View full case

NORLINDA S. MARILAG v. MARCELINO B. MARTINEZ

FACTS:

Petitioner Norlinda S. Marilag and respondent Marcelino B. Martinez are involved in a dispute over the payment of a loan obtained by respondent's father, Rafael Martinez, from petitioner. Rafael failed to settle his obligation, prompting petitioner to file a judicial foreclosure case. The Regional Trial Court (RTC-Imus) issued a decision reducing the interest rate and ordering Rafael to pay petitioner. Respondent then agreed to pay Rafael's obligation and made a partial payment. However, after learning of the RTC-Imus decision, respondent refused to pay the remaining amount.

Petitioner filed a collection case, but the court denied recovery, finding an excess payment and directing petitioner to return the said amount to respondent. However, the court later granted petitioner's motion for reconsideration and directed respondent to pay the remaining amount due under the promissory note. The Court of Appeals reversed this decision, upholding the dismissal of the collection case based on the principle of res judicata.

Petitioner filed a petition for review on certiorari to challenge the CA's decision. The issue for the Court's resolution is whether or not the CA committed reversible error in upholding the dismissal of the collection case.

ISSUES:

  1. Whether or not the principle of res judicata applies to the present case.

  2. Whether or not the principle of litis pendentia applies to the present case.

  3. Whether or not the filing of a petition for judicial foreclosure of a real estate mortgage and a personal action for the collection of the unpaid balance of the loan obligation violates the proscription against splitting a single cause of action.

  4. Whether or not the remedy of foreclosure of mortgage is deemed chosen upon the filing of the complaint.

  5. Whether the stipulated interest rate of 5% monthly is excessive and unconscionable.

  6. Whether the payments made by the respondent were in excess of his loan obligation, giving rise to the quasi-contractual obligation of solutio indebiti.

  7. Whether the court correctly awarded attorney's fees and costs of suit to the respondent.

RULING:

  1. The principle of res judicata does not apply to the present case. The first element of res judicata, which is a final judgment in the previous case, is not present as there is no indication that the previous decision has attained finality.

  2. The principle of litis pendentia applies to the present case. Litis pendentia refers to a situation where another action is pending between the same parties for the same cause of action. In this case, there is a substantial identity of parties and causes of action between the foreclosure and collection cases, and therefore the prior foreclosure case bars the subsequent collection case.

  3. The Supreme Court ruled that the filing of a petition for judicial foreclosure of a real estate mortgage and a personal action for the collection of the unpaid balance of the loan obligation violate the proscription against splitting a single cause of action. There exists only one cause of action for a single breach of the loan obligation. The creditor cannot split her cause of action by filing separate actions for foreclosure and collection.

  4. The remedy of foreclosure of mortgage is deemed chosen upon the filing of the complaint. The fact that no foreclosure sale has been conducted does not change this. Once the creditor chooses the remedy of foreclosure, she is barred from availing herself of an ordinary action for collection.

  5. The stipulated interest rate of 5% monthly is excessive and unconscionable. Stipulated interest rates of three percent (3%) per month and higher are deemed excessive, iniquitous, unconscionable, and exorbitant, and therefore illegal and void for being contrary to morals.

  6. The payments made by the respondent were in excess of his loan obligation, therefore giving rise to the quasi-contractual obligation of solutio indebiti. The petitioner is liable to return the excess payments to the respondent, with legal interest at the rate of 6% p.a. from the filing of the Answer until fully settled.

  7. The court failed to state the factual or legal basis for the award of attorney's fees, thus it is deleted. The award of costs of suit is upheld.

PRINCIPLES:

  • A case is barred by res judicata when the judgment sought to bar the new action is final, rendered by a court having jurisdiction, a judgment on the merits, and there is identity of parties, subject matter, and causes of action.

  • Litis pendentia refers to the situation wherein another action is pending between the same parties for the same cause of action. It requires identity of parties, identity of rights asserted and relief prayed for, and any judgment rendered in the pending case would amount to res judicata in the other. The principle of litis pendentia is based on the theory that a party is not allowed to vex another more than once regarding the same subject matter and cause of action.

  • The fact that the creditor accepts payments from a third person who has assumed the obligation results in the addition of debtors, not novation. The creditor may enforce the obligation against both debtors.

  • A single cause of action exists for the recovery of the credit with execution of the security. Both the debt and the mortgage refer to one and the same obligation.

  • The filing of a complaint for payment of the debt will bar a subsequent complaint for foreclosure of the mortgage. Allowing the creditor to file separate complaints for the same breach of contract leads to multiplicity of suits and subjects the defendant to vexation.

  • The remedy of foreclosure of mortgage is deemed chosen upon the filing of the complaint, regardless of whether or not a foreclosure sale has been conducted.

  • Once the creditor chooses the remedy of foreclosure, she is barred from filing an ordinary action for collection.

  • Stipulated interest rates of three percent (3%) per month and higher are excessive, iniquitous, unconscionable, and exorbitant, and therefore illegal and void for being contrary to morals.

  • The quasi-contractual obligation of solutio indebiti arises when there is payment made by mistake in the belief of an existing debt which is not due.

  • The court must clearly state the reasons for awarding attorney's fees in the body of its decision, not merely in its dispositive portion.