G.R. No.

119121 August 14, 1998

NATIONAL POWER CORPORATION, petitioner, vs.

COURT OF APPEALS, Fifteenth Division and PHESCO
INCORPORATED, respondents.

Facts:

On July 22, 1979, a convoy of four (4) dump trucks owned by the National
Power Corporation (NPC) left Marawi city bound for Iligan city. Unfortunately,
enroute to its destination, one of the trucks with plate no RFT-9-6-673 driven by
a certain Gavino Ilumba figured in a head-on-collision with a Toyota Tamaraw.
The incident resulted in the death of three (3) persons riding in the Toyota
Tamaraw, as well as physical injuries to seventeen other passengers.

On June 10, 1980, the heirs of the victims filed a complaint for damages against
National Power Corporation (NPC) and PHESCO Incorporated (PHESCO)
before the then Court of First Instance of Lanao del Norte, Marawi City. When
defendant PHESCO filed its answer to the complaint it contended that it was not
the owner of the dump truck which collided with the Toyota Tamaraw but NPC.
Moreover, it asserted that it was merely a contractor of NPC with the main duty
of supplying workers and technicians for the latter's projects. On the other hand,
NPC denied any liability and countered that the driver of the dump truck was the
employee of PHESCO.

The trial court rendered a decision dated July 25, 1988 absolving NPC of any
liability.

Dissatisfied, PHESCO appealed to the Court of Appeals, which on November

10, 1994 reversed the trial court's judgment. We quote the pertinent portion
of the decision:

A "labor only" contractor is considered merely as an agent of the

employer (Deferia vs. National Labor Relations Commission,
194 SCRA 525). A finding that a contractor is a "labor only"
contractor is equivalent to a finding that there is an employer-
employee relationship between the owner of the project and the
employees of the "labor only" contractor (Industrial Timer
Corporation vs. National Labor Relations Commission, 202
SCRA 465). So, even if Phesco hired driver Gavino Ilumba, as
Phesco is admittedly a "labor only" contractor of Napocor the
statute itself establishes an employer-employee relationship
between the employer (Napocor) and the employee (driver
 Ilumba) of the labor only contractor (Phesco). (Ecal vs. National
Labor Relations Commission, 195 SCRA 224).

Consequently, we hold Phesco not liable for the tort of driver

Gavino Ilumba, as there was no employment relationship
between Phesco and driver Gavino Ilumba. Under Article 2180
of the Civil Code, to hold the employer liable for torts committed
by his employees within the scope of their assigned task, there
must exist an employer-employee relationship. (Martin vs. Court
of Appeals, 205 SCRA 591).

WHEREFORE, we REVERSE the appealed decision. In lieu

thereof, the Court renders judgment sentencing defendant
National Power Corporation to pay plaintiffs the sum of
P174,889.20 plus P20,000.00 as attorney's fees and costs.

Chagrined by the sudden turnaround, NPC filed a motion for

reconsideration of said decision which was, however, denied on
February 9, 1995.

Issue: The principal query to be resolved is, as between NPC and

PHESCO, who is the employer of Ilumba, driver of the dumptruck
which figured in the accident and which should, therefore, would
be liable for damages to the victims.

As earlier stated, NPC denies that the driver of the dump truck was its
employee. It alleges that it did not have the power of selection and dismissal nor
the power of control over Ilumba. 3 PHESCO, meanwhile, argues that it merely
acted as a "recruiter" of the necessary workers for and in behalf of NPC. 4

Before we decide who is the employer of Ilumba, it is evidently necessary to

ascertain the contractual relationship between NPC and PHESCO. Was the
relationship one of employer and job (independent) contractor or one of
employer and "labor only" contractor?

