Bank of Commerce v. DHN Construction and Development Corporation
REITERATIONFacts
The Antecedents: DHN Construction and Development Corp. (DHN) filed a Complaint against Bank of Commerce (BOC) seeking the declaration of nullity of two promissory notes signed by DHN's President, Dionisio P. Reyno, for an alleged loan obligation of P130,312,227.33. DHN claimed the loan was arranged by Fil-Estate Properties, Inc. (Fil-Estate) to avoid BSP regulations, with the understanding that Fil-Estate was the actual obligor and would settle the loan. DHN alleged it only signed the blank promissory notes due to Fil-Estate's pressure regarding payments for other projects. Later, DHN received requests for loan confirmation and documents from BOC's auditors. DHN informed BOC that it never received the loan proceeds. Fil-Estate confirmed in writing that the loan was for a project and that Fil-Estate would settle the principal and interest from unit sales. BOC later declared the obligation due and demandable when DHN refused to execute an affidavit confirming the loan and sign another promissory note. Procedural History: DHN filed the complaint before the Regional Trial Court (RTC) of Makati City (RTC-Makati). BOC filed a Motion to Dismiss, arguing that the case was barred by prior judgment (res judicata) due to a previous dismissal of a similar complaint (Civil Case No. Q-09-66170) by the RTC of Quezon City (RTC-Quezon City). The RTC-Quezon City had dismissed the earlier complaint for annulment of contract, ruling that DHN voluntarily entered into the contract, was presumed to know the consequences, and had reaped benefits from the loan, thus precluding it from impugning its validity. The RTC-Makati granted BOC's Motion to Dismiss, finding that res judicata applied. DHN's motion for reconsideration was denied. DHN appealed to the Court of Appeals (CA). The CA set aside the RTC-Makati's orders, holding that the dismissal by the RTC-Quezon City was based on Section 1(g), Rule 16 of the Rules of Court (failure to state a cause of action), which does not bar refiling under Section 5 of the same Rule, as it was not based on paragraphs (f), (h), and (i). The CA found that the RTC-Quezon City had no business ruling on the merits of the case when the motion was for failure to state a cause of action. BOC filed a petition for review on certiorari with the Supreme Court. The Petition: The Supreme Court was asked to determine whether the CA erred in setting aside the RTC-Makati's orders and remanding the case, specifically whether res judicata applied to bar DHN's complaint.
Issue(s)
Whether the Court of Appeals erred in setting aside the Orders of the RTC-Makati and ordering the remand of the case; and whether the principle of res judicata applies to bar the complaint filed by DHN against BOC before the RTC-Makati.
Ruling
The Supreme Court granted the petition, reversed the Court of Appeals' decision, and dismissed Civil Case No. 12-167 on the ground of res judicata.
Ratio Decidendi
On the applicability of res judicata and the alleged error of the Court of Appeals: The Court found that all four requisites for res judicata were present. First, the Order dated December 29, 2011, issued by the RTC-Quezon City dismissing Civil Case No. Q-09-66170, had become final as DHN did not timely appeal. Second, the RTC-Quezon City had jurisdiction over the subject matter (annulment of contract, an action incapable of pecuniary estimation) and the parties, with DHN itself having submitted to its jurisdiction. Third, the Court determined that the December 29, 2011 Order was a judgment on the merits. Although the RTC-Quezon City's motion to dismiss was based on failure to state a cause of action, it proceeded to rule on disputed issues of fact, such as DHN's claims of simulation and BOC's defenses of DHN's consent and enjoyment of benefits. The Court clarified that a dismissal for failure to state a cause of action can be considered a judgment on the merits if it disposes of the rights and liabilities of the parties based on the disclosed facts, even without a full trial. The RTC-Quezon City unequivocally determined the rights and obligations of DHN and BOC regarding the causes of action and subject matter, thereby putting an end to the controversy. Fourth, there was identity of parties, subject matter, and causes of action between the RTC-Quezon City and RTC-Makati cases. While DHN argued that the causes of action were different (annulment vs. declaration of nullity), the Court held that the test is whether the same evidence necessary to sustain the second action would have been sufficient for recovery in the first. The evidence needed to prove the simulated nature of the loan contracts and DHN's lack of consent and Fil-Estate's liability would be the same for both annulment and declaration of nullity. Therefore, the change in the form of the action or the relief sought did not remove the case from the application of res judicata. The Court concluded that the finality of the RTC-Quezon City's order barred the subsequent complaint for declaration of nullity, thus the Court of Appeals erred in setting aside the Orders of the RTC-Makati and ordering the remand of the case.
Main Doctrine
The principle of res judicata applies when there is identity of parties, subject matter, and causes of action, and the prior judgment was rendered by a court of competent jurisdiction and was a judgment on the merits. A dismissal for failure to state a cause of action, if it passes upon the merits of the case, can constitute a judgment on the merits that bars a subsequent action.