Korea Exchange Bank v. Filkor Business Integrated, Inc.
REITERATIONFacts
The Antecedents: Respondent Filkor Business Integrated, Inc. (Filkor) obtained a loan of US$140,000 from petitioner Korea Exchange Bank (KEB), of which only US$40,000 was paid. Filkor also executed nine trust receipts for goods sold, but failed to turn over the proceeds or the goods. Additionally, Filkor negotiated seventeen letters of credit, but the bills of exchange for their proceeds were dishonored due to discrepancies. To secure these obligations, Filkor executed a Real Estate Mortgage on improvements it constructed on leased land, and respondents Kim Eung Joe and Lee Han Sang executed Continuing Suretyships. Procedural History: KEB filed Civil Case No. N-6689 before the Regional Trial Court (RTC) of Cavite City, praying for payment of the obligations, foreclosure of the mortgaged property in case of non-payment within ninety days from entry of judgment, and other equitable reliefs. KEB moved for summary judgment, which the RTC granted on March 12, 1999, ordering respondents to pay KEB various sums in U.S. dollars. However, the RTC omitted to order the foreclosure and sale of the mortgaged property. KEB filed a partial motion for reconsideration to include the foreclosure order, but the RTC denied it on April 16, 1999, ruling that KEB had abandoned its mortgage lien by opting for a civil action for collection, citing Danao vs. Court of Appeals and Manila Trading and Supply Co. vs. Co Kim, et al.. The Petition: KEB filed a petition for review on certiorari before the Supreme Court, assailing the RTC's denial of its partial motion for reconsideration, arguing that the RTC erred in ruling that it had abandoned the real estate mortgage by filing a collection case.
Issue(s)
Whether the filing of a civil action for collection of a debt secured by a real estate mortgage constitutes an abandonment of the mortgage lien. Whether the Supreme Court has jurisdiction over the present appeal, which involves a question of law.
Ruling
The petition is GRANTED. The Order dated March 12, 1999, of the Regional Trial Court of Cavite City, Branch 88, in Civil Case No. N-6689 is MODIFIED to state that the mortgaged property of respondent Filkor be ordered foreclosed and sold at public auction in the event said respondent fails to pay its obligations to petitioner within ninety (90) days from entry of judgment.
Ratio Decidendi
On the issue of abandonment of mortgage lien: The Supreme Court held that the filing of a civil action for the collection of a debt secured by a real estate mortgage does not automatically constitute an abandonment of the mortgage lien. The Court clarified that the nature of an action is determined by the allegations in the complaint and the character of the relief sought. In this case, KEB's complaint explicitly included a prayer for the foreclosure and sale of the mortgaged property, satisfying the requirements of Section 1, Rule 68 of the 1997 Rules of Civil Procedure. Therefore, the trial court erred in concluding that KEB had abandoned its mortgage lien. The Court reiterated the principle that a mortgage creditor may elect to waive the security and bring an ordinary action for indebtedness, but this waiver is only effective if the creditor fails in the elected remedy and cannot pursue the waived remedy. Here, KEB did not waive its mortgage lien but rather sought its enforcement alongside the collection of the debt. On the jurisdiction of the Supreme Court: The Supreme Court affirmed its jurisdiction over the present appeal, as it involved a question of law. The petitioner's contention centered on the trial court's interpretation of the nature of the action filed based on the pleadings, which is a legal determination. As per Section 1 of Rule 45 of the 1997 Rules of Civil Procedure, appeals to the Supreme Court by certiorari may raise only questions of law, which must be distinctly set forth. The Court found that the appeal appropriately raised a pure question of law, thus falling within its jurisdiction.
Main Doctrine
Filing a civil action for the collection of a debt secured by a real estate mortgage does not automatically constitute an abandonment of the mortgage lien, especially when the complaint explicitly prays for the foreclosure of the mortgaged property. The nature of the action is determined by the allegations in the complaint and the relief sought.