Job (independent) contracting is present if the following conditions are met: (a)
the contractor carries on an independent business and undertakes the contract
work on his own account under his own responsibility according to his own
manner and method, free from the control and direction of his employer or
principal in all matters connected with the performance of the work except to the
result thereof; and (b) the contractor has substantial capital or investments in the
form of tools, equipment, machineries, work premises and other materials which
are necessary in the conduct of his business. 5 Absent these requisites, what
exists is a "labor only" contract under which the person acting as contractor is
considered merely as an agent or intermediary of the principal who is
responsible to the workers in the same manner and to the same extent as if they
had been directly employed by him. 6 Taking into consideration the above
distinction and the provisions of the "Memorandum of Understanding" entered
into by PHESCO and NPC, we are convinced that PHESCO was engaged in
"labor only" contracting.

It must be noted that under the Memorandum, NPC had mandate to approve the
"critical path network and rate of expenditure to be undertaken by
PHESCO. 7 Likewise, the manning schedule and pay scale of the workers hired
by PHESCO were subject to confirmation by NPC. 8 Then too, it cannot be
ignored that if PHESCO enters into any sub-contract or lease, again NPC's
concurrence is needed. 9 Another consideration is that even in the procurement
of tools and equipment that will be used by PHESCO, NPC's favorable
recommendation is still necessary before these tools and equipment can be
purchased. 10 Notably, it is NPC that will provide the money or funding that will
be used by PHESCO to undertake the project. 11 Furthermore, it must be
emphasized that the project being undertaken by PHESCO, i.e., construction of
power energy facilities, is related to NPC's principal business of power
generation. In sum, NPC's control over PHESCO in matters concerning the
performance of the latter's work is evident. It is enough that NPC has the right to
wield such power to be considered as the employer. 12

Under this factual milieu, there is no doubt that PHESCO was engaged in "labor-
only" contracting vis-à-vis NPC and as such, it is considered merely an agent of
the latter. In labor-only contracting, an employer-employee relationship between
the principal employer and the employees of the "labor-only" contractor is
created. Accordingly, the principal employer is responsible to the employees of
the "labor-only" contractor as if such employees had been directly employed by
the principal employer. 13 Since PHESCO is only a "labor-only" contractor, the
workers it supplied to NPC, including the driver of the ill-fated truck, should be
considered as employees of NPC. 14 After all, it is axiomatic that any person (the
principal employer) who enters into an agreement with a job contractor, either for
the performance of a specified work or for the supply of manpower, assumes
responsibility over the employees of the latter. 15

However, NPC maintains that even assuming that a "labor only" contract exists
between it and PHESCO, its liability will not extend to third persons who are
injured due to the tortious acts of the employee of the "labor-only"
contractor. 16 Stated otherwise, its liability shall only be limited to violations of the
Labor Code and not quasi-delicts.

To bolster its position, NPC cites Section 9(b), Rule VII, Book III of the Omnibus
Rules Implementing the Labor Code which reads:

(b) Labor only contracting as defined herein is hereby prohibited

and the person acting as contractor shall be considered merely
as an agent or intermediary of the employer who shall be
responsible to the workers in the same manner and extent as if
the latter were directly employed by him.
In other words, NPC posits the theory that its liability is limited only to
compliance with the substantive labor provisions on working conditions, rest
periods, and wages and shall not extend to liabilities suffered by third
parties, viz.:

Consequently, the responsibilities of the employer contemplated

in a "labor only" contract, should, consistent with the terms
expressed in the rule, be restricted "to the workers." The same
can not be expanded to cover liabilities for damages to third
persons resulting from the employees' tortious acts under Article
2180 of the Civil Code. 17

The reliance is misplaced. It bears stressing that the action was premised on the
recovery of damages as a result of quasi-delict against both NPC and PHESCO,
hence, it is the Civil Code and not the Labor Code which is the applicable law in
resolving this case.

To be sure, the pronouncement of this Court in Filamer Christian Institute v.

IAC, 18 is most instructive:

The present case does not deal with a labor dispute on

conditions of employment between an alleged employee and an
alleged employer. It invokes a claim brought by one for
damages for injury caused by the patently negligent acts of a
person, against both doer-employee and his employer. Hence,
the reliance on the implementing rule on labor to disregard the
primary liability of an employer under Article 2180 of the Civil
Code is misplaced. An implementing rule on labor cannot be
used by an employer as a shield to avoid liability under the
substantive provisions of the Civil Code.

