Asset Pool A (SPV-AMC), Inc. vs. Spouses Berris

A mortgage-creditor that forecloses for part of a single, distinct loan account waives personal action for the remainder of that same account, but foreclosure on one distinct contract does not bar collection on a separate and distinct contract. Applied here, foreclosure for PN Nos. 2-104-980258 BDC and 2-104-980888 BDC under the Discounting Line barred collection of PN Nos. 2-104-980259/bdc, 2-104-980296/bdc, 2-104-980975 BD/C and 2-104-981149/BDC under the same facility, while PN No. 2-104-961106/TLS under the Term Loan Agreement remained collectible by personal action.

Far East Bank and Trust Company was the creditor-bank and predecessor-in-interest of petitioner Asset Pool A (SPV-AMC), Inc., while B. Berris Merchandising, a sole proprietorship owned by Buenafrido Berris, was the borrower-debtor together with his spouse Felisa Berris as co-mortgagor and surety. Credit was extended through a November 15, 1995 Term Loan Agreement to finance a rice mill in Calauan, Laguna, and through a Discounting Line facility originally for P15,000,000, renewed and later increased to P18,000,000 until July 31, 1998. Both facilities were secured by a chattel mortgage on the rice mill, a Comprehensive Surety Agreement, and real estate mortgages over several titles.

On November 15, 1995, Far East Bank and Trust Company and B. Berris Merchandising, a sole proprietorship owned by Buenafrido Berris, entered into a Loan Agreement for P5,000,000 with interest at prevailing market rates, payable within five years inclusive of a six-month grace period via 18 quarterly amortizations on diminishing principal balance. To secure the loan, spouses Buenafrido and Felisa Berris executed a real estate mortgage on parcels covered by Transfer Certificates of Title Nos. 129163 and 74496, a chattel mortgage on their rice mill, and a Comprehensive Surety Agreement. The bank also granted a Discounting Line facility for P15,000,000 expiring July 31, 1997, renewed July 3, 1997 for the same amount until July 31, 1998, and increased February 16, 1998 to P18,000,000 with the same expiry, partially secured by real estate mortgage on TCT Nos. 129163, 74496, 27852, 31079 and 296868 and the chattel mortgage on the rice mill.

On April 15, 1996, the spouses for and in behalf of the proprietorship executed Promissory Note No. 104-961106/TLS for P5,000,000 due April 16, 2001 with 14.5% interest per annum under the same five-year, 18-amortization terms. Thereafter they executed four notes drawn against the Discounting Line: (a) PN No. 2-104-980259/bdc dated January 23, 1998 for P4,000,000 due July 22, 1998 at 26%; (b) PN No. 2-104-980296/bdc dated January 27, 1998 for P2,500,000 due July 24, 1998 at 27%; (c) PN No. 2-104-980975 BD/C dated April 15, 1998 for P3,000,000 due July 31, 1998 at 22%; and (d) PN No. 2-104-981149/BDC dated May 13, 1998 for P750,000 due July 31, 1998 at 21.95%, all providing 25% attorney's fees and 1% liquidated damages per 30 days or fraction upon default.

After failure to pay, the bank sent demand letters on August 5, 1998, December 15, 1998, and a Final Demand Letter on February 3, 1999 requiring payment of P21,055,555.54 exclusive of interest, penalties and other charges not later than February 19, 1999. On August 19, 1999, the bank filed a petition for extra-judicial foreclosure over TCT Nos. T-129163 and 74496 for loans covered by PN Nos. 2-104-980258 BDC and 2-104-980888 BDC, admitted to total P6,949,222.22 inclusive of interests, penalties and other charges. On August 30, 1999, it filed the collection complaint for the five notes listed above. The spouses later sued to annul the foreclosure sale in Calamba, were declared in default in Makati after repeated extensions and a denied motion to dismiss, and petitioner Asset Pool was substituted after Bank of the Philippine Islands, as surviving corporation in its merger with FEBTC, assigned the loans including collaterals on May 12, 2006.

The Makati trial court found contractual breach for non-payment and awarded P17,422,072.51 plus stipulated interests and charges from May 7, 1999, 1% liquidated damages, 25% attorney's fees, and P112,332.35 litigation expenses and costs. The Court of Appeals reversed, finding the five notes single and indivisible and secured by the same mortgage, so that prior foreclosure barred the collection suit under the prohibition on splitting a single cause of action.

