9900, particularly the order
confirming the arbitration award, reading as follows:
WHEREFORE, premises considered, and in the light of the
parties Compromise and Arbitration Agreement dated October
6, 1992, the Decision of the Arbitration Committee promulgated
on November 24, 1993, as affirmed in a Resolution dated July
26, 1994, and finally settled and clarified in the Separate
Opinion dated September 2, 1994 of Committee Member
Elma, and the pertinent provisions of R.A. 876, also known as
the Arbitration Law, this Court GRANTS PLAINTIFFS'
APPLICATION AND THUS CONFIRMS THE ARBITRATION
AWARD AND JUDGMENT IS HEREBY RENDERED:
(a) Ordering the defendant APT to the Marinduque Mining and
Industrial Corporation (MMIC), except the DBP, the sum of
P3,811,757,425.00, as and for actual damages under escrow
in the amount of P503,000,000.00 pursuant to the Escrow
Agreement dated April 22, 1988. The balance of the award,
after the escrow funds are fully applied, shall be executed
against the APT;

(b) Ordering the defendants to pay to the MMIC, except the


DBP, the sum of P13,000.00 as and for moral and exemplary
damages;

(b) whether or not the actions leading to, and including, the
PNB-DBP foreclosure of the MMIC assets were proper, valid
and in good faith.

(c) Ordering the defendant to pay to Jesus S. Caburrus, Sr.,


the sum of P10,000,000.00 as and for moral damages; and

Thus, the parties created an Arbitration Committee composed


of three (3) members, one (1) representative of the plaintiff;
one (1) representative of APT; and the Chairman to be agreed
upon by both parties. Consequently, APT nominated Atty. Jose
C. Sison, a trustee of APT and its counsel; MMIC nominated
former Justice of the Court of Appeals Magtanggol Elma; and
they selected retired Supreme Court Justice Abraham F.
Sarmiento as Chairman.

(d) Ordering the defendant to pay the herein


plaintiff/applicants/movants the sum of P1,705,410.00 as
arbitration costs.
In reiteration of the mandates of Stipulation No. 10 and
Stipulation No. 8 paragraph 2 of the Compromise and
Arbitration Agreement, and the final edict of the Arbitration
Committee's decision, and with this Court's Confirmation, the
issuance of the Arbitration Committee's Award shall henceforth
be final and executory.

After conducting hearings and receiving voluminous evidence,


on November 24, 1993, the Arbitration Committee released
what purports to be its decision penned by the Chairman, the
dispositive portion of which reads as follows:
DISPOSITION

SO ORDERED.
Originally instituted on February 8, 1985, in the Regional Trial
Court, Makati, Metro Manila, private respondents, Jesus S.
Cabarrus, Sr., et al., a few of the numerous minority
stockholders of Marinduque Mining and Industrial Corp.
(hereafter MMIC), filed a complaint, later amended on March
13, 1995, for annulment of foreclosure, specific performance
and damages against the Philippine National Bank (PNB) and
the Development Bank of the Philippines (DBP) alleging that in
1984, the PNB and DBP effected illegally the extra-judicial
foreclosure of real estate and chattel mortgages constituted in
their favor by the MMIC by the latter's assets of real estate and
chattels, to satisfy an obligation amounting to
P22,668,537,770.05, and that prior to the extra-judicial
foreclosure, PNB and DBP had agreed to a financial
reorganization plan of MMIC to reduce the latter's
indebtedness to P3 billion and to convert the balance of its
obligation into equity.
In their joint answer to the amended complaint, defendants
PNB and DBP denied the material allegations of the amended
complaint but admitted that in August and September, 1984,
they foreclosed extra-judicially the mortgages on MMIC's
assets, with the qualification that the correct amount of
obligation owed by MMIC as of July 15, 1984, was
P22,083,313,168.29; that the foreclosure of the mortgages was
legal and valid as mandated by Presidential Decree No. 385
and by the provisions of the mortgage trust agreements
between PNB, DBP and MMIC; and, that the plaintiff's therein,
herein respondents Cabarrus, et al., were not entitled to actual
and moral damages.
In the course of the trial of Civil Case No. 9900, plaintiffs Jesus
S. Cabarrus, et al. and the Asset Privatization Trust (APT), as
successor-in-interest of the DBP and PNB's interest in MMIC
accounts, entered into a compromise and arbitration
agreement dated October 6, 1992, whereby they "agreed to
move for the dismissal of the case, to transform the reliefs
prayed for therein into pure money claims and to submit the
controversy to arbitration under Republic Act (RA) 876 before a
committee composed of three members" limiting the issues to
two, namely:
(a) whether plaintiffs have the capacity or the personality to
institute this derivative suit in behalf of the MMIC or its
directors, and