Corollarily from the above doctrine, the ruling in Cuison v. Norton & Harrison
Co., 19 finds applicability in the instant case, viz.:

It is well to repeat that under the civil law an employer is only

liable for the negligence of his employees in the discharge of
their respective duties. The defense of independent contractor
would be a valid one in the Philippines just as it would be in the
United States. Here Ora was a contractor, but it does not
necessarily follow that he was an independent contractor. The
reason for this distinction is that the employer retained the
power of directing and controlling the work. The chauffeur and
the two persons on the truck were the employees of Ora, the
contractor, but Ora, the contractor, was an employee of Norton
& Harrison Co., charged with the duty of directing the loading
and transportation of the lumber. And it was the negligence in
loading the lumber and the use of minors on the truck which
caused the death of the unfortunate boy. On the facts and the
 law, Ora was not an independent contractor, but was the
servant of the defendant, and for his negligence defendant was
responsible.

Given the above considerations, it is apparent that Article 2180 of the Civil Code
and not the Labor Code will determine the liability of NPC in a civil suit for
damages instituted by an injured person for any negligent act of the employees
of the "labor only" contractor. This is consistent with the ruling that a finding that
a contractor was a "labor-only" contractor is equivalent to a finding that an
employer-employee relationship existed between the owner (principal
contractor) and the "labor-only" contractor, including the latter's workers. 20

With respect to the liability of NPC as the direct employer, Article 2180 of the
Civil Code explicitly provides:

Employers shall be liable for the damages caused by their

employees and household helpers acting within the scope of
their assigned tasks, even though the former are not engaged in
any business or industry.

In this regard, NPC's liability is direct, primary and solidary with PHESCO
and the driver. 21 Of course, NPC, if the judgment for damages is satisfied by it,
shall have recourse against PHESCO and the driver who committed the
negligence which gave rise to the action. 22

Finally, NPC, even if it truly believed that it was not the employer of the driver,
could still have disclaimed any liability had it raised the defense of due diligence
in the selection or supervision of PHESCO and Ilumba. 23 However, for some
reason or another, NPC did not invoke said defense. Hence, by opting not to
present any evidence that it exercised due diligence in the supervision of the
activities of PHESCO and Ilumba, NPC has foreclosed its right to interpose the
same on appeal in conformity with the rule that points of law, theories, issues of
facts and arguments not raised in the proceedings below cannot be ventilated
for the first time on appeal. 24 Consequently, its liability stands.

WHEREFORE, in view of the foregoing, the assailed decision of the Court of

Appeals dated November 10, 1994 and its accompanying resolution dated
February 9, 1995 are AFFIRMED without prejudice to the right of NPC to
demand from PHESCO and Ilumba reimbursement of the damages it would be
adjudged to pay to complainants. No costs.
G.R. No. L-9605 September 30, 1957
GAUDIOSO EREZO, ET AL., plaintiff-appellee, vs. AGUEDO
JEPTE, defendant-appellant

-Appeal from a judgment of the Court of First Instance of Manila ordering

defendant to pay plaintiff Gaudioso Erezo P3,000 on the death of Ernesto Erezo,
son of plaintiff Gaudioso Erezo.

Facts: Defendant-appellant is the registered owner of a six by six truck bearing

plate No. TC-1253. On August, 9, 1949, while the same was being driven by
Rodolfo Espino y Garcia, it collided with a taxicab at the intersection of San
Andres and Dakota Streets, Manila. As the truck went off the street, it hit Ernesto
Erezo and another, and the former suffered injuries, as a result of which he died.
The driver was prosecuted for homicide through reckless negligence in criminal
case No. 10663 of the Court of First Instance of Manila. The accused pleaded
guilty and was sentenced to suffer imprisonment and to pay the heirs of Ernesto
Erezo the sum of P3,000. As the amount of the judgment could not be enforced
against him, plaintiff brought this action against the registered owner of the
truck, the defendant-appellant. The circumstances material to the case are
stated by the court in its decision.

