1. ARTHUR F.

ALLEN,  vs. THE PROVINCE OF TAYABAS, G.R. No. L-12283, Appellant's assignments of error relate to the findings of fact and two main issues
July 25, 1918
FACTS:
 pay the contractor anything because the contract was not approved by the
On April 18, 1914, the Province of Tayabas, represented by the Director of Public
Works, and Arthur F, Allen, contractor, entered into a contract whereby the
contractor agreed to construct five reenforced concrete bridges for P39,200. This
contract was in the usual form. One provision was that the bridges were to be
constructed "in accordance with the said advertisements, instructions to bidders,
general conditions, plans, specifications, proposal, and this agreement." Other
paragraphs of the contract concerned the method and rate of payment for extras.
Four of the bridges were accepted by the Government and paid for. The dispute
between the parties arose as to the fifth bridge, No. 53.3 and as to certain extras.
As to this bridge, the Province of Tayabas paid to the contractor P4,360 on
account of the contract price thereof, but refused to pay the balance of P2,840
because plaintiff had deviated from the specifications and because the work was
defective. The province further refused to pay for certain extras. To recover the
balance upon the contract was the purpose of the contractor in bringing action for
P9,685 (amended complaint), alleged to be due him by the Province of Tayabas.
The common averments of the six causes of action were: (1) Residence; (2) the
contract; (3) the faithful compliance "with all the terms and conditions of the said
contract" on the part of the contractor, and completion and delivery of the bridges
in question; (4) refusal of defendant to pay plaintiff the balance due for bridge No.
53.3 for certain extras, and as damages, although frequently requested to do so.
Defendant demurred to the complaint on the ground that it did not state facts
sufficient to constitute a cause of action, because: (a) The approval of the
Governor-General to the contract had not been given as contemplated by section 2
of the Provincial Government Act (No. 83) and (b) the certificate for payment had
not been accomplished by the Director of Public Works or the district engineer as
provided by section 6, of Act No. 1401, as amended. The demurrer was overruled.
Thereupon defendant answered, renewing as a special defense the grounds of the
demurrer, alleging defective work on the part of the plaintiff, and admitting a total of
P2,454.78, the amount certified by the Director of Public Works and the district
engineer, as due the plaintiff. The trial court gave judgment for the plaintiff-
contractor for P4,905, with legal interest from July 14, 1914, and costs. Defendant
moved for a new trial, which was denied, duly excepted and perfected a bill of
exceptions to this court.
of law. We pass the facts for the moment, and two main issues of law. We pass the
facts for the moment, to discuss the legal questions.
The first contention of appellant is that the Province of Tayabas is not obligated to
Governor-General. This position is absolutely untenable. The law in force when the
contract entered into and when the action was tried, section 2, Act No. 83, as
amended by Act No. 1600, made the approval of the Governor-General a
prerequisite only to the purchase and conveyance of real estate by a province. The
grammatical construction of the English text, which is controlling, makes this
perfectly clear. Moreover, the law now in force (Administrative Code of 1917,
section 2068) has removed any possibility of doubt and has at the same time
revealed legislative intention, by placing the requirement for the Governor-
General's approval of transfers of real estate by provinces in a section separate
and distinct from the section of the Code giving the corporate powers of provinces.
The remaining legal issue merits more extended consideration. Appellant's
contention is that the certificate by the district engineer and the Director of Public
Works must be obtained before suit can be brought on a contract; that the findings
of these officials are conclusive; and that the complaint must contain an averment
to this effect. Appellee's reply must contain an averment to this effect. Appellee's
reply is that neither the law nor the contract requires the submission to arbitration
of disputes between the Government and the contractor, and that a mere
administrative procedure incident to payment has been established.
Act No. 1401, as amended by Act No. 1752, was in force when this action was
instituted. The same provisions are now found in slightly altered phraseology in
section 1917-1923 of the Administrative Code of 1917. The law gives a district
engineer supervision over all contacts connected with public works, which exceed
the estimated cost of P500. Section 6 of Act No. 1401, as amended by section 3 of
Act No. 1752, reads:
No payments, partial or final, shall be made on any public works without a
certificate on the vouchers therefor to the effect that the work for which
payment is contemplated has been accomplished, inspected, and
accepted. Such certificate for work under the supervision of the district
engineer shall be signed by him or his duly authorized representative. For
work not under his supervision such certificate shall be signed by the
provincial treasurer.
Section 1922 of the Administrative Code of 1917, reads:
 No payment, partial or final, shall be made on any public work of
construction or repair without a certificate on the voucher therefor to the
effect that the work for which payment is contemplated has been
accomplished in accordance with the terms of the contract and has been
duly inspected and accepted. Such certificate shall be signed by a duly
authorized representative of the Director of Public Works having full
knowledge of the facts in the case.
Contractors are of course bound to take notice of the provisions of the law relating
to contracts. Statutory requirements cannot be departed from for the
accommodation of either party to a contract. As a matter of acts, in the present
instance, this obligation is intensified in so far as the contractor is concerned for
the instructions to bidders contains this clause: "The contractor shall comply with
all existing or future laws, the municipal or provincial building ordinances and
regulations in so far as the same are binding upon or affect the parties hereto, the
work, or those engaged thereon." (No. 23).
The instructions to bidders, a part of the contract, under the heading of
"Payments," also contains the following:
51. Payments will be made monthly, based upon the estimates of work
satisfactorily completed and accepted by the Director during the preceding
month. Upon such estimates the Province of Tayabas, P.I. shall pay to the
contractor a sum equal to ninety (90) per cent thereof up to and until such
time as the total work shall have been completed or the contract canceled,
as herein provided.
52. The acceptance of the work from time to time for the purpose of
making partial payments, shall not be considered as a final acceptance of
the work in question.
53. Whenever the contract, in the opinion of the Director, shall be
completely performed on the part of the contractor, the Director shall
proceed promptly to measure the work and shall make out and certify the
final estimates and acceptance for the same. The province shall then,
excepting for cause herein specified, pay to the contractor promptly after
the execution of said certificate the remainder which shall be found due,
excepting therefrom such sum or sums as may be lawfully retained under
any of the provisions of this contract; Provided, That nothing herein
contained shall be construed to waive the right of the Director, hereby
reserved, to reject the whole or any portion of the aforesaid work should
the same be found to have been constructed in violation of any of the
conditions or covenant of this contract.
Both the law and the contract provide in mandatory language for a certificate of
acceptance by the Director of Public Works or his representative before any
payment shall be made on any public work for the Government.
Contracts of this character, giving into the hands of a third person or of the
purchaser the power of acceptance or non-acceptance, are not unusual. Courts
have frequently upheld them. The law regards the parties as competent to contract
in this manner. Municipal and provincial contracts, being on the same footing as
those of natural persons, may not be breached with impunity. That mutuality exists
in undoubted. The party who deliberately enters into such an agreement, whether
wisely or unwisely, must abide by it. The public corporation, in the absence of a
showing of fraud or concealment, is estopped by the approval of its officer who is
authorized to accept the work, from contesting the contractor's right to the contract
price. (City of Omaha vs. Hammond [1876], 94 U.S., 98; City Street Improvement
Co. vs. City of Marysville, [1909], 155 cal., 419.) Likewise, the contractor must not
only deliver a product with which the party of the second party ought to be
