UNIVERSITY OF THE PHILIPPINES COLLEGE OF AGRICULTURE AND/OR UNIVERSITY OF THE PHILIPPINES, PETITIONER, VS. DOMINGO P. GABRIEL, DOING BUSINESS UNDER THE NAME AND STYLE:  ALLIED P…

The decisive issue in the instant
petition is whether or not petitioner University of the Philippines (UP)
is solidarily liable with Beta Construction Company, Inc., to pay the
amount of P68,843.98 representing the unpaid balance
for labor and materials expended in the plumbing and extra works performed at
the Biological Science Building of the U.P. College of Agriculture, by the
sub-contractor, Allied Plumbing Company, the private respondent herein.

On December 27, 1966, the UP and Beta Construction Co., Inc.,
entered into a contract for the latter to construct the Biological Science
Building of the U.P. College of Agriculture at Los Banos,
Laguna for a total lump sum price of Three Million Seven Hundred Ninety Two Thousand Two Hundred Eighteen Pesos and
Seven Centavos (P3,792,218.07).

On January 4, 1967,
Beta subcontracted its plumbing works to private respondent Allied Plumbing
Company represented by its general manager Domingo P. Gabriel for the total
amount of One Hundred Fifty Five Thousand Eight Hundred Twenty Eight and 60/100
Pesos (P155,828.60)

The plumbing contract was duly approved by the U.P. Bidding
Committee.

On the ground that after Allied Plumbing Company completed its
works, Beta refused to remit the balance of P64,626.08 plus the payment of
additional works asked by Beta in the total amount of P4,017.90, the former
filed a complaint for “sum of money with damages” against U.P. and
Beta with the Court of First Instance of Rizal.

The defendants denied the allegations of the plaintiff that the
latter had completed its plumbing works under the sub-contract.  They contended that there was delay in
payment due to the improper and faulty plumbing connections made by the
plaintiff; that the plaintiff was unable to complete the work stipulated in the
sub-contract and that the work completed including the additional works by the plaintiff were later found to be grossly
defective and had to be repaired and re-done
by Beta; that because of the incompetence of the plaintiff, Beta was compelled
to engage the services of another plumbing contractor who repaired the work;
and that Beta overpaid the amount of P81,686.00 under the plumbing sub-contract
which plaintiff is under obligation to return to Beta.

After trial on the
merits, the lower court rendered a decision in favor of the plaintiff.  The dispositive
portion of the decision reads:

“WHEREFORE, judgment is hereby rendered in favor of plaintiff,
as follows:

“1.  Sentencing
defendant Beta Construction Co., Inc., and University of the Philippines
College of Agriculture and/or University of the Philippines, jointly and
severally, to pay plaintiff the total sum of P68,843.98, representing the
unpaid balance for labor and materials expended in the plumbing and extra works
performed by plaintiff at the Biological Science Building of the College of
Agriculture, with interest thereon at the legal rate from October 16, 1969,
until fully paid;

“2  Sentencing
defendant Beta Construction Co., Inc., to pay plaintiff:

“a)  the
sum of P20,000.00, by way of moral damages;

“b)  the
sum of P5,000.00 by way of exemplary damages; and

“c)  the
sum of P10,000.00, by way of attorney’s fees.

“Costs against both defendants.”
(pp. 131-132, Record on Appeal)

Only U.P. appealed the decision to the then Intermediate
Appellate Court, now Court of Appeals. 
The decision was affirmed.  A
motion for reconsideration was denied.  Hence, this petition.

In a resolution dated September
30, 1985, we gave due course to the petition.

