VOL.

321, DECEMBER 29, 1999 659

Bank of America, NT & SA vs. American Realty Corporation
*
G.R. No. 133876. December 29, 1999.

BANK OF AMERICA, NT and SA, petitioner, vs. AMERICAN

REALTY CORPORATION and COURT OF APPEALS,
respondents.

Civil Law; Contracts; Mortgages; Remedies available to the mortgage

creditor are deemed alternative and not cumulative.—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 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.
Same; Same; Same; Third person who are not parties to a loan may
secure the latter by pledging or mortgaging their own property; 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.—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. 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.

________________
 * SECOND DIVISION.

660

660 SUPREME COURT REPORTS ANNOTATED

Bank of America, NT & SA vs. American Realty Corporation

Same; Same; Same; Filing of a collection suit barred the foreclosure of

the mortgage.—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, we agreed with the
petitioner in said case, that the filing of a collection suit barred the
foreclosure of the mortgage: “A mortgagee who files a suit for collection
abandons the remedy of foreclosure of the chattel mortgage constituted over
the personal property as security for the debt or value of the promissory note
which he seeks to recover in the said collection suit.” “x x x When the
mortgagee elects to file a suit for collection, not foreclosure, thereby
abandoning the chattel mortgage as basis for relief, he clearly manifests his
lack of desire and interest to go after the mortgaged property as security for
the promissory note x x x.”
Same; Same; Same; 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; No final judgment in the collection is required for
the rule on waiver to apply.—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.
Same; Conflict of Laws; In a long line of decisions, the 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.—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. 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. Thus, if the
 661

VOL. 321, DECEMBER 29, 1999 661

Bank of America, NT & SA vs. American Realty Corporation

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.
Same; Same; 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.—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, 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.

PETITION for review on certiorari of a decision of the Court of

Appeals.

The facts are stated in the opinion of the Court.

Agcaoile & Associates for petitioner.
William R. Veto for private respondent.

BUENA, J.:

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 deci-

662

662 SUPREME COURT REPORTS ANNOTATED

Bank of America, NT & SA vs. American Realty Corporation

1
 1
sion of public respondent Court of Appeals in CA G.R. CV 2
No.
51094, promulgated on 30 September 1997 and its resolution, 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 3Republic 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 4
as third party mortgagor executed
two real estate mortgages, 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

________________

1 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.
2 CA Resolution in CA G.R. CV No. 51094, dated 22 May 1998; Rollo, p. 60.
3 Rollo, p. 38.
4 Ibid., p. 39.

663

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Bank of America, NT & SA vs. American Realty Corporation

Transfer Certificate of Title Nos. T-78759, T-78760, T-78761, T-

78762 and T-78763.
Eventually, the corporate borrowers defaulted in the payment of
the restructured loans prompting petitioner BANTSA to file civil

5
 5
actions before foreign courts for the collection of the principal loan,
to wit:

“a) In England, in its High Court of Justice, Queen’s Bench

Division, Commercial Court (1992-Folio No. 2098) against
Liberian Transport Navigation S.A., Eshley Compania
Naviera S.A., El Challenger S.A., Espriona Shipping
Company S.A., Eddie Navigation Corp., S.A., Eduardo
Katipunan Litonjua and Aurelio Katipunan Litonjua on
June 17, 1992;
b) In England, in its High Court of Justice, Queen’s Bench
Division, Commercial Court (1992-Folio No. 2245) against
El Challenger S.A., Espriona Shipping Company S.A.,
Eduardo Katipunan Litonjua & Aurelio Katipunan Litonjua
on July 2, 1992;
c) In Hongkong, in the Supreme Court of Hongkong High
Court (Action No. 4039 of 1992) against Eshley Compania
Naviera S.A., El Challenger S.A., Espriona Shipping
Company S.A., Pacific Navigators Corporation, Eddie
Navigation Corporation S.A., Litonjua Chartering
(Edyship) Co., Inc., Aurelio Katipunan Litonjua, Jr. and
Eduardo Katipunan Litonjua on November 19, 1992; and
d) In Hongkong, in the Supreme Court of Hongkong High
Court (Action No. 4040 of 1992) against Eshley Compania
Naviera S.A., El Challenger S.A., Espriona Shipping
Company, S.A., Pacific Navigators Corporation, Eddie
Navigation Corporation S.A., Litonjua Chartering
(Edyship) Co., Jr. and Eduardo Katipunan Litonjua on
November 21, 1992.”

