PATROCINIO YU, PETITIONER, VS. HON. COURT OF APPEALS AND TRADERS ROYAL BANK, RESPONDENTS.

The issue in the instant petition for review on certiorari
is whether or not the Court of Appeals has correctly affirmed the lower court’s
order dismissing Civil Case No. CEB-7483 on grounds of litis pendentia,
prescription, estoppel and laches.

Petitioner Patrocinio Yu owned a drugstore, called Diding’s Pharmacy, in Manalili Street, Cebu
City. In furtherance of the business,
Yu obtained from the Traders Royal Bank (“TRB”) several loans secured
by promissory notes, a chattel mortgage, letters of credit and trust receipts.

Yu’s loans in time became due and demandable but, despite TRB’s
repeated demands, Yu failed to effect payment. Finally, on 31 January 1984, TRB filed a complaint against Yu with the
Regional Trial Court of Cebu (Civil Case No. CEB-1765) for recovery of personal
property, with an alternative prayer for payment of the due obligation. TRB based its complaint on the promissory
notes and the chattel mortgage; no mention, however, was made of the trust receipts,
although in the statement of account,^[1]
attached to the complaint, reference was made to unsettled obligations under
two trust receipts (DTR 580-80 and DTR 588-80).

During the pendency of the case, TRB sought possession of the
mortgaged chattels (drugs and medicine) for the purpose of effecting an
extrajudicial foreclosure thereof. It
obtained from the court a writ of replevin on 31 May 1985 upon its filing of a
P10,000 bond. In view, however, of the
protracted proceedings on the petition for the issuance of the writ, most of
the drugs and medicine expired and apparently became valueless. TRB thus relented from further pursuing the
replevin and concentrated, instead, on its alternate prayer for a sum of money.^[2]

On 16 June 1987, TRB instituted before the Office of the City
Fiscal of Cebu City a criminal complaint (I.S. No. 87-2502) against Yu and his
wife for two counts of violation of the Trust Receipts Law (P.D. No. 115). The inquest fiscal was unmoved by Yu’s
defense that the trust receipts were null and void for being fictitious and
simulated. The fiscal found a prima
facie case against Yu, although his wife
was exonerated from any charge. A
reinvestigation was later conducted on the case upon order of the city
fiscal. The previous finding, upon
reinvestigation, was reiterated by the assistant city fiscal. The latter opined that the points raised by
Yu in his motion for reinvestigation were “matters of defense” which
he could well ventilate during the court trial.^[3]
Dissatisfied, Yu elevated the matter to the Department of Justice for review
but the appeal, on 01 December 1988, was rejected for lack of merit and,
additionally, because the appeal was filed beyond the reglementary period
therefor.^[4]

Two days after the filing of the criminal case, or on 18 June 1987, TRB instituted before
the same court CEB-6035 against Yu for the recovery of sums of money. Its complaint,^[5] this
time, specifically mentioned the trust receipts in question. Yu moved to dismiss the complaint on the
ground of litis pendentia, alleging that the
complaint was identical with Civil Case No. CEB-1765.^[6] Yu
called attention to the fact that the two cases involved the same promissory
notes and letters of credit, including “LC 587/80 (DTR 588/80)” and
“LC 590/80 (DTR 590/80).” The lower court,^[7] on 10
September 1987, dismissed Civil Case No. CEB-6035.^[8]

On 28 December 1988, Yu filed Civil Case No. CEB­-7483^[9]
with the Regional Trial Court of Cebu City against TRB for the declaration of
nullity of the two trust receipts, claiming that TRB made him sign the
documents, apparently referring to the trust receipts, “which he did not
fully understand.” TRB filed a motion to dismiss the case on various
grounds, i.e., the pendency of Civil Case No. CEB-1765, prescription, laches and
estoppel. It alleged that Yu’s
complaint was aimed merely to delay the prosecution of the criminal case for
violation of the Trust Receipts Law. On
22 March 1989, the lower court^[10]
granted the motion and dismissed Civil Case No. CEB-7483.