satisfied, but with which he must be satisfied, or he is not bound to accept it. The
rule is well-settled that in the absence of fraud or of such gross mistake as would
necessarily imply bad faith, contractors with public corporations are concluded by
the decisions of engineers or like officers where the contract contains such a
stipulation. The public corporation can rely on the provision in a contract that
performance by the other party shall be approved by or satisfactory to it, or a
particular officer, board or committee. (Second Nat. Bank vs. Pan-American Bridge
Co. [1910], 183 Fed., 391, reviewing Federal decisions; Silsby Manuf'g
Co. vs. Town of Chico [1885], 24 Fed., 893; 23 L.R.A. [1910], 322, Notes.)
A leading example is the case of Sweeney vs. United States ([1883], 109 U.S.,
618), in which a contractor sought to recover from the United States the price of
wall built by him around the National Cemetery. The contract provided that the wall
shall be received and become the property of the United States after the officer or
civil engineer, to be designated by the Government to inspect the work, should
certify that it was in all respects such as the contractor agreed to construct. The
officer designated for that purpose refused to so certify on the ground that neither
the material nor the workmanship was such as the contract required. As the officer
exercised an honest judgment in making his inspection and as there was on his
part neither fraud nor such grave mistake as implied bad faith, it was adjudged that
the contractor had no cause of action on the contract against the United States.
The old common law rule required a strict or literal performance of contracts. The
modern rule sanctions a substantial performance of contractual relations. The law
now looks to the spirit of the contract and not to its letter. Even though a plaintiff is
not entirely free from fault or omission, the courts will not turn him away if he has in
good faith mad substantial performance. Of course the terms of the contract may
be such that the contract has agreed that the another shall have the absolute and
unreviewable right to reject the article or work if not satisfied with it; in such case
the contractor shall abide by his word. But when the terms, or the nature of the
contract, or the circumstances are such as to make it doubtful, whether the
contractor has made any such unwise agreement, the courts will ordinarily
construe the contract as an "agreement to do the thing in such way as reasonably
ought to satisfy the defendant." (Parlin & Orendorff Co. vs. City of Greenville
[1904], 127 Fed., 55; Swain vs. Seamens [1870], 9 Wall., 254.) Thus, it has been
held that the provision of a contract to perform work for the city requiring the
contractor to obtain the certificate of the city engineer that the work has been done
in accordance with the contract and the approval of such work by certain boards or
committees, before he is entitled to payment therefor, does not deprive him of the
right to recover for the work, if it has been done in substantial conformity to the
contract, because the city's officers arbitrarily or unreasonably refuse the certificate
and approval called for. (City of Elizabeth vs. Fitzgerald [1902], 200 U.S., 611.)
Substantial performance and the unfounded refusal of the certificate of approval
can be proved in various ways. Thus, acceptance and occupancy of the building
by the owner amounts to an acknowledgment that the work has been performed
substantially as required by the contract. (Campbell and Go-Tauco vs. Behn,
Meyer & co. [1904], 3 Phil., 590 affirmed on appeal to the United States Supreme
Court [1905], 200 U.S., 611.) Other circumstances, as partial payment, also show
acquiescence on the part of purchaser.
Appellee speaks of the provisions of the law and the portions of the contract in
questions as possibly constituting an arbitration agreement. We deem these
provisions to be more correctly labeled a condition precedent to the contractor's
right to obtain payment; the condition is for the satisfaction of the Government.
Nevertheless, considered as species of abitration, it was a convenient and proper
method, duly agreed upon between the parties, to determine questions that would
necessarily arise in the performance of the contract, about which men might
honestly differ. It would be highly improper, for courts out of untoward jealousy of
their jurisdiction. The New York theory of refusal to uphold such agreements,
because of the opinion that they violate the spirit of the laws creating the courts, is
hardly agreed to by more progressive jurisdictions. (See U.S. Asphalt Refining
Co. vs. Trinidad Lake Petroleum Co. [1915], 222 Fed., 1006.) Unless the
agreement is such as absolutely to close the doors of the courts against the
parties, which agreement would be void (Wahl and Wahl vs. Donaldson, Sims &
Co. [1903], 2 Phil., 301), courts will look with favor upon such amicable
arrrangements and will only with great reluctance interfere to anticipate or nullify
the action of the arbitrator. For instance, a policy of fire insurance, contained a
clause providing that in the event of a loss under the policy, unless the company
shall deny all liability, as a condition precedent to the bringing of any suit by the
insured upon the policy, the latter should first submit the question of liability and
indemnity to arbitration. Such a condition, the Supreme Court of the Philippines
held in Chang vs. Royal Exchange Assurance Corporation of London ([1907], 8
Phil., 399), is a valid one in law, and unless it be first complied with, no action can
be brought.
What then are the remedies of the contractor? In the first place he has his
administrative remedy, which is to complete the work substantially according to the
contract and ask for the approval of the proper official. If such officer refuse or
culpably neglect to perform a ministerial duty, such as making out the warrant, it is
possible that mandamus will lie to coerce the officer. A stipulation requiring the
approval of some one as a condition to a recovery by the contractor would not bar
the party of his remedies by action at law. The right to redress in the courts where
substantial compliance with the terms of a contract are set forth, and where the
proof discloses the withholding of the certificate by an officer for insufficient
reasons, should not be taken away by inference or anything short of a district
agreement to waive it. (Aetna Indemnity Co. vs. Waters [1909], 110 Md., 673.) As
a condition precedent to action by the courts, fraud or bad faith on the part of the
responsible Government official, or arbitrary or unreasonable refusal of the
certificate or approval must be alleged and proved.
To concentrate our facts and legal principles — we find the contractor supported
by one expert insisting that the work and the materials actually conform to the
specifications; and we have this as resolutely denied by competent Government
engineers. We find substantial performance of the contract not proved to the
satisfaction of the Government's technical adviser, but proved to the satisfaction of
the trial court. Ordinarily, we would not review the facts unless the findings of the
trial court are plainly and manifestly contrary to the proof. But here it was
incumbent on the trial court to take about the same view of the findings of the
Government's engineers as the appellate court would take of the findings of the
trial court, or that any court would take of the findings of customs boards,
assessors, and the like. In order to set aside the action of the Director of Public
Works or his authorized representative, fraud or bad faith on the part of these
engineers must be established. Has this been proved? The judge in the course of
his decision incidentally remarked: "It may as well be said here that there appears
to have been a great deal of ill-feeling between plaintiff and the engineer in charge
of this construction." Is this observation in connection with the testimony of the
plaintiff and of one engineer sufficient to demonstrate fraud or bad faith? We think
not. In other words we believe that the contractor cannot maintain an action for the
stipulated price when the engineer has in good faith, in pursuance of the contract,
withheld his certificate. The decision of the responsible engineer cannot be
subjected to the revisory power of the courts without doing violence to the terms of
the contract and the law.
The Province of Tayabas, having accepted bridge No. 53.2, should of course pay
the balance due, or P2,840. It should not be permitted to deduct the cost of the test
of the bridge, P900.12, for this is a legal question for resolution by the courts, and
the contract contains no such stipulation. (See Ripley vs. U.S. [1912], 223 U.S.,
695.) But the findings of the Government engineers on all the other points covered
by causes of action 2, 3, 4, 5 and 6 are deemed to be conclusive, fraud or bad faith
not having been proved. Thus, we have P2,840, plus P269.10, plus P214.80, plus
P6, plus P25, or P3,354.90 due plaintiff.

