Cruz v. Buenaventura
REITERATIONFacts
The Antecedents: On May 16, 1917, Emigdio Buenaventura approached Catalina de la Cruz for a loan of P250, agreeing to pay 15% annual interest. Under the same date, Emigdio signed a document, Exhibit A, purporting to be a pacto de retro sale, conveying his undivided interest in a parcel of land to Catalina for P250. The sum was delivered the following day. Emigdio paid P150 on the principal and P37 on interest on May 16, 1918. From 1919 to 1933, he paid P15 annually for interest but nothing on the principal. In 1934, Emigdio paid P100, settling the principal balance, and P15 for interest. Since the execution of Exhibit A, Emigdio retained possession of the land, paid taxes, and collected rentals. On July 8, 1932, Catalina executed an affidavit consolidating ownership, which was recorded on July 23, 1932. Procedural History: On January 2, 1935, Emigdio Buenaventura filed an action against Catalina de la Cruz seeking cancellation of the purported pacto de retro sale (Exhibit A) and the inscription of the consolidation of ownership, and payment of attorney's fees and costs. Catalina defended that the action had prescribed, Exhibit A was a pacto de retro sale, title had consolidated in her due to non-redemption, and Emigdio recognized her ownership by paying rents. The Court of First Instance of Rizal ruled in favor of Emigdio, ordering Catalina to execute a cancellation instrument and declaring the affidavit of consolidation cancelled, with costs and specific sums awarded. The case was endorsed to the provincial fiscal for appropriate action. Catalina appealed to the Court of Appeals, which affirmed the CFI decision with a modification exempting Catalina from returning usurious interest collected. Catalina then filed a petition for certiorari with the Supreme Court. The Petition: Catalina de la Cruz petitioned for certiorari, claiming the Court of Appeals erred in not holding that an action for reformation of a deed of sale with option to repurchase into a simple mortgage must be commenced within 10 years from execution, and in holding that Emigdio's cause of action accrued only in 1934.
Issue(s)
Whether the action for cancellation of the purported pacto de retro sale has prescribed. Whether the transaction evidenced by Exhibit A is a pacto de retro sale or a mortgage. Whether Emigdio Buenaventura's cause of action accrued in 1934.
Ruling
The petition is dismissed, and the appealed decision of the Court of Appeals is affirmed. The transaction evidenced by Exhibit A is declared a mortgage, not a pacto de retro sale. Emigdio Buenaventura's action to redeem the mortgaged land is not barred by prescription as his cause of action accrued in 1934 upon full payment of his indebtedness.
Ratio Decidendi
On the nature of the transaction and prescription: The Court affirmed the findings of the lower courts that the transaction evidenced by Exhibit A is a mortgage, not a pacto de retro sale. This conclusion was based on several factors: Emigdio Buenaventura remained in possession of the land, collected rentals therefrom, and paid the land taxes. Furthermore, Catalina de la Cruz accepted payments from Emigdio, not only for interest but also on account of the principal, up to 1934. These actions are inconsistent with a true pacto de retro sale where the seller relinquishes possession and ownership, and are indicative of a mortgage where the debtor retains possession and the right to redeem. The acceptance of payments on the principal and interest, particularly the final payment in 1934, signifies that the debtor intended to redeem the property and that the creditor accepted these payments as such. Therefore, the transaction was essentially a mortgage, and Emigdio's right to redeem the property was still subsisting. On the accrual of the cause of action: The Court held that Emigdio Buenaventura's right of action to have Exhibit A cancelled accrued only in 1934, after his indebtedness of P250 had been fully paid. Since the transaction was deemed a mortgage, the acceptance of payments by Catalina de la Cruz, not only of interest but also of the principal, served to toll the prescriptive period. The action brought by Emigdio was, in effect, an action to redeem the mortgaged land. The petitioner's fundamental mistake was in supposing Exhibit A to be a pacto de retro sale and that Emigdio failed to exercise his right of redemption thereunder within the stipulated period, when in fact, the payments made indicated a continuing intent to redeem and the nature of the transaction as a mortgage. On the alleged usurious interest: While the Court of Appeals modified the CFI decision by exempting Catalina de la Cruz from returning usurious interest collected, the Supreme Court did not disturb this modification. The primary focus of the Supreme Court's review was on the nature of the transaction and the prescription of the action. The acceptance of payments, including interest, by the petitioner was crucial in determining that the transaction was a mortgage and that the right to redeem had not prescribed. The issue of usury, though raised, was secondary to the determination of the true nature of the contract and the availability of the action for redemption.
Main Doctrine
A transaction, though denominated as a pacto de retro sale, will be considered a mortgage if the alleged seller remains in possession of the property, pays taxes thereon, collects rentals, and continues to make payments on the principal and interest, indicating an intent to redeem the property rather than a sale.