Case Digest: Bank of America NT & Asia vs. American realty Corporation, GR No. 133876 December 29, 1999
Private International Law
Petitioner: Bank of America NT & SA (BANTSA), incorporated in California
Private Respondent: American Realty Corporation (ARC), domestic corporation
Party: Bank of America International Limited (BAIL), England
Recit Version:
BANTSA and BAIL provided multi-million dollar loans to three Panamanian companies affiliated with ARC. When these companies defaulted, restructuring agreements were established. ARC offered additional security through real estate mortgages in Bulacan. Despite the restructuring, the corporate borrowers defaulted again, leading BANTSA to file collection suits in England and Hong Kong. However, ARC, as a third-party mortgagor, was not part of these foreign suits. Subsequently, BANTSA initiated an extrajudicial foreclosure in the Philippines. ARC filed a damages suit, arguing that the foreclosure was improper due to pending foreign lawsuits.
The Supreme Court ruled against BANTSA, holding that the act of filing collection suits in foreign courts constituted a waiver of the foreclosure remedy. The Court emphasized that in Philippine jurisdiction, remedies for mortgage creditors are considered alternative, not cumulative, and the filing of a collection suit waives the right to foreclosure. The Court reaffirmed that foreign law could not override established Philippine legal principles, especially regarding the prohibition against splitting causes of action.
Actual Damage: P99,000,000
Exemplary damages: P5,000,000.
Facts:
BANTSA and BAIL granted multi-million US Dollar loans to three corporate borrowers, all Panamanian entities affiliated with ARC:
Liberian Transport Navigation
El Challenger
Eshley Compania Naviera
Due to defaults on the loans, restructuring agreements were entered into, with ARC providing additional security through real estate mortgages on its properties in Bulacan.
The corporate borrowers defaulted on the restructured loans, prompting BANTSA to file civil suits in foreign courts in England and Hong Kong for collection.
ARC, as a third-party mortgagor, was not included as a party in the foreign lawsuits.
BANTSA filed before the Office of the Provincial Sheriff of Bulacan, Philippines an application for extrajudicial foreclosure of real estate mortgage.
The mortgaged properties were sold at public auction.
ARC filed a case for damages against BANTSA in RTC-Pasig.
ARC argued that foreclosure was improper due to pending foreign lawsuits for loan collection.
BANTSA's claim that ARC a third-party mortgagor, not a party to the loan restructuring agreements, and not a defendant in the foreign lawsuits.
The foreign lawsuits did not affect the Philippines as they were filed abroad, and foreign judgments would require separate enforcement actions in the Philippines.
Under English law, filing for loan collection did not affect BANTSA’s mortgage security.
RTC-Pasig: Ruled in favor of ARC, declaring that BANTSA’s filing of foreign collection suits waived the security of the mortgages and that the foreclosure was improper.
CA: Affirmed the trial court's decision.
BANTSA appealed to the Supreme Court, contending that:
the mere filing of a personal action to collect the principal loan does not suffice;
a final judgment must be secured and obtained in the personal action so that waiver of the remedy of foreclosure may be appreciated.
Issue: Whether or not the petitioner's act of filing a collection suit against the principal debtors for the recovery of the loan before foreign courts constituted a waiver of the remedy of foreclosure.
Held: Yes, the petitioner's filing of collection suits in foreign countries constituted a waiver of the remedy of foreclosure.
Anent real properties in particular, the Court has laid down the rule that a mortgage creditor may institute against the mortgage debtor either a personal action for debt or a real action to foreclose the mortgage.
In our jurisdiction, the remedies available to the mortgage creditor are deemed alternative and not cumulative. Notably, an election of one remedy operates as a waiver of the other. For this purpose, a remedy is deemed chosen upon the filing of the suit for collection or upon the filing of the complaint in an action for foreclosure of mortgage, pursuant to the provision of Rule 68 of the of the 1997 Rules of Civil Procedure. As to extrajudicial foreclosure, such remedy is deemed elected by the mortgage creditor upon filing of the petition not with any court of justice but with the Office of the Sheriff of the province where the sale is to be made, in accordance with the provisions of Act No. 3135, as amended by Act No. 4118.
