●Contract of piece of work distinguished from contract of sale

30. G.R. No. 52267             January 24, 1996

ENGINEERING & MACHINERY CORPORATION, petitioner, vs.COURT OF APPEALS and PONCIANO L. ALMEDA, respondent.THIRD DIVISIONPANGANIBAN, J.Ruling:

A contract for a piece of work, labor and materials may be distinguished from a contract of sale by the inquiry as to whether the thing transferred is one not in existence and which would never have existed but for the order, of the person desiring it. In such case, the contract is one for a piece of work, not a sale. On the other hand, if the thing subject of the contract would have existed and been the subject of a sale to some other person even if the order had not been given, then the contract is one of sale.

A contract for the delivery at a certain price of an article which the vendor in the ordinary course of his business manufactures or procures for the general market, whether the same is on hand at the time or not is a contract of sale, but if the goods are to be manufactured specially for the customer and upon his special order, and not for the general market, it is a contract for a piece of work .

The contract in question is one for a piece of work. It is not petitioner’s line of business to manufacture air-conditioning systems to be sold “off-the-shelf.” Its business and particular field of expertise is the fabrication and installation of such systems as ordered by customers and in accordance with the particular plans and specifications provided by the customers. Naturally, the price or compensation for the system manufactured and installed will depend greatly on the particular plans and specifications agreed upon with the customers.

31. DEL MONTE PHILIPPINES, INC., petitioner, vs. NAPOLEON N. ARAGONES, respondent.

[G.R. No. 153033.  June 23, 2005]

THIRD DIVISION

CARPIO-MORALES, J.Ruling:Under Art. 1467 then of the Civil Code which provides:ART. 1467.  A contract for the delivery at a certain price of an article which the vendor in the ordinary course of his business manufactures or procures for the general market, whether the same is on hand at the time or not, is a contract of sale, but if the goods are

to be manufactured specially for the customer and upon his special order , and not for the general market, it is a contract for a piece of work.

the “Supply Agreement” was decidedly a contract for a piece of work.

Following Art. 1729 of the Civil Code which provides:ART. 1729.  Those who put their labor upon or furnish materials for a piece of work undertaken by the contractor have an action against the owner up to the amount owing from the latter to the contractor at the time the claim is made.

● Solidary liability imposed between owner of piece of work and supplier

32.JL INVESTMENT AND DEVELOPMENT, INC., G.R. No. 148596

SECOND DIVISION

ANTONIO T. CARPIORuling:

On the Owner’s Liability to Suppliers under Article 1729

Article 1729 of the Civil Code provides:

Those who put their labor upon or furnish materials for a piece of work undertaken by the contractor have an action against the owner up to the amount owing from the latter to the contractor at the time the claim is made. However, the following shall not prejudice the laborers, employees and furnishers of materials:

1. Payments made by the owner to the contractor before they are due;

2. Renunciation by the contractor of any amount due from the owner.

This article is subject to the provisions of special laws. (Emphasis supplied)

This provision imposes a direct liability on an owner of a piece of work in favor of suppliers of materials (and laborers) hired by the contractor "up to the amount owing from the [owner] to the contractor at the time the claim is made."7 Thus, to this extent, the owner’s liability is solidary with the contractor, if both are sued together. By creating a constructive vinculum between suppliers of materials (and laborers), on the one hand, and the owner of a piece of work, on the other hand, as an exception to the rule on privity of contracts, Article 1729 protects suppliers of materials (and laborers) from unscrupulous contractors and possible connivance between owners and contractors.8

As the Court of Appeals correctly ruled, the supplier’s cause of action under this provision, reckoned from the time of judicial or extra-judicial demand, subsists so long

as any amount remains owing from the owner to the contractor. Only full payment of the agreed contract price serves as a defense against the supplier’s claim.9

Here, petitioner resists TPI’s suit on the ground that it had fully paid, if not overpaid, SMCC at the time TPI demanded payment on 3 December 1996. However, as the Court of Appeals found, petitioner failed to substantiate its claim. What petitioner submits as proof of its alleged full or over payment, namely, its answer to TPI’s interrogatories and the testimony of one of its witnesses, are no more than mere uncorroborated allegations. The only proof of payment on record are the official receipt, voucher, and check for the seventh progress billing dated 30 August 1996, nearly four months before TPI sought payment from petitioner on 3 December 1996. Allegation of payments, advance or otherwise, is no substitute for proof of such fact. Thus, absent incontrovertible proof of payment such as receipts, checks, cash disbursement vouchers, and the like, petitioner’s claim of full or over payment remains only that. At any rate, Article 1729 clearly provides that "payments made by the owner to the contractor before they are due" do not prejudice suppliers of materials.

