Bank of America vs. American Realty Corp. GR No.
138876, December 29, 1999
Facts:
The case involves Bank of America NT & SA (BANTSA) and American Realty
Corporation (ARC). BANTSA, after the corporate borrowers defaulted on
multi-million dollar loans, filed civil actions for collection in foreign courts (England
and Hong Kong) without including ARC, a third-party mortgagor, in those suits.
Subsequently, BANTSA initiated extrajudicial foreclosure of properties mortgaged by
ARC in the Philippines. ARC contested the foreclosure, arguing that BANTSA's actions
in foreign courts constituted a waiver of its right to foreclose.
Issues:
The primary issues were whether BANTSA's filing of collection suits in foreign
jurisdictions constituted a waiver of its remedy to foreclose the mortgage and
whether the award of actual and exemplary damages to ARC was justified.
Ruling:
The Supreme Court ruled that BANTSA's act of filing collection suits in foreign courts
indeed constituted a waiver of its right to foreclose the mortgage. The Court
emphasized that a mortgage creditor must choose between pursuing a personal
action for debt or a real action to foreclose, and filing a collection suit operates as a
waiver of the foreclosure remedy. The Court also upheld the award of actual
damages to ARC, affirming the trial court's valuation of the properties based on
credible evidence, while modifying the exemplary damages awarded to a more
reasonable amount.
Doctrine:
The ruling reinforces the principle that a mortgage creditor cannot pursue both a
personal action for debt and a real action to foreclose simultaneously, as this would
violate the prohibition against splitting a cause of action. The Court reiterated that
the mere act of filing a collection suit constitutes a waiver of the right to foreclose,
regardless of whether a final judgment is rendered in the collection suit. Additionally,
the case underscores the importance of Philippine law in determining the
applicability of foreign laws, emphasizing that foreign laws must be properly pleaded
and proven without contradicting Philippine public policy. This case serves as a
critical reference for future mortgage creditors in the Philippines, highlighting the
need for careful consideration of the remedies pursued in relation to mortgage
agreements.
