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EN BANC

[G.R. No. L-8967. May 31, 1956.]


ANASTACIO VIAA, Petitioner, vs. ALEJO AL-LAGADAN and FILOMENA
PIGA, Respondents.

DECISION
CONCEPCION, J.:
Petitioner Anastacio Viaa owned the fishing sailboat Magkapatid, which, in the night of
September 3, 1948, sunk in the waters between the province of Bataan and the island of
Corregidor, as a consequence of a collision with the USS TINGLES, a vessel of the U.S. Navy.
Inasmuch as Alejandro Al-Lagadan, a member of the crew of the Magkapatid, disappeared
with the craft, his parents, Respondent Alejo Al-Lagadan and Filomena Piga, filed the
corresponding claim for compensation under Act No. 3428. After appropriate proceedings, a
Referee of the Workmens Compensation Commission rendered a decision, dated February 23,
1953:
1. Ordering Mr. Anastacio Viaa to pay the above-named claimants through the Workmens
Compensation Commission, Manila, the sum of P1,560 in lump sum with interest at 6 per cent
from September 3, 1948 until fully paid; and.
To pay the sum of P16 to the Workmens Compensation Commission as costs.
Said decision was, on petition for review filed by Viaa, affirmed by the Workmens
Compensation Commissioner, on or about October 22, 1954, with additional fee of P5.00. Said
Commissioner, having subsequently denied a reconsideration of this action, Viaa has brought
the matter to us, for review by certiorari, upon the ground that this case does not fall within the
purview of Act No. 3428, because the gross income of his business for the year 1947 was
allegedly less than P10,000, and because Alejandro Al-Lagadan was, at the time of his death,
his (Petitioners) industrial partner, not his employee.
The first ground is untenable, Petitioner not having invoked it before the rendition of the
Referees decision on February 23, 1953. The objection to the application of Act No. 3428, upon
said ground, was made for the first time when Petitioner sought a review of said decision by the
Workmens Compensation Commissioner. The non- applicability of said Act to employers whose
gross income does not reach P20,000 is, however, a matter of defense, which cannot be
availed of unless pleaded in the employers answer to the claim for compensation filed by the
employee or his heirs. Petitioner herein having failed to do so, said defense may not now be
entertained (Rolan vs. Perez, 63 Phil., 80, 85-86).
As regards the second ground, Petitioner maintains, contrary to the finding of the Referee and
said Commissioner, that the deceased was his industrial partner, not employee. In this
connection, it is alleged in paragraph (6) of the petition:
That the practice observed then and now in engaging the services of crewmen of sailboats
plying between Mindoro and Manila is on a partnership basis, to wit:c that the owner of the
vessel, on one hand receives one-half of the earnings of the sailboat after deducting the
expenses for the maintenance of the crew, the other half is divided pro rata among the
members of the crew, the patron or captain receiving four parts, the piloto or next in command
three parts, the wheelsman or timonel 1 1/2 parts and the rest of the members of the crew one
part each, as per Annex B hereof.
It appears that, before rendering his aforementioned decision, the Referee requested Mr.
Manuel O. Morente, an attorney of the Workmens Compensation Commission, to look into and
inquire and determine the method of and the basis of engaging the services of crewmen for
sailboats (batel) of twenty (20) tons or more plying between Manila and Mariveles and moored
along Manila North Harbor, and that, thereafter, said Atty. Morente reported:
The basis of engaging the services of crewmen of a batel is determined in accordance with the
contract executed between the owner and the patron. The contract commonly followed is on a
share basis after deducting all the expenses incurred on the voyage. One half goes to the owner
of the batel and the other half goes to the patron and the members of the crew and divided
among themselves on a share basis also in accordance with their agreement with the patron
getting the lions share. The hiring of the crew is done by the patron himself. Usually, when a
patron enters into a contract with the owner of the batel, he has a crew ready with him. (Italics
supplied.)
In sustaining the Referees finding to the effect that the deceased was an employee of Viaa,
the Workmens Compensation Commissioner said:
The trial referee found that there was an employer-employee relation between
the Respondentand the deceased, Alejandro Al-Lagadan, and the share which the deceased
received at the end of each trip was in the nature of wages which is defined under section 39 of
the Compensation Act. This is so because such share could be reckoned in terms of money. In
other words, there existed the relation of employer and employee between the Respondent and
Alejandro Al-Lagadan at the time of the latters death.
We believe that the trial referee did not err in finding the deceased an employee of
theRespondent. We cite the following cases which illustrate the point at issue:
The officers and crews of whaling and other fishing vessels who are to receive certain
proportions of produce of the voyage in lieu of wages;y(Rice vs. Austin, 17 Mass. 206;y2Y & C.
61); Captains of merchant ships who, instead of wages, receive shares in the profits of the
adventure; (4 Maule & C. 240); or who take vessels under an agreement to pay certain charges
and receive a share of the earnings; (Tagard vs. Loring, 16 Mass. 336, 8 Am. Dec. 140;
Winsor vs. Cutts, 7 Greenl. Me. 261) have generally been held not to be partners with
theRespondent, and the like. Running a steamboat on shares does not make the owners
partners in respect to the vessel (The Daniel Koine, 35 Fed. 785); so of an agreement between
two parties to farm on shares; (Hooloway vs. Brinkley, 42 Ga. 226); A seaman who is to receive
pay in proportion to the amount of fish caught is not a partner; (Holdren vs. French, 68 Me.
241); sharing profits in lieu of wages is not a partnership. There is no true contribution;
(Crawford vs. Austin, 34 Md. 49; Whitehill vs. Shickle, 43 Mo. 538; Sankey vs. Iron Works, 44
Ga. 228.) (Italics supplied.)
In other words, in the opinion of the Referee, as well as of said Commissioner, the mere fact
that Alejandros share in the understanding could be reckoned in terms of money, sufficed to
characterize him as an employee of Viaa. We do not share this view. Neither can we accept,
however, Petitioners theory to the effect that the deceased was his partner, not an employee,
simply because he (the deceased) shared in the profits, not in the losses. In determining the
existence of employer-employee relationship, the following elements are generally considered,
namely: (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 employees conduct although the latter
is the most important element (35 Am. Jur. 445). Assuming that the share received by the
deceased could partake of the nature of wages on which we need not, and do not, express
our view and that the second element, therefore, exists in the case at bar, the record does
not contain any specific data regarding the third and fourth elements.
With respect to the first element, the facts before us are insufficient to warrant a reasonable
conclusion, one way or the other. On the one hand, Atty. Morente said, in his aforementioned
report, that the contract commonly followed is on a share basis The hiring of a crew is done by
the patron himself. Usually, when a patron enters into a contract with the owner of the batel, he
has a crew ready with him. This statement suggests that the members of the crew are chosen
by the patron, seemingly, upon his sole responsibility and authority. It is noteworthy, however,
that said report referred to a practice commonly and usually observed in a given place. The
record is silent on whether such practice had been followed in the case under consideration.
More important still, the language used in said report may be construed as intimating, not only
that the patron selects and engages the crew, but, also, that the members thereof are subject
to his control and may be dismissed by him. To put it differently, the literal import of said report
is open to the conclusion that the crew has a contractual relation, not with the owner of the
vessel, but with the patron, and that the latter, not the former, is either their employer or their
partner.
Upon the other hand, the very allegations of the petition show otherwise, for Petitioner explicitly
averred therein that the deceased Alejandro Al-Lagadan was his industrial partner. This
implies that a contract of partnership existed between them and that, accordingly, if the crew
was selected and engaged by the patron, the latter did so merely as agent or representative
ofPetitioner herein. Again, if Petitioner were a partner of the crew members, then neither the
former nor the patron could control or dismiss the latter.
In the interest of justice and equity, and considering that a decision on the merits of the issue
before us may establish an important precedent, it would be better to remand the case to the
Workmens Compensation Commission for further evidence and findings on the following
questions: (1) who selected the crew of the Magkapatid and engaged their services; (2) if
selected and engaged by the patron, did the latter act in his own name and for his own
account, or on behalf and for the account of Viaa; (3) could Viaa have refused to accept any
of the crew members chosen and engaged by the patron; (4) did Petitioner have authority to
determine the time when, the place where and/or the manner or conditions in or under which the
crew would work; and (5) who could dismiss its members.
Wherefore, let the case be remanded to the Workmens Compensation Commission, for further
proceedings in conformity with this decision, without special pronouncement as to costs. SO
ORDERED.
Paras, C.J., Bengzon, Padilla, Montemayor, Reyes, A., Bautista Angelo, Reyes, J.B.L., and
Endencia, JJ., concur.
Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. L-19124 November 18, 1967

INVESTMENT PLANNING CORPORATION OF THE PHILIPPINES, petitioner-appellant,


vs.
SOCIAL SECURITY SYSTEM, respondent-appellee.

MAKALINTAL, J.:

Petitioner is a domestic corporation engaged in business management and the sale of


securities. It has two classes of agents who sell its investment plans: (1) salaried employees
who keep definite hours and work under the control and supervision of the company; and (2)
registered representatives who work on commission basis.

On August 27, 1960 petitioner, through counsel, applied to respondent Social Security
Commission for exemption of its so-called registered representatives from the compulsory
coverage of the Social Security Act. The application was denied in a letter signed by the
Secretary to the Commission on January 16, 1961. A motion to reconsider was filed and also
denied, after hearing, by the Commission itself in its resolution dated September 8, 1961. The
matter was thereafter elevated to this Court for review.

The issue submitted for decision here is whether petitioner's registered representatives are
employees within the meaning of the Social Security Act (R.A. No. 1161 as amended). Section
8 (d) thereof defines the term "employee" for purposes of the Act as "any person who
performs services for an 'employer' in which either or both mental and physical efforts are used
and who receives compensation for such services, where there is, employer-employee
relationship." (As amended by Sec.4, R.A. No. 2658). These representatives are in reality
commission agents. The uncontradicted testimony of petitioner's lone witness, who was its
assistant sales director, is that these agents are recruited and trained by him particularly for the
job of selling "'Filipinos Mutual Fund" shares, made to undergo a test after such training and, if
successful, are given license to practice by the Securities and Exchange Commission. They
then execute an agreement with petitioner with respect to the sale of FMF shares to the general
public. Among the features of said agreement which respondent Commission considered
pertinent to the issue are: (a) an agent is paid compensation for services in the form of
commission; (b) in the event of death or resignation he or his legal representative shall be paid
the balance of the commission corresponding to him; (c) he is subject to a set of rules and
regulations governing the performance of his duties under the agreement; (d) he is required to
put up a performance bond; and (e) his services may be terminated for certain causes. At the
same time the Commission found from the evidence and so stated in its resolution that the
agents "are not required to report (for work) at any time; they do not have to devote their time
exclusively to or work solely for petitioner; the time and the effort they spend in their work
depend entirely upon their own will and initiative; they are not required to account for their time
nor submit a record of their activities; they shoulder their own selling expenses as well as
transportation; and they are paid their commission based on a certain percentage of their sales."
The record also reveals that the commission earned by an agent on his sales is directly
deducted by him from the amount he receives from the investor and turns over to the company
the amount invested after such deduction is made. The majority of the agents are regularly
employed elsewhere either in the government or in private enterprises.

Of the three requirements under Section 8 (d) of the Social Security Act it is admitted that the
first is present in respect of the agents whose status is in question. They exert both mental and
physical efforts in the performance of their services. The compensation they receive, however,
is not necessarily for those efforts but rather for the results thereof, that is, for actual sales that
they make. This point is relevant in the determination of whether or not the third requisite is also
present, namely, the existence of employer-employee relationship. Petitioner points out that in
effect such compensation is paid not by it but by the investor, as shown by the basis on which
the amount of the commission is fixed and the manner in which it is collected.

Petitioner submits that its commission agents, engaged under the terms and conditions already
enumerated, are not employees but independent contractors, as defined in Article 1713 of the
Civil Code, which provides:

Art. 1713. By the contract for a piece of work the contractor binds himself to execute a
piece of work for the employer, in consideration of a certain price or compensation. The
contractor may either employ only his labor or skill, or also furnish the material.

We are convinced from the facts that the work of petitioner's agents or registered
representatives more nearly approximates that of an independent contractor than that of an
employee. The latter is paid for the labor he performs, that is, for the acts of which such labor
consists; the former is paid for the result thereof. This Court has recognized the distinction
in Chartered Bank, et al. vs. Constantino, 56 Phil. 717, where it said:

On this point, the distinguished commentator Manresa in referring to Article 1588 of the
(Spanish) Civil Code has the following to say. . . .

The code does not begin by giving a general idea of the subject matter, but by fixing its
two distinguishing characteristics.

But such an idea was not absolutely necessary because the difference between the
lease of work by contract or for a fixed price and the lease of services of hired servants
or laborers is sufficiently clear. In the latter, the direct object of the contract is the lessor's
labor; the acts in which such labor consists, performed for the benefit of the lessee, are
taken into account immediately. In work done by contract or for a fixed price, the lessor's
labor is indeed an important, a most important factor; but it is not the direct object of the
contract, nor is it immediately taken into account. The object which the parties consider,
which they bear in mind in order to determine the cause of the contract, and upon which
they really give their consent, is not the labor but its result, the complete and finished
work, the aggregate of the lessor's acts embodied in something material, which is the
useful object of the contract. . . . (Manresa Commentarios al Codigo Civil, Vol. X, ed., pp.
774-775.)

Even if an agent of petitioner should devote all of his time and effort trying to sell its investment
plans would not necessarily be entitled to compensation therefor. His right to compensation
depends upon and is measured by the tangible results he produces.

The specific question of when there is "employer-employee relationship" for purposes of the
Social Security Act has not yet been settled in this jurisdiction by any decision of this Court. But
in other connections wherein the term is used the test that has been generally applied is the so-
called control test, that is, whether the "employer" controls or has reserved the right to control
the "employee" not only as to the result of the work to be done but also as to the means and
methods by which the same is to be accomplished.

Thus in Philippine Manufacturing Company vs. Geronimo, et al., L-6968, November 29, 1954,
involving the Workmen's Compensation Act, we read:

. . . Garcia, a painting contractor, had a contract undertaken to paint a water tank


belonging to the Company "in accordance with specifications and price stipulated," and
with "the actual supervision of the work (being) taken care of by" himself. Clearly, this
made Garcia an independent contractor, for while the company prescribed what should
be done, the doing of it and the supervision thereof was left entirely to him, all of which
meant that he was free to do the job according to his own method without being subject
to the control of the company except as to the result.

Cruz, et al. vs. The Manila Hotel Company, L-9110, April 30, 1957, presented the issue of who
were to be considered employees of the defendant firm for purposes of separation gratuity. LVN
Pictures, Inc. vs. Phil. Musicians Guild, et al., L-12582, January 28, 1961, involved the status of
certain musicians for purposes of determining the appropriate bargaining representative of the
employees. In both instances the "control" test was followed. (See also Mansal vs. P.P.
Gocheco Lumber Co., L-8017, April 30, 1955; and Viana vs. Allagadan, et al., L-8967, May 31,
1956.)

In the United States, the Federal Social Security Act of 1935 set forth no definition of the term
'employee' other than that it 'includes an officer of a corporation.' Under that Act the U.S.
Supreme Court adopted for a time and in several cases the so-called 'economic-reality' test
instead of the 'control' test. (U.S. vs. Silk and Harrison, 91 Law Ed. 1757; Bartels vs.
Birmingham, Ibid, 1947, both decided in June 1947). In the Bartels case the Court said:

In United States v. Silk, No. 312, 331 US 704, ante, 1957, 67 SCt 1463, supra, we held
that the relationship of employer-employee, which determines the liability for
employment taxes under the Social Security Act was not to be determined solely by the
idea of control which an alleged employer may or could exercise over the details of the
service rendered to his business by the worker or workers. Obviously control is
characteristically associated with the employer-employee relationship, but in the
application of social legislation employees are those who as a matter of economic reality
are dependent upon the business to which they render service. In Silk, we pointed out
that permanency of the relation, the skill required, the investment in the facilities for work
and opportunities for profit or less from the activities were also factors that should enter
into judicial determination as to the coverage of the Social Security Act. It is the total
situation that controls. The standards are as important in the entertainment field as we
have just said, in Silk, that they were in that of distribution and transportation. (91 Law,
Ed. 1947, 1953;)

However, the 'economic-reality' test was subsequently abandoned as not reflective of the
intention of Congress in the enactment of the original Security Act of 1935. The change was
accomplished by means of an amendatory Act passed in 1948, which was construed and
applied in later cases. In Benson vs. Social Security Board, 172 F. 2d. 682, the U.S. Supreme
Court said:

After the decision by the Supreme Court in the Silk case, the Treasury Department
revamped its Regulation, 12 Fed. Reg. 7966, using the test set out in the Silk case for
determining the existence of an employer-employee relationship. Apparently this was not
the concept of such a relationship that Congress had in mind in the passage of such
remedial acts as the one involved here because thereafter on June 14, 1948, Congress
enacted Public Law 642, 42 U.S C.A. Sec. 1301 (a) (6). Section 1101(a) (6) of the Social
Security Act was amended to read as follows:

The term "employee" includes an officer of a corporation, but such term does not
include (1) any individual who, under the usual common-law rules applicable in
determining the employer-employee relationship, has the status of an
independent contractor or (2) any individual (except an officer of a corporation)
who is not an employee under such common law rules.

While it is not necessary to explore the full effect of this enactment in the determination
of the existence of employer-employee relationships arising in the future, we think it can
fairly be said that the intent of Congress was to say that in determining in a given case
whether under the Social Security Act such a relationship exists, the common-law
elements of such a relationship, as recognized and applied by the courts generally at the
time of the passage of the Act, were the standard to be used . . . .

The common-law principles expressly adopted by the United States Congress are summarized
in Corpus Juris Secundum as follows:

Under the common-law principles as to tests of the independent contractor relationship,


discussed in Master and Servant, and applicable in determining coverage under the
Social Security Act and related taxing provisions, the significant factor in determining the
relationship of the parties is the presence or absence of a supervisory power to control
the method and detail of performance of the service, and the degree to which the
principal may intervene to exercise such control, the presence of such power of control
being indicative of an employment relationship and the absence of such power being
indicative of the relationship of independent contractor. In other words, the test of
existence of the relationship of independent contractor, which relationship is not taxable
under the Social Security Act and related provisions, is whether the one who is claimed
to be an independent contractor has contracted to do the work according to his own
methods and without being subject to the control of the employer except as to the result
of the work. (81 C.J.S. Sec. 5, pp. 24-25); See also Millard's Inc. vs. United States, 46 F.
Supp. 385; Schmidt vs. Ewing, 108 F. Supp. 505; Ramblin vs. Ewing, 106 F. Supp. 268.

In the case last cited (Rambin v. Ewing) the question presented was whether the plaintiff there,
who was a sales representative of a cosmetics firm working on a commission basis, was to be
considered an employee. Said the Court:

Plaintiff's only remuneration was her commission of 40%, plus $5 extra for every $250 of
sales. Plaintiff was not guaranteed any minimum compensation and she was not allowed
a drawing account or advance of any kind against unearned commissions. Plaintiff paid
all of her traveling expenses and she even had to pay the postage for sending orders to
Avon.

The only office which Avon maintained in Shreveport was an office for the city manager.
Plaintiff worked from her own home and she was never furnished any leads. The
relationship between plaintiff and Avon was terminable at will . . .

xxx xxx xxx

. . . A long line of decisions holds that commission sales representatives are not
employees within the coverage of the Social Security Act. The underlying circumstances
of the relationship between the sales representatives and company often vary widely
from case to case, but commission sales representatives have uniformly been held to be
outside the Social Security Act.

