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REPUBLIC OF THE PHILIPPINES, Represented by the SOCIAL SECURITY

SYSTEM,

G.R. No. 155634 August 16, 2004

DOCTRINE:

Under the terms of the subject Contract, "actual possession" cannot be equated
with "actual occupancy." Inasmuch as the housing unit was physically occupied by
parties other than those intended to be benefited by the housing program of the Social
Security System, there was a clear violation of the Contract. Since respondent did not
comply with his obligations, rescission is proper.

FACTS:

Respondent Jerry V. David is an employee of the SSS, formerly assigned at its


Membership (Backroom) Department. Pursuant to its Employees' Housing Loan
Program, SSS awarded David a house and lot located at North Fairview, Quezon City.
A Deed of Conditional Sale over the subject property was executed between the parties.
David was reported to have violated the agreement, to wit: (1) neither the David nor his
immediate family resided and/or occupied the said housing unit, and (2) he allowed a
certain Buenaventura Penus to possess and occupy the property. As a consequence of
these violations, SSS sent a letter to David formally revoking, terminating and/or
rescinding the deed of conditional sale. However, the latter refused to vacate and
surrender possession of the subject property. SSS filed a complaint with the Quezon
City RTC revoking the deed of conditional sale and prayed for the issuance of a writ of
possession in its favor. David denied the alleged violations of the deed of conditional
sale, stating that Buenaventura Penus, alluded to by the SSS as possessor-occupant of
the subject property, was in fact a caretaker until and after the necessary renovations
and modifications on the house were made.

TC dismissed the complaint, SSS failed to prove that the David purchased the
subject property for the use and benefit of another undisclosed party and not for his
exclusive use, or that the defendant sold, assigned, encumbered, mortgaged, leased,
subleased or in any manner altered or disposed of the subject property or his rights
thereto at any other time. In arriving at its decision, the lower court considered the
testimony of the David that when the subject property was delivered to him on October
23, 1992, the unit was not habitable so he had to make a few constructions thereon. He
secured the services of his cousin, Buenaventura Penus, to be the caretaker while
construction on the house was going on. With this, the court concluded that possession,
as a condition of the deed of sale between the parties, was sufficiently satisfied.

CA affirmed the trial court, ruling that while other persons had been found
occupying the subject property, no proof was adduced by petitioner to prove that they
had taken possession of it on their own behalf and not merely as respondent's
caretakers. CA added that because of the squalid condition of the property when it was
delivered, David had to make improvements thereon as well as ask Penus, and later on
Oden Domingo, to stay there as caretakers. Through his caretakers, respondent was
deemed to have occupied and possessed the property as required by the Deed of Sale
between him and petitioner. The CA concluded that the property had clearly been
subject to respondent's will, a fact equivalent to possession under Article 531 of the Civil
Code.

ISSUES:

1. Whether or not respondent violated the terms and conditions of the Deed of
Conditional Sale to "actually occupy and possess the property at all times" and
allowed other persons to do so.
2. Whether or not rescission is the proper recourse.

HELD:

1. Yes. In construing a contract, it is a fundamental task to ascertain the intention of


the contracting parties. The ascertained intention of the parties is deemed an
integral part of the contract, as though it has been originally expressed in
unequivocal terms. The reasonableness of the result obtained, after analysis and
construction of a contract, must also be carefully considered.

The primary intention behind the stipulations is to restrict the sale, the use and
the benefit of the housing units to SSS employees and their immediate families only.
This objective is in line with that of the SSS housing loan program -- to aid its
employees in acquiring their own dwelling units at a low cost. Such intent, draws life
also from the social justice policy of RA 1161, as amended, otherwise known as the
"Social Security System Law" granting direct housing loans to covered employees and
giving priority to low-income groups.

Indeed, the above goal is confirmed by the requirement that respondent-vendee


and his heirs or assigns must actually occupy and possess the property at all times; by
the proscription that he must not sell, assign, encumber, mortgage, lease, sublet or in
any manner alter or dispose of the property for the first five (5) years; and by the further
proviso that he may alienate or transfer his rights thereto at any time prior to full
payment, but only to petitioner under its right of first refusal or to any other eligible SSS
employee. These restrictive covenants are undeniably valid under Article 130618 of the
Civil Code.

Both "actual occupancy" and "possession at all times" -- not just one or the other
-- were imposed as conditions upon respondent. Thus, respondent had to comply with
not one, but two, concurring conditions -- actual occupancy and possession at all times.

