Atty.

Duhaylongsod (Study Guide)

7.1.1. When Done Outside of Agent’s Authority: Principal Not
Bound (Art. 1910)

Where the memorial park company has authorized its agent to solicit and
remit offers to purchase internment spaces obtained on forms provided by
the company, then the terms of the offer to purchase, therefore, are
contained in such forms and, when signed by the buyer and an authorized
officer of the company, becomes binding on both the company and said
buyer. And the fact that the buyer and the agent had an agreement different
from that contained in the forms accepted does not bind the company, since
the same were made obviously outside the agent’s authority. When the power
of the agent to sell are governed by the written form, it is beyond the
authority of the agent as a fact that is deemed known and accepted by the
third person, to offer terms and conditions outside of those provided in
writing. READ: Manila Memorial Park Cemetery v. Linsangan, G.R.
No. 151319, 443 SCRA 377, 22 November 2004.

7.1.2. Exceptions

NOTE: These are: a) When Principal Ratifies, Expressly or Impliedly (Art.

1901); and, b) Where Agent Acts in Excess of Authority, Where the Principal
Allowed Agent to Act as Though Agent Had Full Powers (Art. 1911): i)
Exception to the Rule that Obligations Are Presumed to Be Joint; ii)
Doctrine of Apparent Authority; and, iii) Agency by Estoppel.

WHEN PRINCIPAL RATIFIES, EXPRESSLY OR IMPLIEDLY (ART. 1901).

Since the general rule is that the principal is bound by the acts of his agent in
the scope of the agency, therefore when the agent had full authority to make
the tax returns and file them, together with the check payments, with the
Collector of Internal Revenue on behalf of the principal, then the effects of
dishonesty of the agent must be borne by the principal, not by an innocent
third party who has dealt with the dishonest agent in good faith. Lim Chai
Seng v. Trinidad, 41 Phil. 544 (1921).

SAME. A person with whom an agent has contracted in the name of his
principal, has a right of action against the purported principal, even when the
latter denies the commission or authority of the agent, in which case the
party suing has the burden of proving the existence of the agency
notwithstanding the purported principal’s denial thereof. If the agency
relation is proved, then the principal shall be held liable, and the agent who is
made a party to the suit cannot be held personally liable. On the other hand,
if the agency relationship is not proven, it would be the agent who would
become liable personally on the contract entered into. Nantes v. Madriguera, 42
Phil. 389 (1921).

SAME. Where a sale of land is effected through an agent who made

misrepresentations to the buyer that the property can be delivered physically
to the control of the buyer when in fact it was in adverse possession of third
parties, the seller-principal is bound for such misrepresentations and cannot
insist that the contract is valid and enforceable; the seller-principal cannot
accept the benefits derived from such representations of the agent and at the
same time deny the responsibility for them. Gonzales v. Haberer, 47 Phil. 380
(1925).

SAME. When an agent has been empowered to sell hemp in a foreign

country, that express power carries with it the implied power to make and
enter into the usual and customary contract for its sale, which sale contract
may provide for settlement of issues by arbitration. “We are clearly of the
opinion that the contract in question is valid and binding upon the defendant
[principal], and that authority to make and enter into it for and on behalf of
the defendant [principal], but as a matter of fact the contract was legally
ratified and approved by the subsequent acts and conducts of the defendant
[principal]. Robinson, Fleming and Co. v. Cruz, 49 Phil. 42 (1926).

SAME. The authority to sell any kind of realty that “might belong” to the
principal was held to include also such as the principal might afterwards have
during the time it was in force. Katigbak v. Tai Hing Co., 52 Phil. 622 (1928).

SAME. The registered owner who placed in the hands of another an executed
document of transfer of the registered land, was held to have effectively
represented to a third party that the holder of such document is authorized
to deal with the property. Blondeau v. Nano,. 61 Phil. 625 (1935); Domingo v.
Robles, 453 SCRA 812 (2005).

SAME. When the principal has duly empowered his agent to enter into a
contract of mortgage over his property as well as a contract of surety, but the
agent only entered into a contract of mortgage, no inference from the power
of attorney can be made to make the principal liable as a surety, because
under the law, a surety must be express and cannot be presumed. Wise and
Co. v. Tanglao, 63 Phil. 372 (1936).

SAME. When bank officers, acting as agent, had not only gone against the
instructions, rules and regulations of the bank in releasing loans to numerous
borrowers who were qualified, then such bank officers are liable personally
for the losses sustained by the bank. The fact that the bank had also filed
suits against the borrowers to recover the amounts given does not amount to
ratification of the acts done by the bank officers. PNB v. Bagamaspad, 89 Phil.
365 (1951).

SAME. As a general rule, the mismanagement of the business of a party by his

agents does not relieve said party from the responsibility that he had
contracted with third persons. Commercial Bank & Trust Co. v. Republic Armored
Car Services Corp., 8 SCRA 425 (1963).

SAME. Pursuant to the terms of the judgment, petitioners had issued a check
in payment of the judgment debt and made arrangements with the bank for
the latter to allow the encashment thereof; but the check was dishonored by
the bank which increased the amount of the judgment debt. When the
petitioner sought not to be made liable for the alleged “oversight” of the
bank, the Court denied such defense on the ground that “The principal is
responsible for the acts of the agent, done within the scope of his authority,
and should bear the damages caused upon third parties. If the fault or
oversight lies on the agent bank, the petitioners are free to sue said bank for
damages occasioned thereby.” Lopez v. Alvendia, 12 SCRA 634 (1964).

SAME. Where the principal issued the checks in full payment of the taxes
due, but his agents had misapplied the check proceeds, it was held that the
principal would still be liable, because when a contract of agency exists, the
agent’s acts bind his principal, without prejudice to the latter seeking recourse
against the agent in an appropriate civil or criminal action. Dy Peh v. Collector
of Internal Revenue, 28 SCRA 216 (1969).

SAME. Under the principle that knowledge of the agent is considered

knowledge by the principle, the Court ruled that the spouses cannot defend
by contending lack of knowledge of the rules upon which they received their
tickets from the airline company since the evidence bore out that their travel
agent, who handled their travel arrangements, was duly informed by proper
representatives of the airline company. Air France v. Court of Appeals, 126
SCRA 448 (1983).

SAME. When a third party admitted in her written correspondence that she
had contracted with the principal through an duly authorized agent, and then
sues both the principal and the agent on an alleged breach of that contract,
and in fact later on dismisses the suit insofar as the principal is concerned,
there can be no cause of action against the agent. Since it is the principal who
should be answerable for the obligation arising from the agency, it is obvious
that if a third person waives his claims against the principal, he cannot assert
them against the agent. Bedia v. White, 204 SCRA 273 (1991).

SAME. The fact that the agent defrauded the principal in not turning over the
proceeds of the transactions to the latter cannot in any way relieve or
exonerate such principal from liability to the third persons who relied on his
agent’s authority. It is an equitable maxim that as between two innocent
parties, the one who made it possible for the wrong to be done should be the
one to bear the resulting loss. READ: Cuison v. Court of Appeals, G.R.
No. 88539, 227 SCRA 391, 26 October 1993.

SAME. On the basis of the general principle that “the principal is responsible
for the acts of the agent, done within the scope of his authority, and should
bear the damage caused to third persons,” the principal cannot absolve itself
from the damages sustained by its buyer on the premise that the fault was
primarily caused by its agent in pointing to the wrong lot, since the agent
“was acting within its authority as the sole real estate representative [of the
principal-seller] when it made the delivery to” the buyer, although “[i]n acting
within its scope of authority, [the agent] was, however, negligent,” since it is
negligence that is the basis of principal’s liability since under Arts. 1909 and
1910, the liability of the principal for acts done by the agent within the scope
of his authority do not exclude those done negligently. READ: Pleasantville
Dev. v. Court of Appeals, G.R. No. 79688, 253 SCRA 10, 01 February
1996.

SAME. When a bank, by its acts and failure to act, has clearly clothed its
manager with apparent authority to sell an acquired asset (piece of land) in
the normal course of business, it is legally obliged to confirm the transaction
by issuing a board resolution to enable the buyers to register the property in
their names. Rural Bank of Milaor v. Ocfemia, 325 SCRA 99 (2000).

SAME. “Ratification in agency is the adoption or confirmation by one person

of an act performed on his behalf by another without authority. The
substance of the doctrine is confirmation after conduct, amounting to a
substitute for a prior authority. Ordinarily, the principal must have full
knowledge at the time of ratification of all the material facts and
circumstances relating to the unauthorized act of the person who assumed to
act as agent. Thus, if material facts were suppressed or unknown, there can
be no valid ratification and this regardless of the purpose or lack thereof in
concealing such facts and regardless of the parties between whom the
question of ratification may arise. Nevertheless, this principle does not apply
if the principal’s ignorance of the material facts and circumstances was
willful, or that the principal chooses to act in ignorance of the facts.
However, in the absence of circumstances putting a reasonably prudent man
on inquiry, ratification cannot be implied as against the principal who is
ignorant of the facts.” Thus, the acts of an agent beyond the scope of his
authority do not bind the principal, unless he ratifies them, expressly or
impliedly. Only the principal can ratify; the agent cannot ratify his own
unauthorized acts. Moreover, the principal must have knowledge of the acts
he is to ratify.” READ: Manila Memorial Park Cemetery v. Linsangan,
G.R. No. 151319, 443 SCRA 377, 22 November 2004

SAME. Since the basis of agency is representation, then the question of

whether an agency has been created is ordinarily a question which may be
established in the same way as any other fact, either by direct or
circumstantial evidence. Though that fact or extent of authority of the agents
may not, as a general rule, be established from the declarations of the agents
alone, if one professes to act as agent for another, she may be estopped to
deny her agency both as against the asserted principal and the third persons
interested in the transaction in which he or he is engaged. Doles v. Angeles, 492
SCRA 607 (2006).

SAME. The general rule is that the principal is responsible for the acts of its
agent done within the scope of its authority, and should bear the damage
caused to third persons. When the agent exceeds his authority, the agent
becomes personally liable for the damage. But even when the agent exceeds
his authority, the principal is still solidarily liable together with the agent if
the principal allowed the agent to act as though the agent had full powers. In
other words, the acts of an agent beyond the scope of his authority do not
bind the principal, unless the principal ratifies them, expressly or implied.
Ratification in agency is the adoption or confirmation by one person of an
act performed on his behalf by another without authority.” READ:
Filipinas Life Assurance Co. v. Pedroso, G.R. No. 159489, 543 SCRA
542, 04 February 2008.

SAME. Under Article 1898 and 1910, an agent’s act, even if done beyond the
scope of his authority, may bind the principal if he ratifies them, whether
expressly or tacitly. It must be stressed though that only the principal, and
not the agent, can ratify the unauthorized acts, which the principal must have
knowledge of. Thus, where the special power of attorney that an agent for
the insurance company provides clearly the limit of the entities to whom he
can issue a surety bond, as well as the limit of the amounts that it can cover,
an insured who does not fall within such authority cannot claim good faith as
to make the surety issued outside of the scope of authority binding on the
principal insurance company. Country Bankers Insurance Corp. v Keppel Cebu
Shipyard, 673 SCRA 427 (2012).

WHERE AGENT ACTS IN EXCESS OF AUTHORITY, WHERE THE

PRINCIPAL ALLOWED AGENT TO ACT AS THOUGH AGENT HAD FULL
POWERS (ART. 1911). DOCTRINE OF APPARENT AUTHORITY. The
doctrine of apparent authority focuses on two factors, first the principal’s
manifestations of the existence of agency which need not be expressed, but
may be general and implied, and second is the reliance of third persons upon
the conduct of the principal or agent. Under the doctrine, the question in
every case is whether the principal has by his voluntary act placed the agent
in such a situation that a person of ordinary prudence, conversant with
business usages and the nature of the particular business, is justified in
presuming that such agent has authority to perform the particular act in
question. Professional Services, Inc. v. CA, 544 SCRA 170 (2008); 611 SCRA 282
(2010).

SAME. SAME. Easily discernible from the foregoing is that apparent authority
is determined only by the acts of the principal and not by the acts of the
agent. The principal is, therefore, not responsible where the agent’s own
conduct and statements have created the apparent authority. Sargasso
Construction & Dev. Corp. v. PPA, 623 SCRA 260 (2010).

SAME. SAME. There can be no apparent authority of an agent without acts or

conduct on the part of the principal, which must have been known and relied
upon in good faith as a result of the exercise of reasonable prudence by a
third party claimant, and which must have produced a change of position to
the third party’s detriment. Therefore, there is no basis for the courts to
apply the doctrine where there is no evidence showing the manner by which
the supposed principal, has “clothed” or “held out” its branch manager as
having the power to enter into an agreement, as claimed by petitioners.
Banate v. Philippine Countryside Rural Bank, 625 SCRA 21 (2010).

SAME. AGENCY BY ESTOPPEL. By the opening of branch office with the

appointment of its branch manager and honoring several surety bonds issued
in its behalf, the insurance company induced the public to believe that its
branch manager had authority to issue such bonds. As a consequence, the
insurance company was estopped from pleading, particularly against a regular
customer thereof, that the branch manager had no authority. Central Surety &
Insurance Co. v. C.N. Hodges, 38 SCRA 159 (1971).
SAME. SAME. Even when the agent of the real estate company acts
unlawfully and outside the scope of authority, the principal can be held liable
when by its own act it accepts without protest the proceeds of the sale of the
agents which came from double sales of the same lots, as when learning of
the misdeed, it failed to take necessary steps to protect the buyers and failed
to prevent further wrong from being committed when it did not advertise the
revocation of the authority of the culprit agent. In such case the liabilities of
both the principal and the agent is solidary. READ: Manila Remnant Co.,
Inc. v. Court of Appeals, G.R. No. 82978, 191 SCRA 622, 22 November
1990.

