Title
Del Monte Philippines, Inc. vs. Aragones
Case
G.R. No. 153033
Decision Date
Jun 23, 2005
DMPI contracted MEGA-WAFF for pavement; Aragones supplied custom blocks. MEGA-WAFF failed to pay Aragones, who sued DMPI. Court ruled DMPI liable under Article 1729, awarding damages and fees.

Case Digest (G.R. No. 149193)
Expanded Legal Reasoning Model

Facts:

  • Background and Parties
    • Del Monte Philippines, Inc. (DMPI) entered into an agreement with Mega-Engineering Services in joint venture with WAFF Construction System Corporation (MEGA-WAFF) for the supply and installation of modular pavement at its warehouse in Cagayan de Oro City.
    • MEGA-WAFF, acting as contractor, in turn, entered into a Supply Agreement with Dynablock Enterprises, represented by its manager, Napoleon N. Aragones (respondent), to supply concrete blocks essential for the project.
    • The contracts at issue involve a layered relationship:
      • The main contract between DMPI and MEGA-WAFF for pavement installation.
      • The Supply Agreement between MEGA-WAFF and Dynablock (Aragones) for the manufacture and supply of concrete blocks.
  • Terms and Conditions of the Supply Agreement
    • Subject Matter
      • The agreement detailed the supplier’s obligation to provide labor, materials, equipment, and tools to produce concrete blocks.
      • Included specific provisions regarding the quality of materials (meeting approved specifications at 5,000 pci) and the production capacity of not lower than 75,000 pieces per month.
    • Price and Payment
      • The unit price was fixed at P7.00 per block, with considerations for raw material price fluctuations, the cost of premium cement, and aggregate cost.
      • Payment was to be made in installments, with a downpayment of P10,000 per machine upon mobilization, and subsequent billing every fifteen days.
    • Production and Equipment
      • The supplier was required to provide its own machinery and equipment for the fabrication/casting of the blocks, and such machinery was to be exclusively used for MEGA-WAFF’s project.
      • There were detailed provisions about inspection, operational capacity, and necessary upgrades if production fell below the stipulated threshold.
    • Quality Control and Rejection Clause
      • The contractor was empowered to reject any finished product not conforming to approved standards.
      • A system of sampling and testing was set in place to ensure compliance with established quality parameters.
    • Exclusive Production and Other Provisions
      • The supplier was bound to devote its entire plant and casting machinery exclusively for the project.
      • Specific obligations were imposed on both supplier (fabrication, supervision, and production tasks) and contractor (provision of facilities, materials such as cement and aggregates, and installation of utilities).
      • Additional clauses dealt with performance bonds, penalty for delays (one-tenth of the rated monthly production capacity), and other material-related responsibilities.
  • Subsequent Developments and Communications
    • Changes in Specifications
      • Originally, machinery was to be assembled for the production of hexagon-shaped concrete blocks.
      • Later, MEGA-WAFF, through its representative Edilberto Garcia, altered the specifications to require machines for casting S-shaped blocks.
    • Delays and Payment Issues
      • The deadline for pavement installation was set for November 18, 1988, but extended to February 28, 1989, resulting in DMPI being penalized for the delay.
      • Amid these issues, Aragones became aware of the contractual imposition of penalties and subsequently appealed to DMPI for leniency.
    • Aragones’ Direct Payment Requests
      • Beginning with a letter dated March 4, 1989, Aragones sought leniency and direct payment from DMPI despite not being a direct party to the main contract.
      • He reiterated his request in subsequent letters (March 10, March 28, and April 6, 1989), advising that MEGA-WAFF had not fully paid him for the supplied blocks.
    • Litigation and Pleadings
      • Aragones filed a complaint for sum of money (P188,652.65) with damages against Garcia and/or MEGA-WAFF and DMPI before the Regional Trial Court of Lanao del Norte.
      • DMPI and Garcia defended by arguing a lack of privity of contract and the proper performance of their respective obligations.
      • The trial court found for Aragones based on Articles 1729 and 1467 of the Civil Code, holding that parties furnishing labor or materials under a piece-of-work contract can act directly against the owner.
  • Appellate and Supreme Court Proceedings
    • The trial court rendered judgment awarding Aragones the unpaid balance with legal interest, exemplary damages (P20,000 each), and attorney’s fees (P10,000 each).
    • On appeal, the Court of Appeals (CA) affirmed the trial court’s ruling, clarifying that the Supply Agreement was in the nature of a contract for a piece of work, not a contract of sale.
    • The CA’s decision emphasized the special protection under Article 1729, citing that a constructive privity arises between the owner and those supplying labor/materials notwithstanding the absence of direct contractual privity.
    • DMPI then elevated the case via a Petition for Review on Certiorari, challenging both the finding of liability under Article 1729 and the award of moral damages, attorney's fees, and litigation expenses.

Issues:

  • Nature of the Contract
    • Whether the Supply Agreement, by its terms and the unique, made-to-order production of concrete blocks, was a contract for a piece of work or a contract of sale.
    • Whether the modifications in specifications (from hexagon to S-shape) further indicate a special order rather than a standard sale.
  • Liability and Direct Payment Obligations
    • Whether DMPI, as owner of the constructed warehouse and principal in the project, is liable for the unpaid cost of the concrete blocks furnished by Aragones.
    • Whether direct payment to Aragones is justified given that he is not in privity of contract with DMPI, but rather with MEGA-WAFF.
  • Application of Article 1729 and Civil Code Provisions
    • Whether Article 1729, intended to protect laborers and materialmen, can be applied to create a constructive contractual privity between DMPI and Aragones.
    • Whether the lower court’s interpretation of Articles 1467 and 1729 sufficiently warrants holding DMPI accountable despite its claim of being merely a purchaser in a sale.
  • Award of Damages and Costs
    • Whether the liability of DMPI should extend to exemplary damages, attorney’s fees, and litigation expenses given the irregularities in payment and the alleged bad faith of Aragones filing a claim.
    • Whether DMPI’s counterclaims alleging its own injury and entitlement to moral damages could offset its obligations or even justify non-payment.
  • Procedural and Substantive Errors in Lower Court Rulings
    • Whether the trial court erred in its findings that Aragones was not at fault regarding delays and therefore was entitled to full recourse.
    • Whether the CA’s and trial court’s decisions properly applied the test distinguishing a contract for work from a mere sale.

Ruling:

  • (Subscriber-Only)

Ratio:

  • (Subscriber-Only)

Doctrine:

  • (Subscriber-Only)
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