G.R. No.
212081 February 23, 2015 Regional Trial Court of Quezon City, Branch 222
DEPARTMENT OF ENVIRONMENT AND
NATURAL RESOURCES (DENR), Petitioner,
vs.
UNITED PLANNERS CONSULTANTS , INC.
(UPCI), Respondent.
DECISION
PERLAS-BERNABE, J.:
Assailed in this petition for review on certiorari1 is
the Decision2 dated March 26, 2014 of the Court
of Appeals (CA) in CA-G.R. SP No. 126458
which dismissed the petition for certiorari filed by
petitioner the Department of Environment and
Natural Resources (petitioner).
The Facts
On July 26, 1993, petitioner, through the Land
Management Bureau (LMB), entered into an
Agreement for Consultancy
Services3 (Consultancy Agreement) with
respondent United Planners Consultants, Inc.
(respondent) in connection with the LMB' s Land
Resource Management Master Plan Project
(LRMMP).4 Under the Consultancy Agreement,
petitioner committed to pay a total contract price
of ₱4,337,141.00, based on a predetermined
percentage corresponding to the particular stage
of work accomplished.5
In December 1994, respondent completed the
work required, which petitioner formally
accepted on December 27, 1994.6 However,
petitioner was able to pay only 47% of the total
contract price in the amount of ₱2,038,456.30.7
On October 25, 1994, the Commission on Audit
(COA) released the Technical Services Office
Report8 (TSO) finding the contract price of the
Agreement to be 84.14% excessive.9 This
notwithstanding, petitioner, in a letter dated
December 10, 1998, acknowledged its liability to
respondent in the amount of ₱2,239,479.60 and
assured payment at the soonest possible time.10
For failure to pay its obligation under the
Consultancy Agreement despite repeated
demands, respondent instituted a
Complaint11 against petitioner before the
(RTC), docketed as Case No. Q-07-60321.12
Upon motion of respondent, the case was
subsequently referred to arbitration pursuant to
the arbitration clause of the Consultancy
Agreement,13 which petitioner did not
oppose.14 As a result, Atty. Alfredo F. Tadiar,
Architect Armando N. Alli, and Construction
Industry Arbitration Commission (CIAC)
Accredited Arbitrator Engr. Ricardo B. San Juan
were appointed as members of the Arbitral
Tribunal. The court-referred arbitration was then
docketed as Arbitration Case No. A-001.15
During the preliminary conference, the parties
agreed to adopt the CIAC Revised Rules
Governing Construction Arbitration16 (CIAC
Rules) to govern the arbitration
17
proceedings. They further agreed to submit
their respective draft decisions in lieu of
memoranda of arguments on or before April 21,
2010, among others.18
On the due date for submission of the draft
decisions, however, only respondent complied
with the given deadline,19while petitioner moved
for the deferment of the deadline which it
followed with another motion for extension of
time, asking that it be given until May 11, 2010
to submit its draft decision.20
In an Order21 dated April 30, 2010, the Arbitral
Tribunal denied petitioner’s motions and
deemed its non-submission as a waiver, but
declared that it would still consider petitioner’s
draft decision if submitted before May 7, 2010, or
the expected date of the final award’s
promulgation.22 Petitioner filed its draft
23
decision only on May 7, 2010.
The Arbitral Tribunal rendered its Award24 dated
May 7, 2010 (Arbitral Award) in favor of
respondent, directing petitioner to pay the latter
the amount of (a) ₱2,285,089.89 representing
the unpaid progress billings, with interest at the
rate of 12% per annum from the date of finality
of the Arbitral Award upon confirmation by the
RTC until fully paid; (b) ₱2,033,034.59 as
accrued interest thereon; (c) ₱500,000.00 as
exemplary damages; and (d) ₱150,000.00 as
attorney’s fees.25 It also ordered petitioner to
reimburse respondent its proportionate share in
the arbitration costs as agreed upon in the
amount of ₱182,119.44.26
Unconvinced, petitioner filed a motion for
reconsideration,27 which the Arbitral Tribunal
merely noted without any action, claiming that it
had already lost jurisdiction over the case after it
had submitted to the RTC its Report together
with a copy of the Arbitral Award.28
Consequently, petitioner filed before the RTC a
Motion for Reconsideration29 dated May 19,
2010 (May 19, 2010 Motion for
Reconsideration)and a Manifestation and
Motion30 dated June 1, 2010 (June 1, 2010
Manifestation and Motion), asserting that it was
denied the opportunity to be heard when the
Arbitral Tribunal failed to consider its draft
decision and merely noted its motion for
reconsideration.31 It also denied receiving a copy
of the Arbitral Award by either electronic or
registered mail.32 For its part, respondent filed
an opposition thereto and moved for the
confirmation33 of the Arbitral Award in
accordance with the Special Rules of Court on
Alternative Dispute Resolution (Special ADR
Rules).34
In an Order35 dated March 30, 2011, the RTC
merely noted petitioner’s aforesaid motions,
finding that copies of the Arbitral Award appear
to have been sent to the parties by the Arbitral
Tribunal, including the OSG, contrary to
petitioner’s claim. Onthe other hand, the RTC
confirmed the Arbitral Award pursuant to Rule
11.2 (A)36 of the Special ADR Rules and ordered
petitioner to pay respondent the costs of
confirming the award, as prayed for, in the total
amount of ₱50,000.00. From this order,
petitioner did not file a motion for
reconsideration.
Thus, on June 15, 2011, respondent moved for
the issuance of a writ of execution, to which no
comment/opposition was filed by petitioner
despite the RTC’s directive therefor. In an
Order37 dated September 12, 2011, the RTC
granted respondent’s motion.38
Petitioner moved to quash39 the writ of
execution, positing that respondent was not
entitled to its monetary claims. It also claimed
that the issuance of said writ was premature
since the RTC should have first resolved its May
19, 2010 Motion for Reconsideration and June 1,
2010 Manifestation and Motion, and not merely
noted them, thereby violating its right to due
process.40
The RTC Ruling
In an Order41 dated July 9, 2012, the RTC denied
petitioner’s motion to quash.
It found no merit in petitioner’s contention that it
was denied due process, ruling that its May 19,
2010 Motion for Reconsideration was a
prohibited pleading under Section 17.2,42 Rule
17 of the CIAC Rules. It explained that the
available remedy to assail an arbitral award was
to file a motion for correction of final award
pursuant to Section 17.143 of the CIAC Rules,
and not a motion for reconsideration of the said
award itself.44 On the other hand, the RTC found
petitioner’s June 1, 2010 Manifestation and
Motion seeking the resolution of its May 19, 2010
Motion for Reconsideration to be defective for
petitioner’s failure to observe the three day
notice rule.45 Having then failed to avail of the
remedies attendant to an order of confirmation,
the Arbitral Award had become final and
executory.46
On July 12, 2012, petitioner received the RTC’s
Order dated July 9, 2012 denying its motion to
quash.47
Dissatisfied, it filed on September 10, 2012a
petition for certiorari48 before the CA, docketed
as CA-G.R. SP No. 126458, averring in the main
that the RTC acted with grave abuse of
discretion in confirming and ordering the
execution of the Arbitral Award.
The CA Ruling
In a Decision49 dated March 26, 2014, the CA
dismissed the certiorari petition on two (2)
grounds, namely: (a) the petition essentially
assailed the merits of the Arbitral Award which is
prohibited under Rule 19.750 of the Special ADR
Rules;51 and (b) the petition was filed out of time,
having been filed way beyond 15 days from
notice of the RTC’s July 9, 2012 Order, in
violation of Rule 19.2852 in relation to Rule
19.853 of said Rules which provide that a special
civil action for certiorari must be filed before the
CA within 15 days from notice of the judgment,
order, or resolution sought to be annulled or set
aside (or until July 27, 2012). Aggrieved,
petitioner filed the instant petition.
The Issue Before the Court
The core issue for the Court’s resolution is
whether or not the CA erred in applying the
provisions of the Special ADR Rules, resulting in
the dismissal of petitioner’s special civil action for
certiorari.
The Court’s Ruling
The petition lacks merit.
I.
Republic Act No. (RA) 9285,54 otherwise known
as the Alternative Dispute Resolution Act of
2004," institutionalized the use of an Alternative
Dispute Resolution System (ADR System)55 in
the Philippines. The Act, however, was without
prejudice to the adoption by the Supreme Court
of any ADR system as a means of achieving
speedy and efficient means of resolving cases
pending before all courts in the Philippines.56
Accordingly, A.M. No. 07-11-08-SC was created
setting forth the Special Rules of Court on
Alternative Dispute Resolution (referred herein
as Special ADR Rules) that shall govern the
procedure to be followed by the courts whenever
judicial intervention is sought in ADR
proceedings in the specific cases where it is
allowed.57
Rule 1.1 of the Special ADR Rules lists down the
instances when the said rules shall apply,
namely: "(a) Relief on the issue of Existence,
Validity, or Enforceability of the Arbitration
Agreement; (b) Referral to Alternative Dispute
Resolution ("ADR"); (c) Interim Measures of
Protection; (d) Appointment of Arbitrator; (e)
Challenge to Appointment of Arbitrator; (f)
Termination of Mandate of Arbitrator; (g)
Assistance in Taking Evidence; (h) Confirmation,
Correction or Vacation of Award in Domestic
Arbitration; (i) Recognition and Enforcement or
Setting Aside of an Award in International
Commercial Arbitration; (j) Recognition and
Enforcement of a Foreign Arbitral Award; (k)
Confidentiality/Protective Orders; and (l) Deposit
and Enforcement of Mediated Settlement
Agreements."58
Notably, the Special ADR Rules do not
automatically govern the arbitration proceedings
itself. A pivotal feature of arbitration as an
alternative mode of dispute resolution is that it is
a product of party autonomy or the freedom of
the parties to make their own arrangements to
resolve their own disputes.59 Thus, Rule 2.3 of
the Special ADR Rules explicitly provides that
"parties are free to agree on the procedure to be
followed in the conduct of arbitral proceedings.