2. Yes, we rule that rescission of the Contract is the proper recourse under At.1191
of the Civil Code.
Rescission contemplated under Article 1191 is a principal action for "resolution,"
which is based on a breach by a party of its reciprocal obligations. The present Contract
is one of conditional sale -- oftentimes referred to as a contract to sell, wherein
ownership or title is retained by the vendor until "full payment by the VENDEE of the full
purchase price of the PROPERTY, with all the interest due thereon, as well as taxes
and other charges AND upon their faithful compliance with all the conditions of this
Contract .

Although a transfer of ownership or title from the seller to the buyer


is normally predicated upon the payment of the purchase price, the parties are
nevertheless free to stipulate other lawful conditions by which they bind themselves and
upon which transfer of ownership depends. In this case, that other obligation was
faithful compliance with the conditions of the Contract. Respondent did not faithfully
comply with the conditions under subparagraphs (10)(a) and (c). His noncompliance
also constituted a breach of his reciprocal obligations under the Deed.

However, this Court holds that the forfeiture provision under paragraph 12 does not
apply to the payment made by respondent. The plain and simple reason is that he did
not pay the purchase price by installment, but instead paid it in full in December 1992 --
two months after the delivery of the unit. Hence, that payment was beyond the ambit of
Republic Act 6552, otherwise known as the Realty Installment Buyer Act or the Maceda
Law.

Doctrinally, mutual restitution must follow rescission. Under Article 1385 of the Civil
Code, "rescission creates the obligation to return the things which were the object of the
contract, together with their fruits, and the price with its interests x x x."43 Moreover, "[t]o
rescind is to declare a contract void at its inception and to put an end to it as though it
never was."44 Hence, rescission restores the parties to their relative positions, as if no
contract has been made. Paragraph 11, cited above, supports the mutual restitution
required in rescission.

Respondent is thus obliged to return the house and lot sold, as well as rental
payments he may have earned, if any. On the other hand, petitioner is mandated to
refund to him his full payment of P172,978.85 plus legal interest of 6 percent per
annum, as well as the value of substantial improvements introduced by him, as
appraised by petitioner. Indeed, stipulated in the Deed is such appraisal by the
vendor,45upon transfer of the property to petitioner or to any of its eligible employees.
This condition is reasonably and justly applicable and proper in the present case.

WHEREFORE, Petition is GRANTED. The Deed of Conditional Sale is CANCELLED.


Petitioner is ORDERED to pay respondent P172,978.85, plus the legal interest.
Respondent is ORDERED to vacate immediately Block 18, Lot 8, SSS Housing, North
Fairview, Quezon City;

Joyce Michelle H. Genuino


AIR FRANCE vs. CA, IOLANI DIONISIO, MULTINATIONAL TRAVEL
CORPORATION OF THE PHIL., FIORELLO and VICKY PANOPIO

G.R. No. 104234 June 30, 1995

FACTS:

Petitioner Air France filed a complaint for sum of money and damages against
private respondents Multinational Travel Corporation of the Philippines, Fiorello Panopio
and Vicky Panopio before the RTC of Manila. TC ruled in favor of Air France, ordering
private respondents to pay petitioner, jointly and severally, the amount of
P2,518a,698.66. Air France moved for the issuance of an alias writ of execution on the
ground of unsatisfied judgment. It likewise moved to declare the sale to Iolani Dionisio
of a parcel of land with a house erected thereon in the name of the Multinational Food
Corporation and covered by TCT as one in fraud of creditors. Air France stated that
private respondent spouses jointly owned 91% of Multinational Food and Catering
Corporation (Multinational Food), other stockholders being: Aldo Glen Panopio (brother
of Fiorello) — 3%; Jaime Dionisio (husband of private respondent Iolani Dionisio) —
3%; and Marie Rose Ricasa — 3%. Petitioner stated that although Multinational Food
was registered with the SEC, it neither engaged in operations nor held meetings
because of adverse business conditions. Air France alleged that despite its being non-
operational, Multinational Food acquired from Ayala Investment and Development
Corporation (Ayala Corporation) the subject property on February 1, 1985.

Petitioner further alleged that private respondent spouses subsequently sold the
property to Iolani Dionisio on April 11, 1985. However, the sale was not registered until
one year and nine months later or at the time petitioner was pursuing the issuance of a
writ of attachment.

TC ruled in favor of Iolani Dionisio, sale of the subject property registered with
the Registry of Deeds of Quezon City in the name of Multinational Food as having been
made in fraud of creditors.

