G.R. No. 160146 December 11, 2009
Respondents asserted that the NLRC had no
LESLIE OKOL, Petitioner,
vs.
SLIMMERS WORLD INTERNATIONAL, BEHAVIOR
MODIFICATIONS, INC., and RONALD JOSEPH MOY,
Respondents.
DECISION
CARPIO, J.:
The Case
Before the Court is a petition for review on certiorari1 assailing the
Decision2 dated 18 October 2002 and Resolution dated 22
September 2003 of the Court of Appeals in CA-G.R. SP No.
69893, which set aside the Resolutions dated 29 May 2001 and 21
December 2001 of the National Labor Relations Commission
(NLRC).
The Facts
Respondent Slimmers World International operating under the
name Behavior Modifications, Inc. (Slimmers World) employed
petitioner Leslie Okol (Okol) as a management trainee on 15 June
1992. She rose up the ranks to become Head Office Manager and
then Director and Vice President from 1996 until her dismissal on
22 September 1999.
On 28 July 1999, prior to Okol’s dismissal, Slimmers World
preventively suspended Okol. The suspension arose from the
seizure by the Bureau of Customs of seven Precor elliptical
machines and seven Precor treadmills belonging to or consigned to
Slimmers World. The shipment of the equipment was placed under
the names of Okol and two customs brokers for a value less than
US$500. For being undervalued, the equipment were seized.
On 2 September 1999, Okol received a memorandum that her
suspension had been extended from 2 September until 1 October
1999 pending the outcome of the investigation on the Precor
equipment importation.
On 17 September 1999, Okol received another memorandum from
Slimmers World requiring her to explain why no disciplinary
action should be taken against her in connection with the
equipment seized by the Bureau of Customs.
On 19 September 1999, Okol filed her written explanation.
However, Slimmers World found Okol’s explanation to be
unsatisfactory. Through a letter dated 22 September 1999 signed
by its president Ronald Joseph Moy (Moy), Slimmers World
terminated Okol’s employment.
Okol filed a complaint3 with the Arbitration branch of the NLRC
against Slimmers World, Behavior Modifications, Inc. and Moy
(collectively called respondents) for illegal suspension, illegal
dismissal, unpaid commissions, damages and attorney’s fees, with
prayer for reinstatement and payment of backwages.
On 22 February 2000, respondents filed a Motion to Dismiss4 the
case with a reservation of their right to file a Position Paper at the
proper time.
jurisdiction over the subject matter of the complaint.
In an Order,5 dated 20 March 2000, the labor arbiter granted the
motion to dismiss. The labor arbiter ruled that Okol was the vice-
president of Slimmers World at the time of her dismissal. Since it
involved a corporate officer, the dispute was an intra-corporate
controversy falling outside the jurisdiction of the Arbitration
branch.
Okol filed an appeal with the NLRC. In a Resolution6 dated 29
May 2001, the NLRC reversed and set aside the labor arbiter’s
order. The dispositive portion of the resolution states:
WHEREFORE, the Order appealed from is SET ASIDE and
REVERSED. A new one is hereby ENTERED ordering respondent
Behavior Modification, Inc./Slimmers World International to
reinstate complainant Leslie F. Okol to her former position with
full back wages which to date stood in the amount of
P10,000,000.00 computed from July 28, 1999 to November 28,
2000 until fully reinstated; and the further sum of P1,250,000.00 as
indemnity pay plus attorney’s fee equivalent to ten (10%) of the
total monetary award. However, should reinstatement be not
feasible separation pay equivalent to one month pay per year of
service is awarded, a fraction of at least six months considered one
whole year.
All other claims are dismissed for lack of factual or legal basis.
SO ORDERED.7
Respondents filed a Motion for Reconsideration with the NLRC.
Respondents contended that the relief prayed for was confined
only to the question of jurisdiction. However, the NLRC not only
decided the case on the merits but did so in the absence of position
papers from both parties. In a Resolution8 dated 21 December
2001, the NLRC denied the motion for lack of merit.
Respondents then filed an appeal with the Court of Appeals,
docketed as CA-G.R. SP No. 69893.
The Ruling of the Court of Appeals
In a Decision9 dated 18 October 2002, the appellate court set aside
the NLRC’s Resolution dated 29 May 2001 and affirmed the labor
arbiter’s Order dated 20 March 2000. The Court of Appeals ruled
that the case, being an intra-corporate dispute, falls within the
jurisdiction of the regular courts pursuant to Republic Act No.
8799.10 The appellate court added that the NLRC had acted without
jurisdiction in giving due course to the complaint and deprived
respondents of their right to due process in deciding the case on the
merits.
Okol filed a Motion for Reconsideration which was denied in a
Resolution11 dated 22 September 2003.
Hence, the instant petition.
The Issue
The issue is whether or not the NLRC has jurisdiction over the
illegal dismissal case filed by petitioner.
1
 The Court’s Ruling
The petition lacks merit.
Petitioner insists that the Court of Appeals erred in ruling that she
was a corporate officer and that the case is an intra-corporate
dispute falling within the jurisdiction of the regular courts.
Petitioner asserts that even as vice-president, the work that she
performed conforms to that of an employee rather than a corporate
officer. Mere title or designation in a corporation will not, by itself,
determine the existence of an employer-employee relationship. It is
the "four-fold" test, namely (1) the power to hire, (2) the payment
of wages, (3) the power to dismiss, and (4) the power to control,
which must be applied.
Petitioner enumerated the instances that she was under the power
and control of Moy, Slimmers World’s president: (1) petitioner
received salary evidenced by pay slips, (2) Moy deducted
Medicare and SSS benefits from petitioner’s salary, and (3)
petitioner was dismissed from employment not through a board
resolution but by virtue of a letter from Moy. Thus, having shown
that an employer-employee relationship exists, the jurisdiction to
hear and decide the case is vested with the labor arbiter and the
NLRC.
Respondents, on the other hand, maintain that petitioner was a
corporate officer at the time of her dismissal from Slimmers World
as supported by the General Information Sheet and Director’s
Affidavit attesting that petitioner was an officer. Also, the factors
cited by petitioner that she was a mere employee do not prove that
she was not an officer of Slimmers World. Even the alleged
absence of any resolution of the Board of Directors approving
petitioner’s termination does not constitute proof that petitioner
was not an officer. Respondents assert that petitioner was not only
an officer but also a stockholder and director; which facts provide
further basis that petitioner’s separation from Slimmers World
does not come under the NLRC’s jurisdiction.
The issue revolves mainly on whether petitioner was an employee
or a corporate officer of Slimmers World. Section 25 of the
Corporation Code enumerates corporate officers as the president,
secretary, treasurer and such other officers as may be provided for
in the by-laws. In Tabang v. NLRC,12 we held that an "office" is
created by the charter of the corporation and the officer is elected
by the directors or stockholders. On the other hand, an "employee"
usually occupies no office and generally is employed not by action
of the directors or stockholders but by the managing officer of the
corporation who also determines the compensation to be paid to
such employee.
In the present case, the respondents, in their motion to dismiss filed
before the labor arbiter, questioned the jurisdiction of the NLRC in
taking cognizance of petitioner’s complaint. In the motion,
respondents attached the General Information Sheet13 (GIS) dated
14 April 1998, Minutes14 of the meeting of the Board of Directors
dated 14 April 1997 and Secretary’s Certificate,15 and the
Amended By-Laws16 dated 1 August 1994 of Slimmers World as
submitted to the SEC to show that petitioner was a corporate
officer whose rights do not fall within the NLRC’s jurisdiction.
The GIS and minutes of the meeting of the board of directors
indicated that petitioner was a member of the board of directors,
holding one subscribed share of the capital stock, and an elected
corporate officer.
The relevant portions of the Amended By-Laws of Slimmers
World which enumerate the power of the board of directors as well
as the officers of the corporation state:
Article II
The Board of Directors
1. Qualifications and Election – The general management of the
corporation shall be vested in a board of five directors who shall be
stockholders and who shall be elected annually by the stockholders
and who shall serve until the election and qualification of their
successors.
xxx
Article III
Officers
xxx
4. Vice-President – Like the Chairman of the Board and the
President, the Vice-President shall be elected by the Board of
Directors from [its] own members.
The Vice-President shall be vested with all the powers and
authority and is required to perform all the duties of the President
during the absence of the latter for any cause.
The Vice-President will perform such duties as the Board of
Directors may impose upon him from time to time.
xxx
Clearly, from the documents submitted by respondents, petitioner
was a director and officer of Slimmers World. The charges of
illegal suspension, illegal dismissal, unpaid commissions,
reinstatement and back wages imputed by petitioner against
respondents fall squarely within the ambit of intra-corporate
disputes. In a number of cases,17 we have held that a corporate
officer’s dismissal is always a corporate act, or an intra-corporate
controversy which arises between a stockholder and a corporation.
The question of remuneration involving a stockholder and officer,
not a mere employee, is not a simple labor problem but a matter
that comes within the area of corporate affairs and management
and is a corporate controversy in contemplation of the Corporation
Code.18
Prior to its amendment, Section 5(c) of Presidential Decree No.
902-A19 (PD 902-A) provided that intra-corporate disputes fall
within the jurisdiction of the Securities and Exchange Commission
(SEC):
Sec. 5. In addition to the regulatory and adjudicative functions of
the Securities and Exchange Commission over corporations,
partnerships and other forms of associations registered with it as
expressly granted under existing laws and decrees, it shall have
original and exclusive jurisdiction to hear and decide cases
involving:
xxx
2
c) Controversies in the election or appointments of directors,
trustees, officers or managers of such corporations, partnerships or
associations.
Subsection 5.2, Section 5 of Republic Act No. 8799, which took
effect on 8 August 2000, transferred to regional trial courts the
SEC’s jurisdiction over all cases listed in Section 5 of PD 902-A:
5.2. The Commission’s jurisdiction over all cases enumerated
under Section 5 of Presidential Decree No. 902-A is hereby
transferred to the Courts of general jurisdiction or the appropriate
Regional Trial Court.
xxx
It is a settled rule that jurisdiction over the subject matter is
conferred by law.20 The determination of the rights of a director
and corporate officer dismissed from his employment as well as
the corresponding liability of a corporation, if any, is an intra-
corporate dispute subject to the jurisdiction of the regular courts.
Thus, the appellate court correctly ruled that it is not the NLRC but
the regular courts which have jurisdiction over the present case.
WHEREFORE, we DENY the petition. We AFFIRM the 18
October 2002 Decision and 22 September 2003 Resolution of the
Court of Appeals in CA-G.R. SP No. 69893. This Decision is
without prejudice to petitioner Leslie Okol’s taking recourse to and
seeking relief through the appropriate remedy in the proper forum.
SO ORDERED.
G.R. No. 157214 June 7, 2005
PHILIPPINE GLOBAL COMMUNICATIONS, INC.,
petitioner,
vs.
RICARDO DE VERA, respondent.
DECISION
GARCIA, J.:
Before us is this appeal by way of a petition for review on
certiorari from the 12 September 2002 Decision1 and the 13
February 2003 Resolution2 of the Court of Appeals in CA-G.R. SP
No. 65178, upholding the finding of illegal dismissal by the
National Labor Relations Commission against petitioner.
As culled from the records, the pertinent facts are:
Petitioner Philippine Global Communications, Inc. (PhilCom), is a
corporation engaged in the business of communication services
and allied activities, while respondent Ricardo De Vera is a
physician by profession whom petitioner enlisted to attend to the
medical needs of its employees. At the crux of the controversy is
Dr. De Vera’s status vis a vis petitioner when the latter terminated
his engagement.
It appears that on 15 May 1981, De Vera, via a letter dated 15 May
1981,3 offered his services to the petitioner, therein proposing his
plan of works required of a practitioner in industrial medicine, to
include the following:
1. Application of preventive medicine
including periodic check-up of employees;
2. Holding of clinic hours in the morning
and afternoon for a total of five (5) hours
daily for consultation services to employees;
3. Management and treatment of employees
that may necessitate hospitalization
including emergency cases and accidents;
4. Conduct pre-employment physical check-
up of prospective employees with no
additional medical fee;
5. Conduct home visits whenever necessary;
6. Attend to certain medical administrative
function such as accomplishing medical
forms, evaluating conditions of employees
applying for sick leave of absence and
subsequently issuing proper certification,
and all matters referred which are medical in
nature.
The parties agreed and formalized respondent’s proposal in a
document denominated as RETAINERSHIP CONTRACT4
which will be for a period of one year subject to renewal, it being
made clear therein that respondent will cover "the retainership the
Company previously had with Dr. K. Eulau" and that respondent’s
"retainer fee" will be at P4,000.00 a month. Said contract was
renewed yearly.5 The retainership arrangement went on from 1981
to 1994 with changes in the retainer’s fee. However, for the years
1995 and 1996, renewal of the contract was only made verbally.
The turning point in the parties’ relationship surfaced in December
1996 when Philcom, thru a letter6 bearing on the subject boldly
written as "TERMINATION – RETAINERSHIP CONTRACT",
informed De Vera of its decision to discontinue the latter’s
"retainer’s contract with the Company effective at the close of
business hours of December 31, 1996" because management has
decided that it would be more practical to provide medical services
to its employees through accredited hospitals near the company
premises.
On 22 January 1997, De Vera filed a complaint for illegal
dismissal before the National Labor Relations Commission
(NLRC), alleging that that he had been actually employed by
Philcom as its company physician since 1981 and was dismissed
without due process. He averred that he was designated as a
"company physician on retainer basis" for reasons allegedly known
only to Philcom. He likewise professed that since he was not
conversant with labor laws, he did not give much attention to the
designation as anyway he worked on a full-time basis and was paid
a basic monthly salary plus fringe benefits, like any other regular
employees of Philcom.
On 21 December 1998, Labor Arbiter Ramon Valentin C. Reyes
came out with a decision7 dismissing De Vera’s complaint for lack
of merit, on the rationale that as a "retained physician" under a
valid contract mutually agreed upon by the parties, De Vera was an
"independent contractor" and that he "was not dismissed but rather
his contract with [PHILCOM] ended when said contract was not
renewed after December 31, 1996".
3
On De Vera’s appeal to the NLRC, the latter, in a decision8 dated
23 October 2000, reversed (the word used is "modified") that of
the Labor Arbiter, on a finding that De Vera is Philcom’s "regular
employee" and accordingly directed the company to reinstate him
to his former position without loss of seniority rights and
privileges and with full backwages from the date of his dismissal
until actual reinstatement. We quote the dispositive portion of the
decision:
WHEREFORE, the assailed decision is modified in that
respondent is ordered to reinstate complainant to his former
position without loss of seniority rights and privileges with full
backwages from the date of his dismissal until his actual
reinstatement computed as follows:
Backwages:
a) Basic Salary
From Dec. 31, 1996 to Apr. 10,
2000 = 39.33 mos.
P44,400.00 x 39.33 mos. P1,750,185.00
13th Month Pay:
b) 145,848.75
1/12 of P1,750,185.00
Travelling allowance:
c) 39,330.00
P1,000.00 x 39.33 mos.
GRAND TOTAL P1,935,363.75
The decision stands in other aspects.
SO ORDERED.
With its motion for reconsideration having been denied by the
NLRC in its order of 27 February 2001,9 Philcom then went to the
Court of Appeals on a petition for certiorari, thereat docketed as
CA-G.R. SP No. 65178, imputing grave abuse of discretion
amounting to lack or excess of jurisdiction on the part of the
NLRC when it reversed the findings of the labor arbiter and
awarded thirteenth month pay and traveling allowance to De Vera
even as such award had no basis in fact and in law.
On 12 September 2002, the Court of Appeals rendered a decision,10
modifying that of the NLRC by deleting the award of traveling
allowance, and ordering payment of separation pay to De Vera in
lieu of reinstatement, thus:
WHEREFORE, premises considered, the assailed judgment of
public respondent, dated 23 October 2000, is MODIFIED. The
award of traveling allowance is deleted as the same is hereby
DELETED. Instead of reinstatement, private respondent shall be
paid separation pay computed at one (1) month salary for every
year of service computed from the time private respondent
commenced his employment in 1981 up to the actual payment of
the backwages and separation pay. The awards of backwages and
13th month pay STAND.
SO ORDERED.
In time, Philcom filed a motion for reconsideration but was denied
by the appellate court in its resolution of 13 February 2003.11
Hence, Philcom’s present recourse on its main submission that -
THE COURT OF APPEALS ERRED IN SUSTAINING THE
DECISION OF THE NATIONAL LABOR RELATIONS
COMMISSION AND RENDERING THE QUESTIONED
DECISION AND RESOLUTION IN A WAY THAT IS NOT IN
ACCORD WITH THE FACTS AND APPLICABLE LAWS AND
JURISPRUDENCE WHICH DISTINGUISH LEGITIMATE JOB
CONTRACTING AGREEMENTS FROM THE EMPLOYER-
EMPLOYEE RELATIONSHIP.
We GRANT.
Under Rule 45 of the Rules of Court, only questions of law may be
reviewed by this Court in decisions rendered by the Court of
Appeals. There are instances, however, where the Court departs
from this rule and reviews findings of fact so that substantial
justice may be served. The exceptional instances are where:
"xxx xxx xxx (1) the conclusion is a finding grounded entirely on
speculation, surmise and conjecture; (2) the inference made is
manifestly mistaken; (3) there is grave abuse of discretion; (4) the
judgment is based on a misapprehension of facts; (5) the findings
of fact are conflicting; (6) the Court of Appeals went beyond the
issues of the case and its findings are contrary to the admissions of
both appellant and appellees; (7) the findings of fact of the Court
of Appeals are contrary to those of the trial court; (8) said findings
of facts are conclusions without citation of specific evidence on
which they are based; (9) the facts set forth in the petition as well
as in the petitioner’s main and reply briefs are not disputed by the
respondents; and (10) the findings of fact of the Court of Appeals
are premised on the supposed absence of evidence and
contradicted by the evidence on record."12
As we see it, the parties’ respective submissions revolve on the
primordial issue of whether an employer-employee relationship
exists between petitioner and respondent, the existence of which is,
in itself, a question of fact13 well within the province of the NLRC.
