BPI Family Savings Bank, Inc. vs. Margarita Vda. De Coscolluela

A mortgage creditor has a single cause of action against the debtor arising from nonpayment, and may pursue either a personal action for collection of the debt or a real action to foreclose the mortgage, but not both; the election of one remedy waives the other. Where a real estate mortgage contains a dragnet clause securing all past and future advancements, the mortgage secures the entirety of the loan account, and the creditor cannot split its cause of action by foreclosing on part of the promissory notes while filing a collection suit for the rest.

Respondent Margarita Coscolluela and her husband Oscar obtained an agricultural sugar crop loan from Far East Bank & Trust Co. (FEBTC), Bacolod City Branch, which later merged with petitioner BPI Family Savings Bank, Inc. The loan was designed to finance the cultivation and plantation of sugar farms, with borrowers allowed to make successive drawdowns against the loan as their needs arose. The spouses executed a real estate mortgage over their parcel of land in Bacolod City covered by TCT No. T-109329, which by its terms secured not only the credit accommodation already obtained but also those that may thereafter be extended, with the principal fixed at ₱7,000,000.00. The mortgage contained an acceleration clause and a waiver of the redemption period, and was registered and annotated on the title on June 20, 1997.

Respondent Margarita Coscolluela and her husband Oscar obtained an agricultural sugar crop loan from FEBTC's Bacolod City Branch, which was later merged with petitioner BPI Family Savings Bank, Inc. The loan account was treated as a single account in FEBTC's books, amounting to ₱13,592,492.00 as evidenced by 67 promissory notes executed on various dates from August 29, 1996 to January 23, 1998. The promissory notes listed under Nos. 1 to 33 bore a maturity date of February 9, 1998, with a 30-day extension up to March 11, 1998, while those under Nos. 34 to 67 bore December 28, 1998 as maturity date.

On June 13, 1997, the spouses executed a real estate mortgage in favor of FEBTC over their parcel of land in Bacolod City covered by TCT No. T-109329, as security for loans on credit accommodation obtained and those that may be obtained, with the principal fixed at ₱7,000,000.00. The mortgage provided that upon failure to pay the obligation or any portion thereof when due, the entire principal, interest, penalties and other charges shall become immediately due, and FEBTC may foreclose extrajudicially under Act No. 3135, as amended. The mortgage was registered and annotated on the title on June 20, 1997. Oscar died intestate, survived by respondent.

For failure to settle the outstanding obligation on the maturity dates, FEBTC sent a final demand letter to respondent on March 10, 1999, demanding payment of the principal of ₱13,481,498.68, with past due interests and penalties, totaling ₱19,482,168.31 as of March 9, 1999. Respondent failed to settle. On June 10, 1999, FEBTC filed a petition for extrajudicial foreclosure of the mortgaged property for only the total amount of ₱4,687,006.68, covered by promissory notes 1 to 33, except nos. 2 and 10. While the foreclosure proceeding was pending, FEBTC filed a complaint with the RTC of Makati City, Branch 64, for collection of the principal amount of ₱8,794,492.00 plus interest and penalty, totaling ₱12,672,000.31, representing the amounts in Promissory Note Nos. 34 to 67, as well as those dated December 6, 1996 and September 23, 1996.

In her answer, respondent alleged that the complaint was barred by litis pendentia, that petitioner was guilty of forum shopping, that the bank had charged excessive interest, and that petitioner sought to collect twice on the same promissory notes. Petitioner presented Emmanuel Ganuelas, its loan officer, as sole witness, who testified that the spouses were granted an agricultural sugar loan, that borrowers were allowed successive drawdowns against the loan, and that the loan account was a "single loan account." After petitioner rested its case, respondent filed a demurrer to evidence, contending that with Ganuelas' admission of a single loan account secured by the real estate mortgage, petitioner was barred from instituting a personal action for collection after instituting the extrajudicial foreclosure, and that the complaint must be dismissed on the ground of litis pendentia. Meanwhile, on January 6, 2003, the parcel of land was sold at public auction where petitioner emerged as the highest bidder.

