BANK OF AMERICA, NT and SA, petitioner, vs. AMERICAN REALTY CORPORATION and COURT OF APPEALS, respondents. ULANDU

Does a mortgage-creditor waive its remedy to foreclose the real estate mortgage constituted over a third party mortgagor’s property situated in the Philippines by filing an action for the collection of the principal loan before foreign courts?

Sought to be reversed in the instant petition for review on certiorari under Rule 45 of the Rules of Court are the decision1 [CA Decision in CA-G.R. CV No. 51094, penned by Justice Ricardo P. Galvez and concurred in by Justice Fidel V. Purisima and Justice B.A. Adefuin-De la Cruz; Rollo, pp. 38-58.] of public respondent Court of Appeals in CA G.R. CV No. 51094, promulgated on 30 September 1997 and its resolution,2 [CA Resolution in CA G.R. CV No. 51094, dated 22 May 1998; Rollo, p. 60.] dated 22 May 1998, denying petitioner’s motion for reconsideration.

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.

As borne by the records, BANTSA and BAIL on several occasions granted three major multi-million United States (US) Dollar loans to the following corporate borrowers: (1) Liberian Transport Navigation, S.A.; (2) El Challenger S.A. and (3) Eshley Compania Naviera S.A. (hereinafter collectively referred to as "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.3 [Rollo, p. 38.]

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,4 [Ibid., p. 39.] dated 17 February 1983 and 20 July 1984, over its parcels of land including improvements thereon, located at Barrio Sto. Cristo, San Jose Del Monte, Bulacan, and which are covered by Transfer Certificate of Title Nos. T-78759, T-78760, T-78761, T-78762 and T-78763. Man-ikan

Eventually, the corporate borrowers defaulted in the payment of the restructured loans prompting petitioner BANTSA to file civil actions5 [Ibid.] before foreign courts for the collection of the principal loan, to wit:

In the civil suits instituted before the foreign courts, private respondent ARC, being a third party mortgagor, was not impleaded as party-defendant.

On 16 December 1992, petitioner BANTSA filed before the Office of the Provincial Sheriff of Bulacan, Philippines, an application for extrajudicial foreclosure6 [Ibid., p. 40.] of real estate mortgage.

On 22 January 1993, 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) as the highest bidder for the sum of Twenty Four Million Pesos (P24,000,000.00).7 [Ibid.]

On 12 February 1993, private respondent filed before the Pasig Regional Trial Court, Branch 159, an action for damages8 [Ibid.] against the petitioner, 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. Ol-dmiso

In its answer9 [Ibid.] petitioner 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:

On 14 December 1993, private respondent filed a motion for suspension10 [Rollo, p. 41.] 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." Nc-mmis

In an order11 [Ibid.] dated 28 January 1994, the trial court granted the private respondent’s motion for suspension after which a copy of said order was duly received by the Register of Deeds of Meycauayan, Bulacan.

On 07 February 1994, ICCS, the purchaser of the mortgaged properties at the foreclosure sale, consolidated its ownership over the real properties, resulting to the issuance of Transfer Certificate of Title Nos. T-18627, T-186272, T-186273, T-16471 and T-16472 in its name.

On 18 March 1994, after the consolidation of ownership in its favor, ICCS sold the real properties to Stateland Investment Corporation for the amount of Thirty Nine Million Pesos (P39,000,000.00).12 [Ibid.] Accordingly, Transfer Certificate of Title Nos. T-187781(m), T-187782(m), T-187783(m), T-16653P(m) and T-16652P(m) were issued in the latter’s name.

After trial, the lower court rendered a decision13 [Rollo,, pp. 41-42.] in favor of private respondent ARC dated 12 May 1993, the decretal portion of which reads:

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. Sd-aamiso

Hence, the instant petition for review14 [Rollo, pp. 10-36.] on certiorari where herein petitioner BANTSA ascribes to the Court of Appeals the following assignment of errors:

In fine, this Court is called upon to resolve two main issues:

The petition is bereft of merit.

First, as to the issue of availability of remedies, petitioner submits that a waiver of the remedy of foreclosure requires the concurrence of two requisites: an ordinary civil action for collection should be filed and subsequently a final judgment be correspondingly rendered therein.

