SECOND DIVISION

G.R. No. 129788 &nbsp &nbsp &nbsp &nbsp &nbsp December 3, 2002

OROPEZA MARKETING CORPORATION, ROGACIANO OROPEZA and IMELDA S. OROPEZA, petitioners,

vs.

ALLIED BANKING CORPORATION, respondent.

D E C I S I O N

QUISUMBING, J.:

This petition assails the decision¹ dated March 13, 1997 of the Court of Appeals in CA-G.R. CV. No. 47775, which reversed and set aside the decision dated February 21, 1994 of the Regional Trial Court (RTC) of Davao City, Branch 15 in Civil Case No. 19325-88, which dismissed herein respondent’s complaint on the ground of litis pendencia. The Court of Appeals ordered the records of Civil Case No. 19325-88 remanded to the court of origin for further proceedings. Also assailed is the appellate court’s resolution of June 13, 1997,² denying petitioners’ Motion for Reconsideration.

The factual antecedents of this case, as culled from the records, show that:

On October 12, 1982, respondent Allied Banking Corporation (Allied Bank, for brevity) extended a loan of P780,000, with interest at 22% per annum, to petitioners Oropeza Marketing Corporation (OMC) and the spouses Rogaciano and Imelda³ Oropeza. The loan was payable at a monthly amortization of P20,000, subject to a penalty of 1.0% per month in case of non-payment, until the obligation was fully paid.⁴

To secure this obligation, petitioners executed Promissory Note No. DSP#0191/82⁵ in Allied Bank’s favor. In addition, the spouses Oropeza executed a Continuing Guaranty/Comprehensive Surety Agreement⁶ where they bound themselves jointly and severally with petitioner corporation to pay said obligation without need of demand in the aggregate amount of P840,000. As additional security for the loan, they also executed a Real Estate Mortgage⁷ over their properties.

Due to financial constraints, petitioners allegedly defaulted and reneged on their obligation. Thus, Allied Bank filed a collection suit⁸ with an application for a writ of preliminary attachment, docketed as Civil Case No. 19325-88, before the Regional Trial Court of Davao City, Branch 15.

While its application for a writ of attachment was pending, Allied Bank discovered that the Oropeza spouses had executed an Absolute Deed of Sale with Assumption of Mortgage in favor of Solid Gold Commercial Corporation, covering most of petitioner spouses’ real properties, including those mortgaged to respondent.

Allied Bank then filed a complaint for the annulment of said Deed of Sale, docketed as Civil Case No. 19634-89, before the RTC of Davao City, Branch 9. Allied Bank likewise instituted a separate criminal complaint for fraudulent insolvency under Article 314 of the Revised Penal Code ⁹ against petitioner spouses before the RTC of Davao City, Branch 10. It was docketed as Criminal Case No. 18518-89.

In the meantime, the court hearing Civil Case No. 19325-88, issued an order¹⁰ dated February 13, 1989, granting Allied Bank’s application for attachment and fixed the amount of the attachment bond at P2,378,224.10. Allied Bank, however, failed to submit an attachment bond and instead moved that the service of the summons upon petitioner be held in abeyance. Consequently, the case was archived by the lower court in its order of June 7, 1989.

On August 29, 1989, the lower court ordered the revival of the Civil Case No. 19325-88, but held in abeyance respondent’s motion to reduce the amount of the bond.

On October 13, 1989, respondent moved for the suspension of the proceedings in Civil Case No. 19325-88, citing the pendency of Criminal Case No. 18518-89. The lower court granted the motion and again ordered Civil Case No. 19325-88 archived. Allied Bank then moved for reconsideration resulting in the reopening of Civil Case No. 19325-88, with respect to OMC alone.

On October 26, 1992, the RTC of Davao City, Branch 9, rendered judgment in Civil Case No. 19634-89, disposing as follows:

WHEREFORE, premises considered, judgment is rendered:

(1) Declaring that Exhibit ‘J’ or Deed of Sale with Assumption of Mortgage valid binding (sic) and not tainted with fraud;

(2) Individual defendant’s accounts have been satisfied, paid and set off by their deposit and receivables from General Banking Corporation evidenced by exhibit ’16’, ’16-A’ and ’46-B’;

(3) The Promissory Note dated October 12, 1982 executed by the defendants spouses is declared void and of no force and effect;

(4) Directing the plaintiffs to pay Attorney’s fees in the sum of P20,000.00;

(5) And costs.

