G.R. No. 135920 - Espiritu vs. Severina Realty Corp.

The subject property consists of about 10,510 square meters (approximately one hectare) covering lots 1, 2, 3, and 4 of Plan PSU-167606-B.
The late Daniel Espiritu, a co-owner pro-indiviso, was involved in the chain of transactions concerning the property.
A deed of sale dated 07 April 1969, purportedly executed by the private respondents, transferred the property for a certain value to Investment and Development, Inc.
Subsequently, Investment and Development, Inc. allegedly sold the property to petitioner Severina Realty Corporation through a deed of sale dated 07 March 1979.

The petitioner filed an application for land registration of the subject property in LRC No. Pq-561-P with the then Court of First Instance of Rizal, Branch 29 in Pasay City.
On 18 September 1981, after due proceedings, the trial court ordered the issuance of Decree No. N-187142 and the corresponding OCT No. 116 in the petitioner’s name.
The Land Registration Commission subsequently issued OCT No. 116 on 04 January 1983.

On 27 February 1996, the private respondents commenced Civil Case No. 96-0111 by filing a complaint.
Notice of lis pendens was annotated on 01 March 1996 on the various Transfer Certificates of Title arising from OCT No. 116.
In response to a verbal motion by petitioner Severina Realty Corporation, the trial court scheduled a preliminary hearing on its affirmative/special defenses.
The petitioner relied solely on documentary evidence while the private respondents presented four witnesses:

On 15 July 1997, the trial court issued an order denying the petitioner’s motion to dismiss for lack of factual and legal basis.
A subsequent petition for reconsideration filed by the petitioner was also denied by the trial court on 07 October 1997.

On July 26, 1996, the trial court issued an order denying the petitioner’s motion for production of a document, stating that the document was neither in the possession nor control of Severina.
At the pre-trial hearing on July 29, 1996, Severina moved, orally, for a hearing on her affirmative defenses as though it were a motion to dismiss; this was opposed by the petitioner.
On October 28, 1997, the respondents filed a petition for certiorari with the Court of Appeals seeking to nullify the trial court orders.
On 19 June 1998, after due proceedings, the Court of Appeals set aside the trial court orders and dismissed the complaint in Civil Case No. 96-0111.
The petitioner raised several points of attack against the orders, alleging grave abuse of discretion regarding issues of jurisdiction, prescription, res judicata, and the purported want of cause of action.

Whether the Court of Appeals erred in dismissing Civil Case No. 96-0111 on the ground of prescription by relying solely on the lapse of time.
Whether the nature of the action, particularly one involving the declaration of the inexistence of a contract (alleged to be fictitious), should render it imprescriptible under Article 1410 of the Civil Code.

Whether the Court of Appeals wrongly applied the doctrine of res judicata in dismissing the complaint, considering that the petitioner might not have been a notified or active party in the earlier land registration proceedings (LRC No. Pq-561-P).
Whether the absence of notice regarding the LRC case negates the necessary requisites (identity of parties, subject matter, and cause of action) for invoking res judicata.