Central Visayas Finance Corporation vs. Adlawan

A creditor who obtains a judgment in a replevin action praying alternatively for recovery of mortgaged property or payment of the debt is barred by res judicata from subsequently filing a separate action for deficiency judgment, where the creditor foreclosed the mortgage and sold the property during or after the first action but failed to raise the deficiency claim therein, since replevin constitutes a mixed action (in rem and in personam) that adjudicates the entire credit obligation, and the election of foreclosure remedies waives the separate right to collection.

In 1996, Spouses Eliezer and Leila Adlawan obtained a loan of Php3,669,685.00 from Central Visayas Finance Corporation, secured by a chattel mortgage over a Komatsu Highway Dump Truck and a continuing guaranty executed by Spouses Eliezer Adlawan, Sr. and Elena Adlawan. Following the borrowers' default, the creditor commenced Civil Case No. CEB-22294 for replevin before the Regional Trial Court of Cebu City, Branch 58, seeking recovery of the mortgaged vehicle or, alternatively, payment of the outstanding obligation amounting to Php2,604,604.97.

• The Loan and Security Arrangement: In 1996, respondents Spouses Eliezer and Leila Adlawan obtained a loan of Php3,669,685.00 from petitioner Central Visayas Finance Corporation. The obligation was secured by a chattel mortgage over a Komatsu Highway Dump Truck and a Continuing Guaranty executed by respondents Spouses Eliezer Adlawan, Sr. and Elena Adlawan.

• The Replevin Action: Upon the borrowers' default, petitioner filed Civil Case No. CEB-22294 for replevin before the RTC of Cebu City, Branch 58. The complaint prayed for: (a) issuance of a writ of replevin for the seizure and delivery of the dump truck; or (b) in the alternative, a money judgment for Php2,604,604.97 plus interest and penalties; and (c) attorney's fees, liquidated damages, and costs of suit. On June 22, 1999, the RTC rendered judgment ordering respondents to deliver possession of the dump truck to petitioner.

• Foreclosure and Auction: Following the judgment, petitioner foreclosed the chattel mortgage and caused the sale of the dump truck at public auction, where petitioner emerged as the highest bidder with a bid price of Php500,000.00.

• The Deficiency Judgment Action: In 2000, petitioner commenced Civil Case No. CEB-24841 before the RTC of Cebu City, Branch 8, for collection of sum of money and/or deficiency judgment. The amended complaint sought to recover the alleged unpaid balance of Php2,104,604.97 (representing the loan less the auction proceeds) and impleaded respondents Eliezer, Sr. and Elena Adlawan as guarantors under the Continuing Guaranty.

• Trial Court Ruling: Respondents moved to dismiss on grounds of res judicata, forum shopping, and estoppel. On July 31, 2008, the RTC granted the motion and dismissed the complaint, ruling that the judgment in Civil Case No. CEB-22294 constituted res judicata under Section 47(b), Rule 39 of the Rules of Court, as both cases involved the same parties, subject matter, and cause of action (non-payment of the loan).

• Identity of Parties and Causes of Action: Petitioner argued that res judicata does not apply because there is no identity of parties or causes of action between the two cases. Civil Case No. CEB-22294 was an action for replevin to recover possession of the mortgaged property, while Civil Case No. CEB-24841 was a collection suit based on the continuing guaranty executed by Eliezer, Sr. and Elena Adlawan, who were not parties to the first case.

• Timing of Cause of Action: Petitioner maintained that the cause of action for deficiency judgment in the second case arose only after the foreclosure sale of the dump truck, when it became apparent that the auction proceeds were insufficient to satisfy the outstanding loan obligation.

• Applicability of PCI Leasing: Petitioner contended that the ruling in PCI Leasing and Finance, Inc. v. Dai is inapplicable because the two cases involve different parties and distinct causes of action—the first being for recovery of possession and the second for enforcement of a guaranty.

• Res Judicata Requirements Satisfied: Respondents countered that the requisites for res judicata were present: the former judgment was final, rendered on the merits by a court with jurisdiction, and there existed identity of parties, subject matter, and cause of action between the two cases.

• Substantial Identity of Parties: Respondents argued that only substantial identity of parties is required for res judicata, and the addition of guarantors in the second case does not alter the situation since guarantors share the same interest and defenses as the principal debtors.

• Single Cause of Action: Respondents invoked the doctrine in Bachrach Motor Co., Inc. v. Icarangal and PCI Leasing v. Dai, arguing that a creditor has a single cause of action for non-payment of a debt secured by mortgage, and cannot split this by filing replevin first and then a separate deficiency suit later.

• Res Judicata: Whether the doctrine of res judicata bars the subsequent action for deficiency judgment where the creditor previously filed an action for replevin with an alternative prayer for payment of the debt.
• Identity of Parties: Whether the inclusion of guarantors in the second action negates the identity of parties required for res judicata.
• Applicability of PCI Leasing: Whether the ruling in PCI Leasing and Finance, Inc. v. Dai applies to bar the deficiency judgment claim against both principal debtors and guarantors.

• Res Judicata: The subsequent action for deficiency judgment is barred by res judicata. By praying alternatively for recovery of the mortgaged property or payment of the outstanding obligation in the replevin case, petitioner elected a single remedy. The failure to pursue the deficiency claim during the pendency of the replevin action, including through appeal, constituted a waiver of that claim. The judgment in the replevin case became conclusive not only as to the matter directly adjudged (recovery of possession) but also as to any other matter that could have been raised in relation thereto (the deficiency).

