METROPOLITAN BANK & TRUST COMPANY, PETITIONER, VS. THE HONORABLE COURT OF APPEALS AND UNITED OVERSEAS BANK (FORMERLY KNOWN AS WESTMONT BANK), RESPONDENTS.

Metropolitan Bank and Trust Company versus United Overseas Bank

The Case

This is a petition for review on certiorari brought by Metropolitan Bank and Trust Company, which we shall call Metrobank, against United Overseas Bank, formerly known as Westmont Bank, which we shall call the United Overseas Bank. The dispute began as a clearing controversy over a single check that Metrobank paid and then sought to return as materially altered, and it was first brought before the Philippine Clearing House Corporation Arbitration Committee. What reaches us now is not the merits of the alteration but the narrower and more durable question of where, and by what remedy, a party may seek judicial review of an arbitral award rendered under the clearing house rules. The case matters because it fixes the boundary between contractual arbitration rules and the jurisdiction of courts, and it reminds every practitioner that jurisdiction is conferred by law and never by the agreement of the parties.

Procedural History

Metrobank filed a complaint before the Philippine Clearing House Corporation Arbitration Committee, docketed as an arbitration case, contending that the United Overseas Bank should bear the loss for failing to detect the alteration of the check. The Arbitration Committee dismissed the complaint when Metrobank's counsel failed to appear at a scheduled hearing. Metrobank's motion for reconsideration was denied, and its second motion for reconsideration was likewise denied by the Board of Directors of the Philippine Clearing House Corporation through its board resolution. Following the advice of the clearing house Executive Secretary, Metrobank then filed a petition for review with the Regional Trial Court of Makati City. The trial court dismissed the petition, holding that it had no jurisdiction because the petition was filed out of time, and adding that the arbitration committee correctly dismissed the case for failure to prosecute and that the drawee bank must bear the loss for mistakenly clearing an altered check. Metrobank appealed to the Court of Appeals, which affirmed the dismissal but corrected the reasoning, holding that the petition for review was filed on time under the clearing house rules, yet the case was properly dismissed for lack of interest to prosecute and for violation of the twenty-four hour clearing house rule. Metrobank then came to the Supreme Court by petition for review on certiorari.

Facts

A check dated January 13, 1997, payable to cash and drawn against the account of Bienvenido C. Tan with Metrobank, was deposited with the United Overseas Bank. The check was forwarded for clearing on January 14, 1997 through the Philippine Clearing House Corporation, and on the same date Metrobank cleared the check.

On January 27, 1997, Metrobank informed the United Overseas Bank that it was returning the check on account of material alteration, the date having been changed from January 23, 1997 to January 13, 1997, and the amount having been altered from 1,000 pesos to 91,000 pesos. The United Overseas Bank refused to accept the return and to reimburse Metrobank, so Metrobank filed a complaint before the Arbitration Committee, arguing that the collecting bank had the duty to examine the deposited check and should bear the loss for the alteration.

The Arbitration Committee directed Metrobank to submit the check to the Philippine National Police Crime Laboratory for examination. Metrobank twice moved to postpone hearings on the ground that the examination results were not yet available. At the rescheduled hearing, Metrobank's counsel failed to appear, and the Arbitration Committee granted the motion to dismiss filed by the United Overseas Bank. Metrobank's motion for reconsideration, supported by a medical certificate and by the crime laboratory report confirming the alteration, was denied, and its second motion for reconsideration was denied by the Board of Directors. Metrobank then filed its petition for review with the Regional Trial Court, which was dismissed, and the Court of Appeals affirmed.

Issues

• Whether or not the Regional Trial Court had jurisdiction over the petition for review of the arbitral award filed under the Philippine Clearing House Corporation Rules of Procedure for Arbitration.
• Whether or not the rules of the Philippine Clearing House Corporation, being the product of an agreement among member banks and not of law, may confer jurisdiction upon the Regional Trial Court to review arbitral awards.
• Whether or not the proper remedy of a party aggrieved by an arbitral award of the Arbitration Committee is a petition for review with the Court of Appeals under Rule 43, a motion to vacate the award with the Regional Trial Court, or a petition for certiorari under Rule 65.

Applicable Provisions

Section 13 of the Philippine Clearing House Corporation Rules of Procedure for Arbitration, as described in the decision, provides the remedy that Metrobank invoked:

The proper remedy following Section 13 of the PCHC Rules of Procedure for Arbitration is for it to file a notice of appeal with the PCHC and a petition for review with the Regional Trial Court within a non-extendible period of fifteen days counted from the receipt of the PCHC board resolution.