CA reversed, annulling and setting aside the questioned orders.

ISSUE:

Whether or not the Court of Appeals was correct in annulling and setting aside the
orders of the trial court.

HELD:

Yes.

First, the subject property is registered with the Register of Deeds of Quezon City
in the name of the Multinational Food and Catering Corporation and not in the name of
either the Multinational Travel Corporation of the Philippines or of the spouses Fiorello
and Vicky Panopio who are the judgment debtors.

It is well-settled that the power of the court in the execution of judgments extends
only over properties unquestionably belonging to the judgment debtor. Here, the
property in question was sold to private respondent Iolani Dionisio, who was not a party
to the case subject of execution.

Multinational Food and Iolani Dionisio, not being parties to the case, the property
covered by TCT No. 353935 may not be levied upon to satisfy the obligations of private
respondent spouses and the Multinational Travel Corporation.

Petitioner's contrary claim that the property belongs to private respondent


spouses, if true, requires a rescissory action which cannot be done in the same case,
but through the filing of a separate action.

Rescission is a relief which the law grants on the premise that the contract
is valid for the protection of one of the contracting parties and third persons from
all injury and damage the contract may cause, or to protect some incompatible
and preferential right created by the contract.

Rescissible contracts, not being void, they remain legally effective until set aside
in a rescissory action and may convey title. Nor can they be attacked collaterally upon
the grounds for rescission in a land registration proceeding.

An action for rescission may not be raised or set up in a summary


proceeding through a motion, but in an independent civil action and only after a
full-blown trial. As Article 1383 of the Civil Code provides: Art. 1383. The action
for rescission is subsidiary; it cannot be instituted except when the party
suffering damage has no other legal means to obtain reparation for the same.

Regarding contracts undertaken in fraud of creditors, the existence of the


intention to prejudice the same should be determined either by the presumption
established by Article 1387 6 or by the proofs presented in the trial of the case. 7 In any
case, the presumption of fraud established by this article is not conclusive, and may be
rebutted by satisfactory and convincing evidence. 8 To repeat, an independent action is
necessary to prove that the contract is rescissible.

Under Article 1389 of the Civil Code, an "accion pauliana," 9 the action to rescind
contracts made in favor of creditors, must be commenced within four years.

Clearly, the rights and defenses which the parties in a rescissible contract may
raise or set up cannot be properly ventilated in a motion but only in a full trial.

CA is correct holding that the trial court acted with grave abuse of discretion in
resolving these matters through mere motion of petitioner.
WHEREFORE, CA AFFIRMED in toto.

Joyce Michelle H. Genuino

G.R. No. 129644 March 7, 2000

CHINA BANKING CORPORATION, vs.CA, PAULINO ROXAS CHUA and KIANG


MING CHU CHUA,

Facts:

Alfonso Roxas Chua and his wife Kiang Ming Chu Chua were the owners of a
residential land in San Juan, Metro Manila, A notice of levy affecting the property was
issued in connection with Civil Case No. 82-14134 entitled, "Metropolitan Bank and
Trust Company, Plaintiff versus Pacific Multi Commercial Corporation and Alfonso
Roxas Chua, Defendants," before RTC Manila.The notice of levy was inscribed and
annotated at the back of TCT 410603. Subsequently, Kiang Ming Chu Chua filed a
complaint against the City Sheriff of Manila and Metropolitan Bank and Trust Company,
questioning the levy of the abovementioned property. She alleged that the judgment of
the court in Civil Case No. 82-14134 against Alfonso Roxas Chua could not be enforced
against TCT 410603 inasmuch as the land subject thereof was the conjugal property of
the spouses.

The parties thereafter entered into a compromise agreement to the effect that the
levy on TCT 410603 was valid and enforceable only to the extent of the 1/2 undivided
portion of the property pertaining to the conjugal share of Alfonso Roxas Chua.

Meanwhile, petitioner China Bank filed with the RTC Manila, an action for
collection of sum of money against Pacific Multi Agro-Industrial Corporation and Alfonso
Roxas Chua, anchored on three (3) promissory notes with an aggregate amount of
P2,500,000.00 plus stipulated interest.

