Republic of the Philippines

SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 148980               September 21, 2007

PCI LEASING & FINANCE, INC., Petitioner,

DECISION

CARPIO MORALES, J.:

Respondents, spouses George and Divina Dai, obtained a loan on June 16, 1994 from petitioner,
PCI Leasing and Finance, Inc., evidenced by a promissory note 1 for the sum of ₱3,352,892 payable
in monthly installments of ₱152,265 starting on July 16, 1994. The proceeds of the loan partly
financed the purchase by respondents of a vessel-fishing boat which was named "F/B Sea Doll." To
secure the payment of the loan, respondents executed a chattel mortgage 2 over the vessel in favor
of petitioner.

Both the promissory note and the chattel mortgage provided that, in case of failure to pay the
installments or interest due thereon, the entire amount remaining unpaid shall immediately become
due and payable.3

Respondents failed to pay the second and third installments which fell due on August 16, 1994 and
September 16, 1994, respectively, prompting petitioner to file on October 27, 1994 before the
Regional Trial Court (RTC) of Cebu City a complaint for replevin and damages, docketed as Civil
Case No. CEB-16691, praying that the trial court:

a) . . . issue a writ of replevin ordering the seizure of the vessel xxx complete with all its
accessories and equipments [sic], together with the registration certificate and direct the
delivery thereof to plaintiff in accordance with law and after due hearing, declare that plaintiff
is entitled to the possession of the vessel and confirm its seizure and delivery to plaintiff;

b) In the event that manual delivery of the said vessel cannot be effected, . . . render
judgment in favor of plaintiff and against defendants ordering them to pay the plaintiff, the
sum of P3,502,095.00 plus interest and penalty thereon from October 12, 1994 until fully
paid as provided in the Promissory Note [;]

c) In either case, . . . order defendants to pay jointly and severally the sum of P1,225,733.25
as attorney’s fees and liquidated damages, plus bonding fees and other expenses incurred in
the seizure of the said vessel which will be proved during the trial. 4 (Emphasis and
underscoring supplied)

In their Answer, respondents claimed that, inter alia, the possession of the vessel including its
registration certificate had been surrendered to petitioner before the filing of the complaint.
Respondents thus prayed for the award of damages and attorney’s fees by way of Counterclaim.
Following the filing by respondents of their Answer, petitioner foreclosed the chattel mortgage and
bought the vessel at the public auction conducted on January 13, 1995 for ₱2,000,000. 5 A Certificate
of Sale of the vessel in favor of petitioner was subsequently issued on January 16, 1995.

More than eight months later or on September 29, 1995, the Pre-trial of the case was conducted
during which the following were defined as issues:

1. Whether or not [petitioner] is entitled to recover damages from the [respondents]; and

2. Whether or not [respondents] are entitled to recover damages in accordance with their
counterclaim.6

By Decision7 of February 3, 1997, Branch 58 of the Cebu RTC resolved both issues in the negative
in this wise:

The evidence further shows that defendants were not able to pay off their obligation to plaintiff due to
the fact that their fishing area in Batanes and their boat were badly damaged. Defendants in fact
informed plaintiff of their predicament by sending plaintiff a copy of a letter explaining such
predicament (Exh. "2"). There was no bad faith on defendants’ part when they failed to comply with
their obligation.

The Court is convinced that plaintiff is not entitled to recover from defendants attorney’s fees and
liquidated damages in the sum of ₱1,225,733.25. "In determining whether a penalty clause is
‘iniquitous and unconscionable,’ a court may very well take into account the actual damages
sustained by a creditor who has been compelled to sue the defaulting debtor x x x." (Pacific Mills,
Inc. vs. Court of Appeals, G.R. No. 87182, February 17, 1992, 206 SCRA 317, 327) No substantial
damage having been sustained by plaintiff as it already had in its possession the certificate of
registration of the vessel and had in fact foreclosed the mortgage on said vessel, its claim for
attorney’s fees and liquidated damages must fail.

On the second issue –

Defendants have not presented sufficient and convincing evidence to support their claim for moral
and exemplary damages and attorney’s fees. Hence, said claim is hereby denied for lack of
merit.8 (Emphasis and underscoring supplied)

Accordingly, the trial court dismissed the parties’ respective claims for damages and attorney’s fees.
No appeal having been taken from the trial court’s decision, it became final and executory.

