d. Unjust Enrichment

B. Unjust Enrichment (Civil Code, arts. 22-23 and 2142-2143)

> Article 22. Every person who through an act of performance by another, or any other means, acquires or comes into possession of something at the expense of the latter without just or legal ground, shall return the same to him. Article 23. Even when an act or event causing damage to another's property was not due to the fault or negligence of the defendant, the latter shall be liable for indemnity if through the act or event he was benefited. Article 2142. Certain lawful, voluntary and unilateral acts give rise to the juridical relation of quasi-contract to the end that no one shall be unjustly enriched or benefited at the expense of another. (n) Article 2143. The provisions for quasi-contracts in this Chapter do not exclude other quasi-contracts which may come within the purview of the preceding article. (n)

Prohibition against Unjust Enrichment

No one shall unjustly enrich himself at the expense of another. (Pacific Merchandising Corp. v. Consolacion Insurance and Surety Co., Inc., G.R. No. L-30204, October 29, 1976)

NOTE: The article applies only if:

• Someone acquires or retains a benefit through another’s performance or any other means at another’s expense without just or legal ground; and
• Acquisition is undue and at the expense of another, which means without any just or legal ground.

Q: Mekeni Food Corp. offered its employee Locsin a car plan. One-half of the cost of the vehicle is to be paid by Mekeni and the other half is to be deducted from Locsin’s salary. The car was an absolute necessity in Mekeni’s business operations. Locsin paid for his 50% share through monthly salary deductions. Subsequently, Locsin resigned. By then, a total of ₱112,500 had been deducted from his monthly salary and applied as part of his share in the car plan. The vehicle remained in the ownership and possession of Mekeni, and so Locsin sought reimbursement of his amortization payments on the vehicle and posits that if the amount is not reimbursed, unjust enrichment would result, as the vehicle remained in the possession and ownership of Mekeni. Should the amortization payments be refunded in favor of Locsin?

A: YES. The amortization payments must be refunded in favor of Locsin. In the absence of specific terms and conditions governing a car plan agreement between the employer and employee, the employer may not retain the installment payments made by the employee on the car plan and treat them as rents for the use of the service vehicle, in the event that the employee ceases his employment and is unable to complete the installment payments on the vehicle.

The underlying reason is that the service vehicle was precisely used in the employer's business; any personal benefit obtained by the employee from its use is merely incidental. Mekeni may not enrich itself by charging Locsin for the use of its vehicle which is otherwise absolutely necessary to the full and effective promotion of its business. (Locsin v. Mekeni Food Corporation, G.R. No. 192105, December 9, 2013)

Q: Ludolfo owns a construction company. One day, Carlos visited Ludolfo in his office wherein, he invited Ludolfo to advance ₱2,000,000.00 for a subcontract of a ₱50,000,000.00 river-dredging project in Guinobatan. He guaranteed Ludolfo that Ludolfo’s construction company will be subcontracted by the lowest bidder of the project. Ludolfo accepted the proposal. Ludolfo requested his bank to release ₱3,000,000.00 to a certain Grace delos Santos. Carlos then obtained the money from Grace. After four days, ₱1,800,000.00 was returned to Ludolfo. Carlos then collected ₱800,000.00 balance. However, after deducting Carlos’ personal loans Ludolfo issued a check worth ₱ 481,800.00 which was accepted by Carlos.

The project to dredge the Masarawag and San Francisco Rivers in Guinobatan was subjected to public bidding. The project was awarded to the lowest bidder, Sunwest Construction and Development Corporation. However, the project was completed without Ludolfo’s construction company being subcontracted. Thus, Ludolfo demanded Carlos to return his ₱2,000,000.00 which Carlos did not do so.

Carlos claimed that the principle of unjust enrichment does not apply in this situation. He further argued that Ludolfo paid him for a subcontract of a government project and as such the subcontract is void for being contrary to law, specifically, the Anti-Graft and Corrupt Practices Act, the Revised Penal Code, and Section 6 of Presidential Decree No. 1594. Also, according to Carlos, he followed up the project’s approval with the Central Office of the Department of Public Works and Highways as the parties agreed upon. He was, therefore, entitled to his representation expenses. Is Carlos liable to return the ₱2,000,000.00 under the principle of unjust enrichment?

A: YES. Carlos is liable to return ₱2,000,000.00 under the principle of unjust enrichment. Under Article 22 of the Civil Code of the Philippines, "every person who through an act of performance by another, or any other means, acquires or comes into possession of something at the expense of the latter without just or legal ground, shall return the same to him." There is unjust enrichment "when a person unjustly retains a benefit to the loss of another, or when a person retains money or property of another against the fundamental principles of justice, equity and good conscience. The principle of unjust enrichment has two conditions. First, a person must have been benefited without a real or valid basis or justification. Second, the benefit was derived at another person’s expense or damage.

