Development Bank of the Philippines vs. Pundogar

A complaint seeking to recover property previously foreclosed and adjudicated in a prior final judgment is barred by res judicata, and the cause of action for annulment of foreclosure prescribes, as the period of martial law did not, as a universal rule, constitute a force majeure that suspends the running of prescription.

The historical dispute originated from the government's efforts to establish an integrated steel industry through Iligan Integrated Steel Mills, Inc. (IISMI), a joint venture with the Jacinto family. After IISMI defaulted on massive loans from the Development Bank of the Philippines (DBP), it filed an injunction suit (Civil Case No. 1701) in 1971 to prevent foreclosure, alleging government conspiracy. During the pendency of related petitions before the Supreme Court, martial law was declared, and the government took over IISMI's operations. The trial court subsequently dissolved the injunction in 1974, finding gross mismanagement by the Jacintos, and later dismissed the complaint with prejudice for failure to prosecute. DBP foreclosed the mortgages and consolidated ownership in 1975. Fourteen years later, the Jacinto group filed a new complaint (Civil Case No. 111-1549) to annul the foreclosure and recover the assets.

• Nature of the Action: This is a special civil action for certiorari seeking to annul the trial court's orders denying petitioners' motion to dismiss in Civil Case No. 111-1549, a complaint for annulment of extrajudicial foreclosure and reconveyance of property.
• Background of IISMI: IISMI was incorporated in 1963 as a private venture with government support to establish an integrated steel plant. It obtained substantial loans from DBP, secured by mortgages over all its assets.
• The 1971 Injunction Case (Civil Case No. 1701): To forestall foreclosure due to loan defaults, IISMI sued DBP and other government agencies, alleging its inability to pay was due to government violations of its commitments. A preliminary injunction was issued.
• Martial Law Takeover & Dismissal of Prior Case: After martial law was declared, the government took over IISMI via Letters of Instruction. The Supreme Court remanded the case for further proceedings. The trial court then dissolved the injunction in 1974, finding IISMI's mismanagement caused its financial failure. The case was later dismissed with prejudice for IISMI's failure to appear at pre-trial.
• The 1974 Foreclosure: Following the finality of the dismissal, DBP extrajudicially foreclosed the mortgages on February 26, 1974, and consolidated ownership in 1975.
• The 1989 Complaint (Civil Case No. 111-1549): Fourteen years later, private respondents (IISMI, Fernando Jacinto, and Jacinto Steel, Inc.) filed a new complaint seeking to annul the foreclosure, alleging it was fraudulent and part of a plan to deprive them of their assets.
• Lower Court's Action: The RTC denied petitioners' motions to dismiss, prompting the present petition.

• Res Judicata: Petitioners argued that the final orders in Civil Case No. 1701 (dissolving the injunction and dismissing the case) barred the new complaint, as there was identity of parties, subject matter, and causes of action.
• Prescription: Petitioners contended the action had prescribed, as it was filed 16 years after the 1974 Orders. The applicable prescriptive periods (4 years for tort, 10 years for constructive trust) had lapsed.
• Lack of Jurisdiction: Petitioners asserted the RTC lacked jurisdiction because granting the reliefs would necessarily annul the final judgments of a co-equal court (the former CFI), an action within the exclusive original jurisdiction of the Court of Appeals.
• Failure to State a Cause of Action: Petitioners maintained the Jacintos and JSI, as mere stockholders, had no legal right to sue; only IISMI could.

• No Identity of Causes of Action: Respondents countered that the amended complaint contained new allegations (e.g., martial law events, post-EDSA developments) not present in the first case, thus res judicata did not apply.
• Prescription Interrupted: Respondents argued prescription was suspended during the martial law regime, which should be treated as force majeure, and that the action to recover immovable property prescribes in 30 years.
• Jurisdiction Proper: Respondents believed the RTC had jurisdiction as the case was one for reconveyance of real property, not for annulment of judgment.
• Derivative Suit: Respondents argued they could file a derivative suit on behalf of IISMI, as demand on its board would be futile.

• Res Judicata: Whether the prior judgment in Civil Case No. 1701 bars the filing of Civil Case No. 111-1549.
• Prescription: Whether the cause of action in Civil Case No. 111-1549 has prescribed.
• Jurisdiction: Whether the Regional Trial Court has jurisdiction over Civil Case No. 111-1549.
• Cause of Action: Whether the complaint states a cause of action.