This is the rule that led Metrobank to file its petition in the wrong court, and the Court holds that this contractual rule cannot confer jurisdiction on the Regional Trial Court.

Section 24 of the Arbitration Law, as invoked in the decision, provides one of the judicial remedies available to an aggrieved party:

It may petition the proper RTC to issue an order vacating the award on the grounds provided for under Section 24 of the Arbitration Law.

This identifies the motion to vacate as the only route by which the Regional Trial Court may take cognizance of an arbitral award.

Rule 43 of the Rules of Court, as discussed in the decision, provides the remedy for review of awards of quasi-judicial agencies:

Petitioner likewise has the option to file a petition for review under Rule 43 of the Rules of Court with the Court of Appeals on questions of fact, of law, or mixed questions of fact and law.

Because the Arbitration Committee is a quasi-judicial agency, this is the correct and ordinary path for judicial review of its award.

Rule 65 of the Rules of Court, as discussed in the decision, provides the extraordinary remedy:

Lastly, petitioner may file a petition for certiorari under Rule 65 of the Rules of Court on the ground that the Arbitrator Committee acted without or in excess of its jurisdiction or with grave abuse of discretion amounting to lack or excess of jurisdiction.

This is available where the arbitral body acted without or in excess of jurisdiction or with grave abuse of discretion.

Ruling

On the first issue, the Court held that the Regional Trial Court had no jurisdiction over the petition for review. Jurisdiction is the authority to hear and determine a cause, and jurisdiction over the subject matter is the power to hear and determine the general class to which the proceedings belong. The Court stressed that jurisdiction over the subject matter is conferred by law and not by the consent or acquiescence of the parties, nor by the erroneous belief of the court that it exists.

On the second issue, the Court held that the clearing house rules cannot confer jurisdiction on the Regional Trial Court. The rules came about only as a result of an agreement among member banks and not by law, so the portion of the rules granting the Regional Trial Court jurisdiction to review arbitral awards only on questions of law cannot be given effect. The Court relied on its earlier ruling in Insular Savings Bank versus Far East Bank and Trust Company, quoted in the decision:

The PCHC Rules cannot confer jurisdiction on the RTC to review arbitral awards.

On the third issue, the Court held that the proper recourse of Metrobank from the denial of its motion for reconsideration was to file either a motion to vacate the arbitral award with the Regional Trial Court, a petition for review with the Court of Appeals under Rule 43, or a petition for certiorari under Rule 65. Since the case involves acts or omissions of a quasi-judicial agency, the petition should be filed in and cognizable only by the Court of Appeals. Metrobank availed of none of these remedies and instead filed a petition for review with the Regional Trial Court, and so it erred in the procedure it chose. The Court clarified that the trial court properly dismissed the case for lack of jurisdiction, not because the petition was filed out of time, but because the court had no jurisdiction over the subject matter. The Court found no compelling reason to resolve the other issues raised.

Doctrine

Jurisdiction over the subject matter is conferred by law and not by the consent or acquiescence of the parties, nor by the erroneous belief of the court that it exists. A rule born of a private agreement among member banks, such as the Philippine Clearing House Corporation Rules of Procedure for Arbitration, cannot enlarge or create the jurisdiction of the Regional Trial Court. The only instance in which the Regional Trial Court may take cognizance of an arbitral award is a motion to vacate the award on the grounds provided by Section 24 of the Arbitration Law. Judicial review of an arbitral award rendered by the Arbitration Committee, being an act or omission of a quasi-judicial agency, lies with the Court of Appeals, either by petition for review under Rule 43 or by petition for certiorari under Rule 65. A party who chooses the wrong court does not merely commit a procedural misstep; the choice is fatal, because the court selected has no power to act.

Disposition

The petition for review on certiorari was denied, and the dismissal of the petition for review by the Regional Trial Court, affirmed by the Court of Appeals, was sustained on the ground of lack of jurisdiction over the subject matter.

Remember This

Memorize the line that jurisdiction is conferred by law and not by the consent of the parties, so the clearing house rules cannot vest the Regional Trial Court with power to review arbitral awards. Examiners use this case to test the correct remedy against an arbitral award, namely a motion to vacate with the Regional Trial Court, a petition for review under Rule 43 with the Court of Appeals, or a petition for certiorari under Rule 65.