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GERARDO LANUZA v. BF CORPORATION

FACTS:

BF Corporation filed a collection complaint against Shangri-La Properties, Inc. and its board of directors for defaulting in payment of a construction project. BF Corporation completed the project but Shangri-La still owed them an outstanding balance. Shangri-La and some directors filed a motion to suspend the proceedings and submit the dispute to arbitration based on the arbitration clause in the contract. BF Corporation opposed the motion and the trial court denied it. The Court of Appeals granted a petition for certiorari, ordering the dispute to be submitted for arbitration. Another issue arose regarding whether the directors should be included in the arbitration proceedings. Petitioners sought to be excluded from the arbitration proceedings as non-parties to the agreement.

BF Corporation filed a complaint against Shangri-La Corporation, seeking to hold the latter liable for breach of contract. The contract contained an arbitration clause. The trial court deemed the directors as interested parties who should be given the opportunity to present their side of the controversy. Petitioners filed a motion for reconsideration, which was denied. They filed a petition for certiorari with the Court of Appeals, challenging the orders compelling them to submit to arbitration. The Court of Appeals dismissed the petition, ruling that the directors were necessary parties in the arbitration proceedings. The Supreme Court directed the parties to file their respective comments. The Arbitral Tribunal had already rendered a decision, which petitioners reluctantly participated in.

The petitioners and Shangri-La were parties to a contract that involved arbitration proceedings. Shangri-La impleaded the petitioners for their alleged solidary liability. The Arbitral Tribunal subsequently absolved the petitioners from liability. BF Corporation challenged the inclusion of the petitioners in the arbitration proceedings and filed a petition to challenge the Arbitral Tribunal's decision.

The court acknowledged that the Arbitral Tribunal's decision rendered the case moot but held that it can still resolve the issue to establish principles for the guidance of the bench, bar, and the public. The court ruled that the petitioners may be compelled to submit to the arbitration proceedings in accordance with the agreement between Shangri-La and BF Corporation. The court also affirmed the policy in favor of arbitration, recognizing that it allows parties to avoid litigation and settle disputes amicably and expeditiously. The court cited the Civil Code and Republic Act No. 876 as legal bases for supporting the policy on arbitration.

ISSUES:

  1. Whether petitioners should be compelled to submit to the arbitration proceedings pursuant to the arbitration clause provided in the contract between BF Corporation and Shangri-La.

RULING:

  1. Yes, petitioners may be compelled to submit to the arbitration proceedings. The Supreme Court affirmed that petitioners, even as corporate representatives, may be subjected to arbitration proceedings due to allegations of bad faith or malice in their acts representing the corporation. The court emphasized the jurisdiction's policy favoring arbitration, the principle of avoiding multiplicity of suits, and the possibility of piercing the corporate veil when necessary to determine the true relationship and liability between the corporation and its directors.

PRINCIPLES:

  • Arbitration Policy: Arbitration is favored in resolving disputes to avoid litigation and ensure speedy and amicable resolutions.

  • Corporate Veil Piercing: The separate personality of a corporation can be disregarded when used to commit fraud, evade obligations, or other wrongful acts, thereby holding directors personally liable.

  • Solidary Liability under Corporation Law: Directors may be held jointly and severally liable for the corporation's obligations when found guilty of bad faith, gross negligence, or personal interests contrary to corporate duties.

  • Multiplicity of Suits: To avoid unnecessary litigation and inconsistent judgments, disputes involving multiple parties should be resolved within a single proceeding.

  • Binding Effect of Arbitration: Parties who participate in arbitration proceedings are generally bound by the resulting arbitral decision.