Case Summary (G.R. No. 203194)
Key Dates and Procedural Milestones
- November 15, 1995: Loan Agreement (Term Loan) between FEBTC and BBM for P5,000,000.
- April 15, 1996: PN No. 104‑961106/TLS for P5,000,000 (due April 16, 2001) executed under the Term Loan.
- 1997–1998: Discounting Line facility granted/renewed and increased (originally P15,000,000, later increased to P18,000,000) with expiry July 31, 1998; several PNs (marked “BDC”) drawn thereunder in 1998.
- August 19, 1999: FEBTC filed petition for extrajudicial foreclosure in Sta. Cruz, Laguna (as to two PNs under the Discounting Line).
- August 30, 1999: FEBTC filed collection complaint in RTC Makati (Civil Case No. 99‑1572) covering five PNs (one TLS and four BDC PNs).
- October 23, 2000: Spouses Berris filed annulment of sale in RTC Calamba, Laguna.
- April 7, 2000: SEC approved merger of FEBTC into BPI (BPI as surviving corporation).
- May 12, 2006: BPI assigned the loans to Asset Pool; Asset Pool substituted as plaintiff in the Makati collection case.
- August 29, 2008: RTC Makati rendered judgment for plaintiff ordering P17,422,072.51 plus interests, liquidated damages, attorney’s fees and costs.
- March 23, 2012: Court of Appeals reversed and dismissed the Makati case.
- August 16, 2012: CA denied motion for reconsideration.
- Supreme Court disposition (decision under review): petition partly granted; CA decision affirmed with modification (award narrowed to amounts due under the Term Loan PN).
Loan Facilities, Securities and Promissory Notes at Issue
Two distinct loan facilities were executed: (1) a Term Loan Agreement (November 15, 1995) for P5,000,000 to finance establishment of a rice mill, evidenced by PN No. 2‑104‑961106/TLS (interest 14.5% per annum; five‑year term; 18 quarterly amortizations); and (2) a Discounting Line facility (renewals and increase in 1997–1998) allowing the sale/discount of receivables, evidenced by multiple PNs marked “BDC” (with interest rates higher and netting of interest upon disbursement). Securities: real estate mortgage(s) (on various TCTs including Nos. 129163 and 74496), a chattel mortgage on the rice mill, and a Comprehensive Surety Agreement. Notably, the Term Loan was secured specifically by TCT Nos. 129163 and 74496 (among other securities), while the Discounting Line was later partially secured by several TCTs and the chattel mortgage.
Factual Overlap and Parties’ Conduct
Respondents defaulted on their PN obligations. FEBTC issued demand letters in 1998–1999 and filed extrajudicial foreclosure proceedings in August 1999 over two PNs under the Discounting Line (PNs 2‑104‑980258 BDC and 2‑104‑980888 BDC). On August 30, 1999 FEBTC also filed the collection complaint in Makati to recover sums covered by five PNs (one TLS PN and four BDC PNs). The borrowers resisted; in the Makati case they were ultimately declared in default after procedural skirmishes and failed motions to dismiss. BPI later merged with FEBTC and assigned the loan portfolio to Asset Pool, which pursued the Makati collection action in place of FEBTC.
RTC Makati Decision (First Instance)
The Makati RTC, after declaring the defendants in default and permitting ex parte presentation by plaintiff, rendered judgment in favor of Asset Pool (plaintiff) on August 29, 2008. The trial court awarded P17,422,072.51 plus stipulated interest, 1% liquidated damages, attorney’s fees equivalent to 25% of the total due, and P112,332.35 as litigation expenses and costs. The RTC found breach of the promissory notes and calculated obligations accordingly.
