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355 Phil. 642


[ G.R. No. 119121, August 14, 1998 ]




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

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

After trial on the merits, the trial court rendered a decision dated July 25, 1988 absolving NPC of any liability. The dispositive portion reads:

“Consequently, in view of the foregoing consideration, judgment is hereby rendered ordering PHESCO, Inc. and Gavino Ilumba upon receipt hereof:

1. To pay jointly and severally the plaintiffs thru the Dansalan College the sum of P954,154.55 representing the actual or compensatory damages incurred by the plaintiffs; and

2. To pay the sum of P50,000.00 representing Attorney’s fees.


Dissatisfied, PHESCO appealed to the Court of Appeals, which on November 10, 1994 reversed the trial court’s judgment. We quote the pertinent portion of the decision:

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

Consequently, we hold Phesco not liable for the tort of driver Gavino Ilumba, as there was no employment relationship between Phesco and driver Gavino Ilumba. Under Article 2180 of the Civil Code, to hold the employer liable for torts committed by his employees within the scope of their assigned task, there must exist an employer-employee relationship. (Martin vs. Court of Appeals, 205 SCRA 591).

WHEREFORE, we REVERSE the appealed decision. In lieu thereof, the Court renders judgment sentencing defendant National Power Corporation to pay plaintiffs the sum of P174,889.20 plus P20,000.00 as attorney’s fees and costs.


Chagrined by the sudden turnaround, NPC filed a motion for reconsideration of said decision which was, however, denied on February 9, 1995.[1] Hence, this petition.

The principal query to be resolved is, as between NPC and PHESCO, who is the employer of Ilumba, driver of the dumptruck which figured in the accident and which should, therefore, would be liable for damages to the victims. Specifically, NPC assigns the sole error that:


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

Before we decide who is the employer of Ilumba, it is evidently necessary to ascertain the contractual relationship between NPC and PHESCO. Was the relationship one of employer and job (independent) contractor or one of employer and “labor only” contractor?

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

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

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

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

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

“(b) Labor only contracting as defined herein is hereby prohibited and the person acting as contractor shall be considered merely as an agent or intermediary of the employer who shall be responsible to the workers in the same manner and extent as if the latter were directly employed by him.”

In other words, NPC posits the theory that its liability is limited only to compliance with the substantive labor provisions on working conditions, rest periods, and wages and shall not extend to liabilities suffered by third parties, viz.:

“Consequently, the responsibilities of the employer contemplated in a ‘labor only’ contract, should, consistent with the terms expressed in the rule, be restricted ‘to the workers.’ The same can not be expanded to cover liabilities for damages to third persons resulting from the employees’ tortious acts under Article 2180 of the Civil Code.”[17]

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

To be sure, the pronouncement of this Court in Filamer Christian Institute v. IAC,[18] is most instructive:

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

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

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

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

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

“Employers shall be liable for the damages caused by their employees and household helpers acting within the scope of their assigned tasks, even though the former are not engaged in any business or industry.”

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

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

WHEREFORE, in view of the foregoing, the assailed decision of the Court of Appeals dated November 10, 1994 and its accompanying resolution dated February 9, 1995 are AFFIRMED without prejudice to the right of NPC to demand from PHESCO and Ilumba reimbursement of the damages it would be adjudged to pay to complainants. No costs.


Narvasa, CJ., (Chairman), Kapunan and Purisima JJ. concur.

[1] Rollo, pp. 40-41.

[2] Petition, Rollo, pp. 6-7.

[3] Petition, Rollo, pp. 19-21.

[4] Memorandum, ibid., pp. 94-95.

[5] Phil. School of Business Administration-Manila v. NLRC, 261 SCRA 189 (1996); Tiu v. NLRC, 254 SCRA 1 (1996).

[6] Maraguinot v. NLRC, G.R. No. 120969, January 22, 1998.

[7] Memorandum of Understanding, par. 2, Rollo, p. 73.

[8] Ibid., par. 5, p. 75.

[9] Id., par. 9, p. 76

[10] Id., par. 4, p. 74.

[11] Id., par. 10, p. 76.

[12] Equitable Banking Corp. v. NLRC, 273 SCRA 352 (1997).

[13] PCI Automation Center, Inc. v. NLRC, 252 SCRA 493 (1996); Philippine Bank of Communication v. NLRC, 146 SCRA 347 (1986).

[14] Guarin v. NLRC, 178 SCRA 267 (1989); Industrial Timber Corporation v. NLRC, 169 SCRA 341 (1989).

[15] Article 106, Labor Code, as amended.

[16] Rollo, p. 126.

[17] Rollo, p. 23.

[18] 212 SCRA 637 (1992).

[19] 55 Phil. 18 (1930).

[20] Associated Anglo-American Tobacco Corp. v. Clave, 189 SCRA 127 (1990).

[21] Kapalaran Bus Line v. Coronado, 176 SCRA 792 (1987); Gelisan v. Alday, 154 SCRA 388 (1987); Lanuzo v. Ping, 100 SCRA 205 (1980).21


] Article 2181, Civil Code.

[23] Bahia v. Litonjun & Leynes, 36 Phil. 624 (1916).

[24] First Philippine International Bank v. Court of Appeals, 252 SCRA 259 (1996).2 4

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