Case Summary (G.R. No. 10918)
Key Dates and Applicable Law
Material events occurred in 1913–1914; the decision was rendered in 1916. The constitutional and statutory framework in force was that governing the Philippine Islands under U.S. administration (the Organic Act and the statutes then applicable), together with the Philippine Code of Civil Procedure provisions cited in the complaint analysis (notably section 106 regarding construction of pleadings). The Court applied prevailing rules on demurrer, pleading construction, agency, liability of owners for contractor purchases, and the absence of statutory mechanics’ liens.
Procedural Posture
The trial court sustained a demurrer to the complaint on the ground that it did not state a cause of action. Plaintiffs declined to amend, the case was dismissed, and the plaintiffs appealed. The appeal challenges the sufficiency of the complaint to establish liability on the defendant for materials supplied to Merritt.
Material Allegations of the Complaint
- Defendant contracted with E. Merritt to build the edifice; the contract included a clause permitting the defendant, upon certain contingencies and before completion, to take possession of the building-in-progress and "of all the materials in and about said premises acquired by Merritt."
- In August 1914 plaintiffs delivered specified materials (value P1,381.21, listed in Exhibit A) to Merritt at the construction site; Merritt agreed to pay on September 1, 1914.
- On August 28, 1914 the defendant purportedly took possession of the incomplete edifice and all materials on the premises, including plaintiffs’ materials.
- Neither Merritt nor the defendant paid; plaintiffs demanded payment and, failing that, demanded return or permission to retake unused materials on September 2, 1914, which the defendant refused.
- The complaint also alleged (paragraph 6) that Merritt acted as the defendant’s agent in acquiring the materials.
Issues Presented
- Whether the complaint, as pleaded, sufficiently alleges facts establishing agency, ratification, or assignment such that the defendant became liable to plaintiffs for the materials supplied to Merritt.
- Whether the defendant’s act of taking possession of the building and materials converted it into a successor or assignee liable to creditors of the original contractor.
- Whether the pleading was legally sufficient to survive a demurrer under the standards governing admissible allegations.
Standard on Demurrer and Construction of Pleadings
The Court reiterated governing rules: a demurrer admits the truth of well-pleaded, material, and relevant facts but does not admit mere conclusions, inferences, or legal conclusions drawn by the pleader. Section 106 of the Code of Civil Procedure requires liberal construction of pleadings to achieve substantial justice, but ambiguities or contradictions favor the pleader’s adversary when dismissal follows refusal to amend. The Court cited Alzua and Arnalot v. Johnson to emphasize that conclusions of law or mere inferences are not admitted by a demurrer.
Court’s Analysis — Agency Versus Independent Contractor
The Court found that paragraphs 1–5 of the complaint, when read together, demonstrated Merritt’s status as an independent contractor rather than an agent of the defendant. The allegation that Merritt “undertook and agreed with the defendant to build for the defendant a costly edifice” implies authority to do the work according to Merritt’s methods and discretion (subject only to the result), including purchasing materials from suppliers of his choice. The plaintiffs’ own averment that Merritt agreed to pay them for the materials underscores that no contractual relation existed directly between the plaintiffs and the defendant. Thus the factual allegations point strongly to independent-contractor status.
Court’s Analysis — Effect of Contractual Clause Allowing Possession
The Court held that the contractual clause permitting the defendant to take possession of an incomplete building and materials upon certain contingencies did not transform Merritt into an agent or create owner liability for Merritt’s antecedent purchases. The Court illustrated the policy result by hypothetical: if a contractor had purchased large quantities of supplies on credit, treating the owner as liable would permit the contractor and his suppliers to dictate prices and terms to the owner—an outcome the law does not endorse absent express statutory or contractual undertaking.
Court’s Analysis — Assignment/Successor Liability
The Court rejected the argument that defendant’s taking possession made it a successor or assignee automatically liable to the contractor’s creditors. In the absence of facts showing an actual assumption of the contractor’s debts, a mere physical takeover of an incomplete structure and materials does not impose liability for prior purchases made by the independent contractor. The vendor may not enforce the contract against the assignee as readily as against the assignor unless there is evidence of assignment of obligations, assumption of debt, or other legal basis for successor liability.
