G.R. No. 203194 - Asset Pool A , Inc. vs. Spouses Berris

Case Summary (G.R. No. 203194)

Background and Loan Agreements

On November 15, 1995, Far East Bank and Trust Company (FEBTC), predecessor-in-interest of petitioner Asset Pool, and B. Berris Merchandising (BBM), owned by respondent Buenafrido Berris, entered into a loan agreement worth ₱5,000,000 with interest at prevailing market rates, payable in 18 quarterly amortizations over five years. Security included real estate mortgages over two parcels (TCT Nos. 129163 and 74496), a chattel mortgage on a rice mill, and a Comprehensive Surety Agreement executed by the spouses. Concurrently, FEBTC granted BBM a Discounting Line facility initially amounting to ₱15,000,000, renewed and increased to ₱18,000,000, secured partially by five parcels of land (TCT Nos. 129163, 74496, 27852, 31079, and 296868), as well as the chattel mortgage on the rice mill.

Several promissory notes (PNs) were executed: PN No. 104-961106/TLS for ₱5,000,000 due in 2001 under the term loan agreement and four other PNs due in 1998 drawn against the Discounting Line facility. These notes contained provisions for attorney’s fees (25% in case of default) and liquidated damages (1% for every 30 days delayed).

Default, Demand, and Legal Actions Initiated

Respondents defaulted on loan payments. FEBTC issued letters demanding payment and later filed a petition for extrajudicial foreclosure over the real estate mortgages covering TCT Nos. 129163 and 74496 concerning loans under two PNs (not the main term loan PN). Subsequently, FEBTC filed a separate collection suit in RTC Makati for amounts due under five promissory notes, including the term loan PN and four other PNs under the Discounting Line facility.

Respondents challenged the foreclosure by filing a separate complaint for annulment of the sale. The Bank of the Philippine Islands (BPI) merged with FEBTC in 2000, absorbing its obligations. BPI assigned the loans to petitioner Asset Pool in 2006, who was later substituted as party plaintiff in the collection suit.

RTC Decision

On August 29, 2008, the RTC ruled in favor of petitioner Asset Pool, ordering the spouses Berris to pay ₱17,422,072.51 plus interest, liquidated damages, attorney's fees, and costs. The RTC found the spouses liable for breach of contract and payment of outstanding obligations under the promissory notes.

Court of Appeals Ruling

The CA reversed the RTC decision, dismissing the collection suit on the grounds that prior extrajudicial foreclosure of mortgage by FEBTC barred the subsequent filing of a collection suit under the prohibition against splitting a single cause of action. The court viewed the obligations under the five promissory notes as a single indivisible obligation secured by the same mortgage. It emphasized that a creditor must choose either foreclosure or collection suit but cannot pursue both simultaneously.

Issues on Appeal

Whether the CA erred in applying the precedent of Bank of the Philippine Islands v. Coscolluela (2006) in barring the collection suit.
Whether the CA failed to consider the distinct nature of the five mortgaged properties and the specific loans covered.
Whether prior extrajudicial foreclosure barred a subsequent collection suit on the debt.
Whether the principle against unjust enrichment should prevail over the procedural rule against multiplicity (splitting) of suits.

Supreme Court Ruling on Separate Loan Agreements and Obligations

The Court clarified that the November 15, 1995 Loan Agreement (term loan for ₱5,000,000) and the Discounting Line facility (initial ₱15,000,000 increased to ₱18,000,000 and valid until July 1998) are separate loan accommodations, each distinct and independent. Evidence showed that PN No. 2-104-961106/TLS pertained solely to the Term Loan Agreement and not the Discounting Line, which was evidenced by the terms of the promissory notes, payment schedules, interest application, account markings (TLS vs. BDC), maturity dates, and loan purposes.

Nature of Discounting Line Facility Explained

The Court explained the “discounting line” as a credit facility involving the bank's purchase of a company’s receivables at a discount to provide immediate cash. Loan proceeds under the Discounting Line were already net of interests and charges, contrasting with the term loan whose interest was payable separately on a quarterly basis.

Splitting of Cause of Action and Foreclosure Proceedings

The Court affirmed that while the Discounting Line notes covered by the extrajudicial foreclosure must be pursued exclusively either by foreclosure or collection suit, the term loan promissory note no. 2-104-961106/TLS, which is a separate contract secured by the same mortgaged properties, relates to a distinct obligation and is not barred by prior foreclosure proceedings.

The Court held that the bank's foreclosure petition only covered certain PNs (2-104-980258 BDC and 2-104-980888 BDC) under the Discounting Line and omitted others (2-104-980259 BDC, 2-104-980296 BDC, 2-104-980975 BD/C, 2-104-981149 BDC). This omission constituted a waiver of the bank’s right to recover the omitted amounts in an independent collection suit under the prohibition against splitting a single cause of action, per Section 3, Rule 2 of the Rules of Court.