• Controlling Precedent: Petitioner argued that Bank of the Philippine Islands vs. Coscolluela is not controlling because the peculiar facts differ, the foreclosed notes allegedly pertaining to the Loan Agreement while the collection notes pertained to the Discounting Line.
• Separate Obligations and Partial Foreclosure: Petitioner maintained that there were five mortgaged properties of which only two were foreclosed to collect two of seven loan obligations, so the collection suit for the remaining notes was not barred.
• No Bar by Prior Foreclosure: Petitioner argued that the previous filing of extrajudicial foreclosure did not bar the personal action for collection of the debts incurred by the spouses Berris.
• Unjust Enrichment: Petitioner maintained that the principle against unjust enrichment should prevail over the procedural rule on multiplicity of suits, otherwise the debtors would evade payment.

• Single Indivisible Obligation: Respondents countered that all promissory notes pertained to drawings under the same facility, were single and indivisible, and were secured by the same mortgage.
• Splitting a Single Cause of Action: Respondents argued that institution of extrajudicial foreclosure over TCT Nos. 129163 and 74496 for PN Nos. 2-104-980258 BDC and 2-104-980888 BDC barred the collection suit for the other notes, citing Coscolluela and Section 3, Rule 2 of the Rules of Court.

• Applicability of Coscolluela: Whether the appellate court gravely erred in ruling that Bank of the Philippine Islands vs. Coscolluela is controlling in the case at bar.
• Peculiar Circumstances – Partial Foreclosure: Whether the appellate court gravely erred in failing to take into account peculiar circumstances, such that there are five mortgaged properties, of which only two were foreclosed, to collect two of the seven loan obligations.
• Bar by Prior Foreclosure: Whether the appellate court gravely erred in ruling that previous filing of extrajudicial foreclosure of real estate mortgage barred a personal action for collection of debt incurred by the spouses Berris.
• Unjust Enrichment vs. Multiplicity: Whether the appellate court gravely erred in ignoring the rule that the principle against unjust enrichment should prevail over the procedural rule on multiplicity of suits.

• Applicability of Coscolluela: Partly yes. Coscolluela controls only as to notes drawn against the same Discounting Line facility, where omission from foreclosure waives personal action.
• Peculiar Circumstances – Partial Foreclosure: Yes. The Term Loan Agreement and Discounting Line are separate and distinct contracts, proven by different terms, maturities, and note markings.
• Bar by Prior Foreclosure: Partly. Foreclosure barred collection of the four Discounting Line notes but not of PN No. 2-104-961106/TLS under the Term Loan Agreement.
• Unjust Enrichment vs. Multiplicity: No. The prohibition on splitting a cause of action bars the Discounting Line collection, without prejudice to a deficiency claim only after termination of foreclosure.

• Applicability of Coscolluela: In Coscolluela all notes were issued under one agricultural crop loan account, so foreclosure for some notes without including other due notes waived personal action for the rest. The same rule was applied here only where notes arose from one and the same act or contract, namely the Discounting Line, and all had become due and demandable by default and acceleration.
• Peculiar Circumstances – Partial Foreclosure: The Loan Agreement for P5,000,000 due after five years to finance a rice mill was distinct from the Discounting Line, a facility for buying receivables at a discount with proceeds net of interest and maturities within July 31, 1998. PN No. 2-104-961106/TLS bore Term Loan terms and TLS marking, unlike the four BDC notes, and demand letters seeking both facilities did not merge them, nor did similar acceleration clauses.
• Bar by Prior Foreclosure: When the Discounting Line obligation became due, the creditor had to elect either foreclosure or collection, not both simultaneously or successively. Having foreclosed for PN Nos. 2-104-980258 BDC and 2-104-980888 BDC without including the four other due Discounting Line notes, personal action therefor was barred under Section 3, Rule 2. PN No. 2-104-961106/TLS, arising from a different contract, gave rise to a separate cause of action.
• Unjust Enrichment vs. Multiplicity: Recovery of any deficiency after foreclosure is recognized but must be instituted only after termination of foreclosure proceedings, not during pendency. Failure to include PN No. 2-104-961106/TLS in the foreclosure was deemed waiver of the lien on those titles under dragnet-mortgage principles, but the unpaid Term Loan remained collectible by ordinary action before prescription.

