BANK OF AMERICA vs AMERICAN REALTY CO.

321
SCRA 659
“In a conflict between a Philippine law and a foreign law, Philippine law prevails”

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 it 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. Plaintiffs 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. This is the
DOCTRINE OF PROCESSUAL PRESUMPTION.

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.