Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. 126297

February 2, 2010

PROFESSIONAL SERVICES, INC., Petitioner,

vs.
THE COURT OF APPEALS and NATIVIDAD and ENRIQUE
AGANA, Respondents.
x - - - - - - - - - - - - - - - - - - - - - - -x
G.R. No. 126467
NATIVIDAD [substituted by her children Marcelino Agana III, Enrique
Agana, Jr., Emma Agana-Andaya, Jesus Agana and Raymund Agana]
and ENRIQUE AGANA, Petitioners,
vs.
THE COURT OF APPEALS and JUAN FUENTES, Respondents.
x - - - - - - - - - - - - - - - - - - - - - - -x
G.R. No. 127590
MIGUEL AMPIL, Petitioner,
vs.
NATIVIDAD and ENRIQUE AGANA, Respondents.
RESOLUTION
CORONA, J.:

With prior leave of court,1 petitioner Professional Services, Inc. (PSI) filed a
second motion for reconsideration2urging referral thereof to the Court en
banc and seeking modification of the decision dated January 31, 2007 and
resolution dated February 11, 2008 which affirmed its vicarious and direct
liability for damages to respondents Enrique Agana and the heirs of
Natividad Agana (Aganas).
Manila Medical Services, Inc. (MMSI),3 Asian Hospital, Inc. (AHI),4 and
Private Hospital Association of the Philippines (PHAP)5 all sought to
intervene in these cases invoking the common ground that, unless
modified, the assailed decision and resolution will jeopardize the financial
viability of private hospitals and jack up the cost of health care.
The Special First Division of the Court granted the motions for intervention
of MMSI, AHI and PHAP (hereafter intervenors),6 and referred en
consulta to the Court en banc the motion for prior leave of court and the
second motion for reconsideration of PSI.7
Due to paramount public interest, the Court en banc accepted the
referral8 and heard the parties on oral arguments on one particular issue:
whether a hospital may be held liable for the negligence of physiciansconsultants allowed to practice in its premises.9
To recall the salient facts, PSI, together with Dr. Miguel Ampil (Dr. Ampil)
and Dr. Juan Fuentes (Dr. Fuentes), was impleaded by Enrique Agana and
Natividad Agana (later substituted by her heirs), in a complaint 10 for
damages filed in the Regional Trial Court (RTC) of Quezon City, Branch
96, for the injuries suffered by Natividad when Dr. Ampil and Dr. Fuentes
neglected to remove from her body two gauzes11 which were used in the
surgery they performed on her on April 11, 1984 at the Medical City
General Hospital. PSI was impleaded as owner, operator and manager of
the hospital.
In a decision12 dated March 17, 1993, the RTC held PSI solidarily liable
with Dr. Ampil and Dr. Fuentes for damages.13 On appeal, the Court of
Appeals (CA), absolved Dr. Fuentes but affirmed the liability of Dr. Ampil

and PSI, subject to the right of PSI to claim reimbursement from Dr.
Ampil.141avvphi1

failed to conduct an immediate investigation into the reported missing

gauzes.28

On petition for review, this Court, in its January 31, 2007 decision, affirmed
the CA decision.15 PSI filed a motion for reconsideration16 but the Court
denied it in a resolution dated February 11, 2008. 17

PSI is now asking this Court to reconsider the foregoing rulings for these
reasons:
I

The Court premised the direct liability of PSI to the Aganas on the following
facts and law:
First, there existed between PSI and Dr. Ampil an employer-employee
relationship as contemplated in the December 29, 1999 decision in Ramos
v. Court of Appeals18 that "for purposes of allocating responsibility in
medical negligence cases, an employer-employee relationship exists
between hospitals and their consultants."19Although the Court
in Ramos later issued a Resolution dated April 11, 200220 reversing its
earlier finding on the existence of an employment relationship between
hospital and doctor, a similar reversal was not warranted in the present
case because the defense raised by PSI consisted of a mere general
denial of control or responsibility over the actions of Dr. Ampil. 21

The declaration in the 31 January 2007 Decision vis-a-vis the 11 February

2009 Resolution that the ruling in Ramos vs. Court of Appeals (G.R. No.
134354, December 29, 1999) that "an employer-employee relations exists
between hospital and their consultants" stays should be set aside for being
inconsistent with or contrary to the import of the resolution granting the
hospital's motion for reconsideration in Ramos vs. Court of Appeals (G.R.
No. 134354, April 11, 2002), which is applicable to PSI since the Aganas
failed to prove an employer-employee relationship between PSI and Dr.
Ampil and PSI proved that it has no control over Dr. Ampil. In fact, the trial
court has found that there is no employer-employee relationship in this
case and that the doctor's are independent contractors.
II

Second, by accrediting Dr. Ampil and advertising his qualifications, PSI

created the public impression that he was its agent. 22 Enrique testified that
it was on account of Dr. Ampil's accreditation with PSI that he conferred
with said doctor about his wife's (Natividad's) condition. 23 After his meeting
with Dr. Ampil, Enrique asked Natividad to personally consult Dr.
Ampil.24 In effect, when Enrigue and Natividad engaged the services of Dr.
Ampil, at the back of their minds was that the latter was a staff member of
a prestigious hospital. Thus, under the doctrine of apparent authority
applied in Nogales, et al. v. Capitol Medical Center, et al.,25 PSI was liable
for the negligence of Dr. Ampil.
Finally, as owner and operator of Medical City General Hospital, PSI was
bound by its duty to provide comprehensive medical services to Natividad
Agana, to exercise reasonable care to protect her from harm, 26 to oversee
or supervise all persons who practiced medicine within its walls, and to
take active steps in fixing any form of negligence committed within its
premises.27 PSI committed a serious breach of its corporate duty when it

Respondents Aganas engaged Dr. Miguel Ampil as their doctor and did not
primarily and specifically look to the Medical City Hospital (PSI) for medical
care and support; otherwise stated, respondents Aganas did not select
Medical City Hospital (PSI) to provide medical care because of any
apparent authority of Dr. Miguel Ampil as its agent since the latter was
chosen primarily and specifically based on his qualifications and being
friend and neighbor.
III
PSI cannot be liable under doctrine of corporate negligence since the
proximate cause of Mrs. Agana's injury was the negligence of Dr. Ampil,
which is an element of the principle of corporate negligence. 29

