Loria vs. Muñoz, Jr.

A person who retains money received from another without just or legal ground must return it under the principle of unjust enrichment, even if the underlying agreement may be void, because the prevention of unjust enrichment is a recognized public policy exception to the in pari delicto doctrine.

Muñoz was engaged in the construction business under the name "Ludolfo P. Muñoz, Jr. Construction." Loria and Muñoz had known each other for five years before the events giving rise to the dispute. The case involves a government infrastructure project — the dredging of the Masarawag and San Francisco Rivers in Guinobatan, Albay — which was subject to public bidding and awarded to Sunwest Construction and Development Corporation, owned by Elizaldy Co.

Muñoz was a construction businessman operating under the name "Ludolfo P. Muñoz, Jr. Construction." In August 2000, Loria visited Muñoz at his office in Doña Maria Subdivision in Daraga, Albay, and proposed that Muñoz advance ₱2,000,000.00 for a subcontract of a ₱50,000,000.00 river-dredging project in Guinobatan. Loria represented that he would arrange for Elizaldy Co, owner of Sunwest Construction and Development Corporation, to become the lowest bidder, with ₱8,000,000.00 to be paid to ensure the project's award to Sunwest. After the award, Sunwest would subcontract 20% or ₱10,000,000.00 worth of the project to Muñoz. Having known Loria for five years, Muñoz accepted the proposal.

On October 2, 2000, Muñoz requested Allied Bank to release ₱3,000,000.00 from his joint account with business partner Christopher Co to a certain Grace delos Santos, from whom Loria then obtained the money. Four days later, ₱1,800,000.00 was returned to Muñoz, leaving ₱1,200,000.00 with Loria. On January 10, 2001, Loria collected Muñoz's ₱800,000.00 balance. After deducting Loria's personal loans from Muñoz, Muñoz issued a check to Loria for ₱481,800.00, which Loria acknowledged receiving. In total, Loria received a net amount of ₱2,000,000.00 from Muñoz, as evidenced by Exhibit "C," a check voucher signed by Loria acknowledging receipt of ₱1,200,000.00 on October 2, 2000 and ₱800,000.00 on January 10, 2001.

The project to dredge the Masarawag and San Francisco Rivers in Guinobatan was subjected to public bidding and awarded to the lowest bidder, Sunwest Construction and Development Corporation. Sunwest allegedly finished dredging the rivers without subcontracting any portion to Muñoz. When Muñoz demanded the return of his ₱2,000,000.00, Loria refused. Muñoz first filed a criminal complaint for estafa against Loria and Elizaldy Co, which the Municipal Trial Court of Daraga, Albay dismissed for lack of probable cause. Muñoz then filed a civil complaint for sum of money with the Regional Trial Court of Legazpi City, which was raffled to Branch 6.

During pre-trial, the parties agreed to litigate the sole issue of whether Loria was liable to Muñoz for ₱2,000,000.00. The trial court found that Muñoz established with preponderant evidence that Loria received ₱2,000,000.00 for a subcontract that never materialized, and that Loria must return the amount or be unduly enriching himself at Muñoz's expense. The Court of Appeals sustained the factual findings, relying on Muñoz's testimony and Exhibit "C," but deleted the awards of exemplary damages and attorney's fees for lack of basis.

• Void Agreement: Loria argued that the parties' agreement was void for being contrary to law, specifically the Anti-Graft and Corrupt Practices Act, the Revised Penal Code, and Section 6 of Presidential Decree No. 1594, as well as the public policy of public or open competitive bidding for government contracts.
• In Pari Delicto: Since the parties' agreement was void, Loria maintained that the parties were in pari delicto, and Muñoz should not be allowed to recover the money he gave under the contract.
• Receipt of Money: Loria maintained that Muñoz failed to prove his receipt of ₱3,000,000.00 through a certain Grace delos Santos, challenging the factual finding of the lower courts.
• Nature of Petition: Loria argued that he raised only questions of law in his petition, and even assuming questions of fact were raised, this should not warrant automatic dismissal since the trial and appellate courts allegedly erred in ruling for Muñoz.

• Questions of Fact: Muñoz argued that Loria's petition raised questions of fact and law that the trial and appellate courts had already passed upon and resolved in his favor, and prayed that the petition be denied for raising questions of fact.

• Factual Finding on Receipt: Whether Loria initially obtained ₱3,000,000.00 from a certain Grace delos Santos.
• Liability for Return: Whether Loria is liable for ₱2,000,000.00 to Muñoz.

• Factual Finding on Receipt: No. This is a question of fact not proper in a petition for review on certiorari under Rule 45, which entertains only questions of law. Loria failed to show that any recognized exception to the rule against reviewing questions of fact applies.
• Liability for Return: Yes. Loria must return ₱2,000,000.00 to Muñoz under the principle of unjust enrichment under Article 22 of the Civil Code, as he retained the money without just or legal ground after the subcontract never materialized.

