JESUS AZCONA, PLAINTIFF AND APPELLEE, VS. ALBERTA L. REYES AND GERVASIO LARRACAS, SPECIAL ADMINISTRATOR OF THE ESTATE OF FLORENTINA CORDERO, DEFENDANTS AND APPELLANTS.

This case involves two appeals, one by
Alberta L. Reyes and the other by Gervasio Larraeas, as special
administrator of the intestate estate of Florentina Cordero, from the
judgment rendered by the Court of First Instance of Mindoro, the
dispositive part of which reads as follows:

“In view of the foregoing considerations, the
court has arrived at the conclusion that the action brought by the
plaintiff is justified.

“Wherefore, the court orders Alberta
L. Reyes, and in her capacity as administratrix of the estate of the
deceased Florentina Cordero, to pay to the plaintiff: the sum of
P11,985.05, with interest thereon at 12 per cent per annum until fully
paid; 10 per cent of said sum representing expenses and attorney’s
fees, and the sum of P26 as fees for the registration of the mortgage
deed.

“In case the defendant fails to pay the aforesaid sums
within ninety days from the date this judgment shall have become final,
it is hereby ordered that the parcels of land described in Exhibit A be
sold at public auction and the proceeds thereof applied to the payment
of said sums, the balance to be turned over to the defendant Alberta L.
Reyes. So ordered.”

In support of their appeal, both defendants assign eight identical
alleged errors, as committed by the court a quo in its decision, which
errors will be discussed in the body of this decision.

The following pertinent facts, established by a preponderance of
the evidence adduced during the trial, are necessary for the resolution
of the questions raised in these appeals, to wit:

On October 11, 1920, Florentina Cordero, now deceased, executed a
power of attorney authorizing her only daughter, the herein
defendant-appellant Alberta L. Reyes, to mortgage in her name and
representation all her land situated in the municipality of Pola,
Mindoro (Exhibit 9).

On October 22, 1920, the defendant-appellant Alberta L. Reyes,
personally and as attorney in fact of her mother Florentina Cordero, in
consideration of the sum of P6,500 received from Enrique Azcona, now
deceased, sold to the latter, with the right of repurchase within the
period of four years, five parcels of land with certificates of title
belonging to her and her mother Florentina Cordero. The vendors became
lessees of the property sold, at a yearly rental of P780 (Exhibit 1).

On October 23, 1920, said defendant-appellant Alberta L. Reyes, as
attorney in fact of her mother Florentina Cordero, in consideration of
the sum of P5,000 received from Enrique Azcona, sold to the latter,
with the right of repurchase within the period of four years, one
parcel of land with certificate of title No. 58 of the registry of
deeds of Mindoro, belonging to the principal Florentina Cordero.
Florentina Cordero became the lessee of said property at a yearly
rental of P600 (Exhibit 2).

On October 1, 1925, Alberta L. Reyes and her mother Florentina
Cordero jointly executed a power of attorney authorizing Gregorio
Venturanza to sell and encumber all their real and personal property
including their cattle (Exhibit 12).

Enrique Azcona died on May 12, 1925, and was succeeded in all his
rights by his only son, the plaintiff-appellee Jesus Azcona, to whom
the entire estate of his deceased father, together with the credits
evidenced by the documents Exhibits 1 and 2, was judicially adjudicated.

Inasmuch as neither the defendant-appellant Alberta L. Reyes nor
the deceased Florentina Cordero, during her lifetime, had exercised her
right of redemption in accordance with the aforesaid deeds Exhibits 1
and 2 within the period of four years, and inasmuch as they had asked
for an extension of time, on November 29, 1926, Gregorio Venturanza, as
attorney in fact of said Alberta L. Reyes and Florentina Cordero, on
one side, and Jesus Azcona, on the other, executed a deed whereby the
deeds of sale with the right of repurchase, Exhibits 1 and 2, dated
October 22 and 23, 1920, respectively, were cancelled and their
respective amounts of P6,500 and P5,000, together with the sum of
P1,000 representing the unpaid accrued interest thereon, or a total
amount of P12,500, were converted into a mortgage credit. In order to
secure the cancellation of the registration of the alleged sales with
the right of repurchase, the parcels of land described in the
respective deeds were resold to the vendors and a mortgage was
constituted thereon to secure the payment of said mortgage credit of
P12,500 within the period of two years, extensible to another two
years, with interest at 12 per cent per annum. Under said contract the
mortgagors Alberta L. Reyes and Florentina Cordero were permitted to
liquidate said debt by installments in the sum of P2,500 with the
interest due, to be paid on December first of every year, beginning
December 1, 1927 (Exhibit A).

The mortgagors Alberta L. Reyes and Florentina Cordero, through
their said attorney in fact Gregorio Venturanza, paid by way of
amortization and interest as follows: P2,500 on February 15, 1927,
leaving a balance of P10,325: P2,200 on October 17,1927, leaving a
balance of P8,964.76; P1,200 on February 9,1929, leaving a balance of
P9,199.09; P350 on June 30,1929, leaving a balance of P9,281.44; and
P600 on September 20,1929, leaving a balance of P8,935.12. Since the
last mentioned date, the mortgagors failed to pay amortization and
interest so that on June 30, 1932, the unpaid balance thereof together
with the unpaid accrued interest amounted to P11,958.05.

The parties admit and the trial court so found that, although Exhibits 1 and 2 are in the form of deeds of sale with pacto de retro, in reality they represent mortgage loans.

The first question to decide in this appeal is whether or not the
deed of resale and mortgage dated November 29, 1926 (Exhibit A) is
legal and valid.

