Extended contract

Under the law (Article 1729, Civil Code), the supplier of materials and laborers has a cause of action against the owner of the building or piece of work where the materials (and labor) are used even if it is not the owner who purchased the materials but the contractor of said owner. This cause of action subsists so long as any amount remains owing from the owner to the contractor. This case of an Investment and Development Company (JLID) explains this rule.

JLID hired SM Construction Corporation (SMCC) to undertake the structural and architectural works for the first 12 floor of its building in Manila. Under the Construction Agreement (Agreement) JLID agreed to pay SMCC P64 million for the project payable on a progress billing.

To supply the concrete piles needed for the structural work, SMCC subcontracted TPI, a local manufacturer of pre-cast concrete products. Accordingly, TPI delivered 142 pieces of concrete piles to SMCC worth P4.2 million payable on installment basis. When SMCC finished the pile driving work using the concrete piles supplied by TPI, it sent the seventh progress billing for said pile driving work to JLID and the latter paid the said billing. On the other hand, however, SMCC did not fully pay TPI for the concrete piles and ignored TPI’s repeated demands for payment of the remaining balance in the sum of P1.4 million. Thus, TPI sued SMCC and JLID to pay said amount jointly and severally.

In answer to the complaint, JLID contended that TPI has no cause of action against it and that it is not liable to pay the said amount. JLID said that based on the seventh progress billing, it has already paid for the said piles. Besides, JLID claimed that it has already paid SMCC the full contract price although it did not present any receipt, checks or cash disbursement vouchers showing such full payment apart from the receipt for the payment of the seventh progress billing.

After trial, the Regional Trial Court (RTC) dismissed TPI’s claim against JLID. The RTC said that under Article 1729, those who furnish materials have a cause of action against the owner of the building for the materials furnished to the contractor only up to the amount owing from the owner to the contractor at the time of the claim. In this case, the RTC said that all the materials supplied by TPI and used in the building of JLID had been paid by JLID to the contractor SMCC. Was the RTC correct?

No. The supplier’s cause of action under Article 1729, reckoned from the time of judicial or extrajudicial demand, subsists so long as any amount is due and owing from the owner to the contractor. Only full payment of the agreed contract price serves as a defense against the supplier’s claim. Article 1729 does not limit the supplier’s cause of action against the owner to the value of the materials it supplied. This provision imposes a direct liability on an owner of a piece of work or building in favor of the 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. To this extent, the owner’s liability is solidary with the contractor, if both are sued together. By creating a constructive vinculum between the suppliers of materials (and laborers), on the one hand, and the owner of a piece of work (building), 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.

In this case, JLID has not yet fully paid SMCC for the project. The only proofs of payment on record are the official receipts, vouchers and check for the seventh progress billing. At any rate, under Article 1729, even if JLID made payments to SMCC for the full contract price before they are due such payments do not prejudice suppliers of materials precisely to protect the latter from possible connivance between owners and contractors (JL Investment and Development Inc. vs. Tendon Phili. Inc. et. al. G.R. 148596 January 22, 2007).

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