[G.R. No. L-12289. May 28, 1958.

LIM SIOK HUEY, ET AL., Plaintiffs-Appellants, v. ALFREDO LAPIZ, ET

Al., Defendants-Appellees.

Godofredo C. Montesines and Alfonso E. Generoso for Appellants.

Tengco Rosales for appellees Vicente Reyes and Lazaro Limjuco.

SYLLABUS

1. PARTIES; CITIZENS AND RESIDENTS OF FOREIGN COUNTRY;

REPRESENTED BY COUNSEL WITHOUT AUTHORITY. — If it appears that the
plaintiffs in an action for recovery of damages are citizens and residents of a
foreign country and are represented merely by their counsel without proper
authority to do so, the case should be dismissed.

2. ATTORNEYS AT LAW; LAWYER MAY BE REQUIRED TO SHOW AUTHORITY

TO REPRESENT ANY CAUSE. — While a lawyer is presumed to be properly
authorized to represent any cause in which he appears, he may however be
required by the court on motion of either party to produce his authority under
which he appears. (Section 20, Rule 127)

3. PARTIES; GUARDIAN Ad Litem APPOINTED WITHOUT AUTHORITY TO

REPRESENT. — The representation of an appointed guardian ad litem of two
of the plaintiffs who allegedly are minors in the prosecution of the case at bar
without proper authority from them is ineffective. Such representation would
not suffice to meet the requirement of the rule which provides that every
action must be prosecuted in the name of the real party in interest (Section 2,
Rule 3 of the Rules of Court.)

DECISION
 BAUTISTA ANGELO, J.:

This is an action to recover damages amounting to P83,701.30 filed in the

Court of First Instance of Laguna. The plaintiffs are Lim Siok Huey, Pua Yek
Ben, Pua Chok Ben, Pua Sam Ben and Pua Go Kuan, the first being the
surviving spouse and the last four the surviving children of Chua Pua Lun,
represented by their counsel, and the defendants are Alfredo Lapiz, Victorino
Sapin, Vicente Reyes and Lazaro Limjuco. The damages are claimed by reason
of the death of Chua Pua Lun as a result of a collision suffered by the jeepney
in which he was a passenger.

Defendant Alfredo Lapiz, the driver of the Jaguar jeepney, in answer to the
complaint, alleged that the vehicle driven by him was hit by the Kapalaran bus
which was driven by defendant Vicente Reyes due to the negligence of the
latter, thereby causing the death of Chua Pua Lun who was a passenger of the
jeepney. Defendant Victorino Sapin in turn alleged that he was not the owner
of the jeepney driven by Lapiz, while defendants Vicente Reyes and Lazaro
Limjuco, the first as driver and the second as owner of the bus, alleged that the
collision between the two vehicles was due to the negligence of Alfredo Lapiz.

Plaintiffs Pua Sam Ben and Pua Go Kuan, being minors, the court, upon motion
of their counsel, appointed Chua Pua Tam, a brother of the deceased, as
guardian ad litem to represent them in this case.

After trial, the court rendered decision "dismissing the complaint, defendant
Lapiz’ cross-claim against defendants Reyes and Limjuco as well as the
counterclaim of these last two named defendants against the plaintiffs and
their cross-claim against defendants Lapiz and Sapin." Plaintiffs appealed
directly to this Court in view of the amount involved.

In dismissing the complaint, the trial court made the following

pronouncement:jgc:chanrobles.com.ph
"Notwithstanding the above conclusion, the Court is however, of the opinion
that the present action cannot be maintained not on the ground invoked by
the defendants but on the theory that the plaintiffs have not authorized
anyone to file the complaint against the defendants. While an attorney
representing a client in a case pending in Court is presumed to be authorized
for the purpose, nevertheless in the case under consideration, such
presumption had been destroyed and overcome by the very evidence
presented by counsel himself. The plaintiffs are all citizens and residents of
Communist China and they have not communicated with anyone in the
Philippines in connection with the filing of an action for damages in their
behalf arising from the death of Chua Pau Lun. Chua Pua Tam, who is the
brother-in-law of the first plaintiff and uncle of the others, testified that the
plaintiffs had not written to him nor had he communicated with them. The
letters supposedly sent to Lim Ping Kok by his sister Lim Siok Huey (Exh. J)
and his mother (Exh. K) did not contain any intimation much less of an
authorization for the filing of a claim for damages in behalf of the widow and
children of the deceased, Chua Pua Lun, against the parties responsible for his
death. Under this situation, the Court has no other alternative but to dismiss
the complaint on the ground that the evidence on record does not show that
the plaintiffs have authorized much less directed the commencement of the
present action."cralaw virtua1aw library

Appellants now contend that the trial court erred (1) in finding that plaintiffs,
being residents of Communist China, have not authorized anyone to file the
present case against the defendants; (2) in dismissing the complaint when the
authority to prosecute the case stems from the appointment of Chua Pua Tam
as guardian ad litem of minors Pua Sam Ben and Pua Go Kuan; (3) in
dismissing the case when the same could be considered as prosecuted by a
negotiorum gestor and (4) in finding that there was no authority to file the
case when such question was not raised in issue nor was evidence adduced on
the point.

With regard to the first question, we find no error in the findings made by the
trial court. Indeed, the same is supported by the record and the evidence.
Thus, it appears that the plaintiffs who are the widow and children of the
deceased Chua Pua Lun are all citizens and residents of Communist China and
notwithstanding the fact that they have been informed of the death of the
deceased, they have not sent any communication to anyone in the Philippines
giving authority to take whatever action may be proper to obtain an indemnity
for his death other than two letters supposedly sent to Lim Ping Kok by his
sister Lim Siok Huey and his mother, which do not contain any intimation nor
authorization for the filing of the present action. The most that they contain
was an inquiry with regard to the progress of the case and the administration
of the duck-raising business which the deceased left in the Philippines. Such
certainly cannot be considered as an authority to the present counsel to file
and prosecute the present case in behalf of the widow and children now
residing in Communist China.

It should be noted that the present action was initiated by plaintiffs

represented merely by their counsel and the question arose as to whether the
latter had the proper authority to represent the former in view of the fact that
they are all residents of a foreign country. And the question was properly
raised in view of the rule that, while a lawyer is presumed to be properly
authorized to represent any cause in which he appears, he may however be
required by the court on motion of either party to produce his authority under
which he appears (Section 20, Rule 127). Undoubtedly, the question was
properly raised by counsel for the defendants as otherwise the trial court
would not have given proper attention to the matter. Indeed, on this point, the
trial court made this important comment: "While an attorney representing a
client in a case pending in Court is presumed to be authorized for the purpose,
nevertheless in the case under consideration, such presumption had been
destroyed and come by the very evidence presented by counsel himself ."
(Emphasis supplied)

It is true that one Chua Pua Tam was appointed as guardian ad litem of two of
plaintiffs who allegedly are minors to represent them in the prosecution of the
present case, but while this representation may only benefit the minors, and
not the other plaintiffs, yet the same would not suffice to meet the
requirement of the rule which provides that every action must be prosecuted
in the name of the real party in interest (Section 2, Rule 3). Again, we need
hereto show that Chua Pua Tam was authorized by the heirs abroad to act as
such in behalf of the minors for it was in this belief that he was so appointed
by the trial court. But when in the course of the trial it developed that he never
had any communication with any of the heirs and much less received any
authority from them either to prosecute this case or to act as such guardian in
behalf of the minors, the trial court lost no time in disauthorizing him and
considering his representation ineffective. Thus, on this point, the trial court
said: "Chua Pua Tam, who is the brother-in law of the first plaintiff and uncle
of the others, testified that the plaintiffs had not written to him nor had he
communicated with them. The letters supposedly sent to Lim Ping Kok by his
sister Lim Siok Huey (Exh. J) and his mother (Exh. K) did not contain any
intimation much less an authorization for the filing of the claim for damages in
behalf of the widow and children of the deceased."cralaw virtua1aw library

Nor can the claim that Chua Pua Tam can be considered as negotiorum gestor
be entertained because in the present case there is need of express authority
on his part to represent the minors by virtue of an express provision of our
Rules of Court. In negotiorum gestio no such authority is required.

The contention that the trial court considered the issue regarding the lack of
authority on the part of counsel to represent plaintiffs in this case or of Chua
Pua Tam to act as guardian ad litem of the minors even if the same was not
raised by any of the opposing parties or their counsel, cannot be entertained,
it appearing that the same was expressly raised by defendants Reyes and
Limjuco not only in the course of the trial but in their answer. Moreover, this
flaw in the case of the plaintiffs was discovered by the court in the course of
the trial in view of the evidence presented by the very counsel of plaintiffs. In
view of such development, the trial court could not but take notice of the
matter considering the prayer in defendants’ answer that they be given "such
reliefs as this Court may deem just and equitable in the premises."cralaw
virtua1aw library

Wherefore, the decision appealed from in so far as it dismisses the complaint

is hereby affirmed, with costs against appellants.
January 1993 - Philippine Supreme Court Decisions/Resolutions

Philippine Supreme Court Jurisprudence

Philippine Supreme Court Jurisprudence > Year 1993 > January 1993
Decisions > G.R. No. 97995 January 21, 1993 - PHILIPPINE NATIONAL BANK v.
COURT OF APPEALS, ET AL.:

THIRD DIVISION

[G.R. No. 97995. January 21, 1993.]

PHILIPPINE NATIONAL BANK, Petitioner, v. COURT OF APPEALS AND B.P.

MATA AND CO., INC., Respondents,
Roland A. Niedo for Petitioner.

Benjamin C. Santos Law Office for Respondent.

SYLLABUS

1. CIVIL LAW; OBLIGATIONS AND CONTRACTS; TRUSTS; EXPRESS TRUST

DISTINGUISHED FROM IMPLIED TRUST. — Trusts are either express or
implied. While express trusts are created by the intention of the trustor or of
the parties, implied trusts come into being by operation of law. Implied trusts
are those which, without being expressed, are deducible from the nature of the
transaction as matters of the intent or which are superinduced on the
transaction by operation of law as matters of equity, independently of the
particular intention of the parties.

2. ID.; ID.; ID.; KINDS OF IMPLIED TRUSTS; RESULTING TRUST

DISTINGUISHED FROM CONSTRUCTIVE TRUST. — Implied trusts are
subdivided into resulting and constructive trusts. A resulting trust is a trust
raised by implication of law and presumed always to have been contemplated
by the parties, the intention of which is found in the nature of the transaction,
but not expressed in the deed or instrument of conveyance. Examples of
resulting trusts are found in Articles 1448 to 1455 of the Civil Code. On the
other hand, a constructive trust is one not created by words either expressly
or impliedly, but by construction of equity in order to satisfy the demands of
justice. An example of a constructive trust is Article 1456 quoted above.

3. ID.; ID.; ID.; ID.; CONSTRUCTIVE TRUST UNDER ARTICLE 1456 OF THE NEW
CIVIL CODE NOT A TRUST IN THE TECHNICAL SENSE; REASON THEREFOR;
CASE AT BAR. — A deeper analysis of Article 1456 reveals that it is not a trust
in the technical sense for in a typical trust, confidence is reposed in one
person who is named a trustee for the benefit of another who is called the
cestui que trust, respecting property which is held by the trustee for the
benefit of the cestui que trust. A constructive trust, unlike an express trust,
does not emanate from, or generate a fiduciary relation. While in an express
trust, a beneficiary and a trustee are linked by confidential or fiduciary
relations, in a constructive trust, there is neither a promise nor any fiduciary
relation to speak of and the so-called trustee neither accepts any trust nor
intends holding the property for the beneficiary. In the case at bar, Mata, in
receiving the US$14,000 in its account through IBAA, had no intent of holding
the same for a supposed beneficiary or cestui que trust, namely PNB. But
under Article 1456, the law construes a trust, namely a constructive trust, for
the benefit of the person from whom the property comes, in this case PNB, for
reasons of justice and equity.

4. ID.; ID.; ID.; ID.; MISTAKE GIVING RISE TO CONSTRUCTIVE TRUST MAY BE
COMMITTED EITHER BY GRANTOR OR GRANTEE. — We agree with
petitioner’s stand that under Article 1456, the law does not make any
distinction since mutual mistake is a possibility on either side - on the side of
either the grantor or the grantee. Thus, it was error to conclude that in a
constructive trust, only the person obtaining the property commits a mistake.
This is because it is also possible that a grantor, like PNB in the case at hand,
may commit the mistake.

