Foreclosure

Bank of America v. American Realty Corp

Facts:
The Bank of America granted a loan to a corporation secured by a real estate
mortgage by the respondent. Upon the loan maturity, the corporation debtor
failed to pay and the petitioner bank filed 4 collection cases in the foreign
courts (England and Hong Kong) against the corporation debtors. At the same
time it also filed an extrajudicial foreclosure in the office of the Provincial Sheriff
of Bulacan,Philippines on the real estate mortgage and said was sold in a public
auction. The respondent files action for damages against petitioner due to the
act of foreclosing the real estate mortgage extrajudicially despite the pending
civil suits before the foreign courts to collect the principal loan. Petitioner
contends that the respondent is not made a party on the collection case before
the foreign courts for being a third party mortgagor and such actions were filed
in foreign courts and thus decisions rendered on such courts are not
enforceable in the Philippines unless a separate action is filed in the Phils to
enforce such judgment and that under the English law which is the law
governing in the principal agreement, the mortgagee does not lose its security
interest by filing a civil action for sum of money. The court rendered judgment in
favor of defendants declaring that the filing of civil suit on collection of a sum of
money in foreign courts constitutes a waiver on the security of the mortgages.

ISSUE:
WON the petitioner’s act of filing a collection suit against the principal debtors
before foreign courts constitutes a waiver of the remedy of foreclosure.

RULING:
The court held that Section 4 Rule 2 of the 1997 Rules on Civil Procedure provides
that “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.” A mortgagor creditor may pursue two
remedies either to institute against the mortgage debtor a personal action for
collection of money or foreclosure of a mortgage but cannot avail of both
remedies. In Phil. jurisdiction these remedies are alternative and not cumulative.
Thus, choosing one remedy is a bar to avail of the other remedy. Plaintiff cannot
split up a single cause of action by filing both remedies as expressly prohibited
by the rules on civil procedure.

On the contention of the petitioner that the English law should apply to the
principal agreements that states that the mortgagee does not lose its security
interest by simply filing civil actions for sums of money, the court held that a
foreign law must be properly pleaded and proved as fact. If not pleaded, the
court will presume that the foreign law is the same as our local or domestic or
internal law.

Granting however that the English law is applicable in the Phil. court, such law is
contrary to sound and established public policy of the forum which proscribes
the splitting of a single cause of action, thus still cannot be applied by the court
in the case.

It is proper that Philippine law should be upheld since it is the country upon
which the case is filed. Therefore the filing of a collection case by the petitioner
in foreign courts is a waiver for the remedy of foreclosure of real estate
mortgage.