Both appellants contend that inasmuch as the deeds Exhibits 1 and
2, executed by Alberta L. Reyes, personally and in representation of
her mother Florentina Cordero, in favor of Enrique Azcona, are not true
deeds of sale with pacto de retro but of mortgage, the resale
of the parcels of land described therein, made by Jesus Azcona in favor
of said Alberta L. Reyes and Florentina Cordero, is null and void on
the ground that, as mere mortgagors, they never ceased to be the owners
thereof and that Enrique Azcona, as a mere mortgagee, never acquired
any title of ownership thereto. Such theory is legally correct; in
order for a sale to be valid, it is necessary that the vendor be the
owner of the thing sold, inasmuch as it is a principle of law that
nobody can dispose of that which does not belong to him. However, as
has been noted, the sales with pacto de retro evidenced by
Exhibits 1 and 2 were fictitious for the reason that the contracts
entered into by Alberta L. Reyes and the deceased Enrique Azcona were
really mortgage in their nature. Therefore, the resale was a mere
formality resorted to for the purpose of obtaining the lawful
cancellation of the registration thereof in the registry of deeds and
the notation of the mortgage deed Exhibit A.

The defendants-appellants contend that Exhibit A is likewise void
as a mortgage deed on the ground that it lacks consideration or
principal obligation which it purports to secure.

There is no question that the defendant-appellant Alberta L. Reyes,
personally and as attorney in fact of her mother Florentina Cordero,
received the sum of P6,500 from the deceased Enrique Azcona under
Exhibit 1 and that, as attorney in fact of her mother alone, she
received the sum of P5,000 from said deceased under Exhibit 2, both
sums representing the purchase price of certain parcels of land
described in said documents, which were sold with the right of
repurchase. Both parties admit that said documents are really mere
contracts of loan secured by mortgage. As above stated, the sum of
P12,500 which constitutes the cause or consideration of the deed of
resale and mortgage Exhibit A is the total of the sums of P6,500 and
P5,000 which Alberta L. Reyes, personally and as attorney in fact of
her mother Florentina Cordero, received from Enrique Azcona, together
with the sum of P1,000 representing the unpaid credits passed by
inheritance to the plaintiff-appellee Jesus Azcona, as the only son of
Enrique Azcona. Therefore, it cannot be said that the mortgage Exhibit
A, executed by Gregorio Venturanza, as attorney in fact of Alberta L.
Reyes and Florentina Cordero, in favor of Jesus Azcona, lacks
consideration or principal obligation for the fulfillment of which said
instrument was executed as security.

The defendants-appellants, however, impugn the validity of Exhibits
1 and 2 with regard to Florentina Cordero, alleging that they were not
executed in such form as to bind the principal, having been signed only
with the name Alberta L. Reyes.

Upon examination of said documents, it will be noted that Alberta
L. Reyes made it appear in Exhibit 1 that she acted as Florentina
Cordero’s attorney in fact under a power of attorney issued to her by
attaching a copy of said power of attorney to the deed in question, and
in Exhibit 2 she likewise inserted the entire power of attorney. In the
case of Orden de Dominicos vs. De Coster (50 Phil., 115), this court held that such form is valid and sufficient under the law.

Considered as mere contracts of mortgage loans, the deeds Exhibits
1 and 2 dated October 22 and 23, 1920, respectively, are binding upon
Florentina Cordero, and compliance with the obligations contracted
thereunder may be demanded in her intestate proceedings either as
credit in favor of the intestate estate of Enrique Azcona or as credit
in favor of the plaintiff-appellee Jesus Azcona against said Florentina
Cordero under the mortgage deed Exhibit A.

In regard to the question of usury raised by the
defendants-appellants in their respective briefs, although it is true
that failure to file a sworn answer to a cross-complaint for the
recovery of usurious interest paid implies an admission of the
existence of a usurious rate of interest (Lo Bun Chay vs. Paulino, 54 Phil,, 144, cited with approval in the case of Ramirez and Polido vs.
Bergado, 56 Phil., 810), however, the counterclaim and cross-complaint
filed in this case failed to state facts constituting the alleged usury
but merely allege that in payment of a debt of P9,500 the plaintiff and
his predecessor in interest received the amount of P20,130. Such
statement does not in itself constitute an allegation of usury and
failure to file a reply thereto implies denial of such allegation (sec.
104, Act No. 190).

Neither has the existence of usurious interest been proven during
the trial inasmuch as in both Exhibits 1 and 2 it is stipulated that
the vendors, as lessees, would have to pay the sum of P1,380 as yearly
rental. Such sum, computed on the basis of a capital of P11,500 gives a
rate of interest of only 12 per cent per annum, which is allowed by law
(Robinson vs. Sackermann and Postal Savings Bank, 46 Phil.,
539). Furthermore, in the deed of resale and mortgage loan Exhibit A,
interest at the rate of only 12 per cent per annum is stipulated. The
existence of a stipulation to the effect that accrued interest shall
bear interest does not imply that the loans in question are usurious
inasmuch as it is permitted to charge compound interest (sec. 5, Act
No. 2655, as amended by sec. 3 of Act No. 3291; Cu Unjieng e Hijos vs. Mabalacat Sugar Co., 54 Phil., 976).

With respect to the true state of the accounts of the mortgagor
Alberta L. Reyes and the deceased Florentina Cordero with the mortgagee
Jesus Azcona, the evidence presented to that effect has been examined
and this court has found that the conclusions arrived at by the court a
quo are supported thereby.

Wherefore, not finding any error in the judgment appealed from, it
is hereby affirmed in toto, with the costs against the appellants. So
ordered.

Malcolm, Hull, Imperial, and Goddard, JJ., concur.