The Supreme Court’s decision in Marilag v. Martinez clarifies the application of litis pendentia in cases involving loan contracts secured by real estate mortgages. The Court ruled that initiating a judicial foreclosure proceeding bars a subsequent action for collection of the same debt, even if the foreclosure case has not yet reached final judgment. This protects debtors from facing multiple lawsuits for a single obligation, thereby preventing unnecessary vexation and expense. The decision underscores the principle that a creditor must choose between foreclosure and collection, preventing the splitting of a single cause of action.

Mortgage or Collection: Can a Creditor Pursue Both Paths?

The case revolves around a loan obtained by Rafael Martinez from Norlinda Marilag, secured by a real estate mortgage. After Rafael defaulted, Marilag filed a judicial foreclosure case. Rafael’s son, Marcelino Martinez, then agreed to pay the debt, executing a promissory note (PN) for the remaining balance. Subsequently, Marcelino refused to pay the PN after discovering that the court had reduced the original debt in the foreclosure case. Marilag then filed a separate collection case against Marcelino based on the promissory note. The central legal question is whether Marilag could pursue both the foreclosure action and the collection case, or whether the former barred the latter under the principle of litis pendentia.

The Court began its analysis by examining the principle of res judicata, which prevents a party from relitigating issues already decided in a prior case. For res judicata to apply, the prior judgment must be final, rendered by a court with jurisdiction, decided on the merits, and involve identical parties, subject matter, and causes of action. In this case, the Court found that res judicata did not apply because there was no evidence that the decision in the judicial foreclosure case had attained finality. However, the Court then considered whether the principle of litis pendentia barred the collection case.

Litis pendentia applies when another action is pending between the same parties for the same cause of action, rendering the second action unnecessary and vexatious. The requisites for litis pendentia are: (a) identity of parties or those representing the same interests; (b) identity of rights asserted and relief prayed for, based on the same facts; and (c) that a judgment in the pending case would amount to res judicata in the other. The rationale behind litis pendentia is to prevent a party from being vexed more than once over the same subject matter, thereby avoiding conflicting judgments and promoting judicial efficiency.

The Court emphasized that a party cannot split a single cause of action into multiple suits. Splitting a cause of action occurs when a party files multiple cases based on the same cause of action but with different prayers, effectively engaging in forum shopping. Whether a cause of action is single or separate depends on whether the entire amount arises from one act or contract, or from distinct and different acts or contracts. This is a crucial distinction to prevent abuse of the judicial system.

In loan contracts secured by a real estate mortgage, the creditor-mortgagee has a single cause of action: to recover the debt. This can be achieved through a personal action for collection or a real action to foreclose on the mortgage. These remedies are alternative, not cumulative. Electing one remedy constitutes a waiver of the other, except for recovering any deficiency remaining after the foreclosure sale. As the Supreme Court stated in Bachrach Motor Co., Inc. v. Icarangal:

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. In other words, the creditor in his action may make two demands, the payment of the debt and the foreclosure of his mortgage. But both demands arise from the same cause, the non-payment of the debt, and, for that reason, they constitute a single cause of action.

In this instance, Marilag, as creditor-mortgagee, initiated a judicial foreclosure action to recover Rafael’s debt. By doing so, she was barred from subsequently filing a personal action for collection of the same debt under the principle of litis pendentia, as the foreclosure case remained pending. The Court clarified that although the collection case was based on a promissory note executed by Marcelino (Rafael’s son), this did not create a separate cause of action. The promissory note was intended to settle Rafael’s original debt, and there was no evidence of novation (the substitution of a new contract for an old one) between the parties.

The Court noted that Marcelino’s agreement to pay Rafael’s debt and the execution of the promissory note did not extinguish the original loan agreement between Rafael and Marilag. Instead, Marcelino merely assumed responsibility for paying Rafael’s debt on his behalf. The Supreme Court observed that “the consideration for the subject PN was the same consideration that supported the original loan obligation of Rafael.” The promissory note itself stated that Marcelino was binding himself “in behalf of my father… representing the balance of the agreed financial obligation of my said father to her.” This pointed to only one cause of action for one breach of that obligation.

