Title
Central Visayas Fice Corp. vs. Spouses Adlawan
Case
G.R. No. 212674
Decision Date
Mar 25, 2019
Petitioner's deficiency claim barred by res judicata after replevin case; guarantors' liability extinguished as principal obligation deemed satisfied.
loan dispute
finance corporation
couple

Case Summary (G.R. No. 212674)

Factual Background

In 1996, CENTRAL VISAYAS FINANCE CORPORATION loaned Php3,669,685.00 to SPOUSES ELIEZER S. ADLAWAN AND LEILA ADLAWAN under a Promissory Note, secured by a Chattel Mortgage on a Komatsu highway dump truck, and supported by a Continuing Guaranty executed by SPOUSES ELIEZER S. ADLAWAN, SR. AND ELENA ADLAWAN. The debtors defaulted. Petitioner filed a replevin action for possession of the dump truck in Civil Case No. CEB-22294 before Branch 58 of the RTC. The RTC rendered judgment for petitioner on June 22, 1999, ordering delivery of the truck. Petitioner foreclosed the chattel mortgage and purchased the truck at public auction for Php500,000.00.

Subsequent Collection Suit

Petitioner thereafter filed Civil Case No. CEB-24841 in the RTC seeking collection of a claimed unpaid balance and/or a deficiency judgment, which it alleged amounted to Php2,104,604.97 (less the value of the dump truck), plus damages. In its Amended Complaint petitioner also sought to hold the guarantors, Eliezer, Sr. and Elena Adlawan, liable on the Continuing Guaranty. The complaint thus sought monetary relief that petitioner described as an outstanding obligation remaining after foreclosure and auction.

Trial Court Ruling

On July 31, 2008, the RTC, Branch 8, issued an order dismissing Civil Case No. CEB-24841. The trial court treated the defendants’ preliminary affirmative defenses of res judicata, forum shopping, and estoppel as if raised in a motion to dismiss. The RTC found that the earlier judgment in CEB-22294 involved the same parties, subject matter, and cause of action—nonpayment of the loan secured by the mortgaged vehicle—and that the remedy for any alleged omission in the replevin case was an appeal. The trial court concluded that petitioner could and should have raised any claim for deficiency in the prior action and that the subsequent collection suit was barred by res judicata under Section 47(b), Rule 39.

Court of Appeals Decision

Petitioner appealed to the CA, which affirmed the RTC in a February 15, 2013 Decision. The CA set out the requisites for res judicata and compared the pleadings in the replevin case with those in the collection case. The CA noted that petitioner’s replevin complaint contained an alternative prayer that, if manual delivery could not be effected, the court render judgment for a monetary amount—specifically Php2,604,604.97 as stated in the replevin pleading reproduced in the record. The CA relied principally on PCI Leasing & Finance, Inc. v. Dai, which held that a replevin action that is partly in rem and partly in personam can bar a later deficiency suit when the deficiency could have been raised in the replevin case. The CA further held that only substantial identity of parties is required and that the guarantor’s interests were substantially identical to those of the principal debtors. The CA therefore denied petitioner’s appeal and assessed costs against petitioner.

Issues Presented to the Supreme Court

The petition to the Supreme Court raised two principal assignments of error: first, that the CA erred in applying res judicata because there was no identity of parties and no similarity of causes of action between Civil Case No. CEB-22294 (replevin) and Civil Case No. CEB-24841 (deficiency/collection); and second, that the CA erred in applying PCI Leasing v. Dai to the present facts because the guarantors were not parties to the replevin case and the collection suit asserted a distinct cause of action against different parties.

Petitioner's Contentions

Petitioner argued that the replevin action and the subsequent collection action involved different causes of action, different parties, and distinct reliefs. Petitioner contended that the cause of action for deficiency arose only after the extrajudicial foreclosure and auction sale and that the guarantors named in CEB-24841 had not been sued in the replevin case. Petitioner maintained that PCI Leasing v. Dai did not control because the required identity of causes of action and parties did not exist in the instant case.

Respondents' Contentions

Respondents urged that the petition merely restated arguments already rejected below. They maintained that the CA correctly applied res judicata, emphasizing that an action for replevin is mixed—partly in rem and partly in personam—and that petitioner had included an alternative prayer for a money judgment in the replevin case which could have encompassed a deficiency claim. Respondents also relied on the principle that substantial identity of parties suffices and that guarantors share the same interest and defenses as principal debtors.

Supreme Court's Ruling

The Supreme Court denied the petition and affirmed the CA Decision and Resolution. The Court reproduced petitioner’s alternative prayers in the replevin complaint to demonstrate that petitioner had sought, in the alternative, a money judgment in the event manual delivery could not be effected. The Court held that petitioner’s failure to pursue a deficiency claim in the replevin proceedings, including by way of appeal, operated as a bar to the later collection suit under res judicata as set forth in Section 47, Rule 39.

Legal Basis and Reasoning

The Court reiterated the rule that where a debt is secured by mortgage or chattel mortgage the creditor has but a single cause of action—the recovery of the credit with execution upon the security—and the creditor may not split that single cause of action into successive suits. The Court relied on Bachrach Motor Co., Inc. v. Icarangal for the proposition that a creditor cannot maintain a separate action for collection after invoking the remedy of foreclosure or pursuing a suit that also encompasses foreclosure. The Court held that a replevin complaint that expressly prays alternatively for a money judgment falls within this principle. The Court further endorsed PCI Leasing & Finance, Inc. v. Dai and later authorities such as Allandale Sportsline Inc. v. The Good Development Corporation and Marilag v. Martinez which applied the single-cause-of-action doctrine and the rule that a judgment is conclusive as to matters that were or could have

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