Mortera vs. Martinez

Articles 1507 to 1520 of the Civil Code governing contracts of sale with pacto de retro were not repealed by Act No. 1108, and such contracts remain valid and distinct from loans secured by mortgage. The right of conventional redemption is a real right enforceable against third persons, and the vendor's failure to exercise it within the stipulated period vests ownership in the purchaser, entitling the latter to registration of the property.

Inocente Martinez y Ticson owned a parcel of land of 4,545 square meters in San Pablo, La Laguna, assessed at P1,818 with improvements. On September 6, 1906, he executed a power of attorney in favor of Francisco Godinez y Galan. Prior to the events at issue, Martinez had sold what appears to be the same land to his sister-in-law, Exequiela Buñi, under a pacto de retro for P500 with a six-year redemption period commencing March 23, 1904, but this instrument was never registered. The land had also been the subject of litigation between the municipality of San Pablo and Martinez, which was resolved in Martinez's favor by judgment of the Court of First Instance of La Laguna on March 2, 1907, prior to the first sale at issue.

On May 23, 1907, Inocente Martinez y Ticson, through his attorney-in-fact Francisco Godinez y Galan, sold a parcel of land in San Pablo, La Laguna, to Jose de Guzman for P1,306 under a pacto de retro, with the vendor reserving the right to repurchase the property within forty days, until July 2, 1907. The instrument was executed before notary Joaquin Rodriguez Serra and recorded in the registry of deeds of La Laguna on May 24, 1907. It was stipulated that if the redemption period expired without the vendor exercising his right, the sale to de Guzman would become finally consummated and irrevocable. The redemption period lapsed without Martinez or his agent repurchasing the land, and on July 5, 1907, the registrar of La Laguna recorded the confirmation of ownership in de Guzman's favor.

On August 23, 1907, de Guzman filed a petition with the Court of Land Registration seeking registration of the property. After due summons was served on adjoining landowners and interested parties, Inocente Martinez and Exequiela Buñi opposed the registration. On July 5, 1908, de Guzman represented that he had sold the land to Ramon Mortera y Javier Camacho by public instrument ratified on August 20, 1907, before notary Williams, for P1,500, and that Mortera should be substituted as petitioner. The sale to Mortera was recorded in the registry of property of La Laguna on August 27, 1907.

Martinez opposed registration on the ground that Godinez, his attorney-in-fact, was not authorized to sell the property with pacto de retro except within the legal term established by Article 1508 of the Civil Code, and that the agent exceeded his authority in violation of Article 1714, rendering the sale null and void. Martinez further alleged that the property had already been sold under pacto de retro to Exequiela Buñi, and that at the time of the sale the land was in course of litigation between the municipality of San Pablo and himself, in violation of Article 1291, paragraph 4, of the Civil Code. Buñi opposed on the ground that the lot had been sold to her with pacto de retro for a period of six years from March 1904, as shown by an unregistered bill of sale executed by Martinez in her favor.

At trial on August 8, 1908, counsel for the petitioner objected to the admission of Buñi's opposition on the ground that she did not allege possession of any right, title, or interest in the property, that the opposition was not sworn to as required by law, and that it was not alleged that the subscriber was duly authorized to sign or take the prescribed oath. The trial court overruled the demurrer. After trial, the court on August 22, 1908 denied registration to the petitioner and decreed adjudication of the property in favor of Martinez, subject to two mortgages — one for P1,306 in favor of Mortera for forty days from May 23, 1907 (already expired), and another for P500 in favor of Buñi for six years from March 23, 1904. The petitioner moved to vacate, and on September 21, 1908, the court en banc reversed, dismissed the oppositions, and ordered registration in favor of Mortera. The opponents excepted, moved to reopen, were overruled on October 5, and filed a bill of exceptions to the Supreme Court. The notarial documents and registry entries evidencing the chain of transfers were admitted as authentic and duly executed, and no controversy existed between the parties as to the facts; the questions presented were purely of law.

• Admissibility of Buñi's Opposition: Petitioner objected to the admission of Exequiela Buñi's opposition on the ground that she did not allege possession of any right, title, or interest in the property, that the opposition was not sworn to as required by law, and that it was not alleged that the subscriber was duly authorized to sign or take the prescribed oath.
• Validity of Title: Petitioner maintained that the notarial instruments evidencing the chain of transfers — from Martinez to de Guzman through the attorney-in-fact, and from de Guzman to Mortera — were authentic, duly executed with all legal formalities, and had not been impugned either criminally or civilly, and that the property was the absolute property of Mortera.