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

________________

5 Ibid.

664

664 SUPREME COURT REPORTS ANNOTATED

Bank of America, NT & SA vs. American Realty Corporation
6
application for extrajudicial foreclosure 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 highest7 bidder for the sum
of Twenty Four Million Pesos (P24,000,000.00).
On 12 February 1993, private respondent filed before 8
the Pasig
Regional Trial Court, Branch 159, an action for damages 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
9
of the principal loan.
In its answer 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:

“a) The plaintiff, 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 (sic) which may be
rendered in the abovementioned courts are not (sic)
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.”

________________

6 Ibid., p. 40.
7 Ibid.
8 Ibid.
9 Ibid.

665

VOL. 321, DECEMBER 29, 1999 665

Bank of America, NT & SA vs. American Realty Corporation

On 14 December
10
1993, private respondent 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 its11 properties is legally improper and therefore invalid.”
In an order 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 12the amount of Thirty Nine Million Pesos
(P39,000,000.00). 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. 13
After trial, the lower court rendered a decision in favor of
private respondent ARC dated 12 May 1993, the decretal portion of
which reads:

“WHEREFORE, judgment is hereby rendered declaring that the filing in

foreign courts by the defendant of collection suits against the principal
debtors operated as a waiver of the security of the mortgages. Consequently,
the plaintiff’s rights as owner and possessor of the properties then covered
by Transfer Certificates of Title Nos. T-78759, T-78762, T-78763, T-78760
and T-78761, all of the Register of Deeds of Meycauayan, Bulacan,
Philippines, were

________________

10 Rollo, p. 41.
11 Ibid.
12 Ibid.
13 Rollo, pp. 41-42.

666

666 SUPREME COURT REPORTS ANNOTATED

Bank of America, NT & SA vs. American Realty Corporation

violated when the defendant caused the extrajudicial foreclosure of the

mortgages constituted thereon.
“Accordingly, the defendant is hereby ordered to pay the plaintiff the
following sums, all with legal interest thereon from the date of the filing of
the complaint up to the date of actual payment:

“1) Actual or compensatory damages in the amount of Ninety Nine

Million Pesos (P99,000,000.00);
 “2) Exemplary damages in the amount of Five Million Pesos
(P5,000,000.00); and
“3) Costs of suit.

“SO ORDERED.”

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 court14denied.
Hence, the instant petition for review on certiorari where herein
petitioner BANTSA ascribes to the Court of Appeals the following
assignment of errors:

1. The Honorable Court of Appeals disregarded the doctrines

laid down by this Hon. Supreme Court in the cases of
Caltex Philippines, Inc. vs. Intermediate Appellate Court
docketed as G.R. No. 74730 promulgated on August 25,
1989 and Philippine Commercial International Bank vs.
IAC, 196 SCRA 29 (1991 case), although said cases were
duly cited, extensively discussed and specifically
mentioned, as one of the issues in the assignment of errors
found on page 5 of the decision dated September 30, 1997.
2. The Hon. Court of Appeals acted with grave abuse of
discretion when it awarded the private respondent actual
and exemplary damages totalling P171,600,000.00, as of
July 12, 1998 although such huge amount was not asked
nor prayed for in private respondent’s complaint, is contrary
to law and is totally unsupported by evidence (sic).

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

________________

14 Rollo, pp. 10-36.

667

VOL. 321, DECEMBER 29, 1999 667

Bank of America, NT & SA vs. American Realty Corporation

1. Whether or not the petitioner’s 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 or not the award by the lower court of actual and
exemplary damages in favor of private respondent ARC, as
third-party mortgagor, is proper.
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.
Certainly, this Court finds petitioner’s arguments
15
untenable and
upholds the jurisprudence laid down in Bachrach and similar cases
adjudicated thereafter, thus:

“In the absence of express statutory provisions, a mortgage creditor may

institute against the mortgage debtor either a personal action for debt or a
real action to foreclose the mortgage. In other words, he may pursue either
of the two remedies, but not both. By such election, his cause of action can
by no means be impaired, for each of the two remedies is complete in itself.
Thus, an election to bring a personal action will leave open to him all the
properties of the debtor for attachment and execution, even including the
mortgaged property itself. And, if he waives such personal action and
pursues his remedy against the mortgaged property, an unsatisfied judgment
thereon would still give him the right to sue for a deficiency judgment, in
which case, all the properties of the defendant,

