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G.R. No. 159333 July 31, 2006 Mendiola v. Court of Appeal AR!"N#$ %. M"N&#$'A, petitioner, vs. C$(R% $) A**"A'!, NA%#$NA' 'A+$R R"'A%#$N! C$MM#!!#$N, *AC#)#C )$R"!% R"!$(RC"!, *,#'!., #NC. and-or C"''MAR. A+, respondents. On appeal are the Decision1 and Resolution2 of the Court of Appeals, dated January 30, 2003 and July 30, 2003, respectively, in CA- .R. !" #o. $102%, affir&in' the rulin'3 of the #ational (a)or Relations Co&&ission *#(RC+, ,hich in turn set aside the July 30, 2001 Decisionof the la)or ar)iter. .he la)or ar)iter declared ille'al the dis&issal of petitioner fro& e&ploy&ent and a,arded separation pay, &oral and e/e&plary da&a'es, and attorney0s fees. .he facts are as follo,s1 "rivate respondent "acific 2orest Resources, "hils., 3nc. *"acfor+ is a corporation or'ani4ed and e/istin' under the la,s of California, 5!A. 3t is a su)sidiary of Cellulose 6ar7etin' 3nternational, a corporation duly or'ani4ed under the la,s of !,eden, ,ith principal office in othen)ur', !,eden. "rivate respondent "acfor entered into a 8!ide A'ree&ent on Representative Office 7no,n as "acific 2orest Resources *"hils.+, 3nc.89 ,ith petitioner Arsenio .. 6endiola *A.6+, effective 6ay 1, 1::9, 8assu&in' that "acfor-"hils. is already approved )y the !ecurities and ;/chan'e Co&&ission <!;C= on the said date.8> .he !ide A'ree&ent outlines the )usiness relationship of the parties ,ith re'ard to the "hilippine operations of "acfor. "rivate respondent ,ill esta)lish a "acfor representative office in the "hilippines, to )e 7no,n as "acfor "hils, and petitioner A.6 ,ill )e its "resident. "etitioner0s )ase salary and the overhead e/penditures of the co&pany shall )e )orne )y the representative office and funded )y "acfor?A.6, since "acfor "hils. is e@ually o,ned on a 90-90 e@uity )y A.6 and "acfor-usa.

On July 1-, 1::9, the !;C 'ranted the application of private respondent "acfor for a license to transact )usiness in the "hilippines under the na&e of "acfor or "acfor "hils.$ 3n its application, private respondent "acfor proposed to esta)lish its representative office in the "hilippines ,ith the purpose of &onitorin' and coordinatin' the &ar7et activities for paper products. 3t also desi'nated petitioner as its resident a'ent in the "hilippines, authori4ed to accept su&&ons and processes in all le'al proceedin's, and all notices affectin' the corporation.% 3n 6arch 1::$, the !ide A'ree&ent ,as a&ended throu'h a 8Revised Operatin' and "rofit !harin' A'ree&ent for the Representative Office Ano,n as "acific 2orest Resources *"hilippines+,8: ,here the salary of petitioner ,as increased to B$%,000 per annu&. Coth a'ree&ents sho, that the operational e/penses ,ill )e )orne )y the representative office and funded )y all parties 8as e@ual partners,8 ,hile the profits and co&&issions ,ill )e shared a&on' the&. 3n July 2000, petitioner ,rote Aevin Daley, Dice "resident for Asia of "acfor, see7in' confir&ation of his 90E e@uity of "acfor "hils.10 "rivate respondent "acfor, throu'h Fillia& leason, its "resident, replied that petitioner is not a part-o,ner of "acfor "hils. )ecause the latter is &erely "acfor-5!A0s representative office and not an entity separate and distinct fro& "acfor-5!A. 83t0s si&ply a 0theoretical co&pany0 ,ith the purpose of dividin' the inco&e 90-90.811 "etitioner presu&a)ly 7ne, of this arran'e&ent fro& the start, havin' )een the one to propose to private respondent "acfor the settin' up of a representative office, and 8not a )ranch office8 in the "hilippines to save on ta/es.12 "etitioner clai&ed that he ,as all alon' &ade to )elieve that he ,as in a Goint venture ,ith the&. He alle'ed he ,ould have )een )etter off re&ainin' as an independent a'ent or representative of "acfor-5!A as A.6 6ar7etin' Corp.13 Had he 7no,n that no Goint venture e/isted, he ,ould not have allo,ed "acfor to ta7e the profita)le )usiness of his o,n co&pany, A.6 6ar7etin' Corp.1- "etitioner raised other issues, such as the rentals of office furniture, salary of the e&ployees, co&pany car, as ,ell as co&&issions alle'edly due hi&. .he issues ,ere not resolved,

