Oropeza Marketing Corporation vs. Allied Banking Corporation

Where there is substantial identity of parties but no identity of causes of action between two cases, the applicable aspect of res judicata is "conclusiveness of judgment," which bars relitigation of matters actually and necessarily determined in the prior suit.

On October 12, 1982, Allied Banking Corporation extended a P780,000 loan to Oropeza Marketing Corporation and the spouses Rogaciano and Imelda Oropeza, secured by a promissory note, a Continuing Guaranty/Comprehensive Surety Agreement, and a Real Estate Mortgage over the spouses' properties. Upon the petitioners' alleged default, Allied Bank filed a collection suit with an application for preliminary attachment. During the pendency of the attachment application, 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 the mortgaged properties. Consequently, Allied Bank instituted a separate complaint for the annulment of the deed of sale and a criminal complaint for fraudulent insolvency.

• The Loan and Security: On October 12, 1982, Allied Bank extended a P780,000 loan to OMC and the spouses Oropeza, payable at a monthly amortization of P20,000 with 22% per annum interest and a 1.0% per month penalty for non-payment. The loan was secured by Promissory Note No. DSP#0191/82, a Continuing Guaranty/Comprehensive Surety Agreement executed by the spouses for P840,000, and a Real Estate Mortgage over their properties.
• Default and Initial Suit: Petitioners allegedly defaulted on the obligation, prompting Allied Bank to file a collection suit with an application for a writ of preliminary attachment, docketed as Civil Case No. 19325-88 before the RTC of Davao City, Branch 15. The case was archived multiple times due to Allied Bank's failure to post the attachment bond and the pendency of a related criminal case for fraudulent insolvency.
• Subsequent Suits: Upon discovering the execution of an Absolute Deed of Sale with Assumption of Mortgage in favor of Solid Gold Commercial Corporation covering the mortgaged properties, Allied Bank filed a complaint for annulment of the deed of sale (Civil Case No. 19634-89) before the RTC of Davao City, Branch 9, and a criminal complaint for fraudulent insolvency (Criminal Case No. 18518-89) before the RTC of Davao City, Branch 10.
• Judgment in the Annulment Suit: On October 26, 1992, RTC Branch 9 rendered judgment in Civil Case No. 19634-89, declaring the deed of sale valid, stating the individual defendants' accounts had been satisfied and set off, declaring the promissory note void, and ordering Allied Bank to pay attorney's fees.
• Dismissal of the Collection Suit: On February 21, 1994, RTC Branch 15 dismissed Civil Case No. 19325-88 on the ground of litis pendencia, finding an identity of parties and causes of action between the collection suit and the annulment suit.
• Appellate Proceedings: Allied Bank appealed the dismissal to the Court of Appeals (CA-G.R. CV No. 47775), which reversed the RTC and ordered the reinstatement of the collection suit. Meanwhile, the Court of Appeals in CA-G.R. CV No. 41986 affirmed the RTC Branch 9 decision in the annulment suit, sustaining the findings that the deed of sale was valid, the promissory note was spurious and without consideration, and the loan obligation had been settled and paid.

• Litis Pendencia and Res Judicata: Petitioners maintained that the Court of Appeals gravely abused its discretion in not sustaining the dismissal of the complaint based on litis pendencia or, alternatively, in not suspending the proceedings until the final determination of the annulment case.
• Identity of Rights and Causes of Action: Petitioners argued that the appellate court seriously erred in reversing the trial court's finding that there was identity of rights asserted and relief prayed for between the two civil cases.
• Prejudicial Question/Conclusiveness: Petitioners contended that the appellate court manifestly overlooked the decision in the annulment case, which had already declared the promissory note null and void, thereby barring any claim under it. They asserted that a prejudicial question existed that must be resolved before the collection suit could proceed.

• No Identity of Rights: Respondent countered that there was no identity of rights asserted in the two civil cases, as the annulment case involved the annulment of a deed of sale with assumption of mortgage, while the collection suit was for a sum of money.
• No Identity of Parties: Respondent argued that there was no identity of parties because OMC was not impleaded in the annulment case, and Solid Gold Commercial Corporation was not a party in the collection suit.
• No Litis Pendencia or Res Judicata: Respondent submitted that because there was no litis pendencia involved regarding the two cases, a decision in one could not serve as res judicata in the other.