Failing such agreement, the arbitral tribunal may
conduct arbitration in the manner it considers
appropriate."60
In the case at bar, the Consultancy Agreement
contained an arbitration clause.61 Hence,
respondent, after it filed its complaint, moved for
its referral to arbitration62 which was not objected
to by petitioner.63 By its referral to arbitration, the
case fell within the coverage of the Special ADR
Rules. However, with respect to the arbitration
proceedings itself, the parties had agreed to
adopt the CIAC Rules before the Arbitral
Tribunal in accordance with Rule 2.3 of the
Special ADR Rules.
On May 7, 2010, the Arbitral Tribunal rendered
the Arbitral Award in favor of respondent. Under
Section 17.2, Rule 17 of the CIAC Rules, no
motion for reconsideration or new trial may be
sought, but any of the parties may file a motion
for correction64 of the final award, which shall
interrupt the running of the period for
appeal,65 based on any of the following grounds,
to wit: a. an evident miscalculation of figures, a
typographical or arithmetical error;
b. an evident mistake in the description of
any party, person, date, amount, thing or
property referred to in the award;
c. where the arbitrators have awarded
upon a matter not submitted to them, not
affecting the merits of the decision upon
the matter submitted;
d. where the arbitrators have failed or
omitted to resolve certain issue/s
 formulated by the parties in the Terms of
Reference (TOR) and submitted to them
for resolution, and
e. where the award is imperfect in a
matter of form not affecting the merits of
the controversy.
The motion shall be acted upon by the Arbitral
Tribunal or the surviving/remaining members.66
Moreover, the parties may appeal the final award
to the CA through a petition for review under
Rule43 of the Rules of Court.67
Records do not show that any of the foregoing
remedies were availed of by petitioner. Instead,
it filed the May 19, 2010 Motion for
Reconsideration of the Arbitral Award, which
was a prohibited pleading under the Section
17.2,68Rule 17 of the CIAC Rules, thus rendering
the same final and executory.
Accordingly, the case was remanded to the RTC
for confirmation proceedings pursuant to Rule 11
of the Special ADR Rules which requires
confirmation by the court of the final arbitral
award. This is consistent with Section 40,
Chapter 7 (A) of RA 9285 which similarly
requires a judicial confirmation of a domestic
award to make the same enforceable:
SEC. 40. Confirmation of Award.– The
confirmation of a domestic arbitral award shall be
governed by Section 2369of R.A. 876.70
A domestic arbitral award when confirmed shall
be enforced in the same manner as final and
executory decisions of the regional trial court.
The confirmation of a domestic award shall be
made by the regional trial court in accordance
with the Rules of Procedure to be promulgated
by the Supreme Court.
A CIAC arbitral award need not be confirmed by
the regional trial court to be executory as
provided under E.O. No. 1008. (Emphases
supplied)
During the confirmation proceedings, petitioners
did not oppose the RTC’s confirmation by filing a
petition to vacate the Arbitral Award under Rule
11.2 (D)71 of the Special ADR Rules. Neither did
it seek reconsideration of the confirmation order
in accordance with Rule 19.1 (h) thereof.
Instead, petitioner filed only on September 10,
2012 a special civil action for certiorari before the
CA questioning the propriety of (a) the RTC
Order dated September 12, 2011 granting
respondent’s motion for issuance of a writ of
execution, and (b) Order dated July 9,2012
denying its motion to quash. Under Rule 19.26
of the Special ADR Rules, "[w]hen the Regional
Trial Court, in making a ruling under the Special
ADR Rules, has acted without or in excess of its
jurisdiction, or with grave abuse of discretion
amounting to lack or excess of jurisdiction, and
there is no appeal or any plain, speedy, and
adequate remedy in the ordinary course of law,
a party may file a special civil action for certiorari
to annul or set aside a ruling of the Regional Trial
Court." Thus, for failing to avail of the foregoing
remedies before resorting to certiorari, the CA
correctly dismissed its petition.
II.
Note that the special civil action for certiorari
described in Rule 19.26 above may be filed to
annul or set aside the following orders of the
Regional Trial Court.
a. Holding that the arbitration agreement
is in existent, invalid or unenforceable;
b. Reversing the arbitral tribunal’s
preliminary determination upholding its
jurisdiction;
c. Denying the request to refer the dispute
to arbitration;
d. Granting or refusing an interim relief;
e. Denying a petition for the appointment
of an arbitrator;
f. Confirming, vacating or correcting a
domestic arbitral award;
g. Suspending the proceedings to set
aside an international commercial arbitral
award and referring the case back to the
arbitral tribunal;
 h. Allowing a party to enforce an
international commercial arbitral award
pending appeal;
i. Adjourning or deferring a ruling on
whether to set aside, recognize and or
enforce an international commercial
arbitral award;
j. Allowing a party to enforce a foreign
arbitral award pending appeal; and
k. Denying a petition for assistance in
taking evidence. (Emphasis supplied)
Further, Rule 19.772 of the Special ADR Rules
precludes a party to an arbitration from filing a
petition for certiorari questioning the merits of an
arbitral award.
If so falling under the above-stated enumeration,
Rule 19.28 of the Special ADR Rules provide
that said certiorari petition should be filed "with
the [CA] within fifteen (15) days from notice of
the judgment, order or resolution sought to be
annulled or set aside. No extension of time to file
the petition shall be allowed."
In this case, petitioner asserts that its petition is
not covered by the Special ADR Rules
(particularly, Rule 19.28 on the 15-day
reglementary period to file a petition for
certiorari) but by Rule 65 of the Rules of Court
(particularly, Section 4 thereof on the 60-day
reglementary period to file a petition for
certiorari), which it claimed to have suppletory
application in arbitration proceedings since the
Special ADR Rules do not explicitly provide for a
procedure on execution. The position is
untenable.
Execution is fittingly called the fruit and end of
suit and the life of the law. A judgment, if left
unexecuted, would be nothing but an empty
victory for the prevailing party.73
While it appears that the Special ADR Rules
remain silent on the procedure for the execution
of a confirmed arbitral award, it is the Court’s
considered view that the Rules’ procedural
mechanisms cover not only aspects of
confirmation but necessarily extend to a
confirmed award’s execution in light of the
doctrine of necessary implication which states
that every statutory grant of power, right or
privilege is deemed to include all incidental
power, right or privilege. In Atienza v.
Villarosa,74 the doctrine was explained, thus:
No statute can be enacted that can provide all
the details involved in its
application.1âwphi1 There is always an
omission that may not meet a particular situation.
What is thought, at the time of enactment, to be
an all embracing legislation may be inadequate
to provide for the unfolding of events of the
future. So-called gaps in the law develop as the
law is enforced. One of the rules of statutory
construction used to fill in the gap is the doctrine
of necessary implication. The doctrine states that
what is implied in a statute is as much a part
thereof as that which is expressed. Every statute
is understood, by implication, to contain all such
provisions as may be necessary to effectuate its
object and purpose, or to make effective rights,
powers, privileges or jurisdiction which it grants,
including all such collateral and subsidiary
consequences as may be fairly and logically
inferred from its terms. Ex necessitate legis. And
every statutory grant of power, right or privilege
is deemed to include all incidental power, right or
privilege. This is so because the greater includes
the lesser, expressed in the maxim, in eo plus
sit, simper inest et minus.75 (Emphases
supplied)
As the Court sees it, execution is but a
necessary incident to the Court’s confirmation of
an arbitral award. To construe it otherwise would
result in an absurd situation whereby the
confirming court previously applying the Special
ADR Rules in its confirmation of the arbitral
award would later shift to the regular Rules of
Procedure come execution. Irrefragably, a
court’s power to confirm a judgment award under
the Special ADR Rules should be deemed to
include the power to order its execution for such
is but a collateral and subsidiary consequence
that may be fairly and logically inferred from the
statutory grant to regional trial courts of the
power to confirm domestic arbitral awards.
All the more is such interpretation warranted
under the principle of ratio legis est anima which
provides that a statute must be read according
to its spirit or intent,76 for what is within the spirit
is within the statute although it is not within its
letter, and that which is within the letter but not
within the spirit is not within the
statute.77 Accordingly, since the Special ADR
Rules are intended to achieve speedy and
efficient resolution of disputes and curb a
litigious culture,78every interpretation thereof
should be made consistent with these objectives.
Thus, with these principles in mind, the Court so
concludes that the Special ADR Rules, as far as
practicable, should be made to apply not only to
the proceedings on confirmation but also to the
confirmed award’s execution.
Further, let it be clarified that – contrary to
petitioner’s stance – resort to the Rules of Court
even in a suppletory capacity is not allowed.
Rule 22.1 of the Special ADR Rules explicitly
provides that "[t]he provisions of the Rules of
Court that are applicable to the proceedings
enumerated in Rule 1.1 of these Special ADR
Rules have either been included and
incorporated in these Special ADR Rules or
specifically referred to herein."79 Besides, Rule
1.13 thereof provides that "[i]n situations where
no specific rule is provided under the Special
ADR Rules, the court shall resolve such matter
summarily and be guided by the spirit and intent
of the Special ADR Rules and the ADR Laws."