On appeal, the Court of Appeals^[11]
affirmed in toto the 22 March 1989 Order
of the lower court. Hence, the instant
petition for review on certiorari.

For litis pendentia to be
a ground for the dismissal of an action, the following requisites must
concur: (a) identity of parties; (b)
identity of rights asserted and relief prayed for, the relief being founded on
the same facts; and (c) the identity in the two cases should be such that the
judgment that may be rendered in one would, regardless of which party is successful, amount to res adjudicata
to the other.^[12]
In Hongkong & Shanghai Bank vs. Aldecoa & Co., 30 Phil. 255, 274-275,
this Court elaborated, thus:

“The principle upon which a plea of another action pending is
sustained is that the latter action is deemed unnecessary and vexatious. (Williams vs. Gaston, 148 Ala., 214; 42
Sou., 552; 1 Cyc. 21; 1 R.C.L., sec. 1.) A statement of the rule to which the
facts of the plea must conform in order to entitle the litigant to its
benefits, and which has often met with approval, is found in Watson vs. Jones
(13 Wall., 679, 715; 20 L. ed., 666):

“‘But when the pendency of such a suit is set up to defeat
another, the case must be the same. There must be the same parties, or at least such as represent the same
interest, there must be the same rights asserted, and the same relief prayed
for. This relief must be founded on the
same facts, and the title or essential basis of the relief sought must be the
same. The identity in these particulars
should be such that if the pending case had already been disposed of, it could
be pleaded in bar as a former adjudication of the same matter between the same
parties.’

“It will be noted that the cases must be identical in a number
of ways. It will be conceded that in so
far as the plea is concerned, the parties are the same in the case at bar as
they were in the action to have the mortgages annulled. Their position is simply reversed, the
defendants there being the plaintiffs here, and vice versa. This fact does not affect the application of
the rule. The inquiry must therefore
proceed to the other requisites demanded by the rule. Are the same rights asserted? Is the same relief prayed for?

“The test of identity in these respects is thus stated in 1
Cyc., 28:

“‘A plea of the pendency of a prior action is not available
unless the prior action is of such a character that, had a judgment been
rendered therein on the merits, such a judgment would be conclusive between the
parties and could be pleaded in bar of the second action.’

“This test has been approved, citing the quotation, in
Williams vs. Gaston (148 Ala., 214; 42 Sou., 552); Van Vleck vs. Anderson (136
Iowa, 366; 133 N.W., 853); Wetzstein vs. Mining Co. (28 Mont., 451; 72 P.,
865). It seems to us that unless the
pending action, which the appellants refer to, can be shown to approach the
action at bar to this extent, the plea ought to fail.

“The former
suit is one
to annul the mortgages. The present suit is
one for the foreclosure of the mortgages. It may be conceded that if the final judgment in the former action is that the mortgages be annulled,
such an adjudication will
deny the right of the bank
to foreclose the mortgages. But will a decree holding
them valid prevent the bank from foreclosing
them? Most certainly not. In such
an event, the judgment would
not be a bar to the prosecution of the present action. The rule is not predicated upon such a contingency. It is applicable, between
the same parties, only when the judgment
to be rendered in the
action first instituted will be such that, regardless of which party is successful, it will amount to res adjudicata
against the second action.” (Underscoring
supplied.)

In the case at bench, there is, except for the identity of
parties, a substantial disparity between CEB-1765 and CEB-7483. In the former, TRB seeks the recovery of a
sum of money from Yu on account of his unpaid loan obligations. In its complaint, TRB has not even alleged
specifically the existence of the trust receipts, although, of course, it would
appear that such trust receipts have been among the documents executed in order
to secure the outstanding loans of Yu. In CEB-7483, Yu impugns the validity of the trust receipts which he
claims to be null and void. It is clear
that a judgment in either of the two cases will not necessarily
foreclose the other on the mere basis of res adjudicata.

