CASE DIGEST: PCI Leasing vs. Trojan Metal
FACTS: Sometime in 1997, Trojan Metal Industries, Inc. (TMI) came to PCI Leasing and Finance, Inc. (PCILF) to seek a loan. Instead of extending a loan, PCILF offered to buy various equipment TMI owned. Hard-pressed for money, TMI agreed. PCILF and TMI immediately executed deeds of sale evidencing TMIs sale to PCILF of the various equipment.
PCILF and TMI then entered into a lease agreement , whereby the latter leased
from the former the various equipment it previously owned. Pursuant to the
lease agreement, TMI issued postdated checks representing 24 monthly
installments.The lease agreement required TMI to give PCILF a guaranty deposit which would serve as security for the timely performance of TMIs obligations under the lease agreement, to be automatically forfeited should TMI return the leased equipment before the expiration of the lease agreement. Further, spouses Dizon, as TMIs President and Vice-President, executed in favor of PCILF a Continuing Guaranty of Lease Obligations. Under the continuing guaranty, the Dizon spouses agreed to immediately pay whatever obligations would be due PCILF in case TMI failed to meet its obligations under the lease agreement.
To obtain additional loan from another financing company, TMI used the leased equipment as temporary collateral. PCILF considered the second mortgage a violation of the lease agreement. PCILF sent TMI a demand letter for the payment of the latters outstanding obligation. PCILFs demand remained unheeded.
RTC ruled that the lease agreement must be presumed valid as the law between the parties even if some of its provisions constituted unjust enrichment on the part of PCILF. On appeal, the CA reversed the RTCs decision.
ISSUES:
I. Whether the sale with lease agreement the parties entered into was a financial lease or a loan secured by chattel mortgage.
II. Whether PCILF should pay TMI, by way of refund
HELD: Petition DENIED.
First issue:
Civil Code
In the present case, since the transaction between PCILF and TMI involved equipment already owned by TMI, it cannot be considered as one of financial leasing, as defined by law, but simply a loan secured by the various equipment owned by TMI.
Hence, had the true transaction between the parties been expressed in a proper instrument, it would have been a simple loan secured by a chattel mortgage, instead of a simulated financial leasing. Thus, upon TMIs default, PCILF was entitled to seize the mortgaged equipment, not as owner but as creditor-mortgagee for the purpose of foreclosing the chattel mortgage. PCILFs sale to a third party of the mortgaged equipment and collection of the proceeds of the sale can be deemed in the exercise of its right to foreclose the chattel mortgage as creditor-mortgagee.
Second issue
Section 14 of the Chattel Mortgage Law expressly entitles the debtor-mortgagor to the balance of the proceeds, upon satisfaction of the principal loan and costs. Prevailing jurisprudence also holds that the Chattel Mortgage Law bars the creditor-mortgagee from retaining the excess of the sale proceeds.
TMIs right to the refund accrued from the time PCILF received the proceeds of the sale of the mortgaged equipment. However, since TMI never made a counterclaim or demand for refund due on the resulting overpayment after offsetting the proceeds of the sale against the remaining balance on the principal loan plus applicable interest, no interest applies on the amount of refund due. Nonetheless, in accord with prevailing jurisprudence, the excess amount PCILF must refund to TMI is subject to interest at 12% per annum from finality of this Decision until fully paid.
G.R. No. 176381 : December 15, 2010 | PCI LEASING AND FINANCE, INC.,
Petitioner, v. TROJAN METAL INDUSTRIES INCORPORATED, WALFRIDO DIZON,
ELIZABETH DIZON, and JOHN DOE, Respondents. CARPIO,J.:
FACTS: Respondent Trojan Metal Industries, Inc. (TMI) came to petitioner PCI Leasing
and Finance, Inc. (PCILF) to seek a loan. Instead of extending a loan, PCILF
offered to buy various equipment TMI owned. Hard-pressed for money, TMI
agreed. PCILF and TMI immediately executed deeds of saleevidencing TMIs sale
to PCILF of various equipments. PCILF and TMI then entered into a lease
agreement whereby the latter leased from the former the various equipment it
previously owned. The lease agreement required TMI to give PCILF a guaranty
deposit which would serve as security for the timely performance of TMIs
obligations under the lease agreement, to be automatically forfeited should
TMI return the leased equipment before the expiration of the lease agreement.