WHEREFORE, premises considered judgment is hereby


rendered.
1. Ordering the defendant to pay the Marinduque Mining and
Industrial Corporation, except the DBP, the sum of
P2,531,635,425,02 with interest thereon at the legal rate of six
(6%) per cent per annum reckoned from August 3, 9 and 24,
1984, pari passu, as and for actual damages. Payment of
these actual damages shall be offset by APT from the
outstanding and unpaid loans of MMIC with DBP and PNB,
which have not been converted into equity. Should there be
any balance due to MMIC after the offsetting, the same shall
be satisfied from the funds representing the purchase price of
the sale of the shares of Island Cement Corporation in the
amount of P503,000,000.00 held under escrow pursuant to the
Escrow Agreement dated April 22, 1988 or to such subsequent
escrow agreement that would supersede it pursuant to
paragraph (9) of the Compromise and Arbitration Agreement;
2. Ordering the defendant to pay to the Marinduque Mining and
Industrial Corporation, except the DBP, the sum of
P13,000,000.00, as and for moral and exemplary damages.
Payment of these moral and exemplary damages shall be
offset by APT from the outstanding and unpaid loans of MMIC
with DBP and PNB, which have not been converted into equity.
Should there be any balance due to MMIC after the offsetting,
the same shall be satisfied from the funds representing the
purchase price of the sale of the shares of island Cement
Corporation in the amount of P503,000,000.00 held under
escrow pursuant to the Escrow Agreement dated April 22, 1988
or to such subsequent escrow agreement that would
supersede it pursuant to paragraph (9) of the Compromise and
Arbitration Agreement;
3. Ordering the defendant to pay to the plaintiff, Jesus S.
Cabarrus, Sr., the sum of P10,000,000.00, to be satisfied
likewise from the funds held under escrow pursuant to the
Escrow Agreement dated April 22, 1988 or to such subsequent
escrow agreement that would supersede it, pursuant to
paragraph (9), Compromise and Arbitration Agreement, as and
for moral damages; and
4. Ordering the defendant to pay arbitration costs.
This Decision is FINAL and EXECUTORY.

