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G.R. No. 148596 January 22, 2007

JL INVESTMENT AND DEVELOPMENT, INC.,Petitioner, vs. TENDON PHILIPPINES, INC., J. STA.MARIA CONSTRUCTION CORPORATION, and JAIMET. STA. MARIA, JR., Respondents.

D E C I S I O N

CARPIO, J.:

The Case

This is a petition for review1of the Decision2 dated 3May 2001 and the Resolution dated 19 June 2001 ofthe Court of Appeals holding petitioner JL Investmentand Development, Inc. (petitioner) jointly and severallyliable with respondents J. Sta. Maria ConstructionCorporation (SMCC) and Jaime T. Sta. Maria, Jr. (Sta.Maria) in a collection suit filed by respondent TendonPhilippines, Inc. (TPI).

The Facts

Petitioner hired respondent SMCC to undertake thestructural and architectural work for the first 12 floorsof a 16-floor building (JLID Building) in Kalaw cornerCortada Streets, Ermita, Manila. Under theConstruction Agreement (Agreement) betweenpetitioner and SMCC, petitioner agreed to paySMCC P63,333,085.84 for the project. The Agreementalso required SMCC to submit monthly progress billingsto petitioner.3

To supply the concrete piles needed for the structuralwork, SMCC subcontracted respondent TPI, a localmanufacturer of pre-cast concrete products.

Accordingly, TPI delivered 142 pieces of concrete pilesto SMCC worth P4,118,000 payable on installmentbasis.

By early August 1996, SMCC, using the concrete pilesthat TPI supplied, finished the pile driving work for thefirst 12 floors of the JLID Building.

On 13 September 1996, petitioner paid SMCC for thepile driving work as indicated in SMCCs seventhprogress billing dated 30 August 1996.

Claiming that SMCC did not fully pay for the concretepiles, TPI sought payment of the balance frompetitioner. Petitioner ignored TPIs demand. Thus, TPIsued SMCC, SMCCs President, respondent Sta. Maria,and petitioner (respondents) in the Regional Trial Courtof Pasig City, Branch 167 (trial court), to collect theunpaid balance ofP1,389,330. TPI prayed that the trialcourt hold respondents solidarily liable for the balancewith interest, attorneys fees, and the costs of suit.

In its Answer, petitioner denied any liability, allegingthat under the Agreement, SMCC is solely liable for anyobligation due to its suppliers. Nevertheless, petitionerfiled a cross-claim against SMCC, prayingreimbursement for any amount it may be held liable to

TPI. Petitioner also prayed for the payment oattorneys fees and litigation expenses.

In their Answer, SMCC and Sta. Maria also raised thedefense of full payment. Alternatively, SMCC and StaMaria contended that the pile drives TPI delivered didnot conform to the agreed specifications. SMCC andSta. Maria counterclaimed for damages.

Before trial commenced, TPI submitted interrogatories

to petitioner. In its response, petitioner claimed, for thefirst time, that it had made advance payments toSMCC, resulting in an alleged overpayment.

During the pre-trial, SMCC and Sta. Maria failed toappear, thus the trial court declared them in default.

The Ruling of the Trial Court

In its Decision dated 17 May 1999, the trial court heldSMCC and Sta. Maria solidarily liable to TPfor P1,389,330 with 12% interest per annum,

computed from the filing of the complaint, andattorneys fees equivalent to 10% of the principaobligation.4 The trial court dismissed both TPIscomplaint against petitioner and petitioners crossclaim against SMCC for lack of basis.

In absolving petitioner from any liability, the trial courtheld that TPIs cause of action against petitioner underArticle 1729 of the Civil Code applies only to theamount petitioner owed SMCC for the pile driving workSince at the time TPI demanded payment frompetitioner on 3 December 1996, petitioner had alreadyfully paid SMCC for the pile driving work, the trial courtconcluded that TPI ceased to have any cause of action

against petitioner. The trial court held:

The liability of the defendant contractor J. Sta. MariaConstruction, as well as Jaime T. Sta. Maria Jr., issettled. By preponderance of evidence, plaintiffdemonstrates [sic] ineluctably that all the concretepiles ordered by the defendant J. Sta. MariaConstruction were delivered and used in the buildingunder construction. The defendant J. Sta. Mariabenefited from the materials, as accordingly, it waspaid by the defendant-owner of the building.

