JUAN SUMERARIZ AND LUISA SUMERARIZ, PLAINTIFFS-APPELLANTS, VS. DEVELOPMENT BANK OF THE PHILIPPINES AND PHIL­IPPINE SURETY AND INSURANCE CO., INC., DEFENDANTS-APPELLEES.

Sumerariz versus Development Bank of the Philippines

The Case

This is the case of Sumerariz versus Development Bank of the Philippines. Spouses Juan and Luisa Sumerariz sued the Development Bank of the Philippines and the Philippine Surety and Insurance Company to annul the bank's sale of their mortgaged property to the surety company and to be allowed to redeem that property. The spouses had already lost an earlier suit attacking the very same foreclosure sale, and this second action is their attempt to litigate the same grievance a second time. The case matters because it is a clean teaching vehicle on res judicata — the bar of a final judgment — and on the rule that the one-year redemption period for property mortgaged to the bank is not suspended by the mere filing of a suit.

Procedural History

The spouses first filed a case in the Court of First Instance of Manila to set aside the foreclosure sale, impleading the bank and the sheriff of Manila. The trial court dismissed that complaint because the spouses had not redeemed within the period fixed by law and the bank had become the absolute owner. The Court of Appeals affirmed that dismissal, and the Supreme Court denied the spouses' petition for review by certiorari in February 1960.

In March 1960 the spouses commenced the present action, again in the Court of First Instance of Manila, against the bank and the surety company, to annul the sale to the surety company and to be allowed to redeem. The defendants pleaded res judicata and prescription. The trial court dismissed the complaint, ordered the spouses to vacate the property, and ordered them to pay monthly rentals to the bank until they vacated, with costs. The spouses appealed to the Court of Appeals, which certified the case to the Supreme Court because only questions of law were involved.

Facts

On September 15, 1948, the spouses constituted a real estate mortgage in favor of the Rehabilitation Finance Corporation, now the Development Bank of the Philippines, over two parcels of land in San Andres Subdivision, Manila, including a house to be built thereon, to guarantee a loan of 15,000 pesos payable within ten years at a fixed monthly amortization.

When the spouses failed to comply with the contract, the bank asked the sheriff of Manila to take possession and sell the property at public auction. After several postponements at the spouses' request, the sale was set for March 29, 1955. The day before, at Juan Sumerariz's request, the bank agreed to postpone the sale if a token payment of at least 100 pesos were made before nine in the morning of the next day. No such payment was made, and the bank bought the property at the auction for 8,000 pesos as the highest bidder.

The bank repeatedly notified the spouses that they could redeem within one year, or not later than March 29, 1956, upon a down payment of 2,806.64 pesos, with the balance payable in ten years at 166.50 pesos a month. Instead of redeeming, the spouses filed the first suit on March 26, 1956, three days before the redemption period expired. While that case was pending, the bank sold the property to the Philippine Surety and Insurance Company. The first suit was dismissed, the dismissal was affirmed on appeal, and review was denied. The spouses then brought this second action.

Issues

• Whether or not the decision in the first case bars the present action under the principle of res judicata, despite the addition of the surety company as a defendant and the omission of the sheriff.
• Whether or not the filing of the first case suspended the one-year period to redeem the mortgaged property.
• Whether or not the spouses may be allowed to redeem on the strength of the bank's alleged willingness to permit redemption.
• Whether or not the spouses may be required to pay rentals to the bank from March 30, 1960 until they vacate the property.

Applicable Provisions

Section 30 of Rule 39 of the Rules of Court, which the Court cites to contrast it with the law governing the bank, provides:

Section 30. The judgment debtor, or his successor in interest, may redeem the property sold within twelve months after the sale, and if the property is not redeemed, the purchaser may obtain possession thereof.

The Court notes that this rule permits extension of the redemption period, unlike the law governing property mortgaged to the bank.

Section 3 of Commonwealth Act Number 459, in relation to Section 9 of Republic Act Number 85, governs the redemption of property mortgaged to the bank, and the Court observes that it contains no similar provision for extension. The Court states:

Section 3 of Commonwealth Act No. 459, in relation to Section 9 of Republic Act No. 85, which governs the redemption of property mortgaged to the Bank, does not contain a similar provision.

This absence of any extension clause is why the filing of a suit cannot stretch the one-year redemption period.

Ruling

On the first issue, the Court held that the present action is barred by res judicata. The addition of the surety company did not destroy the identity of parties, because by buying the property the surety company became merely the bank's successor in interest. The omission of the sheriff did not matter either, because the sheriff was but a formal party in the first case. The Court quoted with approval the rule that the operation of a final judgment is not altered by the fact that someone who was not a party in the first action has been impleaded in the second, for otherwise litigants could always renew any litigation by the mere expedient of including new parties. The subject matter of both cases was the same property, and the cause of action was the same, since the spouses' claim in both rested on the premise that the auction sale to the bank was illegal — a premise already rejected. The Court applied the test of whether the same evidence would support and establish both the present and the former cause of action, and answered yes. Ownership having been settled in the first case, it could no longer be litigated.

On the second issue, the Court held that no statute or decision supports the claim that the redemption period was suspended by the filing of the first case. The spouses never exercised redemption and never deposited the amount necessary. The Court contrasted Section 30 of Rule 39, which allows extension, with Section 3 of Commonwealth Act Number 459 in relation to Section 9 of Republic Act Number 85, which contains no such provision. The first case had already settled that the right of redemption was extinguished.

On the third issue, the Court held that the bank denied any agreement to allow redemption, and that this question of fact was not raised in the lower court, so it could not be entertained on appeal.

On the fourth issue, the Court held that the claim for rentals rested on the alleged right of redemption, which the first case had already declared expired, so the assignment of error was devoid of merit.

Doctrine

First, res judicata bars a second action where the parties, subject matter, and cause of action are identical, and the identity of parties is not destroyed by adding a successor in interest as a new defendant or by dropping a merely formal party such as the sheriff. Second, the test of identity of cause of action is whether the same evidence would support and establish both the present and the former cause of action. Third, the one-year redemption period for property mortgaged to the bank, under Section 3 of Commonwealth Act Number 459 in relation to Section 9 of Republic Act Number 85, is not suspended by the filing of a suit, because that law, unlike Section 30 of Rule 39, contains no provision for extension. Fourth, a question of fact not raised in the trial court cannot be entertained for the first time on appeal.

Disposition

The Supreme Court affirmed the decision of the trial court dismissing the complaint, ordering the spouses to vacate the property and to pay monthly rentals to the bank, with costs against the spouses.

Remember This

The line worth memorizing is that a final judgment cannot be escaped by the mere expedient of including new parties, and that the statutory redemption period for property mortgaged to the bank is not tolled by the filing of a case. Examiners use this case to test res judicata where a successor in interest is added as a defendant, and to test whether litigation suspends the redemption period — it does not.