BENJAMIN YU, PETITIONER, VS. NATIONAL LABOR RELATIONS COMMISSION AND JADE MOUNTAIN PRODUCTS COMPANY LIMITED, WILLY CO, RHODORA D. BENDAL, LEA BENDAL, CHIU SHIAN JENG AND CHEN HO…

Petitioner Benjamin Yu was formerly the Assistant General Manager
of the marble quarrying and export business operated by a registered
partnership with the firm name of “Jade Mountain Products Company
Limited” (“Jade Mountain”). The partnership was originally organized on 28 June 1984 with Lea Bendal and Rhodora Bendal as
general partners and Chiu Shian Jeng, Chen Ho-Fu and Yu Chang, all citizens of
the Republic of China (Taiwan), as limited partners. The partnership business consisted of exploiting a marble deposit
found on land owned by the Sps. Ricardo and Guillerma Cruz, situated in Bulacan
Province, under a Memorandum Agreement dated 26 June 1984 with the Cruz
spouses.^[1]
The partnership had its main office in Makati, Metropolitan Manila.

Benjamin Yu was hired by virtue of a Partnership Resolution dated
14 March 1985, as Assistant General Manager with a monthly salary of
P4,000.00. According to petitioner Yu,
however, he actually received only half of his stipulated monthly salary, since
he had accepted the promise of the partners that the balance would be paid when
the firm shall have secured additional operating funds from abroad. Benjamin Yu actually managed the operations
and finances of the business; he had overall supervision of the workers at the
marble quarry in Bulacan and took charge of the preparation of papers relating
to the exportation of the firm’s products.

Sometime in 1988, without the knowledge of Benjamin Yu, the
general partners Lea Bendal and Rhodora Bendal sold and transferred their
interests in the partnership to private respondent Willy Co and to one Emmanuel
Zapanta. Mr. Yu Chang, a limited
partner, also sold and transferred his interest in the partnership to Willy
Co. Between Mr. Emmanuel Zapanta and
himself, private respondent Willy Co acquired the great bulk of the partnership
interest. The partnership now
constituted solely by Willy Co and Emmanuel Zapanta continued to use the old
firm name of Jade Mountain, though they moved the firm’s main office from
Makati to Mandaluyong, Metropolitan Manila. A Supplement to the Memorandum Agreement relating to the operation of
the marble quarry was entered into with the Cruz spouses in February of 1988.^[2]
The actual operations of the business enterprise continued as before. All the employees of the partnership
continued working in the business, all, save petitioner Benjamin Yu as it
turned out.

On 16 November 1987,
having learned of the transfer of the firm’s main office from Makati to
Mandaluyong, petitioner Benjamin Yu reported to the Mandaluyong office for work
and there met private respondent Willy Co for the first time. Petitioner was informed by Willy Co that the
latter had bought the business from the original partners and that it was for
him to decide whether or not he was responsible for the obligations of the old
partnership, including petitioner’s unpaid salaries. Petitioner was in fact not allowed to work anymore in the Jade
Mountain business enterprise. His
unpaid salaries remained unpaid.^[3]

On 21 December 1988,
Benjamin Yu filed a complaint for illegal dismissal and recovery of unpaid
salaries accruing from November 1984 to October 1988, moral and exemplary
damages and attorney’s fees, against Jade Mountain, Mr. Willy Co and the other
private respondents. The partnership
and Willy Co denied petitioner’s charges, contending in the main that
Benjamin Yu was never hired as an employee by the present or new partnership.^[4]

In due time, Labor Arbiter Nieves Vivar-De Castro rendered a
decision holding that petitioner had been illegally dismissed. The Labor Arbiter decreed his reinstatement
and awarded him his claim for unpaid salaries, backwages and attorney’s fees.^[5]

On appeal, the
National Labor Relations Commission (“NLRC”) reversed the decision of
the Labor Arbiter and dismissed petitioner’s complaint in a Resolution dated 29
November 1990. The NLRC held that a new
partnership consisting of Mr. Willy Co and Mr. Emmanuel Zapanta had bought the
Jade Mountain business, that the new partnership had not retained petitioner Yu
in his original position as Assistant General Manager, and that there was no
law requiring the new partnership to absorb the employees of the old
partnership. Benjamin Yu, therefore,
had not been illegally dismissed by the new partnership which had simply
declined to retain him in his former managerial position or any other
position. Finally, the NLRC held that
Benjamin Yu’s claim for unpaid wages should be asserted against the original
members of the preceding partnership, but these though impleaded had,
apparently, not been served with summons in the proceedings before the Labor
Arbiter.^[6]

Petitioner Benjamin Yu is now before the Court on a Petition for Certiorari,
asking us to set aside and annul the Resolution of the NLRC as a product of
grave abuse of discretion amounting to lack or excess of jurisdiction.