The defendant does not deny at the time of the fatal accident the cargo
truck driven by Rodolfo Espino y Garcia was registered in his name. He,
however, claims that the vehicle belonged to the Port Brokerage, of
which he was the broker at the time of the accident. He explained, and
his explanation was corroborated by Policarpio Franco, the manager of
the corporation, that the trucks of the corporation were registered in his
name as a convenient arrangement so as to enable the corporation to
pay the registration fee with his backpay as a pre-war government
employee. Franco, however, admitted that the arrangement was not
known to the Motor Vehicle Office.

The trial court held that as the defendant-appellant represented himself to be the
owner of the truck and the Motor Vehicle Office, relying on his representation,
registered the vehicles in his name, the Government and all persons affected by
the representation had the right to rely on his declaration of ownership and
registration. It, therefore, held that the defendant-appellant is liable because he
cannot be permitted to repudiate his own declaration. (Section 68 [a], Rule 123,
and Art. 1431, New Civil Code.).

Against the judgment, the defendant has prosecuted this appeal claiming that at
the time of the accident the relation of employer and employee between the
driver and defendant-appellant was not established, it having been proved at the
trial that the owner of the truck was the Port Brokerage, of which defendant-
appellant was merely a broker. We find no merit or justice in the above
contention. In previous decisions, We already have held that the registered
owner of a certificate of public convenience is liable to the public for the injuries
or damages suffered by passengers or third persons caused by the operation of
said vehicle, even though the same had been transferred to a third person.
(Montoya vs. Ignacio, 94 Phil., 182). The principle upon which this doctrine is
based is that in dealing with vehicles registered under the Public Service Law,
the public has the right to assume or presume that the registered owner is the
actual owner thereof, for it would be difficult for the public to enforce the actions
that they may have for injuries caused to them by the vehicles being negligently
operated if the public should be required to prove who the actual owner is. How
would the public or third persons know against whom to enforce their rights in
case of subsequent transfers of the vehicles? We do not imply by this doctrine,
however, that the registered owner may not recover whatever amount he had
paid by virtue of his liability to third persons from the person to whom he had
actually sold, assigned or conveyed the vehicle.

Under the same principle the registered owner of any vehicle, even if not used
for a public service, should primarily be responsible to the public or to third
persons for injuries caused the latter while the vehicle is being driven on the
highways or streets. The members of the Court are in agreement that the
defendant-appellant should be held liable to plaintiff-appellee for the injuries
occasioned to the latter because of the negligence of the driver even if the
defendant-appellant was no longer the owner of the vehicle at the time of the
damage because he had previously sold it to another. What is the legal basis for
his (defendant-appellant's) liability?.

There is a presumption that the owner of the guilty vehicle is the defendant-
appellant as he is the registered owner in the Motor Vehicle Office. Should he
not be allowed to prove the truth, that he had sold it to another and thus shift the
responsibility for the injury to the real and actual owner? The defendant holds
the affirmative of this proposition; the trial court held the negative.

The Revised Motor Vehicle Law (Act No. 3992, as amended) provides that no
vehicle may be used or operated upon any public highway unless the same is
properly registered. It has been stated that the system of licensing and the
requirement that each machine must carry a registration number, conspicuously
displayed, is one of the precautions taken to reduce the danger of injury to
pedestrians and other travelers from the careless management of automobiles,
and to furnish a means of ascertaining the identity of persons violating the laws
and ordinances, regulating the speed and operation of machines upon the
highways (2 R. C. L. 1176). Not only are vehicles to be registered and that no
motor vehicles are to be used or operated without being properly registered for
the current year, but that dealers in motor vehicles shall furnish the Motor
Vehicles Office a report showing the name and address of each purchaser of
motor vehicle during the previous month and the manufacturer's serial number
and motor number. (Section 5 [c], Act. No. 3992, as amended.).

