Agency Case Digests (#2, 12-20)

2. Orient Air v. Court of Appeals 197 SCRA 645

Facts:
American Airlines entered into a General Sales Agency Agreement with Orient Air whereby
American authorized the latter to acts as its exclusive general sales agent within the Philippines for
the sale of air passenger transportation. It was agreed that Orient Air will receive two types of
commission:
a. Sales agency commission of 7%-8% of transportation sales made out of ticket stock of
American Airlines; and,
b. Overriding Commission of 3% of the tariff rates and charges for all sales of transportation
over American’s service by Orient Air Service or its sub-agents.

American Airlines alleged that Orient Air improperly withheld remittances amounting to
USD254,400.40 and that it was remise of its duty as agent of American Airlines. Orient Air on the
other hand contends that the amount withheld was in accordance with their agreement that the
remittances to American are net of its earned commissions. Orient Air contends that the summation of
the two types commissions earned by Orient Air is much more than the USD 254,400.40 it withheld.
In fact, American still owed Orient Air for the deficit. Hence, American Airlines terminated its
General Sales Agency Agreement with Orient Air and filed the case with the RTC.

American contended that since Orient Air did not employ sub-agents, it is only entitled to the first
type of commission based on ticket stocks sold. Orient Air countered that it is entitled to both types of
commission as the provisions on the overriding commission clause provided that Orient Air shall be
entitled to such commission based on total revenue of American Air and not merely that derived from
ticketed sales undertaken by Orient Air and justified such claim since it is the exclusive general agent
of American.

The RTC ruled that Orient Air is entitled to the 3% overriding commission and ruled the
reinstatement of Orient Air as general sales agent of American Airlines. The CA affirmed the ruling
of the RTC.

Issue:
Is Orient Air entitled to the Overriding Commission of 3%?

Ruling:
Yes, Orient Air is entitled.

The court ruled that the overriding commission must be based on the total revenue of American
and not just on total tickets stock sold. Court said that should it only be based on the ticket stock,
there would be no substantial distinction between the first and the second type of commission and
would lead to the absurd conclusion that the parties had entered into a contract with meaningless
provisions.

The court also said that any ambiguity in a contract of adhesion must be construed strictly against
the person making such contract. In this case, it was American who solely drafted the contract and
thus, any ambiguity in their agreement must be resolved strictly against American.

Lastly, with regarding to the ruling of RTC of the reinstatement of Orient Air, the court ruled that
such is erroneous. If such ruling is affirmed it would be contrary to the principle and essency of
agency that whereby “a person binds himself to render some service or do something in
representation of another, WITH THE CONSENT AND AUTHORITY OF THE LATTER.”. Such
reinstatement would be contrary to the consent of American Airlines for the agreement of the parties
 indicated that either party may terminate the agreement without cause, provided a notice of
termination is given to the other party within 30 days before effectivity of such termination.

10. Doles v. Angeles 492 SCRA 607

Facts:
Angeles (respondent) filed a case with the RTC for complaint of Specific Performance with
Damages against Doles (petitioner). Respondent alleged that petitioner owed her money in a concept
of personal loan amounting to Php 400 thousand. Respondent then caused petitioner to sign a Deed of
Absolute Sale where petitioner ceded a parcel of lot to respondent in payment of such loan and that as
condition for such sale, respondent shall assume the balance of the mortgage of such land with
National Home Mortgage Finance Corporation. However, respondent later on learned that petitioner
had arrearages with NHMFC and when she informed petitioner, the latter denied such and refused
payment of such alleged arrearages.

Petitioner admitted some of the allegations of respondent. However, she denied that she had a
personal loan to respondent. She said that she only referred her friends to respondent since she knew
respondent to be engaged in money lending business. Petitioner also alleged that her friends issued
checks as payment of the loan to respondent but the same bounced. Hence, respondent got mad and
threatened petitioner that she will file criminal charges against her. Respondent then forced petitioner
to issue checks to cover the checks issued by her friends which bounced and despite having
knowledge that the same was not sufficiently funded, respondent deposit such checks and
subsequently it bounced. Hence, petitioner was forced to execute the Deed of Absolute Sale as
payment of such loan.

