ENCARNACION, RUFINA, MATEA, LAUREANA, FRANCISCO,+ MARINA, AND RICARDO, ALL SURNAMED ESPIRITU, THE HEIRS OF FLORA ESPIRITU, NAMELY MERCEDES, RODOLFO, CHARITO, CERILO, EFREN AND A…

Espiritu versus Severina Realty

The Case

This is a petition for review brought by the Espiritu heirs against Severina Realty Corporation. The heirs had sued in the trial court to declare that a deed of sale over a parcel of land was fictitious and simulated, and therefore inexistent. Severina, who traces its title to that deed, moved to dismiss on the grounds of prescription and res judicata. The case matters because the Supreme Court settles two rules a reviewee must know: an action to declare the inexistence of a contract does not prescribe, and res judicata cannot bar a party who was never notified of the earlier proceeding, especially where the two actions are not identical.

Procedural History

The Espiritu heirs filed a complaint in the trial court, docketed as Civil Case Number 96-0111, and annotated notices of lis pendens on the transfer certificates of title. Severina moved to dismiss, and the trial court, over the heirs' objection, held a preliminary hearing on Severina's affirmative defenses. On the fifteenth of July 1997, the trial court denied Severina's affirmative and special defenses for lack of factual and legal basis. Severina's motion for reconsideration was likewise denied on the seventh of October 1997.

Severina then went up to the Court of Appeals on a petition for certiorari, asking that the trial court's orders be nullified. On the nineteenth of June 1998, the Court of Appeals set aside both orders and ordered the complaint dismissed on the grounds of prescription and res judicata. The heirs elevated the matter to the Supreme Court by petition for review, and the Court gave due course to the petition.

Facts

The late Daniel Espiritu was one of the co-owners pro indiviso of four lots under a subdivision plan, consisting of about ten thousand five hundred ten square meters. By a document denominated a deed of sale dated the seventh of April 1969, purportedly executed by the private respondents, the property was sold for value to Investment and Development, Incorporated. That corporation in turn purportedly sold the property to Severina Realty Corporation by a deed of sale dated the seventh of March 1979.

Severina then filed an application for land registration of the property before the then Court of First Instance of Rizal, Branch 29, stationed at Pasay City. In a decision dated the eighteenth of September 1981, that court ordered the issuance of a decree and an original certificate of title in Severina's name, and the certificate was issued on the fourth of January 1983.

On the twenty-seventh of February 1996, the Espiritu heirs commenced Civil Case Number 96-0111 to have the deed of sale declared fictitious and simulated. One heir, Encarnacion Espiritu, testified that the property, consisting of almost one hectare, was taken by Severina through the use of a fake document, and that Severina did not even have a photocopy of the deed supposedly signed by Flora Espiritu conveying the property to Investment and Development, Incorporated. There was no evidence that the heirs were ever notified of the land registration proceedings.

Issues

• Whether or not the Court of Appeals erred in dismissing the complaint on the ground of prescription of action.
• Whether or not the Court of Appeals erred in ruling that the complaint is barred by res judicata.

Applicable Provisions

Article 1410 of the Civil Code provides:

The action or defense for the declaration of the inexistence of a contract does not prescribe.

This is the provision on which the heirs anchored their position, and the Court expressly agreed that an action for declaration of the inexistence of a contract does not prescribe.

Ruling

On the first issue, the Court ruled in favor of the heirs. The Court agreed that an action for declaration of the inexistence of a contract does not prescribe, citing Article 1410 of the Civil Code. The Court noted the testimony that the property was taken through a fake document, and that Severina did not even have a photocopy of the deed supposedly signed by Flora Espiritu. The dismissal on the ground of prescription therefore could not stand.

On the second issue, the Court likewise ruled for the heirs. Before res judicata may be invoked as a bar, the person must be bound by the prior proceeding; he must have been a party thereto and must have been notified of the proceedings. The Court found no evidence that the heirs were notified of the land registration proceedings. In the absence of such notice and due process, the land registration decision would be void, and in legal effect no judgment at all. The Court then laid down the requisites of res judicata:

Under the principle of res judicata, a former judgment would bar a subsequent action when the following requisites concur: (1) It must be a final judgment or order; (2) the court rendering the same must have jurisdiction over the subject matter and over the parties; (3) it must be a judgment or order on the merits; (4) there must be between the two cases, identity of parties, identity of subject matter and identity of action.

The Court also held that a judgment void ab initio is non-existent and cannot acquire finality. Finally, the Court found that there was no identity of subject matter and causes of action, because an action for declaration of the inexistence of a contract is not identical to a land registration proceeding.

Doctrine

First, under Article 1410 of the Civil Code, the action or defense for the declaration of the inexistence of a contract does not prescribe. A suit to declare a deed of sale fictitious and simulated is such an action, so lapse of time alone will not bar it.

Second, res judicata requires the concurrence of four requisites: a final judgment or order; a court with jurisdiction over the subject matter and the parties; a judgment on the merits; and identity of parties, of subject matter, and of cause of action. Absent any one of these, the bar does not attach.

Third, a party who was never notified of the prior proceeding cannot be bound by it. A judgment rendered without notice and due process is void, and a void judgment is non-existent and can never acquire finality.

Disposition

The Supreme Court granted the petition, reversed and set aside the decision of the Court of Appeals, and remanded the case to the trial court for further proceedings, with no costs.

Remember This

Memorize the line that an action for declaration of the inexistence of a contract does not prescribe under Article 1410 of the Civil Code, and that a void judgment is non-existent and cannot acquire finality. Examiners use this case to test the requisites of res judicata and the requirement of notice and due process before a prior judgment can bind a party.