In their respective memoranda, intervenors raise parallel arguments that

the Court's ruling on the existence of an employer-employee relationship
between private hospitals and consultants will force a drastic and complex
alteration in the long-established and currently prevailing relationships
among patient, physician and hospital, with burdensome operational and
financial consequences and adverse effects on all three parties. 30
The Aganas comment that the arguments of PSI need no longer be
entertained for they have all been traversed in the assailed decision and
resolution.31
After gathering its thoughts on the issues, this Court holds that PSI is liable
to the Aganas, not under the principle of respondeat superior for lack of
evidence of an employment relationship with Dr. Ampil but under the
principle of ostensible agency for the negligence of Dr. Ampil and, pro hac
vice, under the principle of corporate negligence for its failure to perform its
duties as a hospital.
While in theory a hospital as a juridical entity cannot practice medicine, 32 in
reality it utilizes doctors, surgeons and medical practitioners in the conduct
of its business of facilitating medical and surgical treatment. 33 Within that
reality, three legal relationships crisscross: (1) between the hospital and
the doctor practicing within its premises; (2) between the hospital and the
patient being treated or examined within its premises and (3) between the
patient and the doctor. The exact nature of each relationship determines
the basis and extent of the liability of the hospital for the negligence of the
doctor.
Where an employment relationship exists, the hospital may be held
vicariously liable under Article 217634 in relation to Article 218035 of the Civil
Code or the principle of respondeat superior. Even when no employment
relationship exists but it is shown that the hospital holds out to the patient
that the doctor is its agent, the hospital may still be vicariously liable under
Article 2176 in relation to Article 143136 and Article 186937 of the Civil Code
or the principle of apparent authority.38 Moreover, regardless of its
relationship with the doctor, the hospital may be held directly liable to the
patient for its own negligence or failure to follow established standard of
conduct to which it should conform as a corporation.39

This Court still employs the "control test" to determine the existence of an
employer-employee relationship between hospital and doctor. In Calamba
Medical Center, Inc. v. National Labor Relations Commission, et al. 40 it
held:
Under the "control test", an employment relationship exists between a
physician and a hospital if the hospital controls both the means and the
details of the process by which the physician is to accomplish his task.
xxx

xxx

xxx

As priorly stated, private respondents maintained specific work-schedules,

as determined by petitioner through its medical director, which consisted of
24-hour shifts totaling forty-eight hours each week and which were strictly
to be observed under pain of administrative sanctions.
That petitioner exercised control over respondents gains light from
the undisputed fact that in the emergency room, the operating room,
or any department or ward for that matter, respondents' work is
monitored through its nursing supervisors, charge nurses and
orderlies. Without the approval or consent of petitioner or its medical
director, no operations can be undertaken in those areas. For control
test to apply, it is not essential for the employer to actually supervise
the performance of duties of the employee, it being enough that it
has the right to wield the power. (emphasis supplied)
Even in its December 29, 1999 decision41 and April 11, 2002
resolution42 in Ramos, the Court found the control test decisive.
In the present case, it appears to have escaped the Court's attention that
both the RTC and the CA found no employment relationship between PSI
and Dr. Ampil, and that the Aganas did not question such finding. In its
March 17, 1993 decision, the RTC found "that defendant doctors were not
employees of PSI in its hospital, they being merely consultants without any
employer-employee relationship and in the capacity of independent
contractors."43 The Aganas never questioned such finding.

PSI, Dr. Ampil and Dr. Fuentes appealed44 from the RTC decision but only
on the issues of negligence, agency and corporate liability. In its
September 6, 1996 decision, the CA mistakenly referred to PSI and Dr.
Ampil as employer-employee, but it was clear in its discussion on the
matter that it viewed their relationship as one of mere apparent agency.45
The Aganas appealed from the CA decision, but only to question the
exoneration of Dr. Fuentes.46 PSI also appealed from the CA decision, and
it was then that the issue of employment, though long settled, was
unwittingly resurrected.
In fine, as there was no dispute over the RTC finding that PSI and Dr.
Ampil had no employer-employee relationship, such finding became final
and conclusive even to this Court.47 There was no reason for PSI to have
raised it as an issue in its petition. Thus, whatever discussion on the
matter that may have ensued was purely academic.
Nonetheless, to allay the anxiety of the intervenors, the Court holds that, in
this particular instance, the concurrent finding of the RTC and the CA that
PSI was not the employer of Dr. Ampil is correct. Control as a
determinative factor in testing the employer-employee relationship
between doctor and hospital under which the hospital could be held
vicariously liable to a patient in medical negligence cases is a requisite fact
to be established by preponderance of evidence. Here, there was
insufficient evidence that PSI exercised the power of control or wielded
such power over the means and the details of the specific process by
which Dr. Ampil applied his skills in the treatment of Natividad.
Consequently, PSI cannot be held vicariously liable for the negligence of
Dr. Ampil under the principle of respondeat superior.
There is, however, ample evidence that the hospital (PSI) held out to the
patient (Natividad)48 that the doctor (Dr. Ampil) was its agent. Present are
the two factors that determine apparent authority: first, the hospital's
implied manifestation to the patient which led the latter to conclude that the
doctor was the hospital's agent; and second, the patients reliance upon
the conduct of the hospital and the doctor, consistent with ordinary care
and prudence.49

