Irineo de Guzman v. Pascual Balarag

Summary

This 1908 Supreme Court case involved a loan dispute between Irineo de Guzman and Pascual Balarag over 1,500 pesos borrowed in 1901. Guzman claimed the transaction was a sale with pacto de retro and sought return of the loan with interest, while Balarag maintained it was a simple loan without interest. The Court applied Civil Code provisions on contract interpretation, holding that the written agreement established a loan contract without stipulated interest. The Court determined that rental collections by the creditor should be applied to the principal debt, not as interest payments. Since Guzman had collected P2,125 in rentals against the P1,500 loan, he was ordered to return the P625 excess and vacate the property. The decision affirmed the trial court and established important precedents on contract interpretation and the application of rental payments to loan obligations.