Considering the similarity between the definition of "employee" in the Federal Social Security
Act (U.S.) as amended and its definitions in our own Social Security Act, and considering further
that the local statute is admittedly patterned after that of the United States, the decisions of
American courts on the matter before us may well be accorded persuasive force. The logic of
the situation indeed dictates that where the element of control is absent; 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 in turn is compensated according to the result of his efforts and not
the amount thereof, we should not find that the relationship of employer and employee exists.

We have examined the contract form between petitioner and its registered representatives and
found nothing therein which would indicate that the latter are under the control of the former in
respect of the means and methods they employ in the performance of their work. The fact that
for certain specified causes the relationship may be terminated (e.g., failure to meet the annual
quota of sales, inability to make any sales production during a six-month period, conduct
detrimental to petitioner, etc.) does not mean that such control exists, for the causes of
termination thus specified have no relation to the means and methods of work that are ordinarily
required of or imposed upon employees.

In view of the foregoing considerations, the resolution of respondent Social Security


Commission subject of this appeal is reversed and set aside, without pronouncement as to
costs.

Reyes, J.B.L., Dizon, Bengzon, J.P., Zaldivar, Sanchez, Castro, Angeles and Fernando,
JJ., concur.
Concepcion, C.J., took no part part.
Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. L-26146 October 31, 1969

SOCIAL SECURITY SYSTEM, petitioner,


vs.
THE HONORABLE COURT OF APPEALS, MANILA JOCKEY CLUB, INC., PHILIPPINE
RACING CLUB, INC.,respondents.

Office of the Solicitor General Antonio P. Barredo, Assistant Solicitor General Frine C. Zaballero
and Attorneys Luz M. Villamor and Luis S. Topacio for petitioner.
Lichauco, Picazo and Agcaoili for respondent Manila Jockey Club, Inc.
Cesar S. de Guzman for respondent Phil. Racing Club, Inc.

FERNANDO, J.:

A recent decision, Investment Planning Corporation v. Social Security System, 1 is decisive of


this controversy, the issue involved being whether or not jockeys connected with respondents
Manila Jockey Club, Inc. and Philippine Racing Club, Inc. may be considered as their
employees and, therefore, fall within the coverage of the Social Security Act. Respondent Court
of Appeals, in its decision of February 4, 1966, set aside a resolution of petitioner Social
Security System of July 3, 1963, which held that for the purposes of coverage under the Social
Security Act, there is an employer-employee relationship between the two above-named
respondents on the one hand and the jockeys on the other. The matter was elevated to the
Court of Appeals with the result aforesaid, the dispositive portion of its decision of February 4,
1966 stating: "Let a new resolution be entered declaring [that] jockeys are not employees of
[Manila Jockey Club, Inc.] and [Philippine Racing Club, Inc.] ... within the purview of the Social
Security Act." Hence, this appeal by certiorari from such Court of Appeals decision, the Social
Security System being the petitioner.

We have to affirm in the light of the facts as found by the Court of Appeals under the control test
set forth in authoritative Investment Planning Corporation decision.

The facts are as found by the Court of Appeals are as follows: "1. That there are only two (2)
racing entities in the Philippines, namely, the [Manila Jockey Club, Inc.], and the [Philippine
Racing Club, Inc.], whose clubs and personnel are expressly prohibited by the [Games and
Amusements Board] Rules from owning a race horse ...; 2. That about 10 days before a
scheduled race, the clubs receive inscription of horses, accomplished on entry forms, whereon
the names of the horses and their owners appear, duly certified by the owners ... . Thereafter,
the handicapper prepares a list of the entries to enable horse owners to determine whether to
join the scheduled race. If they decide to join, they file with the club a declaration therefor ...
stating the name of the horse and of the jockey, together with the jockey's signature thereon to
show his conformity thereto. Upon receipt of said declarations, the clubs screen the same in
order that disqualified jockeys or disqualified race mounts may not participate. Once the
screening is completed, the program on the race is printed and released to the public, after
which no changes can be made except where the entry is incapacitated by reason of sickness
or accident; 3. That the maximum number of participants allowed in a racing event, are 14
qualified horses mounted by the same number of qualified jockeys; 4. That from the total bets in
a single race, the law allots 1/2% to the [Games and Amusements Board], 6-1/2% to the club, 5-
1/2% as prize money, and the remainder for dividends to bettors. The prize money must, in turn,
be shared by the horse owner of the winning mounts with his jockey and trainers, who get 20%
and 10% each of said prize money. However, the jockeys and trainees of mounts who do not
place first, second or third, do not receive anything from the prize money; 5. That the stewards
are, under the law, officials of the club which pays their per diems but licensed by the [Games
and Amusements Board] whose duty it is to supervise the conduct of the races and enforce
[its] rules as well, as to penalize mounts and jockey for infractions relative thereto; 6. That for a
person to ride as jockey, he must first secure a license from the [Games and Amusements
Board]. And upon payment to the club of the nominal fee of P6.00, the jockey may use the race
tracks for training, may participate in racing meets held therein and/or to sit as spectator in the
grandstand A of the hippodrome; and 7. That the clubs have employees, such as janitors, club
guards, and the like, who maintain and operate the offices and the race tracks, which personnel
are already under SSS coverage."2

In the decision now sought to be reviewed, reference is made to the statutory definition of the
term "employee" under the Social Security Act.3 Thus: "Employee Any person who performs
services for an 'employer' in which either or both mental and physical efforts are used and who
received compensation for such services, where there is an employer-employee relationship."4

Why jockeys do not fall under the facts obtaining within such a category was explained in the
Court of Appeals decision in this wise: "The evidence invariably shows that the selection and
employment of the jockey is made by the race horse owner whose horse the jockey will ride, not
by the race club. Upon the other hand, the jockey decides for himself the horse he is to mount.
This was testified to by Samuel Sharuff, a race horse owner, corroborated by Exhibits B and B-5
consisting of declaration forms which race horse owners file with the race club before the
scheduled race meet, stating inter alia the name of the race horse being entered in the race and
the name of the jockey chosen to ride the mount, which declaration must bear the signature of
the jockey concerned as evidence of his conformity thereto, in accordance with the [Games and
Amusements Board] rules ... ."5 It went on to state: "Thus, the matter as to which jockey shall
ride which horse, is mutually agreed upon by and between the race horse owner and the jockey.
Once such agreement is reached, the race club cannot compel the race horse owner to accept
another jockey or the jockey to ride another horse. Nor can the race club prevent the jockey
from riding the horse, which the jockey had previously agreed with the race horse owner to
ride."6

After citing the pertinent statutory provision as well as the rules of the Games and Amusements
Board,7 the Court of Appeals concluded, as noted, that there was no employer-employee
relationship, especially so in view of the undeniable fact that no control was exercised by
respondents over the jockeys. Such control is exercised by racing stewards who, as noted, are
entrusted with the duty to supervise the conduct of the races and enforce the Games and
Amusements Board rules. As noted in the decision: "The stewards admittedly received per
diems from the race clubs. However, the acts and decisions of race stewards, when exercising
their office as such, are not under the control of the race clubs. The powers and authority of the
stewards proceed from the law aforecited, not from the club sponsoring the race meet. Such
powers and authority of the race stewards are in turn defined and delimited by the same law
and by the [Games and Amusements Board] rules. Consequently, the acts and decision of the
stewards when acting as such, are independent of and not subject to the will of anybody, save
the [Games and Amusements Board]. And the jockeys, the race horse owners as well as the
racing clubs must abide by the decision of the stewards relative to the conduct of the race and
the enforcement of [such] rules."8The absence of control that may be exercised on the part of
respondents over the jockeys negates the existence of an employer-employee relationship. That
is the principle adopted by us in the leading Investment Planning Corporation decision. Thus:
"The specific question of when there is 'employer-employee relationship' for purposes of the
Social Security Act has not yet been settled in this jurisdiction by any decision of this Court. But
in other connections wherein the term is used the test that has been generally applied is the so-
called control test, that is, whether the 'employer' controls or has reserved the right to control the
'employee' not only as to the result of the work to be done but also as to the means and
methods by which the same is to be accomplished."9

As was noted further by Justice Makalintal who penned the decision: "The logic of the situation
indeed dictates that where the element of control is absent; 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 works, and in turn is compensated according to the result of his efforts and not the
amount thereof, we should not find that the relationship of employer and employee exists."10

Petitioner Social Security System would have us reverse the decision of the Court of Appeals
with the plea that instead of the control test the "economic facts of the relation" test should be
the criterion as to whether or not the matter falls within the coverage of the Social Security Act.
As set forth in its brief: "The Supreme Court of the United States in the case of National Labor
Relations Board vs. Hearst Publications, Inc., 322 U.S. 111, 88 L. Ed. 1170, considered the
aforementioned 'economic facts of the relation' test as more reliable, thus: 'In short when the
particular situation of employment combines those characteristics so that the economic facts of
the relationmake more nearly one of the employment than of independent business enterprise
with respect to the ends sought to be accomplished by the legislation, those characteristics may
outweigh technical legal classification for purposes unrelated to the statute's objectives and
bring the relation within its position."'11

We are unable to accord acceptance to such a plea in view of the controlling Investment
Planning Corporation decision. In fairness to petitioner Social Security System, it must be stated
that our decision was rendered on November 18, 1967 but its brief was filed as far back as
February 8 of the same year. Our decision noted United v. Silk, 12 quoted with approval in a
case decided the same year, Bartels v. Birmingham.13 Then came this citation from Bartels: "'In
United States v. Silk, No. 312, 331 US 704, ante, 1957, 67 S. Ct. 1463, ..., we held that the
relationship of employer-employee, which determines the liability for employment taxes under
the Social Security Act was not to be determined solely by the idea of control which an alleged
employer may or could exercise over the details of the service rendered to his business by the
worker or workers. Obviously control is characteristically associated with the employer-
employee relationship, but in the application of social legislation employees are those who as a
matter of economic reality are dependent upon the business to which they render
service.'"14After which the Investment Planning Corporation opinion goes on to state: "However,
the 'economic-reality' test was subsequently abandoned as not reflective of the intention of
Congress in the enactment of the original Security Act of 1935. The change was accomplished
by means of an amendatory Act passed in 1948, which was construed and applied in later
cases."15

Petitioner Social Security System is not in agreement with such a view. For it, as noted, the
"economic-reality" or the "economic facts of relation" test, the distinction being simply a matter
of terminology, calls for acceptance. If it were a new question, perhaps such a plea might be
impressed with a greater persuasive force.

Considering, however, that such an approach was suggested and rejected in the Investment
Planning Corporation decision, we cannot yield assent. We adhere to the Investment Planning
Corporation doctrine. It bears reiteration. Thus: "Considering the similarity between the definition
of 'employee' in the Federal Social Security Act (U.S.) as amended and its definitions in our own
Social Security Act, and considering further that the local statute is admittedly patterned after
that of the United States, the decisions of American courts on the matter before us may well be
accorded persuasive force. The logic of the situation indeed dictates that where the element of
control is absent; 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 in turn, is compensated
according to the result of his efforts and not the amount thereof, we should not find that the
relationship of employer and employee exists."16

The matter being thus foreclosed, there being a reaffirmance of the authoritative holding in the
Investment Planning Corporation decision, there is nothing that calls for a reversal of the Court
of Appeals decision, now sought to be reviewed.

WHEREFORE, the decision of the Fourth Division of the Court of Appeals of February 4, 1966
is affirmed. Without pronouncement as to costs.

Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal, Zaldivar, Sanchez, Castro and Teehankee,
JJ., concur.
Barredo, J., took no part.
Republic of the Philippines
SUPREME COURT
Manila

FIRST DIVISION

G.R. No. L-32245 May 25, 1979

DY KEH BENG, petitioner,


vs.
INTERNATIONAL LABOR and MARINE UNION OF THE PHILIPPINES, ET AL., respondents.

A. M Sikat for petitioner.

D. A. Hernandez for respondents.

DE CASTRO, J.:

Petitioner Dy Keh Beng seeks a review by certiorari of the decision of the Court of Industrial
Relations dated March 23, 1970 in Case No. 3019-ULP and the Court's Resolution en banc of
June 10, 1970 affirming said decision. The Court of Industrial Relations in that case found Dy
Keh Beng guilty of the unfair labor practice acts alleged and order him to

reinstate Carlos Solano and Ricardo Tudla to their former jobs with backwages
from their respective dates of dismissal until fully reinstated without loss to their
right of seniority and of such other rights already acquired by them and/or
allowed by law. 1

Now, Dy Keh Beng assigns the following errors 2 as having been committed by the Court of
Industrial Relations:

RESPONDENT COURT ERRED IN FINDING THAT RESPONDENTS SOLANO


AND TUDLA WERE EMPLOYEES OF PETITIONERS.

II

RESPONDENT COURT ERRED IN FINDING THAT RESPONDENTS SOLANO


AND TUDLA WERE DISMISSED FROM THEIR EMPLOYMENT BY
PETITIONER.

III

RESPONDENT COURT ERRED IN FINDING THAT THE TESTIMONIES


ADDUCED BY COMPLAINANT ARE CONVINCING AND DISCLOSES (SIC) A
PATTERN OF DISCRIMINATION BY THE PETITIONER HEREIN.

IV

RESPONDENT COURT ERRED IN DECLARING PETITIONER GUILTY OF


UNFAIR LABOR PRACTICE ACTS AS ALLEGED AND DESCRIBED IN THE
COMPLAINT.

RESPONDENT COURT ERRED IN PETITIONER TO REINSTATE


RESPONDENTS TO THEIR FORMER JOBS WITH BACKWAGES FROM
THEIR RESPECTIVE DATES OF DISMISSALS UNTIL FINALLY REINSTATED
WITHOUT LOSS TO THEIR RIGHT OF SENIORITY AND OF SUCH OTHER
RIGHTS ALREADY ACQUIRED BY THEM AND/OR ALLOWED BY LAW.

The facts as found by the Hearing Examiner are as follows:

A charge of unfair labor practice was filed against Dy Keh Beng, proprietor of a basket factory,
for discriminatory acts within the meaning of Section 4(a), sub-paragraph (1) and (4). Republic
Act No. 875, 3 by dismissing on September 28 and 29, 1960, respectively, Carlos N. Solano and
Ricardo Tudla for their union activities. After preliminary investigation was conducted, a case
was filed in the Court of Industrial Relations for in behalf of the International Labor and Marine
Union of the Philippines and two of its members, Solano and Tudla In his answer, Dy Keh Beng
contended that he did not know Tudla and that Solano was not his employee because the latter
came to the establishment only when there was work which he did on pakiaw basis, each piece
of work being done under a separate contract. Moreover, Dy Keh Beng countered with a special
defense of simple extortion committed by the head of the labor union, Bienvenido Onayan.

After trial, the Hearing Examiner prepared a report which was subsequently adopted in toto by
the Court of Industrial Relations. An employee-employer relationship was found to have existed
between Dy Keh Beng and complainants Tudla and Solano, although Solano was admitted to
have worked on piece basis. 4 The issue therefore centered on whether there existed an
employee employer relation between petitioner Dy Keh Beng and the respondents Solano and
Tudla .

According to the Hearing Examiner, the evidence for the complainant Union tended to show that
Solano and Tudla became employees of Dy Keh Beng from May 2, 1953 and July 15,
1955, 5 respectively, and that except in the event of illness, their work with the establishment
was continuous although their services were compensated on piece basis. Evidence likewise
showed that at times the establishment had eight (8) workers and never less than five (5);
including the complainants, and that complainants used to receive ?5.00 a day. sometimes
less. 6

According to Dy Keh Beng, however, Solano was not his employee for the following reasons:

(1) Solano never stayed long enought at Dy's establishment;

(2) Solano had to leave as soon as he was through with the

(3) order given him by Dy;

(4) When there were no orders needing his services there was nothing for him to
do;

(5) When orders came to the shop that his regular workers could not fill it was
then that Dy went to his address in Caloocan and fetched him for these orders;
and

(6) Solano's work with Dy's establishment was not continuous. , 7

According to petitioner, these facts show that respondents Solano and Tudla are only piece
workers, not employees under Republic Act 875, where an employee 8 is referred to as

shall include any employee and shag not be limited to the employee of a
particular employer unless the Act explicitly states otherwise and shall include
any individual whose work has ceased as a consequence of, or in connection
with any current labor dispute or because of any unfair labor practice and who
has not obtained any other substantially equivalent and regular employment.

while an employer 9
includes any person acting in the interest of an employer, directly or indirectly but
shall not include any labor organization (otherwise than when acting as an
employer) or anyone acting in the capacity of officer or agent of such labor
organization.

Petitioner really anchors his contention of the non-existence of employee-employer relationship


on the control test. He points to the case of Madrigal Shipping Co., Inc. v. Nieves Baens del
Rosario, et al., L-13130, October 31, 1959, where the Court ruled that:

The test ... of the existence of employee and employer relationship is whether
there is an understanding between the parties that one is to render personal
services to or for the benefit of the other and recognition by them of the right of
one to order and control the other in the performance of the work and to direct
the manner and method of its performance.

Petitioner contends that the private respondents "did not meet the control test in the fight of the
... definition of the terms employer and employee, because there was no evidence to show that
petitioner had the right to direct the manner and method of respondent's work. 10 Moreover, it is
argued that petitioner's evidence showed that "Solano worked on a pakiaw basis" and that he
stayed in the establishment only when there was work.

While this Court upholds the control test 11 under which an employer-employee relationship
exists "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, " it finds no
merit with petitioner's arguments as stated above. It should be borne in mind that the control test
calls merely for the existence of the right to control the manner of doing the work, not the actual
exercise of the right. 12 Considering the finding by the Hearing Examiner that the establishment
of Dy Keh Beng is "engaged in the manufacture of baskets known as kaing, 13 it is natural to
expect that those working under Dy would have to observe, among others, Dy's requirements of
size and quality of the kaing. Some control would necessarily be exercised by Dy as the making
of the kaing would be subject to Dy's specifications. Parenthetically, since the work on the
baskets is done at Dy's establishments, it can be inferred that the proprietor Dy could easily
exercise control on the men he employed.

As to the contention that Solano was not an employee because he worked on piece basis, this
Court agrees with the Hearing Examiner that

circumstances 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.

At this juncture, it is worthy to note that Justice Perfecto, concurring with Chief Justice Ricardo
Paras who penned the decision in "Sunrise Coconut Products Co. v. Court of Industrial
Relations" (83 Phil..518, 523), opined that

judicial notice of the fact that the so-called "pakyaw" system mentioned in this
case as generally practiced in our country, is, in fact, a labor contract -between
employers and employees, between capitalists and laborers.

Insofar as the other assignments of errors are concerned, there is no showing that the Court of
Industrial Relations abused its discretion when it concluded that the findings of fact made by the
Hearing Examiner were supported by evidence on the record. Section 6, Republic Act 875
provides that in unfair labor practice cases, the factual findings of the Court of Industrial
Relations are conclusive on the Supreme Court, if supported by substantial evidence. This
provision has been put into effect in a long line of decisions where the Supreme Court did not
reverse the findings of fact of the Court of Industrial Relations when they were supported by
substantial evidence. 14
Nevertheless, considering that about eighteen (18) years have already elapsed from the time
the complainants were dismissed, 15 and that the decision being appealed ordered the payment
of backwages to the employees from their respective dates of dismissal until finally reinstated, it
is fitting to apply in this connection the formula for backwages worked out by Justice Claudio
Teehankee in "cases not terminated sooner." 16 The formula cans for fixing the award of
backwages without qualification and deduction to three years, "subject to deduction where there
are mitigating circumstances in favor of the employer but subject to increase by way of
exemplary damages where there are aggravating circumstances. 17Considering there are no
such circumstances in this case, there is no reason why the Court should not apply the
abovementioned formula in this instance.

