G.R. No. 160146               December 11, 2009

LESLIE OKOL, Petitioner, vs.SLIMMERS WORLD INTERNATIONAL, BEHAVIOR MODIFICATIONS, INC., and RONALD JOSEPH MOY, Respondents.

D E C I S I O N

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. Respondents asserted that the NLRC had no 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.

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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.

x x x

Article III

Officers

x x x

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.

x x x

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:

x x x

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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.

x x x

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.

D E C I S I O N

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".

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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

b)13th Month Pay:1/12 of P1,750,185.00

145,848.75

c)Travelling allowance:P1,000.00 x 39.33 mos.

39,330.00

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. VicenteVice President, Industrial RelationsPhilCom, Paseo de RoxasMakati, Metro Manila

M a d a m :

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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.

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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

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of medical and dental treatment and attendance in case of emergency.

Had only respondent read carefully the very statutory provision invoked by him, he would have noticed that in non-hazardous workplaces, the employer may engage the services of a physician "on retained basis." As correctly observed by the petitioner, while it is true that the provision requires employers to engage the services of medical practitioners in certain establishments depending on the number of their employees, nothing is there in the law which says that medical practitioners so engaged be actually hired as employees,24 adding that the law, as written, only requires the employer "to retain", not employ, a part-time physician who needed to stay in the premises of the non-hazardous workplace for two (2) hours.25

Respondent takes no issue on the fact that petitioner’s business of telecommunications is not hazardous in nature. As such, what applies here is the last paragraph of Article 157 which, to stress, provides that the employer may engage the services of a physician and dentist "on retained basis", subject to such regulations as the Secretary of Labor may prescribe. The successive "retainership" agreements of the parties definitely hue to the very statutory provision relied upon by respondent.

Deeply embedded in our jurisprudence is the rule that courts may not construe a statute that is free from doubt. Where the law is clear and unambiguous, it must be taken to mean exactly what it says, and courts have no choice but to see to it that the mandate is obeyed.26 As it is, Article 157 of the Labor Code clearly and unequivocally allows employers in non-hazardous establishments to engage "on retained basis" the service of a dentist or physician. 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 that this engagement gives rise to an employer-employee relationship.

With the recognition of the fact that petitioner consistently engaged the services of respondent on a retainer basis, as shown by their various "retainership contracts", so can petitioner put an end, with or without cause, to their retainership agreement as therein provided.27

We note, however, that even as the contracts entered into by the parties invariably provide for a 60-day notice requirement prior to termination, the same was not complied with by petitioner when it terminated on 17 December 1996 the verbally-renewed retainership agreement, effective at the close of business hours of 31 December 1996.

Be that as it may, the record shows, and this is admitted by both parties,28 that execution of the NLRC decision had already been made at the NLRC despite the pendency of the present recourse. For sure, accounts of petitioner had already been garnished and released to respondent despite the previous Status Quo Order29 issued by this Court. To all intents and purposes, therefore, the 60-day notice requirement has become moot and academic if not waived by the respondent himself.

WHEREFORE, the petition is GRANTED and the challenged decision of the Court of Appeals REVERSED and SET ASIDE. The 21 December 1998 decision of the labor arbiter is REINSTATED.

No pronouncement as to costs.

SO ORDERED.

G.R. No. L-48645 January 7, 1987

"BROTHERHOOD" LABOR UNITY MOVEMENT OF THE PHILIPPINES, ANTONIO CASBADILLO, PROSPERO TABLADA, ERNESTO BENGSON, PATRICIO SERRANO, ANTONIO B. BOBIAS, VIRGILIO ECHAS, DOMINGO PARINAS, NORBERTO GALANG, JUANITO NAVARRO, NESTORIO MARCELLANA, TEOFILO B. CACATIAN, RUFO L. EGUIA, CARLOS SUMOYAN, LAMBERTO RONQUILLO, ANGELITO AMANCIO, DANILO B. MATIAR, ET AL., petitioners, vs.HON. RONALDO B. ZAMORA, PRESIDENTIAL ASSISTANT FOR LEGAL AFFAIRS, OFFICE OF THE PRESIDENT, HON. AMADO G. INCIONG, UNDERSECRETARY OF LABOR, SAN MIGUEL CORPORATION, GENARO OLIVES, ENRIQUE CAMAHORT, FEDERICO OÑATE, ERNESTO VILLANUEVA, ANTONIO BOCALING and GODOFREDO CUETO, respondents.

