[G.R. No.

187122 : February 22, 2012]

NEGROS SLASHERS, INC., RODOLFO C. ALVAREZ AND VICENTE TAN,

PETITIONERS, VS. ALVIN L. TENG, RESPONDENT.

DECISION

VILLARAMA, JR., J.:

Before us is a petition for review on certiorari assailing the Decision[1] dated

September 17, 2008 and Resolution[2] dated February 11 2009 of the Court of
Appeals (CA) in CA-G.R. SP No. 00817. The appellate court had reversed and set
aside the September 10, 2004 Decision[3] and March 21, 2005 Resolution[4] of the
National Labor Relations Commission (NLRC) and reinstated with modification the
Decision[5] of the Labor Arbiter finding respondent to have been illegally dismissed. crala w

The facts are undisputed.

Respondent Alvin Teng is a professional basketball player who started his career as
such in the Philippine Basketball Association and then later on played in the
Metropolitan Basketball Association (MBA).

On February 4, 1999, Teng signed a 3-year contract[6] (which included a side

contract and agreement for additional benefits and bonuses) with the Laguna
Lakers. Before the expiration of his contract with the Laguna Lakers on December
31, 2001, the Lakers traded and/or transferred Teng to petitioner Negros Slashers,
with the latter assuming the obligations of Laguna Lakers under Teng’s unexpired
contract, including the monthly salary of P250,000, P50,000 of which remained to
be the obligation of the Laguna Lakers. On March 28, 2000, the management of
the Laguna Lakers formally informed Teng of his transfer to the Negros
Slashers.[7] Teng executed with the Negros Slashers the Player’s Contract of
Employment.[8]

On Game Number 4 of the MBA Championship Round for the year 2000 season,
Teng had a below-par playing performance. Because of this, the coaching staff
decided to pull him out of the game. Teng then sat on the bench, untied his
shoelaces and donned his practice jersey. On the following game, Game Number 5
of the Championship Round, Teng called-in sick and did not play.

On November 21, 2000, Vicente Tan, Finance Head of Negros Slashers,

wrote[9] Teng requiring him to explain in writing why no disciplinary action should
be taken against him for his precipitated absence during the crucial Game 5 of the
National Championship Round. He was further informed that a formal investigation
would be conducted on November 28, 2000. The hearing, however, did not push
through because Teng was absent on the said scheduled investigation. Hearing
was rescheduled for December 11, 2000. On said date, the investigation
proceeded, attended by Teng’s representatives, Atty. Arsenio Yulo and Atty. Jose
Aspiras.[10] A subsequent meeting was also conducted attended by the
management, coaching staff and players of the Negros Slashers team, wherein the
team members and coaching staff unanimously expressed their sentiments against
Teng and their opposition against the possibility of Teng joining back the team. [11]

On March 16, 2001, the management of Negros Slashers came up with a decision,
and through its General Manager, petitioner Rodolfo Alvarez, wrote[12] Teng
informing him of his termination from the team.

On July 28, 2001, Teng filed a complaint before the Office of the Commissioner of
the MBA pursuant to the provision of the Uniform Players Contract which the parties
had executed. Subsequently, on November 6, 2001, Teng also filed an illegal
dismissal case with the Regional Arbitration Branch No. VI of the NLRC. [13]

On July 16, 2002, the Labor Arbiter issued a decision finding Teng’s dismissal illegal
and ordering petitioner Negros Slashers, Inc. to pay Teng P2,530,000 representing
his unpaid salaries, separation pay and attorney’s fees. The Labor Arbiter ruled
that the penalty of dismissal was not justified since the grounds relied upon by
petitioners did not constitute serious misconduct or willful disobedience or
insubordination that would call for the extreme penalty of dismissal from
service. The dispositive portion of the Labor Arbiter’s decision reads:

WHEREFORE, premises considered, judgment is hereby rendered declaring the

dismissal of complainant illegal and respondents Negros Slashers, Inc. are hereby
ordered to PAY complainant the total sum of TWO MILLION FIVE HUNDRED
THIRTY THOUSAND (P2,530,000.00) PESOS representing complainant’s unpaid
salaries, separation pay and attorney’s fee, the award to be deposited with this
Office within ten (10) days from receipt of this Decision.

All other claims are hereby DISMISSED for lack of merit.

SO ORDERED.[14]

The case was then appealed to the NLRC. On September 10, 2004, the NLRC
issued a Decision setting aside the July 16, 2002 Decision of the Labor Arbiter and
entering a new one dismissing the complaint for being premature since the
arbitration proceedings before the Commissioner of the MBA were still pending
when Teng filed his complaint for illegal dismissal. The dispositive portion of the
NLRC Decision reads:

WHEREFORE, premises considered, the decision of the Executive Labor Arbiter a

quo is hereby REVERSED and SET ASIDE. A new one is entered, dismissing the
instant case for being premature.

SO ORDERED.[15]

Teng filed a motion for reconsideration, but it was denied for being filed beyond the
ten-day reglementary period provided for in Section 15, [16] Rule VII of the NLRC
Rules of Procedure.

Aggrieved, Teng filed a petition for certiorari with the CA assailing the NLRC
Decision dated September 10, 2004 and the Resolution dated March 21, 2005
denying his motion for reconsideration.

On September 17, 2008 the CA rendered the assailed Decision setting aside the
September 10, 2004 Decision and March 21, 2005 Resolution of the NLRC and
reinstating with modification the Labor Arbiter’s Decision.

The CA reinstated the findings of the Labor Arbiter that Teng was illegally dismissed
because the grounds relied upon by petitioners were not enough to merit the
supreme penalty of dismissal. The CA held that there was no serious misconduct or
willful disobedience or insubordination on Teng’s part. On the issue of jurisdiction,
the CA ruled that the Labor Arbiter had jurisdiction over the case notwithstanding
the pendency of arbitration proceedings in the Office of the Commissioner of the
MBA.

Petitioners sought reconsideration of the above ruling, but their motion was denied
by the CA in a Resolution[17] dated February 11, 2009.

Petitioners now come to this Court assailing the Decision dated September 17, 2008
and Resolution dated February 11, 2009 of the CA.

Firstly, petitioners argue that respondent Teng and his counsel committed a blatant
violation of the rule against forum shopping. Petitioners aver that on July 28, 2001,
Teng filed a complaint before the MBA pursuant to the voluntary arbitration
provision of the Uniform Players Contract he executed with Negros Slashers,
Inc. During the pendency of said complaint, Teng filed another complaint for illegal
dismissal with the Labor Arbiter. It is petitioners’ position that Teng lied by
certifying under oath that there is no similar case pending between him and Negros
Slashers, Inc., when in fact, months before he had filed a complaint with the MBA
alleging the same factual antecedents and raising the same issues.

Secondly, petitioners argue that the CA erred in ruling that Teng’s offenses were
just minor lapses and irresponsible action not warranting the harsh penalty of
dismissal. Petitioners allege that the CA paid scant attention to two very important
pieces of evidence which would clearly show the gravity and seriousness of the
offenses committed by Teng. Petitioners claim that these two documents, i.e., the
minutes of the meeting[18] of players, management, and coordinating staff, and a
petition[19] by the players to the management not to allow Teng to come back to the
team, would show that Teng should not have been treated as an ordinary working
man who merely absented himself by feigning sickness when called upon to
work. Petitioners argue that the nature of the work and team atmosphere should
have been considered and given credence. By neglecting these two documents, the
CA failed to appreciate the gravity of the misconduct committed by Teng and the
effects it had on the basketball organization.
Petitioners also argue that respondent’s petition for certiorari with the CA should
have been dismissed outright because it was filed beyond the reglementary
period. Petitioners point out that Teng received the NLRC Decision on October 15,
2004 and therefore had ten days[20] or until October 25, 2004 within which to file a
motion for reconsideration. But he filed his motion for reconsideration only on
October 26, 2004 and said motion was denied[21] on March 21, 2005 for being filed
late. Thereafter he filed his petition for certiorari[22] with the CA on June 20,
2005. Petitioners contend that the petition for certiorari was filed beyond the
period allowed by the Rules of Court because the 60-day period to file the petition
for certiorari should have started to run from the receipt of the NLRC decision on
October 15, 2004. And it should have expired on December 14, 2004 because it
was as if no motion for reconsideration was filed in the NLRC. Further, petitioners
argue that the CA could not take cognizance of the case because it is a settled rule
that certiorari as a special civil action will not lie unless a motion for reconsideration
is first filed before the NLRC to allow it an opportunity to correct its errors. In this
case, since the motion for reconsideration was filed late, it should have been
treated as if no motion for reconsideration was filed.

Teng, on the other hand, maintains that there is no violation of the rule against
forum shopping. He submits that he indeed filed his complaint before the MBA as
early as July 28, 2001. Unfortunately, for more than three months, the supposed
voluntary arbitration failed to yield any result until the MBA itself was dissolved. It
was only on November 2001, after exhausting the arbitration process, did he file his
complaint before the Labor Arbiter. In other words, it was only after the MBA
failed to come up with a resolution on the matter did he opt to seek legal redress
elsewhere.

On the merits, Teng relies on the reasoning of the Labor Arbiter in finding that his
alleged lapses and misconduct were too minor to justify the extreme penalty of
dismissal from service. In large part, he quotes the Labor Arbiter’s decision, and
emphasizes the Labor Arbiter’s statements that (1) loosening of the shoe laces and
the donning of the practice jersey are not indicative of serious misconduct that
would justify dismissal from employment; (2) it cannot be concluded that he merely
feigned sickness when he informed the Coach of his inability to play during Game
No. 5; and (3) there is no showing of any bad faith or ill motive on his part that
would qualify his actions as serious, severe and grave as to warrant termination
from service.

Teng also argues that the CA aptly clarified and explained the legal reason why the
petition for certiorari was given due course despite some procedural lapses
regarding the motion for reconsideration with the NLRC. Teng stresses that
jurisprudence allows the relaxation of procedural rules even of the most mandatory
character in the interest of substantial justice. In this particular case, justice and
equity calls for the relaxation of the reglementary period for filing a motion for
reconsideration as well as the rule prohibiting the filing of a petition for certiorari
without first filing a motion for reconsideration.

Simply put, the basic issues for our resolution are as follows: (1) whether the CA
erred in giving due course to respondent Teng’s petition for certiorari despite its
late filing; (2) whether Teng violated the rule on forum shopping when he filed a
complaint for illegal dismissal with the Regional Arbitration Branch of the NLRC
while a similar complaint was pending in the Office of the Commissioner of the
MBA; and (3) whether the CA erred in ruling that Teng’s dismissal from the Negros
Slashers Team was unjustified and too harsh considering his misconduct.

The petition is bereft of merit.

On the first issue raised by petitioners, we rule that the CA did not commit a
reversible error in giving due course to Teng’s petition for certiorari although said
petition was filed late. Ordinarily, rules of procedure are strictly enforced by courts
in order to impart stability in the legal system. However, in not a few instances, we
relaxed the rigid application of the rules of procedure to afford the parties the
opportunity to fully ventilate their cases on the merits. This is in line with the time
honored principle that cases should be decided only after giving all the parties the
chance to argue their causes and defenses. In that way, the ends of justice would
be better served. For indeed, the general objective of procedure is to facilitate the
application of justice to the rival claims of contending parties, bearing always in
mind that procedure is not to hinder but to promote the administration of
justice.[23] In Ong Lim Sing, Jr. v. FEB Leasing and Finance Corporation, [24] we
ruled:

Courts have the prerogative to relax procedural rules of even the most mandatory
character, mindful of the duty to reconcile both the need to speedily put an end to
litigation and the parties’ right to due process. In numerous cases, this Court has
allowed liberal construction of the rules when to do so would serve the demands of
substantial justice and equity. x x x

Indeed the prevailing trend is to accord party litigants the amplest opportunity for
the proper and just determination of their causes, free from the constraints of
needless technicalities.

Here, besides the fact that a denial of the recourse to the CA would serve more to
perpetuate an injustice and violation of Teng’s rights under our labor laws, we find
that as correctly held by the CA, no intent to delay the administration of justice
could be attributed to Teng. The CA therefore did not commit reversible error in
excusing Teng’s one-day delay in filing his motion for reconsideration and in giving
due course to his petition for certiorari.

As regards the second issue, we likewise find no merit in petitioners’ claim that
respondent’s act of filing a complaint with the Labor Arbiter while the same case
was pending with the Office of the Commissioner of the MBA constituted forum
shopping.

For forum shopping to exist, it is necessary that (a) there be identity of parties or
at least such parties that represent the same interests in both actions; (b) there be
identity of rights asserted and relief prayed for, the relief being founded on the
same facts; and (c) the identity of the two preceding particulars is such that any
judgment rendered in one action will, regardless of which party is successful,
amount to res judicata in the other action.[25]

Petitioners are correct as to the first two requisites of forum shopping. First, there
is identity of parties involved: Negros Slashers Inc. and respondent Teng. Second,
there is identity of rights asserted i.e., the right of management to terminate
employment and the right of an employee against illegal termination. However, the
third requisite of forum shopping is missing in this case. Any judgment or ruling of
the Office of the Commissioner of the MBA will not amount to res judicata. As
defined in Agustin v. Delos Santos,[26]

Res Judicata is defined as “a matter adjudged; a thing judicially acted upon or

decided; a thing or matter settled by judgment.” According to the doctrine
of res judicata, an existing final judgment or decree rendered on the merits, and
without fraud or collusion, by a court of competent jurisdiction, upon any matter
within its jurisdiction, is conclusive of the rights of the parties or their privies, in all
other actions or suits in the same or any other judicial tribunal of concurrent
jurisdiction on the points and matters in issue in the first suit. To state simply, a
final judgment or decree on the merits by a court of competent jurisdiction is
conclusive of the rights of the parties or their privies in all later suits on all points
and matters determined in the former suit. (Emphasis supplied.)

To clarify, res judicata is defined in jurisprudence as to have four basic elements:

(1) the judgment sought to bar the new action must be final; (2) the decision must
have been rendered by a court having jurisdiction over the subject matter and the
parties; (3) the disposition of the case must be a judgment on the merits; and (4)
there must be as between the first and second action, identity of parties, subject
matter, and causes of action.[27]

Here, although contractually authorized to settle disputes, the Office of the

Commissioner of the MBA is not a court of competent jurisdiction as contemplated
by law with respect to the application of the doctrine of res judicata. At best, the
Office of the Commissioner of the MBA is a private mediator or go-between as
agreed upon by team management and a player in the MBA Player’s Contract of
Employment.[28] Any judgment that the Office of the Commissioner of the MBA
may render will not result in a bar for seeking redress in other legal
venues. Hence, respondent’s action of filing the same complaint in the Regional
Arbitration Branch of the NLRC does not constitute forum shopping.

On the third issue, we find that the penalty of dismissal handed out against Teng
was indeed too harsh.

We understand petitioners in asserting that a basketball organization is a “team-

based” enterprise and that a harmonious working relationship among team players
is essential to the success of the organization. We also take into account the
petition of the other team members voicing out their desire to continue with the
team without Teng. We note likewise the sentiments of the players and coaching
staff during the meeting of February 4, 2001 stating how they felt when Teng
“abandoned” them during a crucial Game Number 5 in the MBA championship
round.

Petitioners rely heavily on the alleged effects of Teng’s actions on the rest of the
team. However, such reaction from team members is expected after losing a
game, especially a championship game. It is also not unlikely that the team
members looked for someone to blame after they lost the championship games and
that Teng happened to be the closest target of the team’s frustration and
disappointment. But all these sentiments and emotions from Negros Slashers
players and staff must not blur the eyes of the Court from objectively assessing
Teng’s infraction in order to determine whether the same constitutes just ground
for dismissal. The incident in question should be clear: Teng had a below-par
performance during Game Number 4 for which he was pulled out from the game,
and then he untied his shoelaces and donned his practice jersey. In Game Number
5, he did not play.

As an employee of the Negros Slashers, Teng was expected to report for work
regularly. Missing a team game is indeed a punishable offense. Untying of
shoelaces when the game is not yet finished is also irresponsible and
unprofessional. However, we agree with the Labor Arbiter that such isolated
foolishness of an employee does not justify the extreme penalty of dismissal from
service. Petitioners could have opted to impose a fine or suspension on Teng for
his unacceptable conduct. Other forms of disciplinary action could also have been
taken after the incident to impart on the team that such misconduct will not be
tolerated.

In Sagales v. Rustan’s Commercial Corporation,[29] this Court ruled:

Truly, while the employer has the inherent right to discipline, including that of
dismissing its employees, this prerogative is subject to the regulation by the State
in the exercise of its police power.

In this regard, it is a hornbook doctrine that infractions committed by an

employee should merit only the corresponding penalty demanded by the
circumstance. The penalty must be commensurate with the act, conduct or
omission imputed to the employee and must be imposed in connection with
the disciplinary authority of the employer. (Emphasis in the original.)

In the case at bar, the penalty handed out by the petitioners was the ultimate
penalty of dismissal. There was no warning or admonition for respondent’s
violation of team rules, only outright termination of his services for an act which
could have been punished appropriately with a severe reprimand or suspension. cralaw

WHEREFORE, the petition for review on certiorari is DENIED for lack of merit and
the Decision of the Court of Appeals dated September 17, 2008 and Resolution
dated February 11, 2009, in CA-G.R. SP No. 00817 are hereby AFFIRMED.
With costs against the petitioners.SO ORDERED.
G.R. No. 192084 September 14, 2011

JOSE MEL BERNARTE, Petitioner,

vs.
PHILIPPINE BASKETBALL ASSOCIATION (PBA), JOSE EMMANUEL M. EALA, and PERRY
MARTINEZ, Respondents.

DECISION

CARPIO, J.:

The Case

This is a petition for review 1 of the 17 December 2009 Decision2 and 5 April 2010 Resolution3 of the
Court of Appeals in CA-G.R. SP No. 105406. The Court of Appeals set aside the decision of the
National Labor Relations Commission (NLRC), which affirmed the decision of the Labor Arbiter, and
held that petitioner Jose Mel Bernarte is an independent contractor, and not an employee of
respondents Philippine Basketball Association (PBA), Jose Emmanuel M. Eala, and Perry Martinez.
The Court of Appeals denied the motion for reconsideration.

The Facts

The facts, as summarized by the NLRC and quoted by the Court of Appeals, are as follows:

Complainants (Jose Mel Bernarte and Renato Guevarra) aver that they were invited to join the PBA
as referees. During the leadership of Commissioner Emilio Bernardino, they were made to sign
contracts on a year-to-year basis. During the term of Commissioner Eala, however, changes were
made on the terms of their employment.

Complainant Bernarte, for instance, was not made to sign a contract during the first conference of
the All-Filipino Cup which was from February 23, 2003 to June 2003. It was only during the second
conference when he was made to sign a one and a half month contract for the period July 1 to
August 5, 2003.

On January 15, 2004, Bernarte received a letter from the Office of the Commissioner advising him
that his contract would not be renewed citing his unsatisfactory performance on and off the court. It
was a total shock for Bernarte who was awarded Referee of the year in 2003. He felt that the
dismissal was caused by his refusal to fix a game upon order of Ernie De Leon.

On the other hand, complainant Guevarra alleges that he was invited to join the PBA pool of
referees in February 2001. On March 1, 2001, he signed a contract as trainee. Beginning 2002, he
signed a yearly contract as Regular Class C referee. On May 6, 2003, respondent Martinez issued a
memorandum to Guevarra expressing dissatisfaction over his questioning on the assignment of
referees officiating out-of-town games. Beginning February 2004, he was no longer made to sign a
contract.

Respondents aver, on the other hand, that complainants entered into two contracts of retainer with
the PBA in the year 2003. The first contract was for the period January 1, 2003 to July 15, 2003; and
the second was for September 1 to December 2003. After the lapse of the latter period, PBA
decided not to renew their contracts.
Complainants were not illegally dismissed because they were not employees of the PBA. Their
respective contracts of retainer were simply not renewed. PBA had the prerogative of whether or not
to renew their contracts, which they knew were fixed.4

In her 31 March 2005 Decision,5 the Labor Arbiter6 declared petitioner an employee whose dismissal
by respondents was illegal. Accordingly, the Labor Arbiter ordered the reinstatement of petitioner
and the payment of backwages, moral and exemplary damages and attorney’s fees, to wit:

WHEREFORE, premises considered all respondents who are here found to have illegally dismissed
complainants are hereby ordered to (a) reinstate complainants within thirty (30) days from the date
of receipt of this decision and to solidarily pay complainants:

JOSE MEL RENATO

BERNARTE GUEVARRA
1. backwages from January ₱536,250.00 ₱211,250.00
1, 2004 up to the finality of
this Decision, which to date
is
2. moral damages 100,000.00 50,000.00
3. exemplary damages 100,000.00 50,000.00
4. 10% attorney's fees 68,625.00 36,125.00
TOTAL ₱754,875.00 ₱397,375.00

or a total of ₱1,152,250.00

The rest of the claims are hereby dismissed for lack of merit or basis.

SO ORDERED.7

In its 28 January 2008 Decision,8 the NLRC affirmed the Labor Arbiter’s judgment. The dispositive
portion of the NLRC’s decision reads:

WHEREFORE, the appeal is hereby DISMISSED. The Decision of Labor Arbiter Teresita D.
Castillon-Lora dated March 31, 2005 is AFFIRMED.

SO ORDERED.9

Respondents filed a petition for certiorari with the Court of Appeals, which overturned the decisions
of the NLRC and Labor Arbiter. The dispositive portion of the Court of Appeals’ decision reads:

WHEREFORE, the petition is hereby GRANTED. The assailed Decision dated January 28, 2008
and Resolution dated August 26, 2008 of the National Labor Relations Commission
are ANNULLED and SET ASIDE. Private respondents’ complaint before the Labor Arbiter
is DISMISSED.

SO ORDERED.10
 The Court of Appeals’ Ruling

The Court of Appeals found petitioner an independent contractor since respondents did not exercise
any form of control over the means and methods by which petitioner performed his work as a
basketball referee. The Court of Appeals held:

While the NLRC agreed that the PBA has no control over the referees’ acts of blowing the whistle
and making calls during basketball games, it, nevertheless, theorized that the said acts refer to the
means and methods employed by the referees in officiating basketball games for the illogical reason
that said acts refer only to the referees’ skills. How could a skilled referee perform his job without
blowing a whistle and making calls? Worse, how can the PBA control the performance of work of a
referee without controlling his acts of blowing the whistle and making calls?

Moreover, this Court disagrees with the Labor Arbiter’s finding (as affirmed by the NLRC) that the
Contracts of Retainer show that petitioners have control over private respondents.

xxxx

Neither do We agree with the NLRC’s affirmance of the Labor Arbiter’s conclusion that private
respondents’ repeated hiring made them regular employees by operation of law.11

The Issues

The main issue in this case is whether petitioner is an employee of respondents, which in turn
determines whether petitioner was illegally dismissed.

Petitioner raises the procedural issue of whether the Labor Arbiter’s decision has become final and
executory for failure of respondents to appeal with the NLRC within the reglementary period.

The Ruling of the Court

The petition is bereft of merit.

The Court shall first resolve the procedural issue posed by petitioner.

Petitioner contends that the Labor Arbiter’s Decision of 31 March 2005 became final and executory
for failure of respondents to appeal with the NLRC within the prescribed period. Petitioner claims that
the Labor Arbiter’s decision was constructively served on respondents as early as August 2005 while
respondents appealed the Arbiter’s decision only on 31 March 2006, way beyond the reglementary
period to appeal. Petitioner points out that service of an unclaimed registered mail is deemed
complete five days from the date of first notice of the post master. In this case three notices were
issued by the post office, the last being on 1 August 2005. The unclaimed registered mail was
consequently returned to sender. Petitioner presents the Postmaster’s Certification to prove
constructive service of the Labor Arbiter’s decision on respondents. The Postmaster certified:

xxx

That upon receipt of said registered mail matter, our registry in charge, Vicente Asis, Jr., immediately
issued the first registry notice to claim on July 12, 2005 by the addressee. The second and third
notices were issued on July 21 and August 1, 2005, respectively.
That the subject registered letter was returned to the sender (RTS) because the addressee failed to
claim it after our one month retention period elapsed. Said registered letter was dispatched from this
office to Manila CPO (RTS) under bill #6, line 7, page1, column 1, on September 8, 2005.12

Section 10, Rule 13 of the Rules of Court provides:

SEC. 10. Completeness of service. – Personal service is complete upon actual delivery. Service by
ordinary mail is complete upon the expiration of ten (10) days after mailing, unless the court
otherwise provides. Service by registered mail is complete upon actual receipt by the addressee, or
after five (5) days from the date he received the first notice of the postmaster, whichever date is
earlier.

The rule on service by registered mail contemplates two situations: (1) actual service the
completeness of which is determined upon receipt by the addressee of the registered mail; and (2)
constructive service the completeness of which is determined upon expiration of five days from the
date the addressee received the first notice of the postmaster. 13

Insofar as constructive service is concerned, there must be conclusive proof that a first notice was
duly sent by the postmaster to the addressee.14 Not only is it required that notice of the registered
mail be issued but that it should also be delivered to and received by the addressee. 15 Notably, the
presumption that official duty has been regularly performed is not applicable in this situation. It is
incumbent upon a party who relies on constructive service to prove that the notice was sent to, and
received by, the addressee.16

The best evidence to prove that notice was sent would be a certification from the postmaster, who
should certify not only that the notice was issued or sent but also as to how, when and to whom the
delivery and receipt was made. The mailman may also testify that the notice was actually delivered. 17

In this case, petitioner failed to present any concrete proof as to how, when and to whom the
delivery and receipt of the three notices issued by the post office was made. There is no conclusive
evidence showing that the post office notices were actually received by respondents, negating
petitioner’s claim of constructive service of the Labor Arbiter’s decision on respondents. The
Postmaster’s Certification does not sufficiently prove that the three notices were delivered to and
received by respondents; it only indicates that the post office issued the three notices. Simply put,
the issuance of the notices by the post office is not equivalent to delivery to and receipt by the
addressee of the registered mail. Thus, there is no proof of completed constructive service of the
Labor Arbiter’s decision on respondents.

At any rate, the NLRC declared the issue on the finality of the Labor Arbiter’s decision moot as
respondents’ appeal was considered in the interest of substantial justice. We agree with the NLRC.
The ends of justice will be better served if we resolve the instant case on the merits rather than
allowing the substantial issue of whether petitioner is an independent contractor or an employee
linger and remain unsettled due to procedural technicalities.

The existence of an employer-employee relationship is ultimately a question of fact. As a general

rule, factual issues are beyond the province of this Court. However, this rule admits of exceptions,
one of which is where there are conflicting findings of fact between the Court of Appeals, on one
hand, and the NLRC and Labor Arbiter, on the other, such as in the present case.18

To determine the existence of an employer-employee relationship, case law has consistently applied
the four-fold test, to wit: (a) the selection and engagement of the employee; (b) the payment of
wages; (c) the power of dismissal; and (d) the employer’s power to control the employee on the
means and methods by which the work is accomplished. The so-called "control test" is the most
important indicator of the presence or absence of an employer-employee relationship.19

In this case, PBA admits repeatedly engaging petitioner’s services, as shown in the retainer
contracts. PBA pays petitioner a retainer fee, exclusive of per diem or allowances, as stipulated in
the retainer contract. PBA can terminate the retainer contract for petitioner’s violation of its terms
and conditions.

However, respondents argue that the all-important element of control is lacking in this case, making
petitioner an independent contractor and not an employee of respondents.

Petitioner contends otherwise. Petitioner asserts that he is an employee of respondents since the
latter exercise control over the performance of his work. Petitioner cites the following stipulations in
the retainer contract which evidence control: (1) respondents classify or rate a referee; (2)
respondents require referees to attend all basketball games organized or authorized by the PBA, at
least one hour before the start of the first game of each day; (3) respondents assign petitioner to
officiate ballgames, or to act as alternate referee or substitute; (4) referee agrees to observe and
comply with all the requirements of the PBA governing the conduct of the referees whether on or off
the court; (5) referee agrees (a) to keep himself in good physical, mental, and emotional condition
during the life of the contract; (b) to give always his best effort and service, and loyalty to the PBA,
and not to officiate as referee in any basketball game outside of the PBA, without written prior
consent of the Commissioner; (c) always to conduct himself on and off the court according to the
highest standards of honesty or morality; and (6) imposition of various sanctions for violation of the
terms and conditions of the contract.

The foregoing stipulations hardly demonstrate control over the means and methods by which
petitioner performs his work as a referee officiating a PBA basketball game. The contractual
stipulations do not pertain to, much less dictate, how and when petitioner will blow the whistle and
make calls. On the contrary, they merely serve as rules of conduct or guidelines in order to maintain
the integrity of the professional basketball league. As correctly observed by the Court of Appeals,
"how could a skilled referee perform his job without blowing a whistle and making calls? x x x [H]ow
can the PBA control the performance of work of a referee without controlling his acts of blowing the
whistle and making calls?"20

In Sonza v. ABS-CBN Broadcasting Corporation,21 which determined the relationship between a

television and radio station and one of its talents, the Court held that not all rules imposed by the
hiring party on the hired party indicate that the latter is an employee of the former. The Court held:

We find that these general rules are merely guidelines towards the achievement of the mutually
desired result, which are top-rating television and radio programs that comply with standards of the
industry. We have ruled that:

Further, not every form of control that a party reserves to himself over the conduct of the other party
in relation to the services being rendered may be accorded the effect of establishing an employer-
employee relationship. The facts of this case fall squarely with the case of Insular Life Assurance
Co., Ltd. v. NLRC. In said case, we held that:

Logically, the line should be drawn between rules that merely serve as guidelines towards the
achievement of the mutually desired result without dictating the means or methods to be employed
in attaining it, and those that control or fix the methodology and bind or restrict the party hired to the
use of such means. The first, which aim only to promote the result, create no employer-employee
relationship unlike the second, which address both the result and the means used to achieve it. 22
We agree with respondents that once in the playing court, the referees exercise their own
independent judgment, based on the rules of the game, as to when and how a call or decision is to
be made. The referees decide whether an infraction was committed, and the PBA cannot overrule
them once the decision is made on the playing court. The referees are the only, absolute, and final
authority on the playing court. Respondents or any of the PBA officers cannot and do not determine
which calls to make or not to make and cannot control the referee when he blows the whistle
because such authority exclusively belongs to the referees. The very nature of petitioner’s job of
officiating a professional basketball game undoubtedly calls for freedom of control by respondents.

Moreover, the following circumstances indicate that petitioner is an independent contractor: (1) the
referees are required to report for work only when PBA games are scheduled, which is three times a
week spread over an average of only 105 playing days a year, and they officiate games at an
average of two hours per game; and (2) the only deductions from the fees received by the referees
are withholding taxes.

In other words, unlike regular employees who ordinarily report for work eight hours per day for five
days a week, petitioner is required to report for work only when PBA games are scheduled or three
times a week at two hours per game. In addition, there are no deductions for contributions to the
Social Security System, Philhealth or Pag-Ibig, which are the usual deductions from employees’
salaries. These undisputed circumstances buttress the fact that petitioner is an independent
contractor, and not an employee of respondents.

Furthermore, the applicable foreign case law declares that a referee is an independent contractor,
whose special skills and independent judgment are required specifically for such position and cannot
possibly be controlled by the hiring party.

In Yonan v. United States Soccer Federation, Inc.,23 the United States District Court of Illinois held
that plaintiff, a soccer referee, is an independent contractor, and not an employee of defendant
which is the statutory body that governs soccer in the United States. As such, plaintiff was not
entitled to protection by the Age Discrimination in Employment Act. The U.S. District Court ruled:

Generally, "if an employer has the right to control and direct the work of an individual, not only as to
the result to be achieved, but also as to details by which the result is achieved, an
employer/employee relationship is likely to exist." The Court must be careful to distinguish between
"control[ling] the conduct of another party contracting party by setting out in detail his obligations"
consistent with the freedom of contract, on the one hand, and "the discretionary control an employer
daily exercises over its employee’s conduct" on the other.

