CALTEX PHILIPPINES, INC., PETITIONER, VS. THE INTERMEDIATE APPELLATE COURT AND HERBERT MANZANA, RESPONDENTS.

This is a petition for review on certiorari of the
resolution of respondent Intermediate Appellate Court (now Court of Appeals)
dated January 31, 1986 vacating its prior decision dated June 29, 1984 and
ordering that the records of the case be remanded to the Court of First
Instance (now Regional Trial Court) of Manila, and its resolution dated May 19,
1986 denying the motion for reconsideration.

The antecedent facts are as follows:

Private respondent Herbert Manzana
purchased on credit petroleum products from petitioner Caltex
Philippines, Inc. (CALTEX, for short). 
As of August 31, 1969,
his indebtedness to CALTEX has amounted to P361,218.66.  On October 4, 1969, Manzana
executed a Deed of First Mortgage in favor of CALTEX over a parcel of land covered by OCT No. 0-274 of the Register of Deeds for the Province
of Camarines Norte to secure his debts to the
latter.  On various occasions, CALTEX
sent to Manzana statements of account and later demanded payment of his entire debts.  Because of Manzana’s
failure and refusal to pay, CALTEX filed a complaint on August 17, 1970 before the trial court for the
recovery of the whole amount of P361,218.66.

Meanwhile, on September
15, 1970, CALTEX foreclosed extrajudicially
the mortgaged property.  On October 30, 1970, the mortgaged
property was sold at auction to CALTEX, being the only bidder, for P20,000.00 as shown by the Sheriff’s Certificate of Sale.  The foreclosure was allegedly known by Manzana only on October
4, 1980 when such fact was manifested by CALTEX in its reply to the
opposition of Manzana to the motion for execution
pending appeal.

On July 23, 1980, the trial court rendered judgment ordering Manzana to pay CALTEX the amount of P353,218.66 after
deducting P8,000.00 paid by Traders Insurance and Surety Company on its surety bond, with interest thereon at
12% per annum from August 17, 1970, plus 20% thereof as attorney’s fees (p.
115, Rollo).

Manzana appealed the trial court’s
decision to the respondent Intermediate Appellate Court raising the following
issues (p. 37, Rollo):

“1.  THAT
PLAINTIFF-APPELLEE CANNOT AVAIL BOTH OF A PERSONAL ACTION (THIS CASE) AND AN
EXTRAJUDICIAL FORECLOSURE AT THE SAME TIME AGAINST THE DEFENDANT-APPELLANT;
AND,

2.  THAT PLAINTIFF-APPELLEE CANNOT AVAIL
OF A DEFICIENCY JUDGMENT AFTER HE HAD EXTRAJUDICIALLY FORECLOSED ON THE PROPERTY
OF DEFENDANT-APPELLANT.”

It was the opinion of the respondent court that “a reading
of the issues raised by the defendant-appellant shows that the question that
needs resolution is whether or not plaintiff-appellee
can still avail of the complaint for the recovery of the balance of
indebtedness after having already foreclosed the property securing the
same” (p. 37, Rollo).

On June 29, 1984,
the respondent court rendered a decision (pp. 36-39, Rollo)
affirming in toto the appealed decision
after “finding no reversible error” therein.  On July
19, 1984, Manzana filed a motion for
reconsideration of said decision.  In its
comment to the motion for reconsideration, CALTEX prayed that “the
judgment sought to be reconsidered be modified by deducting the amount of
P20,000.00 (foreclosure amount) from P353,218.66 thereby leaving a balance of
P333,218.66 representing the deficiency that plaintiff?appellee is entitled to recover from defendant-appellant
plus interest, attorney’s fees and costs of suit” (p. 41, Rollo).

Acting on the motion for reconsideration, the respondent court
issued a resolution dated January 31,
1986, the dispositive portion of which
reads (p. 59, Rollo):

“WHEREFORE, in the interest of justice the decision of this
Court promulgated June 29, 1984
is vacated and the records are ordered remanded for purposes of determining the
deficiency due the plaintiff-appellee and for the trial court to render another and
proper judgment based on the evidence adduced by all the parties.  Without pronouncement as to
costs.

“SO ORDERED.”

