Del Monte Philippines v. Aragones
REITERATIONFacts
The Antecedents: Del Monte Philippines, Inc. (DMPI) entered into an Agreement with MEGA-WAFF for the supply and installation of modular pavement. MEGA-WAFF, in turn, entered into a Supply Agreement with Dynablock Enterprises, represented by Napoleon N. Aragones (Aragones), for the supply of concrete blocks. The Supply Agreement stipulated that Aragones would provide labor and materials, fabricate machines for casting blocks, and devote his plant exclusively for MEGA-WAFF's use. MEGA-WAFF was to provide cement and aggregates, and deduct their cost from Aragones' payments. The project was delayed, and DMPI penalized MEGA-WAFF. Aragones, unable to collect full payment from MEGA-WAFF, requested DMPI to withhold payment. DMPI paid MEGA-WAFF in full despite Aragones' request. Procedural History: Aragones filed a complaint for sum of money against Garcia/MEGA-WAFF and DMPI, impleading DMPI under Articles 1729 and 1467 of the Civil Code. The Regional Trial Court (RTC) ruled in favor of Aragones, holding DMPI jointly and severally liable with MEGA-WAFF. The Court of Appeals (CA) affirmed the RTC decision, finding the Supply Agreement to be a contract for a piece of work and Article 1729 applicable. The Petition: DMPI filed a Petition for Review on Certiorari, arguing that the Supply Agreement was a contract of sale, not for a piece of work, and that DMPI was not privy to the agreement, thus not liable. DMPI also sought damages for filing the complaint in bad faith.
Issue(s)
Whether the "Supply Agreement" between Aragones and MEGA-WAFF was a contract of sale or a contract for a piece of work. Whether DMPI, as the owner, is liable to Aragones, a supplier of materials for a piece of work, under Article 1729 of the Civil Code, despite the absence of privity of contract. Whether DMPI's payment to MEGA-WAFF extinguished its liability to Aragones. Whether DMPI is entitled to damages and attorney's fees.
Ruling
The petition is denied. The Supreme Court affirmed the decision of the Court of Appeals, holding that the "Supply Agreement" was a contract for a piece of work and that DMPI is liable to Aragones under Article 1729 of the Civil Code.
Ratio Decidendi
On the nature of the "Supply Agreement": The Supreme Court held that the "Supply Agreement" between Aragones and MEGA-WAFF was a contract for a piece of work, not a contract of sale. This was based on the fact that the concrete paving blocks were manufactured specially for the customer (MEGA-WAFF) and upon its special order, not for the general market. The Court noted that Aragones was obliged to fabricate specific machines for casting blocks according to MEGA-WAFF's specifications, including a later directive to fabricate machines for "S" shaped blocks instead of hexagon shaped blocks. Furthermore, the "entire plant/casting machines and accessories" were devoted to MEGA-WAFF's exclusive use, and MEGA-WAFF supplied the cement and aggregates, which are indicative of a contract for a piece of work under Article 1467 of the Civil Code. The Court distinguished this from a contract of sale where the article is manufactured or procured for the general market in the ordinary course of business. On DMPI's liability under Article 1729: The Court affirmed DMPI's liability to Aragones under Article 1729 of the Civil Code. This article provides that 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. The Court explained that the intention of Article 1729 is to protect laborers and materialmen from unscrupulous contractors and possible connivance between owners and contractors, thereby creating a constructive vinculum or contractual privity between the owner and those who furnish labor and/or materials, as an exception to the principle of privity of contract under Article 1311. Aragones, as a furnisher of materials and labor for the concrete blocks, fell within the protection of this provision. On the effect of DMPI's payment to MEGA-WAFF: The Court ruled that DMPI's payment to MEGA-WAFF did not extinguish its legal obligation to Aragones. The Court found the payment to be irregular because DMPI paid MEGA-WAFF in full despite having been notified of Aragones' claim. The Court emphasized that DMPI should have withheld payment to MEGA-WAFF until Aragones' claim was clarified, especially since the payment was made after Aragones had made his claim and before the payment was due. The Court noted that DMPI's reliance on its agreement with MEGA-WAFF to pay within 30 days unless a court injunction was produced was insufficient under the circumstances. On DMPI's claim for damages: The Court denied DMPI's claim for moral damages, attorney's fees, and litigation expenses. The Court agreed with the trial court's finding that DMPI and MEGA-WAFF were liable for exemplary damages and attorney's fees because their refusal to pay Aragones' just and demandable obligation upon demand was unjustified. The Court found that DMPI's actions, including referring Aragones' claim to Garcia after already paying MEGA-WAFF, reflected an apparent "connivance" to the prejudice of Aragones, leaving him no option but to litigate. The Court also noted that DMPI's payment to MEGA-WAFF after receiving notice of Aragones' claim was a factor contributing to the necessity of litigation.
Main Doctrine
A contract for the delivery of an article which the vendor in the ordinary course of business manufactures or procures for the general market is a contract of sale. However, 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. Under Article 1729 of the Civil Code, 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, creating a constructive vinculum or contractual privity between the owner and the materialmen/laborers.