Nonetheless, given the reality that the NLRC’s findings are at odds
with those of the labor arbiter, the Court, consistent with its ruling
in Jimenez vs. National Labor Relations
Commission,14 is constrained to look deeper into the attendant
circumstances obtaining in this case, as appearing on record.
In a long line of decisions,15 the Court, in determining the existence
of an employer-employee relationship, has invariably adhered to
the four-fold test, to wit: [1] the selection and engagement of the
employee; [2] the payment of wages; [3] the power of dismissal;
and [4] the power to control the employee’s conduct, or the so-
called "control test", considered to be the most important element.
Applying the four-fold test to this case, we initially find that it was
respondent himself who sets the parameters of what his duties
would be in offering his services to petitioner. This is borne by no
less than his 15 May 1981 letter16 which, in full, reads:
"May 15, 1981
Mrs. Adela L. Vicente
Vice President, Industrial Relations
PhilCom, Paseo de Roxas
Makati, Metro Manila
Madam:
4
I shall have the time and effort for the position of Company
physician with your corporation if you deemed it necessary. I have
the necessary qualifications, training and experience required by
such position and I am confident that I can serve the best interests
of your employees, medically.
My plan of works and targets shall cover the duties and
responsibilities required of a practitioner in industrial medicine
which includes the following:
1. Application of preventive medicine including periodic check-up
of employees;
2. Holding of clinic hours in the morning and afternoon for a total
of five (5) hours daily for consultation services to employees;
3. Management and treatment of employees that may necessitate
hospitalization including emergency cases and accidents;
4. Conduct pre-employment physical check-up of prospective
employees with no additional medical fee;
5. Conduct home visits whenever necessary;
6. Attend to certain medical administrative functions such as
accomplishing medical forms, evaluating conditions of employees
applying for sick leave of absence and subsequently issuing proper
certification, and all matters referred which are medical in nature.
On the subject of compensation for the services that I propose to
render to the corporation, you may state an offer based on your
belief that I can very well qualify for the job having worked with
your organization for sometime now.
I shall be very grateful for whatever kind attention you may extend
on this matter and hoping that it will merit acceptance, I remain
Very truly yours,
(signed)
RICARDO V. DE VERA, M.D."
Significantly, the foregoing letter was substantially the basis of the
labor arbiter’s finding that there existed no employer-employee
relationship between petitioner and respondent, in addition to the
following factual settings:
The fact that the complainant was not considered an employee was
recognized by the complainant himself in a signed letter to the
respondent dated April 21, 1982 attached as Annex G to the
respondent’s Reply and Rejoinder. Quoting the pertinent portion of
said letter:
‘To carry out your memo effectively and to provide a systematic
and workable time schedule which will serve the best interests of
both the present and absent employee, may I propose an extended
two-hour service (1:00-3:00 P.M.) during which period I can
devote ample time to both groups depending upon the urgency of
the situation. I shall readjust my private schedule to be available
for the herein proposed extended hours, should you consider this
proposal.
As regards compensation for the additional time and services that I
shall render to the employees, it is dependent on your evaluation of
the merit of my proposal and your confidence on my ability to
carry out efficiently said proposal.’
The tenor of this letter indicates that the complainant was
proposing to extend his time with the respondent and seeking
additional compensation for said extension. This shows that the
respondent PHILCOM did not have control over the schedule of
the complainant as it [is] the complainant who is proposing his
own schedule and asking to be paid for the same. This is proof that
the complainant understood that his relationship with the
respondent PHILCOM was a retained physician and not as an
employee. If he were an employee he could not negotiate as to his
hours of work.
The complainant is a Doctor of Medicine, and presumably, a well-
educated person. Yet, the complainant, in his position paper, is
claiming that he is not conversant with the law and did not give
much attention to his job title- on a ‘retainer basis’. But the same
complainant admits in his affidavit that his service for the
respondent was covered by a retainership contract [which] was
renewed every year from 1982 to 1994. Upon reading the contract
dated September 6, 1982, signed by the complainant himself
(Annex ‘C’ of Respondent’s Position Paper), it clearly states that is
a retainership contract. The retainer fee is indicated thereon and the
duration of the contract for one year is also clearly indicated in
paragraph 5 of the Retainership Contract. The complainant cannot
claim that he was unaware that the ‘contract’ was good only for
one year, as he signed the same without any objections. The
complainant also accepted its renewal every year thereafter until
1994. As a literate person and educated person, the complainant
cannot claim that he does not know what contract he signed and
that it was renewed on a year to year basis.17
The labor arbiter added the indicia, not disputed by respondent,
that from the time he started to work with petitioner, he never was
included in its payroll; was never deducted any contribution for
remittance to the Social Security System (SSS); and was in fact
subjected by petitioner to the ten (10%) percent withholding tax for
his professional fee, in accordance with the National Internal
Revenue Code, matters which are simply inconsistent with an
employer-employee relationship. In the precise words of the labor
arbiter:
"xxx xxx xxx After more than ten years of services to PHILCOM,
the complainant would have noticed that no SSS deductions were
made on his remuneration or that the respondent was deducting the
10% tax for his fees and he surely would have complained about
them if he had considered himself an employee of PHILCOM. But
he never raised those issues. An ordinary employee would consider
the SSS payments important and thus make sure they would be
paid. The complainant never bothered to ask the respondent to
remit his SSS contributions. This clearly shows that the
complainant never considered himself an employee of PHILCOM
and thus, respondent need not remit anything to the SSS in favor of
the complainant."18
Clearly, the elements of an employer-employee relationship are
wanting in this case. We may add that the records are replete with
evidence showing that respondent had to bill petitioner for his
monthly professional fees.19 It simply runs against the grain of
common experience to imagine that an ordinary employee has yet
to bill his employer to receive his salary.
5
We note, too, that the power to terminate the parties’ relationship
was mutually vested on both. Either may terminate the
arrangement at will, with or without cause.20
Finally, remarkably absent from the parties’ arrangement is the
element of control, whereby the employer has reserved the right to
control the employee not only as to the result of the work done but
also as to the means and methods by which the same is to be
accomplished.21
Here, petitioner had no control over the means and methods by
which respondent went about performing his work at the company
premises. He could even embark in the private practice of his
profession, not to mention the fact that respondent’s work hours
and the additional compensation therefor were negotiated upon by
the parties.22 In fine, the parties themselves practically agreed on
every terms and conditions of respondent’s engagement, which
thereby negates the element of control in their relationship. For
sure, respondent has never cited even a single instance when
petitioner interfered with his work.
Yet, despite the foregoing, all of which are extant on record, both
the NLRC and the Court of Appeals ruled that respondent is
petitioner’s regular employee at the time of his separation.
Partly says the appellate court in its assailed decision:
Be that as it may, it is admitted that private respondent’s written
‘retainer contract’ was renewed annually from 1981 to 1994 and
the alleged ‘renewal’ for 1995 and 1996, when it was allegedly
terminated, was verbal.
Article 280 of the Labor code (sic) provides:
‘The provisions of written agreement to the contrary
notwithstanding and regardless of the oral agreements of the
parties, an employment shall be deemed to be regular where the
employee has been engaged to perform in the usual business or
trade of the employer, except where the employment has been
fixed for a specific project or undertaking the completion or
termination of which has been determined at the time of the
engagement of the employee or where the work or services to be
performed is seasonal in nature and the employment is for the
duration of the season.’
‘An employment shall be deemed to be casual if it is not
covered by the preceding paragraph: Provided, That, any
employee who has rendered at least one (1) year of service,
whether such is continuous or broken, shall be considered a
regular with respect to the activity in which he is employed and
his employment shall continue while such activity exists.’
Parenthetically, the position of company physician, in the case of
petitioner, is usually necessary and desirable because the need for
medical attention of employees cannot be foreseen, hence, it is
necessary to have a physician at hand. In fact, the importance and
desirability of a physician in a company premises is recognized by
Art. 157 of the Labor Code, which requires the presence of a
physician depending on the number of employees and in the case
at bench, in petitioner’s case, as found by public respondent,
petitioner employs more than 500 employees.
Going back to Art. 280 of the Labor Code, it was made therein
clear that the provisions of a written agreement to the contrary
notwithstanding or the existence of a mere oral agreement, if the
employee is engaged in the usual business or trade of the
employer, more so, that he rendered service for at least one year,
such employee shall be considered as a regular employee. Private
respondent herein has been with petitioner since 1981 and his
employment was not for a specific project or undertaking, the
period of which was pre-determined and neither the work or
service of private respondent seasonal. (Emphasis by the CA
itself).
We disagree to the foregoing ratiocination.
The appellate court’s premise that regular employees are those
who perform activities which are desirable and necessary for the
business of the employer is not determinative in this case. For, we
take it that any agreement may provide that one party shall render
services for and in behalf of another, no matter how necessary for
the latter’s business, even without being hired as an employee.
This set-up is precisely true in the case of an independent
contractorship as well as in an agency agreement. Indeed, Article
280 of the Labor Code, quoted by the appellate court, is not the
yardstick for determining the existence of an employment
relationship. As it is, the provision merely distinguishes between
two (2) kinds of employees, i.e., regular and casual. It does not
apply where, as here, the very existence of an employment
relationship is in dispute.23
Buttressing his contention that he is a regular employee of
petitioner, respondent invokes Article 157 of the Labor Code, and
argues that he satisfies all the requirements thereunder. The
provision relied upon reads:
ART. 157. Emergency medical and dental services. – It shall be
the duty of every employer to furnish his employees in any locality
with free medical and dental attendance and facilities consisting of:
(a) The services of a full-time registered nurse when the number of
employees exceeds fifty (50) but not more than two hundred (200)
except when the employer does not maintain hazardous
workplaces, in which case the services of a graduate first-aider
shall be provided for the protection of the workers, where no
registered nurse is available. The Secretary of Labor shall provide
by appropriate regulations the services that shall be required where
the number of employees does not exceed fifty (50) and shall
determine by appropriate order hazardous workplaces for purposes
of this Article;
(b) The services of a full-time registered nurse, a part-time
physician and dentist, and an emergency clinic, when the number
of employees exceeds two hundred (200) but not more than three
hundred (300); and
(c) The services of a full-time physician, dentist and full-time
registered nurse as well as a dental clinic, and an infirmary or
emergency hospital with one bed capacity for every one hundred
(100) employees when the number of employees exceeds three
hundred (300).
In cases of hazardous workplaces, no employer shall engage the
services of a physician or dentist who cannot stay in the premises
of the establishment for at least two (2) hours, in the case of those
engaged on part-time basis, and not less than eight (8) hours in the
case of those employed on full-time basis. Where the undertaking
is nonhazardous in nature, the physician and dentist may be
engaged on retained basis, subject to such regulations as the
Secretary of Labor may prescribe to insure immediate availability
6
of medical and dental treatment and attendance in case of SO ORDERED.
emergency.
G.R. No. L-48645 January 7, 1987
Had only respondent read carefully the very statutory provision
invoked by him, he would have noticed that in non-hazardous
"BROTHERHOOD" LABOR UNITY MOVEMENT OF THE
workplaces, the employer may engage the services of a physician
PHILIPPINES, ANTONIO CASBADILLO, PROSPERO
"on retained basis." As correctly observed by the petitioner, while
TABLADA, ERNESTO BENGSON, PATRICIO SERRANO,
it is true that the provision requires employers to engage the
ANTONIO B. BOBIAS, VIRGILIO ECHAS, DOMINGO
services of medical practitioners in certain establishments
PARINAS, NORBERTO GALANG, JUANITO NAVARRO,
depending on the number of their employees, nothing is there in
NESTORIO MARCELLANA, TEOFILO B. CACATIAN,
the law which says that medical practitioners so engaged be
RUFO L. EGUIA, CARLOS SUMOYAN, LAMBERTO
actually hired as employees,24 adding that the law, as written, only
RONQUILLO, ANGELITO AMANCIO, DANILO B.
requires the employer "to retain", not employ, a part-time
MATIAR, ET AL., petitioners,
physician who needed to stay in the premises of the non-hazardous
vs.
workplace for two (2) hours.25
HON. RONALDO B. ZAMORA, PRESIDENTIAL
ASSISTANT FOR LEGAL AFFAIRS, OFFICE OF THE
Respondent takes no issue on the fact that petitioner’s business of PRESIDENT, HON. AMADO G. INCIONG,
telecommunications is not hazardous in nature. As such, what UNDERSECRETARY OF LABOR, SAN MIGUEL
applies here is the last paragraph of Article 157 which, to stress, CORPORATION, GENARO OLIVES, ENRIQUE
provides that the employer may engage the services of a physician CAMAHORT, FEDERICO OÑATE, ERNESTO
and dentist "on retained basis", subject to such regulations as the VILLANUEVA, ANTONIO BOCALING and GODOFREDO
Secretary of Labor may prescribe. The successive "retainership" CUETO, respondents.
agreements of the parties definitely hue to the very statutory
provision relied upon by respondent.
GUTIERREZ, JR., J.:

Deeply embedded in our jurisprudence is the rule that courts may

The elemental question in labor law of whether or not an
not construe a statute that is free from doubt. Where the law is
employer-employee relationship exists between petitioners-
clear and unambiguous, it must be taken to mean exactly what it
members of the "Brotherhood Labor Unit Movement of the
says, and courts have no choice but to see to it that the mandate is
Philippines" (BLUM) and respondent San Miguel Corporation, is
obeyed.26 As it is, Article 157 of the Labor Code clearly and
the main issue in this petition. The disputed decision of public
unequivocally allows employers in non-hazardous establishments
respondent Ronaldo Zamora, Presidential Assistant for legal
to engage "on retained basis" the service of a dentist or physician.
Affairs, contains a brief summary of the facts involved:
Nowhere does the law provide that the physician or dentist so
engaged thereby becomes a regular employee. The very phrase that
they may be engaged "on retained basis", revolts against the idea 1. The records disclose that on July 11, 1969, BLUM filed a
that this engagement gives rise to an employer-employee complaint with the now defunct Court of Industrial Relations,
relationship. charging San Miguel Corporation, and the following officers:
Enrique Camahort, Federico Ofiate Feliciano Arceo, Melencio
Eugenia Jr., Ernesto Villanueva, Antonio Bocaling and Godofredo
With the recognition of the fact that petitioner consistently
Cueto of unfair labor practice as set forth in Section 4 (a), sub-
engaged the services of respondent on a retainer basis, as shown by
sections (1) and (4) of Republic Act No. 875 and of Legal
their various "retainership contracts", so can petitioner put an end,
dismissal. It was alleged that respondents ordered the individual
with or without cause, to their retainership agreement as therein
complainants to disaffiliate from the complainant union; and that
provided.27
management dismissed the individual complainants when they
insisted on their union membership.
We note, however, that even as the contracts entered into by the
parties invariably provide for a 60-day notice requirement prior to
On their part, respondents moved for the dismissal of the
termination, the same was not complied with by petitioner when it
complaint on the grounds that the complainants are not and have
terminated on 17 December 1996 the verbally-renewed
never been employees of respondent company but employees of
retainership agreement, effective at the close of business hours of
the independent contractor; that respondent company has never had
31 December 1996.
control over the means and methods followed by the independent
contractor who enjoyed full authority to hire and control said
Be that as it may, the record shows, and this is admitted by both employees; and that the individual complainants are barred by
parties,28 that execution of the NLRC decision had already been estoppel from asserting that they are employees of respondent
made at the NLRC despite the pendency of the present recourse. company.
For sure, accounts of petitioner had already been garnished and
released to respondent despite the previous Status Quo Order29
While pending with the Court of Industrial Relations CIR
issued by this Court. To all intents and purposes, therefore, the 60-
pleadings and testimonial and documentary evidences were duly
day notice requirement has become moot and academic if not
presented, although the actual hearing was delayed by several
waived by the respondent himself.
postponements. The dispute was taken over by the National Labor
Relations Commission (NLRC) with the decreed abolition of the
WHEREFORE, the petition is GRANTED and the challenged CIR and the hearing of the case intransferably commenced on
decision of the Court of Appeals REVERSED and SET ASIDE. September 8, 1975.
The 21 December 1998 decision of the labor arbiter is
REINSTATED.
On February 9, 1976, Labor Arbiter Nestor C. Lim found for
complainants which was concurred in by the NLRC in a decision
No pronouncement as to costs.

7
dated June 28, 1976. The amount of backwages awarded, however,
was reduced by NLRC to the equivalent of one (1) year salary.
On appeal, the Secretary in a decision dated June 1, 1977, set aside
the NLRC ruling, stressing the absence of an employer-mployee
relationship as borne out by the records of the case. ...
The petitioners strongly argue that there exists an employer-
employee relationship between them and the respondent company
and that they were dismissed for unionism, an act constituting
unfair labor practice "for which respondents must be made to
answer."
Unrebutted evidence and testimony on record establish that the
petitioners are workers who have been employed at the San Miguel
Parola Glass Factory since 1961, averaging about seven (7) years
of service at the time of their termination. They worked as
"cargadores" or "pahinante" at the SMC Plant loading, unloading,
piling or palleting empty bottles and woosen shells to and from
company trucks and warehouses. At times, they accompanied the
company trucks on their delivery routes.
The petitioners first reported for work to Superintendent-in-Charge
Camahort. They were issued gate passes signed by Camahort and
were provided by the respondent company with the tools,
equipment and paraphernalia used in the loading, unloading, piling
and hauling operation.
Job orders emanated from Camahort. The orders are then
transmitted to an assistant-officer-in-charge. In turn, the assistant
informs the warehousemen and checkers regarding the same. The
latter, thereafter, relays said orders to the capatazes or group
leaders who then give orders to the workers as to where, when and
what to load, unload, pile, pallet or clean.
Work in the glass factory was neither regular nor continuous,
depending wholly on the volume of bottles manufactured to be
loaded and unloaded, as well as the business activity of the
company. Work did not necessarily mean a full eight (8) hour day
for the petitioners. However, work,at times, exceeded the eight (8)
hour day and necessitated work on Sundays and holidays. For this,
they were neither paid overtime nor compensation for work on
Sundays and holidays.