Further, spousesWalfridoandElizabethDizon, as TMIs President and
Vice-President, respectively executed in favor of PCILF a Continuing Guaranty
of Lease Obligations.Under the continuing guaranty, theDizonspouses agreed to
immediately pay whatever obligations would be due PCILF in case TMI failed to
meet its obligations under the lease agreement. To obtain additional loan from
another financing company,TMI used the leased equipment as temporary
collateral.PCILF considered the second mortgage a violation of the lease
agreement. PCILF sent TMI a demand letterfor the payment of the latters
outstanding obligation. PCILFs demand remained unheeded. PCILF filed with the
RTC a complaintagainst TMI, spousesDizon, and John Doe (collectively referred
to as respondents hereon) for recovery of sum of money and personal property.
The RTC issued the writ of replevin PCILF prayed for, directing the sheriff to
take custody of the leased equipment. Not long after, PCILF sold the leased
equipment to a third party and collected the proceeds.
The RTC ruled in favor of PCILF. On appeal, the Court of Appeals ruled that
the sale with lease agreement was in fact a loan secured by chattel mortgage.
It set aside the Decision of the RTC.
ISSUE: Whether or not the sale with lease agreement the parties entered into
was a financial lease or a loan secured by chattel mortgage.
HELD: Court of Appeals decision is affirmed.
CIVIL LAW: financial lease v. loan secured by chattel mortgage
Leasing shall refer to financial leasing which is a mode of extending credit
through a non-cancelable contract under which thelessorpurchases or acquires
at the instance of the lessee heavy equipment, motor vehicles, industrial
machinery, appliances, business and office machines, and other movable
property in consideration of the periodic payment by the lessee of a fixed
amount of money sufficient to amortize at least 70% of the purchase price or
acquisition cost, including any incidental expenses and a margin of profit,
over the lease period. The contract shall extend over an obligatory period
during which the lessee has the right to hold and use the leased property and
shall bear the cost of repairs, maintenance, insurance, and preservation
thereof, but with no obligation or option on the part of the lessee to
purchase the leased property at the end of the lease contract. Thus, in a true
financial leasing, whether under RA 5980 or RA 8556, a finance company
purchases on behalf of a cash-strapped lessee the equipment the latter wants
to buy but, due to financial limitations, is incapable of doing so. The
finance company then leases the equipment to the lessee in exchange for the
latters periodic payment of a fixed amount of rental. In this case, however,
TMI already owned the subject equipment before it transacted with PCILF.
Therefore, the transaction between the parties in this case cannot be deemed
to be in the nature of a financial leasing as defined by law.
Under Article 1144 of the Civil Code, the prescriptive period for actions
based upon a written contract and for reformation of an instrument is ten
years. The right of action for reformation accrued from the date of execution
of the lease agreement on 8 April 1997. TMI timely exercised its right of
action when it filed an answer on 14 February 2000 asking for the reformation
of the lease agreement.
Hence, had the true transaction between the parties been expressed in a proper
instrument, it would have been a simple loan secured by a chattel mortgage,
instead of a simulated financial leasing. Thus, upon TMIs default, PCILF was
entitled to seize the mortgaged equipment, not as owner but as
creditor-mortgagee for the purpose of foreclosing the chattel mortgage. PCILFs
sale to a third party of the mortgaged equipment and collection of the
proceeds of the sale can be deemed in the exercise of its right to foreclose
the chattel mortgage as creditor-mortgagee. The Court of Appeals correctly
ruled that the transaction between the parties was simply a loan secured by a
chattel mortgage.
The petition for review is DENIED.