In the case at bench, private respondent ARC constituted real estate mortgages over its properties as security for the debt of the principal debtors. By doing so, private respondent subjected itself to the liabilities of a third party mortgagor. Under the law, third persons who are not parties to a loan may secure the latter by pledging or mortgaging their own property.
Notwithstanding, there is no legal provision nor jurisprudence in our jurisdiction which makes a third person who secures the fulfillment of another's obligation by mortgaging his own property, to be solidarily bound with the principal obligor. The signatory to the principal contract—loan—remains to be primarily bound. It is only upon default of the latter that the creditor may have recourse on the mortgagors by foreclosing the mortgaged properties in lieu of an action for the recovery of the amount of the loan.
In the instant case, petitioner's contention that the requisites of filing the action for collection and rendition of final judgment therein should concur, is untenable.
Thus, in Cerna vs. Court of Appeals, we agreed with the petitioner in said case, that the filing of a collection suit barred the foreclosure of the mortgage:
A mortgagee who files a suit for collection abandons the remedy of foreclosure of the chattel mortgage constituted over the personal property as security for the debt or value of the promissory note when he seeks to recover in the said collection suit.
. . . When the mortgagee elects to file a suit for collection, not foreclosure, thereby abandoning the chattel mortgage as basis for relief, he clearly manifests his lack of desire and interest to go after the mortgaged property as security for the promissory note . . . .
Contrary to petitioner's arguments, we therefore reiterate the rule, for clarity and emphasis, that the mere act of filing of an ordinary action for collection operates as a waiver of the mortgage-creditor's remedy to foreclose the mortgage. By the mere filing of the ordinary action for collection against the principal debtors, the petitioner in the present case is deemed to have elected a remedy, as a result of which a waiver of the other necessarily must arise. Corollarily, no final judgment in the collection suit is required for the rule on waiver to apply.
Hence, in Caltex Philippines, Inc. vs. Intermediate-Appellate Court, a case relied upon by petitioner, supposedly to buttress its contention, this Court had occasion to rule that 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.
In the case at bar, petitioner BANTSA only has one cause of action which is non-payment of the debt. Nevertheless, alternative remedies are available for its enjoyment and exercise. Petitioner then may opt to exercise only one of two remedies so as not to violate the rule against splitting a cause of action.
As elucidated by this Court in the landmark case of Bachrach Motor Co., Inc, vs. Icarangal.
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 non-payment 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 rules 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 complaints 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.
Petitioner further faults the Court of Appeals for allegedly disregarding the doctrine enunciated in Caltex wherein this High Court relaxed the application of the general rules to wit:
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. . . .
Notably, though, petitioner took the Caltex ruling out of context. We must stress that the Caltex case was never intended to overrule the well-entrenched doctrine enunciated Bachrach, which to our mind still finds applicability in cases of this sort. To reiterate, Bachrach is still good law.
We then quote the decision 25 of the trial court, in the present case, thus:
The aforequoted ruling in Caltex is the exception rather than the rule, dictated by the peculiar circumstances obtaining therein. In the said case, the Supreme Court chastised Caltex for making ". . . 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." Thus, to prevent a mockery of our judicial system", the collection suit had to be nullified because the foreclosure proceedings have already been pursued to their end and can no longer be undone.
x x x x x x x x x
In the case at bar, it has not been shown whether the defendant pursued to the end or are still pursuing the collection suits filed in foreign courts. There is no occasion, therefore, for this court to apply the exception laid down by the Supreme Court in Caltex by nullifying the collection suits. Quite obviously, too, the aforesaid collection suits are beyond the reach of this Court. Thus the only way the court may prevent the spector of a creditor having "plural redress for a single breach of contract" is by holding, as the Court hereby holds, that the defendant has waived the right to foreclose the mortgages constituted by the plaintiff on its properties originally covered by Transfer Certificates of Title Nos. T-78759, T-78762, T-78760 and T-78761. (RTC Decision pp., 10-11)
In this light, the actuations of Caltex are deserving of severe criticism, to say the least.