Enrique testified that on April 2, 1984, he consulted Dr. Ampil regarding the
condition of his wife; that after the meeting and as advised by Dr. Ampil, he
"asked [his] wife to go to Medical City to be examined by [Dr. Ampil]"; and
that the next day, April 3, he told his daughter to take her mother to Dr.
Ampil.50 This timeline indicates that it was Enrique who actually made the
decision on whom Natividad should consult and where, and that the latter
merely acceded to it. It explains the testimony of Natividad that she
consulted Dr. Ampil at the instigation of her daughter.51
Moreover, when asked what impelled him to choose Dr. Ampil, Enrique
testified:
Atty. Agcaoili
On that particular occasion, April 2, 1984, what was your reason for
choosing Dr. Ampil to contact with in connection with your wife's illness?
A. First, before that, I have known him to be a specialist on that part of the
body as a surgeon, second, I have known him to be a staff member of the
Medical City which is a prominent and known hospital. And third,
because he is a neighbor, I expect more than the usual medical service to
be given to us, than his ordinary patients.52 (emphasis supplied)
Clearly, the decision made by Enrique for Natividad to consult Dr. Ampil
was significantly influenced by the impression that Dr. Ampil was a staff
member of Medical City General Hospital, and that said hospital was well
known and prominent. Enrique looked upon Dr. Ampil not as independent
of but as integrally related to Medical City.
PSI's acts tended to confirm and reinforce, rather than negate, Enrique's
view. It is of record that PSI required a "consent for hospital care" 53 to be
signed preparatory to the surgery of Natividad. The form reads:
Permission is hereby given to the medical, nursing and laboratory staff of
the Medical City General Hospital to perform such diagnostic procedures
and to administer such medications and treatments as may be deemed

necessary or advisable by the physicians of this hospital for and

during the confinement of xxx. (emphasis supplied)
By such statement, PSI virtually reinforced the public impression that Dr.
Ampil was a physician of its hospital, rather than one independently
practicing in it; that the medications and treatments he prescribed were
necessary and desirable; and that the hospital staff was prepared to carry
them out.1avvphi1
PSI pointed out in its memorandum that Dr. Ampil's hospital affiliation was
not the exclusive basis of the Aganas decision to have Natividad treated in
Medical City General Hospital, meaning that, had Dr. Ampil been affiliated
with another hospital, he would still have been chosen by the Aganas as
Natividad's surgeon.54
The Court cannot speculate on what could have been behind the Aganas
decision but would rather adhere strictly to the fact that, under the
circumstances at that time, Enrique decided to consult Dr. Ampil for he
believed him to be a staff member of a prominent and known hospital.
After his meeting with Dr. Ampil, Enrique advised his wife Natividad to go
to the Medical City General Hospital to be examined by said doctor, and
the hospital acted in a way that fortified Enrique's belief.
This Court must therefore maintain the ruling that PSI is vicariously liable
for the negligence of Dr. Ampil as its ostensible agent.
Moving on to the next issue, the Court notes that PSI made the following
admission in its Motion for Reconsideration:
51. Clearly, not being an agent or employee of petitioner PSI, PSI [sic] is
not liable for Dr. Ampil's acts during the operation. Considering further that
Dr. Ampil was personally engaged as a doctor by Mrs. Agana, it is
incumbent upon Dr. Ampil, as "Captain of the Ship", and as the Agana's
doctor to advise her on what to do with her situation vis-a-vis the two
missing gauzes. In addition to noting the missing gauzes, regular
check-ups were made and no signs of complications were exhibited
during her stay at the hospital, which could have alerted petitioner

PSI's hospital to render and provide post-operation services to and

tread on Dr. Ampil's role as the doctor of Mrs. Agana. The absence of
negligence of PSI from the patient's admission up to her discharge is
borne by the finding of facts in this case. Likewise evident therefrom
is the absence of any complaint from Mrs. Agana after her discharge
from the hospital which had she brought to the hospital's attention,
could have alerted petitioner PSI to act accordingly and bring the
matter to Dr. Ampil's attention. But this was not the case. Ms. Agana
complained ONLY to Drs. Ampil and Fuentes, not the hospital. How
then could PSI possibly do something to fix the negligence
committed by Dr. Ampil when it was not informed about it at
all.55 (emphasis supplied)
PSI reiterated its admission when it stated that had Natividad Agana
"informed the hospital of her discomfort and pain, the hospital would have
been obliged to act on it."56
The significance of the foregoing statements is critical.
First, they constitute judicial admission by PSI that while it had no power to
control the means or method by which Dr. Ampil conducted the surgery on
Natividad Agana, it had the power to review or cause the review of what
may have irregularly transpired within its walls strictly for the purpose of
determining whether some form of negligence may have attended any
procedure done inside its premises, with the ultimate end of protecting its
patients.
Second, it is a judicial admission that, by virtue of the nature of its
business as well as its prominence57 in the hospital industry, it assumed a
duty to "tread on" the "captain of the ship" role of any doctor rendering
services within its premises for the purpose of ensuring the safety of the
patients availing themselves of its services and facilities.
Third, by such admission, PSI defined the standards of its corporate
conduct under the circumstances of this case, specifically: (a) that it had a
corporate duty to Natividad even after her operation to ensure her safety
as a patient; (b) that its corporate duty was not limited to having its nursing
staff note or record the two missing gauzes and (c) that its corporate duty

extended to determining Dr. Ampil's role in it, bringing the matter to his
attention, and correcting his negligence.
And finally, by such admission, PSI barred itself from arguing in its second
motion for reconsideration that the concept of corporate responsibility was
not yet in existence at the time Natividad underwent treatment; 58 and that if
it had any corporate responsibility, the same was limited to reporting the
missing gauzes and did not include "taking an active step in fixing the
negligence committed."59 An admission made in the pleading cannot be
controverted by the party making such admission and is conclusive as to
him, and all proofs submitted by him contrary thereto or inconsistent
therewith should be ignored, whether or not objection is interposed by a
party.60
Given the standard of conduct that PSI defined for itself, the next relevant
inquiry is whether the hospital measured up to it.
PSI excuses itself from fulfilling its corporate duty on the ground that Dr.
Ampil assumed the personal responsibility of informing Natividad about the
two missing gauzes.61 Dr. Ricardo Jocson, who was part of the group of
doctors that attended to Natividad, testified that toward the end of the
surgery, their group talked about the missing gauzes but Dr. Ampil assured
them that he would personally notify the patient about it. 62Furthermore, PSI
claimed that there was no reason for it to act on the report on the two
missing gauzes because Natividad Agana showed no signs of
complications. She did not even inform the hospital about her discomfort. 63
The excuses proffered by PSI are totally unacceptable.
To begin with, PSI could not simply wave off the problem and nonchalantly
delegate to Dr. Ampil the duty to review what transpired during the
operation. The purpose of such review would have been to pinpoint when,
how and by whom two surgical gauzes were mislaid so that necessary
remedial measures could be taken to avert any jeopardy to Natividads
recovery. Certainly, PSI could not have expected that purpose to be
achieved by merely hoping that the person likely to have mislaid the
gauzes might be able to retrace his own steps. By its own standard of
corporate conduct, PSI's duty to initiate the review was non-delegable.