As above-mentioned, the petition for certiorari
permitted under the Special ADR Rules must be
filed within a period of fifteen (15) days from
notice of the judgment, order or resolution
sought to be annulled or set aside.80 Hence,
since petitioner’s filing of its certiorari petition in
CA-G.R. SP No. 126458 was made nearly two
months after its receipt of the RTC’s Order dated
July 9, 2012,or on September 10, 2012,81 said
petition was clearly dismissible.82
III.
Discounting the above-discussed procedural
considerations, the Court still finds that the
certiorari petition had no merit.
Indeed, petitioner cannot be said to have been
denied due process as the records undeniably
show that it was accorded ample opportunity to
ventilate its position. There was clearly nothing
out of line when the Arbitral Tribunal denied
petitioner’s motions for extension to file its
submissions having failed to show a valid reason
to justify the same or in rendering the Arbitral
Award sans petitioner’s draft decision which was
filed only on the day of the scheduled
promulgation of final award on May 7,
2010.83 The touchstone of due process is
basically the opportunity to be heard. Having
been given such opportunity, petitioner should
only blame itself for its own procedural blunder.
On this score, the petition for certiorari in CA-
G.R. SP No. 126458 was likewise properly
dismissed.
IV.
Nevertheless, while the Court sanctions the
dismissal by the CA of the petition for certiorari
due to procedural infirmities, there is a need to
explicate the matter of execution of the
confirmed Arbitral Award against the petitioner,
a government agency, in the light of Presidential
Decree No. (PD) 144584 otherwise known as the
"Government Auditing Code of the Philippines."
Section 26 of PD 1445 expressly provides that
execution of money judgment against the
Government or any of its subdivisions, agencies
and instrumentalities is within the primary
jurisdiction of the COA, to wit:
SEC. 26. General jurisdiction. The authority and
powers of the Commission shall extend to and
comprehend all matters relating to auditing
procedures, systems and controls, the keeping
of the general accounts of the Government, the
preservation of vouchers pertaining thereto for a
period of ten years, the examination and
inspection of the books, records, and papers
relating to those accounts; and the audit and
settlement of the accounts of all persons
respecting funds or property received or held by
them in an accountable capacity, as well as the
examination, audit, and settlement of all debts
and claims of any sort due from or owing to the
Government or any of its subdivisions, agencies
and instrumentalities. The said jurisdiction
extends to all government-owned or controlled
corporations, including their subsidiaries, and
other self-governing boards, commissions, or
agencies of the Government, and as herein
prescribed, including non-governmental entities
subsidized by the government, those funded by
donation through the government, those
required to pay levies or government share, and
those for which the government has put up a
counterpart fund or those partly funded by the
government. (Emphases supplied)
From the foregoing, the settlement of
respondent’s money claim is still subject to the
primary jurisdiction of the COA despite finality of
the confirmed arbitral award by the RTC
pursuant to the Special ADR Rules.85 Hence, the
respondent has to first seek the approval of the
COA of their monetary claim. This appears to
have been complied with by the latter when it
filed a "Petition for Enforcement and Payment of
Final and Executory Arbitral Award"86before the
COA. Accordingly, it is now the COA which has
the authority to rule on this latter petition.
WHEREFORE, the petition is DENIED. The
Decision dated March 26, 2014 of the Court of
Appeals in CA-G.R. SP No. 126458 which
dismissed the petition for certiorari filed by
petitioner the Department of Environment and
Natural Resources is hereby AFFIRMED.
SO ORDERED.
G.R. No. 204689 January 21, 2015
STRONGHOLD INSURANCE COMPANY,
INC., Petitioner,
vs.
SPOUSES RUNE and LEA
STROEM, Respondents.
DECISION
LEONEN, J.:
For resolution is a Petition for Review1 under
Rule 45 of the Rules of Court assailing the
Decision2 dated November 20, 2012 of the Court
of Appeals in CA-G.R. CV No. 96017. The Court
of Appeals ;iffirmed the Decision3 of the
Regional Trial Court of Makati, Branch 133 in
Civil Case No. 02-1108 for collection of a sum of
money.
This case involves the proper invocation of the
Construction Industry Arbitration Committee's
(CIAC) jurisdiction through an arbitration clause
in a construction contract. The main issue here
is whether the dispute — liability of a surety
under a performance bond — is connected to a
construction contract and, therefore, falls under
the exclusive jurisdiction of the CIAC.
Spouses Rune and Lea Stroem (Spouses
Stroem) entered into an Owners-Contractor
Agreement4 with Asis-Leif & Company, Inc.
(Asis-Leif) for the construction of a two-storey
house on the lot owned by Spouses Stroem. The
lot was located at Lot 4A, Block 24, Don Celso
Tuason Street, Valley Golf Subdivision,
Barangay Mayamot, Antipolo, Rizal.5
On November 15, 1999, pursuant to the
agreement, Asis-Leif secured Performance
Bond No. LP/G(13)83056 in the amount of
₱4,500,000.00 from Stronghold Insurance
Company, Inc. (Stronghold).6 Stronghold and
Asis-Leif, through Ms. Ma. Cynthia Asis-Leif,
bound themselves jointly and severally to pay
the Spouses Stroem the agreed amount in the
event that the construction project is not
completed.7
Asis-Leif failed to finish the projecton time
despite repeated demands of the Spouses
Stroem.8
Spouses Stroem subsequently rescinded the
agreement.9 They then hired an independent
appraiser to evaluate the progress of the
construction project.10
Appraiser Asian Appraisal Company, Inc.’s
evaluation resulted in the following percentage
of completion: 47.53% of the residential building,
65.62% of the garage, and 13.32% of the
swimming pool, fence, gate, and land
development.11
On April 5, 2001, Stronghold sent a letter to Asis-
Leif requesting that the company settle its
obligations withthe Spouses Stroem. No
response was received from Asis-Leif.12
On September 12, 2002, the Spouses Stroem
filed a Complaint (with Prayer for Preliminary
Attachment)13 for breach of contract and for sum
of money with a claim for damages against Asis-
Leif, Ms. Cynthia Asis-Leif, and
Stronghold.14 Only Stronghold was served
summons. Ms. Cynthia Asis-Leif allegedly
absconded and moved out of the country.15
On July 13, 2010, the Regional Trial Court
rendered a judgment in favor of the Spouses
Stroem. The trial court ordered Stronghold to pay
the Spouses Stroem ₱4,500,000.00 with 6%
legal interest from the time of first demand.16The
dispositive portion of the trial court Decision
reads:
WHEREFORE, finding plaintiffs’ cause of action
to be sufficiently established being supported by
evidence on records, judgement is hereby
rendered in favor of the plaintiff spouses Rune
and Lea Stroem and against the defendant
Stronghold Insurance Company Incorporated
ordering the latter topay the plaintiff the sums of:
1) Php4,500,000.00 with six (6%) percent
legal interest from the time of first demand
and interest due shall earn legal interest
from the time of judicial demand until fully
paid.
2) Php35,000.00 by way of attorney’s fees
and other litigation expenses.
Defendant is further ordered topay the costs of
this suit.
SO ORDERED.17
Both Stronghold and the Spouses Stroem
appealed to the Court of Appeals.18
The Court of Appeals affirmed with modification
the trial court’s Decision. It increased the amount
of attorney’s fees to ₱50,000.00.19
The dispositive portion of the Court of Appeals
Decision reads:
WHEREFORE,the appeal of Stronghold
Company, Inc[.] is DISMISSED, while the appeal
of spouses Rune and Lea Stroem is PARTLY
GRANTED. The November 27, 2009 Decision of
the Regional Trial Court of Makati City is
AFFIRMED with MODIFICATION that the award
of attorney’s fees is increased to ₱50,000.00
SO ORDERED.20
On March 20, 2013, this court required the
Spouses Stroem to submit their Comment on the
Petition.21 We noted the Spouses Stroem’s
Comment on July 31, 2013.22 We also required
Stronghold to file its Reply to the
Comment,23which was noted on December 9,
2013.24
Stronghold argues that the trial court did not
acquire jurisdiction over the case and, therefore,
the Court of Appeals committed reversible error
when it upheld the Decision of the Regional Trial
Court.25 The lower courts should have dismissed
the case in viewof the arbitration clause in the
agreement and considering that "[Republic Act
No. 876] explicitly confines the court’s authority
only to pass upon the issue of whether there is
[an] agreement . . . providing for arbitration. In
the affirmative, the statute ordains that the court
shall issue an order ‘summarily directing the
parties to proceed with the arbitration in
accordance with the terms thereof.’"26 Moreover,
"the stipulations in said Agreement are part and
parcel of the conditions in the bond. Were it not
for such stipulations in said agreement,
[Stronghold] would not have agreed to issue a
bond in favor of the Spouses Stroem. The parties
tothe bond are ALB/Ms. Asis-[L]eif, Spouses
Stroem and [Stronghold] suchthat ALB/Ms. Asis-
[L]eif never ceased to be a party to the surety
agreement."27
In any case, Stronghold’s liability under the
performance bond is limited only to additional
costs for the completion of the project.28 In
addition, the Court of Appeals erred inholding
that Stronghold changed its theory with regard to
the notice requirement29 and in modifying the
trial court’s award of attorney’s fees.30
On the other hand, the Spouses Stroem argue
that Stronghold committed forum shopping
warranting dismissal of the case.31 According to
the Spouses Stroem, Stronghold deliberately
committed forum shopping when it filed the
present petition despite the pendency of the
Spouses Stroem’s Motion for Partial
Reconsideration of the Court of Appeals
Decision dated November 20, 2012.32
More importantly, the Owners-Contractor
Agreement is "separate and distinct from the
Bond. The parties to the Agreement are ALB/Ms.
