Magpale vs.

Sobrepena

FACTS:

Sps. Pablo Rabang and Beatriz Magpale were owners of a certain parcel of land in Nueva Ecija.
One day Pablo died and was survived by his children and aforementioned wife. Subsequently, the children
together with Beatriz filed a complaint alleging that on April 12 1935, the Sps. Mortgaged the said land to
the defendant, Aniceto Sobrepena, for the sum of P1100 payable anytime thereafter, but said defendant
taking advantage of the ignorance of and absolute confidence of the spouses caused the latter to draw a
deed of absolute sale in his favor. He made the spouses sign the same while representing it as a deed of
mortgage for the amount above states as a loan.

Upon knowledge of said transaction, the plaintiffs filed civil case against defendant. Among
others, they prayed that the said transaction/document be declared a mere mortgage in accordance with
the intention of the parties. Before the case was tried on the merits, they came to an amicable settlement
by means of an agreement whereby the defendant Sobrepena admitted the truth and justice of the claim
of said spouses. Pursuant to said admission, the defendant executed the document entitled “AGREEMENT
TO RECONVEY” which was acknowleged and ratified before a Notary Public Lardizabal (Oct 9 1943). Duly
inscribed at the back of a TCT. Defendant thus asked for a dismissal of the same. (granted and the case
was terminated)

(Something about reconveyance within 5 years)

On January 15 1946, the plaintiffs demanded the defendant to reconvey and resell to them the
property in question tendering and offering to him at the same time the payment of P1100 as the
repurchase price. Defendant on the other hand denied and refused to the do the same. The plaintiffs
contend that they have been in open adverse and continuous possession of the property in question from
the time Pablo Rabang applied for a homestead up to the present.

On the part of defendant, he held that the land in question was conveyed to him via deed of
absolute sale and for valuable consideration by signing the same on April 2 1985. That his signature on
the Agreement to Reconvey was acquired by means of violence force and intimidation by Pablo and his
relatives and guerilla companions. Defendant has been in possession since April and up to present, the
property. Defendant prayed to declared void the Reconveyance Agreement.

Stipulated facts of the parties:

1.) Property was the absolute and exclusive property of the spouses. (acquired at homestead)
2.) There was a deed of absolute sale executed between the parties
3.) Xxx

Complaint was attached to the stipulation to show that it contained 2 causes of action:

a. The deed of sale executed by spouses was really that of a mortgage and not a deed of
sale.
 b. The land was conjugal property of the spouses. And since the transaction was entered
into by the husband without the consent of the wife, the same was null and void as to
the undivided share thereof.

Pursuant to the agreement in Civil Case 63, case was dismissed. The plaintiff filed an amended
complaint which contained 3 causes of action:

1. That the transaction entered into by Pablo was a loan/mortgage and not a sale.
2. Plaintiffs raised that 70 cavans of palay which was delivered by them from 1935-1946
constituted interest on the loan they acquired because the transaction in deed as a
loan.
3. Ask that defendant be order to comply with the Reconveyance Agreement.

So later defendant answered: Denying the allegations.

1. World war 2 has not been terminated and the complaint states no cause of action
2. The Spouses transferred and conveyed the land in question to the herein defendant by way of
absolute sale and for valuable consideration. It was read and translated to him and signed
before the notary public.
3. On the other hand, the defendant’s signature agreement to reconvey was not given freely and
obtained by means of force threat and intimidation on the part of the deceased Pablo Rabang
xxx.
4. That defendant since April 12 1935, the execution of the deed of sale, has been in lawful,
continuous, adverse, and peaceful possession of the land described in the complaint as the
true owner thereof. The plaintiffs were only allowed to stay in the premises as requested by
Rabang they be allowed to work directly on the land. The crop they given was the payment in
rental as agreed.

TC:

The court dismissed the 3rd cause of action on the ground that since the “Agreement to Reconvey” states
that such reconveyance shall be effected ‘after the present war shall have been terminated, but not later
than 5 years”

However the motion to dismiss by the defendants were denied with respect to the first two cause of
action so trial proceeded. The court declared the document a deed of absolute sale and not a contract of
loan or an equitable mortgage

From said judgment, both partied appealed the decision.

