BLT (CASE ANALYSIS)

FACTS

The case of G.R. No. 201892 was about a certain Rafael Martinez obtaining a loan
amounting Php.160,000.00 from a creditor on July 30, 1992. In their agreed upon
conditions, the borrowed money had a five-percent (5%) monthly interest which was
payable to the next six months. Moreover, a parcel of land was used as a real estate
mortgage which was readied by a Transfer Certificate of Title (TCT) No. T-208400.
However, circumstances occurred and Rafael failed to pay the promised amount of
money upon the maturation date heedless of the repeated demands from the creditor.
As a result, the creditor as the petitioner of the case, headed to the RTC of Imus, Cavite
Branch 90 on November 10, 1995 to file a Complaint for Judicial Foreclosure of Real
Estate Mortgage in the RTC which was docketed as Civil Case No. 1208-95.

Again, Rafael failed to give his answer, and upon petitioner’s motion, the case
was declared default. Meaning that, the mortgaged real estate was automatically
transferred to the petitioner. However, after RTC-Imus reviewed the evidence
presented by the petitioner, the agreed upon 5% interest rate was considered usurious
or exceeding, thus RTC-Imus reduced the amount to 12% per year and issued a
decision on January 30, 1998 ordering Rafael to pay the petitioner the amount of
Php.229, 200.00, which included the principal amount Php.160,000.00 and the accrued
interest of Php.59,200.00 from July 30, 1992 to September 30, 1995.

Since the Decision on January 30, 1998 had no records of attained finality,
Rafael, on the other hand, was unnoticed of the said decision issued by RTC-Imus.
Unknowingly, the respondent submitted an amount of Php.400,000.00 from the total
amount of Php.689,000.00 as the perceived obligation of Rafael to the petitioner. The
respondent then made a promissory note on February 20, 1998 stating to pay the
remaining balance of Php.289,000.00 on or before March 31, 1998. However, after
learning of the January 30, 1998 decision, the respondent refused to acknowledge what
was covered in the promissory note, which prompted another complaint from the
petitioner for the sum of money and damages on July 2, 1998. The respondent filed his
answer, and in his defence, the petitioner no longer had reasons against him as he had
already fully settled Rafael’s obligation, in fact, it was more than the amount due under
the loan which was only Php.229,200.00 as decided by the RTC-Imus in the judicial
foreclosure case. Accordingly, the respondent warranted the return of the excess
payment, release of the mortgage, the payment of moral and exemplary damages,
including the attorney’s fees and litigation expenses, and the dismissal of the complaint
against him.

COURT A QUO'S RULING

Petitioner went to RTC Las Pinas to file a complaint for the sum of money and
damages.

In the August 2003 decision (RTC Las Pinas; Court a quo), petitioner's complaint was
denied. The court argued that the payment of 400,000 of the debt is already excess of
what was demanded by RTC Imus, adjudged to be only 229,200. It also found that
petitioner can no longer recover the promissory note of 289,000 since RTC Imus
already ordered Rafael to pay at a lower amount (229,200). Total debt of Rafael to the
petitioner is 689,000.

However, the August 2003 decision was reversed by the new November 2003 decision
seeking a motion for reconsideration on the part of the petitioner. It argued that the
action of collection and foreclosure cases are distinct, and failure by respondent to
satisfy the PN will warrant petitioner to seek judicial relief. Foreclosure cases are cases
filed concerning the ownership of a mortgaged property in cases of default in the
amount due to the lender. It also declared that the 5% monthly interest is no longer
usurious, scraped by the suspension of the Usury Law. Accordingly, the PN (289,000)
must be paid by petitioner, plus legal interest rate reckoned from the last judicial
demand, including attorney's fees and costs of suit. Respondent filed a motion for
reconsideration in RTC Las Pinas, but was denied (January 2004 decision).
Consequently, he took the case to the CA.

