YU v NLRC

June 30, 1993 | Feliciano, J. | Petition for Certiorari | Election to Continue the Business

PETITIONER: Benjamin Yu
RESPONDENT: NLRC, Jade Mountain Producs Company Ltd, Willy Co, Rhodora Bendal,
Lea Bendal Chiu Shian Heng, Chen Ho-Fu

SUMMARY: Yu was the Asst. General Manager of the partnership called Jade Mountains.
When the old partners sold their interest to the firm, Yu was not retained and his unpaid salaries
were not paid by the new partnership. He filed a case for illegal dismissal. SC ruled that both
the old and new partners are liable for the partnership debts of the preceding parternship.

DOCTRINE: Creditors of the old partnership are also creditors of the new partnership which
continued the business of the old one without liquidation of the partnership affair. Not only the
retiring partners but also the new partnership itself which continued the business of the old,
dissolved, one, are liable for the debts of the preceding partnership.

FACTS: unpaid salaries. LA: Illegal dismissal. NLRC reversed saying

1. Benjamin Yu was the Asst. Gen Manager of the marble that there was no law requiring the new partnership to absorb
quarrying and export business operated by a registered the employees of old partnership and that his unpaid salaries
partnership called Jade Mountain Products Company Limited. shold be asserted against the original members of the firm.
The partnership was originally organized with Lea Bendal and
Rhodora Bendal as general partners and Chiu Shian Jeng, ISSUE/S:
Chen HoFu and Yu Chang, all Taiwanese citizens, as limited 1. WON the partnership which had hired Yu as Asst. Gen
partners. The partnership business consisted of exploiting a Manager had been extinguished and replaced by a new
partnership YES.
marble deposit found on land owned by a certain Sps. Cruz.
2. If indeed a new partnership had come into existence, WON
2. Yu was hired by virtue of a Partnership Resolution with a Yu could nontheless assert his right under his employment
monthly salary of P4k but he actually received only half of his contract YES as to unpaid salaries BUT NO as to his
stipulated monthly salary, since he had accepted the promise reinstatement as Asst. Gen Manager.
of the partners that the balance would be paid when the firm
shall have secured additional operating funds from abroad. Yu RULING: NLRC decision SET ASIDE.
actually managed the operations and finances of the business
RATIO:
and he had overall supervision of the workers at the marble
1. [1st issue] The Court concurred with the NLRC that the
quarry in Bulacan.
legal effect of the changes in the membership of the
3. Sometime in 1988, without the knowledge of Yu, the
partnership was the dissolution of the old parntership which
general partners Bendal and Bendal sold and transferred their
had hired Yu and the emergence of a new firm composed of
interests in the partnership to Willy Co and Emmanuel
Co and Zapanta. The applicable law in this connection-of
Zapanta. Yu Chang, a limited partner, also sold and
which the NLRC seemed quite unaware - is found in the Civil
transferred his interest in the partnership to Willy Co. Zapanta
Code provisions relating to partnerships particularly Art.
and Co now acquired the great bulk of the partnership interest.
18281.
The partnership, now constituted solely by Co and Zapanta,
2. In the case at bar, just about all of the partners had sold their
continued to use the old firm name of Jade Mountain, though
partnership interests (amounting to 82% of the total
they moved the firm's main office from Makati to
partnership interest) to Co and Zapanta. The record does not
Mandaluyong.
show what happened to the remaining 18% of the original
4. The actual operations of the business enterprise continued
partnership interest. The acquisition of 82% of the partnership
as before. All the employees of the partnership continued
interest by new partners, coupled with the retirement or
working in the business, all, save Benjamin Yu as it turned
withdrawal of the partners who had originally owned such
out. Having learned of the transfer of the firm's main office,
82% interest, was enough to constitute a new partnership.
Yu reported to the Mandaluyong office where he met Co. Co
informed Yu that he bought the business and the he was not
responsible for the obligations of the old partnership, 1
Art. 1828. The dissolution of a partnership is the change in
including Yu's unpaid salaries. the relation of the partners caused by any partner ceasing to
5. Yu filed a complaint for illegal dismissal and recovery of be associated in the carrying on as distinguished from the
winding up of the business."
3.The occurrence of events which precipitate the legal established in Article 1840 of the Civil Code [very long
consequence of dissolution of a partnership do not, however, provision so just check the Civil Code] where the creditors of
automatically result in the termination of the legal personality the dissolved partnership are also creditors of the person or
of the old partnership. Article 1829 states that "on dissolution partnership continuing the business.
the partnership is not terminated, but continues until the 6. Under Article 1840, creditors of the old Jade Mountain are
winding up of partnership affairs is completed." also creditors of the new Jade Mountain which continued the
4. In the ordinary course of events, the legal personality of the business of the old one without liquidation of the partnership
expiring partnership persists for the limited purpose of affairs. Indeed, a creditor of the old Jade Mountain, like
winding up and closing of the affairs of the partnership. In the petitioner Benjamin Yu in respect of his claim for unpaid
case at bar, it is important to underscore the fact that the wages, is entitled to priority vis-a-vis any claim of any retired
business of the old partnership was simply continued by the or previous partner insofar as such retired partner's interest in
new partners, without the old partnership undergoing the the dissolved partnership is concerned. Yu is entitled to
procedures relating to dissolution and winding up of its enforce his claim for unpaid salaries, as well as other claims
business affairs. In other words, the new partnership simply relating to his employment with the previous partnership,
took over the business enterprise owned by the preceding against the new Jade Mountain.
partnership, and continued using the old name without 7. HOWEVER, the new partnership was entitled to appoint
winding up the business affairs of the old partnership, paying and hire a new general or assistant general manager to run the
off its debts, liquidating and distributing its net assets, and affairs of the business enterprise taken over. An assistant
then re-assembling the said assets or most of them and general manager belongs to the most senior ranks of
opening a new business enterprise. There were, no doubt, management and a new partnership is entitled to appoint a top
powerful tax considerations which underlay such an informal manager of its own choice and confidence. The non-retention
approach to business on the part of the retiring and the of Yu as Assistant General Manager did not therefore
incoming partners. It is not, however, necessary to inquire into constitute unlawful termination, or termination without just or
such matters. authorized cause. We think that the precise authorized cause
5. [2nd issue] What is important for present purposes is that, for termination in the case at bar was redundancy since the
under the above described situation, not only the retiring new partnership had its own new General Manager, apparently
partners (Rhodora Benda/, et al.) but also the new partnership Mr. Willy Co.
itself which continued the business of the old, dissolved, one, 8. Aside from unpaid wages, Yu is entitled to separation pay
are liable for the debts of the preceding partnership. In Singson of 1 mo/each year of service and 20k moral damages due to
v. Isabela Saw Mill, the Court held that under facts very the shabby and bad faith treatment he received from the new
similar to those in the case at bar, a withdrawing partner partnership [the new partnership did not suggest any cause
remains liable to a third party creditor of the old partnership. consisting of some blameworthy act for his termination, he
The liability of the new partnership, upon the other hand, in was not informed of change in ownership].
the set of circumstances obtaining in the case at bar, is