Insular Savings Bank vs. Far East Bank and Trust Company

Contractual arbitration rules cannot confer jurisdiction on the Regional Trial Court to review arbitral awards via petition for review, jurisdiction over the subject matter being vested only by law; the proper remedies for challenging an arbitral award are a motion to vacate with the RTC under the Arbitration Law, or a petition for review or certiorari with the Court of Appeals under the Rules of Court.

Far East Bank and Trust Company (respondent) sought to recover funds from Home Bankers Trust and Company (HBTC, petitioner's predecessor-in-interest) arising from checks debited against its clearing account and returned after the reglementary period. The dispute was submitted to the PCHC Arbitration Committee under the compromissoire embedded in the PCHC membership contract. Concurrently, respondent filed a separate civil action for sum of money and damages against HBTC and its officers in the Regional Trial Court of Makati City. The trial court suspended the proceedings against HBTC pending the arbitration award.

• Nature of Dispute: Respondent sought to recover ₱25,200,000.00 from HBTC, representing the total amount of three checks drawn and debited against its clearing account. HBTC sent the checks to respondent for clearing, but respondent dishonored them for insufficiency of funds and returned them after the reglementary regional clearing period, prompting HBTC to refuse acceptance.
• Arbitration Proceedings: On December 11, 1991, respondent filed a complaint with the PCHC Arbitration Committee (Arbicom Case No. 91-069). On February 2, 1998, the Committee rendered a decision in favor of respondent, awarding ₱12,600,000.00 plus 12% annual interest, the total amount having been split between the parties during the proceedings. The Committee denied petitioner's motion for reconsideration.
• Parallel Court Action: On January 17, 1992, while arbitration was pending, respondent filed Civil Case No. 92-145 for Sum of Money and Damages with Preliminary Attachment against HBTC and its president and depositors in the RTC of Makati City. The RTC suspended proceedings against HBTC pending the arbitral award.
• Judicial Review Attempt: To appeal the Arbitration Committee's decision, petitioner filed a petition for review in the pending Civil Case No. 92-145, relying on Section 13 of the PCHC Rules which provides that arbitral awards are appealable only on questions of law to the RTC.
• RTC Dismissal: Respondent moved to dismiss the petition for review for lack of jurisdiction. The RTC granted the motion, ruling that a petition for review is a separate and distinct case that must comply with the requirements for initiatory pleadings, and dismissed the petition for lack of jurisdiction due to non-compliance with these mandatory requirements.

• Proper Forum: Petitioner argued that the petition for review of the arbitral award must be filed in Civil Case No. 92-145, which was merely suspended to await the outcome of the arbitration, and should not be docketed as a separate action.
• Multiplicity of Suits: Petitioner maintained that filing a separate action would result in a multiplicity of suits, which is abhorred in procedural law.

• No Statutory Basis for Appeal: Respondent countered that there is no statutory basis for an appeal from private arbitrators' awards to the RTC, and parties cannot by agreement confer a non-existent jurisdiction on the courts.
• Violation of Procedural Rules: Respondent argued that filing the petition for review in an already pending case violated the rules on commencing an original action under Section 5, Rule 1, and the raffle of cases under Section 2, Rule 20 of the Rules of Court.

• Jurisdiction of RTC: Whether the RTC has jurisdiction to entertain a petition for review of an arbitral award based on the PCHC Rules.
• Proper Remedy: Whether a petition for review with the RTC is the correct remedy to challenge an arbitral award.

