Bollozos vs. Yu Tieng Su

A sale with pacto de retro transfers legal title to the vendee upon execution of the contract, subject only to the resolutory condition that the vendor exercise his right of repurchase within the agreed period; where ownership was acquired by an alien before the effectivity of the 1935 Constitution, such title is a vested right that the constitutional prohibition against alien acquisition of agricultural lands cannot disturb. Non-registration of the sale does not vitiate it as between the parties and their privies, registration being merely a means of confirming ownership with notice to the world, not a mode of acquiring it.

Paulino Bollozos was the registered owner of a 1.2-hectare parcel of land in Catarman, Misamis Oriental, covered by Original Certificate of Title No. 5033, and the plaintiffs in the case are his surviving children and grandchildren. Yu Tieng Su, a Chinese national, transacted with Bollozos over that property. The dispute is governed by the 1935 Constitution, which reserved to Filipino citizens the ownership of agricultural lands and took effect on November 15, 1935, thereby fixing the cut-off date against which the validity of the alien vendee's title had to be measured.

Paulino Bollozos was the registered owner of a 1.2-hectare parcel of land situated in the barrio of Bonbon, Municipality of Catarman, Province of Misamis Oriental, covered by Original Certificate of Title No. 5033. The plaintiffs in the case are his heirs: Fortunato Bollozos and Andrea Bollozos are his only surviving children, while the remaining plaintiffs are his grandchildren. The defendant, Yu Tieng Su, also known as Siso Yu, was a Chinese national who dealt with Bollozos over the property.

On September 1, 1934, Bollozos and his wife, Faustina Liloc, executed in Yu's favor a document entitled "Escritura de Compra y Venta Con Pacto de Retro" for the sum of P636.00. Under its terms, the vendors reserved the right to repurchase the land within seven years from the date of the instrument, and it was stipulated that should the period lapse without the right of redemption having been exercised, the sale would acquire the character of an absolutely consummated one. The deed was notarized before Notary Public Eufrosino Limbaco on the same date.

Two years later, on September 21, 1936, Bollozos executed a second instrument entitled "A Definite and Absolute Purchase and Sale." In it he declared that he had sold the same parcel, together with all existing improvements, to Yu on September 1, 1934 for P636.00 under the instrument of purchase with right of repurchase, and that for and in consideration of an additional sum of P295.00 he forever renounced and repudiated his right and privilege to repurchase the property, thereby raising the total purchase price to P931.00. The instrument likewise warranted the title to Yu, his heirs, executors, administrators, and assigns.

On January 20, 1968, the plaintiffs filed a complaint for the recovery of the land and for an accounting of its use from Yu. They alleged that the land had been delivered to him only for administration so that he could apply its produce to the indebtedness of Paulino Bollozos, their predecessor-in-interest, and that although the debt had long been paid, Yu refused to return the land despite demand and to render the required accounting. Yu answered that he had acquired ownership of the land by virtue of the two documents executed in his favor by Bollozos and was therefore under no obligation to return it; he added that the suit was barred by prescription, the complaint having been filed only after all of 26 years.

The parties thereafter entered into a stipulation of facts before the trial court, agreeing on the identity of the parcel, the relationship of the plaintiffs to Paulino Bollozos, the due execution of the two instruments, and the submission of the case for decision on the issue of whether a valid conveyance of ownership was made on September 1, 1934 or on September 21, 1936, and on the legality or nullity of the documents. No further evidence was received. The trial court found that the disputed property remained registered in the name of Paulino Bollozos and that the tax declarations thereon continued in his name — circumstances the plaintiffs invoked as proof that ownership had been retained by Bollozos and later passed to his heirs, and that the first contract was really only an equitable mortgage rather than a deed of sale. The record contained no showing that the property had merely been entrusted to Yu for administration in connection with any indebtedness of Bollozos, and no evidence of such indebtedness was adduced.

• Ownership Under the Two Instruments: Appellant Yu Tieng Su maintained that he had acquired ownership of the land in question by virtue of the two documents executed in his favor by Paulino Bollozos — the deed of sale with right of repurchase dated September 1, 1934 and the deed of absolute sale dated September 21, 1936 — and that he therefore had no obligation to return the property.
• Prescription: Appellant averred that the suit was barred by prescription, the complaint having been filed only after all of 26 years.
• Absence of Equitable Mortgage Indicia: Appellant invoked Article 1602 of the Civil Code and argued that none of the indications of an equitable mortgage mentioned therein are present in this case.