The petitioner questions the findings of facts of the appellate
court which adopted those of the lower court, to wit:

“Plaintiff completed the contracted plumbing and extra work in
November, 1968.  However, of the
contracted price of P155,828.60 defendant Beta paid
plaintiff only the amount of P91,202.52 thereby leaving a balance unpaid of
P64,626.08 for the plumbing works on the Biological
Science Building.  Plaintiff likewise was not paid the contract
price of P2,985.00 and P1,032.90, respectively, for
the extra work it performed at the request of defendant Beta which defendant UP
also approved, despite presentation of the corresponding statements of
accounts.  The total claim, therefore, of
plaintiff amounted to P68,643.98.  Because of the failure of defendant Beta to pay plaintiff for the balance of
the plumbing and extra works, plaintiff sent a letter, dated November 4, 1968
to defendant UP, through its Project Manager at the job site, requesting the
latter ‘not to approve the final payment and retention due and payable to the
general contractor Beta Construction Co., Inc., without a written certification
from us, that we have been fully paid of their obligations to us.’ The
aforesaid letter was duly received on November 7, 1968 and was followed by a
demand letter dated August 4, 1969 which plaintiff sent to defendant UP,
through its College of Agriculture,
and copies of which were furnished also the Dean and Auditor of the college and
duly received by the addressees.  Failing
to get any reply, plaintiff endorsed the matter to a lawyer, who sent to the
College of Agriculture and to the Project Manager two demand letters, both of
which were left unanswered by defendant UP (pp. 123-124, Record on Appeal)”
(p. 51, Rollo).

In affirming the decision of the trial court, the appellate court
applied Article 1729 of the New Civil Code which states:

“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 him from the owner.

“This article is subject to the provisions of special
laws.”

The appellate court ruled that the private respondent had a
lawful claim against UP, owner of the constructed building pursuant to Article
1729 in view of the following facts:

“Plaintiff notified defendant UP in writing as early as
November 7, 1968 that plaintiff had not been fully paid by the general
contractor and accordingly requested defendant UP not to release to said
contractor ‘the final payment for the 100% completion and the payment of the
retention.’ Nevertheless, defendant UP released payments to defendant BETA from
November 25, 1968 up to February 10, 1970 and thereafter,
thereby defeating plaintiff’s claim for the unpaid price of the work it contracted for and performed.

“Defendant UP’s own Exhibit “2-UP” shows that said
defendant disregarded the notice of claim of plaintiff, at a time when the
amounts owing from defendant UP to defendant Beta were more than sufficient to
pay for plaintiff’s claim.  The
19th and 20th payments alone which were released on November 25, 1968 and
September 1, 1969, respectively, or after receipt of plaintiff’s claim on
November 7, 1968 amounted to P158,490.70. 
And from the 21st to the 25th and final payments, defendant UP released
to defendant Beta the net amount of P167,402.55 covering the period November 3,
1968 up to February 20, 1970.  (Record on Appeal, pp. 125-126, Underscoring supplied).

“From the foregoing, Appellant did not approve the work
accomplished by Plaintiff-Appellee because it
disregarded the notice of claim.  Thus,
it cannot be said that Appellee’s claim was not yet
due and demandable since it was Appellant’s inaction that precipitated the
appealed case.  Were it not for
Appellant’s total disregard of Plaintiff-Appellee’s
claim, it should not have been impleaded as a party
defendant.  As aptly
observed by the court a quo, ‘the least that Appellant should
have done was to withhold payment of the balance still owing to defendant Beta
as of November
7, 1968 until the claim of plaintiff was
clarified.’ (pp. 127 128, Record on Appeal).  pp. 9-10, Appellee’s Brief).” (pp.
55-56, Rollo).

The petitioner refutes these findings by stating that Article
1729 contemplates “those who actually furnish labor and materials and as
per specification and not those who furnish defective works.” The
petitioner maintains that the private respondent did not fully accomplish the
plumbing works specified in the subcontract; and that there was actually
“overpayment” by Beta.