Petitioners were paid every ten (10) days on a piece rate basis, that
is, according to the number of cartons and wooden shells they were
able to load, unload, or pile. The group leader notes down the
number or volume of work that each individual worker has
accomplished. This is then made the basis of a report or statement
which is compared with the notes of the checker and
warehousemen as to whether or not they tally. Final approval of
report is by officer-in-charge Camahort. The pay check is given to
the group leaders for encashment, distribution, and payment to the
petitioners in accordance with payrolls prepared by said leaders.
From the total earnings of the group, the group leader gets a
participation or share of ten (10%) percent plus an additional
amount from the earnings of each individual.
The petitioners worked exclusive at the SMC plant, never having
been assigned to other companies or departments of SMC plant,
even when the volume of work was at its minimum. When any of
the glass furnaces suffered a breakdown, making a shutdown
necessary, the petitioners work was temporarily suspended.
Thereafter, the petitioners would return to work at the glass plant.
Sometime in January, 1969, the petitioner workers — numbering
one hundred and forty (140) organized and affiliated themselves
with the petitioner union and engaged in union activities. Believing
themselves entitled to overtime and holiday pay, the petitioners
pressed management, airing other grievances such as being paid
below the minimum wage law, inhuman treatment, being forced to
borrow at usurious rates of interest and to buy raffle tickets,
coerced by withholding their salaries, and salary deductions made
without their consent. However, their gripes and grievances were
not heeded by the respondents.
On February 6, 1969, the petitioner union filed a notice of strike
with the Bureau of Labor Relations in connection with the
dismissal of some of its members who were allegedly castigated
for their union membership and warned that should they persist in
continuing with their union activities they would be dismissed
from their jobs. Several conciliation conferences were scheduled in
order to thresh out their differences, On February 12, 1969, union
member Rogelio Dipad was dismissed from work. At the
scheduled conference on February 19, 1969, the complainant union
through its officers headed by National President Artemio Portugal
Sr., presented a letter to the respondent company containing
proposals and/or labor demands together with a request for
recognition and collective bargaining.
San Miguel refused to bargain with the petitioner union alleging
that the workers are not their employees.
On February 20, 1969, all the petitioners were dismissed from their
jobs and, thereafter, denied entrance to respondent company's glass
factory despite their regularly reporting for work. A complaint for
illegal dismissal and unfair labor practice was filed by the
petitioners.
The case reaches us now with the same issues to be resolved as
when it had begun.
The question of whether an employer-employee relationship exists
in a certain situation continues to bedevil the courts. Some
businessmen try to avoid the bringing about of an employer-
employee relationship in their enterprises because that judicial
relation spawns obligations connected with workmen's
compensation, social security, medicare, minimum wage,
termination pay, and unionism. (Mafinco Trading Corporation v.
Ople, 70 SCRA 139).
In determining the existence of an employer-employee
relationship, the elements that are generally considered are the
following: (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 with respect to the
means and methods by which the work is to be accomplished. It. is
the called "control test" that is the most important element
(Investment Planning Corp. of the Phils. v. The Social Security
System, 21 SCRA 924; Mafinco Trading Corp. v. Ople, supra, and
Rosario Brothers, Inc. v. Ople, 131 SCRA 72).
Applying the above criteria, the evidence strongly indicates the
existence of an employer-employee relationship between petitioner
workers and respondent San Miguel Corporation. The respondent
asserts that the petitioners are employees of the Guaranteed Labor
Contractor, an independent labor contracting firm.
The facts and evidence on record negate respondent SMC's claim.
8
The existence of an independent contractor relationship is
generally established by the following criteria: "whether or not the
contractor is carrying on an independent business; the nature and
extent of the work; the skill required; the term and duration of the
relationship; the right to assign the performance of a specified
piece of work; the control and supervision of the work to another;
the employer's power with respect to the hiring, firing and payment
of the contractor's workers; the control of the premises; the duty to
supply the premises tools, appliances, materials and labor; and the
mode, manner and terms of payment" (56 CJS Master and Servant,
Sec. 3(2), 46; See also 27 AM. Jur. Independent Contractor, Sec. 5,
485 and Annex 75 ALR 7260727)
None of the above criteria exists in the case at bar.
Highly unusual and suspect is the absence of a written contract to
specify the performance of a specified piece of work, the nature
and extent of the work and the term and duration of the
relationship. The records fail to show that a large commercial
outfit, such as the San Miguel Corporation, entered into mere oral
agreements of employment or labor contracting where the same
would involve considerable expenses and dealings with a large
number of workers over a long period of time. Despite respondent
company's allegations not an iota of evidence was offered to prove
the same or its particulars. Such failure makes respondent SMC's
stand subject to serious doubts.
Uncontroverted is the fact that for an average of seven (7) years,
each of the petitioners had worked continuously and exclusively
for the respondent company's shipping and warehousing
department. Considering the length of time that the petitioners
have worked with the respondent company, there is justification to
conclude that they were engaged to perform activities necessary or
desirable in the usual business or trade of the respondent, and the
petitioners are, therefore regular employees (Phil. Fishing Boat
Officers and Engineers Union v. Court of Industrial Relations, 112
SCRA 159 and RJL Martinez Fishing Corporation v. National
Labor Relations Commission, 127 SCRA 454).
As we have found in RJL Martinez Fishing Corporation v.
National Labor Relations Commission (supra):
... [T]he employer-employee relationship between the parties
herein is not coterminous with each loading and unloading job. As
earlier shown, respondents are engaged in the business of fishing.
For this purpose, they have a fleet of fishing vessels. Under this
situation, respondents' activity of catching fish is a continuous
process and could hardly be considered as seasonal in nature. So
that the activities performed by herein complainants, i.e. unloading
the catch of tuna fish from respondents' vessels and then loading
the same to refrigerated vans, are necessary or desirable in the
business of respondents. This circumstance makes the employment
of complainants a regular one, in the sense that it does not depend
on any specific project or seasonable activity. (NLRC Decision, p.
94, Rollo).lwphl@itç
so as it with petitioners in the case at bar. In fact, despite past
shutdowns of the glass plant for repairs, the petitioners, thereafter,
promptly returned to their jobs, never having been replaced, or
assigned elsewhere until the present controversy arose. The term of
the petitioners' employment appears indefinite. The continuity and
habituality of petitioners' work bolsters their claim of employee
status vis-a-vis respondent company,
Even under the assumption that a contract of employment had
indeed been executed between respondent SMC and the alleged
labor contractor, respondent's case will, nevertheless, fail.
Section 8, Rule VIII, Book III of the Implementing Rules of the
Labor Code provides:
Job contracting. — There is job contracting permissible under the
Code if the following conditions are met:
(1) The contractor carries on an independent business and
undertakes the contract work on his own account under his own
responsibility according to his own manner and method, free from
the control and direction of his employer or principal in all matters
connected with the performance of the work except as to the
results thereof; and
(2) The contractor has substantial capital or investment in the form
of tools, equipment, machineries, work premises, and other
materials which are necessary in the conduct of his business.
We find that Guaranteed and Reliable Labor contractors have
neither substantial capital nor investment to qualify as an
independent contractor under the law. The premises, tools,
equipment and paraphernalia used by the petitioners in their jobs
are admittedly all supplied by respondent company. It is only the
manpower or labor force which the alleged contractors supply,
suggesting the existence of a "labor only" contracting scheme
prohibited by law (Article 106, 109 of the Labor Code; Section
9(b), Rule VIII, Book III, Implementing Rules and Regulations of
the Labor Code). In fact, even the alleged contractor's office,
which consists of a space at respondent company's warehouse,
table, chair, typewriter and cabinet, are provided for by respondent
SMC. It is therefore clear that the alleged contractors have no
capital outlay involved in the conduct of its business, in the
maintenance thereof or in the payment of its workers' salaries.
The payment of the workers' wages is a critical factor in
determining the actuality of an employer-employee relationship
whether between respondent company and petitioners or between
the alleged independent contractor and petitioners. It is important
to emphasize that in a truly independent contractor-contractee
relationship, the fees are paid directly to the manpower agency in
lump sum without indicating or implying that the basis of such
lump sum is the salary per worker multiplied by the number of
workers assigned to the company. This is the rule in Social
Security System v. Court of Appeals (39 SCRA 629, 635).
The alleged independent contractors in the case at bar were paid a
lump sum representing only the salaries the workers were entitled
to, arrived at by adding the salaries of each worker which depend
on the volume of work they. had accomplished individually. These
are based on payrolls, reports or statements prepared by the
workers' group leader, warehousemen and checkers, where they
note down the number of cartons, wooden shells and bottles each
worker was able to load, unload, pile or pallet and see whether they
tally. The amount paid by respondent company to the alleged
independent contractor considers no business expenses or capital
outlay of the latter. Nor is the profit or gain of the alleged
contractor in the conduct of its business provided for as an amount
over and above the workers' wages. Instead, the alleged contractor
receives a percentage from the total earnings of all the workers
plus an additional amount corresponding to a percentage of the
earnings of each individual worker, which, perhaps, accounts for
the petitioners' charge of unauthorized deductions from their
salaries by the respondents.
9
Anent the argument that the petitioners are not employees as they
worked on piece basis, we merely have to cite our rulings in Dy
Keh Beng v. International Labor and Marine Union of the
Philippines (90 SCRA 161), as follows:
"[C]ircumstances must be construed to determine indeed if
payment by the piece is just a method of compensation and does
not define the essence of the relation. Units of time . . . and units of
work are in establishments like respondent (sic) just yardsticks
whereby to determine rate of compensation, to be applied
whenever agreed upon. We cannot construe payment by the piece
where work is done in such an establishment so as to put the
worker completely at liberty to turn him out and take in another at
pleasure."
Article 106 of the Labor Code provides the legal effect of a labor
only contracting scheme, to wit:
... the person or intermediary shall be considered merely as an
agent of the employer who shall be responsible to the workers in
the same manner and extent as if the latter were directly employed
by him.
Firmly establishing respondent SMC's role as employer is the
control exercised by it over the petitioners that is, control in the
means and methods/manner by which petitioners are to go about
their work, as well as in disciplinary measures imposed by it.
Because of the nature of the petitioners' work as cargadores or
pahinantes, supervision as to the means and manner of performing
the same is practically nil. For, how many ways are there to load
and unload bottles and wooden shells? The mere concern of both
respondent SMC and the alleged contractor is that the job of
having the bottles and wooden shells brought to and from the
warehouse be done. More evident and pronounced is respondent
company's right to control in the discipline of petitioners.
Documentary evidence presented by the petitioners establish
respondent SMC's right to impose disciplinary measures for
violations or infractions of its rules and regulations as well as its
right to recommend transfers and dismissals of the piece workers.
The inter-office memoranda submitted in evidence prove the
company's control over the petitioners. That respondent SMC has
the power to recommend penalties or dismissal of the piece
workers, even as to Abner Bungay who is alleged by SMC to be a
representative of the alleged labor contractor, is the strongest
indication of respondent company's right of control over the
petitioners as direct employer. There is no evidence to show that
the alleged labor contractor had such right of control or much less
had been there to supervise or deal with the petitioners.
The petitioners were dismissed allegedly because of the shutdown
of the glass manufacturing plant. Respondent company would have
us believe that this was a case of retrenchment due to the closure or
cessation of operations of the establishment or undertaking. But
such is not the case here. The respondent's shutdown was merely
temporary, one of its furnaces needing repair. Operations
continued after such repairs, but the petitioners had already been
refused entry to the premises and dismissed from respondent's
service. New workers manned their positions. It is apparent that the
closure of respondent's warehouse was merely a ploy to get rid of
the petitioners, who were then agitating the respondent company
for benefits, reforms and collective bargaining as a union. There is
no showing that petitioners had been remiss in their obligations
and inefficient in their jobs to warrant their separation.
As to the charge of unfair labor practice because of SMC's refusal
to bargain with the petitioners, it is clear that the respondent
company had an existing collective bargaining agreement with the
IBM union which is the recognized collective bargaining
representative at the respondent's glass plant.
There being a recognized bargaining representative of all
employees at the company's glass plant, the petitioners cannot
merely form a union and demand bargaining. The Labor Code
provides the proper procedure for the recognition of unions as sole
bargaining representatives. This must be followed.
WHEREFORE, IN VIEW OF THE FOREGOING, the petition is
GRANTED. The San Miguel Corporation is hereby ordered to
REINSTATE petitioners, with three (3) years backwages.
However, where reinstatement is no longer possible, the
respondent SMC is ordered to pay the petitioners separation pay
equivalent to one (1) month pay for every year of service.
SO ORDERED.
G.R. No. L-41182-3 April 16, 1988
DR. CARLOS L. SEVILLA and LINA O. SEVILLA,
petitioners-appellants,
vs.
THE COURT OF APPEALS, TOURIST WORLD SERVICE,
INC., ELISEO S.CANILAO, and SEGUNDINA NOGUERA,
respondents-appellees.
SARMIENTO , J.:
The petitioners invoke the provisions on human relations of the
Civil Code in this appeal by certiorari. The facts are beyond
dispute:
xxx xxx xxx
On the strength of a contract (Exhibit A for the appellant Exhibit 2
for the appellees) entered into on Oct. 19, 1960 by and between
Mrs. Segundina Noguera, party of the first part; the Tourist World
Service, Inc., represented by Mr. Eliseo Canilao as party of the
second part, and hereinafter referred to as appellants, the Tourist
World Service, Inc. leased the premises belonging to the party of
the first part at Mabini St., Manila for the former-s use as a branch
office. In the said contract the party of the third part held herself
solidarily liable with the party of the part for the prompt payment
of the monthly rental agreed on. When the branch office was
opened, the same was run by the herein appellant Una 0. Sevilla
payable to Tourist World Service Inc. by any airline for any fare
brought in on the efforts of Mrs. Lina Sevilla, 4% was to go to
Lina Sevilla and 3% was to be withheld by the Tourist World
Service, Inc.
On or about November 24, 1961 (Exhibit 16) the Tourist World
Service, Inc. appears to have been informed that Lina Sevilla was
connected with a rival firm, the Philippine Travel Bureau, and,
since the branch office was anyhow losing, the Tourist World
Service considered closing down its office. This was firmed up by
two resolutions of the board of directors of Tourist World Service,
Inc. dated Dec. 2, 1961 (Exhibits 12 and 13), the first abolishing
the office of the manager and vice-president of the Tourist World
Service, Inc., Ermita Branch, and the second,authorizing the
corporate secretary to receive the properties of the Tourist World
Service then located at the said branch office. It further appears
10
that on Jan. 3, 1962, the contract with the appellees for the use of
the Branch Office premises was terminated and while the
effectivity thereof was Jan. 31, 1962, the appellees no longer used
it. As a matter of fact appellants used it since Nov. 1961. Because
of this, and to comply with the mandate of the Tourist World
Service, the corporate secretary Gabino Canilao went over to the
branch office, and, finding the premises locked, and, being unable
to contact Lina Sevilla, he padlocked the premises on June 4, 1962
to protect the interests of the Tourist World Service. When neither
the appellant Lina Sevilla nor any of her employees could enter the
locked premises, a complaint wall filed by the herein appellants
against the appellees with a prayer for the issuance of mandatory
preliminary injunction. Both appellees answered with
counterclaims. For apparent lack of interest of the parties therein,
the trial court ordered the dismissal of the case without prejudice.
The appellee Segundina Noguera sought reconsideration of the
order dismissing her counterclaim which the court a quo, in an
order dated June 8, 1963, granted permitting her to present
evidence in support of her counterclaim.
On June 17,1963, appellant Lina Sevilla refiled her case against the
herein appellees and after the issues were joined, the reinstated
counterclaim of Segundina Noguera and the new complaint of
appellant Lina Sevilla were jointly heard following which the court
a quo ordered both cases dismiss for lack of merit, on the basis of
which was elevated the instant appeal on the following assignment
of errors:
I. THE LOWER COURT ERRED EVEN IN APPRECIATING
THE NATURE OF PLAINTIFF-APPELLANT MRS. LINA O.
SEVILLA'S COMPLAINT.
II. THE LOWER COURT ERRED IN HOLDING THAT
APPELLANT MRS. LINA 0. SEVILA'S ARRANGEMENT
(WITH APPELLEE TOURIST WORLD SERVICE, INC.) WAS
ONE MERELY OF EMPLOYER-EMPLOYEE RELATION AND
IN FAILING TO HOLD THAT THE SAID ARRANGEMENT
WAS ONE OF JOINT BUSINESS VENTURE.
III. THE LOWER COURT ERRED IN RULING THAT
PLAINTIFF-APPELLANT MRS. LINA O. SEVILLA IS
ESTOPPED FROM DENYING THAT SHE WAS A MERE
EMPLOYEE OF DEFENDANT-APPELLEE TOURIST WORLD
SERVICE, INC. EVEN AS AGAINST THE LATTER.
IV. THE LOWER COURT ERRED IN NOT HOLDING THAT
APPELLEES HAD NO RIGHT TO EVICT APPELLANT MRS.
LINA O. SEVILLA FROM THE A. MABINI OFFICE BY
TAKING THE LAW INTO THEIR OWN HANDS.
V. THE LOWER COURT ERRED IN NOT CONSIDERING
AT .ALL APPELLEE NOGUERA'S RESPONSIBILITY FOR
APPELLANT LINA O. SEVILLA'S FORCIBLE
DISPOSSESSION OF THE A. MABINI PREMISES.
VI. THE LOWER COURT ERRED IN FINDING THAT
APPELLANT APPELLANT MRS. LINA O. SEVILLA SIGNED
MERELY AS GUARANTOR FOR RENTALS.
On the foregoing facts and in the light of the errors asigned the
issues to be resolved are:
1. Whether the appellee Tourist World Service unilaterally disco
the telephone line at the branch office on Ermita;
2. Whether or not the padlocking of the office by the Tourist
World Service was actionable or not; and
3. Whether or not the lessee to the office premises belonging to the
appellee Noguera was appellees TWS or TWS and the appellant.
