Arcadio v. Carriaga, Jr.
REITERATIONFacts
1. The Antecedents: The underlying dispute concerns Lot No. 1131 of the Misamis Cadastre. Petitioners, heirs of Gabina Machoca, claim their mother mortgaged the lot to respondent Franklin Ang for P425.00 on February 4, 1954, and later borrowed an additional P175.00. They allege Ang subsequently prepared a deed of sale, which Gabina, being illiterate, signed believing it was another mortgage. A deed of agreement was later executed on October 5, 1954, granting Gabina three years to repurchase the property for P600.00, with the conveyance to become absolute if she failed to redeem within the period. 2. Procedural History: Ang registered the deed of sale and obtained a title in his name on June 10, 1955. On June 24, 1963, Ang sold the lot to Melecio Suarez. After Gabina's death, Suarez and his spouse filed an unlawful detainer case against petitioners in 1977, which resulted in a decision in favor of the plaintiffs, affirmed on appeal. During the pendency of the detainer case, petitioners filed a petition for prohibition in 1977, which was dismissed. They also filed a complaint for removal of clouds on title in 1977, which was dismissed for failure to prosecute in 1984. Subsequently, in 1985, petitioners filed a complaint for conventional redemption and damages, which the Regional Trial Court dismissed on February 26, 1986, on the ground of res judicata. 3. The Petition: This is an appeal from the dismissal order of the Regional Trial Court. Petitioners argue that the deed of sale and the deed of agreement constitute an equitable mortgage due to the alleged inadequacy of the price and their continuous possession of the land. They contend they have the right to redeem the property as no foreclosure proceedings occurred and Ang acted in bad faith. The private respondents maintain that the action is barred by res judicata due to the prior dismissal of the case for removal of clouds on title, and that petitioners failed to exercise their right of redemption within the stipulated period. The Supreme Court affirmed the dismissal, holding that the prior dismissal for failure to prosecute operated as res judicata, and even if not, the transaction was an absolute sale with a separate agreement to resell, not a pacto de retro sale, and petitioners were barred by laches for failing to redeem within the stipulated period.
Issue(s)
Whether the action for conventional redemption is barred by res judicata due to the prior dismissal of the action for removal of clouds on title. Whether the deed of sale, in conjunction with the deed of agreement, constitutes an equitable mortgage. Whether petitioners can still exercise the right to redeem Lot No. 1131, considering the stipulated period, their actions, and the doctrine of laches.
Ruling
The Supreme Court affirmed the order of the Regional Trial Court dismissing the petitioners' complaint on the ground of res judicata. The Court held that the prior dismissal of the action for removal of clouds on title (Civil Case No. OZ-648) barred the present action for conventional redemption (Special Civil Case No. OZ-0751) due to identity of parties, subject matter, and cause of action. Even if res judicata were not applicable, the petition would still fail on the merits, as the transaction was an absolute sale, not a pacto de retro sale or an equitable mortgage, and petitioners were guilty of laches for failing to exercise their right within the stipulated period.
Ratio Decidendi
On the issue of res judicata: The Court reiterated the requisites for res judicata: (1) the former judgment or order must be final; (2) it must be on the merits; (3) it must be rendered by a court having jurisdiction; and (4) there must be identity of parties, subject matter, and cause of action. The dismissal of Civil Case No. OZ-648 for failure to prosecute, not being "without prejudice," had the effect of an adjudication on the merits and operated as res judicata. The parties (petitioners and private respondents) and the subject matter (Lot No. 1131) were identical in both cases. The cause of action was also deemed identical, as both cases imputed to the respondents the same wrongful acts of bad faith and fraud that divested the petitioners' mother of her rights to the property, seeking to recover ownership and possession. The Court emphasized that a party cannot escape res judicata by merely varying the form of action or method of presentation, as the test is whether the same evidence would sustain both actions. On whether the transaction constitutes an equitable mortgage: The Court held that the transaction was not an equitable mortgage. The deed of sale was absolute, and the subsequent deed of agreement was a separate instrument granting a right to repurchase, not a reservation of such right within the original sale as required for a pacto de retro sale under Article 1601 of the Civil Code. The Court cited Villarica, et al. vs. The Court of Appeals, et al. and Ramos vs. Icasiano to distinguish a right of repurchase, which must be reserved in the same instrument of sale, from a separate agreement to resell or an option to buy. The deed of agreement explicitly stated that the conveyance would be absolute and irrevocable if the right to redeem was not exercised within the stipulated period. The petitioners' continuous possession was attributed to the respondents' generosity, not as owners, and their claim of deception was belied by their own advice to reform the contract, leading to the separate deed of agreement. The inadequacy of the price, while noted, was not sufficient to invalidate the sale, especially in a conventional sale with a right to repurchase or a separate agreement to resell, as parties are presumed to have made an independent judgment. On the right to redeem and laches: The Court found that even if the transaction were considered a pacto de retro sale, the petitioners failed to exercise their right of redemption within the stipulated period. Their claim of being forestalled by respondent Ang was deemed a "frivolous afterthought" as they had legal recourse. Their failure to act within the stipulated period and their subsequent inaction for an "inexplicable length of time" constituted laches, barring their claim. The Court noted that petitioners were aware of the registration of the property in Ang's name, as evidenced by their written commitment regarding the construction of a house on the land and their admission in the ejectment case that respondents were enjoying the fruits of the land since 1963. The Court concluded that their possession was by sheer tolerance of the respondents.
Main Doctrine
The principle of res judicata bars a subsequent action if there is an identity of parties, subject matter, and cause of action, even if the form of action or relief sought is different. A deed of sale coupled with a separate agreement to resell within a stipulated period, where the vendor fails to exercise the right to repurchase within the period, constitutes an absolute sale, not a pacto de retro sale or an equitable mortgage, especially when the vendor's successors-in-interest are remiss in asserting their rights and are guilty of laches.