Bank of America, NT and SA v. American Realty Corporation
REITERATIONFacts
The Antecedents: Bank of America NT & SA (BANTSA) and Bank of America International Limited (BAIL) granted multi-million US Dollar loans to several corporate borrowers. As additional security for these restructured loans, American Realty Corporation (ARC), a domestic corporation, executed two real estate mortgages over its properties in Bulacan, Philippines, as a third-party mortgagor. Procedural History: Upon default of the corporate borrowers, BANTSA filed civil actions for the collection of the principal loan before foreign courts in England and Hongkong. Subsequently, BANTSA filed an application for extrajudicial foreclosure of the real estate mortgages with the Provincial Sheriff of Bulacan. The mortgaged properties were sold at public auction to Integrated Credit and Corporation Services Co (ICCS), which later consolidated ownership and sold the properties to Stateland Investment Corporation. ARC filed an action for damages against BANTSA, arguing that the foreclosure was improper due to the pendency of collection suits in foreign courts. The Regional Trial Court (RTC) ruled in favor of ARC, declaring the foreclosure as a waiver of the mortgage security and ordering BANTSA to pay damages. The Court of Appeals (CA) affirmed the RTC decision. BANTSA elevated the case to the Supreme Court. The Petition: BANTSA seeks to reverse the CA decision, arguing that the filing of collection suits before foreign courts does not constitute a waiver of the remedy of foreclosure, especially since ARC was not a party to the foreign suits and English law allegedly permits both remedies. BANTSA also questions the award of damages.
Issue(s)
Whether the filing of collection suits against principal debtors before foreign courts constitutes a waiver of the remedy of foreclosure. Whether the award of actual and exemplary damages to ARC, a third-party mortgagor, is proper.
Ruling
The petition is denied for lack of merit. The decision of the Court of Appeals is affirmed with modification regarding the amount of exemplary damages. WHEREFORE, premises considered, the instant petition is DENIED for lack of merit. The decision of the Court of Appeals is hereby AFFIRMED with MODIFICATION of the amount awarded as exemplary damages. Accordingly, petitioner is hereby ordered to pay private respondent the sum of P99,000,000.00 as actual or compensatory damages; P50,000.00 as exemplary damage and the costs of suit.
Ratio Decidendi
On the issue of waiver of foreclosure remedy: The Supreme Court reiterated the well-established doctrine that a mortgage creditor may elect to waive the mortgage security and pursue an ordinary action for debt, or foreclose the mortgage, but not both. The election of one remedy operates as a waiver of the other. This principle is rooted in the prohibition against splitting a single cause of action, which would lead to multiplicity of suits and vexation to the debtor. The Court clarified that the mere act of filing an ordinary action for collection, even before a final judgment is rendered, constitutes a waiver of the remedy of foreclosure. This applies even if the collection suits are filed before foreign courts, as the act of filing itself signifies the chosen remedy. The Court rejected BANTSA's argument that both filing and final judgment in the collection suit must concur, citing jurisprudence like Bachrach Motor Co., Inc. vs. Icarangal and Cerna vs. Court of Appeals. The Court also held that Philippine law, specifically the prohibition against splitting a cause of action, applies, and foreign law (English law) would not be applied if it contravenes public policy, especially since foreign law must be pleaded and proved, which was not sufficiently done here. The Court emphasized that allowing both remedies would result in "plural redress for a single breach of contract." On the issue of damages: The Court affirmed the award of actual or compensatory damages, finding that the extrajudicial foreclosure by BANTSA constituted a clear violation of ARC's rights as a third-party mortgagor. The Court gave credence to the appraisal report and testimony presented by ARC, corroborating the trial court's valuation of the property at P99,000,000.00. The Court also found that even though the awarded damages exceeded the amount prayed for in the complaint, it was valid under Rule 10, Section 5 of the Rules of Court, as the issue was tried with the implied consent of the parties and BANTSA had a full opportunity to refute the evidence. Regarding exemplary damages, the Court affirmed the award but reduced the amount from P5,000,000.00 to P50,000.00, deeming the original amount excessive and not in line with the principle of not unjustly enriching the prevailing party.
Main Doctrine
The filing of an ordinary civil action for the collection of the principal loan constitutes a waiver of the mortgagee-creditor's remedy to foreclose the mortgage, even if the collection suit is filed before foreign courts and no final judgment has been rendered therein. Philippine law on the prohibition against splitting a cause of action applies, and foreign law will not be applied if it contravenes public policy.