According to petitioner, the mere filing of a personal action to collect the principal loan does not suffice; a final judgment must be secured and obtained in the personal action so that waiver of the remedy of foreclosure may be appreciated. To put it differently, absent any of the two requisites, the mortgagee-creditor is deemed not to have waived the remedy of foreclosure.

We do not agree. Scnc-m

Certainly, this Court finds petitioner’s arguments untenable and upholds the jurisprudence laid down in Bachrach15 [Bachrach Motor Co., Inc. vs. Esteban Icarangal, 68 Phil. 287.] and similar cases adjudicated thereafter, thus:

In Danao vs. Court of Appeals,16 [154 SCRA 446.] this Court, reiterating jurisprudence enunciated in Manila Trading and Supply Co. vs. Co Kim17 [71 Phil. 448.] and Movido vs. RFC,18 [105 Phil. 886.] invariably held:

Anent real properties in particular, the Court has laid down the rule that a mortgage creditor may institute against the mortgage debtor either a personal action for debt or a real action to foreclose the mortgage.19 [Danao vs. Court of Appeals 154 SCRA 446.]

In our jurisdiction, the remedies available to the mortgage creditor are deemed alternative and not cumulative. Notably, an election of one remedy operates as a waiver of the other. For this purpose, a remedy is deemed chosen upon the filing of the suit for collection or upon the filing of the complaint in an action for foreclosure of mortgage, pursuant to the provision of Rule 68 of the of the 1997 Rules of Civil Procedure. As to extrajudicial foreclosure, such remedy is deemed elected by the mortgage creditor upon filing of the petition not with any court of justice but with the Office of the Sheriff of the province where the sale is to be made, in accordance with the provisions of Act No. 3135, as amended by Act No. 4118. S-daad

In the case at bench, private respondent ARC constituted real estate mortgages over its properties as security for the debt of the principal debtors. By doing so, private respondent subjected itself to the liabilities of a third party mortgagor. Under the law, third persons who are not parties to a loan may secure the latter by pledging or mortgaging their own property.20 [Article 2085, Civil Code; Lustan vs. Court of Appeals, 266 SCRA 663.]

Notwithstanding, there is no legal provision nor jurisprudence in our jurisdiction which makes a third person who secures the fulfillment of another‘s obligation by mortgaging his own property, to be solidarily bound with the principal obligor. The signatory to the principal contract—loan—remains to be primarily bound. It is only upon default of the latter that the creditor may have recourse on the mortgagors by foreclosing the mortgaged properties in lieu of an action for the recovery of the amount of the loan.21 [Cerna vs. Court of Appeals 220 SCRA 517.]

In the instant case, petitioner’s contention that the requisites of filing the action for collection and rendition of final judgment therein should concur, is untenable.

Thus, in Cerna vs. Court of Appeals,22 [Ibid.] we agreed with the petitioner in said case, that the filing of a collection suit barred the foreclosure of the mortgage:

Contrary to petitioner’s arguments, we therefore reiterate the rule, for clarity and emphasis, that the mere act of filing of an ordinary action for collection operates as a waiver of the mortgage-creditor’s remedy to foreclose the mortgage. By the mere filing of the ordinary action for collection against the principal debtors, the petitioner in the present case is deemed to have elected a remedy, as a result of which a waiver of the other necessarily must arise. Corollarily, no final judgment in the collection suit is required for the rule on waiver to apply. Scs-daad

Hence, in Caltex Philippines, Inc. vs. Intermediate Appellate Court,23 [176 SCRA 741.] a case relied upon by petitioner, supposedly to buttress its contention, this Court had occasion to rule that the mere act of filing a collection suit for the recovery of a debt secured by a mortgage constitutes waiver of the other remedy of foreclosure.

In the case at bar, petitioner BANTSA only has one cause of action which is non-payment of the debt. Nevertheless, alternative remedies are available for its enjoyment and exercise. Petitioner then may opt to exercise only one of two remedies so as not to violate the rule against splitting a cause of action.

As elucidated by this Court in the landmark case of Bachrach Motor Co., Inc. vs. Icarangal.24 [68 Phil. 287.]

