Caltex Philippines, Inc. vs. IAC

A mortgage creditor who files a collection suit for the recovery of a debt secured by a mortgage and subsequently forecloses the mortgage extrajudicially elects the foreclosure remedy, thereby waiving and abandoning the collection suit. The mere act of filing a collection suit constitutes waiver of the foreclosure remedy, but where foreclosure proceedings end before judgment in the collection suit, it is the collection suit that is deemed waived. Additionally, where a mortgage contract contains both a specific provision limiting the secured amount and general provisions referring to the whole indebtedness, the specific provision prevails, and the mortgage secures the debt only up to the stated limit.

Private respondent Herbert Manzana purchased petroleum products on credit from petitioner Caltex Philippines, Inc. (CALTEX), creating a debtor-creditor relationship between them. To secure his obligations, Manzana executed a Deed of First Mortgage over a parcel of land covered by OCT No. 0-274 of the Register of Deeds of the Province of Camarines Norte. The mortgage contract contained provisions that appeared contradictory: one condition stated the maximum amount secured was P120,000.00, while other paragraphs referred to the whole outstanding indebtedness of P361,218.66 as secured. CALTEX extended Manzana a continuing credit line, with each transaction constituting a separate obligation.

Private respondent Herbert Manzana purchased petroleum products on credit from petitioner Caltex Philippines, Inc. (CALTEX). As of August 31, 1969, his indebtedness amounted to P361,218.66. On October 4, 1969, Manzana executed a Deed of First Mortgage in favor of CALTEX over a parcel of land covered by OCT No. 0-274 of the Register of Deeds of the Province of Camarines Norte to secure his debts. CALTEX sent Manzana statements of account and demanded payment of his entire debts. Because of Manzana's failure and refusal to pay, CALTEX filed a complaint on August 17, 1970 before the trial court for recovery of the whole amount of P361,218.66.

Meanwhile, on September 15, 1970, CALTEX foreclosed extrajudicially the mortgaged property. On October 30, 1970, the mortgaged property was sold at auction to CALTEX, being the only bidder, for P20,000.00 as shown by the Sheriff's Certificate of Sale. The foreclosure was allegedly known by Manzana only on October 4, 1980 when such fact was manifested by CALTEX in its reply to the opposition of Manzana to the motion for execution pending appeal.

On July 23, 1980, the trial court rendered judgment ordering Manzana to pay CALTEX the amount of P353,218.66 after deducting P8,000.00 paid by Traders Insurance and Surety Company on its surety bond, with interest thereon at 12% per annum from August 17, 1970, plus 20% thereof as attorney's fees. Manzana appealed to the Intermediate Appellate Court, raising the issues that CALTEX cannot avail both of a personal action and an extrajudicial foreclosure at the same time, and that CALTEX cannot avail of a deficiency judgment after having extrajudicially foreclosed on the property.

The Deed of First Mortgage contained contradictory provisions. The first condition stated: "The aforementioned indebtedness of THREE HUNDRED SIXTY-ONE THOUSAND TWO HUNDRED EIGHTEEN & 66/100 (P361,218.66) of the MORTGAGOR shall be paid upon demand by the MORTGAGEE; it being expressly understood that the limit or maximum amount secured by this mortgage is ONE HUNDRED TWENTY THOUSAND PESOS (P120,000.00) only." However, the fourth paragraph and fourth condition stated that the mortgage was executed "to secure the faithful performance by the MORTGAGOR of all the terms and conditions hereinafter set forth, particularly the payment of the obligations hereby secured" and that "This mortgage shall remain in force to cover the afore-mentioned outstanding indebtedness of the MORTGAGOR to the MORTGAGEE in the amount of THREE HUNDRED SIXTY-ONE THOUSAND TWO HUNDRED EIGHTEEN PESOS & 66/100 (P361,218.66)." The third WHEREAS clause stated the mortgage was offered "only as partial security" for the indebtedness, and the penultimate paragraph bound Manzana "to complete the securities required by the MORTGAGEE."

The trial court found that Manzana's outstanding account of P361,218.66 was confirmed by his September 8, 1970 letter acknowledging his indebtedness and asking for time to pay, and by his execution of the Deed of First Mortgage. The trial court also found that Manzana's defenses lacked merit, as the periodical statements of account constituted a form of liquidation, and the Dealer Agreement terms were peculiar to purchase and sale transactions establishing a debtor-creditor relationship.