RTC ruled in Civil Case No. 85-31257 in favor of China Banking Corporation,
ordering defendants to pay, jointly and severally, the former, P1,800,000.00,
representing the unpaid of the promissory note,

An alias notice of levy on execution on the one-half (1/2) undivided portion of


TCT 410603 belonging to Alfonso Chua was issued in connection with Civil Case 82-
14134. The notice was inscribed and annotated at the back of TCT 410603 on
September 15, 1986 and a certificate of sale covering the one-half undivided portion of
the property was executed in favor of Metropolitan Bank and Trust Company. The
certificate of sale was inscribed at the back of said TCT on December 22, 1987.
Alfonso Roxas Chua executed a public instrument denominated as "Assignment
of Rights to Redeem," whereby he assigned his rights to redeem the one-half undivided
portion of the property to his son, private respondent Paulino Roxas Chua. Paulino
redeemed said one-half share on the very same day. The instrument was inscribed at
the back of TCT 410603 as Entry No. 7629, and the redemption of the property by
Paulino was inscribed as Entry No. 7630, both dated March 14, 1989.

On the other hand, in connection with Civil Case No. 85-31257, another notice of
levy on execution was issued on February 4, 1991 by the Deputy Sheriff of Manila
against the right and interest of Alfonso Roxas Chua in TCT 410603. Thereafter, a
certificate of sale on execution dated April 13, 1992 was issued by the Sheriff of Branch
39, RTC Manila in Civil Case No. 85-31257, in favor of China Bank and inscribed at the
back of TCT 410603 as Entry No. 01896 on May 4, 1992. 5

1993, Paulino Roxas Chua and Kiang Ming Chu Chua instituted Civil Case No.
63199 before the RTC of Pasig, against China Bank, averring that Paulino has a prior
and better right over the rights, title, interest and participation of China Banking
Corporation in TCT 410603; that Alfonso Roxas Chua sold his right to redeem one-half
(1/2) of the aforesaid conjugal property in his favor on November 21, 1988 while China
Banking Corporation acquired its right from the notice of levy of execution dated
January 30, 1991; that the assignment of rights in his favor was annotated at the back
of TCT 410603 on March 14, 1989 and inscribed as Entry No. 7629, and his redemption
of the property was effected in an instrument dated January 11, 1989 and inscribed and
annotated at the back of TCT 410603 on March 14, 1989, two years before the
annotation of the rights of China Banking Corporation on TCT 410603 on February 4,
1991.

RTC rendered a decision in favor of private respondent Paulino Roxas Chua and
against China Banking Corporation. The trial court ruled that the assignment was made
for a valuable consideration and was executed two years before petitioner China Bank
levied the conjugal share of Alfonso Roxas Chua on TCT 410603. The trial court found
that Paulino redeemed the one-half portion of the property, using therefor the amount of
P100,000.00 which he withdrew from his savings account as evidenced by his
bankbook and the receipts of Metrobank for his payment of the redemption price. The
court noted that Paulino at that time was already of age and had his own source of
income.

CA affirmed.

ISSUE:

Whether or not the assignment of the right of redemption made by Alfonso Roxas Chua
in favor of private respondent Paulino was done to defraud his creditors and may be
rescinded under Article 1387 of the Civil Code.

HELD:
Under Article 1381(3) of the Civil Code, contracts which are undertaken in fraud
of creditors when the latter cannot in any manner collect the claims due them, are
rescissible.

The existence of fraud or intent to defraud creditors may either be presumed in


accordance with Article 1387 of the Civil Code or duly proved in accordance with the
ordinary rules of evidence.

Hence, the law presumes that there is fraud of creditors when:

a) There is alienation of property by gratuitous title by the debtor who has not reserved
sufficient property to pay his debts contracted before such alienation; or

b) There is alienation of property by onerous title made by a debtor against whom some
judgment has been rendered in any instance or some writ of attachment has been
issued. The decision or attachment need not refer to the property alienated and need
not have been obtained by the party seeking rescission.

After his conjugal share in TCT 410603 was foreclosed by Metrobank, the only
property that Alfonso Roxas Chua had was his right to redeem the same, it forming part
of his patrimony. "Property" under civil law comprehends every species of title, inchoate
or complete, legal or equitable.

Alfonso Roxas Chua sold his right of redemption to his son, Paulino Roxas Chua,
in 1988. Thereafter, Paulino redeemed the property and caused the annotation thereof
at the back of TCT 410603. This preceded the annotation of the levy of execution in
favor of China Bank by two (2) years and the certificate of sale in favor of China Bank
by more than three (3) years. On this basis, the Court of Appeals concluded that the
allegation of fraud made by petitioner China Bank is vague and unsubstantiated.