Petitioner is Entitled to Reimbursementfrom SMCC under its Cross-claim.

Petitioner’s solidary liability with SMCC and Sta. Maria to TPI does not preclude petitioner’s right to demand reimbursement for whatever amount it will pay TPI. This is only proper since SMCC contracted TPI to supply the concrete piles. To hold otherwise is to sanction unjust enrichment by the contractor at the expense of the owner. Although Article 1729 protects suppliers, it is no license to oppress owners. Thus, we grant petitioner’s prayer for reimbursement under its cross-claim against SMCC.10

On the 12% rate of interest the trial court applied on the principal obligation, this is proper only when the obligation consists of loans or forbearance of money, in the absence of stipulation to the contrary.11 If, as here, the obligation is otherwise, the applicable rate is 6% per annum computed from the time of extra-judicial or judicial demand. Upon the finality of this ruling, the entire amount due shall earn interest at 12% per annum until its satisfaction.12

●Salaries and wagesMeaning of salary

33.AVELINO LAMBO and VICENTE BELOCURA, petitioners, vs. NATIONAL LABOR RELATIONS COMMISSION and J.C. TAILOR SHOP and/or JOHNNY CO, respondents.[G.R. No. 111042. October 26, 1999]

SECOND DIVISION

MENDOZA, J.Ruling:

There are two categories of employees paid by results: (1) those whose time and performance are supervised by the employer. (Here, there is an element of control and supervision over the manner as to how the work is to be performed. A piece-rate worker belongs to this category especially if he performs his work in the company premises.); and (2) those whose time and performance are unsupervised. (Here, the employer’s control is over the result of the work. Workers on pakyaoand takay basis belong to this group.) Both classes of workers are paid per unit accomplished. Piece-rate payment is generally practiced in garment factories where work is done in the company premises, while payment on pakyaoand takay basis is commonly observed in the agricultural industry, such as in sugar plantations where the work is performed in bulk or in volumes difficult to quantify. i[4] Petitioners belong to the first category, i.e., supervised employees.

In determining the existence of an employer-employee relationship, the following elements must be considered: (1) the selection and engagement of the employee; (2) the payment of wages; (3) the power of dismissal; and (4) the power to control the employee’s conduct.ii[5] Of these elements, the most important criterion is whether the employer controls or has reserved the right to control the employee not only as to the result of the work but also as to the means and methods by which the result is to be accomplished. iii[6]

In this case, private respondents exercised control over the work of petitioners. As tailors, petitioners worked in the company’s premises from 8:00 a.m. to 7:00 p.m. daily, including Sundays and holidays. The mere fact that they were paid on a piece-rate basis does not negate their status as regular employees of private respondents. The term “wage” is broadly defined in Art. 97 of the Labor Code as remuneration or earnings, capable of being expressed in terms of money whether fixed or ascertained on a time, task, piece or commission basis. Payment by the piece is just a method of compensation and does not define the essence of the relations. iv[7] Nor does the fact that petitioners are not covered by the SSS affect the employer-employee relationship.

Indeed, the following factors show that petitioners, although piece-rate workers, were regular employees of private respondents: (1) within the contemplation of Art. 280 of the Labor Code, their work as tailors was necessary or desirable in the usual business of private respondents, which is engaged in the tailoring business; (2) petitioners worked for private respondents throughout the year, their employment not being dependent on a specific project or season; and, (3) petitioners worked for private respondents for more than one year.

i[4]1 C.A. Azucena, THE LABOR CODE WITH COMMENTS AND CASES 331 (1996).

ii[5]Santos v. NLRC, 293 SCRA 113 (1998).

iii[6] Makati Haberdashery, Inc. v. NLRC, 179 SCRA 448 (1989); Rosario Brothers, Inc. v.Ople, 131 SCRA 72 (1984); DyKehBengv. International Labor and Marine Union of the Phils., 90 SCRA 161 (1979).

iv[7]Villugav. NLRC, 225 SCRA 537 (1993).