• New Issues on Appeal: CALTEX alleged that the only issue submitted for resolution before the trial court was whether Manzana was indebted and liable to it in the sum of P361,218.66, and that the issues of whether CALTEX could avail of both a personal action and extrajudicial foreclosure, and whether it could avail of a deficiency judgment, were never raised in the pleadings nor at any stage of the proceedings before the trial court, being raised only for the first time on appeal.

• Extent of Mortgage Security: CALTEX submitted that based on the first condition of the Deed of First Mortgage, Manzana's indebtedness of P361,218.66 was secured only up to the extent of P120,000.00.

• Inapplicability of Bachrach Doctrine: CALTEX argued that the principles in Bachrach Motor, Inc. vs. Icarangal et al. were not applicable because the factual circumstances differed — in Bachrach, the plaintiff instituted an action to foreclose the mortgage after the money judgment remained unsatisfied, whereas CALTEX initially filed a complaint for collection and during its pendency foreclosed extrajudicially.

• No Waiver of Mortgage Lien: CALTEX alleged that the mere act of filing a collection suit for recovery of a debt secured by real estate mortgage is not tantamount to an implied waiver of the mortgage lien, as no statute prohibits a mortgagee from subsequently foreclosing the mortgage after the collection suit has been filed, and the mortgage itself contains no explicit provision that filing a collection suit would mean waiver of the foreclosure remedy.

• Election of Remedies: Manzana argued that CALTEX cannot avail both of a personal action for collection and an extrajudicial foreclosure at the same time against him, and that CALTEX cannot avail of a deficiency judgment after having extrajudicially foreclosed on the property.

• Extent of Mortgage Security: Manzana contended that based on the fourth paragraph of the deed and the fourth condition therein, the whole outstanding obligation of P361,218.66 was secured by the mortgage.

• New Issues on Appeal: Whether the respondent court committed an error in giving due course to the question whether CALTEX can avail at the same time of a personal action in court for collection of a sum of money and the extrajudicial foreclosure of the deed of first mortgage, which was only raised for the first time on appeal.

• Waiver of Foreclosure Remedy: Whether the mere filing of a collection suit for the recovery of the debt secured by real estate mortgage constitutes waiver of the other remedy of foreclosure.

• Splitting of a Single Cause of Action: Whether the filing of the complaint for recovery of the amount of indebtedness and the subsequent extrajudicial foreclosure of the deed of first mortgage constitutes splitting of a single cause of action.

• New Issues on Appeal: No. The respondent court did not commit any error in taking cognizance of the issues raised for the first time on appeal, as strong considerations of substantial justice led the Court to relax the rule that no question will be entertained on appeal unless raised in the court below.

• Waiver of Foreclosure Remedy: Yes, with modification. The mere act of filing a collection suit for the recovery of a debt secured by a mortgage constitutes waiver of the other remedy of foreclosure. However, in this case, the Court declared that it was the collection suit which was waived and/or abandoned, because the foreclosure proceedings ended even before the decision in the collection suit was rendered.

• Splitting of a Single Cause of Action: Yes. CALTEX had only one cause of action against Manzana — non-payment of the debt — and by filing a complaint for payment of the debt and thereafter foreclosing the mortgage, it split its single cause of action, which is prohibited.

• New Issues on Appeal: The Court relaxed the well-entrenched rule that, except questions on jurisdiction, no question will be entertained on appeal unless it has been raised in the court below and is within the issues made by the parties in their pleadings, citing Cordero vs. Cabral. The compassionate spirit behind this rule applied equally to CALTEX's allegation that Manzana's indebtedness was secured only up to P120,000.00, an issue raised for the first time in the petition. The liberal application of the rule favored both parties.

• Extent of Mortgage Security: Applying Article 1374 of the Civil Code, which provides that the various stipulations of a contract shall be interpreted together, attributing to the doubtful ones that sense which may result from all of them taken jointly, the Court held that the first condition cited by CALTEX was a specific provision while the fourth paragraph and fourth condition cited by Manzana were general provisions. This interpretation was bolstered by the third WHEREAS clause stating the mortgage was offered "only as partial security" and the penultimate paragraph binding Manzana "to complete the securities required by the MORTGAGEE." Thus, Manzana's indebtedness of P361,218.66 was secured up to the extent of P120,000.00 only. The Court affirmed the trial court's ruling with respect to Manzana's liability to CALTEX in the amount of P233,218.66 (P353,218.66 less P120,000.00) with interest at 12% per annum from August 17, 1970, plus 20% attorney's fees. The Court also noted that remand was not necessary because the trial court had received all the evidence intended to be presented by both parties, citing Hechanova vs. Court of Appeals.