In this case, Carlos received ₱2,000,000.00 from Ludolfo for a subcontract of a government project to dredge the Masarawag and San Francisco Rivers in Guinobatan, Albay. However, contrary to the parties’ agreement, Ludolfo was not subcontracted for the project. Nevertheless, Carlos retained the ₱2,000,000.00.

Thus, Carlos was unjustly enriched. He retained Ludolfo’s money without valid basis or justification. Under Article 22 of the Civil Code of the Philippines, Carlos must return the ₱2,000,000.00 to Ludolfo. Contrary to Carlos’ claim, Section 6 of the Presidential Decree No. 1594 does not prevent Ludolfo from recovering his money because it is premature to rule on the legality of the parties’ agreement since the subcontract did not push through. At any rate, even assuming that there was a subcontracting arrangement between Sunwest Construction and Development Corporation and Ludolfo, the Supreme Court has allowed recovery under a void subcontract as an exception to the in pari delicto doctrine.

The Supreme Court discussed that in Gonzalo vs. Tarnate Jr., Tarnate, Jr. performed his obligations under the subcontract and the deed of assignment, this court ruled that he was entitled to the agreed fee. According to this court, Gonzalo "would be unjustly enriched at the expense of Tarnate if the latter was to be barred from recovering because of the rigid application of the doctrine of in pari delicto. However, in this case, Carlos never denied that he failed to fulfill his agreement with Ludolfo. Carlos, therefore, is retaining the ₱2,000,000.00 without just or legal ground. This cannot be done. Under Article 22 of the Civil Code of the Philippines, he must return the ₱2,000,000.00 to Ludolfo. (Carlos A. Loria v. Ludolfo P. Munoz, Jr., G.R. No. 187240, October 15, 2014, as penned by J. Leonen)

NOTE: As a doctrine in civil law, the rule on pari delicto is principally governed by Articles 1411 and 1412 of the Civil Code, which state that: “Article 1411. When the nullity proceeds from the illegality of the cause or object of the contract, and the act constitutes a criminal offense, both parties being in pari delicto, they shall have no action against each other, and both shall be prosecuted.”

Q: Tarcisius was hired as a project coordinator/manager of Your Own Home Development Corp. (YOHDC). Tarcisius received all 4 checks. However, instead of delivering them to Rosillas and Delos Reyes, the payees of the checks, Tarcisius and his wife, Iris, deposited the checks into their personal bank account with BPI and requested BPI to suspend its action on YOHDC’s claim and instructed it not to deduct the amount they deposited until they have clarified the matter. BPI denied this request, and sent Metrobank, the Drawee Bank, to reimburse the amounts of the checks, which was then credited to YOHDC. Hence, Tarcisius and his wife filed a Complaint for Damages against YOHDC on the ground of unjust enrichment. Is YOHDC liable for unjust enrichment?

A: NO. Unjust enrichment has two (2) elements: a person benefited without a real or valid basis or justification, and the benefit was at another person's expense or damage. Here, Metrobank rightfully returned to YOHDC the amounts of the checks considering that Metrobank, as the drawee bank, is obligated to return the full amounts of the checks upon discovering that they were not paid to the correct payees. The amounts returned were not at the expense of Tarcisius and his wife considering that the amounts were not meant for them but for Rosillas and Delos Reyes. (Iris Rodriguez vs Your Own Home Development Corporation, G.R. No. 199451, August 15, 2018, as penned by J. Leonen)

Accion In Rem Verso

It is an action for recovery of what has been paid or delivered without just cause or legal ground. If a person acquires or comes into possession of something at the expense of another without just or legal ground through an act of performance by another or any other means has the obligation to return the same. (NCC, Art. 22)

Accion in rem verso is considered merely an auxiliary action, available only when there is no other remedy on contract, quasi-contract, crime, and quasi-delict. Hence, if there is an obtainable action under any other institution of positive law, that action must be resorted to, and the principle of accion in rem verso will not lie. (Shinryo Philippines Company v. RRN Incorp. G.R. No. 172525, October 20, 2010)

Requisites (E-L-W-A):

• The defendant has been Enriched;
• The plaintiff has suffered a Loss;
• The enrichment of the defendant is Without just or legal ground; and
• The plaintiff has no other Action based on contract, quasi-contract, crime or quasi- delict.

