G.R. No. 183984 - Flores vs. Spouses Lindo, Jr.

Case Summary (G.R. No. 183984)

Petitioner

Arturo Flores extended a loan to Edna Lindo in the amount of P400,000 on 31 October 1995, evidenced by a promissory note and secured by a Deed of Real Estate Mortgage covering conjugal property in the names of Edna and her husband Enrico. The loan bore 3% compounded monthly interest and a 3% surcharge for late payment.

Respondents

Edna Lindo executed the promissory note, the mortgage deed, and three checks as partial payments. Edna signed the mortgage and promissory note purportedly for herself and as attorney-in-fact for Enrico. Enrico later executed a Special Power of Attorney (SPA) dated 4 November 1995; the mortgage and note were executed 31 October 1995. The checks were dishonored for insufficiency of funds.

Key Dates and Documents

Loan, promissory note, and Deed of Real Estate Mortgage executed: 31 October 1995.
Special Power of Attorney executed by Enrico: 4 November 1995.
Foreclosure complaint filed and docketed as Civil Case No. 00-97942 before RTC, Branch 33.
RTC, Branch 33 decision (denying foreclosure) issued 30 September 2003; motion for reconsideration denied 8 January 2004.
Collection complaint filed 8 September 2004 and docketed as Civil Case No. 04-110858 before RTC, Branch 42.
RTC, Branch 42 denied respondents’ motion to dismiss by orders dated 22 July 2005 and 8 February 2006.
Court of Appeals decision setting aside those RTC, Branch 42 orders dated 30 May 2008; motion for reconsideration denied 4 August 2008.
Supreme Court review challenged the CA decision and resolution.

Applicable Law

1987 Philippine Constitution (governing Constitution for decisions rendered after 1990).
1997 Rules of Civil Procedure (as cited, including the doctrine against instituting more than one suit for a single cause of action — Section 3, Rule 2 as cited in the record).
Family Code provisions concerning disposition and encumbrance of conjugal/community property (cited as Article 124 and its counterpart Article 96/127 in the record).
Civil Code, Article 22 (principle against unjust enrichment).
Controlling jurisprudence on election of remedies and multiplicity of suits as cited in the record.

Antecedent Facts

Edna obtained a P400,000 loan from petitioner and executed a promissory note and mortgage deed on 31 October 1995. She also issued three checks that were subsequently dishonored. The mortgage purportedly encumbered conjugal property of Edna and Enrico. Enrico’s SPA was dated 4 November 1995, subsequent to the mortgage execution. Petitioner filed a foreclosure action; when foreclosure was denied by RTC, Branch 33 on the ground that the mortgage lacked Enrico’s consent, petitioner later filed a separate collection suit against Edna in RTC, Branch 42.

RTC, Branch 33 Ruling (Foreclosure)

RTC, Branch 33 held that the Deed of Real Estate Mortgage was void because the mortgage had been executed by Edna without her husband’s written consent and because the SPA was dated after the mortgage. The RTC found that the mortgage was void under the Family Code provision prohibiting disposition or encumbrance of conjugal property without the other spouse’s written consent. The RTC stated, however, that petitioner was not precluded from pursuing a personal action against Edna for recovery of the loan and that the court lacked jurisdiction over such a personal action (venue considerations).

RTC, Branch 93 Ruling (Declaratory Relief by Edna)

RTC, Branch 93 likewise declared the real estate mortgage void for lack of the husband’s consent, reaffirming that the promissory note or principal obligation remained enforceable notwithstanding invalidity of the mortgage and stating that the mortgage deed could serve as evidence of a personal obligation even if foreclosure of the mortgage was unavailable.

RTC, Branch 42 Proceedings (Collection)

Petitioner filed a complaint for collection in RTC, Branch 42. Respondents moved to dismiss on grounds of improper venue, res judicata, and forum-shopping, relying on the earlier RTC, Branch 33 decision. Branch 42 denied the motion to dismiss and denied respondents’ motion for reconsideration, reasoning that rights or claims that grow out of the same subject matter but constitute separate or distinct causes of action and were not put in issue in the prior action are not barred by res judicata.

