G.R. No. 97212 June 30, 1993
BENJAMIN YU, petitioner, vs. NATIONAL LABOR RELATIONS COMMISSION and JADE MOUNTAIN PRODUCTS COMPANY LIMITED, WILLY CO, RHODORA D. BENDAL, LEA BENDAL, CHIU SHIAN JENG and CHEN HO-FU, respondents.

FACTS

Petitioner Benjamin Yu was the Assistant General Manager of Jade Mountain Products Company Limited, a registered partnership in the marble quarrying and export business, hired via a Partnership Resolution dated March 14, 1985, with a monthly salary of P4,000.00. He received only half his salary, accepting a promise that the balance would be paid when the firm secured additional operating funds from abroad. He managed the operations, finances, and supervision of the quarry.
Sometime in 1988, without Yu’s knowledge, the general partners Lea Bendal and Rhodora Bendal, and limited partner Yu Chang, sold their partnership interests to private respondent Willy Co and Emmanuel Zapanta. Willy Co acquired the great bulk of the partnership interest. The new partnership, composed of Willy Co and Emmanuel Zapanta, continued the business under the old firm name “Jade Mountain,” moved the office from Makati to Mandaluyong, and entered into a Supplement to the Memorandum Agreement with the quarry landowners in February 1988. All employees continued working except Yu.
On November 16, 1987, Yu reported to the new Mandaluyong office, met Willy Co for the first time, and was informed that Co had bought the business and would decide whether to honor the old partnership’s obligations, including Yu’s unpaid salaries. Yu was not allowed to work anymore, and his unpaid salaries remained unpaid.
On December 21, 1988, 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. The new partnership and Willy Co denied the charges, contending Yu was never hired by the new partnership.
The Labor Arbiter ruled in favor of Yu, holding he was illegally dismissed, and ordered his reinstatement with awards for unpaid salaries, backwages, and attorney’s fees. The NLRC reversed the Labor Arbiter’s decision, dismissing Yu’s complaint. The NLRC held that a new partnership bought the business, did not retain Yu, and there was no law requiring the new partnership to absorb the old partnership’s employees; thus, Yu was not illegally dismissed. The NLRC also held that Yu’s claim for unpaid wages should be asserted against the original partners.

ISSUE

1. Whether the partnership which hired petitioner Yu was extinguished and replaced by a new partnership.
2. Whether petitioner Yu could assert his rights under his employment contract against the new partnership.

RULING

1. Yes. The legal effect of the changes in membership was the dissolution of the old partnership and the emergence of a new one composed of Willy Co and Emmanuel Zapanta. Under Articles 1828 and 1830 of the Civil Code, the acquisition of 82% of the partnership interest by new partners, coupled with the retirement or withdrawal of the original partners who owned that interest, constituted a dissolution and the formation of a new partnership.
2. Yes. Although a new partnership was formed, the old partnership was not liquidated; the new partnership simply continued the business without winding up the affairs of the old partnership. Under Article 1840 of the Civil Code, when a business is continued without liquidation of the partnership affairs, creditors of the dissolved partnership (including an employee with a money claim) are also creditors of the person or partnership continuing the business. Therefore, the new partnership (Jade Mountain Products Company Limited) is liable for the unpaid salaries of petitioner Yu, a legitimate creditor of the dissolved partnership.
The Supreme Court GRANTED the Petition for Certiorari, NULLIFIED and SET ASIDE the NLRC Resolution, and ENTERED a new Decision ordering private respondent Jade Mountain Products Company Limited to pay petitioner Benjamin Yu: (a) unpaid wages of P72,000.00 (P2,000/month x 36 months from November 1984 to December 1987); (b) separation pay of P12,000.00 (P4,000/month x 3 years of service); (c) moral damages of P20,000.00; (d) legal interest of 6% per annum on items (a) and (b) from December 26, 1989 until fully paid; and (e) attorney’s fees of 10% of the total amount due. Costs against private respondents.