G.R. No. 44471 ; September 26, 1938
H. E. HEACOCK COMPANY, plaintiff-appellee, vs. BUNTAL MANUFACTURING COMPANY, GREGORIO NIEVA, and MARIA A. DE NIEVA, defendants-appellants.

FACTS

Plaintiff H.E. Heacock Company filed a complaint against defendants Buntal Manufacturing Company and the Nievas, alleging non-payment of monthly rentals under a contract (Exhibit A) dated May 12, 1931, concerning an adding and calculating machine. The contract was denominated as a lease with an option to purchase. Defendants failed to pay from August 1931, and plaintiff sought either delivery of the machine or judgment for unpaid rents. Defendants voluntarily returned the machine to plaintiff, which accepted it. The lower court granted plaintiff’s motion to amend its complaint and ruled that Exhibit A was a lease contract, ordering defendants to pay the unpaid rents amounting to P555.

ISSUE

Whether the contract (Exhibit A) is a contract of lease with option to purchase or a contract of purchase and sale on installments.

RULING

The Supreme Court ruled that Exhibit A is a contract of purchase and sale on installments, not a lease. The Court examined the contract terms, particularly noting an “initial payment” of P160 applied to the total price of P860, with the balance of P700 payable in 20 monthly installments of P35. This structure indicated a sale on installments. The Court applied Article 1281 of the Civil Code, emphasizing the parties’ intention as gathered from all terms. By accepting the machine’s return, plaintiff effectively rescinded the contract. Under Articles 1506 and 1124 of the Civil Code, plaintiff, having chosen rescission and retained payments made (totaling P305), forfeited any further claim. The appealed judgment was reversed, and defendants were absolved from the complaint.

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