OBLIGATIONS AND CONTRACTS the purchase from the latter of hydraulic

CHAPTER 1 – GENERAL PROVISIONS loaders. B paid Y for the equipment after the
expiration of the letter of credit. X refused to
ARTICLE 1160 pay B claiming that there was breach of
Obligations derived from quasi- contract by B which acted in bad faith in
contracts shall be subject to the provisions of paying Y knowing that Y delivered the loaders
Chapter 1, Title XVII, of this Book. to X after the expiry date of the subject LC.
X offered to return the loaders to B
QUASI-CONTRACTUAL OBLIGATIONS which refused to take possession three (3)
- juridical relation resulting from years after X accepted delivery, when B made
certain lawful, voluntary and a demand for payment.
unilateral acts by virtue. Issue: Was it proper for B to pay the
- Parties become bound to each other LC which had long expired or been cancelled?
to the end that no one will unjustly be Held: B should not have paid the LC
enriched at the expense of another. which had become invalid upon the lapse of
- Not a contract at all, no consent but the period fixed therein. Be that as it may, X
the same is supplied by fiction of law. should pay B the amount B expended for the
- Law considers the parties as having equipment belatedly delivered by Y and
entered into a contract, irrespective voluntarily received and kept by X. B’s right to
of their intention, to prevent injustice. seek recovery from X is anchored, not upon
- Governed by Articles 2142-2175. the inefficacious LC, but on Article 2142 of the
Civil Code.
ILLUSTRATIVE CASES X was not without fault in the
CASE 1: When a party benefited at the transactions in view of its unexplained
expense of another not liable to the latter. inaction for almost four (4) years with regard
Facts: By virtue of an agreement to the status of the ownership or possession
between X and Y, X assisted Y in improving a of the loaders and the fact that it formalized
large tract of land which was later declared by its offer to return the equipment only after B’s
the court as belonging to C. demand for payment, which came more than
Issue: Has X the right to be three (3) years after X accepted delivery.
reimbursed by Z for X’s services and expenses When both parties to a transaction
on the ground that the improvements are are mutually negligent in the performance of
being used and enjoyed by Z? their obligations, the fault of one cancels the
Held: No. From the language of Article negligence of the other and as in this case,
2142, it is obvious that a presumed quasi- their rights and obligations may be
contract cannot emerge as against one party determined equitably under the law
when the subject matter thereof is already proscribing unjust enrichment.
covered by an existing contract with another
party. X’s cause of action should be against Y KINDS OF QUASI-CONTRACTS
who, in turn, may seek relief against Z. 1. Negotiorum gestio – voluntary
management of the property or
CASE 2: Bank paid the seller of goods under affairs on another without the
an expired letter of credit, but the goods knowledge or consent of the latter.
subject thereof was voluntarily received and DOES NOT ARISE TO THE FF:
kept by the buyer which refused to pay the a. If property or business is
bank. abandoned, provisions of the Civil
Facts: X opened with B (bank) a Code regarding the unauthorized
domestic letter of credit (LC) in favor of Y for contracts shall govern.
 b. If manager has been tacitly pay B claiming that there was breach of
authorized by the owner, the contract by B which acted in bad faith in
rules on agency shall govern. paying Y knowing that Y delivered the loaders
2. Solutio indebiti – juridical relation to X after the expiry date of the subject LC.
created when something is received X offered to return the loaders to B
when there is no right to demand it which refused to take possession three (3)
and it was delivered through mistake. years after X accepted delivery, when B made
APPLIES WHERE: a demand for payment.
a. Payment is made mistakenly, Issue: Was it proper for B to pay the
payor has no duty to pay. LC which had long expired or been cancelled?
b. Payment is made through mistake Held: B should not have paid the LC
and not through liberality or some which had become invalid upon the lapse of
other cause. the period fixed therein. Be that as it may, X
3. Other cases – those classified as should pay B the amount B expended for the
quasi-contracts are of infinite variety, equipment belatedly delivered by Y and
recovery cannot be had on a true voluntarily received and kept by X. B’s right to
contract, but allowed on the basis of seek recovery from X is anchored, not upon
quasi-contracts. the inefficacious LC, but on Article 2142 of the
Civil Code.
ILLUSTRATIVE CASES X was not without fault in the
CASE 1: When a party benefited at the transactions in view of its unexplained
expense of another not liable to the latter. inaction for almost four (4) years with regard
Facts: By virtue of an agreement to the status of the ownership or possession
between X and Y, X assisted Y in improving a of the loaders and the fact that it formalized
large tract of land which was later declared by its offer to return the equipment only after B’s
the court as belonging to C. demand for payment, which came more than
Issue: Has X the right to be three (3) years after X accepted delivery.
reimbursed by Z for X’s services and expenses When both parties to a transaction
on the ground that the improvements are are mutually negligent in the performance of
being used and enjoyed by Z? their obligations, the fault of one cancels the
Held: No. From the language of Article negligence of the other and as in this case,
2142, it is obvious that a presumed quasi- their rights and obligations may be
contract cannot emerge as against one party determined equitably under the law
when the subject matter thereof is already proscribing unjust enrichment.
covered by an existing contract with another
party. X’s cause of action should be against Y
who, in turn, may seek relief against Z.

CASE 2: Bank paid the seller of goods under