OBLICON FINALS

FIRST DIVISION
[G.R. No. 107199. July 22, 2003]
CEBU CONTRACTORS CONSORTIUM CO., petitioner, vs. COURT OF
APPEAS !"# MA$ATI EASING % FINANCE CORPORATION,
respondents.
& E C I S I O N
A'CUNA, J.(
The instant Petition for Review on Certiorari stems from a complaint for
collection of a sum of money with replevin
1[1
file! "y respon!ent #a$ati %easin&
an! Finance 'orporation (#%F') a&ainst petitioner 'e"u 'ontractors
'onsortium 'ompany ('''') "efore the Re&ional Trial 'ourt of #a$ati*
+[+
#%F' alle&es that on ,u&ust +-. 1/01 a lease a&reement
2[2
relatin& to
various e3uipment was entere! into "etween #%F'. as lessor. an! ''''. as
lessee* The terms an! con!itions of the lease were !efine! in sai! a&reement
an! in two lease sche!ules of payment*
4[4
To secure the lease rentals. a chattel
mort&a&e. an! a su"se3uent amen!ment thereto. were e5ecute! in favor of
#%F' over other various e3uipment owne! "y ''''*
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On 6une 27. 1/00. '''' "e&an !efaultin& on the lease rentals.
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promptin& #%F' to sen! !eman! letters*
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8hen the !eman! letters were not
hee!e!. #%F' file! a complaint for the payment of the rentals !ue an! praye!
that a writ of replevin "e issue! in or!er to o"tain possession of the e3uipment
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lease! an! to foreclose on the e3uipment mort&a&e!*
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For its part. '''' alle&es
/[/
that it ha! a contract with the then #inistry of
Pu"lic :i&hways
17[17
for the construction of the Ili&an;'a&ayan !e Oro;<utuan
Roa!* <ein& in nee! of a!!itional capital. it approache! #%F' for the purpose
of securin& a loan* #%F' a&ree! to e5ten! financial assistance to '''' "ut.
instea! of a customary loan covere! "y a security. #%F' in!uce! '''' to
a!opt an! apply a sale an! lease "ac$ scheme* The arran&ement provi!e! for
the e3uipment of '''' to "e ma!e to appear as sol! to #%F' an! then lease!
"ac$ to '''' which will then pay lease rentals to #%F'* The rentals will "e
treate! as installment payments to repurchase the e3uipment* It is ''''=s
claim that the arran&ement is nothin& more than an e3uita"le mort&a&e*
Pursuant to the sale an! lease "ac$ scheme. '''' e5ecute! two !ee!s
of sale over its e3uipment in favor of #%F'. which were then lease! "ac$ to
''''*
11[11
To facilitate payment of the rentals. #%F' re3uire! '''' to
e5ecute a !ee! of assi&nment of its collecti"les from the #inistry of Pu"lic
:i&hways*
1+[1+
In a!!ition. '''' was also re3uire! to e5ecute a chattel
mort&a&e over its other properties as a security*
''''=s position is that it is no lon&er in!e"te! to #%F' "ecause the total
amounts collecte! "y the latter from the #inistry of Pu"lic :i&hways. "y virtue of
the !ee! of assi&nment. an! from the procee!s of the foreclose! chattels were
more than enou&h to cover ''''=s lia"ilities* Finally. '''' su"mits that. in
any event. the !ee! of assi&nment itself alrea!y free! '''' from its o"li&ation
to #%F'*
The trial court ren!ere! a !ecision
12[12
uphol!in& the lease a&reement an!
fin!in& '''' lia"le to #%F' for P1.710.911*0/ in lease rentals plus +->
attorney=s fees an! P491.44+*+9 in liti&ation e5penses*
14[14
On appeal
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"y
''''. the appellate court affirme! the trial court=s !ecision "ut re!uce! the
attorney=s fees to 17> an! totally eliminate! the awar!e! liti&ation e5penses*
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'''' is now "efore this 'ourt see$in& to reverse the !ecision of the 'ourt of
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OBLICON FINALS
,ppeals*
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'''' presents the followin& assi&ne! errors?