5. ID.; ID.; ID.; ID.; RESULTING OR CONSTRUCTIVE TRUST MAY BE BARRED BY

PRESCRIPTION AND ALSO BY LACHES; LACHES DISTINGUISHED FROM
PRESCRIPTION; CASE AT BAR. — Proceeding now to the issue of whether or
not petitioner may still claim the US$14,000 it erroneously paid private
respondent under a constructive trust, we rule in the negative. Although we
are aware that only seven (7) years lapsed after petitioner erroneously
credited private respondent with the said amount and that under Article 1144,
petitioner is well within the prescriptive period for the enforcement of a
constructive or implied trust, we rule that petitioner’s claim cannot prosper
since it is already barred by laches. It is a well-settled rule now that an action
to enforce an implied trust, whether resulting or constructive, may be barred
not only by prescription but also by laches. While prescription is concerned
with the fact of delay, laches deals with the effect of unreasonable delay. It is
amazing that it took petitioner almost seven years before it discovered that it
had erroneously paid private Respondent. Petitioner would attribute its
mistake to the heavy volume of international transactions handled by the
Cable and Remittance Division of the International Department of PNB. Such
specious reasoning is not persuasive. It is unbelievable for a bank, and a
government bank at that, which regularly publishes its balanced financial
statements annually or more frequently, by the quarter, to notice its error only
seven years later. As a universal bank with worldwide operations, PNB cannot
afford to commit such costly mistakes. Moreover, as between parties where
negligence is imputable to one and not to the other, the former must perforce
bear the consequences of its neglect. Hence, petitioner should bear the cost of
its own negligence.

6. ID.; QUASI-CONTRACTS; QUASI-CONTRACTUAL RELATIONS MAY BE

FORCED UPON PARTIES WHOSE CONSENT THERETO IS PRESUMED, TO
AVOID CASE OF UNJUST ENRICHMENT; SOLUTION INDEBITI; REQUISITES;
CASE AT BAR. — the Civil Code does not confine itself exclusively to the quasi-
contracts enumerated from Articles 2144 to 2175 but is open to the possibility
that, absent a pre-existing relationship, there being neither crime nor quasi-
delict, a quasi-contractual relation may be forced upon the parties to avoid a
case of unjust enrichment. There being no express consent, in the sense of a
meeting of minds between the parties, there is no contract to speak of.
However, in view of the peculiar circumstances or factual environment,
consent is presume to the end that a recipient of benefits or favors resulting
from lawful, voluntary and unilateral acts of another may not be unjustly
enriched at the expense of another. Undoubtedly, the instant case fulfills the
indispensable requisites of solutio indebiti as defined in Article 2154: that
something (in this case money) has been received when there was no right to
demand it and (2) the same was unduly delivered through mistake. There is a
presumption that there was a mistake in the payment "if something which had
never been due or had already been paid was delivered; but he from whom the
return is claimed may prove that the delivery was made out of liberality or for
any other just cause." In the case at bar, a payment in the corrected amount of
US$1,400 through Cashier’s Check No. 269522 had already been made by PNB
for the account of Mata on February 25, 1975. Strangely, however, fourteen
days later, PNB effected another payment through Cashier’s Check No. 270271
in the amount of US$14,000, this time purporting to be another transmittal of
reimbursement from Star Kist, private respondent’s foreign principal.

7. ID.; AMERICAN JURISPRUDENCE ON CONSTRUCTIVE TRUST AND QUASI-

CONTRACTS. — Under American Law, a court of equity does not consider a
constructive trustee for all purposes as though he were in reality a trustee;
although it will force him to return the property, it will not impose upon him
the numerous fiduciary obligations ordinarily demanded from a trustee of an
express trust. It must be borne in mind that in an express trust, the trustee has
active duties of management while in a constructive trust, the duty is merely
to surrender the property. Still applying American case law, quasi-contractual
obligations give rise to a personal liability ordinarily enforceable by an action
at law, while constructive trusts are enforceable by a proceeding in equity to
compel the defendant to surrender specific property. To be sure, the
distinction is more procedural than substantive. Further reflection on these
concepts reveals that a constructive "trust" is as much a misnomer as a "quasi-
contract," so far removed are they from trusts and contracts proper,
respectively. In the case of a constructive trust, as in the case of quasi-contract,
a relationship is "forced" by operation of law upon the parties, not because of
any intention on their part but in order to prevent unjust enrichment, thus
giving rise to certain obligations not within the contemplation of the parties.
Although we are not quite in accord with the opinion that "the trusts known to
American and English equity jurisprudence are derived from the fidei
commissa of the Roman Law," it is safe to state that their roots are firmly
grounded on such Civil Law principles as expressed in the Latin maxim,
"Nemo cum alterius detrimento locupletari potest," particularly the concept of
constructive trust.

DECISION
ROMERO, J.:
Rarely is this Court confronted with a case calling for the delineation in broad
strokes of the distinctions between such closely allied concepts as the quasi-
contract called "solutio indebiti" under the venerable Spanish Civil Code and
the species of implied trust denominated "constructive trusts," commonly
regarded as of Anglo-American origin. Such a case is the one presented to us
now which has highlighted more of the affinity and less of the dissimilarity
between the two concepts as to lead the legal scholar into the error of
interchanging the two. Presented below are the factual circumstances that
brought into juxtaposition the twin institutions of the Civil Law quasi-contract
and the Anglo-American trust.

Private Respondent B. P. Mata & Co. Inc. (Mata), is a private corporation

engaged in providing goods and services to shipping companies. Since 1966, it
has acted as a manning or crewing agent for several foreign firms, one of
which is Star Kist Foods, Inc., USA (Star Kist). As part of their agreement, Mata
makes advances for the crew’s medical expenses, National Seaman’s Board
fees, Seaman’s Welfare fund, and standby fees and for the crew’s basic
personal needs. Subsequently, Mata sends monthly billings to its foreign
principal Star Kist, which in turn reimburses Mata by sending a telegraphic
transfer through banks for credit to the latter’s account.

Against this background, on February 21, 1975, Security Pacific National Bank
(SEPAC) of Los Angeles which had an agency arrangement with Philippine
National Bank (PNB), transmitted a cable message to the International
Department of PNB to pay the amount of US$14,000 to Mata by crediting the
latter’s account with the Insular Bank of Asia and America (IBAA), per order
of Star Kist. Upon receipt of this cabled message on February 24, 1975, PNB’s
International Department noticed an error and sent a service message to
SEPAC Bank. The latter replied with instructions that the amount of
US$14,000 should only be for US$1,400.chanroblesvirtualawlibrary

On the basis of the cable message dated February 24, 1975, Cashier’s Check
No. 269522 in the amount of US$1,400 (P9,772.96) representing
reimbursement from Star Kist, was issued by the Star Kist for the account of
Mata on February 25, 1975 through the Insular Bank of Asia and America
(IBAA).

However, fourteen days after or on March 11, 1975, PNB effected another
payment through Cashier’s Check No. 270271 in the amount of US$14,000
(P97,878.60) purporting to be another transmittal of reimbursement from
Star Kist, private respondent’s foreign principal.

Six years later, or more specifically, on May 13, 1981, PNB requested Mata for
refund of US$14,000 (P97,878.60) after it discovered its error in effecting the
second payment.chanrobles virtual lawlibrary

On February 4, 1982, PNB filed a civil case for collection and refund of
US$14,000 against Mata arguing that based on a constructive trust under
Article 1456 of the Civil Code, it has a right to recover the said amount it
erroneously credited to respondent Mata. 1

After trial, the Regional Trial Court of Manila rendered judgment dismissing
the complaint ruling that the instant case falls squarely under Article 2154 on
solutio indebiti and not under Article 1456 on constructive trust. The lower
court rules out constructive trust, applying strictly the technical definition of a
trust as "a right of property, real or personal, held by one party for the benefit
of another; that there is a fiduciary relation between a trustee and a cestui que
trust as regards certain property, real, personal, money or choses in action." 2

In affirming the lower court, the appellate court added in its opinion that
under Article 2154 on solutio indebiti, the person who makes the payment is
the one who commits the mistake vis-a-vis the recipient who is unaware of
such a mistake. 3 Consequently, recipient is duty bound to return the amount
paid by mistake. But the appellate court concluded that petitioner’s demand
for the return of US$14,000 cannot prosper because its cause of action had
already prescribed under Article 1145, paragraph 2 of the Civil Code which
states:jgc:chanrobles.com.ph

"The following actions must be commenced within six years:chanrob1es

virtual 1aw library

x x x

(2) Upon a quasi-contract."cralaw virtua1aw library

This is because petitioner’s complaint was filed only on February 4, 1982,

almost seven years after March 11, 1975 when petitioner mistakenly made
payment to private Respondent.

Hence, the instant petition for certiorari proceeding seeking to annul the
decision of the appellate court on the basis that Mata’s obligation to return
US$14,000 is governed, in the alternative, by either Article 1456 on
constructive trust or Article 2154 of the Civil Code on quasi-contract. 4

Article 1456 of the Civil Code provides:jgc:chanrobles.com.ph

"If property is acquired through mistake or fraud, the person obtaining it is, by
force of law, considered a trustee of an implied trust for the benefit of the
person from whom the property comes."cralaw virtua1aw library

On the other hand, Article 2154 states:jgc:chanrobles.com.ph

"If something is received when there is no right to demand it, and it was
unduly delivered through mistake, the obligation to return it arises."cralaw
virtua1aw library
Petitioner naturally opts for an interpretation under constructive trust as its
action filed on February 4, 1982 can still prosper, as it is well within the
prescriptive period of ten (10) years as provided by Article 1144, paragraph 2
of the Civil Code. 5

If it is to be construed as a case of payment by mistake or solutio indebiti, then

the prescriptive period for quasi-contracts of six years applies, as provided by
Article 1145. As pointed out by the appellate court, petitioner’s cause of action
thereunder shall have prescribed, having been brought almost seven years
after the cause of action accrued. However, even assuming that the instant
case constitutes a constructive trust and prescription has not set in, the
present action has already been barred by laches.chanrobleswlibrary

To recall, trusts are either express or implied. While express trusts are created
by the intention of the trustor or of the parties, implied trusts come into being
by operation of law. 6 Implied trusts are those which, without being
expressed, are deducible from the nature of the transaction as matters of the
intent or which are superinduced on the transaction by operation of law as
matters of equity, independently of the particular intention of the parties. 7

In turn, implied trusts are subdivided into resulting and constructive trusts. 8
A resulting trust is a trust raised by implication of law and presumed always to
have been contemplated by the parties, the intention of which is found in the
nature of the transaction, but not expressed in the deed or instrument of
conveyance. 9 Examples of resulting trusts are found in Articles 1448 to 1455
of the Civil Code. 10 On the other hand, a constructive trust is one not created
by words either expressly or impliedly, but by construction of equity in order
to satisfy the demands of justice. An example of a constructive trust is Article
1456 quoted above. 11

A deeper analysis of Article 1456 reveals that it is not a trust in the technical
sense 12 for in a typical trust, confidence is reposed in one person who is
named a trustee for the benefit of another who is called the cestui que trust,
respecting property which is held by the trustee for the benefit of the cestui
que trust. 13 A constructive trust, unlike an express trust, does not emanate
from, or generate a fiduciary relation. While in an express trust, a beneficiary
and a trustee are linked by confidential or fiduciary relations, in a constructive
trust, there is neither a promise nor any fiduciary relation to speak of and the
so-called trustee neither accepts any trust nor intends holding the property
for the beneficiary. 14

In the case at bar, Mata, in receiving the US$14,000 in its account through
IBAA, had no intent of holding the same for a supposed beneficiary or cestui
que trust, namely PNB. But under Article 1456, the law construes a trust,
namely a constructive trust, for the benefit of the person from whom the
property comes, in this case PNB, for reasons of justice and equity.

At this juncture, a historical note on the codal provisions on trust and quasi-
contracts is in order.

