Del Rosario vs. Far East Bank & Trust Company

A final judgment on the merits in a prior action between the same parties and based on the same cause of action operates as a bar to a subsequent action, and a plaintiff may not split a single cause of action by filing multiple suits to recover separate portions of a unitary claim. The rule against splitting a cause of action requires that all grounds for relief arising from a single delict or wrong be set forth in one proceeding; a judgment on the merits in the first suit is available as a ground for dismissal of any subsequent suit founded on the same cause.

A foreign currency loan and peso loan extended by respondent Private Development Corporation of the Philippines (PDCP) to petitioner Davao Timber Corporation (DATICOR) in 1974 became the subject of protracted litigation. The loan agreement contained provisions for service fees, interest, and penalty charges, and was secured by real and chattel mortgages. While a suit for usury filed by petitioners was pending, PDCP assigned a portion of its receivables to respondent FEBTC. Petitioners thereafter executed a Memorandum of Agreement with FEBTC under which they paid P6.4 million as full settlement of the assigned receivables. The Supreme Court later fixed petitioners’ principal obligation at P1.4 million. Petitioners then sued both PDCP and FEBTC to recover an alleged overpayment of P5.3 million. That suit culminated in a final Court of Appeals decision that awarded P965,000 against FEBTC (the amount claimed from it in the complaint), released mortgages, and declared the obligation fully satisfied. After satisfying that judgment, petitioners filed the present case to recover the remaining P4.335 million of the overpayment from FEBTC alone.

• The Loan and Initial Dispute: On May 21, 1974, petitioner DATICOR obtained from respondent PDCP a foreign currency loan of US $265,000 and a peso loan of P2.5 million, or approximately P4.4 million at the then prevailing exchange rate. The loan agreement stipulated a service fee, 12% per annum interest, and 2% per month penalty charges in case of default. The loans were secured by real estate mortgages over six parcels of land and chattel mortgages over machinery and equipment. Petitioners paid a total of P3 million to PDCP, which PDCP applied to interest, service fees, and penalty charges, leaving—by PDCP's computation—an outstanding principal balance of more than P10 million as of May 15, 1983.

• The Usury Case and Supreme Court Decision in G.R. No. 73198: Petitioners filed a complaint against PDCP for violation of the Usury Law, annulment of contract, and damages, docketed as Civil Case No. 82-8088. The trial court dismissed the complaint. On appeal, the Intermediate Appellate Court (IAC) reversed and declared void the stipulation of interest. PDCP appealed to the Supreme Court (G.R. No. 73198). On September 2, 1992, the Supreme Court affirmed the IAC in toto and determined that after deducting the P3 million already paid, petitioners’ remaining balance on the principal loan was P1.4 million.

• Assignment of Receivables and the MOA: During the pendency of G.R. No. 73198, PDCP assigned a portion of its receivables from petitioners to respondent FEBTC under a Deed of Assignment dated April 10, 1987 for a consideration of P5,435,000, later amended by two Supplements. FEBTC, as assignee, and petitioners executed a Memorandum of Agreement (MOA) on December 8, 1988, whereby petitioners agreed to pay—and did pay—FEBTC P6.4 million as full and final settlement of the assigned receivables.

• Civil Case No. 94-1610 (the First Recovery Action): On April 25, 1994, petitioners filed Civil Case No. 94-1610 against both PDCP and FEBTC before the RTC of Makati, seeking to recover an alleged overpayment of P5.3 million—P4.335 million from PDCP and P965,000 from FEBTC—and to secure the cancellation and release of the mortgages. On May 31, 1995, Branch 132 of the Makati RTC ordered PDCP to pay petitioners P4.035 million with interest, to release or cancel the mortgages on the five parcels of land in Mati, Davao Oriental and on the machinery and equipment, and to return the corresponding titles. The complaint against FEBTC was dismissed for lack of cause of action, the trial court finding that the MOA between petitioners and FEBTC was not subject to the Supreme Court’s Decision in G.R. No. 73198.

