Reyes v De Leon

Rodolfo Lanuza and his wife Belen were the owners of a two-story house built on a lot of the
Maria Guizon Subdivision in Tondo, Manila.
On January 12, 1961, Spouses Lanuza executed a Deed of Sale with Right to Repurchase"
whereby he conveyed to Reyes and Navarro the house, together with the leasehold rights to the
lot, a television set and a refrigerator in consideration of the sum of P3,000.
The document contain a provision which states that:
If I fail to pay said amount of P3,000.00, within the stipulated period of three months, my right
to repurchase the said properties shall be forfeited and the ownership thereto shall
automatically pass toReyes and Navarro.
When the original period of redemption expired, the parties extended it to July 12, 1961.
After the execution of this instrument, Spouses Lanuza mortgaged the same house in favor of
Martin de Leon to secure the payment of P2,720.
De Leon recorded the mortgage recorded in the Office of the Register of Deeds of Manila.
Spouses Lanuza failed to pay their obligations.
1) De Leon filed a petition for extra-judicial foreclosure.
2) Reyes and Navarro filed a petition for consolidation of ownership.
De Leon intervened in the case filed by Reyes and Navarro and asked for the dismissal of the
petition on the ground that the unrecorded pacto de retro sale could not affect his rights as a third
party.
Who is entitled to entitled to the mortgaged properties.
De Leon.
The "Deed of Sale with Right to Repurchase" or the pacto de retro sale is in reality an equitable
mortgage and therefore can not be the basis of a petition for consolidation of ownership by
Reyes and Navarro.
Spouses Lanuza did not really transfer their ownership of the properties to Reyes and Navarro.
The stipulation in the Deed of Sale with Right to Repurchase between Spouses Lanuza and
Reyes and Navarro states that right to repurchase the properties shall be forfeited and the
ownership thereto automatically pass to Reyes and Navarro without any Court intervention is
void.
This stipulation is an odious pactum commissorium which enables the mortgagee to acquire
ownership of the mortgaged properties without need of foreclosure proceedings.
It is void for being contrary to the provisions of article 2088 of the Civil Code.
Between the unrecorded deed/equitable mortgage of Reyes and Navarro and the registered
mortgage of De Leon, the latter must be preferred.
DOCTRINE:
Art. 2088. The creditor cannot appropriate the things given by way of pledge or mortgage, or
dispose of them. Any stipulation to the contrary is null and void.
The stipulation in the Deed of Sale with Right to Repurchase states that right to repurchase the
properties shall be forfeited and the ownership thereto automatically pass to Reyes and Navarro
without any Court intervention is void.
This stipulation is an odious pactum commissorium which enables the mortgagee to acquire
ownership of the mortgaged properties without need of foreclosure proceedings.
It is void for being contrary to the provisions of article 2088 of the Civil Code.