Case Summary (G.R. No. 133876)
Petitioner
Bank of America, NT & SA (BANTSA)
Respondent
American Realty Corporation (ARC)
Key Dates
- Feb. 17, 1983 and July 20, 1984: ARC executes two real estate mortgages over Bulacan properties
- June–Nov. 1992: BANTSA files four collection suits in England and Hong Kong (without impleading ARC)
- Dec. 16, 1992: BANTSA applies for extrajudicial foreclosure in Bulacan
- Jan. 22, 1993: Public auction sale; ICCS purchases mortgaged properties for ₱24 million
- Feb. 12, 1993: ARC files damage suit in Pasig RTC
- Sept. 30, 1997: Court of Appeals affirms RTC decision
- Dec. 29, 1999: Supreme Court decision
Applicable Law
- 1987 Philippine Constitution
- 1987 Rules of Civil Procedure (Rule 2 on splitting causes of action; Rule 10 § 5 on pleadings; Rule 39 on foreign judgments; Rule 68 on election of remedies)
- Act No. 3135, as amended by Act No. 4118 (extrajudicial foreclosure)
- Civil Code provisions on mortgages and public policy
Issues
- Does filing foreign collection suits waive a mortgagee’s remedy to foreclose a Philippine real estate mortgage?
- Was the award of actual and exemplary damages to ARC proper?
Facts
- BANTSA and BAIL grant multi-million USD loans to Panamanian corporate borrowers affiliated with ARC.
- After borrower defaults, restructuring agreements are executed; ARC mortgages its Bulacan land as additional security.
- Borrowers default again; BANTSA sues in England and Hong Kong in 1992 to collect principal, excluding ARC.
- BANTSA initiates extrajudicial foreclosure in Bulacan (Dec. 1992) and conducts sale (Jan. 1993).
- ARC sues BANTSA for damages (Feb. 1993), alleging waiver of foreclosure remedy and unlawful sale.
- RTC declares foreclosure invalid for waiver, awards damages; CA affirms.
Ruling
The Supreme Court denies the petition and affirms the Court of Appeals’ decision with modification of exemplary damages.
Rationale
Election and Waiver
- Philippine jurisprudence (Bachrach; Danao v. CA; Movido) holds that a mortgage creditor’s remedies—personal action or foreclosure—are alternative.
- Filing a collection suit, even abroad and without final judgment, constitutes election and waives foreclosure.
- The Caltex exception (nullifying collection suit when foreclosure completes first) is inapplicable: BANTSA’s foreign suits lay beyond court control, and foreclosure followed their filing.
- English law on mortgage remedies was neither properly proved nor applicable where contrary to Philippine public policy against splitting causes of action.
Damages and Procedural Presumptions
- ARC suffers pecuniary loss due to unlawful foreclosure; entitled to actual damages.
- Trial court’s valuation (~₱99.99 million) based on a 23-page appraisal report and ocular inspection is cred
Case Syllabus (G.R. No. 133876)
Facts of the Case
- Petitioner Bank of America, NT & SA (BANTSA) is an international banking institution organized under California law and licensed to operate in the Philippines.
- Private respondent American Realty Corporation (ARC) is a domestic corporation in the Philippines; Bank of America International Limited (BAIL) is organized under English law.
- BANTSA and BAIL extended three multi-million-dollar loans to Liberian Transport Navigation, S.A.; El Challenger S.A.; and Eshley Compania Naviera S.A. (foreign affiliates of ARC under Panamanian law).
- Upon borrower default, BANTSA and the borrowers executed restructuring agreements. As additional security, ARC—as a third-party mortgagor—executed two real estate mortgages on February 17, 1983, and July 20, 1984, over five contiguous parcels in Barrio Sto. Cristo, San Jose Del Monte, Bulacan (TCT Nos. T-78759 to T-78763).
- Borrowers again defaulted. Beginning June 17, 1992, BANTSA filed four separate civil suits in England and Hong Kong for collection of the principal loan; ARC was not impleaded.
- On December 16, 1992, BANTSA applied for extrajudicial foreclosure with the Bulacan Provincial Sheriff; following publication and notice, the properties were auctioned on January 22, 1993, fetching ₱24,000,000 with Integrated Credit and Corporation Services Co. (ICCS) as highest bidder.
- On February 12, 1993, ARC sued BANTSA in the Pasig RTC (Branch 159) for damages, alleging wrongful extrajudicial foreclosure despite pending suits abroad.
- BANTSA’s answer asserted that (a) ARC, as third-party mortgagor, was not a party to foreign suits; (b) no civil suit for collection was filed in the Philippines; and (c) under English law BANTSA did not waive its security by filing collection suits.
- On December 14, 1993, ARC moved to suspend the redemption period; RTC granted suspension on January 28, 1994.
- ICCS consolidated title on February 7, 1994, then sold to Stateland Investment Corp. on March 18, 1994, for ₱39,000,000 (new TCT Nos. T-187781 (m) to T-16652P (m)).
Procedural History
- RTC, after trial and ocular inspection, rendered judgment on May 12, 1993 in favor of ARC.
- The RTC held that BANTSA’s filing of collection suits abroad operated as waiver of its foreclosure remedy and awarded:
- ₱99,000,000.00 as actual/compensatory damages
- ₱5,000,000.00 as exemplary damages
- Costs of suit
- On appeal, the Court of Appeals affirmed on September 30, 1997, and denied BANTSA’s motion for reconsideration on May 22, 1998.
- BANTSA f