G.R. No. 106818 May 27, 1994
PATROCINIO YU, petitioner, vs. HON. COURT OF APPEALS and TRADERS ROYAL BANK, respondents.

FACTS

Petitioner Patrocinio Yu owned Diding’s Pharmacy in Cebu City. To finance the business, Yu obtained several loans from respondent Traders Royal Bank (TRB), secured by promissory notes, a chattel mortgage, letters of credit, and trust receipts. Yu failed to pay the loans despite demands. On January 31, 1984, TRB filed a complaint (Civil Case No. CEB-1765) for recovery of personal property (with an alternative prayer for payment) based on the promissory notes and chattel mortgage. The attached statement of account referenced unsettled obligations under two trust receipts (DTR 580-80 and DTR 588-80), but the complaint did not specifically mention the trust receipts. TRB obtained a writ of replevin, but the chattels (drugs and medicine) expired, so TRB focused on its money claim. On June 16, 1987, TRB filed a criminal complaint for violation of the Trust Receipts Law against Yu. Two days later, on June 18, 1987, TRB filed another civil case (CEB-6035) for recovery of money specifically mentioning the trust receipts. Yu moved to dismiss CEB-6035 on grounds of litis pendentia, which the court granted on September 10, 1987. On December 28, 1988, Yu filed a civil case (CEB-7483) against TRB seeking a declaration of nullity of the two trust receipts, claiming he was made to sign documents he did not fully understand. TRB moved to dismiss CEB-7483 on grounds of litis pendentia (pending CEB-1765), prescription, laches, and estoppel. The trial court granted the motion on March 22, 1989. The Court of Appeals affirmed the dismissal. Yu elevated the case via petition for review on certiorari.

ISSUE

Whether the Court of Appeals correctly affirmed the dismissal of Civil Case No. CEB-7483 on grounds of litis pendentia, prescription, estoppel, and laches.

RULING

The Supreme Court affirmed the decision of the Court of Appeals, but on the ground of prescription, not litis pendentia. The requisites for litis pendentia (identity of parties, rights asserted, relief prayed for founded on same facts, and that judgment in one would be res judicata in the other) were not fully met. CEB-1765 was for recovery of a sum of money based on loan obligations, while CEB-7483 was for declaration of nullity of the trust receipts. A judgment in one would not necessarily foreclose the other. However, Yu’s action had prescribed. While ostensibly for declaration of nullity, the complaint’s allegation that he signed documents he “did not fully understand” indicated a case for annulment due to fraud or mistake. Whether based on fraud or mistake, the action prescribes in four years under Article 1391 of the Civil Code. The trust receipts were executed in 1980, demand was made in November 1982, and TRB’s complaint was filed in January 1984. Yu filed CEB-7483 in December 1988, which was beyond the four-year prescriptive period. The Court declined to rule on the other issues. It also admonished both parties’ counsel for using intemperate language, reminding them of their duty under the Code of Professional Responsibility to conduct themselves with courtesy.