G.R. No. 119121 August 14, 1998
NATIONAL POWER CORPORATION, petitioner, vs. COURT OF APPEALS, Fifteenth Division and PHESCO INCORPORATED, respondents.

FACTS

On July 22, 1979, a dump truck owned by the National Power Corporation (NPC) and driven by Gavino Ilumba figured in a head-on collision with a Toyota Tamaraw, resulting in deaths and injuries. The heirs of the victims filed a complaint for damages against NPC and PHESCO Incorporated. PHESCO contended it was not the owner of the truck but merely a contractor supplying workers and technicians for NPC’s projects. NPC denied liability, asserting that the driver was an employee of PHESCO. The trial court rendered a decision on July 25, 1988, absolving NPC and holding PHESCO and Ilumba jointly and severally liable for damages. PHESCO appealed to the Court of Appeals, which reversed the trial court’s decision on November 10, 1994, holding NPC liable as the employer of driver Ilumba, finding PHESCO to be a “labor only” contractor. NPC’s motion for reconsideration was denied on February 9, 1995, prompting this petition.

ISSUE

The principal issue is, as between NPC and PHESCO, who is the employer of Gavino Ilumba, the driver of the dump truck, and consequently, who should be liable for damages to the victims.

RULING

The Supreme Court affirmed the decision of the Court of Appeals. It ruled that PHESCO was engaged in “labor only” contracting vis-à-vis NPC, based on the terms of their Memorandum of Understanding, which showed NPC’s control over PHESCO in matters concerning the performance of the latter’s work, such as approval of critical path networks, manning schedules, pay scales, sub-contracts, and procurement of tools. As a “labor only” contractor, PHESCO is considered merely an agent of NPC, and an employer-employee relationship is established between NPC and the workers supplied by PHESCO, including driver Ilumba. Consequently, under Article 2180 of the Civil Code, NPC, as the direct employer, is liable for the damages caused by its employee acting within the scope of his assigned tasks. The Court held that the liability of NPC is direct, primary, and solidary with PHESCO and the driver. The Court further ruled that the applicable law in resolving the case for damages based on quasi-delict is the Civil Code, not the Labor Code, and that NPC failed to raise the defense of due diligence in the selection or supervision of PHESCO and Ilumba, thus foreclosing such defense on appeal. The decision is without prejudice to NPC’s right to demand reimbursement from PHESCO and Ilumba.