________________

15 Bachrach Motor Co., Inc. vs. Esteban Icarangal, 68 Phil. 287.

668

668 SUPREME COURT REPORTS ANNOTATED

Bank of America, NT & SA vs. American Realty Corporation

other than the mortgaged property, are again open to him for the satisfaction
of the deficiency. In either case, his remedy is complete, his cause of action
undiminished, and any advantages attendant to the pursuit of one or the
other remedy are purely accidental and are all under his right of election. On
the other hand, a rule that would authorize the plaintiff to bring a personal
action against the debtor and simultaneously or successively another action
against the mortgaged property, would result not only in multiplicity of suits
so offensive to justice (Soriano vs. Enriquez, 24 Phil. 584) and obnoxious to
law and equity (Osorio vs. San Agustin, 25 Phil. 404), but also in subjecting
the defendant to the vexation of being sued in the place of his residence or
of the residence of the plaintiff, and then again in the place where the
property lies.”
16
In Danao vs. Court of Appeals, this Court, reiterating jurisprudence
17
enunciated in Manila
18
Trading and Supply Co. vs. Co Kim and
Movido vs. RFC, invariably held:

“x x x The rule is now settled that a 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 x x x,
subject to the qualification that if he fails in the remedy by him elected, he
cannot pursue further the remedy he has waived. (Italics Ours)

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
19
action for debt or a real action to foreclose the
mortgage.
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

________________

16 154 SCRA 446.

17 71 Phil. 448.
18 105 Phil. 886.
19 Danao vs. Court of Appeals, 154 SCRA 446.

669

VOL. 321, DECEMBER 29, 1999 669

Bank of America, NT & SA vs. American Realty Corporation

an action for foreclosure of mortgage, pursuant to the provision of

Rule 68 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.
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 20
secure the latter by pledging or
mortgaging their own property.
 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
21
in lieu of an
action for the recovery of the amount of the loan.
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. 22
Thus, in Cerna vs. Court of Appeals, we agreed with the
petitioner in said case, that the filing of a collection suit barred the
foreclosure of the mortgage:

“A mortgagee who files a suit for collection abandons the remedy of

foreclosure of the chattel mortgage constituted over the per-

________________

20 Article 2085, Civil Code; Lustan vs. Court of Appeals, 266 SCRA 663.
21 Cerna vs. Court of Appeals, 220 SCRA 517.
22 Ibid.

670

670 SUPREME COURT REPORTS ANNOTATED

Bank of America, NT & SA vs. American Realty Corporation

sonal property as security for the debt or value of the promissory note which
he seeks to recover in the said collection suit.”
“x x x When the mortgagee elects to file a suit for collection, not
foreclosure, thereby abandoning the chattel mortgage as basis for relief, he
clearly manifests his lack of desire and interest to go after the mortgaged
property as security for the promissory note x x x.”

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.
Hence,
23
in Caltex Philippines, Inc. vs. Intermediate Appellate
Court, 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 24
in the landmark case of Bachrach
Motor Co., Inc. vs. Icarangal.

“For non-payment of a note secured by mortgage, the creditor has a single

cause of action against the debtor. This single cause of action consists in the
recovery of the credit with execution of the

________________

23 176 SCRA 741.

24 68 Phil. 287.

671

VOL. 321, DECEMBER 29, 1999 671

Bank of America, NT & SA vs. American Realty Corporation

security. In other words, the creditor in his action may make two demands,
the payment of the debt and the foreclosure of his mortgage. But both
demands arise from the same cause, the non payment of the debt, and for
that reason, they constitute a single cause of action. Though the debt and the
mortgage constitute separate agreements, the latter is subsidiary to the
former, and both refer to one and the same obligation. Consequently, there
exists only one cause of action for a single breach of that obligation.
Plaintiff, then, by applying the rules above stated, cannot split up his single
cause of action by filing a complaint for payment of the debt, and thereafter
another complaint for foreclosure of the mortgage. If he does so, the filing
of the first complaint will bar the subsequent complaint. By allowing the
creditor to file two separate complaints simultaneously or successively, one
to recover his credit and another to foreclose his mortgage, we will, in
effect, be authorizing him plural redress for a single breach of contract at so
much cost to the courts and with so much vexation and oppression to the
debtor.”

