MENDIOLA v.

CA ○ Pacfor proposed to establish its representative office in the Philippines to

G.R. No. 159333 | July 31, 2006 | Puno, J. monitor and coordinate the market activities for paper products. It also
designated ATM as its resident agent in the Philippines, authorized to accept
SUMMARY: MENDIOLA entered into a “Side Agreement” with PACFOR to set up a representative summons and processes in all legal proceedings, and all notices affecting
office to be known as PACFOR PHILS., with the former as the President. The said agreement was the corporation.
later amended increasing MENDIOLA’s salary. Both agreements show that the operational ● March 1997: the Side Agreement was amended through a "Revised Operating and Profit
expenses will be borne by the representative office and funded by all parties “as equal partners,” Sharing Agreement for the Representative Office Known as Pacfor (Phils)," where
while the profits and commissions will be shared among them. Years later, when MENDIOLA wrote ATM’s salary was increased to $78K/annum.
to PACFOR’s VP seeking confirmation of his 50% equity of PACFOR PHILS, it replied that he is not ● Both agreements show that the operational expenses will be borne by the
a part-owner of PACFOR PHILS. because the latter is merely a representative office and not an representative office and funded by all parties "as equal partners," while the profits and
entity separate and distinct from PACFOR-USA. MENDIOLA was eventually placed into preventive commissions will be shared among them.
suspension, and was charged with various offenses by PACFOR. Hence, he filed before the LA ● July 2000: ATM wrote Kevin Daley, VP for Asia of Pacfor, to confirm his 50% equity of
complaint for illegal dismissal, which ruled in his favor. NLRC reversed and affirmed by CA, holding Pacfor.
that the legal basis of the complaint is not employment but perhaps partnership, co-ownership, or ○ Pacfor, through William Gleason, its President, replied that ATM is not a part-
independent contractorship, hence, LC cannot apply. owner of Pacfor Phils. because the latter is merely Pacfor-USA's
representative office and not an entity separate and distinct from Pacfor-
SC held that MENDIOLA is an employee of PACFOR and that no partnership or co-ownership exists USA. "It's simply a 'theoretical company' with the purpose of dividing the
between the parties. The essential element, i.e. community of interest, or co-ownership of, or joint
income 50-50."
interest in partnership property is absent in the relations between the parties, thus, MENDIOLA is
not a part-owner of PACFOR PHILS. Moreover, a corporation cannot become a member of a ○ ATM presumably knew of this arrangement from the start, having been the
partnership in the absence of express authorization by statute or charter, which is also absent in one to propose to Pacfor the setting up of a representative office, and "not a
this case. ON THE CONTRARY, all the elements to determine the existence of an employment branch office" to save on taxes.
relationship are present. IN THIS CASE, although there is no reduction of the salary of MENDIOLA, ● ATM claimed that he made to believe that he was in a joint venture with them.
constructive dismissal is still present because his continued employment is rendered ○ He would have been better off remaining as an independent agent or
unreasonable. HOWEVER, due to strained relations between the parties, reinstatement is no longer representative of Pacfor-USA as ATM Marketing Corp.
possible, but he should be awarded separation pay instead.
○ Had he known that no joint venture existed, he would not have allowed Pacfor
DOCTRINE: In a partnership, the members become co-owners of what is contributed to the firm to take the profitable business of his own company, ATM Marketing Corp.
capital and of all property that may be acquired thereby and through the efforts of the members. ○ Petitioner raised other issues: rentals of office furniture, salary of the
The property or stock of the partnership forms a community of goods, a common fund, in which employees, company car, as well as commissions allegedly due him.
each party has a proprietary interest. NCC regards a partner as a co-owner of specific partnership ○ Oct. 2000: ATM wrote Pacfor-USA demanding payment of unpaid
property, wherein each partner possesses a joint interest in the whole of partnership property, commissions and office furniture and equipment rentals, amounting to more
otherwise, it is not one of partnership. than $1M.
● Nov. 27, 2000: Pacfor ordered ATM to turn over to it all papers, documents, files,
A corporation cannot become a member of a partnership in the absence of express authorization
by statute or charter. records, and other materials in his or ATM Marketing Corp.’s possession that belong to
Pacfor or Pacfor Phils.
FACTS ○ Dec. 18, 2000: Pacfor required ATM to remit more than P300K Christmas
● Pacfor is a corporation organized under the laws of California, USA. It is a subsidiary of giveaway fund for clients of Pacfor Phils.
Cellulose Marketing International, a corporation organized under the laws of Sweden. ○ Pacfor withdrew all its offers of settlement and ordered petitioner to transfer
● Pacfor entered into a "Side Agreement on Representative Office known as Pacific Forest title and turn over to it possession of the service car.