Indivisibility of the Mortgage vs. Separate Loan Obligations

The Court recognized the indivisibility principle of mortgages under Article 2089 of the Civil Code but emphasized it refers to the nature of the mortgage on the properties, not the indivisibility of separate loan contracts. Since the term loan and discounting line are separate contracts, each gives rise to separate causes of action, and the real estate mortgage - though covering multiple properties and loans - remains an accessory security that does not merge separate obligations into one. The extrajudicial foreclosure of certain parcels in satisfaction of some loan obligations did not bar the filing of a personal collection suit for the separate term loan.

Waiver of Lien and Recovery of Deficiency

Failure to include the loan represented by PN No. 2-104-961106/TLS in the extrajudicial foreclosure is considered a waiver of lien over the mortgaged properties for that loan. However, this waiver does not preclude the bank or its successor from recovering the outstanding balance via a collection suit, provided the right to coll

Case Syllabus (G.R. No. 203194)

Background and Procedural History

The case involves a Petition for Review on Certiorari questioning the March 23, 2012 Decision and August 16, 2012 Resolution of the Court of Appeals (CA) which reversed an August 29, 2008 judgment of the Regional Trial Court (RTC), Branch 136 of Makati City.
The RTC ordered the respondents, Spouses Buenafrido and Felisa Berris, to jointly and severally pay petitioner Asset Pool A (SPV-AMC), Inc. (successor-in-interest to Far East Bank and Trust Company, FEBTC) the sum of PHP 17,422,072.51 plus interests, liquidated damages, attorney’s fees, litigation expenses, and costs.
The CA reversed the RTC ruling, holding that a prior extrajudicial foreclosure filed by FEBTC bars the collection suit due to the prohibition against splitting a single cause of action.
Petitioner Asset Pool filed a Motion for Reconsideration which the CA denied, thus elevating the case to the Supreme Court via Rule 45.

Loan Agreements and Evidences of Indebtedness

On November 15, 1995, FEBTC and B.Berris Merchandising (BBM), owned by Buenafrido, executed a Term Loan Agreement for PHP 5,000,000.00, secured by mortgages on real properties (TCT Nos. 129163 and 74496), a chattel mortgage on a rice mill, and a Comprehensive Surety Agreement.
FEBTC also granted BBM a Discounting Line facility initially for PHP 15,000,000.00 valid until July 31, 1997, renewed for the same amount until July 31, 1998, and later increased to PHP 18,000,000.00 with the same expiry date.
The Discounting Line facility was secured by real estate mortgages covering multiple titles and the chattel mortgage on the rice mill.
The Spouses Berris executed Promissory Notes (PNs) evidencing the obligations: PN No. 104-961106/TLS for the Term Loan Agreement amounting to PHP 5,000,000.00 due April 16, 2001, and four other PNs drawn against the Discounting Line facility with varying amounts and high interest rates.
The PNs included provisions allowing 25% attorney’s fees and 1% liquidated damages monthly for defaults.

Demand and Default Leading to Foreclosure and Collection Suits

The Spouses Berris defaulted on their obligations.
FEBTC sent demand notices in August and December 1998, and a final demand letter on February 3, 1999 for PHP 21,055,555.54 excluding interest and penalties.
On August 19, 1999, FEBTC filed for extrajudicial foreclosure under Act No. 3135 on properties covered by TCT Nos. 129163 and 74496 to satisfy obligations under certain PNs.
On August 30, 1999, FEBTC filed a collection suit before RTC Makati for unpaid amounts under five PNs (including PN No. 104-961106/TLS and four others under the Discounting Line).
The Spouses Berris filed various motions, including a Motion to Dismiss which the RTC denied.
The Bank of the Philippine Islands (BPI) merged with FEBTC, and later, the loans were assigned to petitioner Asset Pool, who was substituted in the suit.
The RTC, after declaring the Berrises in default for failure to plead, rendered judgment in favor of Asset Pool asking the spouses to pay more than PHP 17 million plus interests and penalties.

Court of Appeals Decision

The CA reversed the RTC ruling and dismissed the collection suit.
It held that the prior extrajudicial foreclosure barred the subsequent collection suit based on the prohibition against splitting a single cause of action.
It clarified that the mortgagor may pursue a collection suit only after the foreclosure proceedings are concluded and if a deficiency remains.
The CA denied Asset Pool’s motion for reconsideration.

Issues on Appeal

Whether the CA erred in applying the controlling jurisprudence from Bank of the Philippine Islands v. Coscolluela.
Whether the CA failed to co

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