CASE DIGEST | LAW ON BUSINESS ORGANIZATION

BACHELOR OF SCIENCE IN LEGAL MANAGEMENT 3A

FERNANDO SANTOS V. SPS. ARSENIO & NIEVES REYES,

ANTECEDENT FACTS
In June, 1986, one named Meliton Zabat introduced Nieves Reyes to Fernando Santos where the
three would venture into money lending business stemming from the idea of Nieves Reyes.
Where, Fernando Santos, the petitioner in the present case, would act as financier and that
Nieves Reyes and Meliton Zabat would take charge in the solicitation of members and collection
of payments. The parties agreed that Santos, Reyes and Zabat would share accordingly in the
profit of the venture in 70 – 15 – 15 ratio. Reyes introduced Gragera as Chairman of Monte Maria
Corporation who sought for loans for their members where Santos would act as the lender and
that Gragera was entitled to P1.31 commission per thousand paid daily to the petitioner and that
Nieves Reyes and Arsenio Reyes, respectively, will act as the book keeper and credit investigator.
Zabat was later expelled in a founding of Nieves Reyes that he is engaged in a venture in
competition with their partnership while the relationship of the petitioner continued with Gragera
and Monte Maria. Later, on June 5, 1987, Fernando Santos filed a complaint to recover a sum of
money and damages, charging the respondents, as employees not partners, of misappropriating
funds intended for Gragera, the respondents countered that they were partners as the lending
activity originated from the initiative of Nieves and that Arsenio was enticed to replace Zabat. The
case was raised to the RTC where the court affirmed the contention of the respondents, on appeal,
the CA also adopted the decision of the lower court and did not give credence to the allegation of
Santos that Reyes misappropriated the amount due to Gragera. The case was raised to the
Supreme Court, hence, this case.

ISSUE
Whether or not, the Court of Appeals acted with grave abuse of discretion tantamount to excess
or lack of jurisdiction in holding that the respondents were joint venturers/partners and not
employees of Fernando Santos in connection with the agreement of Santos with Gragera and
Monte Maria.

RULING
The Supreme Court ruled in favor of the respondents, in that, it upheld the decision of RTC and
the CA that there is an indicia of partnership between the petitioner and the respondents in
connection with the agreement between Santos and Gragera. There is a partnership relation in
between the petitioner and the respondent for Santos infused funds in the money lending venture
which Nieves Reyes conceived and contributed her industry with the intention of sharing in the
profit of the partnership. While Zabat was later expelled, the venture was continued without
causing dissolution, instead, Arsenio Reyes was admitted to participate as a partner in the
operation of the business.
PARTNERSHIP AND CORPORATION
LILIBETH SUNGA-CHAN AND CECILIA SUNGA V. LAMBERTO T. CHUA
G.R. 143340, AUGUST 15, 2001

ANTECEDENT FACTS
On June 22,1992, respondent Lamberto Chua filed a complaint against Lilibeth Sunga-Chan and
Cecilia Sunga, daughter and wife, respectively of the deceased Jacinto Sunga for winding up
partnership affairs, accounting, appraisal and recovery of the respondent’s shares in the
partnership formed with Jacinto Sunga. The respondent alleged that he verbally entered into a
partnership with Jacinto Sunga in the distribution of LPGs in Manila, where, for business
convenience, they allegedly agreed to register their business and named it “Shellite” under the
name of Jacinto as sole proprietor. Lamberto Chua infused P100,000.00 as his initial contribution
while Jacinto also produced the same amount as his counterpart contribution with the intent that
the profits will be equally divided between the two of them. Upon the death of the partner, Jacinto
in 1989, the business was taken over by his surviving wife and daughter without the respondent’s
consent, the respondent in turn repeatedly demanded for accounting, inventory, appraisal and
winding up of and return of his net shares in the partnership where the petitioners Lilibeth and
Cecilia failed to comply with, the petitioners continued with the business
The trial court found the complaint of Lambert Chua sufficient and denied the motion to dismiss
filed by Lilibeth and Cecilia and entered judgement directing the latter to render accounting and
return to the partnership any properties, asset and income they misapplied and to pay the former
earned but unreceived income and to wind up the affairs of the partnership. The judgement of the
trial court was affirmed by the CA, and was raised to the Supreme Court, hence, this case.
.
ISSUE
Whether or not, the Court of Appeals erred in concluding that there exists a partnership between
Lamberto Chua and the late Jacinto Sunga.

