Professional Documents
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DECISION
PUNO , J : p
On appeal are the Decision 1 and Resolution 2 of the Court of Appeals, dated January
30, 2003 and July 30, 2003, respectively, in CA-G.R. SP No. 71028, a rming the ruling 3 of
the National Labor Relations Commission (NLRC), which in turn set aside the July 30, 2001
Decision 4 of the labor arbiter. The labor arbiter declared illegal the dismissal of petitioner
from employment and awarded separation pay, moral and exemplary damages, and
attorney's fees.
The facts are as follows:
Private respondent Paci c Forest Resources, Phils., Inc. (Pacfor) is a corporation
organized and existing under the laws of California, USA. It is a subsidiary of Cellulose
Marketing International, a corporation duly organized under the laws of Sweden, with
principal office in Gothenburg, Sweden.
Private respondent Pacfor entered into a "Side Agreement on Representative O ce
known as Paci c Forest Resources (Phils.), Inc." 5 with petitioner Arsenio T. Mendiola
(ATM), effective May 1, 1995, "assuming that Pacfor-Phils. is already approved by the
Securities and Exchange Commission [SEC] on the said date." 6 The Side Agreement
outlines the business relationship of the parties with regard to the Philippine operations of
Pacfor. Private respondent will establish a Pacfor representative o ce 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
o ce and funded by Pacfor/ATM, since Pacfor Phils. is equally owned on a 50-50 equity
by ATM and Pacfor-USA. DAHCaI
On July 14, 1995, the SEC granted the application of private respondent Pacfor for a
license to transact business in the Philippines under the name of Pacfor or Pacfor Phils. 7
In its application, private respondent Pacfor proposed to establish its representative
o ce in the Philippines with the purpose of monitoring and coordinating the market
activities for paper products. 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. 8
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)," 9 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 o ce
and funded by all parties "as equal partners," while the pro ts and commissions will be
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shared among them.
In July 2000, petitioner wrote Kevin Daley, Vice President for Asia of Pacfor, seeking
con rmation of his 50% equity of Pacfor Phils. 1 0 Private respondent Pacfor, through
William Gleason, its President, replied that petitioner is not a part-owner of Pacfor Phils.
because the latter is merely Pacfor-USA's representative o ce and not an entity separate
and distinct from Pacfor-USA. "It's simply a 'theoretical company' with the purpose of
dividing the income 50-50." 1 1 Petitioner presumably knew of this arrangement from the
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. 1 2
Petitioner claimed that he was all along made to believe that he was in a joint
venture with them. He alleged he would have been better off remaining as an independent
agent or representative of Pacfor-USA as ATM Marketing Corp. 1 3 Had he known that no
joint venture existed, he would not have allowed Pacfor to take the pro table business of
his own company, ATM Marketing Corp. 1 4 Petitioner raised other issues, such as the
rentals of o ce furniture, salary of the employees, company car, as well as commissions
allegedly due him. The issues were not resolved, hence, in October 2000, petitioner wrote
Pacfor-USA demanding payment of unpaid commissions and o ce furniture and
equipment rentals, amounting to more than one million dollars. 1 5
On November 27, 2000, private respondent Pacfor, through counsel, ordered
petitioner to turn over to it all papers, documents, les, records, and other materials in his
or ATM Marketing Corporation's possession that belong to Pacfor or Pacfor Phils. 1 6 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 Phils. 1 7
Lastly, private respondent Pacfor withdrew all its offers of settlement and ordered
petitioner to transfer title and turn over to it possession of the service car. 1 8
Private respondent Pacfor likewise sent letters to its clients in the Philippines,
advising them not to deal with Pacfor Phils. In its letter to Intercontinental Paper
Industries, Inc., dated November 21, 2000, private respondent Pacfor stated: cEDIAa
Until further notice, please course all inquiries and communications for
Pacific Forest Resources (Philippines) to:
On the basis of the "Side Agreement," petitioner insisted that he and Pacfor equally
own Pacfor Phils. Thus, it follows that he and Pacfor likewise own, on a 50/50 basis,
Pacfor Phils.' o ce furniture and equipment and the service car. He also reiterated his
demand for unpaid commissions, and proposed to offset these with the remaining
Christmas giveaway fund in his possession. 2 3 Furthermore, he did not renew the lease
contract with Pulp and Paper, Inc., the lessor of the o ce premises of Pacfor Phils.,
wherein he was the signatory to the lease agreement. 2 4
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. Private respondent also alleged
loss of confidence and gross neglect of duty on the part of petitioner for allegedly allowing
another corporation owned by petitioner's relatives, High End Products, Inc. (HEPI), to use
the same telephone and facsimile numbers of Pacfor, to possibly steal and divert the sales
and business of private respondent for HEPI's principal, International Forest Products, a
competitor of private respondent. 2 5
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." He likewise informed private respondent Pacfor that ATM Marketing Corp.
