G.R. No. 64693 - Lita Enterprises, Inc. vs. Intermediate Appellate Court

Case Summary (G.R. No. 64693)

Key Dates

– July 30, 1992: Loan granted and secured by real estate mortgage.
– November 10, 1995: Judicial foreclosure case filed (Civil Case No. 1208-95).
– January 30, 1998: RTC‐Imus decision reducing interest to 12% p.a. and adjudging P229,200 due.
– February 20, 1998: Respondent executes promissory note for P289,000.
– July 2, 1998: Collection suit filed (Civil Case No. 98-0156).
– August 28, 2003: RTC Branch 202 decision orders return of excess payment.
– November 3, 2003 & January 14, 2004: RTC reconsideration orders reinstating original claim.
– November 4, 2011: CA decision reinstating August 28, 2003 RTC ruling.
– May 14, 2012: CA resolution denying reconsideration.
– July 22, 2015: Supreme Court decision.

Applicable Law

– 1987 Philippine Constitution
– Civil Code Articles 1293 (novation), 2154 and 2163 (solutio indebiti), 2208 (attorney’s fees)
– Rules of Court, Rule 68 (judicial foreclosure)
– Central Bank Circular No. 905 (suspension of Usury Law)
– Doctrines of res judicata and litis pendentia

Facts of Loan and Foreclosure

Rafael Martinez borrowed P160,000 from petitioner at 5% monthly interest, secured by TCT No. T-208400. Upon maturity he defaulted. Petitioner filed for judicial foreclosure in 1995. Rafael did not answer; RTC‐Imus in 1998 declared the 5% monthly rate usurious, reduced interest to 12% p.a., and ordered P229,200 due.

Promissory Note Execution and Collection Case

Respondent paid P400,000 on his father’s behalf, then executed a P289,000 promissory note on February 20, 1998 for the balance. After learning of the reduced judgment amount, he refused further payment. Petitioner sued him for P289,000 plus interest and costs. Respondent counterclaimed for return of excess payment and damages.

RTC Trial Court’s Initial Judgment (August 28, 2003)

The RTC found that because Rafael’s obligation had been adjudged at P229,200 and respondent already paid P400,000, petitioner’s cause under the promissory note had been extinguished. It characterized the excess P171,000 payment as solutio indebiti and ordered its return with 6% interest, attorney’s fees, and costs.

RTC Reconsideration and Reversal

On reconsideration, the RTC held foreclosure and collection were distinct remedies, upheld the 5% monthly rate under Circular 905, and directed respondent to pay P289,000 plus legal interest from May 15, 1998, attorney’s fees, and costs.

Court of Appeals’ Application of Res Judicata

The CA reinstated the August 28, 2003 ruling, reasoning that the foreclosure judgment on Rafael’s obligation was final and therefore barred the collection suit by petitioner under res judicata.

Issue Before the Supreme Court

Whether the CA erred in dismissing the collection case and ordering return of excess payments.

Absence of Finality and Res Judicata Inapplicability

The Supreme Court found no proof that the foreclosure decision attained finality (no entry of judgment), negating one essential element of res judicata.

Litis Pendentia Bar to the Collection Action

Notwithstanding, the Court held the collection suit barred by litis pendentia because foreclosure and collection were simultaneous actions on the same cause and involved the same parties, rights, and relief. Filing one barred the other.

Single Cause of Action in Mortgage-Loan Contracts

Under Philippine law, a creditor has a single cause of action for non-payment of a loan secured by mortgage, with two alternative remedies (personal collection or real foreclosure). Electing one remedy precludes pursuing the other except for a deficiency.

Lack of Novation and Agency Payment

Respondent’s promissory note did not novate Rafael’s original loan because there was no express agreement to replace the debt; respondent acted as agent or additional debtor, preserving the single cause of action.

Excessive Interest and Equitable Adjustment

The Court found the stipulated 5% monthly rate unconscionable and reduced it to 12% p