NCC 1160 – Quasi Contract

PNB vs. CA and BP Mata and Co.

This is a case wherein a well-known financial institution had an internal problem and they only realized and took action to
regularize it, seven years too late

I. CASE FACTS

· A US company, Star Kist Foods, Inc. USA (Star Kist) engaged local B.P. Mata Co. Inc (Mata) in providing manning and
crewing services for their company located in the United States. Payment is settled through telegraphic transfer involving
several banks namely Security Pacific National Bank (SEPAC) of Los Angeles as the bank of Star Kist, Philippine National
Bank (PNB) as the bank with the agency arrangement with Star Kist, and Insular Bank of Asia and America (IBAA) as the
bank of Mata.
· February 24, 1975: PNB issued a Cashier’s Check amounting to $1,400 for the account of Mata representing payment
for services rendered by Mata to Star Kist.
· March 11, 1975: PNB effected another payment amounting to $14,000, which was said to be another payment made by
Star Kist. Prior February 24, the PNB International Department received notice for payment for $14,000 to Mata but they
returned the missive to SEPAC Bank noting an error. It was cleared by SEPAC Bank that the notice should only be for
$1,400 and NOT $14,000.
· May 31, 1981: PNB requested Mata for refund of $14,000, which was mistakenly paid to them.
· February 4, 1982: PNB filed a civil case for collection and refund of $14,000 against Mata using Article 14561 as basis
for their argument.

II. DECISION OF THE COURTS

Regional Trial Court

The RTC dismissed the complaint stating that the case falls under Article 21542 instead of Article 1456. They ruled that
the trust code does not apply in this case by using the technical definition of trust that is “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 chooses in action.”

Court of Appeals

PNB elevated the case to the Court of Appeals wherein said court affirmed the decision of the lower court. The appellate
court also added that the case would not prosper due to the prescription provided in Article 1145 that states:
Art. 1145. The following actions must be commenced within six years:
(1) Upon an oral contract;
(2) Upon a quasi-contract. (n)

Supreme Court

The Supreme Court applied both Art. 1456 which is on constructive trust and Art. 2154 which is on solutio indebiti to the
case.

They determined that there is constructive trust involved enforcing Art. 1456. A constructive trust is a form of implied trust.
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 the law as matters of equity, independently of the
particular intention of the parties.” Constructive trusts occur when “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.” Following
the aforementioned definitions, there is trust involved. There was no expression or contract stipulating that Mata and PNB
have a fiduciary relationship, however, the point that there was a transaction that would infer such an arrangement
(payment), constructive trust has been established.

The Supreme Court also adapted Art. 2154 for the case clearly falls in this article. Mata received money, which had not
right to demand it, and there was also a mistake of delivery.

. However, due to the prescription of Art. 2154, quasi-contract can no longer be an alternative leaving constructive trust as
the applicable option.
As for the issue whether or not PNB can still claim the $14,000, the Supreme Court ruled that it couldn’t be possible. Even
though the case is still within the prescription period, the petitioner cannot do so because they were proved to be
negligent in exercising their legal right. It took them seven years to realize their error and for a big bank such as PNB, that
is very remarkable. Banks are subject to audits and an error such as that should have been spotted within the year. The
bank should, therefore, bear the cost of their own negligence.

III. ANALYSIS

It is becoming clear to me that the law does not tolerate negligence. It maybe argued that it is not just nor equitable for
PNB not be able to claim the money that they mistakenly paid Mata, but they have to suffer the cost of their own
negligence.

Working for a bank for the past 4 years, we have been taught to be meticulous and careful in every transaction that we
undertake. Audit, spot checks and counter checkings have been established to prevent erroneous entries and mitigate
possible mistakes. Fear motivates us actually. Fear that we’ll lose our jobs or that we’ll find ourselves defendants in a civil
case.

That’s why I find it really unbelievable that a big bank, such as PNB, should only spot its error 7 years after the
transaction.

