Destileria Limtuaco & Co., Inc. v. Intermediate Appellate Court
REITERATIONFacts
The Antecedents: Jesus Crodua was appointed senior sales agent for Destileria Limtuaco & Co., Inc. (Limtuaco). The agency contract required him to put up a first mortgage or surety bond for not less than P200,000.00 to guarantee faithful compliance with his duties. In fulfillment, Jesus Crodua's relatives, Estrella and Nicolas Crodua, and Elsie Crodua-Ceniza and her husband Joel Ceniza, executed two separate deeds of real estate mortgage over their respective properties, each for P100,000.00. These deeds were entitled "Deed of Real Estate Mortgage" and quoted the provision of the agency contract requiring a mortgage or surety bond to "guarantee" settlement of accounts and compliance with obligations. Subsequently, Limtuaco terminated Jesus Crodua's agency due to an alleged shortage in his accounts amounting to P170,380.58. Limtuaco filed a complaint for foreclosure of the real estate mortgages against the mortgagors. Procedural History: The defendants-mortgagors filed a motion to dismiss, arguing that the dropping of the principal debtor (Jesus Crodua) extinguished their liability, that their mortgage contracts were separate from the agency agreement, and that they were entitled to the benefit of excussion as mere guarantors. The Regional Trial Court (RTC) granted the motion and dismissed the case. Limtuaco filed two motions for reconsideration, both denied. Limtuaco then filed a petition for certiorari with the Intermediate Appellate Court (IAC). The Petition: The IAC denied Limtuaco's petition, holding that the RTC did not gravely abuse its discretion and that the RTC's orders were errors of procedure or judgment correctible by appeal, not certiorari. The IAC also noted that the dismissal order was final and appealable, and Limtuaco's resort to certiorari was a substitute for appeal. Limtuaco appealed the IAC's decision to the Supreme Court.
Issue(s)
Whether the deeds of real estate mortgage should be construed as contracts of guaranty, entitling the mortgagors to the benefit of excussion. Whether the Intermediate Appellate Court erred in dismissing the petition for certiorari.
Ruling
The Supreme Court set aside the judgment of the Court of Appeals and the Order of the Trial Court. The action for foreclosure of mortgage was reinstated, and the Regional Trial Court was ordered to proceed with the case.
Ratio Decidendi
On the classification of the deeds as mortgages and not contracts of guaranty: The Supreme Court held that the deeds executed by the respondents were clearly deeds of real estate mortgage, not contracts of guaranty. The deeds were explicitly entitled "Deed of Real Estate Mortgage," embodied in public instruments, and recorded in the Registry of Property. They were executed in response to the agency contract's requirement for "a first mortgage" or a "surety bond" to "guarantee" compliance. The term "guarantee" used in the clause was synonymous with "secure," "assure," or "ensure," and the Civil Code itself uses the word "guarantee" in the context of mortgages and pledges (Article 2089). The Court emphasized that a mortgage directly subjects the property to the fulfillment of the obligation, while a guaranty relies on the solvency of the guarantor. The trial court's disregard of these clear indications and its reliance solely on the word "guarantee" to reclassify the deeds was deemed a whimsical, capricious, and arbitrary act. The Court reiterated the distinction between a mortgage, which involves encumbering specific property, and a guaranty, which relies on the personal liability of the guarantor. The mortgagors' liability was limited to the value of the mortgaged property, and the action against them was a real action, not a personal one requiring excussion. On the procedural issue of certiorari vs. appeal: The Supreme Court found that while the trial court committed a substantive error in dismissing the case, Limtuaco's procedural recourse was flawed. The order of dismissal was a final order, appealable under Rule 41 of the Rules of Court. Instead of appealing, Limtuaco filed a petition for certiorari with the IAC, which is an extraordinary remedy available only when there is "no appeal, nor any plain, speedy and adequate remedy in the ordinary course of law." The Court noted that Limtuaco also erred in filing a second motion for reconsideration, which is proscribed by the Interim Rules, thus potentially causing the appeal period to lapse. However, the Court, citing peculiar circumstances and its prerogative to suspend its own rules to prevent injustice, chose to overlook the procedural missteps. The Court reasoned that the trial court's error was patent and capricious, and that the respondents had not shown any prejudice from the delay caused by Limtuaco's mistaken invocation of remedies. Therefore, to prevent a miscarriage of justice, the Court deemed it proper to set aside the IAC's judgment and reinstate the foreclosure action, allowing the case to be decided on its merits.
Main Doctrine
A deed of real estate mortgage, clearly entitled as such and containing all the essential elements of a mortgage, cannot be reclassified as a contract of guaranty solely based on the use of the word "guarantee" in a clause describing the purpose of the security, especially when other terms like "secure," "assure," and "insure" are also present and the Civil Code itself uses the word "guarantee" in the context of mortgages and pledges.