Case Digest (G.R. No. 174938)
Facts:
Gerardo Lanuza, Jr. and Antonio O. Olbes v. BF Corporation, Shangri‑La Properties, Inc., Alfredo C. Ramos, Rufo B. Colayco, Maximo G. Licauco III, and Benjamin C. Ramos, G.R. No. 174938, October 01, 2014, the Supreme Court Second Division, Leonen, J., writing for the Court.In 1993, BF Corporation filed a collection complaint in the Regional Trial Court (RTC), Branch 157, Pasig City, against Shangri‑La Properties, Inc. and several of its then‑directors (including petitioners Gerardo Lanuza, Jr. and Antonio O. Olbes), alleging breach of construction contracts executed in 1989 and 1991 and asserting that the directors acted in bad faith and should be held jointly and severally liable. BF alleged Shangri‑La defaulted on payments after inducing BF to continue work, and that Shangri‑La took possession of the completed buildings while still owing BF substantial sums.
Shangri‑La and some directors moved to suspend the RTC proceedings, invoking the contract’s arbitration clause; the RTC denied the motion on November 18, 1993. The defendants sought relief in the Court of Appeals (CA), which on April 28, 1995 ordered submission to arbitration. This Court, in a Rule 45 petition by BF, affirmed the CA on March 27, 1998 and directed arbitration to proceed. A later dispute over governing law led the RTC on October 27, 1998 to direct arbitration under Republic Act No. 876.
After arbitration commenced, parties disagreed whether Shangri‑La’s directors were “parties” who should be served separate demands for arbitration. The RTC on July 28, 2003 ordered that demands be served on all defendants, reasoning the directors were interested parties who should have the opportunity to defend their positions; the RTC denied reconsideration on January 19, 2005. The directors petitioned the CA for certiorari, alleging grave abuse of discretion; the CA on May 11, 2006 dismissed their petition, holding the directors were necessary parties under Article 1217 of the Civil Code and Section 31 of the Corporation Code, and affirming the RTC orders. The CA denied reconsideration on October 5, 2006.
Petitioners sought review in this Court via Rule 45. During the Supreme Court proceedings, the Arbitral Tribunal promulgated its award (July 31, 2007), which absolved the petitioners of liability. Petitioners informed the Court that they had been included in the arbitration despite their objections and that the Tribunal cleared them. BF argued the arbitral award did not affect the question whether directors could be compelled to arbitrate; petitioners contended they were non‑parties and could not be compelled absent proof of fraud, bad faith, or other grounds to pierce the corporate veil. The Court resolved the petition despite mootness concerns to clarify the law.
Issues:
- Is the petition moot and academic by reason of the Arbitral Tribunal’s award absolving the petitioners?
- Can corporate directors be compelled to submit to arbitration under an arbitration clause in a contract entered into by the corporation they represent when allegations of bad faith, malice, or conduct warranting piercing the corporate veil are made?
Ruling:
- (Subscriber-Only)
Ratio:
- (Subscriber-Only)
Doctrine:
- (Subscriber-Only)