• Res Judicata: Whether the decision of the Court of Appeals in the annulment case (CA-G.R. CV No. 41986) constitutes res judicata insofar as the collection suit (Civil Case No. 19325-88) is concerned.
• Identity of Parties and Causes of Action: Whether there is identity of parties, subject matter, and causes of action between the two civil cases.

• Res Judicata: The prior judgment constitutes res judicata under the principle of "conclusiveness of judgment." While there was no identity of causes of action to support "bar by prior judgment," the matters actually and directly determined in the prior suit—specifically that the promissory note was spurious and the debt was settled—conclusively settled those issues between the parties. Because the debt had been determined with finality as settled, the cause of action in the collection suit was extinguished.
• Identity of Parties: Substantial identity of parties exists. Allied Bank was the plaintiff in both cases, and the Oropeza spouses were defendants in both. The fact that OMC was not impleaded in the annulment case, or that Solid Gold was not a party in the collection suit, does not evade the application of res judicata. A party cannot circumvent res judicata by simply including additional parties in subsequent litigation or excluding parties from a later case who were present in the prior suit.
• Identity of Causes of Action: No identity of causes of action exists. The collection suit was based on the failure to pay the loan, whereas the annulment suit was based on the fraudulent sale of the mortgaged properties. Applying the "same evidence test," the evidence required for the collection suit is merely included in, but does not encompass, the evidence needed for the annulment suit, which must additionally prove the mortgage, the default, and the fraudulent intent in the sale. Accordingly, "bar by prior judgment" did not apply; however, "conclusiveness of judgment" was triggered by the substantial identity of parties.

• Res Judicata (Bar by Prior Judgment) — Exists when there is identity of parties, subject matter, and causes of action between the first and second cases. The judgment in the first case constitutes an absolute bar to the second action, concluding the litigation between the parties and their privies.
• Res Judicata (Conclusiveness of Judgment) — Exists when there is identity of parties but no identity of causes of action. The first judgment is conclusive only as to matters actually and directly controverted and determined, and not as to matters merely involved therein. Any right, fact, or matter directly adjudicated or necessarily included in the determination of the prior action cannot be relitigated between the parties and their privies.
• Substantial Identity of Parties — Absolute identity of parties is not required for res judicata to apply. The inclusion of additional parties in the second case, or the exclusion of parties from the second case who were present in the first, does not nullify the effect of a final judgment. A party may not evade the application of res judicata by the mere expediency of joining new parties.
• Identity of Causes of Action Test — Identity of causes of action is determined by whether the same evidence would sustain both actions. It is determined by the facts alleged, not by the prayer of the complaint.

• "The rule on identity of parties does not require absolute, but only substantial identity of parties. x x x 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."
• "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.' x x x 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."

• Philippine National Bank v. Barreto, 52 Phil. 818 (1929) — Cited for the definition and two aspects of res judicata, establishing that an existing final judgment is conclusive of the rights of the parties in all other actions on points and matters in issue in the first suit.
• Vda. de Cruzo vs. Carriaga, Jr., 174 SCRA 330 (1989) — Followed for the concept of "conclusiveness of judgment," explaining that where there is identity of parties but no identity of causes of action, the first judgment is conclusive only as to matters actually and directly controverted and determined.
• Republic v. Planas, 18 SCRA 132 (1966) — Followed for the rule on substantial identity of parties, holding that the operation of a final judgment is not altered by the fact that somebody who was not a party in the first action has been impleaded in the second case.
• Peñalosa v. Tuason, 22 Phil 303 (1912) — Followed for the "same evidence test" to determine identity of causes of action.

• Rule 39, Section 47(b), 1997 Rules of Civil Procedure — Governs "bar by prior judgment," providing that a judgment is conclusive between the parties and their successors in interest litigating for the same thing and under the same title and capacity. Applied to distinguish the present case, as there was no identity of causes of action.
• Rule 39, Section 47(c), 1997 Rules of Civil Procedure — Governs "conclusiveness of judgment," providing that in any other litigation between the same parties or their successors in interest, only matters actually and necessarily adjudged in the former judgment are deemed conclusive. Applied as the proper basis to bar the collection suit, given the substantial identity of parties but lack of identity of causes of action.

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