The RTC dismissed the case for lack of evidence. It ruled that the admission of Angeles
(respondent) that the borrowers where the friends of Doles (petitioner), the sale between petitioner
and respondent is not valid for lack of consideration. This is based on the rule in the Civil Code which
states that contracts without a cause or consideration is null and void. RTC further ruled that Doles
was not the sole owner of such lot. Respondent appealed the case to the CA.

The CA reversed the decision of the RTC. The CA concluded that the petitioner was the real
borrower and would “re-lend” the same to her friends. Hence, the deed was supported by a valid
consideration which is the sum of money which the petitioner owed to respondent. The based its
ruling on the fact that: (a) friends of petitioner never presented themselves to respondent and that all
transactions were made by the petitioner and respondent; (b) that the money borrowed was deposited
with the bank account of the petitioner, while payments made for the loan were deposited by the latter
to respondent’s bank account; (c) that petitioner admitted that she was re-lending the money; and, (d)
that the friends of petitioner recognized her as their creditor.

Issue:
W/N the petitioner is the real debtor and the respondent is the real creditor and as a result, w/n the
sale is valid?

Ruling:
No, the parties are not privy to the contract of loan and thus, the sale is null and void for lack of
consideration.

The court found out that the parties were in fact acting only as agents. Petitioner acted only in
behalf of her friends and while respondent acted in behalf of one named Arsenio Pua who was the
fiancier of the money loaned to the friends of petitioner. In fact, both parties disclosed to each other
that they are only acting in behalf of their principals and thus, stopped to deny the existence of
agency.
 The court ruled that the basis of agency is representation. The question of whether an agency has
been created is ordinarily a question which may be established in the same way as any other fact,
either by direct or circumstantial evidence. The question is ultimately one of intention. Agency may
even be implied from the words and conduct of the parties and the circumstances of the particular
case. Though the fact or extent of authority of the agents may not, as a general rule, be established
from the declarations of the agents alone, if one professes to act as agent for another, she may be
estopped to deny her agency both as against the asserted principal and the third persons interested in
the transaction in which he or she is engaged. Thus, it was evident that both acted only as agents and
are not privy to the contract of loan. Consequently, the sale should be null and void for lack of
consideration.

The court further scrutinized on the mortgage transaction since a mortgage may be a valid
consideration for a contract of sale. However, upon inspection of the TCT, it showed that neither
Doles nor his father Teodorico Doles were the owners of the land. Rather, it was registered in the
name of Household Development Corporation. Although, there was an entry that a special power of
attorney to mortgage was given to petitioner for the interest of her father, still it cannot be upheld
because the title was not named after his father. Thus, his father Teodorico cannot be considered to
have and interest therein.

The deed of absolute sale is null and void for lack of consideration.

11. Sunace v. NLRC 480 SCRA 146

Facts:
Sunace deployed Divina Montehermozo to Taiwan as a domestic helper for a contract period of
one year effective February 1, 1997. The deployment was under the aide of Taiwanese broker
Edmund Wang. After her one year contract, Divina continued working with his employer Hang Rui
Xiong for another 2 years extension. When Divina returned in the Philippines, she filed a complaint
in the NLRC against Sunace, her foreign employer and Wang. She alleged that she was jailed for
three months and was underpaid during her three-yea stay in Taiwan and that the deduction of tax and
savings for the last two years of her stay was not refunded to her. Sunace countered that since in the
last 2 yearsof her stay was just an extension which was without the knowledge of Sunace, the latter
cannot be held liable therefrom.

The Labor Arbiter ruled in favor of Divina. LA stated that it cannot be held that Sunace had no
knowledge of the extension of Divina since Sunace has purportedly continued communication with
Divina’s employer. The case was then appealed to the NLRC and affirmed the decision. The CA then
affirmed the decision of the LA and NLRC ruling that Sunace had imputed knowledge of the
extension as it continued communicating with Divina’s foreign employer and that it cannot deny such
knowledge since the act of the principal in extending the contract necessarily bound Sunace, being the
agent of Divina’s employer. Hence, the appeal by Sunace to the Supreme Court.