In this appeal, appealant Lina Sevilla claims that a joint bussiness
venture was entered into by and between her and appellee TWS
with offices at the Ermita branch office and that she was not an
employee of the TWS to the end that her relationship with TWS
was one of a joint business venture appellant made declarations
showing:
1. Appellant Mrs. Lina 0. Sevilla, a prominent figure and wife of
an eminent eye, ear and nose specialist as well as a imediately
columnist had been in the travel business prior to the establishment
of the joint business venture with appellee Tourist World Service,
Inc. and appellee Eliseo Canilao, her compadre, she being the
godmother of one of his children, with her own clientele, coming
mostly from her own social circle (pp. 3-6 tsn. February 16,1965).
2. Appellant Mrs. Sevilla was signatory to a lease agreement dated
19 October 1960 (Exh. 'A') covering the premises at A. Mabini St.,
she expressly warranting and holding [sic] herself 'solidarily' liable
with appellee Tourist World Service, Inc. for the prompt payment
of the monthly rentals thereof to other appellee Mrs. Noguera (pp.
14-15, tsn. Jan. 18,1964).
3. Appellant Mrs. Sevilla did not receive any salary from appellee
Tourist World Service, Inc., which had its own, separate office
located at the Trade & Commerce Building; nor was she an
employee thereof, having no participation in nor connection with
said business at the Trade & Commerce Building (pp. 16-18 tsn
Id.).
4. Appellant Mrs. Sevilla earned commissions for her own
passengers, her own bookings her own business (and not for any of
the business of appellee Tourist World Service, Inc.) obtained from
the airline companies. She shared the 7% commissions given by
the airline companies giving appellee Tourist World Service, Lic.
3% thereof aid retaining 4% for herself (pp. 18 tsn. Id.)
5. Appellant Mrs. Sevilla likewise shared in the expenses of
maintaining the A. Mabini St. office, paying for the salary of an
office secretary, Miss Obieta, and other sundry expenses, aside
from desicion the office furniture and supplying some of fice
furnishings (pp. 15,18 tsn. April 6,1965), appellee Tourist World
Service, Inc. shouldering the rental and other expenses in
consideration for the 3% split in the co procured by appellant Mrs.
Sevilla (p. 35 tsn Feb. 16,1965).
6. It was the understanding between them that appellant Mrs.
Sevilla would be given the title of branch manager for appearance's
sake only (p. 31 tsn. Id.), appellee Eliseo Canilao admit that it was
just a title for dignity (p. 36 tsn. June 18, 1965- testimony of
appellee Eliseo Canilao pp. 38-39 tsn April 61965-testimony of
corporate secretary Gabino Canilao (pp- 2-5, Appellants' Reply
Brief)
Upon the other hand, appellee TWS contend that the appellant was
an employee of the appellee Tourist World Service, Inc. and as
such was designated manager. 1
xxx xxx xxx
11
The trial court 2 held for the private respondent on the premise that
the private respondent, Tourist World Service, Inc., being the true
lessee, it was within its prerogative to terminate the lease and
padlock the premises. 3 It likewise found the petitioner, Lina
Sevilla, to be a mere employee of said Tourist World Service, Inc.
and as such, she was bound by the acts of her employer. 4 The
respondent Court of Appeal 5 rendered an affirmance.
The petitioners now claim that the respondent Court, in sustaining
the lower court, erred. Specifically, they state:
I Segundina Noguera. The petitioners contend, however, that
THE COURT OF APPEALS ERRED ON A QUESTION OF
LAW AND GRAVELY ABUSED ITS DISCRETION IN
HOLDING THAT "THE PADLOCKING OF THE PREMISES
BY TOURIST WORLD SERVICE INC. WITHOUT THE
KNOWLEDGE AND CONSENT OF THE APPELLANT LINA
SEVILLA ... WITHOUT NOTIFYING MRS. LINA O. SEVILLA
OR ANY OF HER EMPLOYEES AND WITHOUT INFORMING
COUNSEL FOR THE APPELLANT (SEVILIA), WHO
IMMEDIATELY BEFORE THE PADLOCKING INCIDENT,
WAS IN CONFERENCE WITH THE CORPORATE
SECRETARY OF TOURIST WORLD SERVICE
(ADMITTEDLY THE PERSON WHO PADLOCKED THE SAID
OFFICE), IN THEIR ATTEMP AMICABLY SETTLE THE
CONTROVERSY BETWEEN THE APPELLANT (SEVILLA)
AND THE TOURIST WORLD SERVICE ... (DID NOT)
ENTITLE THE LATTER TO THE RELIEF OF DAMAGES"
(ANNEX "A" PP. 7,8 AND ANNEX "B" P. 2) DECISION
AGAINST DUE PROCESS WHICH ADHERES TO THE RULE
OF LAW.
II
THE COURT OF APPEALS ERRED ON A QUESTION OF
LAW AND GRAVELY ABUSED ITS DISCRETION IN
DENYING APPELLANT SEVILLA RELIEF BECAUSE SHE
HAD "OFFERED TO WITHDRAW HER COMP PROVIDED
THAT ALL CLAIMS AND COUNTERCLAIMS LODGED BY
BOTH APPELLEES WERE WITHDRAWN." (ANNEX "A" P. 8)
III
THE COURT OF APPEALS ERRED ON A QUESTION OF
LAW AND GRAVELY ABUSED ITS DISCRETION IN
DENYING-IN FACT NOT PASSING AND RESOLVING-
APPELLANT SEVILLAS CAUSE OF ACTION FOUNDED ON
ARTICLES 19, 20 AND 21 OF THE CIVIL CODE ON
RELATIONS.
IV
THE COURT OF APPEALS ERRED ON A QUESTION OF
LAW AND GRAVELY ABUSED ITS DISCRETION IN
DENYING APPEAL APPELLANT SEVILLA RELIEF YET
NOT RESOLVING HER CLAIM THAT SHE WAS IN JOINT
VENTURE WITH TOURIST WORLD SERVICE INC. OR AT
LEAST ITS AGENT COUPLED WITH AN INTEREST WHICH
COULD NOT BE TERMINATED OR REVOKED
UNILATERALLY BY TOURIST WORLD SERVICE INC. 6
As a preliminary inquiry, the Court is asked to declare the true
nature of the relation between Lina Sevilla and Tourist World
Service, Inc. The respondent Court of see fit to rule on the
question, the crucial issue, in its opinion being "whether or not the
padlocking of the premises by the Tourist World Service, Inc.
without the knowledge and consent of the appellant Lina Sevilla
entitled the latter to the relief of damages prayed for and whether
or not the evidence for the said appellant supports the contention
that the appellee Tourist World Service, Inc. unilaterally and
without the consent of the appellant disconnected the telephone
lines of the Ermita branch office of the appellee Tourist World
Service, Inc. 7 Tourist World Service, Inc., insists, on the other
hand, that Lina SEVILLA was a mere employee, being "branch
manager" of its Ermita "branch" office and that inferentially, she
had no say on the lease executed with the private respondent,
relation between the between parties was one of joint venture, but
concede that "whatever might have been the true relationship
between Sevilla and Tourist World Service," the Rule of Law
enjoined Tourist World Service and Canilao from taking the law
into their own hands, 8 in reference to the padlocking now
questioned.
The Court finds the resolution of the issue material, for if, as the
private respondent, Tourist World Service, Inc., maintains, that the
relation between the parties was in the character of employer and
employee, the courts would have been without jurisdiction to try
the case, labor disputes being the exclusive domain of the Court of
Industrial Relations, later, the Bureau Of Labor Relations, pursuant
to statutes then in force. 9
In this jurisdiction, there has been no uniform test to determine the
evidence of an employer-employee relation. In general, we have
relied on the so-called right of control test, "where the person for
whom the services are performed reserves a right to control not
only the end to be achieved but also the means to be used in
reaching such end." 10 Subsequently, however, we have considered,
in addition to the standard of right-of control, the existing
economic conditions prevailing between the parties, like the
inclusion of the employee in the payrolls, in determining the
existence of an employer-employee relationship. 11
The records will show that the petitioner, Lina Sevilla, was not
subject to control by the private respondent Tourist World Service,
Inc., either as to the result of the enterprise or as to the means used
in connection therewith. In the first place, under the contract of
lease covering the Tourist Worlds Ermita office, she had bound
herself in solidum as and for rental payments, an arrangement that
would be like claims of a master-servant relationship. True the
respondent Court would later minimize her participation in the
lease as one of mere guaranty, 12 that does not make her an
employee of Tourist World, since in any case, a true employee
cannot be made to part with his own money in pursuance of his
employer's business, or otherwise, assume any liability thereof. In
that event, the parties must be bound by some other relation, but
certainly not employment.
In the second place, and as found by the Appellate Court, '[w]hen
the branch office was opened, the same was run by the herein
appellant Lina O. Sevilla payable to Tourist World Service, Inc. by
any airline for any fare brought in on the effort of Mrs. Lina
Sevilla. 13 Under these circumstances, it cannot be said that Sevilla
was under the control of Tourist World Service, Inc. "as to the
means used." Sevilla in pursuing the business, obviously relied on
her own gifts and capabilities.
It is further admitted that Sevilla was not in the company's payroll.
For her efforts, she retained 4% in commissions from airline
bookings, the remaining 3% going to Tourist World. Unlike an
employee then, who earns a fixed salary usually, she earned
12
compensation in fluctuating amounts depending on her booking
successes.
The fact that Sevilla had been designated 'branch manager" does
not make her, ergo, Tourist World's employee. As we said,
employment is determined by the right-of-control test and certain
economic parameters. But titles are weak indicators.
In rejecting Tourist World Service, Inc.'s arguments however, we
are not, as a consequence, accepting Lina Sevilla's own, that is,
that the parties had embarked on a joint venture or otherwise, a
partnership. And apparently, Sevilla herself did not recognize the
existence of such a relation. In her letter of November 28, 1961,
she expressly 'concedes your [Tourist World Service, Inc.'s] right
to stop the operation of your branch office 14 in effect, accepting
Tourist World Service, Inc.'s control over the manner in which the
business was run. A joint venture, including a partnership,
presupposes generally a of standing between the joint co-venturers
or partners, in which each party has an equal proprietary interest in
the capital or property contributed 15 and where each party
exercises equal rights in the conduct of the business. 16 furthermore,
the parties did not hold themselves out as partners, and the
building itself was embellished with the electric sign "Tourist
World Service, Inc. 17in lieu of a distinct partnership name.
It is the Court's considered opinion, that when the petitioner, Lina
Sevilla, agreed to (wo)man the private respondent, Tourist World
Service, Inc.'s Ermita office, she must have done so pursuant to a
contract of agency. It is the essence of this contract that the agent
renders services "in representation or on behalf of another. 18 In the
case at bar, Sevilla solicited airline fares, but she did so for and on
behalf of her principal, Tourist World Service, Inc. As
compensation, she received 4% of the proceeds in the concept of
commissions. And as we said, Sevilla herself based on her letter of
November 28, 1961, pre-assumed her principal's authority as
owner of the business undertaking. We are convinced, considering
the circumstances and from the respondent Court's recital of facts,
that the ties had contemplated a principal agent relationship, rather
than a joint managament or a partnership..
But unlike simple grants of a power of attorney, the agency that we
hereby declare to be compatible with the intent of the parties,
cannot be revoked at will. The reason is that it is one coupled with
an interest, the agency having been created for mutual interest, of
the agent and the principal. 19 It appears that Lina Sevilla is a bona
fide travel agent herself, and as such, she had acquired an interest
in the business entrusted to her. Moreover, she had assumed a
personal obligation for the operation thereof, holding herself
solidarily liable for the payment of rentals. She continued the
business, using her own name, after Tourist World had stopped
further operations. Her interest, obviously, is not to the
commissions she earned as a result of her business transactions,
but one that extends to the very subject matter of the power of
management delegated to her. It is an agency that, as we said,
cannot be revoked at the pleasure of the principal. Accordingly, the
revocation complained of should entitle the petitioner, Lina
Sevilla, to damages.
As we have stated, the respondent Court avoided this issue,
confining itself to the telephone disconnection and padlocking
incidents. Anent the disconnection issue, it is the holding of the
Court of Appeals that there is 'no evidence showing that the
Tourist World Service, Inc. disconnected the telephone lines at the
branch office. 20 Yet, what cannot be denied is the fact that Tourist
World Service, Inc. did not take pains to have them reconnected.
Assuming, therefore, that it had no hand in the disconnection now
complained of, it had clearly condoned it, and as owner of the
telephone lines, it must shoulder responsibility therefor.
The Court of Appeals must likewise be held to be in error with
respect to the padlocking incident. For the fact that Tourist World
Service, Inc. was the lessee named in the lease con-tract did not
accord it any authority to terminate that contract without notice to
its actual occupant, and to padlock the premises in such fashion.
As this Court has ruled, the petitioner, Lina Sevilla, had acquired a
personal stake in the business itself, and necessarily, in the
equipment pertaining thereto. Furthermore, Sevilla was not a
stranger to that contract having been explicitly named therein as a
third party in charge of rental payments (solidarily with Tourist
World, Inc.). She could not be ousted from possession as
summarily as one would eject an interloper.
The Court is satisfied that from the chronicle of events, there was
indeed some malevolent design to put the petitioner, Lina Sevilla,
in a bad light following disclosures that she had worked for a rival
firm. To be sure, the respondent court speaks of alleged business
losses to justify the closure '21 but there is no clear showing that
Tourist World Ermita Branch had in fact sustained such reverses,
let alone, the fact that Sevilla had moonlit for another company.
What the evidence discloses, on the other hand, is that following
such an information (that Sevilla was working for another
company), Tourist World's board of directors adopted two
resolutions abolishing the office of 'manager" and authorizing the
corporate secretary, the respondent Eliseo Canilao, to effect the
takeover of its branch office properties. On January 3, 1962, the
private respondents ended the lease over the branch office
premises, incidentally, without notice to her.
It was only on June 4, 1962, and after office hours significantly,
that the Ermita office was padlocked, personally by the respondent
Canilao, on the pretext that it was necessary to Protect the interests
of the Tourist World Service. " 22 It is strange indeed that Tourist
World Service, Inc. did not find such a need when it cancelled the
lease five months earlier. While Tourist World Service, Inc. would
not pretend that it sought to locate Sevilla to inform her of the
closure, but surely, it was aware that after office hours, she could
not have been anywhere near the premises. Capping these series of
"offensives," it cut the office's telephone lines, paralyzing
completely its business operations, and in the process, depriving
Sevilla articipation therein.
This conduct on the part of Tourist World Service, Inc. betrays a
sinister effort to punish Sevillsa it had perceived to be disloyalty
on her part. It is offensive, in any event, to elementary norms of
justice and fair play.
We rule therefore, that for its unwarranted revocation of the
contract of agency, the private respondent, Tourist World Service,
Inc., should be sentenced to pay damages. Under the Civil Code,
moral damages may be awarded for "breaches of contract where
the defendant acted ... in bad faith. 23
We likewise condemn Tourist World Service, Inc. to pay further
damages for the moral injury done to Lina Sevilla from its brazen
conduct subsequent to the cancellation of the power of attorney
granted to her on the authority of Article 21 of the Civil Code, in
relation to Article 2219 (10) thereof —
ART. 21. Any person who wilfully causes loss or injury to another
in a manner that is contrary to morals, good customs or public
policy shall compensate the latter for the damage. 24
13
ART. 2219. Moral damages 25 may be recovered in the following
and analogous cases:
xxx xxx xxx
(10) Acts and actions refered into article 21, 26, 27, 28, 29, 30, 32,
34, and 35.
The respondent, Eliseo Canilao, as a joint tortfeasor is likewise
hereby ordered to respond for the same damages in a solidary
capacity.
Insofar, however, as the private respondent, Segundina Noguera is
concerned, no evidence has been shown that she had connived with
Tourist World Service, Inc. in the disconnection and padlocking
incidents. She cannot therefore be held liable as a cotortfeasor.
The Court considers the sums of P25,000.00 as and for moral
damages,24 P10,000.00 as exemplary damages, 25 and P5,000.00
as nominal 26 and/or temperate 27 damages, to be just, fair, and
reasonable under the circumstances.
WHEREFORE, the Decision promulgated on January 23, 1975 as
well as the Resolution issued on July 31, 1975, by the respondent
Court of Appeals is hereby REVERSED and SET ASIDE. The
private respondent, Tourist World Service, Inc., and Eliseo
Canilao, are ORDERED jointly and severally to indemnify the
petitioner, Lina Sevilla, the sum of 25,00.00 as and for moral
damages, the sum of P10,000.00, as and for exemplary damages,
and the sum of P5,000.00, as and for nominal and/or temperate
damages.
Costs against said private respondents.
SO ORDERED.
G.R. No. 119930 March 12, 1998
INSULAR LIFE ASSURANCE CO., LTD., petitioner,
vs.
NATIONAL LABOR RELATIONS COMMISSION (Fourth
Division, Cebu City), LABOR ARBITER NICASIO P.
ANINON and PANTALEON DE LOS REYES, respondents.
BELLOSILLO, J.:
On 17 June 1994 respondent Labor Arbiter dismissed for lack of
jurisdiction NLRC RAB-VII Case No. 03-0309-94 filed by private
respondent Pantaleon de los Reyes against petitioner Insular Life
Assurance Co., Ltd. (INSULAR LIFE), for illegal dismissal and
nonpayment of salaries and back wages after finding no employer-
employee relationship between De los Reyes and petitioner
INSULAR LIFE. 1 On appeal by private respondent, the order of
dismissal was reversed by the National Labor Relations
Commission (NLRC) which ruled that respondent De los Reyes
was an employee of petitioner. 2 Petitioner's motion for
reconsideration having been denied, the NLRC remanded the case
to the Labor Arbiter for hearing on the merits.
Seeking relief through this special civil action for certiorari with
prayer for a restraining order and/or preliminary injunction,
petitioner now comes to us praying for annulment of the decision
of respondent NLRC dated 3 March 1995 and its Order dated 6
April 1995 denying the motion for reconsideration of the decision.
It faults NLRC for acting without jurisdiction and/or with grave
abuse of discretion when, contrary to established facts and
pertinent law and jurisprudence, it reversed the decision of the
Labor Arbiter and held instead that the complaint was properly
filed as an employer-employee relationship existed between
petitioner and private respondent.