Originally, under the Spanish Civil Code, there were only two kinds of quasi
contracts: negotiorum gestio and solutio indebiti. But the Code Commission,
mindful of the position of the eminent Spanish jurist, Manresa, that "the
number of quasi contracts may be indefinite," added Section 3 entitled "Other
Quasi-Contracts." 15

Moreover, even as Article 2142 of the Civil Code defines a quasi-contract, the
succeeding article provides that: "The provisions for quasi-contracts in this
Chapter do not exclude other quasi-contracts which may come within the
purview of the preceding article." 16

Indubitably, the Civil Code does not confine itself exclusively to the quasi-
contracts enumerated from Articles 2144 to 2175 but is open to the possibility
that, absent a pre-existing relationship, there being neither crime nor quasi-
delict, a quasi-contractual relation may be forced upon the parties to avoid a
case of unjust enrichment. 17 There being no express consent, in the sense of
a meeting of minds between the parties, there is no contract to speak of.
However, in view of the peculiar circumstances or factual environment,
consent is presume to the end that a recipient of benefits or favors resulting
from lawful, voluntary and unilateral acts of another may not be unjustly
enriched at the expense of another.cralawnad
Undoubtedly, the instant case fulfills the indispensable requisites of solutio
indebiti as defined in Article 2154: that something (in this case money) has
been received when there was no right to demand it and (2) the same was
unduly delivered through mistake. There is a presumption that there was a
mistake in the payment "if something which had never been due or had
already been paid was delivered; but he from whom the return is claimed may
prove that the delivery was made out of liberality or for any other just cause."
18

In the case at bar, a payment in the corrected amount of US$1,400 through

Cashier’s Check No. 269522 had already been made by PNB for the account of
Mata on February 25, 1975. Strangely, however, fourteen days later, PNB
effected another payment through Cashier’s Check No. 270271 in the amount
of US$14,000, this time purporting to be another transmittal of
reimbursement from Star Kist, private respondent’s foreign principal.

While the principle of undue enrichment or solutio indebiti, is not new, having
been incorporated in the subject on quasi-contracts in Title XVI of Book IV of
the Spanish Civil Code entitled "Obligations incurred without contract," 19 the
chapter on Trusts is fairly recent, having been introduced by the Code
Commission in 1949. Although the concept of trusts is nowhere to be found in
the Spanish Civil Code, the framers of our present Civil Code incorporated
implied trusts, which includes constructive trusts, on top of quasi-contracts,
both of which embody the principle of equity above strict legalism. 20

In analyzing the law on trusts, it would be instructive to refer to Anglo-

American jurisprudence on the subject. Under American Law, a court of equity
does not consider a constructive trustee for all purposes as though he were in
reality a trustee; although it will force him to return the property, it will not
impose upon him the numerous fiduciary obligations ordinarily demanded
from a trustee of an express trust. 21 It must be borne in mind that in an
express trust, the trustee has active duties of management while in a
constructive trust, the duty is merely to surrender the property.

Still applying American case law, quasi-contractual obligations give rise to a

personal liability ordinarily enforceable by an action at law, while constructive
trusts are enforceable by a proceeding in equity to compel the defendant to
surrender specific property. To be sure, the distinction is more procedural
than substantive. 22

Further reflection on these concepts reveals that a constructive "trust" is as

much a misnomer as a "quasi-contract," so far removed are they from trusts
and contracts proper, respectively. In the case of a constructive trust, as in the
case of quasi-contract, a relationship is "forced" by operation of law upon the
parties, not because of any intention on their part but in order to prevent
unjust enrichment, thus giving rise to certain obligations not within the
contemplation of the parties. 23

Although we are not quite in accord with the opinion that "the trusts known to
American and English equity jurisprudence are derived from the fidei
commissa of the Roman Law," 24 it is safe to state that their roots are firmly
grounded on such Civil Law principles as expressed in the Latin maxim,
"Nemo cum alterius detrimento locupletari potest," 25 particularly the
concept of constructive trust.

Returning to the instant case, while petitioner may indeed opt to avail of an
action to enforce a constructive trust or the quasi-contract of solutio indebiti,
it has been deprived of a choice, for prescription has effectively blocked quasi-
contract as an alternative, leaving only constructive trust as the feasible
option.

Petitioner argues that the lower and appellate courts cannot indulge in
semantics by holding that in Article 1456 the recipient commits the mistake
while in Article 2154, the recipient commits on mistake. 26 On the other hand,
private respondent, invoking the appellate court’s reasoning, would impress
upon us that under Article 1456, there can be no mutual mistake.
Consequently, private respondent contends that the case at bar is one of
solutio indebiti and not a constructive trust.chanrobles virtual lawlibrary

We agree with petitioner’s stand that under Article 1456, the law does not
make any distinction since mutual mistake is a possibility on either side — on
the side of either the grantor or the grantee. 27 Thus, it was error to conclude
that in a constructive trust, only the person obtaining the property commits a
mistake. This is because it is also possible that a grantor, like PNB in the case
at hand, may commit the mistake.

Proceeding now to the issue of whether or not petitioner may still claim the
US$14,000 it erroneously paid private respondent under a constructive trust,
we rule in the negative. Although we are aware that only seven (7) years
lapsed after petitioner erroneously credited private respondent with the said
amount and that under Article 1144, petitioner is well within the prescriptive
period for the enforcement of a constructive or implied trust, we rule that
petitioner’s claim cannot prosper since it is already barred by laches. It is a
well-settled rule now that an action to enforce an implied trust, whether
resulting or constructive, may be barred not only by prescription but also by
laches. 28

While prescription is concerned with the fact of delay, laches deals with the
effect of unreasonable delay. 29 It is amazing that it took petitioner almost
seven years before it discovered that it had erroneously paid
private Respondent. Petitioner would attribute its mistake to the heavy
volume of international transactions handled by the Cable and Remittance
Division of the International Department of PNB. Such specious reasoning is
not persuasive. It is unbelievable for a bank, and a government bank at that,
which regularly publishes its balanced financial statements annually or more
frequently, by the quarter, to notice its error only seven years later. As a
universal bank with worldwide operations, PNB cannot afford to commit such
costly mistakes. Moreover, as between parties where negligence is imputable
to one and not to the other, the former must perforce bear the consequences of
its neglect. Hence, petitioner should bear the cost of its own negligence.

WHEREFORE, the decision of the Court of Appeals dismissing petitioner’s

claim against private respondent is AFFIRMED.

Costs against petitioner.

SO ORDERED.
 G.R. No. 119745 June 20, 1997

POWER COMMERCIAL AND INDUSTRIAL CORPORATION, petitioner,

vs.
COURT OF APPEALS, SPOUSES REYNALDO and ANGELITA R. QUIAMBAO and
PHILIPPINE NATIONAL BANK, respondents.

PANGANIBAN, J.:

Is the seller's failure to eject the lessees from a lot that is the subject of a
contract of sale with assumption of mortgage a ground (1) for rescission of
such contract and (2) for a return by the mortgagee of the amortization
payments made by the buyer who assumed such mortgage?

Petitioner posits an affirmative answer to such question in this petition for

review on certiorari of the March 27, 1995 Decision1 of the Court of Appeals,
Eighth Division, in CA-G.R. CV Case No. 32298 upholding the validity of the
contract of sale with assumption of mortgage and absolving the mortgagee
from the liability of returning the mortgage payments already made.2

The Facts

Petitioner Power Commercial & Industrial Development Corporation, an

industrial asbestos manufacturer, needed a bigger office space and warehouse
for its products. For this purpose, on January 31, 1979, it entered into a
contract of sale with the spouses Reynaldo and Angelita R. Quiambao, herein
private respondents. The contract involved a 612-sq. m. parcel of land covered
by Transfer Certificate of Title No. S-6686 located at the corner of Bagtican
and St. Paul Streets, San Antonio Village, Makati City. The parties agreed that
petitioner would pay private respondents P108,000.00 as down payment, and
the balance of P295,000.00 upon the execution of the deed of transfer of the
title over the property. Further, petitioner assumed, as part of the purchase
price, the existing mortgage on the land. In full satisfaction thereof, he paid
P79,145.77 to Respondent Philippine National Bank ("PNB" for brevity).
On June 1, 1979, respondent spouses mortgaged again said land to PNB to
guarantee a loan of P145,000.00, P80,000.00 of which was paid to respondent
spouses. Petitioner agreed to assume payment of the loan.

On June 26, 1979, the parties executed a Deed of Absolute Sale With
Assumption of Mortgage which contained the following terms and
conditions:3

That for and in consideration of the sum of Two Hundred Ninety-Five

Thousand Pesos (P295,000.00) Philippine Currency, to us in hand paid in
cash, and which we hereby acknowledge to be payment in full and received to
our entire satisfaction, by POWER COMMERCIAL AND INDUSTRIAL
DEVELOPMENT CORPORATION, a 100% Filipino Corporation, organized and
existing under and by virtue of Philippine Laws with offices located at 252-C
Vito Cruz Extension, we hereby by these presents SELL, TRANSFER and
CONVEY by way of absolute sale the above described property with all the
improvements existing thereon unto the said Power Commercial and
Industrial Development Corporation, its successors and assigns, free from all
liens and encumbrances.

We hereby certify that the aforesaid property is not subject to nor covered by
the provisions of the Land Reform Code — the same having no agricultural
lessee and/or tenant.

We hereby also warrant that we are the lawful and absolute owners of the
above described property, free from any lien and/or encumbrance, and we
hereby agree and warrant to defend its title and peaceful possession thereof
in favor of the said Power Commercial and Industrial Development
Corporation, its successors and assigns, against any claims whatsoever of any
and all third persons; subject, however, to the provisions hereunder provided
to wit:

That the above described property is mortgaged to the Philippine National

Bank, Cubao, Branch, Quezon City for the amount of one hundred forty-five
thousand pesos, Philippine, evidenced by document No. 163, found on page
No. 34 of Book No. XV, Series of 1979 of Notary Public Herita
L. Altamirano registered with the Register of Deeds of Pasig (Makati),
Rizal . . . ;
That the said Power Commercial and Industrial Development Corporation
assumes to pay in full the entire amount of the said mortgage above described
plus interest and bank charges, to the said mortgagee bank, thus holding the
herein vendor free from all claims by the said bank;

That both parties herein agree to seek and secure the agreement and approval
of the said Philippine National Bank to the herein sale of this property, hereby
agreeing to abide by any and all requirements of the said bank, agreeing that
failure to do so shall give to the bank first lieu ( sic) over the herein described
property.

On the same date, Mrs. C.D. Constantino, then General Manager of petitioner-
corporation, submitted to PNB said deed with a formal application for
assumption of mortgage.4

On February 15, 1980, PNB informed respondent spouses that, for petitioner's
failure to submit the papers necessary for approval pursuant to the former's
letter dated January 15, 1980, the application for assumption of mortgage was
considered withdrawn; that the outstanding balance of P145,000.00 was
deemed fully due and demandable; and that said loan was to be paid in full
within fifteen (15) days from notice.5

Petitioner paid PNB P41,880.45 on June 24, 1980 and P20,283.14 on

December 23, 1980, payments which were to be applied to the outstanding
loan. On December 23, 1980, PNB received a letter from petitioner which
reads:6

With regard to the presence of the people who are currently in physical
occupancy of the (l)ot . . . it is our desire as buyers and new owners of this lot
to make use of this lot for our own purpose, which is why it is our desire and
intention that all the people who are currently physically present and in
occupation of said lot should be removed immediately.

For this purpose we respectfully request that . . . our assumption of mortgage

be given favorable consideration, and that the mortgage and title be
transferred to our name so that we may undertake the necessary procedures
to make use of this lot ourselves.

It was our understanding that this lot was free and clear of problems of this
nature, and that the previous owner would be responsible for the removal of
the people who were there. Inasmuch as the previous owner has not been able
to keep his commitment, it will be necessary for us to take legal possession of
this lot inorder (sic) to take physical possession.

On February 19, 1982, PNB sent petitioner a letter as follows:7

(T)his refers to the loan granted to Mr. Reynaldo Quiambao which was
assumed by you on June 4, 1979 for P101,500.00. It was last renewed on
December 24, 1980 to mature on June 4, 1981.

A review of our records show that it has been past due from last maturity with
interest arrearages amounting to P25,826.08 as of February 19, 1982. The last
payment received by us was on December 24, 1980 for P20,283. 14. In order
to place your account in current form, we request you to remit payments to
cover interest, charges, and at least part of the principal.

On March 17, 1982, petitioner filed Civil Case No. 45217 against respondent
spouses for rescission and damages before the Regional Trial Court of Pasig,
Branch 159. Then, in its reply to PNB's letter of February 19, 1982, petitioner
demanded the return of the payments it made on the ground that its
assumption of mortgage was never approved. On May 31, 1983,8 while this
case was pending, the mortgage was foreclosed. The property was
subsequently bought by PNB during the public auction. Thus, an amended
complaint was filed impleading PNB as party defendant.