Yonan asserts that the Federation "closely supervised" his performance at each soccer game he
officiated by giving him an assessor, discussing his performance, and controlling what clothes he
wore while on the field and traveling. Putting aside that the Federation did not, for the most part,
control what clothes he wore, the Federation did not supervise Yonan, but rather evaluated his
performance after matches. That the Federation evaluated Yonan as a referee does not mean that
he was an employee. There is no question that parties retaining independent contractors may judge
the performance of those contractors to determine if the contractual relationship should continue. x x
x

It is undisputed that the Federation did not control the way Yonan refereed his games. He had full
1âwphi1

discretion and authority, under the Laws of the Game, to call the game as he saw fit. x x x In a
similar vein, subjecting Yonan to qualification standards and procedures like the Federation’s
registration and training requirements does not create an employer/employee relationship. x x x
A position that requires special skills and independent judgment weights in favor of independent
contractor status. x x x Unskilled work, on the other hand, suggests an employment relationship. x x
x Here, it is undisputed that soccer refereeing, especially at the professional and international level,
requires "a great deal of skill and natural ability." Yonan asserts that it was the Federation’s training
that made him a top referee, and that suggests he was an employee. Though substantial training
supports an employment inference, that inference is dulled significantly or negated when the putative
employer’s activity is the result of a statutory requirement, not the employer’s choice. x x x

In McInturff v. Battle Ground Academy of Franklin,24 it was held that the umpire was not an agent of
the Tennessee Secondary School Athletic Association (TSSAA), so the player’s vicarious liability
claim against the association should be dismissed. In finding that the umpire is an independent
contractor, the Court of Appeals of Tennesse ruled:

The TSSAA deals with umpires to achieve a result-uniform rules for all baseball games played
between TSSAA member schools. The TSSAA does not supervise regular season games. It does
not tell an official how to conduct the game beyond the framework established by the rules. The
TSSAA does not, in the vernacular of the case law, control the means and method by which the
umpires work.

In addition, the fact that PBA repeatedly hired petitioner does not by itself prove that petitioner is an
employee of the former. For a hired party to be considered an employee, the hiring party must have
control over the means and methods by which the hired party is to perform his work, which is absent
in this case. The continuous rehiring by PBA of petitioner simply signifies the renewal of the contract
between PBA and petitioner, and highlights the satisfactory services rendered by petitioner
warranting such contract renewal. Conversely, if PBA decides to discontinue petitioner’s services at
the end of the term fixed in the contract, whether for unsatisfactory services, or violation of the terms
and conditions of the contract, or for whatever other reason, the same merely results in the non-
renewal of the contract, as in the present case. The non-renewal of the contract between the parties
does not constitute illegal dismissal of petitioner by respondents.

WHEREFORE, we DENY the petition and AFFIRM the assailed decision of the Court of Appeals.

SO ORDERED.
G.R. No. 165881 April 19, 2006

OSCAR VILLAMARIA, JR. Petitioner,

vs.
COURT OF APPEALS and JERRY V. BUSTAMANTE, Respondents

DECISION

CALLEJO, SR., J.:

Before us is a Petition for Review on Certiorari under Rule 65 of the Revised Rules of Court
assailing the Decision1 and Resolution2 of the Court of Appeals (CA) in CA-G.R. SP No. 78720 which
set aside the Resolution3 of the National Labor Relations Commission (NLRC) in NCR-30-08-03247-
00, which in turn affirmed the Decision4 of the Labor Arbiter dismissing the complaint filed by
respondent Jerry V. Bustamante.

Petitioner Oscar Villamaria, Jr. was the owner of Villamaria Motors, a sole proprietorship engaged in
assembling passenger jeepneys with a public utility franchise to operate along the Baclaran-Sucat
route. By 1995, Villamaria stopped assembling jeepneys and retained only nine, four of which he
operated by employing drivers on a "boundary basis." One of those drivers was respondent
Bustamante who drove the jeepney with Plate No. PVU-660. Bustamante remitted P450.00 a day to
Villamaria as boundary and kept the residue of his daily earnings as compensation for driving the
vehicle. In August 1997, Villamaria verbally agreed to sell the jeepney to Bustamante under the
"boundary-hulog scheme," where Bustamante would remit to Villarama P550.00 a day for a period of
four years; Bustamante would then become the owner of the vehicle and continue to drive the same
under Villamaria’s franchise. It was also agreed that Bustamante would make a downpayment of
P10,000.00.

On August 7, 1997, Villamaria executed a contract entitled "Kasunduan ng Bilihan ng Sasakyan sa

Pamamagitan ng Boundary-Hulog"5 over the passenger jeepney with Plate No. PVU-660, Chassis
No. EVER95-38168-C and Motor No. SL-26647. The parties agreed that if Bustamante failed to pay
the boundary-hulog for three days, Villamaria Motors would hold on to the vehicle until Bustamante
paid his arrears, including a penalty of P50.00 a day; in case Bustamante failed to remit the daily
boundary-hulog for a period of one week, the Kasunduan would cease to have legal effect and
Bustamante would have to return the vehicle to Villamaria Motors.

Under the Kasunduan, Bustamante was prohibited from driving the vehicle without prior authority
from Villamaria Motors. Thus, Bustamante was authorized to operate the vehicle to transport
passengers only and not for other purposes. He was also required to display an identification card in
front of the windshield of the vehicle; in case of failure to do so, any fine that may be imposed by
government authorities would be charged against his account. Bustamante further obliged himself to
pay for the cost of replacing any parts of the vehicle that would be lost or damaged due to his
negligence. In case the vehicle sustained serious damage, Bustamante was obliged to notify
Villamaria Motors before commencing repairs. Bustamante was not allowed to wear slippers, short
pants or undershirts while driving. He was required to be polite and respectful towards the
passengers. He was also obliged to notify Villamaria Motors in case the vehicle was leased for two
or more days and was required to attend any meetings which may be called from time to time. Aside
from the boundary-hulog, Bustamante was also obliged to pay for the annual registration fees of the
vehicle and the premium for the vehicle’s comprehensive insurance. Bustamante promised to strictly
comply with the rules and regulations imposed by Villamaria for the upkeep and maintenance of the
jeepney.
Bustamante continued driving the jeepney under the supervision and control of Villamaria. As
agreed upon, he made daily remittances of P550.00 in payment of the purchase price of the vehicle.
Bustamante failed to pay for the annual registration fees of the vehicle, but Villamaria allowed him to
continue driving the jeepney.

In 1999, Bustamante and other drivers who also had the same arrangement with Villamaria Motors
failed to pay their respective boundary-hulog. This prompted Villamaria to serve a
"Paalala,"6 reminding them that under the Kasunduan, failure to pay the daily boundary-hulog for one
week, would mean their respective jeepneys would be returned to him without any complaints. He
warned the drivers that the Kasunduan would henceforth be strictly enforced and urged them to
comply with their obligation to avoid litigation.

On July 24, 2000, Villamaria took back the jeepney driven by Bustamante and barred the latter from
driving the vehicle.

On August 15, 2000, Bustamante filed a Complaint7 for Illegal Dismissal against Villamaria and his
wife Teresita. In his Position Paper,8 Bustamante alleged that he was employed by Villamaria in July
1996 under the boundary system, where he was required to remit P450.00 a day. After one year of
continuously working for them, the spouses Villamaria presented the Kasunduan for his signature,
with the assurance that he (Bustamante) would own the jeepney by March 2001 after paying
P550.00 in daily installments and that he would thereafter continue driving the vehicle along the
same route under the same franchise. He further narrated that in July 2000, he informed the
Villamaria spouses that the surplus engine of the jeepney needed to be replaced, and was assured
that it would be done. However, he was later arrested and his driver’s license was confiscated
because apparently, the replacement engine that was installed was taken from a stolen vehicle. Due
to negotiations with the apprehending authorities, the jeepney was not impounded. The Villamaria
spouses took the jeepney from him on July 24, 2000, and he was no longer allowed to drive the
vehicle since then unless he paid them P70,000.00.

Bustamante prayed that judgment be rendered in his favor, thus:

WHEREFORE, in the light of the foregoing, it is most respectfully prayed that judgment be rendered
ordering the respondents, jointly and severally, the following:

1. Reinstate complainant to his former position without loss of seniority rights and execute a
Deed of Sale in favor of the complainant relative to the PUJ with Plate No. PVU-660;

2. Ordering the respondents to pay backwages in the amount of P400.00 a day and other
benefits computed from July 24, 2000 up to the time of his actual reinstatement;

3. Ordering respondents to return the amount of P10,000.00 and P180,000.00 for the
expenses incurred by the complainant in the repair and maintenance of the subject jeep;

4. Ordering the respondents to refund the amount of One Hundred (P100.00) Pesos per day
counted from August 7, 1997 up to June 2000 or a total of P91,200.00;

5. To pay moral and exemplary damages of not less than P200,000.00;

6. Attorney’s fee[s] of not less than 10% of the monetary award.

Other just and equitable reliefs under the premises are also being prayed for. 9
In their Position Paper,10 the spouses Villamaria admitted the existence of the Kasunduan, but
alleged that Bustamante failed to pay the P10,000.00 downpayment and the vehicle’s annual
registration fees. They further alleged that Bustamante eventually failed to remit the requisite
boundary-hulog of P550.00 a day, which prompted them to issue the Paalaala. Instead of complying
with his obligations, Bustamante stopped making his remittances despite his daily trips and even
brought the jeepney to the province without permission. Worse, the jeepney figured in an accident
and its license plate was confiscated; Bustamante even abandoned the vehicle in a gasoline station
in Sucat, Parañaque City for two weeks. When the security guard at the gasoline station requested
that the vehicle be retrieved and Teresita Villamaria asked Bustamante for the keys, Bustamante
told her: "Di kunin ninyo." When the vehicle was finally retrieved, the tires were worn, the alternator
was gone, and the battery was no longer working.

Citing the cases of Cathedral School of Technology v. NLRC 11 and Canlubang Security Agency
Corporation v. NLRC,12 the spouses Villamaria argued that Bustamante was not illegally dismissed
since the Kasunduan executed on August 7, 1997 transformed the employer-employee relationship
into that of vendor-vendee. Hence, the spouses concluded, there was no legal basis to hold them
liable for illegal dismissal. They prayed that the case be dismissed for lack of jurisdiction and patent
lack of merit.

In his Reply,13 Bustamante claimed that Villamaria exercised control and supervision over the
conduct of his employment. He maintained that the rulings of the Court in National Labor Union v.
Dinglasan,14 Magboo v. Bernardo,15 and Citizen's League of Free Workers v. Abbas16 are germane to
the issue as they define the nature of the owner/operator-driver relationship under the boundary
system. He further reiterated that it was the Villamaria spouses who presented the Kasunduan to
him and that he conformed thereto only upon their representation that he would own the vehicle after
four years. Moreover, it appeared that the Paalala was duly received by him, as he, together with
other drivers, was made to affix his signature on a blank piece of paper purporting to be an
"attendance sheet."

On March 15, 2002, the Labor Arbiter rendered judgment17 in favor of the spouses Villamaria and
ordered the complaint dismissed on the following ratiocination:

Respondents presented the contract of Boundary-Hulog, as well as the PAALALA, to prove their
claim that complainant violated the terms of their contract and afterwards abandoned the vehicle
assigned to him. As against the foregoing, [the] complaint’s (sic) mere allegations to the contrary
cannot prevail.

Not having been illegally dismissed, complainant is not entitled to damages and attorney's fees. 18

Bustamante appealed the decision to the NLRC,19 insisting that the Kasunduan did not extinguish
the employer-employee relationship between him and Villamaria. While he did not receive fixed
wages, he kept only the excess of the boundary-hulog which he was required to remit daily to
Villamaria under the agreement. Bustamante maintained that he remained an employee because he
was engaged to perform activities which were necessary or desirable to Villamaria’s trade or
business.

The NLRC rendered judgment20 dismissing the appeal for lack of merit, thus:

WHEREFORE, premises considered, complainant's appeal is hereby DISMISSED for reasons not
stated in the Labor Arbiter's decision but mainly on a jurisdictional issue, there being none over the
subject matter of the controversy.21
The NLRC ruled that under the Kasunduan, the juridical relationship between Bustamante and
Villamaria was that of vendor and vendee, hence, the Labor Arbiter had no jurisdiction over the
complaint. Bustamante filed a Motion for Reconsideration, which the NLRC resolved to deny on May
30, 2003.22

Bustamante elevated the matter to the CA via Petition for Certiorari, alleging that the NLRC erred

IN DISMISSING PETITIONER’S APPEAL "FOR REASON NOT STATED IN THE LABOR

ARBITER’S DECISION, BUT MAINLY ON JURISDICTIONAL ISSUE;"

II

IN DISREGARDING THE LAW AND PREVAILING JURISPRUDENCE WHEN IT DECLARED THAT

THE RELATIONSHIP WHICH WAS ESTABLISHED BETWEEN PETITIONER AND THE PRIVATE
RESPONDENT WAS DEFINITELY A MATTER WHICH IS BEYOND THE PROTECTIVE MANTLE
OF OUR LABOR LAWS.23

Bustamante insisted that despite the Kasunduan, the relationship between him and Villamaria
continued to be that of employer-employee and as such, the Labor Arbiter had jurisdiction over his
complaint. He further alleged that it is common knowledge that operators of passenger jeepneys
(including taxis) pay their drivers not on a regular monthly basis but on commission or boundary
basis, or even the boundary-hulog system. Bustamante asserted that he was dismissed from
employment without any lawful or just cause and without due notice.

For his part, Villamaria averred that Bustamante failed to adduce proof of their employer-employee
relationship. He further pointed out that the Dinglasan case pertains to the boundary system and not
the boundary-hulog system, hence inapplicable in the instant case. He argued that upon the
execution of the Kasunduan, the juridical tie between him and Bustamante was transformed into a
vendor-vendee relationship. Noting that he was engaged in the manufacture and sale of jeepneys
and not in the business of transporting passengers for consideration, Villamaria contended that the
daily fees which Bustmante paid were actually periodic installments for the the vehicle and were not
the same fees as understood in the boundary system. He added that the boundary-hulog plan was
basically a scheme to help the driver-buyer earn money and eventually pay for the unit in full, and for
the owner to profit not from the daily earnings of the driver-buyer but from the purchase price of the
unit sold. Villamaria further asserted that the apparently restrictive conditions in the Kasunduan did
not mean that the means and method of driver-buyer’s conduct was controlled, but were mere ways
to preserve the vehicle for the benefit of both parties: Villamaria would be able to collect the agreed
purchase price, while Bustamante would be assured that the vehicle would still be in good running
condition even after four years. Moreover, the right of vendor to impose certain conditions on the
buyer should be respected until full ownership of the property is vested on the latter. Villamaria
insisted that the parallel circumstances obtaining in Singer Sewing Machine Company v. Drilon 24 has
analogous application to the instant issue.

In its Decision25 dated August 30, 2004, the CA reversed and set aside the NLRC decision. The fallo
of the decision reads:

UPON THE VIEW WE TAKE IN THIS CASE, THUS, the impugned resolutions of the NLRC must be,
as they are hereby are, REVERSED AND SET ASIDE, and judgment entered in favor of petitioner:
 1. Sentencing private respondent Oscar Villamaria, Jr. to pay petitioner Jerry Bustamante
separation pay computed from the time of his employment up to the time of termination
based on the prevailing minimum wage at the time of termination; and,

2. Condemning private respondent Oscar Villamaria, Jr. to pay petitioner Jerry Bustamante
back wages computed from the time of his dismissal up to March 2001 based on the
prevailing minimum wage at the time of his dismissal.

Without Costs.

SO ORDERED.26

The appellate court ruled that the Labor Arbiter had jurisdiction over Bustamante’s complaint. Under
the Kasunduan, the relationship between him and Villamaria was dual: that of vendor-vendee and
employer-employee. The CA ratiocinated that Villamaria’s exercise of control over Bustamante’s
conduct in operating the jeepney is inconsistent with the former’s claim that he was not engaged in
the transportation business. There was no evidence that petitioner was allowed to let some other
person drive the jeepney.

The CA further held that, while the power to dismiss was not mentioned in the Kasunduan, it did not
mean that Villamaria could not exercise it. It explained that the existence of an employment
relationship did not depend on how the worker was paid but on the presence or absence of control
over the means and method of the employee’s work. In this case, Villamaria’s directives (to drive
carefully, wear an identification card, don decent attire, park the vehicle in his garage, and to inform
him about provincial trips, etc.) was a means to control the way in which Bustamante was to go
about his work. In view of Villamaria’s supervision and control as employer, the fact that the
"boundary" represented installment payments of the purchase price on the jeepney did not remove
the parties’ employer-employee relationship.

While the appellate court recognized that a week’s default in paying the boundary-hulog constituted
an additional cause for terminating Bustamante’s employment, it held that the latter was illegally
dismissed. According to the CA, assuming that Bustamante failed to make the required payments as
claimed by Villamaria, the latter nevertheless failed to take steps to recover the unit and waited for
Bustamante to abandon it. It also pointed out that Villamaria neither submitted any police report to
support his claim that the vehicle figured in a mishap nor presented the affidavit of the gas station
guard to substantiate the claim that Bustamante abandoned the unit.

Villamaria received a copy of the decision on September 8, 2004, and filed, on September 17, 2004,
a motion for reconsideration thereof. The CA denied the motion in a Resolution 27 dated November 2,
2004, and Villamaria received a copy thereof on November 8, 2004.

Villamaria, now petitioner, seeks relief from this Court via petition for review on certiorari under Rule
65 of the Rules of Court, alleging that the CA committed grave abuse of its discretion amounting to
excess or lack of jurisdiction in reversing the decision of the Labor Arbiter and the NLRC. He claims
that the CA erred in ruling that the juridical relationship between him and respondent under the
Kasunduan was a combination of employer-employee and vendor-vendee relationships. The terms
and conditions of the Kasunduan clearly state that he and respondent Bustamante had entered into
a conditional deed of sale over the jeepney; as such, their employer-employee relationship had been
transformed into that of vendor-vendee. Petitioner insists that he had the right to reserve his title on
the jeepney until after the purchase price thereof had been paid in full.
In his Comment on the petition, respondent avers that the appropriate remedy of petitioner was an
appeal via a petition for review on certiorari under Rule 45 of the Rules of Court and not a special
civil action of certiorari under Rule 65. He argues that petitioner failed to establish that the CA
committed grave abuse of its discretion amounting to excess or lack of jurisdiction in its decision, as
the said ruling is in accord with law and the evidence on record.

Respondent further asserts that the Kasunduan presented to him by petitioner which provides for a
boundary-hulog scheme was a devious circumvention of the Labor Code of the Philippines.
Respondent insists that his juridical relationship with petitioner is that of employer-employee
because he was engaged to perform activities which were necessary or desirable in the usual
business of petitioner, his employer.

In his Reply, petitioner avers that the Rules of Procedure should be liberally construed in his favor;
hence, it behooves the Court to resolve the merits of his petition.

We agree with respondent’s contention that the remedy of petitioner from the CA decision was to file
a petition for review on certiorari under Rule 45 of the Rules of Court and not the independent action
of certiorari under Rule 65. Petitioner had 15 days from receipt of the CA resolution denying his
motion for the reconsideration within which to file the petition under Rule 45.28 But instead of doing
so, he filed a petition for certiorari under Rule 65 on November 22, 2004, which did not, however,
suspend the running of the 15-day reglementary period; consequently, the CA decision became final
and executory upon the lapse of the reglementary period for appeal. Thus, on this procedural lapse,
the instant petition stands to be dismissed.29

It must be stressed that the recourse to a special civil action under Rule 65 of the Rules of Court is
proscribed by the remedy of appeal under Rule 45. As the Court elaborated in Tomas Claudio
Memorial College, Inc. v. Court of Appeals:30

We agree that the remedy of the aggrieved party from a decision or final resolution of the CA is to
file a petition for review on certiorari under Rule 45 of the Rules of Court, as amended, on questions
of facts or issues of law within fifteen days from notice of the said resolution. Otherwise, the decision
of the CA shall become final and executory. The remedy under Rule 45 of the Rules of Court is a
mode of appeal to this Court from the decision of the CA. It is a continuation of the appellate process
over the original case. A review is not a matter of right but is a matter of judicial discretion. The
aggrieved party may, however, assail the decision of the CA via a petition for certiorari under Rule
65 of the Rules of Court within sixty days from notice of the decision of the CA or its resolution
denying the motion for reconsideration of the same. This is based on the premise that in issuing the
assailed decision and resolution, the CA acted with grave abuse of discretion, amounting to excess
or lack of jurisdiction and there is no plain, speedy and adequate remedy in the ordinary course of
law. A remedy is considered plain, speedy and adequate if it will promptly relieve the petitioner from
the injurious effect of the judgment and the acts of the lower court.

The aggrieved party is proscribed from filing a petition for certiorari if appeal is available, for the
remedies of appeal and certiorari are mutually exclusive and not alternative or successive. The
aggrieved party is, likewise, barred from filing a petition for certiorari if the remedy of appeal is lost
through his negligence. A petition for certiorari is an original action and does not interrupt the course
of the principal case unless a temporary restraining order or a writ of preliminary injunction has been
issued against the public respondent from further proceeding. A petition for certiorari must be based
on jurisdictional grounds because, as long as the respondent court acted within its jurisdiction, any
error committed by it will amount to nothing more than an error of judgment which may be corrected
or reviewed only by appeal.31
However, we have also ruled that a petition for certiorari under Rule 65 may be considered as filed
under Rule 45, conformably with the principle that rules of procedure are to be construed liberally,
provided that the petition is filed within the reglementary period under Section 2, Rule 45 of the
Rules of Court, and where valid and compelling circumstances warrant that the petition be resolved
on its merits.32 In this case, the petition was filed within the reglementary period and petitioner has
raised an issue of substance: whether the existence of a boundary-hulog agreement negates the
employer-employee relationship between the vendor and vendee, and, as a corollary, whether the
Labor Arbiter has jurisdiction over a complaint for illegal dismissal in such case.

We resolve these issues in the affirmative.

The rule is that, the nature of an action and the subject matter thereof, as well as, which court or
agency of the government has jurisdiction over the same, are determined by the material allegations
of the complaint in relation to the law involved and the character of the reliefs prayed for, whether or
not the complainant/plaintiff is entitled to any or all of such reliefs. 33 A prayer or demand for relief is
not part of the petition of the cause of action; nor does it enlarge the cause of action stated or
change the legal effect of what is alleged.34 In determining which body has jurisdiction over a case,
the better policy is to consider not only the status or relationship of the parties but also the nature of
the action that is the subject of their controversy.35

Article 217 of the Labor Code, as amended, vests on the Labor Arbiter exclusive original jurisdiction
only over the following:

x x x (a) Except as otherwise provided under this Code, the Labor Arbiters shall have original and
exclusive jurisdiction to hear and decide, within thirty (30) calendar days after the submission of the
case by the parties for decision without extension, even in the absence of stenographic notes, the
following cases involving all workers, whether agricultural or non-agricultural:

1. Unfair labor practice cases;

2. Termination disputes;

3. If accompanied with a claim for reinstatement, those cases that workers may file involving
wage, rates of pay, hours of work, and other terms and conditions of employment;

4. Claims for actual, moral, exemplary and other forms of damages arising from the
employer-employee relations;

5. Cases arising from violation of Article 264 of this Code, including questions involving the
legality of strikes and lockouts; and

6. Except claims for Employees Compensation, Social Security, Medicare and maternity
benefits, all other claims, arising from employer-employee relationship, including those of
persons in domestic or household service, involving an amount exceeding five thousand
pesos (P5,000.00) regardless of whether accompanied with a claim for reinstatement.

(b) The Commission shall have exclusive appellate jurisdiction over all cases decided
by Labor Arbiters.

(c) Cases arising from the interpretation or implementation of collective bargaining

agreements, and those arising from the interpretation or enforcement of company
 personnel policies shall be disposed of by the Labor Arbiter by referring the same to
the grievance machinery and voluntary arbitration as may be provided in said
agreements.

In the foregoing cases, an employer-employee relationship is an indispensable jurisdictional

requisite.36 The jurisdiction of Labor Arbiters and the NLRC under Article 217 of the Labor Code is
limited to disputes arising from an employer-employee relationship which can only be resolved by
reference to the Labor Code, other labor statutes or their collective bargaining agreement.37 Not
every dispute between an employer and employee involves matters that only the Labor Arbiter and
the NLRC can resolve in the exercise of their adjudicatory or quasi-judicial powers. Actions between
employers and employees where the employer-employee relationship is merely incidental is within
the exclusive original jurisdiction of the regular courts. 38 When the principal relief is to be granted
under labor legislation or a collective bargaining agreement, the case falls within the exclusive
jurisdiction of the Labor Arbiter and the NLRC even though a claim for damages might be asserted
as an incident to such claim.39

We agree with the ruling of the CA that, under the boundary-hulog scheme incorporated in the
Kasunduan, a dual juridical relationship was created between petitioner and respondent: that of
employer-employee and vendor-vendee. The Kasunduan did not extinguish the employer-employee
relationship of the parties extant before the execution of said deed.

As early as 1956, the Court ruled in National Labor Union v. Dinglasan 40 that the jeepney
owner/operator-driver relationship under the boundary system is that of employer-employee and not
lessor-lessee. This doctrine was affirmed, under similar factual settings, in Magboo v.
Bernardo41 and Lantaco, Sr. v. Llamas,42 and was analogously applied to govern the relationships
between auto-calesa owner/operator and driver,43 bus owner/operator and conductor,44 and taxi
owner/operator and driver.45

The boundary system is a scheme by an owner/operator engaged in transporting passengers as a

common carrier to primarily govern the compensation of the driver, that is, the latter’s daily earnings
are remitted to the owner/operator less the excess of the boundary which represents the driver’s
compensation. Under this system, the owner/operator exercises control and supervision over the
driver. It is unlike in lease of chattels where the lessor loses complete control over the chattel leased
but the lessee is still ultimately responsible for the consequences of its use. The management of the
business is still in the hands of the owner/operator, who, being the holder of the certificate of public
convenience, must see to it that the driver follows the route prescribed by the franchising and
regulatory authority, and the rules promulgated with regard to the business operations. The fact that
the driver does not receive fixed wages but only the excess of the "boundary" given to the
owner/operator is not sufficient to change the relationship between them. Indubitably, the driver
performs activities which are usually necessary or desirable in the usual business or trade of the
owner/operator.46

Under the Kasunduan, respondent was required to remit P550.00 daily to petitioner, an amount
which represented the boundary of petitioner as well as respondent’s partial payment (hulog) of the
purchase price of the jeepney.

Respondent was entitled to keep the excess of his daily earnings as his daily wage. Thus, the daily
remittances also had a dual purpose: that of petitioner’s boundary and respondent’s partial payment
(hulog) for the vehicle. This dual purpose was expressly stated in the Kasunduan. The well-settled
rule is that an obligation is not novated by an instrument that expressly recognizes the old one,
changes only the terms of payment, and adds other obligations not incompatible with the old
provisions or where the new contract merely supplements the previous one. 47 The two obligations of
the respondent to remit to petitioner the boundary-hulog can stand together.

In resolving an issue based on contract, this Court must first examine the contract itself, keeping in
mind that when the terms of the agreement are clear and leave no doubt as to the intention of the
contracting parties, the literal meaning of its stipulations shall prevail.48 The intention of the
contracting parties should be ascertained by looking at the words used to project their intention, that
is, all the words, not just a particular word or two or more words standing alone. The various
stipulations of a contract shall be interpreted together, attributing to the doubtful ones that sense
which may result from all of them taken jointly.49 The parts and clauses must be interpreted in
relation to one another to give effect to the whole. The legal effect of a contract is to be determined
from the whole read together.50

Under the Kasunduan, petitioner retained supervision and control over the conduct of the
respondent as driver of the jeepney, thus:

Ang mga patakaran, kaugnay ng bilihang ito sa pamamagitan ng boundary hulog ay ang mga
sumusunod:

1. Pangangalagaan at pag-iingatan ng TAUHAN NG IKALAWANG PANIG ang sasakyan

ipinagkatiwala sa kanya ng TAUHAN NG UNANG PANIG.

2. Na ang sasakyan nabanggit ay gagamitin lamang ng TAUHAN NG IKALAWANG PANIG

sa paghahanapbuhay bilang pampasada o pangangalakal sa malinis at maayos na
pamamaraan.

3. Na ang sasakyan nabanggit ay hindi gagamitin ng TAUHAN NG IKALAWANG PANIG sa

mga bagay na makapagdudulot ng kahihiyan, kasiraan o pananagutan sa TAUHAN NG
UNANG PANIG.

4. Na hindi ito mamanehohin ng hindi awtorisado ng opisina ng UNANG PANIG.

5. Na ang TAUHAN NG IKALAWANG PANIG ay kinakailangang maglagay ng ID Card sa

harap ng windshield upang sa pamamagitan nito ay madaliang malaman kung ang
nagmamaneho ay awtorisado ng VILLAMARIA MOTORS o hindi.

6. Na sasagutin ng TAUHAN NG IKALAWANG PANIG ang [halaga ng] multa kung sakaling
mahuli ang sasakyang ito na hindi nakakabit ang ID card sa wastong lugar o anuman
kasalanan o kapabayaan.

7. Na sasagutin din ng TAUHAN NG IKALAWANG PANIG ang materyales o piyesa na

papalitan ng nasira o nawala ito dahil sa kanyang kapabayaan.

8. Kailangan sa VILLAMARIA MOTORS pa rin ang garahe habang hinuhulugan pa rin ng

TAUHAN NG IKALAWANG PANIG ang nasabing sasakyan.

9. Na kung magkaroon ng mabigat na kasiraan ang sasakyang ipinagkaloob ng TAUHAN

NG UNANG PANIG, ang TAUHAN NG IKALAWANG PANIG ay obligadong itawag ito muna
sa VILLAMARIA MOTORS bago ipagawa sa alin mang Motor Shop na awtorisado ng
VILLAMARIA MOTORS.
10. Na hindi pahihintulutan ng TAUHAN NG IKALAWANG PANIG sa panahon ng
pamamasada na ang nagmamaneho ay naka-tsinelas, naka short pants at nakasando
lamang. Dapat ang nagmamaneho ay laging nasa maayos ang kasuotan upang igalang ng
mga pasahero.

11. Na ang TAUHAN NG IKALAWANG PANIG o ang awtorisado niyang driver ay

magpapakita ng magandang asal sa mga pasaheros at hindi dapat magsasalita ng masama
kung sakali man may pasaherong pilosopo upang maiwasan ang anumang kaguluhan na
maaaring kasangkutan.

12. Na kung sakaling hindi makapagbigay ng BOUNDARY HULOG ang TAUHAN NG

IKALAWANG PANIG sa loob ng tatlong (3) araw ay ang opisina ng VILLAMARIA MOTORS
ang may karapatang mangasiwa ng nasabing sasakyan hanggang matugunan ang lahat ng
responsibilidad. Ang halagang dapat bayaran sa opisina ay may karagdagang multa ng
P50.00 sa araw-araw na ito ay nasa pangangasiwa ng VILLAMARIA MOTORS.

13. Na kung ang TAUHAN NG IKALAWANG PANIG ay hindi makapagbigay ng BOUNDARY

HULOG sa loob ng isang linggo ay nangangahulugan na ang kasunduang ito ay wala ng
bisa at kusang ibabalik ng TAUHAN NG IKALAWANG PANIG ang nasabing sasakyan sa
TAUHAN NG UNANG PANIG.