I* 8IT: D@A RASPA'T. T:A RASPONDANT 'O@RT ARRAD IN
@P:O%DINB T:A SO;',%%AD S,%A;%A,SA <,'C S':A#A
OF T:A PRIV,TA RASPONDANT 8:AN T:A S,#A IS IN
RA,%ITD NOT:INB <@T ,N AE@IT,<%A #ORTB,BA*
II* 8IT: D@A RASPA'T. T:A RASPONDANT 'O@RT ARRAD IN
[NOT :O%DINB T:,T T:A DAAD OF ,SSIBN#ANT
AFA'@TAD <D PATITIONAR IN F,VOR OF PRIV,TA
RASPONDANT FOR T:A %,TTAR TO 'O%%A'T FRO# T:A
#INISTRD OF :IB:8,DS 'O#P%ATA%D FRAAD PATITIONAR
OF ITS O<%IB,TION TO T:A PRIV,TA RASPONDANT*
III* 8IT: D@A RASPA'T. T:A RASPONDANT 'O@RT ARRAD IN
FINDINB PATITIONAR STI%% %I,<%A TO T:A PRIV,TA
RASPONDANT DASPITA T:A F,'T T:,T PATITIONAR :,D
,%RA,DD OVAR;P,ID S,ID RASPONDANT*
IV* 8IT: D@A RASPA'T. T:A RASPONDANT 'O@RT ARRAD IN
NOT BR,NTINB PATITIONAR=S '%,I# FOR D,#,BAS
,B,INST T:A PRIV,TA RASPONDANT*
8ith respect to the first assi&ne! error. this 'ourt fin!s in favor of ''''*
It is clear that the transaction "etween '''' an! #%F' is what is
popularly $nown as a Gfinancial leasin&H or Gfinancin& lease*H Transactions of this
sort are not new to the commercial worl! an! have "een reco&niIe! as &enuine
or le&itimate contracts. accor!e! with statutory an! a!ministrative reco&nition*
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In Beltran v. PAIC Finance Corporation.
1/[1/
this 'ourt ha! occasion to
!iscuss the nature of a financin& lease?
, financin& lease may "e seen to "e a contract sui generis.
possessin& some "ut not necessarily all the elements of an or!inary
or civil law lease* Thus. le&al title to the e3uipment lease! is lo!&e!
in the financial lessor* The financial lessee is entitle! to the
possession an! use of the lease! e3uipment* ,t the same time. the
financial lessee is o"li&ate! to ma$e perio!ic payments !enominate!
as lease rentals. which ena"le the financial lessor to recover the
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purchase price of the e3uipment which ha! "een pai! to the supplier
thereofJ*
#%F'=s own evi!ence !iscloses that it offers two types of financin& lease?
a !irect lease an! a sale;lease "ac$* , !irect lease is one where the client "uys
e3uipment throu&h a financin& company* #%F' woul!. in effect. initially
purchase e3uipment that is nee!e! "y the client an! then lease it to the latter*
In a sale;lease "ac$. the client alrea!y has the e3uipment "ut nee!s wor$in&
capital* The client sells to #%F' e3uipment that it owns. which will "e lease!
"ac$ to him* The transaction "etween '''' an! #%F' involve! the secon!
type of financin& lease*
+7[+7
'''' ar&ues that the sale an! lease "ac$ scheme is nothin& more than
an e3uita"le mort&a&e an!. conse3uently. as$s for its reformation*
Section 2 (!) of Repu"lic ,ct No* -/97.
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otherwise $nown as the
GFinancin& 'ompany ,ctH. !efines GFinancial leasin&H as?
Ga mode of extending credit through a non-cancelable lease
contract under which the lessor purchases or acquires at the
instance of the lessee machiner! equipment motor vehicles
appliances business and office machines and other movable or
immovable propert! in consideration of the periodic pa!ment b! the
lessee of a fixed amount of mone! sufficient to amortiIe at least
seventy percent (07>) of the purchase price or ac3uisition cost.
inclu!in& any inci!ental e5penses an! a mar&in of profit over an
o"li&atory perio! of not less than two (+) years during which the
lessee has the right to hold and use the leased propert! with the right
to expense the lease rentals paid to the lessor and bears the cost of
repairs maintenance insurance and preservation thereof but with
no obligation or option on his part to purchase the leased propert!
from the owner-lessor at the end of the lease contract.H
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The a"ove !efinition was ori&inally foun! in Section 1 (i) of the Revise!
