Mendiola v Court of Appeals

GR No. 159333; July 31, 2006

Puno, J.

FACTS: Private respondent Pacific Forest Resources, Phils., Inc. (Pacfor) is a corporation
organized and existing under the laws of California, USA. Private respondent Pacfor entered into
a “Side Agreement on Representative Office known as Pacific Forest Resources (Phils.), Inc.
with petitioner Arsenio T. Mendiola (ATM), effective May 1, 1995. The Side Agreement outlines
provides that private respondent will establish a Pacfor representative office in the Philippines, to
be known as Pacfor Phils, and petitioner ATM will be its President. Petitioner’s base salary and
the overhead expenditures of the company shall be borne by the representative office and funded
by Pacfor/ATM, since Pacfor Phils. is equally owned on a 50-50 equity by ATM and Pacfor-USA.
It also designated petitioner as its resident agent in the Philippines, authorized to accept summons
and processes in all legal proceedings, and all notices affecting the corporation. In March 1997,
the Side Agreement was amended through a “Revised Operating and Profit Sharing Agreement
for the Representative Office Known as Pacific Forest Resources (Philippines), where the salary
of petitioner was increased to $78,000 per annum. Both agreements show that the operational
expenses will be borne by the representative office and funded by all parties “as equal partners,”
while the profits and commissions will be shared among them.
In July 2000, petitioner wrote Kevin Daley, Vice President for Asia of Pacfor, seeking confirmation
of his 50% equity of Pacfor Phils. Private Respondent replied that petitioner is not a part-owner
of Pacfor Phils. because the latter is merely Pacfor-USA’s representative office and not an entity
separate and distinct from Pacfor-USA. In October 2000, petitioner wrote Pacfor-USA demanding
payment of unpaid commissions and office furniture and equipment rentals, amounting to more
than one million dollars.
On November 27, 2000, private respondent Pacfor, through counsel, ordered petitioner to turn
over to it all papers, documents, files, records, and other materials in his or ATM Marketing
Corporation’s possession that belong to Pacfor or Pacfor Phils. On December 18, 2000, private
respondent Pacfor also required petitioner to remit more than three hundred thousand-peso
Christmas giveaway fund for clients of Pacfor. Lastly, private respondent Pacfor withdrew all ts
offers of settlement and ordered petitioner to transfer title and turn over to it possession of the
service car. Private respondent Pacfor likewise sent letters to its clients in the Philippines, advising
them not to deal with Pacfor Phils. Petitioner construed these directives as a severance of the
“unregistered partnership” between him and Pacfor, and the termination of his employment as
resident manager of Pacfor Phils. e that as it may, we hold that on the basis of the evidence, an
employer-employee relationship is present in the case at bar.
On February 2, 2001, private respondent Pacfor placed petitioner on preventive suspension and
ordered him to show cause why no disciplinary action should be taken against him. Private
respondent Pacfor charged petitioner with willful disobedience and serious misconduct for his
refusal to turn over the service car and the Christmas giveaway fund which he applied to his
alleged unpaid commissions.
Petitioner denied the charges. He reiterated that he considered the import of Pacfor President
William Gleason’s letters as a “cessation of his position and of the existence of Pacfor Phils.” On
February 15, 2001, petitioner filed his complaint for illegal dismissal, recovery of separation pay,
and payment of attorney’s fees with the NLRC
Labor Arbiter Felipe Pati ruled in favor of petitioner, finding there was constructive dismissal.
Private respondent Pacfor appealed to the NLRC which ruled in its favor for lack of
jurisdiction and lack of merit. It held there was no employer-employee relationship between the
parties. Based on the two agreements between the parties, it concluded that petitioner is not
an employee of private respondent Pacfor, but a full co-owner (50/50 equity). The NLRC
denied petitioner’s Motion for Reconsideration.
Petitioner argues that he is an industrial partner of the partnership he formed with private
respondent Pacfor, and also an employee of the partnership. Petitioner insists that an
industrial partner may at the same time be an employee of the partnership, provided there
is such an agreement
ISSUE: Whether or not partnership or co-ownership exists between the parties.
RULING: No.
In a partnership, the members become co-owners of what is contributed to the firm capital and of
all property that may be acquired thereby and through the efforts of the members. The property
or stock of the partnership forms a community of goods, a common fund, in which each party has
a proprietary interest. In fact, the New Civil Code regards a partner as a co-owner of specific
partnership property. Each partner possesses a joint interest in the whole of partnership
property. If the relation does not have this feature, it is not one of partnership. This
essential element, the community of interest, or co-ownership of, or joint interest in
partnership property is absent in the relations between petitioner and private respondent
Pacfor. Petitioner is not a part- owner of Pacfor Phils. William Gleason, private respondent
Pacfor’s President established this fact when he said that Pacfor Phils. is simply a “theoretical
company” for the purpose of dividing the income 50-50. He stressed that petitioner knew of this
arrangement from the very start, having been the one to propose to private respondent Pacfor
the setting up of a representative office, and “not a branch office” in the Philippines to save on
taxes. Thus, the parties in this case, merely shared profits. This alone does not make a
partnership.
Besides, a corporation cannot become a member of a partnership in the absence of
express authorization by statute or charter. This doctrine is based on the following
considerations: (1) that the mutual agency between the partners, whereby the corporation would
be bound by the acts of persons who are not its duly appointed and authorized agents and officers,
would be inconsistent with the policy of the law that the corporation shall manage its own affairs
separately and exclusively; and, (2) that such an arrangement would improperly allow corporate
property to become subject to risks not contemplated by the stockholders when they originally
invested in the corporation.42 No such authorization has been proved in the case at bar.
Be that as it may, we hold that on the basis of the evidence, an employer-employee relationship
is present in the case at bar.