G.R. No. L-23770 July 9, 1971
FAUSTINO OVIEDO, ET AL., plaintiffs-appellees, vs. BARTOLOME GARCIA, ET AL., defendants-appellants.

FACTS

The case involves conflicting claims over an 8,607-square-meter portion of unregistered Lot No. 4. On May 17, 1947, Juana A. Corpuz sold this portion to defendants-appellants Bartolome Garcia and Francisca Valdez under a pacto de retro sale with a ten-year repurchase period. The vendors a retro failed to repurchase by May 1957. Meanwhile, on January 26, 1949, Corpuz and her husband mortgaged the entire Lot No. 4, including the disputed portion, to plaintiffs-appellees Faustino Oviedo and Patricia Mendoza. This mortgage was registered in November 1949. Upon the mortgagors’ default, the Oviedo spouses foreclosed, purchased the property at a sheriff’s auction in July 1957, and obtained a writ of possession. The Garcia spouses, having possessed the land, paid its taxes, and harvested its produce since 1947, refused to vacate, leading Oviedo to file an action for recovery of possession.

ISSUE

The core issue is whether the plaintiffs-appellees, as subsequent mortgagees and foreclosure sale purchasers, acquired a better right to the disputed land than the defendants-appellants, the original vendees a retro in possession.

RULING

The Supreme Court reversed the lower court, ruling in favor of the defendants-appellants, the Garcias. The legal logic hinges on the nature of unregistered land and the rights established by the pacto de retro sale. For unregistered land, title passes by delivery, and possession is a vital indicator of claim. The Garcias’ open, continuous possession and tax payments since 1947 gave constructive notice to the world of their interest. The Court found that the Oviedo spouses, before accepting the 1949 mortgage on the entire lot, were duty-bound to exercise due diligence to ascertain the extent of the mortgagors’ rights. Their failure to discover the prior sale, or their acceptance of the mortgage with at least constructive knowledge of it, meant they must respect the pre-existing rights. Critically, upon the expiration of the redemption period in May 1957, the Garcias, by operation of law and consistent jurisprudence, became the absolute owners of the portion sold a retro. This ownership vested before the Oviedos’ foreclosure sale was confirmed in October 1957. Therefore, the mortgagors (Corpuz and Mangonon) no longer had any alienable right over that portion when they mortgaged it in 1949, making the mortgage as to that portion invalid. The subsequent foreclosure sale could not convey a better title than what the mortgagors themselves possessed.