Suico v. Metropolitan Bank
REITERATIONFacts
The Antecedents: Suico Rattan & Buri Interiors, Inc. (SRBII), represented by Spouses Esmeraldo and Elizabeth Suico, obtained a credit line from Metropolitan Bank and Trust Co., Inc. (Metrobank) amounting to P17,000,000.00, which included a P10,000,000.00 Export Bills Purchase/Draft Against Payment (EBP/DP) line. The credit line was secured by a Continuing Surety Agreement from the Suico spouses and a Real Estate Mortgage over properties covered by TCT Nos. 21663 and 21665. Prior to this, the Suico spouses had existing loan obligations secured by separate Real Estate Mortgages over the same properties. Between June 13, 1991, and July 11, 1991, SRBII incurred obligations amounting to US$441,279.25 (P12,218,866.23) for export bills purchases. SRBII and the Suico spouses defaulted on their obligations, prompting Metrobank to extra-judicially foreclose the four mortgages, with Metrobank being the lone bidder at the auction sale. Procedural History: On November 5, 1992, Metrobank filed a complaint for recovery of a sum of money arising from the export bills purchases. The Regional Trial Court (RTC) dismissed the complaint, holding that the obligations were fully paid by the mortgage security. Metrobank appealed to the Court of Appeals (CA), which reversed the RTC decision, ordering the petitioners to pay the deficiency. The CA subsequently denied the motion for reconsideration. The Petition: Petitioners assail the CA decision, arguing that the Real Estate Mortgage dated September 5, 1991, secured all their obligations, including the export bills purchases. They also contend that the CA erred in deciding based on an issue not raised, that res judicata had set in due to the foreclosure, and in ordering them to pay the deficiency and attorney's fees.
Issue(s)
Whether the Real Estate Mortgage dated September 5, 1991, served as collateral for all the obligations of the petitioners, including their indebtedness from export bills purchases. Whether Metrobank, by electing the remedy of extrajudicial foreclosure, waived its right to file a personal action for collection to recover the deficiency arising from the export bills purchases. Whether Metrobank retained the right to recover any deficiency not covered by the proceeds of the foreclosure sale, and if so, how such recovery should be pursued. Whether the inadequacy of the foreclosure sale price invalidates the sale, and the extent of the Suico spouses' liability as sureties.
Ruling
The petition is partially granted. The assailed Decision and Resolution of the Court of Appeals are reversed and set aside. The Decision of the Regional Trial Court is reinstated with the modification that the portion declaring all obligations fully paid by the mortgage security is deleted, subject to the right of Metropolitan Bank and Trust Co., Inc. to recover the amount of deficiency in a proper action in the proper court.
Ratio Decidendi
On whether the Real Estate Mortgage secured all obligations: The Court ruled that the Real Estate Mortgage executed on September 5, 1991, secured all obligations of the petitioners, including their indebtedness from export bills purchases. While the Credit Line Agreement stated the EBP/DP line was "clean" (unsecured), the Real Estate Mortgage explicitly covered "all other obligations of the Mortgagor/Borrower to the Mortgagee of whatever kind or nature, whether direct or indirect, principal or secondary... whether such obligations have been contracted before, during or after the constitution of this mortgage." The Court found no conflict, as the Agreement pertained to future credit accommodations, while the Mortgage encompassed all existing and future obligations, including those incurred prior to its execution. The Court also rejected the argument that obligations from different branches were separate, emphasizing that the debtor was indebted to the corporate entity, Metrobank. On whether foreclosure precludes recovery of deficiency: The Court held that a mortgage creditor has alternative remedies: a personal action for debt or a real action to foreclose the mortgage, but not both cumulatively. An election of one remedy waives the other. The Court found that Metrobank elected the remedy of extrajudicial foreclosure by filing a petition with the sheriff's office prior to filing its personal action for collection. Therefore, the personal action for collection was barred by res judicata. On the right to recover deficiency: Despite the bar on the personal action for collection, the Court clarified that the mortgage is merely a security and not a satisfaction of the entire obligation. Under Act No. 3135, governing extrajudicial foreclosures, there is no express or implied prohibition against recovering any deficiency. Therefore, Metrobank retained the right to recover the balance of the petitioners' obligation that was not covered by the proceeds of the foreclosure sale, but this must be pursued in a separate, proper action. On the petitioners' claims regarding foreclosure price and surety liability: The Court found no evidence that the foreclosed properties had a market price of P50,000,000.00. It reiterated that inadequacy of price in a foreclosure sale, unless shocking to the conscience, does not invalidate the sale, as the mortgagor has the right of redemption. The Court also affirmed the solidary liability of the Suico spouses as sureties, based on the Continuing Surety Agreement, stating that a surety's liability is direct, primary, and absolute, and they can be held liable even if the principal debtor is solvent.
Main Doctrine
A mortgage creditor who opts for extrajudicial foreclosure of the mortgaged property is deemed to have waived the remedy of filing a personal action for the collection of the debt, but may still recover any deficiency arising from the foreclosure sale in a separate action.