G.R. No. 39590; February 6, 1934
JESUS AZCONA, plaintiff-appellee, vs. ALBERTA L. REYES and GERVASIO LARRACAS, special administrator of the estate of Florentina Cordero, defendants-appellants.

FACTS

Alberta L. Reyes, personally and as attorney-in-fact for her mother Florentina Cordero, executed two deeds (Exhibits 1 and 2) in favor of Enrique Azcona in 1920, which were ostensibly sales with pacto de retro but were in reality mortgage loans securing total sums of P6,500 and P5,000. The right of repurchase was not exercised within the stipulated period. After Enrique Azcona’s death, his son and heir, Jesus Azcona (plaintiff-appellee), and Gregorio Venturanza, as attorney-in-fact for Reyes and Cordero, executed a new deed (Exhibit A) in 1926. This deed cancelled the prior instruments, consolidated the debts (principal and unpaid interest) into a single mortgage credit of P12,500 secured by the same parcels of land, with a two-year payment period. The mortgagors made partial payments but left a substantial balance unpaid. Azcona filed an action for foreclosure.

ISSUE

1. Whether the deed of resale and mortgage (Exhibit A) is legal and valid.
2. Whether the original transactions (Exhibits 1 and 2) were usurious.

RULING

1. Yes, Exhibit A is valid. The Court held that while the original pacto de retro deeds were fictitious and actually equitable mortgages, the subsequent “resale” in Exhibit A was a mere formality to facilitate the cancellation of the old registrations and the annotation of the new mortgage. The lack of true ownership in Azcona at the time of the “resale” did not invalidate Exhibit A, as its true purpose was to consolidate and secure the existing loan obligations. The mortgage validly secured the principal obligations arising from the original loans received by Reyes and Cordero.
2. No, the transactions were not usurious. The stipulated interest, computed from the rental payments in the original deeds and the explicit 12% per annum rate in Exhibit A, was within the legal rate allowed by law. The stipulation for compound interest on accrued interest did not constitute usury, as it was permitted under the relevant statute (Act No. 2655, as amended). The appellants’ allegations of usury were insufficiently pleaded and unproven.

The appealed judgment ordering the foreclosure of the mortgage was affirmed.

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