Bank of America, NT and SA vs. American Realty Corporation

A mortgage creditor has a single cause of action for non-payment of a secured debt, with two alternative remedies: a personal action for collection or a real action to foreclose the mortgage. The filing of a suit for collection, even in a foreign court, constitutes an election of remedy and operates as a waiver of the right to foreclose.

BANTSA and another lender extended multi-million dollar loans to several Panamanian shipping companies (the borrowers). After default, the loans were restructured. As additional security for the restructured loans, ARC, a domestic corporation and affiliate of the borrowers, constituted real estate mortgages over its properties in Bulacan, Philippines. The borrowers subsequently defaulted again.

• Filed in RTC (Pasig, Branch 159) as an action for damages by ARC.
• RTC ruled in favor of ARC, declaring the foreclosure invalid and awarding damages.
• BANTSA appealed to the Court of Appeals (CA).
• The CA affirmed the RTC decision.
• BANTSA elevated the case to the Supreme Court via a Petition for Review on Certiorari.

• BANTSA filed four civil collection suits against the principal debtors in the High Court of Justice in England and the Supreme Court of Hong Kong. ARC, as a third-party mortgagor, was not impleaded in these suits.
• While these foreign suits were pending, BANTSA filed an application for extrajudicial foreclosure of ARC's mortgaged properties in Bulacan.
• The properties were sold at public auction to Integrated Credit and Corporation Services Co. (ICCS).
• ARC then filed a complaint for damages, arguing the foreclosure was unlawful because BANTSA had already elected its remedy by filing the collection suits.

• The rule prohibiting foreclosure after filing a collection suit requires both the filing of the suit and the rendition of a final judgment therein. Mere filing is insufficient.
• The collection suits were filed in foreign courts, not Philippine courts, and any judgment would need a separate action for enforcement in the Philippines.
• Under the alleged governing English Law, filing a collection suit does not extinguish a security interest.
• The award of actual and exemplary damages was improper, excessive, and not supported by the evidence or the prayers in ARC's complaint.

• Filing the ordinary collection suits against the principal debtors constituted an election of remedy, thereby waiving the alternative remedy of foreclosure.
• The remedies are alternative, not cumulative or successive, to prevent multiplicity of suits and vexation to the debtor.
• The foreclosure violated ARC's rights as a third-party mortgagor.
• The award of actual damages was based on competent appraisal evidence and testimony, and exemplary damages were warranted due to BANTSA's wanton actions.

• Procedural Issues: N/A
• Substantive Issues:
  1. Whether the petitioner’s act of filing collection suits against the principal debtors before foreign courts constituted a waiver of its remedy to foreclose the real estate mortgage.
  2. Whether the award of actual and exemplary damages in favor of the private respondent is proper.

• Procedural: N/A
• Substantive:
  1. Yes. The SC held that the filing of the collection suits operated as a waiver of the right to foreclose. The remedies are alternative. The election is made upon the filing of the chosen suit; no final judgment is required. The rule applies even if the suits are filed abroad, as it prevents splitting a single cause of action.
  2. Yes, with modification. The award of actual damages (P99,000,000.00) was upheld based on the trial court's assessment of credible appraisal evidence and its ocular inspection. The award of exemplary damages was deemed excessive and was reduced to P50,000.00. The higher award than originally prayed for was permissible as the issue was tried with the parties' consent and evidence was fully contested.

• Election of Remedies / Rule Against Splitting a Cause of Action — A creditor with a single cause of action (non-payment of a secured debt) has two alternative remedies: a personal action for collection or a real action to foreclose. Choosing one constitutes a waiver of the other. This is to avoid multiplicity of suits and oppression of the debtor. The choice is made upon the filing of the first suit.
• Doctrine of Processual Presumption — A foreign law must be pleaded and proved as a fact. If not, the court presumes it is the same as Philippine law. Here, English Law was not properly proved, so Philippine law applied.
• Public Policy Exception in Conflict of Laws — A foreign law will not be applied if it contravenes the sound and established public policy of the forum (here, the prohibition against splitting a cause of action).

• "For non-payment of a note secured by mortgage, the creditor has a single cause of action against the debtor... Plaintiff... 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." (Citing Bachrach Motor Co., Inc. v. Icarangal)
• "By allowing the creditor to file two separate complaints simultaneously or successively... 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." (Citing Bachrach)
• "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."

• Bachrach Motor Co., Inc. v. Icarangal — The foundational case establishing that a mortgage creditor has a single cause of action with alternative remedies (collection or foreclosure), and choosing one waives the other. The SC affirmed this remains "good law."
• Caltex Philippines, Inc. v. Intermediate Appellate Court — Distinguished by the SC. In Caltex, the Court nullified the collection suit because foreclosure had already been completed, to prevent a "mockery of the judicial system." The SC clarified Caltex did not overturn Bachrach but applied to its unique, egregious facts.
• Philippine Commercial International Bank (PCIB) v. IAC — Cited to reinforce that pursuing both remedies (collection and foreclosure) violates the rule against splitting a cause of action.

• Rule 2, Section 4 of the 1997 Rules of Civil Procedure — "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."
• Rule 10, Section 5 of the 1997 Rules of Civil Procedure — Allows judgment based on evidence tried with the parties' consent, even if not raised in the pleadings, treating pleadings as amended to conform to evidence.
• Article 2085 of the Civil Code — Provides that third persons may secure the obligation of another by mortgaging their own property.
• Article 17, paragraph 3 of the Civil Code — Prohibitive laws concerning public order, public policy, and good customs cannot be rendered ineffective by foreign laws or judgments.
• Article 2229 of the Civil Code — Provides for exemplary damages by way of example or correction for the public good.