Petitioner further faults the Court of Appeals for allegedly disregarding the doctrine enunciated in Caltex, wherein this High Court relaxed the application of the general rules to wit:

Notably, though, petitioner took the Caltex ruling out of context. We must stress that the Caltex case was never intended to overrule the well-entrenched doctrine enunciated in Bachrach, which to our mind still finds applicability in cases of this sort. To reiterate, Bachrach is still good law. Supr-ema

We then quote the decision25 [Rollo, p.94.] of the trial court, in the present case, thus:

x x x x x x x x x

In this light, the actuations of Caltex are deserving of severe criticism, to say the least.26 [Caltex Philippines, Inc. vs. Intermediate Appellate Court, 176 SCRA 741.]

Moreover, petitioner attempts to mislead this Court by citing the case of PCIB vs. IAC.27 [196 SCRA 29.] Again, petitioner tried to fit a square peg in a round hole. It must be stressed that far from overturning the doctrine laid down in Bachrach, this Court in PCIB buttressed its firm stand on this issue by declaring:

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. Jur-is

In Bachrach, this Court resolved to deny the creditor the remedy of foreclosure after the collection suit was filed, considering that the creditor should not be afforded "plural redress for a single breach of contract." For cause of action should not be confused with the remedy created for its enforcement.28 [Bachrach Motor vs. Icarangal, 68 Phil. 287.]

Notably, it is not the nature of the redress which is crucial but the efficacy of the remedy chosen in addressing the creditor’s cause. Hence, 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. This pronouncement would best serve the interest of justice and fair play and further discourage the noxious practice of splitting up a lone cause of action.

Incidentally, BANTSA alleges that under English Law, which according to petitioner 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.29 [Rollo, p. 16.7.]

We rule in the negative.

This argument shows desperation on the part of petitioner to rivet its crumbling cause. In the case at bench, 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.30 [Adong vs. Cheong Seng Gee, 43 Phil. 43; Sy Joc Lieng vs. Syquia, 16 Phil. 137.] 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.31 [Lim vs. Collector, 36 Phil. 472.] This is what we refer to as the doctrine of processual presumption.

In the instant case, assuming arguendo 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,32 [167 SCRA 736.] 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.33 [Philippine Conflict of Laws, Eighth Edition, 1996, Paras, page 46.]

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.34 [Article 17, par. 3, Civil Code.] Sc-juris

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.

Section 4, Rule 2 of the 1997 Rules of Civil Procedure is pertinent -

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.35 [Philippine Conflict of Laws, Eight Edition, 1996, Paras, p. 60.]

Clearly then, English Law is not applicable.

As to the second pivotal issue, we hold that the private respondent is entitled to the award of actual or compensatory damages inasmuch as the act of petitioner BANTSA in extrajudicially foreclosing the real estate mortgages constituted a clear violation of the rights of herein private respondent ARC, as third-party mortgagor.

Actual or compensatory damages are those recoverable because of pecuniary loss in business, trade, property, profession, job or occupation and the same must be proved, otherwise if the proof is flimsy and non-substantial, no damages will be given.36 [Perfecto vs. Gonzales, 128 SCRA 640, as cited in Danao vs. Court of Appeals, 154 SCRA 447.] Indeed, the question of the value of property is always a difficult one to settle as valuation of real property is an imprecise process since real estate has no inherent value readily ascertainable by an appraiser or by the court.37 [22 Am. Jur. 2d 193.] The opinions of men vary so much concerning the real value of property that the best the courts can do is hear all of the witnesses which the respective parties desire to present, and then, by carefully weighing that testimony, arrive at a conclusion which is just and equitable.38 [City of Manila vs. Corrales, 32 Phil. 85, 96.]

In the instant case, petitioner assails the Court of Appeals for relying heavily on the valuation made by Philippine Appraisal Company. In effect, BANTSA questions the act of the appellate court in giving due weight to the appraisal report composed of twenty three pages, signed by Mr. Lauro Marquez and submitted as evidence by private respondent. The appraisal report, as the records would readily show, was corroborated by the testimony of Mr. Reynaldo Flores, witness for private respondent. Juri-ssc

On this matter, the trial court observed:

In the matter of credibility of witnesses, the Court reiterates the familiar and well-entrenched rule that the factual findings of the trial court should be respected.40 [People vs. Morales, 241 SCRA 267.] The time-tested jurisprudence is that the findings and conclusions of the trial court on the credibility of witnesses enjoy a badge of respect for the reason that trial courts have the advantage of observing the demeanor of witnesses as they testify.41 [People vs. Gamiao, 240 SCRA 254.]

