Case Summary (G.R. No. 274922)
Employment Facts and Contractual Terms
Benjamin Yu was hired by a Partnership Resolution dated 14 March 1985 as Assistant General Manager at a stipulated monthly salary of P4,000.00, although he reportedly received only half that amount because the partners promised future payment when additional funds were secured. He managed operations and finances, supervised quarry workers, and handled export papers. His employment claim covered unpaid salaries from November 1984 to October 1988.
Changes in Partnership Ownership and Business Continuity
In 1988 the general partners Lea and Rhodora Bendal sold their interests to Willy Co and Emmanuel Zapanta; limited partner Yu Chang also sold to Willy Co. Collectively, the new parties acquired approximately 82% of partnership interests. The new controlling parties continued the marble business under the same firm name "Jade Mountain," relocated the main office to Mandaluyong, and continued operations without a formal liquidation or winding up of the preceding partnership’s affairs.
Events Leading to Termination of Employment
On 16 November 1987 Yu reported to the new Mandaluyong office and met Willy Co, who stated he had bought the business and that he would decide on assuming prior obligations, including unpaid salaries. Yu was not allowed to resume work and his unpaid wages remained unpaid.
Labor Arbiter and NLRC Decisions
The Labor Arbiter found illegal dismissal, ordered reinstatement, and awarded unpaid salaries, backwages, and attorney’s fees. On appeal, the NLRC reversed on 29 November 1990, holding that a new partnership had purchased the business, was not obliged to retain prior employees, and that unpaid wages should be pursued against the original partners (who had not apparently been served in the Labor Arbiter proceedings).
Issues Presented to the Court
Two central issues: (1) whether the partnership that hired Yu had been extinguished and replaced by a new partnership composed of Willy Co and Emmanuel Zapanta; and (2) if a new partnership existed, whether Yu could nevertheless enforce his employment rights against the new partnership.
Court’s Determination on Dissolution and Formation of a New Partnership
The Court agreed with the NLRC that the changes in membership legally effected a dissolution of the old partnership and the emergence of a new firm composed of Willy Co and Emmanuel Zapanta. The Court relied on Civil Code Article 1828 (definition of dissolution) and Article 1830 (grounds for dissolution), noting that the sale and withdrawal of partners amounting to 82% of the interest sufficed to constitute a new partnership.
Continuation after Dissolution and Legal Personality During Winding Up
Article 1829 provides that on dissolution the partnership is not terminated but continues until winding up is complete. The Court emphasized that, in this case, the business was continued by the new partners without formally winding up the old partnership’s affairs—no liquidation, debt payment, or distribution of net assets preceded the continuation under the same firm name.
Liability of New Partnership Under Article 1840
Because the business of the dissolved partnership was continued without liquidation, Article 1840 renders creditors of the dissolved partnership also creditors of the person or partnership continuing the business. The Court therefore held that Yu, as a creditor for unpaid wages, could enforce his claims against the new Jade Mountain. The Court noted it was unnecessary to specify which paragraph of Article 1840 precisely applied given incomplete record detail, but concluded enforcement against the new partnership was available.
Lawfulness of Non-Retention: Redundancy and Management Prerogative
Although the new partnership is liable for the old partnership’s debts, it retained the right to appoint its own top management. The Court found that Yu’s summary non-retention did not amount to unlawful dismissal because his position as Assistant General Manager became redundant when the new management (apparently Willy Co as General Manager) assumed control. The Court treated redundancy as the authorized cause for termination under the relevant Labor Code provision.
Entitlements for Separation and Remedies for Bad Faith Treatment
The Court held that Yu was entitled to separation pay equivalent to one month’s pay for each year of service, with fractions of at least six months counted as a whole year. The Court also found the new partnership’s summary, non-communicative, and uncooperative treatment of Yu to be arbitrary and in bad faith, warranting moral damages. The Court fixed moral d
Case Syllabus (G.R. No. 274922)
Facts of the Case
- Petitioner Benjamin Yu was formerly the Assistant General Manager of a marble quarrying and export business operated by a registered partnership named "Jade Mountain Products Company Limited" ("Jade Mountain").
