G.R. No. 70826 - University of the Philippines vs. Gabriel

On December 27, 1966, the University of the Philippines (UP) entered into a contract with Beta Construction Company, Inc. for the construction of the Biological Science Building of the UP College of Agriculture at Los Baños, Laguna. The contract was for a lump sum price of P3,792,218.07.
On January 4, 1967, Beta subcontracted the plumbing works to Allied Plumbing Company, represented by its general manager, Domingo P. Gabriel, for P155,828.60.
The plumbing sub-contract was duly approved by the UP Bidding Committee, thereby binding UP to the terms stipulated in the approved subcontract.

Allied Plumbing Company performed the plumbing and extra works at the Biological Science Building. After completing the works, the sub-contractor claimed an unpaid balance of P64,626.08 for the plumbing works plus additional amounts of P4,017.90 for extra work, totaling P68,843.98.
Beta Construction, however, maintained that the works were delayed, defective, and the accomplishments did not comply with the specifications contained in the subcontract. There were allegations regarding the sub-standard quality of the workmanship, improper plumbing connections, and claims that the sub-contractor had been overpaid (P81,686.00) under the plumbing sub-contract.
Allied Plumbing Company initiated a complaint for a “sum of money with damages” against both UP and Beta before the Court of First Instance of Rizal, asserting that Beta defaulted on its payments.

The lower court ruled in favor of Allied Plumbing Company, ordering that UP and Beta Construction be jointly and severally liable for the unpaid amount, along with additional damages and attorney's fees.
UP appealed the decision. The appellate court (then the Intermediate Appellate Court, now Court of Appeals) affirmed the trial court’s decision, basing its findings on Article 1729 of the New Civil Code.
The record shows that Allied Plumbing Company had submitted its claim in writing (a notice dated November 7, 1968, and a demand letter on August 4, 1969), requesting UP to withhold payment to Beta pending confirmation of full payment of its obligations to the sub-contractor.
UP, however, proceeded with releasing payments to Beta even after the sub-contractor’s notice, a fact which the appellate court considered key in establishing UP’s liability under Article 1729.
The petitioner (UP) later argued, on appeal, that the sub-contractor’s claim did not meet the requirements of actual completion and approval of work as specified in the subcontract. UP contended that only properly approved labor and materials should give rise to a claim against it.

Whether UP, as owner of the constructed building, is solidarily liable with Beta Construction for the sub-contractor’s claim for unpaid labor and materials.
Whether Article 1729 of the New Civil Code, which protects those furnishing labor and materials on a work, applies to the work performed under the disputed plumbing sub-contract.
Whether the release of payments by UP to Beta, despite the sub-contractor’s notice against releasing the final payment, constitutes an approval of the work rendered by Allied Plumbing Company.
Whether the requirement of approval of work, as stipulated in the subcontract (“payments on a monthly basis as per work accomplished and approved by the UNIVERSITY OF THE PHILIPPINES COLLEGE OF AGRICULTURE”), was met by the sub-contractor.
The proper application and interplay of special laws (i.e., Act No. 3959 versus Act No. 3688 and relevant provisions of the Labor Code and PD No. 442) in determining the liability of a public institution engaged in the construction of public works.