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:

“In the present case, however, we shall not follow this rule tothe letter but
declare that it is the collection suit which was waivedand/or abandoned.
This ruling is more in harmony with the principles underlying our judicial
system. It is of no moment that thecollection suit was filed ahead, what is
determinative is the fact thatthe foreclosure proceedings ended even before
the decision in thecollection suit was rendered. x x x”

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. 25
We then quote the decision of the trial court, in the present case,
thus:

________________

25 Rollo, p. 94.

672

672 SUPREME COURT REPORTS ANNOTATED

Bank of America, NT & SA vs. American Realty Corporation

“The aforequoted ruling in Caltex is the exception rather than the rule,
dictated by the peculiar circumstances obtaining therein. In the said case,
the Supreme Court chastised Caltex for making “x x x a mockery of our
judicial system when it initially filed a collection suit then, during the
pendency thereof, foreclosed extrajudicially the mortgaged property which
secured the indebtedness, and still pursued the collection suit to the end.”
Thus, to prevent a mockery of our judicial system,” the collection suit had to
be nullified because the foreclosure proceedings have already been pursued
to their end and can no longer be undone.
xxx xxx xxx
“In the case at bar, it has not been shown whether the defendant pursued
to the end or are still pursuing the collection suits filed in foreign courts.
There is no occasion, therefore, for this court to apply the exception laid
down by the Supreme Court in Caltex, by nullifying the collection suits.
Quite obviously, too, the aforesaid collection suits are beyond the reach of
this Court. Thus the only way the court may prevent the spector of a creditor
having “plural redress for a single breach of contract” is by holding, as the
Court hereby holds, that the defendant has waived the right to foreclose the
mortgages constituted by the plaintiff on its properties originally covered by
Transfer Certificates of Title Nos. T-78759, T-78762, T-78760 and T-
78761.” (RTC Decision, pp. 10-11)

In this light, the actuations

26
of Caltex are deserving of severe
criticism, to say the least.
Moreover, petitioner27
attempts to mislead this Court by citing the
case of PCIB vs. IAC. 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:

“While the law allows a mortgage creditor to either institute a personal

action for the debt or a real action to foreclosure the mortgage, he cannot
pursue both remedies simultaneously or successively as was done by PCIB
in this case.”

________________

26 Caltex Philippines, Inc. vs. Intermediate Appellate Court, 176 SCRA 741.
27 196 SCRA 29.

673

VOL. 321, DECEMBER 29, 1999 673

Bank of America, NT & SA vs. American Realty Corporation

xxx xxx xxx

“Thus, when the PCIB filed Civil Case No. 29392 to enforce payment of
the 1.3 million promissory note secured by real estate mortgages and
subsequently filed a petition for extrajudicial foreclosure, it violates the rule
against splitting a cause of action.”

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.
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 28
not be confused with the
remedy created for its enforcement.
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 29its security
interest by simply filing civil actions for sums of money.

________________

28 Bachrach Motor vs. Icarangal, 68 Phil. 287.

29 Rollo, p. l67.

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674 SUPREME COURT REPORTS ANNOTATED

Bank of America, NT & SA vs. American Realty Corporation

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
30
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 that31the 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 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 32
and the jurisprudence
laid down in Yao Kee, et al. vs. SyGonzales, 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 the33 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 34
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.

________________

30 Adong vs. Cheong Seng Gee, 43 Phil. 43; Sy Joc Lieng vs. Syquia, 16 Phil. 137.
31 Lim vs. Collector, 36 Phil. 472.
32 167 SCRA 736.
33 Philippine Conflict of Laws, Eighth Edition, 1996, Paras, page 46.
 34 Article 17, par. 3, Civil Code.

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VOL. 321, DECEMBER 29, 1999 675

Bank of America, NT & SA vs. American Realty Corporation

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

“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.”

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
35
unjust negates the
fundamental principles of Conflict of Laws.
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 extra-
judicially 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 if36 the proof is
flimsy and non-substantial, no damages will be given. 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 no37 inherent value readily ascertainable by an appraiser or by the
court. 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

________________

35 Philippine Conflict of Laws, Eighth Edition, 1996, Paras, p. 60.

36 Perfecto vs. Gonzales, 128 SCRA 640, as cited in Danao vs. Court of Appeals,
154 SCRA 447.
37 22 Am. Jur. 2d 193.

676

676 SUPREME COURT REPORTS ANNOTATED

Bank of America, NT & SA vs. American Realty Corporation
then, by carefully weighing 38
that testimony, arrive at a conclusion
which is just and equitable.
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.
On this matter, the trial court observed:

“The record herein reveals that plaintiff-appellee formally offered as

evidence the appraisal report dated March 29, 1993 (Exhibit J, Records, p.
409), consisting of twenty three (23) pages which set out in detail the
valuation of the property to determine its fair market value (TSN, April 22,
1994, p. 4), in the amount of P99,986,592.00 (TSN, ibid., p. 5), together
with the corroborative testimony of one Mr. Reynaldo F. Flores, an appraiser
and director of Philippine Appraisal Company, Inc. (TSN, ibid., p. 3). The
latter’s testimony was subjected to extensive cross-examination
39
by counsel
for defendant-appellant (TSN, April 22, 1994, pp. 6-22).”