Issue:
W/N Sunace is liable?

Ruling:
No, Sunace cannot be held liable. The CA misapplied the rule on imputed knowledge in the rules
governing agency. It is the knowledge of the agent that binds the principal and not the other way
around. In this case, the act of principal in extending the contract cannot impute knowledge on the
part of Sunace. In the absence of any evidence that Suance knew of the extention, it cannot be held
liable.
 Furthermore, the court ruled and as Sunace correctly pointed out, in a contract of agency, there is
implied revocation when the principal or the foreign employer of Divina directly negotiated with
Divina to extend her contract after the expiration of her original contract. This argument proceed from
Article 1924 of the Civil Code which provides:
“The agency is revoked if the principal directly manages the business entrusted to the
agent, dealing directly with third persons.”

Thus, Sunace cannot be held liable.

12. Nielson v. Lepanto 26 SCRA 540

Facts:
Under a management contract, Nielson agreed to explore, develop and operate the mining claims
of Lepanto and to render for Lepanto other services specified in the contract. Nielson was to take
complete charge, subject at all times to the general control of the Board of Directors of L, of the
exploration and development of the mining claims, hiring of staff and labourers, operation of the mill,
and marketing of minerals.

Nielson was also to act as purchasing agent of supplies but no purchase shall be made without the
prior approval of Lepanto and no commission shall be claimed by Nielson on such purchase. Nielson
was also authorized to make contracts subject to prior approval of Lepanto for the sale and marketing
of minerals mined.

Issue:
Is Nielson an agent?

Ruling:
Nielson is not an agent but a person performing material acts for an employer for compensation.

It appears from the above contract that principal undertaking of Nielson was the operation and
development of the mine and operation of the mill. All the other undertakings mentioned in the
contract are necessary or incidental to this principal undertaking. In the performance of this principal
undertaking, Nielson was not in any way executing juridical acts for Lepanto, destined to create,
modify or extinguish business relations between Lepanto and third persons.

13. Africa v. Caltex 16 SCRA 448

Facts:
A fire broke out at the Caltex Service Station. It started while gasoline was being hosed from a
tank truck into the underground storage, right at the opening of the receiving tank where the nozzle of
the hose was inserted. The fire spread to and burned several neighboring houses, including the
personal properties and effects inside them. Their owners, among them petitioners here, sued
respondents Caltex (Phil.), Inc. and Mateo Boquiren, the first as alleged owner of the station and the
second as its agent in charge of operation. Negligence on the part of both of them was attributed as
the cause of the fire.

Issue:
W/N Caltex can be held liable on the negligence of Boquiren?

Ruling:
Yes; Caltex is liable on the negligence of Boquiren.
 The court ruled that the license agreement between Caltex and Boquiren evidenced that Caltex
had a degree of control to Boquiren in such a way that Boquiren is an agent of Caltex. Material
provisions of the agreement which supports the view that Caltex had control over Boquiren are as
follows:
a. Boquiren would pay Caltex the purely nominal sum of P1.00 for the use of the premises and
all the equipment therein;
b. He could sell only Caltex Products;
c. Maintenance of the station and its equipment was subject to the approval, in other words
control, of Caltex;
d. Boquiren could not assign or transfer his rights as licensee without the consent of Caltex;
e. Caltex could at any time cancel and terminate the agreement in case Boquiren ceased to sell
Caltex products, or did not conduct the business with due diligence, in the judgment of
Caltex.

Taking into consideration the fact that the operator owed his position to the company and the
latter could remove him or terminate his services at will; that the service station belonged to the
company and bore its trade name and the operator sold only the products of the company; that the
equipment used by the operator belonged to the company and were just loaned to the operator and the
company took charge of their repair and maintenance; that an employee of the company supervised
the operator and conducted periodic inspection of the company's gasoline and service station; that the
price of the products sold by the operator was fixed by the company and not by the operator; and that
the receipts signed by the operator indicated that he was a mere agent, the finding of the Court of
Appeals that the operator was an agent of the company and not an independent contractor should not
be disturbed.

