Optional remedy

No person may unjustly enrich himself at the expense of another. This is the principle applied in this case of the spouses Lara and Benito.

On Oct. 31, 1995, Lara obtained a loan from Frederick amounting to P400,000 payable on Dec. 1, 1995 with three percent interest compounded monthly and three percent surcharge for late payment. To secure the loan, Lara executed a Real Estate Mortgage (REM) covering their conjugal property. Lara signed the Promissory Note and the REM for herself and for Benito as the latter’s attorney in fact on the same date, although the Special Power of Attorney (SPA) was executed by Benito only on Nov. 4, 1995.

Lara issued three checks as partial payment of the loan. But all the checks were dishonored for insufficiency of funds. So Frederick filed a complaint for the foreclosure of the REM before the Regional Trial Court (RTC Br. 33).

RTC Br. 33, however, ruled that Frederick was not entitled to the judicial foreclosure of the REM on the conjugal property which is not valid because it was executed on Oct. 31, 1995 without Benito’s consent since Benito’s SPA in favor of Lara was issued only on Nov. 4, 1995. The RTC, however, said that Frederick can still sue Lara for recovery of the amount she borrowed.

So on Sept. 8, 2004, Frederick filed a complaint for recovery of sum of money with damages against Lara and Benito before RTC Branch 42. Lara and Benito admitted the loan but only for the amount of P340,000. Nevertheless, they filed for the dismissal of the case on the ground that Frederick can no longer institute another case for the same cause of action decided by RTC Branch 33 in the foreclosure of mortgage.

RTC Branch 42 denied the couple’s motion. But the Court of Appeals (CA), on the petition for certiorari and mandamus filed by the couple, reversed the ruling of RTC Br. 42. The CA ruled that on the non-payment of a loan secured by a mortgage, the creditor has a single cause of action against the debtor which he can pursue either by personal action for the collection of the debt or a real action to foreclose the REM, but not both. Frederick had only one cause of action against Lara for her failure to pay her obligation but he could not split that single cause of action by separately filing a foreclosure proceeding and a collection case. By filing a complaint for foreclosure in Branch 33, Frederick had already waived his personal action to recover the amount of the loan. Was the CA correct?

No. The general rule is really that a mortgage creditor has a single cause of action against a mortgagor-debtor, that is, to recover the debt. In pursuing this cause, the creditor has the option of either filing a personal action for collection of sum of money. If the creditor opts to foreclose the REM, he waives the action for the collection of the debt or vice versa. Otherwise, there would be multiplicity of suits.

But in this case, Lara and Benito could still be held liable for the balance of the loan, applying the principle that no person may unjustly enrich himself at the expense of another (Article 22, Civil Code). There is unjust enrichment when a person unjustly retains a benefit to the loss of another, or when a person retains the money or property of another against the fundamental principles of justice equity and good conscience. The principle requires two conditions: (1) that a person benefitted without a valid basis or justification and (2) that such benefit is derived at the expense of another.

The principle is applicable in this case, considering that Lara admitted obtaining a loan from Frederick and the same has not been fully paid without just cause. Considering the circumstances of this case, the principle against unjust enrichment being a substantive law, should prevail over the procedural rule on the multiplicity of suits. Hence the CA ruling should be set aside and the RTC Br. 42 should proceed with the trial of the suit for recovery of the sum of money with damages (Flores vs. Spouses Lindo, G.R. 183984, April 13, 2011).