The claim of plaintiff Tendon [Philippines, Inc.] againsthe defendant [JL] Investment is anchored on the

provision of Art. 1729 of the Civil Code of thePhilippines, which is quoted as follows:

Those who put their labor upon or furnish materials fora piece of work undertaken by the contractor have anaction against the owner up to the amount owing fromthe latter to the contractor at the time the claim ismade. However, the following shall not prejudice thelaborers, employees and furnishers of materials:

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

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2. Renunciation by the contractor of anyamount due from the owner.

This article is subject to the provision[s] of special laws.x x x

It is readily apparent from the provision invoked thatthe owner of the materials has a cause of actionagainst the owner of the building for materialsfurnished to the contractor only up to the amount

owing from the owner to the contractor at the time theclaim is made.

Equating the provision of law to the evidence of theplaintiff, to prove the liability of the defendant-owner ofthe building, it is undisputedly clear that at the timethe claim or demand was presented by plaintiff to thedefendant JL Investment in December 1996, all thematerials supplied by it and used in the building by thedefendant-contractor had all been paid by the owner ofthe building JL Investment to the contractor, J. Sta.Maria Construction. In fact, it does not appear that theowner of the building is indebted at all to thedefendant-contractor. It is qui[te] unfair, if not

altogether in[i]quitous, for the defendant-owner of thebuilding to pay twice for the materials used in thebuilding. In the absence of a clear showing that there isstill an amount due from the owner, JL Investment, tothe defendant-contractors representing the value ofthe materials used, the plaintiff, as owner of thematerials[] used in the building has no cause of actionagainst the owner of the building JL Investment. Thelogical recourse of the owner of the material x x xwould be against the contractor, who in the first placeordered and purchase [sic] the materials. Putotherwise, the privity or tie is between the owner of thematerials and the contractor. But, considering thatplaintiff was compelled to litigate and incurredexpenses to protect its interest, an entitlement to a

reasonable attorneys fees is warranted.5(Emphasis inthe original)

TPI appealed to the Court of Appeals, contending thatthe trial court erred in not holding petitioner solidarilyliable with SMCC and Sta. Maria.

SMCC and Sta. Maria also appealed. However, forSMCC and Sta. Marias failure to file their appellantsbrief, the Court of Appeals considered their appealabandoned and dismissed it in the Resolution of 31 July2000.

The Ruling of the Court of Appeals

In its Decision of 3 May 2001, the Court of Appealsgranted TPIs appeal and modified the trial courtsruling by holding petitioner solidarily liable with SMCCand Sta. Maria. The Court of Appeals ruled that (1)Article 1729 does not limit the suppliers cause ofaction against the owner to the value of the materialsthe supplier furnished, and (2) petitioner failed toprove its claim that it had fully paid, if not overpaid,SMCC for the project. The Court of Appeals held:

Art. 1729 of the Civil Code indeed does not make anydistinction whether such amount owing from the owneto the contractor pertains to a specific item of paymentor account, particularly whether such amount owing tothe contractor was intended for payment of the x x xmaterials supplied. The clear intendment of the law isto provide protection to the x x x furnisher of materialsso that a restrictive interpretation of said provision aswhat the trial court had done, would undermine suchlegislative policy and objective.

x x x x

Of course, where the owner of the building has fullypaid the contractor, the formers liability ceases. In thisregard, defendant-appellees [JL Investment] evidenceshowed that although the pile driving works was [sic]100% accomplished or completed, the overall Projectaccomplishment is [sic] not yet fully executed as ofAugust 30, 1996, indicating 29.5% accomplishment fothe 7th Progress Billing. Defendant-appellee JLInvestment & Development Corporation also claims tohave "overpaid" the contractor, defendant J. Sta. MariaConstruction Corporation when it extended financiaassistance to it on the supply of cement, deformedbars and formworks system and tower crane, "for theperiod of two (2) months November to Decembe1996 at the estimated total amountof P11,539,954.00" and by reason of which, completiondate of the Project was extended to January 6, 1997 asevidenced by the "Addendum to ConstructionAgreement." Such "financial assistance", according toappellant [TPI], constitutes advance payment to thecontractor which under Art. 1729 shall not prejudicethe claim of furnisher of materials such as hereinappellant [TPI]. Defendant-appellee JL Investment &Development Corporation, on the other hand, contendsthat in view of the "overpayment" to the defendancontractor, J. Sta. Maria Construction Corporation