RULING
The Supreme Court ruled in favor of the respondent by affirming the decision of the trial court and
the CA that Lambert Chua and the late Jacinto Sunga are partners. The court reasoned that
partnership may be constituted in any form except when immovables are contributed thereto, in
which, the contribution should appear in a public instrument, the indicia of a partnership is also
ascertained from the language and conduct where a contract of partnership may arise even when
made verbally. The court agrees that the partnership should be registered to the SEC since it is
mandated by the Civil Code, however, it ratioed that it is not a mandatory requirement so that the
partnership may acquire a juridical personality, the failure to do so does not invalidate the same,
so long as there exist the essential requisites of a partnership, hence, Jacinto and Lambert are
partners. in view of the foregoing, the petition is DENIED and the appealed decision is AFFIRMED
Pedro D. Dusol and Maricel M. Dusol v. Emmarck A. Lazo
G.R. 200555, January 20, 2021

ANTECEDENT FACTS
The case at hand is a petition for review on Certiorari assailing the decision of the CA which ruled
that the petitioners, Pedro and Maricel Dusol were not employees of Emmarck Lazo. In the case,
the petitioners allege that as employees, they were illegally dismissed and underpaid of their
benefits by the respondent. According to the former, they worked as caretakers of the Ralco
Beach owned by Lazo, in that, the petitioners, worked and tended to the properties of the resort
daily including holidays and weekends, and for the work rendered, was given an allowance of
P100.00 per week and was increased to P239.00. Maricel Dusol was also employed to manage
the store in the resort, for this, she was paid P1,000.00 and was entitled to 15% commission on
rentals collected from the resort. In July 2008, Emmarck Lazo notified that he will be leasing the
resort, thus, the services of the two was no longer needed. Due to this, the spouse Dusol filed a
complaint alleging that they were illegally dismissed, which Emmarck Lazo countered that the two
were industrial partners of his for the petitioners receive emoluments derived from commissions
on rent and a third of the total harvest in the fishpond business and in that, the two were made as
overseers of the resort and its other properties. The Labor Arbiter in its decision dated January
26, 2009 dismissed the complaint for Pedro and Maricel failed to prove that they were Lazo’s
employees, aggrieved, they raised it to the NLRC which ruled that the two were employs of Lazo
by applying the four – fold test showing that there is an indicia of Lazo’s control over them.
Unsatisfied, the complaint was raised to the CA which set aside NLRC’s decision reasoning that
the two were not employs of Lazo for they were given leeway with regards to the means and
manner of running the beach resort and are also free to engage in other means of livelihood for
their exclusive gain. Thereafter, Maricel and Pedro filed for a motion for reconsideration but was
later on denied by the CA, hence, this case.

ISSUE
Whether or not, Pedro and Maricel Dusol are industrial partners of Emmarck Lazo.

RULING
The Supreme Court gave credence to the argument of Pedro and Maricel Dusol that they are
employees and are not partners with Emmarck Lazo in operating the beach resort and fish pond
business. It is undisputed that the petitioners rendered their service in Ralco Beach and
received compensation deducted from the rentals and sales of the resort leading the court to cite
Article 1769 of the Civil Code that the receipt of a person of his share evidences that he is a
partner, however, no such inferences can be made if such profits were received as wages of an
employee, moreover, the sharing of gross return does not by itself establish a partnership whether
the parties have a joint or common right in any property from which the returns are derived. In
addition, no agreement exists between the parties of this case to prove a partnership relation,
neither that Pedro and Maricel contributed money, property or industry for the purpose of engaging
in the said business and neither that the two participated in the management and administration
of the business, hence, Pedro and Maricel Dusol were not industrial partners of Emmarck Lazo.
Maria Lea Jane I. Gesolgon and Marie Stephanie N. Santos v. CyberOne PH., Inc.
G.R. 210741, October 14, 2020