We agree, nonetheless, with both the court a quo and the appellate court in holding
that the action in CEB-7483 has prescribed. Both courts have ratiocinated that Yu’s cause of action in reality rests
on fraud, an action which prescribes in four (4) years. Said courts did have good reasons, in our
considered view, to thus conclude for, while Yu has ostensibly sought a
declaration of nullity of the trust receipts, for being “simulated and
fictitious,” the complaint is bereft, however, of substantial factual
allegations in support of this conclusion. Upon the other hand, clearly indicative of a case for annulment, rather
than one of nullity, of the trust receipts is Yu’s averment that he merely has
been made to sign certain documents (the trust receipts) which “he did not
fully understand.” Even assuming that such a statement did not necessarily
convey a case of fraud, it has, nevertheless, adequately impressed a situation,
at least, of mistake or ignorance in
the execution of the trust receipts. Whether the basis of Yu’s cause of action is one of fraud or of mistake,
the four-year prescriptive period for filing the case for annulment of the
trust receipts would, in any case, govern (Art. 1391, in relation to Art. 1390,
Civil Code).

The trust receipts were executed in 1980. A demand letter to make good Yu’s obligation
to the bank was made on 15 November 1982. The complaint of TRB was filed on 31 January 1984, and Yu received
summons to answer CEB-1765 in February 1984. Reckoned from whichever date mentioned above, the filing of CEB-7483 on
18 December 1988 was way beyond the four-year statute of limitation prescribed
in Article 1391^[13]
of the Civil Code. This is not to say,
however, that petitioner would thereby be precluded from raising the invalidity
of the trust receipts in the criminal charge for a violation of the Trust
Receipts Law, a matter that is alien to the instant proceedings.

Having thus ruled, we find it inconsequential to still pass upon
the other issues raised by the parties.

We cannot, however, end this ponencia without a word on
the manner counsel for both parties have poorly regarded each other in their
respective pleadings.^[14] The
use of intemperate language and unkind ascriptions, certainly less than civil,
have contributed to the prolixity of argument in an otherwise simple case. While we do not consider the acts of both
counsel grave enough to subject them to this Court’s powers of contempt and
discipline, we remind both counsel that Canon 8 of the Code of Professional
Responsibility enjoins every lawyer to “conduct himself with courtesy,
fairness and candor toward his professional colleagues, and shall avoid
harassing tactics against opposing counsel.”

WHEREFORE, the decision of the Court of Appeals is hereby
AFFIRMED, without special pronouncement on costs.

SO ORDERED.

Feliciano, (Chairman), Bidin, Romero, and Melo, JJ., concur.

^[1]
Exhs. H & H-1.

^[2]
Rollo, pp. 114 & 299.

^[3]
Record, p. 146.

^[4]
Ibid., p. 148.

^[5]
Ibid., pp. 101.

^[6]
Ibid., p. 107.

^[7]
Presided by Judge Bernardo Ll. Salas.

^[8]
Record, p. 110.

^[9]
Rollo, p. 116.

^[10]
Presided by Judge Esperanza F. Garcia.

^[11]
The decision was penned by Associate Justice Cezar D. Francisco and concurred
in by Associate Justices Antonio M. Martinez and Emeterio C. Cui.

^[12]
Ramos v. Ebarle, 182 SCRA 245 citing Marapao v. Mendoza, 119 SCRA 97 and Lopez v. Villaruel, 164 SCRA 616.

^[13]
“ART. 1391. The action for annulment shall be
brought within four years.

“This period shall begin:

“In cases of intimidation, violence or undue influence, from the
time the defect of the consent ceases.

“In case of mistake or fraud, from the time of the discovery of
the same.

“And when the action refers to contracts entered into by minors or
other incapacitated persons, from the time the guardianship ceases. (1301a)”

^[14]
Jose D. Palma and Jose C. Palma, Jr.,
counsel for petitioner Yu and Wilfredo F. Navarro of Hermosisima Sison &
Inso, counsel for private respondent TRB.