To determine the nature of a contract courts do not have or are not bound to rely upon the name
or title given it by the contracting parties, should thereby a controversy as to what they really had
intended to enter into, but the way the contracting parties do or perform their respective obligations
stipulated or agreed upon may be shown and inquired into, and should such performance conflict with
the name or title given the contract by the parties, the former must prevail over the latter.

Boquiren was an employee of Caltex. Hence, the latter shall be liable for the negligence of
Boquiren.

14. Reyes v. RB of San Miguel 424 SCRA 135

Facts:
RBSMI wrote a letter to the BSP Governor alleging that Reyes, Domo-ong, and Principio
violated the Anti-graft and Corrupt Practices Act and Code of Conduct and Ehtical Standards for
Public Officials and Employees. RBSMI alleged that the petitioners violated its professional code of
conduct when it divulged sensate information in to the media pertaining to the external audit findings,
unpaid savings deposit withdrawals and matured time deposits and possible closure of the bank due
to insolvency.

The history of RBSMI revealed that it had committed a number of violations or exceptions dating
back to 1995. RBSMI took corrective measures and subsequent examination and monitoring was
conducted. Thus, RBSMI alleged that the sensitive information was from the officials of BSP.

During the course of examination of the Monetary Board, it was alleged by RBSMI that there
were several occasions where Reyes brokered in the possible sell out of RBSMI. In fact, as attested
by the high ranking officials of the two (2) banks recommended by Reyes, they have met with
Soriano and discussed about the possible buy-out of RBSMI to avoid closure and takeover of the
 Monetary Board due to the numerous violations or exceptions of RBSMI during the course of the
examination of RBSMI.

Issue:
Whether Reyes violated the Code of Conduct of Public Officers?

Ruling:
Yes, the court ruled on the affirmative.

The act of Reyes in brokering for the possible sell-out of RBSMI was a violation of the Code of
Conduct and Ehtical Standards for Public Officials and Employees. While the Monetary Board
advocates business combinations in order to save other banks, nowhere from the said Code of Ethical
Standards allowed the public officials to take active part in brokering for such sale.

Reyes contended that he did not performed brokerage acts as he was not in fact paid for such
services and neither did the sell-out happened. In introducing Soriano to the presidents of TA Bank
and EIB Bank, petitioner Reyes was clearly not acting in his official capacity. It is enough that he
brought the parties together to discuss the possibility of a sale in order for him to be found guilty of
brokering. Petitioner Reyes did not have to be paid for what he did in order to be considered to have
committed a breach of the requirement of propriety expected of a BSP official. The circulars
presented by petitioner Reyes indicate that it is indeed BSP's policy to promote mergers and
consolidations by providing incentives for banks who would undergo such corporate combinations.
But nowhere in these circulars is it stated that BSP officials should take an active role in bringing
parties together for the possibility of a buy-in or sell-out.

Thus, the court ruled Reyes guilty of violation of the Code of Conduct and Ehtical Standards for
Public Officials and Employees.

15. Abacus Securities v. Ampil 483 SCRA 315

Facts:
Sometime in April 1997, Ampil opened a cash account with Abacus for the purpose of buying
and selling securities. Since April 10, 1997 respondent actively traded his account and as a result
thereof, respondent accumulated a total of Php 6.0 million worth of obligation to petitioner. Despite
demands from petitioner, the obligations remained unpaid. Hence, petitioner filed a case for recovery
of money against respondent.

In his defense, respondent averred that it was petitioner fault why his obligation ballooned to such
amount, as he was induced by petitioner to trade stocks, since petitioner provided for a marginal
method of investing, where respondent is allowed to purchase more stocks despite having insufficient
cash in his account. The set up being, the difference of respondent’s cash and the purchase price of
the stocks were advanced by petitioner, and the purchased securities are converted as collateral to
such credit granted to respondent. With this set up, respondent averred that petitioner violated the
RSA rules. Particularly, when the petitioner failed to liquidate or sell the securities purchased when
respondent failed to pay the purchase price within 3 or 4 days from purchase.

