Mendiola vs. Court of Appeals PDF

8/17/2018 SUPREME COURT REPORTS ANNOTATED VOLUME 497
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.
Partnership; 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; If the relation does not have this feature, it is not one of
partnership.—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.
Labor Law; Employer-Employee Relationship; 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.—
http://www.central.com.ph/sfsreader/session/0000016546ae53f89a4290ba003600fb002c009e/t/?o=False 1/16
_______________
* SECOND DIVISION.
347
VOL. 497, JULY 31, 2006 347
Mendiola vs. Court of Appeals
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. 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.
Employer-Employee Relationship; Constructive Dismissals;
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.—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. 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.
PETITION for review on certiorari of the decision and

resolution of the Court of Appeals.
The facts are stated in the opinion of the Court.
Felipe S. Velasquez for petitioner.
Vissia Concepcion C. Calderon for respondent Pacific
Forest Resources Phils., Inc.
PUNO, J.:
On appeal are the Decision1 and Resolution2 of the

Court of Appeals, dated January 30, 2003 and July 30,
2003, respec-
_______________
1 CA Rollo, pp. 1058-1072.

2 Id., at p. 1105.
348
348 SUPREME COURT REPORTS ANNOTATED

tively, 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 estab-
_______________
3 Id., at pp. 28-37.

4 Id., at pp. 118-139.
5 Id., at pp. 682-683.
6 Id., at p. 683.
7 Rollo, p. 63.
349
VOL. 497, JULY 31, 2006 349

lish 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.
In July 2000, petitioner wrote Kevin Daley, Vice
President for Asia of Pacfor, seeking confirmation of his
50% equity 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
_______________
8 Id., at p. 64.
9 CA Rollo, p. 684. Other terms of the revised agreement include:
a) ATM and Pacfor-USA shall jointly manage Pacfor Phils.
b) Pacfor-Phils. will earn commissions at 1.5% of F.O.B. value,
the computation of which shall be shown in a credit memo issued
by Cellmark/Pacfor.
c) Losses, if any, will be reimbursed by Cellmark/
Pacfor to ATM for ATM’s share of the loss, for two consecutive
years beginning with the first year of loss.
d) The revised agreement shall take effect on January 1, 1997.
e) Cash paid to the representative office by Pacific Paper

belongs to Pacfor and will be held in trust by ATM.
10 Id., at p. 685.
350

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
_______________
11 Rollo, p. 528.
12 Id., at p. 527.
13 Ibid.
14 Id., at p. 532.
15 Id., at p. 539.
16 Id., at p. 541.
17 Id., at p. 544.
351
VOL. 497, JULY 31, 2006 351

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:
_______________
18 Id., at p. 545.
19 CA Rollo, p. 829.
20 Id., at p. 828.
21 Rollo, pp. 546-550.
352

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
_______________
22 Id., at p. 553.
23 Id., at pp. 546-550.
24 Id., at p. 560.
25 Id., at pp. 554-558.
353
VOL. 497, JULY 31, 2006 353

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
_______________
26 Id., at p. 560.
27 Id., at p. 561.
28 CA Rollo, p. 652.
29 Rollo, pp. 562-563.
354

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:
_______________
30 Id., at p. 150.
31 Id., at pp. 231-240.
32 CA Rollo, pp. 333-335.
33 Id., at pp. 84-86.
34 Rollo, pp. 14-36.
355
VOL. 497, JULY 31, 2006 355

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
_______________
35 Id., at p. 27.
36 Esteban B. Bautista, Treatise on Philippine Partnership Law, 1978
ed., citing Nelson v. Abraham, 177 P.2d 931 (1947); Henry
356

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
_______________
v. Darnall, 246 Ill.App. 250 (1927), cited in Notes of Decisions, 7 U.L.A. 15

(1949).

ed., citing Darden v. Cox, 123 So.2d 68 (1960).
38 Art. 1811 (1st par.).
ed.
40 Fortis v. Gutierrez Hermanos, 6 Phil. 100 (1906).
41 J.M. Tuason v. Bolanos, 95 Phil. 106 (1954); Esteban B. Bautista,
Treatise on Philippine Partnership Law, 1978 ed., citing 60 A.L.R.2d 917;
6 Fletcher, Cyclopedia of Corporations, Sec. 2520 (1950).
357
VOL. 497, JULY 31, 2006 357

