Korea Exchange Bank vs. Filkor Business Integrated, Inc.

An action pleading the date and due execution of a real estate mortgage, describing the mortgaged property, stating the secured obligations and unpaid amounts, and praying for foreclosure and sale at public auction upon non-payment within ninety days from entry of judgment is an action for foreclosure of real estate mortgage, not a mere collection of a sum of money, and no abandonment of the mortgage lien occurs absent waiver. Applied to the Bank's complaint, the mortgage allegations and foreclosure prayer satisfied Rule 68 and required judgment for payment with sale on default.

Korea Exchange Bank stood as creditor and mortgagee to Filkor Business Integrated, Inc. as debtor and mortgagor, with Kim Eung Joe and Lee Han Sang bound as joint and several continuing sureties for Filkor's obligations to the Bank. To secure payment of all such obligations, Filkor mortgaged improvements owned by it and constructed on a lot leased from the Cavite Export Processing Zone Authority.

On February 9, 1996, Filkor Business Integrated, Inc. executed a real estate mortgage in favor of Korea Exchange Bank over improvements belonging to it and constructed on a lot leased at the Cavite Export Processing Zone Authority. As alleged in the complaint, the mortgaged property consisted of improvements standing on Block 13, Lot 1, Cavite Export Processing Zone, Rosario, Cavite, covered by Tax Declaration No. 5906-1 and consisting of a one-story building called warehouse and spooling area, the guardhouse, the cutting/sewing area building and the packing area building. Respondents Kim Eung Joe and Lee Han Sang executed continuing suretyships binding themselves jointly and severally with Filkor for its obligations to the Bank.

Thereafter, on January 9, 1997, Filkor borrowed US$140,000 from the Bank, payable on July 9, 1997, of which only US$40,000 was paid. From June 26, 1997 to September 11, 1997, Filkor executed nine trust receipts in favor of the Bank but failed to turn over the proceeds from the sale of the goods, or the goods themselves as required in case of non-sale. In the period from June 9, 1997 to October 1, 1997, Filkor also negotiated to the Bank the proceeds of seventeen letters of credit issued by the Republic Bank of New York and the Banque Leumi France, S.A. to pay for goods sold by Filkor to Segerman International, Inc. and Davyco, S.A.; when the Bank tried to collect by presenting the bills of exchange drawn for the proceeds, they were dishonored because of discrepancies.

Because respondents failed to make good on their obligations, the Bank filed Civil Case No. N-6689 and moved for summary judgment pursuant to Section 1, Rule 35 of the 1997 Rules of Civil Procedure. The trial court found the actionable documents attached as photocopies to be deemed admitted for failure to specifically deny genuineness and due execution, and found no substantial triable issue from the pleadings, depositions, admissions and affidavits.

• Abandonment of Mortgage Lien: Petitioner argued that the Regional Trial Court of Cavite City erred in ruling that petitioner had abandoned the real estate mortgage in its favor because it filed a simple collection case.

• Nature of Action: Whether petitioner's complaint before the trial court was an action for foreclosure of a real estate mortgage, or an action for collection of a sum of money.
• Propriety of Appeal to the Supreme Court: Whether the present appeal was correctly lodged before the Supreme Court rather than with the Court of Appeals.

• Nature of Action: Foreclosure of real estate mortgage. The allegations and prayer for foreclosure and sale determine the nature of the action, and no waiver of the mortgage rights was shown.
• Propriety of Appeal to the Supreme Court: Yes. The determination of the nature of the action from the pleadings involves a question of law, appealable by certiorari to the Supreme Court under Section 1, Rule 45.

• Nature of Action: The rule applied is that allegations of the complaint and character of relief sought fix the nature of the action and jurisdiction. Paragraph 183 alleged the February 9, 1996 mortgage, its due execution, and the description of the mortgaged improvements, while paragraphs 1 and 2 identified mortgagor and mortgagee and the first to twenty-seventh causes alleged the dates of secured obligations and unpaid amounts, satisfying Section 1, Rule 68; the prayer expressly sought foreclosure and sale at public auction on failure to pay within ninety days from entry of judgment. With no indication of waiver, abandonment was not established, and Section 2, Rule 68 required judgment for the sum due with payment within ninety to one hundred twenty days from entry and sale on default.
• Propriety of Appeal to the Supreme Court: The rule applied is that only questions of law may be raised under Section 1, Rule 45, and an appeal raising only pure questions of law lies with the Supreme Court. The correctness of the trial court's conclusion on the nature of the action drawn from the pleadings was characterized as undoubtedly involving a question of law, making resort to the Supreme Court appropriate.