• CA-G.R. CV No. 50591 and Finality: Petitioners and PDCP appealed to the Court of Appeals (CA-G.R. CV No. 50591). On May 22, 1998, the CA rendered a Decision holding that: (1) the P1.4 million obligation determined by the Supreme Court could not be increased or decreased by any act of PDCP, and FEBTC, as assignee, stood in PDCP's shoes; (2) the excess payment of P5 million—the difference between the P6.4 million paid to FEBTC and the P1.4 million obligation—was received by FEBTC without right, giving rise to an obligation to return it under the principle of solutio indebiti; (3) however, because petitioners had claimed only P965,000 from FEBTC in their complaint, the court could not grant a relief different from or in excess of that prayed for, thus FEBTC was ordered to pay P965,000 with legal interest from the date of promulgation of the judgment; and (4) PDCP had no further claim against petitioners, their obligation having been overpaid, and PDCP was ordered to release or cancel the mortgages and return the certificates of title. FEBTC's motion for reconsideration was denied, and its further appeal to the Supreme Court was refused, rendering the CA Decision final and executory on November 23, 1999. A Notice of Satisfaction of Judgment between petitioners and FEBTC was submitted on August 8, 2000.

• Civil Case No. 00-540 (the Present Suit): On April 25, 2000, petitioners filed the present complaint in the RTC of Makati against FEBTC alone, seeking to recover the P4.335 million balance of the alleged overpayment that had not been awarded in the prior suit. FEBTC answered, raising res judicata, and filed a third-party complaint against PDCP. The trial court denied petitioners' motion for summary judgment. On July 10, 2001, the RTC, Branch 143, dismissed the complaint on the grounds of res judicata and splitting of a cause of action. Reconsideration was denied on September 24, 2001.

• Absence of Res Judicata: Petitioners argued that the prior judgment in CA-G.R. CV No. 50591 did not bar the subsequent action because the first suit sought only P965,000 from FEBTC, and the remaining P4.335 million had never been finally adjudicated as against FEBTC. The cause of action to recover the balance arose only upon the CA's declaration that FEBTC was the party obliged to return the overpayment.

• No Splitting of Cause of Action: Petitioners maintained that no splitting occurred because the legal basis for the second suit—the CA Decision's definitive ruling on FEBTC's liability under solutio indebiti—did not exist at the time of the first complaint. The two suits therefore rested on distinct factual and legal predicates.

• FEBTC’s Liability for Entire Overpayment: Petitioners contended that FEBTC, having actually received P6.4 million and having been identified by the CA as the party liable for the overpayment, must be held liable for the entire unreturned excess of P4.335 million.

• Ineffectual Contractual Provisions: Petitioners argued that the provisions in the Deed of Assignment and the MOA stating that the assignment of receivables would not be affected by the Supreme Court's Decision in G.R. No. 73198 could not override the CA's finding of overpayment and FEBTC's obligation of restitution.

• Bar by Prior Judgment: FEBTC countered that the complaint was barred by res judicata in the sense of "bar by prior judgment." Civil Case No. 94-1610 and the ensuing CA Decision finally settled the entire controversy over the alleged overpayment between the same parties and on the same cause of action—the recovery of excess payment corresponding to the same wrongful act of FEBTC in withholding the refund. The final judgment was conclusive not only as to matters actually litigated but also as to every ground for relief that could have been raised.

• Splitting of a Single Cause of Action: FEBTC argued that petitioners impermissibly divided a single, indivisible claim for the recovery of the overpayment into multiple suits, first claiming P965,000 and later seeking the balance, a practice expressly prohibited by Section 4, Rule 2 of the Revised Rules of Court.

• PDCP’s Indemnity Liability: In its third-party complaint, FEBTC contended that should it be held liable, PDCP must reimburse it because PDCP had received P5,435 million as consideration for assigning receivables that proved to be largely nonexistent.

