GR No 121171

December 29, 1998

ASSET PRIVATIZATION TRUST v COURT OF APPEALS, JOSE CABARRUS et. al.

Facts:

The government undertook to support the financing of Marinduque Mining and Industrial
Corporation (MMIC) and thus, issued debenture bonds in favor of MMIC which enable the
latter to take out loans from the Development Bank of the Philippines (DBP) and the
Philippine National Bank (PNB). The loans were mortgaged by MMIC’s assets. However,
MMIC’s indebtedness ballooned to P13.7 billion and P8.7 billion to DPB and PNB
respectively. Because of MMIC’s failure to pay, this exposed the government due to the
debenture bonds amounting to P22 billion obligation.
A financial restructuring plan (FRP) was drafted in order to mitigate the loan liability in the
presence of the representatives of PNB and DBP. The two banks however never formally
approved the said FRP. PNB and DBP chose to foreclose MMIC’s assets and were eventually
assigned to the Asset Privatization Trust (APT).
Later, Jesus Cabarrus, Sr., a stockholder of MMIC initiated a derivative suit against PNB and
DBP with APT being impleaded as the successor in interest of the two banks. The suit
basically questioned the foreclosure as Cabarrus asserted that the foreclosure was invalid
because he insisted that the FRP was adopted by PNB and DBP as a consequence of the
presence of the banks’ representatives when the said FRP was drafted.
The Arbitration Committee (AC) which heard the case ruled in favor of Cabarrus. Cabarrus
then filed before the Makati RTC a motion to confirm the arbitration award. APT opposed
the same as it alleged that the motion is improper. Makati RTC denied APT’s opposition and
confirmed the arbitration award. The Court of Appeals affirmed the ruling of the RTC.

Issue:

Is the Financial Restructuring Plan valid since it was made in the presence of the
representatives of DBP and PNB?

Ruling:

No.
The FRP is not valid hence the foreclosure is valid. The mere presence of DBP’s and PNB’s
representatives during the drafting of FRP is not constitutive of the banks’ formal approval
of the FRP. The representatives are personalities distinct from PNB and DBP. PNB and DBP
have their own boards and officers who may have different decisions. The representatives
were not shown to have been authorized by the respective boards of the two banks to enter
into any agreement with MMIC.