SAME. SAME. For an agency by estoppel to exist, the following must be

established: (1) the principal manifested a representation of the agent’s
authority or knowingly allowed the agent to assume such authority; (2) the
third person, in good faith, relied upon such representation; (3) relying upon
such representation, such third person has changed his position to his
detriment. An agency by estoppel, which is similar to the doctrine of
apparent authority, requires proof of reliance upon the representations, and
that, in turn, needs proof that the representations predated the action taken
in reliance. READ: Litonjua, Jr. v. Eternit Corp., G.R. No. 144805, 490
SCRA 204, 08 June 2006.

SAME. SAME. For one to successfully claim the benefit of estoppel on the
ground that he has been misled by the representations of another, he must
show that he was not misled through his own want of reasonable care and
circumspection. Country Bankers Insurance Corporation v. Keppel Cebu Shipyard,
673 SCRA 427 (2012).

SAME. SAME. Innocent third persons should not be prejudiced if the

principal failed to adopt the needed measures to prevent misrepresentation,
much more so if the principal ratified his agent’s acts beyond the latter’s
authority. Filipinas Life Assurance Co. v. Pedroso, 543 SCRA 542 (2008).

SAME. SAME. The law makes no presumption of agency and proving its
existence, nature and extent is incumbent upon the person alleging its
existence, nature and extent is incumbent upon the person alleging it. An
agency by estoppel, which is similar to the doctrine of apparent authority
requires the proof of reliance upon the representation, and that, in turn,
needs proof that the representations predated the action taken in reliance.
Yun Kwan Byung v. PAGCOR, 608 SCRA 107 (2009).
De Leon (pages 557-563)
ART. 1911. Even when the agent has exceeded his authority,
the principal is solidarily liable with the agent if the former
allowed the latter to act as though he had full powers. (n)

Meaning of estoppel.
Estoppel is a bar which precludes a person from denying or asserting
anything contrary to that which has been established as the truth by his
own deed or representation either express or implied. (19 Am. Jur. 601.)
Through estoppel, an admission or representation is thus rendered
conclusive upon the person making it and cannot be denied or disproved
as against the person relying thereon. (Art. 1431.)

Ratification and estoppel distinguished.

Ratification differs from estoppel mainly in that the former rests on
intention, express or implied, regardless of prejudice to another, whereas
estoppel rests on prejudice rather than intention. (3 Am. Jur. 2d 549.) In
other words, in the former, the party is bound because he intended to be,
while in the latter, he is bound notwithstanding the absence of such
intention because the other party will be prejudiced and defrauded by his
conduct, unless the law treats him as legally bound. (Forsythe vs. Day, 46
Me. 175, cited in Teller, pp. 81-82.)

While ratification is retroactive and makes the agent’s unauthorized

act good from the beginning, estoppel operates upon something which has
been done but after the misleading act and in reliance on it and may only
extend to so much of such act as can be shown to be affected by the
estopping conduct. (Woodworth vs. School Dist. No. 2, Stevens Country,
159 P. 757, 92 Washington 456; 2 C.J.S. 1070.) Stated otherwise,
ratification affects the entire transaction and from the beginning, while
estoppel affects only the relevant parts of the transaction and from that
time only when estoppel may be said to be spelled out. (Federal Garage,
Inc. vs. Prenner, 106 Vt. 222, cited in Teller, p. 82.)

Ratification by a principal of an unauthorized act of his agent has

occasionally been grounded upon the doctrine of an equitable estoppel. A
clear distinction, however, exists between an estoppel in pais9 (or by
conduct) and ratification. The substance of ratification is confirmation of
the unauthorized act or contract after it has been done or made, whereas,
the substance of estoppel is the principal’s inducement to another to act to
his prejudice. Acts and conduct amounting to an estoppel in pais may in
some instances amount to a ratification; but on the other hand, ratification
may be complete without any elements of estoppel. (2 C.J. 469.)
So far as the rights of third persons are concerned, however, the
distinctions are of little importance because the principal is bound by the
acts of the agent whether the conduct of the principal constitutes
ratification or whether it constitutes estoppel.

ILLUSTRATIVE CASES:
Principal did not deny power of agent to consummate
contract after being fully notified thereof.
Facts: A, P’s agent, authorized to secure saloon-keepers who
would sell P’s beer exclusively, guaranteed on P’s behalf, the
payment of rent by such a saloon-keeper. P, being informed of this,
did nothing.
Issue: Is P answerable for A’s act?
Held: Yes. “In the case at bar, it is possible that the extension
of the term of the lease and the reduction of the monthly rent might
be regarded as creating an equitable estoppel, but however that
may be, we rest our decision upon an implied ratification by the
defendant [P] of its agent’s unauthorized assumption of authority,
by failing, when fully notified thereof, promptly to deny his power
to consummate the agreement.” (Depot Realty Syndicate vs.
Enterprise Brewing Co., 87 Ore. 560, 171, p. 223 [1918].)

Note: “A distinction has been made between the acts of an

agent who has gone beyond his authority and those of a mere
stranger intermeddling in affairs with which he is in no way
connected. In the case of a stranger, it has been said that the act
will not be binding upon the principal unless expressly ratified by
him. But the better opinion appears to be that, as in the case where
an agency exists, the approval of the principal may be inferred
from his silence and acquiescence when informed of what has been
 done in his name. But all agree that the relations of the parties are
of great consequence in determining the question of ratification,
the presumption arising from acquiescence being very much
stronger where the agency exists than in the case of a mere
stranger.” (Union Gold Mining Co. vs. Rocky Mountain Nat. Bank,
2 Colo. 248 [1873].)
________ ________ ________
Purported maker of note asked for additional time within
which to pay, and later claimed that it was made in his name
without authority by a broker who had died.
Facts: When T, holder of a note, proposed to enforce it, P (purported
maker of the note) had sought and secured additional time from T. When
T again took steps to enforce the note, P set up the claim that the note had
been made in his name by his brother (now dead) without authority.
Issue: Is P estopped to set up his claim?
Held: Yes. He was fully aware of the facts surrounding the transaction
when he accepted from T further indulgence and forbearance. His brother
was then living and the note was not barred by the statute of limitations. P
made no contention at that time that the note was not genuine. By
remaining silent when it was his duty to speak, P has disadvantaged T. He
ought not to be heard now in repudiation of his former conduct.
________ ________ ________
Silence of depositor to forgery of his name was after the
checks were already forged and paid.
Facts: W told her husband P that there was no more money
from his account in the bank, as it had all been drawn out to pay
moneys to W’s sister to enable her to fight a case about a house. W
declined to say who had forged P’s name, but she persuaded him
not to go to the bank until her sister’s case was finished. He
consented not to do so. Nothing more happened after eight (8)
months when P again raised the question.
Doubting the truth about W’s sister, P told W he would go to
the bank. W thereupon shot herself.
Issue: Did P, by his silence, ratify or adopt the forged checks as
his own? Was he estopped by his silence from alleging that his
signatures were forgeries?
 Held: No. All the checks were forged and paid before the
silence; no checks were forged after the silence. The silence could
not be the proximate cause of the bank’s mistake. The bank was in
no worse position than it was at the time when it was within the
power of P to give the information.
But if the silence of P has caused the bank to lose its right of
action against the forger, P is estopped from alleging the fact
which he ought to have disclosed — namely, that the checks were
forged. In the present case, while the carelessness of the bank was
the proximate cause of the bank’s loss in paying the forged checks,
it was not the proximate cause of the bank’s losing its right of
action against the forger. This was caused by the failure of P to
inform the bank of the forgery till his wife was dead and the cause
of action was lost. (Greenwood vs. Martins Bank, Ltd., 1 K.B. 371
[1913].)

When principal solidarily liable with

the agent.
Under Article 1911, the agent must have acted in the name of a
disclosed principal and the third person was not aware of the limits of the
power granted by the principal. (See Art. 1898.)
Article 1911 is based on the principle of estoppel and it is necessary for
the protection of innocent third persons. It is an instance when solidarity is
imposed by law. (Arts. 1207, 1208.) Both the principal and the agent may
be considered as joint tortfeasors whose liability is solidary. (Verzosa vs.
Lim, 45 Phil. 416 [1923]; see Cuison vs. Court of Appeals, 227 SCRA 391
[1993]; Lustan vs. Court of Appeals, 266 SCRA 663 [1997].)
The third person with whom the agent dealt may sue either the agent
or the principal alone, or both. The agent should be exempt from liability
if he acted in good faith.

Apparent authority distinguished from

authority by estoppel.
Apparent authority is that which though not actually granted, the
principal knowingly permits the agent to exercise or holds him out as
possessing. Authority by estoppel arises in those cases where the principal,
by his culpable negligence, permits his agent to exercise powers not
granted to him, even though the principal may have no notice or
knowledge of the conduct of the agent.
Apparent authority is not founded in negligence of the principal but in
the conscious permission of acts beyond the powers granted, whereas the
rule of estoppel has its basis in the negligence of the principal in failing
properly to supervise the affairs of the agent, allowing him to exercise
powers not granted to him, and so justifies others in believing he possesses
the requisite authority. (Mechem on Agency, Sec. 720; 3 C.J.S. 139.)
The doctrine of powers by estoppel can apply only in those cases in
which a third party acted to his detriment in reliance upon the appearance
of authority the principal has held the agent out as having. (see Art. 1898.)
The presence of such reliance is unnecessary to spell out an apparent
authority.

EXAMPLE:
P authorized A to sell P’s land, the purchase price payable to P in
12 monthly installments. A sold the land to T. If P knowingly
permits A to collect from T, A may be said to have apparent
authority to receive payment. But if A collects from T without
informing P but under such circumstances as to charge P with
knowledge of such collection, as where T has not paid him even a
single installment notwithstanding that several months have
already passed, there arises in this case authority by estoppel
founded on the negligence of P.

ILLUSTRATIVE CASES:
Impostor who appeared to be a hotel clerk absconded with
the valuables of a lodger.
Facts: T came to the hotel of P late at night; one A, who was in
fact a lodger but who “appeared to be in charge,” went behind the
counter, had T register, showed him to a room, and received and
signed a receipt for certain valuables on behalf of the hotel. A
absconded with the valuables during the night.
Issue: Is P liable to T?
Held: Yes. An agency may be created by estoppel, and that
estoppel may be allowed on the ground of negligence or fault on
the part of the principal, upon the principle that when one of two
 innocent parties must suffer loss, the loss will fall on him whose
conduct brought about the situation.
Here P, the proprietor of the hotel, left A in the office either
designedly or negligently, clothed with apparent authority to do
what hotel clerks usually do, and one (T) who came in for the
purpose of becoming a guest, and did become a guest, must
reasonably conclude that he (A) had apparent authority to do what
clerks under similar circumstances would have a right to do.
(Kanelles vs. Locke, 31 O.C.A. 280 [1919].)
________ ________ ________
After selling his business, seller held out buyer as his agent
in the conduct of the business.
Facts: After selling his business to A, P took out a license for
the business in his own (P’s) name, leaving A in charge of the
business conducted under his license, leaving his (P’s) name on
the sign over the store, directing T to “deliver his goods to A,”
followed by the conduct of A in receiving the goods shipped
and invoiced to P.
Issue: Upon the facts, is T justified in believing that A was
acting as agent of P?
Held: Yes. P, by his conduct, put it in the power of A to hold
himself out as his agent, thereby inducing T to sell and ship the
good’s on P’s credit. The liability of P rests upon the familiar
principle that, when one of two innocent persons must sustain a
loss, the law will place it upon the one whose conduct, either
intentionally or negligently, misleads the other. (Metzger vs.
Whitehurst, 60 S.E. 907 [1908].)

Implied agency distinguished from

agency by estoppel.
Implied agency should be distinguished from agency by estoppel.

In the former, there is an actual agency. The principal alone is liable.

In an agency by estoppel, the authority of the agent is not real but only
apparent:
 If the estoppel is caused by the principal, he is liable to any
third person who relied on the misrepresentation.
If the estoppel is caused by the agent, then only the agent is
liable.

EXAMPLES:
P tells X that A is authorized to sell certain merchandise. P
privately instructs A not to consummate the sale but merely to find
out the highest price X is willing to pay for the merchandise. If A
makes a sale to X, the sale is binding on P who is in estoppel to
deny A’s authority.
In this case, there is no agency created but there is a power
created in A to create contractual relations between P and X,
without having authority to do so. The legal result is the same as if
A had authority to sell.
P authorized A to sell the former’s car. A sold the car to X
who paid A the purchase price. However, A did not give the
money to P. X is not liable to P. A has implied authority to receive
payment.
Discussion:
What is the consequence if the agent acts beyond the scope of
authority? Article 1910 (2) provides as for any obligation wherein
the agent has exceeded his power, the principal is not bound
except when he ratifies it expressly or tacitly.

If the principal is not bound, who should be bound? The agent.

Generally speaking, when the agent acts beyond the scope of
authority, the principal is not bound except:

1. When the principal ratifies;

2. Article 1911 (Doctrine of Apparent Authority)
 Even when the agent has exceeded his authority, the
principal is solidarily liable with the agent if the former
allowed the latter to act as though he had full powers.

Doctrine of apparent authority is distinct from an agency of

estoppel.

Take note: Doctrine of apparent authority it is important because

there is third person to rely on the actuation of the agent and the
principal. If there is no third person who relies on the apparent
authority then there is no need to apply Art. 1911. Remember,
commercial contracts tend to protect the innocent third parties.

Agency by estoppel (Read the case of Manila Remnant Co., Inc.

vs. CA & Litonjua, Jr. vs. Eternity Corporation)
 Doctrine of apparent authority is similar but they are
difference on how they arise.