• Administration of the Land: Respondents claimed that the land had been delivered to Yu only for administration so that he could apply the produce thereof to the indebtedness of Paulino Bollozos, their predecessor-in-interest, and that Yu had refused to return the land despite demand and to make the required accounting although the debt had long been paid.
• Conditional Sale Did Not Transfer Ownership: Respondents suggested that the first transaction, being conditional, did not effectively transfer the ownership of the land to the vendee.
• Equitable Mortgage: Respondents contended that the first contract was really only an equitable mortgage and not a deed of sale.
• Unregistered Title and Tax Declarations: Respondents argued that the admitted fact that the disputed property was still in the name of Paulino Bollozos, as were the tax declarations, proved that ownership of the land was retained by Bollozos and later transferred to his heirs, and that as long as the land had not yet been registered in the name of the defendant-appellant, title thereto remained with Bollozos.

• Nature of the 1934 Contract: Whether the document entitled "Escritura de Compra y Venta Con Pacto de Retro" executed on September 1, 1934 was a valid sale with right of repurchase that transferred ownership of the land to Yu Tieng Su, or an equitable mortgage that did not convey ownership.
• Validity of the 1936 Contract: Whether the "Definite and Absolute Purchase and Sale" executed on September 21, 1936 validly conveyed the land to Yu Tieng Su notwithstanding the constitutional prohibition against the acquisition of agricultural lands by aliens.
• Effect of Non-Registration: Whether the failure to register the sale in the name of the vendee, and the continued registration and tax declarations in the name of the vendor, negated the transfer of ownership.
• Equitable Mortgage: Whether the trial court correctly found the deed of sale with right of repurchase to be an equitable mortgage.

• Nature of the 1934 Contract: Yes. The first transaction was a valid sale with right of repurchase and effectively transferred ownership of the land in dispute to the defendant-appellant, all the elements of a valid contract being present and the authenticity of the instrument having been stipulated upon.
• Validity of the 1936 Contract: The second contract could not have validly conveyed the land for the first time, since Yu was an alien and the conveyance was already prohibited by the Commonwealth Constitution; it was nonetheless effective in affirming the earlier contract and in making it absolute through the vendor's renunciation of his right to repurchase.
• Effect of Non-Registration: No. Failure to register the sale did not vitiate it or render it unenforceable, an unrecorded deed of sale being binding between the parties and their privies because actual notice is equivalent to registration.
• Equitable Mortgage: No. The finding that the deed of sale with right of repurchase was an equitable mortgage has no basis in fact and law, the continued registration and tax declarations in the vendor's name not changing the nature of the contract concluded in 1934.

• Nature of the 1934 Contract: The first document shows that Paulino Bollozos actually sold the land to Yu for P636.00, subject only to the former's right to repurchase within seven years, and nothing in the instrument suggests a different arrangement such as the administration alleged in the complaint, for which no evidence was submitted. The intention embodied in the first instrument was affirmed in the second transaction between the same parties, which specifically referred to the 1934 sale and to the consideration of P636.00. Ownership over the thing sold in a sale with pacto de retro is transferred to the vendee upon execution of the contract, subject only to the resolutory condition that the vendor exercise his right of repurchase within the period agreed upon; the insertion of a stipulation for repurchase does not create any right inconsistent with the purchaser's ownership, being in the nature of an option whose exercise rests upon contingency. Bollozos could have repurchased the property within seven years but did not choose to do so, and in fact renounced and repudiated that right two years later.

• Validity of the 1936 Contract: The 1936 instrument purported to convey the same property to Yu, but this was merely an affirmation or reiteration of the parties' intention in the first transaction; it was not really necessary to repeat the sale because the first contract had already been perfected and consummated, and the sale could not have been made for the first time then because it would have been illegal under the provisions of the new Constitution that had come into force in 1935. The real purpose of the second contract was to manifest Bollozos' waiver of his right to repurchase, for which he received the additional sum of P295.00, thereby making the sale absolute. As the first transaction was concluded in 1934, the prohibition against the acquisition of agricultural lands by aliens was not yet applicable, having become effective only from November 15, 1935 under the Commonwealth Constitution; moreover, the title acquired by Yu was recognized in that Constitution as a vested right that could no longer be disturbed under its new provisions reserving ownership of such lands to Filipino citizens. Title and ownership over lands within the meaning and for the purposes of the constitutional prohibition date back to the time of their purchase, not later, since any other ruling would operate to dispossess alien owners who had acquired their lands in good faith before the prohibition was established but either failed wholly to register them or registered them only after the Constitution was adopted.

