Raffy, Lino’s father, obtained from Linda a loan, with a stipulated monthly interest of 5 percent, payable within a period of six months. The loan was secured by a real estate mortgage over a parcel of land.
Raffy failed to settle his obligation upon maturity despite repeated demands, prompting Linda to file a complaint for Judicial Foreclosure of Real Estate Mortgage (the foreclosure case).
Raffy failed to file his answer and, upon Linda’s motion, was declared in default. After an ex parte presentation of Linda’s evidence, the court issued a decision in the foreclosure case, declaring the stipulated 5 percent monthly interest to be usurious and reducing the same to 12 percent a year. Accordingly, it ordered Raffy to pay Linda the principal of P160,000 and accrued interest. The records do not show that this decision had already attained finality.
Meanwhile, prior to Raffy’s notice of the above decision, Lino agreed to pay his father’s obligation to Linda at a pegged amount.
After making a substantial partial payment, Lino executed a promissory note (PN) binding himself to pay the remaining amount, “representing the balance of the agreed financial obligation of his father to Linda.” After learning of the decision in the foreclosure case, Lino refused to pay the amount covered by the subject PN, prompting Linda to file a complaint for sum of money and damages (the collection case).
Lino filed his answer, contending that Linda has no cause of action against him. He averred that he has fully settled his father’s obligation and that he committed a mistake in paying more than the amount due under the loan, as adjudged by the court in the judicial foreclosure case which, thus, warranted the return of the excess payment.
He thus prayed for the dismissal of the complaint, and interposed a compulsory counterclaim for the release of the mortgage, the return of the excess payment, and the payment of moral and exemplary damages, attorney’s fees and litigation expenses.
Q: Is Linda’s collection case proper and permissible?
A: No, it should be dismissed on the ground of litis pendentia.
Litis pendentia, as a ground for the dismissal of a civil action, refers to that situation where in another action is pending; between the same parties for the same cause of action, such that the second action becomes unnecessary and vexatious. The underlying principle of litis pendentia is the theory that a party is not allowed to vex another more than once regarding the same subject matter and for the same cause of action.
This theory is founded on the public policy that the same subject matter should not be the subject of controversy in courts more than once, in order that possible conflicting judgments may be avoided for the sake of the stability of the rights and status of persons, and also to avoid the costs and expenses incident to numerous suits.
Consequently, a party will not be permitted to split up a single cause of action and make it a basis for several suits as the whole cause must be determined in one action.
Q: Why is the principle of litis pendentia applicable in this case?
A: Linda’s prosecution of the collection case was barred by the principle of litis pendentia in view of the substantial identity of parties and singularity of the causes of action in the foreclosure and collection cases, such that the prior foreclosure case barred petitioner’s recourse to the subsequent collection case.
In loan contracts secured by a real estate mortgage, the rule is that the creditor-mortgagee has a single cause of action against the debtor-mortgagor, i.e., to recover the debt, through the filing of a personal action for collection of sum of money or the institution of a real action to foreclose on the mortgage security.
The two remedies are alternative, not cumulative or successive, and each remedy is complete by itself. Thus, if the creditor-mortgagee opts to foreclose the real estate mortgage, he waives the action for the collection of the unpaid debt, except only for the recovery of whatever deficiency may remain in the outstanding obligation of the debtor-mortgagor after deducting the bid price in the public auction sale of the mortgaged properties.
Accordingly, a deficiency judgment shall only issue after it is established that the mortgaged property was sold at public auction for an amount less than the outstanding obligation.
In the present case, records show that Linda, as creditor-mortgagee, instituted an action for judicial foreclosure pursuant to the provisions of Rule 68 of the Rules of Court in order to recover on Raffy’s debt. The availment of such remedy thus bars recourse to the subsequent filing of a personal action for collection of the same debt, in this case, under the principle of litis pendentia, considering that the foreclosure case only remains pending as it was not shown to have attained finality.
As Linda had already instituted judicial foreclosure proceedings over the mortgaged property, she is now barred from availing herself of an ordinary action for collection, regardless of whether or not the decision in the foreclosure case had attained finality. In fine, the dismissal of the collection case is in order.
Q: Was Lino correct in saying that there was overpayment?
A: Yes, records show that other than the matter of interest, the principal loan obligation and the payments made were not disputed by the parties. Nonetheless, he stipulated 5 percent monthly interest to be excessive and unconscionable.
In a plethora of cases, the Court has affirmed that stipulated interest rates of 3 percent a month and higher are excessive, iniquitous, unconscionable and exorbitant, hence, illegal and void for being contrary to morals.
As such, the stipulated 5 percent monthly interest should be equitably reduced to l percent a month or 12 percent per year reckoned from the execution of the real estate mortgage on July 30, 1992. Based on this, Linda received more than what was due.
Such payments were, therefore, clearly made by mistake, giving rise to the quasi-contractual obligation of solutio indebiti under Article 2154 in relation to Article 2163 of the Civil Code. Not being a loan or forbearance of money, an interest of 6 percent a year should be imposed on the amount to be refunded and on the damages and attorney’s fees awarded, if any, computed from the time of demand until its satisfaction. (Source: Marilag vs Martinez, G.R. No. 201892, July 22, 2015)
The author is Dean of Lyceum of the Philippines University; Chairman of Philippine Association of Law Schools; and founder of Mawis Law Office