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Author: Atty. Reynaldo T. Dizon

A test to determine whether causes of action are identical is to ascertain whether 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 be different.  This was the basis of the Supreme Court in granting a Petition for Review filed by Bank of Commerce (BOC) in the case of Bank of Commerce v. DHN Construction and Development Corporation, G.R. No. 225299.  MVGS acted as counsel to BOC.

In a 13-page decision promulgated on 1 December 2021 and penned by Presiding Justice Rodil V. Zalameda, MVGS secured a favorable SC decision where the SC granted the Petition for Review, reversed and set aside the decision of the Court of Appeals, and dismissed the Civil Case for declaration of nullity of contract filed by DHN Construction and Development Corporation (DHN) against BOC with the Regional Trial Court of Makati City (Makati-RTC) on the ground of res judicata.

Prior to the filing of the Civil Complaint for declaration of nullity of contract before the Makati-RTC, DHN filed a Civil Complaint for annulment of contract with damages before the Quezon City RTC (QC-RTC) against BOC. DHN sought to evade liability from the two promissory notes signed by its President which gave rise to its loan obligations. BOC filed a Motion to Dismiss, and the QC-RTC dismissed the complaint on the ground of failure to state a cause of action.  The court agreed with BOC that DHN freely and knowingly entered into the loan contract. The QC-RTC Order attained finality as it was not timely challenged by DHN.

When DHN filed the subsequent action for declaration of nullity of contract before the Makati-RTC, BOC filed a Motion to Dismiss on the ground of res judicata. Siding with BOC’s arguments, the Makati-RTC granted BOC’s motion and dismissed the complaint, finding that res judicata applies as the QC-RTC’s Order ruled into the very substance of the relief sought by DHN, which is the nullity of the promissory notes. The dismissal must be regarded as an adjudication on the merits.

On appeal, the Court of Appeals (CA) set aside the Makati-RTC Order as it found that res judicata does not apply. This was reversed by the SC, as it agreed with BOC that res judicata applies in the case.

Before the SC, DHN argued that there was no identity of causes of action since the prior case it filed before the QC-RTC was one for annulment of loan contract, while the subsequent case it filed before the Makati-RTC was one for declaration of nullity of loan contract. However, the SC sided with BOC and ruled that the test to determine whether the causes of action are identical so as to warrant the application of the rule on res judicata is to ascertain whether 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. The SC agreed with BOC’s position that the evidence necessary to sustain the annulment of the loan contracts will be the same as the evidence required to sustain a declaration of said contracts’ nullity.

The ruling that “a change in the form of the action or relief sought does not remove a proper case from the application of res judicata” has mostly been applied to cases dealing with real property wherein the forms of the actions vary from quieting of title, reconveyance, partition, recovery of possession, and annulment of deed of sale, but the evidence to determine either possession or ownership of property will be the same. This case enriches jurisprudence as such ruling has been extended to contracts, whereby one party seeks to challenge its validity by resorting to different forms of action, but ultimately the cause of action is the same, such as when the evidence consisting of one party’s consent required to sustain one action will also sustain the other.

BOC is represented by MVGS lawyers Attys. Eduardo A. Martinez, Reynaldo T. Dizon, and Kristine R. Bongcaron.