Flores vs. Lindo, Jr.

While a mortgage-creditor generally has a single cause of action and must elect between a real action for foreclosure or a personal action for collection, the principle against unjust enrichment overrides this procedural rule when a debtor admits the obligation but the creditor was precluded from foreclosure due to an erroneous lower court ruling declaring the mortgage void.

The dispute arose from a loan obtained by the wife, Edna Lindo, secured by a mortgage on conjugal property executed without the contemporaneous written consent of her husband, Enrico. The procedural conflict emerged when the creditor, Flores, attempted to foreclose on the property but was denied by the trial court due to the alleged invalidity of the mortgage, prompting him to file a subsequent personal action to collect the debt which the respondents challenged as a prohibited splitting of a single cause of action.

• On October 31, 1995, Edna Lindo obtained a P400,000 loan from Arturo Flores, secured by a Deed of Real Estate Mortgage (REM) on a property owned by Edna and her husband, Enrico.
• Edna signed the REM for herself and as attorney-in-fact for Enrico, but Enrico’s Special Power of Attorney (SPA) was dated November 4, 1995, four days after the execution of the REM.
• Edna issued checks for partial payments which were dishonored for insufficiency of funds, leading Flores to file a Complaint for Foreclosure of Mortgage with RTC Branch 33.
• RTC Branch 33 ruled that Flores was not entitled to judicial foreclosure because the REM was void for lack of Enrico's consent at the time of execution, but explicitly ruled that Flores could still recover the loan through a personal action.
• Relying on the RTC Branch 33 decision, Flores filed a separate Complaint for Sum of Money with RTC Branch 42.
• Respondents admitted the existence of the loan (though disputed the amount) but filed a Motion to Dismiss based on improper venue, res judicata, and forum shopping, arguing that Flores split his cause of action.
• RTC Branch 42 denied the motion to dismiss, but the Court of Appeals subsequently set aside this order and dismissed the case, ruling that filing the foreclosure suit waived the personal action.

• Petitioner argued that he should be allowed to pursue the collection suit because the initial trial court (RTC Branch 33) expressly declared that while foreclosure was unavailable, he could file a personal action to recover the loan.
• Petitioner relied on the lower court's ruling and the fact that the respondents admitted the obligation existed.

• Respondents argued that the filing of the collection suit violated the rule against multiplicity of suits and splitting a single cause of action.
• Respondents contended that by choosing to file for foreclosure initially, the petitioner waived his right to file a personal action for collection.
• Respondents claimed the loan amount was only P340,000, not P400,000, and that the husband was not a party to the loan.

• Procedural Issues:
  • Whether the Court of Appeals erred in dismissing the complaint for collection of sum of money on the ground of multiplicity of suits (splitting a single cause of action).
• Substantive Issues:
  • Whether the principle against unjust enrichment allows the creditor to pursue a personal action for collection despite having previously filed a dismissed foreclosure action.

• Procedural:
  • The Supreme Court acknowledged the general rule that a mortgage-creditor has a single cause of action (to recover the debt) and must choose between foreclosure or collection; electing one bars the other. However, the Court ruled that the Court of Appeals erred in strictly applying this rule because RTC Branch 33 had erroneously declared the mortgage void and explicitly directed the petitioner to file a personal action. The Court noted that under Article 124 of the Family Code, the mortgage was actually valid because the subsequent SPA perfected the continuing offer, but since the petitioner did not appeal the first decision, he was left with the remedy suggested by the trial court.
• Substantive:
  • The Court ruled in favor of the petitioner based on the principle against unjust enrichment. Since Edna Lindo admitted to obtaining the loan and it remained unpaid, preventing the petitioner from collecting the debt due to procedural technicalities would allow the respondents to unjustly enrich themselves at the petitioner's expense. The Court held that substantive law (unjust enrichment) should prevail over the procedural rule on multiplicity of suits in this specific context.

• Remedies of Mortgage-Creditor — A mortgage-creditor has the option of either filing a personal action for collection of sum of money or instituting a real action to foreclose on the mortgage security. These remedies are alternative, not cumulative, and the election of one generally bars recourse to the other to prevent multiplicity of suits.
• Unjust Enrichment — Codified in Article 22 of the Civil Code, this principle mandates that no person shall unjustly retain a benefit to the loss of another without just or legal ground. In this case, the Court used this doctrine to allow the collection suit to proceed despite the procedural bar, preventing the debtor from escaping liability for an admitted loan.
• Spousal Consent as Continuing Offer (Article 124, Family Code) — A disposition or encumbrance of conjugal property without spousal consent is void, but the transaction constitutes a "continuing offer" that may be perfected as a binding contract upon acceptance by the other spouse. The Court interpreted the husband's execution of an SPA four days after the mortgage as an acceptance that validated the mortgage, contrary to the lower court's finding.

• "The rule is that a mortgage-creditor has a single cause of action against a mortgagor-debtor, that is, to recover the debt."
• "The main objective of the principle against unjust enrichment is to prevent one from enriching himself at the expense of another without just cause or consideration."
• "Edna should not be allowed to unjustly enrich herself because of the erroneous decisions of the two trial courts when she questioned the validity of the Deed."

• Chieng v. Santos — Cited to support the rule that remedies are alternative, but also used as precedent where the Court pro hac vice allowed recovery of a loan balance to prevent unjust enrichment.
• Bachrach Motor Co., Inc. v. Icarañgal — Cited as the authority establishing that splitting causes of action subjects the defendant to unnecessary vexation and costs.
• Tanchan v. Allied Banking Corporation — Cited to reaffirm that a mortgage-creditor has a single cause of action and must elect between collection or foreclosure.

• Article 22, Civil Code — Provides the statutory basis for the principle of unjust enrichment ("Every person who... acquires or comes into possession of something at the expense of the latter without just or legal ground, shall return the same to him").
• Article 124, Family Code — Cited to explain that the mortgage was legally valid as a "continuing offer" perfected by the husband's subsequent SPA, rendering the initial trial court's decision erroneous.
• Rule 2, Section 3, 1997 Rules of Civil Procedure — Cited by the Court of Appeals regarding the prohibition against instituting more than one suit for a single cause of action.