The respondent court was
convinced that the following consideration justified a reconsideration of its prior decision (pp. 55-56, Rollo):  “x x x, the action (before the trial court) cannot be said to be
one for recovery of deficiency judgment because x x x (it) seeks recovery of the whole amount of indebtedness totalling P361,210.66”
(should be P361,218.66).

The motion for reconsideration filed by CALTEX was denied.  Hence, the present
petition.

The issues may be limited to the following:

1) Whether or not the
respondent court committed an error in giving due course to the question whether CALTEX can
avail at the same time of a personal action in court for collection of a sum of
money and the extrajudicial foreclosure of the deed of first mortgage, which
was only raised for the first time on appeal;

2) Whether or not the
mere filing of a collection suit for the recovery of the debt secured by real
estate mortgage constitutes waiver of the other remedy of foreclosure;

3) Whether or not the
filing of the complaint for recovery of the amount of indebtedness and the subsequent extrajudicial
foreclosure of the deed of first mortgage constitutes splitting of a single
cause of action.

FIRST ISSUE

CALTEX alleges that the only issue submitted for resolution
before the trial court is whether or not Manzana was
indebted and liable to it in the sum of P361,218.66.  The issue whether or not CALTEX can avail at
the same time of a personal action in court for collection of a sum of money and the extrajudicial foreclosure of the
Deed of First Mortgage, and the issue whether or not CALTEX can avail of a
deficiency judgment were never raised in the pleadings of the parties nor at
any stage of the proceedings before the trial court.  These were only raised by Manzana
for the first time on appeal before the respondent court.

We rule that the
respondent court did not commit any error in taking cognizance of the aforestated issues, although not raised before the trial
court.  The presence of strong consideration of substantial justice has led this Court to relax the
well-entrenched rule that, except questions on jurisdiction, no question will be entertained on appeal unless it
has been raised in the court below and it is within the issues made by the
parties in their pleadings (Cordero v. Cabral, G.R. No. L-36789, July 25, 1983, 123 SCRA 532).  The compassionate spirit behind this rule will equally apply to the other allegation of CALTEX that Manzana’s indebtedness of P361,218.66
was secured up to the extent of P120,000.00 only although it appears that this
issue is raised for the first
time in this present petition.  Thus, the
liberal application of the rule will favor
both parties.

On the basis of the first condition enumerated in the Deed of
First Mortgage, CALTEX submits that Manzana’s
indebtedness of P361,218.66 was secured up to the
extent of P120,000.00 only, to wit (p. 50, Rollo):

“This Mortgage is subject to the following terms and conditions:

“1) The aforementioned indebtedness of THREE HUNDRED SIXTY-ONE
THOUSAND TWO HUNDRED EIGHTEEN & 66/100 (P361,218.66)
of the MORTGAGOR shall be paid upon demand by the MORTGAGEE; it being expressly
understood that the limit or maximum amount secured by this mortgage is ONE HUNDRED
TWENTY THOUSAND PESOS (P120,000.00) only.”

On the other hand, on the basis of the fourth paragraph of the
deed and the fourth condition therein, Manzana
contends that the whole outstanding obligation of P361,218.66
was secured by the mortgage, to wit
(pp. 49-50, Rollo):

“NOW, THEREFORE, for and in consideration of the said overdue,
payable and demandable indebtedness of the MORTGAGOR to the MORTGAGEE in the
sum of THREE HUNDRED SIXTY-ONE THOUSAND TWO HUNDRED EIGHTEEN PESOS & 66/100
(P361,218.66), Philippine Currency, the foregoing premises and other x x x and valuable considerations,
and to secure the faithful performance by the MORTGAGOR of all the terms and
conditions hereinafter set forth, particularly the payment of the obligations
hereby secured, the MORTGAGOR does hereby convey BY WAY OF FIRST MORTGAGE x x x.

“x       x       x.

“4) This mortgage shall remain in force to cover the
aforementioned outstanding indebtedness of the MORTGAGOR to the MORTGAGEE in
the amount of THREE HUNDRED SIXTY-ONE THOUSAND TWO HUNDRED EIGHTEEN PESOS &
66/100 (P361,218.66).”

Article 1374 of the Civil Code, regarding interpretation of contracts, provides:

“ART. 1374. 
The various stipulations of a contract shall be interpreted
together, attributing to the doubtful ones that sense which may result from all
of them taken jointly.”