Such conclusion, however, runs counter to the law applicable in the case at bar.
Inasmuch as the judgment of the trial court in favor of China Bank against
Alfonso Roxas Chua was rendered as early as 1985, there is a presumption that
the 1988 sale of his property, in this case the right of redemption, is fraudulent
under Article 1387 of the Civil Code. The fact that private respondent Paulino Roxas
Chua redeemed the property and caused its annotation on the TCT more than two
years ahead of petitioner China Bank is of no moment. As stated in the case of Cabaliw
vs. Sadorra, 7 "the parties here do not stand in equipoise, for the petitioners have in their
favor, by a specific provision of law, the presumption of fraudulent transaction which is
not overcome by the mere fact that the deeds of sale were in the nature of public
instruments."

This presumption is strengthened by the fact that the conveyance has virtually
left Alfonso's other creditors with no other property to attach. It should be noted that the
presumption of fraud or intention to defraud creditors is not just limited to the two
instances set forth in the first and second paragraphs of Article 1387 of the Civil Code.
Under the third paragraph of the same article, the design to defraud creditors may be
proved in any other manner recognized by the law of evidence.

Before China Bank obtained judgment against Pacific Multi Agro-Industrial


Corporation and Alfonso Roxas Chua on November 7, 1985, Alfonso Roxas Chua had
only his one-half share of the conjugal property in question to pay his previous creditor,
Metrobank. Even his son, private respondent Paulino Roxas Chua himself, knew this as
shown by the following excerpts of his testimony during the trial.

Despite Alfonso Roxas Chua's knowledge that it is the only property he had
which his other creditors could levy, he still assigned his right to redeem his one-half
share of the conjugal property in question from Metrobank in favor of his son, Paulino.
Alfonso's intent to defraud his other creditors, specifically, China Bank, becomes even
more apparent when we take into consideration the fact that immediately after the Court
of Appeals rendered its Resolution dated September 29, 1988, dismissing the appeal of
Pacific Multi-Agro and Alfonso Roxas Chua in CA-G.R. No. CV-14681 entitled, "China
Banking Corporation, Plaintiff-Appellee versus Pacific Multi Agro-Industrial
Corporation, et al., Defendants-Appellants, 10 "he assigned his right to redeem one-half
of the conjugal property to his son on November 21, 1988.

The CA, however, maintained that although the transfer was made between
father and son, the conveyance was not fraudulent since Paulino had indeed paid the
redemption price of P1,463,375.39 to Metrobank and the sum of P100,000.00 to his
father. The Court of Appeals reiterated the findings of the trial court that Paulino at that
time had his own source of income, having been given HK$1Million by his maternal
grandmother which he used to invest in a buy-and-sell business of stuffed toys.

It bears emphasis that it is not sufficient that the conveyance is founded on a


valuable consideration. The mere fact that the conveyance was founded on valuable
consideration does not necessarily negate the presumption of fraud under Article 1387
of the Civil Code. There has to be a valuable consideration and the transaction must
have been made bona fide.

In the case at bar, the presumption that the conveyance is fraudulent has not
been overcome. At the time a judgment was rendered in favor of China Bank against
Alfonso and the corporation, Paulino was still living with his parents in the subject
property. Paulino himself admitted that he knew his father was heavily indebted and
could not afford to pay his debts. The transfer was undoubtedly made between father
and son at a time when the father was insolvent and had no other property to pay off his
creditors. Hence, it is of no consequence whether or not Paulino had given valuable
consideration for the conveyance.

WHEREFORE, the petition is GRANTED. The decision of the CA in CA-G.R. CV


No. 46735 is REVERSED and SET ASIDE. The permanent injunction enjoining
petitioner, the Sheriff of Manila, the Register of Deeds of San Juan, their officers,
representatives, agents and persons acting on their behalf from causing the transfer of
possession, ownership and title of the property covered by TCT No. 410603 in favor of
petitioner is LIFTED. The Assignment of Rights to Redeem dated November 21, 1988
executed by Alfonso Roxas Chua in favor of Paulino Roxas Chua is ordered
RESCINDED. The levy on execution dated February 4, 1991 and the Certificate of Sale
dated April 30, 1992 in favor of petitioner are DECLARED VALID against the one-half
portion of the subject property.

