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Question
Rico mistakenly transfers PHP 1,200,000 to Liza, believing Liza owes him a settled amount. In truth, no debt exists. Liza accepts in good faith and uses PHP 800,000 to pay her suppliers and PHP 300,000 to purchase equipment; she keeps PHP 100,000 in cash. After Rico discovers the error, he demands return of PHP 1,200,000. Liza contends that her good faith and the use of the funds to discharge her own obligations justify retaining part of the sum, and that she should not be liable for the full amount. (a) Identify the primary doctrine governing this scenario and state the controlling rule. (b) Does Liza's good faith affect her obligation to return the money? Explain with respect to restitution and possible damages. (c) Apply the rule to the facts and state the result for Rico and Liza, including whether any interest or fruits are involved and why.