Petitioner reprises the stand it assumed below that it never had any
employer-employee relationship with private respondent, this
being an express agreement between them in the agency contracts,
particularly reinforced by the stipulation therein that De los Reyes
was allowed discretion to devise ways and means to fulfill his
obligations as agent and would be paid commission fees based on
his actual output. It further insists that the nature of this work
status as described in the contracts had already been squarely
resolved by the Court in the earlier case of Insular Life Assurance
Co., Ltd. v. NLRC and Basiao 3 where the complainant therein,
Melecio Basiao, was similarly situated as respondent De los Reyes
in that he was appointed first as an agent and then promoted as
agency manager, and the contracts under which he was appointed
contained terms and conditions identical to those of Delos Reyes.
Petitioner concludes that since Basiao was declared by the Court to
be an independent contractor and not an employee of petitioner,
there should be no reason why the status of De los Reyes herein
vis-a-vis petitioner should not be similarly determined.
We reject the submissions of petitioner and hold that respondent
NLRC acted appropriately within the bounds of the law. The
records of the case are replete with telltale indicators of an existing
employer-employee relationship between the two parties despite
written contractual disavowals.
These facts are undisputed: on 21 August 1992 petitioner entered
into an agency contract with respondent Pantaleon de los Reyes 4
authorizing the latter to solicit within the Philippines applications
for life insurance and annuities for which he would be paid
compensation in the form of commissions. The contract was
prepared by petitioner in its entirety and De los Reyes merely
signed his conformity thereto. It contained the stipulation that no
employer-employee relationship shall be created between the
parties and that the agent shall be free to exercise his own
judgment as to time, place and means of soliciting insurance. De
los Reyes however was prohibited by petitioner from working for
any other life insurance company, and violation of this stipulation
was sufficient ground for termination of the contract. Aside from
soliciting insurance for the petitioner, private respondent was
required to submit to the former all completed applications for
insurance within ninety (90) consecutive days, deliver policies,
receive and collect initial premiums and balances of first year
premiums, renewal premiums, deposits on applications and
payments on policy loans. Private respondent was also bound to
turn over to the company immediately any and all sums of money
collected by him. In a written communication by petitioner to
respondent De los Reyes, the latter was urged to register with the
Social Security System as a self-employed individual as provided
under PD No. 1636. 5
On 1 March 1993 petitioner and private respondent entered into
another contract 6 where the latter was appointed as Acting Unit
Manager under its office — the Cebu DSO V (157). As such, the
duties and responsibilities of De los Reyes included the
recruitment, training, organization and development within his
designated territory of a sufficient number of qualified, competent
and trustworthy underwriters, and to supervise and coordinate the
sales efforts of the underwriters in the active solicitation of new
business and in the furtherance of the agency's assigned goals. It
was similarly provided in the management contract that the
14
relation of the acting unit manager and/or the agents of his unit to
the company shall be that of independent contractor. If the
appointment was terminated for any reason other than for cause,
the acting unit manager would be reverted to agent status and
assigned to any unit. As in the previous agency contract, De los
Reyes together with his unit force was granted freedom to exercise
judgment as to time, place and means of soliciting insurance. Aside
from being granted override commissions, the acting unit manager
was given production bonus, development allowance and a unit
development financing scheme euphemistically termed "financial
assistance" consisting of payment to him of a free portion of
P300.00 per month and a validate portion of P1,200.00. While the
latter amount was deemed as an advance against expected
commissions, the former was not and would be freely given to the
unit manager by the company only upon fulfillment by him of
certain manpower and premium quota requirements. The agents
and underwriters recruited and trained by the acting unit manager
would be attached to the unit but petitioner reserved the right to
determine if such assignment would be made or, for any reason, to
reassign them elsewhere.
Aside from soliciting insurance, De los Reyes was also expressly
obliged to participate in the company's conservation program, i.e.,
preservation and maintenance of existing insurance policies, and to
accept moneys duly receipted on agent's receipts provided the
same were turned over to the company. As long as he was unit
manager in an acting capacity, De los Reyes was prohibited from
working for other life insurance companies or with the
government. He could not also accept a managerial or supervisory
position in any firm doing business in the Philippines without the
written consent of petitioner.
Private respondent worked concurrently as agent and Acting Unit
Manager until he was notified by petitioner on 18 November 1993
that his services were terminated effective 18 December 1993. On
7 March 1994 he filed a complaint before the Labor Arbiter on the
ground that he was illegally dismissed and that he was not paid his
salaries and separation pay.
Petitioner filed a motion to dismiss the complaint of De los Reyes
for lack of jurisdiction, citing the absence of employer-employee
relationship. It reasoned out that based on the criteria for
determining the existence of such relationship or the so-called
"four-fold test," i.e., (a) selection and engagement of employee, (b)
payment of wages, (c) power of dismissal, and, (d) power of
control, De los Reyes was not an employee but an independent
contractor.
On 17 June 1994 the motion of petitioner was granted by the Labor
Arbiter and the case was dismissed on the ground that the element
of control was not sufficiently established since the rules and
guidelines set by petitioner in its agency agreement with
respondent Delos Reyes were formulated only to achieve the
desired result without dictating the means or methods of attaining
it.
Respondent NLRC however appreciated the evidence from a
different perspective. It determined that respondent De los Reyes
was under the effective control of petitioner in the critical and most
important aspects of his work as Unit Manager. This conclusion
was derived from the provisions in the contract which appointed
private respondent as Acting Unit Manager, to wit: (a) De los
Reyes was to serve exclusively the company, therefore, he was not
an independent contractor; (b) he was required to meet certain
manpower and production quota; and, (c) petitioner controlled the
assignment to and removal of soliciting agents from his unit.
The NLRC also took into account other circumstances showing
that petitioner exercised employer's prerogatives over De los
Reyes, e.g., (a) limiting the work of respondent De los Reyes to
selling a life insurance policy known as "Salary Deduction
Insurance" only to members of the Philippine National Police,
public and private school teachers and other employees of private
companies; (b) assigning private respondent to a particular place
and table where he worked whenever he was not in the field; (c)
paying private respondent during the period of twelve (12) months
of his appointment as Acting Unit Manager the amount of
P1,500.00 as Unit Development Financing of which 20% formed
his salary and the rest, i.e., 80%, as advance of his expected
commissions; and, (d) promising that upon completion of certain
requirements, he would be promoted to Unit Manager with the
right of petitioner to revert him to agent status when warranted.
Parenthetically, both petitioner and respondent NLRC treated the
agency contract and the management contract entered into between
petitioner and De los Reyes as contracts of agency. We however
hold otherwise. Unquestionably there exist major distinctions
between the two agreements. While the first has the earmarks of an
agency contract, the second is far removed from the concept of
agency in that provided therein are conditionalities that indicate an
employer-employee relationship. The NLRC therefore was correct
in finding that private respondent was an employee of petitioner,
but this holds true only insofar as the management contract is
concerned. In view thereof, the Labor Arbiter has jurisdiction over
the case..
It is axiomatic that the existence of an employer-employee
relationship cannot be negated by expressly repudiating it in the
management contract and providing therein that the "employee" is
an independent contractor when the terms of the agreement clearly
show otherwise. For, the employment status of a person is defined
and prescribed by law and not by what the parties say it should be.
7
In determining the status of the management contract, the "four-
fold test" on employment earlier mentioned has to be applied.
Petitioner contends that De los Reyes was never required to go
through the pre-employment procedures and that the probationary
employment status was reserved only to employees of petitioner.
On this score, it insists that the first requirement of selection and
engagement of the employee was not met.
A look at the provisions of the contract shows that private
respondent was appointed as Acting Unit Manager only upon
recommendation of the District Manager. 8 This indicates that
private respondent was hired by petitioner because of the favorable
endorsement of its duly authorized officer. But, this approbation
could only have been based on the performance of De los Reyes as
agent under the agency contract so that there can be no other
conclusion arrived under this premise than the fact that the agency
or underwriter phase of the relationship of De los Reyes with
petitioner was nothing more than a trial or probationary period for
his eventual appointment as Acting Unit Manager of petitioner.
Then, again, the very designation of the appointment of private
respondent as "acting" unit manager obviously implies a temporary
employment status which may be made permanent only upon
compliance with company standards such as those enumerated
under Sec. 6 of the management contract. 9
On the matter of payment of wages, petitioner points out that
respondent was compensated strictly on commission basis, the
amount of which was totally dependent on his total output. But, the
manager's contract, speaks differently. Thus—
15
4. Performance Requirements. — To maintain your appointment as
Acting Unit Manager you must meet the following manpower and
production requirements:
Quarter Active Calendar Year
Production Agents Cumulative FYP
Production
1st 2 P 125,000
2nd 3 250,000
3rd 4 375,000
4th 5 500,000
5.4. Unit Development Financing (UDF). — As an Acting Unit
Manager you shall be given during the first 12 months of your
appointment a financial assistance which is composed of two parts:
5.4.1. Free Portion amounting to P300 per month, subject to your
meeting prescribed minimum performance requirement on
manpower and premium production. The free portion is not
payable by you.
5.4.2. Validate Portion amounting to P1,200 per month, also
subject to meeting the same prescribed minimum performance
requirements on manpower and premium production. The
validated portion is an advance against expected compensation
during the UDF period and thereafter as may be necessary.
The above provisions unquestionably demonstrate that the
performance requirement imposed on De los Reyes was applicable
quarterly while his entitlement to the free portion (P300) and the
validated portion (P1,200) was monthly starting on the first month
of the twelve (12) months of the appointment. Thus, it has to be
admitted that even before the end of the first quarter and prior to
the so-called quarterly performance evaluation, private respondent
was already entitled to be paid both the free and validated portions
of the UDF every month because his production performance
could not be determined until after the lapse of the quarter
involved. This indicates quite clearly that the unit manager's
quarterly performance had no bearing at all on his entitlement at
least to the free portion of the UDF which for all intents and
purposes comprised the salary regularly paid to him by petitioner.
Thus it cannot be validly claimed that the financial assistance
consisting of the free portion of the UDF was purely dependent on
the premium production of the agent. Be that as it may, it is worth
considering that the payment of compensation by way of
commission does not militate against the conclusion that private
respondent was an employee of petitioner. Under Art. 97 of the
Labor Code, "wage" shall mean "however designated, capable of
being expressed in terms of money, whether fixed or ascertained
on a time, task, price or commission basis . . . ." 10
As to the matter involving the power of dismissal and control by
the employer, the latter of which is the most important of the test,
petitioner asserts that its termination of De los Reyes was but an
exercise of its inherent right as principal under the contracts and
that the rules and guidelines it set forth in the contract cannot, by
any stretch of the imagination, be deemed as an exercise of control
over the private respondent as these were merely directives that
fixed the desired result without dictating the means or method to
be employed in attaining it. The following factual findings of the
NLRC 11 however contradict such claims:
A perusal of the appointment of complainant as Acting Unit
Manager reveals that:
1. Complainant was to "exclusively" serve respondent company.
Thus it is provided: . . . 7..7 Other causes of Termination:
This appointment may likewise be terminated for any of the
following causes: . . . 7..7..2. Your entering the service of the
government or another life insurance company; 7..7..3. Your
accepting a managerial or supervisory position in any firm doing
business in the Philippines without the written consent of the
Company; . . .
2. Complainant was required to meet certain manpower and
production quotas.
3. Respondent (herein petitioner) controlled the assignment and
removal of soliciting agents to and from complainant's unit,
thus: . . . 7..2. Assignment of Agents: Agents recruited and trained
by you shall be attached to your unit unless for reasons of
Company policy, no such assignment should be made. The
Company retains the exclusive right to assign new soliciting agents
to the unit. It is agreed that the Company may remove or transfer
any soliciting agents appointed and assigned to the said unit. . . .
It would not be amiss to state that respondent's duty to collect the
company's premiums using company receipts under Sec. 7.4 of the
management contract is further evidence of petitioner's control
over respondent, thus:
xxx xxx xxx
7.4. Acceptance and Remittance of Premiums. — . . . . the
Company hereby authorizes you to accept and to receive sums of
money in payment of premiums, loans, deposits on applications,
with or without interest, due from policyholders and applicants for
insurance, and the like, specially from policyholders of business
solicited and sold by the agents attached to your unit provided
however, that all such payments shall be duly receipted by you on
the corresponding Company's "Agents' Receipt" to be provided
you for this purpose and to be covered by such rules and
accounting regulations the Company may issue from time to time
on the matter. Payments received by you shall be turned over to the
Company's designated District or Service Office clerk or directly
to the Home Office not later than the next working day from
receipt thereof . . . .
Petitioner would have us apply our ruling in Insular Life
Assurance Co., Ltd. v. NLRC and Basiao 12 to the instant case
under the doctrine of stare decisis, postulating that both cases
involve parties similarly situated and facts which are almost
identical.
But we are not convinced that the cited case is on all fours with the
case at bar. In Basiao, the agent was appointed Agency Manager
under an Agency Manager Contract. To implement his end of the
agreement, Melecio Basiao organized an agency office to which he
gave the name M. Basiao and Associates. The Agency Manager
Contract practically contained the same terms and conditions as
the Agency Contract earlier entered into, and the Court observed
that, "drawn from the terms of the contract they had entered into,
(which) either expressly or by necessary implication, Basiao (was)
made the master of his own time and selling methods, left to his
own judgment the time, place and means of soliciting insurance,
set no accomplishment quotas and compensated him on the bases
of results obtained. He was not bound to observe any schedule of
working hours or report to any regular station; he could seek and
work on his prospects anywhere and at anytime he chose to and
was free to adopt the selling methods he deemed most effective."
16
Upon these premises, Basiao was considered as agent — an
independent contractor — of petitioner INSULAR LIFE.
Unlike Basiao, herein respondent De los Reyes was appointed
Acting Unit Manager, not agency manager. There is no evidence
that to implement his obligations under the management contract,
De los Reyes had organized an office. Petitioner in fact has
admitted that it provided De los Reyes a place and a table at its
office where he reported for and worked whenever he was not out
in the field. Placed under petitioner's Cebu District Service Office,
the unit was given a name by petitioner — De los Reyes and
Associates — and assigned Code No. 11753 and Recruitment No.
109398. Under the managership contract, De los Reyes was
obliged to work exclusively for petitioner in life insurance
solicitation and was imposed premium production quotas. Of
course, the acting unit manager could not underwrite other lines of
insurance because his Permanent Certificate of Authority was for
life insurance only and for no other. He was proscribed from
accepting a managerial or supervisory position in any other office
including the government without the written consent of petitioner.
De los Reyes could only be promoted to permanent unit manager if
he met certain requirements and his promotion was recommended
by the petitioner's District Manager and Regional Manager and
approved by its Division Manager. As Acting Unit Manager, De
los Reyes performed functions beyond mere solicitation of
insurance business for petitioner. As found by the NLRC, he
exercised administrative functions which were necessary and
beneficial to the business of INSULAR LIFE.
In Great Pacific Life Insurance Company v. NLRC 13 which is
closer in application than Basiao to this present controversy, we
found that "the relationships of the Ruiz brothers and Grepalife
were those of employer-employee. First, their work at the time of
their dismissal as zone supervisor and district manager was
necessary and desirable to the usual business of the insurance
company. They were entrusted with supervisory, sales and other
functions to guard Grepalife's business interests and to bring in
more clients to the company, and even with administrative
functions to ensure that all collections, reports and data are
faithfully brought to the company . . . . A cursory reading of their
respective functions as enumerated in their contracts reveals that
the company practically dictates the manner by which their jobs
are to be carried out . . . ." We need elaborate no further.
Exclusivity of service, control of assignments and removal of
agents under private respondent's unit, collection of premiums,
furnishing of company facilities and materials as well as capital
described as Unit Development Fund are but hallmarks of the
management system in which herein private respondent worked.
This obtaining, there is no escaping the conclusion that private
respondent Pantaleon de los Reyes was an employee of herein
petitioner.
WHEREFORE, the petition of Insular Life Assurance Company,
Ltd., is DENIED and the Decision of the National Labor Relations
Commission dated 3 March 1995 and its Order of 6 April 1996
sustaining it are AFFIRMED. Let this case be REMANDED to the
Labor Arbiter a quo who is directed to hear and dispose of this
case with deliberate dispatch in light of the views expressed herein.
SO ORDERED.
.R. No. 176484 November 25, 2008
CALAMBA MEDICAL CENTER, INC., petitioner
vs.
NATIONAL LABOR RELATIONS COMMISSION,
RONALDO LANZANAS AND MERCEDITHA* LANZANAS,
respondents.
DECISION
CARPIO MORALES, J.:
The Calamba Medical Center (petitioner), a privately-owned
hospital, engaged the services of medical doctors-spouses Ronaldo
Lanzanas (Dr. Lanzanas) and Merceditha Lanzanas (Dr.
Merceditha) in March 1992 and August 1995, respectively, as part
of its team of resident physicians. Reporting at the hospital twice-
a-week on twenty-four-hour shifts, respondents were paid a
monthly "retainer" of P4,800.00 each.1 It appears that resident
physicians were also given a percentage share out of fees charged
for out-patient treatments, operating room assistance and discharge
billings, in addition to their fixed monthly retainer.2
The work schedules of the members of the team of resident
physicians were fixed by petitioner's medical director Dr. Raul
Desipeda (Dr. Desipeda). And they were issued identification
cards3 by petitioner and were enrolled in the Social Security
System (SSS).4 Income taxes were withheld from them.5
On March 7, 1998, Dr. Meluz Trinidad (Dr. Trinidad), also a
resident physician at the hospital, inadvertently overheard a
telephone conversation of respondent Dr. Lanzanas with a fellow
employee, Diosdado Miscala, through an extension telephone line.
Apparently, Dr. Lanzanas and Miscala were discussing the low
"census" or admission of patients to the hospital.6
Dr. Desipeda whose attention was called to the above-said
telephone conversation issued to Dr. Lanzanas a Memorandum of
March 7, 1998 reading:
As a Licensed Resident Physician employed in
Calamba Medical Center since several years ago, the
hospital management has committed upon you utmost
confidence in the performance of duties pursuant
thereto. This is the reason why you were awarded the
privilege to practice in the hospital and were entrusted
hospital functions to serve the interest of both the
hospital and our patients using your capability for
independent judgment.