IT IS SO ORDERED.
Member Elma submitted a separate concurring and dissenting
opinion reading as follows:
ELMA, concurring and dissenting:
I am in complete agreement with the findings of the Decision
on the principal issues submitted for the Committee's
resolution, viz: that plaintiffs Cabarrus, et al., have the capacity
or the personality to institute this derivative suit in behalf of
Marinduque Milling and Industrial Corporation (MMIC) and that
the actions leading to, and including, the PNB-DBP foreclosure
of the MMIC assets were improper, invalid and/or not done in
good faith. Consequently, there is concurrence on my part to
the award of actual, moral and exemplary damages to MMIC,
and moral damages to plaintiff Jesus S. Cabarrus, Sr.
However, I am unable to agree with and, therefore, regretfully
dissent as to the manner or method of computation and
amount of actual damages awarded to MMIC, particularly set
forth in paragraph 1 of the dispositive potion of the Decision.
Considering that under the "Compromise and Arbitration
Agreement", the parties agreed that their respective claims be
reduced to purely pecuniary/money claims, then MMIC and/or
plaintiffs on behalf of all the other stockholders of MMIC are
entitled to actual or compensatory damages equivalent to the
present value of their equity over the MMIC assets, i.e. the
total stockholders' equity of P20,826,700,952.00 as of
December 31, 1992. Further, since as held in the Decision that
the DBP would have an 87% equity in MMIC as a
consequence of the finding that the Financial Rehabilitation
Plan (FRP), is valid (p. 64 of the Decision), then the amount of
P18,119,229,828.24 (equivalent to DBP's 87% equity) should
be deducted from the total stockholders' equity of
P20,826,700,952.00 leaving a net amount of
P2,707,471,123.76 to be awarded to MMIC (excluding DBP's
share) as actual or compensatory damages.
It is to be noted that defendant APT did not present any
evidence rebutting the figures and computations made by
witness Pastor. Since the Decision finds the FRP valid, then
the stockholders of MMIC (excluding DBP) should be placed in
the same position that they would have been where not for the
fact that the FRP was improperly and illegally aborted by
PNB/DBP. Accordingly, it is my submission that defendant APT
should be ordered to pay MMIC (excluding DBP) the sum of
P2,707,471,123.76 with legal interest thereon per annum from
August 3, 1984 as and for actual damages.
Member Sison submitted a separate opinion reading as
follows:
SEPARATE OPINION
It is clear and it cannot be disputed therefore that based on
these stipulated issues, the parties themselves have agreed
that the basic ingredient of the causes of action in this case is
the wrong committed on the corporation (MMIC) for the alleged
illegal foreclosure of its assets. By agreeing to this stipulation,
PLAINTIFFS themselves (Cabarrus, et al.) admit that the
cause of action pertains only to the corporation (MMIC) and
that they are filing this for and in behalf of MMIC.

Perforce this has to be so because it is the basic rule in


Corporation Law that "the shareholders have no title, legal or
equitable to the property which is owned by the corporation (13
Am. Jur. 165; Pascual vs. Oresco, 14 Phil. 83). In Ganzon &
Sons vs. Register of Deeds, 6 SCRA 373, the rule has been
reiterated that "a stockholder is not the co-owner of the
corporate property." Since the property or assets foreclosed
belongs to MMIC, the wrong committed, if any, is done against
the corporation. There is therefore no direct injury or direct
violation of the rights of Cabarrus et al. There is no way, legal
or equitable by which Cabarrus et al, could recover damages
in their personal capacities even assuming or just because the
foreclosure is improper or invalid. The Compromise and
Arbitration Agreement itself and the elementary principles of
Corporation Law say so. Therefore, I am constrained to dissent
from the award of moral damages to Cabarrus.
Neither could I agree to the award of moral damages to MMIC.
The acts complained of here in which the Committee based its
award of moral damages to MMIC is the foreclosure of the
various real estate and chattel mortgages. The majority of the
Committee believes that these foreclosure constitute a
violation on an agreement forged between PNB-DBP, on one
hand, and MMIC, on the other, regarding the restructuring of
the various past due loans of MMIC to what had been termed
as the Financial Restructuring Program (FRP).
In this connection, it can readily be seen and it cannot quite be
denied that MMIC accounts in PNB-DBP were past due. The
drawing up of the FRP is the best proof of this. When MMIC
adopted a restructuring program for its loan, it only meant that
these loans were already due and unpaid. If these loans were
restructurable because they were already due and unpaid, they
are likewise "forecloseable". The option is with the PNB-DBP
on what steps to take.
The mere fact that MMIC adopted the FRP does not mean that
DBP-PNB lost the option to foreclose. Neither does it mean
that the FRP is legally binding and implementable. It must be
pointed that said FRP will, in effect, supersede the existing and
past due loans of MMIC with PNB-DBP. It will become the new
loan agreement between the lenders and the borrowers. As in
all other contracts, there must therefore be a meeting of the
minds of the parties; the PNB and DBP must have to validly
adopt and ratify such FRP before they can be bound by it;
before it can be implemented. In this case, not an iota of proof
has been presented by the PLAINTIFFS showing that PNB and
DBP ratified and adopted the FRP. PLAINTIFFS simply relied
on a legal doctrine of promissory estoppel to support its
allegations in this regard.
All told, PNB and DBP had the right to foreclose and were
justified in doing so. But were the foreclosure legally done or
carried out? Were the requirements of notice, posting and
publication required by Acts 3135 and 1508 substantially
complied with?
I cannot, however, concur with the for holding that such minor
taint of illegality in the foreclosure is enough to justify the
award of damages, amounting to P19,486,118,654.00. "Rules
of law respecting the recovery of damages are framed with
reference to just rights or both parties, not merely what may be
right for an injured person to receive, but also what is just to
compel the other party to pay, to accord just compensation for
the injury" (Kennings vs. Kline Ind. 602). Following this
universally accepted rule on damage, I do not believe it is just