While Dr. Ampil may have had the primary responsibility of notifying
Natividad about the missing gauzes, PSI imposed upon itself the separate
and independent responsibility of initiating the inquiry into the missing
gauzes. The purpose of the first would have been to apprise Natividad of
what transpired during her surgery, while the purpose of the second would
have been to pinpoint any lapse in procedure that led to the gauze count
discrepancy, so as to prevent a recurrence thereof and to determine
corrective measures that would ensure the safety of Natividad. That Dr.
Ampil negligently failed to notify Natividad did not release PSI from its selfimposed separate responsibility.
Corollary to its non-delegable undertaking to review potential incidents of
negligence committed within its premises, PSI had the duty to take notice
of medical records prepared by its own staff and submitted to its custody,
especially when these bear earmarks of a surgery gone awry. Thus, the
record taken during the operation of Natividad which reported a gauze
count discrepancy should have given PSI sufficient reason to initiate a
review. It should not have waited for Natividad to complain.
As it happened, PSI took no heed of the record of operation and
consequently did not initiate a review of what transpired during Natividads
operation. Rather, it shirked its responsibility and passed it on to others
to Dr. Ampil whom it expected to inform Natividad, and to Natividad herself
to complain before it took any meaningful step. By its inaction, therefore,
PSI failed its own standard of hospital care. It committed corporate
negligence.
It should be borne in mind that the corporate negligence ascribed to PSI is
different from the medical negligence attributed to Dr. Ampil. The duties of
the hospital are distinct from those of the doctor-consultant practicing
within its premises in relation to the patient; hence, the failure of PSI to
fulfill its duties as a hospital corporation gave rise to a direct liability to the
Aganas distinct from that of Dr. Ampil.
All this notwithstanding, we make it clear that PSIs hospital liability based
on ostensible agency and corporate negligence applies only to this case,
pro hac vice. It is not intended to set a precedent and should not serve as
a basis to hold hospitals liable for every form of negligence of their

doctors-consultants under any and all circumstances. The ruling is unique

to this case, for the liability of PSI arose from an implied agency with Dr.
Ampil and an admitted corporate duty to Natividad. 64
65

Other circumstances peculiar to this case warrant this ruling, not the least
of which being that the agony wrought upon the Aganas has gone on for
26 long years, with Natividad coming to the end of her days racked in pain
and agony. Such wretchedness could have been avoided had PSI simply
done what was logical: heed the report of a guaze count discrepancy,
initiate a review of what went wrong and take corrective measures to
ensure the safety of Nativad. Rather, for 26 years, PSI hemmed and
hawed at every turn, disowning any such responsibility to its patient.
Meanwhile, the options left to the Aganas have all but dwindled, for the
status of Dr. Ampil can no longer be ascertained.66

Executive Secretary v Court of Appeals

Facts: The Omnibus Rules and Regulations Implementing the Migrant
Workers and Overseas Filipino Act of 1995 RA 8042 was, thereafter,
published in the April 7, 1996 issue of the Manila Bulletin. However, even
before the law took effect, the Asian Recruitment Council Philippine
Chapter, Inc. (ARCO-Phil.) filed, on July 17, 1995, a petition for declaratory
relief under Rule 63 of the Rules of Court with the Regional Trial Court of
Quezon City to declare as unconstitutional Section 2, paragraph (g),
Section 6, paragraphs (a) to (j), (l) and (m), Section 7, paragraphs (a) and
(b), and Sections 9 and 10 of the law, with a plea for the issuance of a
temporary restraining order and/or writ of preliminary injunction enjoining
the respondents therein from enforcing the assailed provisions of the law.

Therefore, taking all the equities of this case into consideration, this Court
believes P15 million would be a fair and reasonable liability of PSI, subject
to 12% p.a. interest from the finality of this resolution to full satisfaction.

Peitioner claims that great majority of the duly licensed recruitment

agencies have stopped or suspended their operations for fear of being
prosecuted under the provisions of a law that are unjust and
unconstitutional.

WHEREFORE, the second motion for reconsideration is DENIED and the

motions for intervention are NOTED.

On August 1, 1995, the trial court issued a temporary restraining order

effective for a period of only twenty (20) days therefrom. After the
petitioners filed their comment on the petition, the ARCO-Phil. filed an
amended petition, the amendments consisting in the inclusion in the
caption thereof eleven (11) other corporations which it alleged were its
members and which it represented in the suit, and a plea for a temporary
restraining order enjoining the respondents from enforcing Section 6
subsection (i), Section 6 subsection (k) and paragraphs 15 and 16 thereof,
Section 8, Section 10, paragraphs 1 and 2, and Sections 11 and 40 of
Rep. Act No. 8042.

Professional Services, Inc. is ORDERED pro hac vice to pay Natividad

(substituted by her children Marcelino Agana III, Enrique Agana, Jr., Emma
Agana-Andaya, Jesus Agana and Raymund Agana) and Enrique Agana
the total amount of P15 million, subject to 12% p.a. interest from the finality
of this resolution to full satisfaction.
No further pleadings by any party shall be entertained in this case.
Let the long-delayed entry of judgment be made in this case upon receipt
by all concerned parties of this resolution.
SO ORDERED.

