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VICENTE ONG LIM SING v. FEB LEASING

FACTS:

FEB Leasing and Finance Corporation (FEB) entered into a lease agreement with JVL Food Products (JVL) on March 9, 1995, with Vicente Ong Lim Sing, Jr. (Lim) executing an individual guaranty agreement. JVL defaulted in the payment of the monthly rentals and accumulated arrears amounting to P3,414,468.75. FEB sent a demand letter, but JVL failed to comply. FEB filed a complaint for sum of money, damages, and replevin against JVL, Lim, and John Doe. JVL and Lim admitted the existence of the lease agreement but claimed that it was actually a sale of equipment on an installment basis. They argued that they were led to believe that a deed of sale would be executed once full payment was made and that the lease agreement was a contract of adhesion. The trial court ruled in favor of JVL and Lim, considering the lease agreement a contract of adhesion and construing it strictly against FEB.

ISSUES:

  1. Whether the contract between the parties is a financial lease agreement or a sale of personal properties on an installment basis.

  2. Whether the payments made by the petitioner constitute rentals or installments for the purchase price.

  3. Whether the trial court erred in interpreting the contract as a sale of personal properties on installment rather than a lease agreement.

  4. Whether the Court of Appeals erred in its procedural handling of the case, including issues regarding the authorization of the complaint filing and the timely submission of briefs.

  5. Whether the provisions of the lease agreement, specifically those concerning insurable interest and warranties, are valid and enforceable.

RULING:

  1. The Supreme Court affirmed that the contract is a financial lease agreement within the purview of R.A. No. 8556.

  2. The Supreme Court upheld that the payments were rentals and not installments for the purchase price.

  3. The Court affirmed the interpretation of the contract as a financial lease agreement, thereby reversing the trial court's ruling that considered it a sale on installment basis.

  4. The procedural errors claimed by the petition were dismissed, as courts have the prerogative to relax procedural rules to serve substantial justice.

  5. The Court upheld the lease agreement’s provisions concerning the lessee's insurable interest and the exclusion of warranties of merchantability, recognizing their validity.

PRINCIPLES:

  • Financial Lease (R.A. No. 8556) Definition: A mode of extending credit through a non-cancelable lease contract where the lessor purchases or acquires property at the instance of the lessee, with periodic payments sufficient to amortize at least 70% of the purchase price.

  • Contract of Adhesion: A contract of adhesion is binding and enforceable as any other contract unless it is shown that the weaker party was not given the opportunity to understand or reject the terms.

  • Insurable Interest: Under Section 17 of the Insurance Code, a lessee has an insurable interest in the leased property to the extent they would be financially damnified by its loss or damage.

  • Interpretation of Contracts: Where the terms of the contract are clear, the literal meaning of its stipulations shall control without the need for extrinsic evidence.

  • Liberal Application of Procedural Rules: Courts may allow liberal interpretation of procedural rules to meet the demands of substantial justice and avoid technical dismissals that could result in miscarriage of justice.