G.R. No. 31291, October 28, 1929
GREGORIO GARCIA, plaintiff-appellant, vs. MARCELO DONCILLO, ET AL., defendants-appellees.

FACTS

On June 17, 1923, Alejandro Andrade received ₱8,000 from Gregorio Garcia as an anticipated payment for one-half of a parcel of land, with the sale to be perfected on June 17, 1924. On June 3, 1924, Andrade executed a deed of sale with pacto de retro in favor of Garcia over six parcels of land, with a three-year repurchase period ending June 3, 1927. This deed was registered on November 4, 1924. However, Andrade subsequently applied for and obtained original registration of the same lands in his name under the Land Registration Act (Act No. 496), without disclosing the pacto de retro sale to Garcia in his application. A decree and Certificate of Title No. 979 were issued in Andrade’s favor. During the repurchase period, Andrade sold the lots to defendants Melecio Alarilla, Petrona Alcaraz, Francisca Mistica, and Marcelo Doncillo. Garcia filed an action seeking cancellation of these transfers and recognition of his rights. The trial court absolved the defendants, finding they acquired the lands in good faith and without knowledge of the prior pacto de retro sale. Garcia moved for a new trial, presenting newly discovered evidence (affidavits) to prove the defendants knew of the pacto de retro sale at the time of their purchases.

ISSUE

Whether the defendants, as subsequent purchasers of registered land, may be compelled to annotate Garcia’s pacto de retro right on their transfer certificates of title if it is proven they had knowledge of such right at the time of purchase.

RULING

Yes. The Supreme Court set aside the trial court’s judgment and ordered a new trial. The Court held that under Section 19 of Act No. 496 (as amended), a vendor with pacto de retro (Andrade) was required to obtain the vendee’s (Garcia’s) consent before applying for original registration or, if consent was refused, to state the lien in the application. Andrade’s failure to do so constituted fraud. Consequently, Garcia, as vendee with pacto de retro, had the right to compel Andrade to annotate this lien on the certificate of title. This right extends against subsequent purchasers (the defendants) if they acquired the lands in bad faiththat is, with knowledge of the existing pacto de retro sale. The Torrens system protects only purchasers in good faith. The newly discovered evidence (affidavits) presented by Garcia prima facie indicated the defendants had such knowledge. Therefore, a new trial was warranted to determine the issue of bad faith. If proven, the defendants may be compelled to annotate Garcia’s right on their respective transfer certificates of title, as this does not constitute a review of the decree of registration but an enforcement of an equitable right against parties with notice.