G.R. No. 182248 December 18, 2008
EQUITABLE PCI BANKING CORPORATION, GEORGE L. GO, PATRICK D. GO, GENEVIEVE W.J. GO, FERDINAND MARTIN G. ROMUALDEZ, OSCAR P. LOPEZ-DEE, RENE J. BUENAVENTURA, GLORIA L. TAN-CLIMACO, ROGELIO S. CHUA, FEDERICO C. PASCUAL, LEOPOLDO S. VEROY, WILFRIDO V. VERGARA, EDILBERTO V. JAVIER, ANTHONY F. CONWAY, ROMULAD U. DY TANG, WALTER C. WESSMER, and ANTONIO N. COTOCO, petitioners,

vs.
RCBC CAPITAL CORPORATION, respondent.

FACTS

On May 24, 2000, petitioners (sellers) and respondent RCBC Capital Corporation (buyer) executed a Share Purchase Agreement (SPA) for the purchase of petitioners’ interests in Bankard, Inc. RCBC dispensed with a due diligence audit. The SPA contained representations and warranties regarding Bankard’s financial condition. Section 5(g) warranted that the audited financial statements for 1997-1999 and unaudited statements for the first quarter of 2000 were fair, accurate, and prepared in accordance with GAAP. Section 5(h) warranted that, except as disclosed, Bankard had no liabilities which would have a material adverse effect on its net worth exceeding PHP 100 million, with a formula for purchase price reduction if breached. Section 7 provided remedies for breach of warranties: a claim for breach of Section 5(g) must be presented within three years from the Closing Date (June 2, 2000), while a claim for breach of Section 5(h) must be presented within six months. An Amendment to SPA (ASPA) dated September 19, 2000, modified Section 7, extending the period to present a claim for breach of Section 5(h) to on or before December 31, 2000.
RCBC paid the balance on December 28, 2000. In a letter dated May 5, 2003, RCBC informed petitioners of an overpayment, claiming an overstatement of accounts amounting to PHP 478 million, alleging a breach of the warranty in Section 5(g). After failed settlement, RCBC filed a Request for Arbitration with the ICC-International Court of Arbitration on May 12, 2004. Petitioners argued the claim was time-barred under Section 7. The ICC arbitral tribunal, by majority, rendered a Partial Award dated September 27, 2007, declaring that RCBC’s claim was not time-barred as it fell under Section 5(g) (three-year period) and not Section 5(h) (six-month period), that RCBC was not estopped by laches, and that petitioners breached Section 5(g). The tribunal denied rescission but held RCBC entitled to damages subject to proof of loss. The RTC confirmed the Partial Award. Petitioners sought its reversal.

ISSUE

Whether the Court of Appeals erred in affirming the RTC’s confirmation of the arbitral tribunal’s Partial Award, which held that RCBC’s claim for breach of warranty was not time-barred.

RULING

The Supreme Court DENIED the petition and AFFIRMED the assailed RTC Orders confirming the arbitral tribunal’s Partial Award. The Court held that the arbitral tribunal did not commit a grave abuse of discretion in ruling that RCBC’s claim was not time-barred. The tribunal correctly characterized RCBC’s claim as arising from a breach of the representation and warranty in Section 5(g) of the SPA, which pertains to the fairness, accuracy, and GAAP-compliance of Bankard’s financial statements. The claim was presented within the three-year prescriptive period stipulated in Section 7 for such breaches. In contrast, Section 5(h) pertains to the warranty against undisclosed liabilities causing a material adverse effect, with a specific price adjustment mechanism. RCBC’s claim was fundamentally that the financial statements were not fair and accurate due to improper accounting practices (e.g., recognition of Late Payment Fees, “bucketing” method for receivables), not that there were undisclosed liabilities exceeding PHP 100 million. Therefore, the six-month period under Section 5(h), as amended by the ASPA, did not apply. The Court found no basis to disturb the arbitral tribunal’s factual findings and interpretation of the contract, as its ruling was not tainted with grave abuse of discretion, and the RTC’s confirmation was proper.