WHEREFORE; the award of backwages granted by the Court of Industrial Relations is herein
modified to an award of backwages for three years without qualification and deduction at the
respective rates of compensation the employees concerned were receiving at the time of
dismissal. The execution of this award is entrusted to the National Labor Relations Commission.
Costs against petitioner.

SO ORDERED.

Teehankee, Makasiar, Guerrero, and Melencio-Herrera, JJ., concur.

Fernandez, J., took no part.


Republic of the Philippines
SUPREME COURT
Manila

FIRST DIVISION

G.R. No. 170087 August 31, 2006

ANGELINA FRANCISCO, Petitioner,


vs.
NATIONAL LABOR RELATIONS COMMISSION, KASEI CORPORATION, SEIICHIRO
TAKAHASHI, TIMOTEO ACEDO, DELFIN LIZA, IRENE BALLESTEROS, TRINIDAD LIZA
and RAMON ESCUETA, Respondents.

DECISION

YNARES-SANTIAGO, J.:

This petition for review on certiorari under Rule 45 of the Rules of Court seeks to annul and set
aside the Decision and Resolution of the Court of Appeals dated October 29, 2004 1 and
October 7, 2005, 2 respectively, in CA-G.R. SP No. 78515 dismissing the complaint for
constructive dismissal filed by herein petitioner Angelina Francisco. The appellate court
reversed and set aside the Decision of the National Labor Relations Commission (NLRC) dated
April 15, 2003, 3 in NLRC NCR CA No. 032766-02 which affirmed with modification the decision
of the Labor Arbiter dated July 31, 2002, 4 in NLRC-NCR Case No. 30-10-0-489-01, finding that
private respondents were liable for constructive dismissal.

In 1995, petitioner was hired by Kasei Corporation during its incorporation stage. She was
designated as Accountant and Corporate Secretary and was assigned to handle all the
accounting needs of the company. She was also designated as Liaison Officer to the City of
Makati to secure business permits, construction permits and other licenses for the initial
operation of the company. 5

Although she was designated as Corporate Secretary, she was not entrusted with the corporate
documents; neither did she attend any board meeting nor required to do so. She never prepared
any legal document and never represented the company as its Corporate Secretary. However,
on some occasions, she was prevailed upon to sign documentation for the company. 6

In 1996, petitioner was designated Acting Manager. The corporation also hired Gerry Nino as
accountant in lieu of petitioner. As Acting Manager, petitioner was assigned to handle
recruitment of all employees and perform management administration functions; represent the
company in all dealings with government agencies, especially with the Bureau of Internal
Revenue (BIR), Social Security System (SSS) and in the city government of Makati; and to
administer all other matters pertaining to the operation of Kasei Restaurant which is owned and
operated by Kasei Corporation. 7

For five years, petitioner performed the duties of Acting Manager. As of December 31, 2000 her
salary was P27,500.00 plus P3,000.00 housing allowance and a 10% share in the profit of Kasei
Corporation. 8

In January 2001, petitioner was replaced by Liza R. Fuentes as Manager. Petitioner alleged that
she was required to sign a prepared resolution for her replacement but she was assured that
she would still be connected with Kasei Corporation. Timoteo Acedo, the designated Treasurer,
convened a meeting of all employees of Kasei Corporation and announced that nothing had
changed and that petitioner was still connected with Kasei Corporation as Technical Assistant to
Seiji Kamura and in charge of all BIR matters. 9

Thereafter, Kasei Corporation reduced her salary by P2,500.00 a month beginning January up
to September 2001 for a total reduction of P22,500.00 as of September 2001. Petitioner was not
paid her mid-year bonus allegedly because the company was not earning well. On October
2001, petitioner did not receive her salary from the company. She made repeated follow-ups
with the company cashier but she was advised that the company was not earning well. 10

On October 15, 2001, petitioner asked for her salary from Acedo and the rest of the officers but
she was informed that she is no longer connected with the company. 11

Since she was no longer paid her salary, petitioner did not report for work and filed an action for
constructive dismissal before the labor arbiter.

Private respondents averred that petitioner is not an employee of Kasei Corporation. They
alleged that petitioner was hired in 1995 as one of its technical consultants on accounting
matters and act concurrently as Corporate Secretary. As technical consultant, petitioner
performed her work at her own discretion without control and supervision of Kasei Corporation.
Petitioner had no daily time record and she came to the office any time she wanted. The
company never interfered with her work except that from time to time, the management would
ask her opinion on matters relating to her profession. Petitioner did not go through the usual
procedure of selection of employees, but her services were engaged through a Board
Resolution designating her as technical consultant. The money received by petitioner from the
corporation was her professional fee subject to the 10% expanded withholding tax on
professionals, and that she was not one of those reported to the BIR or SSS as one of the
companys employees. 12

Petitioners designation as technical consultant depended solely upon the will of management.
As such, her consultancy may be terminated any time considering that her services were only
temporary in nature and dependent on the needs of the corporation.

To prove that petitioner was not an employee of the corporation, private respondents submitted
a list of employees for the years 1999 and 2000 duly received by the BIR showing that petitioner
was not among the employees reported to the BIR, as well as a list of payees subject to
expanded withholding tax which included petitioner. SSS records were also submitted showing
that petitioners latest employer was Seiji Corporation. 13

The Labor Arbiter found that petitioner was illegally dismissed, thus:

WHEREFORE, premises considered, judgment is hereby rendered as follows:

1. finding complainant an employee of respondent corporation;

2. declaring complainants dismissal as illegal;

3. ordering respondents to reinstate complainant to her former position without loss of seniority
rights and jointly and severally pay complainant her money claims in accordance with the
following computation:

a. Backwages 10/2001 07/2002 275,000.00

(27,500 x 10 mos.)

b. Salary Differentials (01/2001 09/2001) 22,500.00

c. Housing Allowance (01/2001 07/2002) 57,000.00

d. Midyear Bonus 2001 27,500.00

e. 13th Month Pay 27,500.00

f. 10% share in the profits of Kasei

Corp. from 1996-2001 361,175.00


g. Moral and exemplary damages 100,000.00

h. 10% Attorneys fees 87,076.50

P957,742.50

If reinstatement is no longer feasible, respondents are ordered to pay complainant separation


pay with additional backwages that would accrue up to actual payment of separation pay.

SO ORDERED. 14

On April 15, 2003, the NLRC affirmed with modification the Decision of the Labor Arbiter, the
dispositive portion of which reads:

PREMISES CONSIDERED, the Decision of July 31, 2002 is hereby MODIFIED as follows:

1) Respondents are directed to pay complainant separation pay computed at one month per
year of service in addition to full backwages from October 2001 to July 31, 2002;

2) The awards representing moral and exemplary damages and 10% share in profit in the
respective accounts of P100,000.00 and P361,175.00 are deleted;

3) The award of 10% attorneys fees shall be based on salary differential award only;

4) The awards representing salary differentials, housing allowance, mid year bonus and 13th
month pay are AFFIRMED.

SO ORDERED. 15

On appeal, the Court of Appeals reversed the NLRC decision, thus:

WHEREFORE, the instant petition is hereby GRANTED. The decision of the National Labor
Relations Commissions dated April 15, 2003 is hereby REVERSED and SET ASIDE and a new
one is hereby rendered dismissing the complaint filed by private respondent against Kasei
Corporation, et al. for constructive dismissal.

SO ORDERED. 16

The appellate court denied petitioners motion for reconsideration, hence, the present recourse.

The core issues to be resolved in this case are (1) whether there was an employer-employee
relationship between petitioner and private respondent Kasei Corporation; and if in the
affirmative, (2) whether petitioner was illegally dismissed.

Considering the conflicting findings by the Labor Arbiter and the National Labor Relations
Commission on one hand, and the Court of Appeals on the other, there is a need to reexamine
the records to determine which of the propositions espoused by the contending parties is
supported by substantial evidence. 17

We held in Sevilla v. Court of Appeals 18 that in this jurisdiction, there has been no uniform test
to determine the existence of an employer-employee relation. Generally, courts 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. 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, can
help in determining the existence of an employer-employee relationship.

However, in certain cases the control test is not sufficient to give a complete picture of the
relationship between the parties, owing to the complexity of such a relationship where several
positions have been held by the worker. There are instances when, aside from the employers
power to control the employee with respect to the means and methods by which the work is to
be accomplished, economic realities of the employment relations help provide a comprehensive
analysis of the true classification of the individual, whether as employee, independent
contractor, corporate officer or some other capacity.

The better approach would therefore be to adopt a two-tiered test involving: (1) the putative
employers power to control the employee with respect to the means and methods by which the
work is to be accomplished; and (2) the underlying economic realities of the activity or
relationship.

This two-tiered test would provide us with a framework of analysis, which would take into
consideration the totality of circumstances surrounding the true nature of the relationship
between the parties. This is especially appropriate in this case where there is no written
agreement or terms of reference to base the relationship on; and due to the complexity of the
relationship based on the various positions and responsibilities given to the worker over the
period of the latters employment.

The control test initially found application in the case of Viaa v. Al-Lagadan and Piga, 19 and
lately in Leonardo v. Court of Appeals, 20 where we held that there is an employer-employee
relationship when the person for whom the services are performed reserves the right to control
not only the end achieved but also the manner and means used to achieve that end.

In Sevilla v. Court of Appeals, 21 we observed the need to consider the existing economic
conditions prevailing between the parties, in addition to the standard of right-of-control like the
inclusion of the employee in the payrolls, to give a clearer picture in determining the existence of
an employer-employee relationship based on an analysis of the totality of economic
circumstances of the worker.

Thus, the determination of the relationship between employer and employee depends upon the
circumstances of the whole economic activity, 22 such as: (1) the extent to which the services
performed are an integral part of the employers business; (2) the extent of the workers
investment in equipment and facilities; (3) the nature and degree of control exercised by the
employer; (4) the workers opportunity for profit and loss; (5) the amount of initiative, skill,
judgment or foresight required for the success of the claimed independent enterprise; (6) the
permanency and duration of the relationship between the worker and the employer; and (7) the
degree of dependency of the worker upon the employer for his continued employment in that
line of business. 23

The proper standard of economic dependence is whether the worker is dependent on the
alleged employer for his continued employment in that line of business. 24 In the United States,
the touchstone of economic reality in analyzing possible employment relationships for purposes
of the Federal Labor Standards Act is dependency. 25By analogy, the benchmark of economic
reality in analyzing possible employment relationships for purposes of the Labor Code ought to
be the economic dependence of the worker on his employer.

By applying the control test, there is no doubt that petitioner is an employee of Kasei
Corporation because she was under the direct control and supervision of Seiji Kamura, the
corporations Technical Consultant. She reported for work regularly and served in various
capacities as Accountant, Liaison Officer, Technical Consultant, Acting Manager and Corporate
Secretary, with substantially the same job functions, that is, rendering accounting and tax
services to the company and performing functions necessary and desirable for the proper
operation of the corporation such as securing business permits and other licenses over an
indefinite period of engagement.

Under the broader economic reality test, the petitioner can likewise be said to be an employee
of respondent corporation because she had served the company for six years before her
dismissal, receiving check vouchers indicating her salaries/wages, benefits, 13th month pay,
bonuses and allowances, as well as deductions and Social Security contributions from August
1, 1999 to December 18, 2000. 26 When petitioner was designated General Manager,
respondent corporation made a report to the SSS signed by Irene Ballesteros. Petitioners
membership in the SSS as manifested by a copy of the SSS specimen signature card which
was signed by the President of Kasei Corporation and the inclusion of her name in the on-line
inquiry system of the SSS evinces the existence of an employer-employee relationship between
petitioner and respondent corporation. 27

It is therefore apparent that petitioner is economically dependent on respondent corporation for


her continued employment in the latters line of business.

In Domasig v. National Labor Relations Commission, 28 we held that in a business


establishment, an identification card is provided not only as a security measure but mainly to
identify the holder thereof as a bona fide employee of the firm that issues it. Together with the
cash vouchers covering petitioners salaries for the months stated therein, these matters
constitute substantial evidence adequate to support a conclusion that petitioner was an
employee of private respondent.

We likewise ruled in Flores v. Nuestro 29 that a corporation who registers its workers with the
SSS is proof that the latter were the formers employees. The coverage of Social Security Law
is predicated on the existence of an employer-employee relationship.

Furthermore, the affidavit of Seiji Kamura dated December 5, 2001 has clearly established that
petitioner never acted as Corporate Secretary and that her designation as such was only for
convenience. The actual nature of petitioners job was as Kamuras direct assistant with the duty
of acting as Liaison Officer in representing the company to secure construction permits, license
to operate and other requirements imposed by government agencies. Petitioner was never
entrusted with corporate documents of the company, nor required to attend the meeting of the
corporation. She was never privy to the preparation of any document for the corporation,
although once in a while she was required to sign prepared documentation for the company. 30

The second affidavit of Kamura dated March 7, 2002 which repudiated the December 5, 2001
affidavit has been allegedly withdrawn by Kamura himself from the records of the
case. 31 Regardless of this fact, we are convinced that the allegations in the first affidavit are
sufficient to establish that petitioner is an employee of Kasei Corporation.

Granting arguendo, that the second affidavit validly repudiated the first one, courts do not
generally look with favor on any retraction or recanted testimony, for it could have been secured
by considerations other than to tell the truth and would make solemn trials a mockery and place
the investigation of the truth at the mercy of unscrupulous witnesses. 32 A recantation does not
necessarily cancel an earlier declaration, but like any other testimony the same is subject to the
test of credibility and should be received with caution. 33

Based on the foregoing, there can be no other conclusion that petitioner is an employee of
respondent Kasei Corporation. She was selected and engaged by the company for
compensation, and is economically dependent upon respondent for her continued employment
in that line of business. Her main job function involved accounting and tax services rendered to
respondent corporation on a regular basis over an indefinite period of engagement. Respondent
corporation hired and engaged petitioner for compensation, with the power to dismiss her for
cause. More importantly, respondent corporation had the power to control petitioner with the
means and methods by which the work is to be accomplished.

The corporation constructively dismissed petitioner when it reduced her salary by P2,500 a
month from January to September 2001. This amounts to an illegal termination of employment,
where the petitioner is entitled to full backwages. Since the position of petitioner as accountant
is one of trust and confidence, and under the principle of strained relations, petitioner is further
entitled to separation pay, in lieu of reinstatement. 34

A diminution of pay is prejudicial to the employee and amounts to constructive dismissal.


Constructive dismissal is an involuntary resignation resulting in cessation of work resorted to
when continued employment becomes impossible, unreasonable or unlikely; when there is a
demotion in rank or a diminution in pay; or when a clear discrimination, insensibility or disdain
by an employer becomes unbearable to an employee. 35 In Globe Telecom, Inc. v. Florendo-
Flores, 36 we ruled that where an employee ceases to work due to a demotion of rank or a
diminution of pay, an unreasonable situation arises which creates an adverse working
environment rendering it impossible for such employee to continue working for her employer.
Hence, her severance from the company was not of her own making and therefore amounted to
an illegal termination of employment.

In affording full protection to labor, this Court must ensure equal work opportunities regardless
of sex, race or creed. Even as we, in every case, attempt to carefully balance the fragile
relationship between employees and employers, we are mindful of the fact that the policy of the
law is to apply the Labor Code to a greater number of employees. This would enable employees
to avail of the benefits accorded to them by law, in line with the constitutional mandate giving
maximum aid and protection to labor, promoting their welfare and reaffirming it as a primary
social economic force in furtherance of social justice and national development.

WHEREFORE, the petition is GRANTED. The Decision and Resolution of the Court of Appeals
dated October 29, 2004 and October 7, 2005, respectively, in CA-G.R. SP No. 78515
are ANNULLED and SET ASIDE. The Decision of the National Labor Relations Commission
dated April 15, 2003 in NLRC NCR CA No. 032766-02, isREINSTATED. The case
is REMANDED to the Labor Arbiter for the recomputation of petitioner Angelina Franciscos full
backwages from the time she was illegally terminated until the date of finality of this decision,
and separation pay representing one-half month pay for every year of service, where a fraction
of at least six months shall be considered as one whole year.

SO ORDERED.

CONSUELO YNARES-SANTIAGO
Associate Justice

WE CONCUR:

ARTEMIO V. PANGANIBAN
Chief Justice
Chairperson

MA. ALICIA AUSTRIA-MARTINEZ ROMEO J. CALLEJO, SR.


Associate Justice Associate Justice

MINITA V. CHICO-NAZARIO
Associate Justice

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution, it is hereby certified that the conclusions
in the above Decision were reached in consultation before the case was assigned to the writer
of the opinion of the Courts Division.

ARTEMIO V. PANGANIBAN
Chief Justice
Republic of the Philippines
SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 119268 February 23, 2000

ANGEL JARDIN, DEMETRIO CALAGOS, URBANO MARCOS, ROSENDO MARCOS, LUIS


DE LOS ANGELES, JOEL ORDENIZA and AMADO CENTENO, petitioners,
vs.
NATIONAL LABOR RELATIONS COMMISSION (NLRC) and GOODMAN TAXI (PHILJAMA
INTERNATIONAL, INC.) respondents.

QUISUMBING, J.:

This special civil action for certiorari seeks to annul the decision1 of public respondent
promulgated on October 28, 1994, in NLRC NCR CA No. 003883-92, and its resolution2 dated
December 13, 1994 which denied petitioners motion for reconsideration.

Petitioners were drivers of private respondent, Philjama International Inc., a domestic


corporation engaged in the operation of "Goodman Taxi." Petitioners used to drive private
respondent's taxicabs every other day on a 24-hour work schedule under the boundary system.
Under this arrangement, the petitioners earned an average of P400.00 daily. Nevertheless,
private respondent admittedly regularly deducts from petitioners, daily earnings the amount of
P30.00 supposedly for the washing of the taxi units. Believing that the deduction is illegal,
petitioners decided to form a labor union to protect their rights and interests.

Upon learning about the plan of petitioners, private respondent refused to let petitioners drive
their taxicabs when they reported for work on August 6, 1991, and on succeeding days.
Petitioners suspected that they were singled out because they were the leaders and active
members of the proposed union. Aggrieved, petitioners filed with the labor arbiter a complaint
against private respondent for unfair labor practice, illegal dismissal and illegal deduction of
washing fees. In a decision3 dated August 31, 1992, the labor arbiter dismissed said complaint
for lack of merit.

On appeal, the NLRC (public respondent herein), in a decision dated April 28, 1994, reversed
and set aside the judgment of the labor arbiter. The labor tribunal declared that petitioners are
employees of private respondent, and, as such, their dismissal must be for just cause and after
due process. It disposed of the case as follows:

WHEREFORE, in view of all the foregoing considerations, the decision of the Labor
Arbiter appealed from is hereby SET ASIDE and another one entered:

1. Declaring the respondent company guilty of illegal dismissal and accordingly it is


directed to reinstate the complainants, namely, Alberto A. Gonzales, Joel T. Morato,
Gavino Panahon, Demetrio L. Calagos, Sonny M. Lustado, Romeo Q. Clariza, Luis de
los Angeles, Amado Centino, Angel Jardin, Rosendo Marcos, Urbano Marcos, Jr., and
Joel Ordeniza, to their former positions without loss of seniority and other privileges
appertaining thereto; to pay the complainants full backwages and other benefits, less
earnings elsewhere, and to reimburse the drivers the amount paid as washing charges;
and

2. Dismissing the charge of unfair [labor] practice for insufficiency of evidence.

SO ORDERED.4

Private respondent's first motion for reconsideration was denied. Remaining hopeful, private
respondent filed another motion for reconsideration. This time, public respondent, in its
decision5 dated October 28, 1994, granted aforesaid second motion for reconsideration. It ruled
that it lacks jurisdiction over the case as petitioners and private respondent have no employer-
employee relationship. It held that the relationship of the parties is leasehold which is covered
by the Civil Code rather than the Labor Code, and disposed of the case as follows:

VIEWED IN THE LIGHT OF ALL THE FOREGOING, the Motion under reconsideration
is hereby given due course.

