This is a petition for review^[1] of the Decision^[2] dated 3 May 2001 and the Resolution dated 19 June 2001 of the Court of Appeals holding petitioner JL Investment and Development, Inc. (petitioner) jointly and severally liable with respondents J. Sta. Maria Construction Corporation (SMCC) and Jaime T. Sta. Maria, Jr. (Sta. Maria) in a collection suit filed by respondent Tendon Philippines, Inc. (TPI).


Petitioner hired respondent SMCC to undertake the structural and architectural work for the first 12 floors of a 16-floor building (JLID Building) in Kalaw corner Cortada Streets, Ermita, Manila. Under the Construction Agreement (Agreement) between petitioner and SMCC, petitioner agreed to pay SMCC P63,333,085.84 for the project. The Agreement also required SMCC to submit monthly progress billings to petitioner.^[3]

To supply the concrete piles needed for the structural work, SMCC subcontracted respondent TPI, a local manufacturer of pre-cast concrete products. Accordingly, TPI delivered 142 pieces of concrete piles to SMCC worth P4,118,000 payable on installment basis.

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

On 13 September 1996, petitioner paid SMCC for the pile driving work as indicated in SMCC's seventh progress billing dated 30 August 1996.

Claiming that SMCC did not fully pay for the concrete piles, TPI sought payment of the balance from petitioner. Petitioner ignored TPI's demand. Thus, TPI sued SMCC, SMCC's President, respondent Sta. Maria,  and petitioner (respondents) in the Regional Trial Court of Pasig City, Branch 167 (trial court), to collect the unpaid balance of P1,389,330. TPI prayed that the trial court hold respondents solidarily liable for the balance with interest, attorney's fees, and the costs of suit.

In its Answer, petitioner denied any liability, alleging that under the Agreement, SMCC is solely liable for any obligation due to its suppliers. Nevertheless, petitioner filed a cross-claim against SMCC, praying reimbursement for any amount it may be held liable to TPI. Petitioner also prayed for the payment of attorney's fees and litigation expenses.

In their Answer, SMCC and Sta. Maria also raised the defense of full payment. Alternatively, SMCC and Sta. Maria contended that the pile drives TPI delivered did not conform to the agreed specifications. SMCC and Sta. Maria counterclaimed for damages.

Before trial commenced, TPI submitted interrogatories to petitioner. In its response, petitioner claimed, for the first time, that it had made advance payments to SMCC, resulting in an alleged overpayment.

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


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

computed from the filing of the complaint, and attorney's fees equivalent to 10% of the principal obligation.^[4] The trial court dismissed both TPI's complaint against petitioner and petitioner's cross-claim against SMCC for lack of basis.

In absolving petitioner from any liability, the trial court held that TPI's cause of action against petitioner under Article 1729 of the Civil Code applies only to the amount petitioner owed SMCC for the pile driving work. Since at the time TPI demanded payment from petitioner on 3 December 1996, petitioner had already fully paid SMCC for the pile driving work, the trial court concluded that TPI ceased to have any cause of action against petitioner.  The trial court held:

The liability of the defendant contractor J. Sta. Maria Construction, as well as Jaime T. Sta. Maria Jr., is settled.  By preponderance of evidence, plaintiff demonstrates [sic] ineluctably that all the concrete piles ordered by the defendant J. Sta. Maria Construction were delivered and used in the building under construction.  The defendant J. Sta. Maria benefited from the materials, as accordingly, it was paid by the defendant-owner of the building.

The claim of plaintiff Tendon [Philippines, Inc.] against the defendant [JL] Investment is anchored on the provision of Art. 1729 of the Civil Code of the Philippines, which is quoted as follows:

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 provision[s] of special laws. x x x

It is readily apparent from the provision invoked that the owner of the materials has a cause of action against the owner of the building for materials furnished to the contractor only up to the amount owing from the owner to the contractor at the time the claim is made.

