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Arreza vs Diaz Case Digest

Facts: Bliss Development Corporation is the owner of a housing complex located in Quezon City. It instituted before RTC Makati an interpleader case against Arreza and Diaz who were conflicting claimants of the property (Civil Case No. 94-2086). The RTC ruled in favor of Arreza. In view of said decision, Bliss executed a contract to sell the property to Arreza and Diaz was constrained to transfer possession together with all improvements to Arreza.

Thereafter, Diaz filed a case against Arreza and Bliss for the reimbursement of the cost of his acquisition and improvements on the property (Civil Case No. 96-1372). Arreza filed a Motion to Dismiss on the ground of res judicata and lack of cause of action. RTC denied the Motion to Dismiss.

Arreza appealed to CA which dismissed the petition saying that res judicata does not apply because the interpleader case only settled the issue on who had a better right. It did not determine the parties‘ respective rights and obligations. The action filed by Diaz seeks principally the collection of damages in the form of the payments Diaz made to Bliss and the value of the improvements he introduced on the property matters that were not adjudicated upon in the previous case for interpleader. 

Issue: Are Diaz's claims for reimbursement against Arreza barred by res adjudicata?

Held: The court in a complaint for interpleader shall determine the rights and obligations of the parties and adjudicate their respective claims. Such rights, obligations and claims could only be adjudicated if put forward by the aggrieved party in assertion of his rights. That party in this case referred to respondent Diaz. The second paragraph of Section 5 of Rule 62 of the 1997 Rules of Civil Procedure provides that the parties in an interpleader action may file counterclaims, cross-claims, third party complaints and responsive pleadings thereto, as provided by these Rules. The second paragraph was added to Section 5 to expressly authorize the additional pleadings and claims enumerated therein, in the interest of a complete adjudication of the controversy and its incidents. Pursuant to said Rules, respondent should have filed his claims against petitioner Arreza in the interpleader action. Having asserted his rights as a buyer in good faith in his answer, and praying relief therefor, respondent Diaz should have crystallized his demand into specific claims for reimbursement by petitioner Arreza. This he failed to do. Having failed to set up his claim for reimbursement, said claim of respondent Diaz being in the nature of a compulsory counterclaim is now barred.

The elements of res adjudicata are: (a) that the former judgment must be final; (b) the court which rendered judgment had jurisdiction over the parties and the subject matter; (c) it must be a judgment on the merits; and (d) there must be between the first and second causes of action identity of parties, subject matter, and cause of action. In the present case, we find there is an identity of causes of action between Civil Case No. 94-2086 and Civil Case No. 96-1372. Respondent Diaz's cause of action in the prior case, now the crux of his present complaint against petitioner, was in the nature of an unpleaded compulsory counterclaim, which is now barred. There being a former final judgment on the merits in the prior case, rendered in Civil Case No. 94-2086 by Branch 146 of the Regional Trial Court of Makati, which acquired jurisdiction over the same parties, the same subject property, and the same cause of action, the present complaint of respondent herein (Diaz) against petitioner Arreza docketed as Civil Case No. 96-1372 before the Regional Trial of Makati, Branch 59 should be dismissed on the ground of res adjudicata. (Arreza vs Diaz, G.R. No. 133113. August 30, 2001)

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