Joyce Michelle H. Genuino

CADWALLER & COMPANY VS. SMITH, BELL & COMPANY AND HENRY W.
PEABODY & COMPANY

Feb. 9, 1907, 7Phil 461

FACTS:

In 1902, Pacific Export Lumber Company of Portland shipped upon the steamer
Quito, 581 piles to defendant HENRY W. PEABODY & COMPANY, at Manila, on the
sale of which before storage, the consignees were to receive commission of ½ of
whatever sum was obtained over $15 for each pile and 5% of the price sold after
storage.

After the arrival of the steamer, HENRY W. PEABODY & COMPANY, consignee,
wrote the agent of the Pacific Company at Shanghai that for lack of demand, the piles
would have to be sold at considerably less than $15 a piece. The Company’s agent
directed them to make the best possible offer for the piles, in response to which they
telegraphed him an offer of $12 a piece.

It appeared that Peabody had entered into negotiations with Insular Purchasing
Agent for the sale of the piles at $20 a piece, resulting in the sale to the government of
213 piles at $19 each.

Cadwaller & Company as assignee of the Pacific Export Lumber Company sues
for $3,486, the difference between the amount turned over to the company on account
of a cargo of cedar piles consigned to defendants as its agent and afterwards bought by
them on a subsequent sale.

ISSUE:

Whether or not the contract can be annulled.

HELD:
Yes.

The consignee, who by means of misrepresentation of the market condition


induces his consignors to sell him the property consigned, at a price less that that for
which he has already contracted to sell part of it, and who, thereafter dispose of the
whole at an advance, must answer for the difference,

Such conduct on the part of the agent constitutes fraud, entitling the principal to
annul the contract of sale.

Thus it is clear that at the time when the agents were buying from their principal,
these piles at $12 a piece on the strength of their presentation that no better price was
obtainable, they had already sold a substantial part of them at $19.

Joyce Michelle H. Genuino

FILOMENA ARROYO VDA. DE BUNCIO et al. vs. ESTATE OF THE LATE SPOUSES
ANITA DE LEON and SERAFIN VILLANUEVA, SR., et al.,

G.R. No. L-29330 December 14, 1987

FACTS:

Involved in this case is an attempt by a daughter to claim her share in her father's
estate some 63 years after the latter's demise. The father, Andres Arroyo, died
sometime in 1901. He left an estate apparently of no mean size, comprised of
properties located mainly in Iloilo and Negros Occidental. He was survived by three
compulsory heirs: Felix Arroyo, a legitimate son by his first wife, and Filomena Arroyo
and Simplicio Arroyo, legitimate children by his second wife. Administration of his estate
was assumed and undertaken by Felix Arroyo, as the oldest son, evidently without
objection from his brother or sister.

In 1964, his daughter, Filomena Arroyo, then already 84 years of age and a
widow, together with her six (6) children, filed suit in the then CFI Negros
Occidental, seeking to recover from the estate of the late Spouses Anita de Leon and
Serafin Villanueva, Sr. and their children, what she claimed to be one third (1/3) of the
properties left by her deceased father. Her complaint alleged that her share in the
inheritance had at all times been held in trust by Felix Arroyo and after his death, by his
heirs and successors-in-interest, who are the defendants named in her complaint, and
she had been deprived of that share through fraud and misrepresentation. She also
prayed for an accounting of the fruits of the inheritance and the payment to her of her
proportionate share in those fruits as might be warranted by the results of the
accounting.

The defendant Anita de Leon was the granddaughter of Felix Arroyo by his
daughter, Fortunata. Serafin Villanueva was her husband. They moved to dismiss the
complaint on several grounds: failure of the complaint to state a cause of action, res
judicata, laches, estoppel, release, and bar by the statute of limitations.

TC dismissed the action & directed the Register of Deeds of Iloilo, Negros
Occidental, etc., to cancel the annotation of lis pendens caused to be made by the
plaintiffs on all the certificates of title of the land involved in the litigation.

The defense of res judicata was anchored on a prior judgment rendered in Civil
Case No. 7862 of the CFI of Negros Occidental. That case related to the division of the
estate of Andres Arroyo, and the judgment was rendered on the basis of a compromise
agreement entered into by the parties entitled Convenio de Transaccion dated February
19, 1940, subscribed by the late Spouses Anita de Leon and Serafin Villanueva, as well
as by Filomena Arroyo herself.