Court of Appeals Ruling and Rationale
The Court of Appeals reversed and dismissed the Makati judgment. It held that the extrajudicial foreclosure instituted by FEBTC prior to or concurrent with the collection action effectively barred the latter for obligations covered by the same mortgage, invoking the doctrine against splitting a single cause of action (Section 3, Rule 2, Rules of Court). Relying on the precedent in Bank of the Philippine Islands v. Coscolluela, the CA treated the multiple PNs as forming a single indebtedness under the Discounting Line/account and concluded that initiating foreclosure on some PNs while suing on the others impermissibly split the cause of action; simultaneous or successive recourse to both remedies (foreclosure and collection) on the same obligation was proscribed. The CA did clarify that a creditor may later, after termination of foreclosure proceedings, pursue a deficiency claim if foreclosure proceeds are insufficient.
Issues Presented to the Supreme Court
- Whether the CA erred in treating Coscolluela as controlling.
- Whether the CA erred in failing to account for the fact that only two of five mortgaged properties were foreclosed.
- Whether the CA erred in concluding that prior extrajudicial foreclosure barred the personal collection action.
- Whether the CA improperly disregarded unjust enrichment considerations over the procedural rule on multiplicity of suits.
Supreme Court’s Legal Analysis — Separation of Obligations
The Court carefully distinguished the Term Loan and the Discounting Line as separate and distinct credit accommodations. Material factual and contractual differences supported this: the Term Loan was a five‑year loan evidenced by PN No. 2‑104‑961106/TLS (maturity in 2001) with specified quarterly amortizations and interest deducted differently; the Discounting Line was a revolving facility for discounting receivables with PNs drawn and disbursed net of charges and with maturities not extending beyond the Discounting Line’s expiry (July 31, 1998). Markings on the promissory notes (TLS versus BDC) and the nature and terms of disbursement and maturity further indicated separate origins. The Court emphasized that similarity of contractual clauses (e.g., acceleration clauses) does not by itself merge distinct contracts into one; party agreements remain distinct unless evidence shows they form a single obligation.
Supreme Court’s Legal Analysis — Application of the Anti‑Splitting Rule
The Court applied Section 3, Rule 2 (prohibition on splitting a single cause of action) and relevant jurisprudence. It concluded that FEBTC’s extrajudicial foreclosure petition covered PNs under the Discounting Line (specifically PNs 2‑104‑980258 BDC and 2‑104‑980888 BDC). Because the Discounting Line obligations that were due and demandable formed a unitary account, the bank’s decision to foreclose only certain PNs under that same Discounting Line while later suing for the unpaid balance on other PNs drawn from the same Discounting Line constituted an impermissible splitting of the cause of action; that portion of the collection suit (the four BDC PNs: 2‑104‑980259; 2‑104‑980296; 2‑104‑980975; 2‑104‑981149) was therefore barred. The Court found Coscolluela analogous and controlling with respect to the Discounting Line PNs.
Supreme Court’s Legal Analysis — Distinction and Permissible Action on Term Loan PN
Conversely, the Court held that the anti‑splitting principle did not bar collection of PN No. 2‑104‑961106/TLS because that PN derived from the separate Term Loan Agreement. The Term Loan and its PN constituted a distinct obligation with different maturity, purpose (countryside loan to finance a rice mill), and disbursement method. Thus, foreclosing some mortgages to satisfy certain Discounting Line PNs did not waive or bar a personal action to collect the Term Loan PN. The Court reiterated that a real estate mortgage is accessory to the principal obligation and does not, by itself, fuse separate underlying contracts into a single cause of action. The Court further explained that even a blanket or dragnet mortgage covering future indebtedness does not prevent the creditor from pursuing different actions on separate obligations, though failure to include a loan in an extrajudicial foreclosure may amount to a waiver of the lien as to that loan.
Interaction with the Indivisibility of Mortgage Doctrine
The Court reviewed Article 2089 (indivisibility of pledge or mortgage) and related jurisprudence (Spouses Yu; Spouses Tecklo). It clarified that indivisibility concerns the mortgage as between successors or the impossibility of proportionate release of the mortgaged thing absent full satisfaction; it does not convert separate con
Case Syllabus (G.R. No. 203194)
Procedural Posture and Relief Sought
- Petition for Review on Certiorari under Rule 45 by Asset Pool A (SPV-AMC), Inc. (Asset Pool) assailing:
- The March 23, 2012 Decision and the August 16, 2012 Resolution of the Court of Appeals (CA) in CA-G.R. CV No. 92498.