Rules an! Re&ulations implementin& the ori&inal Repu"lic ,ct No* -/97* 8hen
Repu"lic ,ct No* 9--1 was enacte!. amen!in& Repu"lic ,ct No* -/97. the
!efinition was &iven a statutory nature*
In Investors Finance Corporation v. Court of Appeals.
+2[+2
the 'ourt.
applyin& the !efinition of financial leasin&. !ifferentiate! "etween a true financial
leasin& an! an or!inary loan with mort&a&e in the &uise of a lease* It was
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OBLICON FINALS
e5plaine! that the !efinition contemplates the e5tension of cre!it to assist a
"uyer in ac3uirin& mova"le property which he can use an! eventually own*
Thus. in a true Gfinancial leasin&.H a finance company purchases on "ehalf of or
at the instance of the lessee the e3uipment which the latter is intereste! to "uy
"ut has insufficient fun!s for the purpose* The finance company therefore leases
the e3uipment to the lessee in consi!eration of the perio!ic payment "y the
lessee of a fi5e! amount of Grental*H :owever. where the client alrea!y owns the
e3uipment "ut nee!s a!!itional wor$in& capital an! the finance company
purchases such e3uipment with the intention of leasin& it "ac$ to him. the lease
a&reement is simulate! to !is&uise the true transaction that is a loan with
security* In that instance. it is clear that the intention of the parties was not to
ena"le the client to ac3uire an! use the e3uipment. "ut to e5ten! to him a loan*
Boin& "ac$ to the case at "ar. #%F' a!mits that the transaction with
'''' involve! the purchase of alrea!y;owne! e3uipment* 'onse3uently. there
can "e no !ou"t that the transaction "etween the parties is not one of financial
leasin&. as !efine! "y law. "ut simply a loan secure! "y a chattel mort&a&e over
''''=s e3uipment*
8hen the true intention of the parties to a contract is not e5presse! in the
instrument purportin& to em"o!y their a&reement "y reason of mista$e. frau!.
ine3uita"le con!uct or acci!ent. the reme!y of the a&&rieve! party is to as$ for
reformation of the instrument un!er ,rticles 12-/ an! 121+ of the 'ivil 'o!e. to
the en! that their true a&reement may "e e5presse! therein*
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@n!er ,rticle
1144 of the 'ivil 'o!e. the prescriptive perio! for actions "ase! upon a written
contract an! for reformation of an instrument is ten years*
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The ri&ht of
action for reformation accrue! from the !ate of e5ecution of the contract of lease
in 1/01*
+1[+1
This was properly e5ercise! "y '''' when it file! its answer with
counterclaim to #%F'=s complaint in 1/09 an! as$e! for the reformation of the
lease contract*
+0[+0
#ovin& on to the secon! assi&ne! error. '''' claims that it ha! assi&ne!
to #%F' its collecti"les from the #inistry of Pu"lic :i&hways. amountin& to
P+.41/.14+*-7* The assi&nment was !uly approve! "y the #inistry of Pu"lic
:i&hways* 'onse3uently. '''' ar&ues that #%F' shoul! "e "arre! from suin&
"ecause the o"li&ation ha! "een transferre! to an! assume! "y the #inistry of
Pu"lic :i&hways*
This 'ourt fin!s that the e5ecution of the !ee! of assi&nment in favor of
#%F' !i! not completely free '''' from its o"li&ations to #%F' un!er the
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lease a&reement* On its face. the !ee! spea$s of an assi&nment* :owever. in
li&ht of the circumstances o"tainin& at the time of the e5ecution of sai! !ee! of
assi&nment. this 'ourt cannot re&ar! the transaction as an a"solute
conveyance* In the interpretation of contracts. if the terms are clear an! leave
no !ou"t as to the intention of the contractin& parties. the literal meanin& of the
stipulations shall control* <ut when the wor!s appear contrary to the evi!ent
intention of the parties. the latter shall prevail over the former* In or!er to Ku!&e
the intention of the parties. their contemporaneous an! su"se3uent acts shall
principally "e consi!ere!*
+9[+9
The !ee! of assi&nment was !ate! ,u&ust +0. 1/01* ''''. "y its own
evi!ence.
