Unjust enrichment

By Atty. Eduardo T. Reyes III

Short of ordering a total “disallowance”, the Commission on Audit (COA) reportedly found “deficiencies” on the part of the Department of Health (DOH) and its key officials in the handling and expenditure of the P67.32-billion fund to address the Covid-19 pandemic.

The noted “deficiencies” centered on: 1) the billions of pesos which were not earmarked much less spent by year-end supposedly meant for battling the Covid-19 pandemic; and, 2) there were issues on the proper handling of petty cash, management of fund transfers, implementation of financial assistance programs, payment of Covid-19 allowances, among others.

As to issue no.1 (unspent funds), the funds will merely revert to the government coffers. While as to issue no. 2 (mishandling of funds) , there is a legal mechanism for making the concerned government officials accountable and for the recipients to refund or reimburse the amount unjustly received.

But first, the legal concept known as “unjust enrichment”.

Embodied in Article 22 of the New Civil Code, unjust enrichment means:   

“Article 22. 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.” 

Echoing this, albeit with a slight variance in terminology, but still founded on the principle of unjust enrichment, is Article 2154 of the same Code which in turn states that:

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.

            In simple terms, unjust enrichment is a doctrine in law which demands of the recipient of money or any other benefit to return it to the person who is rightfully entitled to the same because there was a mistake or the recipient is not really entitled thereto, all in the name of justice, equity and good conscience. The same is also founded on the concept of good human relations.

The case of Rolando de Roca v. Eduardo C. Dabuyan et al, G.R. No. G.R. No. 215281, March 05, 2018 explicates as follows:   

“There is unjust enrichment ‘when a person unjustly retains a benefit to 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 principle of unjust enrichment require two conditions: (1) that a person is benefited without a valid basis or justification, and (2) that such benefit is derived at the expense of another. The main objective of the principle against unjust enrichment is to prevent one from enriching himself at the expense of another without just cause or consideration. x x x.”   

Unjust enrichment therefore presupposes that one person ‘unjustly benefits’ while another ‘unjustly suffers loss’. Thus, “Conversely, there is no unjust enrichment when the person who will benefit has a valid claim to such benefit”.(James Arthur T. Dubongco, Provincial Agrarian Reform Program Officer II of Department of Agrarian Reform Provincial Office-Cavite in representation of DARPO-Cavite and all its officials and employees v. Commission on Audit, G.R. No. 237813. March 5, 2019).  

And the obligation to return moneys or benefits becomes even more compelling when they are part of public funds. When public funds are misspent and they land in the hands of the unintended (or worse, the undeserving), there are two (2) layers of responsibility from the perspective of: (1)who is/ are responsible; and, (2) what the responsibility entails.

On these issues, jurisprudence enunciates:

            “It is well-settled that administrative, civil, or even criminal liability, as the case may be, may attach to persons responsible for unlawful expenditures, as a wrongful act or omission of a public officer. It is in recognition of these possible results that the Court is keenly mindful of the importance of approaching the question of personal liability of officers and payees to return the disallowed amounts through the lens of their different layers of liability.  

            Correspondingly, personal liability to return the disallowed amounts must be understood as civil liability based on the loss incurred by the government because of the transaction, while administrative or criminal liability may arise from irregular or unlawful acts attending the transaction. This should be the starting point of determining who must return. The existence and amount of the loss and the nature of the transaction must dictate upon whom the liability to return is imposed. X x x As mentioned, the civil liability under Sections 38 and 39 of the Administrative Code of 1987, including the treatment of their liability as solidary under Section 43, arises only upon a showing that the approving or certifying officers performed their official duties with bad faith, malice or gross negligence. For errant approving and certifying officers, the law justifies holding them solidarily liable for amounts they may or may not have received considering that payees would not have received the disallowed amounts if it were not for the official’s irregular discharge of their duties as further emphasized by Senior Associate Justice Estela M. Perlas-Bernabe (Justice Bernabe). This treatment contrasts with that of individual payees who, as will be discussed below, can only be liable to return the full amount they were paid or they received pursuant to the principles of solutio indebiti and unjust enrichment. (Mario M. Madera, et al. v. Commission on Audit (COA) and COA Regional Office No. VIII, G.R. No. 244128. September 8, 2020).

These guidelines were reiterated in subsequent cases“Following the guidelines laid down in Madera v. Commission on Audit, the following persons shall be liable for the subject disallowance: (a) All ZCWD officials and employees who received the financial subsidy, as passive recipients, are liable to return the amount they individually received based on solutio indebiti. (b) Aside from what they have received by virtue of Board Resolution No. 206, the Board shall be solidarily liable for the disallowed amount on account of their unauthorized and imprudent directive to pay the subject financial subsidy. (Zamboanga City Water District and its employees, represented by General Manager Leonardo Rey D. Vasquez v. Commission on Audit, G.R. No. 218374. December 1, 2020; Ninia P. Lumauan v. Commission on Audit, G.R. No. 218304. December 9, 2020).

Thus, pursuant to this clarificatory ruling of the SC, the good faith of the disbursing or certifying officers will absolve them from participating in the refund; but their bad faith will oblige them to refund the “net disallowed amount” ( ie, the amount disbursed less those allowed in good faith for exceptions provided below). While for the payee, he/ she will not be excused from returning the received disallowed amount even if it was received in good faith. But there are exceptions: for services duly rendered, like performance incentives, productivity pay, or merit increases, negating the application of solutio indebiti and unjust enrichment principles. Other exceptions would be undue prejudice and social justice principles. In the latter cases, the recipient or beneficiary need not return the money or benefit received because in the deeper analysis, there really is no mistake. But assuredly, public funds must always be accounted for and every centavo unjustly dispensed must be returned to the public treasury.

Indeed, the law is a rule of reason. It is founded on the universal concepts of fairness and justice.  The law may not, in and of itself, be perfect, but when applied with the end in view of fairness and justice and the same are achieved, then it becomes perfect.

(The author is the senior partner of ET Reyes III & Associates– a law firm based in Iloilo City. He is a litigation attorney, a law professor and a book author. His website is etriiilaw.com).