Court of Appeals' ruling

In the CA November 2004 decision, the court recalled and reversed the November 2003
decision (granting of the motion for reconsideration of petitioner) and the January 2004
decision (denial of the motion for reconsideration of respondent). It promulgated the res
judicata doctrine (prevention of relitigation based on the merits) as applying to the case.
It ruled that the filing of the judicial foreclosure case and collection cases is due to
Rafael's obligation to the petitioner, which was subject to the real estate mortgage and
the primary execution for the PN. Accordingly, the CA ruled that the verdict for the
foreclosure case is valid and conclusive on the collection case. It means that the
respondent should have only paid the 229,200. It also means that the 5% monthly
interest is usurious, and that the PN of 289,000 can no longer be recovered. Petitioner
filed a motion for reconsideration, which was denied.
Aggrieved, the petitioner went to the Supreme Court.

Supreme Court's Ruling

ISSUE: Was the dismissal of the collection case by the CS is proper? Yes. – no res
judicata but it is barred by litis pendentia.

HELD: After a punctilious review of the records, the Court finds the principle of res
judicata to be inapplicable to the present case. This is because the records are bereft of
any indication that the August 28, 2003 Decision in the judicial foreclosure case had
already attained finality.

This notwithstanding, the Court holds that petitioner's prosecution of the collection case
was barred, instead, 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.

Petitioner cannot split her cause of action on Rafael’s unpaid loan obligation by filing a
petition for the judicial foreclosure of the real estate mortgage covering the said loan,
and thereafter, a personal action for the collection of the unpaid balance of said
obligation not comprising a deficiency arising from foreclosure, without violating the
proscription against splitting a single cause of action, where the ground for dismissal is
either res judicata or litis pendentia.

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,36 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 petitioner, 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 Rafael's debt. In light of the foregoing discussion, 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.

Remedies

The creditor has a single cause of action against the debtor for nonpayment of a
mortgage-secured note. This single cause of action consists in reimbursing the credit
through the execution of the security. In other words, the creditor may make two
demands in his action: payment of the debt and foreclosure of his mortgage. However,
because both demands stem from the same cause, nonpayment of the debt, they
constitute a single cause of action. Although the debt and the mortgage are separate
agreements, the latter is subsidiary to the former and refers to the same obligation. As a
result, there is only one cause of action for a single violation of that obligation. Plaintiff.
By applying the preceding rule, he cannot divide his single cause of action by filing a
complaint (or payment of the debt) and then another complaint (or foreclosure of the
mortgage); if he does, the filing of the first complaint will restrict the succeeding
complaint. By permitting the creditor to file two separate complaints, one to recover his
credit and the other to foreclose his mortgage, we are effectively authorizing him to seek
multiple remedies for a single breach of contract at such a high cost to the courts and
with such vexation and oppression on the debtor.
Even though petitioner had already initiated judicial foreclosure process over the
mortgaged property, she is now forbidden from bringing an ordinary action for collection,
regardless of whether the foreclosure case's decision had reached finality. In
conclusion, the collection case should be dismissed. However, because respondent's
claim for return of excess payment is of the nature of a mandatory counterclaim and
thus survives the dismissal of petitioner's collection suit, it should be settled on its own
merits and evidence.
Records show that, aside from the issue of interest, the parties did not dispute
the principal loan obligation or the payments made. Nevertheless, the Court finds the
stipulated 5% monthly interest rate to be excessive and unjustifiable. In numerous
cases, the Court has ruled that stipulated interest rates of three percent (3°/o) or higher
per month are excessive, unfair, and unjustifiable, and thus illegal and void for being
contrary to morals. As a result, the stipulated 5% monthly interest rate should be
reduced to 1% per month, or 12% per annum. Calculated from the date of the real
estate mortgage's execution on July 30, 1992.
 As a result, as of January 30, 1998, only $265,600.00 was due under the loan
contract, and receipt of any amount in excess of that makes the petitioner liable for the
return of the excess. Respondent, on the other hand, made a further payment of Pl
00,000.0057 in the belief that the subject loan obligation had not yet been satisfied.
Such payments were clearly made in error, giving rise to the quasi-contractual
obligation of solutio indebiti under Civil Code Article 2154 in relation to Article 2163. An
interest rate of 6% p.a. is charged in the absence of a loan or forbearance of funds
should be sanctioned on the amount to be refunded as well as any damages and
attorney's fees awarded, computed from the time of demand until it is satisfied. As a
result, petitioner must return to respondent the excess payments totaling 134,400.00,
plus legal interest at the rate of 6% p.a. from the date of filing of the Answer on August
6, 1998, attaching a counterclaim for such overpayment, until fully settled.
Moreover, because the court a quo failed to state the factual or legal basis for
awarding attorney's fees to the respondent in the body of its decision, as required by
Article 2208 of the New Civil Code, the Court resolves to delete the same. The rule is
well established that the trial court must clearly indicate the reasons for awarding
attorney's fees in the body of its decision, not just in the definitive portion, because
appellate courts are not permitted to supplement the bases for such award.
Finally, in the absence of evidence that the court a quo's award of respondent's
costs of suit was manifestly capricious, the Court sees no reason to disturb it.
As a result, the petition is denied. The Court of Appeals' Decision dated
November 4, 2011 and Resolution dated May 14, 2012 in CA-G.R. CV No. 81258,
reinstating the court a quo's Decision dated August 28, 2003 in Civil Case No. 98-0156,
is hereby affirmed with the following modifications: (a) directing petitioner Norlinda S.
Marilag to return to respondent Marcelino B. Martinez the latter's excess payments
totaling 134,400.00, plus legal interest at the rate of 6 percent p.a. from the time the
Answer was filed on August 6, 1998 until full satisfaction; and (b) removing the award of
attorney's fees.

