Severino Tolentino v. Benito Gonzalez Sy Chiam

Summary

This case established important distinctions between pacto de retro contracts and mortgages, and between rent and usurious interest. The Supreme Court affirmed that a clearly-worded sale with right to repurchase cannot be converted into a mortgage through parol evidence when the contract terms are unambiguous. The Court held that rental payments under such arrangements do not constitute usury because rent and loan interest are fundamentally different legal concepts - rent is compensation for property use while maintaining the owner's title, whereas loans transfer ownership of the subject matter. The decision reinforced that courts will not reinterpret clear contractual language absent evidence of mutual mistake or circumstances inconsistent with the stated intent. This precedent significantly impacted Philippine jurisprudence on property transactions and usury law applications.