• Conclusiveness of the CA Judgment: Both respondents maintained that the CA Decision in CA-G.R. CV No. 50591 conclusively determined the limits of recovery against each defendant based on the specific amounts claimed, and any attempt to enlarge that recovery constituted an impermissible collateral attack on a final judgment.

• Res Judicata: Whether the complaint in Civil Case No. 00-540 was barred by res judicata in light of the final and executory judgment in CA-G.R. CV No. 50591.

• Splitting of Cause of Action: Whether the filing of Civil Case No. 00-540 to recover the balance of an alleged overpayment, after having previously sued for a portion thereof in Civil Case No. 94-1610, constituted a prohibited splitting of a single cause of action under Section 4, Rule 2 of the Rules of Court.

• Res Judicata: The dismissal on the ground of res judicata was proper. All four essential requisites of "bar by prior judgment" were satisfied. First, the CA Decision in CA-G.R. CV No. 50591 was a final judgment on the merits, having become executory upon the denial of FEBTC's appeal. Second, the court that rendered it possessed jurisdiction over the subject matter and the parties. Third, the judgment determined the rights and liabilities of the parties on the merits, ruling that the overpayment amounted to P5 million and that FEBTC was bound to refund the excess under solutio indebiti. Fourth, there existed identity of parties, subject matter, and causes of action between the two suits: both were brought by the same petitioners against FEBTC; both concerned the same alleged overpayment of P5.3 million; and both were grounded on the same wrongful act—FEBTC's receipt and retention of an amount in excess of what was due. The test for identity of causes of action—whether the same evidence would sustain both actions—was met, as the very same Deed of Assignment, its Supplements, the MOA, and the Supreme Court Decision in G.R. No. 73198 were submitted in both cases. A party cannot avoid res judicata by varying the form of action or by pleading newly discovered justifications; the doctrine rests on the public policy that litigation must at some point be terminated.

• Splitting of Cause of Action: The filing of Civil Case No. 00-540 also violated the rule against splitting a single cause of action. Section 4, Rule 2 of the Rules of Court provides that if multiple suits are instituted on the same cause of action, a judgment on the merits in any one is available as a ground for dismissal of the others. Petitioners divided a single, indivisible claim—the recovery of the overpayment arising from the same loan transaction—into separate suits: first demanding P965,000 and later the remaining P4.335 million. Because a plaintiff cannot divide the grounds for recovery, all available grounds for relief must be set forth in the first action; piecemeal successive actions for the same wrong are prohibited. Having failed to claim the entire overpayment in Civil Case No. 94-1610, petitioners were barred from pursuing the remainder in Civil Case No. 00-540.

• Res Judicata: Bar by Prior Judgment (Section 47[b], Rule 39, Rules of Court) — A final judgment on the merits rendered by a court of competent jurisdiction bars a subsequent action between the same parties, their privies, or successors-in-interest involving the same cause of action. The judgment is conclusive not only on matters actually raised and decided but also on any other matter that could have been raised in relation to that cause of action. The four requisites are: (1) finality of the former judgment, (2) jurisdiction of the court that rendered it over the subject matter and the parties, (3) a judgment on the merits, and (4) identity of parties, subject matter, and causes of action between the two suits. All four were present, making the CA Decision an absolute bar to the subsequent complaint.

• Res Judicata: Conclusiveness of Judgment (Section 47[c], Rule 39, Rules of Court) — Any right, fact, or matter directly adjudicated in a former judgment is conclusively settled between the parties and cannot be relitigated in a subsequent case, even if the second action involves a different cause of action, so long as the parties are identical. The principle prevents the reexamination of issues that were necessarily determined in the prior case.

• Identity of Causes of Action: The Evidence Test — For purposes of res judicata, two actions involve the same cause of action if the same evidence that would support recovery in the second suit would also authorize recovery in the first, even if the forms or nature of the actions differ. Because petitioners presented the same documentary evidence and factual allegations in both suits, their causes of action were identical.

