G.R. No. 133876 December 29, 1999
BANK OF AMERICA, NT and SA, petitioner,
vs.
AMERICAN REALTY CORPORATION and COURT OF APPEALS, respondents.
FACTS:
Petitioner Bank of America NT & SA (BANTSA) is an international banking and financing institution duly licensed to do business in the Philippines, organized and existing under and by virtue of the laws of the State of California, United States of America while private respondent American Realty Corporation (ARC) is a domestic corporation.
Bank of America International Limited (BAIL), on the other hand, is a limited liability company organized and existing under the laws of England.
BANTSA and BAIL on several occasions granted three major multi-million United States (US) Dollar loans to different corporate borrowers, all of which are existing under and by virtue of the laws of the Republic of Panama and are foreign affiliates of private respondent.
Due to the default in the payment of the loan amortizations, BANTSA and the corporate borrowers signed and entered into restructuring agreements. As additional security for the restructured loans, private respondent ARC as third party mortgagor executed two real estate mortgages over its parcels of land including improvements thereon, located at Bulacan.
Eventually, the corporate borrowers defaulted in the payment of the restructured loans prompting petitioner BANTSA to file civil actions before foreign courts for the collection of the principal loan. (in England and Hongkong).
In the civil suits instituted before the foreign courts, private respondent ARC, being a third party mortgagor, was private not impleaded as party-defendant.
Then petitioner BANTSA filed before the Office of the Provincial Sheriff of Bulacan, Philippines an application for extrajudicial foreclosure of real estate mortgage.
After due publication and notice, the mortgaged real properties were sold at public auction in an extrajudicial foreclosure sale, with Integrated Credit and Corporation Services Co (ICCS).
Then ARC filed before the Pasig Regional Trial Court an action for damages against the BANTSA, for the latter's act of foreclosing extrajudicially the real estate mortgages despite the pendency of civil suits before foreign courts for the collection of the principal loan.
In its answer BANTSA alleged that the rule prohibiting the mortgagee from foreclosing the mortgage after an ordinary suit for collection has been filed, is not applicable in the present case, claiming that:
a) The ARC, being a mere third party mortgagor and not a party to the principal restructuring agreements, was never made a party defendant in the civil cases filed in Hongkong and England;
b) There is actually no civil suit for sum of money filed in the Philippines since the civil actions were filed in Hongkong and England. As such, any decisions which may be rendered in the abovementioned courts are not enforceable in the Philippines unless a separate action to enforce the foreign judgments is first filed in the Philippines, pursuant to Rule 39, Section 50 of the Revised Rules of Court.
c) Under English Law, which is the governing law under the principal agreements, the mortgagee does not lose its security interest by filing civil actions for sums of money.
ARC filed a motion for
suspension of the redemption period on the ground that "it cannot exercise said right of redemption without at the same time waiving or contradicting its contentions in the case that the foreclosure of the mortgage on its properties is legally improper and therefore invalid."
Trial court granted the ARC's motion for suspension.
After trial, the lower court rendered a decision in favor of ARC on the ground that the filing in foreign courts by BANTSA of collection suits against the principal debtors operated as a waiver of the security of the mortgages. And the ARC's rights as owner and possessor of the properties were violated when the BANTSA caused the extrajudicial foreclosure of the mortgages constituted thereon.
On appeal, the Court of Appeals affirmed the assailed decision of the lower court prompting petitioner to file a motion for reconsideration which the appellate court denied.
Hence, the instant petition for review on certiorari where herein petitioner BANTSA ascribes to the Court of Appeals acted with grave abuse of discretion.
ISSUE:
(1) Whether or not the BANTSA act of filing a collection suit against the principal debtors for the recovery of the loan before foreign courts constituted a waiver of the remedy of foreclosure.
(2) Whether English Law shall apply.
RULING:
(1) YES.
The SC held in citing jurisprudence that a mortgage creditor may institute against the mortgage debtor either a personal action or debt or a real action to foreclose the mortgage. In other words, he may he may pursue either of the two remedies, but not both.
Mortgage creditor may elect to waive his security and bring, instead, an ordinary action to recover the indebtedness with the right to execute a judgment thereon on all the properties of the debtor, including the subject matter of the mortgage . . . , subject to the qualification that if he fails in the remedy by him elected, he cannot pursue further the remedy he has waived.
Accordingly, applying the foregoing rules, we hold that petitioner, by the expediency of filing four civil suits before foreign courts, necessarily abandoned the remedy to foreclose the real estate mortgages constituted over the properties of third-party mortgagor and herein private respondent ARC. Moreover, by filing the four civil actions and by eventually foreclosing extrajudicially the mortgages, petitioner in effect transgressed the rules against splitting a cause of action well-enshrined in jurisprudence and our statute books.
(2)
BANTSA alleges that under English Law, which according to BANTSA is the governing law with regard to the principal agreements, the mortgagee does not lose its security interest by simply filing civil actions for sums of money.
SC ruled in the negative.
Philippine law shall apply notwithstanding the evidence presented by petitioner to prove the English law on the matter.
In a long line of decisions, this Court adopted the well-imbedded principle in our jurisdiction that there is no judicial notice of any foreign law. A foreign law must be properly pleaded and proved as a fact. Thus, if the foreign law involved is not properly pleaded and proved, our courts will presume that the foreign law is the same as our local or domestic or internal
law. This is what we refer to as the doctrine of processual presumption.
In the instant case, assuming that the English Law on the matter were properly pleaded and proved in accordance with Section 24, Rule 132 of the Rules of Court and the jurisprudence laid down in Yao Kee, et al. vs.
Sy-Gonzales, said foreign law would still not find applicability.
Thus, when the foreign law, judgment or contract is contrary to a sound and established public policy of the forum, the said foreign law, judgment or order shall not be applied.
Additionally, prohibitive laws concerning persons, their acts or property, and those which have for their object public order, public policy and good customs shall not be rendered ineffective by laws or judgments promulgated, or by determinations or conventions agreed upon in a foreign country.
The public policy sought to be protected in the instant case is the principle imbedded in our jurisdiction proscribing the splitting up of a single cause of action.
Moreover, foreign law should not be applied when its application would work undeniable injustice to the citizens or residents of the forum. To give justice is the most important function of law; hence, a law, or judgment or contract that is obviously unjust negates the fundamental principles of Conflict of Laws.
Clearly then, English Law is not applicable.
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