There also is a thing, not only for banks, but also for companies, called a fiscal year. At the end of a fiscal year, everything
and I mean EVERYTHING should be balanced. $14,000 is a big amount, which should have been easily traced.

Footnotes:
1 Art. 1456: 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.

2Art. 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.
Sebastian Siga-an v Alicia Villanueva

Facts: Respondent filed a complaint for sum of money against petitioner. Respondent claimed that petitioner approached
her inside the PNO and offered to loan her the amount of P540,000.00 of which the loan agreement was not reduced in
writing and there was no stipulation as to the payment of interest for the loan. Respondent issued a check worth
P500,000.00 to petitioner as partial payment of the loan. She then issued another check in the amount of P200,000.00 to
petitioner as payment of the remaining balance of the loan of which the excess amount of P160,000.00 would be applied
as interest for the loan. Not satisfied with the amount applied as interest, petitioner pestered her to pay additional interest
and threatened to block or disapprove her transactions with the PNO if she would not comply with his demand. Thus, she
paid additional amounts in cash and checks as interests for the loan. She asked petitioner for receipt for the payments
but was told that it was not necessary as there was mutual trust and confidence between them. According to her
computation, the total amount she paid to petitioner for the loan and interest accumulated to P1,200,000.00.

The RTC rendered a Decision holding that respondent made an overpayment of her loan obligation to petitioner and that
the latter should refund the excess amount to the former. It ratiocinated that respondent’s obligation was only to pay the
loaned amount of P540,000.00, and that the alleged interests due should not be included in the computation of
respondent’s total monetary debt because there was no agreement between them regarding payment of interest. It
concluded that since respondent made an excess payment to petitioner in the amount of P660,000.00 through mistake,
petitioner should return the said amount to respondent pursuant to the principle of solutio indebiti. Also, petitioner should
pay moral damages for the sleepless nights and wounded feelings experienced by respondent. Further, petitioner should
pay exemplary damages by way of example or correction for the public good, plus attorney’s fees and costs of suit.

Issue: (1) Whether or not interest was due to petitioner; and (2) whether the principle of solutio indebiti applies to the
case at bar.

Ruling: (1) No. Compensatory interest is not chargeable in the instant case because it was not duly proven that
respondent defaulted in paying the loan and no interest was due on the loan because there was no written agreement as
regards payment of interest. Article 1956 of the Civil Code, which refers to monetary interest, specifically mandates that
no interest shall be due unless it has been expressly stipulated in writing. As can be gleaned from the foregoing
provision, payment of monetary interest is allowed only if: (1) there was an express stipulation for the payment of interest;
and (2) the agreement for the payment of interest was reduced in writing. The concurrence of the two conditions is
required for the payment of monetary interest. Thus, we have held that collection of interest without any stipulation
therefor in writing is prohibited by law.

(2) Petitioner cannot be compelled to return the alleged excess amount paid by respondent as interest. Under Article 1960
of the Civil Code, if the borrower of loan pays interest when there has been no stipulation therefor, the provisions of the
Civil Code concerning solutio indebiti shall be applied. Article 2154 of the Civil Code explains the principle of solutio
indebiti. Said provision provides that 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. In such a case, a creditor-debtor relationship is created under
a quasi-contract whereby the payor becomes the creditor who then has the right to demand the return of payment made
by mistake, and the person who has no right to receive such payment becomes obligated to return the same. The quasi-
contract of solutio indebiti harks back to the ancient principle that no one shall enrich himself unjustly at the expense of
another. The principle of 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. We have held that the principle of solutio indebiti applies
in case of erroneous payment of undue interest.

Article 2232 of the Civil Code states that in a quasi-contract, such as solutio indebiti, exemplary damages may be
imposed if the defendant acted in an oppressive manner. Petitioner acted oppressively when he pestered respondent to
pay interest and threatened to block her transactions with the PNO if she would not pay interest. This forced respondent
to pay interest despite lack of agreement thereto. Thus, the award of exemplary damages is appropriate so as to deter
petitioner and other lenders from committing similar and other serious wrongdoings.