hence, in Octo)er 2000, petitioner ,rote "acfor-5!A de&andin' pay&ent of unpaid co&&issions and office furniture and e@uip&ent rentals, a&ountin' to &ore than one &illion dollars.19 On #ove&)er 2$, 2000, private respondent "acfor, throu'h counsel, ordered petitioner to turn over to it all papers, docu&ents, files, records, and other &aterials in his or A.6 6ar7etin' Corporation0s possession that )elon' to "acfor or "acfor "hils.1> On Dece&)er 1%, 2000, private respondent "acfor also re@uired petitioner to re&it &ore than three hundred thousand-peso Christ&as 'ivea,ay fund for clients of "acfor "hils.1$ (astly, private respondent "acfor ,ithdre, all its offers of settle&ent and ordered petitioner to transfer title and turn over to it possession of the service car.1% "rivate respondent "acfor li7e,ise sent letters to its clients in the "hilippines, advisin' the& not to deal ,ith "acfor "hils. 3n its letter to 3ntercontinental "aper 3ndustries, 3nc., dated #ove&)er 21, 2000, private respondent "acfor stated1 5ntil further notice, please course all in@uiries and co&&unications for "acific 2orest Resources *"hilippines+ to1 "acific 2orest Resources 200 .a&al "la4a, !uite 200 Corte 6adera, CA, 5!A :-:29 *-19+ :2$ 1$00 phone *-19+ 3%1 -39% fa/ "lease do not send any co&&unication to 6r. Arsenio 8Coy8 .. 6endiola or to the offices of A.6 6ar7etin' Corporation at Roo& 90-, Concorde Cuildin', (e'aspi Dilla'e, 6a7ati City, "hilippines.1: 3n another letter addressed to Davao Corru'ated Carton Corp. *DADCOR+, dated Dece&)er 2000, private respondent directed said client 8to please co&&unicate directly ,ith us on any further @uestions

associated ,ith these pay&ents or any future )usiness. Do not co&&unicate ,ith <"acfor= and?or <A.6=.820 "etitioner construed these directives as a severance of the 8unre'istered partnership8 )et,een hi& and "acfor, and the ter&ination of his e&ploy&ent as resident &ana'er of "acfor "hils.21 3n a &e&orandu& to the e&ployees of "acfor "hils., dated January 2:, 2001, he stated1 3 received a letter fro& "acific 2orest Resources, 3nc. de&andin' the turnover of all records to the& effective Dece&)er 1:, 2000. .he co&pany records ,ere turned over only on January 2>, 2001. .his &eans our Go)s ,ith "acific 2orest ,ere ter&inated effective Dece&)er 1:, 2000. 3 a& concerned a)out your ,elfare. 3 ,ould li7e to help you )y offerin' you to ,or7 ,ith A.6 6ar7etin' Corporation. "lease let &e 7no, if you are interested.22 On the )asis of the 8!ide A'ree&ent,8 petitioner insisted that he and "acfor e@ually o,n "acfor "hils. .hus, it follo,s that he and "acfor li7e,ise o,n, on a 90?90 )asis, "acfor "hils.0 office furniture and e@uip&ent and the service car. He also reiterated his de&and for unpaid co&&issions, and proposed to offset these ,ith the re&ainin' Christ&as 'ivea,ay fund in his possession.23 2urther&ore, he did not rene, the lease contract ,ith "ulp and "aper, 3nc., the lessor of the office pre&ises of "acfor "hils., ,herein he ,as the si'natory to the lease a'ree&ent.2On 2e)ruary 2, 2001, private respondent "acfor placed petitioner on preventive suspension and ordered hi& to sho, cause ,hy no disciplinary action should )e ta7en a'ainst hi&. "rivate respondent "acfor char'ed petitioner ,ith ,illful diso)edience and serious &isconduct for his refusal to turn over the service car and the Christ&as 'ivea,ay fund ,hich he applied to his alle'ed unpaid co&&issions. "rivate respondent also alle'ed loss of confidence and 'ross ne'lect of duty on the part of petitioner for alle'edly allo,in' another corporation o,ned )y petitioner0s relatives, Hi'h ;nd "roducts, 3nc. *H;"3+, to use

