MENDIOLA v.
CA
(2006|Puno)
Respondent Pacific Forest Resources, Phils., Inc. (Pacfor), a Californian
corporation, is a subsidiary of Cellulose Marketing Intl. a corporation organized under
Swedish law with principal office in Gothenburg, Sweden.
Pacfor entered into a “Side Agreement on Representative Office known as
Pacific Forest Resources (Phils.), Inc. effective May 1, 1995" w/ petitioner Arsenio
Mendiola assuming that Pacfor would be already approved by SEC on the said date.
 Side Agreement included business relationship of parties re Pacfor’s
Philippine operations (Pacfor Phils) w/ Mendiola as the President to be
salaried by representative office and funded by Pacfor/Mendiola since Pacfor
Phils. Is equally owned on a 50-50 by Mendiola and Pacfor-USA.
 Amended March 1997 w/ higher salary and still as “equal partners”
July 14, 1995, SEC granted Pacfor’s license in PH with Mendiola as its resident
agent authorized to accept all notices and summons.
July 2000: Mendiola wrote to Pacfor seeking confirmation of his 50% equity of
Pacfor Phil. Pres. Gleason replied Mendiola is not a part-owner of Pacfor-Phils
because the latter is merely a “theoretical company” or Pacfor-USA’s representative
office and not an entity separate from Pacfor-USA.
 Alleged Mendiola knew this form the start since he proposed to Pacfor-USA
to set up a representative office and not a branch office to save on taxes.
Mendiola argued he was misled and if he knew they were not on a joint venture
he would have been an independent agent of Pacfor-USA through his own company
ATM Marketing Corp and would not have allowed Pacfor to take profitable business of
his own company. Moreover, rentals of office furniture, salary of employees, company
car and commissions are due to him.
 Nov. 2000: Pacfor ordered Mendiola to turn over all possessions in his ATM
Marketing Corp. Also required him to remit P300k Christmas giveaway fund
for clients of Pac for Phils and it withdrew all its offers of settlement and
ordered Mendiola to transfer title and possession of the service car.
 Pacfor-USA also advised its clients to not deal with Mendiola.
Mendiola construed these letters and orders as a severance of the “unregistered
partnership” and termination of his employment as resident manager of PAcfor Phils.
He sent a letter to employees urging them to work with ATM Marketing Corporation
alleging Pacfor-USA constructively terminated their jobs.
 He did not renew lease of office, instead, put ATM Marketing Corp. in the
office space
 Reiterated demands for commissions and 50/50 ownership of the furniture,
equipment and car also for separation pay
 Filed illegal dismissal and recovery of payments.
Feb 2001 Pacfor-USA placed Mendiola in preventive suspension and later
terminated him for willful disobedience, willful misconduct and loss of trust alleging he
colluded with relatives who owned a competing company to use the same telephone
numbers of Pacfor to steal business.
LA: constructive dismissal. NLRC reversed saying no E-ER relationship as Mendiola
is a full co-owner. CA affirmed.
ISSUE:
1. W/N partnership - NO
2. W/N E-ER relationship present - YES
HELD:
1. 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 of the partnership forms a common fund where each party
has a joint interest.
 Partner is a co-owner of specific partnership property
 If relation does not have this feature, not a partnership. Essential element is
community of interest or co-ownership.
Moreover, a corporation cannot be a member of a partnership without
express authorization by a statute or a charter. This is so since: (1) the mutual
agency between the partners, where 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.
CASE AT BAR: The community of interest is not present in relations. Pres. Gleason
established Pacfor Phils. Is merely a theoretical company for the purpose of dividing
the income 50-50 and Mendiola was the one who suggested a representative office
not a branch office.
 Mere sharing of profits do not make a partnership
No such authorization for the corporation to join the partnership found.
2. However, there is an E-ER relationship. 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.
CASE AT BAR: There is an E-ER relationship. Pacfor selected Mendiola as its
resident agent, it pays him $78,000 per annum, can dismiss him as shown through he
various memoranda and preventive suspension and had control over the means and
method to accomplish his work.
 The power of control refers merely to the existence of the power, and not to
the actual exercise thereof.
o Shown in the directive to turn over all records of PAcfor Phils, when
it ordered Mendiola to remit the Christmas giveaway and sent
letters to clients to not transact with him anymore.
  Mendiola, as 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.

Illegal dismissal by systematically depriving Mendiola of duties and benefits and

removed records from his possession. The continued employment was rendered, at
the very least, unreasonable. The harassing acts started when Mendiola sought
clarification regarding his supposed 50% equity.
 The exercise of management prerogative is not absolute, it must be
exercised in good faith and with due regard to the rights of labor with the
principles of fair play at heart and justice in mind.
 However, as he is a resident agent, he had a position involving trust and
confidence and due to the strained relations he should be awarded
separation pay instead of reinstatement.