Facts:

The case involves BPI Family Savings Bank, Inc. (petitioner) and Margarita Vda. de Coscolluela (respondent). The events leading to the case began when Margarita and her late husband, Oscar Coscolluela, obtained an agricultural sugar crop loan from the Far East Bank & Trust Co. (FEBTC) for the crop years 1997 and 1998. The total loan amount was P13,592,492.00, evidenced by 67 promissory notes executed between August 29, 1996, and January 23, 1998. The couple also executed a real estate mortgage on June 13, 1997, over a parcel of land in Bacolod City, securing their loans with a fixed amount of P7,000,000.00. The mortgage agreement stipulated that upon default, the entire outstanding amount would become due, allowing FEBTC to foreclose the property extrajudicially.

After Oscar's death, FEBTC sent a final demand letter to Margarita on March 10, 1999, for the payment of P19,482,168.31, which included principal, past due interests, and penalties. When she failed to pay, ...

Facts:

Loan Agreement and Promissory Notes

• Respondent Margarita Vda. de Coscolluela and her late husband, Oscar Coscolluela, obtained an agricultural sugar crop loan from Far East Bank & Trust Co. (FEBTC), Bacolod City Branch, for crop years 1997 and 1998. The loan was later merged with petitioner BPI Family Savings Bank, Inc.
• The loan account was treated as a single account, amounting to P13,592,492.00, evidenced by 67 Promissory Notes executed from August 29, 1996, to January 23, 1998.
• The promissory notes were divided into two groups:
  • Promissory Notes 1 to 33: Maturity date of February 9, 1998, with a 30-day extension up to March 11, 1998.
  • Promissory Notes 34 to 67: Maturity date of December 28, 1998.

Real Estate Mortgage

• 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 Transfer Certificate of Title (TCT) No. T-109329, to secure the loan.
• The mortgage was registered on June 20, 1997, and annotated on the title.
• The mortgage contained a "dragnet clause", securing not only the existing loans but also future loans or advancements.

Default and Demand for Payment

• After Oscar Coscolluela's death, respondent failed to settle the outstanding loan obligation.
• On March 10, 1999, FEBTC sent a final demand letter to respondent, demanding payment of P13,481,498.68 (principal) plus interest and penalties, totaling P19,482,168.31 as of March 9, 1999.
• Respondent failed to pay, prompting FEBTC to file a petition for extrajudicial foreclosure of the mortgaged property on June 10, 1999, covering Promissory Notes 1 to 33 (excluding Nos. 2 and 10), amounting to P4,687,006.68.

Collection Case

• While the foreclosure proceeding was pending, FEBTC filed a collection case against respondent in the Regional Trial Court (RTC) of Makati City on June 23, 1999, seeking to recover the amounts covered by Promissory Notes 34 to 67, totaling P8,794,492.00 plus interest and penalties.

Defenses Raised by Respondent

• Respondent argued that the collection case was barred by litis pendentia (pending foreclosure proceeding) and constituted splitting of a cause of action.
• She also claimed that the bank charged excessive interest and sought to unjustly enrich itself by collecting twice on the same promissory notes.

Issue:

• (Unlock)

Ruling:

• (Unlock)

Ratio:

1. Splitting of a Cause of Action:

   • Under the Rules of Court, a party cannot split a single cause of action into multiple suits. The bank's filing of both the foreclosure proceeding and the collection case constituted splitting of a cause of action, as both actions arose from the same obligation (non-payment of the loan).
   • The bank should have included all promissory notes in a single proceeding, either foreclosure or collection, but not both.

2. Dragnet Clause in Real Estate Mortgage:

   • The real estate mortgage contained a dragnet clause, which secured not only the existing loans but also future advancements. This clause made the mortgage a continuing security for all 67 promissory notes.
   • The Court emphasized that the mortgage was intended to cover all past and future obligations, and the bank could not treat the promissory notes as separate contracts.

3. Prohibition Against Personal Action After Foreclosure:

   • Once the bank initiated foreclosure proceedings, it was barred from pursuing a personal action for collection. The foreclosure proceeding and the collection case were based on the same cause of action (non-payment of the loan), and the bank could not pursue both remedies simultaneously.

4. Precedent on Mortgages for Future Advancements:

   • The Court cited the case of Lim Julian v. Lutero, which held that a mortgage securing future advancements is valid and covers all obligations, even if they exceed the amount initially stated in the mortgage.
   • The Court also distinguished this case from Caltex Philippines, Inc. v. Intermediate Appellate Court, where the mortgage did not contain a dragnet clause and thus did not cover future debts.

Conclusion:

The Supreme Court ruled that the bank's actions constituted splitting of a cause of action and barred it from pursuing a personal action for collection after initiating foreclosure proceedings. The real estate mortgage, with its dragnet clause, secured all 67 promissory notes, making them part of a single obligation. The petition was dismissed for lack of merit.