Mendiola v. CA

Mendiola v.
CA
GR No. 159333, 31 July 2006, Puno, J.
Law 173 – Agency
FACTS
 Pacific Forest Resources (PACFOR) is a corp. existing under the laws of USA.
 PACFOR entered into a “Side Agreement on Representative Office” known as
with Arsenio Mendiola.
o Outlines the business relationship of the parties with regard to the PH
operations of PACFOR
o That Mendiola will be its President
o Sharing of Mendiola and PACFOR would be 50-50
 “Side Agreement” was amended through a “Revised Operating and Profit Sharing
Agreement”
o Salary of Mendiola was increased from $65,000 to $78,000 p.a.
o That operational expenses will be borne by the representative office and
funded by all parties “as equal partners”
 Years after, Mendiola wrote to the VP for Asia of PACFOR, seeking confirmation
of his 50% equity in PACFOR PH.
 PACFOR replied that Mendiola is not a part owner as PACFOR PH is merely a
representative office and not an entity separate and distinct from PACFOR USA.
o It’s simply a “theoretical company” with the purpose of dividing the
income 50-50.
o Allegedly, Mendiola knew of this arrangement from the start as he was the
one who suggested to set-up a representative office and not a branch office
to save on tax.
 Mendiola’s argues:
1. He was made to believe that he was in a joint venture with PACFOR.
2. He is an industrial partner of PACFOR PH and at the same time an EE of
said partnership, which was allowed by their agreement.
 Subsequent acts of PACFOR:
1. Ordered Mendiola to turn over to it all papers, documents, files, etc. in his
possession that belong to PACFOR.
2. Ordered him to remit more than P300k Christmas giveaway fund for
clients
3. Withdrew all its offers of settlement and ordered Mendiola to transfer title
and possession of service car
4. Sent letter to its clients not to transact with Mendiola when dealing with
PACFOR
5. Appointed new resident agent for PACFOR PH and placed Mendiola on
preventive suspension
ISSUES & HOLDING
i. WON there was partnership between PACFOR and Mendiola? – NONE.
Relationship was one of ER-EE.
ii. WON there was constructive dismissal? – YES.
RATIO
NO PARTNERSHIP
I. Doctrine
 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.
 Each partner possesses a joint interest in the whole of partnership property.
 Essential element: community of interest or co-ownership or joint interest in
partnership property
II. Application
 The element of community of interest is lacking.
 Mendiola is not a part-owner of PACFOR PH as evidenced by the fact that
PACFOR PH is simply a “theoretical company” for the purpose of dividing
the income 50-50.
 Besides, a corporation cannot become a member of a partnership absent an
express authorization by statute or charter. Why?
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.
ER-EE RELATIONSHIP
I. Elements to determine the existence of an ER-EE relationship.
a. Selection and engagement of the EE
b. Payment of Wages
c. Power of Dismissal
d. Power of Control – refers to existence of the power, not to the actual
exercise
II. Application:
 All elements are present.
o PACFOR selected the service of Mendiola as resident agent
o Payment of wages as stipulated  increased to $78,000 p.a.
o PACFOR holds power of dismissal as may be gleaned from
memos and the placing of Mendiola on preventive suspension.
o See “subsequent acts” enumerated above, which shows the power
of PACFOR to control Mendiola.
CONSTRUCTIVE DISMISSAL
 PACFOR began to systematically deprive Mendiola of his duties and benefits
to make him feel that his presence was no longer wanted.
 See “subsequent acts” above  this would show how unwanted Mendiola is.
LOL.
 Such harassing acts made the work of Mendiola very difficult, if not
impossible.
 Although there is no reduction of the salary, constructive dismissal is still
present because continued employment of Mendiola is, at the very least,
unreasonable.
 Exercise of management prerogative is not absolute.
 Having occupied a position involving trust and confidence, reinstatement is
not possible due to strained relationship.
DISPOSITIVE
Order of separation pay, in lieu of reinstatement

Mendiola v. CA

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