Equating the provision of law to the evidence of the plaintiff, to prove the liability of the defendant-owner of the building, it is undisputedly clear that at the time the claim or demand was presented by plaintiff to the defendant JL Investment in December 1996, all the materials supplied by it and used in the building by the defendant-contractor had all been paid by the owner of the building JL Investment to the contractor, J. Sta. Maria Construction.  In fact, it does not appear that the owner of the building is indebted at all to the defendant-contractor.  It is qui[te] unfair, if not altogether in[i]quitous, for the defendant-owner of the building to pay twice for the materials used in the building.  In the absence of a clear showing that there is still an amount due from the owner, JL Investment, to the defendant-contractors representing the value of the materials used, the plaintiff, as owner of the materials[] used in the building has no cause of action against the owner of the building JL Investment.  The logical recourse of the owner of the material x x x would be against the contractor, who in the first place ordered and purchase [sic] the materials.  Put otherwise, the privity or tie is between the owner of the materials and the contractor. But, considering that plaintiff was compelled to litigate and incurred expenses to protect its interest, an entitlement to a reasonable attorney's fees is warranted.^[5] (Emphasis in the original)

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

SMCC and Sta. Maria also appealed. However, for SMCC and Sta. Maria's failure to file their appellants' brief, the Court of Appeals considered their appeal abandoned and dismissed it in the Resolution of 31 July 2000.


In its Decision of 3 May 2001, the Court of Appeals granted TPI's appeal and modified the trial court's ruling by holding petitioner solidarily liable with SMCC and Sta. Maria. The Court of Appeals ruled that (1) Article 1729 does not limit the supplier's cause of action against the owner to the value of the materials the supplier furnished, and (2) petitioner failed to prove 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 any distinction whether such amount owing from the owner to the contractor pertains to a specific item of payment or account, particularly whether such amount owing to the contractor was intended for payment of the x x x materials supplied.  The clear intendment of the law is to provide protection to the x x x furnisher of materials so that a restrictive interpretation of said provision as what the trial court had done, would undermine such legislative policy and objective.

x x x x

Of course, where the owner of the building has fully paid the contractor, the former's liability ceases.  In this regard, defendant-appellee's [JL Investment] evidence showed that although the pile driving works was [sic] 100% accomplished or completed, the overall Project accomplishment is [sic] not yet fully executed as of August 30, 1996, indicating 29.5% accomplishment for the 7th Progress Billing.  Defendant-appellee JL Investment & Development Corporation also claims to have "overpaid" the contractor, defendant J. Sta. Maria Construction Corporation when it extended financial assistance to it on the supply of cement, deformed bars and formworks system and tower crane, "for the period of two (2) months November to December 1996 at the estimated total amount of P11,539,954.00" and by reason of which, completion date of the Project was extended to January 6, 1997 as evidenced by the "Addendum to Construction Agreement."  Such "financial assistance", according to appellant [TPI], constitutes advance payment to the contractor which under Art. 1729 shall not prejudice the claim of furnisher of materials such as herein appellant [TPI].  Defendant-appellee JL Investment & Development Corporation, on the other hand, contends that in view of the "overpayment" to the  defendant contractor, J. Sta. Maria Construction Corporation, there is no longer any such amount owing and due to said contractor, and hence, appellant no longer has any cause of action against the defendant-appellee [JL Investment], the owner of the building.  And yet, no evidence was presented by defendant-appellee [JL Investment] showing that such advances or "financial assistance" in the amount stated in the "Addendum to Construction Agreement" was actually paid by it.  Exhibits "5", "5-A" and "5-B" reflected only the payment for the 7th Progress Billing on September 13, 1996 in which the cost of pile driving works was fully paid.  No evidence of payment for the alleged "financial assistance" on which the claim of overpayment by defendant-appellee [JL Investment] rests, was submitted by the defendant-appellee [JL Investment].  Therefore, its defense that there is no longer any such amount owing to the defendant contractor at the time the claim is made upon it by plaintiff-appellant [TPI], must fail.  The trial court thus erred in holding that only defendants-contractors [SMCC and Sta. Maria] may be held liable in this action by plaintiff-appellant [TPI], thereby absolving the owner of the building, defendant-appellee JL Investment & Development Corporation from any liability for the unpaid materials furnished by the plaintiff-appellant.^[6]

Petitioner sought reconsideration but the Court of Appeals denied its motion in the Resolution of 19 June 2001.