ANTECEDENT FACTS
The case is a petition for review assailing the decision rendered by the CA setting aside the
NLRC’s ruling that the petitioners of this case were employees of CyberOne AU and CyberOne
PH and that they were illegally dismissed when the respondent company issued an indefinite
furlough for Gesolgon and Santos. The case arose when the petitioners were hired by CyberOne
AU as remote Customer Service Representatives and were eventually promoted as Supervisors,
later, on October 2009, they were asked by Maciej Mikrut to become dummy directors and
incorporators of CyberOne PH to which they agreed. Sometime in 2011, Mikrut offered the
petitioners the choice to take an indefinite furlough, or to tender their resignation, in April, same
year, each of the petitioner received their last salary, hence, the complaint against respondent
company for illegal dismissal. The Labor Arbiter ruled that the petitioners are not employees but
shareholders of the respondent company, and that the LA has no jurisdiction over it for it is a
foreign corporation not doing business in the Philippines. Later, the LA ruling was overturned by
the NLRC, holding that even if the petitioners are shareholders, they are still employees of the
same company, it also noted that CyberOne AU is doing business in the country indicated by its
control over CyberOne PH, thus, the doctrine of piercing the corporate veil must be applied. The
CA reversed the finding of the NLRC and ratioed that the latter misapplied the doctrine of piercing
the veil of corporate fiction and concluded that evidence is wanting to show that CyberOne PH
was an instrumentality to CyberOne AU or that it is established to defraud others, particularly the
petitioners in this case. Gesolgon and Santos moved for reconsideration but was denied by CA,
hence, this petition for Review on Certiorari.

ISSUE
Whether or not, the doctrine of Piercing the Veil of Corporate Fiction was correctly applied in the
case at bar.

RULING
The Supreme Court held that the doctrine of piercing the corporate veil is misapplied and is
unwarranted in the present case, as in the decision rendered by the NLRC. The doctrine of
piercing the corporate veil applies only on three instances, namely: when the separate distinct
corporate personality defeats public convenience, as when the corporate fiction is used as a
vehicle for the evasion of an existing obligation; (b) in fraud cases, or when the corporate entity
is used to justify a wrong, protect a fraud, or defend a crime; or (c) is used in alter ego cases, i.e.,
where a corporation is essentially 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 conducted as to
make it merely an instrumentality, agency, conduit or adjunct of another corporation. In this, the
court ratioed that there is no evident to show that CyberOne PH was organized for the purpose
of defeating public convenience nor to evade an existing obligation, neither was there a fraud
committed by CyberOne PH in order to justify a wrong, protect a fraud, neither was CyberOne PH
formed to act as mere agency or conduit of its Australian counterpart, hence, the application of
the aforesaid doctrine is unwarranted in the present case.
Total Office Products and Services, Inc. v. John Charles Chang Jr.
G.R. 200070, December 07, 2021

ANTECEDENT FACTS
This case is a petition for review on Certiorari seeking to reverse the decision entered into by the
CA which set aside the decision rendered by the RTC holding that respondent, John Charles
Chang, Jr. violated his fiduciary duties and was guilty of disloyalty to TOPROS and must be made
accountable under sections 31 and 34 of the Corporation Code. The case at hand arose when,
on 17 of November, 1998, TOPROS owned by the Ty family, with Chang charged to

respondent – corporations, to declare all transfers and acquisitions made by Chang as illegal and
fraudulent and to pay damages to the petitioner – corporation. The SEC issued a Writ of
Preliminary Attachment in favor of TOPROS wherein the latter posted a bond in the amount of
P90,000,000.00 representing its alleged damage. Similarly, the RTC rendered a judgment
ordering John Charles Chang and the respondent – corporations to account for all profits and pay
actual damages suffered by TOPROS and pay exemplary damages, attorney’s fees and the cost
of the suit. Consequently, Chang raised the issue to the CA which reversed the decision of the
lower court holding that evidence is wanting as to show that Chang and the respondent –
corporations illegally siphoned TOPROS’ funds and assets as to support allegations of fraud.
Aggrieved, TOPROS filed for a motion of reconsideration but was denied by the appellate court,
hence, this petition.