Issue:
Is petitioner entitled to recover the unpaid obligation from respondent?

Ruling:
Yes, but only that which pertains to the initial purchase of respondent dated as of April 11, 1997
and not to the subsequent transactions or purchase.
 The court ruled that the parties are in pari delicto and must be left at their status quo. Petitioner
was only in violation of the RSA when it allowed respondents request to purchase more securities
despite not having settled the obligation from the initial trading transaction. This happened because
normally in stock exchange, the principal of brokers are not disclosed thus, the brokers are personally
liable to whom they transact in behalf of the principal. When the initial purchase in April 10, 1997
was made, petitioner was not yet in violation of the RSA not until it failed to liquidate the stocks on
the 4th day following its purchase and upon its failure to request for time extension with the PSE or
Commission within which the respondent is allowed to settle such unpaid obligations. Thus,
petitioner is entitled to recover that portion of obligation pertaining to its initial transaction which
remained unpaid

Respondent was also at fault because of the fact that respondent entered in to the transaction in
violation of the RSA rules. Respondent cannot be considered as not having known such rules as he is
an expert in stock trading and is habitually engaged in such transactions. He even indicated it in his
application form that he has excellent knowledge of stock exchange and he had similar accounts with
other firms. It was in fact respondent who repeatedly asked for some time to pay his obligations for
his stock transactions and then later on raised the defense of the invalidity of the transactions due to
the violations of the RSA.

16. Hahn v. CA 266 SCRA 537

Facts:
Hahn and BMW executed a Deed of Assignment with Special Power of Attorney whereby the
former was granted the exclusive dealership of the latter’s cars.

On February 24, 1993, Hahn received confirmation of the information from BMW which, in a
letter, expressed dissatisfaction with various aspects of petitioner’s business, mentioning among other
things, decline in sales, deteriorating services, and inadequate showroom and warehouse facilities,
and petitioner’s alleged failure to comply with the standards, for an exclusive BMW dealer.
Nonetheless, BMW expressed willingness to continue business relations with the petitioner on the
basis of a “standard BMW importer” contract; otherwise, it said, if this was not acceptable to
petitioner, BMW would have no alternative but to terminate petitioner’s exclusive dealership
effective June 30, 1993.

Because of Hahn’s insistence on the former business relation, BMW withdrew on March 26,
1993 its offer of a “standard importer contract” and terminated the exclusive dealer relationship
effective June 30, 1993.

Issue:
Whether petitioner Hahn is the agent or distributor of BMW in the Philippines?

Ruling:
Hahn was an agent.

1. Arrangement shows an agency – “An agent receives a commission upon the successful
conclusion of a sale. On the other hand, a broker earns his pay merely by bringing the buyer and
the seller together, even if no sale is eventually made.”

2. BMW exercised control over Hahn’s activities – Hahn said that he had to follow BMW
specifications as exclusive dealer of BMW in the Philippines. According to Hahn, BMW
periodically inspected the service centers to see to it that BMW standards were maintained.
 The fact that Hahn invested his own money to put up these service centers and showrooms does
not necessarily prove that he is not an agent of BMW. For as already noted, there are facts in the
record which suggest that BMW exercised control over Hahn’s premises to enforce compliance
with BMW standards and specifications.

3. BMW engaged in business in the Philippines with Hahn as its exclusive distributor – The court
held that the fact that Hahn was the exclusive representative of BMW in the Philippines and that
sold foreign products in the domestic market and even have service center for the said products,
such acts was constitutive as doing business in the Philippines. The arrangement showed that the
foreign corporation’s purpose was to penetrate the Philippine market and establish its presence in
the Philippines.

In addition, BMW held out private respondent Hahn as its exclusive distributor in the Philippines,
even as it announced in the Asian region that Hahn was the “official BMW agent” in the
Philippines.

