Central Visayas Finance Corporation v. Adlawan
REITERATIONFacts
The Antecedents: In 1996, Spouses Eliezer and Leila Adlawan obtained a loan of Php3,669,685.00 from Central Visayas Finance Corporation (CVFC), secured by a Promissory Note, a Chattel Mortgage over a Komatsu Highway Dump Truck, and a Continuing Guaranty executed by Spouses Eliezer, Sr. and Elena Adlawan. Spouses Eliezer and Leila Adlawan defaulted on the loan. CVFC filed an action for replevin (Civil Case No. CEB-22294) to recover possession of the dump truck. The Regional Trial Court (RTC) ruled in favor of CVFC, ordering the delivery of the dump truck. CVFC foreclosed the chattel mortgage and sold the dump truck at public auction for Php500,000.00. Procedural History: In 2000, CVFC filed a second case (Civil Case No. CEB-24841) for collection of sum of money and/or deficiency judgment, claiming an unpaid balance of Php2,104,604.97, and seeking to hold Spouses Eliezer, Sr. and Elena Adlawan liable on their continuing guaranty. The RTC dismissed the case, holding that it was barred by res judicata. The Court of Appeals (CA) affirmed the RTC's dismissal, citing the identity of parties, subject matter, and cause of action, and applying the ruling in PCI Leasing v. Dai. The CA found that the deficiency claim could have been raised in the replevin case. The Petition: CVFC filed a Petition for Review on Certiorari before the Supreme Court, assailing the CA's decision and resolution, arguing that there was no identity of cause of action and parties, and that the PCI Leasing case was not applicable.
Issue(s)
Whether the Court of Appeals gravely erred in applying the doctrine of res judicata to the amended complaint for deficiency judgment considering the absence of identity of parties and similarity of causes of action in the earlier complaint for replevin. Whether the Court of Appeals gravely erred in applying the decision in PCI Leasing v. Dai to the case of the petitioner; and whether the cause of action against the guarantors is also barred.
Ruling
The Supreme Court denied the Petition for Review on Certiorari, affirming the Decision and Resolution of the Court of Appeals. The Court held that the second case for deficiency judgment was barred by res judicata.
Ratio Decidendi
On the issue of res judicata and identity of causes of action: The Court affirmed the CA's ruling that res judicata applies. It emphasized that the petitioner's prayer in the replevin case (Civil Case No. CEB-22294) was in the alternative: either to recover possession of the dump truck, or, if possession could not be effected, to render a money judgment for the outstanding loan amount of Php2,604,604.97. By praying for a money judgment as an alternative relief and not pursuing a claim for deficiency at any time during the proceedings, including appeal, petitioner led the courts to believe it was not interested in a deficiency claim as long as it recovered possession of the dump truck. The Court reiterated the principle that for a loan secured by a mortgage, the creditor has a single cause of action, which is the recovery of the credit with execution upon the security, and that splitting this single cause of action by filing separate complaints for payment and foreclosure is prohibited. The Court found that the petitioner's actions were consistent with and limited to the allegations and relief sought in its pleadings in the first case. On the applicability of PCI Leasing v. Dai and the liability of guarantors: The Court found the ruling in PCI Leasing & Finance, Inc. v. Dai squarely applicable. In that case, the Supreme Court held that an action for replevin, being a mixed action (partly in rem and partly in personam), bars a deficiency suit because the deficiency could have been raised in the replevin case. The Court noted that the petitioner in PCI Leasing had prayed for a money judgment as an alternative relief in the replevin case and had foreclosed the chattel mortgage even before the pre-trial, yet failed to raise the issue of deficiency judgment during the proceedings. Similarly, in the present case, the petitioner prayed for an alternative money judgment in its replevin complaint and foreclosed the chattel mortgage. By failing to seek a deficiency judgment in Civil Case No. CEB-22294 after its case for recovery of possession was resolved, petitioner is barred from instituting another action for such deficiency. The judgment in the replevin case is conclusive between the parties as to any matter that could have been raised in relation thereto, pursuant to Section 47, Rule 39 of the Rules of Civil Procedure. The Court clarified that the cause of action against the guarantors (Spouses Eliezer, Sr. and Elena Adlawan) is likewise barred. The contract of guaranty is accessory to the principal obligation. Under Article 2076 of the Civil Code, the guarantor's obligation is extinguished at the same time as that of the debtor. Since the resolution of Civil Case No. CEB-22294 and the consequent satisfaction of petitioner's claim therein (by recovering the dump truck) bars further recovery as against the principal debtors, their obligation is deemed extinguished. This extinguishment operates to the benefit of the guarantors whose liability, being based on an accessory contract, cannot survive the principal obligation.
Main Doctrine
A judgment in a replevin case, which includes an alternative prayer for a money judgment in case possession cannot be effected, bars a subsequent action for deficiency judgment if the deficiency claim could have been raised in the replevin case, based on the principle of res judicata.