the sa&e telephone and facsi&ile nu&)ers of "acfor, to possi)ly steal and divert the sales and )usiness of private respondent for H;"30s principal, 3nternational 2orest "roducts, a co&petitor of private respondent.29 "etitioner denied the char'es. He reiterated that he considered the i&port of "acfor "resident Fillia& leason0s letters as a 8cessation of his position and of the e/istence of "acfor "hils.8 He li7e,ise infor&ed private respondent "acfor that A.6 6ar7etin' Corp. no, occupies "acfor "hils.0 office pre&ises,2> and de&anded pay&ent of his separation pay.2$ On 2e)ruary 19, 2001, petitioner filed his co&plaint for ille'al dis&issal, recovery of separation pay, and pay&ent of attorney0s fees ,ith the #(RC.2% 3n the &eanti&e, private respondent "acfor lod'ed fresh char'es a'ainst petitioner. 3n a &e&orandu& dated 6arch 9, 2001, private respondent directed petitioner to e/plain ,hy he should not )e disciplined for serious &isconduct and conflict of interest. "rivate respondent char'ed petitioner ane, ,ith serious &isconduct for the latter0s alle'ed act of fraud and &isrepresentation in authori4in' the release of an additional peso salary for hi&self, )esides the dollar salary a'reed upon )y the parties. "rivate respondent also accused petitioner of disloyalty and representation of conflictin' interests for havin' continued usin' the "acfor "hils.0 office for operations of H;"3. 3n addition, petitioner alle'edly solicited )usiness for H;"3 fro& a co&petitor co&pany of private respondent "acfor.2: (a)or Ar)iter 2elipe "ati ruled in favor of petitioner, findin' there ,as constructive dis&issal. Cy directin' petitioner to turn over all office records and &aterials, re'ardless of ,hether he &ay have retained copies, private respondent "acfor virtually deprived petitioner of his Go) )y the 'radual di&inution of his authority as resident &ana'er. "etitioner0s position as resident &ana'er ,hose duty, a&on' others, ,as to &aintain the security of its )usiness transactions and co&&unications ,as rendered &eanin'less. .he dispositive portion of the decision of the (a)or Ar)iter reads1

FH;R;2OR;, pre&ises considered, Gud'&ent is here)y rendered orderin' herein respondents Cell&ar7 AC and "acific 2orest Resources, 3nc., Gointly and severally to co&pensate co&plainant Arsenio .. 6endiola separation pay e@uivalent to at least one &onth for every year of service, ,hichever is hi'her (sic), as reinstate&ent is no lon'er feasi)le )y reason of the strained relations of the parties e@uivalent to five *9+ &onths in the a&ount of B32,000.00 plus the su& of "290,000.00I pay co&plainant the su& of "900,000.00 as &oral and e/e&plary da&a'es and ten percent *10E+ of the a&ounts a,arded as and for attorney0s fees. All other clai&s are dis&issed for lac7 of )asis. !O ORD;R;D.30 "rivate respondent "acfor appealed to the #(RC ,hich ruled in its favor. On Dece&)er 20, 2001, the #(RC set aside the July 30, 2001 decision of the la)or ar)iter, for lac7 of Gurisdiction and lac7 of &erit.31 3t held there ,as no e&ployer-e&ployee relationship )et,een the parties. Cased on the t,o a'ree&ents )et,een the parties, it concluded that petitioner is not an e&ployee of private respondent "acfor, )ut a full co-o,ner *90?90 e@uity+. .he #(RC denied petitioner0s 6otion for Reconsideration.32 "etitioner ,as not successful on his appeal to the Court of Appeals. .he appellate court upheld the rulin' of the #(RC. "etitioner0s 6otion for Reconsideration33 of the decision of the Court of Appeals ,as denied. Hence, this appeal.3"etitioner assi'ns the follo,in' errors1