14. Sasagutin ng TAUHAN NG IKALAWANG PANIG ang bayad sa rehistro, comprehensive

insurance taon-taon at kahit anong uri ng aksidente habang ito ay hinuhulugan pa sa
TAUHAN NG UNANG PANIG.

15. Na ang TAUHAN NG IKALAWANG PANIG ay obligadong dumalo sa pangkalahatang

pagpupulong ng VILLAMARIA MOTORS sa tuwing tatawag ang mga tagapangasiwa nito
upang maipaabot ang anumang mungkahi sa ikasusulong ng samahan.

16. Na ang TAUHAN NG IKALAWANG PANIG ay makikiisa sa lahat ng mga patakaran na

magkakaroon ng pagbabago o karagdagan sa mga darating na panahon at hindi magiging
hadlang sa lahat ng mga balakin ng VILLAMARIA MOTORS sa lalo pang ipagtatagumpay at
ikakatibay ng Samahan.

17. Na ang TAUHAN NG IKALAWANG PANIG ay hindi magiging buwaya sa pasahero

upang hindi kainisan ng kapwa driver at maiwasan ang pagkakasangkot sa anumang gulo.

18. Ang nasabing sasakyan ay hindi kalilimutang siyasatin ang kalagayan lalo na sa umaga
bago pumasada, at sa hapon o gabi naman ay sisikapin mapanatili ang kalinisan nito.

19. Na kung sakaling ang nasabing sasakyan ay maaarkila at aabutin ng dalawa o higit pang
araw sa lalawigan ay dapat lamang na ipagbigay alam muna ito sa VILLAMARIA MOTORS
upang maiwasan ang mga anumang suliranin.

20. Na ang TAUHAN NG IKALAWANG PANIG ay iiwasan ang pakikipag-unahan sa

kaninumang sasakyan upang maiwasan ang aksidente.

21. Na kung ang TAUHAN NG IKALAWANG PANIG ay mayroon sasabihin sa VILLAMARIA

MOTORS mabuti man or masama ay iparating agad ito sa kinauukulan at iwasan na
iparating ito kung [kani-kanino] lamang upang maiwasan ang anumang usapin. Magsadya
agad sa opisina ng VILLAMARIA MOTORS.
 22. Ang mga nasasaad sa KASUNDUAN ito ay buong galang at puso kong sinasang-ayunan
at buong sikap na pangangalagaan ng TAUHAN NG IKALAWANG PANIG ang nasabing
sasakyan at gagamitin lamang ito sa paghahanapbuhay at wala nang iba pa.51

The parties expressly agreed that petitioner, as vendor, and respondent, as vendee, entered into a
contract to sell the jeepney on a daily installment basis of P550.00 payable in four years and that
petitioner would thereafter become its owner. A contract is one of conditional sale, oftentimes
referred to as contract to sell, if the ownership or title over the

property sold is retained by the vendor, and is not passed to the vendee unless and until there is full
payment of the purchase price and/or upon faithful compliance with the other terms and conditions
that may lawfully be stipulated.52 Such payment or satisfaction of other preconditions, as the case
may be, is a positive suspensive condition, the failure of which is not a breach of contract, casual or
serious, but simply an event that would prevent the obligation of the vendor to convey title from
acquiring binding force.53 Stated differently, the efficacy or obligatory force of the vendor's obligation
to transfer title is subordinated to the happening of a future and uncertain event so that if the
suspensive condition does not take place, the parties would stand as if the conditional obligation had
never existed.54 The vendor may extrajudicially terminate the operation of the contract, refuse
conveyance, and retain the sums or installments already received, where such rights are expressly
provided for.55

Under the boundary-hulog scheme, petitioner retained ownership of the jeepney although its
material possession was vested in respondent as its driver. In case respondent failed to make his
P550.00 daily installment payment for a week, the agreement would be of no force and effect and
respondent would have to return the jeepney to petitioner; the employer-employee relationship
would likewise be terminated unless petitioner would allow respondent to continue driving the
jeepney on a boundary basis of P550.00 daily despite the termination of their vendor-vendee
relationship.

The juridical relationship of employer-employee between petitioner and respondent was not negated
by the foregoing stipulation in the Kasunduan, considering that petitioner retained control of
respondent’s conduct as driver of the vehicle. As correctly ruled by the CA:

The exercise of control by private respondent over petitioner’s conduct in operating the jeepney he
was driving is inconsistent with private respondent’s claim that he is, or was, not engaged in the
transportation business; that, even if petitioner was allowed to let some other person drive the unit, it
was not shown that he did so; that the existence of an employment relation is not dependent on how
the worker is paid but on the presence or absence of control over the means and method of the
work; that the amount earned in excess of the "boundary hulog" is equivalent to wages; and that the
fact that the power of dismissal was not mentioned in the Kasunduan did not mean that private
respondent never exercised such power, or could not exercise such power.

Moreover, requiring petitioner to drive the unit for commercial use, or to wear an identification card,
or to don a decent attire, or to park the vehicle in Villamaria Motors garage, or to inform Villamaria
Motors about the fact that the unit would be going out to the province for two days of more, or to
drive the unit carefully, etc. necessarily related to control over the means by which the petitioner was
to go about his work; that the ruling applicable here is not Singer Sewing Machine but National Labor
Union since the latter case involved jeepney owners/operators and jeepney drivers, and that the fact
that the "boundary" here represented installment payment of the purchase price on the jeepney did
not withdraw the relationship from that of employer-employee, in view of the overt presence of
supervision and control by the employer.56
Neither is such juridical relationship negated by petitioner’s claim that the terms and conditions in the
Kasunduan relative to respondent’s behavior and deportment as driver was for his and respondent’s
benefit: to insure that respondent would be able to pay the requisite daily installment of P550.00, and
that the vehicle would still be in good condition despite the lapse of four years. What is primordial is
that petitioner retained control over the conduct of the respondent as driver of the jeepney.

Indeed, petitioner, as the owner of the vehicle and the holder of the franchise, is entitled to exercise
supervision and control over the respondent, by seeing to it that the route provided in his franchise,
and the rules and regulations of the Land Transportation Regulatory Board are duly complied with.
Moreover, in a business establishment, an identification card is usually provided not just as a
security measure but to mainly identify the holder thereof as a bona fide employee of the firm who
issues it.57

As respondent’s employer, it was the burden of petitioner to prove that respondent’s termination
from employment was for a lawful or just cause, or, at the very least, that respondent failed to make
his daily remittances of P550.00 as boundary. However, petitioner failed to do so. As correctly ruled
by the appellate court:

It is basic of course that termination of employment must be effected in accordance with law. The
just and authorized causes for termination of employment are enumerated under Articles 282, 283
and 284 of the Labor Code.

Parenthetically, given the peculiarity of the situation of the parties here, the default in the remittance
of the boundary hulog for one week or longer may be considered an additional cause for termination
of employment. The reason is because the Kasunduan would be of no force and effect in the event
that the purchaser failed to remit the boundary hulog for one week. The Kasunduan in this case
pertinently stipulates:

13. Na kung ang TAUHAN NG IKALAWANG PANIG ay hindi makapagbigay ng BOUNDARY

HULOG sa loob ng isang linggo ay NANGANGAHULUGAN na ang kasunduang ito ay wala ng bisa
at kusang ibabalik ng TAUHAN NG IKALAWANG PANIG ang nasabing sasakyan sa TAUHAN NG
UNANG PANIG na wala ng paghahabol pa.

Moreover, well-settled is the rule that, the employer has the burden of proving that the dismissal of
an employee is for a just cause. The failure of the employer to discharge this burden means that the
dismissal is not justified and that the employee is entitled to reinstatement and back wages.

In the case at bench, private respondent in his position paper before the Labor Arbiter, alleged that
petitioner failed to pay the miscellaneous fee of P10,000.00 and the yearly registration of the unit;
that petitioner also stopped remitting the "boundary hulog," prompting him (private respondent) to
issue a "Paalala," which petitioner however ignored; that petitioner even brought the unit to his
(petitioner’s) province without informing him (private respondent) about it; and that petitioner
eventually abandoned the vehicle at a gasoline station after figuring in an accident. But private
respondent failed to substantiate these allegations with solid, sufficient proof. Notably, private
respondent’s allegation viz, that he retrieved the vehicle from the gas station, where petitioner
abandoned it, contradicted his statement in the Paalala that he would enforce the provision (in the
Kasunduan) to the effect that default in the remittance of the boundary hulog for one week would
result in the forfeiture of the unit. The Paalala reads as follows:

"Sa lahat ng mga kumukuha ng sasakyan

"Sa pamamagitan ng ‘BOUNDARY HULOG’

"Nais ko pong ipaalala sa inyo ang Kasunduan na inyong pinirmahan particular na ang paragrapo 13
na nagsasaad na kung hindi kayo makapagbigay ng Boundary Hulog sa loob ng isang linggo ay
kusa ninyong ibabalik and nasabing sasakyan na inyong hinuhulugan ng wala ng paghahabol pa.

"Mula po sa araw ng inyong pagkatanggap ng Paalala na ito ay akin na pong ipatutupad ang
nasabing Kasunduan kaya’t aking pinaaalala sa inyong lahat na tuparin natin ang nakalagay sa
kasunduan upang maiwasan natin ito.

"Hinihiling ko na sumunod kayo sa hinihingi ng paalalang ito upang hindi na tayo makaabot pa sa
korte kung sakaling hindi ninyo isasauli ang inyong sasakyan na hinuhulugan na ang mga
magagastos ay kayo pa ang magbabayad sapagkat ang hindi ninyo pagtupad sa kasunduan ang
naging dahilan ng pagsampa ng kaso.

"Sumasainyo

"Attendance: 8/27/99

"(The Signatures appearing herein

include (sic) that of petitioner’s) (Sgd.)

OSCAR VILLAMARIA, JR."

If it were true that petitioner did not remit the boundary hulog for one week or more, why did private
respondent not forthwith take steps to recover the unit, and why did he have to wait for petitioner to
abandon it? 1avv phil.n et

On another point, private respondent did not submit any police report to support his claim that
petitioner really figured in a vehicular mishap. Neither did he present the affidavit of the guard from
the gas station to substantiate his claim that petitioner abandoned the unit there. 58

Petitioner’s claim that he opted not to terminate the employment of respondent because of
magnanimity is negated by his (petitioner’s) own evidence that he took the jeepney from the
respondent only on July 24, 2000.

IN LIGHT OF ALL THE FOREGOING, the petition is DENIED. The decision of the Court of Appeals
in CA-G.R. SP No. 78720 is AFFIRMED. Costs against petitioner.

SO ORDERED.
 G.R. No. 192998, April 02, 2014

BERNARD A. TENAZAS, JAIME M. FRANCISCO AND ISIDRO G.

ENDRACA, Petitioners, v. R. VILLEGAS TAXI TRANSPORT AND ROMUALDO
VILLEGAS, Respondents.

DECISION

REYES, J.:

This is a petition for review on certiorari1 filed under Rule 45 of the Rules of Court,
assailing the Decision2 dated March 11, 2010 and Resolution3 dated June 28, 2010
of the Court of Appeals (CA) in CA–G.R.
SP No. 111150, which affirmed with modification the Decision4 dated June
23, 2009 of the National Labor Relations Commission (NLRC) in NLRC LAC Case No.
07–002648–08.

The Antecedent Facts

On July 4, 2007, Bernard A. Tenazas (Tenazas) and Jaime M. Francisco (Francisco)

filed a complaint for illegal dismissal against R. Villegas Taxi Transport and/or
Romualdo Villegas (Romualdo) and Andy Villegas (Andy) (respondents). At that
time, a similar case had already been filed by Isidro G. Endraca (Endraca) against
the same respondents. The two (2) cases were subsequently consolidated.5

In their position paper,6 Tenazas, Francisco and Endraca (petitioners) alleged that
they were hired and dismissed by the respondents on the following dates:
Name Date of Hiring Date of Dismissal Salary

Bernard A. Tenazas 10/1997 07/03/07 Boundary System

Jaime M. Francisco 04/10/04 06/04/07 Boundary System
Isidro G. Endraca 04/2000 03/06/06 Boundary System7
Relaying the circumstances of his dismissal, Tenazas alleged that on July 1, 2007,
the taxi unit assigned to him was sideswiped by another vehicle, causing a dent on
the left fender near the driver seat. The cost of repair for the damage was
estimated at P500.00. Upon reporting the incident to the company, he was scolded
by respondents Romualdo and Andy and was told to leave the garage for he is
already fired. He was even threatened with physical harm should he ever be seen
in the company’s premises again. Despite the warning, Tenazas reported for work
on the following day but was told that he can no longer drive any of the company’s
units as he is already fired.8

Francisco, on the other hand, averred that his dismissal was brought about by the
company’s unfounded suspicion that he was organizing a labor union. He was
instantaneously terminated, without the benefit of procedural due process, on June
4, 2007.9
Endraca, for his part, alleged that his dismissal was instigated by an occasion when
he fell short of the required boundary for his taxi unit. He related that before he
was dismissed, he brought his taxi unit to an auto shop for an urgent repair. He
was charged the amount of ?700.00 for the repair services and the replacement
parts. As a result, he was not able to meet his boundary for the day. Upon
returning to the company garage and informing the management of the incident,
his driver’s license was confiscated and was told to settle the deficiency in his
boundary first before his license will be returned to him. He was no longer allowed
to drive a taxi unit despite his persistent pleas.10

For their part, the respondents admitted that Tenazas and Endraca were employees
of the company, the former being a regular driver and the latter a spare
driver. The respondents, however, denied that Francisco was an employee of the
company or that he was able to drive one of the company’s units at any point in
time.11

The respondents further alleged that Tenazas was never terminated by the
company. They claimed that on July 3, 2007, Tenazas went to the company garage
to get his taxi unit but was informed that it is due for overhaul because of some
mechanical defects reported by the other driver who takes turns with him in using
the same. He was thus advised to wait for
further notice from the company if his unit has already been fixed. On July
8, 2007, however, upon being informed that his unit is ready for release, Tenazas
failed to report back to work for no apparent reason.12

As regards Endraca, the respondents alleged that they hired him as a spare driver
in February 2001. They allow him to drive a taxi unit whenever their regular driver
will not be able to report for work. In July 2003, however, Endraca stopped
reporting for work without informing the company of his reason. Subsequently, the
respondents learned that a complaint for illegal dismissal was filed by Endraca
against them. They strongly maintained, however, that they could never have
terminated Endraca in March 2006 since he already stopped reporting for work as
early as July 2003. Even then, they expressed willingness to accommodate
Endraca should he wish to work as a spare driver for the company again since he
was never really dismissed from employment anyway. 13

On May 29, 2008, the petitioners, by registered mail, filed a Motion to Admit
Additional Evidence. 14 They alleged that after diligent efforts, they were able to
discover new pieces of evidence that will substantiate the allegations in their
position paper. Attached with the motion are the following: (a) Joint Affidavit of the
petitioners;15 (2) Affidavit of Good Faith of Aloney Rivera, a co–driver;16 (3)
pictures of the petitioners wearing company shirts;17 and (4) Tenazas’
Certification/Record of Social Security System (SSS) contributions.18

The Ruling of the Labor Arbiter

On May 30, 2008, the Labor Arbiter (LA) rendered a Decision, 19 which pertinently
states, thus:
ch an Rob lesvirt u alLa wlib rary

In the case of complainant Jaime Francisco, respondents categorically denied the

existence of an employer–employee relationship. In this situation, the burden of
proof shifts to the complainant to prove the existence of a regular
employment. Complainant Francisco failed to present evidence of regular
employment available to all regular employees, such as an employment contract,
company ID, SSS, withholding tax certificates, SSS membership and the like.

In the case of complainant Isidro Endraca, respondents claim that he was only an
extra driver who stopped reporting to queue for available taxi units which he could
drive. In fact, respondents offered him in their Position Paper on record, immediate
reinstatement as extra taxi driver which offer he refused.

In case of Bernard Tenazas, he was told to wait while his taxi was under repair but
he did not report for work after the taxi was repaired. Respondents[,] in their
Position Paper, on record likewise, offered him immediate reinstatement, which
offer he refused.

We must bear in mind that the complaint herein is one of actual dismissal. But
there was no formal investigations, no show cause memos, suspension memos or
termination memos were never issued. Otherwise stated, there is no proof of overt
act of dismissal committed by herein respondents.

We are therefore constrained to rule that there was no illegal dismissal in the case
at bar.

The situations contemplated by law for entitlement to separation pay does [sic] not
apply.

WHEREFORE, premises considered, instant consolidated complaints are hereby

dismissed for lack of merit.

SO ORDERED.20

The Ruling of the NLRC

Unyielding, the petitioners appealed the decision of the LA to the

NLRC. Subsequently, on June 23, 2009, the NLRC rendered a Decision,21 reversing
the appealed decision of the LA, holding that the additional pieces of evidence
belatedly submitted by the petitioners sufficed to establish the existence of
employer–employee relationship and their illegal dismissal. It held, thus: ch an Rob lesvirt u alL awl ib rary

In the challenged decision, the Labor Arbiter found that it cannot be said that the
complainants were illegally dismissed, there being no showing, in the first place,
that the respondent [sic] terminated their services. A portion thereof reads:
“We must bear in mind that the complaint herein is one of actual dismissal. But
there were no formal investigations, no show cause memos, suspension memos or
termination memos were never issued. Otherwise stated, there is no proof of overt
act of dismissal committed by herein respondents.

We are therefore constrained to rule that there was no illegal dismissal in the case
at bar.”
Issue: [W]hether or not the complainants were illegally dismissed from
employment.

It is possible that the complainants’ Motion to Admit Additional Evidence did not
reach the Labor Arbiter’s attention because he had drafted the challenged decision
even before they submitted it, and thereafter, his staff attended only to clerical
matters, and failed to bring the motion in question to his attention. It is now up to
this Commission to consider the complainants’ additional evidence. Anyway, if this
Commission must consider evidence submitted for the first time on appeal (Andaya
vs. NLRC, G.R. No. 157371, July 15, 2005), much more so must it consider
evidence that was simply overlooked by the Labor Arbiter.

Among the additional pieces of evidence submitted by the complainants are the
following: (1) joint affidavit (records, p. 51–52) of the three (3) complainants; (2)
affidavit (records, p. 53) of Aloney Rivera y Aldo; and (3) three (3) pictures
(records, p. 54) referred to by the complainant in their joint affidavit showing them
wearing t–shirts bearing the name and logo of the respondent’s company.

xxxx

WHEREFORE, the decision appealed from is hereby REVERSED. Respondent

Rom[u]aldo Villegas doing business under the name and style Villegas Taxi
Transport is hereby ordered to pay the complainants the following (1) full
backwages from the date of their dismissal (July 3, 2007 for Tena[z]as, June 4,
2004 for Francisco, and March 6, 2006 for Endraca[)] up to the date of the finality
of this decision[;] (2) separation pay equivalent to one month for every year of
service; and (3) attorney’s fees equivalent to ten percent (10%) of the total
judgment awards.

SO ORDERED.22

On July 24, 2009, the respondents filed a motion for reconsideration but the NLRC
denied the same in its Resolution23 dated September 23, 2009.

The Ruling of the CA

Unperturbed, the respondents filed a petition for certiorari with the CA. On March
11, 2010, the CA rendered a Decision,24 affirming with modification the Decision
dated June 23, 2009 of the NLRC. The CA agreed with the NLRC’s finding that
Tenazas and Endraca were employees of the company, but ruled otherwise in the
case of Francisco for failing to establish his relationship with the company. It also
deleted the award of separation pay and ordered for reinstatement of Tenazas and
Endraca. The pertinent portions of the decision read as follows: ch an Rob lesvirt u alLawl ib rary

At the outset, We declare that respondent Francisco failed to prove that an

employer–employee relationship exists between him and R. Transport. If there is
no employer–employee relationship in the first place, the duty of R. Transport to
adhere to the labor standards provisions of the Labor Code with respect to
Francisco is questionable.

xxxx

Although substantial evidence is not a function of quantity but rather of quality, the
peculiar environmental circumstances of the instant case demand that something
more should have been proffered. Had there been other proofs of employment,
such as Francisco’s inclusion in R.R. Transport’s payroll, this Court would have
affirmed the finding of employer–employee relationship. The NLRC, therefore,
committed grievous error in ordering R. Transport to answer for Francisco’s claims.

We now tackle R. Transport’s petition with respect to Tenazas and Endraca, who are
both admitted to be R. Transport’s employees. In its petition, R. Transport puts
forth the theory that it did not terminate the services of respondents but that the
latter deliberately abandoned their work. We cannot subscribe to this theory.

xxxx

Considering that the complaints for illegal dismissal were filed soon after the
alleged dates of dismissal, it cannot be inferred that respondents Tenazas and
Endraca intended to abandon their employment. The complainants for dismissal
are, in themselves, pleas for the continuance of employment. They are
incompatible with the allegation of abandonment. x x x.

For R. Transport’s failure to discharge the burden of proving that the dismissal of
respondents Tenazas and Endraca was for a just cause, We are constrained to
uphold the NLRC’s conclusion that their dismissal was not justified and that they are
entitled to back wages. Because they were illegally dismissed, private respondents
Tenazas and Endraca are entitled to reinstatement and back wages x x x.

xxxx

However, R. Transport is correct in its contention that separation pay should not be
awarded because reinstatement is still possible and has been offered. It is well[–
]settled that separation pay is granted only in instances where reinstatement is no
longer feasible or appropriate, which is not the case here.

xxxx

WHEREFORE, the Decision of the National Labor Relations Commission dated 23

June 2009, in NLRC LAC Case No. 07–002648–08, and its Resolution dated 23
September 2009 denying reconsideration thereof
are AFFIRMED with MODIFICATION in that the award of Jaime Francisco’s claims
is DELETED. The separation pay granted in favor of Bernard Tenazas and Isidro
Endraca is, likewise, DELETED and their reinstatement is ordered instead.

SO ORDERED.25 (Citations omitted)

On March 19, 2010, the petitioners filed a motion for reconsideration but the same
was denied by the CA in its Resolution26 dated June 28, 2010.

Undeterred, the petitioners filed the instant petition for review on certiorari before
this Court on July 15, 2010.

The Ruling of this Court

The petition lacks merit.

Pivotal to the resolution of the instant case is the determination of the existence of
employer–employee relationship and whether there was an illegal
dismissal. Remarkably, the LA, NLRC and the CA had varying assessment on the
matters at hand. The LA believed that, with the admission of the respondents,
there is no longer any question regarding the status of both Tenazas and Endraca
being employees of the company. However, he ruled that the same conclusion
does not hold with respect to Francisco whom the respondents denied to have ever
employed or known. With the respondents’ denial, the burden of proof shifts to
Francisco to establish his regular employment. Unfortunately, the LA found that
Francisco failed to present sufficient evidence to prove regular employment such as
company ID, SSS membership, withholding tax certificates or similar
articles. Thus, he was not considered an employee of the company. Even then, the
LA held that Tenazas and Endraca could not have been illegally dismissed since
there was no overt act of dismissal committed by the respondents.27

On appeal, the NLRC reversed the ruling of the LA and ruled that the petitioners
were all employees of the company. The NLRC premised its conclusion on the
additional pieces of evidence belatedly submitted by the petitioners, which it
supposed, have been overlooked by the LA owing to the time when it was received
by the said office. It opined that the said pieces of evidence are sufficient to
establish the circumstances of their illegal termination. In particular, it noted that
in the affidavit of the petitioners, there were allegations about the company’s
practice of not issuing employment records and this was not rebutted by the
respondents. It underscored that in a situation where doubt exists between
evidence presented by the employer and the employee, the scales of justice must
be tilted in favor of the employee. It awarded the petitioners with: (1) full
backwages from the date of their dismissal up to the finality of the decision; (2)
separation pay equivalent to one month of salary for every year of service; and (3)
attorney’s fees.
On petition for certiorari, the CA affirmed with modification the decision of the
NLRC, holding that there was indeed an illegal dismissal on the part of Tenazas and
Endraca but not with respect to Francisco who failed to present substantial
evidence, proving that he was an employee of the respondents. The CA likewise
dismissed the respondents’ claim that Tenazas and Endraca abandoned their work,
asseverating that immediate filing of a complaint for illegal dismissal and persistent
pleas for continuance of employment are incompatible with abandonment. It also
deleted the NLRC’s award of separation pay and instead ordered that Tenazas and
Endraca be reinstated.28

“Well–settled is the rule that the jurisdiction of this Court in a petition for review
on certiorari under Rule 45 of the Revised Rules of Court is limited to reviewing only
errors of law, not of fact, unless the factual findings complained of are completely
devoid of support from the evidence on record, or the assailed judgment is based
on a gross misapprehension of facts.”29 The Court finds that none of the mentioned
circumstances is present in this case.

In reviewing the decision of the NLRC, the CA found that no substantial evidence
was presented to support the conclusion that Francisco was an employee of the
respondents and accordingly modified the NLRC decision. It stressed that with the
respondents’ denial of employer–employee relationship, it behooved Francisco to
present substantial evidence to prove that he is an employee before any question
on the legality of his supposed dismissal becomes appropriate for
discussion. Francisco, however, did not offer evidence to substantiate his claim of
employment with the respondents. Short of the required quantum of proof, the CA
correctly ruled that the NLRC’s finding of illegal dismissal and the monetary awards
which necessarily follow such ruling lacked factual and legal basis and must
therefore be deleted.

The action of the CA finds support in Anonas Construction and Industrial Supply
Corp., et al. v. NLRC, et al.,30 where the Court reiterated:
ch an Rob lesvirt u alLa wlib rary

[J]udicial review of decisions of the NLRC via petition for certiorari under Rule 65,
as a general rule, is confined only to issues of lack or excess of jurisdiction and
grave abuse of discretion on the part of the NLRC. The CA does not assess and
weigh the sufficiency of evidence upon which the LA and the NLRC based their
conclusions. The issue is limited to the determination of whether or not the NLRC
acted without or in excess of its jurisdiction, or with grave abuse of discretion in
rendering the resolution, except if the findings of the NLRC are not supported
by substantial evidence.31 (Citation omitted and emphasis ours)

It is an oft–repeated rule that in labor cases, as in other administrative and quasi–

judicial proceedings, “the quantum of proof necessary is substantial evidence, or
such amount of relevant evidence which a reasonable mind might accept as
adequate to justify a conclusion.”32 “[T]he burden of proof rests upon the party
who asserts the affirmative of an issue.”33 Corollarily, as Francisco was claiming to
be an employee of the respondents, it is incumbent upon him to proffer evidence to
prove the existence of said relationship.
“[I]n determining the presence or absence of an employer–employee relationship,
the Court has consistently looked for the following incidents, to wit: (a) the
selection and engagement of the employee; (b) the payment of wages; (c) the
power of dismissal; and (d) the employer’s power to control the employee on the
means and methods by which the work is accomplished. The last element, the so–
called control test, is the most important element.”34

There is no hard and fast rule designed to establish the aforesaid elements. Any
competent and relevant evidence to prove the relationship may be
admitted. Identification cards, cash vouchers, social security registration,
appointment letters or employment contracts, payrolls, organization charts, and
personnel lists, serve as evidence of employee status.35

In this case, however, Francisco failed to present any proof substantial enough to
establish his relationship with the respondents. He failed to present documentary
evidence like attendance logbook, payroll, SSS record or any personnel file that
could somehow depict his status as an employee. Anent his claim that he was not
issued with employment records, he could have, at least, produced his social
security records which state his contributions, name and address of his employer,
as his co–petitioner Tenazas did. He could have also presented testimonial
evidence showing the respondents’ exercise of control over the means and methods
by which he undertakes his work. This is imperative in light of the respondents’
denial of his employment and the claim of another taxi operator, Emmanuel Villegas
(Emmanuel), that he was his employer. Specifically, in his Affidavit,36 Emmanuel
alleged that Francisco was employed as a spare driver in his taxi garage from
January 2006 to December 2006, a fact that the latter failed to deny or question in
any of the pleadings attached to the records of this case. The utter lack of
evidence is fatal to Francisco’s case especially in cases like his present predicament
when the law has been very lenient in not requiring any particular form of evidence
or manner of proving the presence of employer–employee relationship.

In Opulencia Ice Plant and Storage v. NLRC,37 this Court emphasized, thus: ch an Rob lesvirt u alLaw lib rary

No particular form of evidence is required to prove the existence of an employer–

employee relationship. Any competent and relevant evidence to prove the
relationship may be admitted. For, if only documentary evidence would be required
to show that relationship, no scheming employer would ever be brought before the
bar of justice, as no employer would wish to come out with any trace of the
illegality he has authored considering that it should take much weightier proof to
invalidate a written instrument.38

Here, Francisco simply relied on his allegation that he was an employee of the
company without any other evidence supporting his claim. Unfortunately for him, a
mere allegation in the position paper is not tantamount to evidence. 39 Bereft of any
evidence, the CA correctly ruled that Francisco could not be considered an
employee of the respondents.
The CA’s order of reinstatement of Tenazas and Endraca, instead of the payment of
separation pay, is also well in accordance with prevailing
jurisprudence. In Macasero v. Southern Industrial Gases Philippines,40 the Court
reiterated, thus:ch an Rob lesvirt u alLa wlib rary

[A]n illegally dismissed employee is entitled to two reliefs: backwages and

reinstatement. The two reliefs provided are separate and distinct. In instances
where reinstatement is no longer feasible because of strained relations between the
employee and the employer, separation pay is granted. In effect, an illegally
dismissed employee is entitled to either reinstatement, if viable, or separation pay
if reinstatement is no longer viable, and backwages.

The normal consequences of respondents’ illegal dismissal, then, are

reinstatement without loss of seniority rights, and payment of backwages
computed from the time compensation was withheld up to the date of
actual reinstatement. Where reinstatement is no longer viable as an
option, separation pay equivalent to one (1) month salary for every year of
service should be awarded as an alternative. The payment of separation
pay is in addition to payment of backwages.41 (Emphasis supplied)

Clearly, it is only when reinstatement is no longer feasible that the payment of

separation pay is ordered in lieu thereof. For instance, if reinstatement would only
exacerbate the tension and strained relations between the parties, or where the
relationship between the employer and the employee has been unduly strained by
reason of their irreconcilable differences, it would be more prudent to order
payment of separation pay instead of reinstatement.42

This doctrine of strained relations, however, should not be used recklessly or

applied loosely43 nor be based on impression alone. “It bears to stress that
reinstatement is the rule and, for the exception of strained relations to apply, it
should be proved that it is likely that if reinstated, an
atmosphere of antipathy and antagonism would be generated as to
adversely affect the efficiency and productivity of the employee concerned.”44

Moreover, the existence of strained relations, it must be emphasized, is a question

of fact. In Golden Ace Builders v. Talde,45 the Court underscored: ch an Rob lesvirt u alLaw lib rary

Strained relations must be demonstrated as a fact, however, to be adequately

supported by evidence—substantial evidence to show that the relationship between
the employer and the employee is indeed strained as a necessary consequence of
the judicial controversy.46 (Citations omitted and emphasis ours)

After a perusal of the NLRC decision, this Court failed to find the factual basis of the
award of separation pay to the petitioners. The NLRC decision did not state the
facts which demonstrate that reinstatement is no longer a feasible option that could
have justified the alternative relief of granting separation pay instead.
The petitioners themselves likewise overlooked to allege circumstances which may
have rendered their reinstatement unlikely or unwise and even prayed for
reinstatement alongside the payment of separation pay in their position paper. 47 A
bare claim of strained relations by reason of termination is insufficient to warrant
the granting of separation pay. Likewise, the filing of the complaint by the
petitioners does not necessarily translate to strained relations between the
parties. As a rule, no strained relations should arise from a valid and legal act
asserting one’s right.48 Although litigation may also engender a certain degree of
hostility, the understandable strain in the parties’ relation would not necessarily
rule out reinstatement which would, otherwise, become the rule rather the
exception in illegal dismissal cases.49 Thus, it was a prudent call for the CA to
delete the award of separation pay and order for reinstatement instead, in
accordance with the general rule stated in Article 279 50 of the Labor Code.