GUTIERREZ, JR., J.:

The elemental question in labor law of whether or not an employer-employee relationship exists between petitioners-members of the "Brotherhood Labor Unit Movement of the Philippines" (BLUM) and respondent San Miguel Corporation, is the main issue in this petition. The disputed decision of public respondent Ronaldo Zamora, Presidential Assistant for legal Affairs, contains a brief summary of the facts involved:

1. The records disclose that on July 11, 1969, BLUM filed a complaint with the now defunct Court of Industrial Relations, charging San Miguel Corporation, and the following officers: Enrique Camahort, Federico Ofiate Feliciano Arceo, Melencio Eugenia Jr., Ernesto Villanueva, Antonio Bocaling and Godofredo Cueto of unfair labor practice as set forth in Section 4 (a), sub-sections (1) and (4) of Republic Act No. 875 and of Legal dismissal. It was alleged that respondents ordered the individual complainants to disaffiliate from the complainant union; and that management dismissed the individual complainants when they insisted on their union membership.

On their part, respondents moved for the dismissal of the complaint on the grounds that the complainants are not and have never been employees of respondent company but employees of the independent contractor; that respondent company has never had control over the means and methods followed by the independent contractor who enjoyed full authority to hire and control said employees; and that the individual complainants are barred by estoppel from asserting that they are employees of respondent company.

While pending with the Court of Industrial Relations CIR pleadings and testimonial and documentary evidences were duly presented, although the actual hearing was delayed by several postponements. The dispute was taken over by the National Labor Relations Commission (NLRC) with the decreed abolition of the CIR and the hearing of the case intransferably commenced on September 8, 1975.

On February 9, 1976, Labor Arbiter Nestor C. Lim found for complainants which was concurred in by the NLRC in a decision

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

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, Segundina Noguera. The petitioners contend, however, that 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

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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

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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 YearProduction Agents Cumulative FYPProduction

1st 2 P 125,0002nd 3 250,0003rd 4 375,0004th 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.

D E C I S I O N

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.

On March 14, 1998,11 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 P 100,000.00 and P 50,000.00, 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 P 100,000.00 each and P 50,000.00 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:

x x x x

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)

x x x x

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.–

x x x x

(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 "Watch List" to other hospitals, one of which [was] procured from Foothills Hospital in Sto. Tomas, Batangas [that] contains her name. The object of the said list is precisely to harass Complainant and malign her good name and reputation. This is not only 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.

4. Other co-professionals and brothers in the profession are fully aware of these "watch out" lists and as such, her reputation was not only besmirched, but was damaged, and she suffered social humiliation as it is of public knowledge that she was dismissed from work. Complainant came from a reputable and respected family, her father being a retired full Colonel in the Army, Col. Romeo A. Vente, and her brothers and sisters are all professionals, her brothers, Arnold and Romeo Jr., being engineers. The Complainant has a family protection [sic] to protect. She likewise has a professional reputation to protect, being a licensed physician. Both her personal and professional reputation were damaged as a result of the unlawful acts of the respondents.50

While petitioner does not deny the existence of such list, it pointed to the lack of any board action on its part to initiate such listing and to circulate the same, viz:

20. x x x. The alleged watchlist or "watch out list," as termed by complainants, were merely lists obtained by one Dr. Ernesto Naval of PAMANA Hospital. Said list was given by a stockholder of respondent who was at the same time a stockholder of PAMAN[A] Hospital. The giving of the list was not a Board action.51 (Emphasis and underscoring supplied)

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

G.R. No. 126467            January 31, 2007

NATIVIDAD (Substituted by her children MARCELINO AGANA III, ENRIQUE AGANA, JR., EMMA AGANA ANDAYA, JESUS AGANA, and RAYMUND AGANA) and

ENRIQUE AGANA, Petitioners, vs.JUAN FUENTES, Respondent.

x- - - - - - - - - - - - - - - - - - - -- - - - x

G.R. No. 127590            January 31, 2007

MIGUEL AMPIL, Petitioner, vs.NATIVIDAD AGANA and ENRIQUE AGANA, Respondents.

Hospitals, having undertaken one of mankind’s most important and delicate endeavors, must assume the grave responsibility of pursuing it with appropriate care. The care and service dispensed through this high trust, however technical, complex and esoteric its character may be, must meet standards of responsibility commensurate with the undertaking to preserve and protect the health, and indeed, the very lives of those placed in the hospital’s keeping.1

Assailed in these three consolidated petitions for review on certiorari is the Court of Appeals’ Decision2 dated September 6, 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 the Regional Trial Court (RTC), Branch 96, Quezon City in Civil Case No. Q-43322 and nullifying its Order dated September 21, 1993.

The facts, as culled from the records, are:

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

On April 24, 1984, Natividad was released from the hospital. Her hospital and medical bills, including the doctors’ fees, amounted to P60,000.00.

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

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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

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 cases. However, the difficulty is more apparent than real.

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

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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

26

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:

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).

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.

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