G.R. No. 97547 July 29, 1994
ROLANDO T. DIWA and BLESIDA G. DIWA, petitioners, vs. ARNOLD L. DONATO and NAPOLEON L. DONATO, respondents.

FACTS

Petitioners Rolando T. Diwa and Blesida G. Diwa filed a Complaint for Interpleader and Execution of Registerable Deed of Sale With Damages (Civil Case No. 3892) against respondents Arnold L. Donato and Napoleon L. Donato. The complaint alleged that respondents, as surviving brothers and heirs of their deceased sister Adoracion L. Donato, jointly sold a lot to petitioners for P504,000.00. Petitioners paid P168,000.00 to each respondent, leaving a balance of P168,000.00. Respondents made conflicting claims over this balance, with Arnold asserting sole entitlement and Napoleon claiming half as an intestate heir. Petitioners sought to deposit the balance with the court, demanded execution of a registerable deed of sale, and claimed damages due to Arnold’s refusal to execute the deed, which delayed their construction plans. The Regional Trial Court (RTC) of Tuguegarao, Cagayan, Branch 4, dismissed the interpleader case on December 29, 1988, on the ground that interpleader was not the proper remedy for breach of contract. The Supreme Court affirmed this dismissal in a Resolution dated September 20, 1989.
Subsequently, on February 13, 1990, petitioners filed a new complaint, Civil Case No. 4117-(Tug ’90), for Specific Performance (Execution of Registerable Deed of Sale and Delivery of Certificate of Title) With Damages. The allegations and prayers were substantially the same as in the interpleader case, with an added allegation that even if the transaction was only a contract to sell, petitioners had the right to compel performance as they had partially complied and were willing to fully comply. The RTC of Tuguegarao, Cagayan, Branch 1, dismissed this second case on January 8, 1990, on the ground of res judicata, and denied petitioners’ motion for reconsideration on January 31, 1991. The trial court held that the two cases involved the same parties, subject matter, and cause of action, and alternatively opined that specific performance would not lie because the receipts presented did not constitute a written contract under the Statute of Frauds.

ISSUE

Whether the trial court correctly dismissed Civil Case No. 4117-(Tug ’90) on the ground of res judicata.

RULING

No. The Supreme Court reversed and set aside the trial court’s orders and reinstated Civil Case No. 4117-(Tug ’90) for hearing on the merits.
The Court held that the trial court erred in applying res judicata. For res judicata to apply, the prior judgment must be on the merits. The Supreme Court’s September 20, 1989 Resolution, which affirmed the dismissal of the interpleader case (Civil Case No. 3892), was not an adjudication on the merits of petitioners’ claim against respondents. The dismissal was based solely on the procedural ground that interpleader was an improper remedy, as the conflicting claims were between the respondents themselves and did not involve adverse claims against the petitioners. The Resolution explicitly stated that while petitioners had a cause of action to compel execution of a deed of sale, the proper remedy was an ordinary civil action for breach of contract or specific performance, not interpleader. Therefore, the first judgment was not on the merits, and one of the essential elements of res judicata was absent.
The Court also addressed the trial court’s alternative reasoning, clarifying that its pronouncement in the interpleader case regarding the existence of a contract to sell between the parties was a factual finding necessary to resolve the procedural issue of the propriety of interpleader. This finding was not a final adjudication on the validity or enforceability of the contract but was made to illustrate why interpleader was not the correct remedy. The Court further noted that the trial court’s discussion on the Statute of Frauds and the propriety of specific performance were premature, as these were matters to be fully ventilated during a trial on the merits of the specific performance case.