ISSUE: Was the dismissal of the collection case by the CS is proper? Yes. – no res
judicata but it is barred by litis pendentia.

• HELD: After a punctilious review of the records, the Court finds the principle of res
judicata to be inapplicable to the present case. This is because the records are bereft of
 any indication that the August 28, 2003 Decision in the judicial foreclosure case had
already attained finality.
• This notwithstanding, the Court holds that petitioner’s prosecution of the collection case
was barred, instead, by the principle of litis pendentia
• Petitioner cannot split her cause of action on Rafael’s unpaid loan obligation

• 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.

The rule in loan contracts secured by a real estate mortgage is that the creditor-
mortgagee has a single cause of action against the debtor-mortgagor, namely, to recover
the debt, either by filing a personal action for collection of a sum of money or by
instituting a real action to foreclose on the mortgage security. If a real estate mortgage is
foreclosed, the creditor-mortgagee revokes the action for collection of the unpaid debt
except for recovery of whatever deficiency may remain in the outstanding obligation. A
deficiency judgment may be issued only after it is proven that the mortgaged property
was sold at public auction for less than owed.
These two remedies are alternative, not cumulative or successive, and each is
complete in its own right.

In this case…

Petitioner's argument that the judicial foreclosure and collection cases

enforce separate rights

But according to the rules in loan contracts secured by a real estate

mortgage, The Deed of Real Estate Mortgage and the subject PN both refer to one
and the same obligation, i.e., Rafael's loan obligation.

Petitioner cannot split her cause of action on Rafael's unpaid loan

obligation by filing a petition for judicial foreclosure of the real estate mortgage
covering the loan and then a personal action for collection of the unpaid balance
of said obligation that does not include a deficiency arising from foreclosure. The
fact that no foreclosure sale appears to have taken place is irrelevant because the
remedy of mortgage foreclosure is deemed chosen upon the filing of the
complaint.

Since the petitioner had already begun judicial foreclosure proceedings on

the mortgaged property, she is now barred from filing a regular collection action,
regardless of whether the foreclosure decision has been finalized.

In the end, the collection case should be dismissed.

Back to you, Christian.

BASIN DILI MAAPIl SAKO PART

In relation to the decision of the Supreme Court on the excess payment

Respondent, made a payment of P400,000.00 in the belief that the subject loan
obligation had not yet been satisfied. As a result, such payments were clearly made in
error, giving rise to the quasi-contractual obligation of solutio indebiti.
Solutio indebiti as what mentioned earlier, is a quasi-contractual obligation under
Civil Code Article 2154 in relation to Civil Code Article 2163. An interest rate of 6% p.a.
is charged in the absence of a loan or forbearance of funds should be imposed against
the amount to be refunded.
As a result, the petitioner must return to the respondent the excess payments of
134,400.00 pesos plus legal interest at the rate of 6% per annum. from the date the
answer was filed, interposing a counterclaim for such overpayment until it was fully
settled.

