Home of ChanRobles Virtual Law Library


Home of Chan Robles Virtual Law Library




[G.R. No. 26085. August 12, 1927. ]


Araneta & Zaragoza for Appellants.

Eusebio Orense for Appellee.


1. CONTRACTS; "PACTO DE RETRO;" MORTGAGE. — Held, That the contract which is copied in full in the decision is a pacto de retro and not a mortgage; that at the time of its execution and delivery the parties thereto intended to execute a pacto de retro (a conditional sale) and not a mortgage (a loan); that the vendor became a tenant of the purchaser and not a mortgagor.

2. ID.; ID. — It has been the uniform rule of this court, due to the severity of a contract of pacto de retro, to declare the same to be a mortgage and not a sale whenever the interpretation of Tolentino and Manio v. Gonzalez Sy Chiam such a contract justifies that conclusion. There must be something, however, in the language of the contract or in the conduct of the parties which shows clearly and beyond doubt that they intended the contract to be a mortgage and not a pacto de retro.

3. ID.; EVIDENCE TO VARY TERMS OF. — While it is a general rule that parol evidence is not admissible for the purpose of varying the terms of a contract, yet when an issue is squarely presented, that a contract does not express the intention of the parties, the courts will, when a proper foundation is laid therefor, hear evidence for the purpose of ascertaining the true intention of the parties. In every case in which the court has considered a contract to be a mortgage or a loan instead of a sale with pacto de retro, it has done so, either because the terms of such contract are ambiguous or because the circumstances surrounding the execution or the performance of the contract were incompatible or inconsistent with the theory that said contract was one of purchase and sale.

4. ID.; WHEN MAY BE REFORMED. — It is a well settled rule of law that courts of equity will reform a written contract where, owing to mutual mistake, the language used therein did not fully or accurately express the agreement and intention of the parties. Relief, however, by way of reformation will not be granted unless the proof of mutual mistake be of the clearest and most satisfactory character.

5. ID.; RENTAL CONTRACTS; USURY. — A contract for the lease of property is not a "loan." Under the Usury Law the defense of usury cannot be based thereon. The Usury Law in this jurisdiction prohibits a certain rate of interest on "loans." A contract of "loan" is a very different contract from that of "rent." A "loan," as that term is used in the statute, signifies the giving of a sum of money, goods or credit to another, with a promise to repay, but not a promise to return the same thing. In a contract of "rent ’ the owner of the property does not lose his ownership. He simply loses his control over the property rented during the period of the contract. In a contract of rent the relation between the contractors is that of landlord and tenant. In a contract of loan of money, goods, chattels or credits, the relation between the parties is that of obligor and obligee.

6. RENTS, CONTRACT OF; DEFINED. — A contract of "rent" may be defined as the compensation either in money, provisions, chattels or labor, received by the owner of the soil or the property rented, from the occupant thereof.

7. LOAN, CONTRACT OF; DEFINED. — A contract of "loan," as that term is used in the statute, signifies the giving of a sum of money, goods or credits to another, with a promise to repay, but not a promise to return the same thing. It has been defined as an advancement of money, goods or credits upon a contract or stipulation to repay, not to return, the thing loaned at some future day in accordance with the terms of the contract. The moment the contract is completed, the money, goods or chattels given cease to be the property of the former owner and become the property of the obligor to be used according to his own will, unless the contract itself expressly provides for a special or specific use of the same. At all events, the money, goods or chattels, the moment the contract is executed, cease to be the property of the former owner and become the sole property of the obligor. A contract of "loan" differs materially and essentially from a contract of "rent."cralaw virtua1aw library

8. USURY; DEFINED. — Usury may be defined as contracting for or receiving something in excess of the amount allowed by law for the loan or forbearance of money, goods or chattels. It is the taking of more interest for the use of money, goods or chattels or credits than the law allows. Usury has been regarded with abhorrence from the earliest times.




The principal questions presented by this appeal are:chanrob1es virtual 1aw library

(a) Is the contract in question a pacto de retro or a mortgage?

(b) Under a pacto de retro, when the vendor becomes a tenant of the purchaser and agrees to pay a certain amount per month as rent, may such rent render such a contract usurious when the amount paid as rent, computed upon the purchase price, amounts to a higher rate of interest upon said amount than that allowed by law?

(c) May the contract in the present case be modified by parol evidence?


Sometime prior to the 28th day of November, 1922, the appellants purchased of the Luzon Rice Mills, Inc., a piece or parcel of land with the camarin located thereon, situated in the municipality of Tarlac of the Province of Tarlac for the price of P25,000, promising to pay therefor in three installments. The first installment of P2,000 was due on or before the 2d day of May, 1921; the second installment of P8,000 was due on or before the 31st day of May, 1921; the balance of P15,000 at 12 per cent interest was due and payable on or about the 30th day of November, 1922. One of the conditions of that contract of purchase was that on failure of the purchasers (plaintiffs and appellants) to pay the balance of said purchase price or any of the installments on the date agreed upon, the property bought would revert to the original owner.

