HSBC v.

Pauli
GR L-38303

FACTS:
On June 14, 1957, HSBC filed an action for collection of sum of money against Ralph
Pauli wherein a judgment was rendered in favor of HSBC. However, said judgment was
not satisfied because no leviable assets of Pauli were found. Unknown to HSBC, Pauli
purchased from the PNB a sugar cane plantation known as Hacienda Riveside, but he did
not register the deed of sale to avoid discovery by his creditors. Six years later, on March
1, 1963, he fraudulently sold the hacienda to his daughter Sally Garganera and her
husband Mateo Gargenera. In another civil case filed by Warner Barnes & Co., another
creditor of Pauli, the sale to spouses Garganera was declared fictitious for being in fraud
of creditors. Having discovered that the hacienda belonged to Pauli, HSBC filed a
complaint for revival of the previous judgment on January 13, 1969 wherein the court
ordered Pauli to pay HSBC. HSBC filed another civil case to annul the conditional sale as
well as the deed of sale of the disputed hacienda. Pauli argues that the case is barred by
prescription. HSBC counters that the four-year period commenced to run from the date
when they had actual knowledge of the fraudulent sale (sometime in 1969), hence, the
action has not yet prescribed.

GENERAL ISSUE:
Whether or not the action for annulment will prescribe.

CONTROLLING ISSUE:
Whether or not the action for annulment of the sale of the hacienda to the Garganeras
prescribed.

RULING: YES
The action has prescribed. HSBC’s theory would diminish public faith in the integrity of
torrens titles and impair commercial transactions involving registered lands for it would
render uncertain the computation of the period for the prescription of such actions. When
a transaction involves registered land, the four-year period fixed in Article 1391 of the
Civil Code within which to bring an action for annulment of the deed, shall be computed
from the registration of the conveyance (March 5, 1963) on the familiar theory that the
registration of the document is constructive notice of the conveyance to the whole world.

DISPOSITION:
WHEREFORE, finding no reversible error in the order dated June 15, 1971 of the
trial court dismissing Civil Case No. 465, the same is hereby affirmed.