GR L 14823; (December, 1919) (Digest)
G.R. No. L-14823, December 9, 1919
HILARIA AGUILAR, plaintiff-appellant, vs. JUAN RUBIATO, defendant-appellant, and MANUEL GONZALEZ VILA, defendant-appellee.
FACTS:
Juan Rubiato, owner of eight parcels of land valued at approximately P26,000, desired to obtain a loan of not more than P1,000. Manuel Gonzalez Vila, a procurador judicial, and others induced Rubiato to sign a document presented as a power of attorney (Exhibit A) in favor of Vila. The document authorized Vila to secure a loan for Rubiato, not exceeding P1,000, either under terms Vila deemed convenient or under pacto de retro, and included a broad power to mortgage the lands as security. Relying on this document, Vila executed a contract (Exhibit C) on April 29, 1915, purportedly selling Rubiato’s lands to Hilaria Aguilar for P800 with a right of repurchase within one year. Rubiato was to remain in possession as a lessee paying quarterly rent of P120. Aguilar advanced P800 to Vila. The repurchase period expired without payment of the principal or rent. Aguilar filed an action to consolidate ownership of the lands. The trial court found that the power of attorney authorized only a mortgage, not a sale, and held Rubiato liable to Aguilar for a loan of P800 with interest. Both parties appealed.
ISSUE:
Whether the contract executed by Manuel Gonzalez Vila, based on the power of attorney, constituted a valid sale with pacto de retro or merely an equitable mortgage securing a loan.
RULING:
The Supreme Court affirmed the trial court’s finding that the transaction constituted a loan, not a sale. The Court held that the power of attorney was a “sham document” and that the controlling fact was the gross inadequacy of the priceP800 for land worth P26,000which was so unreasonable that no sensible person would consent to it. Therefore, Rubiato was only liable to Aguilar for the loan of P800.
Regarding interest, the Court modified the trial court’s decision. It held that since the loan did not stipulate a lawful rate, and the 60% per annum interest charged was exorbitant and usurious, Rubiato should only be liable for the legal interest rate of 6% per annum from April 29, 1915, until fully paid. The Court based this on Article 1255 of the Civil Code, which voids agreements contrary to morals and public policy, and the prospective application of the Usury Law (Act No. 2655).
The judgment was affirmed with the modification on the interest rate.