SO ORDERED.¹¹

Respondent Allied Bank appealed to the Court of Appeals in CA-G.R. CV No. 41986.¹²

Meanwhile, on August 13, 1993, upon respondent’s motion, the lower court declared petitioners as in default for failure to file an answer.

On February 21, 1994, the lower court hearing Civil Case No. 19325-88, dismissed respondent’s complaint on the ground of litis pendentia, thus:

While it is true that the decision of RTC, Sala 9 in Civil Case No. 19, 634 (sic) is pending appeal, it is equally true that there is identity of parties and identity of cause of action. This is obvious from the pleadings and the documents attached as annexes in this case. The relief being sought; that is for the defendant to pay the plaintiff, is the same in both cases. This case is hereby dismissed.

SO ORDERED.¹³

Dissatisfied with this turn of events, respondent elevated the case to the appellate court. The appeal was docketed as CA-G.R. CV No. 47775.

On March 13, 1997, the Court of Appeals decided CA-G.R. CV No. 47775 in this wise:

WHEREFORE, premises considered, the order of dismissal issued by the Regional Trial Court of Davao City, Branch 15 is hereby reversed and set aside. Consequently, Civil Case No. 19325-88 is hereby ordered REINSTATED. Let the records of this case be remanded to the court of origin for further proceedings.

SO ORDERED.¹⁴

Hence, this petition for review anchored on the following grounds:

I

THE HONORABLE COURT OF APPEALS, WITH DUE RESPECTS, GRIEVOUSLY ACTED WITH GRAVE ABUSE OF DISCRETION TANTAMOUNT TO WANT OR IN EXCESS OF JURISDICTION AND OTHERWISE ERRED IN NOT SUSTAINING THE DISMISSAL OF THE COMPLAINT ON THE GROUND OF LITIS PENDENTIA OR, MORE PROPERLY UNDER THIS UNIQUE CIRCUMSTANCE, IN NOT SUSPENDING PROCEEDINGS THEREON UNTIL FINAL DETERMINATION IN THE OTHER CASE, CIVIL CASE NO. 19, 634-89.

II

THAT MORE SPECIFICALLY, THE HONORABLE COURT OF APPEALS SERIOUSLY GRAVELY ERRED AND ABUSED ITS DISCRETION IN REVERSING THE FINDINGS OF THE TRIAL AS TO THE PRESENCE OF THE SECOND REQUISITE – IDENTITY OF RIGHT ASSERTED AND RELIEF PRAYED FOR – OF LITIS PENDENTIA IN THE SUBJECT CASE.

III

THE HONORABLE COURT OF APPEALS, WITH DUE RESPECTS, SERIOUSLY ABUSED ITS DISCRETION IN MANIFESTLY OVERLOOKING, IGNORING AND BRUSHING ASIDE THE DECISION IN ANOTHER CASE, ALBEIT PENDING APPEAL, BUT WHICH HAD ALREADY DECLARED THE NULLITY AND INEFFICACIOUSNESS OF THE ACTIONABLE DOCUMENT SUBJECT OF THE INSTANT CASE, WHICH DECLARATION BARS AND FORECLOSES ANY CLAIM THEREUNDER OR, IN NOT CONSIDERING THE EXISTENCE OF A PREJUDICIAL QUESTION IN THIS CASE.

IV

OR, THAT THERE IS A PREVIOUS QUESTION OR PREJUDICIAL QUESTION IN THIS CASE WHICH MUST FIRST BE FINALLY DETERMINED AND DECIDED BEFORE THIS CASE MAY PROCEED.¹⁵

At the outset, we note that while the instant case was pending before us, the other case, CA-G.R. CV No. 41986, was decided by the appellate court on May 2, 2000, as follows:

WHEREFORE, foregoing premises considered, the APPEAL IS HEREBY DISMISSED and the APPEALED DECISION AFFIRMED IN TOTO. Costs against plaintiff-appellant.

SO ORDERED.¹⁶

Allied Bank moved for reconsideration, but its motion was denied by the Court of Appeals in its resolution of February 16, 2001.