ISSUE
Whether or not, the CA committed grave abuse of discretion amounting to lack or excess of
jurisdiction when: it did not hold respondent John Charles Chang, Jr. liable for disloyalty as director
of TOPROS.

RULING
The Supreme Court agrees with the ruling of the RTC that change violated his fiduciary duties
running afoul to the doctrine of corporate opportunity when: Chang committed several acts
showing personal or pecuniary interest that were in conflict with his duties as director and officer
of TOPROS. The court, in the present case, found that Chang as head of TOPGOLD, utilized the
same address of TOPROS which vested the former, the opportunity to utilize the latter’s resources
and to falsely show that the two companies are one and the same. The actions of Chang, as
ratioed by the court, runs contrary to the Section 31 and 34 of the Corporation Code citing the
liability of directors, trustees or officers and the act of disloyalty of a director where, by virtue of
his office, acquires for himself a business opportunity that should belong to the corporation,
thereby obtaining profits to the prejudice of such corporation. Hence, the court found, in the
present case, that CA erred when it did not find that Chang should be held liable for acts of
disloyalty to TOPROS and for illegally and fraudulently acquiring business opportunities that
should be accorded to the former.
Eduardo Atienza v. Golden Ram Engineering Supplies & Equipment Corp.
G.R. 205405, June 28, 2021

ANTECEDENT FACTS
The case arose when petitioner Eduardo Atienza, operator of passenger vessel plying Batangas
– Mindoro route, purchased two diesel – ship engines from the respondent GRESEC, where, it is
indicated in the pro forma invoice issued by the supplying corporation that the warranty of the
purchased engine shall commence from the date of commissioning and for a period of 12 months.
On 26 September 1994, the starboard side engine malfunctioned and the petitioner reported it to
GRESEC which sent Engineer Torres to look into it, thereafter, Eduardo Atienza sought that the
engine be replaced or that he should be reimbursed for the losses he incurred due to the non-
operation of his passenger vessel attended by the damage to one of the two engines, however,
his pleas were not heeded by the respondent corporation. Rather, GRESEC countered that
Atienza’s demands cannot be done and that the warranty cannot be accepted for they allege that
the purchaser [Atienza] failed to comply with handling and maintaining the service instructions of
the engine manufacturer. Atienza answered that the respondents were the ones in charge of
maintaining the two engines, in that, when something goes wrong with the two engines, Mr.
Bartolome Torres, president and manager of GRESEC, is to be informed. The RTC, in the present
case, ruled that GRESEC and Bartolome are liable in solidum to pay Atienza, actual damages in
the form of unrealized profits, moral damages and attorney’s fees including the cost of the suit for
there is a showing of bad faith in the refusal of GRESEC to replace the engines with defect and
for breach of warranty against hidden defects and for delivering demo units instead of new ones.
The CA, on the other hand, affirmed the RTC’s decision and modified it, deleting the award of
attorney’s fees and cost of suit finding that Bartolome Torres is not liable in solidum with GRESEC
for the latter is a separate juridical entity, hence this appeal.

ISSUE
Whether or not, CA gravely erred in not holding Bartolome Torres, stockholder and director,
solidarily liable with GRESEC when it displayed bad faith, malice and intent to cause damage by
refusing to replace the damaged engines and for denying the warranty of the purchased ship
engines by the petitioner.

