G.R. No.
121171 December 29, 1998
ASSET PRIVATIZATION TRUST
vs.
COURT OF APPEALS
KAPUNAN, J.:
Facts:
A derivative suit was filed by the stockholders of MMIC against the DBP and PNB
which were later on substituted by the petitioner APT being the successor of DBP
and PNB’s interests against the MMIC. MMIC had an exclusive right to exploit
the Surigao Mineral Reservation via MOA granted by the government thru
Surigao Mineral Reservation Board. MMIC was supported by the government
thru DBP and PNB by granting loans, accommodations and guarantees on
foreign borrowings which were secured by a Mortgage Trust Agreement.
After some time, the financial position of MMIC declined making it incapable of
fulfilling its financial obligations. It had outstanding loans with DBP and PNB in
the amount of P22, 668,537,770.05. Thus, a financial restructuring plan (FRP)
was designed and approved by MMIC Board to reduce MMIC's interest expense
through debt conversion to equity but the FRP had never been formally adopted,
approved or ratified by either PNB or DBP. Since the FRP was no longer feasible
and all the loans and advances were overdue, DBP and PNB extrajudicially
foreclosed the mortgages of MMIC assets. The foreclosed assets were sold to
PNB as the lone bidder and were assigned to three newly formed corporations
and were later on transferred to the APT.
The RTC dismissed the suit upon agreement of the parties to enter into
arbitration. The Arbitration Committee awarded damages against the APT
declaring that the FRP was binding, the foreclosure was not valid, among others.
MMIC then filed in the original case an "Application/Motion for Confirmation of
Arbitration Award" which was opposed by the petitioner. The RTC confirmed the
award of the Arbitration Committee which was affirmed by the CA upon petition
for certiorari by the petitioner. Hence, this suit.
Issues:
1. Whether the RTC has jurisdiction to confirm the arbitration award under
the original case.
2. Whether the decision and the awards made by the Arbitration Committee
valid.
Ruling:
The SC ruled in favor of the petitioner declaring that the RTC does not have
jurisdiction to confirm the arbitration award and that the decision and the awards
of the Arbitration Committee were not valid.
The SC explained that the RTC cannot confirm the arbitration award in the same
case since the case was already dismissed. The RTC made the fatal mistake of
issuing a final order dismissing the case when it should have merely suspended
the case upon referral to the arbitration committee. Since neither of the parties
questioned the dismissal, they are bound by such error.
Also, it is a well-settled rule that judicial review of arbitration is limited in nature.
The award of an arbitrator cannot be set aside for mere errors of judgment either
as to the law or as to the facts. Such review is only possible when the conditions
prescribed in Articles 2038, 2039 and 1040 of the Civil Code applicable to
compromises and arbitration are attendant or under Sections 24 and 25 of the
Arbitration Law on grounds for vacating, modifying or rescinding an arbitrator's
award or if an examination of the record reveals no support whatever for the
arbitrators determinations or if it was made in "manifest disregard of the law."
In this case, the Arbitrators came out with an award in excess of their powers and
palpably devoid of factual and legal basis for granting awards which are not part
of the submission. The issues which were submitted for arbitration are merely 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.
Clearly, the Arbitration Committee 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.