In the matter of credibility of witnesses, the Court reiterates the

familiar and well-entrenched40
rule that the factual findings of the trial
court should be respected. 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 41
advantage of observing the demeanor of witnesses as they
testify.
This Court will not alter the findings of the trial court on the
credibility of witnesses, principally because they are in a

________________

38 City of Manila vs. Corrales, 32 Phil. 85, 96.

39 Rollo, p. 103.
40 People vs. Morales, 241 SCRA 267.
41 People vs. Gamiao, 240 SCRA 254.

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VOL. 321, DECEMBER 29, 1999 677

Bank of America, NT & SA vs. American Realty Corporation
42
better position to assess the same than the appellate court. Besides,
trial courts are in a better position to43 examine realevidence as well as
observe the demeanor of witnesses.
 Similarly, the appreciation of evidence and the assessment 44
of the
credibility of witnesses, rest primarily with the trial court. 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
45
by presenting the following ratiocination in its
assailed decision, 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:

“1. The properties consist of about 39 hectares in Bo. Sto. Cristo, San
Jose del Monte, Bulacan, which is (sic) not distant from Metro
Manila—the biggest urban center in the Philippines—and are easily
accessible through well-paved roads;
“2. The properties are suitable for development into a subdivision for
low cost housing, as admitted by defendant’s own appraiser (TSN,
May 30, 1994, p. 31);
“3. The pigpens which used to exist in the property have already been
demolished. Houses of strong materials are found in the vicinity of
the property (Exhs. 2, 2-1 to 2-7), and the vicinity is a growing
community. It has even been shown that the house of the Barangay
Chairman is located adjacent to the property in question (Exh. 27),
and the only remaining piggery (named Cherry Farm) in the
vicinity is about 2 kilometers away from the western boundary of
the property in question (TSN, November 19, p. 3);

________________

42 People vs. Cascalla, 240 SCRA 482.

43 Lee Eng Hong vs. Court of Appeals, 241 SCRA 392.
44 Ibid.
45 Rollo, pp. 46-47.

678

678 SUPREME COURT REPORTS ANNOTATED

Bank of America, NT & SA vs. American Realty Corporation

“4. It will not be hard to find interested buyers of the property, as

indubitably shown by the fact that on March 18, 1994, ICCS (the
buyer during the foreclosure sale) sold the consolidated real estate
properties to Stateland Investment Corporation, in whose favor new
titles were issued, i.e., TCT Nos. T-187781(m); T-187782(m), T-
 187783(m); T-16653P(m) and T-166521(m) by the Register of
Deeds of Meycauayan (sic), Bulacan;
“5. The fact that ICCS was able to sell the subject properties to
Stateland Investment Corporation for Thirty Nine Million
(P39,000,000.00) Pesos, which is more than triple defendant’s
appraisal (Exh. 2) clearly shows that the Court cannot rely on
defendant’s aforesaid estimate (Decision, Records, p. 603).”

It is a fundamental legal aphorism that the conclusions of the trial

judge on the credibility of witnesses command great respect and
consideration especially
46
when the conclusions are supported by the
evidence on record. 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 47
and director of
Philippine Appraisal Company, Inc. since 1990. 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.
Based on these considerations and the evidence submitted, we
affirm the ruling of the trial court as regards the valuation of the
property—

________________

46 People vs. Asoy, 251 SCRA 682.

47 TSN, April 22, 1994, p. 6.

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Bank of America, NT & SA vs. American Realty Corporation

“x x x a valuation of Ninety Nine Million Pesos (P99,000,000.00) for the

39-hectare properties (sic) translates to just about Two Hundred Fifty Four
Pesos (P254.00) per square meter. This appears to be, as the court so holds,
a better approximation of the fair market value of the subject properties.
This is the amount which should be restituted by the defendant
48
to the
plaintiff by way of actual or compensatory damages x x x.”