Hence, this petition.

Petitioner insists that it had fully paid SMCC not only for 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 also contests the Court of Appeals' finding that it failed to prove its claim of full or over payment to SMCC. Alternatively, petitioner prays that the Court grant its cross-claim against SMCC so it can recover reimbursement for any amount it will pay TPI.


The petition raises the following issues:

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

(2) Whether SMCC is liable to reimburse petitioner under the latter's cross-claim.


The petition is partly meritorious. Although petitioner is solidarily liable with SMCC and Sta. Maria to TPI for the balance under TPI's contract with SMCC, petitioner has a right to reimbursement under its cross-claim against SMCC.


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'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]

WHEREFORE, we GRANT the petition in part. We AFFIRM the Decision dated 3 May 2001 and the Resolution dated 19 June 2001 of the Court of Appeals with the following MODIFICATIONS:

(1) We ORDER petitioner JL Investment and Development, Inc. and respondents J. Sta. Maria Construction Corporation and Jaime T. Sta. Maria, Jr. to pay solidarily respondent Tendon Philippines, Inc. P1,389,330, with interest at 6% per annum computed from the time of the filing of respondent Tendon Philippines, Inc.'s complaint, and attorney's fees equivalent to 10% of the principal obligation. Upon finality of this judgment, the entire obligation shall earn interest at 12% per annum until its satisfaction, and

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

SO ORDERED.

Quisumbing, (Chairperson), Carpio Morales,  Tinga, and Velasco, Jr., JJ., concur.

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^[1]  Under Rule 45 of the 1997 Rules of Civil Procedure.

^[2]  Penned by Associate Justice Martin S. Villarama, Jr. with Associate Justices Conrado M. Vasquez, Jr. and Eliezer R. De los Santos, concurring.

^[3]  Petitioner and SMCC indicated in the Agreement the project's completion date on 19 November 1996 but this was moved to 6 January 1997 in a supplemental agreement (Addendum to Construction Agreement).

^[4]  Rollo, p. 200. The dispositive portion of the trial court's ruling provides:

WHEREFORE, judgment is hereby rendered in favor of the plaintiff  Tendon Phils., Inc. and against J. Sta. Maria Construction Corporation and Jaime T. Sta. Maria, Jr. ordering the latter, in solidum, to pay the former the following sums of money, namely:

a) The sum of P1,389,330, in addition to 12% interest per annum from the filing of the complaint until it shall have been fully paid;

b) 10% of the principal obligation, for and as reasonable attorney's fees; [and]

c) The costs of the suit.

For lack of sufficient factual and legal basis, the complaint against the defendant JL Investment Development[, Inc.] as well as the cross-claim of the latter against the other defendants are all hereby DISMISSED.

^[5]    Id. at 198-200.

^[6]  Id. at 38-40.

^[7]  Flores v. Ruelo, No. 13905-R, 29 September 1955, 52 O.G. No. 2, 850.

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

^[9]  See V A. Tolentino, Commentaries and Jurisprudence on the Civil Code of the Philippines 295 (1992 ed.).

^[10] In its cross-claim, petitioner sought reimbursement only from SMCC.

^[11] A forbearance, in usury law, is a "contractual obligation of lender or creditor to refrain, during a given period of time, from requiring the borrower or debtor to repay a loan or debt then due and payable." (Eastern Shipping Lines, Inc. v. Court of Appeals, G.R. No. 97412, 12 July 1994, 234 SCRA 78, 94).

^[12] Eastern Shipping Lines, Inc. v. Court of Appeals, supra.