- The partnership was originally organized on 28 June 1984 with general partners Lea Bendal and Rhodora Bendal and limited partners Chiu Shian Jeng, Chen Ho-Fu and Yu Chang, all citizens of the Republic of China (Taiwan).
- The partnership exploited a marble deposit located on land owned by Sps. Ricardo and Guillerma Cruz under a Memorandum Agreement dated 26 June 1984; the partnership’s main office was in Makati, Metro Manila. [1]
- Benjamin Yu was hired by virtue of a Partnership Resolution dated 14 March 1985 as Assistant General Manager with a stipulated monthly salary of P4,000.00, but he actually received only half that amount (P2,000.00) because of a partners' promise to pay the balance when additional operating funds were secured from abroad.
- Yu managed operations and finances: he had overall supervision of quarry workers in Bulacan and prepared export papers for the firm’s products.
- Sometime in 1988, without Yu’s knowledge, general partners Lea and Rhodora Bendal sold and transferred their partnership interests to private respondent Willy Co and to Emmanuel Zapanta; limited partner Yu Chang also sold and transferred his interest to Willy Co.
- Between Zapanta and Willy Co, the great bulk (82%) of the partnership interest was acquired by Willy Co; the record does not show the disposition of the remaining 18% interest.
- The acquiring parties continued to use the firm name "Jade Mountain Products Company Limited," but moved the main office from Makati to Mandaluyong, Metro Manila; a Supplement to the Memorandum Agreement with the Cruz spouses was entered in February 1988. [2]
- Business operations continued; all employees retained their work except petitioner Benjamin Yu.
- On 16 November 1987, after learning of the move, Yu reported to the Mandaluyong office, met Willy Co, who informed him he had bought the business and that it was for Willy Co to decide whether he was responsible for obligations of the old partnership, including Yu’s unpaid salaries; Yu was not allowed to work in the enterprise and his unpaid salaries remained unpaid. [3]
Procedural History
- On 21 December 1988, Benjamin Yu filed a complaint for illegal dismissal and recovery of unpaid salaries from November 1984 to October 1988, moral and exemplary damages, and attorney’s fees against Jade Mountain, Willy Co and other private respondents. [4]
- Labor Arbiter Nieves Vivar-De Castro rendered a decision finding illegal dismissal, decreed reinstatement, and awarded unpaid salaries, backwages and attorney’s fees in favor of petitioner. [5]
- On appeal, the National Labor Relations Commission (NLRC) reversed the Labor Arbiter’s decision in a Resolution dated 29 November 1990, dismissing Yu’s complaint. The NLRC held that a new partnership composed of Willy Co and Emmanuel Zapanta had bought the business, had not retained Yu, and that there was no law obliging the new partnership to absorb employees of the old partnership; the NLRC also held that Yu’s claim for unpaid wages should be asserted against the original members of the preceding partnership, who had apparently not been served with summons before the Labor Arbiter. [6]
- Petitioner filed a Petition for Certiorari before the Court of Appeals (here the Supreme Court) seeking annulment of the NLRC Resolution as a product of grave abuse of discretion amounting to lack or excess of jurisdiction. [7]
Issues Presented
- Whether the partnership that hired petitioner Yu as Assistant General Manager had been extinguished and replaced by a new partnership composed of Willy Co and Emmanuel Zapanta.
- If a new partnership had come into existence, whether petitioner Yu could nonetheless assert his rights under his employment contract against the new partnership.
Applicable Legal Provisions Quoted or Cited
- Civil Code, Article 1828: 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." (Emphasis in source.)
- Civil Code, Article 1830: Provides causes of dissolution, including express will of any partner acting in good faith when no definite term or particular undertaking is specified, and dissolution in contravention of agreement where other provisions do not permit it. (Emphases in source.)
- Civil Code, Article 1829: On dissolution, the partnership is not terminated but continues until winding up of partnership affairs is completed.
- Civil Code, Article 1840: Enumerates cases in which creditors of the dissolved partnership are also creditors of the person or partnership continuing the business, including where business is continued without liquidation after admission of new partners or assignment of rights, with the further rules on satisfaction out of partnership property and priority of creditors’ claims over retired partners’ claims. (Full text and emphases supplied in source.)
- Labor Code, Article 283 (quoted): Provides that an employer may terminate employment due to redundancy, cl