RULING
The Supreme Court disagreed with the CA’s pronouncement absolving Bartolome Torres from
liability to the damages incurred by Atienza. The court ratioed that, there is solidary liability when:
the complainant alleged in the complaint that the director or officer assented to patently unlawful
acts of the corporation, or that the officer was guilty of gross negligence or bad faith; and (2) the
complainant clearly and convincingly proved such unlawful acts, negligence or bad faith.
Consistent with the foregoing, the court found that Atienza established sufficient and specific
evidence to show that Bartolome Torres had acted in bad faith and gross negligence, together
with GRESEC when, as director of the same company, sold defective vessel engines and
delivered and installed demo units instead of new engines which Atienza paid for. Hence,
Bartolome Torres and GRESEC are declared solidarily liable to petitioner Eduardo Atienza.
Princess Rachel Development Corporation v. Hill View Marketing Corporation
G.R. 222482, June 02, 2020

ANTECEDENT FACTS
The instant case arose when PRDC filed a complaint for Accion Publiciana and damages with
prayer for issuance of writ of preliminary injuction aagainst respondents Hill View Corporation,
Stefanie and Robert Dornau. In its complaint, PRDC alleged that the respondent Hill View
corporation encroached a total of 2,783 square meters where the same respondent corporation
built its property and that the encroachment, as alleged by the petitioner was done in bad faith.
Hill View countered that the construction on the adjoining properties were not attended by bad
faith for they diligently examined the titles and boundaries even to the extent of obtaining approved
survey plans on 2004, further, PRDC has no cause of action against them particularly towards
Stefanie and Robert Dornau for Hill View enjoys a separate juridical personality apart from its
incorporators/stockholders. The Regional Trial Court ruled that there was encroachment on the
surveyed land and found that the respondents are builders in bad faith for ignoring Engr. Lopez’
discovery of encroachment as they were bent on developing the properties, the same court
ordered the respondent to vacate the premises and demolish the buildings and improvements
and pay PRDC their litigation expenses, legal filing fees and attorney’s fee. Aggrieved, the
respondents appealed the case where the CA affirmed the RTC’s ruling with modification, ordering
the respondent to pay attorney’s fee and litigation fee, deleting the award of additional fees and
saying that Hill View is a builder in good faith and that Stefanie and Robert Dornau cannot be held
solidarily liable with Hill View. PRDC and Boracay Enclave moved for reconsideration but was
denied by the CA, hence, this petition.

ISSUE
Whether or not, the CA erred in not holding Stefanie and Robert Dornau, liable in solidum with
Hill View which enjoys a separate juridical personality in the absence of proof that said
stockholders acted in bad faith.

RULING
The Supreme Court held that Stefanie and Robert Dornau are not liable in solidum with Hill View.
The court ratioed that, to hold a corporate officer liable for corporate obligations. Two requisites
must concur: (a) it must be alleged that the officer assented to patently unlawful acts of the
corporation, or that the officer was guilty of gross negligence or bad faith; and (b) such unlawful
acts, negligence or bad faith must be clearly and convincingly proven. In the case at bar, apart
from its allegations, the petitioners did not present any proof so as to show that Hill View was an
alter ego of Stefanie and Robert with the aim to defraud others which warrants the piercing of the
veil of corporate fiction, failing in its burden to prove by clear and convincing evidence that the
two assented to Hill View’s unlawful acts or are guilty of gross negligence or bad faith, it cannot
be said that the individual respondents herein are personally and solidarily liable with Hill View.
Hence, the CA did not err in not holding Stefanie and Robert Dornau liable in solidum with the
respondent – corporation.
Metroplex Berhad and Paxell Investment Ltd. V. Sinophil Corporation
G.R. 208281, June 28, 2021

ANTECEDENT FACTS
In August 1998, petitioner Metroplex Group entered into a swapg agreement with Sinophil
Corporation where Sinophil issued 2.41B shares to Metroplex and 1.45B shares to Paxell in
exchange for 46.38 million shares of Legend to be transferred on Sinophil’s name. On August 23,
2001. Sinophil and Belle executed an unwinding agreement with Metroplex group rescinding the
1998 swap agreement where the latter is unable to return 1.87B of Sinophil shares wile another
2 Billion remains pledged by Metroplex in favor of International Exchange Bank and Asian Bank.
In February 2002, the shareholders of Sinophil voted to reduce its authorized capital stocks which
was approved by the CRMD and CFD, the reduction of authorized capital stocks by Sinophil and
Belle was assailed by the petitioners in this case before the Securities and Exchange Commission
raising the validity of reducing the authorized capital stock of the respondent – corporation. Which
the SEC resolved by denying the petitioners' Petition for Review Ad Cautelam Ex Abundanti and
finding that the decrease in capital stock complied with the requirements imposed by the
Corporation Code. Aggrieved, the petitioners raised the case to the CA where the appellate court
disposed of the issue by denying the petition of Metroplex group and affirmed the ruling of the
SEC, stating that the petitioners’ motion for reconsideration lacks merit as the issues were mere
rehash of the arguments resolved by the SEC. hence, this petition for Review on Certiorari.