Accordingly, the Resolution of August 10, 1994, and the Decision of April 28, 1994 are
hereby SET ASIDE. The Decision of the Labor Arbiter subject of the appeal is likewise
SET ASIDE and a NEW ONE ENTERED dismissing the complaint for lack of jurisdiction.

No costs.

SO ORDERED.6

Expectedly, petitioners sought reconsideration of the labor tribunal's latest decision which was
denied. Hence, the instant petition.

In this recourse, petitioners allege that public respondent acted without or in excess of
jurisdiction, or with grave abuse of discretion in rendering the assailed decision, arguing that:

THE NLRC HAS NO JURISDICTION TO ENTERTAIN RESPONDENT'S SECOND MOTION


FOR RECONSIDERATION WHICH IS ADMITTEDLY A PLEADING PROHIBITED UNDER THE
NLRC RULES, AND TO GRANT THE SAME ON GROUNDS NOT EVEN INVOKED THEREIN.

II

THE EXISTENCE OF AN EMPLOYER-EMPLOYEE RELATIONSHIP BETWEEN THE


PARTIES IS ALREADY A SETTLED ISSUE CONSTITUTING RES JUDICATA, WHICH THE
NLRC HAS NO MORE JURISDICTION TO REVERSE, ALTER OR MODIFY.

III

IN ANY CASE, EXISTING JURISPRUDENCE ON THE MATTER SUPPORTS THE VIEW


THAT PETITIONERS-TAXI DRIVERS ARE EMPLOYEES OF RESPONDENT TAXI
COMPANY.7

The petition is impressed with merit.

The phrase "grave abuse of discretion amounting to lack or excess of jurisdiction" has settled
meaning in the jurisprudence of procedure. It means such capricious and whimsical exercise of
judgment by the tribunal exercising judicial or quasi-judicial power as to amount to lack of
power.8 In labor cases, this Court has declared in several instances that disregarding rules it is
bound to observe constitutes grave abuse of discretion on the part of labor tribunal.

In Garcia vs. NLRC,9 private respondent therein, after receiving a copy of the labor arbiter's
decision, wrote the labor arbiter who rendered the decision and expressed dismay over the
judgment. Neither notice of appeal was filed nor cash or surety bond was posted by private
respondent. Nevertheless, the labor tribunal took cognizance of the letter from private
respondent and treated said letter as private respondent's appeal. In a certiorari action before
this Court, we ruled that the labor tribunal acted with grave abuse of discretion in treating a
mere letter from private respondent as private respondent's appeal in clear violation of the rules
on appeal prescribed under Section 3(a), Rule VI of the New Rules of Procedure of NLRC.

In Philippine Airlines Inc. vs. NLRC,10 we held that the labor arbiter committed grave abuse of
discretion when he failed to resolve immediately by written order a motion to dismiss on the
ground of lack of jurisdiction and the supplemental motion to dismiss as mandated by Section
15 of Rule V of the New Rules of Procedure of the NLRC.
In Unicane Workers Union-CLUP vs. NLRC,11 we held that the NLRC gravely abused its
discretion by allowing and deciding an appeal without an appeal bond having been filed as
required under Article 223 of the Labor Code.

In Maebo vs. NLRC,12 we declared that the labor arbiter gravely abused its discretion in
disregarding the rule governing position papers. In this case, the parties have already filed their
position papers and even agreed to consider the case submitted for decision, yet the labor
arbiter still admitted a supplemental position paper and memorandum, and by taking into
consideration, as basis for his decision, the alleged facts adduced therein and the documents
attached thereto.

In Gesulgon vs. NLRC,13 we held that public respondent gravely abused its discretion in treating
the motion to set aside judgment and writ of execution as a petition for relief of judgment. In
doing so, public respondent had, without sufficient basis, extended the reglementary period for
filing petition for relief from judgment contrary to prevailing rule and case law.

In this case before us, private respondent exhausted administrative remedy available to it by
seeking reconsideration of public respondent's decision dated April 28, 1994, which public
respondent denied. With this motion for reconsideration, the labor tribunal had ample
opportunity to rectify errors or mistakes it may have committed before resort to courts of justice
can be had.14 Thus, when private respondent filed a second motion for reconsideration, public
respondent should have forthwith denied it in accordance with Rule 7, Section 14 of its New
Rules of Procedure which allows only one motion for reconsideration from the same party, thus:

Sec. 14. Motions for Reconsideration. Motions for reconsideration of any order,
resolution or decision of the Commission shall not be entertained except when based on
palpable or patent errors, provided that the motion is under oath and filed within ten (10)
calendar days from receipt of the order, resolution or decision with proof of service that a
copy of the same has been furnished within the reglementary period the adverse party
and provided further, that only one such motion from the same party shall be
entertained. [Emphasis supplied]

The rationale for allowing only one motion for reconsideration from the same party is to assist
the parties in obtaining an expeditious and inexpensive settlement of labor cases. For obvious
reasons, delays cannot be countenanced in the resolution of labor disputes. The dispute may
involve no less than the livelihood of an employee and that of his loved ones who are dependent
upon him for food, shelter, clothing, medicine, and education. It may as well involve the survival
of a business or an industry.15

As correctly pointed out by petitioner, the second motion for reconsideration filed by private
respondent is indubitably a prohibited pleading16 which should have not been entertained at all.
Public respondent cannot just disregard its own rules on the pretext of "satisfying the ends of
justice",17 especially when its disposition of a legal controversy ran afoul with a clear and long
standing jurisprudence in this jurisdiction as elucidated in the subsequent discussion. Clearly,
disregarding a settled legal doctrine enunciated by this Court is not a way of rectifying an error
or mistake. In our view, public respondent gravely abused its discretion in taking cognizance
and granting private respondent's second motion for reconsideration as it wrecks the orderly
procedure in seeking reliefs in labor cases.

But, there is another compelling reason why we cannot leave untouched the flip-flopping
decisions of the public respondent. As mentioned earlier, its October 28, 1994 judgment is not in
accord with the applicable decisions of this Court. The labor tribunal reasoned out as follows:

On the issue of whether or not employer-employee relationship exists, admitted is the


fact that complainants are taxi drivers purely on the "boundary system". Under this
system the driver takes out his unit and pays the owner/operator a fee commonly called
"boundary" for the use of the unit. Now, in the determination the existence of employer-
employee relationship, the Supreme Court in the case of Sara, et al., vs. Agarrado, et al.
(G.R. No. 73199, 26 October 1988) has applied the following four-fold test: "(1) the
selection and engagement of the employee; (2) the payment of wages; (3) the power of
dismissal; and (4) the power of control the employees conduct."
"Among the four (4) requisites", the Supreme Court stresses that "control is deemed the
most important that the other requisites may even be disregarded". Under the control
test, an employer-employee relationship exists if 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. Otherwise, no such
relationship exists. (Ibid.)

Applying the foregoing parameters to the case herein obtaining, it is clear that the
respondent does not pay the drivers, the complainants herein, their wages. Instead, the
drivers pay a certain fee for the use of the vehicle. On the matter of control, the drivers,
once they are out plying their trade, are free to choose whatever manner they conduct
their trade and are beyond the physical control of the owner/operator; they themselves
determine the amount of revenue they would want to earn in a day's driving; and, more
significantly aside from the fact that they pay for the gasoline they consume, they
likewise shoulder the cost of repairs on damages sustained by the vehicles they are
driving.

Verily, all the foregoing attributes signify that the relationship of the parties is more of a
leasehold or one that is covered by a charter agreement under the Civil Code rather than
the Labor Code.18

The foregoing ratiocination goes against prevailing jurisprudence.

In a number of cases decided by this Court,19 we ruled that the relationship between jeepney
owners/operators on one hand and jeepney drivers on the other under the boundary system is
that of employer-employee and not of lessor-lessee. We explained that in the lease of chattels,
the lessor loses complete control over the chattel leased although the lessee cannot be reckless
in the use thereof, otherwise he would be responsible for the damages to the lessor. In the case
of jeepney owners/operators and jeepney drivers, the former exercise supervision and control
over the latter. The management of the business is in the owner's hands. The owner as holder
of the certificate of public convenience must see to it that the driver follows the route prescribed
by the franchising authority and the rules promulgated as regards its operation. Now, the fact
that the drivers do not receive fixed wages but get only that in excess of the so-called
"boundary" they pay to the owner/operator is not sufficient to withdraw the relationship between
them from that of employer and employee. We have applied by analogy the abovestated
doctrine to the relationships between bus owner/operator and bus conductor,20 auto-calesa
owner/operator and driver,21 and recently between taxi owners/operators and taxi
drivers.22 Hence, petitioners are undoubtedly employees of private respondent because as taxi
drivers they perform activities which are usually necessary or desirable in the usual business or
trade of their employer.

As consistently held by this Court, termination of employment must be effected in accordance


with law. The just and authorized causes for termination of employment are enumerated under
Articles 282, 283 and 284 of the Labor Code. The requirement of notice and hearing is set-out in
Article 277 (b) of the said Code. Hence, petitioners, being employees of private respondent, can
be dismissed only for just and authorized cause, and after affording them notice and hearing
prior to termination. In the instant case, private respondent had no valid cause to terminate the
employment of petitioners. Neither were there two (2) written notices sent by private respondent
informing each of the petitioners that they had been dismissed from work. These lack of valid
cause and failure on the part of private respondent to comply with the twin-notice requirement
underscored the illegality surrounding petitioners' dismissal.

Under the law, an employee who is unjustly dismissed from work shall be entitled to
reinstatement without loss of seniority rights and other privileges and to his full backwages,
inclusive of allowances, and to his other benefits or their monetary equivalent computed from
the time his compensation was withheld from him up to the time of his actual reinstatement.23 It
must be emphasized, though, that recent judicial pronouncements24 distinguish between
employees illegally dismissed prior to the effectivity of Republic Act No. 6715 on March 21,
1989, and those whose illegal dismissals were effected after such date. Thus, employees
illegally dismissed prior to March 21, 1989, are entitled to backwages up to three (3) years
without deduction or qualification, while those illegally dismissed after that date are granted full
backwages inclusive of allowances and other benefits or their monetary equivalent from the time
their actual compensation was withheld from them up to the time of their actual reinstatement.
The legislative policy behind Republic Act No. 6715 points to "full backwages" as meaning
exactly that, i.e., without deducting from backwages the earnings derived elsewhere by the
concerned employee during the period of his illegal dismissal. Considering that petitioners were
terminated from work on August 1, 1991, they are entitled to full backwages on the basis of their
last daily earnings.

With regard to the amount deducted daily by private respondent from petitioners for washing of
the taxi units, we view the same as not illegal in the context of the law. We note that after a tour
of duty, it is incumbent upon the driver to restore the unit he has driven to the same clean
condition when he took it out. Car washing after a tour of duty is indeed a practice in the taxi
industry and is in fact dictated by fair play.25 Hence, the drivers are not entitled to
reimbursement of washing charges.1wphi1.nt

WHEREFORE, the instant petition is GRANTED. The assailed DECISION of public respondent
dated October 28, 1994, is hereby SET ASIDE. The DECISION of public respondent dated April
28, 1994, and its RESOLUTION dated December 13, 1994, are hereby REINSTATED subject to
MODIFICATION. Private respondent is directed to reinstate petitioners to their positions held at
the time of the complained dismissal. Private respondent is likewise ordered to pay petitioners
their full backwages, to be computed from the date of dismissal until their actual reinstatement.
However, the order of public respondent that petitioners be reimbursed the amount paid as
washing charges is deleted. Costs against private respondents.

SO ORDERED.

Bellosillo, Mendoza and De Leon, Jr., JJ., concur.


Buena, on official leave.
FIRST DIVISION

[G.R. No. L-7945. March 23, 1956.]


NATIONAL LABOR UNION, Petitioner, vs. BENEDICTO DINGLASAN, Respondent.

DECISION
PADILLA, J.:
The Petitioner seeks a review and the setting aside of a resolution in banc of the Court of
Industrial Relations adopted on 23 June 1954 which held that there exists no employer-
employee relationship between the Respondent and the driver complainants represented by
the Petitionerand for that reason the Court of Industrial Relations dismissed the complaint filed
by the acting prosecutor of the Court. The resolution in banc complained of reversed an order of
an Associate Judge of the Court which declared that there was such relationship of employer-
employee between the Respondent and the complainants represented by the Petitioner. The
last mentioned order of 16 February 1954 was just interlocutory but it was set aside by the
resolution of 23 June 1954. The National Labor Union in representation of the complainants
appealed from said resolution dismissing its complaint charging the Respondent with the
commission of unfair labor practices.
In the resolution complained of there are no findings of facts. It merely states that
cralaw the Court, in banc, finds that the said motion for reconsideration is well-taken and,
therefore, it hereby reconsider the order of February 16, 1954, and thereby declares that there
is no employer- employee relation between Respondent, Benedicto Dinglasan, and the driver-
complainants in his case. As a consequence, the motion to dismiss the complaint dated October
31, 1953, filed by the Acting Prosecutor of the Court, is hereby granted. (Annex D.)
This resolution was adopted upon a motion for reconsideration of the previous order of 16
February 1954. As there are no findings of fact in the resolution those set forth in the previous
order must have been relied upon by the Court. They are as follows:chanroblesvirtuallawlibrary
(a) Respondent Dinglasan is the owner and operator of TPU jeepneys plying between Espaa-
Quiapo-Pier and vice versa.
(b) Petitioners are drivers who had verbal contracts with Respondent for the use of the latters
jeepneys upon payment of P7.50 for 10 hours use, otherwise known as the boundary system.
(c) Said drivers did not receive salaries or wages from Mr. Dinglasan; chan
roblesvirtualawlibrarytheir days earnings being the excess over the P7.50 that they paid for the
use of the jeepneys. In the event that they did not earn more, Respondent did not have to pay
them anything;

(d) Mr. Dinglasans supervision over the drivers consisted in inspection of the jeepneys that
they took out when they passed his gasoline station for water, checking the route prescribed by
the Public Service Commission, or whether any driver was driving recklessly and washing and
changing the tires of jeepneys. (Annex C.)
The main question to determine is whether there exists a relationship of employer-employee
between the drivers of the jeeps and the owner thereof. The findings contained in the first order
are not disputed by both parties except the last to which the Respondent took exception. But in
the resolution setting aside the order of 16 February 1954 the Court of Industrial Relations in
banc did not state that such finding is not supported by evidence. It merely declares that there
is no employer-employee relation between Respondent, Benedicto Dinglasan, and the driver-
complainants in this case. If the findings to which the Respondent took exception is
unsupported by the evidence, a pronouncement to that effect would have been made by the
Court in banc. In the absence of such pronouncement we are not at liberty to ignore or
disregard said finding. The findings of the Court of Industrial Relations with respect to question
of fact, if supported by substantial evidence on the record shall be conclusive. 1 Taking into
consideration the findings of fact made by the Court of Industrial Relations we find it difficult to
uphold the conclusion of the Court set forth in its resolution of 23 June 1954. The drivers did not
invest a single centavo in the business and the Respondent is the exclusive owner of the jeeps.
The management of the business is in the Respondents hands. For even if the drivers of the
jeeps take material possession of the jeeps, still the Respondent as owner thereof and holder of
a certificate of public convenience is entitled to exercise, as he does and under the law he must,
supervision over the drivers by seeing to it that they follow the route prescribed by the Public
Service Commission and the rules and regulations promulgated by it as regards their operation.
And when they pass by the gasoline station of the Respondent checking by his employees on
the water tank, oil and tire pressure is done. The only features that would make the relationship
of lessor and lessee between the Respondent and the drivers, members of the union, as
contended by theRespondent, are the fact that he does not pay them any fixed wage but their
compensation is the excess of the total amount of fares earned or collected by them over and
above the amount of P7.50 which they agreed to pay to the Respondent, the owner of the jeeps,
and the fact that the gasoline burned by the jeeps is for the account of the drivers. These two
features are not, however, sufficient to withdraw the relationship between them from that of
employer-employee, because the estimated earnings for fares must be over and above the
amount they agreed to pay to the Respondent for a ten-hour shift or ten-hour a day operation of
the jeeps. Not having any interest in the business because they did not invest anything in the
acquisition of the jeeps and did not participate in the management thereof, their service as
drivers of the jeeps being their only contribution to the business, the relationship of lessor and
lessee cannot be sustained. 1 In the lease of chattels the lessor loses complete control over the
chattel leased although the lessee cannot make bad use thereof, for he would be responsible
for damages to the lessor should he do so. In this case there is a supervision and a sort of
control that the owner of the jeeps exercises over the drivers. It is an attempt by ingenious
scheme to withdraw the relationship between the owner of the jeeps and the drivers thereof
from the operation of the labor laws enacted to promote industrial peace.
As to the point that the National Labor Union is not the real party in interest to bring the
complaint, suffice it to say that representative includes a legitimate labor organization or any
officer or agent of such organization, whether or not employed by the employer or employees
whom he represents. 2 And whenever it is charged by an offended party or his representative
that any person has engaged or is engaging in any unfair labor practice, the Court of Industrial
Relations must investigate such charge. 3 Therefore, the objection to the institution of the
charge for unfair labor practice by the National Labor Union is not well taken.
The order of 23 June 1904 is reversed and set aside and the case remanded to the Court of
Industrial Relations for such further proceedings as may be required by law, with costs against
theRespondent.
Paras, C.J., Bengzon, Reyes, A., Bautista Angelo, Labrador, Concepcion, Reyes, J. B. L.
and Endencia, JJ., concur.
Republic of the Philippines
SUPREME COURT
Manila

THIRD DIVISION

G.R. No. L-72654-61 January 22, 1990

ALIPIO R. RUGA, JOSE PARMA, ELADIO CALDERON, LAURENTE BAUTU, JAIME


BARBIN, NICANOR FRANCISCO, PHILIP CERVANTES and ELEUTERIO
BARBIN, petitioners,
vs.
NATIONAL LABOR RELATIONS COMMISSION and DE GUZMAN FISHING ENTERPRISES
and/or ARSENIO DE GUZMAN, respondents.

J.C. Espinas & Associates for petitioners.

Tomas A. Reyes for private respondent.

FERNAN, C.J.:

The issue to be resolved in the instant case is whether or not the fishermen-crew members of
the trawl fishing vessel 7/B Sandyman II are employees of its owner-operator, De Guzman
Fishing Enterprises, and if so, whether or not they were illegally dismissed from their
employment.

Records show that the petitioners were the fishermen-crew members of 7/B Sandyman II, one
of several fishing vessels owned and operated by private respondent De Guzman Fishing
Enterprises which is primarily engaged in the fishing business with port and office at Camaligan,
Camarines Sur. Petitioners rendered service aboard said fishing vessel in various capacities, as
follows: Alipio Ruga and Jose Parma patron/pilot; Eladio Calderon, chief engineer; Laurente
Bautu, second engineer; Jaime Barbin, master fisherman; Nicanor Francisco, second
fisherman; Philip Cervantes and Eleuterio Barbin, fishermen.