• Excess of Authority: Martinez argued that Francisco Godinez, acting under the power of attorney, exceeded his authority by selling the property with pacto de retro for a period of forty days, in violation of Articles 1508 and 1714 of the Civil Code, rendering the sale null and void.
• Property in Litigation: Martinez contended that the property was in course of litigation between the municipality of San Pablo and himself at the time of the sale, and that the sale was effected without regard to the provisions of Article 1291, paragraph 4, of the Civil Code, making it void and subject to rescission.
• Prior Pacto de Retro to Buñi: Martinez alleged that the property had already been sold under pacto de retro to Exequiela Buñi, causing him great loss, and that he had received higher offers (P3,500 and P4,500) which he had not accepted.
• Buñi's Claim of Prior Sale: Buñi opposed registration on the ground that the lot had been sold to her with pacto de retro for a period of six years from March 1904, as shown by a bill of sale executed by Martinez in her favor, and prayed that registration be denied.

• Repeal of Civil Code Articles: Whether Act No. 1108 repealed Articles 1507 to 1520 of the Civil Code, thereby abolishing contracts of sale with pacto de retro and placing them on the same footing as loans secured by mortgage.
• Entitlement to Registration: Whether Mortera's dominion over the land may be duly registered in accordance with the Land Registration Act.

• Repeal of Civil Code Articles: No. Act No. 1108 did not repeal Articles 1507–1520 of the Civil Code; the provision authorizing registration of pacto de retro instruments at the owner's request is not incompatible with the Civil Code prescriptions and in fact amplifies the registration framework.
• Entitlement to Registration: Yes. Mortera acquired the land by valid purchase from de Guzman, who had acquired it through a pacto de retro sale whose redemption period had lapsed without exercise; the notarial documents and registry entries were unimpeached, and the opponents' claims — including Buñi's unregistered prior sale — could not prevail under the law.

• Repeal of Civil Code Articles: Section 6 of Act No. 1108 amended Section 19 of Act No. 496 (the Land Registration Act) by adding subsection (e), which provides that instruments known as pacto de retro, made under Articles 1507 and 1520 of the Civil Code, may be registered under the Act at the request of the owner who executed the pacto de retro sale, under the same conditions and in the same manner as mortgagors may apply for registration. The Court found that neither the language nor the spirit of this provision supports an inference that the Civil Code articles on conventional repurchase were repealed. The law contains no words annulling or repealing those articles in formal terms, nor any provisions contrary to or incompatible with them. The authorization to register pacto de retro instruments at the owner's request is not incompatible with the Civil Code but rather amplifies the registration framework and recognizes the real character of the right of redemption. Article 1510 of the Civil Code provides that the vendor may bring his action against every possessor whose right arises from that of the vendee, and in Pandaquila vs. Gaza, the Court held that the right to enforce redemption is a real right valid against third persons. If the right to enforce redemption is real, the right of conventional redemption from which it arises is likewise real and not merely personal. The registration of property sold with pacto de retro shows the coexistence of the purchaser's temporary ownership and the vendor's right to reacquire through redemption. The two contracts — sale with pacto de retro and loan secured by mortgage — are absolutely different in nature and character, as established in Villaruel vs. Encarnación, which distinguished Articles 1507 et seq. from Articles 1857–1862 and 1874 et seq. of the Civil Code. The dissenting judge's view that the contract was in substance a loan secured by mortgage, predicated on the supposed repeal, was therefore unfounded.

• Entitlement to Registration: Once it was established that the Civil Code articles on pacto de retro were not repealed, the validity of the chain of transfers was examined. Martinez sold the land to de Guzman through his attorney-in-fact Godinez on May 23, 1907, with a forty-day redemption right; the period lapsed without repurchase, vesting ownership in de Guzman. De Guzman then sold the land to Mortera on July 22, 1907, for P1,500, and the sale was recorded on August 27, 1907. The notarial documents and registry entries were admitted as authentic and had not been impugned criminally or civilly. As to the allegation that the sale violated Article 1291(4) because the land was in litigation, the Court noted that by judgment of March 2, 1907, the Court of First Instance of La Laguna had held the land to be Martinez's property and absolved him of the municipality's complaint, resolving the litigation in his favor prior to the sale. As to Buñi's claim, her instrument of sale with pacto de retro dated March 23, 1904, was never registered; she alleged no further title to the land beyond that unregistered document, and she admitted the land to be owned by Martinez. Under the law, an unregistered pacto de retro cannot prevail against a registered sale. The land was satisfactorily proven to be the absolute property of Mortera, and registration was properly decreed in his favor.

• Sale with Pacto de Retro Distinguished from Loan Secured by Mortgage — A contract of sale with pacto de retro is absolutely different in nature and character from a loan secured by mortgage. In a sale with pacto de retro, the purchaser acquires temporary ownership of the thing sold, while the vendor retains the right to reacquire ownership through conventional redemption. The right of conventional redemption is a real right, not merely personal, enforceable against third persons deriving their right from the vendee. The vendor's failure to exercise the right of repurchase within the stipulated period vests ownership finally and irrevocably in the purchaser. The Court relied on this distinction to hold that Act No. 1108's authorization to register pacto de retro instruments in the same manner as mortgages did not abolish the institution or convert it into a mortgage.

