University of the Philippines vs. Philab Industries, Inc.

Accion in rem verso does not lie where the defendant's enrichment is with just or legal ground and the plaintiff has an available action based on an implied-in-fact contract against another party.

In 1979, UP planned a Research Complex, with the Ferdinand E. Marcos Foundation (FEMF) agreeing to fund the construction and installation of laboratories up to ₱29,000,000.00. PHILAB was engaged to fabricate and supply laboratory furniture for the BIOTECH project at UP Los Baños. FEMF made partial payments directly to PHILAB, but the remaining balance remained unpaid after the 1986 EDSA Revolution, prompting PHILAB to sue UP for the unpaid account.

• The BIOTECH Project and MOA: UP decided to construct a research complex. On October 16, 1982, UP and FEMF executed a Memorandum of Agreement where FEMF agreed to grant financial support and donate sums of money for the project, not to exceed ₱29,000,000.00, which included the installation of laboratories. The UP Board of Regents approved the MOA on November 25, 1982.
• Engagement of PHILAB: FEMF Executive Assistant Renato Lirio directed BIOTECH Executive Deputy Director Dr. William Padolina to give the go-signal to PHILAB to fabricate laboratory furniture. On July 23, 1982, Padolina informed PHILAB President Hector Navasero to proceed with fabrication, requesting shop drawings and a sample contract. PHILAB failed to submit a sample contract despite repeated reminders.
• Deliveries and Payments: PHILAB made partial deliveries, which were inspected by representatives of BIOTECH, FEMF, and PHILAB. FEMF remitted partial payments directly to PHILAB: ₱600,000.00 on August 24, 1982; ₱800,000.00 on October 22, 1982; and ₱836,119.52 on August 11, 1983. PHILAB issued official receipts for these payments to FEMF. UP did not pay any amount for the furniture.
• The Unpaid Balance: PHILAB completed the project. On July 1, 1984, PHILAB submitted an invoice for ₱702,939.40 for the final payment. BIOTECH forwarded the invoice to FEMF, but FEMF failed to pay due to the EDSA Revolution. PHILAB sought assistance from UP, the PCGG, and President Corazon Aquino to collect from FEMF. In an October 20, 1987 letter, PHILAB confirmed that no contract was ever executed between PHILAB and FEMF. PHILAB subsequently filed a complaint against UP for the unpaid balance.

• Law on Contracts: Petitioner argued that the CA failed to apply the law on contracts, as the letters, communications, and witness testimonies affirmatively demonstrate that an implied contract of sale existed between PHILAB and FEMF. Petitioner maintained that it could not have entered into any agreement with PHILAB without public bidding and a formal written contract.
• Unjust Enrichment: Petitioner asserted that the CA erred in applying the principle of unjust enrichment, as UP was merely a donee-beneficiary of the furniture and FEMF was the party liable for the purchase price.

• Absence of Contract with FEMF: Respondent countered that the CA correctly found that no contract existed between PHILAB and FEMF, and that PHILAB was never a party to the MOA between UP and FEMF.
• Unjust Enrichment: Respondent argued that FEMF donated a sum of money, not the laboratory equipment. Thus, UP, as the recipient of the furniture, should not be allowed to unjustly enrich itself at PHILAB's expense.

• Implied-in-Fact Contract: Whether an implied-in-fact contract of sale was established between PHILAB and FEMF, precluding liability against UP.
• Unjust Enrichment: Whether UP can be held liable for the unpaid balance under the principle of unjust enrichment (accion in rem verso).

• Implied-in-Fact Contract: An implied-in-fact contract of sale was formed between PHILAB and FEMF. The conduct of the parties—specifically, FEMF directing the fabrication, FEMF issuing payments directly to PHILAB, and PHILAB issuing receipts to FEMF—demonstrated a mutual intention to contract. PHILAB was fully aware that UP was merely a donee-beneficiary and that FEMF was the buyer, as evidenced by PHILAB’s own letters seeking FEMF's payment and assistance from the government to collect from FEMF.
• Unjust Enrichment: The principle of unjust enrichment was inapplicable. For accion in rem verso to prosper, the defendant must be enriched without just or legal ground, and the plaintiff must have no other action based on contract, quasi-contract, crime, or quasi-delict. UP's enrichment was with just and legal ground, as it received the furniture pursuant to a valid MOA with FEMF. Furthermore, unjust enrichment is merely an auxiliary action; because PHILAB had an available remedy against FEMF based on an implied-in-fact contract, accion in rem verso will not lie.

• Implied-in-fact contract — A contract implied from facts and circumstances showing a mutual intention to contract, where the existence and terms are manifested by conduct rather than direct or explicit words. To create such a contract, circumstances must warrant the inference that one party expected compensation and the other expected to pay. The totality of the parties' conduct must indicate a meeting of minds through some intelligent act or sign.
• Accion in rem verso (Unjust Enrichment) — An auxiliary action available only when there is no other remedy based on contract, quasi-contract, crime, or quasi-delict. The essential elements are: (1) the defendant has been enriched; (2) the plaintiff has suffered a loss; (3) the enrichment of the defendant is without just or legal ground; and (4) the plaintiff has no other action based on contract, quasi-contract, crime, or quasi-delict. Enrichment is unjust if it is illegally or unlawfully acquired, and the claimant must prove the defendant knowingly received something of value to which it was not entitled under circumstances making it unjust to keep the benefit.

• "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."
• "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."

• Manila Port Services, Inc. v. Court of Appeals, 20 SCRA 1214 (1967) — Followed. Cited for the principle that a contract cannot be binding upon or enforced against one who is not a party to it, even if aware of the contract and acting with knowledge thereof.

• Article 1311, Civil Code — Provides that contracts take effect only between the parties, their assigns, and heirs. Applied to emphasize that PHILAB, not being a party to the MOA between UP and FEMF, could not be bound by it, nor could it enforce it against UP.
• Article 22, Civil Code — Dictates that a person who acquires something at the expense of another without just or legal ground must return it. Applied to delineate the elements of accion in rem verso, which were found absent because UP's acquisition had legal ground and PHILAB had another action available.

Puno, Austria-Martinez, Tinga, and Chico-Nazario, JJ.