Asis-Leif and Spouses Stroem, while the parties
to the Bond are Spouses Stroem and
Stronghold. The considerations for the two
contracts are likewise distinct. Thus, the
arbitration clause in the Agreement is binding
only on the parties thereto, specifically ALB/Ms.
Asis-Leif and Spouses Stroem[.]"33
Contrary to Stronghold’s argument, Spouses
Stroem argues that stronghold is liable for the full
amountof the performance bond. The terms of
the bond clearly show that Stronghold is liable as
surety.34 Verily, notice to Stronghold is not
required for its liability to attach.35
The issues for consideration are:
(1) Whether the dispute involves a
construction contract;
(2) Whether the CIAC has exclusive
jurisdiction over the controversy between
the parties;
(3) Whether the Regional Trial Court
should have dismissed the petition
outright as required by law and
jurisprudence and referred the matter to
the CIAC; and
(4) Whether petitioner Stronghold
Insurance Company, Inc. is liable under
Performance Bond No. LP/G(13)83056.
(a) Whether petitioner Stronghold
Insurance Company, Inc. is only liable as
to the extent of any additional cost for the
completion of the project due toany
increase in prices for labor and materials.
(b) Whether the case involves ordinary
suretyship or corporate suretyship.
After considering the parties’ arguments and the
records of this case, this court resolves to deny
the Petition.
On forum-shopping
Respondents argue that petitioner committed
forum shopping; hence, the case should have
been dismissed outright.
Records show that petitioner received a copy of
the Decision of the Court of Appeals on
December 5, 2012.36Petitioner did not file a
Motion for Reconsideration of the assailed
Decision. It filed before this court a Motion for
Extension of Time To File Petition for Review
requesting an additional period of 30 days from
December 20, 2012 or until January 19, 2013 to
file the Petition.37
Respondents filed their Motion for Partial
Reconsideration of the Court of Appeals
Decision on December 11, 2012.38 They sought
the modification of the Decision as to the
amounts of moral damages, exemplary
damages, attorney’s fees, and costs of the suit.39
Respondents alleged in their Comment that as
early as January 9, 2013, petitioner received a
copy of the Court of Appeals’ Resolution
requiring Comment on the Motion for Partial
Reconsideration.40 Still, petitioner did not
disclose in its Verification and Certification
Against Forum Shopping the pendency of
respondents’ Motion for Partial
Reconsideration.41
For its part, petitioner claims that it did not
commit forum shopping. It fully disclosed in its
Petition that what it sought to be reviewed was
the Decision dated November 20, 2012 of the
Court of Appeals. "Petitioner merely exercised
its available remedy with respect to the Decision
of the Court of Appeals by filing [the]
Petition."42 What the rules mandate to be stated
in the Certification Against Forum Shopping is
the status of "any other action." This other action
involves the same issues and parties but is an
entirely different case.
Indeed, petitioner is guilty of forum shopping.
There is forum shopping when:
as a result of an adverse opinion in one forum, a
party seeks a favorable opinion (other than by
appeal or certiorari) in another. The principle
applies not only with respect to suits filed in the
courts but also in connection with litigations
commenced in the courts while an administrative
proceeding is pending[.]43 (Citation omitted)
This court has enumerated the elements of
forum-shopping: "(a) identity of parties, or at
least such parties as represent the same
interests in both actions; (b) identity of rights
asserted and reliefs prayed for, the reliefs being
founded on the same facts; and (c) the identity
with respect to the two preceding particulars in
the two cases issuch that any judgment rendered
in the pending cases, regardless of which party
is successful, amount to res judicatain the other
case."44 Rule 42, Section 245 in relation to Rule
45, Section 4 of the Rules of Court mandates
petitioner to submit a Certification Against Forum
Shopping and promptly inform this court about
the pendency of any similar action or proceeding
before other courts or tribunals. The rule’s
purpose is to deter the unethical practice of
pursuing simultaneous remedies in different
forums, which "wreaks havoc upon orderly
judicial procedure."46 Failure to comply with the
rule is a sufficient ground for the dismissal of the
petition.47
Records show that petitioner’s duly authorized
officer certified the following on January 21,
2013: 4. I further certify that: (a) I have not
commenced any other action or proceeding
involving the same issues in the Supreme Court,
Court of Appeals, or any other tribunal or
agency; (b) to the best of my knowledge, no such
action or proceeding is pending in the Supreme
Court, the Court of Appeals or different Divisions
thereof, or any tribunal or agency; (c) if I should
thereafter learn that a similar action or
proceeding has been filed or is pending before
the Supreme Court, the Court of Appeals, or
different Divisions thereof, or any other tribunal
or agency, I undertake to promptly inform the
aforesaid courts and such tribunal or agency of
the fact within five (5) days therefrom.48
Petitioner failed to carry out its duty of promptly
informing this court of any pending action or
proceeding before this court,the Court of
Appeals, or any other tribunal or agency. This
court cannot countenance petitioner’s disregard
of the rules.
This court has held before that:
[u]ltimately, what is truly important to consider in
determining whether forum-shopping exists or
not is the vexation caused the courts and parties-
litigant by a party who asks different courts
and/or administrative agencies to rule on the
same or related causes and/or to grant the same
or substantially the same reliefs, in the process
creating the possibility of conflicting decisions
being rendered by the different fora upon the
same issue.49 (Emphasis supplied)
On this basis, this case should be dismissed.
On arbitration and the CIAC’s jurisdiction
Petitioner changed the theory of its case since
its participation in the trial court proceedings. It
raised the issue of lack of jurisdiction in view of
an arbitration agreement for the first time.
Generally, parties may not raise issues for the
first time on appeal.50 Such practice is violative
of the rules and due process and is frowned
upon by the courts. However, it is also well-
settled that jurisdiction can never be waived or
acquired by estoppel.51 Jurisdiction is conferred
by the Constitution or by law.52 "Lack of
jurisdiction of the court over an action or the
subject matter of an action cannot be cured by
the silence, by acquiescence, or even by
express consent of the parties."53
Section 4 of Executive Order No. 100854 is clear
in defining the exclusive jurisdiction of the CIAC:
SECTION 4. Jurisdiction – The CIAC shall have
original and exclusive jurisdiction over disputes
arising from, or connected with, contracts
entered into by parties involved in construction in
the Philippines, whether the dispute arises
before or after the completion of the contract, or
after the abandonment or breach thereof. These
disputes may involve government or private
contracts. For the Board to acquire jurisdiction,
the parties to a dispute must agree to submit the
same to voluntary arbitration.
The jurisdiction of the CIAC may include but is
not limited to violation of specifications for
materials and workmanship; violation of the
terms of agreement; interpretation and/or
application of contractual timeand delays;
maintenance and defects; payment, default of
employer or contractor and changes in contract
cost.
Excluded from the coverage of thislaw are
disputes arising from employer-employee
relationships which shall continue to be covered
by the Labor Code of the Philippines. (Emphasis
supplied)
Similarly, Section 35 of RepublicAct No. 9285 or
the Alternative Dispute Resolution Act of 2004
states:
SEC. 35. Coverage of the Law. - Construction
disputes which fall within the original and
exclusive jurisdiction of the Construction
Industry Arbitration Commission (the
"Commission") shall include those between or
among parties to, or who are otherwise bound
by, an arbitration agreement, directly or by
reference whether such parties are project
owner, contractor, subcontractor, quantity
surveyor, bondsman or issuer of an insurance
policy in a construction project.
The Commission shall continue to exercise
original and exclusive jurisdiction over
construction disputes although the arbitration is
"commercial" pursuant to Section 21 of this Act.
(Emphasis supplied)
In Heunghwa Industry Co., Ltd., v. DJ Builders
Corporation,55 this court held that "there are two
acts which may vest the CIAC with jurisdiction
over a construction dispute. One is the presence
of an arbitration clause in a construction
contract, and the other is the agreement by the
parties to submit the dispute to the CIAC."56
This court has ruled that when a dispute arises
from a construction contract, the CIAC has
exclusive and original
jurisdiction.57 Construction has been defined as
referring to "all on-site works on buildings or
altering structures, from land clearance through
completion including excavation, erection and
assembly and installation of components and
equipment."58
In this case, there is no dispute asto whether the
Owners-Contractor Agreement between Asis-
Leif and respondents is a construction contract.
Petitioner and respondents recognize that CIAC
has jurisdiction over disputes arising from the
agreement.
What is at issue in this case is the parties’
agreement, or lack thereof, to submit the case to
arbitration. Respondents argue that petitioner is
not a party to the arbitration agreement.
Petitioner did not consent to arbitration. It is only
respondent and Asis-Leif thatmay invoke the
arbitration clause in the contract.
This court has previously held that a
performance bond, which is meant "to guarantee
the supply of labor,materials, tools, equipment,
and necessary supervision to complete the
project[,]"59 is significantly and substantially
connected to the construction contract and,
therefore, falls under the jurisdiction of the
CIAC.60
Prudential Guarantee and Assurance Inc. v.
