Republic of the Philippines In July 2000, petitioner wrote Kevin Daley, Vice President
SUPREME COURT for Asia of Pacfor, seeking confirmation of his 50% equity
Manila
SECOND DIVISION
G.R. No. 159333 July 31, 2006
ARSENIO T. MENDIOLA, petitioner,
vs.
COURT OF APPEALS, NATIONAL LABOR
RELATIONS COMMISSION, PACIFIC FOREST
RESOURCES, PHILS., INC. and/or CELLMARK
AB, respondents.
DECISION
PUNO, J.:
On appeal are the Decision1 and Resolution2 of the Court
of Appeals, dated January 30, 2003 and July 30, 2003,
respectively, in CA-G.R. SP No. 71028, affirming the
ruling3 of the National Labor Relations Commission
(NLRC), which in turn set aside the July 30, 2001
Decision4 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 Pacific 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 Office known as Pacific
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 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.
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 office 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 office and funded by all
parties "as equal partners," while the profits and
commissions will be shared among them.
of Pacfor Phils.10 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 office 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."11 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.12
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.13 Had he known that no joint venture existed, he
would not have allowed Pacfor to take the profitable
business of his own company, ATM Marketing
Corp.14 Petitioner raised other issues, such as the rentals
of office 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 office furniture and equipment rentals,
amounting to more than one million dollars. 15
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.16 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.17 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.18
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:
Until further notice, please course all inquiries
and communications for Pacific Forest
Resources (Philippines) to:
Pacific Forest Resources
200 Tamal Plaza, Suite 200
Corte Madera, CA, USA 94925
(415) 927 1700 phone
(415) 381 4358 fax
Please do not send any communication to Mr.
Arsenio "Boy" T. Mendiola or to the offices of
ATM Marketing Corporation at Room 504,
Concorde Building, Legaspi Village, Makati
City, Philippines.19
In another letter addressed to Davao Corrugated Carton
Corp. (DAVCOR), dated December 2000, private
respondent directed said client "to please communicate
directly with us on any further questions associated with
these payments or any future business. Do not
communicate with [Pacfor] and/or [ATM]."20
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.21 In a memorandum to the
employees of Pacfor Phils., dated January 29, 2001, he
stated:
I received a letter from Pacific Forest
Resources, Inc. demanding the turnover of all
records to them effective December 19, 2000.
The company records were turned over only on
January 26, 2001. This means our jobs with
Pacific Forest were terminated effective
December 19, 2000. I am concerned about
your welfare. I would like to help you by offering
you to work with ATM Marketing Corporation.
Please let me know if you are interested.22
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.' office 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.23 Furthermore, he did not renew the lease
contract with Pulp and Paper, Inc., the lessor of the office
premises of Pacfor Phils., wherein he was the signatory
to the lease agreement.24
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.25
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.' office premises,26 and demanded
payment of his separation pay.27 On February 15, 2001,
petitioner filed his complaint for illegal dismissal, recovery
of separation pay, and payment of attorney's fees with
the NLRC.28
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 conflict 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 conflicting interests for
having continued using the Pacfor Phils.' office for
operations of HEPI. In addition, petitioner allegedly
solicited business for HEPI from a competitor company of
private respondent Pacfor.29
Labor Arbiter Felipe Pati ruled in favor of petitioner,
finding there was constructive dismissal. By directing
petitioner to turn over all office records and materials,
regardless of whether he may have retained copies,
private respondent Pacfor virtually deprived 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:
WHEREFORE, premises considered, judgment
is hereby rendered ordering herein respondents
Cellmark AB and Pacific Forest Resources,
Inc., jointly and severally to compensate
complainant Arsenio T. Mendiola separation
pay equivalent to at least one month for every
year of service, whichever is higher (sic), as
reinstatement is no longer feasible by reason of
the strained relations of the parties equivalent
to five (5) months in the amount of $32,000.00
plus the sum of P250,000.00; pay complainant
the sum of P500,000.00 as moral and
exemplary damages and ten percent (10%) of
the amounts awarded as and for attorney's
fees.
All other claims are dismissed for lack of basis.
SO ORDERED.30
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. 31 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.32
Petitioner was not successful on his appeal to the Court
of Appeals. The appellate court upheld the ruling of the
NLRC.
Petitioner's Motion for Reconsideration33 of the decision
of the Court of Appeals was denied.
Hence, this appeal.34
Petitioner assigns the following errors:
A. The Respondent Court of Appeals
committed reversible error and abused its
discretion in rendering judgment against
petitioner since jurisdiction has been acquired
over the subject matter of the case as there
exists employer-employee relationship between
the parties.
B. The Respondent Court of Appeals
committed reversible error and abused its
discretion in ruling that jurisdiction over the
subject matter cannot be waived and may be
alleged even for the first time on appeal or
considered by the court motu prop[r]io.35
The first issue is whether an employer-employee
relationship exists between petitioner and private
respondent Pacfor.
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, which, in this case, is the "Side
Agreement" and the "Revised Operating and Profit
Sharing Agreement." The Court of Appeals denied the
appeal of petitioner, holding that "the legal basis of the
complaint is not employment but perhaps partnership,
co-ownership, or independent contractorship." Hence,
the Labor Code cannot apply.
We hold that petitioner is an employee of private
respondent Pacfor and that no partnership or co-
ownership exists between the parties.
