G.R. No. L-6939; March 7, 1913
AMOS A. DAVIS, plaintiff-appellant, vs. FRANCISCA NEYRA, defendant-appellee.

FACTS

On February 18, 1909, Julian Palma sold a house to Amos A. Davis for P1,000 under a contract of sale with pacto de retro (right to repurchase) within two years. Palma remained in possession as Davis’s tenant at P15 monthly rent. On June 28, 1909, while still a tenant, Palma sold the same house with a right to repurchase to Emilio Esteban for P595. On September 23, 1909, Palma executed an absolute sale of the house to Esteban. Esteban later sold the house to Jose Colomeda, who in turn sold it to Francisca Neyra on December 19, 1909. Neyra took physical possession. All these subsequent sales were evidenced by unregistered notarial documents, and the house was never registered under the Torrens system. Davis filed an action to recover possession and rents after Palma stopped paying rent.

ISSUE

Whether the unregistered title of Davis, the first vendee under a pacto de retro sale, prevails over the title of Neyra, a subsequent purchaser in good faith who took physical possession but also has an unregistered title.

RULING

Yes. The Supreme Court reversed the lower court’s decision. The contract between Palma and Davis was a true pacto de retro sale, not an antichresis. Upon its execution, ownership passed to Davis, leaving Palma only with the right to repurchase. Davis took constructive possession through Palma as his tenant. Under Article 1473 of the Civil Code, for unregistered real property, ownership belongs to the person who first took possession in good faith. Davis, through his tenant, was the first possessor. Neyra, though a purchaser in good faith, was not a “third party” protected under the registration law as she also had no registered title. Therefore, Davis’s unregistered title prevails. Neyra, as a possessor in good faith, is not liable for rents.