In relation to the decision of the Supreme Court on the awarding of the respondent
attorney’s fees
The Court resolves to dismiss the award of attorney's fees to the respondent
since the court a quo failed to identify the legal basis for the award in the body of
its decision, as required by Article 2208 of the New Civil Code. The rule is well-
established that the trial court must specify the reasons for awarding attorney's
fees in the body of the decision, not just in the contradictory portion, because
appellate courts cannot supplement the foundation for such an award. Finally, in
the absence of evidence that the court a quo's award of respondent's costs of complaint
was manifestly capricious, the Court sees no reason to reverse it.

Back to you, Christian.

DO NOT INCLUDE

In relation to promissory note

Rafael was sued for collection on the basis of a promissory note signed by the
respondent, who was not the original debtor. This is not a new and distinct loan
agreement that would have resulted in a second cause of action if there had been a
breach.
A contract's parties must openly admit that their previous contract is being
dissolved in favor of a new one, which was not stated in the promissory note.
Accepting payments from a third party who has assumed the responsibility,
according to case law, will result in the addition of debtors rather than mutual consent,
and the creditor will be entitled to enforce the obligation against both debtors.

In relation to the matter of interest

The Court finds the stipulated 5% monthly interest to be excessive and
unjustifiable, and thus illegal and void for being deeply immoral. In several cases, the
Court has ruled that stipulated interest rates of three percent (3°/o) or higher per month
are excessive and unjust. As a result, the stipulated 5% monthly interest rate should be
reduced to 1% per month, or 12% per annum. calculated from the date of the real estate
mortgage's execution. That is why RTC-lmus issued a Decision, ordered Rafael to pay
petitioner the amount of ₱229,200.00 consisting of the principal of ₱160,000.00 and accrued
interest of ₱59,200.00 from July 30, 1992 to September 30, 1995.

The decision of the Supreme Court

WHEREFORE, the petition is DENIED and is hereby AFFIRMED with the
following MODIFICATIONS: (a) directing petitioner Norlinda S. Marilag to return to
respondent Marcelino B. Martinez the latter's excess payments totaling 134,400.00, plus
legal interest at the rate of 6% p.a. from the time the Answer was filed on August 6,
1998 until full satisfaction; and (b) removing the award of attorney's fees.
Art. 2154. If something is received when there is no right to demand it, and it was
unduly delivered through mistake, the obligation to return it arises.

The quasi-contract of solutio indebiti harks back to the ancient principle that no one
shall enrich himself unjustly at the expense of another. 17

In order to establish the application of solutio indebiti in a given situation, two

conditions must concur: (1) a payment is made when there exists no binding
relation between the payor who has no duty to pay, and the person who received the
payment, and (2) the payment is made through mistake, and not through liberality or
some other cause.18 In the instant case, the Court finds that the essential requisites
of solutio indebiti are not present.

Art. 2163. It is presumed that there was a mistake in the payment if something which
had never been due or had already been paid was delivered; but he from whom the
return is claimed may prove that the delivery was made out of liberality or for any
other just cause.

Article 2208 of the New Civil Code of the Philippines states the policy that should guide
the courts when awarding attorney’s fees to a litigant. As a general rule, the parties may
stipulate the recovery of attorney’s fees. In the absence on such stipulation, this article
restrictively enumerates the instances when these fees may be recovered, to wit:

Art. 2208. In the absence of stipulation, attorney's fees and expenses of litigation, other
than judicial costs, cannot be recovered, except:

(1) When exemplary damages are awarded;

(2) When the defendant's act or omission has compelled the plaintiff to litigate
with third persons or to incur expenses to protect his interest;

(3) In criminal cases of malicious prosecution against the plaintiff;

(4) In case of a clearly unfounded civil action or proceeding against the plaintiff;

(5) Where the defendant acted in gross and evident bad faith in refusing to
satisfy the plaintiff's plainly valid, just and demandable claim;

(6) In actions for legal support;

(7) In actions for the recovery of wages of household helpers, laborers and
skilled workers;
 (8) In actions for indemnity under workmen's compensation and employer's
liability laws;

(9) In a separate civil action to recover civil liability arising from a crime;

(10) When at least double judicial costs are awarded;

(11) In any other case where the court deems it just and equitable that attorney's
fees and expenses of litigation should be recovered.

In all cases, the attorney's fees and expenses of litigation must be reasonable.