• Factual Finding on Receipt: The question of whether Loria received ₱3,000,000.00 is a question of fact, requiring a ruling on the truth or falsehood of alleged facts. Under Section 1, Rule 45 of the Rules of Court, a petition for review on certiorari raises only questions of law — questions as to the applicable law given a set of facts. While exceptions exist (when findings are grounded on speculations, surmises, or conjectures; when inference is manifestly mistaken, absurd, or impossible; grave abuse of discretion; misappreciation of facts; conflicting findings; findings contrary to admissions of both parties; findings contrary to those of the trial court; conclusions without citation of specific evidence; facts not disputed by respondent; or findings premised on supposed absence of evidence and contradicted by the record), Loria failed to convince the Court that any exception applied. The trial and appellate courts found, based on Muñoz's testimony that he ordered Allied Bank to release ₱3,000,000.00 from his joint account with Christopher Co to Grace delos Santos, and on Exhibit "C" — a check voucher signed by Loria acknowledging receipt of ₱1,200,000.00 on October 2, 2000 and ₱800,000.00 on January 10, 2001 — that Loria received a net amount of ₱2,000,000.00. The Court found these pieces of evidence sufficient and declined to disturb the factual finding.
• Liability for Return: Under Article 22 of the Civil Code, 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. The principle of unjust enrichment has two conditions: (1) a person must have been benefited without a real or valid basis or justification, and (2) the benefit was derived at another person's expense or damage. Loria received ₱2,000,000.00 for a subcontract that never materialized, yet retained the money without justification. Contrary to Loria's claim, Section 6 of PD 1594 does not prevent recovery. A subcontract is void only if not approved by the department secretary, and it was premature to rule on legality since the subcontract never pushed through — the Secretary of Public Works and Highways could have approved it. Even assuming the subcontract was void, the Court in Gonzalo vs. Tarnate, Jr. allowed recovery under a void subcontract as an exception to the in pari delicto doctrine, holding that the prevention of unjust enrichment is a recognized public policy of the State. Since Loria failed throughout the proceedings to justify his retention of the ₱2,000,000.00, and Muñoz did not benefit from the delivery, Loria was unjustly enriched and must return the amount under Article 22.

• Unjust Enrichment (Article 22, Civil Code) — 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. Two conditions must concur: (1) a person is benefited without a real or valid basis or justification, and (2) the benefit is derived at another's expense or damage. Applied: Loria retained ₱2,000,000.00 received for a subcontract that never materialized, without valid justification, and was ordered to return it.
• In Pari Delicto Doctrine — Under Article 1412(1) of the Civil Code, when the fault is on the part of both contracting parties, neither may recover what he has given by virtue of the contract. However, the application of the doctrine is not always rigid. An accepted exception arises when its application contravenes well-established public policy. The prevention of unjust enrichment is a recognized public policy of the State, serving as an exception to the in pari delicto doctrine. Applied: Even if the subcontract were void, Loria could not invoke in pari delicto to avoid returning the money, because doing so would result in unjust enrichment.
• Rule 45 — Questions of Law vs. Questions of Fact — A petition for review on certiorari under Rule 45 raises only questions of law, defined as questions as to the applicable law given a set of facts. Questions of fact, which require ruling on the truth or falsehood of alleged facts, are not entertained. Recognized exceptions include: (1) findings grounded on speculations, surmises, or conjectures; (2) inference manifestly mistaken, absurd, or impossible; (3) grave abuse of discretion; (4) judgment based on misappreciation of facts; (5) conflicting findings of fact; (6) findings contrary to admissions of both parties; (7) findings contrary to those of the trial court; (8) conclusions without citation of specific evidence; (9) facts set forth in the petition not disputed by respondent; and (10) findings premised on supposed absence of evidence and contradicted by the evidence on record. Applied: Loria's challenge to the factual finding of receipt was rejected as a question of fact, with no exception shown.

• "No person should unjustly enrich himself or herself at the expense of another." — Opening line of the decision, framing the central legal principle governing the entire case.
• "the application of the doctrine of in pari delicto is not always rigid. An accepted exception arises when its application contravenes well established public policy." — This passage articulates the exception to the in pari delicto doctrine, explaining why recovery is allowed even under a void contract when unjust enrichment would result.
• "The prevention of unjust enrichment is a recognized public policy of the State, for Article 22 of the Civil Code explicitly provides that '[e]very 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.'" — Establishes the link between public policy and the Civil Code provision on unjust enrichment, forming the ratio decidendi for allowing recovery despite the potentially void agreement.

• Gonzalo vs. Tarnate, Jr., G.R. No. 160600, January 15, 2014 — Controlling precedent. The Court held that a subcontract of a government infrastructure project without the approval of the department secretary under Section 6 of PD 1594 is void, yet allowed recovery under the void subcontract as an exception to the in pari delicto doctrine, ruling that the prevention of unjust enrichment is a recognized public policy exception. Directly applied to allow Muñoz's recovery.
• Nacar vs. Gallery Frames, G.R. No. 189871, August 13, 2013 — Followed for the modified interest rate computation: 12% per annum from filing of complaint until June 30, 2013, and 6% per annum from July 1, 2013 until full payment.
• Pajuyo vs. Court of Appeals, G.R. No. 146364, June 3, 2004 — Cited in Gonzalo for the principle that the application of in pari delicto is not always rigid and that an exception arises when its application contravenes well-established public policy.

• Article 22, Civil Code of the Philippines — Provides that 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. Applied as the statutory basis for ordering Loria to return the ₱2,000,000.00.
• Section 6, Presidential Decree No. 1594 — Provides that a contractor shall not assign, transfer, pledge, subcontract, or make any other disposition of a government infrastructure contract or any part or interest therein without the approval of the relevant department secretary. The Court held that a subcontract is void only if not so approved, and it was premature to rule on legality since the subcontract never pushed through.
• Section 1, Rule 45, Rules of Court — Provides that a petition for review on certiorari shall raise only questions of law which must be distinctly set forth. Applied to reject Loria's challenge to the factual finding of his receipt of ₱3,000,000.00.
• Article 1412(1), Civil Code — Provides that when the fault is on the part of both contracting parties to an unlawful or forbidden cause that does not constitute a criminal offense, neither may recover what he has given by virtue of the contract. This is the statutory basis for the in pari delicto doctrine, which the Court declined to apply rigidly due to the unjust enrichment exception.

Antonio T. Carpio (Chairperson), Jose Catral Mendoza, Bienvenido L. Reyes, and Estela M. Perlas-Bernabe.