• Statutory Construction — Implied Repeal — Repeal by implication is not favored. A law said to repeal prior provisions must contain words or provisions that annul or repeal those provisions in formal and manifest terms, or at least provisions contrary to and incompatible with the prior law. Where the later statute merely authorizes additional registration procedures without negating the substantive rights under the earlier law, no repeal occurs. The Court applied this principle to hold that Act No. 1108 did not repeal Articles 1507–1520 of the Civil Code.

• Priority of Registered over Unregistered Instruments — An unregistered pacto de retro sale cannot prevail against a subsequently registered sale or registration proceeding. The Court held that Buñi's opposition, based solely on an unregistered document, could not prevent registration in favor of Mortera, whose chain of title was supported by duly recorded notarial instruments and registry entries.

• "From neither the latter nor the spirit of the law, as contained in the above paragraph, can it be inferred in any manner whatsoever that the said articles and others of the Civil Code bearing on conventional repurchases have thereby been repealed." — This passage articulates the ratio decidendi on the non-repeal of the Civil Code articles on pacto de retro by Act No. 1108, establishing that the registration provision was harmonious with, not destructive of, the substantive law.

• "The two contracts are absolutely different in their nature and character, as may be seen from the mere perusal of articles 1507 et seq. and articles 1857 to 1862 and 1874 and following of the Civil Code." — This formulation, citing Villaruel vs. Encarnación, defines the canonical distinction between sale with pacto de retro and mortgage, a distinction central to the Court's rejection of the dissenting judge's characterization of the transaction.

• "The registration of property sold with pacto de retro shows the coexistence of the right of the purchaser and of the vendor, the former as the temporary owner of the thing sold, and the latter as unquestionably entitled to again become the owner through the exercise of his right of action to enforce the redemption or purchase." — This passage defines the dual nature of interests under a pacto de retro sale as reflected in the registration system, affirming the real character of the vendor's redemption right.

• Pandaquila vs. Gaza, 12 Phil. Rep. 663 — Followed. The Court cited this case for the proposition that the seller's right of action to enforce redemption against any possessor deriving right from the purchaser is of the nature of a real right, supporting the conclusion that the right of conventional redemption is real and not merely personal.

• Villaruel vs. Encarnación, 5 Phil. Rep. 360 — Followed. The Court cited this case for the established distinction between sale with pacto de retro and loan secured by mortgage, confirming that the two contracts are absolutely different in nature and character.

• Articles 1507–1520, Civil Code — Govern contracts of sale with pacto de retro, including the vendor's right of conventional redemption. The Court held these articles were not repealed by Act No. 1108 and remain in full force, regulating the celebration, character, validity, and effects of such contracts.
• Article 1510, Civil Code — Provides that the vendor may bring his action against every possessor whose right arises from that of the vendee, without prejudice to the Mortgage Law with regard to third persons. The Court relied on this provision to establish the real character of the right of redemption.
• Article 1291, paragraph 4, Civil Code — Provides for rescission of contracts involving property in litigation. The Court found this provision inapplicable because the litigation between the municipality of San Pablo and Martinez had been resolved in Martinez's favor by judgment of March 2, 1907, prior to the sale.
• Act No. 1108, Section 6 (amending Act No. 496, Section 19) — Authorizes registration of pacto de retro instruments at the request of the owner who executed the sale, under the same conditions and in the same manner as mortgagors may apply for registration. The Court held this provision amplified the registration framework without repealing the Civil Code articles on pacto de retro.
• Act No. 496 (Land Registration Act), Section 19 — Governs registration of property. As amended by Act No. 1108, it permits registration of pacto de retro instruments but does not authorize registration of the right to redeem, consistent with the real but limited character of the vendor's redemption right.

Arellano, C.J., Mapa, Johnson, and Moreland, JJ., concurred.

• Judge S. del Rosario (dissenting in the Court of Land Registration en banc) — Judge del Rosario dissented from the en banc majority decision of September 21, 1908, holding that registration should be decreed in the name of opponent Martinez, with the encumbrances set out in his original decision of August 22, 1908. His dissent was premised on the view that the contract of May 23, 1907, was not a sale with pacto de retro but a loan secured by mortgage, because Articles 1507 et seq. of the Civil Code had been repealed by Act No. 1108, which allegedly excluded sale with pacto de retro from the contracts recognized by law. The Supreme Court rejected this reasoning, holding that no repeal occurred and that the two forms of contract remain distinct.