For services rendered in the conduct of private respondent's regular business of "trawl" fishing,
petitioners were paid on percentage commission basis in cash by one Mrs. Pilar de Guzman,
cashier of private respondent. As agreed upon, they received thirteen percent (13%) of the
proceeds of the sale of the fish-catch if the total proceeds exceeded the cost of crude oil
consumed during the fishing trip, otherwise, they received ten percent (10%) of the total
proceeds of the sale. The patron/pilot, chief engineer and master fisherman received a minimum
income of P350.00 per week while the assistant engineer, second fisherman, and fisherman-
winchman received a minimum income of P260.00 per week. 1

On September 11, 1983 upon arrival at the fishing port, petitioners were told by Jorge de
Guzman, president of private respondent, to proceed to the police station at Camaligan,
Camarines Sur, for investigation on the report that they sold some of their fish-catch at midsea
to the prejudice of private respondent. Petitioners denied the charge claiming that the same was
a countermove to their having formed a labor union and becoming members of Defender of
Industrial Agricultural Labor Organizations and General Workers Union (DIALOGWU) on
September 3, 1983.

During the investigation, no witnesses were presented to prove the charge against petitioners,
and no criminal charges were formally filed against them. Notwithstanding, private respondent
refused to allow petitioners to return to the fishing vessel to resume their work on the same day,
September 11, 1983.
On September 22, 1983, petitioners individually filed their complaints for illegal dismissal and
non-payment of 13th month pay, emergency cost of living allowance and service incentive pay,
with the then Ministry (now Department) of Labor and Employment, Regional Arbitration Branch
No. V, Legaspi City, Albay, docketed as Cases Nos. 1449-83 to 1456-83. 2 They uniformly
contended that they were arbitrarily dismissed without being given ample time to look for a new
job.

On October 24, 1983, private respondent, thru its operations manager, Conrado S. de Guzman,
submitted its position paper denying the employer-employee relationship between private
respondent and petitioners on the theory that private respondent and petitioners were engaged
in a joint venture. 3

After the parties failed to reach an amicable settlement, the Labor Arbiter scheduled the case for
joint hearing furnishing the parties with notice and summons. On December 27, 1983, after two
(2) previously scheduled joint hearings were postponed due to the absence of private
respondent, one of the petitioners herein, Alipio Ruga, the pilot/captain of the 7/B Sandyman II,
testified, among others, on the manner the fishing operations were conducted, mode of payment
of compensation for services rendered by the fishermen-crew members, and the circumstances
leading to their dismissal. 4

On March 31, 1984, after the case was submitted for resolution, Labor Arbiter Asisclo S.
Coralde rendered a joint decision 5 dismissing all the complaints of petitioners on a finding that a
"joint fishing venture" and not one of employer-employee relationship existed between private
respondent and petitioners.

From the adverse decision against them, petitioners appealed to the National Labor Relations
Commission.

On May 30, 1985, the National Labor Relations Commission promulgated its
resolution 6 affirming the decision of the labor arbiter that a "joint fishing venture" relationship
existed between private respondent and petitioners.

Hence, the instant petition.

Petitioners assail the ruling of the public respondent NLRC that what exists between private
respondent and petitioners is a joint venture arrangement and not an employer-employee
relationship. To stress that there is an employer-employee relationship between them and
private respondent, petitioners invite attention to the following: that they were directly hired by
private respondent through its general manager, Arsenio de Guzman, and its operations
manager, Conrado de Guzman; that, except for Laurente Bautu, they had been employed by
private respondent from 8 to 15 years in various capacities; that private respondent, through its
operations manager, supervised and controlled the conduct of their fishing operations as to the
fixing of the schedule of the fishing trips, the direction of the fishing vessel, the volume or
number of tubes of the fish-catch the time to return to the fishing port, which were
communicated to the patron/pilot by radio (single side band); that they were not allowed to join
other outfits even the other vessels owned by private respondent without the permission of the
operations manager; that they were compensated on percentage commission basis of the gross
sales of the fish-catch which were delivered to them in cash by private respondent's cashier,
Mrs. Pilar de Guzman; and that they have to follow company policies, rules and regulations
imposed on them by private respondent.

Disputing the finding of public respondent that a "joint fishing venture" exists between private
respondent and petitioners, petitioners claim that public respondent exceeded its jurisdiction
and/or abused its discretion when it added facts not contained in the records when it stated that
the pilot-crew members do not receive compensation from the boat-owners except their share in
the catch produced by their own efforts; that public respondent ignored the evidence of
petitioners that private respondent controlled the fishing operations; that public respondent did
not take into account established jurisprudence that the relationship between the fishing boat
operators and their crew is one of direct employer and employee.
Aside from seeking the dismissal of the petition on the ground that the decision of the labor
arbiter is now final and executory for failure of petitioners to file their appeal with the NLRC
within 10 calendar days from receipt of said decision pursuant to the doctrine laid down in Vir-
Jen Shipping and Marine Services, Inc. vs. NLRC, 115 SCRA 347 (1982), the Solicitor General
claims that the ruling of public respondent that a "joint fishing venture" exists between private
respondent and petitioners rests on the resolution of the Social Security System (SSS) in a
1968 case, Case No. 708 (De Guzman Fishing Enterprises vs. SSS), exempting De Guzman
Fishing Enterprises, private respondent herein, from compulsory coverage of the SSS on the
ground that there is no employer-employee relations between the boat-owner and the
fishermen-crew members following the doctrine laid down inPajarillo vs. SSS, 17 SCRA 1014
(1966). In applying to the case at bar the doctrine in Pajarillo vs. SSS, supra, that there is no
employer-employee relationship between the boat-owner and the pilot and crew members when
the boat-owner supplies the boat and equipment while the pilot and crew members contribute
the corresponding labor and the parties get specific shares in the catch for their respective
contribution to the venture, the Solicitor General pointed out that the boat-owners in
the Pajarillo case, as in the case at bar, did not control the conduct of the fishing operations and
the pilot and crew members shared in the catch.

We rule in favor of petitioners.

Fundamental considerations of substantial justice persuade Us to decide the instant case on the
merits rather than to dismiss it on a mere technicality. In so doing, we exercise the prerogative
accorded to this Court enunciated in Firestone Filipinas Employees Association, et
al. vs. Firestone Tire and Rubber Co. of the Philippines, Inc., 61 SCRA 340 (1974), thus "the
well-settled doctrine is that in labor cases before this Tribunal, no undue sympathy is to be
accorded to any claim of a procedural misstep, the idea being that its power be exercised
according to justice and equity and substantial merits of the controversy."

Circumstances peculiar to some extent to fishermen-crew members of a fishing vessel regularly


engaged in trawl fishing, as in the case of petitioners herein, who spend one (1) whole week or
more 7 in the open sea performing their job to earn a living to support their families, convince Us
to adopt a more liberal attitude in applying to petitioners the 10-calendar day rule in the filing of
appeals with the NLRC from the decision of the labor arbiter.

Records reveal that petitioners were informed of the labor arbiter's decision of March 31, 1984
only on July 3,1984 by their non-lawyer representative during the arbitration proceedings, Jose
Dialogo who received the decision eight (8) days earlier, or on June 25, 1984. As adverted to
earlier, the circumstances peculiar to petitioners' occupation as fishermen-crew members, who
during the pendency of the case understandably have to earn a living by seeking employment
elsewhere, impress upon Us that in the ordinary course of events, the information as to the
adverse decision against them would not reach them within such time frame as would allow
them to faithfully abide by the 10-calendar day appeal period. This peculiar circumstance and
the fact that their representative is a non-lawyer provide equitable justification to conclude that
there is substantial compliance with the ten-calendar day rule of filing of appeals with the NLRC
when petitioners filed on July 10, 1984, or seven (7) days after receipt of the decision, their
appeal with the NLRC through registered mail.

We have consistently ruled that 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. 8 The employment relation arises from contract of hire, express or
implied. 9 In the absence of hiring, no actual employer-employee relation could exist.

From the four (4) elements mentioned, We have generally relied on the so-called right-of-control
test 10 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. The test calls
merely for the existence of the right to control the manner of doing the work, not the actual
exercise of the right. 11
The case of Pajarillo vs. SSS, supra, invoked by the public respondent as authority for the ruling
that a "joint fishing venture" existed between private respondent and petitioners is not applicable
in the instant case. There is neither light of control nor actual exercise of such right on the part
of the boat-owners in the Pajarillo case, where the Court found that the pilots therein are not
under the order of the boat-owners as regards their employment; that they go out to sea not
upon directions of the boat-owners, but upon their own volition as to when, how long and where
to go fishing; that the boat-owners do not in any way control the crew-members with whom the
former have no relationship whatsoever; that they simply join every trip for which the pilots allow
them, without any reference to the owners of the vessel; and that they only share in their own
catch produced by their own efforts.

The aforementioned circumstances obtaining in Pajarillo case do not exist in the instant case.
The conduct of the fishing operations was undisputably shown by the testimony of Alipio Ruga,
the patron/pilot of 7/B Sandyman II, to be under the control and supervision of private
respondent's operations manager. Matters dealing on the fixing of the schedule of the fishing
trip and the time to return to the fishing port were shown to be the prerogative of private
respondent. 12 While performing the fishing operations, petitioners received instructions via a
single-side band radio from private respondent's operations manager who called the patron/pilot
in the morning. They are told to report their activities, their position, and the number of tubes of
fish-catch in one day. 13 Clearly thus, the conduct of the fishing operations was monitored by
private respondent thru the patron/pilot of 7/B Sandyman II who is responsible for disseminating
the instructions to the crew members.

The conclusion of public respondent that there had been no change in the situation of the
parties since 1968 when De Guzman Fishing Enterprises, private respondent herein, obtained a
favorable judgment in Case No. 708 exempting it from compulsory coverage of the SSS law is
not supported by evidence on record. It was erroneous for public respondent to apply the factual
situation of the parties in the 1968 case to the instant case in the light of the changes in the
conditions of employment agreed upon by the private respondent and petitioners as discussed
earlier.

Records show that in the instant case, as distinguished from the Pajarillo case where the crew
members are under no obligation to remain in the outfit for any definite period as one can be the
crew member of an outfit for one day and be the member of the crew of another vessel the next
day, the herein petitioners, on the other hand, were directly hired by private respondent, through
its general manager, Arsenio de Guzman, and its operations manager, Conrado de Guzman
and have been under the employ of private respondent for a period of 8-15 years in various
capacities, except for Laurente Bautu who was hired on August 3, 1983 as assistant engineer.
Petitioner Alipio Ruga was hired on September 29, 1974 as patron/captain of the fishing vessel;
Eladio Calderon started as a mechanic on April 16, 1968 until he was promoted as chief
engineer of the fishing vessel; Jose Parma was employed on September 29, 1974 as assistant
engineer; Jaime Barbin started as a pilot of the motor boat until he was transferred as a master
fisherman to the fishing vessel 7/B Sandyman II; Philip Cervantes was hired as winchman on
August 1, 1972 while Eleuterio Barbin was hired as winchman on April 15, 1976.

While tenure or length of employment is not considered as the test of employment, nevertheless
the hiring of petitioners to perform work which is necessary or desirable in the usual business or
trade of private respondent for a period of 8-15 years since 1968 qualify them as regular
employees within the meaning of Article 281 of the Labor Code as they were indeed engaged to
perform activities usually necessary or desirable in the usual fishing business or occupation of
private respondent. 14

Aside from performing activities usually necessary and desirable in the business of private
respondent, it must be noted that petitioners received compensation on a percentage
commission based on the gross sale of the fish-catch i.e. 13% of the proceeds of the sale if the
total proceeds exceeded the cost of the crude oil consumed during the fishing trip, otherwise
only 10% of the proceeds of the sale. Such compensation falls within the scope and meaning of
the term "wage" as defined under Article 97(f) of the Labor Code, thus:

(f) "Wage" paid to any employee shall mean the remuneration or earnings,
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 included 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. . . .

The claim of private respondent, which was given credence by public respondent, that
petitioners get paid in the form of share in the fish-catch which the patron/pilot as head of the
team distributes to his crew members in accordance with their own understanding 15 is not
supported by recorded evidence. Except that such claim appears as an allegation in private
respondent's position paper, there is nothing in the records showing such a sharing scheme as
preferred by private respondent.

Furthermore, the fact that on mere suspicion based on the reports that petitioners allegedly sold
their fish-catch at midsea without the knowledge and consent of private respondent, petitioners
were unjustifiably not allowed to board the fishing vessel on September 11, 1983 to resume
their activities without giving them the opportunity to air their side on the accusation against
them unmistakably reveals the disciplinary power exercised by private respondent over them
and the corresponding sanction imposed in case of violation of any of its rules and regulations.
The virtual dismissal of petitioners from their employment was characterized by undue haste
when less extreme measures consistent with the requirements of due process should have
been first exhausted. In that sense, the dismissal of petitioners was tainted with illegality.

Even on the assumption that petitioners indeed sold the fish-catch at midsea the act of private
respondent virtually resulting in their dismissal evidently contradicts private respondent's theory
of "joint fishing venture" between the parties herein. A joint venture, including partnership,
presupposes generally a parity of standingbetween the joint co-venturers or partners, in which
each party has an equal proprietary interest in the capital or property contributed 16 and where
each party exercises equal lights in the conduct of the business. 17 It would be inconsistent with
the principle of parity of standing between the joint co-venturers as regards the conduct of
business, if private respondent would outrightly exclude petitioners from the conduct of the
business without first resorting to other measures consistent with the nature of a joint venture
undertaking, Instead of arbitrary unilateral action, private respondent should have discussed
with an open mind the advantages and disadvantages of petitioners' action with its joint co-
venturers if indeed there is a "joint fishing venture" between the parties. But this was not done in
the instant case. Petitioners were arbitrarily dismissed notwithstanding that no criminal
complaints were filed against them. The lame excuse of private respondent that the non-filing of
the criminal complaints against petitioners was for humanitarian reasons will not help its cause
either.

We have examined the jurisprudence on the matter and find the same to be supportive of
petitioners' stand. InNegre vs. WCC 135 SCRA 653 (1985), we held that fishermen crew
members who were recruited by one master fisherman locally known as "maestro" in charge of
recruiting others to complete the crew members are considered employees, not industrial
partners, of the boat-owners. In an earlier case of Abong vs. WCC, 54 SCRA 379 (1973) where
petitioner therein, Dr. Agustin Abong, owner of the fishing boat, claimed that he was not the
employer of the fishermen crew members because of an alleged partnership agreement
between him, as financier, and Simplicio Panganiban, as his team leader in charge of recruiting
said fishermen to work for him, we affirmed the finding of the WCC that there existed an
employer-employee relationship between the boat-owner and the fishermen crew members not
only because they worked for and in the interest of the business of the boat-owner but also
because they were subject to the control, supervision and dismissal of the boat-owner, thru its
agent, Simplicio Panganiban, the alleged "partner" of Dr. Abong; that while these fishermen
crew members were paid in kind, or by "pakiao basis" still that fact did not alter the character of
their relationship with Dr. Abong as employees of the latter.

In Philippine Fishing Boat Officers and Engineers Union vs. Court of Industrial Relations, 112
SCRA 159 (1982), we held that the employer-employee relationship between the crew members
and the owners of the fishing vessels engaged in deep sea fishing is merely suspended during
the time the vessels are drydocked or undergoing repairs or being loaded with the necessary
provisions for the next fishing trip. The said ruling is premised on the principle that all these
activities i.e., drydock, repairs, loading of necessary provisions, form part of the regular
operation of the company fishing business.

WHEREFORE, in view of the foregoing, the petition is GRANTED. The questioned resolution of
the National Labor Relations Commission dated May 30,1985 is hereby REVERSED and SET
ASIDE. Private respondent is ordered to reinstate petitioners to their former positions or any
equivalent positions with 3-year backwages and other monetary benefits under the law. No
pronouncement as to costs.

SO ORDERED.

Gutierrez, Jr., Bidin and Corts, JJ., concur.

Feliciano, J., concurs in the result.


FIRST DIVISION

[G.R. No. 124354. April 11, 2002]

ROGELIO E. RAMOS and ERLINDA RAMOS, in their own behalf and as natural guardians
of the minors, ROMMEL RAMOS, ROY RODERICK RAMOS, and RON RAYMOND
RAMOS,petitioners, vs. COURT OF APPEALS, DE LOS SANTOS MEDICAL
CENTER, DR. ORLINO HOSAKA and DR. PERFECTA GUTIERREZ, respondents.

RESOLUTION
KAPUNAN, J.:

Private respondents De Los Santos Medical Center, Dr. Orlino Hosaka and Dr. Perfecta
Gutierrez move for a reconsideration of the Decision, dated December 29, 1999, of this Court
holding them civilly liable for petitioner Erlinda Ramos comatose condition after she delivered
herself to them for their professional care and management.
For better understanding of the issues raised in private respondents respective motions, we
will briefly restate the facts of the case as follows:
Sometime in 1985, petitioner Erlinda Ramos, after seeking professional medical help, was
advised to undergo an operation for the removal of a stone in her gall bladder
(cholecystectomy). She was referred to Dr. Hosaka, a surgeon, who agreed to perform the
operation on her. The operation was scheduled for June 17, 1985 at 9:00 in the morning at
private respondent De Los Santos Medical Center (DLSMC). Since neither petitioner Erlinda nor
her husband, petitioner Rogelio, knew of any anesthesiologist, Dr. Hosaka recommended to
them the services of Dr. Gutierrez.
Petitioner Erlinda was admitted to the DLSMC the day before the scheduled operation. By
7:30 in the morning of the following day, petitioner Erlinda was already being prepared for
operation. Upon the request of petitioner Erlinda, her sister-in-law, Herminda Cruz, who was
then Dean of the College of Nursing at the Capitol Medical Center, was allowed to accompany
her inside the operating room.
At around 9:30 in the morning, Dr. Hosaka had not yet arrived so Dr. Gutierrez tried to get
in touch with him by phone. Thereafter, Dr. Gutierrez informed Cruz that the operation might be
delayed due to the late arrival of Dr. Hosaka. In the meantime, the patient, petitioner Erlinda
said to Cruz, Mindy, inip na inip na ako, ikuha mo ako ng ibang Doctor.
By 10:00 in the morning, when Dr. Hosaka was still not around, petitioner Rogelio already
wanted to pull out his wife from the operating room. He met Dr. Garcia, who remarked that he
was also tired of waiting for Dr. Hosaka. Dr. Hosaka finally arrived at the hospital at around
12:10 in the afternoon, or more than three (3) hours after the scheduled operation.
Cruz, who was then still inside the operating room, heard about Dr. Hosakas arrival. While
she held the hand of Erlinda, Cruz saw Dr. Gutierrez trying to intubate the patient. Cruz heard
Dr. Gutierrez utter: ang hirap ma-intubate nito, mali yata ang pagkakapasok. O lumalaki ang
tiyan. Cruz noticed a bluish discoloration of Erlindas nailbeds on her left hand. She (Cruz) then
heard Dr. Hosaka instruct someone to call Dr. Calderon, another anesthesiologist. When he
arrived, Dr. Calderon attempted to intubate the patient. The nailbeds of the patient remained
bluish, thus, she was placed in a trendelenburg position a position where the head of the patient
is placed in a position lower than her feet. At this point, Cruz went out of the operating room to
express her concern to petitioner Rogelio that Erlindas operation was not going well.
Cruz quickly rushed back to the operating room and saw that the patient was still in
trendelenburg position. At almost 3:00 in the afternoon, she saw Erlinda being wheeled to the
Intensive Care Unit (ICU). The doctors explained to petitioner Rogelio that his wife had
bronchospasm. Erlinda stayed in the ICU for a month. She was released from the hospital only
four months later or on November 15, 1985. Since the ill-fated operation, Erlinda remained in
comatose condition until she died on August 3, 1999.[1]
Petitioners filed with the Regional Trial Court of Quezon City a civil case for damages
against private respondents. After due trial, the court a quo rendered judgment in favor of
petitioners. Essentially, the trial court found that private respondents were negligent in the
performance of their duties to Erlinda. On appeal by private respondents, the Court of Appeals
reversed the trial courts decision and directed petitioners to pay their unpaid medical bills to
private respondents.
Petitioners filed with this Court a petition for review on certiorari. The private respondents
were then required to submit their respective comments thereon. On December 29, 1999, this
Court promulgated the decision which private respondents now seek to be reconsidered. The
dispositive portion of said Decision states:

WHEREFORE, the decision and resolution of the appellate court appealed from are hereby
modified so as to award in favor of petitioners, and solidarily against private respondents the
following: 1) P1,352,000.00 as actual damages computed as of the date of promulgation of this
decision plus a monthly payment of P8,000.00 up to the time that petitioner Erlinda Ramos
expires or miraculously survives; 2) P2,000,000.00 as moral damages, 3) P1,500,000.00 as
temperate damages; 4) P100,000.00 each exemplary damages and attorneys fees; and 5) the
costs of the suit.[2]

In his Motion for Reconsideration, private respondent Dr. Hosaka submits the following as
grounds therefor:
I

THE HONORABLE SUPREME COURT COMMITTED REVERSIBLE ERROR WHEN


IT HELD RESPONDENT DR. HOSAKA LIABLE ON THE BASIS OF THE CAPTAIN-
OF-THE-SHIP DOCTRINE.