One point made by appellant is that the demurrer to the complaint was improperly
overruled. An elementary principle of pleading heretofore approved by this court in
Government of Philippine Islands vs. Inchausti & Co. ([1913], 24 Phil., 315) is
brought to our notice, namely: "If the plaintiff's right of action depends upon a
condition precedent he must allege and prove the fulfillment of the condition or a
legal excuse for its non-fulfillment. And if he omits such allegation, his declaration,
complaint, or petition, will be bad on demurrer." Undoubtedly, the complaint should
have alleged either the performance of the condition precedent, approval by the
Director of Public Works or the District Engineer, or a good and sufficient excuse
for not obtaining it. It is possible that if sitting in first instance, we would so hold
with defendant, but on appeal such a backward sweep would avail nothing but
delay. Moreover, the complaint contains the general averment that the plaintiff fully
and faithfully complied with all the terms and conditions of the said contract, while
some months subsequent to the filing of the complaint but previous to the trial, the
defendant accepted the bridge. A failure to allege a condition precedent or a legal
reason for dispensing with it may be cured by the issues tendered by the answer
and the proof. (Donegan vs. Houston [1907], 5 Cal. App., 626.)

To summarize, we are of opinion and so hold that the law makes the approval of
the Governor-General a prerequisite only to the purchase or conveyance of real
property by a province; that the provisions of the law and the form of the contract,
usually followed in this jurisdiction, providing for the certificate of approval by the
Director of Public Works or his representative, are in the nature of a condition
precedent, which must be alleged and proved, and that this certificate is conclusive
in the absence of a showing of fraud or bad faith.

Judgment shall be modified so that the plaintiff shall recover from the defendant
P3,354.90 with legal interest thereon from July 14, 1914, until paid, without special
finding as to costs in either instance. So ordered.

Torres, Johnson and Fisher, JJ., concur.

Carson and Street, JJ., concur in the result.
2. 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-
Holders of Marinduque Mining and Industrial Corporation, respondents.
KAPUNAN, J.:
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.
On July 13, 1981, MMIC, PNB and DBP executed a Mortgage Trust
Agreement3 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 Sixty-Eight 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.
x x x           x x x          x x x
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 THE ORIGINAL CASE, CIVIL CASE NO. 9900, HAD
plaintiffs/applicants/movants the sum of P1,705,410.23 as PREVIOUSLY BEEN DISMISSED.
arbitration costs.
II
In reiteration of the mandates of Stipulation No. 10 and Stipulation
No. 8 paragraph 2 of the Compromise and Arbitration Agreement, THE RESPONDENT JUDGE COMMITTED GRAVE ABUSE OF
and the final edict of the Arbitration Committee's decision, and with DISCRETION AND ACTED WITHOUT OR IN EXCESS OF
this Court's Confirmation, the issuance of the Arbitration JURISDICTION, IN ISSUING THE QUESTIONED ORDERS
Committee's Award shall henceforth be final and executory. CONFIRMING THE ARBITRAL AWARD AND DENYING THE
MOTION FOR RECONSIDERATION OF ORDER OF AWARD.
SO ORDERED. 18
III
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 THE RESPONDENT JUDGE GROSSLY ABUSED HIS
opposition thereto. DISCRETION AND ACTED WITHOUT OR IN EXCESS OF AND
WITHOUT JURISDICTION IN RECKONING THE COUNTING OF
On January 18, 1995, the trial court handed down its order denying APT's motion THE PERIOD TO FILE MOTION FOR RECONSIDERATION, NOT
for reconsideration for lack of merit and for having been filed out of time. The trial FROM THE DATE OF SERVICE OF THE COURT'S COPY
court declared that "considering that the defendant APT, through counsel, officially CONFIRMING THE AWARD, BUT FROM RECEIPT OF A XEROX
and actually received a copy of the Order of this Court dated November 28, 1994 COPY OF WHAT PRESUMABLY IS THE OPPOSING
on December 6, 1994, the Motion for Reconsideration thereof filed by the COUNSEL'S COPY THEREOF. 20
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 On July 12, 1995, he Court of Appeals, through its Fifth-Division, denied due
the filing of an appeal from final orders, resolutions, awards, judgments or course and dismissed the petition for certiorari.
decisions of any court in all cases, and by necessary implication for the filing of a
motion for reconsideration thereof." Hence, the instant petition for review on  certiorari imputing to the Court of Appeals
the following errors:
On February 7, 1995, petitioner received private respondents' Motion for Execution
and Appointment of Custodian of Proceeds of Execution dated February 6, 1995. ASSIGNMENT OF ERRORS

Petitioner thereafter filed with the Court of Appeals a special civil action I
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 THE COURT OF APPEALS ERRED IN NOT HOLDING THAT
in excess of jurisdiction and/or with grave abuse of discretion. 19 As ground THE MAKATI REGIONAL TRIAL COURT, BRANCH 62 WHICH
therefor, petitioner alleged that: 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
I APPLICATION FOR CONFIRMATION SHOULD HAVE BEEN
FILED AS A NEW CASE TO BE RAFFLED OFF AMONG THE
THE RESPONDENT JUDGE HAS NOT VALIDLY ACQUIRED DIFFERENT BRANCHES OF THE RTC.
JURISDICTION MUCH LESS, HAS THE COURT AUTHORITY,
TO CONFIRM THE ARBITRAL AWARD CONSIDERING THAT 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 FOR  CERTIORARI  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:
4. The Complaint is hereby DISMISSED. 22
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.
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
Appeal of petitioner to the
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
15-day 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,   and 1040   of the Civil Code applicable to compromises and arbitration
37 38
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.
x x x           x x x          x x x
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).
x x x           x x x          x x x
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)
xxx xxx xxx.
Section 25 which enumerates the grounds for modifying the award provides:
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:
(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.
x x x           x x x          x x x
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
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 1", and we adopted as Exh. 37-A for the respondent, may I know
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 or
notified that its obligations were past due and that foreclosure is
forthcoming;
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;
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.
Q : Now in this portion of Exh. "L" which was marked as Exh. "L-
from you, Dr. Mapa what you meant by "that the decision to
foreclose was neither precipitate nor arbitrary"?
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.
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.
x x x           x x x          x x x
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
the mandatory 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 extra-judicial
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
— equity, even if it were indeed 87%, did not give it ownership over any corporate
. . . 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
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
(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
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:
x x x           x x x          x x x
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 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 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 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.