Court of Appeals Decision

The Court of Appeals set aside the RTC, Branch 42 orders for grave abuse of discretion. The CA applied the doctrine that a mortgage-creditor has a single cause of action to recover the debt and may pursue only one remedy — either a personal action for collection or a real action to foreclose the mortgage, but not both. The CA held that, by instituting the foreclosure action, petitioner had elected the real action and thereby waived his personal action; filing the collection suit after filing foreclosure constituted a prohibited multiplicity of suits. The CA denied petitioner’s motion for reconsideration.

Issue Presented to the Supreme Court

Whether the Court of Appeals committed reversible error in dismissing the collection complaint on the ground of multiplicity of suits, given the circumstances of the prior rulings by RTC, Branch 33 and RTC, Branch 93.

Supreme Court Ruling — Overview

The Supreme Court granted the petition. While reiterating the general rule that a mortgage-creditor has a single cause of action and must elect between a personal action and a real action to foreclose, the Court found that application of that rule in this case produced an unjust result given the peculiar procedural posture and substantive circumstances. The CA’s dismissal was set aside, and RTC, Branch 42 was directed to proceed with trial of Civil Case No. 04-110858.

Supreme Court Reasoning — Family Code and Perfection of the Transaction

The Court examined Family Code provisions (Article 124 as to conjugal partnership; analogues Article 96 for community property and Article 127 as cited) that render disposition or encumbrance without the other spouse’s written consent void, but qualify that the transaction is a “continuing offer” which may be perfected upon acceptance by the other spouse or authorization by the court before withdrawal. Given that the SPA was executed on 4 November 1995, subsequent to the mortgage dated 31 October 1995, the SPA constituted the acceptance that perfected the continuing offer and thereby rendered the Deed of Real Estate Mortgage a valid contract. Thus, the RTC rulings declaring the mortgage void on the ground of lack of consent were characterized as erroneous in their application of the Family Code’s continuing-offer doctrine.

Supreme Court Reasoning — Election of Remedies and Unjust Enrichment

The Court acknowledged the well-established doctrine that the remedies of personal action and real action to foreclose are alternative and that generally ele

Case Syllabus (G.R. No. 183984)

Procedural Posture and Citation

Reported at 664 Phil. 210, Second Division; G.R. No. 183984; decision dated April 13, 2011.
Petition for review under Rule 45 of the 1997 Rules of Civil Procedure seeking review of the Court of Appeals' Decision dated 30 May 2008 and Resolution dated 4 August 2008 in CA-G.R. SP No. 94003 (rollo references at pp. 7-20).
Trial-court docketing and branches:
- Foreclosure: Civil Case No. 00-97942, Regional Trial Court (RTC) of Manila, Branch 33 (Decision 30 September 2003, penned by Judge Reynaldo G. Ros; rollo pp. 84-88).
- Collection: Civil Case No. 04-110858, RTC of Manila, Branch 42 (Orders dated 22 July 2005 and 8 February 2006; judges Guillermo G. Purganan and Vedasto R. Marco; rollo pp. 48-51).
- Declaratory relief: RTC, Branch 93, San Pedro, Laguna (decision referenced at rollo pp. 81-82).
Court of Appeals panel: Associate Justice Noel G. Tijam, with Associate Justices Martin S. Villarama, Jr. and Andres B. Reyes, Jr.; CA Decision at rollo pp. 7-16.
Supreme Court opinion by Justice Carpio; concurrence by Justices Nachura, Peralta, Abad, and Mendoza.