II

THE HONORABLE SUPREME COURT ERRED IN HOLDING RESPONDENT DR.


HOSAKA LIABLE DESPITE THE FACT THAT NO NEGLIGENCE CAN BE
ATTRIBUTABLE TO HIM.

III

ASSUMING WITHOUT ADMITTING THAT RESPONDENT DR. HOSAKA IS LIABLE,


THE HONORABLE SUPREME COURT ERRED IN AWARDING DAMAGES THAT
WERE CLEARLY EXCESSIVE AND WITHOUT LEGAL BASIS.[3]

Private respondent Dr. Gutierrez, for her part, avers that:

A. THE HONORABLE SUPREME COURT MAY HAVE INADVERTENTLY


OVERLOOKED THE FACT THAT THE COURT OF APPEALS DECISION DATED 29
MAY 1995 HAD ALREADY BECOME FINAL AND EXECUTORY AS OF 25 JUNE
1995, THEREBY DEPRIVING THIS HONORABLE COURT OF JURISDICTION OVER
THE INSTANT PETITION;

B. THE HONORABLE SUPREME COURT MAY HAVE INADVERTENTLY


OVERLOOKED SEVERAL MATERIAL FACTUAL CIRCUMSTANCES WHICH, IF
PROPERLY CONSIDERED, WOULD INDUBITABLY LEAD TO NO OTHER
CONCLUSION BUT THAT PRIVATE RESPONDENT DOCTORS WERE NOT GUILTY
OF ANY NEGLIGENCE IN RESPECT OF THE INSTANT CASE;

B.1 RESPONDENT DOCTOR PERFECTA GUTIERREZ HAS


SUFFICIENTLY DISCHARGED THE BURDEN OF EVIDENCE BY
SUBSTANTIAL PROOF OF HER COMPLIANCE WITH THE
STANDARDS OF DUE CARE EXPECTED IN HER RESPECTIVE FIELD
OF MEDICAL SPECIALIZATION.
B.2 RESPONDENT DOCTOR PERFECTA GUTIERREZ HAS
SUFFICIENTLY DISCHARGED THE BURDEN OF EVIDENCE BY
SUBSTANTIAL PROOF OF HER HAVING SUCCESSFULLY
INTUBATED PATIENT ERLINDA RAMOS

C. THE SUPREME COURT MAY HAVE INADVERTENTLY PLACED TOO MUCH


RELIANCE ON THE TESTIMONY OF PETITIONERS WITNESS HERMINDA CRUZ,
DESPITE THE EXISTENCE OF SEVERAL FACTUAL CIRCUMSTANCES WHICH
RENDERS DOUBT ON HER CREDIBILITY

D. THE SUPREME COURT MAY HAVE INADVERTENTLY DISREGARDED THE


EXPERT TESTIMONY OF DR. JAMORA AND DRA. CALDERON

E. THE HONORABLE SUPREME COURT MAY HAVE INADVERTENTLY AWARDED


DAMAGES TO PETITIONERS DESPITE THE FACT THAT THERE WAS NO
NEGLIGENCE ON THE PART OF RESPONDENT DOCTOR.[4]

Private respondent De Los Santos Medical Center likewise moves for reconsideration on
the following grounds:
I

THE HONORABLE COURT ERRED IN GIVING DUE COURSE TO THE INSTANT


PETITION AS THE DECISION OF THE HONORABLE COURT OF APPEALS HAD
ALREADY BECOME FINAL AND EXECUTORY

II

THE HONORABLE SUPREME COURT ERRED IN FINDING THAT AN EMPLOYER-


EMPLOYEE [RELATIONSHIP] EXISTS BETWEEN RESPONDENT DE LOS SANTOS
MEDICAL CENTER AND DRS. ORLINO HOSAKA AND PERFECTA GUTIERREZ

III

THE HONORABLE SUPREME COURT ERRED IN FINDING THAT RESPONDENT


DE LOS SANTOS MEDICAL CENTER IS SOLIDARILY LIABLE WITH RESPONDENT
DOCTORS

IV

THE HONORABLE SUPREME COURT ERRED IN INCREASING THE AWARD OF


DAMAGES IN FAVOR OF PETITIONERS.[5]

In the Resolution of February 21, 2000, this Court denied the motions for reconsideration of
private respondents Drs. Hosaka and Gutierrez. They then filed their respective second motions
for reconsideration. The Philippine College of Surgeons filed its Petition-in-Intervention
contending in the main that this Court erred in holding private respondent Dr. Hosaka liable
under the captain of the ship doctrine. According to the intervenor, said doctrine had long been
abandoned in the United States in recognition of the developments in modern medical and
hospital practice.[6] The Court noted these pleadings in the Resolution of July 17, 2000.[7]
On March 19, 2001, the Court heard the oral arguments of the parties, including the
intervenor. Also present during the hearing were the amicii curiae: Dr. Felipe A. Estrella, Jr.,
Consultant of the Philippine Charity Sweepstakes, former Director of the Philippine General
Hospital and former Secretary of Health; Dr. Iluminada T. Camagay, President of the Philippine
Society of Anesthesiologists, Inc. and Professor and Vice-Chair for Research, Department of
Anesthesiology, College of Medicine-Philippine General Hospital, University of the Philippines;
and Dr. Lydia M. Egay, Professor and Vice-Chair for Academics, Department of Anesthesiology,
College of Medicine-Philippine General Hospital, University of the Philippines.
The Court enumerated the issues to be resolved in this case as follows:
1. WHETHER OR NOT DR. ORLINO HOSAKA (SURGEON) IS LIABLE FOR
NEGLIGENCE;
2. WHETHER OR NOT DR. PERFECTA GUTIERREZ (ANESTHESIOLOGIST) IS
LIABLE FOR NEGLIGENCE; AND
3. WHETHER OR NOT THE HOSPITAL (DELOS SANTOS MEDICAL CENTER) IS
LIABLE FOR ANY ACT OF NEGLIGENCE COMMITTED BY THEIR VISITING
CONSULTANT SURGEON AND ANESTHESIOLOGIST.[8]
We shall first resolve the issue pertaining to private respondent Dr. Gutierrez. She
maintains that the Court erred in finding her negligent and in holding that it was the faulty
intubation which was the proximate cause of Erlindas comatose condition. The following
objective facts allegedly negate a finding of negligence on her part: 1) That the outcome of the
procedure was a comatose patient and not a dead one; 2) That the patient had a cardiac arrest;
and 3) That the patient was revived from that cardiac arrest.[9] In effect, Dr. Gutierrez insists
that, contrary to the finding of this Court, the intubation she performed on Erlinda was
successful.
Unfortunately, Dr. Gutierrez claim of lack of negligence on her part is belied by the records
of the case. It has been sufficiently established that she failed to exercise the standards of care
in the administration of anesthesia on a patient. Dr. Egay enlightened the Court on what these
standards are:

x x x What are the standards of care that an anesthesiologist should do before we administer
anesthesia? The initial step is the preparation of the patient for surgery and this is a pre-
operative evaluation because the anesthesiologist is responsible for determining the medical
status of the patient, developing the anesthesia plan and acquainting the patient or the
responsible adult particularly if we are referring with the patient or to adult patient who may not
have, who may have some mental handicaps of the proposed plans. We do pre-operative
evaluation because this provides for an opportunity for us to establish identification and
personal acquaintance with the patient. It also makes us have an opportunity to alleviate
anxiety, explain techniques and risks to the patient, given the patient the choice and
establishing consent to proceed with the plan. And lastly, once this has been agreed upon by all
parties concerned the ordering of pre-operative medications.And following this line at the end of
the evaluation we usually come up on writing, documentation is very important as far as when
we train an anesthesiologist we always emphasize this because we need records for our
protection, well, records.And it entails having brief summary of patient history and physical
findings pertinent to anesthesia, plan, organize as a problem list, the plan anesthesia technique,
the plan post operative, pain management if appropriate, special issues for this particular
patient. There are needs for special care after surgery and if it so it must be written down there
and a request must be made known to proper authorities that such and such care is
necessary. And the request for medical evaluation if there is an indication. When we ask for a
cardio-pulmonary clearance it is not in fact to tell them if this patient is going to be fit for
anesthesia, the decision to give anesthesia rests on the anesthesiologist. What we ask them is
actually to give us the functional capacity of certain systems which maybe affected by the
anesthetic agent or the technique that we are going to use. But the burden of responsibility in
terms of selection of agent and how to administer it rest on the anesthesiologist.[10]

The conduct of a preanesthetic/preoperative evaluation prior to an operation, whether


elective or emergency, cannot be dispensed with.[11] Such evaluation is necessary for the
formulation of a plan of anesthesia care suited to the needs of the patient concerned.
Pre-evaluation for anesthesia involves taking the patients medical history, reviewing his
current drug therapy, conducting physical examination, interpreting laboratory data, and
determining the appropriate prescription of preoperative medications as necessary to the
conduct of anesthesia.[12]
Physical examination of the patient entails not only evaluating the patients central nervous
system, cardiovascular system and lungs but also the upper airway. Examination of the upper
airway would in turn include an analysis of the patients cervical spine mobility,
temporomandibular mobility, prominent central incisors, deceased or artificial teeth, ability to
visualize uvula and the thyromental distance.[13]
Nonetheless, Dr. Gutierrez omitted to perform a thorough preoperative evaluation on
Erlinda. As she herself admitted, she saw Erlinda for the first time on the day of the operation
itself, one hour before the scheduled operation. She auscultated[14] the patients heart and lungs
and checked the latters blood pressure to determine if Erlinda was indeed fit for
operation.[15] However, she did not proceed to examine the patients airway. Had she been able
to check petitioner Erlindas airway prior to the operation, Dr. Gutierrez would most probably not
have experienced difficulty in intubating the former, and thus the resultant injury could have
been avoided. As we have stated in our Decision:

In the case at bar, respondent Dra. Gutierrez admitted that she saw Erlinda for the first time on
the day of the operation itself, on 17 June 1985. Before this date, no prior consultations with, or
pre-operative evaluation of Erlinda was done by her.Until the day of the operation, respondent
Dra. Gutierrez was unaware of the physiological make-up and needs of Erlinda. She was
likewise not properly informed of the possible difficulties she would face during the
administration of anesthesia to Erlinda. Respondent Dra. Gutierrez act of seeing her patient for
the first time only an hour before the scheduled operative procedure was, therefore, an act of
exceptional negligence and professional irresponsibility. The measures cautioning prudence
and vigilance in dealing with human lives lie at the core of the physicians centuries-old
Hippocratic Oath. Her failure to follow this medical procedure is, therefore, a clear indicia of her
negligence.[16]