Anscor Land, Inc.61 involved circumstances
similar to the present case. In Prudential,
property owner Anscor Land, Inc. (ALI) entered
into a contract for the construction of an eight-
unit townhouse located inCapitol Hills, Quezon
City with contractor Kraft Realty and
Development Corporation (KRDC).62KRDC
secured the completion of the construction
project through a surety and performance bond
issued by Prudential Guarantee and Assurance
Inc. (PGAI).63
The delay in the construction project resulted in
ALI’s termination of the contract and claim
against the performance bond.64 "ALI
[subsequently] commenced arbitration
proceedings against KRDC and PGAI in the
CIAC."65 PGAI, however, argued that it was not
a party to the construction contract.66
The CIAC ruled that PGAI was not liable under
the performance bond.67 Upon review, the Court
of Appeals held that PGAI was jointly and
severally liable with KRDC under the
performance bond.68
PGAI appealed the Court of Appeals Decision
and claimed that CIAC did not have jurisdiction
over the performance bond.69 This court ruled:
A guarantee or a surety contract under Article
2047 of the Civil Code of the Philippines is an
accessory contract because it is dependent for
its existence upon the principal obligation
guaranteed by it.
In fact, the primary and only reason behind the
acquisition of the performance bond by KRDC
was to guarantee to ALI that the construction
project would proceed in accordance with the
contract terms and conditions. In effect, the
performance bond becomes liable for the
completion of the construction project in the
event KRDC fails in its contractual undertaking.
Because of the performance bond, the
construction contract between ALI and KRDC is
guaranteed to be performed even if KRDC fails
in its obligation. In practice, a performance bond
is usually a condition or a necessary component
of construction contracts. In the case at bar, the
performance bond was so connected with the
construction contract that the former was agreed
by the parties to be a condition for the latter to
push through and at the same time, the former is
reliant on the latter for its existence as an
accessory contract.
Although not the construction contract itself, the
performance bond is deemed as an associate of
the main construction contract that it cannot be
separated or severed from its principal. The
Performance Bond is significantly and
substantially connected to the construction
contract that there can be no doubt it is the CIAC,
under Section 4 of EO No. 1008, which has
jurisdiction over any dispute arising from or
connected with it.70 (Emphasis supplied,
citations omitted)
At first look, the Owners-Contractor Agreement
and the performance bond reference each other;
the performance bond was issued pursuant to
the construction agreement.
A performance bond is a kind of suretyship
agreement. A suretyship agreement is an
agreement "whereby a party, called the surety,
guarantees the performance by another party,
called the principal or obligor, of an obligation or
undertaking in favor of another party, called the
obligee."71 In the same vein, a performance
bond is "designed to afford the project owner
security that the . . . contractor, will faithfully
comply with the requirements of the contract . . .
and make good [on the] damages sustained by
the project owner in case of the contractor’s
failure to so perform."72
It is settled that the surety’s solidary obligation
for the performance of the principal debtor’s
obligation is indirect and merely
secondary.73 Nevertheless, the surety’s liability
tothe "creditor or promisee of the principal is said
to be direct, primary and absolute; in other
words, he is directly and equally bound with the
principal."74
Verily, "[i]n enforcing a surety contract, the
‘complementary contracts-construed-together’
doctrine finds application. According to this
principle, an accessory contract must beread in
its entirety and together with the principal
agreement."75 Article 1374 of the Civil Code
provides:
ART. 1374. The various stipulations of a contract
shall be interpreted together, attributing to the
doubtful ones that sense which may result from
all of them taken jointly.
Applying the "complementary-contracts-
construed-together" doctrine, this court in
Prudential held that the surety willingly acceded
to the terms of the construction contract despite
the silence of the performance bond as to
arbitration:
In the case at bar, the performance bond was
silent with regard to arbitration. On the other
hand, the construction contract was clear as to
arbitration in the event of disputes. Applying the
said doctrine, we rule that the silence of the
accessory contract in this case could only be
construed as acquiescence to the main contract.
The construction contract breathes life into the
performance bond. We are not ready to assume
that the performance bond contains reservations
with regard to some of the terms and conditions
in the construction contract where in fact it is
silent. On the other hand, it is more reasonable
to assume that the party who issued the
performance bond carefully and meticulously
studied the construction contract that it
guaranteed, and if it had reservations, it would
have and should have mentioned them in the
surety contract.76 (Emphasis supplied)
This court, however, cannot apply the ruling in
Prudential to the present case. Several factors
militate against petitioner’s claim.
The contractual stipulations in this case and in
Prudential are different. The relevant provisions
of the Owners-Contractor Agreement in this case
state:
ARTICLE 5. THE CONTRACT DOCUMENTS
The following documents prepared by the
CONTRACTOR shall constitute an integral part
of this contract as fully as if hereto attached or
herein stated, except asotherwise modified by
mutual agreement of parties, and attached to this
agreement.
Attachment 5.1 Working Drawings
Attachment 5.2 Outline Specifications
Attachment 5.3 Bill of Quantities
Attachment 5.4 CONTRACTOR Business
License
....
ARTICLE 7. PERFORMANCE (SURETY)
BOND
7.1 Within 30 days of the signing of this
agreement, CONTRACTOR shall provide
to OWNERS a performance bond, issued
by a duly licensed authority acceptable to
the OWNERS, and equal to the amount of
PHP 4,500,000.00 (Four Million and Five
Hundred Thousand Philippine
Pesos),with the OWNERS as beneficiary.
7.2 The performance bond will guarantee
the satisfactory and faithful performance
by the CONTRACTOR of all provisions
stated within this contract.
ARTICLE 8. ARBITRATION
8.1 Any dispute between the parties hereto
which cannot be amicably settled shall be finally
settled by arbitration in accordance with the
provision of Republic Act 876, of The Philippines,
as amended by the Executive Order 1008 dated
February 4, 1985.77 (Emphasis in the original)
In contrast, the provisions of the construction
contract in Prudential provide:
Article 1
CONTRACT DOCUMENTS
1.1 The following shall form part of this
Contractand together with this Contract, are
known as the "Contract Documents":
a. Bid Proposal
....
d. Notice to proceed
....
j. Appendices A & B (respectively, Surety
Bond for Performance and, Supply of
Materials by the Developer)78(Emphasis
supplied)
This court in Prudential held that the construction
contract expressly incorporated the performance
bond into the contract.79 In the present case,
Article 7 of the Owners-Contractor Agreement
merely stated that a performance bond shall be
issued in favor of respondents, in which case
petitioner and Asis-Leif Builders and/or Ms. Ma.
Cynthia Asis-Leif shall pay ₱4,500,000.00 in the
event that Asis-Leif fails to perform its duty under
the Owners-Contractor
80
Agreement. Consequently, the performance
bond merely referenced the contract entered into
by respondents and Asis-Leif, which pertained to
Asis-Leif’s duty toconstruct a two-storey
residence building with attic, pool, and
landscaping over respondents’ property.81
To be clear, it is in the Owners-Contractor
Agreement that the arbitration clause is
found.1âwphi1 The construction agreement was
signed only by respondents and the contractor,
Asis-Leif, as represented by Ms. Ma. Cynthia
Asis-Leif. It is basic that "[c]ontracts take effect
only between the parties, their assigns and
heirs[.]"82 Not being a party to the construction
agreement, petitioner cannot invoke the
arbitration clause. Petitioner, thus, cannot invoke
the jurisdiction of the CIAC.
Moreover, petitioner’s invocation of the
arbitration clause defeats the purpose of
arbitration in relation to the construction
business. The state has continuously
encouraged the use of dispute resolution
mechanisms to promote party autonomy.83 In
LICOMCEN, Incorporated v. Foundation
Specialists, Inc.,84 this court upheld the CIAC's
jurisdiction in line with the state's policy to
promote arbitration:
The CIAC was created through Executive Order
No. 1008 (E. 0. 1008), in recognition of the need
to establish an arbitral machinery that would
expeditiously settle construction industry
disputes. The prompt resolution of problems
arising from or connected with the construction
industry was considered of necessary and vital
for the fulfillment of national development goals,
as the construction industry provides
employment to a large segment of the national
labor force and is a leading contributor to the
gross national product.85 (Citation omitted)
However, where a surety in a. construction
contract actively participates in a collection suit,
it is estopped from raising jurisdiction later.
Assuming that petitioner is privy to the
construction agreement, we cannot allow
petitioner to invoke arbitration at this late stage
of the proceedings since to do so would go
against the law's goal of prompt resolution of
cases in the construction industry.
WHEREFORE, the petition is DENIED. The case
is DISMISSED. Petitioner's counsel is STERNLY
WARNED that a repetition or similar violation of
the rule on Certification Against Forum Shopping
will be dealt with more severely.
SO ORDERED.
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.
DECISION
LEONEN, J.:
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.
This is a Rule 45 petition, assailing the Court of
Appeals' May 11, 2006 decision and October 5,
2006 resolution. The Court of Appeals affirmed
the trial court's decision holding that petitioners,
as director, should submit themselves as parties
tothe arbitration proceedings between BF
Corporation and Shangri-La Properties, Inc.
(Shangri-La).
