GR 174938; (October, 2014) (Digest)

G.R. No. 174938, October 1, 2014
GERARDO LANUZA, JR. AND ANTONIO O. OLBES, Petitioners, vs. BF CORPORATION, SHANGRI-LA PROPERTIES, INC., ALFREDO C. RAMOS, RUFO B. COLAYCO, MAXIMO G. LICAUCO III, AND BENJAMIN C. RAMOS, Respondents.

FACTS

In 1993, BF Corporation filed a collection complaint against Shangri-La Properties, Inc. and its board of directors (including petitioners Gerardo Lanuza, Jr. and Antonio O. Olbes) before the Regional Trial Court. BF Corporation alleged that it entered into construction agreements with Shangri-La in 1989 and 1991. Shangri-La defaulted on payments starting October 1991, but allegedly induced BF Corporation to continue construction by misrepresenting its ability to pay. BF Corporation completed the projects, and Shangri-La took possession while still owing a balance. The complaint alleged the directors acted in bad faith and should be held jointly and severally liable with the corporation. Shangri-La and some directors moved to suspend proceedings due to an arbitration clause in the contract. The trial court initially denied the motion, but the Court of Appeals and later the Supreme Court directed submission of the dispute to arbitration. A subsequent issue arose on whether the individual directors, as non-signatories to the contract, should be compelled to participate in the arbitration proceedings. The trial court and the Court of Appeals ruled that the directors should be included as parties in the arbitration.

ISSUE

Whether petitioners, as corporate directors and non-signatories to the contract, should be compelled to submit to the arbitration proceedings pursuant to the arbitration clause in the agreement between BF Corporation and Shangri-La.

RULING

Yes. The Supreme Court affirmed the Court of Appeals’ decision, holding that corporate representatives may be compelled to submit to arbitration proceedings pursuant to a contract entered into by the corporation they represent if there are allegations of bad faith or malice in their acts representing the corporation. The Court ruled that petitioners were not third parties to the contract as they were sued for their acts in representation of the corporation pursuant to Article 31 of the Corporation Code. As directors of the defendant corporation, they stand to be benefited or injured by the result of the arbitration proceedings, making them necessary parties to ensure complete adjudication of the controversy and to prevent multiplicity of suits. The arbitration clause, which covered “any dispute or difference . . . between the Owner . . . and the Contractor . . . arising thereunder or in connection therewith,” was broad enough to include claims against the directors based on their alleged bad faith in the corporation’s contractual dealings.