G.R. No. 146021 , March 10, 2006
BANK OF THE PHILIPPINE ISLANDS, Petitioner, vs. ELIZABETH G. SARMIENTO, Respondent.

FACTS

Petitioner Bank of the Philippine Islands (BPI) filed a complaint for sum of money against its former Assistant Manager, respondent Elizabeth Sarmiento, to recover salary payments totaling P116,003.52 for the period from October 10, 1987, to June 30, 1988. BPI alleged that Sarmiento did not report for work during this period due to an internal investigation into alleged anomalous transactions at its España Branch, where she was assigned. BPI contended that the salary payments were made by mistake under the principle of “no work, no pay,” and sought reimbursement based on solutio indebiti.
Sarmiento countered that she was verbally instructed by BPI’s Vice President of the Audit Department, Arturo Kimseng, to stop reporting regularly while the investigation was ongoing to prevent any potential tampering with records or influence over subordinates. She argued that she remained a managerial employee during this period, was not suspended, and her termination only took effect on August 26, 1988. The Regional Trial Court dismissed BPI’s complaint, a decision affirmed by the Court of Appeals.

ISSUE

Whether the Court of Appeals erred in affirming the dismissal of BPI’s complaint for recovery of salary payments based on the principle of solutio indebiti.

RULING

The Supreme Court denied the petition and affirmed the appellate court’s decision. The legal logic centered on the inapplicability of solutio indebiti, which requires that a payment was made when no binding duty to pay existed and that it was delivered through mistake. The Court found both elements absent. First, an employer-employee relationship indisputably existed during the relevant period, as Sarmiento was only terminated in August 1988 and was never suspended. This relationship entitled her to her salary. Second, the payment was not made through mistake. The Court found credible Sarmiento’s claim that she was instructed not to report, a common practice to ensure investigation integrity, and noted the salary payments were made with the knowledge and approval of her superiors. Consequently, BPI failed to prove by preponderance of evidence that the payments were undue or mistaken. The principle of unjust enrichment underlying solutio indebiti did not apply, as Sarmiento’s receipt of salary was by right under the subsisting employment relation and pursuant to the bank’s own directive during the investigation.