On July 12, 1990, the trial court9 ruled that the failure of respondent spouses
to deliver actual possession to petitioner entitled the latter to rescind the sale,
and in view of such failure and of the denial of the latter's assumption of
mortgage, PNB was obliged to return the payments made by the petitioner.
The dispositive portion of said decision states: 10

IN VIEW OF ALL THE FOREGOING, the Court hereby renders judgment in

favor of plaintiff and against defendants:

(1) Declaring the rescission of the Deed of Sale with Assumption of Mortgage
executed between plaintiff and defendants Spouses Quiambao, dated June 26,
1979;

(2) Ordering defendants Spouses Quiambao to return to plaintiff the amount

of P187,144.77 (P108,000.00 plus P79,145.77) with legal interest of 12% per
annum from date of filing of herein complaint, that is, March 17, 1982 until the
same is fully paid;

(3) Ordering defendant PNB to return to plaintiff the amount of P62,163.59

(P41,880.45 and P20,283.14) with 12% interest thereon from date of herein
judgment until the same is fully paid.

No award of other damages and attorney's fees, the same not being warranted
under the facts and circumstances of the case.

The counterclaim of both defendants spouses Quiambao and PNB are

dismissed for lack of merit.

No pronouncement as to costs.

SO ORDERED.

On appeal by respondent-spouses and PNB, Respondent Court of Appeals

reversed the trial court. In the assailed Decision, it held that the deed of sale
between respondent spouses and petitioner did not obligate the former to
eject the lessees from the land in question as a condition of the sale, nor was
the occupation thereof by said lessees a violation of the warranty against
eviction. Hence, there was no substantial breach to justify the rescission of
said contract or the return of the payments made. The dispositive portion of
said Decision reads: 11

WHEREFORE, the Decision appealed from is hereby REVERSED and the

complaint filed by Power Commercial and Industrial Development
Corporation against the spouses Reynaldo and Angelita Quiambao and the
Philippine National Bank is DISMISSED. No costs.

Hence, the recourse to this Court.

Issues

Petitioner contends that: (1) there was a substantial breach of the contract
between the parties warranting rescission; and (2) there was a "mistake in
payment" made by petitioner, obligating PNB to return such payments. In its
Memorandum, it specifically assigns the following errors of law on the part of
Respondent Court: 12
A. Respondent Court of Appeals gravely erred in failing to consider in its
decision that a breach of implied warranty under Article 1547 in relation to
Article 1545 of the Civil Code applies in the case-at-bar.

B. Respondent Court of Appeals gravely erred in failing to consider in its

decision that a mistake in payment giving rise to a situation where the
principle of solutio indebiti applies is obtaining in the case-at-bar.

The Court's Ruling

The petition is devoid of merit. It fails to appreciate the difference between a

condition and a warranty and the consequences of such distinction.

Conspicuous Absence of an Imposed Condition

The alleged "failure" of respondent spouses to eject the lessees from the lot in
question and to deliver actual and physical possession thereof cannot be
considered a substantial breach of a condition for two reasons: first, such
"failure" was not stipulated as a condition — whether resolutory or
suspensive — in the contract; and second, its effects and consequences were
not specified either.

The provision adverted to by petitioner does not impose a condition or an

obligation to eject the lessees from the lot. The deed of sale provides in
part: 14

We hereby also warrant that we are the lawful and absolute owners of the
above described property, free from any lien and/or encumbrance, and we
hereby agree and warrant to defend its title and peaceful possession thereof
in favor of the said Power Commercial and Industrial Development
Corporation, its successors and assigns, against any claims whatsoever of any
and all third persons; subject, however, to the provisions hereunder provided
to wit:

By his own admission, Anthony Powers, General Manager of petitioner-

corporation, did not ask the corporation's lawyers to stipulate in the contract
that Respondent Reynaldo was guaranteeing the ejectment of the occupants,
because there was already a proviso in said deed of sale that the sellers were
guaranteeing the peaceful possession by the buyer of the land in
question. 15 Any obscurity in a contract, if the above-quoted provision can be
so described, must be construed against the party who caused it. 16 Petitioner
itself caused the obscurity because it omitted this alleged condition when its
lawyer drafted said contract.

If the parties intended to impose on respondent spouses the obligation to

eject the tenants from the lot sold, it should have included in the contract a
provision similar to that referred to in Romero vs. Court of Appeals, 17 where
the ejectment of the occupants of the lot sold by private respondent was the
operative act which set into motion the period of petitioner's compliance with
his own obligation, i.e., to pay the balance of the purchase price. Failure to
remove the squatters within the stipulated period gave the other party the
right to either refuse to proceed with the agreement or to waive that condition
of ejectment in consonance with Article 1545 of the Civil Code. In the case
cited, the contract specifically stipulated that the ejectment was a condition to
be fulfilled; otherwise, the obligation to pay the balance would not arise. This
is not so in the case at bar.

Absent a stipulation therefor, we cannot say that the parties intended to make
its nonfulfillment a ground for rescission. If they did intend this, their contract
should have expressly stipulated so. In Ang vs. C.A.,18 rescission was sought
on the ground that the petitioners had failed to fulfill their obligation "to
remove and clear" the lot sold, the performance of which would have given
rise to the payment of the consideration by private respondent. Rescission
was not allowed, however, because the breach was not substantial and
fundamental to the fulfillment by the petitioners of the obligation to sell.

As stated, the provision adverted to in the contract pertains to the usual

warranty against eviction, and not to a condition that was not met.

The terms of the contract are so clear as to leave no room for any other
interpretation. 19

Furthermore, petitioner was well aware of the presence of the tenants at the
time it entered into the sales transaction. As testified to by
Reynaldo, 20 petitioner's counsel during the sales negotiation even undertook
the job of ejecting the squatters. In fact, petitioner actually filed suit to eject
the occupants. Finally, petitioner in its letter to PNB of December 23, 1980
admitted that it was the "buyer(s) and new owner(s) of this lot."

Effective Symbolic Delivery

The Court disagrees with petitioner's allegation that the respondent spouses
failed to deliver the lot sold. Petitioner asserts that the legal fiction of symbolic
delivery yielded to the truth that, at the execution of the deed of sale, transfer
of possession of said lot was impossible due to the presence of occupants on
the lot sold. We find this misleading.

Although most authorities consider transfer of ownership as the primary

purpose of sale, delivery remains an indispensable requisite as our law does
not admit the doctrine of transfer of property by mere consent. 21 The Civil
Code provides that delivery can either be (1) actual (Article 1497) or (2)
constructive (Articles 1498-1501). Symbolic delivery (Article 1498), as a
species of constructive delivery, effects the transfer of ownership through the
execution of a public document. Its efficacy can, however, be prevented if the
vendor does not possess control over the thing sold, 22 in which case this
legal fiction must yield to reality.

The key word is control, not possession, of the land as petitioner would like us
to believe. The Court has consistently held that: 23

. . . (I)n order that this symbolic delivery may produce the effect of tradition, it
is necessary that the vendor shall have had such control over the thing sold
that . . . its material delivery could have been made. It is not enough to confer
upon the purchaser the ownership and the right of possession. The thing sold
must be placed in his control. When there is no impediment whatever to
prevent the thing sold passing into the tenancy of the purchaser by the sole
will of the vendor, symbolic delivery through the execution of a public
instrument is sufficient. But if, notwithstanding the execution of the
instrument, the purchaser cannot have the enjoyment and material tenancy of
the thing and make use of it himself or through another in his name, because
such tenancy and enjoyment are opposed by the interposition of another will,
then fiction yields to reality — the delivery has not been effected.

Considering that the deed of sale between the parties did not stipulate or infer
otherwise, delivery was effected through the execution of said deed. The lot
sold had been placed under the control of petitioner; thus, the filing of the
ejectment suit was subsequently done. It signified that its new owner
intended to obtain for itself and to terminate said occupants' actual
possession thereof. Prior physical delivery or possession is not legally
required and the execution of the deed of sale is deemed equivalent to
delivery. 24 This deed operates as a formal or symbolic delivery of the
property sold and authorizes the buyer to use the document as proof of
ownership. Nothing more is required.

Requisites of Breach of Warranty Against Eviction

Obvious to us in the ambivalent stance of petitioner is its failure to establish

any breach of the warranty against eviction. Despite its protestation that its
acquisition of the lot was to enable it to set up a warehouse for its asbestos
products and that failure to deliver actual possession thereof defeated this
purpose, still no breach of warranty against eviction can be appreciated
because the facts of the case do not show that the requisites for such breach
have been satisfied. A breach of this warranty requires the concurrence of the
following circumstances:

(1) The purchaser has been deprived of the whole or part of the thing sold;

(2) This eviction is by a final judgment;

(3) The basis thereof is by virtue of a right prior to the sale made by the
vendor; and

(4) The vendor has been summoned and made co-defendant in the suit for
eviction at the instance of the vendee. 25

In the absence of these requisites, a breach of the warranty against eviction

under Article 1547 cannot be declared.

Petitioner argues in its memorandum that it has not yet ejected the occupants
of said lot, and not that it has been evicted therefrom. As correctly pointed out
by Respondent Court, the presence of lessees does not constitute an
encumbrance of the land, 26 nor does it deprive petitioner of its control
thereof.

We note, however, that petitioner's deprivation of ownership and control

finally occurred when it failed and/or discontinued paying the amortizations
on the mortgage, causing the lot to be foreclosed and sold at public auction.
But this deprivation is due to petitioner's fault, and not to any act attributable
to the vendor-spouses.
Because petitioner failed to impugn its integrity, the contract is presumed,
under the law, to be valid and subsisting.

Absence of Mistake In Payment (ISSUE of this Case: Whether or not there was
a mistake in payment made by petitioner, obligating PNB to return such
payment.

Contrary to the contention of petitioner that a return of the payments it made

to PNB is warranted under Article 2154 of the Code, solutio indebiti does not
apply in this case. This doctrine applies where: (1) a payment is made when
there exists no binding relation between the payor, who has no duty to pay,
and the person who received the payment, and (2) the payment is made
through mistake, and not through liberality or some other cause. 27

In this case, petitioner was under obligation to pay the amortizations on the
mortgage under the contract of sale and the deed of real estate mortgage.
Under the deed of sale (Exh. "2"), 28 both parties agreed to abide by any and
all the requirements of PNB in connection with the real estate mortgage.
Petitioner was aware that the deed of mortgage (Exh. "C") made it solidarily
and, therefore, primarily liable for the mortgage obligation:

(e) The Mortgagor shall neither lease the mortgaged property. . . nor sell or
dispose of the same in any manner, without the written consent of the
Mortgagee. However, if not withstanding this stipulation and during the
existence of this mortgage, the property herein mortgaged, or any portion
thereof, is . . . sold, it shall be the obligation of the Mortgagor to impose as a
condition of the sale, alienation or encumbrance that the vendee, or the party
in whose favor the alienation or encumbrance is to be made, should take the
property subject to the obligation of this mortgage in the same terms and
condition under which it is constituted, it being understood that the
Mortgagor is not in any manner relieved of his obligation to the Mortgagee
under this mortgage by such sale, alienation or encumbrance; on the contrary
both the vendor and the vendee, or the party in whose favor the alienation or
encumbrance is made shall be jointly and severally liable for said mortgage
obligations. . . .

Therefore, it cannot be said that it did not have a duty to pay to PNB the
amortization on the mortgage.
Also, petitioner insists that its payment of the amortization was a mistake
because PNB disapproved its assumption of mortgage after it failed to submit
the necessary papers for the approval of such assumption.

But even if petitioner was a third party in regard to the mortgage of the land
purchased, the payment of the loan by petitioner was a condition clearly
imposed by the contract of sale. This fact alone disproves petitioner's
insistence that there was a "mistake" in payment. On the contrary, such
payments were necessary to protect its interest as a "the buyer(s) and new
owner(s) of the lot."

The quasi-contract of solutio indebiti is one of the concrete manifestations of

the ancient principle that no one shall enrich himself unjustly at the expense
of another. 31 But as shown earlier, the payment of the mortgage was an
obligation petitioner assumed under the contract of sale. There is no unjust
enrichment where the transaction, as in this case, is quid pro quo, value for
value.

All told, respondent Court did not commit any reversible error which would
warrant the reversal of the assailed Decision.

WHEREFORE, the petition is hereby DENIED, and the assailed Decision is

AFFIRMED.

SO ORDERED.