• Effect of Non-Registration: The first deed of sale took effect on September 1, 1934 and legally transferred ownership of the land from the vendor to Yu on that date; failure to register the sale did not vitiate it or render it unenforceable. An unrecorded deed of sale is binding between the parties and their privies because actual notice is equivalent to registration, the real purpose of registration being to give notice to third persons. Registration does not confer ownership; it is not a mode of acquiring dominion but only a means of confirming the fact of its existence with notice to the world at large. At best, the continued registration in the vendor's name may demonstrate neglect on the part of the vendee, who had a right to transfer the registration in his name, but that would not signify that Bollozos retained or recovered ownership of the land he had already sold.

• Equitable Mortgage: The finding of the trial court that the deed of sale with the right of repurchase was an equitable mortgage has no basis in fact and law. All that is invoked in its support is that the land continued to be registered, and all the tax declarations thereon were made, in the name of Paulino Bollozos; that circumstance would not change the nature of the contract concluded in 1934. While the Court was inclined to agree with the appellant that none of the indications of an equitable mortgage mentioned in Article 1602 of the Civil Code are present, that article is not applicable because it was not embodied in the old Civil Code which was in force in 1934. In any event, one of the indicia mentioned in that article is that the vendor remains in possession of the property in question, which is not the situation here, since the complaint in fact asks for recovery of possession of the land from Yu. The allegation that the property had merely been entrusted to Yu for administration in connection with Bollozos' indebtedness remained a bare averment without any actual or presumptive support, was not among those admitted in the stipulation of facts, and had been categorically denied in the answer.

• Sale with Pacto de Retro Transfers Ownership Subject to a Resolutory Condition — The nature of a sale with the right of repurchase is such that ownership over the thing sold is transferred to the vendee upon execution of the contract, subject only to the resolutory condition that the vendor exercise his right of repurchase within the period agreed upon. The stipulation for repurchase is in the nature of an option, and the possible exercise of it rests upon contingency; it does not create any right inconsistent with the right of ownership in the purchaser. The Court applied this doctrine in holding that the September 1, 1934 instrument effectively transferred ownership of the land to Yu, subject only to Bollozos' right to redeem within seven years.

• Vested Rights of Aliens Acquired Before the 1935 Constitution — Title and ownership over lands within the meaning and for the purposes of the constitutional prohibition against alien acquisition of agricultural lands date back to the time of purchase, not later. Any other ruling would be illegal and unjust and would operate to dispossess alien owners who had acquired their lands in good faith before the prohibition was established but either failed wholly to register them or registered them only after the Constitution was adopted. Because the sale to Yu was concluded in 1934, before the November 15, 1935 effectivity of the prohibition, his title was a vested right recognized by the Constitution itself and could no longer be disturbed.

• Registration Is Not a Mode of Acquiring Ownership — Registration does not confer ownership; it is not a mode of acquiring dominion but only a means of confirming the fact of its existence with notice to the world at large. The real purpose of registration is to give notice to third persons, so an unrecorded deed of sale does not lose its efficacy insofar as the parties thereto and their heirs are concerned, actual notice being equivalent to registration. The Court thus held that the failure to register the sale in Yu's name did not vitiate the transfer of ownership.

• Requisites and Indicia of Equitable Mortgage — Article 1602 of the Civil Code enumerates the circumstances under which a contract purporting to be a sale with right of repurchase is presumed to be an equitable mortgage; among the indicia is that the vendor remains in possession of the property. The Court held the article inapplicable because it was not embodied in the old Civil Code in force in 1934, and in any event found no factual basis for the equitable mortgage characterization, the vendee not having remained in possession and the complaint itself seeking recovery of possession from him.

• Equal Justice to Citizens and Aliens — The Court dispenses equal justice to the citizen and the alien and judges them on the merits of their cause and not the color of their skin. Having admitted the alien into Philippine territory, the State is committed to the recognition of all the rights of the stranger in the midst save only where they unduly clash with the higher interests of the nation; no such collision existed in this case.

• "The Court holds that the first transaction was a valid sale with right of repurchase and effectively transferred ownership of the land in dispute to the defendant-appellant. All the elements of a valid contract were present, and in any case the plaintiffs-appellees themselves have stipulated on its authenticity." — This passage states the ratio decidendi on the central issue: the 1934 deed was not an equitable mortgage but a true sale with pacto de retro that conveyed ownership to the vendee.

