SALUD S. PAPA, PLAINTIFF AND APPELLANT, VS. GERVACIO S. BANAAG, DEFENDANT AND APPELLEE.

Appeal from a decision of the Court of First Instance of Manila
dismissing the complaint herein and sentencing plaintiff to pay to the
defendant the sum of P500.00, as attorney’s fees, and the costs of this
action.

On December 9, 1960, defendant Gervacio S. Banaag secured from
plaintiff, Salud S. Papa, a P400.00 loan, payable, with interest
thereon, ^[1] within 60 days,
and to guarantee the payment of this obligation, Banaag executed, in
favor of Mrs. Papa, a deed – which was duly recorded in the office of
the proper register of deeds – of chattel mortgage on a piano belonging
to Banaag. Alleging that Banaag had defaulted in the payment of said
obligation, sometime in May, 1961, Mrs. Papa asked the sheriff of
Quezon City to foreclose the mortgage extra-judicially. Thereupon,
Banaag filed Civil Case No. Q-6004 of Rizal against Mrs. Papa and the
sheriff to prevent said extra-judicial foreclosure and recover damages,
upon the ground that Mrs. Papa had granted him unlimited time within
which to pay the loan in question. In her answer to the complaint in
said case, Mrs. Papa denied having granted the aforementioned extension
of time and set up several counterclaims for damages (P8,000.00 for
moral damages, P200.00 for actual expenses and P200.00 for attorney’s
fees), in addition to the costs, for the malicious filing of the
complaint therein. In due course, decision was, on August 27, 1962,
rendered in said case No. Q-6004, dismissing the same, without special
pronouncement as to costs.

Soon later, or on December 3, 1962, Mrs. Papa instituted the present
action (Civil Case No. 52464 of the Court of First Instance of Manila)
against Banaag for the recovery of: 1) P456.00, representing the
principal and interest allegedly due on the loan above referred to; 2)
P4,590.00, for actual and compensatory damages allegedly sustained by
the plaintiff in consequence of the filing of case No. Q-6004; 3)
P10,000.00 for moral damages resulting from the false imputations made
by defendant herein as plaintiff in said case; 4) P1,000.00 for
exemplary damages, owing to the alleged bad faith of herein defendant;
and 5) P2,000.00, for attorney’s fees. Upon being summoned, defendant
moved to dismiss the complaint upon the ground of lack of cause of
action and release, but, the motion was denied as “not being well
founded.” Thereupon the defendant filed his answer, admitting some
allegations and denying other allegations of the complaint and alleging
several special defenses – namely: a) that this action is barred by the
decision in case No. Q-6004; b) lack of cause of action; and c) release
– and setting up counter-claims for P4,400.00, as moral, exemplary,
compensatory and actual damages, and P500.00 as attorney’s fees.

When the case was called for hearing on the merits and plaintiff was
about to present her evidence, the court inquired about the issues
between the parties. Upon being informed of case No. Q-6004 and its
dismissal, His Honor the trial Judge ordered both parties to submit
their respective memoranda on the issue of res judicata. Soon after the
filing of said memoranda, the lower court rendered the decision
appealed from, dismissing the complaint herein upon the theory that the
decision in case No. Q-6004 is “conclusive upon the parties x x x and
constitutes res judicata” and sentencing plaintiff to pay to
the defendant the sum of P500.00 as attorney’s fees, and the costs.
This decision is predicated upon the premise that plaintiff’s right to
collect the sum lent by her to the defendant, plus interest, and the
damages claimed by the former are in the nature of compulsory
counterclaims which she was bound to set up in case No. Q-6004, and
are, therefore, barred by the decision therein rendered.

Indeed, the main issue in said case No. Q-6004 was whether or not
defendant’s obligation in favor of plaintiff herein had already
matured. Banaag alleged that it had not, because, he claimed, Mrs. Papa
had extended indefinitely the date of maturity of said obligation,
whereas Mrs. Papa maintained that the obligation was overdue, because
she had granted no such extension of tine to Banaag. Thus, plaintiff’s
right to demand payment of the obligation arose out of the transaction
which was the very subject-matter of case No. Q-6004, and it partook of
the nature of a compulsory counter-claim which, would – in principle –
be barred in a subsequent action, under the provisions of Section 4 of
Rule 9 of the Revised Rules of Court.

Our Chattel Mortgage law (Sec. 16, Art. No. 1508), however, grants
the creditor the right to foreclose the mortgage extra-judicially and
the provision of the Rules of Court relative to compulsory
counterclaims should not be so construed as to repeal or abrogate this substantive
right of the creditor. In other words, despite said provision of the
Rules of Court, plaintiff was entitled to invoke and assert this right
to an extrajudicial foreclosure. In fact, such right is not denied by
defendant herein.

But, then, plaintiff now seeks to enforce her rights judicially.
May she still do so, after having chosen to avail of her extrajudicial
remedy? In this connection, plaintiff alleges that the extrajudicial
foreclosure could not take place, despite the dismissal of Case No.
Q-6004, because of the obstinate refusal of defendant herein to
surrender the mortgaged piano to the sheriff. In other words, through
his acts and omissions, herein defendant, who is a lawyer, succeeded in
preventing the extrajudicial foreclosure of the chattel mortgage he had
constituted in favor of the plaintiff. Obviously, the defendant should
not, and may not, be permitted to limit plaintiff’s rights to a mode of
redress the effectivity of which he (defendant) had defeated by his own
acts and omissions. The relation between the parties may be likened to
an alternative obligation – in that defendant’s debt may be enforced,
either against the mortgaged piano exclusively, or against the general
mass of his assets, at the option of the creditor. Since one option
has, in effect, been denied or become impossible through the debtor’s
fault, the creditor may, pursuant to Article 1205 of our Civil Code,
claim the subsisting alternative.

Indeed, more than overlooking this angle, the decision appealed from
appears to have been based upon a misapprehension of an important fact
– His Honor, the trial Judge was under the impression that the chattel
mortgage had actually been foreclosed, contrary to the allegations in the complaint which are admitted by defendant herein.

With respect, however, to the second, third and fourth causes of
action alleged in said complaint – for actual and compensatory damages,
moral damages and exemplary damages, respectively, which plaintiff
claims to be entitled to recover by reason of acts performed by the
defendant in connection with Case No. Q-6004 – it is clear that said
causes of action are necessarily connected with the aforementioned
case, and are barred by the same (Section 4, Rule 9 of the Revised
Rules of Court).

WHEREFORE, the decision appealed from is hereby affirmed
insofar as the second, third and fourth causes of action are concerned,
and set aside in all other respects, and the case is, accordingly,
remanded to the lower court for further proceedings not inconsistent
with the views herein expressed.

IT IS SO ORDERED.

Reyes, J.B.L., Barrera, Dizon, Makalintal, Bengzon, J.P., Zaldivar, Sanchez, and Ruiz Castro, JJ., concur.
Regala, J., on leave.

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^[1] The rate thereof is not stated in the record before us.