to compel APT to pay such huge amount for such minor


technical infraction.

on motion of the parties, and thus the court gravely abused its
discretion in confirming the arbitral award.

But while I do not agree with this pronouncement of the


Committee, I nevertheless concur with the result as far as the
disposition of the award for actual damages is concerned. I
agree that DEFENDANT APT can, and is still entitled to, collect
the outstanding obligations of MMIC to PNB and DBP
amounting to P22,668,537,770.05 with interest thereon as
stipulated in the loan documents from the date of foreclosure
until the time they are fully paid. The resultant effect of such a
disposition is that APT can offset the said obligation due from
MMIC such that ultimately no damages will be due and
payable to MMIC. As there may be damage without injury,
there can be injury without damage (15 Am. Jur., p. 388). This
case is a case of "injury without damage".

In its decision promulgated on July 17, 1995, the Court of


Appeals denied due course and dismissed the petition
for certiorari for lack of merit.

Both parties moved for reconsideration of the "decision" of the


Arbitration Committee. In addition, respondents Cabarrus et al.
filed a motion for clarification and to re-open the case to
receive evidence. In a resolution dated July 26, 1984, with one
member dissenting, the Arbitration Committee denied the
motions for reconsideration of both parties as well as all other
pending motions.
On October 17, 1984, respondents Cabarrus et al. filed directly
with the Regional Trial Court, Makati, Branch 62, in the same
Civil Case No. 9900, a pleading entitled application/motion for
confirmation of arbitral award.
On November 4, 1994, petitioner APT filed an opposition and
motion to vacate judgment, contending that respondents'
motion was improperly filed with the same branch of the court
in Civil Case No. 9900, which was previously dismissed, and
that the motion should have been filed as a separate special
proceedings in the Regional Trial Court to be docketed by the
Clerk of Court.
Nonetheless, acting on the application/motion, Judge Roberto
C. Diokno, presiding judge, Regional Trial Court, Makati,
Branch 62, on November 28, 1994, issued an order granting
plaintiffs' application confirming the arbitration award, and
rendering judgment as set out in the opening paragraph of this
opinion.
On December 12, 1994, petitioner APT received notice of the
lower court's order. On December 27, 1994, petitioner APT
filed a motion for reconsideration. By order dated January 18,
1995, the trial court denied the motion. On February 7, 1995,
respondents Cabarrus, et al. filed a motion for execution and
appointment of custodian of proceeds of execution. Petitioner
opposed the motion. It is apparently still unresolved.
On February 15, 1995, petitioner APT filed with the Court of
Appeals an original special civil action for certiorariwith prayer
for temporary restraining order or preliminary injunction 1 to
annul the two (2) orders of the respondent Regional Trial Court
above-mentioned confirming the arbitral award and denying its
reconsideration.
The issue presented in said petition was whether respondent
Judge Roberto C. Diokno, Regional Trial Court, Makati, Branch
62, had jurisdiction to act on private respondents'
application/motion for confirmation of arbitral award in the
same Civil Case No. 9900, which had been dismissed earlier

