G.R. No. 133113 - Arreza vs. Diaz, Jr.

Case Summary (G.R. No. 133113)

Key Dates and Applicable Law

Decision date is 2001, therefore the 1987 Philippine Constitution is the governing constitutional framework. Procedural and substantive rules applied include the 1997 Rules of Civil Procedure (notably Rule 62, Sec. 5 and Rule 9, Sec. 2), relevant jurisprudence on res judicata and compulsory counterclaims (cases cited in the record include Baclayon v. Court of Appeals, Tijam v. Sibonghanoy, Toledo-Banaga, Vergara v. Rugue, Yusingco v. Ong Hing Lian), and remedial-law treatises referenced by the courts.

Procedural Background — Prior Interpleader (Civil Case No. 94-2086)

Bliss Development Corporation filed an interpleader in the RTC, Branch 146, to resolve competing claims by Arreza and Diaz to the subject housing unit. The trial court, in a March 27, 1996 decision, adjudged that Arreza had the better right and dismissed the action as against Diaz; that judgment became final, was executed (including Bliss’s Contract to Sell to Arreza), and was ultimately affirmed in G.R. No. 128726.

Subsequent Action (Civil Case No. 96-1372) and Motions

After execution of the interpleader judgment, Diaz filed Civil Case No. 96-1372 in RTC, Branch 59, claiming reimbursement of P1,706,915.58 for acquisition payments and the value of improvements, with interest. Arreza moved to dismiss on grounds of res judicata/conclusiveness of the prior interpleader judgment and lack of cause of action. The RTC denied the motion; Arreza sought certiorari at the Court of Appeals, which dismissed the petition; subsequent motions for reconsideration were denied.

Issue Presented to the Supreme Court

Whether Diaz’s claims for reimbursement against Arreza in Civil Case No. 96-1372 are barred by res judicata because of the final judgment in the prior interpleader case (Civil Case No. 94-2086) that was adjudicated and affirmed.

Law on Res Judicata and Its Elements

The Court restated the classical elements of res judicata: (a) finality of the former judgment; (b) jurisdiction of the rendering court over parties and subject matter; (c) judgment on the merits; and (d) identity of parties, subject matter, and cause of action between the prior and subsequent suits. The courts also recognized that a prior judgment is conclusive not only as to matters actually litigated but also as to matters which could have been properly litigated therein.

Jurisdiction and Estoppel

The Supreme Court found the prior interpleader judgment final and the Branch 146 RTC to have had jurisdiction over the parties and subject matter. Although Diaz later argued the Makati court lacked jurisdiction over a Quezon City property, the Court relied on Diaz’s affirmative answer in the interpleader invoking rights as a buyer in good faith and praying relief therefrom; by seeking affirmative relief the respondent invoked the tribunal’s jurisdiction and was estopped from contesting it after adverse decision, consistent with Tijam v. Sibonghanoy.

Identity of Cause of Action and Compulsory Counterclaim Doctrine

The Court addressed Diaz’s contention that the interpleader was limited to determination of ownership and did not resolve reimbursement/damages. The Court explained that under the 1997 Rules, an interpleader is to determine rights and obligations and that parties could file counterclaims and related pleadings (Rule 62, Sec. 5, second paragraph). Because Diaz had alleged in his answer that he was a buyer in good faith and prayed for relief, the Court deemed his reimbursement claim to be a compulsory counterclaim that he should have specifically asserted in the interpleader proceeding. Reliance on Baclayon (and the Heirs of Laureano Marquez principle cited therein) led to the conclusion that failure to raise a compulsory counterclaim in the first action bars the party from litigating it later.

Application of Res Judicata to the Facts

Applying the foregoing rules, the Supreme Court found identity of parties, subject matter, and cause of action between the interpleader (94-2086) and the later suit (96-1372): the reimbursement clai

Case Syllabus (G.R. No. 133113)

Case Caption and Decision

Citation: 416 Phil. 451, Second Division, G.R. No. 133113, August 30, 2001.
Parties: Edgar H. Arreza (petitioner) v. Montano M. Diaz, Jr. (respondent).
Decision authored by: Justice Quisumbing.
Relief sought in petition: Review of the Court of Appeals decision promulgated December 24, 1997, and the resolution dated March 6, 1998, in CA-G.R. SP No. 43895, which dismissed petitioner’s certiorari petition.
Final disposition by the Supreme Court: The petition was GRANTED; the Court of Appeals decision dated December 24, 1997 and the resolution dated March 6, 1998 were REVERSED and SET ASIDE; Civil Case No. 96-1372 before RTC Makati, Branch 59, was ordered DISMISSED as against petitioner Edgar H. Arreza; costs against respondent. Concurring Justices: Bellosillo (Chairman), Mendoza, Buena, and De Leon, Jr., JJ.

