ALFONSO FLORES AND VALENTIN GALLANO, DEFENDANTS-APPELLANTS, VS. JOHNSON SO, PLAINTIFF-APPELLEE.

Flores versus So

The Case

This is a contest over a parcel of coconut and rice land in Matnog, Sorsogon, between Johnson So, who bought the land from the original owner and sought to redeem it, and Alfonso Flores, who held the land under a sale with a right of repurchase, known in our law as a pacto de retro sale. Johnson So asked the court to treat the sale to Flores as a mere equitable mortgage securing a loan, and to allow redemption. The case matters because it fixes the line between the old Civil Code and the new Civil Code on the consolidation of ownership in a vendee a retro, and it teaches that a right of ownership already vested under the old law cannot be defeated by the new law's requirement of a judicial order for consolidation.

Procedural History

Johnson So filed an action for specific performance before the Court of First Instance of Sorsogon, to effect the redemption of the land. Valentin Gallano, the original owner, was impleaded as co-defendant and aligned himself with Johnson So. The trial court ruled that the contract was a genuine sale with a right of repurchase, but that the affidavit of consolidation of ownership executed by Flores and its registration did not make his ownership absolute and indefeasible, because of non-compliance with the requirements of the new Civil Code on consolidation by judicial order. It ordered Flores to deliver possession to Johnson So, to execute a deed of resale, and authorized Flores to withdraw the redemption money. Flores moved for reconsideration, which was denied. He appealed to the Court of Appeals, which certified the case to the Supreme Court because it involved purely questions of law.

Facts

On February 27, 1950, Valentin Gallano executed a pacto de retro sale over the land in favor of Alfonso Flores, for a price of 2,550 pesos, with a right of repurchase within four years from the date of the sale. The New Civil Code took effect on August 30, 1950, after this contract was already in place. Gallano did not redeem the property within the four-year period, which expired on February 27, 1954.

On March 6, 1958, Flores executed an affidavit of consolidation of ownership, and registered it with the Office of the Register of Deeds of Sorsogon. Earlier, on February 26, 1958, Gallano had sold the same land in an absolute manner to Johnson So for 5,000 pesos.

On August 2, 1958, Johnson So sued for specific performance, claiming that the pacto de retro sale was in truth an equitable mortgage to secure a loan of 2,550 pesos, and praying that the land be declared redeemed upon deposit of that amount. The trial court ruled for Johnson So, and Flores appealed.

Issues

• Whether or not the execution of the affidavit of consolidation of ownership by Alfonso Flores, and its subsequent registration, made his ownership over the land absolute and indefeasible.
• Whether or not the new Civil Code's requirement of a judicial order for consolidation of ownership applies to a pacto de retro sale executed before the new Civil Code took effect.
• Whether or not Johnson So acquired any right over the land by his purchase from Valentin Gallano.

Applicable Provisions

Article 1509 of the old Civil Code provides:

If the vendor does not comply with the provisions of Article 1518, the vendee shall acquire irrevocably the ownership of the thing sold.

This is the old-law rule under which ownership consolidated in the vendee a retro by operation of law upon the vendor's failure to redeem.

Article 2252 of the new Civil Code provides:

Changes made and new provisions and rules laid down by this Code which may prejudice or impair vested or acquired rights in accordance with the old legislation shall have no retroactive effect.

This shields a right already vested under the old law from being impaired by the new Code.

Article 2255 of the new Civil Code provides:

The former laws shall regulate acts and contracts with a condition or period which were executed or entered into before the effectivity of this Code, even though the condition or period may still be pending at the time this body of laws goes into effect.

This governs contracts with a resolutory condition, like a pacto de retro sale, that were entered into before the new Code took effect.

Ruling

On the first issue, the Court held that Flores's ownership had already become absolute and indefeasible by operation of law, and did not depend on the affidavit of consolidation or its registration. The pacto de retro sale was executed while the Civil Code of Spain was still in effect, and under Article 1509 thereof, upon Gallano's failure to redeem within the stipulated period, ownership was consolidated in Flores irrevocably. This vested in 1954.

On the second issue, the Court held that the new Civil Code's requirement of a judicial order for consolidation could not defeat a right already vested. The Court quoted Article 2252, that changes which may prejudice or impair vested or acquired rights under the old legislation shall have no retroactive effect, and Article 2255, that the former laws shall regulate contracts with a condition or period executed before the effectivity of the new Code, even though the condition may still be pending. Since the pacto de retro sale was a contract with a resolutory condition, and the condition was still pending when the new law took effect, the old Civil Code applied.

On the third issue, the Court held that Gallano was no longer the owner when he sold the land to Johnson So, so no ownership was transmitted to So. The trial court therefore erred in allowing redemption.

Doctrine

Under the old Civil Code, in a pacto de retro sale, ownership is transferred to the vendee upon execution of the contract, subject only to the resolutory condition that the vendor repurchase within the period agreed upon. If the vendor fails to redeem, ownership consolidates in the vendee by operation of law, irrevocably, without need of a judicial order. A right of ownership already vested under the old law cannot be impaired by the new Civil Code's requirement of a judicial order for consolidation, by force of Articles 2252 and 2255 on transitional provisions. A subsequent buyer from the vendor who has already lost ownership acquires no ownership, only whatever right to redeem may remain.

Disposition

The Supreme Court reversed the trial court, declared Alfonso Flores the absolute owner of the land, and ordered Johnson So to pay Flores 500 pesos as attorney's fees plus costs of suit.

Remember This

Memorize this line: a pacto de retro sale executed before the new Civil Code vested ownership in the vendee by operation of law upon the vendor's failure to redeem, and the new Code's judicial-order requirement cannot impair that vested right. Examiners use this case to test the transitional provisions on vested rights and the nature of a pacto de retro sale as a contract with a resolutory condition.