Title
Diwa vs. Donato
Case
G.R. No. 97547
Decision Date
Jul 29, 1994
Petitioners paid P336,000 for a property, disputed P168,000 balance. SC ruled res judicata inapplicable, contract partially executed, specific performance proper; remanded for merits hearing.
specific performance
partially executed contracts
res judicata

Case Summary (G.R. No. 97547)

Factual Background and Genesis of the Dispute

Petitioners claimed that in November 1986 respondents jointly sold the Tuguegarao lot to petitioners for P504,000.00, delivered the property to petitioners, and received payments totaling P168,000.00 from petitioners, evidenced by two receipts signed by Arnold on November 19, 1986 and by Napoleon on June 10, 1988. Petitioners alleged that after the sale they had taken exclusive possession of the lot and continued to possess it continuously. They further alleged that since November 1986 they had been tendering payment of the balance of P168,000.00, but respondents held conflicting claims over who was entitled to that remaining amount. Petitioners stated that Arnold insisted on receiving the whole balance, asserting that Adoracion had conveyed her share to him, while Napoleon denied this and asserted entitlement as one of Adoracion’s two intestate heirs for one-half of the balance (or P84,000.00). Petitioners also averred that respondents’ refusal to execute a registerable deed of sale delayed the issuance of a title in petitioners’ name, thereby frustrating their plan to secure a loan and build a commercial structure. Petitioners prayed for damages and attorney’s fees, asserting that the delay increased the costs of construction materials and labor.

First Suit: Interpleader and Dismissal

Petitioners first filed a complaint for Interpleader and Execution of Registerable Deed of Sale With Damages, docketed as Civil Case No. 3892, raffled to RTC Branch 4 of Tuguegarao. The trial court dismissed the interpleader complaint on the ground that interpleader was not the proper remedy for breach of contract, a ruling dated December 29, 1988. Upon review, the dismissal was affirmed by the Supreme Court through a Resolution dated September 20, 1989. The Supreme Court’s reasoning in that Resolution, as quoted in the later decision, centered on the rule that interpleader would not lie where the conflicting claims of defendants were between themselves and did not affect the plaintiff-in-interpleader, and where the controversy essentially called for an ordinary civil action for breach of contract or for specific performance rather than interpleader.

Second Suit: Specific Performance and Dismissal on Res Judicata

After the Supreme Court’s affirmance of the interpleader dismissal, petitioners filed a new case for Specific Performance (Execution of Registerable Deed of Sale and Delivery of Certificate of Title) With Damages, docketed as Civil Case No. 4117 (90-Tug), filed on February 13, 1990. Petitioners alleged essentially the same factual circumstances and prayers as in the interpleader complaint, but they added that even if the transaction constituted only a contract to sell, petitioners, having partially complied and being willing to fully comply, had the right to compel respondents to perform. Petitioners demanded: (a) declaration that they were owners or an order compelling execution of a registerable deed of sale and delivery of the owner’s duplicate title; (b) application of the deposited P168,000.00 to the balance; and (c) damages and attorney’s fees. The RTC dismissed with prejudice the specific performance complaint in an order dated January 8, 1990, holding that the prior interpleader case involved the same parties, subject matter, and causes of action such that res judicata applied. It reasoned that the Supreme Court’s September 20, 1989 Resolution in the interpleader matter constituted an adjudication that precluded the second suit.

When petitioners moved for reconsideration, the RTC, in its January 31, 1991 Order, denied the motion. The RTC reiterated that the two complaints were substantially the same despite differences in caption, and it further held that even assuming res judicata did not apply, specific performance was not warranted. It described specific performance as discretionary in equity, asserted that one requisite for specific performance was a written contract under the Statute of Frauds, and found that the receipts offered by Arnold and Napoleon were not contracts because they were not in the prescribed form, were not sufficiently specific, and because it doubted that the Supreme Court had pronounced a contract to sell in the interpleader case.

Issues Presented in the Petition for Certiorari

Petitioners argued that the RTC erred: (1) in applying res judicata to dismiss Civil Case No. 4117 (90-Tug); (2) in ruling that there was no contract between the parties; (3) in holding that specific performance was not a proper remedy; (4) in implying the Statute of Frauds to defeat the agreement; and (5) in dismissing Civil Case No. 4117 (90-Tug) with prejudice.

The Court’s Ruling on Res Judicata

The Supreme Court granted the petition and held that the RTC committed reversible error in treating the Supreme Court’s September 20, 1989 Resolution as a decision on the merits. The Court reiterated the elements of res judicata: a final prior judgment; rendered by a court with jurisdiction over subject matter and parties; a prior judgment on the merits; and substantial identity of parties, subject matter, and causes of action between the two actions.

In analyzing the first element on the “merits,” the Court explained the nature of a judgment on the merits. It cited the governing concept that a judgment on the merits is one rendered after argument and investigation, determining which party is right, as distinguished from a judgment that resolves only preliminary, formal, technical issues, or is rendered by default. Applying that standard, the Court held that by no stretch could its September 20, 1989 Resolution be considered a judgment on the merits. That Resolution addressed only the proper remedy in light of the allegations of the interpleader complaint. The Court held that it ruled that petitioners should file an action for specific performance rather than interpleader. The Court stressed that only upon filing the proper action could the parties’ substantive rights be adjudicated, and it declared that the September 20, 1989 Resolution did not adjudicate those substantive rights.

The Court’s Ruling on Specific Performance and the Statute of Frauds

The Court also held that the RTC erred in concluding that specific performance could not lie against respondent by applying the Statute of Frauds. The Court explained the effect of Art. 1403(2)(e), Civil Code of the Philippines, which provides that agreements for the sale of real property are unenforceable by action unless the agreement or a memorandum is in writing and subscribed by the party charged, with secondary evidence generally inadmissible to prove the contents absent the writing. It recognized the doctrine that non-compliance does not invalidate an otherwise existing contract, but makes the action for specific performance ineffective.

However, the Court further held that the Statute of Frauds applies only to executory contracts and does not cover completed, executed, or partially executed contracts. It cited settled rulings, including Almirol and Carino vs. Monserrat, where the Court previously held that when land had been delivered under an oral contract of sale and

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