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.42 No 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
_______________

ed., citing 13 Am.Jur. 830; 60 A.L.R.2d 913.
43 Sy v. Court of Appeals, G.R. No. 142293, February 27, 2003, 398
SCRA 301, citing Caurdanetaan Piece Workers Union v. Laguesma, 286
SCRA 401, 420 (1998); Maraguinot, Jr. v. National Labor Relations
Commission, 284 SCRA 539, 552 (1998); APP Mutual Benefit Association,
Inc. v. National Labor Relations Commission, 267 SCRA 47, 57 (1997);
Aurora Land Projects Corp. v. National Labor Relations Commission, 266
SCRA 48, 59 (1997); Encyclopedia Britannica (Phils.), Inc. v. National

Labor Relations Commission, 264 SCRA 1, 6-7 (1996).
358

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
_______________
44 Feati University v. Bautista, G.R. No. L-21278, December 27, 1966,

18 SCRA 1191, 1217, citing Amalgamated Roofing Co. v. Travelers’ Ins.
Co., 133 N.E. 259, 261; 300 Ill. 487.
359
VOL. 497, JULY 31, 2006 359

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

_______________
45 CA Rollo, pp. 724-733.

46 Philippine Japan Active Carbon Corp. v. National Labor Relations
Commission, G.R. No. 83239, March 8, 1989, 171 SCRA 164.
47 Unicorn Safety Glass, Inv. v. Basarte, G.R. No. 154689, November
25, 2004, 444 SCRA 287.
360

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 and Garcia, JJ.,

concur.
_______________
48 Ibid.
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8/17/2018 SUPREME COURT REPORTS ANNOTATED VOLUME 497

G.R. No. 159333. July 31, 2006.*

ARSENIO T. MENDIOLA, petitioner, vs. COURT OF

Partnership; In a partnership, the members become co-owners

VOL. 497, JULY 31, 2006 347

Mendiola vs. Court of Appeals

The power of control refers merely to the existence of the power,

PETITION for review on certiorari of the decision and

On appeal are the Decision1 and Resolution2 of the

1 CA Rollo, pp. 1058-1072.

348 SUPREME COURT REPORTS ANNOTATED

tively, in CA-G.R. SP No. 71028, affirming the ruling3 of

3 Id., at pp. 28-37.

VOL. 497, JULY 31, 2006 349

lish its representative office in the Philippines with the

e) Cash paid to the representative office by Pacific Paper

350 SUPREME COURT REPORTS ANNOTATED

distinct from Pacfor-USA. “It’s simply a ‘theoretical

VOL. 497, JULY 31, 2006 351

its offers of settlement and ordered petitioner to transfer

Until further notice, please course all inquiries and

In another letter addressed to Davao Corrugated Carton

352 SUPREME COURT REPORTS ANNOTATED

I received a letter from Pacific Forest Resources, Inc. demanding

On the basis of the “Side Agreement,” petitioner insisted

25 Id., at pp. 554-558.

VOL. 497, JULY 31, 2006 353

Petitioner denied the charges. He reiterated that he

354 SUPREME COURT REPORTS ANNOTATED

communications was rendered meaningless. The

“WHEREFORE, premises considered, judgment is hereby

Private respondent Pacfor appealed to the NLRC which

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A. THE RESPONDENT COURT OF APPEALS

The first issue is whether an employer-employee

356 SUPREME COURT REPORTS ANNOTATED

The property or stock of the partnership forms a

v. Darnall, 246 Ill.App. 250 (1927), cited in Notes of Decisions, 7 U.L.A. 15

37 Esteban B. Bautista, Treatise on Philippine Partnership Law, 1978

6 Fletcher, Cyclopedia of Corporations, Sec. 2520 (1950).

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and officers, would be inconsistent with the policy of the

42 Esteban B. Bautista, Treatise on Philippine Partnership Law, 1978

SCRA 48, 59 (1997); Encyclopedia Britannica (Phils.), Inc. v. National

358 SUPREME COURT REPORTS ANNOTATED

it issued against petitioner, placing the latter on preventive

44 Feati University v. Bautista, G.R. No. L-21278, December 27, 1966,

Co., 133 N.E. 259, 261; 300 Ill. 487.

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Pacfor replied to the client’s request for an invoice payment

45 CA Rollo, pp. 724-733.

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The harassing acts of the private respondent are

Sandoval-Gutierrez, Corona, Azcuna and Garcia, JJ.,

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