• Res Judicata: The requisites for res judicata were present. The prior orders were final judgments on the merits. There was substantial identity of parties and subject matter. The test for identity of causes of action—whether the same evidence would support both actions—was met, as both cases centered on the legality of the foreclosure based on alleged government conspiracy and mismanagement. The additional allegations in the amended complaint either could have been raised in the first case or were mere reiterations of the same core claim.
• Prescription: The cause of action had prescribed. The martial law period did not, as a universal rule, constitute force majeure that suspends prescription. Respondents failed to prove they were specifically prevented from enforcing their rights during that period. Their allegations of cancelled passports, seized resources, and withdrawn counsel were not substantiated and had been previously rejected by the Court. The claim of constructive trust was unavailing, as there was no evidence the properties were acquired through mistake or fraud by DBP/NSC.
• Jurisdiction: The RTC lacked jurisdiction. While the complaint did not expressly pray for annulment of the 1974 Orders, granting the reliefs sought (nullification of foreclosure and reconveyance) would have the necessary effect of annulling those final judgments. This constitutes a collateral attack on a final judgment, which is proscribed. The exclusive original jurisdiction over actions for annulment of RTC judgments lies with the Court of Appeals.
• Cause of Action: The complaint stated a cause of action. The private respondents could validly file a derivative suit, as demand on IISMI's board would be futile given its questionable constitution. However, this finding was rendered moot by the affirmative defenses of res judicata, prescription, and lack of jurisdiction.

• Res Judicata — A final judgment on the merits is conclusive between the parties and their successors-in-interest. The elements are: (1) finality of the former judgment; (2) jurisdiction of the rendering court; (3) judgment on the merits; and (4) identity of parties, subject matter, and causes of action. Identity of causes of action is determined by the "same evidence" test. The bar extends not only to matters actually adjudged but also to matters that could have been raised in relation thereto.
• Prescription and Force Majeure — The period during which an obligee is prevented by a fortuitous event from enforcing his right is not reckoned against him (Art. 1154, Civil Code). However, the declaration of martial law does not, as a universal rule, constitute force majeure that suspends all prescriptive periods. Claims must be assessed on a case-to-case basis, with the burden on the claimant to prove they were specifically prevented from filing suit.
• Collateral Attack on Judgment — A final and executory judgment cannot be attacked collaterally. An action that, while not expressly seeking annulment, would have the necessary effect of invalidating a final judgment if the reliefs are granted, is considered a collateral attack and is prohibited. The proper remedy is a direct action for annulment of judgment before the Court of Appeals.

• "The rule, however, admits of exceptions, such as when the court, in denying the motion to dismiss acts without or in excess of jurisdiction or with grave abuse of discretion. In such an instance, certiorari becomes available in order to relieve the defendant of the trouble of undergoing the ordeal and expense of a useless trial."
• "It is our opinion that claims should be taken on a case-to-case basis. This selective rule is compelled, among others, by the fact that not all those imprisoned or detained by the past dictatorship were true political oppositionists, or, for that matter, innocent of any crime or wrongdoing. Indeed, not a few of them were manipulators and scoundrels."
• "To cast the issue in such terminology is to ensnare the unwary who, in much the same manner, is confronted with the question: 'When did you stop beating your wife?' on the false assumption that the addressee is in fact guilty of the obnoxious act of wife-bashing."

• Tan v. Court of Appeals, G.R. No. 90365, March 18, 1991, 195 SCRA 355 — Cited and followed for its holding that the martial law period does not, as a universal rule, interrupt the running of prescription.
• National Development Co. v. Court of Appeals, G.R. No. 98467, July 10, 1992 — Reiterated the ruling in Tan v. Court of Appeals regarding prescription.
• Republic v. CFI of Lanao del Norte, 53 SCRA 317 (1973) — Referenced for the procedural history of the related injunction case and the Court's prior observations on the withdrawal of IISMI's counsel.

• Section 49(b), Rule 39, Rules of Court — Provides that a judgment is conclusive between parties with respect to the matter directly adjudged or as to any other matter that could have been raised in relation thereto. Applied to bar the new allegations in the amended complaint.
• Article 1154, Civil Code — States that the period during which the obligee was prevented by a fortuitous event from enforcing his right is not reckoned against him. Interpreted to hold that martial law is not an automatic fortuitous event suspending prescription.
• Section 9(2), Batas Pambansa Blg. 129 — Cited to establish that the Court of Appeals has exclusive original jurisdiction over actions for annulment of judgments of Regional Trial Courts.

Justices Bidin, Griño-Aquino, Regalado, Davide, Jr., Nocon, Bellosillo, and Melo concur. Justice Campos, Jr. concurred with a separate opinion. Chief Justice Narvasa and Justices Feliciano and Padilla took no part.

• Justice Gutierrez, Jr. — Argued that the private respondents were denied due process. The trial during martial law was one-sided, as the Jacintos were in forced exile, their lawyers withdrew, and they could not present evidence. The findings of mismanagement should not be accepted without a full hearing where both sides can be heard. He voted to dismiss the petition and allow the case to proceed on the merits.
• Justice Cruz — Joined Justice Gutierrez's dissent, emphasizing the historical reality of the dictatorship and the futility of challenging state actions during that period. He criticized the majority for retroactively validating the actions of the Marcos regime and stressed that due process is non-negotiable.