This Court will not alter the findings of the trial court on the credibility of witnesses, principally because they are in a better position to assess the same than the appellate court.42 [People vs. Cascalla, 240 SCRA 482.] Besides, trial courts are in a better position to examine real evidence as well as observe the demeanor of witnesses.43 [Lee Eng Hong vs. Court of Appeals, 241 SCRA 392.]

Similarly, the appreciation of evidence and the assessment of the credibility of witnesses rest primarily with the trial court.44 [Ibid.] In the case at bar, we see no reason that would justify this Court to disturb the factual findings of the trial court, as affirmed by the Court of Appeals, with regard to the award of actual damages.

In arriving at the amount of actual damages, the trial court justified the award by presenting the following ratiocination in its assailed decision,45 [Rollo, pp. 46-47.] to wit:

"Indeed, the Court has its own mind in the matter of valuation. The size of the subject real properties are (sic) set forth in their individual titles, and the Court itself has seen the character and nature of said properties during the ocular inspection it conducted. Based principally on the foregoing, the Court makes the following observations:

It is a fundamental legal aphorism that the conclusions of the trial judge on the credibility of witnesses command great respect and consideration especially when the conclusions are supported by the evidence on record.46 [People vs. Asoy, 251 SCRA 682.] Applying the foregoing principle, we therefore hold that the trial court committed no palpable error in giving credence to the testimony of Reynaldo Flores, who according to the records, is a licensed real estate broker, appraiser and director of Philippine Appraisal Company, Inc. since 1990.47 [TSN, April 22, 1994, p. 6.] As the records show, Flores had been with the company for 26 years at the time of his testimony.

Of equal importance is the fact that the trial court did not confine itself to the appraisal report dated 29 March 1993, and the testimony given by Mr. Reynaldo Flores, in determining the fair market value of the real property. Above all these, the record would likewise show that the trial judge in order to appraise himself of the characteristics and condition of the property, conducted an ocular inspection where the opposing parties appeared and were duly represented. Nc-m

Based on these considerations and the evidence submitted, we affirm the ruling of the trial court as regards the valuation of the property –

Further, petitioner ascribes error to the lower court for awarding an amount allegedly not asked nor prayed for in private respondent’s complaint.

Notwithstanding the fact that the award of actual and compensatory damages by the lower court exceeded that prayed for in the complaint, the same is nonetheless valid, subject to certain qualifications.

On this issue, Rule 10, Section 5 of the Rules of Court is pertinent:

The jurisprudence enunciated in Talisay-Silay Milling Co., Inc. vs. Asociacion de Agricultures de Talisay-Silay, Inc.49 [247 SCRA 361, 377-378.] citing Northern Cement Corporation vs. Intermediate Appellate Court 50 [158 SCRA 408.] is enlightening: Newmiso

In the instant case, inasmuch as the petitioner was afforded the opportunity to refute and object to the evidence, both documentary and testimonial, formally offered by private respondent, the rudiments of fair play are deemed satisfied. In fact, the testimony of Reynaldo Flores was put under scrutiny during the course of the cross-examination. Under these circumstances, the court acted within the bounds of its jurisdiction and committed no reversible error in awarding actual damages the amount of which is higher than that prayed for. Verily, the lower court’s actuations are sanctioned by the Rules and supported by jurisprudence.

Similarly, we affirm the grant of exemplary damages although the amount of Five Million Pesos (P5,000,000.00) awarded, being excessive, is subject to reduction. Exemplary or corrective damages are imposed, by way of example or correction for the public good, in addition to the moral, temperate, liquidated or compensatory damages.51 [Article 2229, Civil Code.] Considering its purpose, it must be fair and reasonable in every case and should not be awarded to unjustly enrich a prevailing party.52 [Philtranco Service Exporters, Inc. vs. Court of Appeals, 273 SCRA 562.] In our view, an award of P50,000.00 as exemplary damages in the present case qualifies the test of reasonableness.

WHEREFORE, premises considered, the instant petition is DENIED for lack of merit. The decision of the Court of Appeals is hereby AFFIRMED with MODIFICATION of the amount awarded as exemplary damages. Accordingly, petitioner is hereby ordered to pay private respondent the sum of P99,000,000.00 as actual or compensatory damages; P50,000.00 as exemplary damage and the costs of suit.

Bellosillo, (Chairman), Mendoza, Quisumbing, De Leon, Jr., JJ., concur.2/17/00 10:02 AM