Further, there is no cogent reason for the Court to reverse its finding that it was the faulty
intubation on Erlinda that caused her comatose condition. There is no question that Erlinda
became comatose after Dr. Gutierrez performed a medical procedure on her. Even the counsel
of Dr. Gutierrez admitted to this fact during the oral arguments:
CHIEF JUSTICE:
Mr. Counsel, you started your argument saying that this involves a comatose patient?
ATTY. GANA:
Yes, Your Honor.
CHIEF JUSTICE:
How do you mean by that, a comatose, a comatose after any other acts were done by
Dr. Gutierrez or comatose before any act was done by her?
ATTY. GANA:
No, we meant comatose as a final outcome of the procedure.
CHIEF JUSTICE:
Meaning to say, the patient became comatose after some intervention, professional acts
have been done by Dr. Gutierrez?
ATTY. GANA:
Yes, Your Honor.
CHIEF JUSTICE:
In other words, the comatose status was a consequence of some acts performed by D.
Gutierrez?
ATTY. GANA:
It was a consequence of the well, (interrupted)
CHIEF JUSTICE:
An acts performed by her, is that not correct?
ATTY. GANA:
Yes, Your Honor.
CHIEF JUSTICE:
Thank you.[17]
What is left to be determined therefore is whether Erlindas hapless condition was due to
any fault or negligence on the part of Dr. Gutierrez while she (Erlinda) was under the latters
care. Dr. Gutierrez maintains that the bronchospasm and cardiac arrest resulting in the patients
comatose condition was brought about by the anaphylactic reaction of the patient to Thiopental
Sodium (pentothal).[18] In the Decision, we explained why we found Dr. Gutierrez theory
unacceptable. In the first place, Dr. Eduardo Jamora, the witness who was presented to support
her (Dr. Gutierrez) theory, was a pulmonologist. Thus, he could not be considered an authority
on anesthesia practice and procedure and their complications.[19]
Secondly, there was no evidence on record to support the theory that Erlinda developed an
allergic reaction to pentothal. Dr. Camagay enlightened the Court as to the manifestations of an
allergic reaction in this wise:
DR. CAMAGAY:
All right, let us qualify an allergic reaction. In medical terminology an allergic reaction is
something which is not usual response and it is further qualified by the release of a
hormone called histamine and histamine has an effect on all the organs of the body
generally release because the substance that entered the body reacts with the particular
cell, the mass cell, and the mass cell secretes this histamine. In a way it is some form of
response to take away that which is not mine, which is not part of the body. So,
histamine has multiple effects on the body. So, one of the effects as you will see you will
have redness, if you have an allergy you will have tearing of the eyes, you will have
swelling, very crucial swelling sometimes of the larynges which is your voice box main
airway, that swelling may be enough to obstruct the entry of air to the trachea and you
could also have contraction, constriction of the smaller airways beyond the trachea, you
see you have the trachea this way, we brought some visual aids but unfortunately we do
not have a projector. And then you have the smaller airways, the bronchi and then
eventually into the mass of the lungs you have the bronchus. The difference is that these
tubes have also in their walls muscles and this particular kind of muscles is smooth
muscle so, when histamine is released they close up like this and that phenomenon is
known as bronco spasm. However, the effects of histamine also on blood vessels are
different. They dilate blood vessel open up and the patient or whoever has this histamine
release has hypertension or low blood pressure to a point that the patient may have
decrease blood supply to the brain and may collapse so, you may have people who
have this.[20]
These symptoms of an allergic reaction were not shown to have been extant in Erlindas
case. As we held in our Decision, no evidence of stridor, skin reactions, or wheezing some of
the more common accompanying signs of an allergic reaction appears on record. No laboratory
data were ever presented to the court.[21]
Dr. Gutierrez, however, insists that she successfully intubated Erlinda as evidenced by the
fact that she was revived after suffering from cardiac arrest. Dr. Gutierrez faults the Court for
giving credence to the testimony of Cruz on the matter of the administration of anesthesia when
she (Cruz), being a nurse, was allegedly not qualified to testify thereon. Rather, Dr. Gutierrez
invites the Courts attention to her synopsis on what transpired during Erlindas intubation:
12:15 p.m. Patient was inducted with sodium pentothal 2.5% (250 mg) given by slow
IV. 02 was started by mask. After pentothal injection this was followed by IV
injection of Norcuron 4mg. After 2 minutes 02 was given by positive
pressure for about one minute. Intubation with endotracheal tube 7.5 m in
diameter was done with slight difficulty (short neck & slightly prominent
upper teeth) chest was examined for breath sounds & checked if equal on
both sides. The tube was then anchored to the mouth by plaster & cuff
inflated. Ethrane 2% with 02 4 liters was given. Blood pressure was
checked 120/80 & heart rate regular and normal 90/min.
12:25 p.m. After 10 minutes patient was cyanotic. Ethrane was discontinued & 02 given
alone. Cyanosis disappeared. Blood pressure and heart beats stable.
12:30 p.m. Cyanosis again reappeared this time with sibilant and sonorous rales all
over the chest. D_5%_H20 & 1 ampule of aminophyline by fast drip was
started. Still the cyanosis was persistent. Patient was connected to a
cardiac monitor. Another ampule of of [sic] aminophyline was given and
solu cortef was given.
12:40 p.m. There was cardiac arrest. Extra cardiac massage and intercardiac injection
of adrenalin was given & heart beat reappeared in less than one
minute. Sodium bicarbonate & another dose of solu cortef was given by
IV. Cyanosis slowly disappeared & 02 continuously given & assisted
positive pressure. Laboratory exams done (see results in chart).
Patient was transferred to ICU for further management.[22]
From the foregoing, it can be allegedly seen that there was no withdrawal (extubation) of
the tube. And the fact that the cyanosis allegedly disappeared after pure oxygen was supplied
through the tube proved that it was properly placed.
The Court has reservations on giving evidentiary weight to the entries purportedly contained
in Dr. Gutierrez synopsis. It is significant to note that the said record prepared by Dr. Gutierrez
was made only after Erlinda was taken out of the operating room. The standard practice in
anesthesia is that every single act that the anesthesiologist performs must be recorded. In Dr.
Gutierrez case, she could not account for at least ten (10) minutes of what happened during the
administration of anesthesia on Erlinda. The following exchange between Dr. Estrella, one of
the amicii curiae, and Dr. Gutierrez is instructive:
DR. ESTRELLA
You mentioned that there were two (2) attempts in the intubation period?
DR. GUTIERREZ
Yes.
Q There were two attempts. In the first attempt was the tube inserted or was the
laryngoscope only inserted, which was inserted?
A All the laryngoscope.
Q All the laryngoscope. But if I remember right somewhere in the re-direct, a certain lawyer,
you were asked that you did a first attempt and the question was did you withdraw the
tube? And you said you never withdrew the tube, is that right?
A Yes.
Q Yes. And so if you never withdrew the tube then there was no, there was no insertion of
the tube during that first attempt. Now, the other thing that we have to settle here is
when cyanosis occurred, is it recorded in the anesthesia record when the cyanosis, in
your recording when did the cyanosis occur?
A (sic)
Q Is it a standard practice of anesthesia that whatever you do during that period or from the
time of induction to the time that you probably get the patient out of the operating room
that every single action that you do is so recorded in your anesthesia record?
A I was not able to record everything I did not have time anymore because I did that after
the, when the patient was about to leave the operating room. When there was second
cyanosis already that was the (interrupted)
Q When was the first cyanosis?
A The first cyanosis when I was (interrupted)
Q What time, more or less?
A I think it was 12:15 or 12:16.
Q Well, if the record will show you started induction at 12:15?
A Yes, Your Honor.
Q And the first medication you gave was what?
A The first medication, no, first the patient was oxygenated for around one to two minutes.
Q Yes, so, that is about 12:13?
A Yes, and then, I asked the resident physician to start giving the pentothal very slowly and
that was around one minute.
Q So, that is about 12:13 no, 12:15, 12:17?
A Yes, and then, after one minute another oxygenation was given and after (interrupted)
Q 12:18?
A Yes, and then after giving the oxygen we start the menorcure which is a relaxant. After that
relaxant (interrupted)
Q After that relaxant, how long do you wait before you do any manipulation?
A Usually you wait for two minutes or three minutes.
Q So, if our estimate of the time is accurate we are now more or less 12:19, is that right?
A Maybe.
Q 12:19. And at that time, what would have been done to this patient?
A After that time you examine the, if there is relaxation of the jaw which you push it
downwards and when I saw that the patient was relax because that monorcure is a
relaxant, you cannot intubate the patient or insert the laryngoscope if it is not keeping
him relax. So, my first attempt when I put the laryngoscope on I saw the trachea was
deeply interiorly. So, what I did ask mahirap ata ito ah. So, I removed the laryngoscope
and oxygenated again the patient.
Q So, more or less you attempted to do an intubation after the first attempt as you claimed
that it was only the laryngoscope that was inserted.
A Yes.
Q And in the second attempt you inserted the laryngoscope and now possible intubation?
A Yes.
Q And at that point, you made a remark, what remark did you make?
A I said mahirap ata ito when the first attempt I did not see the trachea right away. That was
when I (interrupted)
Q That was the first attempt?
A Yes.
Q What about the second attempt?
A On the second attempt I was able to intubate right away within two to three seconds.
Q At what point, for purposes of discussion without accepting it, at what point did you make
the comment na mahirap ata to intubate, mali ata ang pinasukan
A I did not say mali ata ang pinasukan I never said that.
Q Well, just for the information of the group here the remarks I am making is based on the
documents that were forwarded to me by the Supreme Court. That is why for purposes
of discussion I am trying to clarify this for the sake of enlightenment. So, at what point
did you ever make that comment?
A Which one, sir?
Q The mahirap intubate ito assuming that you (interrupted)
A Iyon lang, that is what I only said mahirap intubate (interrupted)
Q At what point?
A When the first attempt when I inserted the laryngoscope for the first time.
Q So, when you claim that at the first attempt you inserted the laryngoscope, right?
A Yes.
Q But in one of the recordings somewhere at the, somewhere in the transcript of records that
when the lawyer of the other party try to inquire from you during the first attempt that was
the time when mayroon ba kayong hinugot sa tube, I do not remember the page now,
but it seems to me it is there. So, that it was on the second attempt that (interrupted)
A I was able to intubate.
Q And this is more or less about what time 12:21?
A Maybe, I cannot remember the time, Sir.
Q Okay, assuming that this was done at 12:21 and looking at the anesthesia records from
12:20 to 12:30 there was no recording of the vital signs. And can we presume that at this
stage there was already some problems in handling the patient?
A Not yet.
Q But why are there no recordings in the anesthesia record?
A I did not have time.
Q Ah, you did not have time, why did you not have time?
A Because it was so fast, I really (at this juncture the witness is laughing)
Q No, I am just asking. Remember I am not here not to pin point on anybody I am here just to
more or less clarify certainty more ore less on the record.
A Yes, Sir.
Q And so it seems that there were no recording during that span of ten (10) minutes. From
12:20 to 12:30, and going over your narration, it seems to me that the cyanosis
appeared ten (10) minutes after induction, is that right?
A Yes.
Q And that is after induction 12:15 that is 12:25 that was the first cyanosis?
A Yes.
Q And that the 12:25 is after the 12:20?
A We cannot (interrupted)
Q Huwag ho kayong makuwan, we are just trying to enlighten, I am just going over the record
ano, kung mali ito kuwan eh di ano. So, ganoon po ano, that it seems to me that there is
no recording from 12:20 to 12:30, so, I am just wondering why there were no recordings
during the period and then of course the second cyanosis, after the first cyanosis. I think
that was the time Dr. Hosaka came in?
A No, the first cyanosis (interrupted).[23]
We cannot thus give full credence to Dr. Gutierrez synopsis in light of her admission that it
does not fully reflect the events that transpired during the administration of anesthesia on
Erlinda. As pointed out by Dr. Estrella, there was a ten-minute gap in Dr. Gutierrez synopsis,
i.e., the vital signs of Erlinda were not recorded during that time. The absence of these data is
particularly significant because, as found by the trial court, it was the absence of oxygen supply
for four (4) to five (5) minutes that caused Erlindas comatose condition.
On the other hand, the Court has no reason to disbelieve the testimony of Cruz. As we
stated in the Decision, she is competent to testify on matters which she is capable of observing
such as, the statements and acts of the physician and surgeon, external appearances and
manifest conditions which are observable by any one.[24] Cruz, Erlindas sister-in-law, was with
her inside the operating room. Moreover, being a nurse and Dean of the Capitol Medical Center
School of Nursing at that, she is not entirely ignorant of anesthetic procedure. Cruz narrated that
she heard Dr. Gutierrez remark, Ang hirap ma-intubate nito, mali yata ang pagkakapasok. O
lumalaki ang tiyan. She observed that the nailbeds of Erlinda became bluish and thereafter
Erlinda was placed in trendelenburg position.[25] Cruz further averred that she noticed that the
abdomen of Erlinda became distended.[26]
The cyanosis (bluish discoloration of the skin or mucous membranes caused by lack of
oxygen or abnormal hemoglobin in the blood) and enlargement of the stomach of Erlinda
indicate that the endotracheal tube was improperly inserted into the esophagus instead of the
trachea. Consequently, oxygen was delivered not to the lungs but to the gastrointestinal tract.
This conclusion is supported by the fact that Erlinda was placed in trendelenburg position. This
indicates that there was a decrease of blood supply to the patients brain. The brain was thus
temporarily deprived of oxygen supply causing Erlinda to go into coma.
The injury incurred by petitioner Erlinda does not normally happen absent any negligence in
the administration of anesthesia and in the use of an endotracheal tube. As was noted in our
Decision, the instruments used in the administration of anesthesia, including the endotracheal
tube, were all under the exclusive control of private respondents Dr. Gutierrez and Dr.
Hosaka.[27] In Voss vs. Bridwell,[28] which involved a patient who suffered brain damage due to
the wrongful administration of anesthesia, and even before the scheduled mastoid operation
could be performed, the Kansas Supreme Court applied the doctrine of res ipsa
loquitur, reasoning that the injury to the patient therein was one which does not ordinarily take
place in the absence of negligence in the administration of an anesthetic, and in the use and
employment of an endotracheal tube. The court went on to say that [o]rdinarily a person being
put under anesthesia is not rendered decerebrate as a consequence of administering such
anesthesia in the absence of negligence. Upon these facts and under these circumstances, a
layman would be able to say, as a matter of common knowledge and observation, that the
consequences of professional treatment were not as such as would ordinarily have followed if
due care had been exercised.[29] Considering the application of the doctrine of res ipsa loquitur,
the testimony of Cruz was properly given credence in the case at bar.
For his part, Dr. Hosaka mainly contends that the Court erred in finding him negligent as a
surgeon by applying the Captain-of-the-Ship doctrine.[30] Dr. Hosaka argues that the trend in
United States jurisprudence has been to reject said doctrine in light of the developments in
medical practice. He points out that anesthesiology and surgery are two distinct and specialized
fields in medicine and as a surgeon, he is not deemed to have control over the acts of Dr.
Gutierrez. As anesthesiologist, Dr. Gutierrez is a specialist in her field and has acquired skills
and knowledge in the course of her training which Dr. Hosaka, as a surgeon, does not
possess.[31] He states further that current American jurisprudence on the matter recognizes that
the trend towards specialization in medicine has created situations where surgeons do not
always have the right to control all personnel within the operating room, [32] especially a fellow
specialist.[33]
Dr. Hosaka cites the case of Thomas v. Raleigh General Hospital,[34] which involved a suit
filed by a patient who lost his voice due to the wrongful insertion of the endotracheal tube
preparatory to the administration of anesthesia in connection with the laparotomy to be
conducted on him. The patient sued both the anesthesiologist and the surgeon for the injury
suffered by him. The Supreme Court of Appeals of West Virginia held that the surgeon could not
be held liable for the loss of the patients voice, considering that the surgeon did not have a hand
in the intubation of the patient. The court rejected the application of the Captain-of-the-Ship
Doctrine, citing the fact that the field of medicine has become specialized such that surgeons
can no longer be deemed as having control over the other personnel in the operating room. It
held that [a]n assignment of liability based on actual control more realistically reflects the actual
relationship which exists in a modern operating room.[35] Hence, only the anesthesiologist who
inserted the endotracheal tube into the patients throat was held liable for the injury suffered by
the latter.
This contention fails to persuade.
That there is a trend in American jurisprudence to do away with the Captain-of-the-Ship
doctrine does not mean that this Court will ipso facto follow said trend. Due regard for the
peculiar factual circumstances obtaining in this case justify the application of the Captain-of-the-
Ship doctrine. From the facts on record it can be logically inferred that Dr. Hosaka exercised a
certain degree of, at the very least, supervision over the procedure then being performed on
Erlinda.
First, it was Dr. Hosaka who recommended to petitioners the services of Dr. Gutierrez. In
effect, he represented to petitioners that Dr. Gutierrez possessed the necessary competence
and skills. Drs. Hosaka and Gutierrez had worked together since 1977. Whenever Dr. Hosaka
performed a surgery, he would always engage the services of Dr. Gutierrez to administer the
anesthesia on his patient.[36]
Second, Dr. Hosaka himself admitted that he was the attending physician of Erlinda. Thus,
when Erlinda showed signs of cyanosis, it was Dr. Hosaka who gave instructions to call for
another anesthesiologist and cardiologist to help resuscitate Erlinda.[37]
Third, it is conceded that in performing their responsibilities to the patient, Drs. Hosaka and
Gutierrez worked as a team. Their work cannot be placed in separate watertight compartments
because their duties intersect with each other.[38]
While the professional services of Dr. Hosaka and Dr. Gutierrez were secured primarily for
their performance of acts within their respective fields of expertise for the treatment of petitioner
Erlinda, and that one does not exercise control over the other, they were certainly not
completely independent of each other so as to absolve one from the negligent acts of the other
physician.
That they were working as a medical team is evident from the fact that Dr. Hosaka was
keeping an eye on the intubation of the patient by Dr. Gutierrez, and while doing so, he
observed that the patients nails had become dusky and had to call Dr. Gutierrezs attention
thereto. The Court also notes that the counsel for Dr. Hosaka admitted that in practice, the
anesthesiologist would also have to observe the surgeons acts during the surgical process and
calls the attention of the surgeon whenever necessary[39] in the course of the treatment. The
duties of Dr. Hosaka and those of Dr. Gutierrez in the treatment of petitioner Erlinda are
therefore not as clear-cut as respondents claim them to be. On the contrary, it is quite apparent
that they have a common responsibility to treat the patient, which responsibility necessitates
that they call each others attention to the condition of the patient while the other physician is
performing the necessary medical procedures.
It is equally important to point out that Dr. Hosaka was remiss in his duty of attending to
petitioner Erlinda promptly, for he arrived more than three (3) hours late for the scheduled
operation. The cholecystectomy was set for June 17, 1985 at 9:00 a.m., but he arrived at
DLSMC only at around 12:10 p.m. In reckless disregard for his patients well being, Dr. Hosaka
scheduled two procedures on the same day, just thirty minutes apart from each other, at
different hospitals. Thus, when the first procedure (protoscopy) at the Sta. Teresita Hospital did
not proceed on time, Erlinda was kept in a state of uncertainty at the DLSMC.
The unreasonable delay in petitioner Erlindas scheduled operation subjected her to
continued starvation and consequently, to the risk of acidosis,[40] or the condition of decreased
alkalinity of the blood and tissues, marked by sickly sweet breath, headache, nausea and
vomiting, and visual disturbances.[41] The long period that Dr. Hosaka made Erlinda wait for him
certainly aggravated the anxiety that she must have been feeling at the time. It could be safely
said that her anxiety adversely affected the administration of anesthesia on her. As explained by
Dr. Camagay, the patients anxiety usually causes the outpouring of adrenaline which in turn
results in high blood pressure or disturbances in the heart rhythm:
DR. CAMAGAY:
x x x Pre-operative medication has three main functions: One is to alleviate
anxiety. Second is to dry up the secretions and Third is to relieve pain. Now, it is very
important to alleviate anxiety because anxiety is associated with the outpouring of
certain substances formed in the body called adrenalin. When a patient is anxious there
is an outpouring of adrenalin which would have adverse effect on the patient. One of it is
high blood pressure, the other is that he opens himself to disturbances in the heart
rhythm, which would have adverse implications. So, we would like to alleviate patients
anxiety mainly because he will not be in control of his body there could be adverse
results to surgery and he will be opened up; a knife is going to open up his body. x x x[42]
Dr. Hosaka cannot now claim that he was entirely blameless of what happened to
Erlinda. His conduct clearly constituted a breach of his professional duties to Erlinda:
CHIEF JUSTICE:
Two other points. The first, Doctor, you were talking about anxiety, would you consider a
patient's stay on the operating table for three hours sufficient enough to aggravate or
magnify his or her anxiety?
DR. CAMAGAY:
Yes.
CHIEF JUSTICE:
In other words, I understand that in this particular case that was the case, three hours
waiting and the patient was already on the operating table (interrupted)
DR. CAMAGAY:
Yes.
CHIEF JUSTICE:
Would you therefore conclude that the surgeon contributed to the aggravation of the
anxiety of the patient?
DR. CAMAGAY:
That this operation did not take place as scheduled is already a source of anxiety and
most operating tables are very narrow and that patients are usually at risk of falling on
the floor so there are restraints that are placed on them and they are never, never left
alone in the operating room by themselves specially if they are already pre-medicated
because they may not be aware of some of their movement that they make which would
contribute to their injury.
CHIEF JUSTICE:
In other words due diligence would require a surgeon to come on time?
DR. CAMAGAY:
I think it is not even due diligence it is courtesy.
CHIEF JUSTICE:
Courtesy.
DR. CAMAGAY:
And care.
CHIEF JUSTICE:
Duty as a matter of fact?
DR. CAMAGAY:
Yes, Your Honor.[43]
Dr. Hosaka's irresponsible conduct of arriving very late for the scheduled operation of
petitioner Erlinda is violative, not only of his duty as a physician to serve the interest of his
patients with the greatest solicitude, giving them always his best talent and skill, [44] but also of
Article 19 of the Civil Code which requires a person, in the performance of his duties, to act with
justice and give everyone his due.
Anent private respondent DLSMCs liability for the resulting injury to petitioner Erlinda, we
held that respondent hospital is solidarily liable with respondent doctors therefor under Article
2180 of the Civil Code[45] since there exists an employer-employee relationship between private
respondent DLSMC and Drs. Gutierrez and Hosaka:

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 relationship, with the exception of the payment of wages. In assessing
whether such a relationship in fact exists, the control test is determining. x x x[46]

DLSMC however contends that applying the four-fold test in determining whether such a
relationship exists between it and the respondent doctors, the inescapable conclusion is that
DLSMC cannot be considered an employer of the respondent doctors.
It has been consistently held that in determining whether an employer-employee
relationship exists between the parties, the following elements must be present: (1) selection
and engagement of services; (2) payment of wages; (3) the power to hire and fire; and (4) the
power to control not only the end to be achieved, but the means to be used in reaching such an
end.[47]
DLSMC maintains that first, a hospital does not hire or engage the services of a consultant,
but rather, accredits the latter and grants him or her the privilege of maintaining a clinic and/or
admitting patients in the hospital upon a showing by the consultant that he or she possesses the
necessary qualifications, such as accreditation by the appropriate board (diplomate), evidence
of fellowship and references.[48] Second, it is not the hospital but the patient who pays the
consultants fee for services rendered by the latter.[49] Third, a hospital does not dismiss a
consultant; instead, the latter may lose his or her accreditation or privileges granted by the
hospital.[50] Lastly, DLSMC argues that when a doctor refers a patient for admission in a
hospital, it is the doctor who prescribes the treatment to be given to said patient. The hospitals
obligation is limited to providing the patient with the preferred room accommodation, the
nutritional diet and medications prescribed by the doctor, the equipment and facilities necessary
for the treatment of the patient, as well as the services of the hospital staff who perform the
ministerial tasks of ensuring that the doctors orders are carried out strictly.[51]
After a careful consideration of the arguments raised by DLSMC, the Court finds that
respondent hospitals position on this issue is meritorious. There is no employer-employee
relationship between DLSMC and Drs. Gutierrez and Hosaka which would hold DLSMC
solidarily liable for the injury suffered by petitioner Erlinda under Article 2180 of the Civil Code.
As explained by respondent hospital, that the admission of a physician to membership in
DLSMCs medical staff as active or visiting consultant is first decided upon by the Credentials
Committee thereof, which is composed of the heads of the various specialty departments such
as the Department of Obstetrics and Gynecology, Pediatrics, Surgery with the department head
of the particular specialty applied for as chairman. The Credentials Committee then
recommends to DLSMC's Medical Director or Hospital Administrator the acceptance or rejection
of the applicant physician, and said director or administrator validates the committee's
recommendation.[52] Similarly, in cases where a disciplinary action is lodged against a
consultant, the same is initiated by the department to whom the consultant concerned belongs
and filed with the Ethics Committee consisting of the department specialty heads. The medical
director/hospital administrator merely acts as ex-officio member of said committee.
Neither is there any showing that it is DLSMC which pays any of its consultants for medical
services rendered by the latter to their respective patients. Moreover, the contract between the
consultant in respondent hospital and his patient is separate and distinct from the contract
between respondent hospital and said patient. The first has for its object the rendition of medical
services by the consultant to the patient, while the second concerns the provision by the
hospital of facilities and services by its staff such as nurses and laboratory personnel necessary
for the proper treatment of the patient.
Further, no evidence was adduced to show that the injury suffered by petitioner Erlinda was
due to a failure on the part of respondent DLSMC to provide for hospital facilities and staff
necessary for her treatment.
For these reasons, we reverse the finding of liability on the part of DLSMC for the injury
suffered by petitioner Erlinda.
Finally, the Court also deems it necessary to modify the award of damages to petitioners in
view of the supervening event of petitioner Erlindas death. In the assailed Decision, the Court
awarded actual damages of One Million Three Hundred Fifty Two Thousand Pesos
(P1,352,000.00) to cover the expenses for petitioner Erlindas treatment and care from the date
of promulgation of the Decision up to the time the patient expires or survives. [53] In addition
thereto, the Court awarded temperate damages of One Million Five Hundred Thousand Pesos
(P1,500,000.00) in view of the chronic and continuing nature of petitioner Erlindas injury and the
certainty of further pecuniary loss by petitioners as a result of said injury, the amount of which,
however, could not be made with certainty at the time of the promulgation of the decision. The
Court justified such award in this manner:

Our rules on actual or compensatory damages generally assume that at the time of litigation,
the injury suffered as a consequence of an act of negligence has been completed and that the
cost can be liquidated. However, these provisions neglect to take into account those situations,
as in this case, where the resulting injury might be continuing and possible future complications
directly arising from the injury, while certain to occur, are difficult to predict.
In these cases, the amount of damages which should be awarded, if they are to adequately and
correctly respond to the injury caused, should be one which compensates for pecuniary loss
incurred and proved, up to the time of trial; and one which would meet pecuniary loss certain to
be suffered but which could not, from the nature of the case, be made with certainty. In other
words, temperate damages can and should be awarded on top of actual or compensatory
damages in instances where the injury is chronic and continuing. And because of the unique
nature of such cases, no incompatibility arises when both actual and temperate damages are
provided for. The reason is that these damages cover two distinct phases.

As it would not be equitableand certainly not in the best interests of the administration of
justicefor the victim in such cases to constantly come before the courts and invoke their aid in
seeking adjustments to the compensatory damages previously awardedtemperate damages are
appropriate. The amount given as temperate damages, though to a certain extent speculative,
should take into account the cost of proper care.

