ALEJANDRA CUARTO VDA. DE LUNA, ET AL., PLAINTIFFS AND APPELLEES, VS. SEVERIANO VALLE, ET AL., DEFENDANTS AND APPELLANTS.

De Luna versus Valle

The Case

This is the case of De Luna versus Valle, decided by the Supreme Court in December 1972. The widow and children of Sotero de Luna sued the heirs of the spouses Nicasio Valle and Maxima Abril, together with the persons who bought the land from those heirs, to annul a deed of extrajudicial partition with absolute sale, to cancel the certificate of title issued to the buyers, and to have a new title issued in their own names. The action is really an enforcement of a private deed of sale with the right of repurchase, called in the old law a sale with pacto de retro, executed in 1928 over a parcel of coconut land in Sariaya, Quezon. The case matters because it gathers in one decision four doctrines a bar candidate must know: the limits of res judicata and estoppel by judgment, the consolidation of ownership in the vendee a retro who is not repurchased from, the rule that the Torrens title of a vendor a retro does not defeat the rights of the vendee, and the protection that a notice of lis pendens gives against later buyers.

Procedural History

The case began in the Court of First Instance of Quezon, where the widow Alejandra Cuarto Vda. de Luna, for herself and her children, sued the Valle heirs and the buyers Domingo Villota and Elena Pabelonia. The trial court rendered judgment on January 31, 1966, later amended on April 18, 1966, ordering the buyers to reconvey the property to the plaintiffs and directing the issuance of a new certificate of title in their names. The defendants appealed directly to the Supreme Court, and the Supreme Court affirmed the decision appealed from.

Facts

On December 1, 1928, the spouses Nicasio Valle and Maxima Abril sold a parcel of coconut land in Barrio Balubal, Sariaya, Quezon, to Sotero de Luna for 3,334 pesos, by a private instrument of sale with the right of repurchase. The parties agreed that the period to repurchase was five years from the date of the contract, that the title to the property had already been approved by the cadastral judge in the names of the vendors, and that upon receipt of the certificate of title the vendors would deliver it to the vendee. Sotero de Luna took possession of the land upon the execution of the deed, and his heirs continued that possession after his death in 1961. The vendors never attempted to repurchase.

The decree of registration in the names of the vendors was issued on January 31, 1931, within the five-year period, but the certificate of title itself was issued to them only on January 13, 1965. In the meantime, on March 23, 1936, Sotero de Luna sued the Valle spouses to compel them to acknowledge the instrument before a notary public so that he could register it. That suit was dismissed on July 31, 1936 on the ground that the action had prescribed, the defendants having been in default. Sotero de Luna moved for reconsideration, questioning a portion of the order quoting the Clerk of Court's report that the transaction was really a loan, but the motion remained unresolved for years while the parties died one by one. It was only on February 4, 1965, a month after the certificate of title was issued to the Valle spouses, that the motion was declared abandoned, and reconsideration was denied on February 25, 1965.

On March 20, 1965, notice was published that the Valle heirs had executed a deed of extrajudicial partition with absolute sale, adjudicating the land to Severiano Valle and Emeterio Valle and selling it to the spouses Domingo Villota and Elena Pabelonia. The plaintiffs then filed this suit on April 14, 1965, and on April 19, 1965 a notice of lis pendens was entered on the back of the certificate of title. The deed of partition was annotated only on May 17, 1965, after publication under Rule 74, and transfer certificates were issued to the heirs and then to the buyers, both carrying the notice of lis pendens.

Issues

• Whether or not the judgment in the earlier suit barring the action to compel notarial acknowledgment operates as res judicata or estoppel by judgment against the present action.
• Whether or not the contract is a genuine sale with the right of repurchase, and whether ownership consolidated in the vendee upon the lapse of the period to repurchase.
• Whether or not the indefeasibility of the Torrens certificate of title issued in the names of the vendors defeats the rights of the vendee and his heirs.
• Whether or not the buyers Domingo Villota and Elena Pabelonia are innocent purchasers for value protected by the Torrens system, and what effect the notice of lis pendens has on them.

Applicable Provisions

Article 1509 of the Old Civil Code provides:

If the vendor does not comply with the provisions of Article 1518, the vendee shall acquire irrevocably the ownership of the thing sold.

