G.R. No. L-46944. April 8, 1941.
PARSONS HARDWARE CO., INC., petitioner, vs. THE COMMONWEALTH OF THE PHILIPPINES, respondent.

FACTS

Spouses Alejandro Tanabe and Brigida Ramos owned a parcel of land in Muñoz, Nueva Ecija, known as Lot No. 1679, with a total area of 6 hectares, 72 ares, and 11 centiares. On May 25, 1923, February 26, 1925, and September 10, 1926, they sold three portions of this lot totaling 1 hectare, 47 ares, and 11 centiares to John M. Montgomery, Pascual de la Cruz, and Damaso Evangelista. Montgomery later sold his portion to Cornelio Adriano (deceased), whose heir was Pedro Adriano. On August 3, 1927, the spouses mortgaged the remaining portion of Lot No. 1679, with an area of 5 hectares and 32 ares, to Parsons Hardware Co., Inc. The mortgage deed specifically described this 5-hectare-and-32-are portion, bounded by the properties of Cornelio Adriano, Ambrosio Medina, and certain roads. On October 25, 1927, Original Certificate of Title No. 7939 was issued for the entire Lot No. 1679 in the spouses’ names, with the mortgage in favor of Parsons Hardware annotated on the back. Due to non-payment of the mortgage debt, Parsons Hardware foreclosed, and at the public auction on December 22, 1928, only the mortgaged portion of 5 hectares and 32 ares was sold, with Parsons Hardware as the highest bidder for P2,100. Despite knowing it had only purchased and auctioned that specific portion, Parsons Hardware succeeded in registering the entire Lot No. 1679 (6 hectares, 72 ares, and 11 centiares) in its name, obtaining Transfer Certificate of Title No. 3604. Shortly thereafter, Parsons Hardware sold the entire lot to Avelino Osma y Garraizabal, and TCT No. 3688 was issued in his name. Osma, along with Pedro Adriano, Pascual de la Cruz, and Damaso Evangelista, filed an action in the Court of First Instance of Nueva Ecija under Section 101 of Act No. 496 to recover damages from the Assurance Fund for the wrongful transfer of the entire lot. The trial court dismissed the case, but on appeal, this Court reversed the dismissal and awarded damages to Adriano (P1,600), De la Cruz (P1,000), and Evangelista (P600), totaling P3,200, payable from the Assurance Fund. The Commonwealth Treasurer paid these amounts and, by subrogation under Section 104 of Act No. 496 , filed a complaint against Parsons Hardware, Osma, and the spouses Tanabe and Ramos to recover the P3,200. The Court of First Instance of Manila held only the spouses Tanabe and Ramos liable, absolving Parsons Hardware and Osma. Both the spouses and the Commonwealth appealed to the Court of Appeals, which reversed the trial court and held Parsons Hardware liable to pay the Commonwealth P3,200 with legal interest from the filing of the complaint, plus costs. Parsons Hardware appealed this decision to the Supreme Court.

ISSUE

1. Whether Parsons Hardware Co., Inc. committed fraud in obtaining title to the entire Lot No. 1679.
2. Whether the defense of res judicata applies.

RULING

1. Yes, Parsons Hardware committed fraud. The Court found it evident that Parsons Hardware acted fraudulently. It knew it had only purchased and acquired through auction the 5-hectare-and-32-are portion of Lot No. 1679. Despite this knowledge, it remained silent and did not call attention to the error when a title for the entire lot was issued in its name. It further compounded the fraud by subsequently selling the entire lot to Avelino Osma y Garraizabal.
2. No, res judicata does not apply. The Court agreed with the government that Parsons Hardware could not invoke res judicata. In the prior case ( G.R. No. 36363 ), Parsons Hardware had been eliminated as a party after its demurrer was sustained; therefore, it was not a party to that judgment, and the defense is untenable.
DISPOSITIVE PORTION:
The Supreme Court affirmed the decision of the Court of Appeals in all respects. Parsons Hardware Co., Inc. was ordered to pay the Commonwealth of the Philippines the sum of P3,200 with legal interest from the filing of the complaint until fully paid, and to bear the costs of both instances.