Registration is required not to make said registration the operative act by which
ownership in vehicles is transferred, as in land registration cases, because the
administrative proceeding of registration does not bear any essential relation to
the contract of sale between the parties (Chinchilla vs. Rafael and Verdaguer, 39
Phil. 888), but to permit the use and operation of the vehicle upon any public
highway (section 5 [a], Act No. 3992, as amended).The main aim of motor
vehicle registration is to identify the owner so that if any accident happens, or
that any damage or injury is caused by the vehicles on the public highways,
responsibility therefore can be fixed on a definite individual, the registered
owner. Instances are numerous where vehicles running on public highways
caused accidents or injuries to pedestrians or other vehicles without positive
identification of the owner or drivers, or with very scant means of identification. It
is to forestall those circumstances, so inconvenient or prejudicial to the public,
that the motor vehicle registration is primarily ordained, in the interest of the
determination of persons responsible for damages or injuries caused on public
highways.

One of the principal purposes of motor vehicles legislation is

identification of the vehicle and of the operator, in case of accident; and
another is that the knowledge that means of detection are always
available may act as a deterrent from lax observance of the law and of
the rules of conservative and safe operation. Whatever purpose there
may be in these statutes, it is subordinate at the last to the primary
purpose of rendering it certain that the violator of the law or of the rules
of safety shall not escape because of lack of means to discover him."
The purpose of the statute is thwarted, and the displayed number
becomes a "snare and delusion," if courts will entertain such defenses
as that put forward by appellee in this case. No responsible person or
corporation could be held liable for the most outrageous acts of
negligence, if they should be allowed to place a "middleman" between
them and the public, and escape liability by the manner in which they
recompense their servants. (King vs. Brenham Automobile Co., 145 S.
W. 278,279.)

With the above policy in mind, the question that defendant-appellant poses is:
should not be registered owner be allowed at the trial to prove who the actual
and real owner is, and in accordance with such proof escape or evade
responsibility and lay the same on the person actually owning the vehicle? We
hold with the trial court that the laws does not allow him to do so; the law, with its
aim and policy in mind, does not relieve him directly of the responsibility that the
law fixes and places upon him as an incident or consequence of registration.
Were a registered owner allowed to evade responsibility by proving who the
supposed transferee or owner is, it would be easy for him, by collusion with
others or otherwise, to escape said responsibility and transfer the same to an
indefinite person, or to one who possesses no property with which to respond
financially for the damage or injury done. A victim of recklessness on the public
highways is usually without means to discover or identify the person actually
causing the injury or damage. He has no means other than by a recourse to the
registration in the Motor Vehicles Office to determine who is the owner. The
protection that the law aims to extend to him would become illusory were the
registered owner given the opportunity to escape liability by disproving his
ownership. If the policy of the law is to be enforced and carried out, the
registered owner should be allowed to prove the contrary to the prejudice of the
person injured that is, to prove that a third person or another has become the
owner, so that he may thereby be relieved of the responsibility to the injured
person.1âwphïl.nêt

The above policy and application of the law may appear quite harsh and would
seem to conflict with truth and justice. We do not think it is so. A registered
owner who has already sold or transferred a vehicle has the recourse to a third-
party complaint, in the same action brought against him to recover for the
damage or injury done, against the vendee or transferee of the vehicle. The
inconvenience of the suit is no justification for relieving him of liability; said
inconvenience is the price he pays for failure to comply with the registration that
the law demands and requires.

In synthesis, we hold that the registered owner, the defendant-appellant herein,

is primarily responsible for the damage caused to the vehicle of the plaintiff-
appellee, but he (defendant-appellant) has a right to be indemnified by the real
or actual owner of the amount that he may be required to pay as damage for the
injury caused to the plaintiff-appellant.1âwphïl.nêt

Bengzon, Paras, C.J., Bautista Angelo, Concepcion, Reyes, J. B. L., and Felix,
JJ., concur. Montemayor, J., concurs in the result.