Antecedent Facts

On 31 October 1995, Edna Lindo obtained a loan from Arturo Flores in the amount of P400,000, payable on 1 December 1995, with 3% compounded monthly interest and 3% surcharge for late payment (Promissory Note and Deed of Real Estate Mortgage executed 31 October 1995; rollo pp. 52, 53-60).
To secure the loan Edna executed a Deed of Real Estate Mortgage covering a property in the name of Edna and her husband Enrico L. Lindo, Jr.
Edna signed the Promissory Note and Deed for herself and purportedly for Enrico "as his attorney-in-fact."
Edna issued three checks as partial payments for the loan; all checks were dishonored for insufficiency of funds.
Petitioner filed a Complaint for Foreclosure of Mortgage with Damages against the respondents; the foreclosure case was docketed as Civil Case No. 00-97942 (RTC Branch 33).
A Special Power of Attorney (SPA) executed by Enrico was dated 4 November 1995, i.e., after the 31 October 1995 execution of the Promissory Note and Deed.
In the subsequent collection action (Civil Case No. 04-110858), respondents admitted the loan but alleged it amounted only to P340,000 and argued Enrico was not a party to the loan because the transaction lacked his signature.

RTC, Branch 33 Decision on Foreclosure (30 September 2003) and Denial of Reconsideration (8 January 2004)

RTC, Branch 33 found petitioner not entitled to judicial foreclosure because the Deed of Real Estate Mortgage was executed by Edna without the consent and authority of Enrico.
The court emphasized chronology: Deed executed 31 October 1995 while the SPA was dated 4 November 1995.
RTC, Branch 33 concluded that the Deed was void pursuant to Article 96 of the Family Code (as applied in the decision) due to lack of spousal consent for encumbrance of conjugal/community property.
The RTC, Branch 33 stated that this conclusion did not preclude petitioner from recovering the P400,000 loan via a personal action against Edna, but that the trial court (Branch 33) had no jurisdiction over such personal action; venue for a personal action would be where the plaintiff or defendant resides (citing Section 2, Rule 4, Rules of Civil Procedure).
Petitioner’s motion for reconsideration was denied for lack of merit on 8 January 2004 (rollo pp. 89-90).

Filing of Collection Suit (RTC, Branch 42), Motions, and Orders

On 8 September 2004, petitioner filed a Complaint for Sum of Money with Damages against respondents; case raffled to RTC, Branch 42 and docketed as Civil Case No. 04-110858.
Respondents filed an Answer with Affirmative Defenses and Counterclaims: they admitted the loan but averred the amount was P340,000; asserted Enrico was not a party to the loan; and prayed for dismissal based on improper venue, res judicata and forum-shopping, invoking the Branch 33 Decision.
On 7 March 2005 respondents filed a Motion to Dismiss grounded on res judicata and lack of cause of action.
RTC, Branch 42 issued an Order dated 22 July 2005 denying the motion to dismiss, holding that res judicata will not apply to rights, claims or demands which, though arising from the same subject matter, constitute separate or distinct causes of action and were not put in issue in the former action (Order penned by Judge Guillermo G. Purganan; rollo pp. 48-50).
Respondents’ motion for reconsideration was denied by RTC, Branch 42 in an Order dated 8 February 2006 (Judge Vedasto R. Marco; rollo p. 51). The Branch 42 court noted Branch 33 had expressly stated its decision did not preclude petitioner from pursuing a personal action to recover the loan.

Court of Appeals Decision (30 May 2008) and Denial of Reconsideration (4 August 2008)

Respondents filed a petition for certiorari and mandamus with prayer for writ of preliminary injunction/temporary restraining order before the Court of Appeals.
The Court of Appeals set aside the 22 July 2005 and 8 February 2006 Orders of RTC, Branch 42 for having been issued with grave abuse of discretion.
The CA held that although a motion to dismiss is generally interlocutory and not appealable, exceptions exist and grave abuse can render interlocutory orders reviewable.
The CA applied Section 3, Rule 2 of the 1997 Rules of Civil Procedure: a party may not institute more than one suit for a single cause of action; where two or more suits are based on the same cause of action, judgment upon the merits in one is available ground for dismissal of the others.
The CA articulated the established rule that on nonpayment of a note secured by a mortgage, the creditor has a single cause of action (recovery of the credit) and two alternative r