BANK OF AMERICA, NT and SA, petitioner vs.

AMERICAN REALTY CORPORATION and COURT OF

APPEALS, respondents.

G.R. No. 133876 December 29, 1999

Ponente: J. Buena

Facts: Bank of America (BofA) granted three major multi-million dollar loans to Liberian Transport
Navigation, S.A., El Challenger S.A., and Eshley Compania Naviera S.A. (borrowers), all of which are
foreign affiliates of American Realty Corporation (ARC). Due to default in loan payments, BofA and the
borrowers signed and entered into restructuring agreements. As additional security for the restructured
loans, ARC, as third party mortgagor, executed two real estate mortgages. Despite the restructuring
agreements, the borrowers continued to default on their loan payments. BofA then filed a civil action for
the collection of the principal loan before the New York Supreme Court. ARC was not a party to this
case. While the New York case was pending, BofA filed a petition for extrajudicial foreclosure of the real
estate mortgages executed by ARC with the RTC in Makati. ARC filed a motion to suspend the
foreclosure proceedings, arguing that BofA had waived its right to foreclose the mortgage by filing the
New York case. The RTC granted ARC's motion to suspend, ruling that BofA had split its cause of action
by filing two separate suits for the same debt. BofA appealed to the CA, which affirmed the RTC's
decision.

Issue:

Whether a mortgage-creditor waives 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?

Ruling:

Yes. The Supreme Court held that BofA had split its cause of action by filing two separate suits for the
same debt. The Court explained that a creditor has two remedies in case of default in a loan obligation:
(1) to file a personal action against the debtor for the recovery of the debt; or (2) to file a real action
against the debtor for the foreclosure of the mortgage. However, the creditor cannot pursue both
remedies simultaneously or successively. The Court further held that the doctrine of processual
presumption applies in this case. Under this doctrine, foreign law is presumed to be the same as
Philippine law, unless proven otherwise. Since BofA failed to prove that English law allows a creditor to
split its cause of action, the Court applied Philippine law, which prohibits splitting of a cause of action.

Conclusion:

The Supreme Court affirmed the decision of the CA dismissing BofA's petition for extrajudicial
foreclosure.