G.R. No. L-38303 May 30, 1988
HONGKONG & SHANGHAI BANKING CORPORATION, plaintiff-appellant, vs. RALPH PAULI and SPOUSES SALLY P. GARGANERA and MATEO GARGANERA, defendants-appellees.

FACTS

The Hongkong & Shanghai Banking Corporation (HSBC) obtained a final judgment against Ralph Pauli for a sum of money in 1962. During execution, HSBC found Pauli had no leviable assets. It was later discovered that Pauli had purchased a sugar plantation, Hacienda Riverside, in 1957 but did not register the deed. In 1963, Pauli sold the property to his daughter, Sally Garganera, and her husband, Mateo, and this sale was registered. HSBC, upon discovering this transaction, first filed an action in Manila for revival of its 1962 judgment (Civil Case No. 75319), which was granted in 1971. The court in that revival case, however, also ordered the discharge of a preliminary attachment HSBC had levied on the property.
Subsequently, on February 17, 1971, HSBC filed a separate complaint in Negros Occidental (Civil Case No. 465) seeking the annulment of the 1963 sale of Hacienda Riverside to the Garganera spouses and the cancellation of their title, alleging the sale was fraudulent. The defendants moved to dismiss the complaint on the grounds of prescription and res judicata.

ISSUE

The primary issues were: (1) Whether HSBC’s action for annulment of the sale had prescribed; and (2) Whether the action was barred by res judicata due to the prior judgment in the revival case (Civil Case No. 75319).

RULING

The Supreme Court affirmed the dismissal of Civil Case No. 465 on the ground of prescription. The Court held that an action for annulment of a contract based on fraud, under Article 1391 of the Civil Code, prescribes in four years. For transactions involving registered land, this prescriptive period commences from the date of registration of the fraudulent conveyance, not from the date of the creditor’s actual discovery of the fraud. The sale to the Garganeras was registered on March 5, 1963. Therefore, the four-year period expired on March 5, 1967. HSBC’s filing of the annulment case on February 17, 1971 was clearly beyond this period. The Court rejected HSBC’s argument that the period should run from its actual discovery in 1969, as this would undermine the principle of constructive notice underpinning the Torrens system and create uncertainty in transactions involving registered lands.
Regarding res judicata, the Court found it inapplicable. The three identities required for a judgment to constitute a bar—identity of parties, subject matter, and causes of action—were not present. The prior case (Civil Case No. 75319) was an action for revival of a money judgment, with the subject matter being the judgment credit itself. The subsequent case (Civil Case No. 465) was an action for annulment of a specific fraudulent sale, with the subject matter being the ownership of Hacienda Riverside. The causes of action were distinct. However, since the action had already prescribed, the dismissal by the trial court was correct.