G.R. No. L-5933, August 25, 1911
CRISANTO LICHAUCO, ET AL. vs. JOSE BERENGUER, testamentary executor of Macario Berenguer

FACTS

Crisanto Lichauco and his co-heirs applied for the registration of two parcels of land in Arayat, Pampanga, which they inherited from their grandmother, Cornelia Laochangco. They alleged that Laochangco acquired the lands from Macario Berenguer through a sale with a pacto de retro (right of repurchase). Jose Berenguer, as executor of Macario Berenguer’s estate, opposed the registration of the first parcel (Batasan) but consented to the registration of the second (Panantaglay). The Court of Land Registration allowed the adverse claim on the Batasan property and denied its registration, while decreeing registration of the Panantaglay property in favor of the applicants. The applicants appealed the denial of registration for the Batasan property.

ISSUE

Whether the contract between Cornelia Laochangco and Macario Berenguer was a true sale with pacto de retro or merely a loan secured by the property (equitable mortgage).

RULING

The Supreme Court affirmed the lower court’s decision denying the registration of the Batasan property. The Court held that the contract, although in the form of a pacto de retro sale, was in reality a loan secured by the property. The evidence, particularly an account current (Exhibit 5) showing a running debt and interest payments between the parties, demonstrated that the true intention was a loan transaction. The vendor (Berenguer) remained in possession of the property and paid what was termed “rent” equivalent to 10% of the “purchase price,” which the Court construed as interest. Since the contract was an equitable mortgage and not a true sale, ownership did not pass to Laochangco, and her heirs could not register the property. The Court reversed the portion of the lower court’s judgment ordering the cancellation of the old registry entries in Laochangco’s name for the Batasan property, as these entries related to the pacto de retro contract.

Separate Opinion (Carson, J., concurring):
Justice Carson concurred but clarified that the decision does not establish a doctrine preventing courts from inquiring into the true nature of a contract that is formally a pacto de retro but is in fact a mortgage or loan, provided competent evidence establishes the parties’ true intent and no superior rights of innocent third parties have intervened.