Appellants argue that the doctrine of res judicata is inapplicable because


between the two (2) cases-Civil Case No. 7200 and the earlier one, Civil Case No.
7862-there was, in the first place, no identity in subject matter-the first being concerned
exclusively with the share of Simplicio Arroyo, Filomena's brother, consisting of one-
third (1/3) of the estate in controversy, which was distinct from the third claimed by
Filomena in the later action-and, in the second place, no identity in cause of action-
since Case No. 7862 involved the naked claim of ownership while the later, Civil Case
No. 7200, involved among others trusteeship, and fraud, in addition to the claim of
ownership. The appellants further argue that the Convenio de Transaccion could not
operate as a release of their claims to the estate, or as estoppel to assert the same,
because Filomena's consent to the convenio or agreement had been procured through
fraud, misrepresentation, deceit and undue influence. The appellants further contend
that in view of the summary dismissal of their complaint, they had been deprived of the
opportunity to prove their case on the merits.

ISSUES:

1. Whether or not the case should be dismissed on the ground of res judicata release
and estoppel in complete disregard of the appellants' refutation .

2. Whether or not the prescriptive period had long elapsed ?

HELD:
1. Yes.

Civil Case No. 7200, was not, the first action brought by Filomena Arroyo against the
Anita de Leon and her husband, Serafin Villanueva. An earlier suit had been instituted
by Filomena Arroyo in the CFI of Negros Occidental. The complaint was filed on
December 14, 1983 by Filomena and her late husband, Ildefonso Buncio. Joined with
them as co-plaintiffs in that action were the children and heirs of her half-brother
Simplicio Arroyo, namely: Teofila, Consolacion and Emilio Arroyo (the latter being later
substituted by his mother Olimpia Agnes Arroyo, upon his death after the filing of the
action). Also joined as co-plaintiffs were Pura and Rude Arroyo, the children and heirs
of Simplicio Arroyo, Jr., a son of Simplicio Arroyo. Named defendants were the
aforesaid spouses, Anita de Leon and Serafin Villanueva. The suit was docketed as
Civil Case No. 7862.

On February 19, 1940, the parties executed a compromise agreement


entitled Convenio de Transaccion which they acknowledged before a notary public. By
it, the Buncio Spouses and their co-plaintiffs sold, transferred and conveyed all their
rights, title and interests over all the properties involved in the litigation in favor of the
defendant spouses, Anita and Serafin Villanueva. On the same day the parties filed
a Peticion with the Court praying that judgment be rendered in accordance with
their convenio This the Court did the following day, February 20, 1940. However, on
March 14, 1946 (after Liberation), the plaintiffs filed a motion to vacate the decision of
February 20, 1940. 9 They alleged as grounds therefor fraud, misrepresentation, deceit
and undue influence vitiating their consent to the Convenio de Transaccion. The motion
was denied, by Order dated June 5, 1946.The plaintiffs took steps to elevate the matter
to a higher court by filing an "Exception and Notice of Appeal" dated June 21, 1946. But
on September 20, 1946 the Court a quo dismissed the appeal sought to be taken by
them for the reason that the requisite record on appeal and appeal bond had not been
presented on time. The Buncios apparently took no further steps to impugn the
judgment. In the meanwhile the Court rendered another decision dated August 17,
1949,this time approving a "Compromise Agreement" executed on August 18, 1949
between Olimpia Agnes, and Consolacion Arroyo (the co-plaintiffs of the Buncio
Spouses),on the one hand, and the spouses Anita de Leon and Serafin Villanueva, on
the other, and on the basis thereof, declaring the latter once again the exclusive and
absolute owners of all the property subject of the litigation.

Upon these facts, the applications of the familiar doctrine of res adjudicata is authorized
as against Filomena Arroyo Vda. de Buncio. The judgment in Civil Case No. 7862
operates as an absolute bar to Civil Case No. 7200, instituted twenty-four (24) years
after its rendition. All the requisites for the application of the doctrine are present:

(1) the judgment in the first case was a final one, and had become executory;

(2) it was rendered by a court having jurisdiction of the subject-matter and the parties;
and
(3) between the two (2) cases-i.e., that in which said judgment was rendered (Civil Case
No. 7862) and that in the case at bar (Civil Case No. 7200)- there exists Identity of
parties, of subject-matter, and of causes of action.