G.R. No. 152411 September 29, 2004

UNIVERSITY OF THE PHILIPPINES, petitioner,

vs.
PHILAB INDUSTRIES, INC., respondent.
 DECISION

CALLEJO, SR., J.:

Before the Court is a petition for review on certiorari of the Decision 1 of the
Court of Appeals in CA-G.R. CV No. 44209, as well as its Resolution 2 denying
the petitioner’s motion for the reconsideration thereof. The Court of Appeals
set aside the Decision3 of Branch 150 of the Regional Trial Court (RTC) of
Makati City, which dismissed the complaint of the respondent against the
petitioner for sum of money and damages.

The Facts of the Case

Sometime in 1979, the University of the Philippines (UP) decided to construct

an integrated system of research organization known as the Research
Complex. As part of the project, laboratory equipment and furniture were
purchased for the National Institute of Biotechnology and Applied
Microbiology (BIOTECH) at the UP Los Baños. Providentially, the Ferdinand E.
Marcos Foundation (FEMF) came forward and agreed to fund the acquisition
of the laboratory furniture, including the fabrication thereof.

Renato E. Lirio, the Executive Assistant of the FEMF, gave the go-signal to
BIOTECH to contact a corporation to accomplish the project. On July 23, 1982,
Dr. William Padolina, the Executive Deputy Director of BIOTECH, arranged for
Philippine Laboratory Industries, Inc. (PHILAB), to fabricate the laboratory
furniture and deliver the same to BIOTECH for the BIOTECH Building Project,
for the account of the FEMF. Lirio directed Padolina to give the go-signal to
PHILAB to proceed with the fabrication of the laboratory furniture, and
requested Padolina to forward the contract of the project to FEMF for its
approval.

On July 13, 1982, Padolina wrote Lirio and requested for the issuance of the
purchase order and downpayment for the office and laboratory furniture for
the project, thus:

1. Supply and Installation of Laboratory furniture for the

BIOTECH Building Project
Amount : P2,934,068.90
Supplier : Philippine Laboratory Furniture Co.,
 College, Laguna
Attention : Mr. Hector C. Navasero
President
Downpayment : 40% or ₱1,173,627.56
2. Fabrication and Supply of office furniture for the BIOTECH
Building Project
Amount : P573,375.00
Supplier : Trans-Oriental Woodworks, Inc.
1st Avenue, Bagumbayan Tanyag, Taguig,
Metro Manila
Downpayment : 50% or ₱286,687.504

Padolina assured Lirio that the contract would be prepared as soon as

possible before the issuance of the purchase orders and the downpayment for
the goods, and would be transmitted to the FEMF as soon as possible.

In a Letter dated July 23, 1982, Padolina informed Hector Navasero, the
President of PHILAB, to proceed with the fabrication of the laboratory
furniture, per the directive of FEMF Executive Assistant Lirio. Padolina also
requested for copies of the shop drawings and a sample contract 5 for the
project, and that such contract and drawings had to be finalized before the
down payment could be remitted to the PHILAB the following week. However,
PHILAB failed to forward any sample contract.

Subsequently, PHILAB made partial deliveries of office and laboratory

furniture to BIOTECH after having been duly inspected by their
representatives and FEMF Executive Assistant Lirio.

On August 24, 1982, FEMF remitted ₱600,000 to PHILAB as downpayment for

the laboratory furniture for the BIOTECH project, for which PHILAB issued
Official Receipt No. 253 to FEMF. On October 22, 1982, FEMF made another
partial payment of ₱800,000 to PHILAB, for which the latter issued Official
Receipt No. 256 to FEMF. The remittances were in the form of checks drawn
by FEMF and delivered to PHILAB, through Padolina.
On October 16, 1982, UP, through Emil Q. Javier, the Chancellor of UP Los
Baños and FEMF, represented by its Executive Officer, Rolando Gapud,
executed a Memorandum of Agreement (MOA) in which FEMF agreed to grant
financial support and donate sums of money to UP for the construction of
buildings, installation of laboratory and other capitalization for the project,
not to exceed ₱29,000,000.00. The obligations of FEMF under the MOA are the
following:

ARTICLE II

OBLIGATIONS OF THE FOUNDATION

2.1. The FOUNDATION, in carrying out its principal objectives of

promoting philantrophic and scientific projects through financial
support to such projects that will contribute to the country’s economic
development, shall grant such financial support and donate such sums
of money to the RESEARCH COMPLEX as may be necessary for the
construction of buildings, installation of laboratories, setting up of
offices and physical plants and facilities and other capital investment of
the RESEARCH COMPLEX and/or any of its component Research
Institutes not to exceed ₱29 Million. For this purpose, the FOUNDATION
shall:

(a) Acquire and donate to the UNIVERSITY the site for the
RESEARCH COMPLEX; and

(b) Donate or cause to be donated to the UNIVERSITY the sum of

TWENTY-NINE MILLION PESOS (₱29,000,000.00) for the
construction of the buildings of the National Institutes of
Biotechnology and Applied Microbiology (BIOTECH) and the
installation of their laboratories and their physical plants and
other facilities to enable them to commence operations.

2.2. In addition, the FOUNDATION shall, subject to the approval of the

Board of Trustees of the FOUNDATION, continue to support the
activities of the RESEARCH COMPLEX by way of recurrent additional
grants and donations for specific research and development projects
which may be mutually agreed upon and, from time to time, additional
grants and donations of such amounts as may be necessary to provide
the RESEARCH COMPLEX and/or any of its Research Institutes with
 operational flexibility especially with regard to incentives to staff
purchase of equipment/facilities, travel abroad, recruitment of local and
expatriate staff and such other activities and inputs which are difficult
to obtain under usual government rules and regulations.6

The Board of Regents of the UP approved the MOA on November 25, 1982. 7

In the meantime, Navasero promised to submit the contract for the

installation of laboratory furniture to BIOTECH, by January 12, 1983.
However, Navasero failed to do so. In a Letter dated February 1, 1983,
BIOTECH reminded Navasero of the need to submit the contract so that it
could be submitted to FEMF for its evaluation and approval.8 Instead of
submitting the said contract, PHILAB submitted to BIOTECH an
accomplishment report on the project as of February 28, 1983, and requested
payment thereon.9 By May 1983, PHILAB had completed 78% of the project,
amounting to ₱2,288,573.74 out of the total cost of ₱2,934,068.90. The FEMF
had already paid forty percent (40%) of the total cost of the project. On May
12, 1983, Padolina wrote Lirio and furnished him the progress billing from
PHILAB.10 On August 11, 1983, the FEMF made another partial payment of
₱836,119.52 representing the already delivered laboratory and office
furniture after the requisite inspection and verification thereof by
representatives from the BIOTECH, FEMF, and PHILAB. The payment was
made in the form of a check, for which PHILAB issued Official Receipt No. 202
to FEMF through Padolina.11

On July 1, 1984, PHILAB submitted to BIOTECH Invoice No. 01643 in the

amount of ₱702,939.40 for the final payment of laboratory furniture.
Representatives from BIOTECH, PHILAB, and Lirio for the FEMF, conducted a
verification of the accomplishment of the work and confirmed the same.
BIOTECH forwarded the invoice to Lirio on December 18, 1984 for its
payment.12 Lirio, in turn, forwarded the invoice to Gapud, presumably
sometime in the early part of 1985. However, the FEMF failed to pay the bill.
PHILAB reiterated its request for payment through a letter on May 9,
1985.13 BIOTECH again wrote Lirio on March 21, 1985, requesting the
payment of PHILAB’s bill.14 It sent another letter to Gapud, on November 22,
1985, again appealing for the payment of PHILAB’s bill.15 In a Letter to
BIOTECH dated December 5, 1985, PHILAB requested payment of
₱702,939.40 plus interest thereon of ₱224,940.61.16 There was, however, no
response from the FEMF. On February 24, 1986, PHILAB wrote BIOTECH,
appealing for the payment of its bill even on installment basis.17

President Marcos was ousted from office during the February 1986 EDSA
Revolution. On March 26, 1986, Navasero wrote BIOTECH requesting for its
much-needed assistance for the payment of the balance already due plus
interest of ₱295,234.55 for its fabrication and supply of laboratory furniture. 18

On April 22, 1986, PHILAB wrote President Corazon C. Aquino asking her help
to secure the payment of the amount due from the FEMF.19 The letter was
referred to then Budget Minister Alberto Romulo, who referred the letter to
then UP President Edgardo Angara on June 9, 1986. On September 30, 1986,
Raul P. de Guzman, the Chancellor of UP Los Baños, wrote then Chairman of
the Presidential Commission on Good Government (PCGG) Jovito Salonga,
submitting PHILAB’s claim to be officially entered as "accounts payable" as
soon as the assets of FEMF were liquidated by the PCGG. 20

In the meantime, the PCGG wrote UP requesting for a copy of the relevant
contract and the MOA for its perusal.21

Chancellor De Guzman wrote Navasero requesting for a copy of the contract

executed between PHILAB and FEMF. In a Letter dated October 20, 1987,
Navasero informed De Guzman that PHILAB and FEMF did not execute any
contract regarding the fabrication and delivery of laboratory furniture to
BIOTECH.

Exasperated, PHILAB filed a complaint for sum of money and damages against
UP. In the complaint, PHILAB prayed that it be paid the following:

(1) PESOS: SEVEN HUNDRED TWO THOUSAND NINE HUNDRED

THIRTY NINE & 40/100 (₱702,939.40) plus an additional amount (as
shall be determined during the hearing) to cover the actual cost of
money which at the time of transaction the value of the peso was eleven
to a dollar (₱11.00:$1) and twenty seven (27%) percent interest on the
total amount from August 1982 until fully paid;

(2) PESOS: ONE HUNDRED THOUSAND (₱100,000.00) exemplary

damages;
 (3) FIFTY THOUSAND [PESOS] (₱50,000.00) as and for attorney’s fees;
and

(4) Cost of suit.22

PHILAB alleged, inter alia, that:

3. Sometime in August 1982, defendant, through its officials, particularly

MR. WILLIAM PADOLINA, Director, asked plaintiff to supply and install
several laboratory furnitures and equipment at BIOTECH, a research
laboratory of herein defendant located at its campus in College, Laguna,
for a total contract price of PESOS: TWO MILLION NINE HUNDRED
THIRTY-NINE THOUSAND FIFTY-EIGHT & 90/100 (₱2,939,058.90);

4. After the completion of the delivery and installation of said laboratory

furnitures and equipment at defendant’s BIOTECH Laboratory,
defendant paid three (3) times on installment basis:

a) ₱600,000.00 as per Official Receipt No. 253 dated August 24,

1982;

b) ₱800,000.00 as per Official Receipt No. 256 dated October 22,

1982;

c) ₱836,119.52 as per Official Receipt No. 202 dated August 11,

1983;

thus leaving a balance of PESOS: SEVEN HUNDRED TWO THOUSAND

NINE HUNDRED THIRTY-NINE & 40/100 (₱702,939.40).

5. That notwithstanding repeated demands for the past eight years,

defendant arrogantly and maliciously made plaintiff believe that it was
going to pay the balance aforestated, that was why plaintiff’s President
and General Manager himself, HECTOR C. NAVASERO, personally went
to and from UP Los Baños to talk with defendant’s responsible officers
in the hope of expecting payment, when, in truth and in fact, defendant
had no intention to pay whatsoever right from the start on a misplaced
ground of technicalities. Some of plaintiff’s demand letters since year
1983 up to the present are hereto attached as Annexes A, B, C, D, E, F, G,
and H hereof;
 6. That by reason of defendant’s malicious, evil and unnecessary
misrepresentations that it was going to pay its obligation and asking
plaintiff so many red tapes and requirements to submit, compliance of
all of which took plaintiff almost eight (8) years to finish, when, in truth
and in fact, defendant had no intention to pay, defendant should be
ordered to pay plaintiff no less than PESOS: ONE HUNDRED THOUSAND
(₱100,000.00) exemplary damages, so that other government
institutions may be warned that they must not unjustly enrich
themselves at the expense of the people they serve.23

In its answer, UP denied liability and alleged that PHILAB had no cause of
action against it because it was merely the donee/beneficiary of the
laboratory furniture in the BIOTECH; and that the FEMF, which funded the
project, was liable to the PHILAB for the purchase price of the laboratory
furniture. UP specifically denied obliging itself to pay for the laboratory
furniture supplied by PHILAB.

After due proceedings, the trial court rendered judgment dismissing the
complaint without prejudice to PHILAB’s recourse against the FEMF. The fallo
of the decision reads:

WHEREFORE, this case is hereby DISMISSED for lack of merit without

prejudice to plaintiff's recourse to the assets of the Marcos Foundation
for the unpaid balance of ₱792,939.49.

