APT v.

CA,
G.R. No. 121171, December 29, 1998
Kapunan, J.
FACTS:

The mineral deposits in the Surigao Mineral Reservation were authorized for development by
various laws. A Memorandum of Agreement in 1968 granted MMIC exclusive rights. MMIC, a
domestic mining corporation, faced financial challenges.

The government supported MMIC financially through bonds, guarantees, and equity. DBP and
PNB played crucial roles. Due to MMIC's financial difficulties, a financial restructuring plan
(FRP) was drafted in 1984 but not officially approved. By 1984, MMIC owed DBP and PNB
around P22.7 billion.

In 1984, DBP and PNB, as mortgagees, foreclosed on MMIC's assets due to defaulted loans. The
foreclosed assets were sold to PNB and assigned to new corporations, which later transferred
them to APT (Asset Privatization Trust).

In 1985, MMIC's shareholders, including Jesus S. Cabarrus, Sr., filed a derivative suit against
DBP and PNB, seeking to annul the foreclosures and recover damages.

During the trial, the parties agreed to submit the case to arbitration. A Compromise and
Arbitration Agreement was approved by the court, transferring the dispute to arbitration and
reducing the claims to monetary issues related to the derivative suit.

The Arbitration Committee ruled in favor of MMIC, awarding substantial damages. The trial
court confirmed the award, ordering APT (PNB and DBP's successor) to pay MMIC. APT filed a
motion for reconsideration, but the trial court denied it for being filed out of time.

APT then filed a special civil action for certiorari with the Court of Appeals to annul the orders
confirming the arbitration award.

ISSUE:

Whether or not Jesus Cabarrus, Sr. should be awarded damages. (NEGATIVE)

RULING:

The arbiters went beyond their authority by awarding damages to MMIC and moral damages to
Jesus Cabarrus, Sr., who wasn't directly involved in the derivative suit.

In Civil Case No. 9900, a derivative suit, MMIC wasn't included as a party plaintiff or defendant,
rendering the awarded damages to MMIC null. In a derivative suit, the corporation is the real
party in interest, while the shareholder represents the corporation. It's essential to include the
corporation in the suit, and not doing so is a fundamental flaw.
Allowing individual shareholders to claim damages directly conflicts with legal principles:

Shareholders don't have direct ownership of corporate assets.

Creditors' rights could be harmed.
Management's duty to protect everyone involved would be undermined.
Multiple lawsuits and confusion could arise.
Recovery by an individual might affect the corporation's damages.
Even if MMIC were due damages, the arbitration committee wrongly considered DBP's equity in
the corporation. DBP's alleged equity doesn't grant it ownership, as corporations and
shareholders are separate entities. The committee's decision also prejudiced other creditors.

Furthermore, awarding moral damages to Jesus Cabarrus, Sr. was unjustified. The Arbitration
Committee's reasoning was flawed, as the assets in question belonged to MMIC, not individual
shareholders. Cabarrus already obtained actual damages in a previous case and couldn't claim
moral damages again. This exceeded the arbitration committee's authority and went against legal
principles.