The respondent averred that the aforequoted provisions of Rep. Act No.
8042 violate Section 1, Article III of the Constitution. 5 According to the
respondent, Section 6(g) and (i) discriminated against unskilled workers
and their families and, as such, violated the equal protection clause, as
well as Article II, Section 12 6 and Article XV, Sections 1 7 and 3(3) of the
Constitution. 8 As the law encouraged the deployment of skilled Filipino
workers, only overseas skilled workers are granted rights. The respondent
stressed that unskilled workers also have the right to seek employment

abroad.
According to the respondent, the right of unskilled workers to due
process is violated because they are prevented from finding employment
and earning a living abroad. It cannot be argued that skilled workers are
immune from abuses by employers, while unskilled workers are merely
prone to such abuses. It was pointed out that both skilled and unskilled
workers are subjected to abuses by foreign employers. Furthermore, the
prohibition of the deployment of unskilled workers abroad would only
encourage fly-by-night illegal recruiters.
According to the respondent, the grant of incentives to service
contractors and manning agencies to the exclusion of all other licensed
and authorized recruiters is an invalid classification. Licensed and
authorized recruiters are thus deprived of their right to property and due
process and to the "equality of the person." It is understandable for the law
to prohibit illegal recruiters, but to discriminate against licensed and
registered recruiters is unconstitutional.
The respondent, likewise, alleged that Section 6, subsections (a) to (m)
is unconstitutional because licensed and authorized recruitment agencies
are placed on equal footing with illegal recruiters. It contended that while
the Labor Code distinguished between recruiters who are holders of
licenses and non-holders thereof in the imposition of penalties, Rep. Act
No. 8042 does not make any distinction. The penalties in Section 7(a) and
(b) being based on an invalid classification are, therefore, repugnant to the
equal protection clause, besides being excessive; hence, such penalties
are violative of Section 19(1), Article III of the Constitution. 9 It was also
pointed out that the penalty for officers/officials/employees of recruitment
agencies who are found guilty of economic sabotage or large-scale illegal
recruitment under Rep. Act No. 8042 is life imprisonment.
The respondent also posited that Section 6(m) and paragraphs (15)
and (16), Sections 8, 9 and 10, paragraph 2 of the law violate Section 22,
Article III of the Constitution 10 prohibiting ex-post facto laws and bills of
attainder. This is because the provisions presume that a licensed and
registered recruitment agency is guilty of illegal recruitment involving
economic sabotage, upon a finding that it committed any of the prohibited
acts under the law. Furthermore, officials, employees and their relatives

are presumed guilty of illegal recruitment involving economic sabotage

upon such finding that they committed any of the said prohibited acts.
The respondent further argued that the 90-day period in Section 10,
paragraph (1) within which a labor arbiter should decide a money claim is
relatively short, and could deprive licensed and registered recruiters of
their right to due process. The period within which the summons and the
complaint would be served on foreign employees and, thereafter, the filing
of the answer to the complaint would take more than 90 days. This would
thereby shift on local licensed and authorized recruiters the burden of
proving the defense of foreign employers.
The respondent asserted that the following provisions of the law are
unconstitutional:
SEC. 9. Venue. A criminal action arising from illegal recruitment as
defined herein shall be filed with the Regional Trial Court of the province or
city where the offense was committed or where the offended party actually
resides at the time of the commission of the offense: Provided, That the
court where the criminal action is first filed shall acquire jurisdiction to the
exclusion of other courts: Provided, however, That the aforestated
provisions shall also apply to those criminal actions that have already been
filed in court at the time of the effectivity of this Act.
In their answer to the petition, the petitioners alleged, inter alia, that (a)
the respondent has no cause of action for a declaratory relief; (b) the
petition was premature as the rules implementing Rep. Act No. 8042 not
having been released as yet; (c) the assailed provisions do not violate any
provisions of the Constitution; and, (d) the law was approved by Congress
in the exercise of the police power of the State.
In opposition to the respondent's plea for injunctive relief, the
petitioners averred that: As earlier shown, the amended petition for
declaratory relief is devoid of merit for failure of petitioner to demonstrate
convincingly that the assailed law is unconstitutional, apart from the defect
and impropriety of the petition.
On December 5, 1997, the appellate court came out with a four-page
decision dismissing the petition and affirming the assailed order and writ of
preliminary injunction issued by the trial court. The appellate court,

likewise, denied the petitioners' motion for reconsideration of the said

decision.
Issue: The core issue in this case is whether or not the trial court
committed grave abuse of its discretion amounting to excess or lack of
jurisdiction in issuing the assailed order and the writ of preliminary
injunction on a bond of only P50,000; and
Whether or not the appellate court erred in affirming the trial court's
order and the writ of preliminary injunction issued by it.
Held: IN LIGHT OF ALL THE FOREGOING, the petition is GRANTED.
The assailed decision of the appellate court is REVERSED AND SET
ASIDE. The Order of the Regional Trial Court dated August 21, 1995 in
Civil Case No. Q-95-24401 and the Writ of Preliminary Injunction issued by
it in the said case on August 24, 1995 are NULLIFIED. No costs.

hardships tips decidedly in its favor.

Just as the incidental "chilling effect" of such statutes does not
automatically render them unconstitutional, so the chilling effect that
admittedly can result from the very existence of certain laws on the statute
books does not in itself justify prohibiting the State from carrying out the
important and necessary task of enforcing these laws against socially
harmful conduct that the State believes in good faith to be punishable
under its laws and the Constitution.
One who attacks a statute, alleging unconstitutionality must prove its
invalidity beyond reasonable doubt (Caleon v. Agus Development
Corporation, 207 SCRA 748). All reasonable doubts should be resolved in
favor of the constitutionality of a statute (People v. Vera, 65 Phil. 56). This
presumption of constitutionality is based on the doctrine of separation of
powers which enjoin upon each department a becoming respect for the
acts of the other departments (Garcia vs. Executive Secretary, 204 SCRA
516 [1991]).

SO ORDERED.
Ratio: The matter of whether to issue a writ of preliminary injunction or not
is addressed to the sound discretion of the trial court. However, if the court
commits grave abuse of its discretion in issuing the said writ amounting to
excess or lack of jurisdiction, the same may be nullified via a writ of
certiorari and prohibition.
The possible unconstitutionality of a statute, on its face, does not of
itself justify an injunction against good faith attempts to enforce it, unless
there is a showing of bad faith, harassment, or any other unusual
circumstance that would call for equitable relief. The "on its face"
invalidation of statutes has been described as "manifestly strong
medicine," to be employed "sparingly and only as a last resort," and is
generally disfavored.
To be entitled to a preliminary injunction to enjoin the enforcement of a
law assailed to be unconstitutional, the party must establish that it will
suffer irreparable harm in the absence of injunctive relief and must
demonstrate that it is likely to succeed on the merits, or that there are
sufficiently serious questions going to the merits and the balance of

In view of petitioner's standing

The petitioners contend that the respondent has no locus standi. It is a
non-stock, non-profit organization; hence, not the real party-in-interest as
petitioner in the action. Although the respondent filed the petition in the
Regional Trial Court in behalf of licensed and registered recruitment
agencies, it failed to adduce in evidence a certified copy of its Articles of
Incorporation and the resolutions of the said members authorizing it to
represent the said agencies in the proceedings. Neither is the suit of the
respondent a class suit so as to vest in it a personality to assail Rep. Act
No. 8042; the respondent is service-oriented while the recruitment
agencies it purports to represent are profit-oriented.
The petition is meritorious. The respondent has locus standi to file the
petition in the RTC in representation of the eleven licensed and registered
recruitment agencies impleaded in the amended petition. The modern view
is that an association has standing to complain of injuries to its members.
This view fuses the legal identity of an association with that of its
members. 16 An association has standing to file suit for its workers despite
its lack of direct interest if its members are affected by the action. An

organization has standing to assert the concerns of its constituents.

