Facts:

The case revolves around Eutiquiano Cuyugan, the plaintiff and appellee, and Isidoro Santos, the defendant and appellant. The events trace back to April 3, 1895, when Guillerma Cuyugan obtained a loan of P3,500 from Isidoro Santos, executing a document that purported to be a venta con pacto de retro (sale with right of repurchase) involving four parcels of land. Under this agreement, the annual rent was set at P420. The situation escalated in subsequent years when Guillerma made payments: P420 in 1896, P324 in 1897 (along with a claimed but contested payment of P1,000), and subsequently, a yearly rental amount of P300 from 1898 until 1913. In 1913, Santos demanded P420 as the correct rental amount for the year; in response, Eutiquiano Cuyugan deposited P2,800 with the provincial treasury and initiated legal action to have the deed canceled and to compel Santos to accept the deposit. Santos filed a demurrer against the action, indicating that the original transaction could not be

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Facts:

Transaction and Execution of Instrument

• On April 3, 1895, Guillerma Cuyugan received from Isidoro Santos the sum of ₱3,500.
• Guillerma Cuyugan executed a document in favor of Santos which on its face appeared to be a venta con pacto de retro (sale with a right of repurchase) for four parcels of land.
• The written instrument fixed the yearly rental at ₱420.

Payment History and Subsequent Modifications

• In 1896, Guillerma Cuyugan paid the annual rent of ₱420 as stipulated.
• In 1897, she paid ₱324 as rent, and controversy arose when it was alleged that she also paid an additional ₱1,000 on account of her debt—a point that later became central to the case.
• From 1897 until 1913, Guillerma consistently paid an annual rent of ₱300, except for the year 1908, when an amount of ₱350 was claimed by Santos.

- It was disputed whether the ₱350 pertained to the same parcel or to another parcel of land.

Dispute and Legal Action

• In 1913, Isidoro Santos demanded the full yearly rental of ₱420 from Eutiquiano Cuyugan (the plaintiff), claiming it as the correct rent for that year.
• Instead of paying the demanded ₱420, the plaintiff tendered a payment of ₱2,800 which Santos deposited in the provincial treasury.
• Following this tender, Santos commenced an action to cancel the deed of conveyance and to force the acceptance of the ₱2,800.

Procedural History and Admissibility of Parole Evidence

• At trial, Santos’s counsel demurred on the ground that the written document (purporting to be a venta con pacto de retro) could not be varied by parole evidence.
• The trial court sustained the demurrer.
• On appeal, the Supreme Court reversed the trial court ruling on two distinct grounds:

- First, it emphasized the beneficent doctrine admitting parole evidence to show that an instrument in writing—though transferring title or proposing a repurchase—might in truth have been intended merely as security for a loan. - Second, it found that the acceptance of the ₱1,000 payment two years after the execution of the instrument, and the corresponding reduction in rent from ₱420 to ₱300, indicated an arrangement to reduce the loan principal and, by extension, the interest.

Factual Findings and Supporting Evidence

• Testimonies were at odds: Roman Cuyugan (the plaintiff’s father) testified that Guillerma paid the ₱1,000, whereas Santos denied any such receipt.
• The rent payments, particularly the reduction to ₱300 per annum, served as corroboration that the principal was reduced after the alleged ₱1,000 payment.
• A clause in Guillerma Cuyugan’s will further confirmed that there was a loan for ₱2,500 secured by the land, aligning with the reduced rent calculation (₱300 being 12% of ₱2,500).

Resulting Characterization of the Instrument

• Based on the evidence, the trial court found that Guillerma Cuyugan did indeed pay the disputed ₱1,000, which Santos accepted.
• Consequently, the public instrument was determined not to be a true venta con pacto de retro but rather a mortgage securing a loan.

Prescription Issue

• Santos’s counsel raised a defense that the cause of action had prescribed.
• The trial court disregarded this defense, and the appellate court noted that acceptance of interest on the underlying mortgage tolled the prescriptive period.

Issue:

Admissibility of Parole Evidence

• Whether parole evidence is admissible to vary the expressed terms of a written instrument that purports to be a venta con pacto de retro, by showing that the true nature of the transaction was the granting of a loan secured by the instrument.

Characterization of the Transaction

• Whether the alleged payment of ₱1,000 by Guillerma Cuyugan, followed by an adjustment in the annual rent from ₱420 to ₱300, evidenced that the original transaction was essentially a secured loan rather than a sale with a reserved right of repurchase.
• Whether acceptance and retention of that ₱1,000 by Santos implied a waiver of the purchaser’s rights under the original contract or a recharacterization of the instrument from a sale to a mortgage.

Prescription and Tolling of Prescriptive Period

• Whether the acceptance of interest on the mortgage effectively tolled the prescriptive period, thereby preventing the defendant from asserting prescription as a defense to the action to redeem the mortgaged property.

Ruling:

• (Subscriber-Only)

Ratio:

• (Subscriber-Only)

Doctrine:

• (Subscriber-Only)