The Deed of First Mortgage seems to
contain provisions that contradict one another. 
However, considering all the provisions together, the first condition
cited by CALTEX is actually a specific provision while the fourth paragraph and
the fourth condition cited by Manzana are general
provisions.  This interpretation is
bolstered by the third WHEREAS clause and the penultimate paragraph of the
deed, to wit (pp. 49-50, Rollo):

“WHEREAS, the MORTGAGOR has offered to execute, sign and
deliver a First Mortgage over his property x x x, only as partial security
for the aforementioned overdue, payable and demandable indebtedness of
the MORTGAGOR to the MORTGAGEE, which offer of the MORTGAGOR is accepted by the
MORTGAGEE.  (underscoring
supplied)

“x     
x      x.

“The MORTGAGOR binds himself to complete the securities required by the MORTGAGEE and shall
permit any authorized representative of the MORTGAGEE to inspect the mortgaged
property and all the properties offered to be mortgaged to complete the required security.” (underscoring supplied)

We therefore hold that
Manzana’s indebtedness of P361,218.66
was secured up to the extent of
P120,000.00 only.

The records show that CALTEX extended to Manzana
a continuing credit line, with the result that each transaction constituted a
separate obligation.  We affirm the trial
court’s ruling with respect to the liability of Manzana
to CALTEX in the amount of P233,218.66 (P353,218.66 less P120,000.00) with
interest thereon at 12% per annum from August 17, 1970, plus 20% thereof as
attorney’s fees.  The evidence on record,
both testimonial and documentary, clearly support such amount of indebtedness.  The trial court said (pp. 114-115, Rollo):

“Plaintiff’s claim that as at (sic) termination of agreement
on July 27, 1970, Manzana had an outstanding account totalling P361,218.66, appears to be confirmed by the
following:

“(1) On September 8, 1970,
defendant Manzana, by a letter, acknowledged his
indebtedness, but asked for time to pay the unpaid balance (Exh. “1” and “M”).

“(2) To secure his obligation of P361,218.66,
said defendant executed, on October 4,
1969, a Deed of First Mortgage on a piece of land covered by O.C.T.
No. 0-274 of the Registry of Deeds for Camarines
Norte (Exh. “N”).

“Rarely can a confirmation of an account be more definitive
than the foregoing.

“Defendant Manzana’s defenses, set
up in his answer, do not appear
to have merit.  In the first place, the
supposed lack of liquidation is belied by the periodical statements of account
showing the corresponding running balance thru the years 1968 to 1969 (Exhs. “N” to “0-7” inclusive), effectively constituting a form of liquidation.  Secondly, the very terms used repeatedly in
the Dealer Agreement — neither pleaded nor in any manner assailed as ambiguous
— are peculiar to purchase and sale transactions and to the relationship of
the parties thereto as debtor and creditor. 
There is no reasonable way under the provisions thereof that Manzana can be deemed to be either an agent or a mere
collector with plaintiff bearing the risk of non­payment.”

Furthermore, this case has been pending
since August 17, 1970 and
to order its remand to the trial court will necessarily entail additional
expenses and unduly delay its disposition and the administration of justice to
the parties.

Remand of the case to the lower courts for reception of evidence
is not necessary if the Supreme Court can resolve the dispute on the records
before it.  The common denominator in
cases holding that remand of a case is not necessary is the fact that the trial
court had received all the evidence intended to be presented by both parties (Hechanova v. Court
of Appeals, G.R. No. L-48787, November 14, 1986, 145 SCRA 550).

THE SUCCEEDING DISCUSSION
WILL CONCERN THE SECURED INDEBTEDNESS OF P120,000.00.