We note that, under its Articles of Incorporation, the respondent was
organized for the purposes inter alia of promoting and supporting the
growth and development of the manpower recruitment industry, both in the
local and international levels; providing, creating and exploring
employment opportunities for the exclusive benefit of its general
membership; enhancing and promoting the general welfare and protection
of Filipino workers; and, to act as the representative of any individual,
company, entity or association on matters related to the manpower
recruitment industry, and to perform other acts and activities necessary to
accomplish the purposes embodied therein.
In view of standing in behalf of unskilled workers
However, the respondent has no locus standi to file the petition for and
in behalf of unskilled workers. We note that it even failed to implead any
unskilled workers in its petition. Furthermore, in failing to implead, as
parties-petitioners, the eleven licensed and registered recruitment
agencies it claimed to represent, the respondent failed to comply with
Section 2 of Rule 63 20 of the Rules of Court. Nevertheless, since the
eleven licensed and registered recruitment agencies for which the
respondent filed the suit are specifically named in the petition, the
amended petition is deemed amended to avoid multiplicity of suits.
In view of retroactivity
In People v. Diaz, 24 we held that Rep. Act No. 8042 is but an
amendment of the Labor Code of the Philippines and is not an ex-post
facto law because it is not applied retroactively.
In view of equal protection clause
In any case, where the liberty curtailed affects at most the rights of
property, the permissible scope of regulatory measures is certainly much
wider. To pretend that licensing or accreditation requirements violates the
due process clause is to ignore the settled practice, under the mantle of
the police power, of regulating entry to the practice of various trades or
professions. Professionals leaving for abroad are required to pass rigid

written and practical exams before they are deemed fit to practice their
trade.
Finally, it is a futile gesture on the part of petitioners to invoke the nonimpairment clause of the Constitution to support their argument that the
government cannot enact the assailed regulatory measures because they
abridge the freedom to contract.
The equal protection clause is directed principally against undue favor
and individual or class privilege. It is not intended to prohibit legislation
which is limited to the object to which it is directed or by the territory in
which it is to operate. It does not require absolute equality, but merely that
all persons be treated alike under like conditions both as to privileges
conferred and liabilities imposed.
In view of the VALIDITY of Sec. 6 of RA 8042
The validity of Section 6 of R.A. No. 8042 which provides that
employees of recruitment agencies may be criminally liable for illegal
recruitment has been upheld in People v. Chowdury: An employee of a
company or corporation engaged in illegal recruitment may be held liable
as principal, together with his employer, if it is shown that he actively and
consciously participated in illegal recruitment.
By its rulings, the Court thereby affirmed the validity of the assailed
penal and procedural provisions of Rep. Act No. 8042, including the
imposable penalties therefor. Until the Court, by final judgment, declares
that the said provisions are unconstitutional, the enforcement of the said
provisions cannot be enjoined.
Penalizing unlicensed and licensed recruitment agencies and their
officers and employees and their relatives employed in government
agencies charged with the enforcement of the law for illegal recruitment
and imposing life imprisonment for those who commit large scale illegal
recruitment is not offensive to the Constitution. The accused may be
convicted of illegal recruitment and large scale illegal recruitment only if,
after trial, the prosecution is able to prove all the elements of the crime
charged.

The respondent merely speculated and surmised that licensed and

registered recruitment agencies would close shop and stop business
operations because of the assailed penal provisions of the law. A writ of
preliminary injunction to enjoin the enforcement of penal laws cannot be
based on such conjectures or speculations. The respondent even failed to
adduce any evidence to prove irreparable injury because of the
enforcement of Section 10(1)(2) of Rep. Act No. 8042. Its fear or
apprehension that, because of time constraints, its members would have
to defend foreign employees in cases before the Labor Arbiter is based on
speculations. Even if true, such inconvenience or difficulty is hardly
irreparable injury.
Preliminarily, the proliferation of illegal job recruiters and syndicates
preying on innocent people anxious to obtain employment abroad is one of
the primary considerations that led to the enactment of The Migrant
Workers and Overseas Filipinos Act of 1995. Aimed at affording greater
protection to overseas Filipino workers, it is a significant improvement on
existing laws in the recruitment and placement of workers for overseas
employment.
By issuing the writ of preliminary injunction against the petitioners sans
any evidence, the trial court frustrated, albeit temporarily, the prosecution
of illegal recruiters and allowed them to continue victimizing hapless and
innocent people desiring to obtain employment abroad as overseas
workers, and blocked the attainment of the salutary policies 52 embedded
in Rep. Act No. 8042.
The trial court committed a grave abuse of its discretion amounting to
excess or lack of jurisdiction in issuing the assailed order and writ of
preliminary injunction. It is for this reason that the Court issued a
temporary restraining order enjoining the enforcement of the writ of
preliminary injunction issued by the trial court.
Wilson P. Gamboa v. Finance Secretary Margarito Teves, et al., G.R.
No. 176579, June 28, 2011
DECISION

CARPIO, J.:
I.