Very recently though and unfortunately, you have
committed acts inimical to the interest of the hospital,
the details of which are contained in the hereto attached
affidavit of witness.
You are therefore given 24 hours to explain why no
disciplinary action should be taken against you.
Pending investigation of your case, you are hereby
placed under 30-days [sic] preventive suspension
effective upon receipt hereof.7 (Emphasis, italics and
underscoring supplied)
Inexplicably, petitioner did not give respondent Dr. Merceditha,
who was not involved in the said incident, any work schedule after
sending her husband Dr. Lanzanas the memorandum,8 nor inform
her the reason therefor, albeit she was later informed by the Human
17
Resource Department (HRD) officer that that was part of
petitioner's cost-cutting measures.9
Responding to the memorandum, Dr. Lanzanas, by letter of March
9, 1998,10 admitted that he spoke with Miscala over the phone but
that their conversation was taken out of context by Dr. Trinidad.
11
On March 14, 1998, the rank-and-file employees union of
petitioner went on strike due to unresolved grievances over terms
and conditions of employment.12
On March 20, 1998, Dr. Lanzanas filed a complaint for illegal
suspension13 before the National Labor Relations Commission
(NLRC)-Regional Arbitration Board (RAB) IV. Dr. Merceditha
subsequently filed a complaint for illegal dismissal.14
In the meantime, then Sec. Cresenciano Trajano of the Department
of Labor and Employment (DOLE) certified the labor dispute to
the NLRC for compulsory arbitration and issued on April 21, 1998
return-to-work Order to the striking union officers and employees
of petitioner pending resolution of the labor dispute.15
In a memorandum16 of April 22, 1998, Dr. Desipeda echoed the
April 22, 1998 order of the Secretary of Labor directing all union
officers and members to return-to-work "on or April 23, 1998,
except those employees that were already terminated or are serving
disciplinary actions." Dr. Desipeda thus ordered the officers and
members of the union to "report for work as soon as possible" to
the hospital's personnel officer and administrator for "work
scheduling, assignments and/or re-assignments."
Petitioner later sent Dr. Lanzanas a notice of termination which he
received on April 25, 1998, indicating as grounds therefor his
failure to report back to work despite the DOLE order and his
supposed role in the striking union, thus:
On April 23, 1998, you still did not report for work despite
memorandum issued by the CMC Medical Director implementing
the Labor Secretary's ORDER. The same is true on April 24, 1998
and April 25, 1998,--you still did not report for work [sic].
You are likewise aware that you were observed (re: signatories
[sic] to the Saligang Batas of BMCMC-UWP) to be unlawfully
participating as member in the rank-and-file union's concerted
activities despite knowledge that your position in the hospital is
managerial in nature (Nurses, Orderlies, and staff of the
Emergency Room carry out your orders using your independent
judgment) which participation is expressly prohibited by the New
Labor Code and which prohibition was sustained by the Med-
Arbiter's ORDER dated February 24, 1998. (Emphasis and italics
in the original; underscoring partly in the original and partly
supplied)
For these reasons as grounds for termination, you are hereby
terminated for cause from employment effective today, April
25, 1998, without prejudice to further action for revocation of your
license before the Philippine [sic] Regulations [sic] Commission.17
(Emphasis and underscoring supplied)
Dr. Lanzanas thus amended his original complaint to include
illegal dismissal.18 His and Dr. Merceditha's complaints were
consolidated and docketed as NLRC CASE NO. RAB-IV-3-9879-
98-L.
By Decision19 of March 23, 1999, Labor Arbiter Antonio R.
Macam dismissed the spouses' complaints for want of jurisdiction
upon a finding that there was no employer-employee relationship
between the parties, the fourth requisite or the "control test" in the
determination of an employment bond being absent.
On appeal, the NLRC, by Decision20 of May 3, 2002, reversed the
Labor Arbiter's findings, disposing as follows:
WHEREFORE, the assailed decision is set aside. The
respondents are ordered to pay the complainants their
full backwages; separation pay of one month salary for
every year of service in lieu of reinstatement; moral
damages of P500,000.00 each; exemplary damages of
P250,000.00 each plus ten percent (10%) of the total
award as attorney's fees.
SO ORDERED.21
Petitioner's motion for reconsideration having been denied, it
brought the case to the Court of Appeals on certiorari.
The appellate court, by June 30, 2004 Decision,22 initially granted
petitioner's petition and set aside the NLRC ruling. However, upon
a subsequent motion for reconsideration filed by respondents, it
reinstated the NLRC decision in an Amended Decision23 dated
September 26, 2006 but tempered the award to each of the spouses
of moral and exemplary damages to P100,000.00 and P50,000.00,
respectively and omitted the award of attorney's fees.
In finding the existence of an employer-employee relationship
between the parties, the appellate court held:
x x x. While it may be true that the respondents are given the
discretion to decide on how to treat the petitioner's patients, the
petitioner has not denied nor explained why its Medical Director
still has the direct supervision and control over the
respondents. The fact is the petitioner's Medical Director still has
to approve the schedule of duties of the respondents. The
respondents stressed that the petitioner's Medical Director also
issues instructions or orders to the respondents relating to the
means and methods of performing their duties, i.e. admission of
patients, manner of characterizing cases, treatment of cases, etc.,
and may even overrule, review or revise the decisions of the
resident physicians. This was not controverted by the petitioner.
The foregoing factors taken together are sufficient to constitute the
fourth element, i.e. control test, hence, the existence of the
employer-employee relationship. In denying that it had control
over the respondents, the petitioner alleged that the respondents
were free to put up their own clinics or to accept other retainership
agreement with the other hospitals. But, the petitioner failed to
substantiate the allegation with substantial evidence. (Emphasis
and underscoring supplied)24
The appellate court thus declared that respondents were illegally
dismissed.
x x x. The petitioner's ground for dismissing respondent Ronaldo
Lanzanas was based on his alleged participation in union activities,
specifically in joining the strike and failing to observe the return-
to-work order issued by the Secretary of Labor. Yet, the petitioner
did not adduce any piece of evidence to show that respondent
Ronaldo indeed participated in the strike. x x x.
18
 In the case of respondent Merceditha Lanzanas, the
petitioner's explanation that "her marriage to
complainant Ronaldo has given rise to the presumption
that her sympat[hies] are likewise with her husband" as
a ground for her dismissal is unacceptable. Such is not
one of the grounds to justify the termination of her
employment.25 (Underscoring supplied)
The fallo of the appellate court's decision reads:
WHEREFORE, the instant Motion for Reconsideration
is GRANTED, and the Court's decision dated June 30,
2004, is SET ASIDE. In lieu thereof, a new judgment is
entered, as follows:
WHEREFORE, the petition is DISMISSED.
The assailed decision dated May 3, 2002 and
order dated September 24, 2002 of the
NLRC in NLRC NCR CA No. 019823-99
are AFFIRMED with the MODIFICATION
that the moral and exemplary damages are
reduced to P100,000.00 each and
P50,000.00 each, respectively.
SO ORDERED.26 (Emphasis and italics in the original;
underscoring supplied)
Preliminarily, the present petition calls for a determination of
whether there exists an employer-employee relationship27 between
petitioner and the spouses-respondents.
Denying the existence of such relationship, petitioner argues that
the appellate court, as well as the NLRC, overlooked its twice-a-
week reporting arrangement with respondents who are free to
practice their profession elsewhere the rest of the week. And it
invites attention to the uncontroverted allegation that respondents,
aside from their monthly retainers, were entitled to one-half of all
suturing, admitting, consultation, medico-legal and operating room
assistance fees.28 These circumstances, it stresses, are clear badges
of the absence of any employment relationship between them.
This Court is unimpressed.
Under the "control test," an employment relationship exists
between a physician and a hospital if the hospital controls both the
means and the details of the process by which the physician is to
accomplish his task.29
Where a person who works for another does so more or less at his
own pleasure and is not subject to definite hours or conditions of
work, and is compensated according to the result of his efforts and
not the amount thereof, the element of control is absent.30
As priorly stated, private respondents maintained specific work-
schedules, as determined by petitioner through its medical director,
which consisted of 24-hour shifts totaling forty-eight hours each
week and which were strictly to be observed under pain of
administrative sanctions.
That petitioner exercised control over respondents gains light from
the undisputed fact that in the emergency room, the operating
room, or any department or ward for that matter, respondents' work
is monitored through its nursing supervisors, charge nurses and
orderlies. Without the approval or consent of petitioner or its
medical director, no operations can be undertaken in those areas.
For control test to apply, it is not essential for the employer to
actually supervise the performance of duties of the employee, it
being enough that it has the right to wield the power.31
With respect to respondents' sharing in some hospital fees, this
scheme does not sever the employment tie between them and
petitioner as this merely mirrors additional form or another form of
compensation or incentive similar to what commission-based
employees receive as contemplated in Article 97 (f) of the Labor
Code, thus:
"Wage" paid to any employee shall mean the
remuneration or earning, however designated, capable
of being expressed in terms of money, whether fixed
or ascertained on a time, task, piece, or commission
basis, or other method of calculating the same,
which is payable by an employer to an employee under
a written or unwritten contract of employment for work
done or to be done, or for services rendered or to be
rendered and includes the fair and reasonable value, as
determined by the Secretary of Labor, of board,
lodging, or other facilities customarily furnished by the
employer to the employee. x x x (Emphasis and
underscoring supplied),
Respondents were in fact made subject to petitioner-hospital's
Code of Ethics,32 the provisions of which cover administrative and
disciplinary measures on negligence of duties, personnel conduct
and behavior, and offenses against persons, property and the
hospital's interest.
More importantly, petitioner itself provided incontrovertible proof
of the employment status of respondents, namely, the identification
cards it issued them, the payslips33 and BIR W-2 (now 2316)
Forms which reflect their status as employees, and the
classification as "salary" of their remuneration. Moreover, it
enrolled respondents in the SSS and Medicare (Philhealth)
program. It bears noting at this juncture that mandatory coverage
under the SSS Law34 is premised on the existence of an employer-
employee relationship,35 except in cases of compulsory coverage of
the self-employed. It would be preposterous for an employer to
report certain persons as employees and pay their SSS premiums
as well as their wages if they are not its employees.36
And if respondents were not petitioner's employees, how does it
account for its issuance of the earlier-quoted March 7, 1998
memorandum explicitly stating that respondent is "employed" in it
and of the subsequent termination letter indicating respondent
Lanzanas' employment status.
Finally, under Section 15, Rule X of Book III of the Implementing
Rules of the Labor Code, an employer-employee relationship exists
between the resident physicians and the training hospitals, unless
there is a training agreement between them, and the training
program is duly accredited or approved by the appropriate
government agency. In respondents' case, they were not
undergoing any specialization training. They were considered non-
training general practitioners,37 assigned at the emergency rooms
and ward sections.
Turning now to the issue of dismissal, the Court upholds the
appellate court's conclusion that private respondents were illegally
dismissed.
19
Dr. Lanzanas was neither a managerial nor supervisory employee
but part of the rank-and-file. This is the import of the Secretary of
Labor's Resolution of May 22, 1998 in OS A-05-15-98 which
reads:
xxxx
In the motion to dismiss it filed before the Med-Arbiter, the
employer (CMC) alleged that 24 members of petitioner are
supervisors, namely x x x Rolando Lanzonas [sic] x x x.
A close scrutiny of the job descriptions of the alleged supervisors
narrated by the employer only proves that except for the contention
that these employees allegedly supervise, they do not however
recommend any managerial action. At most, their job is merely
routinary in nature and consequently, they cannot be considered
supervisory employees.
They are not therefore barred from membership in the union of
rank[-]and[-]file, which the petitioner [the union] is seeking to
represent in the instant case.38 (Emphasis and underscoring
supplied)
xxxx
Admittedly, Dr. Lanzanas was a union member in the hospital,
which is considered indispensable to the national interest. In labor
disputes adversely affecting the continued operation of a hospital,
Article 263(g) of the Labor Code provides:
ART. 263. STRIKES, PICKETING, AND LOCKOUTS.–
xxxx
(g) x x x x
x x x x. In labor disputes adversely affecting the continued
operation of such hospitals, clinics or medical institutions, it
shall be the duty of the striking union or locking-out employer to
provide and maintain an effective skeletal workforce of medical
and other health personnel, whose movement and services shall be
unhampered and unrestricted, as are necessary to insure the proper
and adequate protection of the life and health of its patients, most
especially emergency cases, for the duration of the strike or
lockout. In such cases, the Secretary of Labor and Employment is
mandated to immediately assume, within twenty-four hours from
knowledge of the occurrence of such strike or lockout, jurisdiction
over the same or certify to the Commission for compulsory
arbitration. For this purpose, the contending parties are strictly
enjoined to comply with such orders, prohibitions and/or
injunctions as are issued by the Secretary of Labor and
Employment or the Commission, under pain of immediate
disciplinary action, including dismissal or loss of employment
status or payment by the locking-out employer of backwages,
damages and other affirmative relief, even criminal
prosecution against either or both of them.
x x x x (Emphasis and underscoring supplied)
An assumption or certification order of the DOLE Secretary
automatically results in a return-to-work of all striking workers,
whether a corresponding return-to-work order had been issued.39
The DOLE Secretary in fact issued a return-to-work Order, failing
to comply with which is punishable by dismissal or loss of
employment status.40
Participation in a strike and intransigence to a return-to-work order
must, however, be duly proved in order to justify immediate
dismissal in a "national interest" case. As the appellate court as
well as the NLRC observed, however, there is nothing in the
records that would bear out Dr. Lanzanas' actual participation in
the strike. And the medical director's Memorandum41 of April 22,
1998 contains nothing more than a general directive to all union
officers and members to return-to-work. Mere membership in a
labor union does not ipso facto mean participation in a strike.
Dr. Lanzanas' claim that, after his 30-day preventive suspension
ended on or before April 9, 1998, he was never given any work
schedule42 was not refuted by petitioner. Petitioner in fact never
released any findings of its supposed investigation into Dr.
Lanzanas' alleged "inimical acts."
Petitioner thus failed to observe the two requirements,before
dismissal can be effected ─ notice and hearing ─ which constitute
essential elements of the statutory process; the first to apprise the
employee of the particular acts or omissions for which his
dismissal is sought, and the second to inform the employee of the
employer's decision to dismiss him.43 Non-observance of these
requirements runs afoul of the procedural mandate.44
The termination notice sent to and received by Dr. Lanzanas on
April 25, 1998 was the first and only time that he was apprised of
the reason for his dismissal. He was not afforded, however, even
the slightest opportunity to explain his side. His was a "termination
upon receipt" situation. While he was priorly made to explain on
his telephone conversation with Miscala,45 he was not with respect
to his supposed participation in the strike and failure to heed the
return-to-work order.
As for the case of Dr. Merceditha, her dismissal was worse, it
having been effected without any just or authorized cause and
without observance of due process. In fact, petitioner never
proferred any valid cause for her dismissal except its view that "her
marriage to [Dr. Lanzanas] has given rise to the presumption that
her sympath[y] [is] with her husband; [and that when [Dr.
Lanzanas] declared that he was going to boycott the scheduling of
their workload by the medical doctor, he was presumed to be
speaking for himself [and] for his wife Merceditha."46
Petitioner's contention that Dr. Merceditha was a member of the
union or was a participant in the strike remained just that. Its
termination of her employment on the basis of her conjugal
relationship is not analogous to
any of the causes enumerated in Article 28247 of the Labor Code.
Mere suspicion or belief, no matter how strong, cannot substitute
for factual findings carefully established through orderly
procedure.48
The Court even notes that after the proceedings at the NLRC,
petitioner never even mentioned Dr. Merceditha's case. There is
thus no gainsaying that her dismissal was both substantively and
procedurally infirm.
Adding insult to injury was the circulation by petitioner of a
"watchlist" or "watch out list"49 including therein the names of
respondents. Consider the following portions of Dr. Merceditha's
Memorandum of Appeal:
20
3. Moreover, to top it all, respondents have circulated a so called ENRIQUE AGANA, Petitioners,
"Watch List" to other hospitals, one of which [was] procured from vs.
Foothills Hospital in Sto. Tomas, Batangas [that] contains her JUAN FUENTES, Respondent.
name. The object of the said list is precisely to harass Complainant
and malign her good name and reputation. This is not only
x- - - - - - - - - - - - - - - - - - - -- - - - x
unprofessional, but runs smack of oppression as CMC is trying
permanently deprived [sic] Complainant of her livelihood by
ensuring that she is barred from practicing in other hospitals. G.R. No. 127590 January 31, 2007

4. Other co-professionals and brothers in the profession are fully MIGUEL AMPIL, Petitioner,
aware of these "watch out" lists and as such, her reputation was not vs.
only besmirched, but was damaged, and she suffered social NATIVIDAD AGANA and ENRIQUE AGANA, Respondents.
humiliation as it is of public knowledge that she was dismissed
from work. Complainant came from a reputable and respected
Hospitals, having undertaken one of mankind’s most important and
family, her father being a retired full Colonel in the Army, Col.
delicate endeavors, must assume the grave responsibility of
Romeo A. Vente, and her brothers and sisters are all professionals,
pursuing it with appropriate care. The care and service dispensed
her brothers, Arnold and Romeo Jr., being engineers. The
through this high trust, however technical, complex and esoteric its
Complainant has a family protection [sic] to protect. She likewise
character may be, must meet standards of responsibility
has a professional reputation to protect, being a licensed physician.
commensurate with the undertaking to preserve and protect the
Both her personal and professional reputation were damaged as a
health, and indeed, the very lives of those placed in the hospital’s
result of the unlawful acts of the respondents.50
keeping.1

While petitioner does not deny the existence of such list, it pointed
Assailed in these three consolidated petitions for review on
to the lack of any board action on its part to initiate such listing
certiorari is the Court of Appeals’ Decision2 dated September 6,
and to circulate the same, viz:
1996 in CA-G.R. CV No. 42062 and CA-G.R. SP No. 32198
affirming with modification the Decision3 dated March 17, 1993 of
20. x x x. The alleged watchlist or "watch out list," as termed by the Regional Trial Court (RTC), Branch 96, Quezon City in Civil
complainants, were merely lists obtained by one Dr. Ernesto Naval Case No. Q-43322 and nullifying its Order dated September 21,
of PAMANA Hospital. Said list was given by a stockholder of 1993.
respondent who was at the same time a stockholder of
PAMAN[A] Hospital. The giving of the list was not a Board
The facts, as culled from the records, are:
action.51 (Emphasis and underscoring supplied)

On April 4, 1984, Natividad Agana was rushed to the Medical City

The circulation of such list containing names of alleged union
members intended to prevent employment of workers for union
activities similarly constitutes unfair labor practice, thereby giving
a right of action for damages by the employees prejudiced.52
A word on the appellate court's deletion of the award of attorney's
fees. There being no basis advanced in deleting it, as exemplary
damages were correctly awarded,53 the award of attorney's fees
should be reinstated.