Doctrine of apparent authority or the holding out theory;

or doctrine of ostensible agency or agency by estoppel

This doctrine imposes liability, not as the result of the reality of a

contractual relationship, but rather because of the actions of a
principal or an employer in somehow misleading the public into
believing that the relationship or the authority exists. (Irving v.
Doctors Hospital of Lake Worth, Inc., 415 So. 2d 55 (1982), quoting
Arthur v. St. Peters Hospital, 169 N.J. 575, 405 A 2d 443 (1979)).
The concept is essentially one of estoppel.

Under the rule, the principal is bound by the acts of his agent with
the apparent authority which he knowingly permits the agent to
assume, or which he holds to the agent out to the public as
possessing. The question in every case is whether the principal has
by his voluntary act placed the agent with business usages and the
nature of the particular business, is justified in presuming that such
agent has authority to perform the particular act in question.
(Hudson C., Loan Assn., Inc. v. Horowytz, 116 N.J.L. 605, 608 A
437 (Supp. Ct. 1936).

The applicability of the doctrine of apparent authority in the field of

hospital liability has been upheld in Irving v. Doctor Hospital of Lake
Worth Inc.. In this case, it was said that there does not appear to be
any rational basis for excluding the concept of apparent authority
from the field of hospital liability. In cases where it can be shown
that a hospital, by its actions, has held out a particular physician as
its agent and/or employee and that the patient has accepted
treatment from the physician in the reasonable belief that it is being
tendered in behalf of the hospital, then the hospital will be liable for
the physician’s negligence.

The Civil Code recognizes the concept of agency by implication or

estoppel. Article 1869 of the Civil Code provides:

“Agency may be express, or implied from the acts of the principal,

from his silence or lack of action, or his failure to repudiate the
agency, knowing that another person is acting on his behalf without
authority.”
The defendant Professional Services, Inc. displayed in the lobby of
the Medical City Hospital the names and specializations of the
physicians associated or accredited by it. It is estopped from
passing all blame to the physicians whose names it proudly
paraded in the public directory leading the public to believe that it
vouched for their skill and competence. That is tantamount to
holding out to the public that the hospital through its accredited
physicians, offers quality health care services. By accrediting the
doctors and publicly advertising their qualifications, the hospital
created the impression that they were agents, authorized to
perform medical and surgical services for its patients. As expected,
the patients accepted the services on the reasonable belief that
such were being rendered by the hospital or its employees, agents
or servants.

As aptly said by the trial court:

“x x x regardless of the education and status in life of the patient, he

ought not be burdened with the defense of absence of employer-
employee relationship between the hospital and the independent
physician whose name and competence are certainly certified to
the general public by the hospital’s act of listing him and his
specialty in its lobby. The high costs of today’s medical and health
care should not at least exact on the hospital greater, if not broader,
legal responsibility for the conduct of treatment and surgery within
its facility by its accredited physician or surgeon, regardless of
whether he is independent or employed.”

The wisdom of such reasoning is easy to discern. Corporate

entities like hospitals are capable of acting only through other
individuals like physicians. If these accredited physicians do their
job well, the hospital succeeds in its mission of offering quality
medical services and thus, profits financially. Logically, where
negligence mars the quality of its services, the hospital should not
be allowed to escape liability for the acts of its ostensible agents.
(Professional Services, Inc. v. Agana, G.R. No. 126297; Agana v.
Juan Fuentes, G.R. No. 126467; Ampil v. Agana, G.R. No. 127590,
January 31, 2007).
 Republic of the Philippines
SUPREME COURT
Manila

FIRST DIVISION

G.R. No. 107282 March 16, 1994

THE MANILA REMNANT CO., INC., petitioner,

vs.
HON. COURT OF APPEALS, AND SPS. OSCAR C.
VENTANILLA AND CARMEN GLORIA DIAZ, respondents.

Tabalingcos & Associates Law Office for petitioner.

Oscar C. Ventanilla, Jr. and Augusto Garmaitan for private

respondents.

CRUZ, J.:

The present petition is an offshoot of our decision in Manila

Remnant Co., Inc., (MRCI) v. Court of Appeals, promulgated on
November 22, 1990.

That case involved parcels of land in Quezon City which were

owned by petitioner MRCI and became the subject of its agreement
with A.U. Valencia and Co., Inc., (AUVCI) by virtue of which the
latter was to act as the petitioner's agent in the development and
sale of the property. For a stipulated fee, AUVCI was to convert the
lands into a subdivision, manage the sale of the lots, execute
contracts and issue official receipts to the lot buyers. At the time of
the agreement, the president of both MRCI and AUVCI was
Artemio U. Valencia.

Pursuant to the above agreement, AUVCI executed two contracts

to sell dated March 3, 1970, covering Lots 1 and 2, Block 17, in
favor of spouses Oscar C. Ventanilla and Carmen Gloria Diaz for
the combined contract price of P66,571.00, payable monthly in ten
years. After ten days and without the knowledge of the Ventanilla
couple, Valencia, as president of MRCI, resold the same parcels to
Carlos Crisostomo, one of his sales agents, without any
consideration. Upon orders of Valencia, the monthly payments of
the Ventanillas were remitted to the MRCI as payments of
Crisostomo, for which receipts were issued in his name. The
receipts were kept by Valencia without the knowledge of the
Ventanillas and Crisostomo. The Ventanillas continued paying their
monthly installments.

On May 30, 1973, MRCI informed AUVCI that it was terminating

their agreement because of discrepancies discovered in the latter's
collections and remittances. On June 6, 1973, Valencia was
removed by the board of directors of MRCI as its president.

On November 21, 1978, the Ventanilla spouses, having learned of

the supposed sale of their lots to Crisostomo, commenced an
action for specific performance, annulment of deeds, and damages
against Manila Remnant Co., Inc., A.U. Valencia and Co., Inc., and
Carlos Crisostomo. It was docketed as Civil Case No. 26411 in the
Court of First Instance of Quezon City, Branch
7-B.

On November 17, 1980, the trial court rendered a decision

declaring the contracts to sell in favor of the Ventanillas valid and
subsisting, and annulling the contract to sell in favor of Crisostomo.
It ordered the MRCI to execute an absolute deed of sale in favor of
the Ventanillas, free from all liens and encumbrances. Damages
and attorney's fees in the total amount of P210,000.00 were also
awarded to the Ventanillas for which the MRCI, AUVCI, and
Crisostomo were held solidarily liable.

The lower court ruled further that if for any reason the transfer of
the lots could not be effected, the defendants would be solidarily
liable to the Ventanillas for reimbursement of the sum of
P73,122.35, representing the amount paid for the two lots, and
legal interest thereon from March 1970, plus the decreed damages
and attorney's fees. Valencia was also held liable to MRCI for moral
and exemplary damages and attorney's fees.
From this decision, separate appeals were filed by Valencia and
MRCI. The appellate court, however, sustained the trial court in
toto.

MRCI then filed before this Court a petition for certiorari to review
the portion of the decision of the Court of Appeals upholding the
solidary liability of MRCI, AUVCI and Carlos Crisostomo for the
payment of moral and exemplary damages and attorney's fees to
the Ventanillas.

On November 22, 1990, this Court affirmed the decision by the

Court of Appeals and declared the judgment of the trial court
immediately executory.

The Present Case

On January 25, 1991, the spouses Ventanilla filed with the trial
court a motion for the issuance of a writ of execution in Civil Case
No. 26411. The writ was issued on May 3, 1991, and served upon
MRCI on May 9, 1991.

In a manifestation and motion filed by MRCI with the trial court on

May 24, 1991, the petitioner alleged that the subject properties
could not be delivered to the Ventanillas because they had already
been sold to Samuel Marquez on February 7, 1990, while their
petition was pending in this Court. Nevertheless, MRCI offered to
reimburse the amount paid by the respondents, including legal
interest plus the aforestated damages. MRCI also prayed that its
tender of payment be accepted and all garnishments on their
accounts lifted.

The Ventanillas accepted the amount of P210,000.00 as damages

and attorney's fees but opposed the reimbursement offered by
MRCI in lieu of the execution of the absolute deed of sale. They
contended that the alleged sale to Samuel Marquez was void,
fraudulent, and in contempt of court and that no claim of ownership
over the properties in question had ever been made by Marquez.

On July 19, 1991, Judge Elsie Ligot-Telan issued the following

order:
 To ensure that there is enough amount to cover the
value of the lots involved if transfer thereof to plaintiff
may no longer be effected, pending litigation of said
issue, the garnishment made by the Sheriff upon the
bank account of Manila Remnant may be lifted only
upon the deposit to the Court of the amount of
P500,000.00 in cash.

MRCI then filed a manifestation and motion for reconsideration

praying that it be ordered to reimburse the Ventanillas in the
amount of P263,074.10 and that the garnishment of its bank
deposit be lifted. This motion was denied by the trial court in its
order dated September 30, 1991. A second manifestation and
motion filed by MRCI was denied on December 18, 1991. The trial
court also required MRCI to show cause why it should not be cited
for contempt for disobedience of its judgment.

These orders were questioned by MRCI in a petition

for certiorari before the respondent court on the ground that they
were issued with grave abuse of discretion.

The Court of Appeals ruled that the contract to sell in favor of

Marquez did not constitute a legal impediment to the immediate
execution of the judgment. Furthermore, the cash bond fixed by the
trial court for the lifting of the garnishment was fair and reasonable
because the value of the lot in question had increased
considerably. The appellate court also set aside the show-cause
order and held that the trial court should have proceeded under
Section 10, Rule 39 of the Rules of Court and not Section 9
thereof.1

In the petition now before us, it is submitted that the trial court and
the Court of Appeals committed certain reversible errors to the
prejudice of MRCI.

The petitioner contends that the trial court may not enforce it
garnishment order after the monetary judgment for damages had
already been satisfied and the amount for reimbursement had
already been deposited with the sheriff. Garnishment as a remedy
is intended to secure the payment of a judgment debt when a well-
founded belief exists that the erring party will abscond or
deliberately render the execution of the judgment nugatory. As
there is no such situation in this case, there is no need for a
garnishment order.

It is also averred that the trial court gravely abused its discretion
when it arbitrarily fixed the amount of the cash bond for the lifting of
the garnishment order at P500,000.00.

MRCI further maintains that the sale to Samuel Marquez was valid
and constitutes a legal impediment to the execution of the absolute
deed of sale to the Ventanillas. At the time of the sale to Marquez,
the issue of the validity of the sale to the Ventanillas had not yet
been resolved. Furthermore, there was no specific injunction
against the petitioner re-selling the property.

Lastly, the petitioner insists that Marquez was a buyer in good faith
and had a right to rely on the recitals in the certificate of title. The
subject matter of the controversy having passed to an innocent
purchaser for value, the respondent court erred in ordering the
execution of the absolute deed of sale in favor of the Ventanillas.

For their part, the respondents argue that the validity of the sale to
them had already been established even while the previous petition
was still pending resolution. That petition only questioned the
solidary liability of MRCI to the Ventanillas. The portion of the
decision ordering the MRCI to execute an absolute deed of sale in
favor of the Ventanillas became final and executory when the
petitioner failed to appeal it to the Supreme Court. There was no
need then for an order enjoining the petitioner from re-selling the
property in litigation.

They also point to the unusual lack of interest of Marquez in

protecting and asserting his right to the disputed property, a clear
indication that the alleged sale to him was merely a ploy of the
petitioner to evade the execution of the absolute deed of sale in
their favor.

The petition must fail.

The validity of the contract to sell in favor of the Ventanilla spouses

is not disputed by the parties. Even in the previous petition, the
recognition of that contract was not assigned as error of either the
trial court or appellate court. The fact that the MRCI did not
question the legality of the award for damages to the Ventanillas
also shows that it even then already acknowledged the validity of
the contract to sell in favor of the private respondents.

On top of all this, there are other circumstances that cast suspicion
on the validity, not to say the very existence, of the contract with
Marquez.

First, the contract to sell in favor of Marquez was entered into after
the lapse of almost ten years from the rendition of the judgment of
the trial court upholding the sale to the Ventanillas.

Second, the petitioner did not invoke the contract with Marquez
during the hearing on the motion for the issuance of the writ of
execution filed by the private respondents. It disclosed the contract
only after the writ of execution had been served upon it.

Third, in its manifestation and motion dated December 21, 1990,

the petitioner said it was ready to deliver the titles to the Ventanillas
provided that their counterclaims against private respondents were
paid or offset first. There was no mention of the contract to sell with
Marquez on February 7, 1990.

Fourth, Marquez has not intervened in any of these proceedings to

assert and protect his rights to the subject property as an alleged
purchaser in good faith.

At any rate, even if it be assumed that the contract to sell in favor of

Marquez is valid, it cannot prevail over the final and executory
judgment ordering MRCI to execute an absolute deed of sale in
favor of the Ventanillas. No less importantly, the records do not
show that Marquez has already paid the supposed balance
amounting to P616,000.00 of the original price of over
P800,000.00.2

The Court notes that the petitioner stands to benefit more from the
supposed contract with Marquez than from the contract with the
Ventanillas with the agreed price of only P66,571.00. Even if it paid
the P210,000.00 damages to the private respondents as decreed
by the trial court, the petitioner would still earn more profit if the
Marquez contract were to be sustained.

We come now to the order of the trial court requiring the posting of
the sum of P500,000.00 for the lifting of its garnishment order.

While the petitioners have readily complied with the order of the
trial court for the payment of damages to the Ventanillas, they have,
however, refused to execute the absolute deed of sale. It was for
the purpose of ensuring their compliance with this portion of the
judgment that the trial court issued the garnishment order which by
its term could be lifted only upon the filling of a cash bond of
P500,000.00.