• Interlocutory Order Not Subject to Certiorari: Petitioner argued that the January 10, 2002 Order of the RTC denying the demurrer to evidence was interlocutory and could not be the subject of a petition for certiorari under Rule 65.
• Separate Loan Obligations: Petitioner maintained that respondent executed 67 separate loan obligations evidenced by 67 separate promissory notes with different amounts and maturity dates, each of which could properly be the subject of a separate action, as each promissory note is an actionable document.
• Mortgage Limited to ₱7,000,000.00: Petitioner insisted that the real estate mortgage secured an obligation only to a fixed amount of ₱7,000,000.00 covered by Promissory Note Nos. 1 to 31, whereas the loans covered by Promissory Note Nos. 32 to 67 for the total amount of ₱12,672,000.31 were not secured by the mortgage.
• Applicability of Caltex and Quiogue: Petitioner asserted that the rulings in Caltex Philippines, Inc. vs. Intermediate Appellate Court and Quiogue vs. Bautista should apply, not Bachrach, which involved only one promissory note.

• Single Loan Account: Respondent argued that, as testified by petitioner's own witness Ganuelas, she and her husband had only one loan account with petitioner, hence the latter had only one cause of action against her either for collection of the entire loan account or for extrajudicial foreclosure of the real estate mortgage.
• Prohibition Against Splitting: Respondent contended that petitioner could not split her single loan account by filing a simple collection suit and a petition for extrajudicial foreclosure without violating the rule against splitting a single cause of action.
• Mortgage as Continuing Security: Respondent asserted that the real estate mortgage was a security not only of the loan account in the amount of ₱7,000,000.00 but for all other loans that may have been extended in excess of that amount.

• Propriety of Certiorari: Whether the petition for certiorari under Rule 65 filed by respondent in the CA was the proper remedy to assail the January 10, 2002 Order of the trial court denying the demurrer to evidence.
• Grave Abuse of Discretion: Whether the appellate court committed grave abuse of discretion amounting to excess or lack of jurisdiction in issuing its January 10, 2002 Order.
• Splitting of Cause of Action: Whether petitioner split its single cause of action by filing both a petition for extrajudicial foreclosure covering 31 promissory notes and a personal action for collection covering the remaining 36 promissory notes.

• Propriety of Certiorari: Yes. Although an order denying a demurrer to evidence is generally interlocutory and not appealable, certiorari under Rule 65 is available where the denial is tainted with grave abuse of discretion amounting to excess or lack of jurisdiction, as appeal would be cumbersome and inadequate, requiring the parties to undergo a useless and time-consuming trial.
• Grave Abuse of Discretion: Yes. The RTC acted with grave abuse of discretion amounting to excess or lack of jurisdiction when it denied respondent's demurrer to evidence and, in the process, ignored applicable rulings of this Court, particularly the rule that a mortgage creditor's remedies are alternative and not cumulative.
• Splitting of Cause of Action: Yes. Petitioner split its single cause of action by filing the extrajudicial foreclosure proceedings on June 10, 1999 for the amounts in 31 promissory notes and, during the pendency thereof, filing a collection case on June 23, 1999 for the amounts in the remaining 36 promissory notes, in violation of Section 3, Rule 2 of the 1997 Rules of Civil Procedure.

• Propriety of Certiorari: The general rule is that an order denying a motion to dismiss or demurrer to evidence is interlocutory and not appealable, and the defendant must go to trial and appeal from an adverse decision. However, the rule admits of exceptions. Where the denial is tainted with grave abuse of discretion amounting to excess or lack of jurisdiction, the aggrieved party may assail the order on a petition for certiorari under Rule 65. A wide breadth of discretion is granted in certiorari proceedings in the interest of substantial justice and to prevent a substantial wrong. The aggrieved party is entitled to a writ of certiorari where the trial court commits grave abuse of discretion in denying a motion to dismiss on the ground of litis pendentia, as an appeal, while available, is cumbersome and inadequate for it requires the parties to undergo a useless and time-consuming and expensive trial.

• Grave Abuse of Discretion: The RTC committed grave abuse of discretion when it denied the demurrer to evidence and ignored applicable rulings of the Court. Although respondent had the right to appeal the decision of the trial court against her after trial, she, as defendant, need not use up funds and undergo the tribulations of a trial and thereafter appeal from an adverse decision. The CA correctly granted the petition for certiorari.