WHEREFORE, the Decision of the Court of Appeals in CA-G.R.
SP No. 75871 is AFFIRMED with MODIFICATION in that the
award by the National Labor Relations Commission of 10% of the
total judgment award as attorney's fees is reinstated. In all other
aspects, the decision of the appellate court is affirmed.
SO ORDERED.
G.R. No. 126297 January 31, 2007
PROFESSIONAL SERVICES, INC., Petitioner,
vs.
NATIVIDAD and ENRIQUE AGANA, Respondents.
x-----------------------x
General Hospital (Medical City Hospital) because of difficulty of
bowel movement and bloody anal discharge. After a series of
medical examinations, Dr. Miguel Ampil, petitioner in G.R. No.
127590, diagnosed her to be suffering from "cancer of the
sigmoid."
On April 11, 1984, Dr. Ampil, assisted by the medical staff4 of the
Medical City Hospital, performed an anterior resection surgery on
Natividad. He found that the malignancy in her sigmoid area had
spread on her left ovary, necessitating the removal of certain
portions of it. Thus, Dr. Ampil obtained the consent of Natividad’s
husband, Enrique Agana, to permit Dr. Juan Fuentes, respondent in
G.R. No. 126467, to perform hysterectomy on her.
After Dr. Fuentes had completed the hysterectomy, Dr. Ampil took
over, completed the operation and closed the incision.
However, the operation appeared to be flawed. In the
corresponding Record of Operation dated April 11, 1984, the
attending nurses entered these remarks:
"sponge count lacking 2
"announced to surgeon searched (sic) done but to no avail continue
for closure."

G.R. No. 126467 January 31, 2007 On April 24, 1984, Natividad was released from the hospital. Her
hospital and medical bills, including the doctors’ fees, amounted to
P60,000.00.
NATIVIDAD (Substituted by her children MARCELINO
AGANA III, ENRIQUE AGANA, JR., EMMA AGANA
ANDAYA, JESUS AGANA, and RAYMUND AGANA) and

21
After a couple of days, Natividad complained of excruciating pain
in her anal region. She consulted both Dr. Ampil and Dr. Fuentes
about it. They told her that the pain was the natural consequence of
the surgery. Dr. Ampil then recommended that she consult an
oncologist to examine the cancerous nodes which were not
removed during the operation.
On May 9, 1984, Natividad, accompanied by her husband, went to
the United States to seek further treatment. After four months of
consultations and laboratory examinations, Natividad was told she
was free of cancer. Hence, she was advised to return to the
Philippines.
On August 31, 1984, Natividad flew back to the Philippines, still
suffering from pains. Two weeks thereafter, her daughter found a
piece of gauze protruding from her vagina. Upon being informed
about it, Dr. Ampil proceeded to her house where he managed to
extract by hand a piece of gauze measuring 1.5 inches in width. He
then assured her that the pains would soon vanish.
Dr. Ampil’s assurance did not come true. Instead, the pains
intensified, prompting Natividad to seek treatment at the
Polymedic General Hospital. While confined there, Dr. Ramon
Gutierrez detected the presence of another foreign object in her
vagina -- a foul-smelling gauze measuring 1.5 inches in width
which badly infected her vaginal vault. A recto-vaginal fistula had
formed in her reproductive organs which forced stool to excrete
through the vagina. Another surgical operation was needed to
remedy the damage. Thus, in October 1984, Natividad underwent
another surgery.
On November 12, 1984, Natividad and her husband filed with the
RTC, Branch 96, Quezon City a complaint for damages against the
Professional Services, Inc. (PSI), owner of the Medical City
Hospital, Dr. Ampil, and Dr. Fuentes, docketed as Civil Case No.
Q-43322. They alleged that the latter are liable for negligence for
leaving two pieces of gauze inside Natividad’s body and
malpractice for concealing their acts of negligence.
Meanwhile, Enrique Agana also filed with the Professional
Regulation Commission (PRC) an administrative complaint for
gross negligence and malpractice against Dr. Ampil and Dr.
Fuentes, docketed as Administrative Case No. 1690. The PRC
Board of Medicine heard the case only with respect to Dr. Fuentes
because it failed to acquire jurisdiction over Dr. Ampil who was
then in the United States.
On February 16, 1986, pending the outcome of the above cases,
Natividad died and was duly substituted by her above-named
children (the Aganas).
On March 17, 1993, the RTC rendered its Decision in favor of the
Aganas, finding PSI, Dr. Ampil and Dr. Fuentes liable for
negligence and malpractice, the decretal part of which reads:
WHEREFORE, judgment is hereby rendered for the plaintiffs
ordering the defendants PROFESSIONAL SERVICES, INC., DR.
MIGUEL AMPIL and DR. JUAN FUENTES to pay to the
plaintiffs, jointly and severally, except in respect of the award for
exemplary damages and the interest thereon which are the
liabilities of defendants Dr. Ampil and Dr. Fuentes only, as
follows:
1. As actual damages, the following amounts:
a. The equivalent in Philippine Currency of the total of
US$19,900.00 at the rate of P21.60-US$1.00, as reimbursement of
actual expenses incurred in the United States of America;
b. The sum of P4,800.00 as travel taxes of plaintiffs and their
physician daughter;
c. The total sum of P45,802.50, representing the cost of
hospitalization at Polymedic Hospital, medical fees, and cost of the
saline solution;
2. As moral damages, the sum of P2,000,000.00;
3. As exemplary damages, the sum of P300,000.00;
4. As attorney’s fees, the sum of P250,000.00;
5. Legal interest on items 1 (a), (b), and (c); 2; and 3 hereinabove,
from date of filing of the complaint until full payment; and
6. Costs of suit.
SO ORDERED.
Aggrieved, PSI, Dr. Fuentes and Dr. Ampil interposed an appeal to
the Court of Appeals, docketed as CA-G.R. CV No. 42062.
Incidentally, on April 3, 1993, the Aganas filed with the RTC a
motion for a partial execution of its Decision, which was granted in
an Order dated May 11, 1993. Thereafter, the sheriff levied upon
certain properties of Dr. Ampil and sold them for P451,275.00 and
delivered the amount to the Aganas.
Following their receipt of the money, the Aganas entered into an
agreement with PSI and Dr. Fuentes to indefinitely suspend any
further execution of the RTC Decision. However, not long
thereafter, the Aganas again filed a motion for an alias writ of
execution against the properties of PSI and Dr. Fuentes. On
September 21, 1993, the RTC granted the motion and issued the
corresponding writ, prompting Dr. Fuentes to file with the Court of
Appeals a petition for certiorari and prohibition, with prayer for
preliminary injunction, docketed as CA-G.R. SP No. 32198.
During its pendency, the Court of Appeals issued a Resolution5
dated October 29, 1993 granting Dr. Fuentes’ prayer for injunctive
relief.
On January 24, 1994, CA-G.R. SP No. 32198 was consolidated
with CA-G.R. CV No. 42062.
Meanwhile, on January 23, 1995, the PRC Board of Medicine
rendered its Decision6 in Administrative Case No. 1690 dismissing
the case against Dr. Fuentes. The Board held that the prosecution
failed to show that Dr. Fuentes was the one who left the two pieces
of gauze inside Natividad’s body; and that he concealed such fact
from Natividad.
On September 6, 1996, the Court of Appeals rendered its Decision
jointly disposing of CA-G.R. CV No. 42062 and CA-G.R. SP No.
32198, thus:
WHEREFORE, except for the modification that the case against
defendant-appellant Dr. Juan Fuentes is hereby DISMISSED, and
22
with the pronouncement that defendant-appellant Dr. Miguel
Ampil is liable to reimburse defendant-appellant Professional
Services, Inc., whatever amount the latter will pay or had paid to
the plaintiffs-appellees, the decision appealed from is hereby
AFFIRMED and the instant appeal DISMISSED.
Concomitant with the above, the petition for certiorari and
prohibition filed by herein defendant-appellant Dr. Juan Fuentes in
CA-G.R. SP No. 32198 is hereby GRANTED and the challenged
order of the respondent judge dated September 21, 1993, as well as
the alias writ of execution issued pursuant thereto are hereby
NULLIFIED and SET ASIDE. The bond posted by the petitioner
in connection with the writ of preliminary injunction issued by this
Court on November 29, 1993 is hereby cancelled.
Costs against defendants-appellants Dr. Miguel Ampil and
Professional Services, Inc.
SO ORDERED.
Only Dr. Ampil filed a motion for reconsideration, but it was
denied in a Resolution7 dated December 19, 1996.
Hence, the instant consolidated petitions.
In G.R. No. 126297, PSI alleged in its petition that the Court of
Appeals erred in holding that: (1) it is estopped from raising the
defense that Dr. Ampil is not its employee; (2) it is solidarily liable
with Dr. Ampil; and (3) it is not entitled to its counterclaim against
the Aganas. PSI contends that Dr. Ampil is not its employee, but a
mere consultant or independent contractor. As such, he alone
should answer for his negligence.
In G.R. No. 126467, the Aganas maintain that the Court of
Appeals erred in finding that Dr. Fuentes is not guilty of
negligence or medical malpractice, invoking the doctrine of res
ipsa loquitur. They contend that the pieces of gauze are prima facie
proofs that the operating surgeons have been negligent.
Finally, in G.R. No. 127590, Dr. Ampil asserts that the Court of
Appeals erred in finding him liable for negligence and malpractice
sans evidence that he left the two pieces of gauze in Natividad’s
vagina. He pointed to other probable causes, such as: (1) it was Dr.
Fuentes who used gauzes in performing the hysterectomy; (2) the
attending nurses’ failure to properly count the gauzes used during
surgery; and (3) the medical intervention of the American doctors
who examined Natividad in the United States of America.
For our resolution are these three vital issues: first, whether the
Court of Appeals erred in holding Dr. Ampil liable for negligence
and malpractice; second, whether the Court of Appeals erred in
absolving Dr. Fuentes of any liability; and third, whether PSI may
be held solidarily liable for the negligence of Dr. Ampil.
I - G.R. No. 127590
Whether the Court of Appeals Erred in Holding Dr. Ampil
Liable for Negligence and Malpractice.
Dr. Ampil, in an attempt to absolve himself, gears the Court’s
attention to other possible causes of Natividad’s detriment. He
argues that the Court should not discount either of the following
possibilities: first, Dr. Fuentes left the gauzes in Natividad’s body
after performing hysterectomy; second, the attending nurses erred
in counting the gauzes; and third, the American doctors were the
ones who placed the gauzes in Natividad’s body.
Dr. Ampil’s arguments are purely conjectural and without basis.
Records show that he did not present any evidence to prove that
the American doctors were the ones who put or left the gauzes in
Natividad’s body. Neither did he submit evidence to rebut the
correctness of the record of operation, particularly the number of
gauzes used. As to the alleged negligence of Dr. Fuentes, we are
mindful that Dr. Ampil examined his (Dr. Fuentes’) work and
found it in order.
The glaring truth is that all the major circumstances, taken
together, as specified by the Court of Appeals, directly point to Dr.
Ampil as the negligent party, thus:
First, it is not disputed that the surgeons used gauzes as
sponges to control the bleeding of the patient during the
surgical operation.
Second, immediately after the operation, the nurses
who assisted in the surgery noted in their report that the
‘sponge count (was) lacking 2’; that such anomaly was
‘announced to surgeon’ and that a ‘search was done but
to no avail’ prompting Dr. Ampil to ‘continue for
closure’ x x x.
Third, after the operation, two (2) gauzes were
extracted from the same spot of the body of Mrs. Agana
where the surgery was performed.
An operation requiring the placing of sponges in the incision is not
complete until the sponges are properly removed, and it is settled
that the leaving of sponges or other foreign substances in the
wound after the incision has been closed is at least prima facie
negligence by the operating surgeon.8 To put it simply, such act is
considered so inconsistent with due care as to raise an inference of
negligence. There are even legions of authorities to the effect that
such act is negligence per se.9
Of course, the Court is not blind to the reality that there are times
when danger to a patient’s life precludes a surgeon from further
searching missing sponges or foreign objects left in the body. But
this does not leave him free from any obligation. Even if it has
been shown that a surgeon was required by the urgent necessities
of the case to leave a sponge in his patient’s abdomen, because of
the dangers attendant upon delay, still, it is his legal duty to so
inform his patient within a reasonable time thereafter by advising
her of what he had been compelled to do. This is in order that she
might seek relief from the effects of the foreign object left in her
body as her condition might permit. The ruling in Smith v.
Zeagler10 is explicit, thus:
The removal of all sponges used is part of a surgical operation, and
when a physician or surgeon fails to remove a sponge he has
placed in his patient’s body that should be removed as part of the
operation, he thereby leaves his operation uncompleted and creates
a new condition which imposes upon him the legal duty of calling
the new condition to his patient’s attention, and endeavoring with
the means he has at hand to minimize and avoid untoward results
likely to ensue therefrom.
23
Here, Dr. Ampil did not inform Natividad about the missing two
pieces of gauze. Worse, he even misled her that the pain she was
experiencing was the ordinary consequence of her operation. Had
he been more candid, Natividad could have taken the immediate
and appropriate medical remedy to remove the gauzes from her
body. To our mind, what was initially an act of negligence by Dr.
Ampil has ripened into a deliberate wrongful act of deceiving his
patient.
This is a clear case of medical malpractice or more appropriately,
medical negligence. To successfully pursue this kind of case, a
patient must only prove that a health care provider either failed to
do something which a reasonably prudent health care provider
would have done, or that he did something that a reasonably
prudent provider would not have done; and that failure or action
caused injury to the patient.11 Simply put, the elements are duty,
breach, injury and proximate causation. Dr, Ampil, as the lead
surgeon, had the duty to remove all foreign objects, such as gauzes,
from Natividad’s body before closure of the incision. When he
failed to do so, it was his duty to inform Natividad about it. Dr.
Ampil breached both duties. Such breach caused injury to
Natividad, necessitating her further examination by American
doctors and another surgery. That Dr. Ampil’s negligence is the
proximate cause12 of Natividad’s injury could be traced from his
act of closing the incision despite the information given by the
attending nurses that two pieces of gauze were still missing. That
they were later on extracted from Natividad’s vagina established
the causal link between Dr. Ampil’s negligence and the injury.
And what further aggravated such injury was his deliberate
concealment of the missing gauzes from the knowledge of
Natividad and her family.
II - G.R. No. 126467
Whether the Court of Appeals Erred in Absolving
Dr. Fuentes of any Liability
The Aganas assailed the dismissal by the trial court of the case
against Dr. Fuentes on the ground that it is contrary to the doctrine
of res ipsa loquitur. According to them, the fact that the two pieces
of gauze were left inside Natividad’s body is a prima facie
evidence of Dr. Fuentes’ negligence.
We are not convinced.
Literally, res ipsa loquitur means "the thing speaks for itself." It is
the rule that the fact of the occurrence of an injury, taken with the
surrounding circumstances, may permit an inference or raise a
presumption of negligence, or make out a plaintiff’s prima facie
case, and present a question of fact for defendant to meet with an
explanation.13 Stated differently, where the thing which caused the
injury, without the fault of the injured, is under the exclusive
control of the defendant and the injury is such that it should not
have occurred if he, having such control used proper care, it
affords reasonable evidence, in the absence of explanation that the
injury arose from the defendant’s want of care, and the burden of
proof is shifted to him to establish that he has observed due care
and diligence.14
From the foregoing statements of the rule, the requisites for the
applicability of the doctrine of res ipsa loquitur are: (1) the
occurrence of an injury; (2) the thing which caused the injury was
under the control and management of the defendant; (3) the
occurrence was such that in the ordinary course of things, would
not have happened if those who had control or management used
proper care; and (4) the absence of explanation by the defendant.
Of the foregoing requisites, the most instrumental is the "control
and management of the thing which caused the injury."15
We find the element of "control and management of the thing
which caused the injury" to be wanting. Hence, the doctrine of res
ipsa loquitur will not lie.
It was duly established that Dr. Ampil was the lead surgeon during
the operation of Natividad. He requested the assistance of Dr.
Fuentes only to perform hysterectomy when he (Dr. Ampil) found
that the malignancy in her sigmoid area had spread to her left
ovary. Dr. Fuentes performed the surgery and thereafter reported
and showed his work to Dr. Ampil. The latter examined it and
finding everything to be in order, allowed Dr. Fuentes to leave the
operating room. Dr. Ampil then resumed operating on Natividad.
He was about to finish the procedure when the attending nurses
informed him that two pieces of gauze were missing. A "diligent
search" was conducted, but the misplaced gauzes were not found.
Dr. Ampil then directed that the incision be closed. During this
entire period, Dr. Fuentes was no longer in the operating room and
had, in fact, left the hospital.
