The Supreme Court clarified that an implied contract of sale exists when the conduct of involved parties clearly demonstrates an intention to enter into an agreement. Specifically, if one party provides goods or services expecting payment and the other accepts them knowing payment is expected, a binding contract is formed. This means businesses must recognize their actions can create legal obligations even without a signed document.

From University Walls to Unpaid Bills: Who Pays When Promises Aren’t Written?

The University of the Philippines (UP) found itself in a legal battle over unpaid laboratory furniture. Philab Industries, Inc. (PHILAB) delivered the furniture to UP’s Los Baños campus upon the request of the Ferdinand E. Marcos Foundation (FEMF), which initially agreed to fund the purchase. When FEMF failed to fully pay, PHILAB sued UP, arguing that the university benefited from the furniture and should cover the remaining balance. The central legal question was whether an implied contract existed between UP and PHILAB, or whether FEMF was solely responsible for the payment. The trial court initially dismissed the case, pointing PHILAB towards FEMF’s assets. However, the Court of Appeals reversed this decision, stating that UP was liable based on the principle of unjust enrichment.

The Supreme Court, however, disagreed with the Court of Appeals’ assessment. The Court emphasized that for an implied contract to exist, there must be a clear indication that both parties intended to enter into an agreement. This means, it has to be obvious from their conduct and circumstances that one party expected to be paid, and the other intended to pay. The court found that PHILAB was always aware that FEMF would be responsible for payment. This understanding was evident from the beginning, as FEMF made partial payments directly to PHILAB, who then issued receipts under FEMF’s name. Furthermore, PHILAB itself had attempted to collect the remaining balance from FEMF, including an appeal to former President Aquino for assistance.

The Supreme Court also explained the concept of an implied-in-fact contract. This type of contract arises from the circumstances and conduct of the parties involved. This isn’t from explicit words, but a mutual intention to form an agreement, creating an obligation. The actions of a reasonable person would clearly show that one party expected compensation and the other to pay. In this context, the court noted that the conduct of PHILAB showed their belief that FEMF was responsible for the payment. They submitted invoices to FEMF through UP, and sought FEMF’s approval. This was clear because they expected the FEMF to handle the final balance, reinforcing the notion of an implied agreement between PHILAB and FEMF.

The Court further addressed the principle of unjust enrichment, which the Court of Appeals used to justify holding UP liable. The Supreme Court pointed out that unjust enrichment applies only when a party receives something of value without just or legal ground and that it would be unjust to allow them to retain that benefit. However, it emphasized that to substantiate this claim, a party must have knowingly received something they are not entitled to. The doctrine cannot be invoked when one party benefits simply from the efforts or obligations of others, as it requires illegally and unlawfully receiving those benefits.

Specifically, Article 22 of the New Civil Code states:

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 Supreme Court found that UP legally acquired the furniture through its Memorandum of Agreement (MOA) with FEMF, establishing a just and legal ground for their possession of the items. Furthermore, PHILAB had a remedy against FEMF based on the implied-in-fact contract between them, negating the need to invoke the principle of unjust enrichment against UP. Therefore, the principle was not valid here because there was justification for UP’s acquisition of the benefits and PHILAB had other actions they could have taken to get proper remuneration.

FAQs

What was the key issue in this case?	The central issue was whether an implied contract existed between the University of the Philippines (UP) and Philab Industries, Inc. (PHILAB) for the supply of laboratory furniture, making UP liable for the unpaid balance.
What is an implied-in-fact contract?	An implied-in-fact contract arises from the conduct of the parties, showing a mutual intention to contract, even without explicit words. It is inferred from the facts and circumstances indicating that one party expects compensation, and the other intends to pay.
Why did the Supreme Court rule in favor of UP?	The Supreme Court ruled in favor of UP because PHILAB was aware that the Ferdinand E. Marcos Foundation (FEMF) would pay for the furniture. This awareness, coupled with FEMF’s partial payments, created an implied-in-fact contract between PHILAB and FEMF, not UP.
What is the principle of unjust enrichment?	Unjust enrichment occurs when one party benefits at the expense of another without just or legal ground. For this principle to apply, the enrichment must be unjust, meaning illegal or unlawful, and the claimant must have no other action based on contract, quasi-contract, crime, or quasi-delict.
Why didn’t the principle of unjust enrichment apply to UP?	The principle of unjust enrichment did not apply because UP legally acquired the furniture through a Memorandum of Agreement with FEMF. Additionally, PHILAB had a viable claim against FEMF based on an implied-in-fact contract, meaning an alternative legal remedy existed.
Did PHILAB have any recourse to recover the unpaid balance?	Yes, PHILAB had recourse against FEMF based on the implied-in-fact contract for the payment of its claim. The Supreme Court emphasized that the circumstances indicated that the FEMF would be responsible to provide full and fair compensation.
What evidence suggested an implied contract between PHILAB and FEMF?	Evidence included FEMF’s direct payments to PHILAB, PHILAB issuing receipts under FEMF’s name, and PHILAB’s attempts to collect the balance from FEMF. These actions consistently demonstrated the agreement that FEMF held the obligation to pay.
What practical lesson does this case offer to businesses?	This case demonstrates that business conduct can imply contractual obligations, even without a formal written agreement. Businesses must be mindful of their interactions, as their actions can create enforceable agreements.

The Supreme Court’s decision underscores the importance of clearly defined contracts and the need to understand how implied agreements can arise from business dealings. Businesses must exercise caution and ensure that payment responsibilities are clearly established in their transactions to avoid future disputes.

For inquiries regarding the application of this ruling to specific circumstances, please contact ASG Law through contact or via email at frontdesk@asglawpartners.com.

Disclaimer: This analysis is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please consult with a qualified attorney.
Source: UNIVERSITY OF THE PHILIPPINES VS. PHILAB INDUSTRIES, INC., G.R. No. 152411, September 29, 2004