The payments due on the 2d and 31st of May, 1921, amounting to P10,000 were paid so far as the record shows upon the due dates. The balance of P15,000 due on said contract of purchase was paid on or about the 1st day of December, 1922, in the manner which will be explained below. On the date when the balance of P15,000 with interest was paid, the vendor of said property had issued to the purchasers transfer certificate of title to said property, No. 528. Said transfer certificate of title (No. 528) was transfer certificate of title from No. 40, which shows that said land was originally registered in the name of the vendor on the 7th day of November, 1913.


On the 7th day of November, 1922, the representative of the vendor of the property in question wrote a letter to the appellant Potenciana Manio (Exhibit A, p. 50), notifying the latter that if the balance of said indebtedness was not paid, an action would be brought for the purpose of recovering the property, together with damages for non compliance with the condition of the contract of purchase. The pertinent parts of said letter read as follows:jgc:chanrobles.com.ph

"Sirvase notar que de no estar liquidada esta cuenta el dia 30 del corriente, procederemos judicialmente contra Vd. para reclamar la devolucion deI camarin y los danos y perjuicios ocasionados a la compania por su incumplimiento al contrato.

"Somos de Vd. atentos y S. S.


"BY (Sgd.) F. I. HIGHAM


"General Managers

"LUZON RICE MILLS INC."cralaw virtua1aw library

According to Exhibits B and D, which represent the account rendered by the vendor, there was due and payable upon said contract of purchase on the 30th day of November, 1922, the sum P16,965.09. Upon receiving the letter of the vendor of said property of November 7, 1922, the purchasers, the appellants herein, realizing that they would be unable to pay the balance due, began to make an effort to borrow money with which to pay the balance of their indebtedness on the purchase price of the property involved. Finally an application was made to the defendant for a loan for the purpose of satisfying their indebtedness to the vendor of said property. After some negotiations the defendant agreed to loan the plaintiffs the sum of P17,500 upon condition that the plaintiffs execute and deliver to him a pacto de retro of said property.

In accordance with that agreement the defendant paid to the plaintiffs by means of a check the sum of P16,965.09. The defendant, in addition to said amount paid by check, delivered to the plaintiffs the sum of P354.91 together with the sum of P180 which the plaintiffs paid to the attorneys for drafting said contract of pacto de retro, making a total paid by the defendant to the plaintiffs and for the plaintiffs of P17,500 upon the execution and delivery of said contract. Said contract was dated the 28th day of November, 1922, and is in the words and figures following:jgc:chanrobles.com.ph

"Sepan todos por la presente:jgc:chanrobles.com.ph

"Que nosotros, los conyuges Severino Tolentino y Potenciana Manio, ambos mayores de edad, residentes en el Municipio de Calumpit, Provincia de Bulacan, propietarios y transeuntes en esta Ciudad de Manila, de una parte, y de otra, Benito Gonzalez Sy Chiam, mayor de edad, casado con Maria Santiago, comerciante y vecinos de esta Ciudad de Manila.


"Primero. Que nosotros, Severino Tolentino y Potenciana Manio, por y en consideracion a la cantidad de diecisiete mil quinientos pesos (P17,500) moneda filipina, que en este acto hemos recibido a nuestra entera satisfaccion de Don Benito Gonzalez Sy Chiam, cedemos, vendemos y traspasamos a favor de dicho Don Benito Gonzalez Sy Chiam, sus herederos y causahabientes, una finca que, segun el Certificado de Transferencia de Titulo No. 40 expedido por el Registrador de Titulos de la Provincia de Tarlac a favor de ’Luzon Rice Mills Company Limited’ que al incorporarse se denomino y se denomina ’Luzon Rice Mills Inc.,’ y que esta corporacion nos ha transferido en venta absoluta, se describe como sigue:jgc:chanrobles.com.ph

"Un terreno (lote No. 1) con las mejoras existentes en el mismo, situado en el Municipio de Tarlac. Linda por el O. y N. con propiedad de Manuel Urquico; por el E. con propiedad de la Manila Railroad Co.; y por el S. con un camino. Partiendo de un punto marcado 1 en el plano, cuyo punto se halla al N. 41 gds. 17’ E. 859.42 m. del mojon de localizacion No. 2 de la Oficina de Terrenos en Tarlac; y desde dicho punto 1 N. 81 gds. 31’ O., 77 m. al punto 2; desde.este punto N. 4 gds. 22’ E.; 54.70 m. al punto 3; desde este punto S. 86 gds. 17’ E.; 69.25 m. al punto 4; desde este punto S. 2 gds. 42’ E., 61.48 m. al punto de partida; midiendo una extension superficial de cuatro mil doscientos diez y seis metros cuadrados (4,216) mas o menos. Todos los puntos nombrados se hallan marcados en el plano y sobre el terreno los puntos 1 y 2 estan determinados por mojones de P. L. S. de 20 x 20 x 70 centimetros y los puntos 3 y 4 por mojones del P. L. S. B. L.; la orientacion seguida es la verdadera, siendo la declinacion magnetica de 0 gds. 45’ E. y la fecha de la medicion, 1.
Top of Page