SO ORDERED.24

Undaunted, PHILAB appealed to the Court of Appeals (CA) alleging that the
trial court erred in finding that:

1. the contract for the supply and installation of subject laboratory

furniture and equipment was between PHILAB and the Marcos
Foundation; and,

2. the Marcos Foundation, not the University of the Philippines, is liable

to pay the respondent the balance of the purchase price.25

The CA reversed and set aside the decision of the RTC and held that there was
never a contract between FEMF and PHILAB. Consequently, PHILAB could not
be bound by the MOA between the FEMF and UP since it was never a party
thereto. The appellate court ruled that, although UP did not bind itself to pay
for the laboratory furniture; nevertheless, it is liable to PHILAB under the
maxim: "No one should unjustly enrich himself at the expense of another."

The Present Petition

Upon the denial of its motion for reconsideration of the appellate court’s
decision, UP, now the petitioner, filed its petition for review contending that:

I. THE COURT OF APPEALS ERRED WHEN IT FAILED TO APPLY THE

LAW ON CONTRACTS BETWEEN PHILAB AND THE MARCOS
FOUNDATION.

II. THE COURT OF APPEALS ERRED IN APPLYING THE LEGAL

PRINCIPLE OF UNJUST ENRICHMENT WHEN IT HELD THAT THE
UNIVERSITY, AND NOT THE MARCOS FOUNDATION, IS LIABLE TO
PHILAB.26

Prefatorily, the doctrinal rule is that pure questions of facts may not be the
subject of appeal by certiorari under Rule 45 of the 1997 Rules of Civil
Procedure, as this mode of appeal is generally restricted to questions of
law.27 However, this rule is not absolute. The Court may review the factual
findings of the CA should they be contrary to those of the trial
court.28 Correspondingly, this Court may review findings of facts when the
judgment of the CA is premised on a misapprehension of facts.29

On the first assigned error, the petitioner argues that the CA overlooked the
evidentiary effect and substance of the corresponding letters and
communications which support the statements of the witnesses showing
affirmatively that an implied contract of sale existed between PHILAB and the
FEMF. The petitioner furthermore asserts that no contract existed between it
and the respondent as it could not have entered into any agreement without
the requisite public bidding and a formal written contract.

The respondent, on the other hand, submits that the CA did not err in not
applying the law on contracts between the respondent and the FEMF. It,
likewise, attests that it was never privy to the MOA entered into between the
petitioner and the FEMF. The respondent adds that what the FEMF donated
was a sum of money equivalent to ₱29,000,000, and not the laboratory
equipment supplied by it to the petitioner. The respondent submits that the
petitioner, being the recipient of the laboratory furniture, should not enrich
itself at the expense of the respondent.

The petition is meritorious.

It bears stressing that the respondent’s cause of action is one for sum of
money predicated on the alleged promise of the petitioner to pay for the
purchase price of the furniture, which, despite demands, the petitioner failed
to do. However, the respondent failed to prove that the petitioner ever obliged
itself to pay for the laboratory furniture supplied by it. Hence, the respondent
is not entitled to its claim against the petitioner.

There is no dispute that the respondent is not privy to the MOA executed by
the petitioner and FEMF; hence, it is not bound by the said agreement.
Contracts take effect only between the parties and their assigns. 30 A contract
cannot be binding upon and cannot be enforced against one who is not a party
to it, even if he is aware of such contract and has acted with knowledge
thereof.31 Likewise admitted by the parties, is the fact that there was no
written contract executed by the petitioner, the respondent and FEMF relating
to the fabrication and delivery of office and laboratory furniture to the
BIOTECH. Even the CA failed to specifically declare that the petitioner and the
respondent entered into a contract of sale over the said laboratory furniture.
The parties are in accord that the FEMF had remitted to the respondent
partial payments via checks drawn and issued by the FEMF to the respondent,
through Padolina, in the total amount of ₱2,288,573.74 out of the total cost of
the project of ₱2,934,068.90 and that the respondent received the said checks
and issued receipts therefor to the FEMF. There is also no controversy that the
petitioner did not pay a single centavo for the said furniture delivered by the
respondent that the petitioner had been using ever since.

We agree with the petitioner that, based on the records, an implied-in-fact

contract of sale was entered into between the respondent and FEMF. A
contract implied in fact is one implied from facts and circumstances showing a
mutual intention to contract. It arises where the intention of the parties is not
expressed, but an agreement in fact creating an obligation. It is a contract, the
existence and terms of which are manifested by conduct and not by direct or
explicit words between parties but is to be deduced from conduct of the
parties, language used, or things done by them, or other pertinent
circumstances attending the transaction. To create contracts implied in fact,
circumstances must warrant inference that one expected compensation and
the other to pay.32 An implied-in-fact contract requires the parties’ intent to
enter into a contract; it is a true contract.33 The conduct of the parties is to be
viewed as a reasonable man would view it, to determine the existence or not
of an implied-in-fact contract.34 The totality of the acts/conducts of the parties
must be considered to determine their intention. An implied-in-fact contract
will not arise unless the meeting of minds is indicated by some intelligent
conduct, act or sign.35

In this case, the respondent was aware, from the time Padolina contacted it for
the fabrication and supply of the laboratory furniture until the go-signal was
given to it to fabricate and deliver the furniture to BIOTECH as beneficiary,
that the FEMF was to pay for the same. Indeed, Padolina asked the respondent
to prepare the draft of the contract to be received by the FEMF prior to the
execution of the parties (the respondent and FEMF), but somehow, the
respondent failed to prepare one. The respondent knew that the petitioner
was merely the donee-beneficiary of the laboratory furniture and not the
buyer; nor was it liable for the payment of the purchase price thereof. From
the inception, the FEMF paid for the bills and statement of accounts of the
respondent, for which the latter unconditionally issued receipts to and under
the name of the FEMF. Indeed, witness Lirio testified:

Q: Now, did you know, Mr. Witness, if PHILAB Industries was aware that
it was the Marcos Foundation who would be paying for this particular
transaction for the completion of this particular transaction?

A: I think they are fully aware.

Q: What is your basis for saying so?

A: First, I think they were appraised by Dr. Padolina. Secondly, there

were occasions during our inspection in Los Baños, at the installation
site, there were occasions, two or three occasions, when we met with
Mr. Navasero who is the President, I think, or manager of PHILAB, and
we appraised him that it was really between the foundation and him to
which includes (sic) the construction company constructing the
building. He is fully aware that it is the foundation who (sic) engaged
them and issued the payments.36

The respondent, in its Letter dated March 26, 1986, informed the petitioner
and sought its assistance for the collection of the amount due from the FEMF:
 Dear Dr. Padolina:

May we request for your much-needed assistance in the payment of the

balance still due us on the laboratory furniture we supplied and
installed two years ago?

Business is still slow and we will appreciate having these funds as soon
as possible to keep up our operations.

We look forward to hearing from you regarding this matter.

Very truly yours,

PHILAB INDUSTRIES, INC.37

The respondent even wrote former President Aquino seeking her assistance
for the payment of the amount due, in which the respondent admitted it tried
to collect from her predecessor, namely, the former President Ferdinand E.
Marcos:

YOUR EXCELLENCY:

At the instance of the national government, subject laboratory

furnitures were supplied by our company to the National Institute of
Biotechnology & Applied Microbiology (BIOTECH), University of the
Philippines, Los Baños, Laguna, in 1984.

Out of the total contract price of PESOS: TWO MILLION NINE HUNDRED
THIRTY-NINE THOUSAND FIFTY-EIGHT & 90/100 (₱2,939,058.90), the
previous administration had so far paid us the sum of ₱2,236,119.52
thus leaving a balance of PESOS: ONE MILLION FOUR HUNDRED
TWELVE THOUSAND SEVEN HUNDRED FORTY-EIGHT & 61/100
(₱1,412.748.61) inclusive of interest of 24% per annum and 30%
exchange rate adjustment.

On several occasions, we have tried to collect this amount from your

predecessor, the latest of which was subject invoice (01643) we
submitted to DR. W. PADOLINA, deputy director of BIOTECH. But this,
notwithstanding, our claim has remained unacted upon up to now. Copy
of said invoice is hereto attached for easy reference.
 Now that your excellency is the head of our government, we sincerely
hope that payment of this obligation will soon be made as this is one
project the Republic of the Philippines has use of and derives benefit
from.38

Admittedly, the respondent sent to the petitioner its bills and statements of
accounts for the payments of the laboratory furniture it delivered to the
petitioner which the petitioner, through Padolina, transmitted to the FEMF for
its payment. However, the FEMF failed to pay the last statement of account of
the respondent because of the onset of the EDSA upheaval. It was only when
the respondent lost all hope of collecting its claim from the government
and/or the PCGG did it file the complaint against the petitioner for the
collection of the payment of its last delivery of laboratory furniture.

We reject the ruling of the CA holding the petitioner liable for the claim of the
respondent based on the maxim that no one should enrich itself at the
expense of another.

Unjust enrichment claims do not lie simply because one party benefits from
the efforts or obligations of others, but instead it must be shown that a party
was unjustly enriched in the sense that the term unjustly could mean illegally
or unlawfully.39

Moreover, to substantiate a claim for unjust enrichment, the claimant must

unequivocally prove that another party knowingly received something of
value to which he was not entitled and that the state of affairs are such that it
would be unjust for the person to keep the benefit.40 Unjust enrichment is a
term used to depict result or effect of failure to make remuneration of or for
property or benefits received under circumstances that give rise to legal or
equitable obligation to account for them; to be entitled to remuneration, one
must confer benefit by mistake, fraud, coercion, or request. 41 Unjust
enrichment is not itself a theory of reconvey. Rather, it is a prerequisite for the
enforcement of the doctrine of restitution.42

Article 22 of the New Civil Code reads:

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. (Boldface supplied)
In order that accion in rem verso may prosper, the essential elements must be
present: (1) that the defendant has been enriched, (2) that the plaintiff has
suffered a loss, (3) that the enrichment of the defendant is without just or
legal ground, and (4) that the plaintiff has no other action based on contract,
quasi-contract, crime or quasi-delict.43

An 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. 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.44

The essential requisites for the application of Article 22 of the New Civil Code
do not obtain in this case. The respondent had a remedy against the FEMF via
an action based on an implied-in-fact contract with the FEMF for the payment
of its claim. The petitioner legally acquired the laboratory furniture under the
MOA with FEMF; hence, it is entitled to keep the laboratory furniture.

IN LIGHT OF ALL THE FOREGOING, the petition is GRANTED. The assailed

Decision of the Court of Appeals is REVERSED AND SET ASIDE. The Decision
of the Regional Trial Court, Makati City, Branch 150, is REINSTATED. No costs.

SO ORDERED.
 G.R. No. 210641, March 27, 2019

DOMESTIC PETROLEUM RETAILER CORPORATION, PETITIONER, v. MANILA

INTERNATIONAL AIRPORT AUTHORITY, RESPONDENT.

DECISION

CAGUIOA, J.:

Before the Court is a Petition for Review on Certiorari1 (Petition) under Rule
45 of the Rules of Court filed by petitioner Domestic Petroleum Retailer
Corporation (petitioner DPRC) against respondent Manila International
Airport Authority (respondent MIAA), assailing the Decision 2 dated May 31,
2013 (assailed Decision) and Resolution3 dated November 29, 2013 (assailed
Resolution) promulgated by the Court of Appeals (CA) Special Second Division
and Former Special Second Division, respectively, in CA-G.R. CV No. 98378,
which affirmed the Decision4 dated August 15, 2011 of the Regional Trial
Court, Pasay City, Branch 119 (RTC) in Civil Case No. R-PSY-08-08963.

The Facts and Antecedent Proceedings

As narrated by the CA in its assailed Decision, and as culled from the records
of the case, the essential facts and antecedent proceedings of the instant case
are as follows:

On December 23, 2008, petitioner Domestic Petroleum Retailer Corp. filed a

Complaint for "Collection of Sums of Money" against respondent MIAA before
the RTC, averring that: on June 4, 1998, petitioner DPRC and respondent MIAA
entered into a Contract of Lease whereby the former leased from the latter a
1,631.12-square meter parcel of land and a 630.88-square meter building
both located at Domestic Road, Pasay City.
Petitioner DPRC was obliged to pay monthly rentals of P75,357.74 for the land
and P33,310.46 for the building; petitioner DPRC faithfully complied with its
obligation to pay the monthly rentals since the start of the lease contract.