In 1993, BF Corporation filed a collection
complaint with the Regional Trial Court against
Shangri-Laand the members of its board of
directors: Alfredo C. Ramos, Rufo B.Colayco,
Antonio O. Olbes, Gerardo Lanuza, Jr., Maximo
G. Licauco III, and Benjamin C. Ramos.1
BF Corporation alleged in its complaint that on
December 11, 1989 and May 30, 1991, it entered
into agreements with Shangri-La wherein it
undertook to construct for Shangri-La a mall and
a multilevel parking structure along EDSA.2
Shangri-La had been consistent in paying BF
Corporation in accordance with its progress
billing statements.3However, by October 1991,
Shangri-La started defaulting in payment.4
BF Corporation alleged that Shangri-La induced
BF Corporation to continue with the construction
of the buildings using its own funds and credit
despite Shangri-La’s default.5 According to BF
Corporation, ShangriLa misrepresented that it
had funds to pay for its obligations with BF
Corporation, and the delay in payment was
simply a matter of delayed processing of BF
Corporation’s progress billing statements.6
BF Corporation eventually completed the
construction of the buildings.7 Shangri-La
allegedly took possession of the buildings while
still owing BF Corporation an outstanding
balance.8
BF Corporation alleged that despite repeated
demands, Shangri-La refused to pay the balance
owed to it.9 It also alleged that the Shangri-La’s
directors were in bad faith in directing Shangri-
La’s affairs. Therefore, they should be held
jointly and severally liable with Shangri-La for its
obligations as well as for the damages that BF
Corporation incurred as a result of Shangri-La’s
default.10
On August 3, 1993, Shangri-La, Alfredo C.
Ramos, Rufo B. Colayco, Maximo G. Licauco III,
and Benjamin C. Ramos filed a motion to
suspend the proceedings in view of BF
Corporation’s failure to submit its dispute to
arbitration, in accordance with the arbitration
clauseprovided in its contract, quoted in the
motion as follows:11
35. Arbitration
(1) Provided always that in case any dispute or
difference shall arise between the Owner or the
Project Manager on his behalf and the
Contractor, either during the progress or after the
completion or abandonment of the Works as to
the construction of this Contract or as to any
matter or thing of whatsoever nature arising
there under or inconnection therewith (including
any matter or thing left by this Contract to the
discretion of the Project Manager or the
withholding by the Project Manager of any
certificate to which the Contractor may claim to
be entitled or the measurement and valuation
mentioned in clause 30(5)(a) of these Conditions
or the rights and liabilities of the parties under
clauses 25, 26, 32 or 33 of these Conditions), the
owner and the Contractor hereby agree to exert
all efforts to settle their differences or dispute
amicably. Failing these efforts then such dispute
or difference shall be referred to arbitration in
accordance with the rules and procedures of the
Philippine Arbitration Law.
xxx xxx xxx
(6) The award of such Arbitrators shall be final
and binding on the parties. The decision of the
Arbitrators shall be a condition precedent to any
right of legal action that either party may have
against the other. . . .12 (Underscoring in the
original)
On August 19, 1993, BF Corporation opposed
the motion to suspend proceedings.13
In the November 18, 1993 order, the Regional
Trial Court denied the motion to suspend
proceedings.14
On December 8, 1993, petitioners filed an
answer to BF Corporation’s complaint, with
compulsory counter claim against BF
Corporation and crossclaim against Shangri-
La.15 They alleged that they had resigned as
members of Shangri-La’s board of directors as
of July 15, 1991.16
After the Regional Trial Court denied on
February 11, 1994 the motion for reconsideration
of its November 18, 1993 order, Shangri-La,
Alfredo C. Ramos, Rufo B. Colayco,Maximo G.
Licauco III, and Benjamin Ramos filed a petition
for certiorari with the Court of Appeals.17
On April 28, 1995, the Court of Appeals granted
the petition for certiorari and ordered the
submission of the dispute to arbitration.18
Aggrieved by the Court of Appeals’ decision, BF
Corporation filed a petition for review on
certiorari with this court.19On March 27, 1998,
this court affirmed the Court of Appeals’
decision, directing that the dispute be submitted
for arbitration.20
Another issue arose after BF Corporation had
initiated arbitration proceedings. BF Corporation
and Shangri-La failed to agree as to the law that
should govern the arbitration proceedings.21 On
October 27, 1998, the trial court issued the order
directing the parties to conduct the proceedings
in accordance with Republic Act No. 876.22
Shangri-La filed an omnibus motion and BF
Corporation an urgent motion for clarification,
both seeking to clarify the term, "parties," and
whether Shangri-La’s directors should be
included in the arbitration proceedings and
served with separate demands for arbitration.23
Petitioners filed their comment on Shangri-La’s
and BF Corporation’s motions, praying that they
be excluded from the arbitration proceedings for
being non-parties to Shangri-La’s and BF
Corporation’s agreement.24
On July 28, 2003, the trial court issued the order
directing service of demands for arbitration upon
all defendants in BF Corporation’s
complaint.25 According to the trial court, Shangri-
La’s directors were interested parties who "must
also be served with a demand for arbitration to
give them the opportunity to ventilate their side
of the controversy, safeguard their interest and
fend off their respective positions."26 Petitioners’
motion for reconsideration ofthis order was
denied by the trial court on January 19, 2005.27
Petitioners filed a petition for certiorari with the
Court of Appeals, alleging grave abuse of
discretion in the issuance of orders compelling
them to submit to arbitration proceedings despite
being third parties to the contract between
Shangri-La and BF Corporation.28
In its May 11, 2006 decision,29 the Court of
Appeals dismissed petitioners’ petition for
certiorari. The Court of Appeals ruled that
ShangriLa’s directors were necessary parties in
the arbitration proceedings.30 According to the
Court of Appeals:
[They were] deemed not third-parties tothe
contract as they [were] sued for their acts in
representation of the party to the contract
pursuant to Art. 31 of the Corporation Code, and
that as directors of the defendant corporation,
[they], in accordance with Art. 1217 of the Civil
Code, stand to be benefited or injured by the
result of the arbitration proceedings, hence,
being necessary parties, they must be joined in
order to have complete adjudication of the
controversy. Consequently, if [they were]
excluded as parties in the arbitration
proceedings and an arbitral award is rendered,
holding [Shangri-La] and its board of directors
jointly and solidarily liable to private respondent
BF Corporation, a problem will arise, i.e.,
whether petitioners will be bound bysuch arbitral
award, and this will prevent complete
determination of the issues and resolution of the
controversy.31
The Court of Appeals further ruled that
"excluding petitioners in the arbitration
proceedings . . . would be contrary to the policy
against multiplicity of suits."32
The dispositive portion of the Court of Appeals’
decision reads:
WHEREFORE, the petition is DISMISSED. The
assailed orders dated July 28, 2003 and January
19, 2005 of public respondent RTC, Branch 157,
Pasig City, in Civil Case No. 63400, are
AFFIRMED.33
The Court of Appeals denied petitioners’ motion
for reconsideration in the October 5, 2006
resolution.34
On November 24, 2006, petitioners filed a
petition for review of the May 11, 2006 Court of
Appeals decision and the October 5, 2006 Court
of Appeals resolution.35
The issue in this case is whether petitioners
should be made parties to the arbitration
proceedings, pursuant to the arbitration clause
provided in the contract between BF Corporation
and Shangri-La.
Petitioners argue that they cannot be held
personally liable for corporate acts or
obligations.36 The corporation is a separate
being, and nothing justifies BF Corporation’s
allegation that they are solidarily liable with
Shangri-La.37Neither did they bind themselves
personally nor did they undertake to shoulder
Shangri-La’s obligations should it fail in its
obligations.38 BF Corporation also failed to
establish fraud or bad faith on their part.39
Petitioners also argue that they are third parties
to the contract between BF Corporation and
Shangri-La.40Provisions including arbitration
stipulations should bind only the parties.41 Based
on our arbitration laws, parties who are strangers
to an agreement cannot be compelled to
arbitrate.42
Petitioners point out thatour arbitration laws were
enacted to promote the autonomy of parties in
resolving their disputes.43 Compelling them to
submit to arbitration is against this purpose and
may be tantamount to stipulating for the
parties.44
Separate comments on the petition werefiled by
BF Corporation, and Maximo G. Licauco III,
Alfredo C.Ramos and Benjamin C. Ramos.45
Maximo G. Licauco III Alfredo C. Ramos, and
Benjamin C. Ramos agreed with petitioners that
Shangri-La’sdirectors, being non-parties to the
contract, should not be made personally liable
for Shangri-La’s acts.46 Since the contract was
executed only by BF Corporation and Shangri-
La, only they should be affected by the contract’s
stipulation.47 BF Corporation also failed to
specifically allege the unlawful acts of the
directors that should make them solidarily liable
with Shangri-La for its obligations.48
Meanwhile, in its comment, BF Corporation
argued that the courts’ ruling that the parties
should undergo arbitration "clearly contemplated
the inclusion of the directors of the
corporation[.]"49 BF Corporation also argued that
while petitioners were not parties to the
agreement, they were still impleaded under
Section 31 of the Corporation Code.50Section 31
makes directors solidarily liable for fraud, gross
negligence, and bad faith.51 Petitioners are not
really third parties to the agreement because
they are being sued as Shangri-La’s
representatives, under Section 31 of the
Corporation Code.52
BF Corporation further argued that because
petitioners were impleaded for their solidary
liability, they are necessary parties to the
arbitration proceedings.53 The full resolution of
all disputes in the arbitration proceedings should
also be done in the interest of justice.54
In the manifestation dated September 6, 2007,
petitioners informed the court that the Arbitral
Tribunal had already promulgated its decision on
July 31, 2007.55 The Arbitral Tribunal denied BF
Corporation’s claims against them.56Petitioners
stated that "[they] were included by the Arbitral
Tribunal in the proceedings conducted . . .
notwithstanding [their] continuing objection
thereto. . . ."57 They also stated that "[their]
unwilling participation in the arbitration case was
done ex abundante ad cautela, as manifested
therein on several occasions."58 Petitioners
informed the court that they already manifested
with the trial court that "any action taken on [the
Arbitral Tribunal’s decision] should be without
prejudice to the resolution of [this] case."59
Upon the court’s order, petitioners and Shangri-
La filed their respective memoranda. Petitioners
and Maximo G. Licauco III, Alfredo C. Ramos,
and Benjamin C. Ramos reiterated their
arguments that they should not be held liable for
Shangri-La’s default and made parties to the
arbitration proceedings because only BF
Corporation and Shangri-La were parties to the
contract.