More than a year and a half following the promulgation by the trial court of its decision in Civil Case
No. CEB-16691 or on August 26, 1998, petitioner filed a complaint 9 for deficiency judgment and/or
collection of sum of money before the Cebu RTC where it was docketed as Civil Case No. CEB-
22585. In its complaint, petitioner alleged, inter alia, as follows:

xxxx

10. Subsequent to the aforesaid sale the outstanding obligation of defendants to the plaintiff,
inclusive of interest, and net of its P2,000,000.00, representing the proceeds of the aforesaid sale of
the mortgaged property is Philippine Pesos: Nine Hundred Sixty-One Thousand (P961,000.00) as of
January 16, 1995 exclusive of cost of suit and collection expenses;
11. Payment of the aforesaid outstanding obligation representing the deficiency claims of the plaintiff
arising from the said promissory note (Annex "A") is now long overdue but defendants failed and
refused and still fail and refuse to pay the same despite demand from plaintiff;

12. It is expressly stipulated in the promissory note (Annex "A") that in case the same is referred to
an attorney-at-law for collection defendants shall pay attorney’s fees in a sum equivalent to ten
percent (10%) of the amount due and twenty-five percent (25%) of the total amount due
as liquidated damages aside from expenses of collection an[d] costs of suit which amount is
equivalent to P336,350.00[.]

x x x x10 (Underscoring supplied)

Petitioner thus prayed that the court render judgment in its favor and against respondents, ordering
them to pay.

1. The amount of P961,000.00 representing the outstanding obligation of the defendants to

2. The amount of P336,350.00 as attorney’s fees and liquidated damages;

3. The costs of suit and collection expenses.

x x x x11 (Underscoring supplied)

In their Answer12 to the complaint in Civil Case No. CEB-22585, respondents pleaded bar by prior
judgment13 and Article 1484 of the Civil Code14 which provides:

Art. 1484. In a contract of sale of personal property the price of which is payable in installments, the
vendor may exercise any of the following remedies:

(1) Exact fulfillment of the obligation, should the vendee fail to pay;

(2) Cancel the sale, should the vendee’s failure to pay cover two or more installments;

(3) Foreclose the chattel mortgage on the thing sold, if one has been constituted, should the
vendee’s failure to pay cover two or more installments. In this case, he shall have no further
action against the purchaser to recover any unpaid balance of the price. Any agreement to
the contrary shall be void. (Underscoring supplied)

By Decision of November 22, 1999, Branch 58 of the Cebu RTC, the same branch and presided by
the same judge which decided Civil Case No. CEB-16691, dismissed Civil Case No. CEB-22585 in
this wise:

It is . . . apparent that plaintiff’s present action for deficiency judgment is barred by the prior
judgment in CEB-16691. The parties and the cause of action in CEB-16691 and the instant case are
the same. Plaintiff’s prayer in CEB-16691 is in the alternative. Having availed of foreclosure of the
chattel mortgage, plaintiff cannot anymore come to court again and avail of its second alternative
prayer. The instant case should, therefore, be dismissed. (Section 1(f), Rule 16, 1997 Rules of Civil
Procedure).
Parenthetically, let it be noted [that] in CEB-16691, plaintiff had foreclosed the mortgage and a
certificate of sale was issued in its favor even before the pre-trial conference therein was
conducted. Plaintiff did not make any move to amend the pre-trial order which limited the issues to
be resolved therein to the damages claimed by the parties. 15 (Emphasis and underscoring supplied)

On appeal, the Court of Appeals, by Decision16 dated March 12, 2001, brushed aside respondents’
invocation of Article 1484 of the Civil Code on the ground that the same applies only to a case of
sale of [personal] property payable in installments which is secured by a chattel mortgage between
the vendor and the vendee over the thing sold, 17 citing Bicol Savings & Loan Association v.
Guinhawa.18

The appellate court nevertheless affirmed the decision of the trial court on the ground of res judicata.
Thus it held:

. . . [I]t is clear that appellant’s present claim for deficiency judgment is among those matters which
could have been adjudged in CEB-16691. While that earlier case is for replevin and damages, the
appellant during the pendency of that case had extrajudicially foreclosed the chattel mortgage and
the Certificate of Sale had been issued to it by the Provincial Sheriff as the highest bidder. Appellant
after realizing the amount of P2,000,000.00 from the proceeds of the foreclosure sale, could have
prayed for a deficiency judgment in the same action as in fact it pursued its claim for attorney’s fees
and liquidated damages therein, which claim was however, dismissed by the trial court. Appellant,
however, did not press any demand for such deficiency judgment in said case and instead filed this
present suit for deficiency judgment long after the trial court rendered judgment in the earlier case. It
cannot, however, evade the application of res judicata by varying the form of its action herein since
the causes of action in the first case and in the present suit are clearly identical[.] The same
evidence which is necessary to sustain the second action would have been sufficient to authorize a
recovery in the first, even if the forms or nature of the two actions are different. That appellant’s
cause of action as such creditor-mortgagee of the defendant-appellees had already been fully
determined and tried in the earlier case would have been sufficient to put an end to litigation of such
claim or demand. The principle of res judicata is based on the salutary public policy against
unnecessary multiplicity of suits. Indeed, it is to the interest of the public that there should be an end
to litigation by the parties over a subject fully and fairly adjudicated, and an individual should not be
vexed twice for the same cause.19 (Underscoring supplied)

Its Motion for Reconsideration20 having been denied by the appellate court,21 petitioner filed the
present Petition for Review22 raising the issue of "whether or not a judgment in a replevin case and/or
delivery of personal property would bar a subsequent action for deficiency judgment." 23

For res jusdicata to apply, four requisites must be met: (1) the former judgment or order must be
final; (2) it must be a judgment or an order on the merits; (3) it must have been rendered by a court
having jurisdiction over the subject matter and the parties; and (4) there must be, between the first
and second actions, identity of parties, of subject matter and cause of action. 24

Petitioner denies the existence of identity of causes of action between the replevin case and the
case for deficiency judgment or collection of sum of money, thus:

Being a preparatory action for the foreclosure of the mortgage, necessarily therefore, the claim of the
petitioner (deficiency judgment) which is the subject of Civil Case No. CEB-22585 was not yet
covered or an issue in the said civil case. The deficiency claim of the petitioner is only determined
after the extrajudicial foreclosure.
In this connection, Section 9 of Rule 60 of the 1997 Rules of Civil Procedure categorically defines or
limits the judgment or decision that may be rendered by the court in an action for replevin, thus:

Section 9. Judgment. – After trial of the issues, the court shall determine who has the right of
possession to and the value of the property and shall render judgment in the alternative for the
delivery thereof to the party entitled to the same, or for its value in case delivery can not be made
and also for such damages as either party may prove, with costs.

Careful reading of the above-quoted procedural law would show that it does not authorize the court
to render judgment on the deficiency after foreclosure.25 (Underscoring supplied)

Petitioner’s position fails.

Petitioner ignores the fact that it prayed in the replevin case that in the event manual delivery of the
vessel could not be effected, the court "render judgment in its favor by ordering [herein respondents]
to pay . . . the sum of ₱3,502,095.00 plus interest and penalty thereon from October 12, 1994 until
fully paid as provided in the Promissory Note."26

Since petitioner had extrajudicially foreclosed the chattel mortgage over the vessel even before the
pre-trial of the case, it should have therein raised as issue during the pre-trial the award of a
deficiency judgment. After all, the basis of its above-stated alternative prayer was the same as that
of its prayer for replevin – the default of respondents in the payment of the monthly installments of
their loan.27 But it did not. 1âwphi1

Section 49 of Rule 39 of the 1964 Rules of Court, which governed petitioner’s complaint for replevin
filed on October 27, 1994, and which Section is reproduced as Section 47 of the present Rules,
reads:

SEC. 49. 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 final order, may be as
follows:

(a) In case of a judgment or final order against a specific thing, or in respect to the probate of
a will, or the administration of the estate of a deceased person, or in respect to the personal,
political, or legal condition or status of a particular person or his relationship to another, the
judgment or final order is conclusive upon the title to the thing, the will or administration, or
the condition, status or relationship of the person; however, the probate of a will or granting
of letters of administration shall only be prima facie evidence of the death of the testator or
intestate;

(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 been 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

(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 so adjudged, or which was actually and necessarily included therein or
necessary thereto. (Emphasis and underscoring supplied)
Paragraph (a) is the rule on res judicata in judgments in rem. Paragraph (b) is the rule on res
judicata in judgments in personam. Paragraph (c) is the rule on conclusiveness of judgment. 28

Petitioner contends that Section 9 of Rule 60 of the 1997 Rules of Court which reads:

Sec. 9. Judgment. – After trial of the issues, the court shall determine who has the right of
possession to and the value of the property and shall render judgment in the alternative for the
delivery thereof to the party entitled to the same, or for its value in case delivery cannot be made,
and also for such damages as either party may prove, with costs, does not authorize the court to
render judgment on the deficiency after foreclosure, citing BA Finance Corp. v. CA. 29

But replevin is, as the above-cited BA Finance Corp. case holds, usually described as a mixed
action.