17. Conde v. CA 119 SCRA 245

Facts:
In April 1938 the Conde’s (Margarita, Bernardo and Dominga) sold an unregistered parcel of
land to the Altera’s with a right of repurchase for ten (10) years. Three years later OCT 534 was
issued in the name of the Altera’s subject to the stipulated right of redemption period, particularly on
November 28, 1945, Paciente Cordero, son-in-law of one of the respondents (Altera) signed a
Memrandum of Repurchase declaring therein that he received from Eusebio Amarille, a
representative of the Conde’s the full amount of the repurchase price. The petitioner, claiming that
she has already repurchased such land within the redemption period, immediately took possession of
the land since 1945 and paid the land taxes thereon. However, on June 1969 the Altera’s sold the land
to the private respondent spouses Ramon and Catalina Conde. Consequently, the petitioner filed with
the CFI a complaint for quieting of title and declaration of ownership against all the private
respondents. Cordero testified that he only signed that document merely to show that he had no
objection to the repurchase and that the Altera’s did not really receive the redemption price inasmuch
as he had no authority from the latter.

The CFI dismissed the petition and order the petitioner to vacate such land and such decision was
affirmed by the Court of Appeals ruling that the Memorandum of Agreement was not validly
executed as it was not signed by the Altera’s but signed only by Cordero who was not authorized to
sign in behalf of the Altera’s.

Issue:
W/N there was a valid execution of the Memorandum of Repurchase?

Ruling:
Yes, there was a valid execution of the Memorandum of Repurchase and the CFI and CA erred in
their ruling.

The court ruled since the fact that the petitioners have been in possession of such lot since 1945
immediately after the execution of the Memorandum and paid land taxes thereon, the respondents are
deemed to have incurred laches in asserting its right to clear their title of the encumbrance therein
regarding petitioner’s right to repurchase.

Furthermore, the court ruled that the execution of the memorandum of repurchase was valid and
there was implied agency when Cordero signed the same in behalf of the Altera’s. There was no new
agreement made after 10 years from the sale should the right or repurchased be not exercised, as
 stipulated in the original agreement. Considering that 24 years has passed since the signing of the
memorandum, the Altera’s lack of action or its silence, to dispute the ownership and possession of
such lot, amounted to the implied agency given to Cordero when he signed such memorandum.

18. Uytengsu v. Baduel 477 SCRA 621

Facts:
Uytengsu III filed an administrative complaint against Atty. Baduel for violation of Code of
Professional Responsibility which provides that a lawyer must not engage in unlawful or dishonest
conduct.

Complainant alleges that respondent requested him to sign an SPA authorizing Wee and Jacobo
to claim, demand and acknowledge and receive the documents pertaining to the pending patent
application of Uytengsu, Jr. Complainant refused to sign the SPA as he wanted to claim such
documents personally. Subsequently though, even before complainant could claim such documents
personally, he learned that respondent Atty. Baduel had caused such SPA, the same SPA which
complainant refused to sign, signed by one Kokseng, the former guardian of the heirs of Uytengsu, Jr.
(where complainant was one of the heirs). Complainant alleges that Atty. Baduel caused such SPA to
be signed despite his knowledge and consent.

In essence, complainant asserts that respondent caused Kokseng to execute an SPA in favor of
Wee and/or Jacobo to the damage and prejudice of the heirs of Tirso Uytengsu, Jr. even if he knew
that Kokseng had no authority to do so. The case was filed as was then referred to the IBP and the
latter ruled the case to be dismissed.

Issue:
W/N Atty. Baduel violated the Code of Professional Responsibility of Lawyers?

Ruling:
No, the court ruled that Atty. Baduel did not violate such Code.

It was established during the trial, based on the evidence submitted by respondent and even that
of the complainant, that respondent Atty. Baduel was indeed the counsel of Uytensgu, Jr. in its
pending homestead patent application. With that being established, the court said that the relationship
of a client a lawyer is one governed by the rules of agency. The extent of authority of a lawyer, when
acting on behalf of his client outside of court, is measured by the same test as that which is applied to
an ordinary agent. Hence, even without such SPA, Atty. Baduel has the authority to claim such
documents and act on behalf of the applicants of the homestead patent.

