APT vs.

CA ET AL DIGEST

DECEMBER 21, 2016 ~ VBDIAZ

ASSET PRIVATIZATION TRUST vs. COURT OF APPEALS, ET. AL.,

G.R. No. 121171 / December 29, 1998

FACTS:

Pursuant to a Mortgage Trust Agreement, the Development Bank of the Philippines and the Philippine National Bank foreclosed the
assets of the Marinduque Mining and Industrial Corporation. The assets were sold to Philippine National Bank and later transferred to
the Asset Privatization Trust (APT).

In February 1985, Jesus Cabarrus, Sr., together with other stockholders of Marinduque Mining and Industrial Corporation, filed a
derivative suit against Development Bank of the Philippines and Philippine National Bank before the Regional Trial Court of Makati
for Annulment of Foreclosures, Specific Performance and Damages. In the course of the trial, Marinduque Mining and Industrial
Corporation and Asset Privatization Trust as successor in interest of Development Bank of the Philippines and Philippine National
Bank, agreed to submit the case to arbitration by entering into a Compromise and Arbitration Agreement. This agreement was
approved by the trial court and the complaint was corollarily dismissed.

Thereafter, the Arbitration Committee rendered a decision ordering Asset Privatization Trust to pay Marinduque Mining and Industrial
Corporation damages and arbitration costs in the amount of P2.5 Billion, P13,000,000.00 of which is for moral and exemplary
damages.

On motion of Cabarrus and the other stockholders of Marinduque Mining and Industrial Corporation, the trial court confirmed the
Arbitration Committee’s award. Its motion for reconsideration having been denied, Asset Privatization Trust filed a special civil action
for certiorari with the Court of Appeals. It was likewise denied.

Hence, this petition for review on certiorari.

ISSUE:

Whether or not the Marinduque Mining and Industrial Corporation is entitled to moral damages?

HELD:

No. 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.

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.

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.

WHEREFORE, the petition is GRANTED.