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178 SCRA 188, G.R. No.

September 29, 1989
Herein private respondents spouses Jose Sy Bang and Iluminada Tan were engaged i
n the sale of gravel produced from crushed rocks and used for construction purpo
ses. They intended to buy rock crusher from Rizal Consolidated Corporation which
carried a cash price tag of P550,000.00. They applied for financial assistance
from herein petitioner Filinvest Credit Corporation, who agreed to extend financ
ial aid on the certain conditions.
A contract of lease of machinery (with option to purchase) was entered into by t
he parties whereby the private respondents agreed to lease from the petitioner t
he rock crusher for two years starting from July 5, 1981, payable as follows: P1
first 3 months, P23,000.00
next 6 months, P24,800.00
next 15 months. It
was likewise stipulated that at the end of the two-year period, the machine wou
ld be owned by the private respondents. Thus the private respondent issued in fa
vor of the petitioner a check for P150,550.00, as initial rental (or guaranty de
posit), and 24 postdated checks corresponding to the 24 monthly rentals. In addi
tion, to guarantee their compliance with the lease contract, the private respond
ent executed a real estate mortgage over two parcels of land in favor of the pet
itioner. The rock crusher was delivered to the spouses.
However, 3 months later, the souses stopped payment when petitioner had not acte
d on the complaints of the spouses about the machine. As a consequence, petition
er extra-judicially foreclosed the real estate mortgage. The spouses filed a com
plaint before the RTC. The RTC rendered a decision in favor of private responden
t. The petitioner elevated the case to CA which affirmed the decision in toto. H
ence, this petition.
1. Whether or not the nature of the contract is one of a contract of sale.\
2. Whether or not the remedies of the seller provided for in Article 1484 are cu
1. Yes. The intent of the parties to the subject contract is for the so-called r
entals to be the installment payments. Upon the completion of the payments, then
the rock crusher, subject matter of the contract, would become the property of
the private respondents. This form of agreement has been criticized as a lease o
nly in name.
Sellers desirous of making conditional sales of their goods, but who do not wish
openly to make a bargain in that form, for one reason or another, have frequent
ly restored to the device of making contracts in the form of leases either with
options to the buyer to purchase for a small consideration at the end of term, p
rovided the so-called rent has been duly paid, or with stipulations that if the
rent throughout the term is paid, title shall thereupon vest in the lessee. It i
s obvious that such transactions are leases only in name. The so-called rent mus
t necessarily be regarded as payment of the price in installments since the due
payment of the agreed amount results, by the terms of bargain, in the transfer o
f title to the lessee.
2. No, it is alternative. The seller of movable in installments, in case the buy
er fails to pay 2 or more installments, may elect to pursue either of the follow
ing remedies: (1) exact fulfillment by the purchaser of the obligation; (2) canc
el the sale; or (3) foreclose the mortgage on the purchased property if one was
constituted thereon. It is now settled that the said remedies are alternative an
d not cumulative, and therefore, the exercise of one bars the exercise of the ot
hers. Indubitably, the device contract of lease with option to buy is at times r
esorted to as a means to circumvent Article 1484, particularly paragraph (3) the
reof. Through the set-up, the vendor, by retaining ownership over the property i

n the guise of being the lessor, retains, likewise the right to repossess the sa
me, without going through the process of foreclosure, in the event the vendee-le
ssee defaults in the payment of the installments. There arises therefore no need
to constitute a chattel mortgage over the movable sold. More important, the ven
dor, after repossessing the property and, in effect, canceling the contract of s
ale, gets to keep all the installments-cum-rentals already paid.