Chieng vs. Santos

A mortgage-creditor who files criminal cases for violation of Batas Pambansa Blg. 22 is deemed to have impliedly instituted a collection suit, which operates as an election of the alternative remedy of collection and bars a subsequent action for foreclosure of the real estate mortgage. Nevertheless, where the mortgagor admits the existence of an unpaid loan balance, the principle of unjust enrichment under Article 22 of the Civil Code obliges the mortgagor to pay the remaining balance, notwithstanding the bar against foreclosure.

Petitioner Antonio Chieng was a money lender operating a business at 1670 Rizal Avenue, West Bajac-Bajac, Olongapo City. Respondents Eulogio and Teresita Santos were spouses who sought a loan from petitioner on August 17, 1989, securing it with a Deed of Real Estate Mortgage over their 613-square-meter property covered by TCT No. T-2570. The respondents were facing claims from third-party creditors who were attempting to attach or levy their property, which led to the simulation of the loan amount in the Deed of Real Estate Mortgage.

On August 17, 1989, petitioner Antonio Chieng extended a loan to respondent spouses Eulogio and Teresita Santos. As security, the respondents executed a Deed of Real Estate Mortgage over their 613-square-meter parcel of land in West Bajac-Bajac, Olongapo City, covered by TCT No. T-2570. The Deed was registered on the same date and annotated on the title. The parties, however, simulated the loan amount in the Deed to appear as ₱600,000.00, when the actual loan was only ₱200,000.00, to protect the respondents' property from third-party creditors who were attempting to attach or levy it.

Respondent Eulogio issued several checks in favor of petitioner as payment for the loan. Some of these checks were dishonored, prompting petitioner to file criminal cases against respondent Eulogio for violation of Batas Pambansa Blg. 22 before the Olongapo City RTC, Branch 72, docketed as Criminal Cases No. 612-90 to No. 615-90. During the pre-trial conference on July 15, 1991, the parties entered into a compromise agreement, embodied in an Order of the court, fixing the total indebtedness at ₱200,000.00 including interest, payable in monthly installments of ₱20,000.00 starting July 31, 1991, upon completion of which the cases would be considered terminated. Respondent Eulogio failed to comply with the compromise agreement.

On June 17, 1993, petitioner filed an action for foreclosure of mortgage before the Olongapo City RTC, Branch 74, docketed as Civil Case No. 239-0-93, alleging that respondents failed to pay the loan despite repeated demands. Respondents sought dismissal on the ground of lack of cause of action, claiming the Deed of Real Estate Mortgage did not reflect the parties' true intention because the actual indebtedness was only around ₱200,000.00, not ₱600,000.00. They further averred that they had partly paid the loan but petitioner refused to issue receipts and render an accounting.

After several postponements upon respondents' motions, the RTC issued an Order on January 14, 1997, declaring respondents deemed to have waived their right to present evidence. On July 9, 1997, the RTC rendered a Decision ordering respondents to pay ₱600,000.00 plus interest and attorney's fees. Respondents moved for reconsideration, invoking the compromise agreement in the criminal cases. The RTC set aside its earlier Decision on October 6, 1997. Petitioner died on September 23, 1998, and was substituted by his son, William Chieng.

On October 23, 2001, the RTC rendered a Decision finding respondents liable to pay ₱377,000.00 including interest, plus attorney's fees and costs. The RTC agreed with respondents that the Deed of Real Estate Mortgage was simulated and that the loan obligation was only ₱200,000.00. It found that respondents made payments amounting to ₱107,000.00, and computed the liability by adding the principal of ₱200,000.00 to the unpaid interest of ₱177,000.00. The RTC denied respondents' Motion for Reconsideration in an Order dated January 11, 2002, holding that respondents were precluded from disclaiming the compromise agreement they themselves presented as evidence.

The Court of Appeals reversed the RTC Decision and dismissed the complaint, citing Bank of America vs. American Realty Corporation for the rule that a mortgage-creditor may either file an ordinary action to recover the indebtedness or foreclose the mortgage, and that once a collection suit is filed, the action to foreclose is barred. The appellate court held that the compromise agreement in the criminal cases had the effect of settling respondents' indebtedness, and that the civil action for recovery of civil liability was impliedly instituted in the criminal actions pursuant to Section 1, Rule 111 of the 1985 Rules on Criminal Procedure.