there is no longer any such amount owing and due tosaid contractor, and hence, appellant no longer hasany cause of action against the defendant-appellee [JLInvestment], the owner of the building. And yet, noevidence was presented by defendant-appellee [JLInvestment] showing that such advances or "financiaassistance" in the amount stated in the "Addendum toConstruction Agreement" was actually paid by itExhibits "5", "5-A" and "5-B" reflected only thepayment for the 7th Progress Billing on September 131996 in which the cost of pile driving works was fullypaid. No evidence of payment for the alleged "financiaassistance" on which the claim of overpayment bydefendant-appellee [JL Investment] rests, wassubmitted by the defendant-appellee [JL Investment]Therefore, its defense that there is no longer any suchamount owing to the defendant contractor at the timethe claim is made upon it by plaintiff-appellant [TPI]must fail. The trial court thus erred in holding that onlydefendants-contractors [SMCC and Sta. Maria] may beheld liable in this action by plaintiff-appellant [TPI]thereby absolving the owner of the buildingdefendant-appellee JL Investment & DevelopmentCorporation from any liability for the unpaid materialsfurnished by the plaintiff-appellant.6

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Petitioner sought reconsideration but the Court ofAppeals denied its motion in the Resolution of 19 June2001.

Hence, this petition.

Petitioner insists that it had fully paid SMCC not onlyfor the pile driving work but also for the entire project,which SMCC allegedly abandoned "in 1996 or 1997."Petitioner adds that it had in fact overpaid SMCC

because of advance payments SMCC received in"November and December 1996." Petitioner alsocontests the Court of Appeals finding that it failed toprove its claim of full or over payment to SMCC.Alternatively, petitioner prays that the Court grant itscross-claim against SMCC so it can recoverreimbursement for any amount it will pay TPI.

The Issues

The petition raises the following issues:

(1) Whether the Court of Appeals erred inholding petitioner solidarily liable with SMCCand Sta. Maria to TPI for the unpaid balanceunder the contract between SMCC and TPI,and, if in the negative,

(2) Whether SMCC is liable to reimbursepetitioner under the latters cross-claim.

The Ruling of the Court

The petition is partly meritorious. Although petitioner issolidarily liable with SMCC and Sta. Maria to TPI for thebalance under TPIs contract with SMCC, petitioner hasa right to reimbursement under its cross-claim against

SMCC.

On the Owners Liability to Suppliers under Article 1729

Article 1729 of the Civil Code provides:

Those who put their labor upon or furnish materials fora piece of work undertaken by the contractor have anaction against the owner up to the amount owing fromthe latter to the contractor at the time the claim ismade. However, the following shall not prejudice thelaborers, employees and furnishers of materials:

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

2. Renunciation by the contractor of anyamount 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 ofa piece of work in favor of suppliers of materials (andlaborers) hired by the contractor "up to the amountowing from the [owner] to the contractor at the time

the claim is made."7Thus, to this extent, the ownersliability is solidary with the contractor, if both are suedtogether. By creating a constructive vinculum betweensuppliers of materials (and laborers), on the one hand,and the owner of a piece of work, on the other hand, asan exception to the rule on privity of contracts, Article1729 protects suppliers of materials (and laborersfrom unscrupulous contractors and possibleconnivance between owners and contractors.8As theCourt of Appeals correctly ruled, the suppliers cause ofaction under this provision, reckoned from the time ofjudicial or extra-judicial demand, subsists so long asany amount remains owing from the owner to thecontractor. Only full payment of the agreed contracprice serves as a defense against the suppliers claim.9

Here, petitioner resists TPIs suit on the ground that ithad fully paid, if not overpaid, SMCC at the time TPIdemanded payment on 3 December 1996. However, asthe Court of Appeals found, petitioner failed tosubstantiate its claim. What petitioner submits as prooof its alleged full or over payment, namely, its answerto TPIs interrogatories and the testimony of one of itswitnesses, are no more than mere uncorroboratedallegations. The only proof of payment on record are

the official receipt, voucher, and check for the seventhprogress billing dated 30 August 1996, nearly foumonths before TPI sought payment from petitioner on3 December 1996. Allegation of payments, advance orotherwise, is no substitute for proof of such fact. Thus,absent incontrovertible proof of payment such asreceipts, checks, cash disbursement vouchers, and thelike, petitioners claim of full or over payment remainsonly that. At any rate, Article 1729 clearly providesthat "payments made by the owner to the contractorbefore they are due" do not prejudice suppliers omaterials.

