Lanuza

vs. BF Corporation
October 1, 2014 | Leonen, J. | Piercing the Corporate Veil
PETITIONER: Gerardo Lanuza, Jr. and Antonio Obles
RESPONDENT: BF Corporation, Shangri-La Properties, Inc., Alfredo Ramos, Rufo Colayco, Maximo Licauco III, and Benjamin
Ramos

SUMMARY: Lanuza and Obles are members of the Board of Directors of Shangri-La. Shangri-La and BF had a contract
wherein BF undertook to build a mall and parking lot for the former. However, Shangri-La defaulted in its payments. BF
sued Shangri-La, also impleading the Board of Directors and alleging that BF was defrauded into believing that Shangri-La
had enough funds. BF and Shangri-La, et. al. were ordered by the Court to submit to arbitration proceedings pursuant to an
arbitration clause in their contract. During the course of the proceedings, however, Lanuza and Obles resigned from the
Board of Directors. In the present case, they alleged that they should not be ordered to submit to arbitration proceedings
because the corporation has a separate personality. SC held that Lanuza and Obles can still be ordered to submit themselves
to arbitration proceedings, and that the corporate personality should be disregarded because BF alleged bad faith.
Whenever there is an allegation of bad faith, the complainant is also effectively alleging that the corporation and its
directors are not acting as separate entities.

DOCTRINE: The issue of whether the corporation acts in violation of a complainants rights and the incidental issue of
whether piercing of the corporate veil is warranted, should be determined in a single proceeding. Such finding would
determine if the corporation is merely an aggregation of persons whose liabilities must be treated as one with the
corporation.

FACTS: 1. BF alleged that it entered into agreements 9. RTC dismissed MR. The other members of the Board of
(December 11, 1989 and May 30, 1991) with Shangri-La, Directors (excluding Lanuza and Obles) filed a petition for
wherein it undertook to construct for Shangri-La a mall certiorari with CA.
and a multi-level parking structure along EDSA.
10. CA granted petition for certiorari and ordered the
2. Shangri-La consistently paid BF in accordance with its submission of the dispute to arbitration.
progress billing statements. In October 1991, Shangri-La
started defaulting in payment. BF alleged that Shangri-La 11. BF filed a petition for certiorari with SC. SC affirmed
induced them to continue with the construction of the CAs decision, directing that the dispute be submitted for
buildings by assuring BF that it had funds, and the delay in arbitration.
payment was simply a matter of delayed processing of the
billing statements. 12. Lanuza and Obles sought to be excluded from the
arbitration proceedings. RTC ordered that they submit to
3. BF eventually completed the construction of buildings, the arbitration proceedings. Thus, they filed a petition for
and Shangri-La took possession of it. At this time, Shangri- certiorari with CA.
La still had an outstanding balance.
13. While the proceedings in the Court was ongoing, Lanuza
4. Despite repeated demands, Shangri-La refused to pay the and Obles informed the RTC that the Arbitral Tribunal had
balance. BF alleged that Shangri-Las directors were in bad already promulgated a decision, absolving them of liability.
faith, thus, they should be held jointly and solidarily liable
with Shangri-La for its obligations. 13. CA dismissed their petition, alleging that they were
necessary parties in the arbitration proceedings.
5. In 1993, the BF Corporation filed a collection complaint
in the RTC against Shangri-La and the members of its Board ISSUE: W/N Lanuza and Obles should be made parties to
of Directors: Alfredo Ramos, Rufo Colayco, Antonio Obles, the arbitration proceedings, pursuant to the arbitration
Gerardo Lanuza, Jr., Maximo Licauco III, and Benjamin clause YES.
Ramos.
HELD: Petition DENIED. CA decision AFFIRMED.
6. Shangri-La and the Board of Directors filed a motion to
RATIO: 1. Lanuza and Obles argue that they cannot be held
suspend the proceedings in view of BFs failure to submit
personally liable for corporate acts or obligations. the
its dispute to arbitration, in accordance with the arbitration
corporation is a separate being. They also alleged that they
clause provided in its contract.
were merely third parties to the contract between BF and
7. BF opposed the motion. RTC denied the motion. Board of Shangri-La.
Directors filed a motion for reconsideration.
2. The petition was already moot and academic because the
8. Lanuza and Obles filed an answer with compulsory Arbitral Tribunal already promulgated a decision, but for
counterclaim to BFs complaint, alleging that they had the guidance of the bench and the bar, the SC proceeded
resigned as members of Shangri-Las board of directors. with the case.
3. As a general rule, a corporations representatives are Court and the prohibition against splitting the cause of
not bound by the terms of the contract executed by the action.
corporation. They are not personally liable for obligations
and liabilities incurred on or in behalf of the corporation. 8. The issue of whether the corporation acts in violation of
a complainants rights and the incidental issue of whether
4. However, there are instances when the distinction piercing of the corporate veil is warranted, should be
between personalities of directors, officers, and determined in a single proceeding. Such finding would
representatives and of the corporation, are disregarded. determine if the corporation is merely an aggregation of
This is called piercing the veil of corporate fiction. persons whose liabilities must be treated as one with the
corporation.
- It is warranted when the separate personality of a
corporation is used as a means to perpetrate fraud or an
illegal act.

- It is also warranted in alter ego cases where a

corporation is merely a farce since is it a mere alter ego
or business conduit of a person.

5. Based on Section 31 of the Corporation Code (a, b, c) and

jurisprudence (d, e, f), a director, trustee, or officer of a
corporation may be made solidarily liable with it for all
damages suffered by the corporation, its stockholders or
members, and other persons in any of the following cases:

a) The director or trustee willfully and knowingly voted

for or assented to a patently unlawful corporate act;

b) The director or trustee was guilty of gross negligence

or bad faith in directing corporate affairs; and

c) The director or trustee acquired personal or

pecuniary interest in conflict with his or her duties as
director or trustee.

d) "When a director or officer has consented to the

issuance of watered stocks or who, having knowledge
thereof, did not forthwith file with the corporate
secretary his written objection thereto";

e) "When a director, trustee or officer has contractually

agreed or stipulated to hold himself personally and
solidarily liable with the corporation"; and

f) "When a director, trustee or officer is made, by

specific provision of law, personally liable for his
corporate action."

6. Applying the following doctrines to the present case,

when the directors are impleaded in a case against a
corporation, alleging malice or bad faith, complainants are
effectively alleging that the directors and the corporation
are not acting as separate entities. They are alleging that
the acts or omissions by the corporation that violated their
rights are also the directors acts or omissions.

7. Complainants also have no choice but to institute only

one proceeding against the parties, following the Rules of