• Waiver of Foreclosure Remedy: The Court applied the doctrine in Bachrach Motor, Inc. vs. Icarangal et al., which held that in the absence of express statutory provisions, 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. By such election, his cause of action can by no means be impaired, for each of the two remedies is complete in itself. The Court held that the mere act of filing a collection suit for the recovery of a debt secured by a mortgage constitutes waiver of the other remedy of foreclosure, to avoid multiplicity of suits and vexation to the debtor. However, in the present case, the Court declared that it was the collection suit which was waived and/or abandoned, because the foreclosure proceedings ended even before the decision in the collection suit was rendered. The Court found that CALTEX made a mockery of the judicial system when it initially filed a collection suit, then during its pendency foreclosed extrajudicially the mortgaged property, and still pursued the collection suit to the end.

• Deficiency Judgment: The Court resolved the corollary issue of whether CALTEX could still sue for a deficiency judgment of P100,000.00 (secured debt of P120,000.00 less the foreclosure amount of P20,000.00). The collection suit filed before the trial court could not be considered a deficiency judgment because a deficiency judgment is one for the balance of the indebtedness after applying the proceeds of the sale of the mortgaged property, necessarily filed after foreclosure proceedings. The judgment rendered by the trial court was for the full amount of the indebtedness and the case was filed prior to the foreclosure proceedings. Applying Articles 1142 and 1144 of the Civil Code, which provide a ten-year prescriptive period for mortgage actions and actions upon a written contract, the Court held that since more than ten years had elapsed from the time the right of action accrued, CALTEX could no longer recover the deficiency from Manzana. A suit for recovery of the deficiency after foreclosure of a mortgage is in the nature of a mortgage action because its purpose is precisely to enforce the mortgage contract, citing Development Bank of the Philippines vs. Tomeldan et al.

• Splitting of a Single Cause of Action: Applying the Bachrach doctrine, the Court held that for non-payment of a note secured by mortgage, the creditor has a single cause of action against the debtor, consisting in the recovery of the credit with execution of the security. Though the debt and the mortgage constitute separate agreements, the latter is subsidiary to the former, and both refer to one and the same obligation. Consequently, there exists only one cause of action for a single breach of that obligation. Plaintiff cannot split up his single cause of action by filing a complaint for payment of the debt and thereafter another complaint for foreclosure of the mortgage. If he does so, the filing of the first complaint will bar the subsequent complaint.

• Election of Remedies in Mortgage Contracts — 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. By such election, his cause of action can by no means be impaired, for each of the two remedies is complete in itself. An election to bring a personal action leaves open all the properties of the debtor for attachment and execution, including the mortgaged property itself. If he waives the personal action and pursues his remedy against the mortgaged property, an unsatisfied judgment thereon would still give him the right to sue for a deficiency judgment. In this case, the Court applied this doctrine but declared that it was the collection suit that was waived because the foreclosure proceedings ended before the decision in the collection suit was rendered.

• Waiver by Filing a Collection Suit — The mere act of filing a collection suit for the recovery of a debt secured by a mortgage constitutes waiver of the other remedy of foreclosure. The rationale is that a rule authorizing the plaintiff to bring a personal action against the debtor and simultaneously or successively another action against the mortgaged property would result in multiplicity of suits, offensive to justice and obnoxious to law and equity, and would subject the defendant to vexation of being sued in multiple places. However, where the foreclosure proceedings end before the decision in the collection suit is rendered, it is the collection suit that is deemed waived and/or abandoned.

• Single Cause of Action for Non-Payment of a Secured Debt — For non-payment of a note secured by mortgage, the creditor has a single cause of action against the debtor, consisting in the recovery of the credit with execution of the security. Though the debt and the mortgage constitute separate agreements, the latter is subsidiary to the former, and both refer to one and the same obligation. Consequently, there exists only one cause of action for a single breach of that obligation. The filing of the first complaint will bar the subsequent complaint.

• Specific Provision Prevails Over General Provision in Contract Interpretation — Under Article 1374 of the Civil Code, the various stipulations of a contract shall be interpreted together, attributing to the doubtful ones that sense which may result from all of them taken jointly. Where a contract contains both a specific provision and general provisions that contradict each other, the specific provision prevails. In this case, the first condition limiting the secured amount to P120,000.00 was specific, while the fourth paragraph and fourth condition referring to the whole indebtedness were general provisions.

