GR 199851; (November, 2018) (Digest)
G.R. No. 199851 , November 07, 2018
NOELL WHESSOE, INC., PETITIONER, V. INDEPENDENT TESTING CONSULTANTS, INC., PETROTECH SYSTEMS, INC., AND LIQUIGAZ PHILIPPINES CORP., RESPONDENTS.
FACTS
Independent Testing Consultants, Inc. (Independent) was engaged by subcontractor Petrotech Systems, Inc. (Petrotech) to conduct non-destructive testing on the piping systems and storage tanks of Liquigaz Philippines Corp. (Liquigaz). After rendering services, Independent billed Petrotech but remained unpaid. Independent filed a collection case against Petrotech, Liquigaz, and Noell Whessoe, Inc. (Noell), alleging Noell was the main contractor.
Noell denied being the contractor, asserting its role was merely as construction manager for the project, which was actually undertaken by Whessoe Projects Limited (Whessoe UK). It presented documents showing Whessoe UK had fully paid Petrotech. The Regional Trial Court held all three defendants solidarily liable. The Court of Appeals affirmed but modified Liquigaz’s liability, limiting it to a withheld amount of US$9,000. Noell elevated the case to the Supreme Court.
ISSUE
Whether Noell Whessoe, Inc. can be held solidarily liable for the unpaid obligations of subcontractor Petrotech to supplier Independent Testing Consultants, despite the absence of direct contractual relations.
RULING
No. The Supreme Court reversed the lower courts’ rulings and absolved Noell Whessoe from liability. The legal logic rests on the principle of relativity of contracts under Article 1311 of the Civil Code, which stipulates that contracts are binding only upon the parties and their successors. Noell was not a party to the contract between Petrotech and Independent. The evidence established that Whessoe UK was the principal contractor, and Noell acted only as a construction manager. Crucially, Whessoe UK had already fully paid Petrotech for the project.
The Court clarified that while a contractor can under certain circumstances be held liable to a subcontractor’s suppliers, this is predicated on the contractor not having fully settled its own account with the subcontractor. Full payment to the subcontractor serves as a complete defense, as it negates any basis for the contractor to withhold funds that could be used to satisfy the supplier’s claim. Since Whessoe UK had paid Petrotech in full, and Noell was not the contractor, no solidary liability to Independent could attach to Noell. The claim should be pursued solely against Petrotech.