Partnership
Mendiola v. Court of Appeals, G.R. No. 159333, July 31, 2006
FACTS:
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." 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." 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 Pacforusa.
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. 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.
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)," 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.
In July 2000, petitioner wrote Kevin Daley, Vice President for Asia of Pacfor, seeking
confirmation of his 50% equity of Pacfor Phils. 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." 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.
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. 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. 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.
Partnership
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. 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. 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.
Private respondent Pacfor likewise sent letters to its clients in the Philippines,
advising them not to deal with Pacfor Phils.
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. 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.
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.
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, and demanded payment of his separation pay. On
February 15, 2001, petitioner filed his complaint for illegal dismissal, recovery of separation
pay, and payment of attorney's fees with the NLRC.
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.
Labor Arbiter Felipe Pati ruled in favor of petitioner, finding there was constructive
dismissal.
Private respondent Pacfor appealed to the NLRC which ruled in its favor.
ISSUE:
Whether an employer-employee relationship exists between petitioner and private
respondent Pacfor, or is it partnership
Partnership
RULING:
Employer-employee relationship. 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. The property or stock of the partnership forms a
community of goods, a common fund, in which each party has a proprietary interest. In fact,
the New Civil Code regards a partner as a co-owner of specific partnership property. 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. 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.
Besides, a corporation cannot become a member of a partnership in the absence of
express authorization by statute or charter. 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. No such authorization has been
proved in the case at bar.