- The CA had reversed and set aside the August 29, 2008 Decision of the Regional Trial Court (RTC), Branch 136, Makati City in Civil Case No. 99-1572 which had ordered spouses Buenafrido and Felisa Berris to pay Asset Pool P17,422,072.51 plus interests, liquidated damages, attorney’s fees, litigation expenses and costs.
- The CA held that prior extrajudicial foreclosure proceedings instituted by Far East Bank and Trust Company (FEBTC), predecessor-in-interest of petitioner, barred the subsequent filing of the collection suit in the RTC due to the prohibition on splitting a single cause of action.
- The Supreme Court (authored by HERNANDO, J.) resolved the petition partly in favor of Asset Pool with modification to the CA decision.
Antecedent Loan Facilities and Agreements
- Two separate loan facilities were executed between FEBTC and B. Berris Merchandising (BBM), represented by the spouses Berris:
- Loan Agreement dated November 15, 1995 for P5,000,000.00, interest at prevailing market rates, payable over five years inclusive of six-month grace period by 18 quarterly amortizations on a diminishing principal basis.
- Discounting Line facility: originally P15,000,000.00 with expiry July 31, 1997; renewed July 3, 1997 (same amount, expiry July 31, 1998); increased to P18,000,000.00 on February 16, 1998 (expiry July 31, 1998).
- Securities for the loans:
- Real estate mortgage over parcels covered by TCT Nos. 129163 and 74496 to secure the Loan Agreement.
- Chattel mortgage on the spouses’ rice mill.
- Comprehensive Surety Agreement executed November 15, 1995 as additional security for any existing or future indebtedness.
- The Discounting Line was thereafter partially secured by real estate mortgages over TCT Nos. 129163, 74496, 27852, 31079 and 296868 and the chattel mortgage.
Promissory Notes (PNs) and Their Terms
- PNs executed by the spouses/BBM as evidences of indebtedness include:
- PN No. 2-104-961106/TLS — executed April 15, 1996 in the amount of P5,000,000.00, due April 16, 2001; interest 14.5% per annum; terms mirrored the November 15, 1995 Loan Agreement (18 quarterly amortizations; diminishing principal; six-month grace).
- PN No. 2-104-980259/bdc — dated January 23, 1998 for P4,000,000.00, due July 22, 1998; interest 26% per annum.
- PN No. 2-104-980296/bdc — dated January 27, 1998 for P2,500,000.00, due July 24, 1998; interest 27% per annum.
- PN No. 2-104-980975 BD/C — dated April 15, 1998 for P3,000,000.00, due July 31, 1998; interest 22% per annum.
- PN No. 2-104-981149/BDC — dated May 13, 1998 for P750,000.00, due July 31, 1998; interest 21.95% per annum.
- Common stipulations:
- All PNs provided FEBTC an entitlement to 25% of the amount due as attorney’s fees in case of default.
- The last four PNs (those marked BDC/BD/C) provided for liquidated damages of 1% for every 30 days or a fraction thereof on the amount due in case of default.
- Notable labeling: PN markings included suffixes “TLS” for the loan agreement PN and “bdc/BDC/BD/C” for discounting-line PNs, reflecting differing origins.
Defaults, Demand Letters and Foreclosure Proceedings
- Spouses Berris defaulted on their obligations under the PNs.
- FEBTC’s collection efforts and notices:
- August 5, 1998 letter demanding P21,055,555.54 (exclusive of interest, penalties, and other charges) for Discounting Line and Loan Agreement availments.
- December 15, 1998 reiteration of demand for same amount (exclusive of interest, penalties, other charges).
- February 3, 1999 Final Demand Letter demanding payment by February 19, 1999 (registry return receipt reflects receipt on February 10, 1999).