Hence, this petition for review filed on September 07, 1995. 2


The petition is impressed with merit.
First, the Regional Trial Court, Makati, Branch 62, did not
validly acquire jurisdiction over the case by respondents' filing
of a mere motion in the same Civil Case No. 9900 because the
case had been dismissed earlier and such dismissal had
become final and unappealable. As heretofore stated, on
October 6, 1992, the parties entered into a compromise and
arbitration agreement expressly providing that they "have
agreed to withdraw their respective claims from the Trial Court
and to resolve their dispute through arbitration by praying to
the Trial Court to issue a compromise judgment based on this
Compromise and Arbitration agreement.
Clearly, the parties had withdrawn the action then pending with
the Regional Trial Court, Makati, Branch 62, in Civil Case No.
9900, and agreed that they would submit their dispute to
arbitration and reduce their respective claims to "purely money
claims", "waiving and foregoing all other forms of reliefs which
they prayed for or could have prayed for in Civil Case No.
9900." The parties "agreed to move for the dismissal of the
case, to transform the reliefs prayed for therein to pure money
claims and submit the controversy to arbitration under Republic
Act (RA) 876 before a committee composed of three
members."
In its order dated October 12, 1992, in Civil Case No. 9900, the
trial court presided over by respondent Judge categorically
decreed that "The complaint is hereby dismissed". Such
disposition terminated the case finally and irretrievably
disposed of the same. 3 The term "dismissed" has a definite
meaning in law. "A judgment of 'dismissed', without qualifying
words indicating a right to take further proceedings, is
presumed to be dismissed on the merits". 4 The dismissal could
not have been a suspension of action provided for in the
arbitration law, Republic Act No. 876.
Upon the finality of such order of dismissal, the case could no
longer be revived by mere motion. The trial court had lost its
authority over the case. 5 We cite as squarely applicable the
decision where this Court emphatically said "But after the
dismissal has become final through the lapse of the fifteen-day
reglementary period, the only way by which the action may be
resuscitated or 'revived,' is by the institution of a subsequent
action through the filing of another complaint and the payment
of the fees prescribed by law. This is so because upon
attainment of finality of a dismissal through the lapse of said
reglementary period, the Court loses jurisdiction and control
over it and can no longer make any disposition in respect
thereof inconsistent with such dismissal" 6 It is true that the
confirmation of an arbitral award is within the jurisdiction over
the subject matter of a regional trial court. Such jurisdiction
must be invoked by proper motion as a special proceedings
with notice to the parties filed in the proper court with the clerk
of court (and upon payment of the prescribed fees). 7