CALTEX, in effect, has
made a mockery of our judicial system when it initially filed a collection suit
then, during the pendency thereof foreclosed extrajudicially the mortgaged property which secured the
indebtedness and still pursued the collection suit to the end.  In this light, the actuations of CALTEX are
deserving of severe criticism, to say the least.  Of importance is the doctrine laid down by
this court in the leading case of Bachrach Motor,
Inc. v. Icarañgal, et al., 68 Phil.
287, which was applied by the respondent Court in resolving the case, where We
ruled that:

“x x x, in
the absence of express statutory provisions, a mortgage creditor may institute
against the mortgage debtor either a personal action for debt or a real action
to foreclose the mortgage.  In other
words, he may pursue either of the two remedies, but not both.  By such election, his cause of action can by
no means be impaired, for each of the two remedies is complete in itself.  Thus, an election to bring a personal action
will leave open to him all the properties of the debtor for attachment and execution, even including the mortgaged
property itself.  And, if he waives such
personal action and pursues his remedy against the mortgaged property, an
unsatisfied judgment thereon would still give him the right to sue for a
deficiency judgment, in which case, all the properties of the defendant, other
than the mortgaged property, are again open to him for the satisfaction of the
deficiency.  In either case, his remedy
is complete, his cause of action undiminished, and any advantages attendant to
the pursuit of one or the other remedy are purely accidental and are all under
his right of election.  x x x.”

Thus, where a debt is secured by a mortgage and there is a
default in payment on the part
of the mortgagor, the mortgagee has a choice of one (1) of two (2) remedies,
but he cannot have both.  The mortgagee
may:

1) foreclose the mortgage; or

2) file an ordinary action to collect the
debt.

When the mortgagee chooses the foreclosure of the mortgage as a
remedy, he enforces his lien by the sale on foreclosure of the mortgaged
property.  The proceeds of the sale will
be applied to the satisfaction of the debt. 
With this remedy, he has a prior lien on the property.  In case of a deficiency, the mortgagee has
the right to claim for the deficiency resulting from the price obtained in the
sale of the real property at public auction and the outstanding obligation at
the time of the foreclosure proceedings (Soriano v.
Enriquez, 24 Phil. 584; Banco de Islas
Filipinas v. Concepcion Hijos,
53 Phil. 86; Banco Nacional
v. Barreto, 53 Phil. 101).

On the other hand, if the mortgagee resorts to an action to
collect the debt, he thereby waives his mortgage lien.  He will have no more priority over the
mortgaged property.  If the judgment in
the action to collect is favorable to him, and it becomes final and executory, he can enforce said judgment by execution.  He can even levy execution on the same
mortgaged property, but he will not have priority over the latter and there may
be other creditors who have better lien on the properties of the mortgagor.

CALTEX submits that the
principles enunciated in the Bachrach case are not applicable nor determinative of the case at bar for the
reason that the factual circumstances obtained in the said case are totally
different from the instant case.  In the Bachrach case, the plaintiff instituted an action to
foreclose the mortgage after the money judgment in its favor remained
unsatisfied whereas in the present case, CALTEX initially filed a complaint for
collection of the debt and during the pendency
thereof foreclosed extrajudicially the mortgage.

We disagree.  Although the
facts in the Bachrach case and in the present case
are not identical, there is similarity in the fact that the plaintiffs in these
two cases availed of both remedies although they are entitled to a choice of
only one.

SECOND ISSUE

CALTEX alleges next that the mere act of filing a collection suit
for the recovery of a debt secured by real estate mortgage is not tantamount to
an implied waiver of the mortgage lien. 
Under Philippine jurisdiction, there is no statute which prohibits or
precludes a mortgagee from subsequently foreclosing the real estate mortgage
shortly after the collection suit has been filed.  The real estate mortgage itself does not
contain any explicit provision that the filing of a collection suit would mean
waiver of the remedy of foreclosure.

We hold otherwise.  The mere act of filing a collection
suit for the recovery of a debt secured by a mortgage constitutes waiver of the
other remedy of foreclosure.  The
rationale behind this was adequately explained in the Bachrach
case, supra:

“x x x, a
rule that would authorize the plaintiff to bring a personal action against the
debtor and simultaneously or successively another action against the mortgaged property, would result not only in
multiplicity of suits so offensive to justice (Soriano
vs. Enriques, 24 Phil. 584) and obnoxious to law and
equity (Osorio vs. San Agustin, 25 Phil. 404), but also in subjecting the
defendant to the vexation of being sued in the place of his residence or of the
residence of the plaintiff, and then again in the place where the property
lies.”