• Splitting of Cause of Action: Section 3, Rule 2 of the 1997 Rules of Civil Procedure 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 other or others. A party will not be permitted to split up a single cause of action and make it a basis for several suits. The law does not permit the owner of a single or entire cause of action to divide and split the cause or demand so as to make it the subject of several actions; the whole cause must be determined in one action.

The decisive ruling is Bachrach Motor Co., Inc. vs. Esteban Icarañgal and Oriental Commercial Co., Inc., which held that on the nonpayment of a note secured by a mortgage, the creditor has a single cause of action against the debtor, consisting in the recovery of the credit with execution of the suit. Though the debt may be covered by a promissory note or several promissory notes and is covered by a real estate mortgage, the latter is subsidiary to the former and both refer to one and the same obligation. A mortgage creditor may institute two alternative remedies — either a personal action for collection of the debt, or a real action to foreclose the mortgage — but not both. Each remedy is complete by itself. If the mortgagee opts to foreclose the real estate mortgage, he thereby waives the action for the collection of the debt and vice versa.

In the present case, petitioner opted to file a petition for extrajudicial foreclosure of the real estate mortgage but only for the principal amount of ₱4,687,006.68 covering only 31 of the 67 promissory notes. By resorting to the extrajudicial foreclosure, petitioner thereby waived its personal action to recover the amount covered not only by said promissory notes but also of the rest of the promissory notes. This is because when petitioner filed its petition before the Ex-Oficio Provincial Sheriff on June 10, 1999, the entirety of the loan account of respondent under the 67 promissory notes was already due. The obligation under Promissory Note Nos. 1 to 33 became due on February 9, 1998 but was extended up to March 11, 1998, while those under Nos. 34 to 67 matured on December 28, 1998. Petitioner should have caused the extrajudicial foreclosure for the recovery of the entire obligation on all the promissory notes.

The parties agreed in the real estate mortgage that in the event respondent fails to pay the mortgage obligation "or any portion thereof when due, the entire principal, interest, penalties and other charges then outstanding shall become immediately due, payable and defaulted." The contention of petitioner that the loan account secured by the mortgage was limited only to those covered by Promissory Note Nos. 1 to 33 or for the total amount of ₱7,000,000.00 is belied by the real estate mortgage and by its own evidence. Under the deed, the mortgage was to secure the payment of a credit accommodation already obtained, the principal of all of which was fixed at ₱7,000,000.00, as well as any other obligation that may be extended to respondent, including interest and expenses. The testimony of Ganuelas confirmed that the mortgage secured not only the loans already obtained as of the execution of the mortgage but also all other loans that may be extended after execution.

The real estate of respondent served as continuing security liable for future advancements or obligations beyond the amount of ₱7,000,000.00. The mortgage partakes of the nature of a contract for future advancements. The series of loan advancements cannot be likened to the credit line in Caltex Philippines, Inc. vs. Intermediate Appellate Court, where the real estate mortgage did not contain a "dragnet clause" that would subsume all past and future debts. The ruling in Quiogue vs. Bautista is likewise inapplicable, as that case involved two separate loans secured by two separate mortgages, whereas here there is only one mortgage securing all 67 drawdowns. For the failure of respondent to pay her loan obligation, petitioner had only one cause of action arising from such nonpayment, consisting in the recovery of the credit with execution of the security. Having already instituted extrajudicial foreclosure proceedings, petitioner is now barred from availing itself of a personal action for the collection of the indebtedness.

• Alternative Remedies of a Mortgage Creditor — A mortgage creditor may institute against the mortgage debtor either a personal action for debt or a real action to foreclose the mortgage, but not both. Each remedy is complete in itself; an election to bring a personal action leaves open all the properties of the debtor for attachment and execution, while an election to foreclose leaves open the right to sue for a deficiency judgment. A rule authorizing both actions simultaneously or successively would result in multiplicity of suits, subjecting the defendant to vexation. In this case, the Court applied the doctrine to bar the bank's collection suit after it had elected to foreclose the mortgage.