The petitioner questions the propriety of this order on the ground

that it has already partially complied with the judgment and that it
has always expressed its willingness to reimburse the amount paid
by the respondents. It says that there is no need for a garnishment
order because it is willing to reimburse the Ventanillas in lieu of
execution of the absolute deed of sale.

The alternative judgment of reimbursement is applicable only if the

conveyance of the lots is not possible, but it has not been shown
that there is an obstacle to such conveyance. As the main
obligation of the petitioner is to execute the absolute deed of sale in
favor of the Ventanillas, its unjustified refusal to do so warranted
the issuance of the garnishment order.

Garnishment is a species of attachment for reaching credits

belonging to the judgment debtor and owing to him from a stranger
to the litigation.3 It is an attachment by means of which the plaintiff
seeks to subject to his claim property of the defendant in the hands
of a third person or money owed by such third person or garnishee
to the defendant.4The rules on attachment also apply to
garnishment proceedings.

A garnishment order shall be lifted if it established that:

(a) the party whose accounts have been garnished

has posted a counterbond or has made the requisite
cash deposit;5
 (b) the order was improperly or irregularly issued6 as
where there is no ground for garnishment7 or the
affidavit and/or bond filed therefor are defective or
insufficient;8

(c) the property attached is exempt from execution,

hence exempt from preliminary attachment9 or

(d) the judgment is rendered against the attaching or

garnishing creditor.10

Partial execution of the judgment is not included in the above

enumeration of the legal grounds for the discharge of a
garnishment order. Neither does the petitioner's willingness to
reimburse render the garnishment order unnecessary. As for the
counterbond, the lower court did not err when it fixed the same at
P500,000.00. As correctly pointed out by the respondent court, that
amount corresponds to the current fair market value of the property
in litigation and was a reasonable basis for determining the amount
of the counterbond.

Regarding the refusal of the petitioner to execute the absolute deed

of sale, Section 10 of Rule 39 of the Rules of Court reads as
follows:

Sec. 10. Judgment for specific act; vesting title — If a

judgment directs a party to execute a conveyance of
land, or to deliver deeds or other documents, or to
perform any other specific act, and the party fails to
comply within the time specified, the court may direct
the act to be done at the cost of the disobedient party
by some other person appointed by the court and the
act when so done shall have like effect as if done by
the party. If real or personal property is within the
Philippines, the court in lieu of directing a conveyance
thereof may enter judgment divesting the title of any
party and vesting it in others and such judgment shall
have the force and effect of a conveyance executed in
due form of law.
Against the unjustified refusal of the petitioner to accept payment of
the balance of the contract price, the remedy of the respondents is
consignation, conformably to the following provisions of the Civil
Code:

Art. 1256. If the creditor to whom tender of payment

has been made refuses without just cause to accept
it, the debtor shall be released from responsibility by
the consignation of the thing or sum due. . .

Art. 1258. Consignation shall be made by depositing

the things due at the disposal of the judicial authority,
before whom the tender of payment shall be proved,
in a proper case, and the announcement of the
consignation in other cases.

The consignation having been made, the interested

parties shall also be notified thereof.

Art. 1260. Once the consignation has been duly

made, the debtor may ask the judge to order the
cancellation of the obligation.

Accordingly, upon consignation by the Ventanillas of the sum due,

the trial court may enter judgment canceling the title of the
petitioner over the property and transferring the same to the
respondents. This judgment shall have the same force and effect
as conveyance duly executed in accordance with the requirements
of the law.

In sum, we find that:

1. No legal impediment exists to the execution, either by the

petitioner or the trial court, of an absolute deed of sale of the
subject property in favor of the respondent Ventanillas; and

2. The lower court did not abuse its discretion when it required the
posting of a P500,000.00 cash bond for the lifting of the
garnishment order.
WHEREFORE, the petition is DENIED and the challenged decision
of the Court of Appeals is AFFIRMED in toto, with costs against the
petitioner. It is so ordered.
 Republic of the Philippines
SUPREME COURT
Manila

FIRST DIVISION

G.R. No. 144805 June 8, 2006

EDUARDO V. LINTONJUA, JR. and ANTONIO K.

LITONJUA, Petitioners,
vs.
ETERNIT CORPORATION (now ETERTON MULTI-RESOURCES
CORPORATION), ETEROUTREMER, S.A. and FAR EAST BANK
& TRUST COMPANY, Respondents.

DECISION

CALLEJO, SR., J.:

On appeal via a Petition for Review on Certiorari is the Decision1 of

the Court of Appeals (CA) in CA-G.R. CV No. 51022, which
affirmed the Decision of the Regional Trial Court (RTC), Pasig City,
Branch 165, in Civil Case No. 54887, as well as the Resolution2 of
the CA denying the motion for reconsideration thereof.

The Eternit Corporation (EC) is a corporation duly organized and

registered under Philippine laws. Since 1950, it had been engaged
in the manufacture of roofing materials and pipe products. Its
manufacturing operations were conducted on eight parcels of land
with a total area of 47,233 square meters. The properties, located
in Mandaluyong City, Metro Manila, were covered by Transfer
Certificates of Title Nos. 451117, 451118, 451119, 451120,
451121, 451122, 451124 and 451125 under the name of Far East
Bank & Trust Company, as trustee. Ninety (90%) percent of the
shares of stocks of EC were owned by Eteroutremer S.A.
Corporation (ESAC), a corporation organized and registered under
the laws of Belgium.3 Jack Glanville, an Australian citizen, was the
General Manager and President of EC, while Claude Frederick
Delsaux was the Regional Director for Asia of ESAC. Both had their
offices in Belgium.
In 1986, the management of ESAC grew concerned about the
political situation in the Philippines and wanted to stop its
operations in the country. The Committee for Asia of ESAC
instructed Michael Adams, a member of EC’s Board of Directors, to
dispose of the eight parcels of land. Adams engaged the services
of realtor/broker Lauro G. Marquez so that the properties could be
offered for sale to prospective buyers. Glanville later showed the
properties to Marquez.

Marquez thereafter offered the parcels of land and the

improvements thereon to Eduardo B. Litonjua, Jr. of the Litonjua &
Company, Inc. In a Letter dated September 12, 1986, Marquez
declared that he was authorized to sell the properties
for P27,000,000.00 and that the terms of the sale were subject to
negotiation.4

Eduardo Litonjua, Jr. responded to the offer. Marquez showed the

property to Eduardo Litonjua, Jr., and his brother Antonio K.
Litonjua. The Litonjua siblings offered to buy the property
for P20,000,000.00 cash. Marquez apprised Glanville of the
Litonjua siblings’ offer and relayed the same to Delsaux in Belgium,
but the latter did not respond. On October 28, 1986, Glanville
telexed Delsaux in Belgium, inquiring on his position/
counterproposal to the offer of the Litonjua siblings. It was only on
February 12, 1987 that Delsaux sent a telex to Glanville stating
that, based on the "Belgian/Swiss decision," the final offer was
"US$1,000,000.00 and P2,500,000.00 to cover all existing
obligations prior to final liquidation."5

Marquez furnished Eduardo Litonjua, Jr. with a copy of the telex

sent by Delsaux. Litonjua, Jr. accepted the counterproposal of
Delsaux. Marquez conferred with Glanville, and in a Letter dated
February 26, 1987, confirmed that the Litonjua siblings had
accepted the counter-proposal of Delsaux. He also stated that the
Litonjua siblings would confirm full payment within 90 days after
execution and preparation of all documents of sale, together with
the necessary governmental clearances.6

The Litonjua brothers deposited the amount of US$1,000,000.00

with the Security Bank & Trust Company, Ermita Branch, and
drafted an Escrow Agreement to expedite the sale.7
Sometime later, Marquez and the Litonjua brothers inquired from
Glanville when the sale would be implemented. In a telex dated
April 22, 1987, Glanville informed Delsaux that he had met with the
buyer, which had given him the impression that "he is prepared to
press for a satisfactory conclusion to the sale."8 He also
emphasized to Delsaux that the buyers were concerned because
they would incur expenses in bank commitment fees as a
consequence of prolonged period of inaction.9

Meanwhile, with the assumption of Corazon C. Aquino as President

of the Republic of the Philippines, the political situation in the
Philippines had improved. Marquez received a telephone call from
Glanville, advising that the sale would no longer proceed. Glanville
followed it up with a Letter dated May 7, 1987, confirming that he
had been instructed by his principal to inform Marquez that "the
decision has been taken at a Board Meeting not to sell the
properties on which Eternit Corporation is situated."10

Delsaux himself later sent a letter dated May 22, 1987, confirming
that the ESAC Regional Office had decided not to proceed with the
sale of the subject land, to wit:

May 22, 1987

Mr. L.G. Marquez

L.G. Marquez, Inc.
334 Makati Stock Exchange Bldg.
6767 Ayala Avenue
Makati, Metro Manila
Philippines

Dear Sir:

Re: Land of Eternit Corporation

I would like to confirm officially that our Group has decided not to
proceed with the sale of the land which was proposed to you.

The Committee for Asia of our Group met recently (meeting every
six months) and examined the position as far as the Philippines are
(sic) concerned. Considering [the] new political situation since the
departure of MR. MARCOS and a certain stabilization in the
Philippines, the Committee has decided not to stop our operations
in Manila. In fact, production has started again last week, and (sic)
to recognize the participation in the Corporation.

We regret that we could not make a deal with you this time, but in
case the policy would change at a later state, we would consult you
again.

xxx

Yours sincerely,

(Sgd.)
C.F. DELSAUX

cc. To: J. GLANVILLE (Eternit Corp.)11

When apprised of this development, the Litonjuas, through counsel,

wrote EC, demanding payment for damages they had suffered on
account of the aborted sale. EC, however, rejected their demand.

The Litonjuas then filed a complaint for specific performance and

damages against EC (now the Eterton Multi-Resources
Corporation) and the Far East Bank & Trust Company, and ESAC
in the RTC of Pasig City. An amended complaint was filed, in which
defendant EC was substituted by Eterton Multi-Resources
Corporation; Benito C. Tan, Ruperto V. Tan, Stock Ha T. Tan and
Deogracias G. Eufemio were impleaded as additional defendants
on account of their purchase of ESAC shares of stocks and were
the controlling stockholders of EC.

In their answer to the complaint, EC and ESAC alleged that since

Eteroutremer was not doing business in the Philippines, it cannot
be subject to the jurisdiction of Philippine courts; the Board and
stockholders of EC never approved any resolution to sell subject
properties nor authorized Marquez to sell the same; and the telex
dated October 28, 1986 of Jack Glanville was his own personal
making which did not bind EC.
On July 3, 1995, the trial court rendered judgment in favor of
defendants and dismissed the amended complaint.12The fallo of the
decision reads:

WHEREFORE, the complaint against Eternit Corporation now

Eterton Multi-Resources Corporation and Eteroutremer, S.A. is
dismissed on the ground that there is no valid and binding sale
between the plaintiffs and said defendants.

The complaint as against Far East Bank and Trust Company is

likewise dismissed for lack of cause of action.

The counterclaim of Eternit Corporation now Eterton Multi-

Resources Corporation and Eteroutremer, S.A. is also dismissed
for lack of merit.13

The trial court declared that since the authority of the

agents/realtors was not in writing, the sale is void and not merely
unenforceable, and as such, could not have been ratified by the
principal. In any event, such ratification cannot be given any
retroactive effect. Plaintiffs could not assume that defendants had
agreed to sell the property without a clear authorization from the
corporation concerned, that is, through resolutions of the Board of
Directors and stockholders. The trial court also pointed out that the
supposed sale involves substantially all the assets of defendant EC
which would result in the eventual total cessation of its operation. 14

The Litonjuas appealed the decision to the CA, alleging that "(1) the
lower court erred in concluding that the real estate broker in the
instant case needed a written authority from appellee corporation
and/or that said broker had no such written authority; and (2) the
lower court committed grave error of law in holding that appellee
corporation is not legally bound for specific performance and/or
damages in the absence of an enabling resolution of the board of
directors."15 They averred that Marquez acted merely as a broker or
go-between and not as agent of the corporation; hence, it was not
necessary for him to be empowered as such by any written
authority. They further claimed that an agency by estoppel was
created when the corporation clothed Marquez with apparent
authority to negotiate for the sale of the properties. However, since
it was a bilateral contract to buy and sell, it was equivalent to a
perfected contract of sale, which the corporation was obliged to
consummate.

In reply, EC alleged that Marquez had no written authority from the

Board of Directors to bind it; neither were Glanville and Delsaux
authorized by its board of directors to offer the property for sale.
Since the sale involved substantially all of the corporation’s assets,
it would necessarily need the authority from the stockholders.

On June 16, 2000, the CA rendered judgment affirming the decision

of the RTC. 16 The Litonjuas filed a motion for reconsideration,
which was also denied by the appellate court.

The CA ruled that Marquez, who was a real estate broker, was a
special agent within the purview of Article 1874 of the New Civil
Code. Under Section 23 of the Corporation Code, he needed a
special authority from EC’s board of directors to bind such
corporation to the sale of its properties. Delsaux, who was merely
the representative of ESAC (the majority stockholder of EC) had no
authority to bind the latter. The CA pointed out that Delsaux was
not even a member of the board of directors of EC. Moreover, the
Litonjuas failed to prove that an agency by estoppel had been
created between the parties.

In the instant petition for review, petitioners aver that

THE COURT OF APPEALS ERRED IN HOLDING THAT THERE

WAS NO PERFECTED CONTRACT OF SALE.

II

THE APPELLATE COURT COMMITTED GRAVE ERROR OF LAW

IN HOLDING THAT MARQUEZ NEEDED A WRITTEN
AUTHORITY FROM RESPONDENT ETERNIT BEFORE THE
SALE CAN BE PERFECTED.