Accion in rem verso vs. Solutio Indebiti

In accion in rem verso, it is not necessary that there should have been mistake in the payment unlike in solutio indebiti where mistake is an essential element. (Rabuya, 2006)

Accion in rem verso vs. Unjust Enrichment

Unjust enrichment is the basis for the duty to return a benefit retained at another’s expense without just or legal ground under Article 22 of the Civil Code, while accion in rem verso is merely an auxiliary action for recovery available only when there is no other remedy based on contract, quasi-contract, crime or quasi-delict. (Shinryo Philippines Company v. RRN Incorp. G.R. No. 172525, October 20, 2010)

Mutual restitution is not applicable when:

• Creditor did not receive anything from contract; or
• Rescission shall not take place when the property is legally in the possession of a third person who did not act in bad faith. In that case, damages may be demanded from the person causing the loss. (NCC, Art. 1385)

Q: Reyes (seller) and Lim (buyer) entered into a contract to sell a parcel of land. Harrison Lumber occupied the property as lessee. Reyes offered to return the P10 million downpayment to Lim because Reyes was having problems in removing the lessee from the property. Lim rejected Reyes’ offer. Lim learned that Reyes had already sold the property to another.

Both Reyes and Lim are now seeking rescission of the contract to sell. However, Reyes does not want to deposit the 10M to the court because according to him, he has the “right to use, possess and enjoy” of the money as its owner before the contract to sell is rescinded. Is Reyes’ contention correct?

A: NO. There is also no plausible or justifiable reason for Reyes to object to the deposit of the P10 million down payment in court. The contract to sell can no longer be enforced because Reyes himself subsequently sold the property. Both Lim and Reyes are seeking for rescission of the contract. By seeking rescission, a seller necessarily offers to return what he has received from the buyer. Such a seller may not take back his offer if the court deems it equitable, to prevent unjust enrichment and ensure restitution, to put the money in judicial deposit.

NOTE: In this case, it was just, equitable, and proper for the trial court to order the deposit of the down payment to prevent unjust enrichment by Reyes at the expense of Lim. Depositing the down payment in court ensures its restitution to its rightful owner. Lim, on the other hand, has nothing to refund, as he has not received anything under the contract to sell. (Reyes v. Lim, Keng and Harrison Lumber, Inc., G.R. No. 134241, August 11, 2003)

Q: Goldenrod offered to buy a mortgaged property owned by Barreto Realty to which it paid earnest money amounting to P1 million. It was agreed upon that Goldenrod would pay the outstanding obligations of Barreto Realty with UCPB. However, Goldenrod did not pay UCPB because of the bank’s denial of its request for an extension to pay the obligation. Thereafter, Goldenrod, through its broker, informed Barreto Realty that it could not go through with the purchase of the property and also demanded a refund of the earnest money it paid. In the absence of a specific stipulation, may the seller of real estate unilaterally rescind the contract and as a consequence keep the earnest money to answer for damages in the event the sale fails due to the fault of the prospective buyer?

A: NO. Goldenrod and Barretto Realty did not intend that the earnest money or advance payment would be forfeited when the buyer should fail to pay the balance of the price, especially in the absence of a clear and express agreement thereon.

Moreover, Goldenrod resorted to extrajudicial rescission of its agreement with Barretto Realty. Under Article 1385, rescission creates the obligation to return the things which were the object of the contract together with their fruits and interest. Therefore, by virtue of the extrajudicial rescission of the contract to sell by Goldenrod without opposition from Barretto Realty, which in turn, sold the property to other persons, Barretto Realty, had the obligation to return the earnest money which formed part of the purchase price plus legal interest from the date it received notice of rescission. It would be most inequitable if Barretto Realty would be allowed to retain the money at the same time appropriate the proceeds of the second sale made to another. (Goldenrod, Inc. v. CA, G.R. No. 126812, November 24, 1998)

VOIDABLE CONTRACTS

Voidable contracts are those where consent is vitiated either by the incapacity of one of the contracting parties or by mistake, violence, intimidation, undue influence or fraud. These contracts are binding, unless they are annulled by a proper action in court. It is susceptible of ratification. (NCC, Art. 1390)

NOTE: Annulment may be had even if there is no damage to the contracting parties.

Effects of annulment of a contract

• If contract not yet consummated – parties shall be released from the obligations arising therefrom.
• If contract has already been consummated – rules provided in Arts. 1398-1402 shall govern
• Restitution
• Whenever the person obliged by the decree of annulment to return the thing cannot do so because it has been lost through his fault, he shall return the fruits received and the value of the thing at the time of the loss, with interest from the same date. (NCC, Art. 1400)

GR: Mutual restitution. – the contracting parties shall restore to each other things which have been the subject matter of the contract, with their fruits and the price with its interest except in case provided by law. In an obligation to render services, the value thereof shall be the basis for damages. (NCC, Art. 1398)

NOTE: No restitution. – The party incapacitated is not obliged to make any restitution except insofar as he has been benefited by the thing or the price received by him. (NCC, Art. 1399)

XPN : When the defect consists in the incapacity of one party, that party is not obliged to make restitution except insofar as benefited by the thing or price received. (NCC, Art. 1399)