• Splitting a Single Cause of Action — Under Section 3, Rule 2 of the 1997 Rules of Civil Procedure, a party may not institute more than one suit for a single cause of action. The true rule determining whether a party has a single and entire cause of action or a severable demand is whether the entire amount arises from one and the same act or contract, or the several parts arise from distinct and different acts or contracts. Where several claims payable at different times arise out of the same transaction, if no action is brought until more than one is due, all that are due must be included in one action. The Court applied this doctrine to hold that the bank's filing of both foreclosure and collection actions constituted impermissible splitting.

• Dragnet Clause / Mortgage for Future Advancements — A mortgage may secure future advancements where the intent to do so is apparent from the four corners of the document. The amount named in the mortgage does not limit the amount for which it may stand as security if the intent to secure future indebtedness is apparent. Where a mortgage is given for future advancements and money is paid "little by little," the advancements and repayments must be considered together for the purpose of ascertaining the amount due at maturity. The Court applied this doctrine to hold that the real estate mortgage secured all 67 promissory notes, not merely those within the ₱7,000,000.00 limit.

• "A mortgage creditor may institute two alternative remedies against the mortgage debtor, either a personal action for the collection of debt, or a real action to foreclose the mortgage, but not both. Each remedy is complete by itself." — This passage articulates the core ratio decidendi of the case, establishing that the remedies of a mortgage creditor are alternative and not cumulative, and that the election of one waives the other.

• "If the mortgagee opts to foreclose the real estate mortgage, he thereby waives the action for the collection of the debt and vice versa." — This is the canonical formulation of the waiver rule applied in the case, frequently cited in subsequent jurisprudence on mortgage remedies.

• "The amount named in the mortgage does not limit the amount for which it may stand as security, if, from the four corners of the document, the intent to secure future indebtedness or future advancements is apparent." — This passage, quoted from Lim Julian vs. Lutero, defines the dragnet clause doctrine and was applied to hold that the mortgage secured the entirety of the loan account beyond the ₱7,000,000.00 stated amount.

• Bachrach Motor Co., Inc. vs. Esteban Icarañgal and Oriental Commercial Co., Inc., 68 Phil. 287 (1939) — Controlling precedent. The Court relied on this case for the rule that a mortgage creditor has a single cause of action and may pursue either a personal action for debt or a real action to foreclose, but not both, and that the election of one waives the other.

• Caltex Philippines, Inc. vs. Intermediate Appellate Court, G.R. No. 74730, August 25, 1989, 176 SCRA 741 — Distinguished. The Court held this case inapplicable because the real estate mortgage therein did not contain a dragnet clause that would subsume all past and future debts, unlike the mortgage in the present case.

• Quiogue vs. Bautista, 114 Phil. 401 (1962) — Distinguished. The Court held this case inapplicable because it involved two separate loans secured by two separate mortgages, whereas the present case involved only one mortgage securing all 67 drawdowns.

• Lim Julian vs. Lutero, 49 Phil. 703 — Cited for the doctrine on mortgages for future advancements, holding that the amount named in the mortgage does not limit the amount for which it may stand as security where the intent to secure future indebtedness is apparent from the four corners of the document.

• Preferred Home Specialties, Inc. vs. Court of Appeals, G.R. No. 163593, December 16, 2005, 478 SCRA 387 — Cited for the proposition that a writ of certiorari is of the highest utility for curbing excessive jurisdiction and correcting errors, and that its scope has been broadened as a recognized mode for the correction of errors.

• Section 3, Rule 2, 1997 Rules of Civil Procedure — 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 other or others. The Court applied this provision to hold that the bank's filing of both foreclosure and collection actions constituted impermissible splitting of a single cause of action.

• Act No. 3135, as amended — The law governing extrajudicial foreclosure of real estate mortgages. The Court noted that the mortgage agreement appointed FEBTC as attorney-in-fact with power to foreclose extrajudicially in accordance with the procedure prescribed by this Act.

• Republic Act No. 9182, "The Special Purpose Vehicle Act of 2002" — Cited in the petitioner's manifestation and joint motion for substitution, informing the Court that the bank had assigned its rights over its non-performing loan accounts to the Philippine Asset Investment, Inc. pursuant to this Act.

Panganiban, C.J. (Chairperson), Ynares-Santiago, J., Austria-Martinez, J., and Chico-Nazario, J., concurred in the decision.