Yu vs. NLRC

A partnership that continues the business of a dissolved partnership without liquidation of the latter's affairs is liable to the creditors of the dissolved partnership, who are also its creditors under Article 1840 of the Civil Code; the non-retention of a managerial employee whose position has become superfluous constitutes valid termination by redundancy under Article 283 of the Labor Code, entitling him to separation pay.

Jade Mountain Products Company Limited was a registered partnership engaged in marble quarrying and export, originally organized on 28 June 1984 with Lea Bendal and Rhodora Bendal as general partners and Chin Shian Jeng, Chen Ho-Fu, and Yu Chang, all citizens of the Republic of China (Taiwan), as limited partners. It exploited a marble deposit on land owned by the Sps. Ricardo and Guillerma Cruz in Bulacan Province under a Memorandum Agreement dated 26 June 1984, and maintained 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, and he managed the operations and finances of the business, supervised the workers at the Bulacan quarry, and prepared the papers for the exportation of the firm's products.

Benjamin Yu was hired by Jade Mountain Products Company Limited by virtue of a Partnership Resolution dated 14 March 1985 as Assistant General Manager with a monthly salary of P4,000.00. According to Yu, he actually received only half of his stipulated monthly salary, having accepted the partners' promise that the balance would be paid once the firm secured additional operating funds from abroad. He managed the operations and finances of the business, 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 Yu's knowledge, 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. Yu Chang, a limited partner, also sold and transferred his interest to Willy Co. Between Zapanta and himself, Willy Co acquired the great bulk of the partnership interest. The partnership now constituted solely by Willy Co and 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, and a Supplement to the Memorandum Agreement relating to the operation of the marble quarry was entered into with the Cruz spouses in February 1988. The actual operations of the business enterprise continued as before, and 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, Yu reported to the Mandaluyong office for work and there met Willy Co for the first time. Willy Co informed him that he 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 Yu's unpaid salaries. Yu was in fact not allowed to work anymore in the Jade Mountain business enterprise, and his unpaid salaries remained unpaid.

On 21 December 1988, 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, Willy Co, and the other private respondents. The partnership and Willy Co denied the charges, contending in the main that Yu was never hired as an employee by the present or new partnership.

The Labor Arbiter found that Yu had been illegally dismissed and decreed his reinstatement with unpaid salaries, backwages, and attorney's fees. On appeal, the NLRC found that a new partnership consisting of Willy Co and Emmanuel Zapanta had bought the Jade Mountain business, that the new partnership had not retained 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; it further found that Yu's claim for unpaid wages should be asserted against the original members of the preceding partnership, who though impleaded had apparently not been served with summons.

• Separate Juridical Personality: Petitioner maintained that the NLRC overlooked the principle that a partnership has a juridical personality separate and distinct from that of each of its members, which subsists notwithstanding changes in the identities of the partners; consequently, the employment contract between Yu and the partnership Jade Mountain could not have been affected by changes in the latter's membership.
• Grave Abuse of Discretion: Petitioner asked the Court 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.

• Absence of Employment Relationship: 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.

• Dissolution of the Old Partnership: 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.
• Liability of the New Partnership: Whether, if a new partnership had come into existence, petitioner Yu could nonetheless assert his rights under his employment contract as against the new partnership.
• Validity of the Non-Retention: Whether the non-retention of petitioner Yu as Assistant General Manager constituted unlawful termination or termination without just or authorized cause.

• Dissolution of the Old Partnership: Yes. 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, pursuant to Articles 1828 and 1830 of the Civil Code.
• Liability of the New Partnership: Yes. Under Article 1840 of the Civil Code, creditors of the dissolved partnership are also creditors of the partnership continuing the business without liquidation of partnership affairs; Yu may enforce his claim for unpaid salaries and other employment claims against the new Jade Mountain.
• Validity of the Non-Retention: No. The non-retention of Yu as Assistant General Manager did not constitute unlawful termination; the precise authorized cause for termination was redundancy under Article 283 of the Labor Code, entitling him to separation pay.

• Dissolution of the Old Partnership: Article 1828 of the Civil Code defines dissolution as 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, and Article 1830 provides that dissolution is caused, among others, by the express will of any partner. Just about all of the partners had sold their partnership interests, amounting to 82% of the total partnership interest, to Willy Co and Emmanuel Zapanta, and the record did not show what happened to the remaining 18%. 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 interest, was enough to constitute a new partnership. The Court thus agreed with the result reached by the NLRC that the legal effect of the changes in membership was the dissolution of the old partnership and the emergence of a new firm composed of Willy Co and Zapanta in 1987.

• Liability of the New Partnership: Under Article 1829, on dissolution the partnership is not terminated but continues until the winding up of partnership affairs is completed, and the legal personality of the expiring partnership persists for the limited purpose of winding up and closing its affairs. Here, 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; the new partnership took over the business enterprise, continued using the old name of Jade Mountain, and did so without winding up the business affairs of the old partnership, paying off its debts, liquidating and distributing its net assets, and then re-assembling those assets and opening a new enterprise. Under Article 1840, creditors of the dissolved partnership are also creditors of the person or partnership continuing the business, and the Court held that not only the retiring partners but also the new partnership which continued the business of the old, dissolved one are liable for the debts of the preceding partnership. Singson, et al. vs. Isabela Saw Mill, et al. was cited as having held, under facts very similar to those at bar, that a withdrawing partner remains liable to a third party creditor of the old partnership. Yu, as a creditor of the old Jade Mountain 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 was unnecessary to determine under which of the six paragraphs of Article 1840 the case would fall, the facts on record not being detailed with sufficient precision to permit such determination.