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:

“SEC. 5. Amendment to conform to or authorize presentation of evidence.—

When issues not raised by the pleadings are tried with the express or implied
consent of the parties, they shall be treated in all respects as if they had been
raised in the pleadings. Such amendment of the pleadings as may be
necessary to cause them to conform to the evidence and to raise these issues
may be made upon motion of any party at any time, even after judgment;
but failure to amend does not affect the result of the trial of these issues. If
evidence is objected to at the trial on the ground that it is not within the
issues made by the pleadings, the court may allow the pleadings to be
amended and shall do so with liberality if the presentation of the merits of
the action and the ends of substantial justice will be subserved thereby. The
court may grant a continuance to enable the amendment to be made.”

The jurisprudence enunciated in Talisay-Silay Milling

49
Co., Inc. vs.
Asociacion de Agricultures de Talisay-Silay, Inc.

________________

48 Decision, Records, ibid.

49 247 SCRA 361, 377-378.

680

680 SUPREME COURT REPORTS ANNOTATED

Bank of America, NT & SA vs. American Realty Corporation

citing 50Northern Cement Corporation vs. Intermediate Appellate

Court is enlightening:

“There have been instances where the Court has held that even without the
necessary amendment, the amount proved at the trial may be validly
awarded, as in Tuazon v. Bolanos (95 Phil. 106), where we said that if the
facts shown entitled plaintiff to relief other than that asked for, no
amendment to the complaint was necessary, especially where defendant had
himself raised the point on which recovery was based. The appellate court
could treat the pleading as amended to conform to the evidence although the
pleadings were actually not amended. Amendment is also unnecessary when
only clerical error or non substantial matters are involved, as we held in
Bank of the Philippine Islands vs. Laguna (48 Phil. 5). In Co Tiamco vs.
Diaz (75 Phil. 672), we stressed that the rule on amendment need not be
applied rigidly, particularly where no surprise or prejudice is caused the
objecting party. And in the recent case of National Power Corporation vs.
Court of Appeals (113 SCRA 556), we held that where there is a variance in
the defendant’s pleadings and the evidence adduced by it at the trial, the
Court may treat the pleading as amended to conform with the evidence.
“It is the view of the Court that pursuant to the above-mentioned rule and
in light of the decisions cited, the trial court should not be precluded from
awarding an amount higher than that claimed in the pleading
notwithstanding the absence of the required amendment. But it is upon the
condition that the evidence of such higher amount has been presented
properly, with full opportunity on the part of the opposing parties to support
their respective contentions and to refute each other’s evidence.
“The failure of a party to amend a pleading to conform to the evidence
adduced during trial does not preclude an adjudication by the court on the
basis of such evidence which may embody new issues not raised in the
pleadings, or serve as a basis for a higher award of damages. Although the
pleading may not have been amended to conform to the evidence submitted
during trial, judgment may nonetheless be rendered, not simply on the basis
of the issues alleged but also on the basis of issues discussed and the
assertions of fact proved in the course of trial. The court may treat the
pleading as if it had been amended to conform to the evidence, al-

________________

50 158 SCRA 408.

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Bank of America, NT & SA vs. American Realty Corporation

though it had not been actually so amended. Former Chief Justice Moran put
the matter in this way:

‘When evidence is presented by one party, with the expressed or implied consent of
the adverse party, as to issues not alleged in the pleadings, judgment may be
rendered validly as regards those issues, which shall be considered as if they have
been raised in the pleadings. There is implied consent to the evidence thus presented
when the adverse party fails to object thereto.’

“Clearly, a court may rule and render judgment on the basis of the
evidence before it even though the relevant pleading had not been
previously amended, so long as no surprise or prejudice is thereby caused to
the adverse party. Put a little differently, so long as the basis requirements of
fair play had been met, as where litigants were given full opportunity to
support their respective contentions and to object to or refute each other’s
evidence, the court may validly treat the pleadings as if they had been
amended to conform to the evidence and proceed to adjudicate on the basis
of all the evidence before it.”
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 51to the moral, temperate, liquidated or compensatory
damages. Considering its

________________

51 Article 2229, Civil Code.

682

682 SUPREME COURT REPORTS ANNOTATED

Bank of America, NT & SA vs. American Realty Corporation

purpose, it must be fair and reasonable in every case

52
and should not
be awarded to unjustly enrich a prevailing party. 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.
SO ORDERED.

Bellosillo (Chairman), Mendoza, Quisumbing and De Leon,

Jr., JJ., concur.

Petition denied, judgment affirmed with modification.

Note.—Third persons who are not parties to a loan may secure

the latter by pledging or mortgaging their own property. (Lustan vs.
Court of Appeals, 266 SCRA 663 [1997])

——o0o——
 ________________

52 Philtranco Service Exporters, Inc. vs. Court of Appeals, 273 SCRA 562.

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