• Splitting a Single Cause of Action (Section 4, Rule 2, Rules of Court) — A plaintiff is prohibited from dividing a single or indivisible cause of action into several parts or claims and instituting two or more suits upon it. If multiple suits are filed on the same cause of action, the filing of one or a judgment on the merits in any one is a ground for dismissal of the others. The rule compels the plaintiff to raise every ground for relief existing at the time of the first action and forbids piecemeal recovery for the same wrong. It is founded on the public policy against unnecessary multiplicity of suits—interest reipublicae ut sit finis litium.

• Solutio Indebiti (Articles 2154 and 2163, Civil Code) — Where something is received when there is no right to demand it and it was unduly delivered through mistake, an obligation to return it arises. The CA in the prior case applied this principle to FEBTC as the recipient of the excess payment, but the recovery was circumscribed by the amount claimed in the complaint.

• "It is well established, however, that a party cannot, by varying the form of action or adopting a different method of presenting his case, or by pleading justifiable circumstances as herein petitioners are doing, escape the operation of the principle that one and the same cause of action shall not be twice litigated."

• "In fact, authorities tend to widen rather than restrict the doctrine of res judicata on the ground that public as well as private interest demands the ending of suits by requiring the parties to sue once and for all in the same case all the special proceedings and remedies to which they are entitled."

• "This rule proscribes a party from dividing a single or indivisible cause of action into several parts or claims and instituting two or more actions based on it. Because the plaintiff cannot divide the grounds for recovery, he is mandated to set forth in his first action every ground for relief which he claims to exist and upon which he relies; he cannot be permitted to rely upon them by piecemeal in successive actions to recover for the same wrong or injury."

• "To allow the re-litigation of an issue that was finally settled as between petitioners and FEBTC in the prior case is to allow the splitting of a cause of action, a ground for dismissal under Section 4 of Rule 2 of the Rules of Court …"

• "Re-litigation of matters already settled by a court's final judgment merely burdens the courts and the taxpayers, creates uneasiness and confusion, and wastes valuable time and energy that could be devoted to worthier cases."

• Mallion v. Alcantara, G.R. No. 141528, October 31, 2006, 506 SCRA 336 — Enumerated the four requisites of bar by prior judgment and articulated the "same evidence" test for identity of causes of action; applied as controlling.

• Perez v. Court of Appeals, G.R. No. 157616, July 22, 2005, 464 SCRA 89 — Reinforced the requisites of res judicata and the prohibition against splitting a single cause of action; followed.

• Vda. De Cruzo v. Carriaga, Jr., G.R. Nos. 75109-10, June 28, 1989, 174 SCRA 330 — Distinguished "bar by prior judgment" from "conclusiveness of judgment," and underscored the public policy of ending litigation; relied upon.

• Private Development Corporation of the Philippines v. Intermediate Appellate Court, G.R. No. 73198, September 2, 1992, 213 SCRA 282 — The antecedent Supreme Court decision that fixed petitioners' remaining principal obligation at P1.4 million; the factual predicate of the overpayment claims.

• Allied Banking Corporation v. Court of Appeals, G.R. No. 108089, January 10, 1994, 229 SCRA 252 — Cited for the rule that a final and executory judgment on the merits, even if erroneous, constitutes res judicata.

• Section 47, Rule 39, Revised Rules of Court — On the effect of judgments and final orders, specifically paragraph (b) (bar by prior judgment) and paragraph (c) (conclusiveness of judgment). The final CA Decision in CA-G.R. CV No. 50591 operated as a bar to Civil Case No. 00-540 under both concepts.

• Section 4, Rule 2, Revised Rules of Court — On the effect of splitting a single cause of action. The prior suit's judgment on the merits was a statutory ground for dismissal of the second suit based on the same cause of action.

• Articles 2154 and 2163, Civil Code — On solutio indebiti, the quasi-contractual obligation to return what has been unduly received. Applied by the CA in the prior case to determine that FEBTC received the overpayment without right.

Justices Quisumbing, Carpio, Tinga, and Velasco, Jr., concurred.