• Splitting a single cause of action — A party may not institute more than one suit for a single cause of action; if two or more suits are instituted on the same cause, filing of one or judgment on the merits in one is ground for dismissal of the others. Whether demands are single or severable depends on whether the entire amount arises from one and the same act or contract or from distinct contracts; where no action is brought until more than one claim is due, all due claims must be included in one action. Applied to bar collection of the four Discounting Line notes omitted from the prior foreclosure.
• Election of remedies in mortgage – foreclosure vs. personal action — A mortgage creditor may institute either a personal action for collection or a real action to foreclose, but not both simultaneously or successively for the same obligation, although a deficiency action may follow after termination of foreclosure if proceeds are insufficient. Applied to require election for Discounting Line notes while allowing separate election for the Term Loan note.
• Separate and distinct loan contracts — Different credit facilities evidenced by separate agreements, purposes, amounts, maturities, and promissory notes remain distinct obligations even if they share securities and similar acceleration clauses, the mortgage being merely accessory and not controlling the principal agreements. Applied to treat the Term Loan Agreement and Discounting Line as giving rise to separate causes of action.
• Discounting line — A credit facility allowing a business to sell accounts receivable on a continuing basis at less than face value to generate instant cash, the financing company profiting from the discount, as reflected in Section 3(a) of the Financing Company Act of 1998. Applied to explain why the four BDC notes were net of interest and matured within the facility period, unlike the Term Loan note.
• Indivisibility of pledge or mortgage — Under Article 2089 of the Civil Code, each parcel under mortgage answers for the totality of the debt; a debtor who has paid part cannot demand proportionate extinguishment while the debt is unsatisfied, except where several things are mortgaged each guaranteeing only a determinate portion. Applied to reject violation of indivisibility when foreclosing two titles for Discounting Line notes while separately suing on the distinct Term Loan.
• Blanket or dragnet mortgage; waiver of lien — Failure to include a second loan covered by a blanket mortgage in the foreclosure petition is deemed waiver of the lien on the mortgaged property as to that loan, but the unpaid loan remains collectible by ordinary collection suit. Applied to preserve collection of PN No. 2-104-961106/TLS despite its exclusion from foreclosure of TCT Nos. 129163 and 74496.

• "In sum, petitioner may institute two alternative remedies against the spouses Berris: either a personal action for the collection of the promissory notes issued under the Discounting Line or a real action to foreclose the mortgage, but not both, simultaneously or successively." — States the election-of-remedies ratio applied to bar the Discounting Line collection suit.
• "Section 3, Rule 2 of the Rules of Court provides that a party may not institute more than one suit for a single cause of action and if, two or more suits are instituted on the basis of the same cause of action, the filing of one or a judgment upon the merits in any one is available as ground for the dismissal of the others." — Recites the procedural bar grounding dismissal of the claims under the same Discounting Line.
• "In essence, indivisibility means that the mortgage obligation cannot be divided among the different lots, that is, each and every parcel under mortgage answers for the totality of the debt." — Defines indivisibility to explain why separate actions on distinct contracts did not violate Article 2089.

• Bank of the Philippine Islands vs. Coscolluela, 526 Phil. 419 (2006) — Controlling precedent on splitting a cause of action where all notes arose from one loan account; followed as to Discounting Line notes but distinguished as to the separate Term Loan note.
• Great Asian Sales Center Corp. vs. Court of Appeals, 431 Phil. 293 (2002) — Authority defining discounting line as sale of receivables at a discount; relied upon to distinguish Discounting Line notes from the Term Loan note.
• Spouses Yu vs. Philippine Commercial International Bank, 519 Phil. 740 (2006) — Authority explaining indivisibility of mortgage; cited to hold no violation when pursuing distinct obligations.
• Spouses Tecklo vs. Rural Bank of Pamplona, Inc., 635 Phil. 249 (2010) — Authority that exclusion of a second loan from foreclosure under a blanket mortgage waives the lien but preserves collection by ordinary action; applied to allow collection of PN No. 2-104-961106/TLS.

• Section 3, Rule 2, Rules of Court — Prohibits more than one suit for a single cause of action; applied to dismiss collection of the four Discounting Line notes after partial foreclosure on the same facility.
• Article 2089, Civil Code of the Philippines — Provides indivisibility of pledge or mortgage; applied to confirm each mortgaged parcel answers for the whole debt and to reject indivisibility violation for separate contracts.
• Article 1306, Civil Code of the Philippines — Allows parties to stipulate terms not contrary to law, morals, good customs, public order or public policy; applied to uphold similar acceleration clauses without merging distinct contracts.
• Section 3(a), Financing Company Act of 1998 — Defines financing companies as extending credit by discounting or factoring receivables; cited to explain the nature of the Discounting Line facility.
• Act No. 3135, as amended — Governs extra-judicial foreclosure of real estate mortgage; basis of the prior foreclosure petition over TCT Nos. T-129163 and 74496.

Leonen (Chairperson), Inting, Delos Santos, and J. Lopez, JJ., concur.