Azcona v. Reyes
REITERATIONFacts
The Antecedents: On October 11, 1920, Florentina Cordero executed a power of attorney authorizing her daughter, Alberta L. Reyes, to mortgage her lands. On October 22, 1920, Alberta L. Reyes, both personally and as attorney-in-fact for her mother, sold five parcels of land to Enrique Azcona with the right of repurchase within four years, receiving P6,500. The vendors became lessees of the property. On October 23, 1920, Alberta L. Reyes, as attorney-in-fact for her mother, sold another parcel of land to Enrique Azcona with the right of repurchase within four years, receiving P5,000. Florentina Cordero became the lessee of this property. Enrique Azcona died on May 12, 1925, and was succeeded by his son, Jesus Azcona, who was judicially adjudicated his father's estate, including the credits from these transactions. Procedural History: Neither Alberta L. Reyes nor Florentina Cordero exercised their right of redemption within the stipulated period. They requested an extension. On November 29, 1926, Gregorio Venturanza, as attorney-in-fact for Alberta L. Reyes and Florentina Cordero, and Jesus Azcona executed a deed that cancelled the deeds of sale with right of repurchase (Exhibits 1 and 2). The amounts received (P6,500 and P5,000), plus P1,000 in unpaid accrued interest, totaling P12,500, were converted into a mortgage credit. The lands were resold to the vendors, and a mortgage was constituted to secure the P12,500 debt, payable within two years, extensible to another two years, with 12% annual interest. Payments were made by Alberta L. Reyes and Florentina Cordero through their attorney-in-fact, but they eventually defaulted. As of June 30, 1932, the unpaid balance with accrued interest amounted to P11,958.05. The parties admitted that Exhibits 1 and 2, though styled as sales with pacto de retro, were in reality mortgage loans. The Court of First Instance of Mindoro rendered a judgment ordering Alberta L. Reyes, and in her capacity as administratrix of Florentina Cordero's estate, to pay the plaintiff P11,985.05, plus interest, expenses, attorney's fees, and registration fees. It also ordered the sale of the mortgaged parcels of land at public auction if the debt was not paid within ninety days. Alberta L. Reyes and Gervasio Larracas, as special administrator of Florentina Cordero's estate, appealed this judgment. The Petition: Both defendants-appellants assigned eight identical alleged errors committed by the trial court, which were discussed in the body of the decision.
Issue(s)
Whether the deed of resale and mortgage dated November 29, 1926 (Exhibit A) is legal and valid. Whether the deeds Exhibits 1 and 2, which were found to be mortgage loans in reality, were executed in a form sufficient to bind the principal, Florentina Cordero. Whether the mortgage deed Exhibit A lacks consideration or a principal obligation. Whether the existence of usurious interest was proven.
Ruling
The Supreme Court affirmed the judgment of the Court of First Instance of Mindoro in toto, finding no error therein. The appeals of Alberta L. Reyes and Gervasio Larracas, as special administrator of the estate of Florentina Cordero, were dismissed.
Ratio Decidendi
On the legality and validity of the deed of resale and mortgage (Exhibit A): The Court held that the deed of resale and mortgage dated November 29, 1926, is legal and valid. While the original deeds (Exhibits 1 and 2) were styled as sales with pacto de retro, the parties admitted, and the court found, that they were in reality mortgage loans. The resale of the parcels of land to the original vendors, followed by the execution of a mortgage deed (Exhibit A), was considered a lawful formality to achieve the cancellation of the registration of the fictitious sales and to establish a valid mortgage credit. This process was necessary because, as mere mortgagors, Alberta L. Reyes and Florentina Cordero never ceased to be the owners of the property, and Enrique Azcona, as a mere mortgagee, never acquired ownership. Therefore, the resale was a procedural step to correctly reflect the true nature of the transaction as a mortgage. On whether the deeds Exhibits 1 and 2 were executed in a form sufficient to bind Florentina Cordero: The Court found that the deeds were binding upon Florentina Cordero. In Exhibit 1, Alberta L. Reyes acted as attorney-in-fact for Florentina Cordero under a power of attorney, a copy of which was attached to the deed. Similarly, in Exhibit 2, the entire power of attorney was inserted. The Court cited the case of Orden de Dominicos vs. De Coster (50 Phil., 115) to support the validity of this form of execution. Consequently, compliance with the obligations contracted under these deeds could be demanded in Florentina Cordero's intestate proceedings, either as a credit in favor of Enrique Azcona's estate or as a credit in favor of Jesus Azcona against Florentina Cordero under the mortgage deed Exhibit A. On whether the mortgage deed Exhibit A lacks consideration or a principal obligation: The Court ruled that the mortgage deed Exhibit A is not void for lack of consideration. It was established that Alberta L. Reyes, personally and as attorney-in-fact for her mother, received P6,500 under Exhibit 1 and P5,000 under Exhibit 2 from Enrique Azcona. These sums, along with P1,000 in unpaid accrued interest, formed the total amount of P12,500, which constituted the cause or consideration for the mortgage deed Exhibit A. This amount was passed by inheritance to the plaintiff-appellee, Jesus Azcona. Therefore, there was a valid principal obligation secured by the mortgage. On the question of usury: The Court found that the existence of usurious interest was not proven. While the defendants-appellants raised the issue of usury, their counterclaim and cross-complaint failed to state specific facts constituting usury. Furthermore, the stipulation in Exhibits 1 and 2 regarding the vendors' payment of P1,380 as yearly rental, when computed on the basis of the capital of P11,500, yielded an interest rate of only 12% per annum, which was legally allowed at the time. The mortgage deed Exhibit A also stipulated interest at 12% per annum. The Court clarified that a stipulation for compound interest, where accrued interest bears interest, is permissible under Act No. 2655, as amended by Act No. 3291, and does not inherently imply usury.
Main Doctrine
Deeds of sale with right of repurchase (pacto de retro) that are fictitious in nature, where the true intent is to secure a loan, are considered mortgage loans. A subsequent resale of the property to the original vendors, followed by the execution of a mortgage deed, is a valid formality to effect the cancellation of the registration of the fictitious sales and to establish a lawful mortgage credit, provided there is valid consideration.