On April 2, 1998, respondent MIAA passed Resolution No. 98-30 which took
effect on June 1, 1998 increasing the rentals paid by its concessionaires and
lessees. Respondent MIAA issued Administrative Order No. 1, Series of 1998
reflecting the new schedule of fees, charges, and rates. Petitioner DPRC
initially refused to pay the increased rentals which was decreed without prior
notice and hearing.

On November 19, 1998, respondent MIAA demanded its payment of

P655,031.13 as rental in arrears which was based on the increase prescribed
in Resolution No. 98-30 with 2% interest compounded monthly. Respondent
MIAA also demanded payment of P628,895.43 after recomputing and
deducting the amount of P26,135.70 from the original amount of P655,031.13.

[O]n December 8, 1998, petitioner DPRC protested in writing to respondent

MIAA the increased rentals and the computation. However, it also signified its
intention to comply in good faith with the terms and conditions of the lease
contract by paying the amount charged. On December 11, 1998, petitioner
DPRC paid respondent MIAA P628,895.43 which was based on the new rates.

On December 1, 2004, the First (1st) Division of the Court promulgated its
Decision in the case of Manila International Airport Authority v. Airspan
Corporation, et al.,6 docketed as G.R. No. 157581. In the said case, the Court
nullified Resolution Nos. 98-30 and 99-11 issued by respondent MIAA for
non-observance of the notice and hearing requirements for the fixing rates
required by the Administrative Code.

On December 21, 2005, petitioner DPRC advised respondent MIAA of its

intention to stop paying the increased rental rate, and on January 1, 2006, it
stopped paying the increased rental rate, but continued paying the original
rental rate prescribed in the lease contract. Petitioner DPRC's decision to stop
paying the increased rental rate was based on the Court's Decision dated
December 1, 2004 in the case of Manila International Airport Authority vs. Air
span Corporation, et al. Petitioner DPRC paid respondent MIAA a total amount
of P9,593,179.87, which is in excess of the stipulated monthly rentals from
December 11, 1998 up to December 5, 2005.
On June 22, 2006, respondent MIAA required the payment of P645,216.21
allegedly representing the balance of the rentals from January up to June
2006. On July 27, 2006, [petitioner DPRC] sent its reply to [respondent] MIAA
denying the unpaid obligation, reiterating that the rental could no longer be
computed based on the nullified Resolution No. 98-30, and demanding for the
refund of its overpayment in the amount of P9,593,179.87. Respondent MIAA
ignored its demand, prompting petitioner DPRC to send a final written
demand dated November 5, 2008. The latter was constrained to file the
Complaint for Collection of Sums of Money.

On August 15, 2011, the RTC rendered its Decision, ruling in favor of
petitioner DPRC. The dispositive portion of the RTC's Decision dated August
15, 2011 states the following:

WHEREFORE, judgment is hereby rendered in favor of the plaintiff Domestic

Petroleum Retailer Corporation and against defendant Manila International
Airport Authority, ordering the latter to pay the former the following:

(1) the principal amount of P9,593,179.87, plus legal interest computed

from the time of the extra-judicial demand on July 27, 2006;
� �
(2) the sum of P300,00.00 (sic) as and for attorney's fees; and
� �
(3) the cost of suit.

SO ORDERED.7 ]

Upon [petitioner] DPRC's motion, the [RTC] issued an Order dated November
17, 2011 clarifying its [D]ecision to read as follows: "(1) the principal amount
of P9,593,179.87 plus 12% per annum legal interest computed from the time
of the extrajudicial demand on July 27, 2006."

Hence, [respondent MIAA filed an appeal before the CA, arguing that (1) the
decided case of Manila International Airport Authority v. Airspan
Corporation does not apply as to the instant case; (2) the RTC erred in
considering the receipts respondent MIAA issued as for alleged payment of
the increased rental rate; and (3) prescription or laches has set in to bar
petitioner DPRC from asserting its claim against respondent MIAA.]8

The Ruling of the CA

In the assailed Decision, the CA affirmed the RTC's Decision holding

respondent MIAA liable to petitioner DPRC, but with a modification as to the
amount. Instead of holding respondent MIAA liable for the entire amount of
P9,593,179.87, the CA decreased respondent MIAA's liability to P3,839,643.05
plus legal interest at 12% per annum computed from the time of'extrajudicial
demand on July 27, 2006. The dispositive portion of the assailed Decision
reads:

WHEREFORE, premises considered, the Decision dated August 15, 2011 of the
RTC, Branch 119, Pasay City in Civil Case No. R-PSY-08-08963 is AFFIRMED
WITH MODIFICATION by ordering defendant-appellant Manila International
Airport Authority to pay plaintiff-appellee Domestic Petroleum Retailer
Corporation the principal amount of P3,839,643.05 paid during the period
from January 9, 2003 to December 5, 2005, plus legal interest at 12% per
annum computed from the time of the extra-judicial demand on July 27, 2006.

In all other respects, the appealed decision so stands as AFFIRMED.

SO ORDERED.9

In the assailed Decision, the CA found that the liability of respondent MIAA to
petitioner DPRC for overpaid monthly rentals was in the nature of a quasi-
contract of solutio indebiti. And because petitioner DPRC's claim against
respondent MIAA is purportedly in the nature of solutio indebiti, the CA held
that "the claim of refund must be commenced within six (6) years from date of
payment pursuant to Article 1145(2)10 of the Civil Code."11

Proceeding from such premise, the CA found that, despite the records showing
that petitioner DPRC made overpayment in monthly rentals from December
11, 1998 up to December 5, 2005, such claim could not be fully awarded to
petitioner DPRC due to prescription.

The CA explained that:

As already stated, the claim for refund must be made within six (6) years from
date of payment. Since [petitioner] DPRC demanded the refund of the increase
in monthly rentals mistakenly paid only on July 27, 2006 and filed this case
before the [RTC] only on December 23, 2008, it can recover only those paid
during the period from January 9,2003 to December 5, 2005[,] or a total
amount of P3,839,643.05[,] broken down as follows:

Amount Paid Under

Date of Payment Protest inclusive of 5%
Withholding Tax
January 9, 2003 106,297.33

February 5, 2003 106,297.33

March 5, 2003 106,297.33

April 4, 2003 106,297.33

May 5, 2003 106,297.33

June 5, 2003 106,297.33

July 4, 2003 106,297.33

August 5, 2003 106,297.33

September 5, 2003 129,126.87

October 4, 2003 105,931.02

November 5, 2003 105,931.02

December 5, 2003 105,931.02

January 5, 2004 105,931.02

February 5, 2004 105,931.02

March 5, 2004 105,931.02

April 5, 2004 105,931.02

 May 5, 2004 105,931.02

June 4, 2004 105,931.02

July 5, 2004 105,931.02

August 5, 2004 105,931.02

September 6, 2004 105,931.02

October 5, 2004 105,931.02

November 5, 2004 105,931.02

December 6, 2004 105,931.02

January 5, 2005 105,931.02

February 4, 2005 105,931.02

March 4, 2005 105,931.02

April 5, 2005 105,931.02

May 5, 2005 105,931.02

June 5, 2005 105,931.02

July 5, 2005 105,931.02

August 5, 2005 105,931.02

September 5, 2005 105,931.02

October 5, 2005 105,931.02

November 7, 2005 105,931.02

December 5, 2005 105,931.02

TOTAL P3,839,643.05
[Petitioner] DPC has, by reason of the six (6) years prescriptive period, lost its
right to recover the amount of P5,753,536.82 paid during the period from
December 11, 1998 to December 5, 2002.12

Unsatisfied, petitioner DPRC filed a Motion for Partial Reconsideration 13 dated

June 28, 2013, which was denied by the CA in the assailed Resolution.

Hence, the instant Petition.

The Court notes that, based on the records, respondent MIAA has not filed an
appeal of the assailed Decision and Resolution promulgated by the CA.

However, respondent MIAA filed its Comment 14 (On the Petition for Review)
dated July 8, 2014, to which petitioner DPRC responded with its Reply 15 dated
November 17, 2014.

Issues

The only issue raised by petitioner DPRC in the instant Petition is whether the
CA was correct in amending the RTC's Decision, modifying the amount of
respondent MIAA's liability from the full amount of P9,593,179.87 to just
P3,839,643.05 plus legal interest at 12% per annum computed from the time
of extra-judicial demand on July 27, 2006, on the basis of the application of the
six-year prescriptive period governing the quasi-contract of solutio indebiti.

The Court's Ruling

The Court finds merit in the instant Petition.

The CA posited the view that the quasi-contract of solutio indebiti applies as
to the instant case because petitioner "DPRC's payment of the increased rental
to [respondent MIAA], who was found to have no authority to increase fees,
charges and rates without the approval of the DOTC Secretary, due to a
mistake in the interpretation and imposition of Administrative Order No. 98-
30, which was later found to be invalid for lack of the required prior notice
and public hearing, gives rise to the application of the principle of solutio
indebiti under Articles 2154, 2155 and 2156 of the Civil Code in this case." 16

Article 2154 of the Civil Code explains the concept of the quasi-contract
of solutio indebiti:
Art. 2154. If something is received when there is no right to demand it, and it
was unduly delivered through mistake, the obligation to return it arises.

The quasi-contract of solutio indebiti harks back to the ancient principle that
no one shall enrich himself unjustly at the expense of another. 17

In order to establish the application of solutio indebiti in a given situation, two

conditions must concur: (1) a payment is made when there exists no binding
relation between the payor who has no duty to pay, and the person who
received the payment, and (2) the payment is made through mistake, and not
through liberality or some other cause. 18 In the instant case, the Court finds
that the essential requisites of solutio indebiti are not present.

There exists a binding relation between petitioner DPRC and respondent

MIAA.

First and foremost, it is undisputed by all parties that respondent MIAA and
petitioner DPRC are mutually bound to each other under a Contract of Lease,
which both parties entered on June 4, 1998, covering the 1,631.12-square-
meter parcel of land and a 630.88-square-meter building both located at
Domestic Road, Pasay City. Hence, with respondent MIAA and petitioner DPRC
having the juridical relationship of a lessor-lessee, it cannot be said that in the
instant case, the overpayment of monthly rentals was made when there
existed no binding juridical tie or relation between the pay or, i.e., petitioner
DPRC, and the person who received the payment, i.e., respondent MIAA. In
fact, respondent MIAA itself acknowledged in its Comment that there was a
"pre-existing contractual relation" between itself and petitioner DPRC.19

The Court's Decision in National Commercial Bank of Saudi Arabia v. Court of

Appeals20 is instructive.

In the said case, therein petitioner National Commercial Bank of Saudi Arabia
(NCBSA) filed a case against therein respondent Philippine Banking
Corporation (PBC) to recover the duplication in the payment of the proceeds
of a letter of credit, under which NCBSA obliged itself to pay PBC subject to
compliance with certain conditions provided in the letter of credit.

Assailing the lower court's decision granting NCBSA's complaint for recovery
of money, therein respondent PBC argued that "[therein petitioner] NCBSA's
complaint is 'based on the quasi-contract of solutio indebiti,'' hence, it
prescribes in six years and, therefore, when NCBSA filed its complaint nine
years after the cause of action arose, it had prescribed."21

In denying the aforesaid argument and upholding NCBSA's claim of refund

against PBC due to double payment, the Court held that, since solutio
indebiti applies only where no binding relation exists between the payor and
the person who received the payment, solutio indebiti was not applicable
because the parties therein were bound by a contract, i.e., a letter of credit. As
such, the cause of action against PBC was deemed to be based on the violation
of a contract instead of a quasi-contract:

Technicality aside, en passant, on the merits of PBC's Motion for

Reconsideration of the trial court's decision, the trial court did not err in
brushing aside its main defense of prescription � that NCBSA's complaint is
"based on the quasi-contract of solutio indebiti" hence, it prescribes in six
years and, therefore, when NCBSA filed its complaint nine years after the
cause of action arose, it had prescribed.

Solutio indebiti applies where: (1) a payment is made when there exists no
binding relation between the payor, who has no duty to pay, and the person
who received the payment, and (2) the payment is made through mistake, and
not through liberality or some other cause. In the case at bar, PBC and NCBSA
were bound by their contract, the letter of credit, under which NCBSA obliged
itself to pay PBC, subject to compliance by the latter with certain conditions
provided therein. As such, the cause of action was based on a contract, and the
prescriptive period is ten, not six years.22

Similarly, in Genova v. De Castro,23 despite holding that the therein petitioner

is entitled to a refund of what he had previously paid to the therein
respondent, the Court held that solutio indebiti was not applicable because
the first element was not present, considering that petitioner therein made
payments to respondent therein pursuant to an underlying agreement to
repurchase property that governed the relation of the parties therein. 24

Applying the foregoing to the instant case, akin to National Commercial Bank
of Saudi Arabia v. Court of Appeals , the Court finds that the cause of action of
petitioner DPRC is based on the violation of a contractual stipulation in the
parties' Contract of Lease, and not due to the existence of a quasi-contract.
As admitted by respondent MIAA in its Comment, the overpayment made by
petitioner DPRC is rooted in Section 2.06 of the Contract of Lease, which
provided that petitioner DPRC's monthly rentals shall be subject to price
escalation on the condition that respondent MIAA will issue a valid
Administrative Order calling for the price escalation and that petitioner DPRC
will be given prior notice of such price escalation.