Second, the Arbitration Committee did not actually reach a


valid decision on the subject controversy.
In the purported decision dated November 24, 1994, penned
by Chairman Sarmiento, the Committee ordered petitioner APT
to pay to MMIC the sum of P2,531,635,425.02, with interest
thereon at the legal rate at 6% per annum from August 3, 9 and
24, 1984, pari passu as actual damages; to pay MMIC P13
million, as moral and exemplary damages, and to pay Jesus S.
Cabarrus, Sr. P10 million, as moral damages.
In the concurring and dissenting opinion of Member Elma, he
agreed with the finding on the principal issue submitted for
resolution. However, he dissented as to the manner or method
of computation and amount of actual damages awarded to
MMIC. He submitted that APT should be ordered to pay MMIC
the sum of P2,707,471,123.76, with legal interest thereon per
annum from August 3, 1984, as actual damages.
In his separate opinion, Member Sison stated that he
concurred with the result as far as the disposition of the award
of actual damage is concerned. He agreed that APT is entitled
to collect the outstanding obligations of MMIC to PNB and DBP
amounting to P22,668,537,770.05, with interest as stipulated in
the loan documents from the date of foreclosure until fully paid.
The resultant effect is that APT can offset said obligation due
from MMIC such that ultimately no damages shall be due and
payable to MMIC. He was against the award of moral and
exemplary damages to MMIC and Jesus S. Cabarrus, Sr.
It is obvious that the disposition in Chairman Sarmiento's
award and the concurring and dissenting opinion of Member
Elma do not tally and, hence, because of the dissent of
Member Sison, the Arbitration Committee did not reach a
majority decision constituting a valid judgment or fallo of the
Committee.
The powers and duties of boards and commissions may not be
exercised by the individual members separately. Their acts are
official only when done by the members convened in session
upon a concurrence of at least a majority and with at least a
quorum present. 8
Respondents Cabarrus, et al. considered the disposition as
confusing and incomplete as to the award of damages and
thereby requiring the reception of further evidence as to
necessitate the re-opening of hearings on the case. On May
20, 1994, they filed a motion for clarification seeking answer
from the arbitration committee as to the final amount of actual
damages the MMIC is entitled to, and, on June 9, 1994, they
filed a motion to reopen the case and to receive evidence.
Even the Arbitration Committee's resolution of the various
motions for reconsideration and other reliefs was conflicting.
For Chairman Sarmiento, respondents' motion for
reconsideration, dated December 15, 1993, and petitioner's
motion for reconsideration, dated January 3, 1994,
respondents' motion for clarification dated June 8, 1994, and
respondents' urgent motion to re-open the case and to receive
evidence were all DENIED for lack of merit.
Member Elma dissented from the denial of the parties' motion
for reconsideration, reiterating that MMIC is entitled to actual
damages in the sum of P2,707,471,123.76, with legal interest
thereon from August 3, 1984.

Member Azura (substituting Sison) concurred with the


Chairman in denying respondents' motion for reconsideration,
motion for clarification and motion to re-open the case but
favored granting petitioner's (APT) motion for reconsideration.
WHEREFORE, I vote to GRANT the petition at bench, reverse
the decision of the Court of Appeals 9 as well as the orders of
the Regional Trial Court, Makati, Branch 62, in Civil Case No.
9900, vacate the "decision" of the Arbitration Committee dated
November 24, 1993, and, finally, ENJOIN the trial court from
further acting on the case.

G.R. No. 101444 May 9, 1995


A.C. ENTERPRISES, INC., petitioner,
vs.
CONSTRUCTION INDUSTRY ARBITRATION COMMISSION
and DEE CONSTRUCTION CORPORATION,respondents.
RESOLUTION
QUIASON, J.:
In their Second Motion For Partial Reconsideration, private
respondent insists that it is entitled to interest at the rate of
12% per annum on the monetary award given them by the
Construction Industry Arbitration Commission (CIAC). It
contends that under Executive Order No. 1008 dated February
4, 1985 and the Rules of Procedure Governing Construction
Arbitration, arbitral awards are final and "inappealable (sic)"
and pursuant to our ruling in Eastern Shipping Lines, Inc. v.
Court of Appeals, 234 SCRA 78 (1994), monetary awards in all
judgments that became final and executory, regardless of the
nature of the obligation, shall bear legal interest of 12% per
annum.
The obligation that was breached in the arbitration case at
bench was not based on a loan or forbearance of money, and
therefore was not covered by Central Bank Circular No. 416.
In Reformina v. Tomol, Jr., 139 SCRA 260 (1985), we made
clear that the award of legal interest at 12% per annum under
said Central Bank Circular shall be adjudged only in cases
involving the loan or forbearance of money (See also Pilipinas
Bank v. Court of Appeals, 225 SCRA 268 [1993]). However,
in Eastern Shipping Lines, Inc., we held that when the
judgment awarding a sum of money becomes final and
executory, the monetary award shall earn interest at 12% per
annum from the date of such finality until its satisfaction,
regardless of whether the case involves a loan or forbearance
of money. The reason is that this interim period is deemed to
be by then equivalent to a forbearance of credit. We quote
from Eastern Shipping Lines, Inc., supra., at pp. 95-97:
II. With regard particularly to an award of interest in the
concept of actual and compensatory damages, the rate of
interest, as well as the accrual thereof, is imposed, as follows:
1. When the obligation is breached, and it consists in the
payment of a sum of money,i.e., a loan or forbearance of
money, the interest due should be that which may have been