Finally, the Court finds the computation of the petitioners’ backwages at the rate of
P800.00 daily reasonable and just under the circumstances. The said rate is
consistent with the ruling of this Court in Hyatt Taxi Services, Inc. v.
Catinoy,51 which dealt with the same matter.

WHEREFORE, in view of the foregoing disquisition, the petition for review

on certiorari is DENIED. The Decision dated March 11, 2010 and Resolution dated
June 28, 2010 of the Court of Appeals in CA–G.R. SP No. 111150 are AFFIRMED.

SO ORDERED.
G.R. No. 170087 August 31, 2006

ANGELINA FRANCISCO, Petitioner,

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

DECISION

YNARES-SANTIAGO, J.:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

1. finding complainant an employee of respondent corporation;

2. declaring complainant’s dismissal as illegal;

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

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

(27,500 x 10 mos.)

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

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

d. Midyear Bonus 2001 27,500.00

e. 13th Month Pay 27,500.00

f. 10% share in the profits of Kasei

Corp. from 1996-2001 361,175.00

g. Moral and exemplary damages 100,000.00

h. 10% Attorney’s fees 87,076.50

P957,742.50

If reinstatement is no longer feasible, respondents are ordered to pay complainant separation pay
with additional backwages that would accrue up to actual payment of separation pay.

SO ORDERED. 14

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

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

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

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

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

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

SO ORDERED. 15

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

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

SO ORDERED. 16

The appellate court denied petitioner’s motion for reconsideration, hence, the present recourse.
The core issues to be resolved in this case are (1) whether there was an employer-employee
relationship between petitioner and private respondent Kasei Corporation; and if in the affirmative,
(2) whether petitioner was illegally dismissed.

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

We held in Sevilla v. Court of Appeals 18 that in this jurisdiction, there has been no uniform test to
determine the existence of an employer-employee relation. Generally, courts have relied on the so-
called right of control test where the person for whom the services are performed reserves a right to
control not only the end to be achieved but also the means to be used in reaching such end. In
addition to the standard of right-of-control, the existing economic conditions prevailing between the
parties, like the inclusion of the employee in the payrolls, can help in determining the existence of an
employer-employee relationship.

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

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

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

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

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

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

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

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

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

It is therefore apparent that petitioner is economically dependent on respondent corporation for her
continued employment in the latter’s line of business.

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

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

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

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

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

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

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

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

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

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

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

WHEREFORE, the petition is GRANTED. The Decision and Resolution of the Court of Appeals
dated October 29, 2004 and October 7, 2005, respectively, in CA-G.R. SP No. 78515
are ANNULLED and SET ASIDE. The Decision of the National Labor Relations Commission dated
April 15, 2003 in NLRC NCR CA No. 032766-02, is REINSTATED. The case is REMANDED to the
Labor Arbiter for the recomputation of petitioner Angelina Francisco’s full backwages from the time
she was illegally terminated until the date of finality of this decision, and separation pay representing
one-half month pay for every year of service, where a fraction of at least six months shall be
considered as one whole year.SO ORDERED.
G.R. No. 138051 June 10, 2004

JOSE Y. SONZA, petitioner,

vs.
ABS-CBN BROADCASTING CORPORATION, respondent.

DECISION

CARPIO, J.:

The Case

Before this Court is a petition for review on certiorari 1 assailing the 26 March 1999 Decision2 of the
Court of Appeals in CA-G.R. SP No. 49190 dismissing the petition filed by Jose Y. Sonza
("SONZA"). The Court of Appeals affirmed the findings of the National Labor Relations Commission
("NLRC"), which affirmed the Labor Arbiter’s dismissal of the case for lack of jurisdiction.

The Facts

In May 1994, respondent ABS-CBN Broadcasting Corporation ("ABS-CBN") signed an Agreement

("Agreement") with the Mel and Jay Management and Development Corporation ("MJMDC"). ABS-
CBN was represented by its corporate officers while MJMDC was represented by SONZA, as
President and General Manager, and Carmela Tiangco ("TIANGCO"), as EVP and Treasurer.
Referred to in the Agreement as "AGENT," MJMDC agreed to provide SONZA’s services exclusively
to ABS-CBN as talent for radio and television. The Agreement listed the services SONZA would
render to ABS-CBN, as follows:

a. Co-host for Mel & Jay radio program, 8:00 to 10:00 a.m., Mondays to Fridays;

b. Co-host for Mel & Jay television program, 5:30 to 7:00 p.m., Sundays.3

ABS-CBN agreed to pay for SONZA’s services a monthly talent fee of ₱310,000 for the first year and
₱317,000 for the second and third year of the Agreement. ABS-CBN would pay the talent fees on
the 10th and 25th days of the month.

On 1 April 1996, SONZA wrote a letter to ABS-CBN’s President, Eugenio Lopez III, which reads:

Dear Mr. Lopez,

We would like to call your attention to the Agreement dated May 1994 entered into by your
goodself on behalf of ABS-CBN with our company relative to our talent JOSE Y. SONZA.

As you are well aware, Mr. Sonza irrevocably resigned in view of recent events concerning
his programs and career. We consider these acts of the station violative of the Agreement
and the station as in breach thereof. In this connection, we hereby serve notice of rescission
of said Agreement at our instance effective as of date.

Mr. Sonza informed us that he is waiving and renouncing recovery of the remaining amount
stipulated in paragraph 7 of the Agreement but reserves the right to seek recovery of the
other benefits under said Agreement.
 Thank you for your attention.

Very truly yours,

(Sgd.)
JOSE Y. SONZA
President and Gen. Manager4

On 30 April 1996, SONZA filed a complaint against ABS-CBN before the Department of Labor and
Employment, National Capital Region in Quezon City. SONZA complained that ABS-CBN did not
pay his salaries, separation pay, service incentive leave pay, 13th month pay, signing bonus, travel
allowance and amounts due under the Employees Stock Option Plan ("ESOP").

On 10 July 1996, ABS-CBN filed a Motion to Dismiss on the ground that no employer-employee
relationship existed between the parties. SONZA filed an Opposition to the motion on 19 July 1996.

Meanwhile, ABS-CBN continued to remit SONZA’s monthly talent fees through his account at
PCIBank, Quezon Avenue Branch, Quezon City. In July 1996, ABS-CBN opened a new account with
the same bank where ABS-CBN deposited SONZA’s talent fees and other payments due him under
the Agreement.

In his Order dated 2 December 1996, the Labor Arbiter 5 denied the motion to dismiss and directed
the parties to file their respective position papers. The Labor Arbiter ruled:

In this instant case, complainant for having invoked a claim that he was an employee of
respondent company until April 15, 1996 and that he was not paid certain claims, it is
sufficient enough as to confer jurisdiction over the instant case in this Office. And as to
whether or not such claim would entitle complainant to recover upon the causes of action
asserted is a matter to be resolved only after and as a result of a hearing. Thus, the
respondent’s plea of lack of employer-employee relationship may be pleaded only as a
matter of defense. It behooves upon it the duty to prove that there really is no employer-
employee relationship between it and the complainant.

The Labor Arbiter then considered the case submitted for resolution. The parties submitted their
position papers on 24 February 1997.

On 11 March 1997, SONZA filed a Reply to Respondent’s Position Paper with Motion to Expunge
Respondent’s Annex 4 and Annex 5 from the Records. Annexes 4 and 5 are affidavits of ABS-CBN’s
witnesses Soccoro Vidanes and Rolando V. Cruz. These witnesses stated in their affidavits that the
prevailing practice in the television and broadcast industry is to treat talents like SONZA as
independent contractors.

The Labor Arbiter rendered his Decision dated 8 July 1997 dismissing the complaint for lack of
jurisdiction.6 The pertinent parts of the decision read as follows:

xxx

While Philippine jurisprudence has not yet, with certainty, touched on the "true nature of the
contract of a talent," it stands to reason that a "talent" as above-described cannot be
considered as an employee by reason of the peculiar circumstances surrounding the
engagement of his services.
 It must be noted that complainant was engaged by respondent by reason of his peculiar
skills and talent as a TV host and a radio broadcaster. Unlike an ordinary employee,
he was free to perform the services he undertook to render in accordance with his
own style. The benefits conferred to complainant under the May 1994 Agreement are
certainly very much higher than those generally given to employees. For one, complainant
Sonza’s monthly talent fees amount to a staggering ₱317,000. Moreover, his engagement as
a talent was covered by a specific contract. Likewise, he was not bound to render eight (8)
hours of work per day as he worked only for such number of hours as may be necessary.

The fact that per the May 1994 Agreement complainant was accorded some benefits
normally given to an employee is inconsequential. Whatever benefits complainant
enjoyed arose from specific agreement by the parties and not by reason of employer-
employee relationship. As correctly put by the respondent, "All these benefits are merely
talent fees and other contractual benefits and should not be deemed as ‘salaries, wages
and/or other remuneration’ accorded to an employee, notwithstanding the nomenclature
appended to these benefits. Apropos to this is the rule that the term or nomenclature given to
a stipulated benefit is not controlling, but the intent of the parties to the Agreement conferring
such benefit."

The fact that complainant was made subject to respondent’s Rules and Regulations,
likewise, does not detract from the absence of employer-employee relationship. As
held by the Supreme Court, "The line should be drawn between rules that merely serve as
guidelines towards the achievement of the mutually desired result without dictating the
means or methods to be employed in attaining it, and those that control or fix the
methodology and bind or restrict the party hired to the use of such means. The first, which
aim only to promote the result, create no employer-employee relationship unlike the second,
which address both the result and the means to achieve it." (Insular Life Assurance Co., Ltd.
vs. NLRC, et al., G.R. No. 84484, November 15, 1989).

x x x (Emphasis supplied)7

SONZA appealed to the NLRC. On 24 February 1998, the NLRC rendered a Decision affirming the
Labor Arbiter’s decision. SONZA filed a motion for reconsideration, which the NLRC denied in its
Resolution dated 3 July 1998.

On 6 October 1998, SONZA filed a special civil action for certiorari before the Court of Appeals
assailing the decision and resolution of the NLRC. On 26 March 1999, the Court of Appeals
rendered a Decision dismissing the case.8

Hence, this petition.

The Rulings of the NLRC and Court of Appeals

The Court of Appeals affirmed the NLRC’s finding that no employer-employee relationship existed
between SONZA and ABS-CBN. Adopting the NLRC’s decision, the appellate court quoted the
following findings of the NLRC:

x x x the May 1994 Agreement will readily reveal that MJMDC entered into the contract
merely as an agent of complainant Sonza, the principal. By all indication and as the law puts
it, the act of the agent is the act of the principal itself. This fact is made particularly true in this
case, as admittedly MJMDC ‘is a management company devoted exclusively to managing
the careers of Mr. Sonza and his broadcast partner, Mrs. Carmela C. Tiangco.’ (Opposition
to Motion to Dismiss)

Clearly, the relations of principal and agent only accrues between complainant Sonza and
MJMDC, and not between ABS-CBN and MJMDC. This is clear from the provisions of the
May 1994 Agreement which specifically referred to MJMDC as the ‘AGENT’. As a matter of
fact, when complainant herein unilaterally rescinded said May 1994 Agreement, it was
MJMDC which issued the notice of rescission in behalf of Mr. Sonza, who himself signed the
same in his capacity as President.

Moreover, previous contracts between Mr. Sonza and ABS-CBN reveal the fact that
historically, the parties to the said agreements are ABS-CBN and Mr. Sonza. And it is only in
the May 1994 Agreement, which is the latest Agreement executed between ABS-CBN and
Mr. Sonza, that MJMDC figured in the said Agreement as the agent of Mr. Sonza.

We find it erroneous to assert that MJMDC is a mere ‘labor-only’ contractor of ABS-CBN

such that there exist[s] employer-employee relationship between the latter and Mr. Sonza.
On the contrary, We find it indubitable, that MJMDC is an agent, not of ABS-CBN, but of the
talent/contractor Mr. Sonza, as expressly admitted by the latter and MJMDC in the May 1994
Agreement.

It may not be amiss to state that jurisdiction over the instant controversy indeed belongs to
the regular courts, the same being in the nature of an action for alleged breach of contractual
obligation on the part of respondent-appellee. As squarely apparent from complainant-
appellant’s Position Paper, his claims for compensation for services, ‘13th month pay’,
signing bonus and travel allowance against respondent-appellee are not based on the Labor
Code but rather on the provisions of the May 1994 Agreement, while his claims for proceeds
under Stock Purchase Agreement are based on the latter. A portion of the Position Paper of
complainant-appellant bears perusal:

‘Under [the May 1994 Agreement] with respondent ABS-CBN, the latter contractually
bound itself to pay complainant a signing bonus consisting of shares of stocks…with
FIVE HUNDRED THOUSAND PESOS (₱500,000.00).

Similarly, complainant is also entitled to be paid 13th month pay based on an amount
not lower than the amount he was receiving prior to effectivity of (the) Agreement’.

Under paragraph 9 of (the May 1994 Agreement), complainant is entitled to a

commutable travel benefit amounting to at least One Hundred Fifty Thousand Pesos
(₱150,000.00) per year.’

Thus, it is precisely because of complainant-appellant’s own recognition of the fact that his
contractual relations with ABS-CBN are founded on the New Civil Code, rather than the
Labor Code, that instead of merely resigning from ABS-CBN, complainant-appellant served
upon the latter a ‘notice of rescission’ of Agreement with the station, per his letter dated April
1, 1996, which asserted that instead of referring to unpaid employee benefits, ‘he is waiving
and renouncing recovery of the remaining amount stipulated in paragraph 7 of the
Agreement but reserves the right to such recovery of the other benefits under said
Agreement.’ (Annex 3 of the respondent ABS-CBN’s Motion to Dismiss dated July 10, 1996).

Evidently, it is precisely by reason of the alleged violation of the May 1994 Agreement and/or
the Stock Purchase Agreement by respondent-appellee that complainant-appellant filed his
 complaint. Complainant-appellant’s claims being anchored on the alleged breach of contract
on the part of respondent-appellee, the same can be resolved by reference to civil law and
not to labor law. Consequently, they are within the realm of civil law and, thus, lie with the
regular courts. As held in the case of Dai-Chi Electronics Manufacturing vs. Villarama, 238
SCRA 267, 21 November 1994, an action for breach of contractual obligation is
intrinsically a civil dispute.9 (Emphasis supplied)

The Court of Appeals ruled that the existence of an employer-employee relationship between
SONZA and ABS-CBN is a factual question that is within the jurisdiction of the NLRC to resolve. 10 A
special civil action for certiorari extends only to issues of want or excess of jurisdiction of the
NLRC.11 Such action cannot cover an inquiry into the correctness of the evaluation of the evidence
which served as basis of the NLRC’s conclusion.12 The Court of Appeals added that it could not re-
examine the parties’ evidence and substitute the factual findings of the NLRC with its own. 13

The Issue

In assailing the decision of the Court of Appeals, SONZA contends that:

THE COURT OF APPEALS GRAVELY ERRED IN AFFIRMING THE NLRC’S DECISION

AND REFUSING TO FIND THAT AN EMPLOYER-EMPLOYEE RELATIONSHIP EXISTED
BETWEEN SONZA AND ABS-CBN, DESPITE THE WEIGHT OF CONTROLLING LAW,
JURISPRUDENCE AND EVIDENCE TO SUPPORT SUCH A FINDING.14

The Court’s Ruling

We affirm the assailed decision.

No convincing reason exists to warrant a reversal of the decision of the Court of Appeals affirming
the NLRC ruling which upheld the Labor Arbiter’s dismissal of the case for lack of jurisdiction.

The present controversy is one of first impression. Although Philippine labor laws and jurisprudence
define clearly the elements of an employer-employee relationship, this is the first time that the Court
will resolve the nature of the relationship between a television and radio station and one of its
"talents." There is no case law stating that a radio and television program host is an employee of the
broadcast station.

The instant case involves big names in the broadcast industry, namely Jose "Jay" Sonza, a known
television and radio personality, and ABS-CBN, one of the biggest television and radio networks in
the country.

SONZA contends that the Labor Arbiter has jurisdiction over the case because he was an employee
of ABS-CBN. On the other hand, ABS-CBN insists that the Labor Arbiter has no jurisdiction because
SONZA was an independent contractor.

Employee or Independent Contractor?

The existence of an employer-employee relationship is a question of fact. Appellate courts accord

the factual findings of the Labor Arbiter and the NLRC not only respect but also finality when
supported by substantial evidence.15 Substantial evidence means such relevant evidence as a
reasonable mind might accept as adequate to support a conclusion. 16 A party cannot prove the
absence of substantial evidence by simply pointing out that there is contrary evidence on record,
direct or circumstantial. The Court does not substitute its own judgment for that of the tribunal in
determining where the weight of evidence lies or what evidence is credible. 17

SONZA maintains that all essential elements of an employer-employee relationship are present in
this case. Case law has consistently held that the elements of an employer-employee relationship
are: (a) the selection and engagement of the employee; (b) the payment of wages; (c) the power of
dismissal; and (d) the employer’s power to control the employee on the means and methods by
which the work is accomplished.18 The last element, the so-called "control test", is the most
important element.19

A. Selection and Engagement of Employee

ABS-CBN engaged SONZA’s services to co-host its television and radio programs because of
SONZA’s peculiar skills, talent and celebrity status. SONZA contends that the "discretion used by
respondent in specifically selecting and hiring complainant over other broadcasters of possibly
similar experience and qualification as complainant belies respondent’s claim of independent
contractorship."

Independent contractors often present themselves to possess unique skills, expertise or talent to
distinguish them from ordinary employees. The specific selection and hiring of SONZA, because of
his unique skills, talent and celebrity status not possessed by ordinary employees, is a
circumstance indicative, but not conclusive, of an independent contractual relationship. If SONZA did
not possess such unique skills, talent and celebrity status, ABS-CBN would not have entered into
the Agreement with SONZA but would have hired him through its personnel department just like any
other employee.

In any event, the method of selecting and engaging SONZA does not conclusively determine his
status. We must consider all the circumstances of the relationship, with the control test being the
most important element.

B. Payment of Wages

ABS-CBN directly paid SONZA his monthly talent fees with no part of his fees going to MJMDC.
SONZA asserts that this mode of fee payment shows that he was an employee of ABS-CBN.
SONZA also points out that ABS-CBN granted him benefits and privileges "which he would not have
enjoyed if he were truly the subject of a valid job contract."

All the talent fees and benefits paid to SONZA were the result of negotiations that led to the
Agreement. If SONZA were ABS-CBN’s employee, there would be no need for the parties to
stipulate on benefits such as "SSS, Medicare, x x x and 13th month pay" 20 which the law
automatically incorporates into every employer-employee contract.21 Whatever benefits SONZA
enjoyed arose from contract and not because of an employer-employee relationship.22

SONZA’s talent fees, amounting to ₱317,000 monthly in the second and third year, are so huge and
out of the ordinary that they indicate more an independent contractual relationship rather than an
employer-employee relationship. ABS-CBN agreed to pay SONZA such huge talent fees precisely
because of SONZA’s unique skills, talent and celebrity status not possessed by ordinary employees.
Obviously, SONZA acting alone possessed enough bargaining power to demand and receive such
huge talent fees for his services. The power to bargain talent fees way above the salary scales of
ordinary employees is a circumstance indicative, but not conclusive, of an independent contractual
relationship.
The payment of talent fees directly to SONZA and not to MJMDC does not negate the status of
SONZA as an independent contractor. The parties expressly agreed on such mode of payment.
Under the Agreement, MJMDC is the AGENT of SONZA, to whom MJMDC would have to turn over
any talent fee accruing under the Agreement.

C. Power of Dismissal

For violation of any provision of the Agreement, either party may terminate their relationship. SONZA
failed to show that ABS-CBN could terminate his services on grounds other than breach of contract,
such as retrenchment to prevent losses as provided under labor laws. 23

During the life of the Agreement, ABS-CBN agreed to pay SONZA’s talent fees as long as "AGENT
and Jay Sonza shall faithfully and completely perform each condition of this Agreement." 24 Even if it
suffered severe business losses, ABS-CBN could not retrench SONZA because ABS-CBN remained
obligated to pay SONZA’s talent fees during the life of the Agreement. This circumstance indicates
an independent contractual relationship between SONZA and ABS-CBN.

SONZA admits that even after ABS-CBN ceased broadcasting his programs, ABS-CBN still paid him
his talent fees. Plainly, ABS-CBN adhered to its undertaking in the Agreement to continue paying
SONZA’s talent fees during the remaining life of the Agreement even if ABS-CBN cancelled
SONZA’s programs through no fault of SONZA.25

SONZA assails the Labor Arbiter’s interpretation of his rescission of the Agreement as an admission
that he is not an employee of ABS-CBN. The Labor Arbiter stated that "if it were true that
complainant was really an employee, he would merely resign, instead." SONZA did actually resign
from ABS-CBN but he also, as president of MJMDC, rescinded the Agreement. SONZA’s letter
clearly bears this out.26 However, the manner by which SONZA terminated his relationship with ABS-
CBN is immaterial. Whether SONZA rescinded the Agreement or resigned from work does not
determine his status as employee or independent contractor.

D. Power of Control

Since there is no local precedent on whether a radio and television program host is an employee or
an independent contractor, we refer to foreign case law in analyzing the present case. The United
States Court of Appeals, First Circuit, recently held in Alberty-Vélez v. Corporación De Puerto
Rico Para La Difusión Pública ("WIPR")27 that a television program host is an independent
contractor. We quote the following findings of the U.S. court:

Several factors favor classifying Alberty as an independent contractor. First, a television

actress is a skilled position requiring talent and training not available on-the-job. x x x
In this regard, Alberty possesses a master’s degree in public communications and
journalism; is trained in dance, singing, and modeling; taught with the drama department at
the University of Puerto Rico; and acted in several theater and television productions prior to
her affiliation with "Desde Mi Pueblo." Second, Alberty provided the "tools and
instrumentalities" necessary for her to perform. Specifically, she provided, or obtained
sponsors to provide, the costumes, jewelry, and other image-related supplies and services
necessary for her appearance. Alberty disputes that this factor favors independent contractor
status because WIPR provided the "equipment necessary to tape the show." Alberty’s
argument is misplaced. The equipment necessary for Alberty to conduct her job as host of
"Desde Mi Pueblo" related to her appearance on the show. Others provided equipment for
filming and producing the show, but these were not the primary tools that Alberty used to
perform her particular function. If we accepted this argument, independent contractors could
 never work on collaborative projects because other individuals often provide the equipment
required for different aspects of the collaboration. x x x

Third, WIPR could not assign Alberty work in addition to filming "Desde Mi
Pueblo." Alberty’s contracts with WIPR specifically provided that WIPR hired her
"professional services as Hostess for the Program Desde Mi Pueblo." There is no evidence
that WIPR assigned Alberty tasks in addition to work related to these tapings. x x
x28 (Emphasis supplied)

Applying the control test to the present case, we find that SONZA is not an employee but an
independent contractor. The control test is the most important test our courts apply in
distinguishing an employee from an independent contractor. 29 This test is based on the extent of
control the hirer exercises over a worker. The greater the supervision and control the hirer exercises,
the more likely the worker is deemed an employee. The converse holds true as well – the less
control the hirer exercises, the more likely the worker is considered an independent contractor.30

First, SONZA contends that ABS-CBN exercised control over the means and methods of his work.

SONZA’s argument is misplaced. ABS-CBN engaged SONZA’s services specifically to co-host the
"Mel & Jay" programs. ABS-CBN did not assign any other work to SONZA. To perform his work,
SONZA only needed his skills and talent. How SONZA delivered his lines, appeared on television,
and sounded on radio were outside ABS-CBN’s control. SONZA did not have to render eight hours
of work per day. The Agreement required SONZA to attend only rehearsals and tapings of the
shows, as well as pre- and post-production staff meetings.31 ABS-CBN could not dictate the contents
of SONZA’s script. However, the Agreement prohibited SONZA from criticizing in his shows ABS-
CBN or its interests.32 The clear implication is that SONZA had a free hand on what to say or discuss
in his shows provided he did not attack ABS-CBN or its interests.

We find that ABS-CBN was not involved in the actual performance that produced the finished
product of SONZA’s work.33 ABS-CBN did not instruct SONZA how to perform his job. ABS-CBN
merely reserved the right to modify the program format and airtime schedule "for more effective
programming."34 ABS-CBN’s sole concern was the quality of the shows and their standing in the
ratings. Clearly, ABS-CBN did not exercise control over the means and methods of performance of
SONZA’s work.

SONZA claims that ABS-CBN’s power not to broadcast his shows proves ABS-CBN’s power over
the means and methods of the performance of his work. Although ABS-CBN did have the option not
to broadcast SONZA’s show, ABS-CBN was still obligated to pay SONZA’s talent fees... Thus, even
if ABS-CBN was completely dissatisfied with the means and methods of SONZA’s performance of
his work, or even with the quality or product of his work, ABS-CBN could not dismiss or even
discipline SONZA. All that ABS-CBN could do is not to broadcast SONZA’s show but ABS-CBN
must still pay his talent fees in full.35

Clearly, ABS-CBN’s right not to broadcast SONZA’s show, burdened as it was by the obligation to
continue paying in full SONZA’s talent fees, did not amount to control over the means and methods
of the performance of SONZA’s work. ABS-CBN could not terminate or discipline SONZA even if the
means and methods of performance of his work - how he delivered his lines and appeared on
television - did not meet ABS-CBN’s approval. This proves that ABS-CBN’s control was limited only
to the result of SONZA’s work, whether to broadcast the final product or not. In either case, ABS-
CBN must still pay SONZA’s talent fees in full until the expiry of the Agreement.
In Vaughan, et al. v. Warner, et al.,36 the United States Circuit Court of Appeals ruled that
vaudeville performers were independent contractors although the management reserved the right to
delete objectionable features in their shows. Since the management did not have control over the
manner of performance of the skills of the artists, it could only control the result of the work by
deleting objectionable features.37

SONZA further contends that ABS-CBN exercised control over his work by supplying all equipment
and crew. No doubt, ABS-CBN supplied the equipment, crew and airtime needed to broadcast the
"Mel & Jay" programs. However, the equipment, crew and airtime are not the "tools and
instrumentalities" SONZA needed to perform his job. What SONZA principally needed were his
talent or skills and the costumes necessary for his appearance. 38 Even though ABS-CBN provided
SONZA with the place of work and the necessary equipment, SONZA was still an independent
contractor since ABS-CBN did not supervise and control his work. ABS-CBN’s sole concern was for
SONZA to display his talent during the airing of the programs. 39

A radio broadcast specialist who works under minimal supervision is an independent

contractor.40 SONZA’s work as television and radio program host required special skills and talent,
which SONZA admittedly possesses. The records do not show that ABS-CBN exercised any
supervision and control over how SONZA utilized his skills and talent in his shows.

Second, SONZA urges us to rule that he was ABS-CBN’s employee because ABS-CBN subjected
him to its rules and standards of performance. SONZA claims that this indicates ABS-CBN’s control
"not only [over] his manner of work but also the quality of his work."

The Agreement stipulates that SONZA shall abide with the rules and standards of performance
"covering talents"41 of ABS-CBN. The Agreement does not require SONZA to comply with the rules
and standards of performance prescribed for employees of ABS-CBN. The code of conduct imposed
on SONZA under the Agreement refers to the "Television and Radio Code of the Kapisanan ng mga
Broadcaster sa Pilipinas (KBP), which has been adopted by the COMPANY (ABS-CBN) as its Code
of Ethics."42 The KBP code applies to broadcasters, not to employees of radio and television
stations. Broadcasters are not necessarily employees of radio and television stations. Clearly, the
rules and standards of performance referred to in the Agreement are those applicable to talents and
not to employees of ABS-CBN.

In any event, not all rules imposed by the hiring party on the hired party indicate that the latter is an
employee of the former.43 In this case, SONZA failed to show that these rules controlled his
performance. We find that these general rules are merely guidelines towards the achievement of
the mutually desired result, which are top-rating television and radio programs that comply with
standards of the industry. We have ruled that:

Further, not every form of control that a party reserves to himself over the conduct of the other party
in relation to the services being rendered may be accorded the effect of establishing an employer-
employee relationship. The facts of this case fall squarely with the case of Insular Life Assurance
Co., Ltd. vs. NLRC. In said case, we held that:

Logically, the line should be drawn between rules that merely serve as guidelines towards
the achievement of the mutually desired result without dictating the means or methods to be
employed in attaining it, and those that control or fix the methodology and bind or restrict the
party hired to the use of such means. The first, which aim only to promote the result, create
no employer-employee relationship unlike the second, which address both the result and the
means used to achieve it.44
The Vaughan case also held that one could still be an independent contractor although the hirer
reserved certain supervision to insure the attainment of the desired result. The hirer, however, must
not deprive the one hired from performing his services according to his own initiative. 45

Lastly, SONZA insists that the "exclusivity clause" in the Agreement is the most extreme form of
control which ABS-CBN exercised over him.

This argument is futile. Being an exclusive talent does not by itself mean that SONZA is an
employee of ABS-CBN. Even an independent contractor can validly provide his services exclusively
to the hiring party. In the broadcast industry, exclusivity is not necessarily the same as control.

The hiring of exclusive talents is a widespread and accepted practice in the entertainment
industry.46 This practice is not designed to control the means and methods of work of the talent, but
simply to protect the investment of the broadcast station. The broadcast station normally spends
substantial amounts of money, time and effort "in building up its talents as well as the programs they
appear in and thus expects that said talents remain exclusive with the station for a commensurate
period of time."47 Normally, a much higher fee is paid to talents who agree to work exclusively for a
particular radio or television station. In short, the huge talent fees partially compensates for
exclusivity, as in the present case.

MJMDC as Agent of SONZA

SONZA protests the Labor Arbiter’s finding that he is a talent of MJMDC, which contracted out his
services to ABS-CBN. The Labor Arbiter ruled that as a talent of MJMDC, SONZA is not an
employee of ABS-CBN. SONZA insists that MJMDC is a "labor-only" contractor and ABS-CBN is his
employer.

In a labor-only contract, there are three parties involved: (1) the "labor-only" contractor; (2) the
employee who is ostensibly under the employ of the "labor-only" contractor; and (3) the principal who
is deemed the real employer. Under this scheme, the "labor-only" contractor is the agent of the
principal. The law makes the principal responsible to the employees of the "labor-only contractor"
as if the principal itself directly hired or employed the employees.48 These circumstances are not
present in this case.

There are essentially only two parties involved under the Agreement, namely, SONZA and ABS-
CBN. MJMDC merely acted as SONZA’s agent. The Agreement expressly states that MJMDC acted
as the "AGENT" of SONZA. The records do not show that MJMDC acted as ABS-CBN’s agent.
MJMDC, which stands for Mel and Jay Management and Development Corporation, is a corporation
organized and owned by SONZA and TIANGCO. The President and General Manager of MJMDC is
SONZA himself. It is absurd to hold that MJMDC, which is owned, controlled, headed and managed
by SONZA, acted as agent of ABS-CBN in entering into the Agreement with SONZA, who himself is
represented by MJMDC. That would make MJMDC the agent of both ABS-CBN and SONZA.

