G.R. No. 114762 ; January 29, 1996
REBECCA DESAMITO VDA. DE ALCANTARA, ET AL., petitioners, vs. COURT OF APPEALS, ANICETO P. CRUZ, and NORBERTO P. SANTIAGO, respondents.

FACTS

Private respondents Aniceto Cruz and Norberto Santiago filed an action for specific performance concerning two lots in Pasay City. They claimed ownership over a one-half undivided portion by virtue of a Pacto de Retro Sale executed in their favor by Leona C. vda. de Alfonso on September 7, 1983, for P100,000. The vendor failed to redeem the property within the stipulated three-month period. Petitioners, the co-owners of the other half of the property, defended by asserting the pacto de retro sale was null and void. They argued that at the time of its execution, Leona had already transferred her half-share to them through a Deed of Extra-Judicial Partition dated March 13, 1972.
The trial court declared the pacto de retro sale to be a true sale con pacto de retro (a sale with right of repurchase), not an equitable mortgage. It ruled in favor of the private respondents, declaring them as one-half co-owners and ordering partition, reimbursement of one-half of the income from the property since 1983, and payment of attorney’s fees. The Court of Appeals affirmed the decision but deleted the award of attorney’s fees for lack of basis.

ISSUE

The core issue is whether the pacto de retro sale executed by Leona in favor of private respondents is valid, thereby vesting in them ownership of her one-half share in the subject lots.

RULING

The Supreme Court affirmed the Court of Appeals’ decision with modification. The pacto de retro sale was declared valid. The Court rejected the petitioners’ defense that Leona was no longer the owner when she executed the sale. The Deed of Extra-Judicial Partition they relied upon was not registered. Under the Torrens system, the efficacy of any transaction involving registered land requires registration to bind third parties. Since the deed was unregistered, Leona remained the registered owner of her half-share as evidenced by TCT No. 19232. She therefore had the capacity to validly convey her interest through the pacto de retro sale to the private respondents, who were innocent purchasers for value.
The Court also upheld the finding that the transaction was a genuine sale with right to repurchase, not an equitable mortgage, as none of the circumstances indicative of an equitable mortgage under Article 1602 of the Civil Code were present. However, the award for reimbursement of one-half of the income from the property was deleted for lack of basis, as the private respondents’ amended complaint indicated an agreement to apply income to back taxes, and no evidence of actual income was presented. This deletion was without prejudice to a mutual accounting under Article 500 of the Civil Code upon partition.