The appellate court’s decision in CA-G.R. CV No. 41986 shows that the Court of Appeals sustained the finding of the trial court in Civil Case No. 19634-89 that the Deed of Sale With Assumption of Mortgage was valid and that Allied Bank’s action to rescind it had already prescribed. The appellate court also held that the promissory note relied upon by Allied Bank was spurious, because it failed to adduce evidence to disprove the claim of the Oropeza spouses that they had paid their loans to Allied Bank and that said promissory note had no consideration.

This decision of the appellate court in CA-G.R. CV No. 41986, must be considered by this Court in deciding the validity of the ruling of the appellate court in CA-G.R. CV No. 47775, through another division, directing the trial court to proceed with the hearing of Civil Case No. 19325-88.

In view of this development, we find that petitioner’s formulation of assigned errors boils down to one issue: Does the decision of the Court of Appeals in CA-G.R. CV No. 41986 constitute res judicata insofar as Civil Case No. 19325-88 is concerned? More succinctly stated, is there identity of parties, subject matter, and causes of action between the two civil cases?

Petitioners contend that the affirmance of the lower court’s ruling in Civil Case No. 19634-89 by the appellate court in CA-G.R. CV No. 41986 would constitute res judicata in Civil Case No. 19325-88. They stress that inasmuch as the causes of action in Civil Case No. 19325-88 and Civil Case No. 19634-89 were both predicated on the same and identical promissory note, which was declared by the Court of Appeals to be void and to have no force or effect, respondent Allied Bank is now procedurally barred from further prosecuting Civil Case No. 19325-88.

For its part, respondent avers that the Court of Appeals found in CA-G.R. CV No. 47775, that there is no identity of rights asserted in the two civil cases – – Civil Case No. 19634-89 is for annulment of deed of sale with assumption of mortgage, while the Civil Case No. 19325-88 is for collection of a sum of money. There is, according to respondent, disparity in the rights asserted and reliefs prayed for in the respective cases. Respondent further argues that there is no identity of parties in both cases as the defendants in Civil Case No. 19325-88 are OMC and the spouses Oropeza, while in Civil Case No. 19634-89, the defendants are Solid Gold Commercial Corporation and the Oropeza spouses.¹⁷ Hence, respondent Allied Bank submits that there being no litis pendencia involved regarding the two cases, a decision in one cannot serve as res judicata in the other.

Res judicata literally means "a matter adjudged; a thing judicially acted upon or decided; a thing or matter settled by judgment."¹⁸ Res judicata lays the rule that an existing final judgment or decree rendered on the merits, and without fraud or collusion, by a court of competent jurisdiction, upon any matter within its jurisdiction, is conclusive of the rights of the parties or their privies, in all other actions or suits in the same or any other judicial tribunal of concurrent jurisdiction on the points and matters in issue in the first suit.¹⁹ The principle of res judicata has two aspects, namely: (a) "bar by prior judgment" as enunciated in Rule 39, Section 49 (b)²⁰ of the 1997 Rules of Civil Procedure; and (b) "conclusiveness of judgment" which is contained in Rule 39, Section 47 (c).²¹

There is "bar by prior judgment" when, as between the first case where the judgment was rendered and the second case that is sought to be barred, there is identity of parties, subject matter, and causes of action.²² In this instance, the judgment in the first case constitutes an absolute bar to the second action. Otherwise put, the judgment or decree of the court of competent jurisdiction on the merits concludes the litigation between the parties, as well as their privies, and constitutes a bar to a new action or suit involving the same cause of action before the same or any other tribunal.²³

But where there is identity of parties in the first and second cases, but no identity of causes of action, the first judgment is conclusive only as to those matters actually and directly controverted and determined and not as to matters merely involved therein.²⁴ This is the concept of res judicata known as "conclusiveness of judgment." Stated differently, any right, fact, or matter in issue directly adjudicated or necessarily involved in the determination of an action before a competent court in which judgment is rendered on the merits is conclusively settled by the judgment therein and cannot again be litigated between the parties and their privies whether or not the claim, demand, purpose, or subject matter of the two actions is the same.²⁵

The elements of res judicata are: (1) the judgment sought to bar the new action must be final; (2) the decision must have been rendered by a court having jurisdiction over the subject matter and the parties; (3) the disposition of the case must be a judgment on the merits; and (4) there must be as between the first and second action, identity of parties, subject matter, and causes of action.²⁶ The existence here of the first three requisites is not disputed. With respect to the fourth element, however, the parties disagree. We must, therefore, focus now on whether identity of parties, subject matter, and causes of action are present in the two civil cases below. Should identity of parties, subject matter, and causes of action be shown in the two cases, then res judicata in its aspect as a "bar by prior judgment" would apply. If as between the two cases, only identity of parties can be shown, but not identical causes of action, then res judicata as "conclusiveness of judgment" applies.