The basic contention of petitioner is that the NLRC has
overlooked the principle that a partnership has a juridical personality
separate and distinct from that of each of its members. Such independent legal personality subsists,
petitioner claims, notwithstanding changes in the identities of the
partners. Consequently, the employment
contract between Benjamin Yu and the partnership Jade Mountain could not have
been affected by changes in the latter’s membership.^[7]

Two (2) main issues are thus posed for our consideration in the
case at bar: (1) whether the
partnership which had hired petitioner Yu as Assistant General Manager had been
extinguished and replaced by a new partnership composed of Willy Co and
Emmanuel Zapanta; and (2) if indeed a new partnership had come into existence,
whether petitioner Yu could nonetheless assert his rights under his employment
contract as against the new partnership.

In respect of the first issue, we agree with the result reached
by the NLRC, that is, that the legal effect of the changes in the membership of
the partnership was the dissolution of the old partnership which had hired
petitioner in 1984 and the emergence of a new firm composed of Willy Co and
Emmanuel Zapanta in 1987.

The applicable law in this connection — of which the NLRC seemed
quite unaware — is found in the Civil Code provisions relating to
partnerships. Article 1828 of the Civil
Code provides as follows:

“Art. 1828. The dissolution
of a partnership is the change in the relation of the partners caused by any
partner ceasing to be associated in the carrying on as distinguished from
the winding up of the business.” (Emphasis supplied)

Article 1830 of the same Code must also
be noted:

“Art. 1830. Dissolution is caused:

(1) without violation of
the agreement between the partners;

x x x                          x x x                             x
x x

(b) by the
express will of any partner, who must act in good faith, when no definite term
or particular undertaking is specified;

x x x                          x x x                             x
x x

(2) in contravention of the agreement between
the partners, where the circumstances do not permit a dissolution under any
other provision of this article, by the express will of any partner at any
time;

x x x                          x x x                             x
x x”

(Emphases supplied)

In the case at bar, just about all of the
partners had sold their partnership interests (amounting to 82% of the total
partnership interest) to Mr. Willy Co and Emmanuel Zapanta. The record does not show what happened to
the remaining 18% of the original partnership interest. The acquisition of 82% of the partnership
interest by new partners, coupled with the retirement or withdrawal of the
partners who had originally owned such 82% interest, was enough to constitute a
new partnership.

The occurrence of events which precipitate the legal consequence
of dissolution of a partnership do not, however, automatically result in the
termination of the legal personality of the old partnership. Article 1829 of the Civil Code states that:

“[o]n dissolution the partnership is
not terminated, but continues until the winding up of partnership affairs is
completed.”

In the ordinary course of events, the
legal personality of the expiring partnership persists for the limited purpose
of winding up and closing of the affairs of the partnership. In the case at bar, it is important to
underscore the fact that the business of the old partnership was simply
continued by the new partners, without the old partnership undergoing
the procedures relating to dissolution and winding up of its business
affairs. In other words, the new
partnership simply took over the business enterprise owned by the preceding
partnership, and continued using the old name of Jade Mountain Products Company
Limited, without winding up the business affairs of the old partnership, paying
off its debts, liquidating and distributing its net assets, and then
re-assembling the said assets or most of them and opening a new business
enterprise. There were, no doubt,
powerful tax considerations which underlay such an informal approach to
business on the part of the retiring and the incoming partners. It is not, however, necessary to inquire
into such matters.

