Marilag vs. Martinez

• A creditor-mortgagee has a single and indivisible cause of action to recover a debt secured by a mortgage. The remedies of a personal action for collection and a real action to foreclose the mortgage are alternative. Choosing one remedy, by filing a complaint therefor, bars the subsequent pursuit of the other for the same underlying obligation.
• A stipulated interest rate of 5% per month (60% per annum) is excessive, unconscionable, and void. It shall be equitably reduced to 1% per month or 12% per annum.

Rafael Martinez obtained a loan from petitioner Norlinda Marilag, secured by a real estate mortgage. Upon Rafael's default, Marilag filed a judicial foreclosure case. Before the foreclosure case became final, Rafael's son, respondent Marcelino Martinez, assumed the debt and executed a promissory note for the remaining balance. After learning the foreclosure court had reduced the interest, Marcelino refused to pay the promissory note, leading Marilag to file a separate collection case.

• Filed in RTC (Collection Case, Civil Case No. 98-0156).
• RTC initially dismissed the collection case (Decision dated August 28, 2003), finding solutio indebiti and ordering return of excess payment.
• RTC reversed itself on reconsideration (Order dated November 3, 2003), reinstating the collection case.
• CA recalled the RTC's reversal and reinstated the original RTC dismissal (Decision dated November 4, 2011).
• SC denied the petition and affirmed the CA.

• On July 30, 1992, Rafael Martinez secured a P160,000.00 loan from petitioner with a 5% monthly interest and a real estate mortgage.
• Rafael defaulted. Petitioner filed a Complaint for Judicial Foreclosure (Civil Case No. 1208-95) on November 10, 1995.
• On January 30, 1998, the RTC-Imus rendered a decision in the foreclosure case, declaring the 5% monthly interest usurious, reducing it to 12% p.a., and adjudging Rafael liable for P229,200.00. This decision's finality was not shown.
• Prior to notice of this decision, respondent Marcelino Martinez (Rafael's son) agreed to pay the obligation, then pegged at P689,000.00. He paid P400,000.00 and executed a Promissory Note dated February 20, 1998 for P289,000.00, "representing the balance of the agreed financial obligation of [his] father."
• Upon learning of the foreclosure court's decision, respondent refused to pay the promissory note.
• Petitioner filed a Complaint for Sum of Money and Damages (collection case) on July 2, 1998.

• The promissory note is a separate and distinct contract from the original loan, creating an independent cause of action.
• The judicial foreclosure and collection cases enforce different rights.
• The 5% monthly interest is valid and binding, as the Usury Law was suspended by CB Circular 905.

• The obligation was fully settled because the foreclosure court only adjudged P229,200.00 as due.
• He made an overpayment (P400,000.00 paid vs. P229,200.00 due), entitling him to a return of the excess under solutio indebiti.
• The collection case is barred by the prior foreclosure case.

• Procedural Issues: N/A
• Substantive Issues:
  1. Whether the filing of the judicial foreclosure case bars the subsequent filing of a collection case for the same underlying debt.
  2. Whether the stipulated 5% monthly interest is valid and enforceable.
  3. Whether respondent is entitled to a refund of excess payments.

• Procedural: N/A
• Substantive:
  1. Yes. The SC found the collection case barred by litis pendentia, not res judicata (as the foreclosure decision's finality was unproven). The creditor has a single cause of action. Filing the foreclosure complaint constituted an election of remedy, barring the alternative personal collection action for the same debt. The promissory note did not novate the original loan obligation.
  2. No. The 5% monthly interest is excessive, unconscionable, and void. It is equitably reduced to 12% per annum.
  3. Yes. Given the reduced interest, respondent made excess payments. These payments were made by mistake, giving rise to a quasi-contract of solutio indebiti. Petitioner must return the total excess of P134,400.00 with 6% interest from judicial demand (filing of the Answer on August 6, 1998).

• Litis Pendentia — A ground for dismissal where another action is pending between the same parties for the same cause of action. Its requisites are: (a) identity of parties; (b) identity of rights asserted and relief prayed for; (c) such identity that a judgment in the pending case would amount to res judicata in the other. Applied here because the foreclosure and collection cases involved the same parties and the same single cause of action (recovery of Rafael's debt).
• Single Cause of Action in Mortgage — A creditor-mortgagee has a single cause of action to recover the debt. The remedies of personal collection and real action for foreclosure are alternative, not cumulative. Filing one constitutes an election and bars the other, except for any deficiency judgment after foreclosure.
• Unconscionable Interest Rate — Stipulated interest rates of 3% per month and higher are excessive, iniquitous, unconscionable, and exorbitant. Such stipulations are void for being contrary to morals, and the interest is reduced to what is reasonable (e.g., 12% p.a.).
• Solutio Indebiti — A quasi-contract that arises when something is received when there is no right to demand it and it was unduly delivered through mistake, creating an obligation to return it (Art. 2154, Civil Code).

• "For non-payment of a note secured by mortgage, the creditor has a single cause of action against the debtor. This single cause of action consists in the recovery of the credit with execution of the security... Consequently, there exists only one cause of action for a single breach of that obligation." — Citing Bachrach Motor Co., Inc. v. Icarangal.
• "A remedy is deemed chosen upon the filing of the suit for collection or upon the filing of the complaint in an action for foreclosure of mortgage..." — Citing Suico Rattan & Buri Interiors, Inc. v. CA.

• Bachrach Motor Co., Inc. v. Icarangal — Controlling precedent establishing the rule that a creditor has a single cause of action on a mortgaged debt and cannot split it by filing separate collection and foreclosure suits.
• Suico Rattan & Buri Interiors, Inc. v. CA — Followed to the effect that the remedy is deemed chosen upon the filing of the foreclosure complaint.
• Agner v. BPI Family Savings Bank, Inc. — Applied to declare that interest rates of 3% per month and higher are unconscionable and void.
• Heirs of Miguel v. Heirs of Miguel — Cited for the elements of res judicata.
• Brown-Araneta v. Araneta and Yap v. Chua — Cited for the requisites of litis pendentia.

• Rule 68 of the Rules of Court — Governs judicial foreclosure of real estate mortgages.
• Article 2154, Civil Code — Defines the quasi-contract of solutio indebiti.
• Article 2163, Civil Code — Provides the presumption of mistake in payment for solutio indebiti.
• Article 2208, Civil Code — Enumerates the instances when attorney's fees may be recovered; applied to delete the award for lack of stated justification in the body of the decision.
• Central Bank Circular No. 905, series of 1982 — Suspended the Usury Law; noted but does not validate unconscionable interest rates.