Doctrine Of Apparent Authority; Holding Out Theory; Doctrine of Ostensible Agency

Category: Torts and Damages

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).