Court’s Analysis — Mechanics’ Liens and Statutory Context
The Court emphasized that, absent a statute creating mechanics’ liens or a similar statutory remedy, an owner is not liable for materials purchased by an independent contractor. The opinion rests on the distinction between common-law liability and statutory liens that may create an owner's liability for unpaid contractors’ or suppliers’ claims; where no such statute exists, ordinary common-law principles control.
On the Allegation of Agency as a Conclusion
Paragraph 6’s allegation that “Merritt acted as the agent for defendant in the acquisition of the materials” was characterized by the Court as a mere conclusion inconsistent with the detailed factual averments in paragraphs 1–5. Because conclusions of agenc
Case Syllabus (G.R. No. 10918)
Procedural Posture
- Appeal from a judgment sustaining a demurrer on the ground that the complaint does not state a cause of action, followed by an order dismissing the case after plaintiffs declined to amend.
- Decision authored by TRENT, J.
- Judgment affirmed, with costs against the appellants.
- Arellano, C. J., Torres, Johnson and Araullo, JJ., concur.
- Moreland, J., concurs in the result.
- Carson, J., dissents.
Complaint and Its Form
- Complaint text (excluding caption) quoted in the decision and reproduced paragraphs 2 through 6.
- Paragraph 2 alleges: late 1913 contract between defendant and E. Merritt whereby Merritt undertook to build a costly edifice in Manila at the corner of Calle Rosario and Plaza del Padre Moraga; contract provided defendant could, upon certain contingencies before completion, take possession of the edifice in course of construction and of all materials in and about the premises acquired by Merritt for construction.
- Paragraph 3 alleges: during August plaintiffs delivered to Merritt at the edifice in course of construction certain materials valued at P 1,381.21 as per Exhibit A; Merritt had agreed to pay the price on September 1, 1914.
- Paragraph 4 alleges: on August 28, 1914 defendant, under its contract with Merritt, took possession of the incomplete edifice and all materials on the premises including plaintiffs’ materials enumerated in Exhibit A.
- Paragraph 5 alleges: neither Merritt nor defendant has paid for the materials although payment was demanded; on September 2, 1914 plaintiffs demanded return or permission to retake the unused materials, which demand defendant refused.
- Paragraph 6 alleges: in pursuance of the contract between Merritt and defendant, Merritt acted as the agent for defendant in acquiring the materials from plaintiffs.
- Plaintiffs attached Exhibit A (detailed list) asserting total value P 1,381.21.
Facts as Alleged (Relevant Chronology and Details)
- Contract between defendant and Merritt entered into in the latter part of 1913 for construction of a costly edifice at specified Manila location.
- Contract contained clause allowing defendant to take possession of work-in-progress and materials upon certain contingencies before completion.
- Plaintiffs delivered specified materials in August (year implied 1914) to Merritt at construction site; price agreed payable September 1, 1914.
- Defendant took possession of incomplete building and materials on August 28, 1914.
- Plaintiffs made demand for payment and on September 2, 1914 demanded return or permission to retake unused materials; defendant refused.
- Plaintiffs allege Merritt acted as defendant’s agent in acquiring the materials.
Legal Issues Presented
- Whether the complaint, as pleaded, states a cause of action against the defendant for the value of materials delivered to Merritt and taken by defendant.
- Whether Merritt was an agent of the defendant in acquiring the materials, such that defendant would be liable for their value by acceptance, ratification, or as successor/assignee of the builder.
- Whether the demurrer properly refused to treat paragraph 6’s agency allegation as admitted when the rest of the complaint indicates Merritt was an independent contractor.
Contentions of the Appellants (Plaintiffs)
- Plaintiffs insist Merritt acted as defendant’s agent in purchasing the materials.
- Plaintiffs assert that defendant, by taking over and using such materials, accepted and ratified the purchases and is therefore obligated to pay.
- Alternatively, plaintiffs argue that if defendant took over the unfinished building and completed it according to plans, specifications, and permit, defendant became the successor or assignee of t