In its memorandum, Shangri-La argued that
petitioners were impleaded for their solidary
liability under Section 31 of the Corporation
Code. Shangri-La added that their exclusion
from the arbitration proceedings will result in
multiplicity of suits, which "is not favored in this
jurisdiction."60 It pointed out that the case had
already been mooted by the termination of the
arbitration proceedings, which petitioners
actively participated in.61 Moreover, BF
Corporation assailed only the correctness of the
Arbitral Tribunal’s award and not the part
absolving Shangri-La’s directors from liability.62
BF Corporation filed a counter-manifestation
with motion to dismiss63 in lieu of the required
memorandum.
In its counter-manifestation, BF Corporation
pointed out that since "petitioners’ counterclaims
were already dismissed with finality, and the
claims against them were likewise dismissed
with finality, they no longer have any interest
orpersonality in the arbitration case. Thus, there
is no longer any need to resolve the present
Petition, which mainly questions the inclusion of
petitioners in the arbitration proceedings." 64 The
court’s decision in this case will no longer have
any effect on the issue of petitioners’ inclusion in
the arbitration proceedings.65
The petition must fail.
The Arbitral Tribunal’s decision, absolving
petitioners from liability, and its binding effect on
BF Corporation, have rendered this case moot
and academic.
The mootness of the case, however, had not
precluded us from resolving issues so that
principles may be established for the guidance
of the bench, bar, and the public. In De la
Camara v. Hon. Enage,66 this court disregarded
the fact that petitioner in that case already
escaped from prison and ruled on the issue of
excessive bails:
While under the circumstances a ruling on the
merits of the petition for certiorari is
notwarranted, still, as set forth at the opening of
this opinion, the fact that this case is moot and
academic should not preclude this Tribunal from
setting forth in language clear and unmistakable,
the obligation of fidelity on the part of lower court
judges to the unequivocal command of the
Constitution that excessive bail shall not be
required.67
This principle was repeated in subsequent cases
when this court deemed it proper to clarify
important matters for guidance.68
Thus, we rule that petitioners may be compelled
to submit to the arbitration proceedings in
accordance with Shangri-Laand BF
Corporation’s agreement, in order to determine
if the distinction between Shangri-La’s
personality and their personalities should be
disregarded.
This jurisdiction adopts a policy in favor of
arbitration. Arbitration allows the parties to avoid
litigation and settle disputes amicably and more
expeditiously by themselves and through their
choice of arbitrators.
The policy in favor of arbitration has been
affirmed in our Civil Code,69 which was approved
as early as 1949. It was later institutionalized by
the approval of Republic Act No. 876,70 which
expressly authorized, made valid, enforceable,
and irrevocable parties’ decision to submit their
controversies, including incidental issues, to
arbitration. This court recognized this policy in
Eastboard Navigation, Ltd. v. Ysmael and
Company, Inc.:71
As a corollary to the question regarding the
existence of an arbitration agreement, defendant
raises the issue that, even if it be granted that it
agreed to submit its dispute with plaintiff to
arbitration, said agreement is void and without
effect for it amounts to removing said dispute
from the jurisdiction of the courts in which the
parties are domiciled or where the dispute
occurred. It is true that there are authorities
which hold that "a clause in a contract providing
that all matters in dispute between the parties
shall be referred to arbitrators and to them alone,
is contrary to public policy and cannot oust the
courts of jurisdiction" (Manila Electric Co. vs.
Pasay Transportation Co., 57 Phil., 600, 603),
however, there are authorities which favor "the
more intelligent view that arbitration, as an
inexpensive, speedy and amicable method of
settling disputes, and as a means of avoiding
litigation, should receive every encouragement
from the courts which may be extended without
contravening sound public policy or settled law"
(3 Am. Jur., p. 835). Congress has officially
adopted the modern view when it reproduced in
the new Civil Code the provisions of the old Code
on Arbitration. And only recently it approved
Republic Act No. 876 expressly authorizing
arbitration of future disputes.72 (Emphasis
supplied)
In view of our policy to adopt arbitration as a
manner of settling disputes, arbitration clauses
are liberally construed to favor arbitration. Thus,
in LM Power Engineering Corporation v. Capitol
Industrial Construction Groups, Inc.,73 this court
said:
Being an inexpensive, speedy and amicable
method of settling disputes, arbitration — along
with mediation, conciliation and negotiation — is
encouraged by the Supreme Court. Aside from
unclogging judicial dockets, arbitration also
hastens the resolution of disputes, especially of
the commercial kind. It is thus regarded as the
"wave of the future" in international civil and
commercial disputes. Brushing aside a
contractual agreement calling for arbitration
between the parties would be a step backward.
Consistent with the above-mentioned policy of
encouraging alternative dispute resolution
methods, courts should liberally construe
arbitration clauses. Provided such clause is
susceptible of an interpretation that covers the
asserted dispute, an order to arbitrate should be
granted. Any doubt should be resolved in favor
of arbitration.74(Emphasis supplied)
A more clear-cut statement of the state policy to
encourage arbitration and to favor
interpretations that would render effective an
arbitration clause was later expressed in
Republic Act No. 9285:75
SEC. 2. Declaration of Policy.- It is hereby
declared the policy of the State to actively
promote party autonomy in the resolution of
disputes or the freedom of the party to make their
own arrangements to resolve their disputes.
Towards this end, the State shall encourage and
actively promote the use of Alternative Dispute
Resolution (ADR) as an important means to
achieve speedy and impartial justice and declog
court dockets. As such, the State shall provide
means for the use of ADR as an efficient tool and
an alternative procedure for the resolution of
appropriate cases. Likewise, the State shall
enlist active private sector participation in the
settlement of disputes through ADR. This Act
shall be without prejudice to the adoption by the
Supreme Court of any ADR system, such as
mediation, conciliation, arbitration, or any
combination thereof as a means of achieving
speedy and efficient means of resolving cases
pending before all courts in the Philippines which
shall be governed by such rules as the Supreme
Court may approve from time to time.
....
SEC. 25. Interpretation of the Act.- In interpreting
the Act, the court shall have due regard to the
policy of the law in favor of arbitration.Where
action is commenced by or against multiple
parties, one or more of whomare parties who are
bound by the arbitration agreement although the
civil action may continue as to those who are not
bound by such arbitration agreement. (Emphasis
supplied)
Thus, if there is an interpretation that would
render effective an arbitration clause for
purposes ofavoiding litigation and expediting
resolution of the dispute, that interpretation shall
be adopted. Petitioners’ main argument arises
from the separate personality given to juridical
persons vis-à-vis their directors, officers,
stockholders, and agents. Since they did not sign
the arbitration agreement in any capacity, they
cannot be forced to submit to the jurisdiction of
the Arbitration Tribunal in accordance with the
arbitration agreement. Moreover, they had
already resigned as directors of Shangri-Laat the
time of the alleged default.
Indeed, as petitioners point out, their
personalities as directors of Shangri-La are
separate and distinct from Shangri-La.
A corporation is an artificial entity created by
fiction of law.76 This means that while it is not a
person, naturally, the law gives it a distinct
personality and treats it as such. A corporation,
in the legal sense, is an individual with a
personality that is distinct and separate from
other persons including its stockholders, officers,
directors, representatives,77 and other juridical
entities. The law vests in corporations
rights,powers, and attributes as if they were
natural persons with physical existence and
capabilities to act on their own.78 For instance,
they have the power to sue and enter into
transactions or contracts. Section 36 of the
Corporation Code enumerates some of a
corporation’s powers, thus:
Section 36. Corporate powers and capacity.–
Every corporation incorporated under this Code
has the power and capacity:
1. To sue and be sued in its corporate
name;
2. Of succession by its corporate name for
the period of time stated in the articles of
incorporation and the certificate
ofincorporation;
3. To adopt and use a corporate seal;
4. To amend its articles of incorporation in
accordance with the provisions of this
Code;
5. To adopt by-laws, not contrary to law,
morals, or public policy, and to amend or
repeal the same in accordance with this
Code;
6. In case of stock corporations, to issue
or sell stocks to subscribers and to sell
treasury stocks in accordance with the
provisions of this Code; and to admit
members to the corporation if it be a non-
stock corporation;
7. To purchase, receive, take or grant,
hold, convey, sell, lease, pledge,
mortgage and otherwise deal with such
real and personal property, including
securities and bonds of other
corporations, as the transaction of the
lawful business of the corporation may
reasonably and necessarily require,
 subject to the limitations prescribed by
law and the Constitution;
8. To enter into merger or consolidation
with other corporations as provided in this
Code;
9. To make reasonable donations,
including those for the public welfare or
for hospital, charitable, cultural, scientific,
civic, or similar purposes: Provided, That
no corporation, domestic or foreign, shall
give donations in aid of any political party
or candidate or for purposes of partisan
political activity;
10. To establish pension, retirement, and
other plans for the benefit of its directors,
trustees, officers and employees; and
11. To exercise such other powers asmay
be essential or necessary to carry out its
purpose or purposes as stated in its
articles of incorporation. (13a)
Because a corporation’s existence is only by
fiction of law, it can only exercise its rights and
powers through itsdirectors, officers, or agents,
who are all natural persons. A corporation
cannot sue or enter into contracts without them.