In the present case, however, We shall not follow this rule to the letter but declare that
it is the collection suit which was waived and/or abandoned.  This ruling
is more in harmony with the principles underlying our judicial system.  It is of no moment that the collection suit
was filed ahead, what is determinative is the fact that the foreclosure
proceedings ended even before the decision in the
collection suit was rendered.  As a
matter of fact, CALTEX informed the trial court that it had already
consolidated its ownership over the property, in its reply to the opposition of
Manzana to the motion for execution pending appeal
filed by it.

A corollary issue that We
might as well resolve now (although not raised as an
issue in the present petition, but applying the rule in Gayos,
et al. v. Gayos, et al., G.R. No. L-27812, September
26, 1975, 67 SCRA 146, that it is a cherished rule of procedure that a court
should always strive to settle the entire controversy in a single
proceeding leaving no root or branch to
bear the seeds of future litigation) is whether or not CALTEX can still
sue for a deficiency judgment — P100,000.00 (secured
debt of P120,000.00 less the foreclosure amount of P20,000.00).

The collection suit filed before the trial court cannot be
considered as a deficiency judgment because a deficiency judgment has been
defined as one for the balance of the indebtedness after applying the proceeds
of the sale of the mortgaged property to such indebtedness and is necessarily
filed after the foreclosure proceedings. 
It is significant to note that the judgment rendered by the trial court
was for the full amount of the indebtedness and the case was filed prior to the foreclosure proceedings.

In general, a deficiency
judgment is in the nature of an ordinary money judgment, may constitute a cause
of action and is barred by the statute of limitations applicable to ordinary
judgment (59 C.J.S. 1497).  The ten (10)
year period provided in Articles 1142 and 1144 of the Civil Code applies to a
suit for deficiency judgment, to wit:

“Art. 1142.  A mortgage
action prescribes after ten years.  (1964a)”

“Art. 1144.  The
following actions must be brought within ten years from the time the right of
action accrues:

(1) Upon a written contract;

(2) Upon an obligation created by law;

(3) Upon a judgment.  (n)”

A
suit for the recovery of the deficiency after the foreclosure of a mortgage is in the nature of a mortgage
action because its purpose is precisely to enforce the mortgage contract; it is
upon a written contract and upon an obligation of Manzana
to pay the deficiency which is created by law (see Development Bank of
the Philippines v. Tomeldan, et al., G.R. No. 51269,
November 17, 1980, 101 SCRA 171).  Therefore,
since more than ten (10) years have elapsed from the time the right of action
accrued, CALTEX can no longer recover the deficiency from Manzana.

THIRD ISSUE

CALTEX has only one cause
of action against Manzana, that is, non-payment of
the debt although two choices of remedies are available to it.  As held in the Bachrach
case, supra:

“For non-payment of a note secured by mortgage, the creditor
has a single cause of action against the debtor.  This single cause of action consists in the
recovery of the credit with execution of the security.  In other words, the creditor in his action
may make two demands, the payment of the debt and the foreclosure of his mortgage. 
But both demands arise from the same cause, the non­payment of the debt,
and, for that reason, they constitute a single cause of action.  Though the debt and the mortgage constitute
separate agreements, the latter is subsidiary to the former, and both refer to
one and the same obligation. 
Consequently, there exists only one cause of action for a single breach
of that obligation.  Plaintiff, then, by
applying the rule above stated, cannot split up his single cause of action by
filing a complaint for payment
of the debt, and thereafter another complaint for foreclosure of the
mortgage.  If he does so, the filing of
the first complaint will bar the subsequent complaint.  By allowing the creditor to file two separate
complaint simultaneously or successively, one to
recover his credit and another to foreclose his mortgage, we will, in effect,
be authorizing him plural redress for a single breach of contract at so much cost to the courts and with so
much vexation and oppression to the debtor.”

ACCORDINGLY, the resolution of the respondent Intermediate
Appellate Court dated January 31, 1986
is SET ASIDE.  The decision of the trial
court is AFFIRMED with the MODIFICATION that private respondent Herbert Manzana’s
liability to petitioner Caltex Philippines, Inc. is
only up to the extent of P233,218.66 with interest thereon at 12% per annum
from August 17, 1970, plus 20% thereof as attorney’s fees.

SO ORDERED.

Narvasa, (Chairman), Cruz, Gancayco, and Griño-Aquino, JJ., concur.