+/[+/
was shown to have ma!e partial payments on the o"li&ation. apart
from those o"taine! "y #%F' from the #inistry of Pu"lic :i&hways* These
partial payments were ma!e after the e5ecution of the !ee! of assi&nment*
Since su"se3uent payments were ma!e "y '''' itself. it follows that the
e5ecution of the !ee! of assi&nment !i! not e5tin&uish its o"li&ation*
In a!!ition. the fact that a chattel mort&a&e was e5ecute! after the
e5ecution of the !ee! of assi&nment further confirms the e5istence of ''''=s
o"li&ation un!er the lease a&reement* If in!ee! the !ee! of assi&nment
e5tin&uishe! the o"li&ation. there was no reason to e5ecute a chattel mort&a&e*
Avi!ently. the only conceiva"le reason for the e5ecution of a chattel mort&a&e
was "ecause the o"li&ation un!er the lease a&reement su"siste!*
In Citi"ens #uret! and Insurance Co. Inc. v. Court of Appeals.
27[27
this
'ourt was face! with the same issue* Petitioner in that case. a surety company.
issue! two surety "on!s in "ehalf of respon!ent therein to &uaranty the
fulfillment of an o"li&ation un!er a contract of sale the latter ha! entere! into
with the Sin&er Sewin& #achine 'ompany* In consi!eration of the "on!s. two
in!emnity a&reements were e5ecute! "y sai! respon!ent followe! "y a !ee! of
assi&nment e5ecute! on the same !ate* ,fter respon!ent=s failure to comply
with its o"li&ation un!er the contract of sale. petitioner was compelle! to pay
un!er the surety "on!s* 8hen respon!ent faile! to reim"urse it. petitioner file! a
collection suit* Respon!ent oppose! the money claim. an! asserte! that the
surety "on!s an! the in!emnity a&reements ha! "een e5tin&uishe! "y the
e5ecution of the !ee! of assi&nment*
The 'ourt hel! therein that the !ee! of assi&nment cannot "e re&ar!e! as
an a"solute conveyance where"y the o"li&ation un!er the surety "on!s was
automatically e5tin&uishe!* Respon!ent=s su"se3uent acts showe! that the
!ee! of assi&nment was inten!e! merely as a security for the issuance of the
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OBLICON FINALS
two "on!s* The 'ourt foun! that partial payments were ma!e after the
e5ecution of the !ee! of assi&nment to satisfy the o"li&ation un!er the two
surety "on!s* #oreover. a secon! real estate mort&a&e in favor of petitioner
was e5ecute! "y respon!ent* These circumstances showe! that no !e"t was
e5tin&uishe! upon the e5ecution of the !ee! of assi&nment. which was inten!e!
merely as another security for the issuance of the surety "on!s*
This 'ourt now comes to the issue of overpayment* 8hile the lease
a&reement is in reality an e3uita"le mort&a&e. the recor!s show that the
e3uipment have alrea!y "een sol! "y #%F'.
21[21
an! that the procee!s from the
sale were cre!ite! to ''''=s account*
The 'ourt of ,ppeals rule! that '''' is in!e"te! to #%F' in the amount
of P1.749.1--*77 an! !isre&ar!e! ''''=s own computation showin& an
alle&e! overpayment* This 'ourt a&rees with this fin!in&* ''''=s computation
prove! to "e incomplete an! unrelia"le* Noticea"ly a"sent from the computation
are the penalties incurre! "y ''''. when it !efaulte! on the lease rentals.
which woul! have the effect of su"stantially increasin& ''''=s !e"t*
2+[2+
#oreover. the 'ourt of ,ppeal=s computation is part of the fin!in&s of fact ma!e
"y the appellate court* Such fin!in&s an! conclusions shoul! not "e !istur"e!
on appeal. in the a"sence of any showin& that these are unfoun!e! or ar"itrarily
arrive! at or that the 'ourt of ,ppeals ha! faile! to consi!er an important
evi!ence to the contrary*
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Fin!in& that '''' is still in!e"te! to #%F'. the former=s claim for
!ama&es must also fail*
)*EREFORE. the !ecision appeale! from is here"y ,FFIR#AD* No
costs*
SO OR&ERE&.
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