A. .he Respondent Court of Appeals co&&itted reversi)le error and a)used its discretion in renderin' Gud'&ent a'ainst petitioner since Gurisdiction has )een ac@uired over the su)Gect &atter of the case as there e/ists e&ployer-e&ployee relationship )et,een the parties. C. .he Respondent Court of Appeals co&&itted reversi)le error and a)used its discretion in rulin' that Gurisdiction over the su)Gect &atter cannot )e ,aived and &ay )e alle'ed even for the first ti&e on appeal or considered )y the court &otu prop<r=io.39 .he first issue is ,hether an e&ployer-e&ployee relationship e/ists )et,een petitioner and private respondent "acfor. "etitioner ar'ues that he is an industrial partner of the partnership he for&ed ,ith private respondent "acfor, and also an e&ployee of the partnership. "etitioner insists that an industrial partner &ay at the sa&e ti&e )e an e&ployee of the partnership, provided there is such an a'ree&ent, ,hich, in this case, is the 8!ide A'ree&ent8 and the 8Revised Operatin' and "rofit !harin' A'ree&ent.8 .he Court of Appeals denied the appeal of petitioner, holdin' that 8the le'al )asis of the co&plaint is not e&ploy&ent )ut perhaps partnership, co-o,nership, or independent contractorship.8 Hence, the (a)or Code cannot apply. Fe hold that petitioner is an e&ployee of private respondent "acfor and that no partnership or co-o,nership e/ists )et,een the parties. 3n a partnership, the &e&)ers )eco&e co-o,ners of ,hat is contri)uted to the fir& capital and of all property that &ay )e ac@uired there)y and throu'h the efforts of the &e&)ers.3> .he property or stoc7 of the partnership for&s a co&&unity of 'oods, a co&&on fund, in ,hich each party has a proprietary interest.3$ 3n fact, the #e, Civil Code re'ards a partner as a co-o,ner of specific partnership property. 3% ;ach partner possesses a Goint interest in the ,hole of partnership property. 3f the relation does not have this feature, it is not one of partnership.3: .his essential ele&ent, the co&&unity of interest, or co-o,nership of, or Goint

interest in partnership property is a)sent in the relations )et,een petitioner and private respondent "acfor. "etitioner is not a part-o,ner of "acfor "hils. Fillia& leason, private respondent "acfor0s "resident esta)lished this fact ,hen he said that "acfor "hils. is si&ply a 8theoretical co&pany8 for the purpose of dividin' the inco&e 90-90. He stressed that petitioner 7ne, of this arran'e&ent fro& the very start, havin' )een the one to propose to private respondent "acfor the settin' up of a representative office, and 8not a )ranch office8 in the "hilippines to save on ta/es. .hus, the parties in this case, &erely shared profits. .his alone does not &a7e a partnership.-0 Cesides, a corporation cannot )eco&e a &e&)er of a partnership in the a)sence of e/press authori4ation )y statute or charter.-1 .his doctrine is )ased on the follo,in' considerations1 *1+ that the &utual a'ency )et,een the partners, ,here)y the corporation ,ould )e )ound )y the acts of persons ,ho are not its duly appointed and authori4ed a'ents and officers, ,ould )e inconsistent ,ith the policy of the la, that the corporation shall &ana'e its o,n affairs separately and e/clusivelyI and, *2+ that such an arran'e&ent ,ould i&properly allo, corporate property to )eco&e su)Gect to ris7s not conte&plated )y the stoc7holders ,hen they ori'inally invested in the corporation.-2 #o such authori4ation has )een proved in the case at )ar. Ce that as it &ay, ,e hold that on the )asis of the evidence, an e&ployere&ployee relationship is present in the case at )ar. .he ele&ents to deter&ine the e/istence of an e&ploy&ent relationship are1 *a+ the selection and en'a'e&ent of the e&ployeeI *)+ the pay&ent of ,a'esI *c+ the po,er of dis&issalI and *d+ the e&ployer0s po,er to control the e&ployee0s conduct. .he &ost i&portant ele&ent is the e&ployer0s control of the e&ployee0s conduct, not only as to the result of the ,or7 to )e done, )ut also as to the &eans and &ethods to acco&plish it.-3 3n the instant case, all the fore'oin' ele&ents are present. 2irst, it ,as private respondent "acfor ,hich selected and en'a'ed the services of petitioner as its resident a'ent in the "hilippines. !econd, as stipulated in their !ide A'ree&ent, private respondent "acfor pays petitioner his salary