As SONZA admits, MJMDC is a management company devoted exclusively to managing the

careers of SONZA and his broadcast partner, TIANGCO. MJMDC is not engaged in any other
business, not even job contracting. MJMDC does not have any other function apart from acting as
agent of SONZA or TIANGCO to promote their careers in the broadcast and television industry. 49

Policy Instruction No. 40

SONZA argues that Policy Instruction No. 40 issued by then Minister of Labor Blas Ople on 8
January 1979 finally settled the status of workers in the broadcast industry. Under this policy, the
types of employees in the broadcast industry are the station and program employees.

Policy Instruction No. 40 is a mere executive issuance which does not have the force and effect of
law. There is no legal presumption that Policy Instruction No. 40 determines SONZA’s status. A
mere executive issuance cannot exclude independent contractors from the class of service providers
to the broadcast industry. The classification of workers in the broadcast industry into only two groups
under Policy Instruction No. 40 is not binding on this Court, especially when the classification has no
basis either in law or in fact.

Affidavits of ABS-CBN’s Witnesses

SONZA also faults the Labor Arbiter for admitting the affidavits of Socorro Vidanes and Rolando
Cruz without giving his counsel the

opportunity to cross-examine these witnesses. SONZA brands these witnesses as incompetent to

attest on the prevailing practice in the radio and television industry. SONZA views the affidavits of
these witnesses as misleading and irrelevant.

While SONZA failed to cross-examine ABS-CBN’s witnesses, he was never prevented from denying
or refuting the allegations in the affidavits. The Labor Arbiter has the discretion whether to conduct a
formal (trial-type) hearing after the submission of the position papers of the parties, thus:

Section 3. Submission of Position Papers/Memorandum

xxx

These verified position papers shall cover only those claims and causes of action raised in
the complaint excluding those that may have been amicably settled, and shall be
accompanied by all supporting documents including the affidavits of their respective
witnesses which shall take the place of the latter’s direct testimony. x x x

Section 4. Determination of Necessity of Hearing. – Immediately after the submission of the

parties of their position papers/memorandum, the Labor Arbiter shall motu propio determine
whether there is need for a formal trial or hearing. At this stage, he may, at his discretion and
for the purpose of making such determination, ask clarificatory questions to further elicit facts
or information, including but not limited to the subpoena of relevant documentary evidence, if
any from any party or witness.50

The Labor Arbiter can decide a case based solely on the position papers and the supporting
documents without a formal trial.51 The holding of a formal hearing or trial is something that the
parties cannot demand as a matter of right.52 If the Labor Arbiter is confident that he can rely on the
documents before him, he cannot be faulted for not conducting a formal trial, unless under the
particular circumstances of the case, the documents alone are insufficient. The proceedings before a
Labor Arbiter are non-litigious in nature. Subject to the requirements of due process, the
technicalities of law and the rules obtaining in the courts of law do not strictly apply in proceedings
before a Labor Arbiter.

Talents as Independent Contractors

ABS-CBN claims that there exists a prevailing practice in the broadcast and entertainment industries
to treat talents like SONZA as independent contractors. SONZA argues that if such practice exists, it
is void for violating the right of labor to security of tenure.

The right of labor to security of tenure as guaranteed in the Constitution 53 arises only if there is an
employer-employee relationship under labor laws. Not every performance of services for a fee
creates an employer-employee relationship. To hold that every person who renders services to
another for a fee is an employee - to give meaning to the security of tenure clause - will lead to
absurd results.

Individuals with special skills, expertise or talent enjoy the freedom to offer their services as
independent contractors. The right to life and livelihood guarantees this freedom to contract as
independent contractors. The right of labor to security of tenure cannot operate to deprive an
individual, possessed with special skills, expertise and talent, of his right to contract as an
independent contractor. An individual like an artist or talent has a right to render his services without
any one controlling the means and methods by which he performs his art or craft. This Court will not
interpret the right of labor to security of tenure to compel artists and talents to render their services
only as employees. If radio and television program hosts can render their services only as
employees, the station owners and managers can dictate to the radio and television hosts what they
say in their shows. This is not conducive to freedom of the press.

Different Tax Treatment of Talents and Broadcasters

The National Internal Revenue Code ("NIRC") 54 in relation to Republic Act No. 7716,55 as amended
by Republic Act No. 8241,56 treats talents, television and radio broadcasters differently. Under the
NIRC, these professionals are subject to the 10% value-added tax ("VAT") on services they render.
Exempted from the VAT are those under an employer-employee relationship.57 This different tax
treatment accorded to talents and broadcasters bolters our conclusion that they are independent
contractors, provided all the basic elements of a contractual relationship are present as in this case.

Nature of SONZA’s Claims

SONZA seeks the recovery of allegedly unpaid talent fees, 13th month pay, separation pay, service
incentive leave, signing bonus, travel allowance, and amounts due under the Employee Stock
Option Plan. We agree with the findings of the Labor Arbiter and the Court of Appeals that SONZA’s
claims are all based on the May 1994 Agreement and stock option plan, and not on the Labor
Code. Clearly, the present case does not call for an application of the Labor Code provisions but an
interpretation and implementation of the May 1994 Agreement. In effect, SONZA’s cause of action is
for breach of contract which is intrinsically a civil dispute cognizable by the regular courts. 58

WHEREFORE, we DENY the petition. The assailed Decision of the Court of Appeals dated 26
March 1999 in CA-G.R. SP No. 49190 is AFFIRMED. Costs against petitioner.

SO ORDERED.
G.R. No. 172101 November 23, 2007

REPUBLIC OF THE PHILIPPINES, represented by the SOCIAL SECURITY COMMISSION and

SOCIAL SECURITY SYSTEM, Petitioners,
vs.
ASIAPRO COOPERATIVE, Respondent.

DECISION

CHICO-NAZARIO, J.:

Before this Court is a Petition for Review on Certiorari under Rule 45 of the 1997 Revised Rules of
Civil Procedure seeking to annul and set aside the Decision1 and Resolution2 of the Court of Appeals
in CA-G.R. SP No. 87236, dated 5 January 2006 and 20 March 2006, respectively, which annulled
and set aside the Orders of the Social Security Commission (SSC) in SSC Case No. 6-15507-03,
dated 17 February 20043 and 16 September 2004,4 respectively, thereby dismissing the petition-
complaint dated 12 June 2003 filed by herein petitioner Social Security System (SSS) against herein
respondent.

Herein petitioner Republic of the Philippines is represented by the SSC, a quasi-judicial body
authorized by law to resolve disputes arising under Republic Act No. 1161, as amended by Republic
Act No. 8282.5 Petitioner SSS is a government corporation created by virtue of Republic Act No.
1161, as amended. On the other hand, herein respondent Asiapro Cooperative (Asiapro) is a multi-
purpose cooperative created pursuant to Republic Act No. 69386 and duly registered with the
Cooperative Development Authority (CDA) on 23 November 1999 with Registration Certificate No. 0-
623-2460.7

The antecedents of this case are as follows:

Respondent Asiapro, as a cooperative, is composed of owners-members. Under its by-laws,

owners-members are of two categories, to wit: (1) regular member, who is entitled to all the rights
and privileges of membership; and (2) associate member, who has no right to vote and be voted
upon and shall be entitled only to such rights and privileges provided in its by-laws.8 Its primary
objectives are to provide savings and credit facilities and to develop other livelihood services for its
owners-members. In the discharge of the aforesaid primary objectives, respondent cooperative
entered into several Service Contracts9 with Stanfilco - a division of DOLE Philippines, Inc. and a
company based in Bukidnon. The owners-members do not receive compensation or wages from the
respondent cooperative. Instead, they receive a share in the service surplus 10 which the respondent
cooperative earns from different areas of trade it engages in, such as the income derived from the
said Service Contracts with Stanfilco. The owners-members get their income from the service
surplus generated by the quality and amount of services they rendered, which is determined by the
Board of Directors of the respondent cooperative.

In order to enjoy the benefits under the Social Security Law of 1997, the owners-members of the
respondent cooperative, who were assigned to Stanfilco requested the services of the latter to
register them with petitioner SSS as self-employed and to remit their contributions as such. Also, to
comply with Section 19-A of Republic Act No. 1161, as amended by Republic Act No. 8282, the SSS
contributions of the said owners-members were equal to the share of both the employer and the
employee.

On 26 September 2002, however, petitioner SSS through its Vice-President for Mindanao Division,
Atty. Eddie A. Jara, sent a letter11 to the respondent cooperative, addressed to its Chief Executive
Officer (CEO) and General Manager Leo G. Parma, informing the latter that based on the Service
Contracts it executed with Stanfilco, respondent cooperative is actually a manpower contractor
supplying employees to Stanfilco and for that reason, it is an employer of its owners-members
working with Stanfilco. Thus, respondent cooperative should register itself with petitioner SSS as an
employer and make the corresponding report and remittance of premium contributions in
accordance with the Social Security Law of 1997. On 9 October 2002, 12 respondent cooperative,
through its counsel, sent a reply to petitioner SSS’s letter asserting that it is not an employer
because its owners-members are the cooperative itself; hence, it cannot be its own employer. Again,
on 21 October 2002,13 petitioner SSS sent a letter to respondent cooperative ordering the latter to
register as an employer and report its owners-members as employees for compulsory coverage with
the petitioner SSS. Respondent cooperative continuously ignored the demand of petitioner SSS.

Accordingly, petitioner SSS, on 12 June 2003, filed a Petition14 before petitioner SSC against the
respondent cooperative and Stanfilco praying that the respondent cooperative or, in the alternative,
Stanfilco be directed to register as an employer and to report respondent cooperative’s owners-
members as covered employees under the compulsory coverage of SSS and to remit the necessary
contributions in accordance with the Social Security Law of 1997. The same was docketed as SSC
Case No. 6-15507-03. Respondent cooperative filed its Answer with Motion to Dismiss alleging that
no employer-employee relationship exists between it and its owners-members, thus, petitioner SSC
has no jurisdiction over the respondent cooperative. Stanfilco, on the other hand, filed an Answer
with Cross-claim against the respondent cooperative.

On 17 February 2004, petitioner SSC issued an Order denying the Motion to Dismiss filed by the
respondent cooperative. The respondent cooperative moved for the reconsideration of the said
Order, but it was likewise denied in another Order issued by the SSC dated 16 September 2004.

Intending to appeal the above Orders, respondent cooperative filed a Motion for Extension of Time
to File a Petition for Review before the Court of Appeals. Subsequently, respondent cooperative filed
a Manifestation stating that it was no longer filing a Petition for Review. In its place, respondent
cooperative filed a Petition for Certiorari before the Court of Appeals, docketed as CA-G.R. SP No.
87236, with the following assignment of errors:

I. The Orders dated 17 February 2004 and 16 September 2004 of [herein petitioner] SSC were
issued with grave abuse of discretion amounting to a (sic) lack or excess of jurisdiction in that:

A. [Petitioner] SSC arbitrarily proceeded with the case as if it has jurisdiction over the petition
a quo, considering that it failed to first resolve the issue of the existence of an employer-
employee relationship between [respondent] cooperative and its owners-members.

B. While indeed, the [petitioner] SSC has jurisdiction over all disputes arising under the SSS
Law with respect to coverage, benefits, contributions, and related matters, it is respectfully
submitted that [petitioner] SSC may only assume jurisdiction in cases where there is no
dispute as to the existence of an employer-employee relationship.

C. Contrary to the holding of the [petitioner] SSC, the legal issue of employer-employee
relationship raised in [respondent’s] Motion to Dismiss can be preliminarily resolved through
summary hearings prior to the hearing on the merits. However, any inquiry beyond a
preliminary determination, as what [petitioner SSC] wants to accomplish, would be to
encroach on the jurisdiction of the National Labor Relations Commission [NLRC], which is
the more competent body clothed with power to resolve issues relating to the existence of an
employment relationship.
II. At any rate, the [petitioner] SSC has no jurisdiction to take cognizance of the petition a quo.

A. [Respondent] is not an employer within the contemplation of the Labor Law but is a multi-
purpose cooperative created pursuant to Republic Act No. 6938 and composed of owners-
members, not employees.

B. The rights and obligations of the owners-members of [respondent] cooperative are derived
from their Membership Agreements, the Cooperatives By-Laws, and Republic Act No. 6938,
and not from any contract of employment or from the Labor Laws. Moreover, said owners-
members enjoy rights that are not consistent with being mere employees of a company, such
as the right to participate and vote in decision-making for the cooperative.

C. As found by the Bureau of Internal Revenue [BIR], the owners-members of [respondent]

cooperative are not paid any compensation income.15 (Emphasis supplied.)

On 5 January 2006, the Court of Appeals rendered a Decision granting the petition filed by the
respondent cooperative. The decretal portion of the Decision reads:

WHEREFORE, the petition is GRANTED. The assailed Orders dated [17 February 2004] and [16
September 2004], are ANNULLED and SET ASIDE and a new one is entered DISMISSING the
petition-complaint dated [12 June 2003] of [herein petitioner] Social Security System. 16

Aggrieved by the aforesaid Decision, petitioner SSS moved for a reconsideration, but it was denied
by the appellate court in its Resolution dated 20 March 2006.

Hence, this Petition.

In its Memorandum, petitioners raise the issue of whether or not the Court of Appeals erred in not
finding that the SSC has jurisdiction over the subject matter and it has a valid basis in denying
respondent’s Motion to Dismiss. The said issue is supported by the following arguments:

I. The [petitioner SSC] has jurisdiction over the petition-complaint filed before it by the
[petitioner SSS] under R.A. No. 8282.

II. Respondent [cooperative] is estopped from questioning the jurisdiction of petitioner SSC
after invoking its jurisdiction by filing an [A]nswer with [M]otion to [D]ismiss before it.

III. The [petitioner SSC] did not act with grave abuse of discretion in denying respondent
[cooperative’s] [M]otion to [D]ismiss.

IV. The existence of an employer-employee relationship is a question of fact where

presentation of evidence is necessary.

V. There is an employer-employee relationship between [respondent cooperative] and its

[owners-members].

Petitioners claim that SSC has jurisdiction over the petition-complaint filed before it by petitioner SSS
as it involved an issue of whether or not a worker is entitled to compulsory coverage under the SSS
Law. Petitioners avow that Section 5 of Republic Act No. 1161, as amended by Republic Act No.
8282, expressly confers upon petitioner SSC the power to settle disputes on compulsory coverage,
benefits, contributions and penalties thereon or any other matter related thereto. Likewise, Section 9
of the same law clearly provides that SSS coverage is compulsory upon all employees. Thus, when
petitioner SSS filed a petition-complaint against the respondent cooperative and Stanfilco before the
petitioner SSC for the compulsory coverage of respondent cooperative’s owners-members as well
as for collection of unpaid SSS contributions, it was very obvious that the subject matter of the
aforesaid petition-complaint was within the expertise and jurisdiction of the SSC.

Petitioners similarly assert that granting arguendo that there is a prior need to determine the
existence of an employer-employee relationship between the respondent cooperative and its
owners-members, said issue does not preclude petitioner SSC from taking cognizance of the
aforesaid petition-complaint. Considering that the principal relief sought in the said petition-complaint
has to be resolved by reference to the Social Security Law and not to the Labor Code or other labor
relations statutes, therefore, jurisdiction over the same solely belongs to petitioner SSC.

Petitioners further claim that the denial of the respondent cooperative’s Motion to Dismiss grounded
on the alleged lack of employer-employee relationship does not constitute grave abuse of discretion
on the part of petitioner SSC because the latter has the authority and power to deny the same.
Moreover, the existence of an employer-employee relationship is a question of fact where
presentation of evidence is necessary. Petitioners also maintain that the respondent cooperative is
already estopped from assailing the jurisdiction of the petitioner SSC because it has already filed its
Answer before it, thus, respondent cooperative has already submitted itself to the jurisdiction of the
petitioner SSC.

Finally, petitioners contend that there is an employer-employee relationship between the respondent
cooperative and its owners-members. The respondent cooperative is the employer of its owners-
members considering that it undertook to provide services to Stanfilco, the performance of which is
under the full and sole control of the respondent cooperative.

On the other hand, respondent cooperative alleges that its owners-members own the cooperative,
thus, no employer-employee relationship can arise between them. The persons of the employer and
the employee are merged in the owners-members themselves. Likewise, respondent cooperative’s
owners-members even requested the respondent cooperative to register them with the petitioner
SSS as self-employed individuals. Hence, petitioner SSC has no jurisdiction over the petition-
complaint filed before it by petitioner SSS.

Respondent cooperative further avers that the Court of Appeals correctly ruled that petitioner SSC
acted with grave abuse of discretion when it assumed jurisdiction over the petition-complaint without
determining first if there was an employer-employee relationship between the respondent
cooperative and its owners-members. Respondent cooperative claims that the question of whether
an employer-employee relationship exists between it and its owners-members is a legal and not a
factual issue as the facts are undisputed and need only to be interpreted by the applicable law and
jurisprudence.

Lastly, respondent cooperative asserts that it cannot be considered estopped from assailing the
jurisdiction of petitioner SSC simply because it filed an Answer with Motion to Dismiss, especially
where the issue of jurisdiction is raised at the very first instance and where the only relief being
sought is the dismissal of the petition-complaint for lack of jurisdiction.

From the foregoing arguments of the parties, the issues may be summarized into:

I. Whether the petitioner SSC has jurisdiction over the petition-complaint filed before it by
petitioner SSS against the respondent cooperative.
 II. Whether the respondent cooperative is estopped from assailing the jurisdiction of
petitioner SSC since it had already filed an Answer with Motion to Dismiss before the said
body.

Petitioner SSC’s jurisdiction is clearly stated in Section 5 of Republic Act No. 8282 as well as in
Section 1, Rule III of the 1997 SSS Revised Rules of Procedure.

Section 5 of Republic Act No. 8282 provides:

SEC. 5. Settlement of Disputes. – (a) Any dispute arising under this Act with respect to coverage,
benefits, contributions and penalties thereon or any other matter related thereto, shall be cognizable
by the Commission, x x x. (Emphasis supplied.)

Similarly, Section 1, Rule III of the 1997 SSS Revised Rules of Procedure states:

Section 1. Jurisdiction. – Any dispute arising under the Social Security Act with respect to coverage,
entitlement of benefits, collection and settlement of contributions and penalties thereon, or any other
matter related thereto, shall be cognizable by the Commission after the SSS through its President,
Manager or Officer-in-charge of the Department/Branch/Representative Office concerned had first
taken action thereon in writing. (Emphasis supplied.)

It is clear then from the aforesaid provisions that any issue regarding the compulsory coverage of the
SSS is well within the exclusive domain of the petitioner SSC. It is important to note, though, that the
mandatory coverage under the SSS Law is premised on the existence of an employer-employee
relationship17 except in cases of compulsory coverage of the self-employed.

It is axiomatic that the allegations in the complaint, not the defenses set up in the Answer or in the
Motion to Dismiss, determine which court has jurisdiction over an action; otherwise, the question of
jurisdiction would depend almost entirely upon the defendant. 18 Moreover, it is well-settled that once
jurisdiction is acquired by the court, it remains with it until the full termination of the case. 19 The said
principle may be applied even to quasi-judicial bodies.

In this case, the petition-complaint filed by the petitioner SSS before the petitioner SSC against the
respondent cooperative and Stanfilco alleges that the owners-members of the respondent
cooperative are subject to the compulsory coverage of the SSS because they are employees of the
respondent cooperative. Consequently, the respondent cooperative being the employer of its
owners-members must register as employer and report its owners-members as covered members of
the SSS and remit the necessary premium contributions in accordance with the Social Security Law
of 1997. Accordingly, based on the aforesaid allegations in the petition-complaint filed before the
petitioner SSC, the case clearly falls within its jurisdiction. Although the Answer with Motion to
Dismiss filed by the respondent cooperative challenged the jurisdiction of the petitioner SSC on the
alleged lack of employer-employee relationship between itself and its owners-members, the same is
not enough to deprive the petitioner SSC of its jurisdiction over the petition-complaint filed before it.
Thus, the petitioner SSC cannot be faulted for initially assuming jurisdiction over the petition-
complaint of the petitioner SSS.

Nonetheless, since the existence of an employer-employee relationship between the respondent

cooperative and its owners-members was put in issue and considering that the compulsory coverage
of the SSS Law is predicated on the existence of such relationship, it behooves the petitioner SSC to
determine if there is really an employer-employee relationship that exists between the respondent
cooperative and its owners-members.
The question on the existence of an employer-employee relationship is not within the exclusive
jurisdiction of the National Labor Relations Commission (NLRC). Article 217 of the Labor Code
enumerating the jurisdiction of the Labor Arbiters and the NLRC provides that:

ART. 217. JURISDICTION OF LABOR ARBITERS AND THE COMMISSION. - (a) x x x.

xxxx

6. Except claims for Employees Compensation, Social Security, Medicare and maternity benefits, all
other claims, arising from employer-employee relations, including those of persons in domestic or
household service, involving an amount exceeding five thousand pesos (₱5,000.00) regardless of
whether accompanied with a claim for reinstatement.20

Although the aforesaid provision speaks merely of claims for Social Security, it would necessarily
include issues on the coverage thereof, because claims are undeniably rooted in the coverage by
the system. Hence, the question on the existence of an employer-employee relationship for the
purpose of determining the coverage of the Social Security System is explicitly excluded from the
jurisdiction of the NLRC and falls within the jurisdiction of the SSC which is primarily charged with
the duty of settling disputes arising under the Social Security Law of 1997.

On the basis thereof, considering that the petition-complaint of the petitioner SSS involved the issue
of compulsory coverage of the owners-members of the respondent cooperative, this Court agrees
with the petitioner SSC when it declared in its Order dated 17 February 2004 that as an incident to
the issue of compulsory coverage, it may inquire into the presence or absence of an employer-
employee relationship without need of waiting for a prior pronouncement or submitting the issue to
the NLRC for prior determination. Since both the petitioner SSC and the NLRC are independent
bodies and their jurisdiction are well-defined by the separate statutes creating them, petitioner SSC
has the authority to inquire into the relationship existing between the worker and the person or entity
to whom he renders service to determine if the employment, indeed, is one that is excepted by the
Social Security Law of 1997 from compulsory coverage.21

Even before the petitioner SSC could make a determination of the existence of an employer-
employee relationship, however, the respondent cooperative already elevated the Order of the
petitioner SSC, denying its Motion to Dismiss, to the Court of Appeals by filing a Petition for
Certiorari. As a consequence thereof, the petitioner SSC became a party to the said Petition for
Certiorari pursuant to Section 5(b) 22 of Republic Act No. 8282. The appellate court ruled in favor of
the respondent cooperative by declaring that the petitioner SSC has no jurisdiction over the petition-
complaint filed before it because there was no employer-employee relationship between the
respondent cooperative and its owners-members. Resultantly, the petitioners SSS and SSC,
representing the Republic of the Philippines, filed a Petition for Review before this Court.

Although as a rule, in the exercise of the Supreme Court’s power of review, the Court is not a trier of
facts and the findings of fact of the Court of Appeals are conclusive and binding on the Court, 23 said
rule is not without exceptions. There are several recognized exceptions24 in which factual issues may
be resolved by this Court. One of these exceptions finds application in this present case which is,
when the findings of fact are conflicting. There are, indeed, conflicting findings espoused by the
petitioner SSC and the appellate court relative to the existence of employer-employee relationship
between the respondent cooperative and its owners-members, which necessitates a departure from
the oft-repeated rule that factual issues may not be the subject of appeals to this Court.

In determining the existence of an employer-employee relationship, the following elements are

considered: (1) the selection and engagement of the workers; (2) the payment of wages by whatever
means; (3) the power of dismissal; and (4) the power to control the worker’s conduct, with the latter
assuming primacy in the overall consideration.25 The most important element is the employer’s
control of the employee’s conduct, not only as to the result of the work to be done, but also as to the
means and methods to accomplish.26 The power of control refers to the existence of the power and
not necessarily to the actual exercise thereof. It is not essential for the employer to actually
supervise the performance of duties of the employee; it is enough that the employer has the right to
wield that power.27 All the aforesaid elements are present in this case.

First. It is expressly provided in the Service Contracts that it is the respondent cooperative which has
the exclusive discretion in the selection and engagement of the owners-members as well as its team
leaders who will be assigned at Stanfilco.28 Second. Wages are defined as "remuneration or
earnings, however designated, capable of being expressed in terms of money, whether fixed or
ascertained, on a time, task, piece or commission basis, or other method of calculating the same,
which is payable by an employer to an employee under a written or unwritten contract of
employment for work done or to be done, or for service rendered or to be rendered." 29 In this case,
the weekly stipends or the so-called shares in the service surplus given by the respondent
cooperative to its owners-members were in reality wages, as the same were equivalent to an
amount not lower than that prescribed by existing labor laws, rules and regulations, including the
wage order applicable to the area and industry; or the same shall not be lower than the prevailing
rates of wages.30 It cannot be doubted then that those stipends or shares in the service surplus are
indeed wages, because these are given to the owners-members as compensation in rendering
services to respondent cooperative’s client, Stanfilco. Third. It is also stated in the above-mentioned
Service Contracts that it is the respondent cooperative which has the power to investigate, discipline
and remove the owners-members and its team leaders who were rendering services at
Stanfilco.31 Fourth. As earlier opined, of the four elements of the employer-employee relationship, the
"control test" is the most important. In the case at bar, it is the respondent cooperative which has the
sole control over the manner and means of performing the services under the Service Contracts with
Stanfilco as well as the means and methods of work.32 Also, the respondent cooperative is solely
and entirely responsible for its owners-members, team leaders and other representatives at
Stanfilco.33 All these clearly prove that, indeed, there is an employer-employee relationship between
the respondent cooperative and its owners-members.

It is true that the Service Contracts executed between the respondent cooperative and Stanfilco
expressly provide that there shall be no employer-employee relationship between the respondent
cooperative and its owners-members.34 This Court, however, cannot give the said provision force
and effect.

As previously pointed out by this Court, an employee-employer relationship actually exists between
the respondent cooperative and its owners-members. The four elements in the four-fold test for the
existence of an employment relationship have been complied with. The respondent cooperative
must not be allowed to deny its employment relationship with its owners-members by invoking the
questionable Service Contracts provision, when in actuality, it does exist. The existence of an
employer-employee relationship cannot be negated by expressly repudiating it in a contract, when
the terms and surrounding circumstances show otherwise. The employment status of a person is
defined and prescribed by law and not by what the parties say it should be.35

It is settled that the contracting parties may establish such stipulations, clauses, terms and
conditions as they want, and their agreement would have the force of law between them.
However, the agreed terms and conditions must not be contrary to law, morals, customs, public
policy or public order.36 The Service Contract provision in question must be struck down for being
contrary to law and public policy since it is apparently being used by the respondent cooperative
merely to circumvent the compulsory coverage of its employees, who are also its owners-members,
by the Social Security Law.
This Court is not unmindful of the pronouncement it made in Cooperative Rural Bank of Davao City,
Inc. v. Ferrer-Calleja37 wherein it held that:

A cooperative, therefore, is by its nature different from an ordinary business concern, being run
either by persons, partnerships, or corporations. Its owners and/or members are the ones who run
and operate the business while the others are its employees x x x.

An employee therefore of such a cooperative who is a member and co-owner thereof cannot invoke
the right to collective bargaining for certainly an owner cannot bargain with himself or his co-owners.
In the opinion of August 14, 1981 of the Solicitor General he correctly opined that employees of
cooperatives who are themselves members of the cooperative have no right to form or join labor
organizations for purposes of collective bargaining for being themselves co-owners of the
cooperative.1awp++i1

However, in so far as it involves cooperatives with employees who are not members or co-owners
thereof, certainly such employees are entitled to exercise the rights of all workers to organization,
collective bargaining, negotiations and others as are enshrined in the Constitution and existing laws
of the country.

The situation in the aforesaid case is very much different from the present case. The declaration
made by the Court in the aforesaid case was made in the context of whether an employee who is
also an owner-member of a cooperative can exercise the right to bargain collectively with the
employer who is the cooperative wherein he is an owner-member. Obviously, an owner-member
cannot bargain collectively with the cooperative of which he is also the owner because an owner
cannot bargain with himself. In the instant case, there is no issue regarding an owner-member’s right
to bargain collectively with the cooperative. The question involved here is whether an employer-
employee relationship can exist between the cooperative and an owner-member. In fact, a closer
look at Cooperative Rural Bank of Davao City, Inc. will show that it actually recognized that an
owner-member of a cooperative can be its own employee.

It bears stressing, too, that a cooperative acquires juridical personality upon its registration with the
Cooperative Development Authority.38 It has its Board of Directors, which directs and supervises its
business; meaning, its Board of Directors is the one in charge in the conduct and management of its
affairs.39 With that, a cooperative can be likened to a corporation with a personality separate and
distinct from its owners-members. Consequently, an owner-member of a cooperative can be an
employee of the latter and an employer-employee relationship can exist between them.

In the present case, it is not disputed that the respondent cooperative had registered itself with the
Cooperative Development Authority, as evidenced by its Certificate of Registration No. 0-623-
2460.40 In its by-laws,41 its Board of Directors directs, controls, and supervises the business and
manages the property of the respondent cooperative. Clearly then, the management of the affairs of
the respondent cooperative is vested in its Board of Directors and not in its owners-members as a
whole. Therefore, it is completely logical that the respondent cooperative, as a juridical person
represented by its Board of Directors, can enter into an employment with its owners-members.

In sum, having declared that there is an employer-employee relationship between the respondent
cooperative and its owners-member, we conclude that the petitioner SSC has jurisdiction over the
petition-complaint filed before it by the petitioner SSS. This being our conclusion, it is no longer
necessary to discuss the issue of whether the respondent cooperative was estopped from assailing
the jurisdiction of the petitioner SSC when it filed its Answer with Motion to Dismiss.
WHEREFORE, premises considered, the instant Petition is hereby GRANTED. The Decision and
the Resolution of the Court of Appeals in CA-G.R. SP No. 87236, dated 5 January 2006 and 20
March 2006, respectively, are hereby REVERSED and SET ASIDE. The Orders of the petitioner
SSC dated 17 February 2004 and 16 September 2004 are hereby REINSTATED. The petitioner
SSC is hereby DIRECTED to continue hearing the petition-complaint filed before it by the petitioner
SSS as regards the compulsory coverage of the respondent cooperative and its owners-members.
No costs.

SO ORDERED.
G.R. No. 220399

ENRIQUE Y. SAGUN, Petitioner,

vs.
ANZ GLOBAL SEVICES AND OPERATIONS (MANILA), INC., GAY CRUZADA, and PAULA
ALCARAZ, Respondents.

RESOLUTION

PERLAS-BERNABE, J.:

Assailed in this petition for review on certiorari1are the Decision2 dated May 25, 2015 and the
Resolution3 dated August 27, 2015 of the Court of Appeals (CA) in CA-G.R. SP No. 127777, which
affirmed the Decision4 dated July 31, 2012 and the Resolution5 dated September 28, 2012 of the
National Labor Relations Commission (NLRC) in NLRC LAC No. 07-001962-12, dismissing
petitioner Enrique Y. Sagun's (petitioner) complaint for illegal dismissal for lack of merit.

The Facts

Petitioner was employed at Hongkong and Shanghai Banking Corporation Electronic Data
Processing (Philippines), Inc. (HSBC-EDPI) when he applied online for the position of Payments and
Cash Processing Lead at respondent ANZ Global Services and Operations (Manila), Inc. (ANZ), a
domestic corporation whose businesses involve a full range of banking products and services. 6

After passing the interview and online examination, ANZ, through its Senior Vice President for
Operations, Gay Cruzada (Cruzada), offered petitioner the position of Customer Service Officer,
Payments and Cash Resolution,7 which the latter accepted on June 8, 2011. 8

In the letter of confirmation of the offer 9 which constituted petitioner's employment agreement with
ANZ, the terms and conditions of his employment required, among others, a satisfactory result of his
pre-employment screening. 10 The pertinent portions of which read as follows:

13. Pre-employment screening & ongoing screening

In accordance with its legal and regulatory obligations, and in accordance with ANZ policy, you may
be required to undergo a police record check prior to commencing work with ANZ, or at other times
during your employment.