THE FACTS
This is a petition to nullify the sale of shares of stock of Philippine
Telecommunications Investment Corporation (PTIC) by the government of
the Republic of the Philippines, acting through the Inter-Agency
Privatization Council (IPC), to Metro Pacific Assets Holdings, Inc. (MPAH),
an affiliate of First Pacific Company Limited (First Pacific), a Hong Kongbased investment management and holding company and a shareholder
of the Philippine Long Distance Telephone Company (PLDT).
The petitioner questioned the sale on the ground that it also
involved an indirect sale of 12 million shares (or about 6.3 percent of the
outstanding common shares) of PLDT owned by PTIC to First Pacific. With
the this sale, First Pacifics common shareholdings in PLDT increased
from 30.7 percent to 37 percent, thereby increasing the total common
shareholdings of foreigners in PLDT to about 81.47%. This, according to
the petitioner, violates Section 11, Article XII of the 1987 Philippine
Constitution which limits foreign ownership of the capital of a public utility
to not more than 40%, thus:
Section 11. No franchise, certificate, or any other form of
authorization for the operation of a public utility shall be granted
except to citizens of the Philippines or to corporations or
associations organized under the laws of the Philippines, at least
sixty per centum of whose capital is owned by such citizens; nor shall
such franchise, certificate, or authorization be exclusive in character or for
a longer period than fifty years. Neither shall any such franchise or right be
granted except under the condition that it shall be subject to amendment,

alteration, or repeal by the Congress when the common good so requires.

The State shall encourage equity participation in public utilities by the
general public. The participation of foreign investors in the governing body
of any public utility enterprise shall be limited to their proportionate share in
its capital, and all the executive and managing officers of such corporation
or association must be citizens of the Philippines. (Emphasis supplied)
II.

THE ISSUE
Does the term capital in Section 11, Article XII of the Constitution
refer to the total common shares only, or to the total outstanding capital
stock (combined total of common and non-voting preferred shares) of
PLDT, a public utility?

III. THE RULING

[The Court partly granted the petition and held that the term
capital in Section 11, Article XII of the Constitution refers only to shares
of stock entitled to vote in the election of directors of a public utility, i.e., to
the total common shares in PLDT.]
Considering that common shares have voting rights which
translate to control, as opposed to preferred shares which usually have no
voting rights, the term capital in Section 11, Article XII of the Constitution
refers only to common shares. However, if the preferred shares also have
the right to vote in the election of directors, then the term capital shall
include such preferred shares because the right to participate in the control
or management of the corporation is exercised through the right to vote in
the election of directors. In short, the term capital in Section 11,

Article XII of the Constitution refers only to shares of stock that can
vote in the election of directors.
To construe broadly the term capital as the total outstanding
capital stock, including both common and non-voting preferred shares,
grossly contravenes the intent and letter of the Constitution that the State
shall develop a self-reliant and independent national economy effectively
controlled by Filipinos. A broad definition unjustifiably disregards who
owns the all-important voting stock, which necessarily equates to control of
the public utility.
Holders of PLDT preferred shares are explicitly denied of the right
to vote in the election of directors. PLDTs Articles of Incorporation
expressly state that the holders of Serial Preferred Stock shall not be
entitled to vote at any meeting of the stockholders for the election of
directors or for any other purpose or otherwise participate in any action
taken by the corporation or its stockholders, or to receive notice of any
meeting of stockholders. On the other hand, holders of common shares
are granted the exclusive right to vote in the election of directors. PLDTs
Articles of Incorporation state that each holder of Common Capital Stock
shall have one vote in respect of each share of such stock held by him on
all matters voted upon by the stockholders, and the holders of Common
Capital Stock shall have the exclusive right to vote for the election of
directors and for all other purposes.
It must be stressed, and respondents do not dispute, that
foreigners hold a majority of the common shares of PLDT. In fact, based
on PLDTs 2010 General Information Sheet (GIS), which is a document
required to be submitted annually to the Securities and Exchange
Commission, foreigners hold 120,046,690 common shares of PLDT

whereas Filipinos hold only 66,750,622 common shares. In other words,

foreigners hold 64.27% of the total number of PLDTs common shares,
while Filipinos hold only 35.73%. Since holding a majority of the common
shares equates to control, it is clear that foreigners exercise control over
PLDT. Such amount of control unmistakably exceeds the allowable 40
percent limit on foreign ownership of public utilities expressly mandated in
Section 11, Article XII of the Constitution.
As shown in PLDTs 2010 GIS, as submitted to the SEC, the par
value of PLDT common shares is P5.00 per share, whereas the par value
of preferred shares is P10.00 per share. In other words, preferred shares
have twice the par value of common shares but cannot elect directors and
have only 1/70 of the dividends of common shares. Moreover, 99.44% of
the preferred shares are owned by Filipinos while foreigners own only a
minuscule 0.56% of the preferred shares. Worse, preferred shares
constitute 77.85% of the authorized capital stock of PLDT while common
shares constitute only 22.15%. This undeniably shows that beneficial
interest in PLDT is not with the non-voting preferred shares but with the
common shares, blatantly violating the constitutional requirement of 60
percent Filipino control and Filipino beneficial ownership in a public utility.
In short, Filipinos hold less than 60 percent of the voting stock,
and earn less than 60 percent of the dividends, of PLDT. This directly
contravenes the express command in Section 11, Article XII of the
Constitution that [n]o franchise, certificate, or any other form of
authorization for the operation of a public utility shall be granted except to
x x x corporations x x x organized under the laws of the Philippines, at
least sixty per centum of whose capital is owned by such citizens x x x.

To repeat, (1) foreigners own 64.27% of the common shares of

PLDT, which class of shares exercises the sole right to vote in the election
of directors, and thus exercise control over PLDT; (2) Filipinos own only
35.73% of PLDTs common shares, constituting a minority of the voting
stock, and thus do not exercise control over PLDT; (3) preferred shares,
99.44% owned by Filipinos, have no voting rights; (4) preferred shares
earn only 1/70 of the dividends that common shares earn; (5) preferred
shares have twice the par value of common shares; and (6) preferred
shares constitute 77.85% of the authorized capital stock of PLDT and
common shares only 22.15%. This kind of ownership and control of a
public utility is a mockery of the Constitution.
[Thus, the Respondent Chairperson of the Securities and
Exchange Commission was DIRECTED by the Court to apply the
foregoing definition of the term capital in determining the extent of
allowable foreign ownership in respondent Philippine Long Distance
Telephone Company, and if there is a violation of Section 11, Article XII of
the Constitution, to impose the appropriate sanctions under the law.]
HEIRS OF GAMBOA V TEVES

This resolves the motions for reconsideration of the 28 June 2011

Decision filed by (1) the Philippine Stock Exchange's (PSE)
President, 1 (2) Manuel V. Pangilinan (Pangilinan),2 (3) Napoleon L.
Nazareno (Nazareno ),3and ( 4) the Securities and Exchange
Commission (SEC)4 (collectively, movants ).
The Office of the Solicitor General (OSG) initially filed a motion for
reconsideration on behalfofthe SEC,5 assailing the 28 June 2011
Decision. However, it subsequently filed a Consolidated Comment on
behalf of the State,6declaring expressly that it agrees with the Court's
definition of the term "capital" in Section 11, Article XII of the

Constitution. During the Oral Arguments on 26 June 2012, the OSG

reiterated its position consistent with the Court's 28 June 2011
Decision.
We deny the motions for reconsideration.

