G.R. No. 138292; April 10, 2002
KOREA EXCHANGE BANK, petitioner, vs. FILKOR BUSINESS INTEGRATED, INC., KIM EUNG JOE, and LEE HAN SANG, respondents.

FACTS

Petitioner Korea Exchange Bank filed a complaint against respondents for collection of sums of money arising from unpaid loans, dishonored trust receipts, and dishonored bills of exchange under letters of credit. The obligations were secured by a Real Estate Mortgage executed by respondent Filkor and Continuing Suretyships by the individual respondents. In its complaint, the bank specifically prayed for payment and, in case of default within ninety days from judgment, for the foreclosure and sale at public auction of the mortgaged property. The trial court granted the bank’s motion for summary judgment, ordering respondents to pay the amounts due. However, the court’s order omitted the foreclosure prayer.
The trial court denied the bank’s partial motion for reconsideration, ruling that by filing a simple collection case, the bank had elected to waive its mortgage lien under the doctrine from Danao vs. Court of Appeals. The bank assailed this order, contending it did not abandon its mortgage security.

ISSUE

Whether the trial court erred in ruling that the petitioner abandoned its real estate mortgage by filing a collection case, thereby precluding a foreclosure order.

RULING

The Supreme Court granted the petition. The trial court erred in its application of the election of remedies doctrine. The nature of an action is determined by the allegations in the complaint and the relief sought. The bank’s complaint contained an explicit prayer for the foreclosure and sale of the mortgaged property in case of non-payment within a specified period. This clear allegation and prayer characterized the action as one for judicial foreclosure of a real estate mortgage, not a mere personal action for collection. An action for judicial foreclosure seeks precisely the payment of an obligation within a period set by the court, with the foreclosure and sale of the property as a consequence of default, as provided under Section 2, Rule 68 of the Rules of Court. The bank did not waive its security; it pursued the integrated remedy of foreclosure. Consequently, the dispositive portion of the trial court’s summary judgment must be modified to include an order for foreclosure and public sale should respondents fail to pay within ninety days from the finality of judgment. The appeal was correctly filed with the Supreme Court as it raised a pure question of law regarding the trial court’s interpretation of the complaint’s allegations.