You may also be required to undergo other checks (e.g. bankruptcy checks, sanctions screening,
reference checks, etc.). ANZ may engage the services of an external provider to conduct these
checks.

Your initial and ongoing employment is conditional on ANZ being satisfied that the results of:

• a police record check are compatible with the inherent requirements of your position; and

• any other required background or other checks are to the satisfaction of ANZ (keeping in
mind your position and ANZ's role as a financial institution).

ANZ may use any information you provide to conduct reference checks and any other background
checks.
Your employment is also conditional upon you holding all necessary visas and meeting all
immigration requirements necessary for you to work in Philippines in this position.

If, in the opinion of ANZ, any of your background checks, reference checks or visas are not
satisfactory, ANZ may choose not to commence your employment, or where you have already
started, to end your employment immediately, with no liability to pay compensation to
you. 11 (Emphases supplied)

In addition, the Schedules, 12 which likewise formed part of the employment agreement, provided that
petitioner was to be placed on a probationary status for a period of six (6) months 13 and that his
appointment would take effect from the date of reporting, which was to be not later than July 11,
2011.14

Accordingly, on June 11, 2011, petitioner tendered his resignation 15 at HSBC-EDPI and the
acknowledged copy thereof was transmitted to ANZ together with his other pre-employment
documentary requirements. 16

On July 11, 2011, petitioner was instructed to report to ANZ 17 and was handed a letter of
retraction 18 signed by ANZ's Human Resources Business Partner, Paula Alcaraz (Alcaraz),
informing him that the job offer had been withdrawn on the ground that the company found material
inconsistencies in his declared information and documents provided after conducting a background
check with his previous employer, particularly at Siemens.19

Asserting that his employment contract had already been perfected upon his acceptance of the offer
on June 8, 2011, and as such, was already deemed an employee of ANZ who can only be dismissed
for cause, petitioner filed a complaint for illegal dismissal with money claims against ANZ, Cruzada,
and Alcaraz (respondents) before the NLRC, National Capital Region, docketed as NLRC NCR
Case No. 08-11752-11.

For their part, respondents countered that the NLRC had no jurisdiction over the complaint as they
have no employer-employee relationship with petitioner. They contended that their offer was
1âwp hi1

conditional and the effectivity of petitioner's employment contract was subject to a term or
period.20 They claimed that petitioner made material misrepresentations in his job application and
interview that prompted them to withdraw the offer. They pointed out that the discrepancies in his
declarations, namely: (a) that he only held the position of a Level 1 and not a Level 2 Technical
Support Representative at Siemens; and (b) that he was terminated for cause due to his absence
without official leave (AWOL) and not because of his resignation, were not satisfactorily explained
despite the opportunity accorded to him. They added that petitioner likewise failed to report for work
on or before July 11, 2011; hence, his employment never took effect and no employer-employee
relationship was created. Thus, they asserted that petitioner was never dismissed, more so, illegally.
Finally, they denied his money claims for lack of basis and further averred that the impleaded
officers cannot be held personally liable under the circumstances. 21

The LA Ruling

In a Decision 22 dated April 23, 2012, the Labor Arbiter (LA) dismissed the complaint, holding that
there was no perfected employment contract between petitioner and respondents since there was a
valid cause for the withdrawal of the offer that was made prior to the commencement of petitioner's
service with the company. The LA held that the material misrepresentation committed by petitioner
was a reasonable ground to withdraw the employment offer and as such, no employer-employee
relationship was created between them. 23
Aggrieved, petitioner appealed to the NLRC.24

The NLRC Ruling

In a Decision25 dated July 31, 2012, the NLRC affirmed the findings of the LA, ruling that no
employer-employee relationship existed between petitioner and respondents. It held that petitioner's
employment with ANZ never took effect since its effectivity was dependent on his reporting for work
on or before July 11, 2011, which he admittedly failed to comply. The NLRC added that the
withdrawal of job offer was valid and reasonable, there being substantial evidence to show that
petitioner committed misrepresentations in his job application.26

Petitioner filed a motion for reconsideration,27 which was, however, denied in a Resolution 28 dated
September 28, 2012, prompting him to elevate his case to the CA via a petition
for certiorari,29docketed as CA-G.R. SP. No. 127777.

The CA Ruling

In a Decision30 dated May 25, 2015, the CA found no grave abuse of discretion to have been
committed by the NLRC in upholding the dismissal of the complaint. The CA distinguished between
the perfection of an employment contract and the commencement of the employer-employee
relationship, citing the case of Santiago v. CF Sharp Crew Management, Inc. (Santiago).31It held that
the contract was perfected on June 8, 2011 when it was signed by the parties. However, it ruled that
the employment contract did not commence since respondents did not allow petitioner to begin work
due to the misrepresentations he made in his application form. The CA also pointed out that since
the employment offer was conditioned on the satisfactory completion of his background check, his
failure to comply with the same rendered the withdrawal of the offer justified. Hence, no employer-
employee relationship was created between the parties.32 Lastly, relying on the Santiago case, it
clarified that even if there was no employer-employee relationship, the NLRC still had jurisdiction
over the complaint since the LA's jurisdiction was not limited to claims arising from employer-
employee relationship.

Dissatisfied, petitioner moved for reconsideration, 33 but was denied in a Resolution34 dated August
27, 2015; hence, this petition.

The Issue Before the Court

The core issue for the Court's resolution is whether or not the CA erred in not finding grave abuse of
discretion on the part of the NLRC in holding that no employer-employee relationship existed
between petitioner and respondent.

The Court's Ruling

The petition lacks merit.

A contract is a meeting of minds between two persons whereby one binds himself, with respect to
the other, to give something or to render some service. 35 There is no contract unless the following
essential requisites concur: (a) consent of the contracting parties; (b) object certain which is the
subject matter of the contract; and (c) cause of the obligation which is established. 36

In general, contracts undergo three distinct stages. These are negotiation, perfection or birth, and
consummation. Negotiation begins from the time the prospective contracting parties manifest their
interest in the contract and ends at the moment of their agreement. Thereafter, perfection or birth of
the contract takes place when the parties agree upon the essential elements of the contract. Finally,
consummation occurs when the parties fulfill or perform the terms agreed upon in the contract,
culminating in the extinguishment thereof. 37

An employment contract, like any other contract, is perfected at the moment the parties come to
agree upon its terms and conditions, and thereafter, concur in the essential elements thereof. 38 In
this relation, the contracting parties may establish such stipulations, clauses, terms, and conditions
as they may deem convenient, provided they are not contrary to law, morals, good customs, public
order or public policy.39

In this case, the Court agrees with the finding of the CA that there was already a perfected contract
of employment when petitioner signed ANZ's employment offer and agreed to the terms and
conditions that were embodied therein. Nonetheless, the offer of employment extended to petitioner
contained several conditions before he may be deemed an employee of ANZ. Among those
conditions for employment was the "satisfactory completion of any checks (e.g. background,
bankruptcy, sanctions and reference checks) that may be required by ANZ." 40 Accordingly,
petitioner's employment with ANZ depended on the outcome of his background check, which
partakes of the nature of a suspensive condition, and hence, renders the obligation of the would-be
employer, i.e., ANZ in this case, conditional. Article 1181 of the Civil Code provides:

Art. 1181. In conditional obligations, the acquisition of rights, as well as the extinguishment or loss of
those already acquired, shall depend upon the happening of the event which constitutes the
condition.

In the realm of civil law, a condition is defined as "every future and uncertain event upon which an
obligation or provision is made to depend. It is a future and uncertain event upon which the
acquisition or resolution of rights is made to depend by those who execute the juridical
act." 41 Jurisprudence states that when a contract is subject to a suspensive condition,
its effectivity shall take place only if and when the event which constitutes the condition happens or
is fulfilled.42 A contract is one of the five (5) sources of obligations as stated in the Civil Code.43 An
obligation is defined as the juridical necessity to give, to do or not to do. 44 While a contract may be
perfected in the manner of operation described above, the efficacy of the obligations created thereby
may be held in suspense pending the fulfillment of particular conditions agreed upon. In other words,
a perfected contract may exist, although the obligations arising therefrom - if premised upon a
suspensive condition - would yet to be put into effect.

Here, the subject employment contract required a satisfactory completion of petitioner's background
check before he may be deemed an employee of ANZ. Considering, however, that petitioner failed
to explain the discrepancies in his declared information and documents that were required from him
relative to his work experience at Siemens, namely: (a) that he was only a Level 1 and not a Level 2
Technical Support Representative that conducts troubleshooting for both computer hardware and
software problems; and (b) that he was found to have been terminated for cause and not merely
resigned from his post, that rendered his background check unsatisfactory, ANZ's obligations as a
would-be employer were held in suspense and thus, had yet to acquire any obligatory force. 45 To
reiterate, in a contract with a suspensive condition, if the condition does not happen, the obligation
does not come into effect. Thus, until and unless petitioner complied with the satisfactory
background check, there exists no obligation on the part of ANZ to recognize and fully accord him
the rights under the employment contract. In fact, records also show that petitioner failed to report for
work on or before July 11, 2011, which was also a suspensive condition mandated under sub-
paragraph 4 of Schedule 1 of the contract.
Consequently, no employer-employee relationship was said to have been created between petitioner
and ANZ under the circumstances, and the dismissal of the farmer's complaint for illegal termination
from work, as held by the NLRC, was correctly sustained by the CA.

WHEREFORE, the petition is DENIED. The Decision dated May 25, 2015 and the Resolution dated
August 27, 2015 of the Court of Appeals in CA-G.R. SP No. 127777 are hereby AFFIRMED.

SO ORDERED.
 G.R. No. 171127, March 11, 2015

NOEL CASUMPANG, RUBY SANGA-MIRANDA AND SAN JUAN DE DIOS

HOSPITAL, Petitioners, v. NELSON CORTEJO, Respondent.

[G.R. No. 171217]

DRA. RUBY SANGA-MIRANDA, Petitioner, v. NELSON CORTEJO, Respondent.

[G.R. No. 171228]

SAN JUAN DE DIOS HOSPITAL, Petitioner, v. NELSON CORTEJO, Respondent.

DECISION

BRION, J.:

We resolve the three (3) consolidated petitions for review on certiorari1 involving
medical negligence, commonly assailing the October 29, 2004 decision2 and the
January 12, 2006 resolution3 of the Court of Appeals (CA) in CA-G.R. CV No. 56400.
This CA decision affirmed en toto the ruling of the Regional Trial Court (RTC),
Branch 134, Makati City.

The RTC awarded Nelson Cortejo (respondent) damages in the total amount of
P595,000.00, for the wrongful death of his son allegedly due to the medical
negligence of the petitioning doctors and the hospital.

Factual Antecedents

The common factual antecedents are briefly summarized below.

On April 22, 1988, at about 11:30 in the morning, Mrs. Jesusa Cortejo brought her
11-year old son, Edmer Cortejo (Edmer), to the Emergency Room of the San Juan
de Dios Hospital (SJDH) because of difficulty in breathing, chest pain, stomach pain,
and fever.4

Dr. Ramoncito Livelo (Dr. Livelo) initially attended to and examined Edmer. In her
testimony, Mrs. Cortejo narrated that in the morning of April 20, 1988, Edmer had
developed a slight fever that lasted for one day; a few hours upon discovery, she
brought Edmer to their family doctor; and two hours after administering
medications, Edmer's fever had subsided.5

After taking Edmer's medical history, Dr. Livelo took his vital signs, body
temperature, and blood pressure.6 Based on these initial examinations and the
chest x-ray test that followed, Dr. Livelo diagnosed Edmer with
"bronchopneumonia."7 Edmer's blood was also taken for testing, typing, and for
purposes of administering antibiotics. Afterwards, Dr. Livelo gave Edmer an
antibiotic medication to lessen his fever and to loosen his phlegm.
Mrs. Cortejo did not know any doctor at SJDH. She used her Fortune Care card and
was referred to an accredited Fortune Care coordinator, who was then out of town.
She was thereafter assigned to Dr. Noel Casumpang (Dr. Casumpang), a
pediatrician also accredited with Fortune Care.8

At 5:30 in the afternoon of the same day, Dr. Casumpang for the first time
examined Edmer in his room. Using only a stethoscope, he confirmed the initial
diagnosis of "Bronchopneumonia."9

At that moment, Mrs. Cortejo recalled entertaining doubts on the doctor's

diagnosis. She immediately advised Dr. Casumpang that Edmer had a high fever,
and had no colds or cough10 but Dr. Casumpang merely told her that her son's
"bloodpressure is just being active,"11 and remarked that "that's the usual
bronchopneumonia, no colds, no phlegm."12

Dr. Casumpang next visited and examined Edmer at 9:00 in the morning the
following day.13 Still suspicious about his son's illness, Mrs. Cortejo again called Dr.
Casumpang's attention and stated that Edmer had a fever, throat irritation, as well
as chest and stomach pain. Mrs. Cortejo also alerted Dr. Casumpang about the
traces of blood in Edmer's sputum. Despite these pieces of information, however,
Dr. Casumpang simply nodded, inquired if Edmer has an asthma, and reassured
Mrs. Cortejo that Edmer's illness is bronchopneumonia. 14

At around 11:30 in the morning of April 23, 1988, Edmer vomited "phlegm with
blood streak"15 prompting the respondent (Edmer's father) to request for a doctor
at the nurses' station.16

Forty-five minutes later, Dr. Ruby Sanga-Miranda (Dr. Miranda), one of the resident
physicians of SJDH, arrived. She claimed that although aware that Edmer had
vomited "phlegm with blood streak," she failed to examine the blood specimen
because the respondent washed it away. She then advised the respondent to
preserve the specimen for examination.

Thereafter, Dr. Miranda conducted a physical check-up covering Edmer's head,

eyes, nose, throat, lungs, skin and abdomen; and found that Edmer had a low-
grade non-continuing fever, and rashes that were not typical of dengue fever.17 Her
medical findings state:
the patient's rapid breathing and then the lung showed sibilant and the patient's
nose is flaring which is a sign that the patient is in respiratory distress; the
abdomen has negative finding; the patient has low grade fever and not continuing;
and the rashes in the patient's skin were not "Herman's Rash" and not typical of
dengue fever.18
At 3:00 in the afternoon, Edmer once again vomited blood. Upon seeing Dr.
Miranda, the respondent showed her Edmer's blood specimen, and reported that
Edmer had complained of severe stomach pain and difficulty in moving his right
leg.19
Dr. Miranda then examined Edmer's "sputum with blood" and noted that he was
bleeding. Suspecting that he could be afflicted with dengue, she inserted a plastic
tube in his nose, drained the liquid from his stomach with ice cold normal saline
solution, and gave an instruction not to pull out the tube, or give the patient any
oral medication.

Dr. Miranda thereafter conducted a tourniquet test, which turned out to be

negative.20 She likewise ordered the monitoring of the patient's blood pressure and
some blood tests. Edmer's blood pressure was later found to be normal.21

At 4:40 in the afternoon, Dr. Miranda called up Dr. Casumpang at his clinic and told
him about Edmer's condition.22 Upon being informed, Dr. Casumpang ordered
several procedures done including: hematocrit, hemoglobin, blood typing, blood
transfusion and tourniquet tests.

The blood test results came at about 6:00 in the evening.

Dr. Miranda advised Edmer's parents that the blood test results showed that Edmer
was suffering from "Dengue Hemorrhagic Fever." One hour later, Dr. Casumpang
arrived at Edmer's room and he recommended his transfer to the Intensive Care
Unit (ICU), to which the respondent consented. Since the ICU was then full, Dr.
Casumpang suggested to the respondent that they hire a private nurse. The
respondent, however, insisted on transferring his son to Makati Medical Center.

After the respondent had signed the waiver, Dr. Casumpang, for the last time,
checked Edmer's condition, found that his blood pressure was stable, and noted
that he was "comfortable." The respondent requested for an ambulance but he was
informed that the driver was nowhere to be found. This prompted him to hire a
private ambulance that cost him P600.00.23

At 12:00 midnight, Edmer, accompanied by his parents and by Dr. Casumpang,

was transferred to Makati Medical Center.

Dr. Casumpang immediately gave the attending physician the patient's clinical
history and laboratory exam results. Upon examination, the attending physician
diagnosed "Dengue Fever Stage IV" that was already in its irreversible stage.

Edmer died at 4:00 in the morning of April 24, 1988. 24 His Death Certificate
indicated the cause of death as "Hypovolemic Shock/hemorrhagic shock;" "Dengue
Hemorrhagic Fever Stage IV."

Believing that Edmer's death was caused by the negligent and erroneous diagnosis
of his doctors, the respondent instituted an action for damages against SJDH, and
its attending physicians: Dr. Casumpang and Dr. Miranda (collectively referred to as
the "petitioners") before the RTC of Makati City.

The Ruling of the Regional Trial Court

In a decision25 dated May 30, 1997, the RTC ruled in favor of the respondent, and
awarded actual and moral damages, plus attorney's fees and costs.

In ruling that the petitioning doctors were negligent, the RTC found untenable the
petitioning doctors' contention that Edmer's initial symptoms did not indicate
dengue fever. It faulted them for heavily relying on the chest x-ray result and for
not considering the other manifestations that Edmer's parents had relayed. It held
that in diagnosing and treating an illness, the physician's conduct should be judged
not only by what he/she saw and knew, but also by what he/she could have
reasonably seen and known. It also observed that based on Edmer's signs and
symptoms, his medical history and physical examination, and also the information
that the petitioning doctors gathered from his family members, dengue fever was a
reasonably foreseeable illness; yet, the petitioning doctors failed to take a second
look, much less, consider these indicators of dengue.

The trial court also found that aside from their self-serving testimonies, the
petitioning doctors did not present other evidence to prove that they exercised the
proper medical attention in diagnosing and treating the patient, leading it to
conclude that they were guilty of negligence.

The RTC also held SJDH solidarity liable with the petitioning doctors for damages
based on the following findings of facts: first, Dr. Casumpang, as consultant, is
an ostensible agent of SJDH because before the hospital engaged his medical
services, it scrutinized and determined his fitness, qualifications, and competence
as a medical practitioner; and second, Dr. Miranda, as resident physician, is
an employee of SJDH because like Dr. Casumpang, the hospital, through its
screening committee, scrutinized and determined her qualifications, fitness, and
competence before engaging her services; the hospital also exercised control over
her work.

The dispositive portion of the decision reads:

WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against the
defendants, ordering the latter to pay solidarity and severally plaintiff the following:

(1) Moral damages in the amount of P500,000.00;

(2) Costs of burial and funeral in the amount of P45,000.00;

(3) Attorney's fees of P50,000.00; and

(4) Cost of this suit.

SO ORDERED.
The petitioners appealed the decision to the CA.

The Ruling of the Court of Appeals

In its decision dated October 29, 2004, the CA affirmed en toto the RTC's ruling,
finding that SJDH and its attending physicians failed to exercise the minimum
medical care, attention, and treatment expected of an ordinary doctor under like
circumstances.

The CA found the petitioning doctors' failure to read even the most basic signs of
"dengue fever" expected of an ordinary doctor as medical negligence. The CA also
considered the petitioning doctors' testimonies as self-serving, noting that they
presented no other evidence to prove that they exercised due diligence in
diagnosing Edmer's illness.

The CA likewise found Dr. Rodolfo Jaudian's (Dr. Jaudian) testimony admissible. It
gave credence to his opinion26 that: (1) given the exhibited symptoms of the
patient, dengue fever should definitely be considered, and bronchopneumonia could
be reasonably ruled out; and (2) dengue fever could have been detected earlier
than 7:30 in the evening of April 23, 1988 because the symptoms were already
evident; and agreed with the RTC that the petitioning doctors should not have
solely relied on the chest-x-ray result, as it was not conclusive.

On SJDH's solidary liability, the CA ruled that the hospital's liability is based on
Article 2180 of the Civil Code. The CA opined that the control which the hospital
exercises over its consultants, the hospital's power to hire and terminate their
services, all fulfill the employer-employee relationship requirement under Article
2180.

Lastly, the CA held that SJDH failed to adduce evidence showing that it exercised
the diligence of a good father of a family in the hiring and the supervision of its
physicians.

The petitioners separately moved to reconsider the CA decision, but the CA denied
their motion in its resolution of January 12, 2006; hence, the present consolidated
petitions pursuant to Rule 45 of the Rules of Court.

The Petitions

I. Dr. Casumpang's Position (G.R. No. 171127)

Dr. Casumpang contends that he gave his patient medical treatment and care to
the best of his abilities, and within the proper standard of care required from
physicians under similar circumstances. He claims that his initial diagnosis of
bronchopneumonia was supported by the chest x-ray result.

Dr. Casumpang also contends that dengue fever occurs only after several days of
confinement. He alleged that when he had suspected that Edmer might be suffering
from dengue fever, he immediately attended and treated him.

Dr. Casumpang likewise raised serious doubjs on Dr. Jaudian's credibility, arguing
that the CA erred in appreciating his testimony as an expert witness since he lacked
the necessary training, skills, and experience as a specialist in dengue fever cases.

II. Dr. Miranda's Position (G.R. No. 171217)

In her petition, Dr. Miranda faults the CA for holding her responsible for Edmer's
wrong diagnosis, stressing that the function of making the diagnosis and
undertaking the medical treatment devolved upon Dr. Casumpang, the doctor
assigned to Edmer, and who confirmed "bronchopneumonia."

Dr. Miranda also alleged that she exercised prudence in performing her duties as a
physician, underscoring that it was her professional intervention that led to the
correct diagnosis of "Dengue Hemorrhagic Fever." Furthermore, Edmer's Complete
Blood Count (CBC) showed leukopenia and an increase in balance as shown by the
differential count, demonstrating that Edmer's infection, more or less, is of bacterial
and not viral in nature.

Dr. Miranda as well argued that there is no causal relation between the alleged
erroneous diagnosis and medication for "Bronchopneumonia," and Edmer's death
due to "Dengue Hemorrhagic Fever."

Lastly, she claimed that Dr. Jaudian is not a qualified expert witness since he never
presented any evidence of formal residency training and fellowship status in
Pediatrics.

III. SJDH's Position (G.R. No. 171228)

SJDH, on the other hand, disclaims liability by asserting that Dr. Casumpang and
Dr. Miranda are mere independent contractors and "consultants" (not employees)
of the hospital. SJDH alleges that since it did not exercise control or supervision
over the consultants' exercise of medical profession, there is no employer-employee
relationship between them, and consequently, Article 2180 of the Civil Code does
not apply.

SJDH likewise anchored the absence of, employer-employee relationship on the

following circumstances: (1) SJDH does not hire consultants; it only grants them
privileges to admit patients in the hospital through accreditation; (2) SJDH does not
pay the consultants wages similar to an ordinary employee; (3) the consultants
earn their own professional fees directly from their patients; SJDH does not fire or
terminate their services; and (4) SJDH does not control or interfere with the
manner and the means the consultants use in the treatment of their patients. It
merely provides them with adequate space in exchange for rental payment.

Furthermore, SJDH claims that the CA erroneously applied the control test when it
treated the hospital's practice of accrediting consultants as an exercise of control. It
explained that the control contemplated by law is that which the employer exercises
over the: (i) end result; and the (ii) manner and means to be used to reach this
end, and not any kind of control, however significant, in accrediting the consultants.
SJDH moreover contends that even if the petitioning doctors are considered
employees and not merely consultants of the hospital, SJDH cannot still be held
solidarity liable under Article 2180 of the Civil Code because it observed the
diligence of a good father of a family in their selection and supervision as shown by
the following: (1) the adequate measures that the hospital undertakes to ascertain
the petitioning doctors' qualifications and medical competence; and (2) the
documentary evidence that the petitioning doctors presented to prove their
competence in the field of pediatrics.27

SJDH likewise faults the CA for ruling that the petitioning doctors are its agents,
claiming that this theory, aside from being inconsistent with the CA's finding of
employment relationship, is unfounded because: first, the petitioning doctors are
independent contractors, not agents of SJDH; and second, as a medical institution,
SJDH cannot practice medicine, much more, extend its personality to physicians to
practice medicine on its behalf.

Lastly, SJDH maintains that the petitioning doctors arrived at an intelligently

deduced and correct diagnosis. It claimed that based on Edmer's signs and
symptoms at the time of admission (i.e., one day fever,28bacterial
infection,29 and lack of hemorrhagic manifestations30), there was no reasonable
indication yet that he was suffering from dengue fever, and accordingly, their
failure to diagnose dengue fever, does not constitute negligence on their part.

The Case for the Respondent

In his comment, the respondent submits that the issues the petitioners raised are
mainly factual in nature, which a petition for review on certiorari under Rule 45 of
the Rules of Court does not allow.

In any case, he contends that the petitioning doctors were negligent in conducting
their medical examination and diagnosis based on the following: (1) the petitioning
doctors failed to timely diagnose Edmer's correct illness due to their non-
observance of the proper and acceptable standard of medical examination; (2) the
petitioning doctors' medical examination was not comprehensive, as they were
always in a rush; and (3) the petitioning doctors employed a guessing game in
diagnosing bronchopneumonia.

The respondent also alleges that there is a causal connection between the
petitioning doctors' negligence and Edmer's untimely death, warranting the claim
for damages.

The respondent, too, asserted that SJDH is also negligent because it was not
equipped with proper paging system, has no bronchoscope, and its doctors are not
proportionate to the number of its patients. He also pointed out that out of the
seven resident physicians in the hospital, only two resident physicians were doing
rounds at the time of his son's confinement.
 The Issues

The case presents to us the following issues:

1. Whether or not the petitioning doctors had committed "inexcusable lack of

precaution" in diagnosing and in treating the patient;

2. Whether or not the petitioner hospital is solidarity liable with the petitioning
doctors;

3. Whether or not there is a causal connection between the petitioners'

negligent act/omission and the patient's resulting death; and

4. Whether or not the lower courts erred in considering Dr. Rodolfo Tabangcora
Jaudian as an expert witness.

Our Ruling

We find the petition partly meritorious.

A Petition for Review on Certiorari under Rule 45 of the Rules of Court is

Limited to Questions of Law.

The settled rule is that the Court's jurisdiction in a petition for review
on certiorari under Rule 45 of the Rules of Court is limited only to the review of
pure questions of law. It is not the Court's function to inquire on the veracity of the
appellate court's factual findings and conclusions; this Court is not a trier of facts.31

A question of law arises when there is doubt as to what the law is on a certain state
of facts, while there is a question of fact when the doubt arises as to the truth or
falsity of the alleged facts.32

These consolidated petitions before us involve mixed questions of fact and law.
As a rule, we do not resolve questions of fact. However, in determining the legal
question of whether the respondent is entitled to claim damages under Article 2176
of the Civil Code for the petitioners' alleged medical malpractice, the determination
of the factual issues - i.e., whether the petitioning doctors were grossly negligent in
diagnosing the patient's illness, whether there is causal relation between the
petitioners' act/omission and the patient's resulting death, and whether Dr. Jaudian
is qualified as an expert witness - must necessarily be resolved. We resolve these
factual questions solely for the purpose of determining the legal issues raised.

Medical Malpractice Suit as a Specialized Area of Tort Law

The claim for damages is based on the petitioning doctors' negligence in diagnosing
and treating the deceased Edmer, the child of the respondent. It is a medical
malpractice suit, an action available to victims to redress a wrong committed by
medical professionals who caused bodily harm to, or the death of, a patient. 33 As
the term is used, the suit is brought whenever a medical practitioner or health care
provider fails to meet the standards demanded by his profession, or deviates from
this standard, and causes injury to the patient.

To successfully pursue a medical malpractice suit, the plaintiff (in this case, the
deceased patient's heir) must prove that the doctor either failed to do what a
reasonably prudent doctor would have done, or did what a reasonably prudent
doctor would not have done; and the act or omission had caused injury to the
patient.34 The patient's heir/s bears the burden of proving his/her cause of action.

The Elements of a Medical Malpractice Suit

The elements of medical negligence are: (1) duty; (2) breach; (3) injury; and
(4) proximate causation.

Duty refers to the standard of behavior that imposes restrictions on one's

conduct.35 It requires proof of professional relationship between the physician and
the patient. Without the professional relationship, a physician owes no duty to the
patient, and cannot therefore incur any liability.

A physician-patient relationship is created when a patient engages the services of a

physician,36 and the latter accepts or agrees to provide care to the patient. 37 The
establishment of this relationship is consensual,38 and the acceptance by the
physician essential. The mere fact that an individual approaches a physician and
seeks diagnosis, advice or treatment does not create the duty of care unless the
physician agrees.39

The consent needed to create the relationship does not always need to be
express.40 In the absence of an express agreement, a physician-patient relationship
may be implied from the physician's affirmative action to diagnose and/or treat a
patient, or in his participation in such diagnosis and/or treatment. 41 The usual
illustration would be the case of a patient who goes to a hospital or a clinic, and is
examined and treated by the doctor. In this case, we can infer, based on the
established and customary practice in the medical community that a patient-
physician relationship exists.

Once a physician-patient relationship is established, the legal duty of care follows.

The doctor accordingly becomes duty-bound to use at least the same standard of
care that a reasonably competent doctor would use to treat a medical condition
under similar circumstances.

Breach of duty occurs when the doctor fails to comply with, or improperly performs
his duties under professional standards. This determination is both factual and
legal, and is specific to each individual case.42

If the patient, as a result of the breach of duty, is injured in body or in health,

actionable malpractice is committed, entitling the patient to damages. 43
To successfully claim damages, the patient must lastly prove the causal relation
between the negligence and the injury. This connection must be direct, natural, and
should be unbroken by any intervening efficient causes. In other words, the
negligence must be the proximate cause of the injury.44 The injury or damage
is proximately caused by the physician's negligence when it appears, based on the
evidence and the expert testimony, that the negligence played an integral part in
causing the injury or damage, and that the injury or damage was either a direct
result, or a reasonably probable consequence of the physician's negligence. 45

a. The Relationship Between Dr. Casumpang and Edmer

In the present case, the physician-patient relationship between Dr. Casumpang and
Edmer was created when the latter's parents sought the medical services of Dr.
Casumpang, and the latter knowingly accepted Edmer as a patient. Dr.
Casumpang's acceptance is implied from his affirmative examination, diagnosis and
treatment of Edmer. On the other hand, Edmer's parents, on their son's behalf,
manifested their consent by availing of the benefits of their health care plan, and by
accepting the hospital's assigned doctor without objections.

b. The Relationship Between Dr. Miranda and Edmer

With respect to Dr. Miranda, her professional relationship with Edmer arose when
she assumed the obligation to provide resident supervision over the latter. As
second year resident doctor tasked to do rounds and assist other physicians, Dr.
Miranda is deemed to have agreed to the creation of physician-patient relationship
with the hospital's patients when she participated in the diagnosis and prescribed a
course of treatment for Edmer.

The undisputed evidence shows that Dr. Miranda examined Edmer twice (at around
12:00 and 3:30 in the afternoon of April 23, 1988), and in both instances, she
prescribed treatment and participated in the diagnosis of Edmer's medical
condition. Her affirmative acts amounted to her acceptance of the physician-patient
relationship, and incidentally, the legal duty of care that went with it.

In Jarcia, Jr. v. People of the Philippines,46 the Court found the doctors who merely
passed by and were requested to attend to the patient, liable for medical
malpractice. It held that a physician-patient relationship was established when they
examined the patient, and later assured the mother that everything was fine.