now occupies Pacfor Phils.' o ce premises, 2 6 and demanded payment of his separation
pay. 2 7 On February 15, 2001, petitioner led his complaint for illegal dismissal, recovery of
separation pay, and payment of attorney's fees with the NLRC. 2 8
In the meantime, private respondent Pacfor lodged fresh charges against petitioner.
In a memorandum dated March 5, 2001, private respondent directed petitioner to explain
why he should not be disciplined for serious misconduct and con ict of interest. Private
respondent charged petitioner anew with serious misconduct for the latter's alleged act of
fraud and misrepresentation in authorizing the release of an additional peso salary for
himself, besides the dollar salary agreed upon by the parties. Private respondent also
accused petitioner of disloyalty and representation of con icting interests for having
continued using the Pacfor Phils.' o ce for operations of HEPI. In addition, petitioner
allegedly solicited business for HEPI from a competitor company of private respondent
Pacfor. 2 9
Labor Arbiter Felipe Pati ruled in favor of petitioner, nding there was constructive
dismissal. By directing petitioner to turn over all o ce records and materials, regardless
of whether he may have retained copies, private respondent Pacfor virtually deprived
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petitioner of his job by the gradual diminution of his authority as resident manager.
Petitioner's position as resident manager whose duty, among others, was to maintain the
security of its business transactions and communications was rendered meaningless. The
dispositive portion of the decision of the Labor Arbiter reads:
SO ORDERED. 3 0
Private respondent Pacfor appealed to the NLRC which ruled in its favor. On
December 20, 2001, the NLRC set aside the July 30, 2001 decision of the labor arbiter, for
lack of jurisdiction and lack of merit. 3 1 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). aEACcS
Footnotes
1. CA rollo, pp. 1058-1072.
2. Id. at 1105.
3. Id. at 28-37.
4. Id. at 118-139.
5. Id. at 682-683.
6. Id. at 683.
7. Rollo, p. 63.
8. Id. at 64.
9. CA rollo, p. 684. Other terms of the revised agreement include:
a) ATM and Pacfor-USA shall jointly manage Pacfor Phils.
b) Pacfor-Phils. will earn commissions at 1.5% of F.O.B. value, the computation of
which shall be shown in a credit memo issued by Cellmark/Pacfor.
c) Losses, if any, will be reimbursed by Cellmark/Pacfor to ATM for ATM's share of the
loss, for two consecutive years beginning with the first year of loss.
d) The revised agreement shall take effect on January 1, 1997.
e) Cash paid to the representative office by Pacific Paper belongs to Pacfor and will
be held in trust by ATM.
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10. Id. at 685.
11. Rollo, p. 528.
12. Id. at 527.
13. Ibid.
14. Id. at 532.
15. Id. at 539.
16. Id. at 541.
17. Id. at 544.
18. Id. at 545.
19. CA rollo, p. 829.
20. Id. at 828.
21. Rollo, pp. 546-550.
22. Id. at 553.
23. Id. at 546-550.
24. Id. at 560.
25. Id. at 554-558.
26. Id. at 560.
27. Id. at 561.
28. CA rollo, p. 652.
29. Rollo, pp. 562-563.
30. Id. at 150.
31. Id. at 231-240.
32. CA rollo, pp. 333-335.
33. Id. at 84-86.
34. Rollo, pp. 14-36.
35. Id. at 27.
36. Esteban B. Bautista, Treatise on Philippine Partnership Law, 1978 ed., citing Nelson v.
Abraham, 177 P.2d 931 (1947); Henry v. Darnall, 246 Ill.App. 250 (1927), cited in Notes
of Decisions, 7 U.L.A. 15 (1949).
37. Esteban B. Bautista, Treatise on Philippine Partnership Law, 1978 ed., citing Darden v.
Cox, 123 So.2d 68 (1960).
38. Art. 1811 (1st par.).