In the instant case, petitioners were able to provide only home-based nursing care for a
comatose patient who has remained in that condition for over a decade. Having premised our
award for compensatory damages on the amount provided by petitioners at the onset of
litigation, it would be now much more in step with the interests of justice if the value awarded for
temperate damages would allow petitioners to provide optimal care for their loved one in a
facility which generally specializes in such care. They should not be compelled by dire
circumstances to provide substandard care at home without the aid of professionals, for
anything less would be grossly inadequate. Under the circumstances, an award of
P1,500,000.00 in temperate damages would therefore be reasonable.[54]

However, subsequent to the promulgation of the Decision, the Court was informed by
petitioner Rogelio that petitioner Erlinda died on August 3, 1999.[55] In view of this supervening
event, the award of temperate damages in addition to the actual or compensatory damages
would no longer be justified since the actual damages awarded in the Decision are sufficient to
cover the medical expenses incurred by petitioners for the patient. Hence, only the amounts
representing actual, moral and exemplary damages, attorneys fees and costs of suit should be
awarded to petitioners.
WHEREFORE, the assailed Decision is hereby modified as follows:
(1) Private respondent De Los Santos Medical Center is hereby absolved from liability
arising from the injury suffered by petitioner Erlinda Ramos on June 17, 1985;
(2) Private respondents Dr. Orlino Hosaka and Dr. Perfecta Gutierrez are hereby declared
to be solidarily liable for the injury suffered by petitioner Erlinda on June 17, 1985 and are
ordered to pay petitioners

(a) P1,352,000.00 as actual damages;

(b) P2,000,000.00 as moral damages;

(c) P100,000.00 as exemplary damages;

(d) P100,000.00 as attorneys fees; and

(e) the costs of the suit.

SO ORDERED.
Davide, Jr., C.J., (Chairman), Puno, and Ynares-Santiago, JJ., concur.
Republic of the Philippines
SUPREME COURT
Manila

FIRST DIVISION

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.

DECISION

SANDOVAL-GUTIERREZ, J.:

Hospitals, having undertaken one of mankinds 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 hospitals 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 Natividads 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.

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. Ampils 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 Natividads 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 attorneys 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
Natividads 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 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
Natividads 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 Courts attention to other possible causes
of Natividads detriment. He argues that the Court should not discount either of the following
possibilities: first, Dr. Fuentes left the gauzes in Natividads 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 Natividads body.

Dr. Ampils 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 Natividads 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 patients 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 patients 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 patients 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 patients attention, and
endeavoring with the means he has at hand to minimize and avoid untoward results likely to
ensue therefrom.

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 Natividads 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. Ampils negligence is the proximate cause12 of Natividads 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
Natividads vagina established the causal link between Dr. Ampils 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 Natividads 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 plaintiffs 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 defendants 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 Natividads 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 patients 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 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 ones 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 physicians 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 hospitals 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 Appeals 28 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 physicians 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 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 PSIs 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
hospitals 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 physicians 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, PSIs 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 hospitals act of listing him and his specialty in its lobby directory, as in the case herein.
The high costs of todays 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 hospitals 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 judiciarys 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 hospitals
corporate negligence extends to permitting a physician known to be incompetent to practice at
the hospital.37 With the 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 PSIs 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 PSIs 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 PSIs 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 Natividads case.

It is worthy to note that Dr. Ampil and Dr. Fuentes operated on Natividad with the assistance of
the Medical City Hospitals 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 patients 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 hospitals 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.

ANGELINA SANDOVAL-GUTIERREZ
Associate Justice

WE CONCUR:

REYNATO S. PUNO
Chief Justice
Chairperson

RENATO C. CORONA ADOLFO S. AZCUNA


Associate Justice Asscociate Justice

(No Part)
CANCIO C. GARCIA
Associate Justice

CERTIFICATION

Pursuant to Article VIII, Section 13 of the Constitution, it is hereby certified that the conclusions
in the above Decision were reached in consultation before the case was assigned to the writer
of the opinion of the Courts Division.

REYNATO S. PUNO
Chief Justice
Republic of the Philippines
SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 64948 September 27, 1994

MANILA GOLF & COUNTRY CLUB, INC., petitioner,


vs.
INTERMEDIATE APPELLATE COURT and FERMIN LLAMAR, respondents.

Bito, Misa & Lozada for petitioner.

Remberto Z. Evio for private respondent.

NARVASA, C.J.:

The question before the Court here is whether or not persons rendering caddying services for
members of golf clubs and their guests in said clubs' courses or premises are the employees of
such clubs and therefore within the compulsory coverage of the Social Security System (SSS).

That question appears to have been involved, either directly or peripherally, in three separate
proceedings, all initiated by or on behalf of herein private respondent and his fellow caddies.
That which gave rise to the present petition for review was originally filed with the Social
Security Commission (SSC) via petition of seventeen (17) persons who styled themselves
"Caddies of Manila Golf and Country Club-PTCCEA" for coverage and availment of benefits
under the Social Security Act as amended, "PTCCEA" being
the acronym of a labor organization, the "Philippine Technical, Clerical, Commercial Employees
Association," with which the petitioners claimed to be affiliated. The petition, docketed as SSC
Case No. 5443, alleged in essence that although the petitioners were employees of the Manila
Golf and Country Club, a domestic corporation, the latter had not registered them as such with
the SSS.

At about the same time, two other proceedings bearing on the same question were filed or were
pending; these were:

(1) a certification election case filed with the Labor Relations Division of the
Ministry of Labor by the PTCCEA on behalf of the same caddies of the Manila
Golf and Country Club, the case being titled "Philippine Technical, Clerical,
Commercial Association vs. Manila Golf and Country Club" and docketed as
Case No. R4-LRDX-M-10-504-78; it appears to have been resolved in favor of
the petitioners therein by Med-Arbiter Orlando S. Rojo who was thereafter upheld
by Director Carmelo S. Noriel, denying the Club's motion for reconsideration; 1

(2) a compulsory arbitration case initiated before the Arbitration Branch of the
Ministry of Labor by the same labor organization, titled "Philippine Technical,
Clerical, Commercial Employees Association (PTCCEA), Fermin Lamar and
Raymundo Jomok vs. Manila Golf and Country Club, Inc., Miguel Celdran, Henry
Lim and Geronimo Alejo;" it was dismissed for lack of merit by Labor Arbiter
Cornelio T. Linsangan, a decision later affirmed on appeal by the National Labor
Relations Commission on the ground that there was no employer-employee
relationship between the petitioning caddies and the respondent Club. 2

In the case before the SSC, the respondent Club filed answer praying for the dismissal of the
petition, alleging in substance that the petitioners, caddies by occupation, were allowed into the
Club premises to render services as such to the individual members and guests playing the
Club's golf course and who themselves paid for such services; that as such caddies, the
petitioners were not subject to the direction and control of the Club as regards the manner in
which they performed their work; and hence, they were not the Club's employees.

Subsequently, all but two of the seventeen petitioners of their own accord withdrew their claim
for social security coverage, avowedly coming to realize that indeed there was no employment
relationship between them and the Club. The case continued, and was eventually adjudicated
by the SSC after protracted proceedings only as regards the two holdouts, Fermin Llamar and
Raymundo Jomok. The Commission dismissed the petition for lack of merit, 3 ruling:

. . . that the caddy's fees were paid by the golf players themselves and not by
respondent club. For instance, petitioner Raymundo Jomok averred that for their
services as caddies a caddy's Claim Stub (Exh. "1-A") is issued by a player who
will in turn hand over to management the other portion of the stub known as
Caddy Ticket (Exh. "1") so that by this arrangement management will know how
much a caddy will be paid (TSN, p. 80, July 23, 1980). Likewise, petitioner
Fermin Llamar admitted that caddy works on his own in accordance with the
rules and regulations (TSN, p. 24, February 26, 1980) but petitioner Jomok could
not state any policy of respondent that directs the manner of caddying (TSN, pp.
76-77, July 23, 1980). While respondent club promulgates rules and regulations
on the assignment, deportment and conduct of caddies (Exh. "C") the same are
designed to impose personal discipline among the caddies but not to direct or
conduct their actual work. In fact, a golf player is at liberty to choose a caddy of
his preference regardless of the respondent club's group rotation system and has
the discretion on whether or not to pay a caddy. As testified to by petitioner
Llamar that their income depends on the number of players engaging their
services and liberality of the latter (TSN, pp. 10-11, Feb. 26, 1980). This lends
credence to respondent's assertion that the caddies are never their employees in
the absence of two elements, namely, (1) payment of wages and (2) control or
supervision over them. In this connection, our Supreme Court ruled that in the
determination of the existence of an employer-employee relationship, the "control
test" shall be considered decisive (Philippine Manufacturing Co. vs. Geronimo
and Garcia, 96 Phil. 276; Mansal vs. P.P. Coheco Lumber Co., 96 Phil. 941;
Viana vs.
Al-lagadan, et al., 99 Phil. 408; Vda, de Ang, et al. vs. The Manila Hotel Co., 101
Phil. 358, LVN Pictures Inc. vs. Phil. Musicians Guild, et al.,
L-12582, January 28, 1961, 1 SCRA 132. . . . (reference being made also to
Investment Planning Corporation Phil. vs. SSS 21 SCRA 925).

Records show the respondent club had reported for SS coverage Graciano Awit
and Daniel Quijano, as bat unloader and helper, respectively, including their
ground men, house and administrative personnel, a situation indicative of the
latter's concern with the rights and welfare of its employees under the SS law, as
amended. The unrebutted testimony of Col. Generoso A. Alejo (Ret.) that the ID
cards issued to the caddies merely intended to identify the holders as accredited
caddies of the club and privilege(d) to ply their trade or occupation within its
premises which could be withdrawn anytime for loss of confidence. This gives us
a reasonable ground to state that the defense posture of respondent that
petitioners were never its employees is well taken. 4

From this Resolution appeal was taken to the Intermediate appellate Court by the union
representing Llamar and Jomok. After the appeal was docketed 5 and some months before
decision thereon was reached and promulgated, Raymundo Jomok's appeal was dismissed at
his instance, leaving Fermin Llamar the lone appellant. 6

The appeal ascribed two errors to the SSC:

(1) refusing to suspend the proceedings to await judgment by the Labor


Relations Division of National Capital Regional Office in the certification election
case (R-4-LRD-M-10-504-78) supra, on the precise issue of the existence of
employer-employee relationship between the respondent club and the
appellants, it being contended that said issue was "a function of the proper labor
office"; and

(2) adjudicating that self same issue a manner contrary to the ruling of the
Director of the Bureau of Labor Relations, which "has not only become final but
(has been) executed or (become) res adjudicata." 7

The Intermediate Appellate Court gave short shirt to the first assigned error, dismissing it as of
the least importance. Nor, it would appear, did it find any greater merit in the second alleged
error. Although said Court reserved the appealed SSC decision and declared Fermin Llamar an
employee of the Manila Gold and Country Club, ordering that he be reported as such for social
security coverage and paid any corresponding benefits, 8 it conspicuously ignored the issue
of res adjudicata raised in said second assignment. Instead, it drew basis for the reversal from
this Court's ruling in Investment Planning Corporation of the Philippines vs. Social Security
System, supra 9 and declared that upon the evidence, the questioned employer-employee
relationship between the Club and Fermin Llamar passed the so-called "control test,"
establishment in the case i.e., "whether the employer controls or has reserved the right to
control the employee not only as to the result of the work to be done but also as to the means
and methods by which the same is to be accomplished," the Club's control over the caddies
encompassing:

(a) the promulgation of no less than twenty-four (24) rules and regulations just
about every aspect of the conduct that the caddy must observe, or avoid, when
serving as such, any violation of any which could subject him to disciplinary
action, which may include suspending or cutting off his access to the club
premises;

(b) the devising and enforcement of a group rotation system whereby a caddy is
assigned a number which designates his turn to serve a player;

(c) the club's "suggesting" the rate of fees payable to the caddies.

Deemed of title or no moment by the Appellate Court was the fact that the caddies were paid by
the players, not by the Club, that they observed no definite working hours and earned no fixed
income. It quoted with approval from an American decision 10 to the effect that: "whether the
club paid the caddies and afterward collected in the first instance, the caddies were still
employees of the club." This, no matter that the case which produced this ruling had a slightly
different factual cast, apparently having involved a claim for workmen's compensation made by
a caddy who, about to leave the premises of the club where he worked, was hit and injured by
an automobile then negotiating the club's private driveway.

That same issue of res adjudicata, ignored by the IAC beyond bare mention thereof, as already
pointed out, is now among the mainways of the private respondent's defenses to the petition for
review. Considered in the perspective of the incidents just recounted, it illustrates as well as
anything can, why the practice of forum-shopping justly merits censure and punitive sanction.
Because the same question of employer-employee relationship has been dragged into three
different fora, willy-nilly and in quick succession, it has birthed controversy as to which of the
resulting adjudications must now be recognized as decisive. On the one hand, there is the
certification case [R4-LRDX-M-10-504-78), where the decision of the Med-Arbiter found for the
existence of employer-employee relationship between the parties, was affirmed by Director
Carmelo S. Noriel, who ordered a certification election held, a disposition never thereafter
appealed according to the private respondent; on the other, the compulsory arbitration case
(NCR Case No. AB-4-1771-79), instituted by or for the same respondent at about the same
time, which was dismissed for lack of merit by the Labor Arbiter, which was afterwards affirmed
by the NLRC itself on the ground that there existed no such relationship between the Club and
the private respondent. And, as if matters were not already complicated enough, the same
respondent, with the support and assistance of the PTCCEA, saw fit, also contemporaneously,
to initiate still a third proceeding for compulsory social security coverage with the Social Security
Commission (SSC Case No. 5443), with the result already mentioned.
Before this Court, the petitioner Club now contends that the decision of the Med-Arbiter in the
certification case had never become final, being in fact the subject of three pending and
unresolved motions for reconsideration, as well as of a later motion for early
resolution. 11 Unfortunately, none of these motions is incorporated or reproduced in the record
before the Court. And, for his part, the private respondent contends, not only that said decision
had been appealed to and been affirmed by the Director of the BLR, but that a certification
election had in fact been held, which resulted in the PTCCEA being recognized as the sole
bargaining agent of the caddies of the Manila Golf and Country Club with respect to wages,
hours of work, terms of employment, etc. 12 Whatever the truth about these opposing
contentions, which the record before the Court does not adequately disclose, the more
controlling consideration would seem to be that, however, final it may become, the decision in a
certification case, by the
very nature of that proceedings, is not such as to foreclose all further dispute between the
parties as to the existence, or non-existence, of employer-employee relationship between them.

It is well settled that for res adjudicata, or the principle of bar by prior judgment, to apply, the
following essential requisites must concur: (1) there must be a final judgment or order; (2) said
judgment or order must be on the merits; (3) the court rendering the same must have jurisdiction
over the subject matter and the parties; and (4) there must be between the two cases identity of
parties, identity of subject matter and identity of cause of action.13

Clearly implicit in these requisites is that the action or proceedings in which is issued the "prior
Judgment" that would operate in bar of a subsequent action between the same parties for the
same cause, be adversarial, or contentious, "one having opposing parties; (is) contested, as
distinguished from an ex parte hearing or proceeding. . . . of which the party seeking relief has
given legal notice to the other party and afforded the latter an opportunity to contest it" 14 and a
certification case is not such a proceeding, as this Court already ruled:

A certification proceedings is not a "litigation" in the sense in which the term is


commonly understood, but mere investigation of a non-adversary, fact-finding
character, in which the investigating agency plays the part of a disinterested
investigator seeking merely to ascertain the desires of the employees as to the
matter of their representation. The court enjoys a wide discretion in determining
the procedure necessary to insure the fair and free choice of bargaining
representatives by the employees. 15

Indeed, if any ruling or judgment can be said to operate as res adjudicata on the contested
issue of employer-employee relationship between present petitioner and the private respondent,
it would logically be that rendered in the compulsory arbitration case (NCR Case No. AB-4-771-
79, supra), petitioner having asserted, without dispute from the private respondent, that said
issue was there squarely raised and litigated, resulting in a ruling of the Arbitration Branch (of
the same Ministry of Labor) that such relationship did not exist, and which ruling was thereafter
affirmed by the National Labor Relations Commission in an appeal taken by said respondent. 16

In any case, this Court is not inclined to allow private respondent the benefit of any doubt as to
which of the conflicting ruling just adverted to should be accorded primacy, given the fact that it
was he who actively sought them simultaneously, as it were, from separate fora, and even if the
graver sanctions more lately imposed by the Court for forum-shopping may not be applied to
him retroactively.

Accordingly, the IAC is not to be faulted for ignoring private respondent's invocation of res
adjudicata; on contrary, it acted correctly in doing so.

Said Courts holding that upon the facts, there exists (or existed) a relationship of employer and
employee between petitioner and private respondent is, however, another matter. The Court
does not agree that said facts necessarily or logically point to such a relationship, and to the
exclusion of any form of arrangements, other than of employment, that would make the
respondent's services available to the members and guest of the petitioner.

As long as it is, the list made in the appealed decision detailing the various matters of conduct,
dress, language, etc. covered by the petitioner's regulations, does not, in the mind of the Court,
so circumscribe the actions or judgment of the caddies concerned as to leave them little or no
freedom of choice whatsoever in the manner of carrying out their services. In the very nature of
things, caddies must submit to some supervision of their conduct while enjoying the privilege of
pursuing their occupation within the premises and grounds of whatever club they do their work
in. For all that is made to appear, they work for the club to which they attach themselves on
sufference but, on the other hand, also without having to observe any working hours, free to
leave anytime they please, to stay away for as long they like. It is not pretended that if found
remiss in the observance of said rules, any discipline may be meted them beyond barring them
from the premises which, it may be supposed, the Club may do in any case even absent any
breach of the rules, and without violating any right to work on their part. All these considerations
clash frontally with the concept of employment.

The IAC would point to the fact that the Club suggests the rate of fees payable by the players to
the caddies as still another indication of the latter's status as employees. It seems to the Court,
however, that the intendment of such fact is to the contrary, showing that the Club has not the
measure of control over the incidents of the caddies' work and compensation that an employer
would possess.

The Court agrees with petitioner that the group rotation system so-called, is less a measure of
employer control than an assurance that the work is fairly distributed, a caddy who is absent
when his turn number is called simply losing his turn to serve and being assigned instead the
last number for the day. 17

By and large, there appears nothing in the record to refute the petitioner's claim that:

(Petitioner) has no means of compelling the presence of a caddy. A caddy is not


required to exercise his occupation in the premises of petitioner. He may work
with any other golf club or he may seek employment a caddy or otherwise with
any entity or individual without restriction by petitioner. . . .

. . . In the final analysis, petitioner has no was of compelling the presence of the
caddies as they are not required to render a definite number of hours of work on
a single day. Even the group rotation of caddies is not absolute because a player
is at liberty to choose a caddy of his preference regardless of the caddy's order in
the rotation.

It can happen that a caddy who has rendered services to a player on one day
may still find sufficient time to work elsewhere. Under such circumstances, he
may then leave the premises of petitioner and go to such other place of work that
he wishes (sic). Or a caddy who is on call for a particular day may deliberately
absent himself if he has more profitable caddying, or another, engagement in
some other place. These are things beyond petitioner's control and for which it
imposes no direct sanctions on the caddies. . . . 18

WHEREFORE, the Decision of the Intermediate Appellant Court, review of which is sought, is
reversed and set aside, it being hereby declared that the private respondent, Fermin Llamar, is
not an employee of petitioner Manila Golf and Country Club and that petitioner is under no
obligation to report him for compulsory coverage to the Social Security System. No
pronouncement as to costs.

SO ORDERED.

Regalado and Mendoza, JJ., concur.

Padilla, J., is on leave.

Puno, J., took no part.