• Identity of Parties: Substantial identity of parties exists between the two actions. The continuing guaranty executed by Eliezer, Sr. and Elena Adlawan creates an accessory obligation that derives from the principal loan. Under Article 2076 of the Civil Code, the obligation of the guarantor is extinguished at the same time as that of the debtor. Since the principal obligation was deemed satisfied by the resolution of the replevin case, the guarantors' liability was likewise extinguished.

• Applicability of PCI Leasing: The ruling in PCI Leasing and Finance, Inc. v. Dai is squarely applicable. Replevin is a mixed action—partly in rem as regards recovery of specific property, and partly in personam as regards damages and the alternative money judgment. The creditor's election to foreclose the mortgage and recover possession in the first action waived the right to file a separate suit for collection of the deficiency. The deficiency could and should have been raised during the pre-trial or trial of the replevin case.

• Res Judicata under Section 47(b), Rule 39 — A final judgment or order on the merits rendered by a court having jurisdiction is conclusive between the parties not only as to the matter directly adjudged, but also as to any other matter that could have been raised in relation thereto. The requisites are: (1) the former judgment is final; (2) it is a judgment on the merits; (3) it was rendered by a court with jurisdiction over the subject matter and parties; and (4) there is identity of parties, subject matter, and cause of action between the first and second actions. In this case, the Court applied this provision to bar a deficiency judgment where the creditor had prayed alternatively for recovery of property or payment of debt in the prior replevin action.

• Single Cause of Action Rule (Bachrach Doctrine) — For non-payment of a debt secured by mortgage, the creditor has a single cause of action consisting in the recovery of the credit with execution upon the security. The creditor cannot split this single cause of action by filing a complaint for payment of the debt and thereafter another for foreclosure of the mortgage. The filing of the first complaint bars the subsequent complaint. Here, the Court held that filing an action for replevin (which includes an alternative prayer for payment) and subsequently filing a separate action for deficiency judgment constitutes splitting a single cause of action.

• Mixed Action Character of Replevin — Replevin is both an action in rem (as regards recovery of specific personal property) and in personam (as regards damages and the alternative money judgment). Consequently, a judgment in a replevin action adjudicates the entire credit obligation, including any deficiency, provided the creditor raises the claim therein.

• Accessory Nature of Guaranty — Under Article 2076 of the Civil Code, the obligation of the guarantor is extinguished at the same time as that of the debtor, and for the same causes as all other obligations. A contract of guaranty is merely accessory to a principal obligation and cannot survive the extinguishment of the latter. Thus, when the principal debtors' obligation was deemed satisfied by operation of res judicata in the first action, the guarantors' liability was necessarily extinguished.

• "By praying for recovery of possession with a money judgment as a mere alternative relief in Civil Case No. CEB-22294, and when it did not pursue a claim for deficiency at any time during the proceedings in said case, including appeal, petitioner led the courts to believe that it was not interested in suing for a deficiency so long as it recovered possession of the dump truck." — Explaining the waiver of the deficiency claim by electing the alternative remedy.

• "In case of a loan secured by a mortgage, the creditor has a single cause of action against the debtor - the recovery of the credit with execution upon the security. The creditor cannot split his single cause of action by filing a complaint on the loan, and thereafter another separate complaint for foreclosure of the mortgage." — Restatement of the Bachrach doctrine applied to the facts.

• "Replevin is so usually described as a mixed action, being partly in rem and partly in personam — in rem insofar as the recovery of specific property is concerned, and in personam as regards to damages involved." — Defining the dual nature of replevin actions.

• "The contract of guaranty is merely accessory to a principal obligation; it cannot survive without the latter. Under Article 2076 of the Civil Code, '(t)he obligation of the guarantor is extinguished at the same time as that of the debtor, and for the same causes as all other obligations.'" — Basis for extinguishment of guarantors' liability.

• PCI Leasing and Finance, Inc. v. Dai, 560 Phil. 84 (2007) — Controlling precedent followed; held that an action for replevin bars a subsequent deficiency suit because the deficiency could have been raised in the replevin case, and replevin is a mixed action in rem and in personam.

• Bachrach Motor Co., Inc. v. Icarangal, 68 Phil. 287 (1939) — Controlling precedent followed; established the single cause of action rule prohibiting the splitting of remedies between collection and foreclosure.

• Allandale Sportsline Inc. v. The Good Development Corporation, 595 Phil. 265 (2008) — Followed; reiterated that election of extrajudicial foreclosure waives the remedy of collection, and deficiency must be claimed in the replevin action.

• Marilag v. Martinez, 764 Phil. 576 (2015) — Followed; affirmed that a creditor cannot split a single cause of action by filing judicial foreclosure and subsequently a personal action for collection.

• BA Finance Corp. v. Court of Appeals — Distinguished; petitioner cited this case to argue that Section 9 of Rule 60 does not authorize deficiency judgments, but the Court noted that replevin remains a mixed action and the Bachrach/PCI Leasing line of cases controls.

• Section 47(b), Rule 39, 1997 Rules of Civil Procedure — Provides that in judgments in personam, the judgment is conclusive between the parties not only as to the matter directly adjudged but also as to any other matter that could have been raised in relation thereto. Applied to bar the second action for deficiency judgment.

• Article 2076, Civil Code of the Philippines — States that the obligation of the guarantor is extinguished at the same time as that of the debtor, and for the same causes as all other obligations. Applied to hold that the guarantors' liability was extinguished when the principal obligation was barred by res judicata.

• Section 9, Rule 60, 1997 Rules of Civil Procedure — Cited by petitioner regarding the judgment in replevin; the Court noted that while this provision authorizes judgment for delivery or value, it does not negate the mixed action character of replevin or the application of res judicata.

Bersamin, C.J., Gesmundo, and Carandang, JJ.