a&ountin' to B>9,000 per annu& ,hich ,as later increased to B$%,000. .hird, private respondent "acfor holds the po,er of dis&issal, as &ay )e 'leaned throu'h the various &e&oranda it issued a'ainst petitioner, placin' the latter on preventive suspension ,hile char'in' hi& ,ith various offenses, includin' ,illful diso)edience, serious &isconduct, and 'ross ne'lect of duty, and orderin' hi& to sho, cause ,hy no disciplinary action should )e ta7en a'ainst hi&. (astly and &ost i&portant, private respondent "acfor has the po,er of control over the &eans and &ethod of petitioner in acco&plishin' his ,or7. .he po,er of control refers &erely to the e/istence of the po,er, and not to the actual e/ercise thereof. .he principal consideration is ,hether the e&ployer has the ri'ht to control the &anner of doin' the ,or7, and it is not the actual e/ercise of the ri'ht )y interferin' ,ith the ,or7, )ut the ri'ht to control, ,hich constitutes the test of the e/istence of an e&ployer-e&ployee relationship.-- 3n the case at )ar, private respondent "acfor, as e&ployer, clearly possesses such ri'ht of control. "etitioner, as private respondent "acfor0s resident a'ent in the "hilippines, is, e/actly so, only an a'ent of the corporation, a representative of "acfor, ,ho transacts )usiness, and accepts service on its )ehalf. .his ri'ht of control ,as e/ercised )y private respondent "acfor durin' the period of #ove&)er to Dece&)er 2000, ,hen it directed petitioner to turn over to it all records of "acfor "hils.I ,hen it ordered petitioner to re&it the Christ&as 'ivea,ay fund intended for clients of "acfor "hils.I and, ,hen it ,ithdre, all its offers of settle&ent and ordered petitioner to transfer title and turn over to it the possession of the service car. 3t ,as also durin' this period ,hen private respondent "acfor sent letters to its clients in the "hilippines, particularly 3ntercontinental "aper 3ndustries, 3nc. and DADCOR, advisin' the& not to deal ,ith petitioner and?or "acfor "hils. 3n its letter to DADCOR, private respondent "acfor replied to the client0s re@uest for an invoice pay&ent e/tension, and for&ulated a revised pay&ent pro'ra& for DADCOR. .his is one un&ista7a)le proof that private respondent "acfor e/ercises control over the petitioner.

#e/t, ,e shall deter&ine if petitioner ,as constructively dis&issed fro& e&ploy&ent. .he evidence sho,s that ,hen petitioner insisted on his 90E e@uity in "acfor "hils., and ,ould not @uit ho,ever, private respondent "acfor )e'an to syste&atically deprive petitioner of his duties and )enefits to &a7e hi& feel that his presence in the co&pany ,as no lon'er ,anted. 2irst, private respondent "acfor directed petitioner to turn over to it all records of "acfor "hils. .his ,ould certainly &a7e the ,or7 of petitioner very difficult, if not i&possi)le. !econd, private respondent "acfor ordered petitioner to re&it the Christ&as 'ivea,ay fund intended for clients of "acfor "hils. .hen it ordered petitioner to transfer title and turn over to it the possession of the service car. 3t also advised its clients in the "hilippines, particularly 3ntercontinental "aper 3ndustries, 3nc. and DADCOR, not to deal ,ith petitioner and?or "acfor "hils. (astly, private respondent "acfor appointed a ne, resident a'ent for "acfor "hils.-9 Althou'h there is no reduction of the salary of petitioner, constructive dis&issal is still present )ecause continued e&ploy&ent of petitioner is rendered, at the very least, unreasona)le.-> .here is an act of clear discri&ination, insensi)ility or disdain )y the e&ployer that continued e&ploy&ent &ay )eco&e so un)eara)le on the part of the e&ployee so as to foreclose any choice on his part e/cept to resi'n fro& such e&ploy&ent.-$ .he harassin' acts of the private respondent are unGustified. .hey ,ere underta7en ,hen petitioner sou'ht clarification fro& the private respondent a)out his supposed 90E e@uity on "acfor "hils. "rivate respondent "acfor invo7es its ri'hts as an o,ner. Alle'edly, its issuance of the fore'oin' directives a'ainst petitioner ,as a valid e/ercise of &ana'e&ent prero'ative. Fe re&ind private respondent "acfor that the e/ercise of &ana'e&ent prero'ative is not a)solute. 8Cy its very nature, enco&passin' as it could )e, &ana'e&ent prero'ative &ust )e e/ercised in 'ood faith and ,ith due re'ard to the ri'hts of la)or J verily, ,ith the principles of fair play at heart and Gustice in &ind.8 .he e/ercise of

&ana'e&ent prero'ative cannot )e utili4ed as an i&ple&ent to circu&vent our la,s and oppress e&ployees.-% As resident a'ent of private respondent corporation, petitioner occupied a position involvin' trust and confidence. 3n the li'ht of the strained relations )et,een the parties, the full restoration of an e&ploy&ent relationship )ased on trust and confidence is no lon'er possi)le. He should )e a,arded separation pay, in lieu of reinstate&ent. #N /#"0 0,"R"$), the petition is GRAN%"&. .he Court of Appeals0 January 30, 2003 Decision in CA- .R. !" #o. $102% and July 30, 2003 Resolution, affir&in' the Dece&)er 20, 2001 Decision of the #ational (a)or Relations Co&&ission, are ANN('"& and !"% A!#&". .he July 30, 2001 Decision of the (a)or Ar)iter is R"#N!%A%"& ,ith the M$&#)#CA%#$N that the a&ount of "290,000.00 representin' an alle'ed increase in petitioner0s salary shall )e deducted fro& the 'rant of separation pay for lac7 of evidence.