In the Philippines, a creditor holding a real estate mortgage must choose between filing a personal action for debt collection or a real action to foreclose the mortgage. This Supreme Court decision clarifies that pursuing one remedy generally bars the other, preventing multiple suits against the debtor. However, the Court also emphasizes that this principle should not unjustly enrich the debtor at the creditor’s expense. Even if foreclosure is barred, the debtor remains obligated to pay the outstanding debt to prevent unjust enrichment.

Double Jeopardy or Fair Recovery? Examining the Limits of Foreclosure After Criminal Charges

This case revolves around a loan secured by a real estate mortgage between Antonio Chieng (later substituted by William Chieng) and Spouses Eulogio and Teresita Santos. When the Spouses Santos defaulted, Chieng filed criminal cases for violation of Batas Pambansa Blg. 22 (BP 22), the Bouncing Checks Law, against Eulogio Santos. A compromise agreement was reached in the criminal cases, but the spouses still failed to fully comply. Subsequently, Chieng filed a separate civil action to foreclose the real estate mortgage. The central legal question is whether filing the criminal cases for BP 22, which included an implied civil action for collection of the debt, barred Chieng from later pursuing foreclosure.

The Court of Appeals ruled that the criminal cases, with their implied civil action, constituted an election of remedy, thus barring the subsequent foreclosure action. The Supreme Court acknowledged the general principle that a mortgage-creditor has alternative remedies: a personal action for debt or a real action to foreclose. As the Supreme Court has explained, allowing both actions would lead to a multiplicity of suits and subject the debtor to unnecessary harassment. The election of one remedy acts as a waiver of the other. The Supreme Court in Bachrach Motor Co., Inc. v. Icarangal held:

a rule which would authorize the mortgage-creditor to bring a personal action against the mortgage-debtor and simultaneously or successively another action against the mortgaged property, would result not only in multiplicity of suits so offensive to justice and obnoxious to law and equity, but would also subject the mortgage-debtor to the vexation of being sued in the place of his residence or of the residence of the mortgage-creditor, and then again in the place where the property lies.

Building on this principle, the Court examined whether filing criminal charges under BP 22 was equivalent to choosing a collection suit. According to Section 1(b) of Rule 111 of the 2000 Rules on Criminal Procedure, a civil action for the recovery of the amount of the dishonored checks is impliedly instituted in BP 22 cases. This rule was designed to streamline proceedings and discourage creditors from using criminal charges solely as a means of debt collection. As the Supreme Court has stated in Hyatt Industrial Manufacturing Corporation v. Asia Dynamic Electrix Corporation:

The criminal action for violation of Batas Pambansa Blg. 22 shall be deemed to include the corresponding civil action. No reservation to file such civil action separately shall be allowed.

Here, the dishonored checks were indeed issued to pay the loan secured by the real estate mortgage. The Court of Appeals was therefore correct in asserting that by filing the criminal cases, Chieng had effectively chosen the remedy of collection, precluding the later foreclosure action. However, the Supreme Court recognized a critical nuance: the Spouses Santos admitted they had not fully paid the loan. Applying the principle of unjust enrichment, the Court emphasized that it would be inequitable to allow the debtors to benefit from the loan without fully repaying it. Article 22 of the New Civil Code states:

ART. 22. Every person who through an act of performance by another, or any other means, acquires or comes into possession of something at the expense of the latter without just or legal ground, shall return the same to him.

Unjust enrichment occurs when a person unjustly benefits at the expense of another. In such cases, the law requires the return of the benefit to prevent inequity. Even though Chieng was barred from foreclosing the mortgage, the Spouses Santos still had an obligation to pay the remaining balance of the loan. The Supreme Court, acting as a court of justice and equity, ruled that the respondents were liable for the outstanding debt. However, the Court adjusted the interest computation. Since there was no written agreement regarding interest, the legal rate of 12% per annum was applied from the date of extrajudicial demand (July 30, 1992) until the finality of the decision, with an additional 12% per annum from finality until satisfaction of the debt. The remaining balance of P93,000.00 was subject to this interest calculation.

FAQs

What was the key issue in this case?	The key issue was whether a creditor who filed criminal charges for bouncing checks (BP 22) related to a loan secured by a mortgage, was then barred from foreclosing on the mortgage.
What are the alternative remedies available to a mortgage creditor in the Philippines?	A mortgage creditor can choose between a personal action for collection of the debt or a real action to foreclose the mortgage, but generally cannot pursue both simultaneously or successively.
What is the effect of filing a criminal case for BP 22 on the civil liability?	Filing a criminal case for BP 22 automatically includes the corresponding civil action for recovery of the amount of the dishonored check, according to the Rules of Criminal Procedure.
What is the principle of unjust enrichment?	The principle of unjust enrichment prevents a person from unjustly benefiting at the expense of another without just or legal ground, requiring the return of the benefit gained.
How did the court balance the rule against multiplicity of suits with the principle of unjust enrichment?	The court recognized the creditor was barred from foreclosure due to the prior criminal case, but still required the debtor to pay the outstanding loan balance to prevent unjust enrichment.
What interest rate applies when there is no written agreement on interest for a loan?	In the absence of a written agreement, the legal interest rate of 12% per annum applies, computed from the time of judicial or extrajudicial demand.
When does the legal interest begin to accrue in this case?	The legal interest of 12% per annum began to accrue from the date of extrajudicial demand (July 30, 1992) on the outstanding loan balance.
What was the final ruling of the Supreme Court?	The Supreme Court reversed the Court of Appeals, ordering the debtors to pay the remaining loan balance plus legal interest from the date of extrajudicial demand until full satisfaction of the debt.

This case highlights the importance of carefully considering the available remedies when a debtor defaults on a loan secured by a mortgage. While the election of one remedy generally precludes the other, the courts will strive to prevent unjust enrichment and ensure that debtors fulfill their obligations.

For inquiries regarding the application of this ruling to specific circumstances, please contact ASG Law through contact or via email at frontdesk@asglawpartners.com.

Disclaimer: This analysis is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please consult with a qualified attorney.
Source: ANTONIO CHIENG, SUBSTITUTED BY WILLIAM CHIENG, PETITIONER, VS. SPOUSES EULOGIO AND TERESITA SANTOS, RESPONDENTS, G.R. NO. 169647, August 31, 2007