Resources (Phils.), Inc." with Mendiola (ATM), effective May 1, 1995, "assuming that ○ Pacfor sent letters to its clients in the Philippines, advising them not to deal
Pacfor-Phils. is already approved by the SEC on the said date with Pacfor Phils or ATM.
○ Pacfor will establish a Pacfor representative office in the Philippines, to be ● ATM construed these directives as a severance of the "unregistered partnership"
known as Pacfor Phils, and ATM will be its President. between him and Pacfor, and the termination of his employment as resident manager
○ ATM's base salary and the overhead expenditures of the company shall be of Pacfor Phils.
borne by the representative office and funded by Pacfor/ATM, since Pacfor ● On the basis of the "Side Agreement," ATM insisted that he and Pacfor equally own
Phils. is equally owned on a 50-50 equity by ATM and Pacfor-USA. Pacfor Phils. Thus, he and Pacfor own, on a 50/50 basis, Pacfor Phils.' office furniture
● July 14, 1995: SEC granted the application of Pacfor for a license to transact business and equipment and the service car.
in the Philippines under the name of Pacfor or Pacfor Phils. ○ He also reiterated his demand for unpaid commissions, and proposed to
offset these with the remaining Christmas giveaway fund in his possession.
 ○ He did not renew the lease contract with Pulp and Paper, Inc., the lessor of ○ an industrial partner may at the same time be an employee of the partnership,
the office premises of Pacfor Phils., wherein he was the signatory to the lease provided there is such an agreement, which, in this case, is the "Side
agreement. Agreement" and the "Revised Operating and Profit Sharing Agreement."
● Feb. 2, 2001: Pacfor placed ATM on preventive suspension and ordered him to show ● CA: "the legal basis of the complaint is not employment but partnership, co-ownership,
cause why no disciplinary action should be taken against him. or independent contractorship." Hence, the Labor Code cannot apply.
○ Pacfor charged ATM with willful disobedience and serious misconduct for his
refusal to turn over the service car and the Christmas giveaway fund which No Partnership
he applied to his alleged unpaid commissions. SC: ATM is an employee of Pacfor and no partnership or co-ownership exists between them.
○ loss of confidence and gross neglect of duty on the part of ATM for allowing ● In a partnership, the members become co-owners of what is contributed to the firm
another corporation owned by petitioner's relatives, High End Products, Inc. capital and property that may be acquired and through the efforts of the members.
(HEPI), to use the same telephone and facsimile numbers of Pacfor, to divert ○ The property or stock of the partnership forms a community of goods, a
the business of Pacfor for HEPI's principal, International Forest Products, a common fund, in which each party has a proprietary interest.
competitor of Pacfor. ○ The NCC regards a partner as a co-owner of specific partnership property.
● Petitioner denied the charges. ○ Each partner possesses a joint interest in the whole of partnership property.
○ He considered the import of Pacfor President William Gleason's letters as a If the relation does not have this feature, it is not one of partnership.
"cessation of his position and of the existence of Pacfor Phils." ● ITC: The community of interest, or co-ownership of, or joint interest in partnership
○ He informed Pacfor that ATM Marketing Corp. now occupies Pacfor Phils.' property is absent in the relations between ATM and Pacfor.
office premises, and demanded payment of his separation pay. ○ Petitioner is not a part-owner of Pacfor Phils.
● Feb. 15, 2001, ATM filed his complaint for illegal dismissal, recovery of separation pay, ○ William Gleason, Pacfor President said that Pacfor Phils. is a "theoretical
and payment of attorney's fees with the NLRC. company" for the purpose of dividing the income 50-50. ATM knew of this
● Pacfor lodged fresh charges against petitioner arrangement from the start, having been the one to propose to Pacfor the
○ charged ATM anew with serious misconduct for the latter's alleged act of setting up of a representative office, and "not a branch office". Thus, the
fraud and misrepresentation in authorizing the release of an additional peso parties merely shared profits. This does not make a partnership.
salary for himself, besides the dollar salary agreed upon by the parties. ● A corporation cannot become a member of a partnership in the absence of express
○ accused ATM of disloyalty and representation of conflicting interests for authorization by statute or charter.
having continued using the Pacfor Phils.' office for operations of HEPI. 1. the mutual agency between the partners, whereby the corporation would be
○ ATM allegedly solicited business for HEPI from a competitor of Pacfor. bound by the acts of persons who are not its duly appointed and authorized
● LA Felipe Pati ruled in favor of petitioner. There was constructive dismissal. agents and officers, would be inconsistent with the policy of the law that the
○ By directing petitioner to turn over all office records and materials, Pacfor corporation shall manage its own affairs separately and exclusively; and
deprived ATM of his job by the gradual diminution of his authority as resident 2. such an arrangement would improperly allow corporate property to become
manager. ATM’s position as resident manager whose duty, was to maintain subject to risks not contemplated by the stockholders when they originally
the security of its business transactions and communications was rendered invested in the corporation.
meaningless. 3. ITC, no such authorization has been proved in the case at bar.
