Permanent Concrete Products, Inc. vs. Teodoro

Issues not raised and expressly limited at pre-trial are waived and cannot be resurrected on appeal; a property owner who contracts for the construction of a building on a lump-sum basis, with the contractor assuming the obligation to furnish all materials, is not directly liable to a material supplier in the absence of proof that the owner failed to pay the contractor.

Clementina Vda. de Guison engaged the services of the contractor Teodoro & Associates to erect a building for a lump sum of ₱44,000. The written contract expressly stated that “all of said labor and materials shall be supplied by me,” referring to the contractor. During the course of construction, the contractor purchased hollow blocks worth ₱759.88 on credit from Permanent Concrete Products, Inc. The hollow blocks were incorporated into the building. Despite demands, the contractor refused to pay the supplier, arguing that the obligation belonged to the owner Guison.

• The Construction Contract: Clementina Vda. de Guison hired the contractor “Teodoro & Associates” to build a building for her at a lump sum of ₱44,000. The written contract contained an express undertaking by the contractor: “all of said labor and materials shall be supplied by me.”
• The Material Purchase: During construction, the contractor ordered and received hollow blocks from Permanent Concrete Products, Inc., with a total value of ₱759.88. These hollow blocks were used in Guison’s building.
• Demand and Refusal: The plaintiff demanded payment from the contractor, but the contractor refused, asserting that the obligation to pay for the materials fell on the owner, Guison.
• City Court Action: The plaintiff sued both Donato Teodoro and Guison, later impleading Teodoro & Associates. The city court rendered judgment against Guison alone, ordering her to pay the sum claimed plus interest, attorney’s fees, and costs.
• Appeal and Pre-Trial in the CFI: Guison appealed to the CFI of Manila. At the pre-trial conference, the parties explicitly limited the issues to three questions of law: (1) whether the owner Guison could be held liable for materials ordered by the contractor without her signature; (2) whether the contractor could collect from Guison for additional construction verbally agreed upon with her tenant; and (3) whether the contractor could be held responsible for the substitution of imported electrical goods not specified in the contract. Donato Teodoro did not raise any issue concerning his personal non-participation or lack of connection to the transactions. No evidence was presented; the parties submitted memoranda.
• CFI Decision: The CFI set aside the city court’s judgment against Guison and instead ordered Donato Teodoro to pay the plaintiff for the hollow blocks, with interest, attorney’s fees, and costs.
• Appeal to Higher Courts: Donato Teodoro appealed, assigning error to the CFI for holding him liable without evidence of his personal participation, and alternatively arguing that Guison, as owner, should bear the liability.

• Lack of Personal Participation: Donato Teodoro argued that he could not be held liable because no evidence was presented to show or remotely suggest that he had any participation in or connection with any of the transactions subject of the suit.
• Liability of the Owner: Even assuming he had something to do with the construction, Teodoro argued that Clementina Vda. de Guison, as the building owner who benefited from the materials, should be made liable for the plaintiff’s claim.

• Plaintiff-Appellee’s Position: Permanent Concrete Products, Inc. maintained that the contractor ordered and received the hollow blocks on credit and was therefore directly liable for their price, and that Donato Teodoro was properly identified as the contractor.
• Guison’s Position: Clementina Vda. de Guison argued that she could not be held liable because the construction contract was for a lump sum with the contractor assuming the obligation to supply all labor and materials, and there was no showing that she had failed to pay the contract price to the contractor.

• Waiver of Defense at Pre-Trial: Whether the appellant’s defense of non-participation was waived due to his failure to raise it as an issue at the pre-trial conference.
• Liability for Materials under a Lump-Sum Contract: Whether the building owner or the contractor is liable to the material supplier for the cost of hollow blocks used in the construction, given a lump-sum contract where the contractor undertook to supply all materials.