Moreover, petitioner attempts to mislead this Court by citing the case of PCIB vs. IAC. Again, petitioner tried to fit a square peg in a round hole. It must be stressed that far from overturning the doctrine laid down in Bachrach, this Court in PCIB buttressed its firm stand on this issue by declaring:
While the law allows a mortgage creditor to either institute a personal action for the debt or a real action to foreclosure the mortgage, he cannot pursue both remedies simultaneously or successively as was done by PCIB in this case.
x x x x x x x x x
Thus, when the PCIB filed Civil Case No. 29392 to enforce payment of the 1.3 million promissory note secured by real estate mortgages and subsequently filed a petition for extrajudicial foreclosure, it violates the rule against splitting a cause of action.
Accordingly, applying the foregoing rules, we hold that petitioner, by the expediency of filing four civil suits before foreign courts, necessarily abandoned the remedy to foreclose the real estate mortgages constituted over the properties of third-party mortgagor and herein private respondent ARC. Moreover, by filing the four civil actions and by eventually foreclosing extrajudicially the mortgages, petitioner in effect transgressed the rules against splitting a cause of action well-enshrined in jurisprudence and our statute books.
In Bachrach, this Court resolved to deny the creditor the remedy of foreclosure after the collection suit was filed, considering that the creditor should not be afforded "plural redress for a single breach of contract." For cause of action should not be confused with the remedy created for its enforcement.
Notably, it is not the nature of the redress which is crucial but the efficacy of the remedy chosen in addressing the creditor's cause. Hence, a suit brought before a foreign court having competence and jurisdiction to entertain the action is deemed, for this purpose, to be within the contemplation of the remedy available to the mortgagee-creditor. This pronouncement would best serve the interest of justice and fair play and further discourage the noxious practice of splitting up a lone cause of action.
Incidentally, BANTSA alleges that under English Law, which according to petitioner is the governing law with regard to the principal agreements, the mortgagee does not lose its security interest by simply filing civil actions for sums of money.
We rule in the negative.
This argument shows desperation on the part of petitioner to rivet its crumbling cause. In the case at bench, Philippine law shall apply notwithstanding the evidence presented by petitioner to prove the English law on the matter.
In a long line of decisions, this Court adopted the well-imbedded principle in our jurisdiction that there is no judicial notice of any foreign law. A foreign law must be properly pleaded and proved as a fact. Thus, if the foreign law involved is not properly pleaded and proved, our courts will presume that the foreign law is the same as our local or domestic or internal law. This is what we refer to as the doctrine of processual presumption.
In the instant case, assuming arguendo that the English Law on the matter were properly pleaded and proved in accordance with Section 24, Rule 132 of the Rules of Court and the jurisprudence laid down in Yao Kee, et al. vs. Sy-Gonzales, said foreign law would still not find applicability.
Thus, when the foreign law, judgment or contract is contrary to a sound and established public policy of the forum, the said foreign law, judgment or order shall not be applied.
Additionally, prohibitive laws concerning persons, their acts or property, and those which have for their object public order, public policy and good customs shall not be rendered ineffective by laws or judgments promulgated, or by determinations or conventions agreed upon in a foreign country.
The public policy sought to be protected in the instant case is the principle imbedded in our jurisdiction proscribing the splitting up of a single cause of action.
Section 4, Rule 2 of the 1997 Rules of Civil Procedure is pertinent —
If two or more suits are instituted on the basis of the same cause of action, the filing of one or a judgment upon the merits in any one is available as a ground for the dismissal of the others.
Moreover, foreign law should not be applied when its application would work undeniable injustice to the citizens or residents of the forum. To give justice is the most important function of law; hence, a law, or judgment or contract that is obviously unjust negates the fundamental principles of Conflict of Laws.
Clearly then, English Law is not applicable.
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