Factual Background

Bliss Development Corporation owned a housing unit described as Lot 27, Block 30, New Capitol Estates I, Barangay Matandang Balara, Quezon City.
A conflict of ownership between Edgar H. Arreza and Montano M. Diaz, Jr. was litigated in Civil Case No. 94-2086 before RTC Makati, Branch 146.
Bliss Development Corporation filed a complaint for interpleader in the course of the ownership conflict.
RTC Branch 146, in a decision dated March 27, 1996, resolved the interpleader in favor of Edgar H. Arreza, granting cognizance of the May 6, 1991 transfer of rights by Emiliano and Leonila Melgazo through Manuel Melgazo to Edgar Arreza; the case was dismissed as against Montano M. Diaz, Jr., and the third-party complaint was likewise dismissed.
The interpleader decision became final, was duly executed, and Bliss executed a Contract to Sell the property to petitioner Arreza; respondent Diaz was constrained to deliver the property with all its improvements to petitioner.

Subsequent Complaint and Relief Sought by Respondent Diaz

After execution of the interpleader judgment and the property’s delivery, respondent Diaz filed a complaint in RTC Makati, Branch 59, docketed Civil Case No. 96-1372, naming Bliss Development Corporation, Edgar H. Arreza, and Domingo Tapay as defendants.
The complaint sought reimbursement to Diaz of P1,706,915.58 representing the cost of his acquisition and improvements on the subject property, with interest at 8% per annum.
Petitioner Arreza moved to dismiss Civil Case No. 96-1372 on grounds of res judicata (conclusiveness of the judgment in the interpleader case) and lack of cause of action.

Proceedings in the Regional Trial Court, Branch 59

RTC Branch 59 issued an Order dated February 4, 1997, denying petitioner Arreza’s Motion to Dismiss for lack of merit.
Petitioner Arreza filed a Motion for Reconsideration, which was denied on March 20, 1997.
Petitioner then filed a petition for certiorari with the Court of Appeals challenging the RTC Branch 59 Orders of February 4 and March 20, 1997 on the ground that they were issued against clear provisions of law and jurisprudence, and that the respondent court acted without or in excess of jurisdiction or with grave abuse of discretion.

Court of Appeals’ Ruling (CA-G.R. SP No. 43895)

The Court of Appeals dismissed Arreza’s petition for certiorari for lack of merit and imposed costs against petitioner.
The Court of Appeals reasoned that the decision in the prior interpleader case resolved only which of Arreza or Diaz had the better right over the property; it did not resolve the rights and obligations of the parties, including claims for reimbursement and damages.
The appellate court noted that the 1997 Rules of Civil Procedure provide that in an interpleader the court shall determine the respective rights and obligations of the parties and adjudicate their respective claims, but observed that the defendants in the interpleader (Diaz and Arreza) did not pursue issues of damages and reimbursement.
The CA held that Diaz’s action in Civil Case No. 96-1372 principally sought collection of payments made to Bliss and the value of improvements, matters not adjudicated in the prior interpleader case; hence res judicata did not bar his present action.

Grounds for Review Presented to the Supreme Court by Petitioner

Petitioner raised four specific grounds for review, asserting in substance:
- I. Diaz’s claims for reimbursement of amounts allegedly paid to Bliss (premium or installment payments) were erroneously brought against Arreza and are barred by res judicata due to the conclusiveness of the prior judgment affirmed in G.R. No. 128726.
- II. Diaz’s claims for reimbursement for the cost of improvements allegedly introduced to the property are likewise barred by res judicata based on the prior judgment affirmed in G.R. No. 128726.
- III. The ruling in the prior CA petition (CA-G.R. SP. No. 41974) affirmed in G.R. No. 128726 that the prior RTC decision settled all claims between Diaz and Arreza constitutes law of the case and serves as a bar to the filing of the present RTC case involving the same claims.
- IV. The amended complaint