• Election of Remedies: Petitioner maintained that filing Criminal Cases No. 612-90 to No. 615-90 for violation of Batas Pambansa Blg. 22 should not be deemed an implied institution of an ordinary action for collection of the loan that would preclude the remedy of foreclosure of real estate mortgage.
• Identity of Obligation: Petitioner asserted that no evidence was adduced proving that the obligation for which the checks were issued in the criminal cases was the same loan obligation secured by the Deed of Real Estate Mortgage, as the complaint-affidavit and informations in the criminal cases were not presented during trial.
• Abandonment of Compromise: Petitioner argued that respondents did not pay a single centavo under the compromise agreement, which was thus deemed abandoned with no more force and effect.
• Lapse of Time: Petitioner claimed that 14 years had elapsed since the Order dated July 15, 1991 became final, so he could no longer file a Motion for Execution or an Action to Revive Judgment, leaving foreclosure as his only recourse to recover the loan balance.

• Lack of Cause of Action: Respondents sought dismissal of the foreclosure case on the ground of lack of cause of action, claiming the Deed of Real Estate Mortgage was simulated and did not reflect the parties' true intention because the actual indebtedness was only around ₱200,000.00.
• Partial Payment: Respondents averred that they had partly paid their loan but petitioner refused to issue receipts and render an accounting of their remaining obligation.
• Interest Unwarranted: Respondents filed a Motion for Reconsideration asserting that the charging of interest on the loan obligation was unwarranted because no payment of interest was agreed upon.

• Election of Remedies: Whether petitioner, by filing Criminal Cases No. 612-90 to No. 615-90 for violation of Batas Pambansa Blg. 22 against respondent Eulogio, was already barred or precluded from availing himself of the other civil remedy of foreclosure of the real estate mortgage.

• Election of Remedies: Yes, in part. The filing of the criminal cases for violation of Batas Pambansa Blg. 22 impliedly instituted a civil action for collection, which operated as an election of the remedy of collection and barred the subsequent foreclosure action. However, the respondents remained liable to pay the balance of the loan under the principle of unjust enrichment, and the petition was granted to that extent.

• Election of Remedies: The Court began by affirming the general rule that a mortgage-creditor may, in the recovery of a debt secured by a real estate mortgage, institute either a personal action for debt or a real action to foreclose the mortgage. These remedies are alternative and not cumulative; an election of one operates as a waiver of the other. The Court cited Bachrach Motor Co., Inc. vs. Icarangal for the proposition that allowing both remedies would result in multiplicity of suits and subject the mortgage-debtor to vexation. A remedy is deemed chosen upon the filing of the suit for collection or the complaint for foreclosure.

Applying this rule, the Court held that when petitioner filed the criminal cases for violation of Batas Pambansa Blg. 22, the civil action for the recovery of the amount of the dishonored checks was impliedly instituted pursuant to Section 1(b) of Rule 111 of the 2000 Rules on Criminal Procedure. Citing Hyatt Industrial Manufacturing Corporation vs. Asia Dynamic Electrix Corporation, the Court explained that the criminal action for violation of B.P. 22 shall be deemed to include the corresponding civil action, and no reservation to file a separate civil action is allowed. The impliedly instituted civil action was, in effect, a collection suit for the recovery of the mortgage-debt, since the dishonored checks were issued for the payment of the same loan secured by the Deed of Real Estate Mortgage. The RTC had correctly found that the parties had one and only transaction constituted on August 17, 1989, and that the bouncing checks were part of the checks issued in consideration of the mortgage debt. Consequently, petitioner was deemed to have availed himself of the remedy of collection suit and was barred from subsequently resorting to foreclosure.

However, the Court stressed that respondents had not yet fully paid the loan and in fact admitted they still owed the balance. To allow respondents to benefit from the loan without paying its whole amount would constitute unjust enrichment at petitioner's expense. The Court invoked Article 22 of the New Civil Code, which provides that every person who through an act of performance by another acquires something at the expense of the latter without just or legal ground shall return the same. The Court identified the two elements of unjust enrichment: (1) a person is unjustly benefited, and (2) such benefit is derived at the expense of or with damages to another. One condition for invoking the principle is that the aggrieved party has no other action based on contract, quasi-contract, crime, quasi-delict, or any other provision of law. Since the foreclosure action was barred, the principle of unjust enrichment obliged respondents to pay the remaining balance of the loan plus interest.

The Court did not subscribe to the RTC's computations. Citing Eastern Shipping Lines, Inc. vs. Court of Appeals, the Court ruled that in the absence of a written agreement as to the payment of interest, the rate of interest shall be 12% per annum computed from default, i.e., from judicial or extra-judicial demand. Since there was no written agreement on interest, the rate was 12% per annum computed from the extra-judicial demand made on July 30, 1992. The Court found that ₱107,000.00 out of the total loan of ₱200,000.00 was already paid, leaving a balance of ₱93,000.00 that should earn legal interest of 12% per annum from the time of extra-judicial demand. An additional legal interest of 12% per annum was imposed from the finality of the Decision up to its satisfaction.