• Nature of action determined by allegations and relief sought — The nature of an action, as well as which court or body has jurisdiction over it, is determined by the allegations of the complaint and the character of the relief sought. Applied here, the mortgage allegations and express prayer for foreclosure and public sale established a foreclosure action despite recovery of personal money judgments under twenty-seven causes of action.
• Judgment on foreclosure for payment or sale — Upon finding the facts in the foreclosure complaint to be true, the court shall ascertain the amount due including interest, charges and costs, render judgment for the sum found due, order payment within not less than ninety nor more than one hundred twenty days from entry of judgment, and order sale at public auction on default to satisfy the judgment. Applied here, omission of the foreclosure and sale order required modification of the March 12, 1999 order.
• Waiver or abandonment of mortgage security — A mortgage creditor may elect to waive security and bring an ordinary action to recover indebtedness with execution against all properties of the debtor including mortgaged property, but failure in the elected remedy bars pursuit of the waived remedy. Applied here, the doctrine was held inapplicable because petitioner sought foreclosure relief and manifested no waiver of rights under the real estate mortgage.

• "We have consistently ruled that what determines the nature of an action, as well as which court or body has jurisdiction over it, are the allegations of the complaint and the character of the relief sought." — This passage states the controlling test for characterizing the Bank's suit as foreclosure rather than mere collection.
• "shall render judgment for the sum so found due and order that the same be paid to the court or to the judgment obligee within a period of not less than ninety (90) days nor more than one hundred twenty (120) days from entry of judgment, and that in default of such payment the property shall be sold at public auction to satisfy the judgment" — This passage quotes the mandatory foreclosure judgment that required modification of the trial court's omission.
• "The rule is now settled that a mortgage creditor may elect to waive his security and bring, instead, an ordinary action to recover the indebtedness with the right to execute a judgment thereon on all the properties of the debtor including the subject matter of the mortgage, subject to the qualification that if he fails in the remedy by him elected, he cannot pursue further the remedy he has waived." — This passage reproduces the waiver rule relied upon by the trial court to deny reconsideration and later held inapplicable for lack of waiver.

• Danao vs. Court of Appeals, 154 SCRA 446, citing Manila Trading and Supply Co. vs. Co Kim, et al., 71 Phil. 448 — Cited by the trial court as basis for abandonment upon electing a collection action; the Supreme Court implicitly declined to apply it where the complaint sought foreclosure and no waiver appeared.
• Union Bank of the Philippines vs. Court of Appeals, G.R. No. 131729, 290 SCRA 198, 218 (1998); Javelosa vs. Court of Appeals, G.R. No. 124292, 265 SCRA 493 (1996); Amigo vs. Court of Appeals, et al., G.R. No. 102833, 253 SCRA 382 (1996); Cañiza vs. Court of Appeals, G.R. No. 110427, 268 SCRA 640 (1997); Bernarte vs. Court of Appeals, et al., G.R. No. 107741, 263 SCRA 323 (1996); Bernardo Sr., et al. vs. Court of Appeals, et al., G.R. No. 120730, 263 SCRA 660 (1996) — Cited as consistent authority that allegations of the complaint and character of relief sought determine the nature of the action and jurisdiction.
• Far East Marble (Phils.), Inc. vs. Court of Appeals, G.R. No. 94093, 225 SCRA 249, 255 (1993) — Cited to support that when an appeal raises only pure questions of law, the Supreme Court has jurisdiction to entertain it.

• Section 1, Rule 68, 1997 Rules of Civil Procedure — Requires a foreclosure complaint to set forth date and due execution of the mortgage, assignments if any, names and residences of mortgagor and mortgagee, description of mortgaged property, date of note or documentary evidence of secured obligation, amount unpaid, and subordinate interest holders as defendants. Applied to find Paragraph 183, paragraphs 1 and 2, and the twenty-seven causes of action satisfied foreclosure pleading.
• Section 2, Rule 68, 1997 Rules of Civil Procedure — Mandates judgment for the amount due with payment within ninety to one hundred twenty days from entry and sale at public auction on default. Applied to require modification adding foreclosure and sale upon Filkor's failure to pay within ninety days from entry of judgment.
• Section 1, Rule 45, 1997 Rules of Civil Procedure — Allows appeal by certiorari to the Supreme Court raising only questions of law distinctly set forth. Applied to sustain the Bank's direct resort to the Supreme Court because the nature of the action drawn from pleadings presented a question of law.
• Sections 1, 2, 3, Rule 35, 1997 Rules of Civil Procedure; Section 7, Rule 8; Section 8, Rule 8 — Govern summary judgment where no genuine issue of material fact exists and deem genuineness and due execution of actionable documents admitted if not specifically denied. Applied by the trial court to grant summary judgment based on attached copies and affidavits.

Bellosillo, Chairman, Mendoza, and De Leon, Jr., JJ., concurred.