G.R. No. L-13646; July 26, 1960
BENITO MANALANSAN, plaintiff-appellant, vs. LUIS MANALANG, JULIO CUBA and JOSE SY, defendants-appellees.

FACTS

The spouses Augusto Manalang and Victoria Dabu were the original owners of a two-story building on España Street. On August 14, 1951, they executed a chattel mortgage over the building in favor of Benito Manalansan to secure a loan. Due to non-payment, the mortgage was foreclosed, and the building was sold at public auction to Manalansan on May 14, 1956. When Manalansan sought to take possession, he found Jose Sy and Julio Cuba occupying the building as tenants of Luis Manalang. Manalansan filed an action to recover possession.
At trial, defendant Luis Manalang established that he had purchased the same building from the spouses Manalang and Dabu on September 24, 1949, under a contract of sale with a right to repurchase within one year. The vendors failed to redeem within the stipulated period. Manalang had the property assessed in his name for taxation from 1950-1957 and paid the corresponding taxes. On January 25, 1955, he obtained a final judgment from the Municipal Court against Augusto Manalang, et al., ordering them to vacate the building. Since that judgment became final, he had been in possession, leasing it to his co-defendants.
The lower court, convinced that Luis Manalang had acquired full ownership of the building before the execution of the chattel mortgage, dismissed Manalansan’s complaint.

ISSUE

Whether Article 1607 of the New Civil Code, which requires a judicial order for the consolidation of ownership in a sale with pacto de retro involving real property, applies to the contract between Luis Manalang and the original owners, thereby affecting Manalansan’s rights as a subsequent mortgagee and auction purchaser.

RULING

No, Article 1607 of the New Civil Code does not apply. The Supreme Court affirmed the lower court’s decision dismissing the complaint.
The contract of sale with pacto de retro between appellee Luis Manalang and the spouses was executed on September 24, 1949, before the effectivity of the New Civil Code. Under the Old Civil Code, ownership over the thing sold is transferred to the vendee upon execution of the contract, subject only to the resolutory condition of repurchase. Upon the vendor’s failure to redeem, ownership is consolidated in the vendee by operation of law (Article 1509, Old Civil Code). The New Civil Code’s transitional provisions (Article 2255) state that former laws shall regulate acts and contracts executed before its effectivity, even if the condition or period is still pending. Furthermore, Article 2252 provides that new provisions which may impair vested rights shall have no retroactive effect. Applying Article 1607 to Luis Manalang’s contract would impair the rights that had already vested in him under the Old Code.
The Court also noted that there is no separate registry for buildings apart from the lands on which they stand in the Philippines. Therefore, there is no legal compulsion to register transactions over buildings not owned by the landowner as notice to third parties. As a mortgagee, Manalansan had a duty to investigate his mortgagor’s title. Such an investigation would have revealed that the building had been assessed in Manalang’s name since 1950 and that Manalang had obtained a final ejectment judgment against the mortgagors in 1955. Based on prior possession and earlier title, as required by Article 1544 of the Civil Code (Article 1473 of the old) for double sales of unregistered property, Luis Manalang is entitled to priority.