Hence, by filing its Complaint, petitioner DPRC invoked the Contract of Lease
and alleged that respondent MIAA violated the aforementioned contractual
stipulation, considering that the latter imposed a price escalation of monthly
rentals despite reneging on its contractual obligation to first issue a valid
Administrative Order and give petitioner DPRC prior notice.

No less than the CA in the assailed Decision held that, pursuant to the
agreement of the parties in their Contract of Lease, "an Administrative Order
must be issued by [respondent] MIAA and [petitioner] DPRC should be
notified of the said increase in rental and other charges thirty (30) days
before their imposition."25 The CA agreed with the RTC that there exists a valid
cause of action against respondent MIAA because "the requirements provided
in x x x the lease contract itself were not satisfied in this case." 26

In arguing in its Comment that petitioner DPRC's cause of action is not based
on a contract, respondent MIAA asserts that "[petitioner] DPRC's cause of
action for refund is not based on contract (since there is no provision in the
Contract that [petitioner] DPRC can rely upon for refund) but on quasi-
contract since [respondent MIAA] allegedly does not have the right to hold on
the excess amounts."27

Respondent MIAA's supposition that there is no provision in the Contract of

Lease that petitioner DPRC can rely upon to ask for a refund is completely
mistaken. To reiterate, respondent MIAA readily admits that according to the
Contract of Lease, petitioner DPRC's monthly rentals shall be subject to price
escalation only when respondent MIAA issues a valid Administrative Order
calling for price escalation and when petitioner DPRC is given prior notice. By
still imposing a price escalation despite the non-observance of both
requirements, both the RTC and CA found that respondent MIAA violated the
Contract of Lease.
Just because the Contract of Lease in itself may be silent as to petitioner
DPRC's entitlement to a refund does not mean that such claim for refund is not
provided for in the contract and cannot be asserted by petitioner DPRC.

It must be stressed that applicable laws form part of, and are read into,
contracts without need for any express reference thereto. 28 Specifically on
lease contracts, Article 165929 of the Civil Code, in relation to Article
1657,30 states that the aggrieved party in a contract of lease may ask for
indemnification when the other party fails to comply with his/her obligations,
one of which is to ask from the lessee the price of the lease only according to
the terms stipulated.

Hence, with these provisions of law read into the parties' Contract of Lease,
respondent MIAA's argument that there is no provision in the Contract of
Lease that petitioner DPRC can rely on to claim for refund of overpayment of
monthly rentals is erroneous.

In the instant case, there was no payment by mistake.

Furthermore, it cannot be said that petitioner DPRC's payments in monthly

rentals from December 11, 1998 up to December 5, 2005 in observance with
the subsequently nullified Resolution No. 98-30 were made due to mistake on
the part of petitioner DPRC.

For the concept of solutio indebiti to apply, the undue payment must have
been made by reason of either an essential mistake of fact 31 or a mistake in the
construction or application of a doubtful or difficult question of law. 32 Mistake
entails an error, misconception, or misunderstanding.33

In the instant case, petitioner DPRC made the overpayments in monthly

rentals from December 11, 1998 to December 5, 2005 not due to any mistake,
error, or omission as to any factual matter surrounding the payment of
rentals. Nor did petitioner DPRC make the overpayments due to any mistaken
construction or application of a doubtful question of law.

Instead, petitioner DPRC deliberately made the payments in accordance with

respondent MIAA's Resolution No. 98-30, albeit under protest. It must be
recalled that after the issuance of Resolution No. 98-30, on December 8, 1998,
petitioner DPRC protested in writing to respondent MIAA, alleging that
Resolution No. 98-30 was invalidly issued. However, petitioner DPRC also
signified its intention to comply in good faith with the terms and conditions of
the lease contract by paying the amount charged in accordance with
Resolution No. 98-30 despite registering its objection to its validity.

Solutio indebiti applies when payment was made on the erroneous belief of
facts or law that such payment is due. 34 In the case at hand, petitioner DPRC's
overpayment of rentals from 1998 to 2005 was not made by sheer
inadvertence of the facts or the misconstruction and misapplication of the law.
Petitioner DPRC did not make payment because it mistakenly and
inadvertently believed that the increase in rentals instituted by the
subsequently voided Resolution No. 98-30 was indeed due and demandable.
From the very beginning, petitioner DPRC was consistent in its belief that the
increased rentals were not due as Resolution No. 98-30 was, in its view, void.

However, petitioner DPRC still made payment despite its objection, not due to
any mistaken belief, but for the sole reason that prior to the Court's Decision
in Manila International Airport Authority v. Airspan Corporation, et al .,
Resolution No. 98-30 was still presumed to be legal, having the force of law in
the absence of any judicial declaration to the contrary. Hence, without any
judicial declaration on the nullity of Resolution No. 98-30 at that time,
petitioner DPRC had no alternative but to make the subject payments, though
under protest. Therefore, it is not correct to say that the subject payments
made by petitioner DPRC were made by mistake or inadvertence.

Therefore, with the absence of the two essential requisites of solutio

indebiti in the instant case, petitioner DPRC's cause of action is not based on
the quasi-contract of solutio indebiti.

Petitioner DPRC's claim against respondent MIAA for full refund of the
overpayment of rentals has not prescribed.

Considering that petitioner DPRC's cause of action is not based on a quasi-

contract and is instead founded on the enforcement of a contract, the CA erred
in applying Article 1145(2) of the Civil Code in the instant case.

Instead of the prescriptive period of six years for quasi-contracts, it is Article

114435 of the Civil Code that finds application in the instant case. This Article
provides that an action based on a written contract must be brought within 10
years from the time the right of action accrues.

Aside from erroneously applying the six-year prescriptive period governing

quasi-contracts, the CA likewise erred in stating that the applicable
prescriptive period is reckoned from the date of petitioner DPRC's first
overpayment on December 11, 1998.

In Espanol v. Board of Administrators, Philippine Veterans

Administration, as to when the right of action of a party who claims payment
36

from the government due to the nullification of an administrative policy or

issuance accrues, the Court held that the claimant has a cause of action for
payment against the government only from the time that the Court declared
invalid the questioned administrative policy. This is so because it is at that
point when the presumption of legality of the questioned administrative
policy had been rebutted and thus it can be said with certainty that the
government infringed on the right of the claimant:

The contention of appellant PVA that the action of appellee Maria U. Espanol
to compel the restoration of her monthly pension and that of her children,
effective from the date of cancellation on November 1, 1951, has already
prescribed, inasmuch as the same was filed more than 10 years from the date
of cancellation, is without merit.

xxxx

The right of action accrues when there exists a cause of action, which consists
of 3 elements, namely: a) a right in favor of the plaintiff by whatever means
and under whatever law it arises or is created; b) an obligation on the part of
defendant to respect such right; and c) an act or omission on the part of such
defendant violative of the right of the plaintiff (Cole vs. Vda. de Gregorio, 116
SCRA 670 [1982]; Mathay vs. Consolidated Bank & Trust Co., 58 SCRA 559
[1974]; Vda. de Enriquez vs. De la Cruz, 54 SCRA 1 [1973]). It is only when the
last element occurs or takes place that it can be said in law that a cause of
action has arisen (Cole vs. Vda. de Gregorio, supra).

The appellee cannot be said to have a cause of action, in compelling appellant

to continue paying her monthly pension on November 1,1951, because
appellant's act of cancellation, being pursuant to an administrative policy,
cannot be considered a violation of appellee's right to receive her monthly
pension.

It is elementary rule in administrative law that administrative regulations and

policies enacted by administrative bodies to interpret the law which they are
entrusted to enforce, have the force of law, are entitled to great respect (Sierra
Madre Trust vs. Secretary of Agriculture and Natural Resources, 121 SCRA
384 [1983]; Asturias Sugar Central Inc. vs. Commissioner of Customs, 29 SCRA
617 [1969]; Antique Sawmill Inc. vs. Zayco, et al., 17 SCRA 316 [1966]), and
have in their favor a presumption of legality. Thus, appellant's act of cancelling
appellee's monthly pension being presumed legal and valid, cannot be taken
as a violation of appellee's right to receive her monthly pension under R.A. No.
65.

In the case of Del Mar vs. The Philippine Veterans Administration (51 SCRA
340 [1973]), this Court did not consider prescription in favor of PVA, even
though the action of Del Mar was filed on June 20, 1964 or more than 10 years
from the cancellation of his monthly pension in March, 1950; because the
action of Del Mar was basically to declare the questioned administrative
policy invalid, which action does not prescribe.

It is only when this Court declared invalid the questioned administrative

policy in the case of Del Mar vs. The Philippine Veterans
Administration, supra, promulgated on June 27, 1973, can the appellee be said
to have a cause of action to compel appellant to resume her monthly pension;
because it is at that point in time, when the presumption of legality of the
questioned administrative policy had been rebutted and thus it can be said
with certainty that appellant's act was in violation of appellee's right to
receive her monthly pension.37

Therefore, considering that the Court's Decision in Manila International

Airport Authority v. Airspan Corporation, et al . invalidating Resolution No. 98-
30 was promulgated only on December 1, 2004, the right of action of
petitioner DPRC for the refund of the overpaid rentals accrued only on the
said date. Hence, the filing of petitioner DPRC's Complaint for sum of money
on December 23, 2008 was well within the prescriptive period.

Therefore, regardless of whether the prescriptive period to be applied in the

instant case is the one pertaining to actions arising from quasi-contracts, i.e.,
six years, or from contracts, i.e., 10 years, considering that the prescriptive
period started to run only on December 1, 2004, petitioner DPRC's claim for a
complete refund of all the overpaid rentals has not prescribed.

More so, it is likewise undisputed that on July 27, 2006, petitioner DPRC sent
respondent MIAA a written demand for the refund of P9,593,179.87, which
covers the overpayment of monthly rentals made by petitioner DPRC since
December 11, 1998.38

According to Article 1155 of the Civil Code, the prescription of actions is

interrupted when a written extrajudicial demand is made. And so, when
written extrajudicial demand for refund of overpayments was made by
petitioner DPRC on July 27, 2006, not only was the prescriptive period to file
an action suspended; jurisprudence holds that "[t]he interruption of the
prescriptive period by written extrajudicial demand means that the said
period would commence anew from the receipt of the demand[,] x x x written
extrajudicial demand wipes out the period that has already elapsed and starts
anew the prescriptive period."39

Hence, after petitioner DPRC made its written extrajudicial demand on July
27, 2006, it actually had until July 27, 2016 to file an action for the full
recovery of the overpayment of monthly rentals. Accordingly, at the time of
the institution of the Complaint for Collection of Sums of Money by petitioner
DPRC on December 23,2008, no claim for refund of overpaid monthly rentals
had prescribed.

For the aforementioned reasons, the Court holds that the CA erred in issuing
the assailed Decision and Resolution insofar as it modified the amount of
respondent MIAA's liability. The Court finds that petitioner DPRC is entitled to
the full amount of P9,593,179.87 plus legal interest at 12% per annum
computed from the time of extrajudicial demand on July 27, 2006.

WHEREFORE, premises considered, the instant Petition is hereby GRANTED.

The Decision dated May 31, 2013 and Resolution dated November 29, 2013
promulgated by the Court of Appeals, Special Second Division and Former
Special Second Division, respectively in CA-G.R. CV No. 98378 are PARTIALLY
REVERSED and SET ASIDE insofar as the Court of Appeals reduced the total
amount of liability of respondent Manila International Airport Authority to
P3,839,643.05, plus legal interest at 12% per annum computed from the time
of the extrajudicial demand on July 27, 2006.
Accordingly, the Decision dated August 15, 2011 of the Regional Trial Court,
Pasay City, Branch 119 in Civil Case No. R-PSY-08-08963, as clarified in its
Order dated November 17, 2011, is REINSTATED.

SO ORDERED