Furthermore, the allegations of complainant that it was Atty. Baduel who caused the signing of
such SPA was ruled as hearsay as complainant did not have personal knowledge of such facts or
circumstances. Such allegation merely came from a second-hand source and was not cross-examined
not taken under oath. The evidence submitted by complainant regarding such allegation was hearsay.

19. J. Phil Marine Inc. v. NLRC 561 SCRA 675

Facts:
Dumalaog, who served as cook aboard vessels plying overseas, filed a complaint before the
NLRC, against petitioner manning agency, J Phil. Marine Inc., for unpaid money claims, moral and
exemplary damages, and attorney’s fees. The LA dismissed the complaint for lack of merit. On
appeal, the NLRC reversed the decision of the LA and ruled that the petitioner be liabile to the
respondent for such claim amounting to USD 50,000.00 or approximately Php 2.3 million. The
 petitioners filed for reconsideration but were denied by the NLRC. The petitioners then appealed to
the CA but to no avail. Hence, the case before the SC.

However, during the pendency of the case in the SC, Dumalaog alone, against the advice and in
the absence of his counsel, entered into a compromise agreement with petitioner J Phil in the amount
of Php 450,000.00. The petitioner then filed a Manifestation with the SC stating the fact that the
compromise agreement was effected between the parties.

The counsel of Domalaog then opposed such compromise agreement and motioned for his
opposition to the SC.

Issue:
W/N the compromise agreement is valid?

Ruling:
Yes, the compromise agreement is valid.

The court ruled that any compromise settlement, including those involving labor standard laws,
voluntarily agreed upon by the parties with the assistance of the Department of Labor, shall be final
and binding upon the parties. The fact that the respondent was not assisted by his counsel in entering
such compromise agreement is of no effect.

The court ruled that while the relationship of a client and his counsel is that or an agency
relationship, the act of the counsel in opposing to the compromise agreement entered into by the
respondent himself, is beyond the scope of the authority of an agent, or the counsel as applied in this
case. That a client has undoubtedly the right to compromise a suit without the intervention of his
lawyer 24 cannot be gainsaid, the only qualification being that if such compromise is entered into
with the intent of defrauding the lawyer of the fees justly due him, the compromise must be subject to
the said fees.

In the case at bar, there were no evidence to point out that the compromise agreement was made
in order to defraud respondent’s counsel with regard to his contingent fees. Thus, the act of the
counsel in opposing to the right of the respondent’s to enter into compromise, is beyond his authority.
The compromise agreement was upheld.

20. Professional Services Inc. v. CA 611 SCRA 282 (Resolution for second motion for
reconsideration)

Facts:

Back story (original case):

Natividad Agana was admitted in Medical City because of difficulty in bowel movement and
bloody anal discharges. Dr. Ampil diagnosed her of “cancer of sigmoid”. Dr. Ampil then performed
operation. Since the cancer has spread to other parts of the body of Natividad, Dr. Ampil sought the
assistance of Dr. Fuentes in the operation, with the consent of Natividad’s husband Enrique.
Operation was performed by the two doctors and was closed out or finished by Dr. Ampil. However,
operation appeared flawed. The attending nurse, in its Record of Operation, indicated that there were
two (2) operational sponges missing in its count. She also indicated that it was announced to the
surgeons, but in their search to no avail.

Couple of days after surgery, Natividad complained of excruciating pain in her anal region.
Consulted the surgeons of her operation and was told that it was a normal consequence of her recent
operations. Natividad consulted several doctors even doctors abroad and was even found to be
remised of cancer. Natividad went back to the Philippines as was still feeling the pain in her anal
region. Dr. Ampil proceeded in the house of Natividad and checked on her where he found and
extracted by hand a 1.5 inches gauze coming from the vagina of Natividad. Natividad then was
brought to the Polymedic General Hospital where she was examined and that other 1.5 inch of
surgical gauze was found inside her vagina. It was found out that the gauze badly infected her vagina.
The spouses Natividad and Enrique then filed a case for damages against PSI (owner of Medical City)
and the two surgeons Dr. Ampil and Dr. Fuentes. Later on, Natividad died and was substituted by her
heirs.

