G.R. No. L-45955; April 5, 1939
TEODORICA R. VIUDA DE JOSE, petitioner, vs. JULIO VELOSO BARRUECO, respondent.

FACTS

Julio Barrueco (respondent) entered into contracts denominated as “leases” with Mary Ando for a china cabinet and a narra wardrobe. The contracts required a substantial down payment and fixed monthly payments, with terms allowing Barrueco to retake possession upon default. Ando failed to pay house rent to her landlady, Teodorica Viuda de Jose (petitioner), who then seized the furniture in lieu of unpaid rent. Barrueco sued to recover the furniture. The Court of First Instance of Manila dismissed the complaint, ruling the contracts were fictitious leases and actually sales on installment. The Court of Appeals reversed, holding them to be true leases.

ISSUE

Whether the contracts between Barrueco and Ando are true contracts of lease or are in reality contracts of sale on installment.

RULING

The Supreme Court ruled that the contracts were sales on installment, not true leases. The Court looked beyond the denomination of the contracts as “leases” and examined the intention of the parties and the legal effect of the entire agreement. Key factors included: the stipulation of a fixed “cost price” for the furniture; the down payment representing a substantial portion (20%) of that price; the monthly payments calculated to cover the remaining balance over a specific period (10-11 months); and the understanding that ownership would transfer to Ando upon full payment of these amounts. The Court held that such transactions, where payment of the so-called “rent” results in the transfer of title, are leases in name only and are essentially conditional sales or sales on installment. The writ of certiorari was granted, reversing the Court of Appeals and reinstating the judgment of the Court of First Instance.

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