What is important for present purposes is that, under the above
described situation, not only the retiring partners (Rhodora Bendal, et al.)
but also the new partnership itself which continued the business of the
old, dissolved, one, are liable for the debts of the preceding
partnership. In Singson, et al. v.
Isabela Saw Mill, et al,^[8] the Court
held that under facts very similar to those in the case at bar, a withdrawing
partner remains liable to a third party creditor of the old partnership.^[9]
The liability of the new partnership, upon the other hand, in the set of
circumstances obtaining in the case at bar, is established in Article 1840 of
the Civil Code which reads as follows:

“Art. 1840. In the
following cases creditors of the dissolved partnership are also creditors of
the person or partnership continuing the business:

(1) When any new partner is
admitted into an existing partnership, or when any partner retires and assigns
(or the representative of the deceased partner assigns) his rights in
partnership property to two or more of the partners, or to one or more of the
partners and one or more third persons, if the business is continued without
liquidation of the partnership affairs;

(2) When all but one
partner retire and assign (or the representative of a deceased partner assigns)
their rights in partnership property to the remaining partner, who continues
the business without liquidation of partnership affairs, either alone or with
others;

(3) When any Partner
retires or dies and the business of the dissolved partnership is continued
as set forth in Nos. 1 and 2 of this article, with the consent of the retired
partners or the representative of the deceased partner, but without any
assignment of his right in partnership property;

(4) When all the
partners or their representatives assign their rights in partnership property
to one or more third persons who promise to pay the debts and who
continue the business of the dissolved partnership;

(5) When any partner
wrongfully causes a dissolution and remaining partners continue the business
under the provisions of article 1837, second paragraph, No. 2, either alone
or with others, and without liquidation of the partnership affairs;

(6) When a partner is expelled and the remaining partners continue
the business either alone or with others without liquidation of the partnership
affairs;

The liability of a third person becoming a partner in the
partnership continuing the business, under this article, to the creditors of
the dissolved partnership shall be satisfied out of the partnership property
only, unless there is a stipulation to the contrary.

When the business of a partnership after dissolution is continued
under any conditions set forth in this article the creditors of the retiring or
deceased partner or the representative of the deceased partner, have a prior
right to any claim of the retired partner or the representative of the deceased
partner against the person or partnership continuing the business on account of
the retired or deceased partner’s interest in the dissolved partnership or on
account of any consideration promised for such interest or for his right in
partnership property.

Nothing in this article
shall be held to modify any right of creditors to set aside any assignment on
the ground of fraud.

x x x                          x x
x                             x x x”

(Emphases supplied)

Under Article 1840 above, creditors of the old Jade Mountain are
also creditors of the new Jade Mountain which continued the business of the old
one without liquidation of the partnership affairs. Indeed, a creditor of the old Jade Mountain, like petitioner
Benjamin Yu in respect of his claim for unpaid wages, is entitled to priority
vis-a-vis any claim of any retired or previous partner insofar as such retired
partner’s interest in the dissolved partnership is concerned. It is not necessary for the Court to
determine under which one or more of the above six (6) paragraphs, the case at
bar would fall, if only because the facts on record are not detailed with
sufficient precision to permit such determination. It is, however, clear to the Court that under Article 1840 above,
Benjamin Yu is entitled to enforce his claim for unpaid salaries, as well as
other claims relating to his employment with the previous partnership, against
the new Jade Mountain.

It is at the same time also evident to the Court that the new
partnership was entitled to appoint and hire a new general or assistant general
manager to run the affairs of the business enterprise taken over. An assistant general manager belongs to the
most senior ranks of management and a new partnership is entitled to appoint a
top manager of its own choice and confidence. The non-retention of Benjamin Yu as
Assistant General Manager did not therefore constitute unlawful termination, or
termination without just or authorized cause. We think that the precise authorized cause for termination in the case
at bar was redundancy.^[10] The
new partnership had its own new General Manager, apparently Mr. Willy Co, the
principal new owner himself, who personally ran the business of Jade
Mountain. Benjamin Yu’s old position as
Assistant General Manager thus became superfluous or redundant.^[11]
It follows that petitioner Benjamin Yu is entitled to separation pay at the
rate of one month’s pay for each year of service that he had rendered to the
old partnership, a fraction of at least six (6) months being considered as a
whole year.