○ Ordered Cellmark AB and Pacfor, jointly and severally to compensate ATM.
● Dec. 20, 2001: Upon appeal, NLRC ruled in favor of Pacror. Employer-Employee Relationship
○ Set aside LA decision for lack of jurisdiction and lack of merit. ● An employer-employee relationship is present.
○ There was no employer-employee relationship between the parties. Based on ● The elements to determine the existence of an employment relationship are:
the two agreements between the parties, ATM is not an employee of private (a) the selection and engagement of the employee;
respondent Pacfor, but a full co-owner (50/50 equity). (b) the payment of wages;
● CA upheld the NLRC. (c) the power of dismissal; and
● Petitioner’s argument: Jurisdiction has been acquired over the subject matter of the (d) the employer's power to control the employee's conduct.
case as there exists employer-employee relationship between the parties. ○ 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
ISSUES and RATIONALE means and methods to accomplish it.
1. W/N an employer-employee relationship exists between ATM and Pacfor. YES ● ITC: all the foregoing elements are present.
● Petitioner: he is an industrial partner of the partnership he formed with Pacfor, and also ○ It was Pacfor which engaged the services of ATM as its resident agent
an employee of the partnership. ○ As stipulated in their Side Agreement, Pacfor pays ATM his salary
($65K/annum) which was increased to $78K.
 ○ Pacfor holds the power of dismissal. Through the various memoranda it The exercise of management prerogative cannot be utilized as an implement
issued against ATM, it placed ATM on preventive suspension and charged to circumvent our laws and oppress employees.
him with various offenses. ● As resident agent of Pacfor, ATM occupied a position involving trust and confidence.
○ Pacfor has the power of control over the means and method of ATM in ○ In the light of the strained relations between the parties, the full restoration
accomplishing his work. of an employment relationship based on trust and confidence is no longer
■ The principal consideration is whether the employer has the right possible. He should be awarded separation pay, in lieu of reinstatement.
to control the manner of doing the work, and it is not the actual
exercise of the. RULING: the petition is GRANTED. The CA Decision, affirming the NLRC, is ANNULED and SET
■ ITC, Pacfor, as employer, possesses such right of control. ATM, as ASIDE.
Pacfor's resident agent, 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 Pacfor during Nov. to Dec.
2000, when it directed ATM to turn over to it all records of Pacfor
Phils.; when it ordered ATM to remit the Christmas giveaway fund
intended for clients of Pacfor Phils.; and, when it withdrew all its
offers of settlement and ordered ATM to transfer title and turn over
to it the possession of the service car.
■ Pacfor sent letters to its clients in the Philippines, Intercontinental
Paper Industries, Inc. and DAVCOR, advising them not to deal with
ATM and/or Pacfor Phils. In its letter to DAVCOR, Pacfor replied to
the client's request for an invoice payment extension, and
formulated a revised payment program for DAVCOR.

2. W/N ATM was constructively dismissed from employment. YES

● When ATM insisted on his 50% equity in Pacfor Phils., and would not quit, Pacfor began
to systematically deprive ATM of his duties and benefits to make him feel that his
presence in the company was no longer wanted.
○ Pacfor directed ATM to turn over to it all records of Pacfor Phils. This would
certainly make the work of ATM very difficult.
○ Pacfor ordered ATM to remit the Christmas giveaway fund intended for
clients of Pacfor Phils. Then it ordered ATM to transfer title and turn over to
it the possession of the service car. It also advised its clients in the
Philippines, Intercontinental Paper Industries, Inc. and DAVCOR, not to deal
with ATM and/or Pacfor Phils.
○ Lastly, Pacfor appointed a new resident agent for Pacfor Phils.
● Although there is no reduction of the salary of ATM, constructive dismissal is still
present because continued employment of ATM is rendered unreasonable. 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.
● The harassing acts of Pacfor are unjustified.
○ They were undertaken when ATM sought clarification from the private
respondent about his supposed 50% equity on Pacfor Phils.
○ Pacfor invokes its rights as an owner. Allegedly, its issuance of the foregoing
directives against ATM was a valid exercise of management prerogative.
○ BUT the exercise of management prerogative is not absolute. "…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."