Title
Philippine Stock Exchange, Inc. vs. Litonjua
Case
G.R. No. 204014
Decision Date
Dec 5, 2016
PSE refused to refund P19M paid by Litonjua Group for a trading seat, despite failing to lift suspension. Courts ruled PSE unjustly enriched, ordering refund with damages and reduced interest.

Case Summary (G.R. No. 204014)

Salient Transaction Facts

On 20 April 1999 the Litonjua Group and Trendline Securities, Inc. (Trendline), through Trendline’s president Priscilla D. Zapanta, executed a letter-agreement whereby the Litonjua Group would acquire 85% of Trendline’s PSE membership seat for an aggregate price of P23,000,000. The Litonjua Group agreed to pay P18,547,643.81 directly to PSE to settle Trendline’s outstanding claims, with the balance to be paid after incorporation of the acquiring entity. Trendline confirmed the agreement.

PSE’s Communication and Payment Delivery

On 29 April 1999 PSE’s Business Conduct and Ethics Committee resolved to accept P19,000,000 as full settlement of Trendline’s obligations, to be paid by 13 May 1999. Thereafter, on 12–13 May 1999 the Litonjua Group delivered three checks payable to PSE amounting to P19,000,000. PSE received the checks on 13 May 1999 and issued an official receipt annotated that the checks were received as advance payment for full settlement of Trendline’s outstanding obligation.

Failure to Lift Suspension and Demand for Refund

Despite the payments and related exchanges, PSE did not lift Trendline’s suspension nor effect transfer of the membership seat. On 30 July 2006 the Litonjua Group demanded reimbursement of the P19,000,000 with interest on the ground that performance (transfer of the seat) was no longer possible; PSE refused. The Litonjua Group then filed a Complaint for Collection of Sum of Money with Damages before the RTC of Pasig City on 10 October 2006.

Trial Court Findings and Relief

The RTC found for the Litonjua Group, grounding the cause of action in solutio indebiti (Article 2154) and the unjust receipt of money by PSE. The court ordered PSE to pay P19,000,000 plus 12% interest per annum from 30 July 2006, exemplary damages of P1,000,000, attorney’s fees of P100,000, and costs of suit, reasoning that PSE had no right to receive the payment and its continued refusal to refund was wanton and oppressive under Article 2232.

Court of Appeals Ruling and Rationale

The Court of Appeals affirmed but relied principally on constructive trust and unjust enrichment rather than solutio indebiti. The CA held that retention of the P19,000,000 by PSE would result in unjust enrichment and equity required PSE to be treated as constructive trustee of the funds and to restore them to the Litonjua Group. The CA also rejected PSE’s reliance on Article 1236 (creditor may refuse third-party payment) because PSE’s subsequent acts evidenced a form of consent or conduct that estopped it from denying the effect of the payment.

Issues Presented to the Supreme Court

PSE’s petition raised: (1) whether PSE’s contemporaneous and subsequent acts made it a party to the letter-agreement; (2) inapplicability of Smith, Bell & Co.; (3) the correct reading and application of Article 1236 and its relation to Article 1293; (4) whether Trendline was the indispensable party; (5) whether PSE was unjustly enriched; (6) existence of constructive trust; and (7) entitlement to exemplary damages.

Supreme Court on Corporate Consent and Contractual Liability

The Supreme Court agreed that a valid contract requires consent (Arts. 1305, 1318–1319) and that a corporation’s consent is normally manifested through a board resolution, as corporate powers are exercised by the board (Corporation Code Sec. 23). The Court found no board resolution authorizing PSE to be bound by the April 1999 letter-agreement; PSE’s corporate secretary so testified and the Litonjuas admitted they did not secure a board resolution. Thus PSE was not a contractual party to the letter-agreement.

Supreme Court on Article 1236 and Proper Defendant

Although PSE argued Article 1236 made Trendline the appropriate debtor to refund the amount, the Court held Article 1236 inapplicable to preclude recovery from PSE. The Litonjua Group was not a disinterested third party: its payment was made in contemplation of acquiring the seat and based on an expectation that PSE would lift the suspension. Given those circumstances and PSE’s active participation in the transaction, recovery from PSE was appropriate despite the absence of a formal contractual relation.

Supreme Court on Unjust Enrichment and Estoppel

Applying Article 22 (unjust enrichment), the Court identified the two elements: (1) benefit to a person without valid basis and (2) such benefit at another’s expense. The Court concluded PSE was unjustly enriched by retaining and using the P19,000,000 without justification. Estoppel in equity also applied: PSE’s conduct (including acceptance of the checks and its communications) led the Litonjua Group reasonably to believe the payment would effect full settlement and seat reactivation; the Litonjua Group altered its position accordingly. PSE could not both deny being a party and assert a right to receive payment

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