Replevin, broadly understood, is both a form of principal remedy and of a provisional relief. It may
refer either to the action itself, i.e., to regain the possession of personal chattels being wrongfully
detained from the plaintiff by another, or to the provisional remedy that would allow the plaintiff to
retain the thing during the pendency of the action and hold it pendente lite. The action is primarily
possessory in nature and generally determines nothing more than the right of possession. 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.
As an "action in rem," the gist of the replevin action is the right of the plaintiff to obtain possession of
specific personal property by reason of his being the owner or of his having a special interest
therein. (Citations omitted, italics in the original, underscoring supplied)

Petitioner’s complaint for replevin was doubtless a mixed action – in rem with respect to its prayer for
the recovery of the vessel, and in personam with respect to its claim for damages. And it was, with
respect to its alternative prayer, clearly one in personam.

Following paragraph (b) of Section 49, Rule 39 of the 1964 Rules of Court, now 47 of Rule 39 of the
present Rules, petitioner’s second complaint is unquestionably barred by res judicata. 30

WHEREFORE, the petition is DENIED.

Costs against petitioner.

SO ORDERED.

CONCHITA CARPIO MORALES

WE CONCUR:

LEONARDO A. QUISUMBING
Associate Justice
Chairperson

ANTONIO T. CARPIO DANTE O. TINGA

ATTESTATION

I attest that the conclusions in the above Decision had been reached in consultation before the case
was assigned to the writer of the opinion of the Court’s Division.

LEONARDO A. QUISUMBING
Associate Justice
Chairperson

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution, and the Division Chairperson’s Attestation, I
certify that the conclusions in the above decision had been reached in consultation before the case
was assigned to the writer of the opinion of the Court’s Division.

REYNATO S. PUNO
Chief Justice

Footnotes

1
 RTC records, p. 07.

2
 Id. at 08-11.

3
 Id. at 07, 10.

4
 CA rollo, p. 31.

5
 RTC records, p. 12; CA rollo, pp. 32, 36.

6
 CA rollo, p. 35.

7
 Id. at 30-37.

8
 Id. at 37.

9
 RTC records, pp. 01-06.

10
 Id. at 03-04.

11
 Id. at 04-05.

12
 Id. at 15-19.
13
 Id. at 17.

14
 Ibid.

15
 Id. at 71.

 Penned by Court of Appeals Associate Justice Martin S. Villarama, Jr. with the
16

concurrences of Associate Justices Conrado M. Vasquez, Jr. and Perlita J. Tria Tirona.
CA rollo, pp. 40-44.

17
 Id. at 43.

18
 The Court held in this case:

x x x The conclusion x x x reached by the lower court was erroneous because in the
case at bar, the obligation contracted by the principal debtor (Depositario) with a
solidary co-maker (private respondent herein), was one of loan secured by a chattel
mortgage, executed by the principal debtor, and not a sale where the price is payable
on installments and where a chattel mortgage on the thing sold was constituted by
the buyer and, further, the obligation to pay the installments having been guaranteed
by another. (Underscoring supplied) G.R. No. 62415, August 20, 1990, 188 SCRA
642, 646. Vide CA rollo, p. 43.

19
 Id. at 43-44.

20
 Id. at 45-50.

21
 Id. at 52.

22
 Rollo, pp. 08-19.

23
 Id. at 14.

 Development Bank of the Philippines v. Court of Appeals, G.R. No. 110203, May 9, 2001,
24

357 SCRA 626, 633.

25
 Rollo, p. 16.

26
 CA rollo, p. 31, underscoring supplied.

27
 Id. at 30-31. Vide Servicewide Specialists, Inc. v. Court of Appeals, 376 Phil. 602, 612
(1999): "When the mortgagee seeks a replevin in order to effect the eventual foreclosure of
the mortgage, it is not only the existence of, but also the mortgagor’s default on, the chattel
mortgage that, among other things, can properly uphold the right to replevy the property."

28
 Regalado, Remedial Law Compendium, Vol. I.

29
 G.R. No. 102998, July 5, 1996, 258 SCRA 102, 110-111.
  Aguila v. J.M. Tuazon & Co., Inc., G.R. No. L-24223, February 23, 1968, 22 SCRA 690,
30

693-694; Viray v. Mariñas, et al., 151 Phil. 148, 152-153 (1973).