G.R. No. 187240, October 15, 2014
CARLOS A. LORIA, Petitioner,
vs. LUDOLFO P. MUÑOZ, JR. Respondent.
vs. LUDOLFO P. MUÑOZ, JR. Respondent.
Loria must return Munoz’s P2,000,000.00 under the principle of unjust enrichment
Under Article 22 of the Civil Codeof the Philippines, "every person who through an act of performance by another, or any other means, acquires or comes into possession of something at the expense of the latter without just or legal ground, shall return the same to him." There is unjust enrichment "when a person unjustly retains a benefit to the loss of another, or when a person retains money orproperty of another against the fundamental principles of justice, equity and good conscience."55
The principle of unjust enrichment has two conditions. First, a person must have been benefited without a real or valid basis or justification. Second, the benefit was derived at another person’s expense or damage.56
In this case, Loria received P2,000,000.00 from Muñoz for a subcontract of a government projectto dredge the Masarawag and San Francisco Rivers in Guinobatan, Albay. However, contrary to the parties’ agreement, Muñoz was not subcontracted for the project. Nevertheless, Loria retained the P2,000,000.00.
Thus, Loria was unjustly enriched. He retained Muñoz’s money without valid basis or justification. Under Article 22 of the Civil Code of the Philippines, Loria must return the P2,000,000.00 to Muñoz.
Contrary to Loria’s claim, Section 6 of the Presidential Decree No. 1594 does not prevent Muñoz from recovering his money.
Under Section 6 of the Presidential Decree No. 1594,57 a contractor shall not subcontract a part or interestin a government infrastructure project without the approval of the relevant department secretary:
Section 6. Assignment and Contract.The contractor shall not assign, transfer, pledge, subcontract ormake any other disposition of the contract or any part or interest therein except with the approval of the Minister of Public Works, Transportation and Communications, the Minister of Public Highways, or the Minister of Energy, as the case may be. Approval of the subcontract shall not relieve the main contractor from any liability or obligation under his contract with the Government nor shall it create any contractual relation between the subcontractor and the Government.
A subcontract, therefore, is void only if not approved by the department secretary.
In this case, it is premature to rule on the legality of the parties’ agreement precisely becausethe subcontract did not push through. No actual agreement was proven in evidence.The Secretary of Public Works and Highways could have approved the subcontract, which is allowed under Section 6 of the Presidential Decree No. 1594.
At any rate, even assuming that there was a subcontracting arrangement between Sunwest Construction and Development Corporation and Muñoz, this court has allowed recovery under a void subcontract as an exception to the in pari delicto doctrine.
In Gonzalo v. Tarnate, Jr.,58 the Department of Public Works and Highways (DPWH) awarded the contractto Dominador Gonzalo to improve the Sadsadan-Maba-ay section of the Mountain Province Road. Gonzalo then subcontracted the supply of materials and labor to John Tarnate, Jr. without the approval of the Secretary of Public Works and Highways. The parties agreed to a total subcontract fee of 12% of the project’s contract price.59
Tarnate, Jr. also rented equipment to Gonzalo. In a deed of assignment, the parties agreed to a retention fee of 10% of Gonzalo’s total collection from the Department of Public Works and Highways, or 233,526.13, as rent for the equipment. They then submitted the deed of assignment to the Department for approval.60
Subsequently, Tarnate, Jr. learned that Gonzalo filed with the Department of Public Works and Highways an affidavit to unilaterally cancel the deed of assignment. Gonzalo also collected the retention fee from the Department.61
Tarnate, Jr. demanded payment for the rent of the equipment, but Gonzalo ignored his demand. He thenfiled a complaint for sum of money and damages with the Regional Trial Court of Mountain Province to collect on the 10% retention fee.62
In his defense, Gonzalo argued thatthe subcontract was void for being contrary to law, specifically, Section 6 of the Presidential Decree No. 1594. Since the deed of assignment "was a mere product of the subcontract,"63 the deed of assignment was likewise void. With Tarnate, Jr. "fully aware of the illegality and ineffectuality of the deed of assignment,"64 Gonzalo contended that Tarnate, Jr. could not collect on the retention fee under the principle of in pari delicto.65
This court ruled that the subcontract was void for being contrary to law. Under Section 6 of the Presidential Decree No. 1594, a contractor shall not subcontract the implementation of a government infrastructure project without the approval of the relevant department secretary.66 Since Gonzalo subcontracted the project to Tarnate, Jr. without the approvalof the Secretary of Public Works and Highways, the subcontract was void, including the deed of assignment, which "sprung from the subcontract."67
Generally, parties to an illegal contract may not recover what they gave under the contract.68 Under the doctrine of in pari delicto, "no action arises, in equity or at law, from anillegal contract[.] No suit can be maintained for its specific performance, or to recover the property agreed to be sold or delivered, or the money agreed to be paid, or damages for its violation[.]"69 Nevertheless, this court allowed Tarnate, Jr. to recover 10% of the retention fee. According to this court,"the application of the doctrine of in pari delictois not always rigid."70 An exception to the doctrine is "when its application contravenes well-established public policy."71 In Gonzalo, this court ruled that "the prevention of unjust enrichment is a recognized public policy of the State."72 It is, therefore, an exception to the application of the in pari delicto doctrine. This court explained:
. . . the application of the doctrine of in pari delicto is not always rigid.1âwphi1 An accepted exception arises when its application contravenes wellestablished public policy. In this jurisdiction, public policy has been defined as "that principle of the law which holds that no subject or citizen can lawfully do that which has a tendency to be injurious to the public or against the public good."
Unjust enrichment exists, according to Hulst v. PR Builders, Inc., "when a person unjustly retains a benefit at the loss of another, or when a person retains money or property of another against the fundamental principles of justice, equity and good conscience." The prevention of unjust enrichment is a recognized public policy of the State, for Article 22 of the Civil Code explicitly provides that "[e]veryperson 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." It is well to note that Article 22 "is part of the chapter of the Civil Code on Human Relations, the provisions of which were formulated as basic principles to be observed for the rightful relationship between human beings and for the stability of the social order; designed to indicate certain norms that spring from the fountain of good conscience;guides for human conduct that should run as golden threads through society to the end that law may approach its supreme ideal which is the sway and dominance of justice."73 (Citations omitted)
Given that Tarnate, Jr. performed his obligations under the subcontract and the deed of assignment, this court ruled that he was entitled to the agreed fee. According to this court, Gonzalo "would be unjustly enriched at the expense of Tarnate if the latter was tobe barred from recovering because of the rigid application of the doctrine of in pari delicto."74
In this case, both the trial and appellate courts found that Loria received P2,000,000.00 from Muñoz for a subcontract of the river-dredging project. Loria never denied that hefailed to fulfill his agreement with Muñoz. Throughout the case’s proceedings, Loria failed to justify why he has the right to retain Muñoz’s P2,000,000.00. As the Court of Appeals ruled, "it was not shown that [Muñoz] benefited from the delivery of the amount ofP2,000,000.00 to [Loria]."75
Loria, therefore, is retaining the P2,000,000.00 without just or legal ground. This cannot be done. Under Article 22 of the Civil Code of the Philippines, he must return the P2,000,000.00 to Muñoz.
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