 
3. MABUHAY HOLDINGS CORPORATION, PETITIONER, VS. SEMBCORP Pursuant to Article 13 of the Agreement, Mabuhay and IDHI voluntarily agreed to
LOGISTICS LIMITED, RESPONDENT. jointly guarantee that Sembcorp would receive a minimum accounting return of
US$929,875.50 (Guaranteed Return) at the end of the 24th month following the full
DECISION disbursement of the Sembcorp's equity investment in WJNA and WJSC. They
TIJAM, J.: further agreed that the Guaranteed Return shall be paid three (3) months from the
This is an appeal from the Decision[1] dated November 19, 2013 and the completion of the special audits of WJSC and WJNA as per Article 13.3 of the
Resolution[2] dated June 3, 2014 of the Court of Appeals (CA) in CA-G.R. CV No. Agreement.[10]
92296, reversing and setting aside the Decision of the Regional Trial Court (RTC)
[3]
 of Makati City, Branch 149, in SP Proc. No. M-6064. The Agreement included an arbitration clause, viz:
Article XIX. APPLICABLE LAW; ARBITRATION
Facts of the Case
19.1 This Agreement and the validity and performance thereof shall be governed
Petitioner Mabuhay Holdings Corporation (Mabuhay) and Infrastructure by the laws of the Republic of the Philippines.
Development & Holdings, Inc. (IDHI) are corporations duly organized and existing
under the Philippine Laws.[4] 19.2 Any dispute, controversy or claim arising out of or relating to this Agreement,
or a breach thereof, other than intra-corporate controversies, shall be finally settled
Respondent Sembcorp Logistics Limited (Sembcorp), formerly known as by arbitration in accordance with the rules of conciliation and arbitration of the
Sembawang Maritime Limited, is a company incorporated in the Republic of International Chamber of Commerce by one arbitrator with expertise in the matter
Singapore.[5] at issue appointed in accordance with said rules. The arbitration proceeding
including the rendering of the award shall take place in Singapore and shall be
On January 23, 1996, Mabuhay and IDHI incorporated Water Jet Shipping conducted in the English Language. This arbitration shall survive termination of
Corporation (WJSC) in the Philippines to engage in the venture of carrying this Agreement. Judgment upon the award rendered may be entered in any court
passengers on a common carriage by inter-island fast ferry. On February 5, 1996, having jurisdiction or application may be made to such court for a judicial
they also incorporated Water Jet Netherlands Antilles, N.Y. (WJNA) in Curasao, acceptance of the award and an order of enforcement, as the case may be.[11]
Netherlands.[6] Their respective shareholding percentage are as follows:[7] On December 6, 1996, Sembcorp effected full payment of its equity investment.
Special audits of WJNA and WJSC were then carried out and completed on
  WJSC WJNA  
January 8, 1999. Said audits revealed that WJSC and WJNA both incurred losses.
[12]
Mabuhay 70% 70%  
On November 26, 1999, Sembcorp requested for the payment of its Guaranteed
IDHI 30% 30%  
Return from Mabuhay and IDID. Mabuhay admitted its liability but asserted that
On September 16, 1996, Mabuhay, IDHI, and Sembcorp entered into a since the obligation is joint, it is only liable for fifty percent (50%) of the claim or
Shareholders' Agreement[8] (Agreement) setting out the terms and conditions US$464,937.75.[13]
governing their relationship in connection with a planned business expansion of
WJSC and WJNA. Sembcorp decided to invest in the said corporations. As a result On February 24, 2000, Sembcorp sent a Final Demand to Mabuhay to pay the
of Sembcorp's acquisition of shares, Mabuhay and IDHI's shareholding percentage Guaranteed Return. Mabuhay requested for three (3) months to raise the
in the said corporations were reduced, as follows:[9] necessary funds but still failed to pay any amount after the lapse of the said period.
[14]
  WJSC WJNA  

Mabuhay 45.5% 45.5%   On December 4, 2000, Sembcorp filed a Request for Arbitration before the
International Court of Arbitration of the International Chamber of Commerce (ICC)
IDHI 19.5% 19.5%   in accordance with the Agreement and sought the following reliefs:
(1) payment of the sum of US$929,875.50;
Sembcorp 35.0% 35.0%  
(2) alternatively, damages;
 absolute ownership over the aforesaid shares. Moreover, Mabuhay argued that the
(3) interest on the above sum at such rate as the Arbitral Tribunal deems fit and appointment of Dr. Chantara-Opakorn was not in accordance with the arbitral
just; clause as he did not have the expertise in the matter at issue, which involved
application of Philippine law. Finally, Mabuhay argued that the imposition of twelve
(4) cost of the arbitration; and percent (12%) interest from the date of the Final Award was contrary to the
Philippine law and jurisprudence.[21]
(5) Such further and/or other relief as the Arbitral Tribunal deems fit and just.[15]
On April 20, 2004, a Final Award[16] was rendered by Dr. Anan Chantara-Opakom Ruling of the RTC
(Dr. Chantara-Opakorn), the Sole Arbitrator appointed by the ICC. The dispositive
portion of the award reads: In a Decision[22] dated May 23, 2008, the RTC dismissed the petition and ruled that
The Sole Arbitrator hereby decides that the Sole Arbitrator has jurisdiction over the the Final Award could not be enforced.
parties' dispute and directs [Mabuhay] to make the following payments to
[Sembcorp]: The RTC ruled that the "simple contractual payment obligation" of Mabuhay and
IDHI to Sembcorp had been rescinded and modified by the merger or confusion of
1. Half of the Guaranteed Return or an amount of US$464,937.75 (Four Hundred the person of IDHI into the person of Sembcorp. As a result, said obligation was
Sixty Four Thousand Nine Hundred Thirty Seven and Point Seventy Five US converted into an intra-corporate matter.[23]
Dollars);
The RTC also ruled on the issue of the lack of expertise of the Sole Arbitrator.
2. Interest at the rate of 12% per annum on the said amount of US$464,937.75 Thus, the dispositive portion of its Decision reads:
calculated from the date of this Final Award until the said amount of WHEREFORE, premises considered, this court finds in favor of the defendant
US$464,937.75 is actually and completely paid by [Mabuhay] to [Sembcorp]; and Mabuhay Holdings Corporation, hence it hereby DISMISSED the petition for the
recognition and enforcement of the subject Arbitral Award for the simple reason
3. A reimbursement of half of the costs of arbitration fixed by the ICC Court at that it was issued in violation of the agreement. Moreover, this court cannot
US$57,000 or the aggregate half of which amount to US$28,500 together with an recognize the Arbitral Award because it was not the work of an expert as required
interest at the rate of 12% per annum calculated from the date of this Final Award under the agreement. Finally, the payment obligation in interest of 12% per annum
until the said amount is actually and completely paid by [Mabuhay] to [Sembcorp]. on the US Dollar Amounts ($464,937.75 and $28,500) as ordered by the Sole
[17]
Arbitrator is contrary to law and existing jurisprudence, hence void. Thus, it cannot
Consequently, on April 14, 2005, Sembcorp filed a Petition for Recognition and be enforced by this Court.
Enforcement of a Foreign Arbitral Award[18] before the RTC ofMakati City, Branch
149.[19] Cost de oficio.