• Jurisdiction of RTC: The RTC correctly dismissed the petition for lack of jurisdiction, albeit on an erroneous ground. Jurisdiction over the subject matter is conferred exclusively by law and cannot be conferred by the consent or acquiescence of the parties or by erroneous belief of the court. Because the PCHC Rules are merely contractual agreements among member banks and not statutory law, the provision therein granting the RTC appellate jurisdiction over arbitral awards cannot be given effect.
• Proper Remedy: A petition for review with the RTC is not the proper remedy. The decision of the Arbitration Committee is subject to judicial review only through the following remedies: (1) a motion to vacate the arbitral award with the RTC on the grounds provided under Section 24 of the Arbitration Law; (2) a petition for review with the Court of Appeals under Rule 43 of the Rules of Court on questions of fact, law, or mixed questions; or (3) a petition for certiorari with the Court of Appeals under Rule 65 on grounds of grave abuse of discretion. The RTC only possesses jurisdiction over arbitral awards in instances of motions to vacate; otherwise, the Court of Appeals retains jurisdiction over petitions for review or certiorari. Consequently, petitioner's arguments regarding the avoidance of a multiplicity of suits were rendered immaterial.

• Jurisdiction over the subject matter — Jurisdiction is the authority to hear and determine a cause. Jurisdiction over the subject matter is conferred by law and cannot be conferred by the consent or acquiescence of the parties or by erroneous belief of the court that it exists. Contractual stipulations or private arbitration rules cannot vest jurisdiction in a court where the law does not provide for it.
• Judicial Review of Arbitral Awards — While the findings of fact of an arbitral award are final and conclusive upon the parties, arbitral awards are subject to judicial review under specific statutory remedies. A party may seek to vacate the award in the RTC on grounds of corruption, fraud, partiality, misconduct, or excess of power; file a petition for review with the Court of Appeals under Rule 43; or file a petition for certiorari with the Court of Appeals under Rule 65 for grave abuse of discretion.

• "Jurisdiction over the subject matter is conferred by law and not by the consent or acquiescence of any or all of the parties or by erroneous belief of the court that it exists."
• "Since the PCHC Rules came about only as a result of an agreement between and among member banks of PCHC and not by law, it cannot confer jurisdiction to the RTC. Thus, the portion of the PCHC Rules granting jurisdiction to the RTC to review arbitral awards, only on questions of law, cannot be given effect."

• Chung Fu Industries (Phils.), Inc. v. Court of Appeals, G.R. No. 96283, February 25, 1992, 206 SCRA 545 — Followed for the proposition that where conditions described in Articles 2038, 2039, and 2040 of the Civil Code are obtaining, the arbitrators' award may be annulled or rescinded.
• Allied Domecq Phil., Inc. v. Villon, G.R. No. 156264, September 30, 2004, 439 SCRA 667 — Followed for the fundamental doctrine that jurisdiction over the subject matter is conferred by law and not by the consent or acquiescence of the parties.

• Republic Act No. 876 (The Arbitration Law), Secs. 23, 24, 29 — Section 23 governs the confirmation of an award; Section 24 enumerates the exclusive grounds for vacating an award (corruption, fraud, partiality, misconduct, excess of power); Section 29 provides that appeals from orders in arbitration proceedings are limited to questions of law via certiorari. The Court relied on Section 24 to identify the RTC's proper role in vacating awards.
• Rules of Court, Rule 43, Secs. 1 & 3 — Governs appeals from quasi-judicial agencies to the Court of Appeals on questions of fact, law, or mixed questions. Applied to establish that a petition for review of an arbitral award falls under the CA's jurisdiction.
• Rules of Court, Rule 65, Sec. 4 — Governs certiorari proceedings against quasi-judicial agencies. Applied to establish that certiorari for grave abuse of discretion by an Arbitration Committee must be filed with the Court of Appeals.
• New Civil Code, Art. 2044 — Recognizes the validity of stipulations that arbitrators' awards shall be final, without prejudice to grounds for annulment or rescission under Arts. 2038, 2039, and 2040.
• PCHC Amended Arbitration Rules of Procedure, Sec. 13 — Stipulated that findings of fact are final and awards are appealable only on questions of law to the RTC NCR. Declared ineffective insofar as it attempts to confer appellate jurisdiction on the RTC, jurisdiction being vested only by statute.

Artemio V. Panganiban (CJ, Chairperson), Ma. Alicia Austria-Martinez, Romeo J. Callejo, Sr., Minita V. Chico-Nazario