ISSUE
Whether or not, the decision of the CA affirming the SEC’s ruling should be reversed, considering
the SEC has jurisdiction to review the action of the respondent – corporation in approving the
reduction of its authorized capital stock.

RULING
The Supreme Court denied the petition and held that the appellate court is correct in finding that
the decrease in respondent Sinophil’s capital stock was legal and that the SEC’s approval thereof
was proper and is in full compliance with the Corporation Code particularly Section 38. The court
also ratioed that the SEC only has ministerial duties to approve the decrease in a corporation’s
authorized capital stock, in that, after a corporation complies with the requirements laid down in
section 38 of the Corporation Code, the SEC has nothing more to do other than approve the same
because the courts are barred from intruding into business judgements of corporations as in the
“business judgement rule”, so long as the same are made in good faith. Further, Contracts intra
vires entered into by the board of directors are binding upon the corporation and courts will not
interfere unless such contracts are so unconscionable and oppressive as to amount to wanton
destruction to the rights of the minority.
Magna Ready Mix Concrete Corp. v. Andersen Bjornstad Kane Jacobs, Inc.
G.R. 196158, January 20, 2021

ANTECEDENT FACTS
The instant case arose when Andersen, a corporation organized and existing under the laws of
the United States of America, sued to collect sum of money and damages against Magna. In
1996, the petitioner – corporation ordered from the respondent, form design and drawing
development for its Ecocentrum Garage Project which the petitioner [Magna], paid partially but
left an unpaid balance in the amount of USD60,786.59. Andersen made repeated demands to the
petitioner but to no avail, hence the complaint for the recovery of the unpaid sum, alleging that
Magna acted fraudulently, maliciously and in gross and evident bad faith in its refusal to pay the
balance. During the trial, magna filed for a motion to dismiss with motion to cancel the hearing
claiming that Andersen has no legal capacity to sue because it is conducting business in the
Philippines without the necessary license. The RTC denied Magna’s motion to dismiss for the
reason that Magna was already estopped from challenging Andersen’s personality after
acknowledging it by entering into a contract with the latter. The lower court granted relief to
Andersen by ordering Magna to pay USD35,694.03, attorney’s fees and cost of suit. Dissatisfied,
both corporations raised the issue to the CA which the appellate court upheld the decision of RTC
with modification by ordering Magna to pay the complete amount prayed for by Andersen.
Consequently, Magna moved for reconsideration, but was denied by the CA, hence, this petition.

ISSUE
Whether or not, Andersen Bjornstad has legal capacity to sue in the Philippines.

RULING
The Supreme Court resolved that Andersen has no legal capacity to sue without procuring the
necessary license, however, the petitioner is precluded from denying the existence of the legal
capacity of Andersen to sue when it entered into a contract with it. The court ratioed that a foreign
corporation that conducts business in the Philippines must first secure a license for it to be allowed
to initiate or intervene in any action in any court or administrative agency in the Philippines.
Further, a corporation has legal status only in the state that granted it personality. Hence, a foreign
corporation has no personality much less a legal capacity to sue unless it procures a license
provided by law as cited in Section 133 of the Corporation Code, but the court saw an exception
when the court applied the doctrine of estoppel that a party cannot take advantage by challenging
the foreign corporation’s capacity to sue when the former acknowledged the same by entering
into a contract with the latter and derived benefits from it. Hence, in the present case, Andersen
was allowed to sue for the unpaid balance against Magna.