• Waiver of Defense at Pre-Trial: The defense of non-participation was waived. At the pre-trial conference, all parties agreed to limit the issues to only three questions of law. The appellant failed to put his alleged non-participation in issue, despite the complaint’s clear allegation that Donato Teodoro and/or Teodoro & Associates was the contractor. The delimitation of issues at pre-trial bars the consideration of other questions on appeal. One of the objectives of pre-trial procedure is to remove the element of surprise and maneuvering; parties are expected to disclose all issues of law and fact they intend to raise. The appellant’s failure to disclose this defense prevented the plaintiff and Guison from meeting it, and the pre-trial order controlled the subsequent course of the action absent a modification sought. The city court’s earlier observation about the absence of evidence was irrelevant because a perfected appeal from the city court vacated its judgment, and the case stood for trial de novo in the CFI as though originally commenced there, pursuant to Section 9 of Rule 40. Moreover, the record disclosed circumstances identifying the appellant with the contractor: identical business address, service of summons at that address, the same counsel representing both, and an implicit admission in his cross-claim against Guison.
• Liability for Materials under a Lump-Sum Contract: The building owner was not liable. By virtue of the contract, the contractor expressly assumed the cost of materials by undertaking that “All of said labor and materials shall be supplied by me.” The contract was for the construction of a building at a total lump sum of ₱44,000. Although the installation of the hollow blocks redounded to the owner’s benefit, she was not enriched at the plaintiff’s expense. In the absence of proof that she failed to pay the ₱44,000 contract price, the contractor was legally obliged to make good on its undertaking to furnish all materials and labor.

• Pre-Trial Order as Controlling: The delimitation of issues in a pre-trial order binds the parties and controls the subsequent course of the action. Issues not raised at pre-trial are deemed waived and cannot be considered on appeal. The purpose is to eliminate surprise and maneuvering, requiring parties to disclose all intended issues of law and fact, except those involving privilege or impeaching matter. A failure to disclose a defense at pre-trial effectively prevents the opposing parties from meeting it and cannot be tolerated under the Rules of Court.
• Trial De Novo on Appeal from Inferior Court: Under Section 9, Rule 40 of the Revised Rules of Court, a perfected appeal from a municipal or city court to the Court of First Instance vacates the inferior court’s judgment entirely, and the action stands for trial de novo as if it had never been tried before and had been originally commenced in the CFI. Consequently, evidentiary deficiencies or findings of the inferior court are of no moment; the case is decided afresh based on the pleadings and the pre-trial order in the appellate court.
• Liability in Lump-Sum Construction Contracts: Where a building contract is for a lump sum and the contractor expressly assumes the obligation to furnish all labor and materials, the contractor alone bears responsibility to material suppliers for the cost of those materials. The property owner is not directly liable to the supplier absent proof that the owner failed to pay the contractor the agreed contract price. The mere fact that the materials were incorporated into the owner’s property and benefited her does not constitute unjust enrichment at the supplier’s expense.

• “The delimitation of issues at a pre-trial conference bars the consideration of other questions on appeal. And this is as it should be. ‘One of the objectives of pre-trial procedure is to take trial of cases out of the realm of surprise and maneuvering.’ Pre-trial is primarily intended to make certain that all issues necessary to the disposition of a cause are properly raised. Thus, to obviate the element of surprise, parties are expected to disclose at a pre-trial conference all issues of law and fact which they intend to raise at the trial, except such as may involve privilege or impeaching matter.”
• “When a civil case is appealed from a city or municipal court to the court of first instance, all the proceedings had are deemed vacated. Thus provides sec. 9 of Rule 40 of the Revised Rules of Court: A perfected appeal shall operate to vacate the judgment of the municipal or city court, and the action when duly docketed in the Court of First Instance shall stand for trial de novo upon its merits in accordance with the regular procedure in that court, as though the same had never been tried before and had been originally there commenced.”
• “It is true that the installation of the hollow blocks in the house of Guison redounded to her benefit. It does not thereby follow, however, that she was enriched at the expense of the plaintiff. The contract between her and the contractor, we reiterate, was for a lump sum of P44,000, with the latter assuming the obligation to furnish all labor and materials. In the absence of proof that she failed to comply with her covenant to pay P44,000 to the contractor, the latter is legally obliged to make good its own undertaking to furnish all materials and labor.”

• Frank v. Giesy, 4 Federal Rules Service, 318 — Cited for the principle that delimitation of issues at pre-trial bars consideration of other questions on appeal.
• Murrah, Pre-Trial Procedure, 14 F.R.D. 417-418 — Cited for the statement that one objective of pre-trial is to take trials out of the realm of surprise and maneuvering.
• Burton v. Weyerhaeuser Timber Co.; 4 Federal Rules Service, 319 — Cited for the rule that parties must disclose all issues at pre-trial except privileged or impeaching matter.

• Section 9, Rule 40, Revised Rules of Court — Provides that a perfected appeal from a municipal or city court to the Court of First Instance vacates the inferior court’s judgment, and the action stands for trial de novo in the CFI as if originally commenced there. This was applied to disregard the city court’s evidentiary finding of lack of proof against Teodoro and to treat the CFI proceedings independently.

Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal, Zaldivar, Sanchez, Fernando, and Capistrano, JJ., concurred.