• Validity of the Non-Retention: The new partnership was entitled to appoint and hire a new general or assistant general manager to run the affairs of the business enterprise it had 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 Yu as Assistant General Manager therefore did not constitute unlawful termination, or termination without just or authorized cause; the precise authorized cause was redundancy under Article 283 of the Labor Code, the new partnership having its own new General Manager, apparently Willy Co himself, who personally ran the business, rendering Yu's old position superfluous or redundant. Yu is thus entitled to separation pay at the rate of one month's pay for each year of service, a fraction of at least six months being considered as a whole year. Although the new Jade Mountain was entitled to decline to retain Yu, he was very shabbily treated: the old partnership had benefited from his services, his work constituted value-added to the business, and the new partnership did not suggest any blameworthy act or omission on his part; yet it did not notify him of the change in ownership, the relocation of the main office, and the assumption by Willy Co of control of operations. The treatment accorded to him, including the refusal to honor his claim for unpaid wages, was so summary and cavalier as to amount to arbitrary, bad faith treatment, warranting an indemnity for moral damages of P20,000.00. Yu is also entitled to interest at the legal rate of six percent (6%) per annum on the unpaid wages and separation pay computed from the date of promulgation of the award of the Labor Arbiter, and to attorney's fees of ten percent (10%) of the total amount due, having been compelled to resort to litigation to protect his rights.

• Dissolution of a Partnership — Under Article 1828 of the Civil Code, dissolution 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. Article 1830 enumerates the causes of dissolution, including the express will of any partner. In this case, the sale by about all of the partners of their partnership interests (82% of the total) to Willy Co and Emmanuel Zapanta, coupled with the retirement or withdrawal of those partners, was enough to constitute a new partnership and dissolve the old one.

• Continued Juridical Personality for Winding Up — Under Article 1829 of the Civil Code, on dissolution the partnership is not terminated but continues until the winding up of partnership affairs is completed. The legal personality of the expiring partnership persists for the limited purpose of winding up and closing its affairs.

• Liability of the Partnership Continuing the Business — Under Article 1840 of the Civil Code, creditors of the dissolved partnership are also creditors of the person or partnership continuing the business, in the cases enumerated therein, including when the business is continued without liquidation of the partnership affairs. The new partnership that continues the business of the dissolved partnership without winding up is liable for the debts of the preceding partnership, and creditors of the old partnership are entitled to priority vis-a-vis the claims of retired partners. The Court held that the determination of which of the six enumerated paragraphs applies is unnecessary where the facts on record are not detailed with sufficient precision to permit such determination.

• Redundancy as an Authorized Cause of Termination — Under Article 283 of the Labor Code, an employer may terminate employment due to redundancy, among other causes, by serving written notice on the workers and the Ministry of Labor and Employment at least one month before the intended date thereof. A position becomes redundant when it is superfluous, as where the new owner personally assumes the functions of the position. The affected worker is entitled to separation pay equivalent to at least one month's pay or at least one month's pay for every year of service, whichever is higher, with a fraction of at least six months considered one whole year.

• "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." — States the ratio for the first issue: the change in membership dissolved the old partnership and gave rise to a new one.
• "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." — States the rule under Article 1829 of the Civil Code on the persistence of the dissolved partnership's juridical personality.
• "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." — States the ratio for the second issue, grounding the new partnership's liability for the old partnership's debts.
• "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." — States the holding on the validity of the termination and identifies redundancy as the authorized cause.

• Singson, et al. vs. Isabela Saw Mill, et al., 88 SCRA 623 (1979) — Cited as supporting precedent; the Court held that under facts very similar to those at bar, a withdrawing partner remains liable to a third party creditor of the old partnership, which the Court relied upon to support the liability of the retiring partners and the continuing partnership.
• Wiltshire File Co., Inc. vs. National Labor Relations Commission, et al., 193 SCRA 665 (1991) — Cited in connection with the discussion of redundancy as an authorized cause of termination under Article 283 of the Labor Code.

• Article 1828, Civil Code — Defines dissolution of a partnership as 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. Applied to hold that the change in membership dissolved the old partnership.
• Article 1829, Civil Code — Provides that on dissolution the partnership is not terminated but continues until the winding up of partnership affairs is completed. Applied to hold that the old partnership's juridical personality persisted for winding-up purposes.
• Article 1830, Civil Code — Enumerates the causes of dissolution, including the express will of any partner. Applied to hold that the retirement or withdrawal of the original partners dissolved the old partnership.
• Article 1840, Civil Code — Provides that creditors of the dissolved partnership are also creditors of the person or partnership continuing the business, in the enumerated cases, including when the business is continued without liquidation of the partnership affairs. Applied to hold the new Jade Mountain liable for Yu's unpaid wages and other employment claims.
• Article 283, Labor Code — Authorizes termination due to redundancy, among other causes, and entitles the affected worker to separation pay equivalent to at least one month's pay or at least one month's pay for every year of service, whichever is higher, with a fraction of at least six months considered one whole year. Applied to hold that Yu's non-retention was valid and to compute his separation pay.

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