Petitioner is Entitled to Reimbursement

from SMCC under its Cross-claim

Petitioners solidary liability with SMCC and Sta. Mariato TPI does not preclude petitioners right to demandreimbursement for whatever amount it will pay TPIThis is only proper since SMCC contracted TPI to supplythe concrete piles. To hold otherwise is to sanctionunjust enrichment by the contractor at the expense ofthe owner. Although Article 1729 protects suppliers, itis no license to oppress owners. Thus, we grantpetitioners prayer for reimbursement under its crossclaim against SMCC.10

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

WHEREFORE, we GRANT the petition in part. WeAFFIRM the Decision dated 3 May 2001 and the

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Resolution dated 19 June 2001 of the Court of Appealswith the following MODIFICATIONS:

(1) We ORDER petitioner JL Investment andDevelopment, Inc. and respondents J. Sta.Maria Construction Corporation and Jaime T.Sta. Maria, Jr. to pay solidarily respondentTendon Philippines, Inc. P1,389,330, withinterest at 6% per annum computed from thetime of the filing of respondent Tendon

Philippines, Inc.s complaint, and attorneysfees equivalent to 10% of the principalobligation. Upon finality of this judgment, theentire obligation shall earn interest at 12% perannum until its satisfaction, and

(2) We GRANT the cross-claim of petitioner JLInvestment and Development, Inc. againstrespondent J. Sta. Maria ConstructionCorporation. We ORDER respondent J. Sta.Maria Construction Corporation to reimbursepetitioner JL Investment and Development, Inc.any amount the latter will pay respondentTendon Philippines, Inc. under this judgment.

SO ORDERED.

ANTONIO T. CARPIOAssociate Justice

WE CONCUR:

LEONARDO A. QUISUMBINGAssociate JusticeChairperson

CONCHITA CARPIO

MORALESAssociate Justice

DANTE O. TINGA

Asscociate Justice

PRESBITERO J. VELASCO, JR.Associate Justice

A T T E S T A T I O N

I attest that the conclusions in the above Decision hadbeen reached in consultation before the case wasassigned to the writer of the opinion of the CourtsDivision.

LEONARDO A. QUISUMBINGAssociate JusticeChairperson

C E R T I F I C A T I O N

Pursuant to Section 13, Article VIII of the Constitution,and the Division Chairpersons Attestation, I certify thatthe conclusions in the above Decision had beenreached in consultation before the case was assignedto the writer of the opinion of the Courts Division.

REYNATO S. PUNOChief Justice

Footnotes

1Under Rule 45 of the 1997 Rules of CiviProcedure.

2Penned by Associate Justice Martin SVillarama, Jr. with Associate Justices ConradoM. Vasquez, Jr. and Eliezer R. De los Santosconcurring.

3Petitioner and SMCC indicated in theAgreement the projects completion date on 19November 1996 but this was moved to 6January 1997 in a supplemental agreemen(Addendum to Construction Agreement).

4Rollo, p. 200. The dispositive portion of thetrial courts ruling provides:

WHEREFORE, judgment is herebyrendered in favor of the plaintiffTendon Phils., Inc. and against J. StaMaria Construction Corporation andJaime T. Sta. Maria, Jr. ordering thelatter, in solidum, to pay the former thefollowing sums of money, namely:

a) The sum of P1,389,330, inaddition to 12% interest peannum from the filing of thecomplaint until it shall havebeen fully paid;

b) 10% of the principaobligation, for and asreasonable attorneys fees[and]

c) The costs of the suit.

For lack of sufficient factual and legabasis, the complaint against thedefendant JL InvestmentDevelopment[, Inc.] as well as thecross-claim of the latter against theother defendants are all herebyDISMISSED.

5Id. at 198-200.

6Id. at 38-40.

7Flores v. Ruelo, No. 13905-R, 29 September1955, 52 O.G. No. 2, 850.

8Velasco v. Court of Appeals, No. L-47544, 28January 1980, 95 SCRA 616.

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9See V A. Tolentino, Commentaries andJurisprudence on the Civil Code of thePhilippines 295 (1992 ed.).

10 In its cross-claim, petitioner soughtreimbursement only from SMCC.

11 A forbearance, in usury law, is a "contractualobligation of lender or creditor to refrain,during a given period of time, from requiring

the borrower or debtor to repay a loan or debtthen due and payable." (Eastern ShippingLines, Inc.

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