Ruling of back story:

Court ruled that there was no employer-employee relationship between the consultant doctors
(Dr. Ampil and Dr. Fuentes between PSI). However, even though there was no ER-EE relationship
being only consultants, PSI is liable for damages to the complainants under the doctrine of ostensible
agency and doctrine of corporate negligence.

Doctrine of ostensible agency

In the doctrine of ostensible agency the following must be proved:
a. Act of PSI in holding out that Dr. Ampil was his agent; and,
b. Reliance on the part of Natividad that indeed Dr. Ampil was the agent of PSI.

The doctrine applies. It was found out during the trial (in the cross-examination based on
testimony of Enrique – Natividad’s husband) that the very reason why the spouses chose Dr.
Ampil was because of their reliance that he was a medical staff of Medical City which was a
highly renounced medical institution. The court ruled that PSI is stopped from denying existence
of an employer-employee under the doctrine of ostensible authority by the fact the PSI displayed
list of accredited physicians and their specializations in its lobby. The court ruled that because of
such facts, the doctrine of ostensible authority applied and PSI was held solidarily liable under
the doctrine.

Doctrine of Corporate Negligence

It was ruled by the court that, hospitals have the duty to make a reasonable effort to
monitor and oversee the treatment prescribed and administered by the physicians in its premises.
Thus, the duty of providing quality medical services not only rests with the physician but also to
the hospitals where they practice.

Under such doctrine, PSI was remiss in its duty. It failed to conduct immediate
investigation to the conduct of the operation performed by Dr. Ampil and Dr. Fuentes in relation
to the missing surgical gauzes to the great prejudice and agony of the patient. In fact, in the
testimony of Dr. Jocson, a member of PSI’s staff he was very evasive in answering critical
questions when asked about whether he had knowledge on any investigation conducted by PSI
due to the reported incident. Such evasiveness in answering the questions during the cross
examination shows Dr. Jocson’s lack of concern to its patient. Such conduct is reflective of the
hospital's manner of supervision. Not only did PSI breach its duty 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.

Thus, PSI was held solidarily liable for the negligence of Dr. Ampil under the doctrine of ostensible
agency and directly liable for his own negligence under the doctrine of corporate negligence.

Present case (second motion for reconsideration):

PSI filed for a second motion for reconsideration urging referral to the Supreme Court en banc.
Other hospital institutions intervened due to the fact that the ruling in said case would greatly affect
the financial viability of the hospital industry and will jack up the cost of health care. The referral to
the SC en banc was approved. Hence, the present case.
Issue:
W/N PSI is liable?

Ruling:
Yes, PSI is liable and the prior resolution of the SC was upheld.

The court en banc ruled that (basically upheld the ruling in previous case, but added ratio based on
the following):

1. PSI is still liable under the doctrine of ostensible agency – In addition to the ruling above, the
reliance on the part of Enrique was bolstered by the fact that when he signed the “consent for
hospital care” in preparation for Natividad’s surgery, the form reads as follows:
“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…”

Such statement reinforced the reliance of Enrique that indeed 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.

2. PSI is still liable under the doctrine of corporate negligence – PSI argued that had Natividad
informed them immediately of the pain she is feeling, they could have been obliged to act on it
(as mentioned in PSI’s the MR) –

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.

The court ruled that such statement is critical:

a. It constitute judicial admission that PSI had the power to review or cause the review
of what may have irregularly transpired within its walls in order to determine whether
there was negligence;
b. It is a judicial admission that, by virtue of the nature of its business as well as its
prominence 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;
c. by such admission, PSI defined the standards of its corporate conduct under the
circumstances of this case; and,
 d. 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”.

Based on the standard PSI defined for itself in its amdission, PSI now seeksto be exluced
of liability due to the fact that Dr. Ampil failed to inform Natividad of the missing gauze. Thus,
Natividad failed to inform the hospital and causing the latter to fail on acting on it. (In sum PSI
argued that it was the fault of Dr. Ampil for not informing Natividad, so that the latter could have
informed PSI of what happened and PSI in turn could have “acted upon it”)

The court did not agree. 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 self-imposed separate responsibility. 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.

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.