TOLENTINO(plaintiff-apellant) v GONZALES SY CHIAM (defendant-appellee)

G.R. No. 26085 August 12, 1927

FACTS:

1. Before Nov 28, 1922, Severino Tolentino and Potenciana Manio purchased Luzon Rice Mills,
Inc., parcel of land in Tarlac for P25,000.00 to be paid in three installments.

a. First installment is P2,000 due on or before May 2, 1921

b. Second installment is P8,000 due on or before May 31, 1921

c. Third installment of P15,000 at 12% interest due on or before Nov 30, 1922

One of the conditions of the contract of purchase was that if Tolentino and Manio failed to pay the balance
of any of the installments on the date agreed upon, the property bought would revert to the original owner.

The first and second installments were paid but the balance was paid on Dec 1, 1922

2. On Nov 7, 1922, a representative of vendor of said property wrote Manio , notifying her that if the
balance of said indebtedness was not paid, they would recover the property with damages for non
compliance with the condition of the contract of purchase.

3. Tolentino and Manio borrowed money from Benito Gonzales Sy Chiam to satisfy their
indebtedness to the vendor.

4. Gonzales agreed to loan the P17,500 upon condition that they execute and deliver to him a pacto
de retro of the property.

5. The contract includes a contract of lease on the property whereby the lessees as vendors
apparently bind themselves to pay rent at the rate of P375 per month and whereby "Default in the payment
of the rent agreed for two consecutive months will terminate this lease and will forfeit our right of
repurchase, as though the term had expired naturally"

6. Upon maturation of loan, Tolentino defaulted payment and Gonzales demanded recovery of land.

Tolentino’s argument: that the pacto de retro sale is a mortgage and not an absolute sale and that the rental
price paid during the period of the existence of the right to repurchase, or the sum of P375 per month, based
upon the value of the property, amounted to usury.

ISSUE: WoN the contract in question is a mortgage

HELD: No.

RATIO: The contract is a pacto de retro and not a mortgage. There is not a word, a phrase, a sentence or a
paragraph in the entire record, which justifies this court in holding that the said contract of pacto de retro is
a mortgage and not a sale with the right to repurchase.

The purpose of the contract is expressed clearly that there can certainly be no doubt as to the purpose of the
Tolentino to sell the property in question, reserving the right only to repurchase the same:

Second. That is a condition of this sale that if in the course of five (5) years from the 1st of December,
1922, we return to Don Benito Gonzales Sy Chiam the above-mentioned price of seventeen thousand five
hundred (P17,500), Mr. Benito Gonzales Sy Chiam is forced to return the farm; but if it passes the above
mentioned term of five (5) years without exercising to the right of redemption that we have saved
ourselves, then this sale will be absolute and irrevocable.

From the foregoing, we are driven to the following conclusions: First, that the contract of pacto de retro is
an absolute sale of the property with the right to repurchase and not a mortgage; and, second, that by virtue
of the said contract the vendor became the tenant of the purchaser, under the conditions mentioned in
paragraph 3 of said contact. When the vendor of property under a pacto de retro rents the property and
agrees to pay a rental value for the property during the period of his right to repurchase, he thereby
becomes a "tenant" and in all respects stands in the same relation with the purchaser as a tenant under any
other contract of lease.

In the present case the property in question was sold. It was an absolute sale with the right only to
repurchase. During the period of redemption the purchaser was the absolute owner of the property. During
the period of redemption the vendor was not the owner of the property. During the period of redemption the
vendor was a tenant of the purchaser. During the period of redemption the relation which existed between
the vendor and the vendee was that of landlord and tenant. That relation can only be terminated by a
repurchase of the property by the vendor in accordance with the terms of the said contract. The contract
was one of rent. The contract was not a loan, as that word is used in Act No. 2655.

Loan v Rent as discussed under Usury Law in relation to Act No. 2655 "An Act fixing rates of interest
upon 'loans' and declaring the effect of receiving or taking usurious rates."

Usury, generally speaking, may be defined as contracting for or receiving something in excess of the
amount allowed by law for the loan or forbearance of money—the taking of more interest for the use of
money than the law allows.

It will be noted that said statute imposes a penalty upon a "loan" or forbearance of any money, goods,
chattels or credits, etc. The central idea of said statute is to prohibit a rate of interest on "loans." A contract
of "loan," is 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 credits to another, with a promise to repay, but not a promise to
return the same thing. To "loan," in general parlance, is to deliver to another for temporary use, on
condition that the thing or its equivalent be returned; or to deliver for temporary use on condition that an
equivalent in kind shall be returned with a compensation for its use. The word "loan," however, as used in
the statute, has a technical meaning. It never means the return of the same thing. It means the return of an
equivalent only, but never the same thing loaned. A "loan" has been properly defined as an advance
payment 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. Under the contract of "loan," as used in
said statute, the moment the contract is completed the money, goods or chattels given cease to be the
property of the former owner and becomes 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 becomes the absolute property of the obligor.

A contract of "loan" differs materially from a contract of "rent." 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 "loan" the thing loaned becomes the property of the obligor. In a contract of
"rent" the thing still remains the property of the lessor. He simply loses control of the same in a limited way
during the period of the contract of "rent" or lease. 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. "Rent" may be defined as the compensation
either in money, provisions, chattels, or labor, received by the owner of the soil from the occupant thereof.
It is defined as the return or compensation for the possession of some corporeal inheritance, and is a profit
issuing out of lands or tenements, in return for their use. It is that, which is to paid for the use of land,
whether in money, labor or other thing agreed upon. A contract of "rent" is a contract by which one of the
parties delivers to the other some nonconsumable thing, in order that the latter may use it during a certain
period and return it to the former; whereas a contract of "loan", as that word is used in the statute, signifies
the delivery of money or other consumable things upon condition of returning an equivalent amount of the
same kind or quantity, in which cases it is called merely a "loan." In the case of a contract of "rent," under
the civil law, it is called a "commodatum."