A consequence of a corporation’s separate
personality is that consent by a corporation
through its representatives is not consent of the
representative, personally. Its obligations,
incurred through official acts of its
representatives, are its own. A stockholder,
director, or representative does not become a
party to a contract just because a corporation
executed a contract through that stockholder,
director or representative.
Hence, a corporation’s representatives are
generally not bound by the terms of the contract
executed by the corporation. They are not
personally liable for obligations and liabilities
incurred on or in behalf of the corporation.
Petitioners are also correct that arbitration
promotes the parties’ autonomy in resolving their
disputes. This court recognized in Heirs of
Augusto Salas, Jr. v. Laperal Realty
Corporation79 that an arbitration clause shall not
apply to persons who were neither parties to the
contract nor assignees of previous parties, thus:
A submission to arbitration is a contract. As
such, the Agreement, containing the stipulation
on arbitration, binds the parties thereto, as well
as their assigns and heirs. But only
they.80 (Citations omitted)
Similarly, in Del Monte Corporation-USA v. Court
of Appeals,81 this court ruled:
The provision to submit to arbitration any dispute
arising therefrom and the relationship of the
parties is part of that contract and is itself a
contract. As a rule, contracts are respected as
the law between the contracting parties and
produce effect as between them, their assigns
and heirs. Clearly, only parties to the Agreement
. . . are bound by the Agreement and its
arbitration clause as they are the only signatories
thereto.82 (Citation omitted)
This court incorporated these rulings in Agan, Jr.
v. Philippine International Air Terminals Co.,
Inc.83 and Stanfilco Employees v. DOLE
Philippines, Inc., et al.84
As a general rule, therefore, a corporation’s
representative who did not personally bind
himself or herself to an arbitration agreement
cannot be forced to participate in arbitration
proceedings made pursuant to an agreement
entered into by the corporation. He or she is
generally not considered a party to that
agreement.
However, there are instances when the
distinction between personalities of directors,
officers,and representatives, and of the
corporation, are disregarded. We call this
piercing the veil of corporate fiction.
Piercing the corporate veil is warranted when
"[the separate personality of a corporation] is
used as a means to perpetrate fraud or an illegal
act, or as a vehicle for the evasion of an existing
obligation, the circumvention of statutes, or to
confuse legitimate issues."85 It is also warranted
in alter ego cases "where a corporation is merely
a farce since it is a mere alter ego or business
conduit of a person, or where the corporation is
so organized and controlled and its affairs are so
conducted as to make it merely an
instrumentality, agency, conduit or adjunct of
another corporation."86
When corporate veil is pierced, the corporation
and persons who are normally treated as distinct
from the corporation are treated as one person,
such that when the corporation is adjudged
liable, these persons, too, become liable as if
they were the corporation.
Among the persons who may be treatedas the
corporation itself under certain circumstances
are its directors and officers. Section 31 of the
Corporation Code provides the instances when
directors, trustees, or officers may become liable
for corporate acts:
Sec. 31. Liability of directors, trustees or officers.
- Directors or trustees who willfully and
knowingly vote for or assent to patently unlawful
acts of the corporation or who are guilty of gross
negligence or bad faith in directing the affairs of
the corporation or acquire any personal or
pecuniary interest in conflict with their duty as
such directors or trustees shall be liable jointly
and severally for all damages resulting therefrom
suffered by the corporation, its stockholders or
members and other persons.
When a director, trustee or officer attempts to
acquire or acquires, in violation of his duty, any
interest adverse to the corporation in respect of
any matter which has been reposed inhim in
confidence, as to which equity imposes a
disability upon him to deal in his own behalf, he
shall be liable as a trustee for the corporation
and must account for the profits which otherwise
would have accrued to the corporation. (n)
Based on the above provision, 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.
Solidary liability with the corporation will also
attach in the following instances:
a) "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";87
b) "When a director, trustee or officer has
contractually agreed or stipulated to hold
himself personally and solidarily liable
with the corporation";88 and
c) "When a director, trustee or officer is
made, by specific provision of law,
personally liable for his corporate
action."89
When there are allegations of bad faith or malice
against corporate directors or representatives, it
becomes the duty of courts or tribunals to
determine if these persons and the corporation
should be treated as one. Without a trial, courts
and tribunals have no basis for determining
whether the veil of corporate fiction should be
pierced. Courts or tribunals do not have such
prior knowledge. Thus, the courts or tribunals
must first determine whether circumstances
exist towarrant the courts or tribunals to
disregard the distinction between the corporation
and the persons representing it. The
determination of these circumstances must be
made by one tribunal or court in a proceeding
participated in by all parties involved, including
current representatives of the corporation, and
those persons whose personalities are impliedly
the sameas the corporation. This is because
when the court or tribunal finds that
circumstances exist warranting the piercing of
the corporate veil, the corporate representatives
are treated as the corporation itself and should
be held liable for corporate acts. The
corporation’s distinct personality is disregarded,
and the corporation is seen as a mere
aggregation of persons undertaking a business
under the collective name of the corporation.
Hence, when the directors, as in this case, are
impleaded in a case against a corporation,
alleging malice orbad faith on their part in
directing the affairs of the corporation,
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.90 They are alleging that contracts
executed by the corporation are contracts
executed by the directors. Complainants
effectively pray that the corporate veilbe pierced
because the cause of action between the
corporation and the directors is the same.
In that case, complainants have no choice but to
institute only one proceeding against the
parties.1âwphi1 Under the Rules of Court, filing
of multiple suits for a single cause of action is
prohibited. Institution of more than one suit for
the same cause of action constitutes splitting the
cause of action, which is a ground for the
dismissal ofthe others. Thus, in Rule 2:
Section 3. One suit for a single cause of action.
— A party may not institute more than one suit
for a single cause of action. (3a)
Section 4. Splitting a single cause of action;effect
of. — If two or more suits are instituted on the
basis of the same cause of action, the filing of
one or a judgment upon the merits in any one is
available as a ground for the dismissal of the
others. (4a)
It is because the personalities of petitioners and
the corporation may later be found to be
indistinct that we rule that petitioners may be
compelled to submit to arbitration.
However, in ruling that petitioners may be
compelled to submit to the arbitration
proceedings, we are not overturning Heirs of
Augusto Salas wherein this court affirmed the
basic arbitration principle that only parties to an
arbitration agreement may be compelled to
submit to arbitration. In that case, this court
recognizedthat persons other than the main
party may be compelled to submit to arbitration,
e.g., assignees and heirs. Assignees and heirs
may be considered parties to an arbitration
agreement entered into by their assignor
because the assignor’s rights and obligations
are transferred to them upon assignment. In
other words, the assignor’s rights and obligations
become their own rights and obligations. In the
same way, the corporation’s obligations are
treated as the representative’s obligations when
the corporate veil is pierced. Moreover, in Heirs
of Augusto Salas, this court affirmed its policy
against multiplicity of suits and unnecessary
delay. This court said that "to split the proceeding
into arbitration for some parties and trial for other
parties would "result in multiplicity of suits,
duplicitous procedure and unnecessary
delay."91 This court also intimated that the
interest of justice would be best observed if it
adjudicated rights in a single
proceeding.92 While the facts of that case
prompted this court to direct the trial court to
proceed to determine the issues of thatcase, it
did not prohibit courts from allowing the case to
proceed to arbitration, when circumstances
warrant.
Hence, the issue of whether the corporation’s
acts in violation of complainant’s 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.
However, when the courts disregard the
corporation’s distinct and separate personality
from its directors or officers, the courts do not
say that the corporation, in all instances and for
all purposes, is the same as its directors,
stockholders, officers, and agents. It does not
result in an absolute confusion of personalities of
the corporation and the persons composing or
representing it. Courts merely discount the
distinction and treat them as one, in relation to a
specific act, in order to extend the terms of the
contract and the liabilities for all damages to
erring corporate officials who participated in the
corporation’s illegal acts. This is done so that the
legal fiction cannot be used to perpetrate
illegalities and injustices.
Thus, in cases alleging solidary liability with the
corporation or praying for the piercing of the
corporate veil, parties who are normally treated
as distinct individuals should be made to
participate in the arbitration proceedings in order
to determine ifsuch distinction should indeed be
disregarded and, if so, to determine the extent of
their liabilities.

In this case, the Arbitral Tribunal rendered a

decision, finding that BF Corporation failed to
prove the existence of circumstances that render
petitioners and the other directors solidarily
liable. It ruled that petitioners and Shangri-La’s
other directors were not liable for the contractual
obligations of Shangri-La to BF Corporation. The
Arbitral Tribunal’s decision was made with the
participation of petitioners, albeit with their
continuing objection. In view of our discussion
above, we rule that petitioners are bound by
such decision.

WHEREFORE, the petition is DENIED. The

Court of Appeals' decision of May 11, 2006 and
resolution of October 5, 2006 are AFFIRMED.

SO ORDERED.