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Case Digest

This case involves a dispute between BF Corporation and Shangri-La Properties over an unpaid construction project. BF Corporation sued Shangri-La Properties for payment as well as two former directors, Gerardo Lanuza Jr. and Antonio Olbes. The directors argued they should not be parties to arbitration as required by the contract since they had resigned. However, the court determined that when allegations of bad faith are made against corporate directors, the directors may be treated as a single entity with the corporation and subject to the arbitration clause.

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66 views

Case Digest

This case involves a dispute between BF Corporation and Shangri-La Properties over an unpaid construction project. BF Corporation sued Shangri-La Properties for payment as well as two former directors, Gerardo Lanuza Jr. and Antonio Olbes. The directors argued they should not be parties to arbitration as required by the contract since they had resigned. However, the court determined that when allegations of bad faith are made against corporate directors, the directors may be treated as a single entity with the corporation and subject to the arbitration clause.

Uploaded by

Jessa Belle Eubion
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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GERARDO LANUZA, JR. AND ANTONIO O. OLBES vs.

BF CORPORATION, SHANGRI-LA PROPERTIES, INC.


G.R. No. 174938, October 01, 2014

Case Digest
Facts
Gerardo Lanuza, Jr and Antonio Olbes are members of the Board of Directors of
Shangri-La.
BF Corporation claimed that it entered into agreements with Shangri-La under
which it agreed to build a mall and a multilevel parking structure along EDSA for
Shangri-La. Shangri-La had been paying BF Corp on time and in accordance with
its progress billing statements. However, Shangri-La began to fall behind on
payments. Shangri-La and its board of directors were sued by BF Corp. Shangri-
La, according to BF Corp, misrepresented that it had funds to pay and that it was
simply a matter of delayed processing of BF's progress billing statements.
Construction was eventually completed, but despite repeated demands, Shangri-La
refused to pay the remaining balance. In addition, BF claimed that Shangri-
directors La's acted in bad faith and should be held jointly and severally liable with
Shangri-La. Shangri-La and respondent board members moved to halt the
proceedings because BF failed to submit its dispute to arbitration. The RTC denied
the motion, but the petitioners responded by stating that they have been resigned
members of the board since July 15, 1991. Shangri-La and the respondents then
petitioned the CA, which granted their petition and ordered arbitration.

Issue

Whether petitioners be made parties to the arbitration proceedings, pursuant to the


arbitration clause provided in the contract between BF Corporation and Shangri-
La.

Conclusions

Yes. Petitioners argue that their personalities as Shangri-La directors are separate
and distinct from Shangri-La. Because a corporation's existence is merely a legal
fiction, it can only exercise its rights and powers through its directors, officers, or
agents, all of whom are natural persons. Without them, a corporation cannot sue or
enter into contracts. As a result of a corporation's separate personality, consent
given by the corporation through its representatives is not consent given by the
representative personally. Its obligations are those incurred through official acts of
its representatives. A contract is not entered into by a stockholder, director, or
representative. However, courts or tribunals are required to decide whether
corporate directors or representatives should be treated as a single entity when
there are allegations of bad faith or malice against them.

Section 31 of the Corporation Code specifies the circumstances under which


directors, trustees, or officers may be held jointly and severally liable for corporate
acts:

a) The director or trustee knowingly and willfully voted for or consented to a


patently illegal corporate act;
b) The director or trustee was negligent or acted in bad faith in directing
corporate affairs; and
c) When courts disregard the corporation's distinct and separate personality
from its directors or officers, they do not say that the corporation is the same
as its directors, stockholders, officers, and agents in all instances and for all
purposes. It does not result in a complete conflation of the personalities of
the corporation and the people who compose or represent it.

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