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BENJAMIN YU v. NATIONAL LABOR RELATIONS COMMISSION

FACTS:

Petitioner Benjamin Yu was hired as the Assistant General Manager for the marble quarrying and export business operated by a registered partnership called "Jade Mountain Products Company Limited" ("Jade Mountain"). The partnership was originally organized with Lea Bendal and Rhodora Bendal as general partners, and Chiu Shian Jeng, Chen Ho-Fu, and Yu Chang as limited partners. Benjamin Yu managed the operations and finances of the business. In 1988, the general partners and a limited partner sold their interests in the partnership to private respondent Willy Co and Emmanuel Zapanta. The partnership continued to operate under the same name, but its main office was moved to Mandaluyong. Benjamin Yu was not informed about the change and was eventually not allowed to work in the business. He filed a complaint for illegal dismissal and recovery of unpaid salaries, among others. The Labor Arbiter ruled in favor of Benjamin Yu, but the NLRC reversed the decision and dismissed the complaint. Benjamin Yu filed a petition for certiorari before the Supreme Court. The main issues are whether a new partnership was formed and whether Benjamin Yu can assert his rights under his employment contract against the new partnership.

ISSUES:

  1. Whether the acquisition of a majority of the partnership interests by new partners constituted a new partnership.

  2. Whether the liability of the retiring partners extended to the new partnership.

  3. Whether the new partnership was liable for the debts of the preceding partnership.

  4. Whether the termination of Benjamin Yu as Assistant General Manager constitutes unlawful termination or termination without just or authorized cause.

  5. Whether Benjamin Yu is entitled to separation pay and other claims relating to his employment with the previous partnership.

  6. Whether the treatment of Benjamin Yu by the new partnership amounts to arbitrary, bad faith treatment warranting the award of moral damages.

  7. Whether Benjamin Yu is entitled to interest on the amount of unpaid wages and separation pay.

  8. Whether Benjamin Yu is entitled to attorney's fees.

RULING:

  1. The acquisition of 82% of the partnership interest by new partners, coupled with the retirement or withdrawal of the partners who originally owned such interest, constituted a new partnership.

  2. The retiring partners, as well as the new partnership continuing the business of the old partnership, are liable for the debts of the preceding partnership.

  3. Under Article 1840 of the Civil Code, creditors of the dissolved partnership are also creditors of the person or partnership continuing the business without liquidation of the partnership affairs. The liability of a third person becoming a partner in the partnership continuing the business is limited to the partnership property unless there is a stipulation to the contrary. Creditors of the old partnership have priority over any claim of any retired or previous partner in relation to their interest in the dissolved partnership.

  4. The termination of Benjamin Yu as Assistant General Manager does not constitute unlawful termination or termination without just or authorized cause. It was determined that the authorized cause for termination was redundancy since the new partnership had its own General Manager and Benjamin Yu's old position became superfluous or redundant.

  5. 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. He is also entitled to other claims relating to his employment with the previous partnership.

  6. The treatment of Benjamin Yu by the new partnership amounts to arbitrary, bad faith treatment warranting the award of moral damages. The refusal to honor his claim for unpaid wages and the lack of notification regarding the change in ownership and control of operations constitute summary and cavalier treatment.

  7. Benjamin Yu is entitled to interest at the legal rate of six percent (6%) per annum on the amount of unpaid wages and separation pay, computed from the date of promulgation of the award of the Labor Arbiter.

  8. Benjamin Yu is entitled to attorney's fees in the amount of ten percent (10%) of the total amount due from the new partnership.

PRINCIPLES:

  • The occurrence of events leading to the legal consequence of dissolution of a partnership does not automatically terminate the legal personality of the old partnership. The old partnership continues until the winding up of partnership affairs is completed.

  • The liability of retiring partners extends to the new partnership when the business of the old partnership is continued by the new partners.

  • The new partnership, which continues the business of the old dissolved partnership, is liable for the debts of the preceding partnership under Article 1840 of the Civil Code.

  • Creditors of the dissolved partnership have priority over claims of retired or previous partners in relation to their interest in the dissolved partnership. The liability of a third person becoming a partner in the partnership continuing the business is limited to the partnership property, unless otherwise stipulated.

  • The authorized cause for termination under Article 1840 of the Civil Code is redundancy. (Doctrine of Redundancy)

  • An employee is entitled to separation pay at the rate of one month's pay for each year of service if there is a valid and authorized cause for termination. (Doctrine of Separation Pay)

  • The treatment of an employee by an employer may be considered arbitrary and in bad faith if it amounts to summary and cavalier treatment. (Doctrine of Arbitrary and Bad Faith Treatment)

  • An employee is entitled to interest on the amount of unpaid wages and separation pay, computed from the date of promulgation of the award of the Labor Arbiter. (Doctrine of Interest on Unpaid Wages and Separation Pay)

  • An employee who is compelled to resort to litigation to protect his rights is entitled to attorney's fees. (Doctrine of Attorney's Fees)