G.R. No. 212674 . March 25, 2019
CENTRAL VISAYAS FINANCE CORPORATION, Petitioner, vs. SPOUSES ELIEZER S. ADLAWAN and LEILA ADLAWAN, AND SPOUSES ELIEZER ADLAWAN, SR. and ELENA ADLAWAN, Respondents.

FACTS

In 1996, respondents Eliezer and Leila Adlawan obtained a loan from petitioner, secured by a chattel mortgage over a dump truck and a Continuing Guaranty executed by respondents Eliezer, Sr. and Elena Adlawan. Upon default, petitioner filed a replevin action (Civil Case No. CEB-22294) to recover the mortgaged vehicle. The trial court ruled in petitioner’s favor, ordering the delivery of the truck. Petitioner then foreclosed on the chattel, purchased it at auction for Php500,000.00, and subsequently filed a second case (Civil Case No. CEB-24841) for a deficiency judgment to collect the alleged unpaid loan balance, also seeking to enforce the Continuing Guaranty against the guarantor-spouses.
The Regional Trial Court (RTC) dismissed the second case on the ground of res judicata, holding it was barred by the final judgment in the replevin case. The Court of Appeals affirmed, ruling that the deficiency claim could and should have been raised in the first action, and that the addition of the guarantor-spouses as parties did not preclude the application of res judicata due to substantial identity of interests.

ISSUE

Whether the Court of Appeals erred in affirming the dismissal of the collection/deficiency case based on res judicata.

RULING

The Supreme Court denied the petition and affirmed the lower courts’ rulings. The Court held that the doctrine of res judicata, specifically “bar by prior judgment” under Section 47(b), Rule 39 of the Rules of Court, squarely applies. The elements are present: (1) the prior replevin case was a final judgment on the merits; (2) the court that rendered it had jurisdiction; (3) there is identity of parties, or at least substantial identity of interests; and (4) there is identity of subject matter and causes of action.
The Court explained that an action for replevin to recover a mortgaged chattel is both an action in personam and in rem. The relief sought is not merely the recovery of possession but ultimately the payment of the loan obligation secured by the chattel. Consequently, the issue of the debtor’s total monetary liability, including any deficiency after the foreclosure sale, could and should have been litigated in that single proceeding. Filing a separate suit for the deficiency constitutes splitting a single cause of action, which is prohibited.
The Court further rejected the argument that the second case involved a different cause of action against the guarantor-spouses. A contract of guaranty is merely accessory to the principal loan obligation. Since the replevin case conclusively settled the loan obligation of the principal debtors (Eliezer and Leila), that obligation is deemed extinguished. Under Article 2076 of the Civil Code, the guarantor’s obligation is extinguished at the same time and for the same causes as that of the principal debtor. Therefore, no separate action for deficiency can proceed against the guarantors. The addition of new parties (the guarantors) does not defeat res judicata where there is a community of interest between them and the parties in the first case.