G.R. No. L-22331 June 6, 1967
IN RE: PETITION FOR CONSOLIDATION OF TITLE IN THE VENDEES OF A HOUSE AND THE RIGHTS TO A LOT. MARIA BAUTISTA VDA. DE REYES, ET AL., vendees-petitioners-appellees. RODOLFO LANUZA, vendor, vs. MARTIN DE LEON, intervenor-appellant.

FACTS

Rodolfo Lanuza and his wife Belen owned a two-story house built on a leased lot in the Maria Guizon Subdivision. On January 12, 1961, Lanuza executed a “Deed of Sale with Right to Repurchase” in favor of Maria Bautista Vda. de Reyes and Aurelia R. Navarro, conveying the house, leasehold rights, a television, and a refrigerator for P3,000, with a three-month redemption period. Lanuza’s wife did not sign the original deed. The redemption period was later extended to July 12, 1961, and Lanuza’s wife signed her conformity to this extension via an annotation on the instrument. Subsequently, on October 4, 1961, the Lanuzas mortgaged the same house to Martin de Leon to secure a loan. This mortgage was registered on November 8, 1961, under Act No. 3344. The Lanuzas failed to redeem the property from Reyes and Navarro by July 12, 1961, and also defaulted on their mortgage obligation to De Leon. On October 5, 1962, De Leon initiated extra-judicial foreclosure. On October 19, 1962, Reyes and Navarro filed a petition for consolidation of ownership. On October 23, 1962, the house was sold at a sheriff’s sale to De Leon, who then intervened in court, arguing the unrecorded pacto de retro sale could not affect his rights as a third party with a registered mortgage.

ISSUE

1. Whether the pacto de retro sale executed by the husband without the wife’s consent is void or merely voidable.
2. Whether the deed of sale with right to repurchase is a true pacto de retro sale or an equitable mortgage.
3. Whether the unrecorded pacto de retro sale can prevail over a subsequently registered mortgage.

RULING

1. The sale executed by the husband without the wife’s consent is merely voidable, not void ab initio. Under Article 173 of the Civil Code, the wife has ten years to bring an action for annulment. Such a voidable contract can be ratified. The wife’s act of signing her conformity to the extension of the redemption period constituted a ratification of the original contract, thereby validating it from its execution.
2. The deed is an equitable mortgage, not a true pacto de retro sale. The Supreme Court found indicia of an equitable mortgage under Article 1602 of the Civil Code: (a) the vendors remained in possession of the property; (b) the purchase price was unusually inadequate; and (c) the vendors continued to pay real estate taxes and insurance premiums. Furthermore, the stipulation in the deed that ownership would automatically pass to the vendees upon failure to redeem constituted a pactum commissorium, which is void under Article 2088 of the Civil Code, and is an avowal of an intention to mortgage.
3. The unrecorded equitable mortgage cannot prevail over the subsequently registered real estate mortgage. Since the deed is construed as an equitable mortgage, the action for consolidation of ownership is improper. Between an unrecorded equitable mortgage and a registered real estate mortgage, the latter must be preferred under the principle of “prior tempore potior jure” (first in time, stronger in right) as applied to the priority of registration of mortgages under Article 2125 of the Civil Code. The registered mortgage of De Leon, therefore, has preference.
The decision of the trial court was reversed. The petition for consolidation of ownership was dismissed. Costs were imposed on Reyes and Navarro.