In the US case of Mead v. Legacy Health System,47 the Court also considered the
rendering of an opinion in the course of the patient's care as the doctor's assent to
the physician-patient relationship. It ruled that the relationship was formed because
of the doctor's affirmative action.

Likewise, in Wax v. Johnson,48 the court found that a physician-patient relationship

was formed between a physician who "contracts, agrees, undertakes, or otherwise
assumes" the obligation to provide resident supervision at a teaching hospital, and
the patient with whom the doctor had no direct or indirect contract.
Standard of Care and Breach of Duty

A determination of whether or not the petitioning doctors met the required standard
of care involves a question of mixed fact and law; it is factual as medical
negligence cases are highly technical in nature, requiring the presentation of expert
witnesses to provide guidance to the court on matters clearly falling within the
domain of medical science, and legal, insofar as the Court, after evaluating the
expert testimonies, and guided by medical literature, learned treatises, and its fund
of common knowledge, ultimately determines whether breach of duty took place.

Whether or not Dr. Casumpang and Dr. Miranda committed a breach of duty is to
be measured by the yardstick of professional standards observed by the other
members of the medical profession in good standing under similar
circumstances.49 It is in this aspect of medical malpractice that expert testimony is
essential to establish not only the professional standards observed in the medical
community, but also that the physician's conduct in the treatment of care falls
below such standard.50

In the present case, expert testimony is crucial in determining first, the standard
medical examinations, tests, and procedures that the attending physicians should
have undertaken in the diagnosis and treatment of dengue fever; and second, the
dengue fever signs and symptoms that the attending physicians should have
noticed and considered.

Both the RTC and the CA relied largely on Dr. Jaudian's expert testimony on dengue
diagnosis and management to support their finding that the petitioning doctors
were guilty of breach of duty of care.

Dr. Jaudian testified that Edmer's rapid breathing, chest and stomach pain, fever,
and the presence of blood in his saliva are classic symptoms of dengue fever.
According to him, if the patient was admitted for chest pain, abdominal pain, and
difficulty in breathing coupled with fever, dengue fever should definitely be
considered;51 if the patient spits coffee ground with the presence of blood, and the
patient's platelet count drops to 47,000, it becomes a clear case of dengue fever,
and bronchopneumonia can be reasonably ruled out.52

Furthermore, the standard of care according to Dr. Jaudian is to administer oxygen

inhalation, analgesic, and fluid infusion or dextrose.53 If the patient had twice
vomited fresh blood and thrombocytopenia has already occurred, the doctor should
order blood transfusion, monitoring of the patient every 30 minutes, hemostatic to
stop bleeding, and oxygen if there is difficulty in breathing.54

We find that Dr. Casumpang, as Edmer's attending physician, did not act
according to these standards and, hence, was guilty of breach of duty. We
do not find Dr. Miranda liable for the reasons discussed below.

Dr. Casumpang's Negligence

a. Negligence in the Diagnosis

At the trial, Dr. Casumpang declared that a doctor's impression regarding a

patient's illness is 90% based on the physical examination, the information given by
the patient or the latter's parents, and the patient's medical history. 55 He testified
that he did not consider either dengue fever or dengue hemorrhagic fever because
the patient's history showed that Edmer had low breath and voluntary submission,
and that he was up and about playing basketball.56 He based his diagnosis of
bronchopneumonia on the following observations: "difficulty in breathing, clearing
run nostril, harsh breath sound, tight air, and sivilant sound."57

It will be recalled that during Dr. Casumpang's first and second visits to Edmer, he
already had knowledge of Edmer's laboratory test result (CBC), medical history,
and symptoms (i.e., fever, rashes, rapid breathing, chest and stomach pain, throat
irritation, difficulty in breathing, and traces of blood in the sputum). However,
these information did not lead Dr. Casumpang to the possibility that Edmer
could be suffering from either dengue fever, or dengue hemorrhagic fever,
as he clung to his diagnosis of broncho pneumonia. This means that given the
symptoms exhibited, Dr. Casumpang already ruled out the possibility of other
diseases like dengue.

In other words, it was lost on Dr. Casumpang that the characteristic symptoms of
dengue (as Dr. Jaudian testified) are: patient's rapid breathing; chest and stomach
pain; fever; and the presence of blood in his saliva. All these manifestations were
present and known to Dr. Casumpang at the time of his first and second visits to
Edmer. While he noted some of these symptoms in confirming bronchopneumonia,
he did not seem to have considered the patient's other manifestations in ruling out
dengue fever or dengue hemorrhagic fever.58 To our mind, Dr. Casumpang
selectively appreciated some, and not all of the symptoms; worse, he casually
ignored the pieces of information that could have been material in detecting dengue
fever. This is evident from the testimony of Mrs. Cortejo:
TSN, Mrs. Cortejo, November 27, 1990

Q: Now, when Dr. Casumpang visited your son for the first time at 5:30 p.m., what did he do,
if any?
A: He examined my son by using stethoscope and after that, he confirmed to me that my son
was suffering from broncho pneumonia.
Q: After he confirmed that your son was suffering broncho pneumonia, what did you say if
any?
A: Again, I told Dr. Casumpang, how come it was broncho pneumonia when my son has
no cough or colds.
Q: What was the answer of Dr. Casumpang to your statement?

xxxx
A: And then, Dr. Casumpang answered "THAT'S THE USUAL BRONCHO
PNEUMONIA, NO COLDS, NO PHLEGM."
Q: How long did Dr. Casumpang stay in your son's room?
A: He stayed for a minute or 2.

xxxx

Q: Q: When Dr. Casumpang arrived at 9:00 o'clock a.m. on April 23, what did you tell him, if
any?

xxxx

A: I told Dr. Casumpang... After examining my son using stethoscope and nothing more, I
told Dr. Casumpang about the traces of blood in my son's sputum and I told him what
is all about and he has throat irritation.
Q: What did he tell you?
A: He just nodded his head but he did not take the initiative of looking at the throat of my
son.
Q: So what happened after that?
A: I also told Dr. Casumpang about his chest pain and also stomach pain.
Q: So what did Dr. Casumpang do after you have narrated all these complaints of your
son?
A: Nothing. He also noticed the rapid breathing of my son and my son was almost moving
because of rapid breathing and he is swaying in the bed.
Q: Do you know what action was taken by Dr. Casumpang when you told him that your
son is experiencing a rapid breathing?
A: No action. He just asked me if my son has an asthma but I said none.
Q: So how long did Dr. Casumpang stay and attended your son on April 23?
A: More or less two (2) minutes then I followed him up to the door and I repeated about
the fever of my son.
Q: What did he tell you, if any, regarding that information you gave him that your son
had a fever?
A: He said, that is broncho pneumonia, It's only being active now. [Emphasis supplied]
We also find it strange why Dr. Casumpang did not even bother to check Edmer's
throat despite knowing that as early as 9:00 in the morning of April 23, 1988,
Edmer had blood streaks in his sputum. Neither did Dr. Casumpang order
confirmatory tests to confirm the source of bleeding. The Physician's Progress
Notes59 stated: "Blood streaks on phlegm can be due to bronchial irritation or
congestion" which clearly showed that Dr. Casumpang merely assumed, without
confirmatory physical examination, that bronchopneumonia caused the bleeding.

Dr. Jaudian likewise opined that Dr. Casumpang's medical examination was not
comprehensive enough to reasonably lead to a correct diagnosis. 60 Dr. Casumpang
only used a stethoscope in coming up with the diagnosis that Edmer was suffering
from bronchopneumonia; he never confirmed this finding with the use of a
bronchoscope. Furthermore, Dr. Casumpang based his diagnosis largely on the
chest x-ray result that is generally inconclusive.61
Significantly, it was only at around 5:00 in the afternoon of April 23, 1988 (after
Edmer's third episode of bleeding) that Dr. Casumpang ordered the conduct
of hematocrit, hemoglobin, blood typing, blood transfusion and tourniquet tests.
These tests came too late, as proven by: (1) the blood test results that came at
about 6:00 in the evening, confirming that Edmer's illness had developed to
"Dengue Hemorrhagic Fever" and (2) Dr. Jaudian's testimony that "dengue fever
could have been detected earlier than 7:30 in the evening of April 23, 1988
because the symptoms were already evident."62

In Spouses Flores v. Spouses Pineda,63 a case involving a medical malpractice suit,

the Court ruled that the petitioner doctors were negligent because they failed to
immediately order tests to confirm the patient's illness. Despite the doctors'
suspicion that the patient could be suffering from diabetes, the former still
proceeded to the D&C operation. In that case, expert testimony showed that tests
should have been ordered immediately on admission to the hospital in view of the
symptoms presented. The Court held:
When a patient exhibits symptoms typical of a particular disease, these symptoms
should, at the very least, alert the physician of the possibility that the patient may
be afflicted with the suspected disease.
The Court also ruled that reasonable prudence would have shown that diabetes and
its complications were foreseeable harm. However, the petitioner doctors failed to
take this into consideration and proceeded with the D&C operation. Thus, the Court
ruled that they failed to comply with their duty to observe the standard of care to
be given to hyperglycemic/diabetic patients.

Similarly, in Jarcia,64 involving the negligence of the doctors in failing to exercise

reasonable prudence in ascertaining the extent of the patient's injuries, this Court
declared that:
In failing to perform an extensive medical examination to determine the
extent of Roy Jr.'s injuries, Dr. Jarcia and Dr. Bastan were remiss of their
duties as members of the medical profession. Assuming for the sake of
argument that they did not have the capacity to make such thorough evaluation at
that stage, they should have referred the patient to another doctor with sufficient
training and experience instead of assuring him and his mother that everything was
all right. [Emphasis supplied]
Even assuming that Edmer's symptoms completely coincided with the diagnosis of
bronchopneumonia (so that this diagnosis could not be considered "wrong"), we still
find Dr. Casumpang guilty of negligence.

First, we emphasize that we do not decide the correctness of a doctor's

diagnosis, or the accuracy of the medical findings and treatment. Our duty
in medical malpractice cases is to decide - based on the evidence adduced and
expert opinion presented - whether a breach of duty took place.

Second, we clarify that a wrong diagnosis is not by itself medical

malpractice.65 Physicians are generally not liable for damages resulting from
a bona fide error of judgment. Nonetheless, when the physician's erroneous
diagnosis was the result of negligent conduct (e.g., neglect of medical history,
failure to order the appropriate tests, failure to recognize symptoms), it becomes
an evidence of medical malpractice.

Third, we also note that medicine is not an exact science;66 and doctors, or even
specialists, are not expected to give a 100% accurate diagnosis in treating patients
who come to their clinic for consultations. Error is possible as the exercise of
judgment is called for in considering and reading the exhibited symptoms, the
results of tests, and in arriving at definitive conclusions. But in doing all these, the
doctor must have acted according to acceptable medical practice standards.

In the present case, evidence on record established that in confirming the diagnosis
of bronchopneumonia, Dr. Casumpang selectively appreciated some and not all of
the symptoms presented, and failed to promptly conduct the appropriate tests to
confirm his findings. In sum, Dr. Casumpang failed to timely detect dengue fever,
which failure, especially when reasonable prudence would have shown that
indications of dengue were evident and/or foreseeable, constitutes negligence.

a. Negligence in the Treatment and Management of Dengue

Apart from failing to promptly detect dengue fever, Dr. Casumpang

also failed to promptly undertake the proper medical management needed for
this disease.

As Dr. Jaudian opined, the standard medical procedure once the patient had
exhibited the classic symptoms of dengue fever should have been: oxygen
inhalation, use of analgesic, and infusion of fluids or dextrose;67 and once the
patient had twice vomited fresh blood, the doctor should have ordered: blood
transfusion, monitoring of the patient every 30 minutes, hemostatic to stop
bleeding, and oxygen if there is difficulty in breathing.68

Dr. Casumpang failed to measure up to these standards. The evidence strongly

suggests that he ordered a transfusion of platelet concentrate instead of blood
transfusion. The tourniquet test was only conducted after Edmer's second episode
of bleeding, and the medical management (as reflected in the records) did not
include antibiotic therapy and complete physical examination.

Dr. Casumpang's testimony states:

Q: Now, after entertaining - After considering that the patient Edmer Cortero was already
suffering from dengue hemorrhagic fever, what did you do, if any?
A: We ordered close monitoring of the blood pressure, the cardiac rate and respiratory
rate of the patient.
Q: Now, was your instructions carried on?
A: Yes, sir.
Q: What was the blood pressure of the patient?
A: During those times, the blood pressure of the patient was even normal during those times.
Q: How about the respiratory rate?
A: The respiratory rate was fast because the patient in the beginning since admission had
difficulty in breathing.
Q: Then, after that, what did you do with the patient? Doctor?
A: We transfused platelet concentrate and at the same time, we monitor [sic] the patient.
Q: Then, who monitor [sic] the patient?
A: The pediatric resident on duty at that time.
Q: Now, what happened after that?
Q: While monitoring the patient, all his vital signs were ________; his blood pressure was
normal so we continued with the supportive management at that time.
Q: Now, after that?
A: In the evening of April 23, 1988,1 stayed in the hospital and I was informed by the pediatric
resident on duty at around 11:15 in the evening that the blood pressure of the patient went
down to .60 palpatory.
Q: What did you do upon receipt of that information?
A: I immediately went up to the room of the patient and we changed the IV fluid from the
present fluid which was D5 0.3 sodium chloride to lactated ringers solution.
Q: You mean to say you increased the dengue [sic] of the intervenus [sic] fluid?
A: We changed the IV fluid because lactated ringers was necessary to resume the volume
and to bring back the blood pressure, to increase the blood pressure. [Emphasis
supplied]
Although Dr. Casumpang presented the testimonies of Dr. Rodolfo Jagonap and Dr.
Ellewelyn Pasion (Dr. Pasion), Personnel Officer and Medical Director of SJDH,
respectively as well as the testimonies of Dr. Livelo and Dr. Reyes (the radiologist
who read Edmer's chest x-ray result), these witnesses failed to dispute the
standard of action that Dr. Jaudian established in his expert opinion. We cannot
consider them expert witnesses either for the sole reason that they did not testify
on the standard of care in dengue cases.69

On the whole, after examining the totality of the adduced evidence, we find that the
lower courts correctly did not rely on Dr. Casumpang's claim that he exercised
prudence and due diligence in handling Edmer's case. Aside from being self-serving,
his claim is not supported by competent evidence. As the lower courts did, we rely
on the uncontroverted fact that he failed, as a medical professional, to observe the
most prudent medical procedure under the circumstances in diagnosing and
treating Edmer.

Dr. Miranda is Not Liable for Negligence

In considering the case of Dr. Miranda, the junior resident physician who was on-
duty at the time of Edmer's confinement, we see the need to draw distinctions
between the responsibilities and corresponding liability of Dr. Casumpang, as the
attending physician, and that of Dr. Miranda.

In his testimony, Dr. Pasion declared that resident applicants are generally doctors
of medicine licensed to practice in the Philippines and who would like to pursue a
particular specialty.70 They are usually the front line doctors responsible for the first
contact with the patient. During the scope of the residency program, 71 resident
physicians (or "residents")72 function under the supervision of attending
physicians73 or of the hospital's teaching staff. Under this arrangement, residents
operate merely as subordinates who usually defer to the attending physician on the
decision to be made and on the action to be taken.

The attending physician, on the other hand, is primarily responsible for managing
the resident's exercise of duties. While attending and resident physicians share the
collective responsibility to deliver safe and appropriate care to the patients, 74 it is
the attending physician who assumes the principal responsibility of patient
care.75 Because he/she exercises a supervisory role over the resident, and is
ultimately responsible for the diagnosis and treatment of the patient, the standards
applicable to and the liability of the resident for medical malpractice is theoretically
less than that of the attending physician. These relative burdens and distinctions,
however, do not translate to immunity from the legal duty of care for residents, 76 or
from the responsibility arising from their own negligent act.

In Jenkins v. Clark,77 the Ohio Court of Appeals held that the applicable standard of
care in medical malpractice cases involving first-year residents was that of a
reasonably prudent physician and not that of interns. According to Jenkins:
It is clear that the standard of care required of physicians is not an individualized
one but of physicians in general in the community. In order to establish medical
malpractice, it must be shown by a preponderance of the evidence that a physician
did some particular thing or things that a physician or surgeon of ordinary skill, care
and diligence would not have done under like or similar conditions or
circumstances, or that he failed or omitted to do some particular thing or things
that a physician or surgeon of ordinary skill, care and diligence would have done
under like or similar conditions or circumstances, and that the inquiry complained of
was the direct result of such doing or failing to do such thing or things.

We note that the standard of instruction given by the court was indeed a proper
one. It clearly informed the jury that the medical care required is that of
reasonably careful physicians or hospital emergency room operators, not
of interns or residents. [Emphasis supplied]
A decade later, Centman v. Cobb,78 affirmed the Jenkins ruling and held that interns
and first-year residents are "practitioners of medicine required to exercise the same
standard of care applicable to physicians with unlimited licenses to practice." The
Indiana Court held that although a first-year resident practices under a temporary
medical permit, he/she impliedly contracts that he/she has the reasonable and
ordinary qualifications of her profession and that he/she will exercise reasonable
skill, diligence, and care in treating the patient.

We find that Dr. Miranda was not independently negligent. Although she had
greater patient exposure, and was' subject to the same standard of care applicable
to attending physicians, we believe that a finding of negligence should also depend
on several competing factors, among them, her authority to make her own
diagnosis, the degree of supervision of the attending physician over her, and the
shared responsibility between her and the attending physicians.
In this case, before Dr. Miranda attended to Edmer, both Dr. Livelo and Dr.
Casumpang had diagnosed Edmer with bronchopneumonia. In her testimony, Dr.
Miranda admitted that she had been briefed about Edmer's condition, his medical
history, and initial diagnosis;79 and based on these pieces of information,
she confirmed the, finding of bronchopneumonia.

Dr. Miranda likewise duly reported to Dr. Casumpang, who admitted receiving
updates regarding Edmer's condition.80 There is also evidence supporting Dr.
Miranda's claim that she extended diligent care to Edmer. In fact, when she
suspected - during Edmer's second episode of bleeding - that Edmer could be
suffering from dengue fever, she wasted no time in conducting the necessary tests,
and promptly notified Dr. Casumpang about the incident. Indubitably, her medical
assistance led to the finding of dengue fever.

We note however, that during Edmer's second episode of bleeding, 81 Dr. Miranda
failed to immediately examine and note the cause of the blood specimen. Like Dr.
Casumpang, she merely assumed that the blood in Edmer's phlegm was caused by
bronchopneumonia. Her testimony states:
TSN, June 8, 1993:

Q: Let us get this clear, you said that the father told you the patient cocked [sic] out phlegm.
A: With blood streak.
Q: Now, you stated specimen, were you not able to examine the specimen?
A: No, sir, I did not because according to the father he wash [sic] his hands.

xxxx

Q: Now, from you knowledge, what does that indicate if the patient expels a phlegm and blood
streak?
A: If a patient cocked [sic] out phlegm then the specimen could have come from the lung
alone.82 [Emphasis supplied]

xxxx

TSN, June 17, 1993:

Q: Now, in the first meeting you had, when that was relayed to you by the father that Edmer
Cortejo had coughed out blood, what medical action did you take?
A: I examined the patient and I thought that, that coughed out phlegm was a product of
broncho pneumonia.

xxxx

Q: So what examination did you specifically conduct to see that there was no internal bleeding?
A: At that time I did not do anything to determine the cause of coughing of the blood
because I presumed that it was a mucous (sic) produced by broncho pneumonia, And
besides the patient did not even show any signs of any other illness at that time. [83
Based on her statements we find that Dr. Miranda was not entirely
faultless. Nevertheless, her failure to discern the import of Edmer's second
bleeding does not necessarily amount to negligence as the respondent
himself admitted that Dr. Miranda failed to examine the blood specimen because he
washed it away. In addition, considering the diagnosis previously made by two
doctors, and the uncontroverted fact that the burden of final diagnosis pertains to
the attending physician (in this case, Dr. Casumpang), we believe that Dr.
Miranda's error was merely an honest mistake of judgment influenced in no small
measure by her status in the hospital hierarchy; hence, she should not be held
liable for medical negligence.

Dr. Jaudian 's Professional Competence and Credibility

One of the critical issues the petitioners raised in the proceedings before the lower
court and before this Court was Dr. Jaudian's competence and credibility as an
expert witness. The petitioners tried to discredit his expert testimony on the ground
that he lacked the proper training and fellowship status in pediatrics.

Criteria in Qualifying as an Expert Witness

The competence of an expert witness is a matter for the trial court to decide upon
in the exercise of its discretion. The test of qualification is necessarily a relative
one, depending upon the subject matter of the investigation, and the fitness of the
expert witness.84 In our jurisdiction, the criterion remains to be the expert
witness' special knowledge experience and practical training that qualify
him/her to explain highly technical medical matters to the Court.

In Ramos v. Court of Appeals,85 the Court found the expert witness, who is a
pulmonologist, not qualified to testify on the field of anesthesiology. Similarly,
in Cereno v. Court of Appeals,86 a 2012 case involving medical negligence, the
Court excluded the testimony of an expert witness whose specialty was
anesthesiology, and concluded that an anesthesiologist cannot be considered an
expert in the field of surgery or even in surgical practices and diagnosis.

Interestingly in this case, Dr. Jaudian, the expert witness was admittedly not a
pediatrician but a practicing physician who specializes in pathology. 87 He likewise
does not possess any formal residency training in pediatrics. Nonetheless, both the
lower courts found his knowledge acquired through study and practical experience
sufficient to advance an expert opinion on dengue-related cases.

We agree with the lower courts.

A close scrutiny of Ramos and Cereno reveals that the Court primarily based the
witnesses' disqualification to testify as an expert on their incapacity to shed light on
the standard of care that must be observed by the defendant-physicians. That the
expert witnesses' specialties do not match the physicians' practice area only
constituted, at most, one of the considerations that should not be taken out of
context. After all, the sole function of a medical expert witness, regardless of
his/her specialty, is to afford assistance to the courts on medical matters, and to
explain the medical facts in issue.

Furthermore, there was no reasonable indication in Ramos and Cereno that the
expert witnesses possess a sufficient familiarity with the standard of care applicable
to the physicians' specialties.

US jurisprudence on medical malpractice demonstrated the trial courts' wide

latitude of discretion in allowing a specialist from another field to testify against a
defendant specialist.

In Brown v. Sims,88 a neurosurgeon was found competent to give expert testimony

regarding a gynecologist's standard of pre-surgical care. In that case, the court
held that since negligence was not predicated on the gynecologist's negligent
performance of the operation, but primarily on the claim that the pre-operative
histories and physicals were inadequate, the neurosurgeon was competent to testify
as an expert.

Frost v. Mayo Clinic89 also allowed an orthopedic surgeon to testify against a

neurologist in a medical malpractice action. The court considered that the
orthopedic surgeon's opinion on the "immediate need for decompression" need not
come from a specialist in neurosurgery. The court held that:
It is well established that "the testimony of a qualified medical doctor cannot be
excluded simply because he is not a specialist x x x." The matter of "x x x training
and specialization of the witness goes to the weight rather than admissibility x x x."

xxxx

It did not appear to the court that a medical doctor had to be a specialist in
neurosurgery to express the opinions permitted to be expressed by plaintiffs'
doctors, e.g., the immediate need for a decompression in the light of certain
neurological deficits in a post-laminectomy patient. As stated above, there was no
issue as to the proper execution of the neurosurgery. The medical testimony
supported plaintiffs' theory of negligence and causation. (Citations omitted)
In another case,90 the court declared that it is the specialist's knowledge of the
requisite subject matter, rather than his/her specialty that determines
his/her qualification to testify.

Also in Evans v. Ohanesian,91 the court set a guideline in qualifying an expert

witness:
To qualify a witness as a medical expert, it must be shown that the witness (1) has
the required professional knowledge, learning and skill of the subject
under inquiry sufficient to qualify him to speak with authority on the
subject; and (2) is familiar with the standard required of a physician under
similar circumstances; where a witness has disclosed sufficient knowledge of the
subject to entitle his opinion to go to the jury, the question of the degree of his
knowledge goes more to the weight of the evidence than to its admissibility.
 xxxx

Nor is it critical whether a medical expert is a general practitioner or a specialist so

long as he exhibits knowledge of the subject. Where a duly licensed and
practicing physician has gained knowledge of the standard of care
applicable to a specialty in which he is not directly engaged but as to which
he has an opinion based on education, experience, observation, or
association wit that specialty, his opinion is competent. (Emphasis supplied)
Finally, Brown v. Mladineo92 adhered to the principle that the witness' familiarity,
and not the classification by title or specialty, which should control issues regarding
the expert witness' qualifications:
The general rule as to expert testimony in medical malpractice actions is that "a
specialist in a particular branch within a profession will not be required." Most
courts allow a doctor to testify if they are satisfied of his familiarity with the
standards of a specialty, though he may not practice the specialty himself. One
court explained that "it is the scope of the witness' knowledge and not the artificial
classification by title that should govern the threshold question of admissibility.
(Citations omitted)
Application to the Present Case

In the case and the facts before us, we find that Dr. Jaudian is competent to testify
on the standard of care in dengue fever cases.

Although he specializes in pathology, it was established during trial that he had

attended not less than 30 seminars held by the Pediatric Society, had exposure in
pediatrics, had been practicing medicine for 16 years, and had handled not less
than 50 dengue related cases.

As a licensed medical practitioner specializing in pathology, who had practical and

relevant exposure in pediatrics and dengue related cases, we are convinced that Dr.
Jaudian demonstrated sufficient familiarity with the standard of care to be applied
in dengue fever cases. Furthermore, we agree that he possesses knowledge and
experience sufficient to qualify him to speak with authority on the subject.

The Causation Between Dr. Casumpang's Negligent Act/Omission, and the

Patient's Resulting Death was Adequately Proven

Dr. Jaudian's testimony strongly suggests that due to Dr. Casumpang's failure to
timely diagnose Edmer with dengue, the latter was not immediately given the
proper treatment. In fact, even after Dr. Casumpang had discovered Edmer's real
illness, he still failed to promptly perform the standard medical procedure. We
agree with these findings.

As the respondent had pointed out, dengue fever, if left untreated, could be a life
threatening disease. As in any fatal diseases, it requires immediate medical
attention.93 With the correct and timely diagnosis, coupled with the proper medical
management, dengue fever is not a life-threatening disease and could easily be
cured.94

Furthermore, as Dr. Jaudian testified, with adequate intensive care, the mortality
rate of dengue fever should fall to less than 2%. Hence, the survival of the patient
is directly related to early and proper management of the illness. 95

To reiterate, Dr. Casumpang failed to timely diagnose Edmer with dengue fever
despite the presence of its characteristic symptoms; and as a consequence of the
delayed diagnosis, he also failed to promptly manage Edmer's illness. Had he
immediately conducted confirmatory tests, (i.e., tourniquet tests and series of
blood tests) and promptly administered the proper care and management needed
for dengue fever, the risk of complications or even death, could have been
substantially reduced.

Furthermore, medical literature on dengue shows that early diagnosis and

management of dengue is critical in reducing the risk of complications and avoiding
further spread of the virus.96 That Edmer later died of "Hypovolemic
Shock/hemorrhagic shock," "Dengue Hemorrhagic Fever Stage IV," a severe and
fatal form of dengue fever, established the causal link between Dr. Casumpang's
negligence and the injury.

Based on these considerations, we rule that the respondent successfully proved the
element of causation.

Liability of SJDH

We now discuss the liability of the hospital.

The respondent submits that SJDH should not only be held vicariously liable for the
petitioning doctors' negligence but also for its own negligence. He claims that SJDH
fell short of its duty of providing its patients with the necessary facilities and
equipment as shown by the following circumstances:
(a) SJDH was not equipped with proper paging system;

(b) the number of its doctors is not proportionate to the number of patients;

(c) SJDH was not equipped with a bronchoscope;

(d) when Edmer's oxygen was removed, the medical staff did not immediately provide him with
portable oxygen;

(e) when Edmer was about to be transferred to another hospital, SJDH's was not ready and had
no driver; and

(f) despite Edmer's critical condition, there was no doctor attending to him from 5:30 p.m. of
April 22, to 9:00 a.m. of April 23, 1988.
SJDH on the other hand disclaims liability by claiming that the petitioning doctors
are not its employees but are mere consultants and independent contractors.
We affirm the hospital's liability not on the basis of Article 2180 of the Civil Code,
but on the basis of the doctrine of apparent authority or agency by estoppel.

There is No Employer-Employee Relationship Between SJDH and the

Petitioning Doctors

In determining whether an employer-employee relationship exists between the

parties, the following elements must be present: (1) selection and engagement of
services; (2) payment of wages; (3) the power to hire and fire; and (4) the power
to control not only the end to be achieved, but the means to be used in reaching
such an end.97

Control, which is the most crucial among the elements, is not present in this case.

Based on the records, no evidence exists showing that SJDH exercised any degree
of control over the means, methods of procedure and manner by which the
petitioning doctors conducted and performed their medical profession. SJDH did not
control their diagnosis and treatment. Likewise, no evidence was presented to show
that SJDH monitored, supervised, or directed the petitioning doctors in the
treatment and management of Edmer's case. In these lights, the petitioning doctors
were not employees of SJDH, but were mere independent contractors.

SJDH is Solidarity Liable Based on The Principle of Agency or Doctrine of

Apparent Authority

Despite the absence of employer-employee relationship between SJDH and the

petitioning doctors, SJDH is not free from liability.98

As a rule, hospitals are not liable for the negligence of its independent contractors.
However, it may be found liable if the physician or independent contractor acts as
an ostensible agent of the hospital. This exception is also known as the "doctrine
of apparent authority."99

The US case of Gilbert v. Sycamore Municipal Hospital100 abrogated the hospitals'

immunity to vicarious liability of independent contractor physicians. In that case,
the Illinois Supreme Court held that under the doctrine of apparent authority,
hospitals could be found vicariously liable for the negligence of an independent
contractor:
Therefore, we hold that, under the doctrine of apparent authority, a hospital can be
held vicariously liable for the negligent acts of a physician providing care at the
hospital, regardless of whether the physician is an independent contractor, unless
the patient knows, or should have known, that the physician is an independent
contractor. The elements of the action have been set out as follows:
For a hospital to be liable under the doctrine of apparent authority, a plaintiff must
show that: (1) the hospital, or its agent, acted in a manner that would lead
a reasonable person to conclude that the individual who was alleged to be
negligent was an employee or agent of the hospital; (2) where the acts of
the agent create the appearance of authority, the plaintiff must also prove
that the hospital had knowledge of and acquiesced in them; and (3) the
plaintiff acted in reliance upon the conduct of the hospital or its agent,
consistent with ordinary care and prudence. (Emphasis supplied)
The doctrine was applied in Nogales v. Capitol Medical Center101 where this Court,
through the ponencia of Associate Justice Antonio T. Carpio, discussed the two
factors in determining hospital liability as follows:
The first factor focuses on the hospital's manifestations and is sometimes described
as an inquiry whether the hospital acted in a manner which would lead a reasonable
person to conclude that the individual who was alleged to be negligent was an
employee or agent of the hospital. In this regard, the hospital need not make
express representations to the patient that the treating physician is an employee of
the hospital; rather a representation may be general and implied.

xxxx

The second factor focuses on the patient's reliance. It is sometimes characterized

as an inquiry on whether the plaintiff acted in reliance upon the conduct of the
hospital or its agent, consistent with ordinary care and prudence. (Citation omitted)
In sum, a hospital can be held vicariously liable for the negligent acts of a physician
(or an independent contractor) providing care at the hospital if the plaintiff can
prove these two factors: first, the hospital's manifestations; and second, the
patient's reliance.

a. Hospital's manifestations

It involves an inquiry on whether the hospital acted in a manner that would lead a
reasonable person to conclude that the individual alleged to be negligent was an
employee or agent of the hospital. As pointed out in Nogales, the hospital need not
make express representations to the patient that the physician or independent
contractor is an employee of the hospital; representation may be general and
implied.102

In Pamperin v. Trinity Memorial Hospital,103 questions were raised on "what acts by

the hospital or its agent are sufficient to lead a reasonable person to conclude that
the individual was an agent of the hospital." In ruling that the hospital's
manifestations can be proven without the express representation by the hospital,
the court relied on several cases from other jurisdictions, and held that:
(1) the hospital, by providing emergency room care and by failing to advise patients that they
were being treated by the hospital's agent and not its employee, has created the appearance
of agency; and

(2) patients entering the hospital through the emergency room, could properly assume that the
treating doctors and staff of the hospital were acting on its behalf.
In this case, the court considered the act of the hospital of holding itself out as
provider of complete medical care, and considered the hospital to have impliedly
created the appearance of authority.
b. Patient's reliance

It involves an inquiry on whether the plaintiff acted in reliance on the conduct of the
hospital or its agent, consistent with ordinary care and prudence.104

In Pamperin, the court held that the important consideration in determining the
patient's reliance is: whether the plaintiff is seeking care from the hospital itself or
whether the plaintiff is looking to the hospital merely as a place for his/her personal
physician to provide medical care.105

Thus, this requirement is deemed satisfied if the plaintiff can prove that he/she
relied upon the hospital to provide care and treatment, rather than upon a specific
physician. In this case, we shall limit the determination of the hospital's apparent
authority to Dr. Casumpang, in view of our finding that Dr. Miranda is not liable for
negligence.