The fact that no foreclosure sale had yet occurred was deemed irrelevant because the remedy of foreclosure is considered chosen upon filing the foreclosure complaint. As the Court pointed out, citing Suico Rattan & Buri Interiors, Inc. v. CA:

x x x x In sustaining the rule that prohibits mortgage creditors from pursuing both the remedies of a personal action for debt or a real action to foreclose the mortgage, the Court held in the case of Bachrach Motor Co., Inc. v. Esteban Icarangal, et al. that a rule which would authorize the plaintiff to bring a personal action against the debtor and simultaneously or successively another action against the mortgaged property, would result not only in multiplicity of suits so offensive to justice and obnoxious to law and equity, but also in subjecting the defendant to the vexation of being sued in the place of his residence or of the residence of the plaintiff, and then again in the place where the property lies.

However, the Court addressed the issue of excess payment, noting that Marcelino had made payments exceeding the amount due under the loan. The stipulated 5% monthly interest was deemed excessive and unconscionable, reducing it to 1% per month or 12% per annum. This is aligned with numerous cases stating that excessive interest rates are illegal. The Court calculated the overpayment, finding that Marilag was liable to return the excess amount to Marcelino, with legal interest at 6% per annum from the date of the counterclaim for overpayment. The total overpayment was P134,400.00.

Finally, the Court addressed the attorney’s fees awarded by the lower court. Citing Art. 2208 of the New Civil Code, the Court stated that the lower court failed to explain its factual and legal basis for granting the attorney’s fees. Attorney’s fees could not be stated only in the dispositive portion and for that reason the award of attorney’s fees was deleted. The Court affirmed the award of costs of suit, finding no reason to disturb it.

FAQs

What is the main legal principle discussed in this case?	The main legal principle is litis pendentia, which prevents a party from filing multiple lawsuits based on the same cause of action when another case is already pending. This aims to avoid vexation and conflicting judgments.
What are the requisites for litis pendentia to apply?	The requisites are: (1) identity of parties, (2) identity of rights asserted and relief prayed for, and (3) that a judgment in the pending case would amount to res judicata in the other. These conditions must be met for litis pendentia to bar a subsequent action.
What is the difference between litis pendentia and res judicata?	Litis pendentia applies when a case is currently pending, while res judicata applies when a case has already been decided with finality. Both prevent repetitive litigation, but they operate at different stages of the legal process.
Can a creditor pursue both foreclosure and collection simultaneously?	No, a creditor has a single cause of action to recover a debt secured by a mortgage. They must choose either foreclosure or collection, as these remedies are alternative and not cumulative.
What happens if a creditor chooses to foreclose on a mortgage?	If a creditor chooses to foreclose, they waive the right to pursue a separate action for collection of the debt, except to recover any deficiency remaining after the foreclosure sale. This prevents the creditor from seeking double recovery.
What is the effect of a promissory note executed by a third party?	A promissory note executed by a third party to pay off a debt does not necessarily create a new cause of action. If the note merely represents an agreement to pay the existing debt, it does not prevent the application of litis pendentia.
What is the legal rate of interest applicable in this case?	The Court reduced the stipulated interest rate of 5% per month to 1% per month (12% per annum) due to its excessive and unconscionable nature. The legal interest rate of 6% per annum was applied to the overpayment from the date of demand.
What is solutio indebiti?	Solutio indebiti is a quasi-contractual obligation that arises when someone receives something they are not entitled to, due to a mistake. In this case, the overpayment made by Marcelino triggered the obligation of Marilag to return the excess amount.
Why were attorney’s fees not awarded in this case?	The Supreme Court did not allow the award because the court a quo failed to state in the body of its decision the factual or legal basis for the award of attorney’s fees as required under Article 2208 of the New Civil Code.

In conclusion, Marilag v. Martinez serves as a reminder of the importance of choosing the correct legal remedy and avoiding the splitting of causes of action. Creditors must carefully consider their options when dealing with secured debts, as the decision to pursue foreclosure may preclude subsequent collection efforts. The decision protects debtors from the burden of multiple lawsuits and promotes judicial efficiency by preventing redundant litigation.

For inquiries regarding the application of this ruling to specific circumstances, please contact ASG Law through contact or via email at frontdesk@asglawpartners.com.

Disclaimer: This analysis is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please consult with a qualified attorney.
Source: NORLINDA S. MARILAG, PETITIONER, VS. MARCELINO B. MARTINEZ, RESPONDENT., G.R. No. 201892, July 22, 2015