Caltex Philippines, Inc. v. Intermediate Appellate Court and Herbert Manzana
REITERATIONFacts
The Antecedents: Private respondent Herbert Manzana incurred an indebtedness of P361,218.66 on credit from petitioner Caltex Philippines, Inc. (CALTEX). To secure this debt, Manzana executed a Deed of First Mortgage over a parcel of land. CALTEX sent statements of account and demanded payment, but Manzana failed to pay. Consequently, CALTEX filed a complaint for the recovery of the entire debt. Procedural History: While the collection suit was pending, CALTEX extrajudicially foreclosed the mortgaged property, which was sold at auction to CALTEX for P20,000.00. The trial court rendered judgment ordering Manzana to pay CALTEX P353,218.66, with interest and attorney's fees. Manzana appealed to the Intermediate Appellate Court (IAC), raising issues regarding CALTEX's right to pursue both a personal action and foreclosure, and the availability of a deficiency judgment. The IAC initially affirmed the trial court's decision but later vacated it, remanding the case for determination of the deficiency. CALTEX's motion for reconsideration was denied. The Petition: CALTEX filed a petition for review on certiorari, questioning the IAC's resolution vacating its decision and remanding the case.
Issue(s)
Whether the respondent court erred in taking cognizance of issues not raised before the trial court. Whether the mere filing of a collection suit for a debt secured by a real estate mortgage constitutes a waiver of the remedy of foreclosure. Whether the filing of a complaint for recovery of indebtedness and the subsequent extrajudicial foreclosure constitute splitting of a single cause of action.
Ruling
The Supreme Court set aside the resolution of the Intermediate Appellate Court dated January 31, 1986, and affirmed the trial court's decision with modification. It ruled that Manzana's liability to CALTEX is only up to the extent of P233,218.66, with interest and attorney's fees.
Ratio Decidendi
On the issue of taking cognizance of issues not raised before the trial court: The Court ruled that the respondent appellate court did not err in taking cognizance of issues not raised before the trial court. It invoked the rule that strong considerations of substantial justice may lead the Supreme Court to relax the well-entrenched rule that, except for questions of jurisdiction, no question will be entertained on appeal unless it has been raised in the court below. The Court found that this liberal application of the rule would favor both parties in this case, particularly concerning the extent of the secured indebtedness. On whether the mere filing of a collection suit constitutes a waiver of foreclosure: The Court held that the mere act of filing a collection suit for the recovery of a debt secured by a mortgage constitutes a waiver of the other remedy of foreclosure. The rationale is to prevent multiplicity of suits and to avoid subjecting the defendant to vexation. However, in this case, the Court clarified that it is the collection suit that was waived or abandoned, not the foreclosure. This ruling was based on the fact that the foreclosure proceedings concluded even before the decision in the collection suit was rendered, and CALTEX had informed the trial court of its consolidated ownership over the property. On whether the filing of the complaint and subsequent foreclosure constitute splitting of a single cause of action: The Court reiterated the doctrine that for non-payment of a note secured by a mortgage, the creditor has a single cause of action against the debtor, which consists of the recovery of the credit with execution of the security. The creditor may make two demands—payment of the debt and foreclosure of the mortgage—but these arise from the same cause, the non-payment of the debt, and thus constitute a single cause of action. The Court emphasized that a creditor cannot split this single cause of action by filing separate complaints for payment and foreclosure, as the filing of the first complaint would bar the subsequent one. In this case, CALTEX's actions were criticized for making a mockery of the judicial system by pursuing both remedies.
Main Doctrine
A mortgagee has a choice between foreclosing the mortgage or filing an ordinary action to collect the debt, but cannot pursue both remedies simultaneously. The filing of a collection suit constitutes a waiver of the right to foreclose, and conversely, foreclosure waives the right to pursue a personal action for the entire debt, though a deficiency judgment may be sought after foreclosure.