While the new Jade Mountain was entitled to decline to retain
petitioner Benjamin Yu in its employ, we consider that Benjamin Yu was very
shabbily treated by the new partnership. The old partnership certainly benefitted from the services of Benjamin
Yu who, as noted, previously ran the whole marble quarrying, processing and
exporting enterprise. His work
constituted value-added to the business itself and therefore, the new
partnership similarly benefitted from the labors of Benjamin Yu. It is worthy of note that the new
partnership did not try to suggest that there was any cause consisting of some
blameworthy act or omission on the part of Mr. Yu which compelled the new
partnership to terminate his services. Nonetheless, the new Jade Mountain did not notify him of the change in
ownership of the business, the relocation of the main office of Jade Mountain
from Makati to Mandaluyong and the assumption by Mr. Willy Co of control of
operations. The treatment (including
the refusal to honor his claim for unpaid wages) accorded to Assistant General
Manager Benjamin Yu was so summary and cavalier as to amount to arbitrary, bad
faith treatment, for which the new Jade Mountain may legitimately be required
to respond by paying moral damages. This Court, exercising its discretion and in view of all the
circumstances of this case, believes that an indemnity for moral damages in the
amount of P20,000.00 is proper and reasonable.

In addition, we consider that petitioner Benjamin Yu is entitled
to interest at the legal rate of six percent (6%) per annum on the amount of
unpaid wages, and of his separation pay, computed from the date of promulgation
of the award of the Labor Arbiter. Finally, because the new Jade Mountain compelled Benjamin Yu to resort
to litigation to protect his rights in the premises, he is entitled to
attorney’s fees in the amount of ten percent (10%) of the total amount due from
private respondent Jade Mountain.

WHEREFORE, for all the foregoing, the Petition for Certiorari
is GRANTED DUE COURSE, the Comment filed by private respondents is treated as
their Answer to the Petition for Certiorari, and the Decision of the
NLRC dated 29 November 1990 is hereby NULLIFIED and SET ASIDE. A new Decision is hereby ENTERED requiring
private respondent Jade Mountain Products Company Limited to pay to petitioner
Benjamin Yu the following amounts:

(a) for unpaid wages which, as found by the
Labor Arbiter, shall be computed at the rate of P2,000.00 per month multiplied by
thirty-six (36) months (November 1984 to October 1987) in the total amount of
P72,000.00;

(b) separation pay computed at the rate of
P4,000.00 monthly pay multiplied by three (3) years of service or a total of P12,000.00;

(c) indemnity for moral
damages in the amount of P20,000.00;

(d) six percent (6%) per annum legal interest
computed on items (a) and (b) above, commencing on 26 December 1989 and until
fully paid; and

(e) ten percent (10%) attorney’s fees on the
total amount due from private respondent Jade Mountain.

Costs against private respondents.

SO ORDERED.

Bidin, Davide, Jr., Romero, and
Melo, JJ., concur.

^[1]
Rollo, pp. 11, 28, 31, 35 and 43.

^[2]
Id., pp. 31, 43 and 68.

^[3]
Id., pp. 36 and 44.

^[4]
Id., pp. 40-41.

^[5]
Id., pp. 36-38.

^[6]
Id., pp. 45-46.

^[7]
Id., pp. 9-10.

^[8]
88 SCRA 623 (1979).

^[9]
88 SCRA 642-643.

^[10]
“Art. 283. Closure of establishment and reduction of personnel. — The employer may also terminate the
employment of any employee due to the installation of labor-­saving devices, redundancy,
retrenchment to prevent losses or the closing or cessation of operation of the
establishment or undertaking unless the closing is for the purpose of
circumventing the provisions of this title, by serving written notice on the
workers and the Ministry of Labor and Employment at least one (1) month before
the intended date thereof. In case
of termination due to the installation of labor-saving devices or redundancy,
the worker affected thereby shall be entitled to a separation pay equivalent
to at least his one (1) month pay or to at least one (1) month pay for every
year of service, whichever is higher. In case of retrenchment to prevent losses or in cases of closures or
cessation of operations of establishment or undertaking not due to serious
business losses or financial reverses, the separation pay shall be equivalent
to one (1) month pay or at least one-half (1/2) month pay for every year of
service, whichever is higher. A
fraction of at least six (6) months shall be considered one (1) whole
year. (This provision is identical with
that existing in 1987, except that the provision was numerically designated in
1987 as ‘Article 284‘),” Labor Code.

^[11]
See, in this connection, Wiltshire File Co., Inc. v. National Labor
Relations Commissions, et al., 193 SCRA 665 (1991).