III
THE COURT OF APPEALS ERRED IN NOT HOLDING THAT
GLANVILLE AND DELSAUX HAVE THE NECESSARY
AUTHORITY TO SELL THE SUBJECT PROPERTIES, OR AT THE
VERY LEAST, WERE KNOWINGLY PERMITTED BY
RESPONDENT ETERNIT TO DO ACTS WITHIN THE SCOPE OF
AN APPARENT AUTHORITY, AND THUS HELD THEM OUT TO
THE PUBLIC AS POSSESSING POWER TO SELL THE SAID
PROPERTIES.17

Petitioners maintain that, based on the facts of the case, there was
a perfected contract of sale of the parcels of land and the
improvements thereon for "US$1,000,000.00 plus P2,500,000.00 to
cover obligations prior to final liquidation." Petitioners insist that
they had accepted the counter-offer of respondent EC and that
before the counter-offer was withdrawn by respondents, the
acceptance was made known to them through real estate broker
Marquez.

Petitioners assert that there was no need for a written authority

from the Board of Directors of EC for Marquez to validly act as
broker/middleman/intermediary. As broker, Marquez was not an
ordinary agent because his authority was of a special and limited
character in most respects. His only job as a broker was to look for
a buyer and to bring together the parties to the transaction. He was
not authorized to sell the properties or to make a binding contract to
respondent EC; hence, petitioners argue, Article 1874 of the New
Civil Code does not apply.

In any event, petitioners aver, what is important and decisive was

that Marquez was able to communicate both the offer and counter-
offer and their acceptance of respondent EC’s counter-offer,
resulting in a perfected contract of sale.

Petitioners posit that the testimonial and documentary evidence on

record amply shows that Glanville, who was the President and
General Manager of respondent EC, and Delsaux, who was the
Managing Director for ESAC Asia, had the necessary authority to
sell the subject property or, at least, had been allowed by
respondent EC to hold themselves out in the public as having the
power to sell the subject properties. Petitioners identified such
evidence, thus:
 1. The testimony of Marquez that he was chosen by
Glanville as the then President and General Manager of
Eternit, to sell the properties of said corporation to any
interested party, which authority, as hereinabove discussed,
need not be in writing.

2. The fact that the NEGOTIATIONS for the sale of the

subject properties spanned SEVERAL MONTHS, from 1986
to 1987;

3. The COUNTER-OFFER made by Eternit through

GLANVILLE to sell its properties to the Petitioners;

4. The GOOD FAITH of Petitioners in believing Eternit’s offer

to sell the properties as evidenced by the Petitioners’
ACCEPTANCE of the counter-offer;

5. The fact that Petitioners DEPOSITED the price of

[US]$1,000,000.00 with the Security Bank and that an
ESCROW agreement was drafted over the subject
properties;

6. Glanville’s telex to Delsaux inquiring

"WHEN WE (Respondents) WILL IMPLEMENT ACTION TO
BUY AND SELL";

7. More importantly, Exhibits "G" and "H" of the

Respondents, which evidenced the fact that Petitioners’ offer
was allegedly REJECTED by both Glanville and Delsaux.18

Petitioners insist that it is incongruous for Glanville and Delsaux to

make a counter-offer to petitioners’ offer and thereafter reject such
offer unless they were authorized to do so by respondent EC.
Petitioners insist that Delsaux confirmed his authority to sell the
properties in his letter to Marquez, to wit:

Dear Sir,

Re: Land of Eternit Corporation

I would like to confirm officially that our Group has decided not to
proceed with the sale of the land which was proposed to you.

The Committee for Asia of our Group met recently (meeting every
six months) and examined the position as far as the Philippines are
(sic) concerned. Considering the new political situation since the
departure of MR. MARCOS and a certain stabilization in the
Philippines, the Committee has decided not to stop our operations
in Manila[.] [I]n fact production started again last week, and (sic) to
reorganize the participation in the Corporation.

We regret that we could not make a deal with you this time, but in
case the policy would change at a later stage we would consult you
again.

In the meantime, I remain

Yours sincerely,

C.F. DELSAUX19

Petitioners further emphasize that they acted in good faith when

Glanville and Delsaux were knowingly permitted by respondent EC
to sell the properties within the scope of an apparent authority.
Petitioners insist that respondents held themselves to the public as
possessing power to sell the subject properties.

By way of comment, respondents aver that the issues raised by the

petitioners are factual, hence, are proscribed by Rule 45 of the
Rules of Court. On the merits of the petition, respondents EC (now
EMC) and ESAC reiterate their submissions in the CA. They
maintain that Glanville, Delsaux and Marquez had no authority from
the stockholders of respondent EC and its Board of Directors to
offer the properties for sale to the petitioners, or to any other person
or entity for that matter. They assert that the decision and resolution
of the CA are in accord with law and the evidence on record, and
should be affirmed in toto.

Petitioners aver in their subsequent pleadings that respondent EC,

through Glanville and Delsaux, conformed to the written authority of
Marquez to sell the properties. The authority of Glanville and
Delsaux to bind respondent EC is evidenced by the fact that
Glanville and Delsaux negotiated for the sale of 90% of stocks of
respondent EC to Ruperto Tan on June 1, 1997. Given the
significance of their positions and their duties in respondent EC at
the time of the transaction, and the fact that respondent ESAC
owns 90% of the shares of stock of respondent EC, a formal
resolution of the Board of Directors would be a mere ceremonial
formality. What is important, petitioners maintain, is that Marquez
was able to communicate the offer of respondent EC and the
petitioners’ acceptance thereof. There was no time that they acted
without the knowledge of respondents. In fact, respondent EC
never repudiated the acts of Glanville, Marquez and Delsaux.

The petition has no merit.

Anent the first issue, we agree with the contention of respondents

that the issues raised by petitioner in this case are factual. Whether
or not Marquez, Glanville, and Delsaux were authorized by
respondent EC to act as its agents relative to the sale of the
properties of respondent EC, and if so, the boundaries of their
authority as agents, is a question of fact. In the absence of express
written terms creating the relationship of an agency, the existence
of an agency is a fact question.20 Whether an agency by estoppel
was created or whether a person acted within the bounds of his
apparent authority, and whether the principal is estopped to deny
the apparent authority of its agent are, likewise, questions of fact to
be resolved on the basis of the evidence on record.21 The findings
of the trial court on such issues, as affirmed by the CA, are
conclusive on the Court, absent evidence that the trial and
appellate courts ignored, misconstrued, or misapplied facts and
circumstances of substance which, if considered, would warrant a
modification or reversal of the outcome of the case.22

It must be stressed that issues of facts may not be raised in the

Court under Rule 45 of the Rules of Court because the Court is not
a trier of facts. It is not to re-examine and assess the evidence on
record, whether testimonial and documentary. There are, however,
recognized exceptions where the Court may delve into and resolve
factual issues, namely:
(1) When the conclusion is a finding grounded entirely on
speculations, surmises, or conjectures; (2) when the inference
made is manifestly mistaken, absurd, or impossible; (3) when there
is grave abuse of discretion; (4) when the judgment is based on a
misapprehension of facts; (5) when the findings of fact are
conflicting; (6) when the Court of Appeals, in making its findings,
went beyond the issues of the case and the same is contrary to the
admissions of both appellant and appellee; (7) when the findings of
the Court of Appeals are contrary to those of the trial court; (8)
when the findings of fact are conclusions without citation of specific
evidence on which they are based; (9) when the Court of Appeals
manifestly overlooked certain relevant facts not disputed by the
parties, which, if properly considered, would justify a different
conclusion; and (10) when the findings of fact of the Court of
Appeals are premised on the absence of evidence and are
contradicted by the evidence on record.23

We have reviewed the records thoroughly and find that the

petitioners failed to establish that the instant case falls under any of
the foregoing exceptions. Indeed, the assailed decision of the Court
of Appeals is supported by the evidence on record and the law.

It was the duty of the petitioners to prove that respondent EC had

decided to sell its properties and that it had empowered Adams,
Glanville and Delsaux or Marquez to offer the properties for sale to
prospective buyers and to accept any counter-offer. Petitioners
likewise failed to prove that their counter-offer had been accepted
by respondent EC, through Glanville and Delsaux. It must be
stressed that when specific performance is sought of a contract
made with an agent, the agency must be established by clear,
certain and specific proof.24

Section 23 of Batas Pambansa Bilang 68, otherwise known as the

Corporation Code of the Philippines, provides:

SEC. 23. The Board of Directors or Trustees. – Unless otherwise

provided in this Code, the corporate powers of all corporations
formed under this Code shall be exercised, all business conducted
and all property of such corporations controlled and held by the
board of directors or trustees to be elected from among the holders
of stocks, or where there is no stock, from among the members of
the corporation, who shall hold office for one (1) year and until their
successors are elected and qualified.

Indeed, a corporation is a juridical person separate and distinct

from its members or stockholders and is not affected by the
personal rights,

obligations and transactions of the latter.25 It may act only through

its board of directors or, when authorized either by its by-laws or by
its board resolution, through its officers or agents in the normal
course of business. The general principles of agency govern the
relation between the corporation and its officers or agents, subject
to the articles of incorporation, by-laws, or relevant provisions of
law.26

Under Section 36 of the Corporation Code, a corporation may sell

or convey its real properties, subject to the limitations prescribed by
law and the Constitution, as follows:

SEC. 36. Corporate powers and capacity. – Every corporation

incorporated under this Code has the power and capacity:

xxxx

7. To purchase, receive, take or grant, hold, convey, sell, lease,

pledge, mortgage and otherwise deal with such real and personal
property, including securities and bonds of other corporations, as
the transaction of a lawful business of the corporation may
reasonably and necessarily require, subject to the limitations
prescribed by the law and the Constitution.

The property of a corporation, however, is not the property of the

stockholders or members, and as such, may not be sold without
express authority from the board of directors.27 Physical acts, like
the offering of the properties of the corporation for sale, or the
acceptance of a counter-offer of prospective buyers of such
properties and the execution of the deed of sale covering such
property, can be performed by the corporation only by officers or
agents duly authorized for the purpose by corporate by-laws or by
specific acts of the board of directors.28 Absent such valid
delegation/authorization, the rule is that the declarations of an
individual director relating to the affairs of the corporation, but not in
the course of, or connected with, the performance of authorized
duties of such director, are not binding on the corporation.29

While a corporation may appoint agents to negotiate for the sale of

its real properties, the final say will have to be with the board of
directors through its officers and agents as authorized by a board
resolution or by its by-laws.30 An unauthorized act of an officer of
the corporation is not binding on it unless the latter ratifies the same
expressly or impliedly by its board of directors. Any sale of real
property of a corporation by a person purporting to be an agent
thereof but without written authority from the corporation is null and
void. The declarations of the agent alone are generally insufficient
to establish the fact or extent of his/her authority.31

By the contract of agency, a person binds himself to render some

service or to do something in representation on behalf of another,
with the consent or authority of the latter.32 Consent of both
principal and agent is necessary to create an agency. The principal
must intend that the agent shall act for him; the agent must intend
to accept the authority and act on it, and the intention of the parties
must find expression either in words or conduct between them. 33

An agency may be expressed or implied from the act of the

principal, from his silence or lack of action, or his failure to
repudiate the agency knowing that another person is acting on his
behalf without authority. Acceptance by the agent may be
expressed, or implied from his acts which carry out the agency, or
from his silence or inaction according to the
circumstances.34 Agency may be oral unless the law requires a
specific form.35 However, to create or convey real rights over
immovable property, a special power of attorney is
necessary.36 Thus, when a sale of a piece of land or any portion
thereof is through an agent, the authority of the latter shall be in
writing, otherwise, the sale shall be void.37

In this case, the petitioners as plaintiffs below, failed to adduce in

evidence any resolution of the Board of Directors of respondent EC
empowering Marquez, Glanville or Delsaux as its agents, to sell, let
alone offer for sale, for and in its behalf, the eight parcels of land
owned by respondent EC including the improvements thereon. The
bare fact that Delsaux may have been authorized to sell to Ruperto
Tan the shares of stock of respondent ESAC, on June 1, 1997,
cannot be used as basis for petitioners’ claim that he had likewise
been authorized by respondent EC to sell the parcels of land.

Moreover, the evidence of petitioners shows that Adams and

Glanville acted on the authority of Delsaux, who, in turn, acted on
the authority of respondent ESAC, through its Committee for
Asia,38 the Board of Directors of respondent ESAC,39 and the
Belgian/Swiss component of the management of respondent
ESAC.40 As such, Adams and Glanville engaged the services of
Marquez to offer to sell the properties to prospective buyers. Thus,
on September 12, 1986, Marquez wrote the petitioner that he was
authorized to offer for sale the property for P27,000,000.00 and the
other terms of the sale subject to negotiations. When petitioners
offered to purchase the property for P20,000,000.00, through
Marquez, the latter relayed petitioners’ offer to Glanville; Glanville
had to send a telex to Delsaux to inquire the position of respondent
ESAC to petitioners’ offer. However, as admitted by petitioners in
their Memorandum, Delsaux was unable to reply immediately to the
telex of Glanville because Delsaux had to wait for confirmation from
respondent ESAC.41 When Delsaux finally responded to Glanville
on February 12, 1987, he made it clear that, based on the
"Belgian/Swiss decision" the final offer of respondent ESAC was
US$1,000,000.00 plus P2,500,000.00 to cover all existing
obligations prior to final liquidation.42 The offer of Delsaux
emanated only from the "Belgian/Swiss decision," and not the
entire management or Board of Directors of respondent ESAC.
While it is true that petitioners accepted the counter-offer of
respondent ESAC, respondent EC was not a party to the
transaction between them; hence, EC was not bound by such
acceptance.