Mabuhay filed an Opposition citing the following grounds for non-enforcement
under Article V of the 1958 Convention on the Recognition and Enforcement of
Foreign Arbitral Awards (New York Convention): (1) the award deals with a conflict
not falling within the terms of the submission to arbitration; (2) the composition of
the arbitral authority was not in accordance with the agreement of the parties; and
(3) recognition or enforcement of the award would be contrary to the public policy
of the Philippines.[20]
Mabuhay argued that the dispute is an intra-corporate controversy, hence,
excluded from the scope of the arbitration clause in the Agreement. It alleged that
on March 13, 1997, Sembcorp became the controlling stockholder of IDHI by
acquiring substantial shares of stocks through its nominee, Mr. Pablo N. Sare
(Sare). Mabuhay thus claimed that it has already been released from the joint
obligation with IDHI as Sembcorp assumed the risk of loss when it acquired
SO ORDERED.[24]
Aggrieved, Sembcorp appealed to the CA via a Notice of Appeal under Rule 41 of
the Rules of Court.[25]
Ruling of the CA
On November 19, 2013, the CA promulgated its Decision[26] reversing and setting
aside the RTC Decision.
The CA noted that the Final Award already settled the factual issue on whether
Sembcorp acquired the adverted shares of stock in IDHI. Thus, RTC's contrary
findings constituted an attack on the merits of the Final Award. In sum, the CA held
that the court shall not disturb the arbitral tribunal's determination of facts and/or
interpretation of the law. It recognized the Final Award and remanded the case to
the RTC for proper execution.[27] Sections 19 and 42 of the ADR Act expressly provided for the applicability of the
New York Convention and the Model Law in our jurisdiction, viz:
Undaunted, Mabuhay moved for the reconsideration of the CA Decision but the SEC. 19. Adoption of the Model Law on International Commercial
same was denied in a Resolution[28] dated June 3, 2014. Arbitration. - International commercial arbitration shall be governed by the Model
Law on International Commercial Arbitration (the "Model Law") adopted by the
Hence, this petition. United Nations Commission on International Trade Law on June 21, 1985 (United
Nations Document A/40/17) and recommended approved on December 11, 1985,
Issue copy of which is hereto attached as Appendix "N'.

The core issue for resolution is whether the RTC correctly refused to enforce the x x x x
Final Award. Stated differently, was Mabuhay able to establish a ground for
refusing the enforcement of the Final Award under our applicable laws and SEC. 42. Application of the New York Convention. - The New York Convention
jurisprudence on arbitration? shall govern the recognition and enforcement of arbitral awards covered by the
said Convention.
Our Ruling The recognition and enforcement of such arbitral awards shall be filled (sic) with
regional trial court in accordance with the rules of procedure to be
We deny the petition. 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
I. Governing Laws 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
An assiduous analysis of the present case requires a prefatory determination of supply a duly certified translation thereof into any of such languages.
the rules and other legal authorities that would govern the subject arbitration
proceedings and award. The applicant shall establish that the country in which foreign arbitration award
was made is a party to the New York Convention.
The arbitration proceedings between the parties herein were conducted in
Singapore and the resulting Final Award was also rendered therein. As such, the x x x x (Emphasis ours)
Final Award is a "foreign arbitral award" or an award made in a country other than Five years after the enactment of the ADR Act, the Department of Justice issued
the Philippines.[29] the ADR Act's Implementing Rules and Regulations (IRR)[35], and the Supreme
Court issued the Special Rules of Court on Alternative Dispute
The Philippines is among the first signatories of the 1958 Convention on the Resolution[36] (Special ADR Rules). These two rules, in addition to the ADR Act
Recognition and Enforcement of Foreign Arbitral Awards (New York Convention) incorporating the New York Convention and the Model Law, are our arbitration
and acceded to the same as early as 1967.[30] Singapore, on the other hand, laws.
became a Contracting State in 1986.[31] The New York Convention aims to provide
common legislative standards for the recognition of arbitration agreements and In addition to our arbitration laws, our courts, in recognizing or enforcing a foreign
court recognition and enforcement of foreign and non-domestic arbitral awards. arbitral award, shall also take into consideration the laws applied by the arbitral
Thus, the New York Convention primarily governs the recognition and enforcement tribunal. These may comprise the substantive law of the contract and the
of foreign arbitral awards by our courts.[32] procedural rules or the rules governing the conduct of arbitration proceedings.