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.36 The property or stock of the partnership
forms a community of goods, a common fund, in which
each party has a proprietary interest.37 In fact, the New
Civil Code regards a partner as a co-owner of specific
partnership property.38 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.39 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.40
Besides, a corporation cannot become a member of a
partnership in the absence of express authorization by
statute or charter.41 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.42No 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. The elements to determine the
existence of an employment relationship are: (a) the
selection and engagement of the employee; (b) the
payment of wages; (c) the power of dismissal; and (d) the
employer's power to control the employee's conduct. The
most important element is the employer's control of the
employee's conduct, not only as to the result of the work
to be done, but also as to the means and methods to
accomplish it.43
In the instant case, all the foregoing elements are
present. First, it was private respondent Pacfor which
selected and engaged the services of petitioner as its
resident agent in the Philippines. Second, as stipulated in
their Side Agreement, private respondent Pacfor pays
petitioner his salary amounting to $65,000 per annum
which was later increased to $78,000. Third, private
respondent Pacfor holds the power of dismissal, as may
be gleaned through the various memoranda it issued
against petitioner, placing the latter on preventive
suspension while charging him with various offenses,
including willful disobedience, serious misconduct, and
gross neglect of duty, and ordering him to show cause
why no disciplinary action should be taken against him.
Lastly and most important, private respondent Pacfor has
the power of control over the means and method of
petitioner in accomplishing his work.
The power of control refers merely to the existence of the
power, and not to the actual exercise thereof. The
principal consideration is whether the employer has the
right to control the manner of doing the work, and it is not
the actual exercise of the right by interfering with the
work, but the right to control, which constitutes the test of
the existence of an employer-employee relationship.44 In
the case at bar, private respondent Pacfor, as employer,
clearly possesses such right of control. Petitioner, as
private respondent Pacfor's resident agent in the
Philippines, is, exactly so, only an agent of the
corporation, a representative of Pacfor, who transacts
business, and accepts service on its behalf.
This right of control was exercised by private respondent
Pacfor during the period of November to December
2000, when it directed petitioner to turn over to it all
records of Pacfor Phils.; when it ordered petitioner to
remit the Christmas giveaway fund intended for clients of
Pacfor Phils.; and, when it withdrew all its offers of
settlement and ordered petitioner to transfer title and turn
over to it the possession of the service car. It was also
during this period when private respondent Pacfor sent
letters to its clients in the Philippines, particularly
Intercontinental Paper Industries, Inc. and DAVCOR,
advising them not to deal with petitioner and/or Pacfor
Phils. In its letter to DAVCOR, private respondent Pacfor
replied to the client's request for an invoice payment
extension, and formulated a revised payment program for
DAVCOR. This is one unmistakable proof that private
respondent Pacfor exercises control over the petitioner.
Next, we shall determine if petitioner was constructively
dismissed from employment.
The evidence shows that when petitioner insisted on his
50% equity in Pacfor Phils., and would not quit however,
private respondent Pacfor began to systematically
deprive petitioner of his duties and benefits to make him
feel that his presence in the company was no longer
wanted. First, private respondent Pacfor directed
petitioner to turn over to it all records of Pacfor Phils. This
would certainly make the work of petitioner very difficult,
if not impossible. Second, private respondent Pacfor
ordered petitioner to remit the Christmas giveaway fund
intended for clients of Pacfor Phils. Then it ordered
petitioner to transfer title and turn over to it the
possession of the service car. It also advised its clients in
the Philippines, particularly Intercontinental Paper
Industries, Inc. and DAVCOR, not to deal with petitioner
and/or Pacfor Phils. Lastly, private respondent Pacfor
appointed a new resident agent for Pacfor Phils.45
Although there is no reduction of the salary of petitioner,
constructive dismissal is still present because continued
employment of petitioner is rendered, at the very least,
unreasonable.46 There is an act of clear discrimination,
insensibility or disdain by the employer that continued
employment may become so unbearable on the part of
the employee so as to foreclose any choice on his part
except to resign from such employment.47
The harassing acts of the private respondent are
unjustified. They were undertaken when petitioner sought
clarification from the private respondent about his
supposed 50% equity on Pacfor Phils. Private
respondent Pacfor invokes its rights as an owner.
Allegedly, its issuance of the foregoing directives against
petitioner was a valid exercise of management
prerogative. We remind private respondent Pacfor that
the exercise of management prerogative is not absolute.
"By its very nature, encompassing as it could be,
management prerogative must be exercised in good faith
and with due regard to the rights of labor verily, with the
principles of fair play at heart and justice in mind." The
exercise of management prerogative cannot be utilized
as an implement to circumvent our laws and oppress
employees.48
As resident agent of private respondent corporation,
petitioner occupied a position involving trust and
confidence. In the light of the strained relations between
the parties, the full restoration of an employment
relationship based on trust and confidence is no longer
possible. He should be awarded separation pay, in lieu of
reinstatement.
IN VIEW WHEREOF, the petition is GRANTED. The
Court of Appeals' January 30, 2003 Decision in CA-G.R.
SP No. 71028 and July 30, 2003 Resolution, affirming
the December 20, 2001 Decision of the National Labor
Relations Commission, are ANNULED and SET ASIDE.
The July 30, 2001 Decision of the Labor Arbiter
is REINSTATED with the MODIFICATION that the
amount of P250,000.00 representing an alleged increase
in petitioner's salary shall be deducted from the grant of
separation pay for lack of evidence.
SO ORDERED.
Sandoval-Gutierrez, Corona, Azcuna, Garcia,
J.J., concur.