While Glanville was the President and General Manager of

respondent EC, and Adams and Delsaux were members of its
Board of Directors, the three acted for and in behalf of respondent
ESAC, and not as duly authorized agents of respondent EC; a
board resolution evincing the grant of such authority is needed to
bind EC to any agreement regarding the sale of the subject
properties. Such board resolution is not a mere formality but is a
condition sine qua non to bind respondent EC. Admittedly,
respondent ESAC owned 90% of the shares of stocks of
respondent EC; however, the mere fact that a corporation owns a
majority of the shares of stocks of another, or even all of such
shares of stocks, taken alone, will not justify their being treated as
one corporation.43

It bears stressing that in an agent-principal relationship, the

personality of the principal is extended through the facility of the
agent. In so doing, the agent, by legal fiction, becomes the
principal, authorized to perform all acts which the latter would have
him do. Such a relationship can only be effected with the consent of
the principal, which must not, in any way, be compelled by law or
by any court.44

The petitioners cannot feign ignorance of the absence of any

regular and valid authority of respondent EC empowering Adams,
Glanville or Delsaux to offer the properties for sale and to sell the
said properties to the petitioners. A person dealing with a known
agent is not authorized, under any circumstances, blindly to trust
the agents; statements as to the extent of his powers; such person
must not act negligently but must use reasonable diligence and
prudence to ascertain whether the agent acts within the scope of
his authority.45 The settled rule is that, persons dealing with an
assumed agent are bound at their peril, and if they would hold the
principal liable, to ascertain not only the fact of agency but also the
nature and extent of authority, and in case either is controverted,
the burden of proof is upon them to prove it.46 In this case, the
petitioners failed to discharge their burden; hence, petitioners are
not entitled to damages from respondent EC.

It appears that Marquez acted not only as real estate broker for the
petitioners but also as their agent. As gleaned from the letter of
Marquez to Glanville, on February 26, 1987, he confirmed, for and
in behalf of the petitioners, that the latter had accepted such offer to
sell the land and the improvements thereon. However, we agree
with the ruling of the appellate court that Marquez had no authority
to bind respondent EC to sell the subject properties. A real estate
broker is one who negotiates the sale of real properties. His
business, generally speaking, is only to find a purchaser who is
willing to buy the land upon terms fixed by the owner. He has no
authority to bind the principal by signing a contract of sale. Indeed,
an authority to find a purchaser of real property does not include an
authority to sell.47

Equally barren of merit is petitioners’ contention that respondent EC

is estopped to deny the existence of a principal-agency relationship
between it and Glanville or Delsaux. For an agency by estoppel to
exist, the following must be established: (1) the principal manifested
a representation of the agent’s authority or knowlingly allowed the
agent to assume such authority; (2) the third person, in good faith,
relied upon such representation; (3) relying upon such
representation, such third person has changed his position to his
detriment.48 An agency by estoppel, which is similar to the doctrine
of apparent authority, requires proof of reliance upon the
representations, and that, in turn, needs proof that the
representations predated the action taken in reliance.49 Such proof
is lacking in this case. In their communications to the petitioners,
Glanville and Delsaux positively and unequivocally declared that
they were acting for and in behalf of respondent ESAC.

Neither may respondent EC be deemed to have ratified the

transactions between the petitioners and respondent ESAC,
through Glanville, Delsaux and Marquez. The transactions and the
various communications inter se were never submitted to the Board
of Directors of respondent EC for ratification.

IN LIGHT OF ALL THE FOREGOING, the petition is DENIED for

lack of merit. Costs against the petitioners.
 Republic of the Philippines
SUPREME COURT
Manila

FIRST DIVISION

G.R. No. 126297 January 31, 2007

PROFESSIONAL SERVICES, INC., Petitioner,

vs.
NATIVIDAD and ENRIQUE AGANA, Respondents.

x-----------------------x

G.R. No. 126467 January 31, 2007

NATIVIDAD (Substituted by her children MARCELINO AGANA

III, ENRIQUE AGANA, JR., EMMA AGANA ANDAYA, JESUS
AGANA, and RAYMUND AGANA) and ENRIQUE
AGANA, Petitioners,
vs.
JUAN FUENTES, Respondent.

x- - - - - - - - - - - - - - - - - - - -- - - - x

G.R. No. 127590 January 31, 2007

MIGUEL AMPIL, Petitioner,

vs.
NATIVIDAD AGANA and ENRIQUE AGANA, Respondents.

DECISION

SANDOVAL-GUTIERREZ, J.:

Hospitals, having undertaken one of mankind’s most important and

delicate endeavors, must assume the grave responsibility of
pursuing it with appropriate care. The care and service dispensed
through this high trust, however technical, complex and esoteric its
character may be, must meet standards of responsibility
commensurate with the undertaking to preserve and protect the
health, and indeed, the very lives of those placed in the hospital’s
keeping.1

Assailed in these three consolidated petitions for review on

certiorari is the Court of Appeals’ Decision2 dated September 6,
1996 in CA-G.R. CV No. 42062 and CA-G.R. SP No. 32198
affirming with modification the Decision3dated March 17, 1993 of
the Regional Trial Court (RTC), Branch 96, Quezon City in Civil
Case No. Q-43322 and nullifying its Order dated September 21,
1993.

The facts, as culled from the records, are:

On April 4, 1984, Natividad Agana was rushed to the Medical City

General Hospital (Medical City Hospital) because of difficulty of
bowel movement and bloody anal discharge. After a series of
medical examinations, Dr. Miguel Ampil, petitioner in G.R. No.
127590, diagnosed her to be suffering from "cancer of the sigmoid."

On April 11, 1984, Dr. Ampil, assisted by the medical staff4 of the
Medical City Hospital, performed an anterior resection surgery on
Natividad. He found that the malignancy in her sigmoid area had
spread on her left ovary, necessitating the removal of certain
portions of it. Thus, Dr. Ampil obtained the consent of Natividad’s
husband, Enrique Agana, to permit Dr. Juan Fuentes, respondent
in G.R. No. 126467, to perform hysterectomy on her.

After Dr. Fuentes had completed the hysterectomy, Dr. Ampil took
over, completed the operation and closed the incision.

However, the operation appeared to be flawed. In the

corresponding Record of Operation dated April 11, 1984, the
attending nurses entered these remarks:

"sponge count lacking 2

"announced to surgeon searched (sic) done but to no avail continue

for closure."

On April 24, 1984, Natividad was released from the hospital. Her
hospital and medical bills, including the doctors’ fees, amounted to
P60,000.00.

After a couple of days, Natividad complained of excruciating pain in

her anal region. She consulted both Dr. Ampil and Dr. Fuentes
about it. They told her that the pain was the natural consequence of
the surgery. Dr. Ampil then recommended that she consult an
oncologist to examine the cancerous nodes which were not
removed during the operation.

On May 9, 1984, Natividad, accompanied by her husband, went to

the United States to seek further treatment. After four months of
consultations and laboratory examinations, Natividad was told she
was free of cancer. Hence, she was advised to return to the
Philippines.

On August 31, 1984, Natividad flew back to the Philippines, still

suffering from pains. Two weeks thereafter, her daughter found a
piece of gauze protruding from her vagina. Upon being informed
about it, Dr. Ampil proceeded to her house where he managed to
extract by hand a piece of gauze measuring 1.5 inches in width. He
then assured her that the pains would soon vanish.

Dr. Ampil’s assurance did not come true. Instead, the pains
intensified, prompting Natividad to seek treatment at the Polymedic
General Hospital. While confined there, Dr. Ramon Gutierrez
detected the presence of another foreign object in her vagina -- a
foul-smelling gauze measuring 1.5 inches in width which badly
infected her vaginal vault. A recto-vaginal fistula had formed in her
reproductive organs which forced stool to excrete through the
vagina. Another surgical operation was needed to remedy the
damage. Thus, in October 1984, Natividad underwent another
surgery.

On November 12, 1984, Natividad and her husband filed with the
RTC, Branch 96, Quezon City a complaint for damages against the
Professional Services, Inc. (PSI), owner of the Medical City
Hospital, Dr. Ampil, and Dr. Fuentes, docketed as Civil Case No. Q-
43322. They alleged that the latter are liable for negligence for
leaving two pieces of gauze inside Natividad’s body and
malpractice for concealing their acts of negligence.
Meanwhile, Enrique Agana also filed with the Professional
Regulation Commission (PRC) an administrative complaint for
gross negligence and malpractice against Dr. Ampil and Dr.
Fuentes, docketed as Administrative Case No. 1690. The PRC
Board of Medicine heard the case only with respect to Dr. Fuentes
because it failed to acquire jurisdiction over Dr. Ampil who was then
in the United States.

On February 16, 1986, pending the outcome of the above cases,

Natividad died and was duly substituted by her above-named
children (the Aganas).

On March 17, 1993, the RTC rendered its Decision in favor of the
Aganas, finding PSI, Dr. Ampil and Dr. Fuentes liable for
negligence and malpractice, the decretal part of which reads:

WHEREFORE, judgment is hereby rendered for the plaintiffs

ordering the defendants PROFESSIONAL SERVICES, INC., DR.
MIGUEL AMPIL and DR. JUAN FUENTES to pay to the plaintiffs,
jointly and severally, except in respect of the award for exemplary
damages and the interest thereon which are the liabilities of
defendants Dr. Ampil and Dr. Fuentes only, as follows:

1. As actual damages, the following amounts:

a. The equivalent in Philippine Currency of the total of

US$19,900.00 at the rate of P21.60-US$1.00, as
reimbursement of actual expenses incurred in the
United States of America;

b. The sum of P4,800.00 as travel taxes of plaintiffs

and their physician daughter;

c. The total sum of P45,802.50, representing the cost

of hospitalization at Polymedic Hospital, medical fees,
and cost of the saline solution;

2. As moral damages, the sum of P2,000,000.00;

3. As exemplary damages, the sum of P300,000.00;

 4. As attorney’s fees, the sum of P250,000.00;

5. Legal interest on items 1 (a), (b), and (c); 2; and 3

hereinabove, from date of filing of the complaint until full
payment; and

6. Costs of suit.

SO ORDERED.

Aggrieved, PSI, Dr. Fuentes and Dr. Ampil interposed an appeal to

the Court of Appeals, docketed as CA-G.R. CV No. 42062.

Incidentally, on April 3, 1993, the Aganas filed with the RTC a

motion for a partial execution of its Decision, which was granted in
an Order dated May 11, 1993. Thereafter, the sheriff levied upon
certain properties of Dr. Ampil and sold them for P451,275.00 and
delivered the amount to the Aganas.

Following their receipt of the money, the Aganas entered into an

agreement with PSI and Dr. Fuentes to indefinitely suspend any
further execution of the RTC Decision. However, not long
thereafter, the Aganas again filed a motion for an alias writ of
execution against the properties of PSI and Dr. Fuentes. On
September 21, 1993, the RTC granted the motion and issued the
corresponding writ, prompting Dr. Fuentes to file with the Court of
Appeals a petition for certiorari and prohibition, with prayer for
preliminary injunction, docketed as CA-G.R. SP No. 32198. During
its pendency, the Court of Appeals issued a Resolution 5 dated
October 29, 1993 granting Dr. Fuentes’ prayer for injunctive relief.

On January 24, 1994, CA-G.R. SP No. 32198 was consolidated

with CA-G.R. CV No. 42062.

Meanwhile, on January 23, 1995, the PRC Board of Medicine

rendered its Decision6 in Administrative Case No. 1690 dismissing
the case against Dr. Fuentes. The Board held that the prosecution
failed to show that Dr. Fuentes was the one who left the two pieces
of gauze inside Natividad’s body; and that he concealed such fact
from Natividad.
On September 6, 1996, the Court of Appeals rendered its Decision
jointly disposing of CA-G.R. CV No. 42062 and CA-G.R. SP No.
32198, thus:

WHEREFORE, except for the modification that the case against

defendant-appellant Dr. Juan Fuentes is hereby DISMISSED, and
with the pronouncement that defendant-appellant Dr. Miguel Ampil
is liable to reimburse defendant-appellant Professional Services,
Inc., whatever amount the latter will pay or had paid to the plaintiffs-
appellees, the decision appealed from is hereby AFFIRMED and
the instant appeal DISMISSED.

Concomitant with the above, the petition for certiorari and

prohibition filed by herein defendant-appellant Dr. Juan Fuentes in
CA-G.R. SP No. 32198 is hereby GRANTED and the challenged
order of the respondent judge dated September 21, 1993, as well
as the alias writ of execution issued pursuant thereto are hereby
NULLIFIED and SET ASIDE. The bond posted by the petitioner in
connection with the writ of preliminary injunction issued by this
Court on November 29, 1993 is hereby cancelled.

Costs against defendants-appellants Dr. Miguel Ampil and

Professional Services, Inc.

SO ORDERED.

Only Dr. Ampil filed a motion for reconsideration, but it was denied
in a Resolution7 dated December 19, 1996.

Hence, the instant consolidated petitions.

In G.R. No. 126297, PSI alleged in its petition that the Court of
Appeals erred in holding that: (1) it is estopped from raising the
defense that Dr. Ampil is not its employee; (2) it is solidarily liable
with Dr. Ampil; and (3) it is not entitled to its counterclaim against
the Aganas. PSI contends that Dr. Ampil is not its employee, but a
mere consultant or independent contractor. As such, he alone
should answer for his negligence.

In G.R. No. 126467, the Aganas maintain that the Court of Appeals
erred in finding that Dr. Fuentes is not guilty of negligence or
medical malpractice, invoking the doctrine of res ipsa loquitur. They
contend that the pieces of gauze are prima facie proofs that the
operating surgeons have been negligent.