This is the provision that consolidated ownership in Sotero de Luna when the five-year period to repurchase lapsed without any repurchase by the vendors.

Section 55 of the Land Registration Act, referred to in the decision, is the provision that protects purchasers in good faith, and the Court held that the buyers here fall outside its protection. Section 56 of the same Act provides:

The act of registration shall be the operative act to convey and affect the land.

This is why the deed of partition with sale was treated as non-existent as against the plaintiffs until it was registered on May 17, 1965, after the notice of lis pendens had already been entered.

Section 1 of Rule 74 of the Rules of Court, as discussed in the decision, requires that a deed of partition, to affect third parties and creditors, be in a public instrument and filed in the office of the register of deeds.

Ruling

On the first issue, the Court held that neither res judicata nor estoppel by judgment applies. The earlier suit sought to compel notarial acknowledgment of the private deed, while the present suit seeks to enforce the stipulations of the contract; there is no identity of subject matter or of causes of action. Estoppel by judgment bars a later suit only on a point actually and directly in issue and judicially passed upon, and the question whether the contract was a sale with the right of repurchase was never put in issue in the earlier case, which was dismissed solely on prescription. The Clerk of Court's finding that the transaction was a loan had no relevance to the relief sought and was not adopted by the judge.

On the second issue, the Court held that the contract is what it says: a sale with the right of repurchase. It contained no other condition suggesting a different transaction, no evidence showed a mortgage or antichresis was intended, and no proof was offered that the price was ever repaid. Possession passed to the vendee in 1928 and continued in his heirs without objection. Applying Article 1509 of the Old Civil Code, ownership was consolidated in Sotero de Luna by operation of law upon the lapse of the five-year period.

On the third issue, the Court held that the indefeasibility of the Torrens title is no defense. In the earlier case of Cabanos versus the Register of Deeds of Laguna, where the vendor a retro registered the land in his own name without the knowledge of the vendee and then failed to repurchase, the Court allowed the vendee to recover, because it would be highly unjust that the vendor who received the price would still retain the land and enrich himself at the expense of the buyer. Here the Court found reasons stronger than equity: the contract itself stipulated that upon issuance of the certificate of title the vendors would deliver it to the vendee, an obligation the Court called not only contractual but fiduciary, and the vendors never repudiated that trust for more than thirty years.

On the fourth issue, the Court held that the sale to Villota and Pabelonia does not bar the plaintiffs' rights. At the time of the sale the title was still in the names of Nicasio Valle and Maxima Abril and not in the names of the transferors, which was sufficient notice that the property was not yet at their free disposal. Good faith, the Court said, affords protection only to purchasers for value from the registered owners. The Valle heirs became registered owners only on May 17, 1965, by which time the notice of lis pendens of April 19, 1965 was already on the title, charging the buyers with notice of the litigation and binding them to any judgment against their transferors. The deed of partition with sale, though made earlier, was non-existent as against the plaintiffs until registration, and so remained subordinate to the rights adjudged in their favor.

Doctrine

First, res judicata requires identity of subject matter and of causes of action, while estoppel by judgment bars only a point actually and directly in issue and judicially passed upon in the former suit. Second, under Article 1509 of the Old Civil Code, if the vendor a retro fails to repurchase within the period, ownership is consolidated in the vendee by operation of law. Third, the Torrens certificate of title issued in the name of a vendor a retro does not destroy the valid contract of sale with the right of repurchase; the vendor holds the title subject to a fiduciary obligation to deliver it to the vendee. Fourth, a buyer from persons who are not yet the registered owners cannot be an innocent purchaser for value, and a notice of lis pendens charges later buyers with notice and binds them to the judgment against their transferors.

Disposition

The Supreme Court affirmed the decision of the trial court, with costs against the appellants, so the plaintiffs won and the buyers were ordered to reconvey the land and a new certificate of title was ordered issued in the plaintiffs' names.

Remember This

The one line to memorize is that the Torrens title of a vendor a retro does not defeat the vendee whose ownership has consolidated under Article 1509, because the vendor holds that title under a fiduciary obligation to deliver it. Examiners use this case on the consolidation of ownership in a sale with the right of repurchase, on the limits of res judicata and estoppel by judgment, and on the effect of a notice of lis pendens against later buyers.