- Extrajudicial foreclosure and related actions:
- August 19, 1999: FEBTC filed a Petition for Extrajudicial Foreclosure of Real Estate Mortgage under Act No. 3135 before the RTC of Sta. Cruz, Laguna over properties covered by TCT Nos. 129163 and 74496 for loans covered by PN Nos. 2-104-980258 BDC and 2-104-980888 BDC.
- August 30, 1999: FEBTC filed a complaint for collection in the RTC of Makati (Civil Case No. 99-1572) for amounts due on five PNs (PN No. 2-104-961106/TLS and the four PNs drawn against the Discounting Line).
- October 23, 2000: Spouses Berris filed Complaint for Annulment of Sale (Civil Case No. 3016-2000-C) in RTC Calamba, Laguna, assailing the extrajudicial foreclosure sale.
Corporate Succession, Assignment and Substitution
- April 7, 2000: Securities and Exchange Commission approved the merger of Bank of the Philippine Islands (BPI) and FEBTC with BPI as the surviving corporation.
- May 12, 2006: BPI assigned the loans of BBM, including collaterals, to petitioner Asset Pool.
- The Makati RTC granted Asset Pool’s motion for substitution to continue the proceedings in lieu of FEBTC.
Makati RTC Proceedings and Judgment
- Procedural motions and defaults:
- Spouses Berris were granted extensions to file answers (motions dated March 3 and March 18, 2006; orders granting extensions dated March 8 and March 22, 2006).
- April 2, 2006 Motion to Dismiss denied by RTC Makati (Order July 27, 2006); reconsideration denied (Order December 4, 2006).
- Asset Pool opposed a Motion for Clarification and sought to declare spouses Berris in default; trial court declared them in default (Order March 7, 2007), and motion for reconsideration was denied (Order May 14, 2008).
- Trial and RTC Decision:
- Asset Pool proceeded ex parte with presentation of evidence.
- RTC Branch 136, Makati City rendered Decision dated August 29, 2008 in favor of plaintiff (Asset Pool), ordering spouses Berris to pay:
- P17,422,072.51 plus stipulated interests and other charges computed from May 7, 1999 until fully paid;
- Liquidated damages equal to 1% of total amount due;
- Attorney’s fees equal to 25% of total amount due;
- P112,332.35 as litigation, incidental expenses and costs of suit.
- RTC found spouses Berris breached their promissory note obligations.
Court of Appeals Ruling
- CA Decision dated March 23, 2012:
- Reversed and set aside the RTC Decision and dismissed Civil Case No. 99-1572.
- Held that the institution of extrajudicial foreclosure of the subject properties to satisfy loans under PN Nos. 2-104-980258/BDC and 2-104-980888/BDC barred the filing of the collection suit covering the five PNs because the loans covered by those PNs were single and indivisible and secured by the same mortgage.
- Applied the prohibition on splitting a single cause of action (Section 3, Rule 2, Rules of Court) and relevant jurisprudence.
- Clarified that the prohibition is against simultaneous availment of remedies (foreclosure and collection) but a mortgagee may resort later to a collection suit to recover any deficiency after termination of foreclosure proceedings.
- Motion for Reconsideration to CA denied by Resolution dated August 16, 2012.
Issues Presented to the Supreme Court
- Whether the CA gravely erred in ruling that Bank of the Philippine Islands v. Coscolluela is controlling.
- Whether the CA gravely erred in failing to account for the peculiar circumstances (five mortgaged properties, only two foreclosed) and that the foreclosure covered only two of seven loan obligations.
- Whether the CA gravely erred in ruling that a prior extrajudicial foreclosure barred a personal action for collection by the mortgagee.
- Whether the CA gravely erred in ignoring the rule that the principle against unjust enrichment should prevail over the procedural rule on multiplicity of suits.
Supreme Court’s Disposition — Principal Holdings
- Petition is PARTLY GRANTED.
- The CA Decision and Resolution are AFFIRMED with MODIFICATION.
- The spouses Buenafrido and Felisa Berris are jointly and severally ORDERED to pay Asset Pool:
(a) P3,055,555.54 — outstanding principal balance under the Term Loan Agreement (PN No. 2-104-961106/TLS);
(b) Compounding m