stipulated in writing. Furthermore, the interest due shall itself


earn legal interest from the time it is judicially demanded. In the
absence of stipulation, the rate of interest shall be 12% per
annum to be computed from default, i.e., from judicial or
extrajudicial demand under and subject to the provisions of
Article 1169 of the Civil Code.
2. When an obligation, not constituting a loan or forbearance of
money, is breached, an interest on the amount of damages
awarded may be imposed at the discretion of the court at the
rate of 6% per annum. No interest, however, shall be adjudged
on unliquidated claims or damages except when or until the
demand can be established with reasonable certainty.
Accordingly, where the demand is established with reasonable
certainty, the interest shall begin to run from the time the claim
is made judicially or extrajudicially (Art. 1169, Civil Code) but
when such certainty cannot be so reasonably established at
the time the demand is made, the interest shall begin to run
only from the date the judgment of the court is made (at which
time the quantification of damages may be deemed to have
been reasonably ascertained). The actual base for the
computation of legal interest shall, in any case, be on the
amount finally adjudged.
3. When the judgment of the court awarding a sum of money
becomes final and executory, the rate of legal interest, whether
the case falls under paragraph 1 or paragraph 2, above, shall
be 12% per annum from such finality until its satisfaction, this
interim period being deemed to be by then an equivalent to a
forbearance of credit(Emphasis supplied).
It appears that private respondent equated, and wrongly at
that, the term "final and inappealable (sic)" as used in E.O. No.
1008 and the Rules of Procedure Governing Construction
Arbitration with the term "final and executory" as used
in Eastern Shipping Lines, Inc.
Section 19 of E.O. No. 1008 dated February 4, 1985 provides
as follows:
Finality of Awards The arbitral award shall be binding upon
the parties. It shall be final and inappealable (sic) except on
questions of law which shall be appealable to the Supreme
Court (Emphasis supplied).
Section 2 of Article XVI of the Rules of Procedure Governing
Construction arbitration provides as follows:
Appeals Pursuant to Section 19 of Executive Order No.
1008 dated 4 February 1985, arbitral awards
are final and inappealable (sic) except on questions of law
which shall be appealable to the Supreme Court before the
award becomes final. An appeal shall not stay the award
unless the Supreme Court shall direct otherwise upon such
terms as it may deem just. An appeal from an arbitral award or
an order/decision of the CIAC shall be perfected by filing with
the CIAC a notice of appeal and with the Supreme Court
twelve (12) copies of a petition for review of the award, order,
or decision complained of within 30 days from notice of such
award, order, or decision (Emphasis supplied).
A "final and inappealable (sic)" judgment is not the same as a
"final and executory" one. The former becomes executory only
as in the case of an award by the CIAC after the lapse of 30
days from receipt of notice thereof and no petition for review to

the Supreme Court is made (Rules of Procedure Governing


Construction Arbitration, Art. XVI, Sec. 1).
While the petition for review does not automatically suspend
the execution of the award of the CIAC, the Supreme Court
may direct a stay of the execution. In the case at bench, the
Court issued a temporary restraining order to stay the
execution of the award (Resolution, October 14, 1991).
The CIAC award did not become "final and executory" until
after service of a copy of the Resolution dated April 8, 1992 of
this Court, denying the motion for reconsideration. The award
was fully paid to private respondent on May 6, 1992 (Rollo, p.
456). We consider the interest that accrued from April 8 to May
6, 1992, a period of less than a month, as de minimis as to
warrant its charging against the award.
IN VIEW OF THE FOREGOING, the Court RESOLVED:
(1) to GRANT private respondent's Motion for Leave to File
and Admit Attached Second Motion for Partial Reconsideration;
and
(2) to DENY the Second Motion for Partial Reconsideration.

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