G.R. No. L-27136. April 30, 1973.
HEIRS OF JOSE A. ARCHES, plaintiffs-appellants, vs. MARIA B. VDA. DE DIAZ, defendant-appellee.

FACTS

On January 21, 1954, Maria B. Vda. de Diaz executed a deed of sale with pacto de retro over a parcel of land in favor of Jose A. Arches for P12,500. After the vendor failed to redeem, Arches filed a petition in 1958 in the cadastral case to consolidate his ownership. Diaz opposed, alleging the deed was an equitable mortgage securing a loan. The trial court, in a 1960 order, agreed and denied the consolidation, a ruling affirmed by the Court of Appeals in 1964 and ultimately by the Supreme Court in 1965. Arches died in 1965. In 1966, his heirs filed a complaint against Diaz to recover the P12,500 loan and P1,543.70 for expenses Arches had advanced for taxes and title reconstitution.
The defendant moved to dismiss, primarily on prescription. The trial court initially overruled this but, upon reconsideration, dismissed the complaint. It held that Arches, by electing to pursue consolidation of ownership in the prior cadastral proceeding, was barred by res judicata from later pursuing the inconsistent remedy of foreclosure or collection of the debt. The plaintiffs appealed this dismissal.

ISSUE

Whether the complaint for collection of a sum of money is barred by res judicata due to the prior cadastral proceeding which declared the pacto de retro sale to be an equitable mortgage.

RULING

No, the complaint is not barred. The appeal is well-taken. First, the defense of res judicata was waived. Under Rule 15, Section 8 of the Rules of Court, a motion to dismiss must include all available objections. The defendant failed to raise res judicata in her original motion, raising it only in a motion for reconsideration; thus, it was deemed waived.
Second, substantively, the prior judgment did not constitute a bar. The cadastral court’s decision, which declared the contract an equitable mortgage and denied consolidation, did not adjudicate the right to foreclose the mortgage or collect the indebtedness. It merely determined the nature of the contract. The Supreme Court, citing Correa vs. Mateo, recognized that a party in such a situation retains the right to foreclose the mortgage in a proper separate proceeding after final judgment. The law abhors injustice; it would be inequitable to allow the defendant to avoid payment of a just debt by successfully claiming the transaction was a loan and then using that very declaration to bar collection. The failure of Arches to include an alternative prayer for foreclosure in his consolidation petition, and the court’s failure to grant it, does not extinguish the underlying obligation. The right to collect arises from the judgment declaring the contract a mortgage. The orders of dismissal are reversed, and the case is remanded for trial on the merits.