CDCP Mining Corporation (CDCP Mining), an affiliate of CDCP, obtained

loans from Marubeni Corporation of Japan (Marubeni). A CDCP official
issued letters of guarantee for the loans although there was no CDCP
Board Resolution authorizing the issuance of such letters of guarantee.
CDCP Mining secured the Marubeni loans when CDCP and CDCP Mining
were still privately owned and managed.

The term capital does not refer to both preferred and common stocks
treated as the same class of shares regardless of differences in voting
rights and privileges.

In 1983, CDCPs name was changed to Philippine National Construction

Corporation (PNCC) in order to reflect that the Government already owned
90.3% of PNCC and only 9.70% is under private ownership. Meanwhile,
the Marubeni loans to CDCP Mining remained unpaid.

Consistent with the constitutional mandate that the State shall develop a
self-reliant and independent national economy effectively controlled by
Filipinos, the term "capital" means the outstanding capital stock entitled to
vote (voting stock), coupled with beneficial ownership, both of which
results to "effective control."

On 20 October 2000 and 22 November 2000, the PNCC Board of

Directors (PNCC Board) passed Board Resolutions admitting PNCCs
liability to Marubeni. Previously, for two decades the PNCC Board
consistently refused to admit any liability for the Marubeni loans.

"Mere legal title is insufficient to meet the 60 percent Filipino owned

capital required in the Constitution for certain industries. Full beneficial
ownership of 60 percent of the outstanding capital stock, coupled with 60
percent of the voting rights, is required." In this case, such twin
requirements must apply uniformly and across the board to all classes of
shares comprising the capital. Thus, "the 60-40 ownership requirement in
favor of Filipino citizens must apply separately to each class of shares,
whether common, preferred non-voting, preferred voting or any other class
of shares." This guarantees that the controlling interest in public utilities
always lies in the hands of Filipino citizens.

In January 2001, Marubeni assigned its entire credit to Radstock

Securities Limited (Radstock), a foreign corporation. Radstock immediately
sent a notice and demand letter to PNCC.

STRADEC vs. Radstock; G.R. No. 178158 and 180428; December 4,

2009; Natural Resources; Land Ownership; Public funds;
Appropriation
Facts

PNCC and Radstock entered into a Compromise Agreement. Under this

agreement, PNCC shall pay Radstock the reduced amount of
P6,185,000,000.00 in full settlement of PNCCs guarantee of CDCP
Minings debt allegedly totaling P17,040,843,968.00 (judgment debt as of
31 July 2006). To satisfy its reduced obligation, PNCC undertakes to (1)
"assign to a third party assignee to be designated by Radstock all its rights
and interests" to the listed real properties of PNCC; (2) issue to Radstock
or its assignee common shares of the capital stock of PNCC issued at par
value which shall comprise 20% of the outstanding capital stock of PNCC;
and (3) assign to Radstock or its assignee 50% of PNCCs 6% share, for
the next 27 years, in the gross toll revenues of the Manila North Tollways
Corporation.

Construction Development Corporation of the Philippines (CDCP) was

incorporated in 1966. It was granted a franchise to construct, operate and
maintain toll facilities in the North and South Luzon Tollways and Metro
Manila Expressway.

Strategic Alliance Development Corporation (STRADEC) moved for

reconsideration. STRADEC alleged that it has a claim against PNCC as a
bidder of the National Governments shares, receivables, securities and
interests in PNCC.

Issue
Whether or not the Compromise Agreement between PNCC and Radstock
is valid in relation to the Constitution, existing laws, and public policy
Held
The Compromise Agreement is contrary to the Constitution, existing laws
and public policy.
PNCCs toll fees are public funds. PNCC cannot use public funds like toll
fees that indisputably form part of the General Fund, to pay a private debt
of CDCP Mining to Radstock. Such payment cannot qualify as expenditure
for a public purpose. The toll fees are merely held in trust by PNCC for the
National Government, which is the owner of the toll fees. Considering that
there is no appropriation law passed by Congress for the compromise
amount, the Compromise Agreement is void for being contrary to law,
specifically Section 29(1), Article VI of the Constitution. And since the
payment pertains to CDCP Minings private debt to Radstock, the
Compromise Agreement is also void for being contrary to the fundamental
public policy that government funds or property shall be spent or used
solely for public purposes.

Radstock is not qualified to own land in the Philippines. Consequently,

Radstock is also disqualified to own the rights to ownership of lands in the
Philippines. Radstock cannot own the rights to ownership of any land in
the Philippines because Radstock cannot lawfully own the land itself.
Otherwise, there will be a blatant circumvention of the Constitution, which
prohibits a foreign private corporation from owning land in the Philippines.
In addition, Radstock cannot transfer the rights to ownership of land in the
Philippines if it cannot own the land itself. It is basic that an assignor or
seller cannot assign or sell something he does not own at the time the
ownership, or the rights to the ownership, are to be transferred to the
assignee or buyer. The third party assignee under the Compromise
Agreement who will be designated by Radstock can only acquire rights
duplicating those which its assignor is entitled by law to exercise. Thus, the
assignee can acquire ownership of the land only if its assignor owns the
land. Clearly, the assignment by PNCC of the real properties to a nominee
to be designated by Radstock is a circumvention of the Constitutional
prohibition against a private foreign corporation owning lands in the
Philippines. The said circumvention renders the Compromise Agreement
void.