Under the "Captain of the Ship" rule, the operating surgeon is the
person in complete charge of the surgery room and all personnel
connected with the operation. Their duty is to obey his orders.16 As
stated before, Dr. Ampil was the lead surgeon. In other words, he
was the "Captain of the Ship." That he discharged such role is
evident from his following conduct: (1) calling Dr. Fuentes to
perform a hysterectomy; (2) examining the work of Dr. Fuentes
and finding it in order; (3) granting Dr. Fuentes’ permission to
leave; and (4) ordering the closure of the incision. To our mind, it
was this act of ordering the closure of the incision notwithstanding
that two pieces of gauze remained unaccounted for, that caused
injury to Natividad’s body. Clearly, the control and management of
the thing which caused the injury was in the hands of Dr. Ampil,
not Dr. Fuentes.
In this jurisdiction, res ipsa loquitur is not a rule of substantive
law, hence, does not per se create or constitute an independent or
separate ground of liability, being a mere evidentiary rule.17 In
other words, mere invocation and application of the doctrine does
not dispense with the requirement of proof of negligence. Here, the
negligence was proven to have been committed by Dr. Ampil and
not by Dr. Fuentes.
III - G.R. No. 126297
Whether PSI Is Liable for the Negligence of Dr. Ampil
The third issue necessitates a glimpse at the historical development
of hospitals and the resulting theories concerning their liability for
the negligence of physicians.
Until the mid-nineteenth century, hospitals were generally
charitable institutions, providing medical services to the lowest
classes of society, without regard for a patient’s ability to pay.18
Those who could afford medical treatment were usually treated at
home by their doctors.19 However, the days of house calls and
philanthropic health care are over. The modern health care industry
continues to distance itself from its charitable past and has
experienced a significant conversion from a not-for-profit health
care to for-profit hospital businesses. Consequently, significant
changes in health law have accompanied the business-related
changes in the hospital industry. One important legal change is an
increase in hospital liability for medical malpractice. Many courts
24
now allow claims for hospital vicarious liability under the theories
of respondeat superior, apparent authority, ostensible authority, or
agency by estoppel. 20
In this jurisdiction, the statute governing liability for negligent acts
is Article 2176 of the Civil Code, which reads:
Art. 2176. Whoever by act or omission causes damage to another,
there being fault or negligence, is obliged to pay for the damage
done. Such fault or negligence, if there is no pre-existing
contractual relation between the parties, is called a quasi-delict and
is governed by the provisions of this Chapter.
A derivative of this provision is Article 2180, the rule governing
vicarious liability under the doctrine of respondeat superior, thus:
ART. 2180. The obligation imposed by Article 2176 is
demandable not only for one’s own acts or omissions, but also for
those of persons for whom one is responsible.
x x x x x x
The owners and managers of an establishment or enterprise are
likewise responsible for damages caused by their employees in the
service of the branches in which the latter are employed or on the
occasion of their functions.
Employers shall be liable for the damages caused by their
employees and household helpers acting within the scope of their
assigned tasks even though the former are not engaged in any
business or industry.
x x x x x x cases. However, the difficulty is more apparent than real.
The responsibility treated of in this article shall cease when the
persons herein mentioned prove that they observed all the
diligence of a good father of a family to prevent damage.
A prominent civilist commented that professionals engaged by an
employer, such as physicians, dentists, and pharmacists, are not
"employees" under this article because the manner in which they
perform their work is not within the control of the latter
(employer). In other words, professionals are considered
personally liable for the fault or negligence they commit in the
discharge of their duties, and their employer cannot be held liable
for such fault or negligence. In the context of the present case, "a
hospital cannot be held liable for the fault or negligence of a
physician or surgeon in the treatment or operation of patients."21
The foregoing view is grounded on the traditional notion that the
professional status and the very nature of the physician’s calling
preclude him from being classed as an agent or employee of a
hospital, whenever he acts in a professional capacity.22 It has been
said that medical practice strictly involves highly developed and
specialized knowledge,23 such that physicians are generally free to
exercise their own skill and judgment in rendering medical
services sans interference.24 Hence, when a doctor practices
medicine in a hospital setting, the hospital and its employees are
deemed to subserve him in his ministrations to the patient and his
actions are of his own responsibility.25
The case of Schloendorff v. Society of New York Hospital26 was
then considered an authority for this view. The "Schloendorff
doctrine" regards a physician, even if employed by a hospital, as an
independent contractor because of the skill he exercises and the
lack of control exerted over his work. Under this doctrine,
hospitals are exempt from the application of the respondeat
superior principle for fault or negligence committed by physicians
in the discharge of their profession.
However, the efficacy of the foregoing doctrine has weakened with
the significant developments in medical care. Courts came to
realize that modern hospitals are increasingly taking active role in
supplying and regulating medical care to patients. No longer were
a hospital’s functions limited to furnishing room, food, facilities
for treatment and operation, and attendants for its patients. Thus, in
Bing v. Thunig,27 the New York Court of Appeals deviated from
the Schloendorff doctrine, noting that modern hospitals actually do
far more than provide facilities for treatment. Rather, they
regularly employ, on a salaried basis, a large staff of physicians,
interns, nurses, administrative and manual workers. They charge
patients for medical care and treatment, even collecting for such
services through legal action, if necessary. The court then
concluded that there is no reason to exempt hospitals from the
universal rule of respondeat superior.
In our shores, the nature of the relationship between the hospital
and the physicians is rendered inconsequential in view of our
categorical pronouncement in Ramos v. Court of Appeals28 that for
purposes of apportioning responsibility in medical negligence
cases, an employer-employee relationship in effect exists between
hospitals and their attending and visiting physicians. This Court
held:
"We now discuss the responsibility of the hospital in this particular
incident. The unique practice (among private hospitals) of filling
up specialist staff with attending and visiting "consultants," who
are allegedly not hospital employees, presents problems in
apportioning responsibility for negligence in medical malpractice
In the first place, hospitals exercise significant control in the hiring
and firing of consultants and in the conduct of their work within
the hospital premises. Doctors who apply for ‘consultant’ slots,
visiting or attending, are required to submit proof of completion of
residency, their educational qualifications, generally, evidence of
accreditation by the appropriate board (diplomate), evidence of
fellowship in most cases, and references. These requirements are
carefully scrutinized by members of the hospital administration or
by a review committee set up by the hospital who either accept or
reject the application. x x x.
After a physician is accepted, either as a visiting or attending
consultant, he is normally required to attend clinico-pathological
conferences, conduct bedside rounds for clerks, interns and
residents, moderate grand rounds and patient audits and perform
other tasks and responsibilities, for the privilege of being able to
maintain a clinic in the hospital, and/or for the privilege of
admitting patients into the hospital. In addition to these, the
physician’s performance as a specialist is generally evaluated by a
peer review committee on the basis of mortality and morbidity
statistics, and feedback from patients, nurses, interns and residents.
A consultant remiss in his duties, or a consultant who regularly
falls short of the minimum standards acceptable to the hospital or
its peer review committee, is normally politely terminated.
In other words, private hospitals, hire, fire and exercise real control
over their attending and visiting ‘consultant’ staff. While
‘consultants’ are not, technically employees, x x x, the control
exercised, the hiring, and the right to terminate consultants all
fulfill the important hallmarks of an employer-employee
25
relationship, with the exception of the payment of wages. In
assessing whether such a relationship in fact exists, the control test
is determining. Accordingly, on the basis of the foregoing, we rule
that for the purpose of allocating responsibility in medical
negligence cases, an employer-employee relationship in effect
exists between hospitals and their attending and visiting
physicians. "
But the Ramos pronouncement is not our only basis in sustaining
PSI’s liability. Its liability is also anchored upon the agency
principle of apparent authority or agency by estoppel and the
doctrine of corporate negligence which have gained acceptance in
the determination of a hospital’s liability for negligent acts of
health professionals. The present case serves as a perfect platform
to test the applicability of these doctrines, thus, enriching our
jurisprudence.
Apparent authority, or what is sometimes referred to as the
"holding
out" theory, or doctrine of ostensible agency or agency by
estoppel,29 has its origin from the law of agency. It imposes
liability, not as the result of the reality of a contractual relationship,
but rather because of the actions of a principal or an employer in
somehow misleading the public into believing that the relationship
or the authority exists.30 The concept is essentially one of estoppel
and has been explained in this manner:
"The principal is bound by the acts of his agent with the apparent
authority which he knowingly permits the agent to assume, or
which he holds the agent out to the public as possessing. The
question in every case is whether the principal has by his voluntary
act placed the agent in such a situation that a person of ordinary
prudence, conversant with business usages and the nature of the
particular business, is justified in presuming that such agent has
authority to perform the particular act in question.31
The applicability of apparent authority in the field of hospital
liability was upheld long time ago in Irving v. Doctor Hospital of
Lake Worth, Inc.32 There, it was explicitly stated that "there does
not appear to be any rational basis for excluding the concept of
apparent authority from the field of hospital liability." Thus, in
cases where it can be shown that a hospital, by its actions, has held
out a particular physician as its agent and/or employee and that a
patient has accepted treatment from that physician in the
reasonable belief that it is being rendered in behalf of the hospital,
then the hospital will be liable for the physician’s negligence.
Our jurisdiction recognizes the concept of an agency by
implication or estoppel. Article 1869 of the Civil Code reads:
ART. 1869. Agency may be express, or implied from the acts of
the principal, from his silence or lack of action, or his failure to
repudiate the agency, knowing that another person is acting on his
behalf without authority.
In this case, PSI publicly displays in the lobby of the Medical City
Hospital the names and specializations of the physicians associated
or accredited by it, including those of Dr. Ampil and Dr. Fuentes.
We concur with the Court of Appeals’ conclusion that it "is now
estopped from passing all the blame to the physicians whose
names it proudly paraded in the public directory leading the public
to believe that it vouched for their skill and competence." Indeed,
PSI’s act is tantamount to holding out to the public that Medical
City Hospital, through its accredited physicians, offers quality
health care services. By accrediting Dr. Ampil and Dr. Fuentes and
publicly advertising their qualifications, the hospital created the
impression that they were its agents, authorized to perform medical
or surgical services for its patients. As expected, these patients,
Natividad being one of them, accepted the services on the
reasonable belief that such were being rendered by the hospital or
its employees, agents, or servants. The trial court correctly pointed
out:
x x x regardless of the education and status in life of the patient, he
ought not be burdened with the defense of absence of employer-
employee relationship between the hospital and the independent
physician whose name and competence are certainly certified to
the general public by the hospital’s act of listing him and his
specialty in its lobby directory, as in the case herein. The high
costs of today’s medical and health care should at least exact on
the hospital greater, if not broader, legal responsibility for the
conduct of treatment and surgery within its facility by its
accredited physician or surgeon, regardless of whether he is
independent or employed."33
The wisdom of the foregoing ratiocination is easy to discern.
Corporate entities, like PSI, are capable of acting only through
other individuals, such as physicians. If these accredited physicians
do their job well, the hospital succeeds in its mission of offering
quality medical services and thus profits financially. Logically,
where negligence mars the quality of its services, the hospital
should not be allowed to escape liability for the acts of its
ostensible agents.
We now proceed to the doctrine of corporate negligence or
corporate responsibility.
One allegation in the complaint in Civil Case No. Q-43332 for
negligence and malpractice is that PSI as owner, operator and
manager of Medical City Hospital, "did not perform the necessary
supervision nor exercise diligent efforts in the supervision of Drs.
Ampil and Fuentes and its nursing staff, resident doctors, and
medical interns who assisted Drs. Ampil and Fuentes in the
performance of their duties as surgeons."34 Premised on the
doctrine of corporate negligence, the trial court held that PSI is
directly liable for such breach of duty.
We agree with the trial court.
Recent years have seen the doctrine of corporate negligence as the
judicial answer to the problem of allocating hospital’s liability for
the negligent acts of health practitioners, absent facts to support the
application of respondeat superior or apparent authority. Its
formulation proceeds from the judiciary’s acknowledgment that in
these modern times, the duty of providing quality medical service
is no longer the sole prerogative and responsibility of the
physician. The modern hospitals have changed structure. Hospitals
now tend to organize a highly professional medical staff whose
competence and performance need to be monitored by the
hospitals commensurate with their inherent responsibility to
provide quality medical care.35
The doctrine has its genesis in Darling v. Charleston Community
Hospital.36 There, the Supreme Court of Illinois held that "the jury
could have found a hospital negligent, inter alia, in failing to have
a sufficient number of trained nurses attending the patient; failing
to require a consultation with or examination by members of the
hospital staff; and failing to review the treatment rendered to the
patient." On the basis of Darling, other jurisdictions held that a
hospital’s corporate negligence extends to permitting a physician
known to be incompetent to practice at the hospital.37 With the
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passage of time, more duties were expected from hospitals, among
them: (1) the use of reasonable care in the maintenance of safe and
adequate facilities and equipment; (2) the selection and retention of
competent physicians; (3) the overseeing or supervision of all
persons who practice medicine within its walls; and (4) the
formulation, adoption and enforcement of adequate rules and
policies that ensure quality care for its patients.38 Thus, in Tucson
Medical Center, Inc. v. Misevich,39 it was held that a hospital,
following the doctrine of corporate responsibility, has the duty to
see that it meets the standards of responsibilities for the care of
patients. Such duty includes the proper supervision of the members
of its medical staff. And in Bost v. Riley,40 the court concluded that
a patient who enters a hospital does so with the reasonable
expectation that it will attempt to cure him. The hospital
accordingly has the duty to make a reasonable effort to monitor
and oversee the treatment prescribed and administered by the
physicians practicing in its premises.
In the present case, it was duly established that PSI operates the
Medical City Hospital for the purpose and under the concept of
providing comprehensive medical services to the public.
Accordingly, it has the duty to exercise reasonable care to protect
from harm all patients admitted into its facility for medical
treatment. Unfortunately, PSI failed to perform such duty. The
findings of the trial court are convincing, thus:
x x x PSI’s liability is traceable to its failure to conduct an
investigation of the matter reported in the nota bene of the count
nurse. Such failure established PSI’s part in the dark conspiracy of
silence and concealment about the gauzes. Ethical considerations,
if not also legal, dictated the holding of an immediate inquiry into
the events, if not for the benefit of the patient to whom the duty is
primarily owed, then in the interest of arriving at the truth. The
Court cannot accept that the medical and the healing professions,
through their members like defendant surgeons, and their
institutions like PSI’s hospital facility, can callously turn their
backs on and disregard even a mere probability of mistake or
negligence by refusing or failing to investigate a report of such
seriousness as the one in Natividad’s case.
It is worthy to note that Dr. Ampil and Dr. Fuentes operated on
Natividad with the assistance of the Medical City Hospital’s staff,
composed of resident doctors, nurses, and interns. As such, it is
reasonable to conclude that PSI, as the operator of the hospital, has
actual or constructive knowledge of the procedures carried out,
particularly the report of the attending nurses that the two pieces of
gauze were missing. In Fridena v. Evans,41 it was held that a
corporation is bound by the knowledge acquired by or notice given
to its agents or officers within the scope of their authority and in
reference to a matter to which their authority extends. This means
that the knowledge of any of the staff of Medical City Hospital
constitutes knowledge of PSI. Now, the failure of PSI, despite the
attending nurses’ report, to investigate and inform Natividad
regarding the missing gauzes amounts to callous negligence. Not
only did PSI breach its duties to oversee or supervise all persons
who practice medicine within its walls, it also failed to take an
active step in fixing the negligence committed. This renders PSI,
not only vicariously liable for the negligence of Dr. Ampil under
Article 2180 of the Civil Code, but also directly liable for its own
negligence under Article 2176. In Fridena, the Supreme Court of
Arizona held:
Among the cases indicative of the ‘emerging trend’ is Purcell v.
Zimbelman, 18 Ariz. App. 75,500 P. 2d 335 (1972). In Purcell, the
hospital argued that it could not be held liable for the malpractice
of a medical practitioner because he was an independent contractor
within the hospital. The Court of Appeals pointed out that the
hospital had created a professional staff whose competence and
performance was to be monitored and reviewed by the governing
body of the hospital, and the court held that a hospital would be
negligent where it had knowledge or reason to believe that a doctor
using the facilities was employing a method of treatment or care
which fell below the recognized standard of care.
Subsequent to the Purcell decision, the Arizona Court of Appeals
held that a hospital has certain inherent responsibilities regarding
the quality of medical care furnished to patients within its walls
and it must meet the standards of responsibility commensurate
with this undertaking. Beeck v. Tucson General Hospital, 18 Ariz.
App. 165, 500 P. 2d 1153 (1972). This court has confirmed the
rulings of the Court of Appeals that a hospital has the duty of
supervising the competence of the doctors on its staff. x x x.
x x x x x x
In the amended complaint, the plaintiffs did plead that the
operation was performed at the hospital with its knowledge, aid,
and assistance, and that the negligence of the defendants was the
proximate cause of the patient’s injuries. We find that such general
allegations of negligence, along with the evidence produced at the
trial of this case, are sufficient to support the hospital’s liability
based on the theory of negligent supervision."
Anent the corollary issue of whether PSI is solidarily liable with
Dr. Ampil for damages, let it be emphasized that PSI, apart from a
general denial of its responsibility, failed to adduce evidence
showing that it exercised the diligence of a good father of a family
in the accreditation and supervision of the latter. In neglecting to
offer such proof, PSI failed to discharge its burden under the last
paragraph of Article 2180 cited earlier, and, therefore, must be
adjudged solidarily liable with Dr. Ampil. Moreover, as we have
discussed, PSI is also directly liable to the Aganas.
One final word. Once a physician undertakes the treatment and
care of a patient, the law imposes on him certain obligations. In
order to escape liability, he must possess that reasonable degree of
learning, skill and experience required by his profession. At the
same time, he must apply reasonable care and diligence in the
exercise of his skill and the application of his knowledge, and exert
his best judgment.
WHEREFORE, we DENY all the petitions and AFFIRM the
challenged Decision of the Court of Appeals in CA-G.R. CV No.
42062 and CA-G.R. SP No. 32198.
Costs against petitioners PSI and Dr. Miguel Ampil.
SO ORDERED.

x x x In recent years, however, the duty of care owed to the patient

by the hospital has expanded. The emerging trend is to hold the
hospital responsible where the hospital has failed to monitor and
review medical services being provided within its walls. See Kahn
Hospital Malpractice Prevention, 27 De Paul . Rev. 23 (1977).

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