G.R. No. 142618, 12 July 2007, 527 SCRA 405


Petitioner PCI LEASING and respondent GIRAFFE entered into a Lease Agreement,1 whereby the former leased out to the latter one (1) set of Silicon High Impact Graphics and accessories worth ₱3,900,00.00 and one (1) unit of Oxberry Cinescan 6400-10 worth ₱6,500,000.00. In connection with this agreement, the parties subsequently signed two (2) separate documents, each denominated as Lease Schedule.

Likewise forming parts of the basic lease agreement were two (2) separate documents denominated Disclosure Statements of Loan/Credit Transaction (Single Payment or Installment Plan) that GIRAFFE also executed for each of the leased equipment. These disclosure statements inter alia described GIRAFFE, vis-à-vis the two aforementioned equipment, as the “borrower” who acknowledged the “net proceeds of the loan,” the “net amount to be financed,” the “financial charges,” the “total installment payments” that it must pay monthly for thirty-six (36) months, exclusive of the 36% per annum “late payment charges.” Thus, for the Silicon High Impact Graphics, GIRAFFE agreed to pay ₱116,878.21 monthly, and for Oxberry Cinescan, ₱181.362.00 monthly.

By the terms, too, of the Lease Agreement, GIRAFFE undertook to remit the amount of ₱3,120,000.00 by way of “guaranty deposit,” a sort of performance and compliance bond for the two equipment. Furthermore, the same agreement embodied a standard acceleration clause, operative in the event GIRAFFE fails to pay any rental and/or other accounts due.

A year into the life of the Lease Agreement, GIRAFFE defaulted in its monthly rental-payment obligations. And following a three-month default, PCI LEASING, through one Atty. Florecita R. Gonzales, addressed a formal pay-or-surrender-equipment type of demand letter4 dated February 24, 1998 to GIRAFFE.

The demand went unheeded. PCI LEASING instituted a case praying for the issuance of a writ of replevin for the recovery of the leased property. GIRAFFE filed a Motion to Dismiss arguing that the seizure of the two (2) leased equipment stripped PCI LEASING of its cause of action. Expounding on the point, GIRAFFE argues that, pursuant to Article 1484 of the Civil Code on installment sales of personal property, PCI LEASING is barred from further pursuing any claim arising from the lease agreement and the companion contract documents, adding that the agreement between the parties is in reality a lease of movables with option to buy. The trial court granted GIRAFFE’s motion to dismiss.


Whether or not the underlying Lease Agreement, Lease Schedules and the Disclosure Statements that embody the financial leasing arrangement between the parties are covered by and subject to the consequences of Articles 1484 and 1485 of the New Civil Code.


The recourse is without merit.

R.A. No. 5980, in its original shape and as amended, partakes of a supervisory or regulatory legislation, merely providing a regulatory framework for the organization, registration, and regulation of the operations of financing companies. As couched, it does not specifically define the rights and obligations of parties to a financial leasing arrangement. In fact, it does not go beyond defining commercial or transactional financial leasing and other financial leasing concepts.

Petitioner foists the argument that the Recto Law, i.e., the Civil Code provisions on installment sales of movable property, does not apply to a financial leasing agreement because such agreement, by definition, does not confer on the lessee the option to buy the property subject of the financial lease. To the petitioner, the absence of an option-to-buy stipulation in a financial leasing agreement, as understood under R.A. No. 8556, prevents the application thereto of Articles 1484 and 1485 of the Civil Code.
We are not persuaded.

A financing arrangement has a purpose which is at once practical and salutary. R.A. No. 8556 was, in fact, precisely enacted to regulate financing companies’ operations with the end in view of strengthening their critical role in providing credit and services to small and medium enterprises and to curtail acts and practices prejudicial to the public interest, in general, and to their clienteles, in particular. As a regulated activity, financing arrangements are not meant to quench only the thirst for profit. They serve a higher purpose, and R.A. No. 8556 has made that abundantly clear.

We stress, however, that there is nothing in R.A. No. 8556 which defines the rights and obligations, as between each other, of the financial lessor and the lessee. In determining the respective responsibilities of the parties to the agreement, courts, therefore, must train a keen eye on the attendant FACTS and circumstances of the case in order to ascertain the intention of the parties, in relation to the law and the written agreement. Likewise, the public interest and policy involved should be considered. It may not be amiss to state that, normally, financing contracts come in a standard prepared form, unilaterally thought up and written by the financing companies requiring only the personal circumstances and signature of the borrower or lessee; the rates and other important covenants in these agreements are still largely imposed unilaterally by the financing companies. In other words, these agreements are usually one-sided in favor of such companies. A perusal of the lease agreement in question exposes the many remedies available to the petitioner, while there are only the standard contractual prohibitions against the respondent. This is characteristic of standard printed form contracts.

On the whole, then, we rule, as did the trial court, that the PCI LEASING- GIRAFFE lease agreement is in reality a lease with an option to purchase the equipment. This has been made manifest by the actions of the petitioner itself, foremost of which is the declarations made in its demand letter to the respondent. There could be no other explanation than that if the respondent paid the balance, then it could keep the equipment for its own; if not, then it should return them. This is clearly an option to purchase given to the respondent. Being so, Article 1485 of the Civil Code should apply.

The present case reflects a situation where the financing company can withhold and conceal – up to the last moment – its intention to sell the property subject of the finance lease, in order that the provisions of the Recto Law may be circumvented. It may be, as petitioner pointed out, that the basic “lease agreement” does not contain a “purchase option” clause. The absence, however, does not necessarily argue against the idea that what the parties are into is not a straight lease, but a lease with option to purchase. This Court has, to be sure, long been aware of the practice of vendors of personal property of denominating a contract of sale on installment as one of lease to prevent the ownership of the object of the sale from passing to the vendee until and unless the price is fully paid.

*Case digest by Legine S. Ramayla, JD – 4, Andres Bonifacio College, SY 2019 – 2020