Some words anent the third requisite would not be inappropriate. The Identity as to
parties between the two cases,CC No. 7862 and CC No. 7200, is quite palpable.
Plaintiffs in the earlier case, CC No. 7862 were Filomena Arroyo and her husband, and
the heirs of Filomena's brother, Simplicio Arroyo (three [31 children and two [2]
grandchildren). Plaintiffs in CC No. 7200 were the self-same Filomena Arroyo, then
already widowed, and her six (6) children. Of course, the joinder of Filomena's children
was improper, a superfluity. They had no rights whatever in the estate of their
grandfather, Felix Arroyo, except such as they might derive from their mother, Filomena,
upon her death. The Identity as to parties defendant is even plainer. In both suits, the
defendants were the Spouses Anita de Leon and Serafin Villanueva, except that in the
second action, joined with them as defendants were their children. Again, the joinder of
the Villanueva children was unnecessary and improper. They were neither
indispensable nor proper. No right of action was asserted against them personally and
directly; and any liability they might conceivably have to the plaintiffs could result only
from their being heirs of their parents. It would seem that the inclusion of superfluous
parties plaintiffs and defendants in the action was designed to avoid the application
of res adjudicata as a bar to the second suit.

So, too, the Identity as to the subject-matter in both actions is fairly evident. The
property involved in CC No. 7862consisted of registered lands located in Iloilo (Province
and City) and Negros Occidental. The same registered parcels of land were subject of
the later action, CC No. 7200, except that a few other parcels of land were included in
the complaint.

Finally, Filomena's asserted causes of action in both cases were exactly the same: the
recovery of her hereditary share in the estate of her father, the late Andres Arroyo,
which she claimed to have been withheld from her by her brother, Felix, and the latter's
heirs.

The applicability of the doctrine of res adjudicata cannot therefore be seriously


contested. Its application cannot be avoided by the addition in the second suit of
unnecessary parties or the assertion of new issues which could have been set up in the
prior action.

In this connection account should be taken of the cognate principle that res
adjudicata operates to bar not only the relitigation in a subsequent action of the
issues squarely raised, passed upon and adjudicated in the first suit, but also the
ventilation in said subsequent suit of any other issue which could have been
raised in the first but was not. The law provides that "the judgment or order is, with
respect to the matter directly adjudged or as to any other matter that could have been
raised in relation thereto, conclusive between the parties and their successors in
interest by title subsequent to the commencement of the action x x litigating for the
same thing and in the same capacity." 20 So, even if new causes of action are asserted
in the second action (e.g., fraud, deceit, undue machinations in connection with their
execution of the convenio de transaccion), this would not preclude the operation of the
doctrine of res judicata Those issues are also barred, even if not passed upon in the
first. They could have been, but were not, there raised.

Even if it were legally possible to shunt aside and ignore the principle of res
judicata, this would not help the appellants' cause one whit. Their cause of action for the
annulment of their convenio de transaccion on the ground of fraud, undue influence, or
mistake, as also their cause of action for recovery of property on the theory of
constructive trust, assuming their tenability, would nonetheless be barred by another
insuperable legal obstacle: prescription.

2. Yes. The action to annul a contract on the ground that consent is vitiated by
mistake, violence, intimidation, undue influence or fraud prescribes in four (4)
years; 21 and the period is reckoned, in case of mistake or fraud, from the time of
the discovery of the same. 22 It is noteworthy that as early as March 14, 1946 the
appellants already had pleaded fraud in the motion filed by them on that day to
set aside the judgment rendered in Civil Case No. 7268: their contention was that
their consent to the convenio de transaccion which the judgment had approved,
had been obtained by fraud, or undue machinations. It is thus not unreasonable,
surely, to consider March 14, 1946 as the day of the discovery of the fraud. So
considered, it should at once be apparent that the prescriptive period of four (4)
years had long elapsed when Civil Case No. 7200 was instituted by the
appellants on February 19, 1964, eighteen (18) years afterwards.

An action for reconveyance based on an implied or constructive trust must perforce


prescribe in ten years and not otherwise. A long line of decisions of this Court, and of
very recent vintage at that, illustrates this rule. Undoubtedly, it is now well-settled that
an action for reconveyance based on an implied or constructive trust prescribes in ten
years from the issuance of the Torrens title over the property. . . .

It being clear from the record that the appellants had brought their suit, Civil Case
No. 7268, more than ten (10) years after titles had been obtained over the property
claimed by the appellees or their predecessor-in-interest, their cause of action
predicated on constructive trust is barred by prescription.

WHEREFORE, the Order of the Trial Court dismissing the plaintiffs-appellants'


action, subject of the instant appeal, is AFFIRMED, without pronouncement as to costs.
This decision is immediately executory, and no motion for extension of time to file a
motion for reconsideration will be entertained.

Joyce Michelle H. Genuino