In addition, as a member of the United Nations Commission in International Trade
Law (UNCITRAL), the Philippines also adopted the UNCITRAL Model
Law[33] (Model Law) as the governing law on international commercial arbitrations.
Hence, when the Congress enacted Republic Act No. 9285 or the Alternative
Dispute Resolution Act of 2004[34] (ADR Act), it incorporated the Model Law in its
entirety.
As agreed upon by the parties herein under the arbitral clause in their Agreement,
the substantive law of the contract is the Philippine law and the procedural rules
are the ICC Rules. During the filing of the request for Arbitration, the ICC Rules in
effect was the ICC Rules of Arbitration 1998[37] Considering that the essence of
arbitration is party autonomy, the Court shall refer to the said Rules for purposes of
examining the procedural infirmities raised by the parties to the arbitration.
II. Jurisdiction
Mabuhay argues that the CA seriously erred in not dismissing outright the appeal
of Sembcorp as it had no jurisdiction to act on the appeal. Mabuhay's argument
hinges on Rule 19.12 of the Special ADR Rules, as follows:
Rule 19.12. Appeal to the Court of Appeals. - An appeal to the Court of
Appeals through a petition for review under this Special Rule shall only be
allowed from the following final orders of the Regional Trial Court:
x x x x
k. Refusing recognition and/or enforcement of a foreign arbitral award; (Emphasis
supplied)
xxxx
Mabuhay thus contends that filing a petition for review and not a notice of appeal is
the proper remedy to contest the RTC's refusal to enforce the Final Award.
The Court notes, however, that the Special ADR Rules took effect in 2009.
Sembcorp's notice of appeal was filed only in 2008. The ADR Act, which was
already in effect at that time, did not specify the proper remedy of appeal from the
RTC to the CA. It merely provides that "a decision of the regional trial court
confirming, vacating, setting aside, modifying or correcting an arbitral award may
be appealed to the CA in accordance with the rules of procedure to be
promulgated by the Supreme Court."[38]
The Special ADR Rules shall retroactively apply to all pending cases provided that
no vested rights are impaired or prejudiced.[39] In this case, Sembcorp filed a notice
of appeal in accordance with Section 2 of Rule 41[40] as it is the only applicable rule
existing at that time. Sembcorp had a vested right to due process in relying on the
said rule. Consequently, the CA had jurisdiction to act on Sembcorp's appeal.
We now discuss the Court's jurisdiction to entertain the instant petition. The Court's
review of a CA Decision is discretionary and limited to specific grounds provided
under the Special ADR Rules. Thus:
Rule 19.36. Review discretionary. - A review by the Supreme Court is not a matter
of right, but of sound judicial discretion, which will be granted only for serious and
compelling reasons resulting in grave prejudice to the aggrieved party. The
following, while neither controlling nor fully measuring the court's discretion,
indicate the serious and compelling, and necessarily, restrictive nature of the
grounds that will warrant the exercise of the Supreme Court's discretionary
powers, when the Court of Appeals:
a. Failed to apply the applicable standard or test for judicial review
prescribed in these Special ADR Rules in arriving at its decision resulting in
substantial prejudice to the aggrieved party;
b. Erred in upholding a final order or decision despite the lack of jurisdiction of the
court that rendered such final order or decision;
c. Failed to apply any provision, principle, policy or rule contained in these Special
ADR Rules resulting in substantial prejudice to the aggrieved party; and
d. Committed an error so egregious and harmful to a party as to amount to an
undeniable excess of jurisdiction.
The mere fact that the petitioner disagrees with the Court of Appeals'
determination of questions of fact, of law or both questions of fact and law, shall
not warrant the exercise of the Supreme Court's discretionary power. The error
imputed to the Court of Appeals must be grounded upon any of the above
prescribed grounds for review or be closely analogous thereto.
A mere general allegation that the Court of Appeals has committed serious and
substantial error or that it has acted with grave abuse of discretion resulting in
substantial prejudice to the petitioner without indicating with specificity the nature
of such error or abuse of discretion and the serious prejudice suffered by the
petitioner on account thereof, shall constitute sufficient ground for the Supreme
Court to dismiss outright the petition. (Emphasis ours)
In relation to the applicable standard or test for judicial review by the CA in arriving
at its decision, the Special ADR Rules further provide:
Rule 19.20. Due course. - If upon the filing of a comment or such other pleading or
documents as may be required or allowed by the Court of Appeals or upon the
expiration of the period for the filing thereof, and on the basis of the petition or the
records, the Court of Appeals finds prima facie that the Regional Trial Court
has committed an error that would warrant reversal or modification of the
judgment, final order, or resolution sought to be reviewed, it may give due course
to the petition; otherwise, it shall dismiss the same.
x x x x
Rule 19.24. Subject of appeal restricted in certain instance. - If the decision of the
Regional Trial Court refusing to recognize and/or enforce, vacating and/or setting
aside an arbitral award is premised on a finding of fact, the Court of Appeals may
inquire only into such fact to determine the existence or non-existence of the
specific ground under the arbitration laws of the Philippines relied upon by
the Regional Trial Court to refuse to recognize and/or enforce, vacate and/or
set aside an award. Any such inquiry into a question of fact shall not be resorted to
for the purpose of substituting the court's judgment for that of the arbitral tribunal
as regards the latter's ruling on the merits of the controversy. (Emphasis ours)
Here, Mabuhay did not specifically raise any of the grounds under Rule 19.36
above in its petition before this Court. Nonetheless, considering the dearth of
jurisprudence on enforcement of foreign arbitral awards and the fact that the CA
reversed the RTC decision, the Court exercises its discretion to review the CA (c) The award deals with a difference not contemplated by or not falling
decision solely for purposes of determining whether the CA applied the aforecited within the terms of the submission to arbitration, or it contains decisions on
standard of judicial review. 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
III. Grounds for Refusing Enforcement or Recognition submitted, that part of the award which contains decisions on matters submitted to
arbitration may be recognized and enforced; or
We now delve into the core of the issue - whether there is a ground for the RTC to
refuse recognition and enforcement of the Final Award in favor of Sembcorp. (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,
Our jurisdiction adopts a policy in favor of arbitration.[41] The ADR Act and the was not in accordance with the law of the country where the arbitration took place;
Special ADR Rules both declare as a policy that the State shall encourage and or
actively promote the use of alternative dispute resolution, such as arbitration, as an
important means to achieve speedy and impartial justice and declog court dockets. (e) The award has not yet become binding on the parties, or has been set aside or
[42]
 This pro-arbitration policy is further evidenced by the rule on presumption in suspended by a competent authority of the country in which, or under the law of
favor of enforcement of a foreign arbitral award under the Special ADR Rules, viz: which, that award was made.
Rule 13.11. Court action. - It is presumed that a foreign arbitral award was 2. Recognition and enforcement of an arbitral award may also be refused if the
made and released in due course of arbitration and is subject to enforcement competent authority in the country where recognition and enforcement is sought
by the court. finds that:
(a) The subject matter of the difference is not capable of settlement by arbitration
The court shall recognize and enforce a foreign arbitral award unless a ground to under the law of that country; or
refuse recognition or enforcement of the foreign arbitral award under this rule is
fully established. (b) The recognition or enforcement of the award would be contrary to the
public policy of that country. (Emphasis ours)
The decision of the court recognizing and enforcing a foreign arbitral award is The aforecited grounds are essentially the same grounds enumerated under
immediately executory. Section 36[43] of the Model Law. The list is exclusive. Thus, Section 45 of the ADR
Act provides:
In resolving the petition for recognition and enforcement of a foreign arbitral award SEC. 45. Rejection of a Foreign Arbitral Award. - A party to a foreign arbitration
in accordance with these Special ADR Rules, the court shall either [a] recognize proceeding may oppose an application for recognition and enforcement of the
and/or enforce or [b] refuse to recognize and enforce the arbitral award. The court arbitral award in accordance with the procedural rules to be promulgated by the
shall not disturb the arbitral tribunal's determination of facts and/or Supreme Court only on those grounds enumerated under Article V of the New
interpretation of law. (Emphasis ours) York Convention. Any other ground raised shall be disregarded by the
Under Article V of the New York Convention, the grounds for refusing enforcement regional trial court. (Emphasis ours)
and recognition of a foreign arbitral award are: In Our jurisdiction, We have incorporated the grounds enumerated under the New
1. Recognition and enforcement of the award may be refused, at the request of the York Convention in our arbitration laws. Article 4.36, Rule 6[44] of the IRR and Rule
party against whom it is invoked, only if that party furnishes to the competent 13.4[45] of the Special ADR Rules reiterated the exact same exclusive list of
authority where the recognition and enforcement is sought, proof that: grounds.
(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 After a careful review of the case, We find that Mabuhay failed to establish any of
under the law to which the parties have subjected it or, failing any indication the grounds for refusing enforcement and recognition of a foreign arbitral award.
thereon, under the law of the country where the award was made; or We discuss the grounds raised by Mabuhay in seriatim:

(b) The party against whom the award is invoked was not given proper notice of A. The arbitral authority, composed of Dr. Chatara-Opakorn as the sole arbitrator,
the appointment of the arbitrator or of the arbitration proceedings or was otherwise was constituted in accordance with the arbitration agreement.
unable to present his case; or
The first ground raised by Mabuhay is Article V(l)(d) of the New York
Convention, i.e., that the composition of the arbitral authority was not in
accordance with the agreement of the parties. Mabuhay and Sembcorp stipulated
in their Agreement that the sole arbitrator must have "expertise in the matter at
issue". Since they also agreed that the validity and the performance of the
Agreement shall be governed by the Philippine law, Mabuhay argues that the
phrase "expertise in the matter at issue" necessarily means expertise in the
Philippine law. Dr. Chatara-Opakom, a Thai national, does not possess any
educational degree or training in Philippine law.
The Agreement provides, however, that the arbitrator with expertise in the matter
at issue shall be appointed in accordance with the ICC Rules. The ICC, thus, is the
appointing authority agreed upon by the parties. The "appointing authority" is the
person or institution named in the arbitration agreement as the appointing
authority; or the regular arbitration institution under whose rule the arbitration is
agreed to be conducted.[46] Where the parties have agreed to submit their dispute
to institutional arbitration rules, and unless they have agreed to a different
procedure, they shall be deemed to have agreed to procedure under such
arbitration rules for the selection and appointment of arbitrators.[47]
The pertinent rules in the ICC Arbitration Rules of 1998 provide:
Article 9 - Appointment and Confirmation of the Arbitrators
x x x x
3. Where the Court is to appoint a sole arbitrator or the chairman of an Arbitral
Tribunal, it shall make the appointment upon a proposal of a National Committee
of the ICC that it considers to be appropriate. If the Court does not accept the
proposal made, or if the National Committee fails to make the proposal requested
within the time limit fixed by the Court, the Court may repeat its request or may
request a proposal from another National Committee that it considers to be
appropriate.
x x x x
5. The sole arbitrator or the chairman of the Arbitral Tribunal shall be of a
nationality other than those of the parties. However, in suitable circumstances
and provided that neither of the parties objects within the time limit fixed by the
Court, the sole arbitrator or the chairman of the Arbitral Tribunal may be chosen
from a country of which any of the parties is a national. (Emphasis ours)
In accordance with the aforecited rules, Dr. Chantara-Opakom was appointed
upon the proposal of the Thai National Committee.
It bears stressing that the pro-arbitration policy of the State includes its policy to
respect party autonomy. Thus, Rule 2.3 of the Special ADR Rules provides that
"the parties are free to agree on the procedure to be followed in the conduct of
arbitral proceedings." The procedure to be followed on the appointment of
arbitrator are among the procedural rules that may be agreed upon by the parties.
Moreover, under Rule 7.2 of the Special ADR Rules, a challenge to the
appointment of an arbitrator may be raised in court only when the appointing
authority fails or refuses to act on the challenge within such period as may be
allowed under the applicable rule or in the absence thereof, within thirty (30) days
from receipt of the request, that the aggrieved party may renew the challenge in
court. This is clearly not the case for Mabuhay as it was able to challenge the
appointment of Dr. Chantara-Opakom in accordance with Article 11 of the ICC
Rules, but the ICC Court rejected the same.[48] As such, the Court shall not
entertain any challenge to the appointment of arbitrator disguised as a ground for
refusing enforcement of an award.
At any rate, Mabuhay's contention that the sole arbitrator must have the expertise
on Philippine law fails to persuade. If the intent of the parties is to exclude foreign
arbitrators due to the substantive law of the contract, they could have specified the
same considering that the ICC Rules provide for appointment of a sole arbitrator
whose nationality is other than those of the parties.
B. The dispute is not an intra corporate controversy, hence, included in the scope
of disputes submitted to arbitration.
Under Article V(l)(c) of the New York Convention, the court may refuse
enforcement of a foreign arbitral award when the award deals with a difference not
contemplated by or not falling within the terms of the submission to arbitration.
Mabuhay argues that the dispute is an intracorporate controversy which is
expressly excluded from the scope of disputes submitted to arbitration under the
Agreement. In essence, Mabuhay attacks the jurisdiction of the arbitral tribunal to
hear the dispute as it did not fall within the terms of submission to arbitration.
The CA correctly applied the Kompetenz-Kompetenz principle expressly
recognized under Rule 2.2 of the Special ADR Rules, viz:
The Special ADR Rules recognize the principle of competence competence, which
means that the arbitral tribunal may initially rule on its own jurisdiction, including
any objections with respect to the existence or validity of the arbitration agreement
or any condition precedent to the filing of a request for arbitration.
The Special ADR Rules expounded on the implementation of the said principle:
Rule 2.4. Policy implementing competence-competence principle. The arbitral
tribunal shall be accorded the first opportunity or competence to rule on the issue
of whether or not it has the competence or jurisdiction to decide a dispute
submitted to it for decision, including any objection with respect to the existence or
validity of the arbitration agreement. When a court is asked to rule upon issue/s
affecting the competence or jurisdiction of an arbitral tribunal in a dispute brought
before it, either before or after the arbitral tribunal is constituted, the court must
exercise judicial restraint and defer to the competence or jurisdiction of the
arbitral tribunal by allowing the arbitral tribunal the first opportunity to rule
upon such issues. (Emphasis ours)
To recall, the Agreement provides that "(a)ny dispute, controversy or claim arising
out of or relating to this Agreement, or breach thereof, other than intra-corporate
controversies, shall be finally settled by arbitration..."
Among the issues settled in the Final Award is whether the dispute is an intra-
corporate controversy. Dr. Chantara-Opakom ruled in the negative. The pertinent
portion of the Final Award is reproduced as follows:
x x x Indeed, during the cross-examination of Mr. Chay, he admitted that there
was no transfer of shares from IDHI to the Claimant [p. 130 of Transcript of
Proceedings]:
x x x x
During the re-examination of Mr. Chay by the Respondent's counsel, he again
admitted that the transfer of the shares from IDHI to the Claimant has not taken
effect [p. 155 of Transcript of Proceedings]:
x x x x
It is clear that the Claimant's claim is neither premised on allegations of
mismanagement of WJNA and WJSC, nor on who manages or controls or who has
the right to manage or control WJNA and WJSC, nor is it a claim to effect the
transfer of the share, nor an action for registration of the shares transfer [sic]
already transferred from IDHI to the Claimant in the books of WJNA and WJSC.
The nature of the Claimant's claim is not intrinsically connected with the regulation
of the corporation. The Claimant's claim in this arbitration is straightforward: that
the Respondent agreed, under a contract, to make payment of certain amount of
money to the Claimant upon the occurrence of a specified event; that the said
event occurred but the Respondent refused to pay such amount of money to the
Claimant; that the Claimant filed the Request in order to enforce the payment.
Accordingly, the Sole Arbitrator is of the opinion that the dispute in this
arbitration is not an intra-corporate controversy, and, hence, it is not
excluded from arbitration under Article 19.2 of the Shareholders' Agreement.
[49]
 (Emphasis ours)
Again, the Special ADR Rules specifically provides that in resolving the petition for
recognition and enforcement of a foreign arbitral award, the court shall not disturb
the arbitral tribunal's determination of facts and/or interpretation of law.[50]
Yet, the RTC, in its decision dismissing the petition of Sembcorp, declared that "it
is undisputed that the shares of stocks of IDHI in WJNA and WJSC were actually
owned by [Sembcorp] before the filing of the request for arbitration" [51] without
providing any factual basis for such conclusion which directly contradicts the
arbitral tribunal's findings.
Even granting that the court may rule on the issue of whether the dispute is an
intra-corporate controversy, Mabuhay's argument is premised on the factual issue
of whether Sembcorp indeed acquired the shares of IDHI. Mabuhay failed to
establish such fact before the arbitral tribunal. The RTC, on the other hand,
concluded that Sembcorp acquired the subject shares but failed to explain the
basis for such conclusion. In the absence of sufficient evidence that Sembcorp
acquired the shares of IDHI, the Court finds no cogent reason to disturb the arbitral
tribunal's ruling in favor of the latter's jurisdiction over the dispute.
C. Enforcement of the award would not be contrary to public policy of the
Philippines.