Finally, in G.R. No. 127590, Dr. Ampil asserts that the Court of
Appeals erred in finding him liable for negligence and malpractice
sans evidence that he left the two pieces of gauze in Natividad’s
vagina. He pointed to other probable causes, such as: (1) it was Dr.
Fuentes who used gauzes in performing the hysterectomy; (2) the
attending nurses’ failure to properly count the gauzes used during
surgery; and (3) the medical intervention of the American doctors
who examined Natividad in the United States of America.

For our resolution are these three vital issues: first, whether the
Court of Appeals erred in holding Dr. Ampil liable for negligence
and malpractice; second, whether the Court of Appeals erred in
absolving Dr. Fuentes of any liability; and third, whether PSI may
be held solidarily liable for the negligence of Dr. Ampil.

I - G.R. No. 127590

Whether the Court of Appeals Erred in Holding Dr. Ampil

Liable for Negligence and Malpractice.

Dr. Ampil, in an attempt to absolve himself, gears the Court’s

attention to other possible causes of Natividad’s detriment. He
argues that the Court should not discount either of the following
possibilities: first, Dr. Fuentes left the gauzes in Natividad’s body
after performing hysterectomy; second, the attending nurses erred
in counting the gauzes; and third, the American doctors were the
ones who placed the gauzes in Natividad’s body.

Dr. Ampil’s arguments are purely conjectural and without basis.

Records show that he did not present any evidence to prove that
the American doctors were the ones who put or left the gauzes in
Natividad’s body. Neither did he submit evidence to rebut the
correctness of the record of operation, particularly the number of
gauzes used. As to the alleged negligence of Dr. Fuentes, we are
mindful that Dr. Ampil examined his (Dr. Fuentes’) work and found
it in order.
The glaring truth is that all the major circumstances, taken together,
as specified by the Court of Appeals, directly point to Dr. Ampil as
the negligent party, thus:

First, it is not disputed that the surgeons used gauzes as

sponges to control the bleeding of the patient during the
surgical operation.

Second, immediately after the operation, the nurses who

assisted in the surgery noted in their report that the ‘sponge
count (was) lacking 2’; that such anomaly was ‘announced to
surgeon’ and that a ‘search was done but to no avail’
prompting Dr. Ampil to ‘continue for closure’ x x x.

Third, after the operation, two (2) gauzes were extracted

from the same spot of the body of Mrs. Agana where the
surgery was performed.

An operation requiring the placing of sponges in the incision is not

complete until the sponges are properly removed, and it is settled
that the leaving of sponges or other foreign substances in the
wound after the incision has been closed is at least prima facie
negligence by the operating surgeon.8 To put it simply, such act is
considered so inconsistent with due care as to raise an inference of
negligence. There are even legions of authorities to the effect that
such act is negligence per se.9

Of course, the Court is not blind to the reality that there are times
when danger to a patient’s life precludes a surgeon from further
searching missing sponges or foreign objects left in the body. But
this does not leave him free from any obligation. Even if it has been
shown that a surgeon was required by the urgent necessities of the
case to leave a sponge in his patient’s abdomen, because of the
dangers attendant upon delay, still, it is his legal duty to so inform
his patient within a reasonable time thereafter by advising her of
what he had been compelled to do. This is in order that she might
seek relief from the effects of the foreign object left in her body as
her condition might permit. The ruling in Smith v. Zeagler10 is
explicit, thus:

The removal of all sponges used is part of a surgical operation, and

when a physician or surgeon fails to remove a sponge he has
placed in his patient’s body that should be removed as part of the
operation, he thereby leaves his operation uncompleted and
creates a new condition which imposes upon him the legal duty of
calling the new condition to his patient’s attention, and endeavoring
with the means he has at hand to minimize and avoid untoward
results likely to ensue therefrom.

Here, Dr. Ampil did not inform Natividad about the missing two
pieces of gauze. Worse, he even misled her that the pain she was
experiencing was the ordinary consequence of her operation. Had
he been more candid, Natividad could have taken the immediate
and appropriate medical remedy to remove the gauzes from her
body. To our mind, what was initially an act of negligence by Dr.
Ampil has ripened into a deliberate wrongful act of deceiving his
patient.

This is a clear case of medical malpractice or more appropriately,

medical negligence. To successfully pursue this kind of case, a
patient must only prove that a health care provider either failed to
do something which a reasonably prudent health care provider
would have done, or that he did something that a reasonably
prudent provider would not have done; and that failure or action
caused injury to the patient.11 Simply put, the elements are duty,
breach, injury and proximate causation. Dr, Ampil, as the lead
surgeon, had the duty to remove all foreign objects, such as
gauzes, from Natividad’s body before closure of the incision. When
he failed to do so, it was his duty to inform Natividad about it. Dr.
Ampil breached both duties. Such breach caused injury to
Natividad, necessitating her further examination by American
doctors and another surgery. That Dr. Ampil’s negligence is the
proximate cause12 of Natividad’s injury could be traced from his act
of closing the incision despite the information given by the attending
nurses that two pieces of gauze were still missing. That they were
later on extracted from Natividad’s vagina established the causal
link between Dr. Ampil’s negligence and the injury. And what further
aggravated such injury was his deliberate concealment of the
missing gauzes from the knowledge of Natividad and her family.
II - G.R. No. 126467

Whether the Court of Appeals Erred in Absolving

Dr. Fuentes of any Liability

The Aganas assailed the dismissal by the trial court of the case
against Dr. Fuentes on the ground that it is contrary to the doctrine
of res ipsa loquitur. According to them, the fact that the two pieces
of gauze were left inside Natividad’s body is a prima facie evidence
of Dr. Fuentes’ negligence.

We are not convinced.

Literally, res ipsa loquitur means "the thing speaks for itself." It is
the rule that the fact of the occurrence of an injury, taken with the
surrounding circumstances, may permit an inference or raise a
presumption of negligence, or make out a plaintiff’s prima facie
case, and present a question of fact for defendant to meet with an
explanation.13 Stated differently, where the thing which caused the
injury, without the fault of the injured, is under the exclusive control
of the defendant and the injury is such that it should not have
occurred if he, having such control used proper care, it affords
reasonable evidence, in the absence of explanation that the injury
arose from the defendant’s want of care, and the burden of proof is
shifted to him to establish that he has observed due care and
diligence.14

From the foregoing statements of the rule, the requisites for the
applicability of the doctrine of res ipsa loquitur are: (1) the
occurrence of an injury; (2) the thing which caused the injury was
under the control and management of the defendant; (3) the
occurrence was such that in the ordinary course of things, would
not have happened if those who had control or management used
proper care; and (4) the absence of explanation by the defendant.
Of the foregoing requisites, the most instrumental is the "control
and management of the thing which caused the injury." 15

We find the element of "control and management of the thing which

caused the injury" to be wanting. Hence, the doctrine of res ipsa
loquitur will not lie.
It was duly established that Dr. Ampil was the lead surgeon during
the operation of Natividad. He requested the assistance of Dr.
Fuentes only to perform hysterectomy when he (Dr. Ampil) found
that the malignancy in her sigmoid area had spread to her left
ovary. Dr. Fuentes performed the surgery and thereafter reported
and showed his work to Dr. Ampil. The latter examined it and
finding everything to be in order, allowed Dr. Fuentes to leave the
operating room. Dr. Ampil then resumed operating on Natividad. He
was about to finish the procedure when the attending nurses
informed him that two pieces of gauze were missing. A "diligent
search" was conducted, but the misplaced gauzes were not found.
Dr. Ampil then directed that the incision be closed. During this
entire period, Dr. Fuentes was no longer in the operating room and
had, in fact, left the hospital.

Under the "Captain of the Ship" rule, the operating surgeon is the
person in complete charge of the surgery room and all personnel
connected with the operation. Their duty is to obey his orders. 16 As
stated before, Dr. Ampil was the lead surgeon. In other words, he
was the "Captain of the Ship." That he discharged such role is
evident from his following conduct: (1) calling Dr. Fuentes to
perform a hysterectomy; (2) examining the work of Dr. Fuentes and
finding it in order; (3) granting Dr. Fuentes’ permission to leave; and
(4) ordering the closure of the incision. To our mind, it was this act
of ordering the closure of the incision notwithstanding that two
pieces of gauze remained unaccounted for, that caused injury to
Natividad’s body. Clearly, the control and management of the thing
which caused the injury was in the hands of Dr. Ampil, not Dr.
Fuentes.

In this jurisdiction, res ipsa loquitur is not a rule of substantive law,

hence, does not per se create or constitute an independent or
separate ground of liability, being a mere evidentiary rule. 17 In other
words, mere invocation and application of the doctrine does not
dispense with the requirement of proof of negligence. Here, the
negligence was proven to have been committed by Dr. Ampil and
not by Dr. Fuentes.

III - G.R. No. 126297

Whether PSI Is Liable for the Negligence of Dr. Ampil

The third issue necessitates a glimpse at the historical development
of hospitals and the resulting theories concerning their liability for
the negligence of physicians.

Until the mid-nineteenth century, hospitals were generally

charitable institutions, providing medical services to the lowest
classes of society, without regard for a patient’s ability to
pay.18 Those who could afford medical treatment were usually
treated at home by their doctors.19 However, the days of house
calls and philanthropic health care are over. The modern health
care industry continues to distance itself from its charitable past
and has experienced a significant conversion from a not-for-profit
health care to for-profit hospital businesses. Consequently,
significant changes in health law have accompanied the business-
related changes in the hospital industry. One important legal
change is an increase in hospital liability for medical malpractice.
Many courts now allow claims for hospital vicarious liability under
the theories of respondeat superior, apparent authority, ostensible
authority, or agency by estoppel. 20

In this jurisdiction, the statute governing liability for negligent acts is

Article 2176 of the Civil Code, which reads:

Art. 2176. Whoever by act or omission causes damage to another,

there being fault or negligence, is obliged to pay for the damage
done. Such fault or negligence, if there is no pre-existing
contractual relation between the parties, is called a quasi-delict and
is governed by the provisions of this Chapter.

A derivative of this provision is Article 2180, the rule governing

vicarious liability under the doctrine of respondeat superior, thus:

ART. 2180. The obligation imposed by Article 2176 is demandable

not only for one’s own acts or omissions, but also for those of
persons for whom one is responsible.

x x x x x x

The owners and managers of an establishment or enterprise are

likewise responsible for damages caused by their employees in the
service of the branches in which the latter are employed or on the
occasion of their functions.

Employers shall be liable for the damages caused by their

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

x x x x x x

The responsibility treated of in this article shall cease when the

persons herein mentioned prove that they observed all the
diligence of a good father of a family to prevent damage.

A prominent civilist commented that professionals engaged by an

employer, such as physicians, dentists, and pharmacists, are not
"employees" under this article because the manner in which they
perform their work is not within the control of the latter (employer).
In other words, professionals are considered personally liable for
the fault or negligence they commit in the discharge of their duties,
and their employer cannot be held liable for such fault or
negligence. In the context of the present case, "a hospital cannot
be held liable for the fault or negligence of a physician or surgeon in
the treatment or operation of patients."21

The foregoing view is grounded on the traditional notion that the

professional status and the very nature of the physician’s calling
preclude him from being classed as an agent or employee of a
hospital, whenever he acts in a professional capacity. 22 It has been
said that medical practice strictly involves highly developed and
specialized knowledge,23 such that physicians are generally free to
exercise their own skill and judgment in rendering medical services
sans interference.24 Hence, when a doctor practices medicine in a
hospital setting, the hospital and its employees are deemed to
subserve him in his ministrations to the patient and his actions are
of his own responsibility.25

The case of Schloendorff v. Society of New York Hospital26 was

then considered an authority for this view. The "Schloendorff
doctrine" regards a physician, even if employed by a hospital, as an
independent contractor because of the skill he exercises and the
lack of control exerted over his work. Under this doctrine, hospitals
are exempt from the application of the respondeat superior principle
for fault or negligence committed by physicians in the discharge of
their profession.

However, the efficacy of the foregoing doctrine has weakened with

the significant developments in medical care. Courts came to
realize that modern hospitals are increasingly taking active role in
supplying and regulating medical care to patients. No longer were a
hospital’s functions limited to furnishing room, food, facilities for
treatment and operation, and attendants for its patients. Thus, in
Bing v. Thunig,27 the New York Court of Appeals deviated from the
Schloendorff doctrine, noting that modern hospitals actually do far
more than provide facilities for treatment. Rather, they regularly
employ, on a salaried basis, a large staff of physicians, interns,
nurses, administrative and manual workers. They charge patients
for medical care and treatment, even collecting for such services
through legal action, if necessary. The court then concluded that
there is no reason to exempt hospitals from the universal rule of
respondeat superior.

In our shores, the nature of the relationship between the hospital

and the physicians is rendered inconsequential in view of our
categorical pronouncement in Ramos v. Court of Appeals28 that for
purposes of apportioning responsibility in medical negligence
cases, an employer-employee relationship in effect exists between
hospitals and their attending and visiting physicians. This Court
held:

"We now discuss the responsibility of the hospital in this particular

incident. The unique practice (among private hospitals) of filling up
specialist staff with attending and visiting "consultants," who are
allegedly not hospital employees, presents problems in
apportioning responsibility for negligence in medical malpractice
cases. However, the difficulty is more apparent than real.

In the first place, hospitals exercise significant control in the hiring

and firing of consultants and in the conduct of their work within the
hospital premises. Doctors who apply for ‘consultant’ slots, visiting
or attending, are required to submit proof of completion of
residency, their educational qualifications, generally, evidence of
accreditation by the appropriate board (diplomate), evidence of
fellowship in most cases, and references. These requirements are
carefully scrutinized by members of the hospital administration or
by a review committee set up by the hospital who either accept or
reject the application. x x x.