Coming now to the identity of parties in Civil Case No. 19325-88 and Civil Case No. 19634-89 (and CA-G.R. CV No. 41986, for that matter), respondent Allied Bank contends that since OMC was not impleaded in Civil Case No. 19634-89, the finality of the judgment in CA-G.R. CV No. 41986 will not bind OMC. Neither the trial court in Civil Case No. 19634-89 nor the appellate court in CA-G.R. CV No. 41986 acquired jurisdiction over OMC, according to Allied Bank.

But we note that respondent Allied Bank was the plaintiff in both Civil Case No. 19325-88 and Civil Case No. 19634-89, while the Oropeza spouses were among the defendants in both cases. We also note that Allied Bank was the appellant in CA-G.R. CV No. 41986, where the Oropezas were included as appellees. The rule on identity of parties does not require absolute, but only substantial identity of parties.²⁷ We have had occasion to explain this rule as follows:

The inclusion of the surety as party defendant in Civil Case No. 51080, where it is not so named in Civil Case No. 49206, cannot be invoked to nullify the effect on the former case of the dismissal-order issued in the latter proceeding. It has been ruled that where the one is offering a judgment as an estoppel and the party against whom it is being offered were both parties to the action in which such judgment was rendered, it is no objection that the action included some additional parties who are joined in the second case. Conversely, the operation of the final judgment or order in a previous case is not altered by the fact that somebody who was not a party in the first action has been impleaded in the second case. Otherwise, litigants can always renew any litigation by the mere expediency of including new parties.²⁸

In another case, we held that:

Concerning the fourth requisite, the plaintiff denies identity of parties "because in Civil Case No. 3064, Jose Aguilar was the plaintiff and Serafin R. Gamboa (Luz C. Vda. De Aguilar), Jose Azcona and Cirilo Abarasia were the defendants, in the present case Eloisa C. Aguilar is the plaintiff and only Serafin R. Gamboa is the defendant." This point has no merit. In both cases, the plaintiff is the administrator or administratrix of the Estate of the deceased Jose Aguilar. And it makes no difference that Serafin Gamboa was defendant with others in the first case; because if he had been sued alone in the first case and he is now sued with others, the defense of res judicata would be decisive just the same."²⁹

The rule is that a party may not evade the application of res judicata by simply including additional parties in subsequent litigation or by excluding parties in the later case certain parties in the previous suit.³⁰ This Court has ruled that:

[A]though in the second action, there are joined parties who were not joined in the first action, there is still res judicata if the party against whom the judgment is offered in evidence was a party in the first action (Peñalosa v. Tuason, 22 Phil. 303-323). Otherwise, no matter how often a case be decided, the parties might renew the litigation by simply joining new parties (Alzua and Arnalot v. Johnson, 21 Phil. 308, 374).³¹

In other words, the fact that OMC was not a party in Civil Case No. 19634-89 and CA-G.R. CV No. 41986, does not nullify the effect of the judgments issued in these cases on the other case, Civil Case No. 19325-88.

With respect to identity of subject matter, this is included in identity of causes of action. When there is identity of the cause or causes of action, there is necessarily identity of subject matter. But the converse is not true, for different causes of action may exist regarding the same subject matter, in which case, the conclusiveness of judgment shall be only with regard to the questions directly and actually put in issue and decided in the first case.³²

