G.R. No. 74730. August 25, 1989.
CALTEX PHILIPPINES, INC., petitioner, vs. THE INTERMEDIATE APPELLATE COURT and HERBERT MANZANA, respondents.

FACTS

Private respondent Herbert Manzana purchased petroleum products on credit from petitioner Caltex Philippines, Inc. (CALTEX). By August 31, 1969, his indebtedness amounted to P361,218.66. To secure this debt, Manzana executed a Deed of First Mortgage on October 4, 1969, over a parcel of land in Camarines Norte. Due to Manzana’s failure to pay, CALTEX filed a complaint for collection of the full amount on August 17, 1970. Subsequently, on September 15, 1970, CALTEX extrajudicially foreclosed the mortgaged property, purchasing it at auction for P20,000 on October 30, 1970. The trial court later rendered judgment ordering Manzana to pay CALTEX P353,218.66, with interest and attorney’s fees.
On appeal, Manzana raised for the first time the issues of whether CALTEX could simultaneously pursue a personal action for collection and extrajudicial foreclosure, and whether a deficiency judgment was available after foreclosure. The Intermediate Appellate Court initially affirmed the trial court’s decision but, upon reconsideration, vacated it and remanded the case to determine the proper deficiency. CALTEX elevated the case to the Supreme Court via certiorari.

ISSUE

The primary issues were: (1) whether the appellate court erred in considering issues raised for the first time on appeal; (2) whether filing a collection suit constitutes a waiver of the right to foreclose; and (3) whether such simultaneous actions constitute splitting a single cause of action.

RULING

The Supreme Court ruled in favor of CALTEX on the procedural issue but against it on the substantive merits. On the first issue, the Court held that the appellate court did not err in taking cognizance of the issues raised for the first time on appeal, as the presence of substantial justice warranted a relaxation of the procedural rule. The Court applied this liberal approach to also consider CALTEX’s own new argument that the mortgage secured the debt only up to P120,000.
On the second and third issues, the Court ruled that CALTEX’s actions constituted splitting of a single cause of action. The creditor has only one cause of action for the non-payment of a debt secured by a mortgage, which consists of the recovery of the credit with execution of the security. Pursuing a personal action for the full debt and simultaneously foreclosing the mortgage splits this single cause of action, which is prohibited. Following the rule in Bachrach Motor Co. v. Icarangal, the filing of the collection suit for the entire debt barred the subsequent action to foreclose the mortgage for the purpose of securing a deficiency judgment. Consequently, CALTEX was deemed to have waived its mortgage lien by electing to pursue the personal action.
Furthermore, the Court held that any action for a deficiency judgment had already prescribed. A suit for deficiency after foreclosure is a mortgage action that prescribes in ten years under Articles 1142 and 1144 of the Civil Code. Since more than ten years had elapsed from the accrual of the right of action (the foreclosure in 1970), CALTEX could no longer recover any deficiency. The Court modified the trial court’s decision, limiting Manzana’s liability to P233,218.66 (representing the total debt of P353,218.66 minus the P120,000 mortgage coverage), with interest and attorney’s fees. The resolutions of the Intermediate Appellate Court were set aside.