After a physician is accepted, either as a visiting or attending

consultant, he is normally required to attend clinico-pathological
conferences, conduct bedside rounds for clerks, interns and
residents, moderate grand rounds and patient audits and perform
other tasks and responsibilities, for the privilege of being able to
maintain a clinic in the hospital, and/or for the privilege of admitting
patients into the hospital. In addition to these, the physician’s
performance as a specialist is generally evaluated by a peer review
committee on the basis of mortality and morbidity statistics, and
feedback from patients, nurses, interns and residents. A consultant
remiss in his duties, or a consultant who regularly falls short of the
minimum standards acceptable to the hospital or its peer review
committee, is normally politely terminated.

In other words, private hospitals, hire, fire and exercise real control
over their attending and visiting ‘consultant’ staff. While
‘consultants’ are not, technically employees, x x x, the control
exercised, the hiring, and the right to terminate consultants all fulfill
the important hallmarks of an employer-employee relationship, with
the exception of the payment of wages. In assessing whether such
a relationship in fact exists, the control test is determining.
Accordingly, on the basis of the foregoing, we rule that for the
purpose of allocating responsibility in medical negligence cases, an
employer-employee relationship in effect exists between hospitals
and their attending and visiting physicians. "

But the Ramos pronouncement is not our only basis in sustaining

PSI’s liability. Its liability is also anchored upon the agency principle
of apparent authority or agency by estoppel and the doctrine of
corporate negligence which have gained acceptance in the
determination of a hospital’s liability for negligent acts of health
professionals. The present case serves as a perfect platform to test
the applicability of these doctrines, thus, enriching our
jurisprudence.

Apparent authority, or what is sometimes referred to as the "holding

out" theory, or doctrine of ostensible agency or agency by
estoppel,29 has its origin from the law of agency. It imposes liability,
not as the result of the reality of a contractual relationship, but
rather because of the actions of a principal or an employer in
somehow misleading the public into believing that the relationship
or the authority exists.30 The concept is essentially one of estoppel
and has been explained in this manner:

"The principal is bound by the acts of his agent with the apparent
authority which he knowingly permits the agent to assume, or which
he holds the agent out to the public as possessing. The question in
every case is whether the principal has by his voluntary act placed
the agent in such a situation that a person of ordinary prudence,
conversant with business usages and the nature of the particular
business, is justified in presuming that such agent has authority to
perform the particular act in question.31

The applicability of apparent authority in the field of hospital liability

was upheld long time ago in Irving v. Doctor Hospital of Lake
Worth, Inc.32 There, it was explicitly stated that "there does not
appear to be any rational basis for excluding the concept of
apparent authority from the field of hospital liability." Thus, in cases
where it can be shown that a hospital, by its actions, has held out a
particular physician as its agent and/or employee and that a patient
has accepted treatment from that physician in the reasonable belief
that it is being rendered in behalf of the hospital, then the hospital
will be liable for the physician’s negligence.

Our jurisdiction recognizes the concept of an agency by implication

or estoppel. Article 1869 of the Civil Code reads:

ART. 1869. Agency may be express, or implied from the acts of the
principal, from his silence or lack of action, or his failure to
repudiate the agency, knowing that another person is acting on his
behalf without authority.

In this case, PSI publicly displays in the lobby of the Medical City
Hospital the names and specializations of the physicians
associated or accredited by it, including those of Dr. Ampil and Dr.
Fuentes. We concur with the Court of Appeals’ conclusion that it "is
now estopped from passing all the blame to the physicians whose
names it proudly paraded in the public directory leading the public
to believe that it vouched for their skill and competence." Indeed,
PSI’s act is tantamount to holding out to the public that Medical City
Hospital, through its accredited physicians, offers quality health
care services. By accrediting Dr. Ampil and Dr. Fuentes and
publicly advertising their qualifications, the hospital created the
impression that they were its agents, authorized to perform medical
or surgical services for its patients. As expected, these patients,
Natividad being one of them, accepted the services on the
reasonable belief that such were being rendered by the hospital or
its employees, agents, or servants. The trial court correctly pointed
out:

x x x regardless of the education and status in life of the patient, he

ought not be burdened with the defense of absence of employer-
employee relationship between the hospital and the independent
physician whose name and competence are certainly certified to
the general public by the hospital’s act of listing him and his
specialty in its lobby directory, as in the case herein. The high costs
of today’s medical and health care should at least exact on the
hospital greater, if not broader, legal responsibility for the conduct
of treatment and surgery within its facility by its accredited
physician or surgeon, regardless of whether he is independent or
employed."33

The wisdom of the foregoing ratiocination is easy to discern.

Corporate entities, like PSI, are capable of acting only through
other individuals, such as physicians. If these accredited physicians
do their job well, the hospital succeeds in its mission of offering
quality medical services and thus profits financially. Logically,
where negligence mars the quality of its services, the hospital
should not be allowed to escape liability for the acts of its ostensible
agents.

We now proceed to the doctrine of corporate negligence or

corporate responsibility.

One allegation in the complaint in Civil Case No. Q-43332 for

negligence and malpractice is that PSI as owner, operator and
manager of Medical City Hospital, "did not perform the necessary
supervision nor exercise diligent efforts in the supervision of Drs.
Ampil and Fuentes and its nursing staff, resident doctors, and
medical interns who assisted Drs. Ampil and Fuentes in the
performance of their duties as surgeons." 34 Premised on the
doctrine of corporate negligence, the trial court held that PSI is
directly liable for such breach of duty.

We agree with the trial court.

Recent years have seen the doctrine of corporate negligence as

the judicial answer to the problem of allocating hospital’s liability for
the negligent acts of health practitioners, absent facts to support
the application of respondeat superior or apparent authority. Its
formulation proceeds from the judiciary’s acknowledgment that in
these modern times, the duty of providing quality medical service is
no longer the sole prerogative and responsibility of the physician.
The modern hospitals have changed structure. Hospitals now tend
to organize a highly professional medical staff whose competence
and performance need to be monitored by the hospitals
commensurate with their inherent responsibility to provide quality
medical care.35

The doctrine has its genesis in Darling v. Charleston Community

Hospital.36 There, the Supreme Court of Illinois held that "the jury
could have found a hospital negligent, inter alia, in failing to have a
sufficient number of trained nurses attending the patient; failing to
require a consultation with or examination by members of the
hospital staff; and failing to review the treatment rendered to the
patient." On the basis of Darling, other jurisdictions held that a
hospital’s corporate negligence extends to permitting a physician
known to be incompetent to practice at the hospital.37 With the
passage of time, more duties were expected from hospitals, among
them: (1) the use of reasonable care in the maintenance of safe
and adequate facilities and equipment; (2) the selection and
retention of competent physicians; (3) the overseeing or
supervision of all persons who practice medicine within its walls;
and (4) the formulation, adoption and enforcement of adequate
rules and policies that ensure quality care for its patients.38 Thus, in
Tucson Medical Center, Inc. v. Misevich,39 it was held that a
hospital, following the doctrine of corporate responsibility, has the
duty to see that it meets the standards of responsibilities for the
care of patients. Such duty includes the proper supervision of the
members of its medical staff. And in Bost v. Riley,40 the court
concluded that a patient who enters a hospital does so with the
reasonable expectation that it will attempt to cure him. The hospital
accordingly has the duty to make a reasonable effort to monitor and
oversee the treatment prescribed and administered by the
physicians practicing in its premises.

In the present case, it was duly established that PSI operates the
Medical City Hospital for the purpose and under the concept of
providing comprehensive medical services to the public.
Accordingly, it has the duty to exercise reasonable care to protect
from harm all patients admitted into its facility for medical treatment.
Unfortunately, PSI failed to perform such duty. The findings of the
trial court are convincing, thus:

x x x PSI’s liability is traceable to its failure to conduct an

investigation of the matter reported in the nota bene of the count
nurse. Such failure established PSI’s part in the dark conspiracy of
silence and concealment about the gauzes. Ethical considerations,
if not also legal, dictated the holding of an immediate inquiry into
the events, if not for the benefit of the patient to whom the duty is
primarily owed, then in the interest of arriving at the truth. The Court
cannot accept that the medical and the healing professions,
through their members like defendant surgeons, and their
institutions like PSI’s hospital facility, can callously turn their backs
on and disregard even a mere probability of mistake or negligence
by refusing or failing to investigate a report of such seriousness as
the one in Natividad’s case.

It is worthy to note that Dr. Ampil and Dr. Fuentes operated on

Natividad with the assistance of the Medical City Hospital’s staff,
composed of resident doctors, nurses, and interns. As such, it is
reasonable to conclude that PSI, as the operator of the hospital,
has actual or constructive knowledge of the procedures carried out,
particularly the report of the attending nurses that the two pieces of
gauze were missing. In Fridena v. Evans,41 it was held that a
corporation is bound by the knowledge acquired by or notice given
to its agents or officers within the scope of their authority and in
reference to a matter to which their authority extends. This means
that the knowledge of any of the staff of Medical City Hospital
constitutes knowledge of PSI. Now, the failure of PSI, despite the
attending nurses’ report, to investigate and inform Natividad
regarding the missing gauzes amounts to callous negligence. Not
only did PSI breach its duties to oversee or supervise all persons
who practice medicine within its walls, it also failed to take an active
step in fixing the negligence committed. This renders PSI, not only
vicariously liable for the negligence of Dr. Ampil under Article 2180
of the Civil Code, but also directly liable for its own negligence
under Article 2176. In Fridena, the Supreme Court of Arizona held:

x x x In recent years, however, the duty of care owed to the patient

by the hospital has expanded. The emerging trend is to hold the
hospital responsible where the hospital has failed to monitor and
review medical services being provided within its walls. See Kahn
Hospital Malpractice Prevention, 27 De Paul . Rev. 23 (1977).

Among the cases indicative of the ‘emerging trend’ is Purcell v.

Zimbelman, 18 Ariz. App. 75,500 P. 2d 335 (1972). In Purcell, the
hospital argued that it could not be held liable for the malpractice of
a medical practitioner because he was an independent contractor
within the hospital. The Court of Appeals pointed out that the
hospital had created a professional staff whose competence and
performance was to be monitored and reviewed by the governing
body of the hospital, and the court held that a hospital would be
negligent where it had knowledge or reason to believe that a doctor
using the facilities was employing a method of treatment or care
which fell below the recognized standard of care.

Subsequent to the Purcell decision, the Arizona Court of Appeals

held that a hospital has certain inherent responsibilities regarding
the quality of medical care furnished to patients within its walls and
it must meet the standards of responsibility commensurate with this
undertaking. Beeck v. Tucson General Hospital, 18 Ariz. App. 165,
500 P. 2d 1153 (1972). This court has confirmed the rulings of the
Court of Appeals that a hospital has the duty of supervising the
competence of the doctors on its staff. x x x.

x x x x x x

In the amended complaint, the plaintiffs did plead that the operation
was performed at the hospital with its knowledge, aid, and
assistance, and that the negligence of the defendants was the
proximate cause of the patient’s injuries. We find that such general
allegations of negligence, along with the evidence produced at the
trial of this case, are sufficient to support the hospital’s liability
based on the theory of negligent supervision."

Anent the corollary issue of whether PSI is solidarily liable with Dr.
Ampil for damages, let it be emphasized that PSI, apart from a
general denial of its responsibility, failed to adduce evidence
showing that it exercised the diligence of a good father of a family
in the accreditation and supervision of the latter. In neglecting to
offer such proof, PSI failed to discharge its burden under the last
paragraph of Article 2180 cited earlier, and, therefore, must be
adjudged solidarily liable with Dr. Ampil. Moreover, as we have
discussed, PSI is also directly liable to the Aganas.

One final word. Once a physician undertakes the treatment and

care of a patient, the law imposes on him certain obligations. In
order to escape liability, he must possess that reasonable degree of
learning, skill and experience required by his profession. At the
same time, he must apply reasonable care and diligence in the
exercise of his skill and the application of his knowledge, and exert
his best judgment.

WHEREFORE, we DENY all the petitions and AFFIRM the

challenged Decision of the Court of Appeals in CA-G.R. CV No.
42062 and CA-G.R. SP No. 32198.
Case Digest: Professional Services, Inc. v. Court of Appeals

Facts: PSI together with Dr. Miguel Ampil and Dr. Juan Fuentes,
was impleaded by Enrique Agana and Natividad Agana (later
substituted by her heirs), in a complaint for damages for the injuries
suffered by Natividad when Dr. Ampil and Dr. Fuentes neglected to
remove from her body two gauzes which were used in the surgery
they performed on her on April 11, 1984 at the Medical City
General Hospital. PSI was impleaded as owner, operator and
manager of the hospital.

Issue: Whether or not PSI is liable for the negligence of Dr. Ampil.

Held: YES. For purposes of allocating responsibility in medical

negligence cases, an employer-employee relationship exists
between hospitals and their consultants. The Court denied the
defense of PSI saying that the defense raised by PSI consisted of a
mere general denial of control or responsibility over the actions of
Dr. Ampil. Furthermore, the hospital was projecting Dr. Ampil as
their agent. As such, under the doctrine of apparent authority PSI
was liable for the negligence of Dr. Ampil. Finally, as owner and
operator of Medical City General Hospital, PSI was bound by its
duty to provide comprehensive medical services to Natividad
Agana, to exercise reasonable care to protect her from harm, to
oversee or supervise all persons who practiced medicine within its
walls, and to take active steps in fixing any form of negligence
committed within its premises. PSI committed a serious breach of
its corporate duty when it failed to conduct an immediate
investigation into the reported missing gauzes.

Doctrine: Regardless of its relationship with the doctor, the hospital

may be held directly liable to the patient for its own negligence or
failure to follow established standard of conduct to which it should
conform as a corporation.
Doctrine of Apparent Authority

Vs.

Agency by Estoppel