• "Registration does not confer ownership. It is not a mode of acquiring dominion, but only a means of confirming the fact of its existence with notice to the world at large." — This is the canonical formulation of the rule that registration is not a mode of acquiring ownership, cited to reject the argument that the continued registration and tax declarations in the vendor's name negated the transfer.

• "Title and ownership over lands within the meaning and for the purposes of the constitutional prohibition, dates back to the time of their purchase, not later. Any other ruling would be illegal and unjust, and would operate to dispossess alien owners who had acquired their lands in good faith before the prohibition was established, but either failed wholly to register them or registered them only after the Constitution was adopted." — This passage supplies the controlling rule on the retroactive reach of the constitutional prohibition and protects the alien vendee's vested right acquired in 1934.

• "This Court dispenses equal justice to the citizen and the alien and judges them on the merits of their cause and not the color of their skin." — This closing pronouncement articulates the Court's stance on the equal treatment of aliens in Philippine courts and explains why Yu's nationality did not bar relief.

• Manalansan vs. Manalang, L-13646, July 26, 1960; Almiranez vs. Devera, L-19496, February 27, 1965; Rosario vs. Rosario, L-13018, December 29, 1960 — Cited as the line of cases holding, under the old Civil Code, that the nature of a sale with the right of repurchase is such that ownership over the thing sold is transferred to the vendee upon execution of the contract, subject only to the resolutory condition of repurchase within the agreed period.
• Parco vs. Haw Pia, 45 SCRA 164 — Cited in support of the rule that a sale with pacto de retro transfers legal title to the vendee and, in the absence of an agreement to the contrary, carries with it the right of possession.
• Santos vs. Heirs of Crisostomo and Tiongson, 41 Phil. 342 — Cited for the doctrine that the insertion of a stipulation for repurchase by the vendor in a contract of sale does not necessarily create any right inconsistent with the right of ownership in the purchaser, such a stipulation being in the nature of an option resting upon contingency.
• Tejido vs. Zamacoma, 138 SCRA 78 — Cited together with Article XIII, Section 1 of the 1935 Constitution for the recognition of the alien vendee's title as a vested right that could no longer be disturbed under the new constitutional provisions.
• Alderete vs. Amandoron, 46 Phil. 488 — Cited for the rule that the insertion of a stipulation for repurchase does not create a right inconsistent with the purchaser's ownership.
• Obras Pias vs. Devera Ignacio, 17 Phil. 45; Gustilo vs. Maravilla, 48 Phil. 422; Quimson vs. Suarez, 45 Phil. 901; Winkleman vs. Veluz, 43 Phil. 609; Galasinao vs. Austria, 97 Phil. 82; Philippine Suburban Development Corporation vs. Auditor General, 63 SCRA 397 — Cited collectively for the rule that an unrecorded deed of sale is binding between the parties and their privies because actual notice is equivalent to registration, and that registration is not necessary to the efficacy of the sale as between the parties.
• Bautista vs. Dy Bun Chin, CA-L-6983R, 49 O.G. 179 — Cited for the propositions that registration does not confer ownership and that title and ownership for purposes of the constitutional prohibition date back to the time of purchase, not later.

• Article XIII, Section 1, 1935 Constitution — The provision reserving to Filipino citizens the ownership of agricultural lands, which took effect on November 15, 1935. The Court held that the prohibition did not apply to the sale concluded on September 1, 1934, and that the title thereby acquired by Yu was recognized by the Constitution as a vested right that could no longer be disturbed.
• Article 1508, Old Civil Code — Cited in the quoted jurisprudence for the rule that where the period of repurchase is not fixed in a deed of pacto de retro sale, the right may be exercised within four years from the execution of the conveyance.
• Article 1602, Civil Code — Invoked by the defendant-appellant, who argued that none of the indications of an equitable mortgage enumerated therein are present. The Court held the article inapplicable because it was not embodied in the old Civil Code in force in 1934, though it noted that one of the indicia — that the vendor remains in possession of the property — was not present since the complaint sought recovery of possession from the vendee.
• Ley Hipotecaria — Referred to in the text of the 1934 deed itself, which provided that pending redemption the purchaser could only dispose of the property subject to the limitations prescribed by the Mortgage Law.

Teehankee, C.J., Narvasa, Paras and Gancayco, JJ., concur.