A cause of action is an act or omission of one party in violation of the legal right of the other that causes the latter injury.³³ It is determined not by the prayer of the complaint but by the facts alleged.³⁴ The first case, Civil Case No. 19325-88, was for the collection of the P780,000.00 loan, secured by a promissory note, which respondent Allied Bank insists remained unpaid by the petitioners. In other words, it is the alleged failure of petitioners to liquidate their obligation to respondent bank, which caused Allied Bank’s cause of action in Civil Case No. 19325-88 to accrue. The situation is different in the other case, Civil Case No. 19634-89, where respondent bank asserts its right as a mortgagee to the subject property by virtue of the real estate mortgage executed by petitioner spouses in its favor. Allied Bank averred that the Oropeza spouses executed a real estate mortgage over their properties to secure their loan. Respondent alleged that the Oropezas then sold said properties to Solid Gold Commercial Corporation, with intent to defraud respondent bank. Hence, respondent was forced to file suit to annul the deed of sale over the mortgaged properties. It is apparent that alleged violations of respondent’s legal rights by petitioners differ, as the acts or omissions complained of the two civil cases, basing on the recitation of their facts which are different.

The test to determine the identity of causes of action is to consider whether the same evidence would sustain both causes of action.³⁵ We find that in Civil Case No. 19325-88, Allied Bank will have to present evidence showing the existence of the loan and petitioners’ failure to comply with their bounden duty to pay such loan in accordance with the terms of the promissory note executed by petitioners. However, in Civil Case No. 19634-89, respondent’s evidence must establish and prove its allegations to the effect that: (a) petitioners secured a loan from it; (b) said loan was secured by a promissory note and a mortgage over properties owned by the Oropezas; (c) petitioners failed to pay their debt; and (d) petitioners sold the mortgaged properties with intent to defraud respondent bank.

The evidence to support Allied Bank’s cause of action in Civil Case No. 19325-88 is included in and forms part of the evidence needed by respondent bank to support its cause of action in Civil Case No. 19634-89. The converse, however, not true. The evidence needed in Civil Case No. 19634-89 does not necessarily form part of the evidence needed by respondent in Civil Case No. 19325-88. Accordingly, we find that the evidence to sustain the respective causes of action in the two cases is not exactly the same. Perforce, we must rule that there is no identity between the causes of action in Civil Case No. 19325-88 and Civil Case No. 19634-89.

There being substantial identity of parties but no identity of causes of action, the applicable aspect of res judicata in the instant case is "conclusiveness of judgment." There is conclusiveness of judgment only as to the matters actually determined by the trial court in Civil Case No. 19634-89, as affirmed by the Court of Appeals in CA-G.R. CV No. 41986. These include the findings that: (1) the promissory note relied upon by respondent bank is spurious; and (2) that the loan obligation of the Oropeza spouses has been settled and paid.

Res judicata is founded on the principle that parties ought not to be permitted to litigate the same issue more than once. Hence, when a right or fact has been judicially tried and established by a court of competent jurisdiction, or an opportunity for such trial has been given, the judgment of the court – – so long as it remains unreversed – – is conclusive upon the parties and those in privity with them in law or estate.³⁶ It having been determined with finality in CA-G.R. CV No. 41986 that the debt of the Oropezas has been settled, respondent’s cause of action in Civil Case No. 19325-88 must be deemed extinguished.

WHEREFORE, the petition is GRANTED. The decision of the Court of Appeals, dated March 13, 1997 in CA-G.R. CV No. 47775 as well as its resolution of June 13, 1997 denying herein petitioners’ motion for reconsideration are hereby SET ASIDE. The findings of the Regional Trial Court of Davao City, Branch 9 in Civil Case No. 19634-89, as affirmed by the appellate court in CA-G.R. CV No. 41986, shall be conclusive upon the parties in Civil Case No. 19325-88. The order of the Regional Trial Court of Davao City, Branch 15, dismissing respondent Allied Banking Corporation’s complaint in Civil Case No. 19325-88 is hereby REINSTATED with the MODIFICATION that the case is not dismissed but is deemed concluded on the ground of res judicata, i.e., as "conclusiveness of judgment." Costs against respondent.

SO ORDERED.

Bellosillo, (Chairman), Mendoza, Austria-Martinez, and Callejo, Sr., JJ., concur.

Footnotes

¹ Rollo, pp. 9-15. Ponencia by Ynares-Santiago, J., with De Pano, Jr., and Reyes, JJ., concurring.

² Id. at 17.

³ Spelled as "Amelda" in the Continuing Guarantee/Comprehensive Surety Agreement.

⁴ Rollo, p. 9.

⁵ Records, p. 8.

⁶ Id. at 9.

⁷ Id. at 18-19.

⁸ Id. at 1-7.