Under Article V(2)(b) of the New York Convention, a court may refuse to enforce
an award if doing so would be contrary to the public policy of the State in which
enforcement is sought. Neither the New York Convention nor the mirroring
provisions on public policy in the Model Law and Our arbitration laws provide a
definition of "public policy" or a standard for determining what is contrary to public
policy. Due to divergent approaches in defining public policy in the realm of
international arbitration, public policy has become one of the most controversial
bases for refusing enforcement of foreign arbitral awards. [52]
Most arbitral jurisdictions adopt a narrow and restrictive approach in defining public
policy pursuant to the pro-enforcement policy of the New York Convention. The
public policy exception, thus, is "a safety valve to be used in those exceptional
circumstances when it would be impossible for a legal system to recognize an
award and enforce it without abandoning the very fundaments on which it is
based."[53] An example of a narrow approach adopted by several jurisdictions[54] is
that the public policy defense may only be invoked "where enforcement [of the
award] would violate the forum state's most basic notions of morality and
justice."[55] Thus, in Hong Kong, an award obtained by fraud was denied
enforcement by the court on the ground that fraud is contrary to Hong Kong's
"fundamental notions of morality and justice."[56] In Singapore, also a Model Law
country, the public policy ground is entertained by courts only in instances where
upholding the award is "clearly injurious to the public good or... wholly offensive to
the ordinary reasonable and fully informed member of the public."[57]
In Our jurisdiction, the Court has yet to define public policy and what is deemed
contrary to public policy in an arbitration case. However, in an old case, the Court,
through Justice Laurel, elucidated on the term "public policy" for purposes of
declaring a contract void:
x x x At any rate, courts should not rashly extend the rule which holds that a
contract is void as against public policy. The term "public policy" is vague and
uncertain in meaning, floating and changeable in connotation. It may be said,
however, that, in general, a contract which is neither prohibited by law nor
condemned by judicial decision, nor contrary to public morals, contravenes no
public policy. In the absence of express legislation or constitutional prohibition, a
court, in order to declare a contract void as against public policy, must find that the
contract as to the consideration or thing to be done, has a tendency to injure the
public, is against the public good, or contravenes some established interests
of society, or is inconsistent with sound policy and good morals, or tends
clearly to undermine the security of individual rights, whether of personal
liability or of private property.[58] (Emphasis ours)
An older case, Ferrazzini v. Gsell[59], defined public policy for purposes of
determining whether that part of the contract under consideration is against public
policy:
By "public policy," as defined by the courts in the United States and England, is
intended that principle of the law which holds that no subject or citizen can
lawfully do that which has a tendency to be injurious to the public or against
the public good, which may be termed the "policy of the law," or "public policy in
relation to the administration of the law." Public policy is the principle under which
freedom of contract or private dealing is restricted by law for the good of the public.
In determining whether a contract is contrary to public policy the nature of the
subject matter determines the source from which such question is to be solved.
(Emphasis ours and citation omitted)
In light of the foregoing and pursuant to the State's policy in favor of arbitration and
enforcement of arbitral awards, the Court adopts the majority and narrow approach
in determining whether enforcement of an award is contrary to Our public policy.
Mere errors in the interpretation of the law or factual findings would not suffice to
warrant refusal of enforcement under the public policy ground. The illegality or
immorality of the award must reach a certain threshold such that, enforcement of
the same would be against Our State's fundamental tenets of justice and morality,
or would blatantly be injurious to the public, or the interests of the society.
We now discuss the pertinent claims of Mabuhay in relation to public policy.
i. Violation of partnership law
Mabuhay contends that it entered into a joint venture, which is akin to a particular
partnership, with Sembcorp. Applying the laws on partnership, the payment of the
Guaranteed Return to Sembcorp is a violation of Article 1799[60] of the Civil Code,
as it shields the latter from sharing in the losses of the partnership. Ergo,
enforcement of the Final Award would be contrary to public policy as it upholds a
void stipulation.
The restrictive approach to public policy necessarily implies that not all violations of
the law may be deemed contrary to public policy. It is not uncommon for the courts
in Contracting States of the New York Convention to enforce awards which does
not conform to their domestic laws.[61]
At any rate, Mabuhay's contention is bereft of merit. The joint venture between
Mabuhay, IDHI, and Sembcorp was pursued under the Joint Venture Corporations,
WJSC and WJNA. By choosing to adopt a corporate entity as the medium to
pursue the joint venture enterprise, the parties to the joint venture are bound by
corporate law principles under which the entity must operate.[62] Among these
principles is the limited liability doctrine. The use of a joint venture corporation
allows the co-venturers to take full advantage of the limited liability feature of the
corporate vehicle which is not present in a formal partnership arrangement. [63] In
fine, Mabuhay's application of Article 1799 is erroneous.
ii. Imposition of interest
Mabuhay argues that the twelve percent (12%) annual interest from the date of the
Final Award is also contrary to the Philippine law and jurisprudence. To reiterate,
the only ground for refusing enforcement of a foreign arbitral award is when
enforcement of the same would be contrary to public policy.
Mere incompatibility of a foreign arbitral award with domestic mandatory rules on
interest rates does not amount to a breach of public policy. However, some
jurisdictions refused to recognize and enforce awards, or the part of the award
which was considered to be contrary to public policy, where they considered that
the awarded interest was unreasonably high.[64] In this case, the twelve percent
(12%) interest rate imposed under the Final Award is not unreasonably high or
unconscionable such that it violates our fundamental notions of justice.
IV. Attorney's Fees
Mabuhay avers that the dispositive portion of the CA Decision failed to include its
finding that Mabuhay is not liable for attorney's fees and exemplary damages. The
pertinent portion of the CA Decision is reproduced as follows:
Turning now to Sembcorp's prayer for the award of attorney's fees and exemplary
damages, We find the same bereft of legal and factual bases. Article 2208 of the
Civil Code allows attorney's fees to be awarded if the claimant is compelled to
litigate with third persons or to incur expenses to protect his interest by reason of
an unjustified act or omission of the party from whom it is sought, there must be a
showing that the losing party acted willfully or in bad faith and practically compelled
the claimant to litigate and incur litigation expenses. Meanwhile, in order to obtain
exemplary damages under Article 2232 of the Civil Code, the claimant must prove
that the assailed actions of the defendant are not just wrongful, but also wanton,
fraudulent, reckless, oppressive or malevolent.
Indeed, Sembcorp was compelled to file the instant appeal. However, such fact
alone is insufficient to justify an award of attorney's fees and exemplary damages
when there is no sufficient showing of MHC's [Mabuhay] bad faith in refusing to
abide by the provisions of the Final Award. To Us, MHC's [Mabuhay] persistent
acts in rejecting Sembcorp's claim proceed from an erroneous conviction in the
righteousness of its cause.[65]
We affirm the aforecited findings of the CA. However, We find no conflict between
the fallo and the ratio decidendi of the CA Decision. The fallo of the CA Decision
includes "[n]o pronouncement as to cost." The CA also reversed and set aside the
RTC Decision in its entirety. As such, even the pronouncement of the RTC as to
costs is set aside. Accordingly, We find no merit in Mabuhay's prayer for a
statement in the dispositive portion expressly stating that it is not liable for
attorney's fees and exemplary damages.

On a final note, We implore the lower courts to apply the ADR Act and the Special
ADR Rules accordingly. Arbitration, as a mode of alternative dispute resolution, is
undeniably one of the viable solutions to the longstanding problem of clogged court
dockets. International arbitration, as the preferred mode of dispute resolution for
foreign companies, would also attract foreign investors to do business in the
country that would ultimately boost Our economy. In this light, We uphold the
policies of the State favoring arbitration and enforcement of arbitral awards, and
have due regard to the said policies in the interpretation of Our arbitration laws.

WHEREFORE, the Petition is hereby DENIED. The November 19, 2013 Decision

and the June 3, 2014 Resolution of the Court of Appeals in CA-G.R. CV No. 92296
are AFFIRMED.

SO ORDERED.