Title Maria Bautista Vda De Reyes vs De Leon, GR No.

L-22331, June 6, 1967

Facts  Lanuza and his wife were the owners of a 2-story house built on a lot of
the Maria Guizon subdivision which the spouses leased from the
Consolidated Asiatic Co
 Lanuza executed a Deed of Sale with Right to Repurchase conveying to
Maria Bautista and Aurelia Navarro the house as well as the leasehold
rights to the lot
 However, Spouses Lanuza mortgaged the same house in favor of Martin De
Leon to secure the payment of a loan
 De Leon filed a petition for the extra-judicial foreclosure of the mortgage
when the spouses failed to pay. Reyes and Navarro also filed a petition for
the consolidation of ownership of the house on the ground that the period
of redemption had expired w/o the vendees exercising their right of
repurchase.
 The house was sold to De Leon who immediately took possession of it and
asked for the dismissal of the petition filed by Reyes and Navarro
 The lower court confirmed the ownership of Reyes and Navarro in the
house and the leasehold right to the lot
 De Leon elevated the case before the SC
Issue W/N there is consolidation of ownership? NO.
SC Ruling De Leon based his claim that the pacto de retro sale is actually an equitable
mortgage on the fact that the Lanuzas, the supposed vendors remained in
possession of the thing sold and when the 3-month period of redemption
expired the parties extended it. The circumstances which show that what was
intended was a mortgage, not a sale, are: the gross inadequacy of the price,
non-transmission of ownership to the vendees, and the delay in the filing of the
petition for consolidation. The presence of the following shows that the deed of
sale is in reality a mortgage.

Gross inadequacy of the price:

The fact has not been mentioned that for the price of P3,000, the Lanuzas
"sold" not only their house, which alone had an assessed value of P4,000, but
also their leasehold right television set and refrigerator. Indeed, the petition for
consolidation of ownership is limited to the house and the leasehold right, while
the stipulation of facts of the parties merely referred to the object of the sale as
"the property in question." The failure to highlight the gross inadequacy of the
price paid, accounts for the error in determining the true agreement of the
parties to the deed.

Non transmission of ownership to the vendees:

The Lanuzas did not really transfer their ownership over the properties to Reyes
and Navarro. What was agreed was that ownership of the things sold would vest
in Reyes and Navarro only if the Lanuzas failed to pay P3,000. The emphasis is
on the vendors payment of the amount rather than on the redemption of the
things supposedly sold.

What the parties established is an odious pactum commissorium which

enables the mortgages to acquire ownership of the mortgaged properties
without need of foreclosure proceedings. Such a stipulation is a nullity, being
contrary to the provisions of Art.2088, NCC. Its insertion in the contract of
the parties is an avowal of an intention to mortgage rather than to
sell.

The delay in the filing of the petition for consolidation:

The period of redemption expired on July 12, 1961 and yet this action was not
brought until October 19, 1962 and only after De Leon had asked on October 5,
1962 for the extra-judicial for closure of his mortgage. All the while, the Lanuzas
remained in possession of the properties they were supposed to have sold and
they remained in possession even long after they had lost their right of
redemption.

Preference of mortgage credits is determined by the priority of registration of

the mortgages, following the maxim "Prior tempore potior jure" (He who is
first in time is preferred in right.) Under Art.2125, NCC, the equitable
mortgage, while valid between Reyes and Navarro, on the one hand, and the
Lanuzas, on the other, as the immediate parties thereto, cannot prevail over the
registered mortgage of De Leon.