⁹ ART. 314. Fraudulent Insolvency.- Any person who shall abscond with his property to the prejudice of his creditors, shall suffer the penalty of prision mayor, if he be a merchant, and the penalty of prision correccional in its maximum period to prision mayor in its medium period, if he be not a merchant.

¹⁰ Records, pp. 22-23.

¹¹ Rollo, p. 11.

¹² On May 2, 2000, the appellate court dismissed the appeal and affirmed the trial court’s decision in Civil Case No. 19634-89 in toto. See Rollo, pp. 121-148. Allied Bank’s motion for reconsideration of the appellate court’s decision in CA-G.R. CV No. 41986 was denied on February 16, 2001. See Rollo, p. 150. Entry of judgment was made on March 18, 2001. See Rollo, p. 193.

¹³ Records, p. 110.

¹⁴ Rollo, p. 15.

¹⁵ Id. at 27-28.

¹⁶ Id. at 147.

¹⁷ Id. at 59.

¹⁸ Black’s Law Dictionary (Rev. 4th ed. 1968) 1470.

¹⁹ Philippine National Bank v. Barreto, et al., 52 Phil. 818, 823-824 (1929).

²⁰ Sec. 47. Effect of judgments or final orders. – The effect of a judgment or final order rendered by a court of the Philippines, having jurisdiction to pronounce the judgment or order, may be as follows:

x x x

(b) In other cases, the judgment or final order is, with respect to the matter directly adjudged or as to any other matter that could have raised in relation thereto, conclusive between the parties and their successors in interest by title subsequent to the commencement of the action or special proceeding, litigating for the same thing and under the same title and in the same capacity; and

²¹ Sec. 47. Effect of judgments or final orders. – The effect of a judgment or final order rendered by a court of the Philippines, having jurisdiction to pronounce the judgment or order, may be as follows:

x x x

(c) In any other litigation between the same parties or their successors in interest, that only is deemed to have been adjudged in a former judgment or final order which appears upon its face to have been adjudged, or which was actually and necessarily included therein or necessary thereto.

²² Gamboa v. Court of Appeals, 108 SCRA 1, 17 (1981).

²³ Philippine National Bank v. Barreto, et al., supra note 19 at 824.

²⁴ Vda. de Cruzo vs. Carriaga, Jr., 174 SCRA 330, 339 (1989).

²⁵ Vda. de Cruzo vs. Carriaga, Jr., supra, note 24 at 338.

²⁶ Quezon Province v. Marte, G.R. No. 139274, October 23, 2001, p. 7.

²⁷ Suarez v. Municipality of Naujan, 18 SCRA 682, 688 (1966). See also Cantillana v. Scott, 99 SCRA 500 (1980); Santos v. Gabriel, 45 SCRA 288 (1972); Lim Toco v. Go Fay, 81 Phil. 258 (1948).

²⁸ Republic v. Planas, 18 SCRA 132, 139-140 (1966). Note the numerous cases cited therein.

²⁹ Aguilar, etc. v. Gamboa, 103 Phil. 183, 185-186 (1958).

³⁰ Anticamara v. Ong, 82 SCRA 337, 341 (1978), citing Carpena v. Manalo, 111 Phil. 685 (1961); Republic v. Planas, 18 SCRA 132 (1966).

³¹ Velasco and Aborde v. Velasco, 112 Phil. 631, 634 (1961), citing San Diego v. Cardona, 40 OG Supp. No. 12, 116.

³² See Rule 39, Sec. 47 (c), supra note 21.

³³ Rebollido v. Court of Appeals, 170 SCRA 800, 806-807 (1989), citing Santos v. Intermediate Appellate Court, 145 SCRA 248 (1986). See also Republic Planters Bank v. Intermediate Appellate Court, 131 SCRA 631 (1984); Ma-ao Sugar Central Co., v. Barrios, 79 Phil. 666 (1947).

³⁴ De Guzman, Jr., v. Court of Appeals, 192 SCRA 507, 508 (1990). See also Cagibao v. Lim, 50 Phil. 844 (1924).

³⁵ Peñalosa v. Tuason, 22 Phil 303, 322 (1912).

³⁶ Vda. De Kilayco v. Tengco, 207 SCRA 600, 613 (1992), citing Philippine National Bank v. Barretto, 52 Phil. 818 (1929).

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