Petitioner opened with respondent a domestic letter of credit (LOC) in favor of Ekman and Company, Inc. (Ekman) for the purchase of five hydraulic loaders. The first three hydraulic loaders were received by the petitioner before the expiry of LOC and respondent paid Ekman. The remaining two hydraulic loaders were received by the petitioner after the expiry of LOC/contract but respondent still paid Ekman. Petitioner refused to pay respondent. Respondent filed a case. Petitioner answered by way of affirmative defense that respondent had no cause of action being allegedly in bad faith and breach of contract. The trial court and Court of Appeals ruled in favor of respondent to recover from the cost of two hydraulic loaders.
Whether or not the respondent is entitled of reimbursement from petitioner for its payment out of mutual negligence.
YES. Petitioner should pay respondent bank the amount the latter expended for the equipment belatedly delivered by Ekman and voluntarily received and kept by petitioner. Respondent bank’s right to seek recovery from petitioner is anchored, not upon the inefficacious Letter of Credit, but on Article 2142 of the Civil Code which reads: “Certain lawful, voluntary and unilateral acts give rise to the juridical relation of quasi-contract to the end that no one shall be unjustly enriched or benefited at the expense of another.” When both parties to a transaction are mutually negligent in the performance of their obligations, the fault of one cancels the negligence of the other and, as in this case, their rights and obligations may be determined equitably under the law proscribing unjust enrichment.