SJDH Clothed Dr. Casumpang With Apparent Authority

SJDH impliedly held out and clothed Dr. Casumpang with apparent authority
leading the respondent to believe that he is an employee or agent of the hospital.

Based on the records, the respondent relied on SJDH rather than upon Dr.
Casumpang, to care and treat his son Edmer. His testimony during trial showed
that he and his wife did not know any doctors at SJDH; they also did not know
that Dr. Casumpang was an independent contractor. They brought their son
to SJDH for diagnosis because of their family doctor's referral. The referral did not
specifically point to Dr. Casumpang or even to Dr. Miranda, but to SJDH.

Significantly, the respondent had relied on SJDH's representation of Dr.

Casumpang's authority. To recall, when Mrs. Cortejo presented her Fortune Care
card, she was initially referred to the Fortune Care coordinator, who was then out of
town. She was thereafter referred to Dr. Casumpang, who is also accredited with
Fortune Care. In both instances, SJDH through its agent failed to advise Mrs.
Cortejo that Dr. Casumpang is an independent contractor.

Mrs. Cortejo accepted Dr. Casumpang's services on the reasonable belief that such
were being provided by SJDH or its employees, agents, or servants. By referring
Dr. Casumpang to care and treat for Edmer, SJDH impliedly held out Dr.
Casumpang, not only as an accredited member of Fortune Care, but also as
a member of its medical staff. SJDH cannot now disclaim liability since there is
no showing that Mrs. Cortejo or the respondent knew, or should have known, that
Dr. Casumpang is only an independent contractor of the hospital. In this case,
estoppel has already set in.

We also stress that Mrs. Cortejo's use of health care plan (Fortune Care) did not
affect SJDH's liability. The only effect of the availment of her Fortune Care card
benefits is that her choice of physician is limited only to physicians who are
accredited with Fortune Care. Thus, her use of health care plan in this case only
limited the choice of doctors (or coverage of services, amount etc.) and not the
liability of doctors or the hospital.

WHEREFORE, premises considered, this Court PARTLY GRANTS the consolidated

petitions. The Court finds Dr. Noel Casumpang and San Juan de Dios Hospital
solidarity liable for negligent medical practice. We SET ASIDE the finding of liability
as to Dr. Ruby Sanga-Miranda. The amounts of P45,000.00 as actual damages and
P500,000.00 as moral damages should each earn legal interest at the rate of six
percent (6%) per annum computed from the date of the judgment of the trial court.
The Court AFFIRMS the rest of the Decision dated October 29, 2004 and the
Resolution dated January 12, 2006 in CA-G.R. CV No. 56400.

SO ORDERED.
 [G.R. NO. 149273 : June 5, 2009]

BIENVENIDO C. GILLES, Petitioner, v. COURT OF APPEALS, SCHEMA

KONSULT, and EDGARDO ABORES, Respondents.

DECISION

NACHURA, J.:

Before the Court is a petition for certiorari under Rule 65 of the Rules of Court
assailing the Decision1 dated January 29, 2001 and the Resolution dated June 14,
2001 of the Court of Appeals (CA) in CA-G.R. SP No. 58467.

The Facts

The antecedents of the case are as follows:

Respondent Schema Konsult, Inc. (SKI) is a company engaged in all phases of

project consulting, management, and supervision of services, including investment
studies, feasibility studies, micro-processing analysis, and detailed scheme
formulation, for all types of industrial plants, and installation, infrastructure, and
development projects.2 Respondent Edgardo C. Abores (Abores) was the President
of SKI at the time material to the case.3 On the other hand, petitioner Bienvenido
C. Gilles (Gilles) was an incorporator, stockholder, and member of the Board of
Directors from 1987 to March 1993, Vice-President for Finance and Administration
from 1992 to 1993 and Principal Engineer of SKI from 1987 to March 1993.4

In 1993, SKI entered into an Agreement Regarding Staff Provision 5 (Agreement)

with Carl Bro International (CBI), a corporation organized under the laws of
Denmark. CBI entered into a joint venture with Aquatic Farms, Ltd., a foreign
corporation under contract with the government of India for the provision of
consultancy assistance on the "Shrimp and Fish Culture Project" (Project). 6 The
Project involved the development of shrimp farms in different parts of India, funded
from a loan extended to the Government of India, particularly its Ministry of
Agriculture, by the International Bank for Reconstruction and Development. 7 The
Ministry of Agriculture signed a contract with Aquatic Farms, Ltd., in association
with CBI, for provision of consultancy assistance to the Project. CBI contracted SKI
to provide a qualified aquaculture engineer for the Project.8

Gilles applied for, and was accepted as, Water Systems/Irrigation Engineer of the
Project for a period of two (2) years, commencing on January 24, 1993. 9 The
Agreement provided that: (1) CBI would pay SKI a monthly fee of US$4,000.00;
(2) Gilles' basic salary of US$2,500.00 would be taken from the said fee; and (3)
during Gilles' first sixty (60) days in India, he would receive a subsistence
allowance of US$87.00 per calendar day to defray his expenses for accommodation,
board and lodging, and hotel room accommodation during project travels away
from the duty station.10 For the duration of Gilles' assignment in India, he would be
considered as a regular employee of SKI, but all the conditions in the Agreement
between SKI and CBI would apply.11

In January 1993, prior to Gilles' departure for India, he received US$5,000.00 from
SKI as an advance of his subsistence allowance to sustain him during his initial
months in India.12 While in India, he twice received 43,000 Indian Rupees (INR),
equivalent to Php43,000.00, to cover his expenses from April 1-30, 1993 and from
May 1-15, 1993.13

On May 10, 1993, Gilles tendered his Resignation Letter14 to Mr. Torben R. Schou
(Schou) of CBI. The pertinent portions of the letter read:

For the past several weeks, I have been burdened by serious personal and financial
problems. I have tried to put these problems out of my mind but they still keep on
bothering me that my physical condition and capacity to concentrate with my work
are affected. Because of these, I have decided to go back to the Philippines and
face these problems.

It is, therefore, with deep regret that I should tender my irrevocable resignation
effective 15 May 1993.

Thank you for giving me the opportunity to work with a great team.

On May 11, 1993, Gilles left India.15

On May 14, 1993, Schou faxed a Letter16 to Abores, informing him of the abrupt
departure of Gilles from the Project and its attendant consequences. The letter
reads:

We have on 10 May 1993 received Mr. Gilles' resignation, dated 5 May 1993, which
was incorrectly addressed to us, and we understand that he left India on 11 May
1993. We regret that his personal problems caused this to happen.

His decision has resulted in a very serious and critical situation as regards our
contractual obligations towards the Min. of Agric. in India, and Aquatic Farms Ltd.
(AFL) has informed that Bien's work has been very unsatisfactory for several weeks
before his departure. In order to ensure that we meet the deadlines for design, AFL
has brought in a temporary substitute for Bien, but this substitute is not billable to
the project.

You are kindly requested to inform what actions you propose to take regarding
replacement of Bien.

An Inter-Office Memorandum,17 dated May 18, 1993, was sent to Gilles requesting
him to attend the Board of Directors meeting scheduled on May 19, 1993 at 2:00
p.m., at which the matter of his resignation would be discussed.
At the board meeting on May 19, 1993, Abores explained that the meeting was
called precisely to discuss the resignation of Gilles from his assignment in India.
Abores read before the Members of the Board the Letter 18 of Gilles dated May 15,
1993, pertinent portions of which state:

Resigning from my assignment in India as a Carl Bro employee was one of the most
difficult and painful decisions I made in my life. I did not only give up the chance to
be better off financially but most of all end my career as a consultant.

The following has created a very discouraging and depressing working environment
for me in India which pushed me to make such decision.

1) In our contract with Carl Bro (page 3/6, Annex 1 which is the same Annex in the
contract between Aquatic Farms and the Indian Government), it is stated that
design works for the 13 proposed prawn farms are to be undertaken from the 5th
month (May 1993) to the 27th month. The attached memorandum of Mr. Clyde
Simon supported the aforementioned schedule by recommending that construction
of only three farms be started this year. In this memorandum, Mr. Clyde
emphasized that quality of work should never be compromised.

In our initial review of the design undertaken by CICEF on all 13 proposed farms
(the design costs the Indian Government approximately 8.0 million Rupees), we
found that major changes on the design criteria should be made (pages 12 to 18 of
the Inception Report). Although these changes necessitate redesign for all proposed
farms, the original work schedule can still be made applicable with only slight
modifications.

However, on April 1 during a meeting in Delhi attended by our Project Advisor, he

committed the completion of the design (including construction drawings, cost
estimates, feasibility and design reports, technical specifications and other
documents necessary for tendering) of three proposed farms by the end of May and
the completion of the design for the other 10 sites by the end of 1993. This means
that we have to finish the design for 1.5 sites per month (the farm area ranges
from 52 to 1,671 ha.) This commitment was made by our Senior Project Advisor to
the World Bank, India's Central Government and State Officials.

Since I was the water systems engineer in the group, much of the pressure of
keeping up with our Senior Project Advisor's commitment was passed on to me. I
had to work 18 hours on the average every day seven days a week.

xxx

4) I was made to expect when I left for this assignment that I will be better off
financially. However, for the last three and a half months now, Carl Bro has not
paid my salary (3.5 months) and my subsistence allowance for my first 60 days
stay in Bangalore. How could I be expected to fulfill my financial obligations here in
the Philippines? I have an 80-year old mother to support, loans to amortize,
relatives to help with their medical expenses, etc. Although, SCHEMA was kind to
have given me an advance of US$5,000. During my first sixty days in Bangalore, as
consultants, we were made to stay in five star hotel. I spent on the average US$70
per day for a total of US$4,200 in 60 days.

Several times I have made personal long distance calls to SCHEMA to follow-up on
my salary and to talk to management about the other items mentioned above.
RMS, EEA and EAV were so kind to listen to my problems as well as do something
within the limits of their positions. However, the person who could have helped me
most refused to talk to me. I felt that I was abandoned by SCHEMA management.

I was already in a very discouraged, depressed, exhausted and dejected state

hence, I decided to leave Bangalore before my replacement was found.

I wrote this letter to explain the reasons why I left my post in India before my
replacement was found. This is not intended to ask management for
reconsideration on its decision of terminating my services with SCHEMA. My request
to management is to be kind enough to grant me separation benefits of one month
per year of service and other benefits normally given to leaving employees. I am
also requesting management to facilitate the payment of my 3.5 months salary by
Carl Bro. I can claim, with a clear conscience, that I have earned, up to the last
cent, my wage in India.

As I have already mentioned in the earlier part of this letter that my resignation
from my assignment in India has ended my career as a consultant. Hence, the
granting of my aforementioned request would help me in venturing into new
sources of livelihood.

Abores explained that the management was unaware of the difficulties encountered
by Gilles in India, as no communication, official or otherwise, was received from
Gilles. He said that Gilles never submitted any written progress report on the
Project, contrary to the company's standard operating procedures.19 The Board of
Directors then decided to terminate the services of Gilles effective June 7,
1993,20 and a notice of termination was sent to him.21

On September 6, 1993, Gilles filed a complaint for illegal dismissal against

respondents, seeking reinstatement, moral damages, and other monetary claims. 22

Gilles alleged that there was a deliberate scheme to ease him out of the Project and
ultimately out of SKI. He believed that Abores was behind it. He said that while he
was in India, his salary from the Project was not given to him on time. He claimed
that he tried to communicate with SKI representatives, particularly with Abores,
relative to the difficulties he encountered in India, but his calls were ignored.
Moreover, the March 20, 1993 election of officers of SKI was not relayed to him on
time, which resulted in his failure to attend the meeting or to send a proxy and,
thus, was not elected officer of the company, a position that he consistently held in
the past.23 He also challenged the May 19, 1993 Board of Directors meeting as a
hoax. He alleged that the meeting did not take place. He claimed that he talked to
two (2) or three (3) members of the Board of Directors and they confirmed to him
that his termination from employment was not the subject of the said meeting.
However, to his disbelief, Abores was able to produce minutes of the alleged
meeting where his termination by the Board was the principal item in the agenda. 24

On the other hand, SKI dismissed the allegations of Gilles as mere fabrication. SKI
averred that Gilles was well provided in India; that his resignation from CBI and his
departure from India were not known nor approved by SKI; that the May 19, 1993
board meeting was real and Gilles was informed of such meeting at which his side
was heard, but he was asked to step out of the meeting for displaying a temper;
that the proceedings were properly recorded in the minutes; that the Board of
Directors decided to terminate Gilles' services effective June 7, 1993; and that SKI
paid Gilles what was due him from the Project in India even if CBI had yet to pay
the consultancy fees.25

On July 10, 1997, the Labor Arbiter rendered a Decision,26 the dispositive portion of
which reads:

WHEREFORE, the respondents are hereby ordered, jointly and severally:

1.) To reinstate the complainant to his former position as Vice-President for

Finance/Administration, with full backwages from the date his salary was withheld
until he is actually reinstated which as of date has reached P1,274,000.00. If
reinstatement should become improbable, then, the complainant should be paid
separation pay equivalent to one-half month salary for every year of service
rendered in addition to the grant of backwages; [and]

2.) To pay the complainant the sum of P500,000.00 as moral damages.

The respondents are, likewise, assessed the sum of P127,400.00 representing 10%
of the benefits awarded as attorney's fees.

SO ORDERED.27

On appeal, the National Labor Relations Commission (NLRC) affirmed the decision
of the Labor Arbiter with modification in a Resolution 28 dated November 29, 1999.
The fallo of the resolution reads:

WHEREFORE, the decision appealed from is AFFIRMED, with modification deleting

the award of attorney's fee and reducing the award of moral damages
to P100,000.00.

SO ORDERED.29

SKI moved for reconsideration. The motion was denied in a Resolution dated
January 31, 2000.30 Unsatisfied, SKI filed a petition for certiorari and prohibition
under Rule 65 of the Rules of Court before the CA, raising the following issues: (a)
the controversy was an intra-corporate dispute exclusively cognizable by the
Securities and Exchange Commission (SEC), and beyond the jurisdiction of the
NLRC; and (b) the finding of the Labor Arbiter that Gilles was illegally dismissed
was bereft of merit.

On January 29, 2001, the CA rendered a Decision granting the petition of

SKI,31 disposing, as follows:

WHEREFORE, foregoing premises considered, the petition having merit, in fact and
in law, is hereby GIVEN DUE COURSE. ACCORDINGLY, the decision/judgment of the
Labor Arbiter and public respondent National Labor Relations Commission (3rd
Division), are hereby SET ASIDE and ANNULLED for having been rendered without
jurisdiction, and the complaint of private respondent ordered DISMISSED. Public
respondents or any of their agent/s are hereby permanently enjoined/restrained
from executing their judgment. No costs.

SO ORDERED.32

The CA ratiocinated that the removal of Gilles as Vice-President of SKI was an intra-
corporate controversy that was within the jurisdiction of the SEC. Furthermore,
Gilles was not illegally dismissed from service, considering that he resigned from his
assignment in India even before a replacement was found.33

Gilles filed a motion for reconsideration. On June 14, 2001, the CA issued a
Resolution dismissing the motion.

Hence, this petition.

The Issues

Gilles raises the following issues for our resolution:

WHETHER [OR] NOT THE RESPONDENT COURT OF APPEALS ACTED WITH GRAVE
ABUSE OF DISCRETION IN HOLDING THAT THE LABOR ARBITER HAS NO
JURISDICTION OVER THE ILLEGAL DISMISSAL CASE OF HEREIN PETITIONER?

II

WHETHER OR NOT THE DISPOSITIVE PORTION OF THE LABOR ARBITER'S

DECISION CONTAINING REINSTATEMENT FOR THE POSITION OF VICE-PRESIDENT
INSTEAD OF HIS REGULAR EMPLOYMENT AS PRINCIPAL ENGINEER WOULD DIVEST
THE JURISDICTION OF NLRC OVER THE ILLEGAL DISMISSAL CASE OF HEREIN
PETITIONER?

III
WHETHER OR NOT THE RESPONDENT COURT OF APPEALS ACTED WITH GRAVE
ABUSE IN DISTURBING THE FINDING OF THE LABOR ARBITER AND AFFIRMED BY
THE NATIONAL LABOR RELATIONS COMMISSION (3rd DIVISION) THAT THE
PETITIONER WAS ILLEGALLY DISMISSED FROM HIS REGULAR EMPLOYMENT? 34

These issues may be reduced to the following: (1) whether the NLRC has
jurisdiction over the illegal dismissal case; and (2) whether Gilles was illegally
dismissed from employment.

The Ruling of the Court

Article 217 of the Labor Code vests in Labor Arbiters and the NLRC exclusive
jurisdiction to hear and decide cases involving termination disputes and all other
cases arising from employer-employee relations, as it provides:

ART. 217. Jurisdiction of Labor Arbiters and the Commission.

(a) Except as otherwise provided under this Code the Labor Arbiters shall have
original and exclusive jurisdiction to hear and decide, within thirty (30) calendar
days after the submission of the case by the parties for decision without extension,
even in the absence of stenographic notes, the following cases involving all
workers, whether agricultural or non-agricultural:

1. Unfair labor practice cases;

2. Termination disputes;

3. If accompanied with a claim for reinstatement, those cases that workers may file
involving wages, rates of pay, hours of work and other terms and conditions of
employment;

4. Claims for actual, moral, exemplary and other forms of damages arising from the
employer-employee relations;

5. Cases arising from any violation of Article 264 of this Code, including questions
involving the legality of strikes and lockouts; [and]

6. Except claims for Employees Compensation, Social Security, Medicare and

maternity benefits, all other claims, arising from employer-employee relations,
including those of persons in domestic or household service, involving an amount
exceeding five thousand pesos (P5,000.00) regardless of whether accompanied
with a claim for reinstatement.

(b) The Commission shall have exclusive appellate jurisdiction over all cases
decided by Labor Arbiters.
(c) Cases arising from the interpretation [or implementation] of collective
bargaining agreements and those arising from the interpretation or enforcement of
company personnel policies shall be disposed of by the Labor Arbiter by referring
the same to the grievance machinery and voluntary arbitration as may be provided
in said agreements.

Based on this provision, the NLRC has jurisdiction over the illegal dismissal case
filed by Gilles. Contrary to the stance of SKI, the case is not an intra-corporate
dispute but a labor controversy. Gilles sought reinstatement; he wanted to recover
his position as Principal Engineer of SKI. He also prayed for backwages, moral
damages, and attorney's fees.

However, the Labor Arbiter committed an error when, in the dispositive portion of
the July 10, 1997 Decision, he ordered the reinstatement of Gilles to his former
position as Vice-President for Finance of SKI. That ruling finds no legal support in
the ratio decidendi of the Decision itself, which reads:

Respondents, through counsel, moved for the dismissal of the case on the ground
that this Office lacks the jurisdiction to arbitrate the same. It is argued that the
complainant is not an ordinary employee, being the Vice-President for
Finance/Administration and Treasurer, in addition to his job position as Principal
Engineer. It is[,] likewise[,] claimed that the issue involved is an intra-corporate
controversy which falls under the exclusive jurisdiction of the Securities and
Exchange Commission.

The motion must be denied. The complainant lost his position as VP-
Finance/Administration and Treasurer when he was not voted in the 20 March 1993
stockholders' meeting. His remaining relationship with the respondent firm after
that date was his job position of Principal Engineer.

Moreover, the issue here is one of termination of employment, arising from

circumstances on complainant's assignment in India. No incident of intra-corporate
character has been linked to the employment issue. It appears, therefore, that the
element of intra-corporate controversy is absent [in the case which gives this Office
the jurisdiction] to arbitrate the termination issue.35

Based on the records of the case, Gilles never sought to regain his seat in the
Board of Directors; he actually claimed reinstatement as Principal Engineer of SKI.
The Labor Arbiter's decision was muddled with a lengthy discussion on the Board of
Directors positions that Gilles held in the past, his failure to participate in the March
19, 1993 SKI Board of Directors elections due to the delayed receipt of the notice of
the meeting, and the circumstances which led him to believe that there was an
overt plan to oust him from the company.

Nonetheless, despite the tangled web of premises in the Labor Arbiter's disquisition,
what emerges is a clear case of a labor dispute, properly cognizable by the NLRC.

II
Employment may be severed either by the employee or by the employer. An
employer-initiated termination must be based on just or authorized causes
enumerated in Articles 282, 283,36 284,37 and 28738 of the Labor Code. On the
other hand, an employee may terminate his employment with or without just cause
for any of the grounds enumerated under Article 285 39 of the Labor Code.

A valid termination of employment by the employer must comply with two

requisites, namely: (1) the dismissal must be for any of the causes provided under
Article 282 of the Labor Code; and (2) the employee must be afforded an
opportunity to be heard and to defend himself. Substantively, the employer can
terminate the services of an employee for just and valid causes, which must be
supported by clear and convincing evidence; and procedurally, the employee must
be given notice and an adequate opportunity to be heard before his actual dismissal
for cause.40

In this case, Gilles questions the validity of his dismissal as the Principal Engineer of
SKI. He contends that he only resigned as a consultant for the Project in India and
not as a regular employee of SKI. Furthermore, he contests the genuineness of the
May 19, 1993 board meeting and denies that he was given the opportunity to
explain his side.

SKI maintains that Gilles was terminated for willful disobedience and gross neglect
of his duties, just causes recognized in Article 282 of the Labor Code, viz.:

Art. 282. Termination by employer.

An employer may terminate an employment for any of the following causes:

(a) Serious misconduct or willful disobedience by the employee of the lawful orders
of his employer or representative in connection with his work;

(b) Gross and habitual neglect by the employee of his duties;

(c) Fraud or willful breach by the employee of the trust reposed in him by his
employer or duly authorized representative;

(d) Commission of a crime or offense by the employee against the person of his
employer or any immediate member of his family or his duly authorized
representative; and cralawlib rary

(e) Other causes analogous to the foregoing.

Willful disobedience of the employer's lawful orders, as a just cause for dismissal of
an employee, requires the concurrence of two (2) elements: (1) the employee's
assailed conduct must have been willful, i.e., characterized by a wrongful and
perverse attitude; and (2) the order violated must have been reasonable, lawful,
made known to the employee, and must pertain to the duties which he had been
engaged to discharge.41

Gilles' resignation from CBI and sudden departure from India was not approved by
SKI. When he asked the company's permission to return to Manila, the
management instructed him to stay in India until a suitable replacement was
found.42 He knew of the critical stage of the Project due to the accelerated period of
its completion.43 Thus, when he left the Project, despite the clear and lawful
instructions of the management for him to stay, his act constituted willful
disobedience and gross neglect of duty under Article 282 of the Labor Code.

But SKI was guilty of violating Article 103 of the Labor Code. SKI was remiss in
paying the compensation of Gilles as Aquaculture Engineer of the Project on time.
Based on the findings of fact of the Labor Arbiter, as confirmed by the NLRC, Gilles
was not paid his salaries for the three and half (3' ) months of his stay in India.
Article 103 of the Labor Code mandates that wages shall be paid at least once
every two (2) weeks or twice a month at intervals not exceeding sixteen (16) days
and that no employer shall make payment with less frequency than once a month.

Gilles' departure from India, despite the instruction of SKI for him to stay, was
impelled by the financial difficulties he encountered thereat. The money given to
him before he left for India was already spent. Rickie Sarque, the Chief Accountant
of SKI, admitted on the witness stand that Gilles was paid his salaries for the 3 -
months when he was already back in Manila.44 Added to this were the problems he
encountered due to the acceleration of the job completion period, the obligations he
had to meet at home for his aged mother at that time, now deceased, and the
relatives who needed his financial support. Clearly, Gilles had a valid reason to
leave India.

It should be noted that all the time Gilles was employed as Aquaculture Engineer of
the Project, he remained a regular employee of SKI.45 This is borne out by the
Agreement which pertinently reads:

Based on these TOR [Terms of Reference], SK [Schema Konsult, Inc.] has selected
Mr. Bienvenido C. Gilles as the qualified Aquaculture (Water Systems) Engineer,
and [the] MOA [Ministry of Agriculture] has accepted his assignment as a member
of the AFL/CBI [Aquatic Farms Ltd./Carl Bro International] team. B.C. Gilles shall be
employed by SK.46

SKI, as the principal employer of Gilles, had the responsibility to pay Gilles his
salaries and to defray his expenses while he was engaged in the Project in India.
Again, the Agreement explicitly covers this obligation, viz.:

4. Remuneration and Expenses

During the period of assignment, CBI shall pay to SK a total monthly rate of
USD4,000.00, broken down as follows:
 USD
Basic Salary to B.C. Gilles 2,500.00
SK Office overhead and profit 1,500.00
Total monthly rate 4,000.00

In case B.C. Gilles' assignment commences or terminates during a month, a daily

rate of USD 140.00/per working day shall be used for calculating the payment to
SK.

The total monthly or daily rate is the full remuneration to SK for the services of B.C.
Gilles, and includes:

Salary to B.C. Gilles

Social charges

All personal insurances, including:

Health insurance

Travel insurance

Personal belongings insurance

Accident and life insurance

Employer's liability and workers compensation insurance

Leave pay and sick leave pay

Leave on official Indian Holidays and on non-Indian holidays

Taxes and duties

Relocation costs

All living expenses beyond the subsistence allowance

Third party motor vehicle liability insurance

xxx

The total monthly rate, the USD subsistence allowance, the international travel per
diem and expenses to be reimbursed by CBI shall be invoiced monthly and paid by
CBI to SK not later than 30 days after CBI's receipt from SK of invoice and
documentation acceptable to CBI including copies of receipts and filled in
timesheets approved by the AFL/CBI SPA. Payment shall be effected by a bank
transfer to a bank account informed by SK. CBI shall pay only for the bank charges
payable to CBI's bank.

Reimbursement of eligible expenses in INR shall be effected directly to B.C. Gilles in

India by the AFL/CBI SPA on behalf of CBI against presentation of receipts.47

SKI's failure to pay Gilles' salary on time was intolerable. For neglecting its duties
as an employer, SKI may, thus, be considered to have acted in bad faith. It may be
deemed as utter disregard by SKI of the welfare and well-being of its employee,
especially at a time when he was far away from home.

We, therefore, find that Gilles was constructively dismissed from employment.
Constructive dismissal exists when the employee involuntarily resigns due to the
harsh, hostile, and unfavorable conditions set by the employer. It arises when there
is clear discrimination, insensibility, or disdain by an employer and this becomes
unbearable to the employee.48

Invariably, the law recognizes and resolves such a situation in favor of the
employees in order to protect their rights from the coercive acts of the employer.
Resignation contemplates a voluntary act; thus, an employee who is forced to
relinquish his position due to the employer's unfair or unreasonable treatment is
deemed to have been illegally terminated or discharged. The test of constructive
dismissal is whether a reasonable person in the employee's position would have felt
compelled to give up his position under the circumstances.49

The disobedience committed by Gilles cannot be characterized as wrongful or

perverse per se, given the conditions he was subjected to while in India. He left the
Project primarily because of the financial difficulties he encountered, owing to his
failure to receive his salary and because of the adverse working conditions in
India.50 The Senior Project Advisor accelerated the time schedule of the Project, and
Gilles had to work on the job at an average of eighteen (18) hours daily.51 ςηαñrοb lε š νιr†υαl lαω lιb rαrÿ

Further, SKI alleges neglect of duty as a ground for dismissing Gilles, saying Gilles'
unceremonious return to the Philippines constituted abandonment. The contention
is untenable. As a just cause for an employee's dismissal, neglect of duty must not
only be gross but also habitual. A single or isolated act of negligence does not
constitute a just cause for the dismissal of the employee. Prior to his abrupt
departure from India, Gilles had no derogatory record in the company. Besides, if it
was true that the performance of Gilles was unsatisfactory or if he habitually
neglected his duties, SKI or CBI should have initiated his removal prior to his
departure from India. The Agreement52 contains an adequate provision for the
removal or replacement of Gilles if the employers are dissatisfied with his
performance. The said provision reads:

15. Removal and/or Replacement of Personnel

If CBI (i) finds that B.C. Gilles has conducted serious misconduct or has been
charged with having committed a criminal action, or (ii) has reasonable cause to be
dissatisfied with the performance of B.C. Gilles, then SK shall, at CBI's written
request specifying the ground thereof, forthwith provide a replacement with
qualifications and experience similar to B.C. Gilles or better and acceptable to CBI,
AFL and MOA.53

Article 279 of the Labor Code mandates that an employee who was unjustly
dismissed from work shall be entitled to reinstatement without loss of seniority
rights and other privileges and to his full backwages, inclusive of allowances, as
well as to other benefits or their monetary equivalent computed from the time his
compensation was withheld up to the time of his actual reinstatement. Since the
circumstances obtaining in this case do not warrant Gilles' reinstatement due to his
strained relations with the company, an award of separation pay, in lieu of
reinstatement, equivalent to one month pay for every year of service, in addition to
full backwages, allowances, and other benefits or the monetary equivalent thereof,
is in order.

As to the liability of Abores as President of SKI, it is basic that a corporation, being

a juridical entity, may act only through its directors, officers and employees.
Obligations incurred by them, while acting as corporate agents, are not their
personal liability but the direct accountability of the corporation they represent. As
a rule, they are only solidarily liable with the corporation for the termination of
employees if they acted with malice or bad faith.54 In the case at bar, malice or bad
faith on the part of Abores in the constructive dismissal of Gilles was not sufficiently
proven to justify holding him solidarily liable with SKI.

WHEREFORE, the assailed Decision dated January 29, 2001 and Resolution dated
June 14, 2001 of the Court of Appeals in CA-G.R. SP No. 58467 are hereby SET
ASIDE. Petitioner Bienvenido C. Gilles is awarded separation pay equivalent to one
month pay for every year of service and full backwages, other privileges and
benefits, or the monetary equivalent thereof, computed from the date of his illegal
dismissal on June 7, 1993 until the finality of this decision. Respondent Edgardo C.
Abores is ABSOLVED from any liability adjudged against co-respondent Schema
Konsult, Inc. Respondent Schema Konsult, Inc. is likewise ORDERED to pay Gilles
One Hundred Thousand Pesos (Php100,000.00) as moral damages.

SO ORDERED.