• Alternative Remedies of a Mortgage-Creditor — A mortgage-creditor may, in the recovery of a debt secured by a real estate mortgage, institute either a personal action for debt or a real action to foreclose the mortgage. These remedies are alternative and not cumulative; an election of one operates as a waiver of the other. The Court applied this rule to hold that the impliedly instituted collection suit in the criminal cases barred the subsequent foreclosure action.

• Implied Institution of Civil Action in B.P. 22 Cases — Under Section 1(b) of Rule 111 of the 2000 Rules on Criminal Procedure, the criminal action for violation of Batas Pambansa Blg. 22 shall be deemed to include the corresponding civil action, and no reservation to file a separate civil action is allowed. The Court applied this rule to conclude that the filing of the criminal cases operated as an election of the remedy of collection.

• Unjust Enrichment (Nemo cum alterius detrimento locupletari potest) — Embodied in Article 22 of the New Civil Code, unjust enrichment exists when (1) a person is unjustly benefited, and (2) such benefit is derived at the expense of or with damages to another. One condition for invoking the principle is that the aggrieved party has no other action based on contract, quasi-contract, crime, quasi-delict, or any other provision of law. The Court applied this principle to order respondents to pay the remaining loan balance despite the bar against foreclosure.

• "A mortgage-creditor may, in the recovery of a debt secured by a real estate mortgage, institute against the mortgage-debtor either a personal action for debt or a real action to foreclose the mortgage. These remedies available to the mortgage-creditor are deemed alternative and not cumulative. An election of one remedy operates as a waiver of the other." — This passage states the controlling doctrine on the alternative remedies of a mortgage-creditor, which formed the basis for the Court's finding that the foreclosure action was barred.

• "The impliedly instituted civil action in Criminal Cases No. 612-90 to No. 615-90 for violation of Batas Pambansa Blg. 22 was, in effect, a collection suit or suit for the recovery of the mortgage-debt since the dishonored checks involved in the said criminal cases were issued by respondent Eulogio to petitioner for the payment of the same loan secured by the Deed of Real Estate Mortgage." — This passage establishes the factual link between the criminal cases and the mortgage debt, which was essential to the Court's application of the election of remedies doctrine.

• "To allow respondents to benefit from the loan without paying its whole amount to petitioner, and to preclude the petitioner from recovering the remaining balance of the loan, would constitute unjust enrichment at the expense of petitioner." — This passage articulates the equitable basis for the Court's holding that respondents remained liable for the loan balance despite the bar against foreclosure.

• Bachrach Motor Co., Inc. vs. Icarangal, 68 Phil. 287 (1939) — Cited as controlling precedent for the rule that a mortgage-creditor cannot pursue both the personal action for debt and the real action to foreclose, as this would result in multiplicity of suits and vex the mortgage-debtor.

• Hyatt Industrial Manufacturing Corporation vs. Asia Dynamic Electrix Corporation, G.R. No. 163597, July 29, 2005, 465 SCRA 454 — Cited as controlling precedent for the rule that the criminal action for violation of B.P. 22 shall be deemed to include the corresponding civil action under Section 1(b) of Rule 111 of the 2000 Rules on Criminal Procedure.

• Bank of America vs. American Realty Corporation, 378 Phil. 1279 (1999) — Cited by the Court of Appeals for the rule that a mortgagor-creditor has two choices of action: file an ordinary action to recover the indebtedness or foreclose the mortgage; the Supreme Court did not disturb this principle.

• Eastern Shipping Lines, Inc. vs. Court of Appeals, G.R. No. 97412, July 12, 1994, 234 SCRA 78 — Cited as controlling precedent for the rules on computation of legal interest, including the 12% per annum rate in the absence of a written stipulation, computed from default or judicial or extra-judicial demand.

• Article 22, New Civil Code — Provides that every person who through an act of performance by another, or any other means, acquires or comes into possession of something at the expense of the latter without just or legal ground, shall return the same to him. The Court applied this provision to order respondents to pay the remaining loan balance despite the bar against foreclosure.

• Section 1(b), Rule 111, 2000 Rules on Criminal Procedure — Provides that the criminal action for violation of Batas Pambansa Blg. 22 shall be deemed to include the corresponding civil action, and no reservation to file such civil action separately shall be allowed. The Court applied this provision to conclude that the filing of the criminal cases impliedly instituted a collection suit.

• Section 1, Rule 111, 1985 Rules on Criminal Procedure — Cited by the Court of Appeals for the rule that the civil action for the recovery of civil liability is impliedly instituted in criminal actions.

• Sections 4(d) and 5, Rule 45; Section 5(d), Rule 56, Rules of Court — Cited in the procedural history for the requirement of submitting the duplicate original or certified true copy of the assailed decision in a Petition for Review on Certiorari.

• Ynares-Santiago, J. (Chairperson)
• Austria-Martinez, J.
• Nachura, J. (on leave)
• Reyes, J.