ISSUE: WON the parties have amicably settled the controversy as well as those relating the usurious
interest paid to the defendant to the l by virtue of the amicable settlement/Agreement to Reconvey
HELD:

YES. By virtue of the agreement, the parties had settled amicably all their differences arising out
of the controversial document (the alleged deed of sale) as well as those relating to the alleged usurious
interest paid to the defendant in the for of palay. It should be remembered that the nature of that
document – whether deed of sale as it purports to be on its face or a mortgage- was the very subject of
Civil Case No. 63 between the same parties in 1943. It was that case which was dismissed as a result of
the “Agreement to Reconvey”. Such dismissal, upon motion of the plaintiff Pablo Rabang, was part of the
consideration for the undertaking on the part of the defendant to resell the land to him, while the plaintiff
in the meantime was to remain in possession of the land as lessee and pay the defendant 70 cavans of
palay every year. The plaintiffs in the agreement took that agreement to be a settlement of the question
concerning the character of the document and the question concerning the usurious interest.

This is demonstrated by the fact that in their original complaint, they did not raise these questions
at all, and instead asked for specific performance of the “Agreement to Reconvey.” Since by virtue of the
Agreement to Reconvey, the case by the plaintiffs was terminated, it can no longer be revived as the
plaintiffs have essayed to do in the first two causes of action in their amended complaint herein.

The Agreement to reconvey constitutes a perfect instance of compromise between the parties to
a pending litigation, which is sanctioned by Article 1809 of the Spanish Civil Code:

“1809. A compromise is a contract is a contract whereby the parties, by

making reciprocal concession, avoid a litigation or put an end to one already
commenced.”

Article 1816 of the Spanish Civil Code provides that “a compromise has upon the parties
the effect and authority of res judicata, although there shall be no execution except in
compliance with a judicial compromise.”

It further cited the case of Yboleon vs. Sison: In accordance with the above provision, a
compromise may either be judicial or extrajudicial, depending upon whether its purpose be to
terminated the suit already instituted or to avoid the provocation thereof. In the former case,
the compromise is deemed judicial while in the latter extrajudicial.

Whether it be judicial or extrajudicial, a compromise has, with respect to the parties, the
same authority as res judicata with the sole difference that only a compromise made in court
may be enforced by execution, in accordance with the Civil Code.

American Authorities: In absence of agreement on the merits – there is a distinction between

the dismissal of an action on the merits or in settlement and the consequent adjustment of the
cause of action and the dismissal of an action where there is not settlement or adjustment of
the cause of action or any hearing upon the merits. In the latter class of cases, it is clear that a
judgment of dismissal is based upon the stipulation of the parties where the subject matter of
the action is not thereby settled and the dismissal not upon the merits of the controversy is not
res judicta and does not constitute a bar to a subsequent action for the same causes.
 Thus if an action is dismissed in settlement and consequent adjustment of the cause of
action, such dismissal constitutes res judicata and bars a subsequent action for the same causes.
It is contended, however, that the defense of res judicata has not been affirmatively pleaded by
the defendant in the trial court and cannot be raised for the first time on appeal.

It is true that the defendant did not raise it. Quite the contrary, he questioned the validity of the
Reconveyance Agreement. But it was the plaintiffs themselves who brought this action to compel specific
performance of that agreement, alleging in their original complaint, after making reference to Civil Case
63, that before said case was tried on the merits the parties came to an amicable settlement of the case
by means of an agreement .. and in turn the spouses plaintiffs asked for the dismissal of the case which
was granted by this court in a decision or order terminating the case and praying that the defendant be
ordered to allow the plaintiffs to repurchase the property in question for the amount of P1100 in
accordance with the express terms of the agreement to reconvey dated October 9 1943. No clearer
pleading than this could have been made as to the existence of the Agreement to Reconvey” the dismissal
of the case by virtue thereof and the legal effect of such dismissal as a final termination of said case. The
reference to the agreement and to the consequent dismissal of Civil Case 63 was made in the stipulation
of facts submitted by the parties on April 10 1974. And the cause of action embodied in the original
complaint subsequently became the third cause of action in the amended complaint of April 21 1947, in
which again the plaintiffs prayed that the defendant be ordered to execute the corresponding deed of
reconveyance in favor of the plaintiff pursuant to the repeated “Agreement to Reconvey.”

Upon these facts and circumstances, the question raised in the first two causes of action of the
amended complaint having been definitely settled, certainly so from the view point of the plaintiffs, since
it is they who insist on compliance by the defendant with the Agreement, the said question can no longer
be validly touched upon and decided in the present case—at least not until the issue raised by the said
defendant concerning the validity of that agreement has been first decided. Unfortunately, the third cause
of action (issue being raised by the parties) was dismissed by the lower court and the order of dismissal
has not been appealed. Thus no pronouncement as to valid or invalid.