G.R. No. 167961 ; April 4, 2007
SPS. MANUEL LEY and JANET LEY, Petitioners, vs. UNION BANK OF THE PHILIPPINES and COURT OF APPEALS, Respondents.

FACTS

Petitioners, spouses Manuel and Janet Ley, executed a Continuing Surety Agreement to secure a credit line for Ley Construction and Development Corporation (LCDC) from respondent Union Bank of the Philippines (UBP). LCDC defaulted. UBP filed a collection suit (Makati case) against LCDC and the spouses Ley. The Regional Trial Court (RTC) of Makati granted summary judgment, ordering payment. This judgment became final and executory. To satisfy the judgment, UBP levied on and purchased at public auction the spouses Ley’s Tagaytay property. A certificate of sale was issued and annotated on the title.
Before the redemption period expired, the spouses Ley filed a separate complaint for recovery of title (Tagaytay case) against UBP before the RTC of Tagaytay City. They alleged they had mortgaged the same Tagaytay property to secure a loan for a different corporation from a bank that later merged with UBP, and that this loan had been fully paid. They claimed UBP unjustly refused to release the title, preventing its sale. UBP moved to dismiss, arguing the action was barred by the final judgment in the Makati case. The Tagaytay RTC denied the motion. UBP elevated the matter via certiorari to the Court of Appeals.

ISSUE

Whether the complaint for recovery of title is barred by res judicata due to the final and executory judgment in the prior Makati collection case.

RULING

Yes, the action for recovery of title is barred by res judicata. The Supreme Court affirmed the Court of Appeals’ decision. For res judicata to apply, there must be: (1) a final former judgment; (2) a court of competent jurisdiction; (3) a judgment on the merits; and (4) identity of parties, subject matter, and causes of action between the first and second actions. All these elements concur.
The Makati case resulted in a final money judgment against the spouses Ley as sureties. The Tagaytay property was levied upon and sold at execution precisely to satisfy that judgment. The subsequent Tagaytay case, while ostensibly based on a different transaction (a third-party mortgage), ultimately sought recovery of the same property that had already been subject to execution under the prior final judgment. The cause of action in the Tagaytay case is inextricably linked to and is a direct consequence of the enforcement of the Makati judgment. Allowing the second action would undermine the finality of the first and permit a collateral attack on the execution proceedings. The Court clarified, however, that the spouses Ley are not without recourse; their claim for damages arising from UBP’s alleged refusal to release the title after payment of the separate loan may constitute a separate cause of action that is not barred, provided it is properly pleaded.