• Prescription of Deficiency Judgment — A suit for the recovery of the deficiency after the foreclosure of a mortgage is in the nature of a mortgage action because its purpose is precisely to enforce the mortgage contract; it is upon a written contract and upon an obligation created by law. The ten-year period provided in Articles 1142 and 1144 of the Civil Code applies to a suit for deficiency judgment.

• "x x x in the absence of express statutory provisions, a mortgage creditor may institute against the mortgage debtor either a personal action for debt or a real action to foreclose the mortgage. In other words, he may pursue either of the two remedies, but not both. By such election, his cause of action can by no means be impaired, for each of the two remedies is complete in itself." — This passage from Bachrach Motor, Inc. vs. Icarangal et al. states the canonical formulation of the election of remedies doctrine in mortgage contracts, which the Court applied as the controlling rule in this case.

• "The mere act of filing a collection suit for the recovery of a debt secured by a mortgage constitutes waiver of the other remedy of foreclosure." — This is the Court's direct holding on the second issue, establishing the rule that filing a collection suit waives the foreclosure remedy, subject to the modification that where foreclosure ends first, it is the collection suit that is waived.

• "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." — This passage from Bachrach articulates the single cause of action doctrine, which the Court applied to hold that CALTEX split its cause of action by filing both a collection suit and a foreclosure.

• "CALTEX, in effect, has made a mockery of our judicial system when it initially filed a collection suit then, during the pendency thereof foreclosed extrajudicially the mortgaged property which secured the indebtedness and still pursued the collection suit to the end. In this light, the actuations of CALTEX are deserving of severe criticism, to say the least." — This passage expresses the Court's condemnation of CALTEX's conduct in availing of both remedies simultaneously, which informed the Court's ruling that the collection suit was deemed waived.

• Bachrach Motor, Inc. vs. Icarangal et al., 68 Phil. 287 — Controlling precedent establishing the doctrine of election of remedies in mortgage contracts: a mortgage creditor may pursue either a personal action for debt or a real action to foreclose the mortgage, but not both. The Court applied this doctrine to hold that CALTEX availed of both remedies and that the collection suit was waived.

• Cordero vs. Cabral, G.R. No. L-36789, July 25, 1983, 123 SCRA 532 — Cited for the rule that, except questions on jurisdiction, no question will be entertained on appeal unless it has been raised in the court below, which the Court relaxed in the interest of substantial justice.

• Hechanova vs. Court of Appeals, G.R. No. L-48787, November 14, 1986, 145 SCRA 550 — Cited for the principle that remand of a case is not necessary if the trial court had received all the evidence intended to be presented by both parties.

• Soriano vs. Enriquez, 24 Phil. 584 — Cited in Bachrach for the proposition that a rule authorizing both personal action and foreclosure would result in multiplicity of suits offensive to justice.

• Osorio vs. San Agustin, 25 Phil. 404 — Cited in Bachrach for the proposition that multiplicity of suits is obnoxious to law and equity.

• Development Bank of the Philippines vs. Tomeldan et al., G.R. No. 51269, November 17, 1980, 101 SCRA 171 — Cited for the principle that a suit for recovery of the deficiency after foreclosure of a mortgage is in the nature of a mortgage action because its purpose is to enforce the mortgage contract.

• Gayos et al. vs. Gayos et al., G.R. No. L-27812, September 26, 1975, 67 SCRA 146 — Cited for the cherished rule of procedure that a court should always strive to settle the entire controversy in a single proceeding leaving no root or branch to bear the seeds of future litigation.

• Article 1374, Civil Code — Provides that the various stipulations of a contract shall be interpreted together, attributing to the doubtful ones that sense which may result from all of them taken jointly. The Court applied this provision to interpret the contradictory provisions of the Deed of First Mortgage, holding that the specific provision limiting the secured amount to P120,000.00 prevailed over the general provisions referring to the whole indebtedness.

• Article 1142, Civil Code — Provides that a mortgage action prescribes after ten years. The Court applied this provision to hold that CALTEX could no longer recover the deficiency from Manzana because more than ten years had elapsed from the time the right of action accrued.

• Article 1144, Civil Code — Provides that actions upon a written contract, upon an obligation created by law, and upon a judgment must be brought within ten years from the time the right of action accrues. The Court applied this provision together with Article 1142 to bar the recovery of the deficiency judgment.

Narvasa, Cruz, Gancayco, and Griño-Aquino, JJ., concurred.