The petitioner also states that the word “claim” in the same
provision refers to claims that are due and demandable or valid claims
enforceable in law and does not, therefore, apply to a claim which a
sub-contractor has no right to make against his contractor as in the instant case where the work accomplished by private
respondent as a sub-contractor had no recorded approval by UPCA pursuant to
their agreement dated January 4, 1967. 
The petitioner submits that it is the burden of the private respondent
to show that the former gave the required approval for work accomplished
adequately and per specifications under the sub-contract agreement.

The sub-contract between
private respondent Allied Plumbing Company represented by its General Manager
Domingo P. Gabriel and Beta provides that:

xxx                     xxx                   xxx

“The terms of payment shall be on a monthly
basis as per work accomplished and approved by the UNIVERSITY
OF THE PHILIPPINES COLLEGE OF AGRICULTURE.”
(p. 16, Record on Appeal; Underlining supplied).

The petitioner became party to this sub-contract when it was
approved by the UP Bidding Committee.

This stipulation in the sub-contract is clear and leaves no doubt
as to the intention of the contracting parties. 
Consequently, the literal meaning of the stipulation shall control.  This is the first rule in the interpretation
of contracts (Article 1370, New Civil Code; La Suerte
Cigar & Cigarette Factory v. Director of the Bureau of Labor Relations, 123
SCRA 679).  This is the law between the
parties.

It is essential that there must be approval of the works
completed by the private respondent before UP can be made liable under the
sub-contract.  It is of no moment that
the private respondent, wrote UP that Beta, the contractor had not yet paid all its
obligations to the former.  This does not
necessarily mean approval of the private respondent’s works.

Moreover, it is to be
noted that this letter was forwarded to Beta for clarification.  And in a letter dated August 13, 1969
addressed to the Office of the Project Manager, Technical & Administrative
Unit, UPCA 5-year Development Program, College, Los Banos,
Laguna, Beta stated that –

“It is not true that we had stopped paying Mr. Gabriel since
July, 1968, the truth being that we were forced to make the purchases of materials
ourselves and pay his laborers due to Mr. Gabriel’s own consistent inability to
perform his work with reasonable efficiency and within allowable time.  There have been several written
communications from us to Mr. Gabriel regarding this matter.  We even reiterated in writing our invitation
to Mr. Gabriel for a conference on this matter, but he had consistently
disregarded our invitations for conference. 
The UPCA has been fully aware of this matter since the outset, as per
reports of its engineers.

“In fact, Mr. Domingo Gabriel had been overpaid by us over and
above his contract price based on an accomplishment of 91.1% given by UPCA as
of our last collection on October 15, 1968.

“We are even assessing the damage suffered by us as a result
of the failure of Mr. Gabriel to perform his work.

“We are therefore suggesting that you disregard the
unfounded claims of Mr. Gabriel as acts of pure harassment against us.  We are in fact aggrieved parties of Mr. Gabriel’s negligence and malice.”
(pp. 29-30, Record on Appeal; Underscoring supplied).

Faced with these two conflicting claims, the petitioner should
not be faulted for relying on the contractor’s claim that it paid all its
obligations to the private respondent and at the same time disregarding the latters‘ claim. 
There is no evidence showing approval of the works performed by the
private respondent pursuant to the terms of the sub-contract.

Hence, we agree with the
Solicitor General that the private respondent had no valid claim against the
petitioner.

Article 1729 of the New Civil Code also states that its
provisions are subject to special laws. 
In this connection, the appellate court applying Act No. 3959 (An Act making it obligatory for any person,
company, firm or corporation owning any work of any kind executed by contract
to require the contractor to furnish a bond guaranteeing the payment of the
laborers, providing penalties for the violation hereof, and for other purposes)
stated:

xxx                     xxx                   xxx

“x x x It is true that UPCA and/or UP had already fully
paid its obligation to Beta however, appellant’s payment to defendant Beta does
not extinguish its legal obligation to plaintiff-appellee
because such payment was irregular.  As
correctly stated by the trial court, appellant UPCA and/or UP ‘x x x should have taken care not to pay to such contractor
the full amount which he is entitled to receive by virtue of the contract,
until he shall have shown that he first paid the wages of the laborer employed
in said work, by means of an affidavit made and subscribed by said contractor
before a notary public or other officer authorized by law to administer oaths.’
There is no showing that defendant UP, as owner of the building, complied with
this requirement laid down in Act No. 3959. 
Hence, under Section 2 of said law, said defendant is responsible,
jointly and severally with the general contractor, defendant Beta, for the
payment of the wages of the plumbing sub-contract and other extra works.” (p. 128, Record on appeal). 
(p. 58, Rollo).

The above conclusion is wrong.

Act 3959 was intended for private persons, companies, firms, or
corporations using the services of contractors who may employ their own
carpenters, masons, and laborers or hire sub-contractors.  This is made even more evident by the fact
that Presidential Decree No. 442, The Labor Code of the Philippines,
Articles 106 to 109 and its Rules and Regulations, Rule VIII, Sections 7-9,
have superseded Act 3959.  The Labor Code
does not cover government employment.

The applicable law is Act 3688 which is titled “AN ACT FOR
THE PROTECTION OF PERSONS FURNISHING MATERIAL AND LABOR FOR THE CONSTRUCTION OF
PUBLIC WORKS.”

Petitioner UP was established “to provide advanced
instruction in literature, philosophy, the sciences and arts, and to give
professional and technical training.” (Mindanao Federation of Labor v.
University of the Philippines, 138 SCRA 623, citing University of the
Philippines v. Court of Industrial Relations, et al., 107 Phil. 848).  Thus, UP performs a governmental
function.  It is neither a corporation
created for profit nor an industry or business corporation, but it is a public
institution of higher learning created for a fundamental public purpose.

There is no doubt that it was in furtherance of its governmental
function as an institution of higher learning that the UP bidded
out the construction of the Biological Science Building of the College of
Agriculture at Los Banos, Laguna.  Thus, the construction of this building
should be considered as a construction of public works.

In the instant case, Beta, the contractor posted a
“performance bond” in the amount of P758,443.61
“conditioned for the faithful performance of the contract and for the full
payment of all obligation and fees (legal or business) arising thereunder.”

Section 1 of Act 3688 provides that:

“x x x If no suit should be brought by the Government of the
Philippine Islands within six months from the completion and final settlement
of said contract, or if the Government expressly waives its right to institute
action on the penal bond, then the person or persons supplying the contractor
with labor and materials shall, upon application therefor,
and furnishing affidavit to the department under the direction of which said
work has been prosecuted, that labor or materials for the prosecution of such
work have been supplied by him or them, and payment for which has not been
made, be furnished with a certified copy of said contract and bond, upon which
he or they shall have a right of action, and shall be, and are hereby,
authorized to bring suit in the name of the Government of the Philippine
Islands in the Court of First Instance in the district in which said contract
was to be performed and executed, and not elsewhere, for his or their use and
benefit against said contractor and his sureties, and to prosecute the same to
final judgment and execution.  x x x “

Thus, the private respondent should have requested for a
certified copy of the contract and bond from UP and sued Beta Construction and
the surety company for unpaid labor and materials instead of proceeding against
UP.  Under the circumstances of this
case, UP is not solidarily liable with Beta for the
claims of the sub-contractor against Beta.

WHEREFORE, the instant petition is hereby GRANTED.  The questioned decision of the then
Intermediate Appellate Court is MODIFIED. 
Petitioner University of the Philippines is absolved from paying
respondent Allied Plumbing Company the amount of P68,843.98 representing the
unpaid balance for labor and materials expended in the plumbing and extra works
it performed as sub-contractor of Beta Construction Company, Inc., at the
Biological Science Building of the UP College of Agriculture.  No costs.

SO ORDERED.

Fernan, (Chairman), Feliciano, and Cortes, JJ., concur.

Bidin, J., no part.