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PCI LEASING & FINANCE vs.

TROJAN METAL INDUSTRIES et. al.


J. Carpio, 2010
FACTS: TMI came to PCI to seek a loan. Instead of only be forfeited if TMI returned the leased equipment to
extending a loan, PCI offered to buy various equipment PCI before expiration of the lease agreement. Since TMI
TMI owned, in exchange for P2.8M. Deeds of sale were never returned the lease property voluntarily, but through
executed. writ of replevin, the guaranty deposit should not be
forfeited.
PCI and TMI then entered into a lease agreement:
- lease the equipment it previously owned SC: In a true financial leasing, a finance company
- postdated checks for 24 monthly installments purchases on behalf of a cash-strapped lessee the
- guaranty deposit of P1.03M (security for timely equipment the latter wants to buy, but, due to financial
performance of TMI's obligations under the lease limitations, is incapable of doing so. The finance company
agreement, to be automatically forfeited should TMI return then leases the equipment to the lessee in exchange for
the leased equipment before expiration of the lease the latter's periodic payment of a fixed amount of rental.
agreement)
- Sps. Dizon (President and Vice-President of HERE, TMI already owned the subject equipment before it
TMI) also executed in favor of PCI a Continuing Guaranty transacted with PCI. Therefore the transaction between
of Lease Obligations (agreed to immediately pay the parties cannot be deemed to be in the nature of a
obligations in case TMI failed, under the lease agreement) financial leasing as defined in law.

However, to obtain additional loan from another financing * "Where the client already owned the equipment, but
company, TMI used the leased equipment as temporary needed additional working capital and the finance
collateral. company purchased such equipment with the intention of
leasing it back to him, the lease agreement was simulated
PCI considered the 2nd mortgage a violation of the lease to disguise the true transaction that was a loan with
agreement. PCI sent TMI a demand letter for payment of security."
the latter's outstanding obligation, which was unheeded.
* "The intention of the parties was not to enable the client
PCI filed in the RTC a complaint against TMI and sps. to acquire and use the equipment, but to extend to him a
Dizon for recovery of sum of money and personal loan."
property, with prayer for the issuance of a writ of replevin.
* Financial leasing contemplates the extension of credit to
RTC issued the writ of replevin. PCI sold the leased assist a buyer in acquiring movable property which he can
equipment to a third party and collected the proceeds use and eventually own.
amounting to P1.025M
The transaction between the parties was simply a
Respondent claimed that the sale with lease agreement loan secured by chattel mortgage. Thus upon TMI's
was a mere scheme to facilitate the financial lease default, PCI was entitled to seize the mortgaged
between PCI and TMI, and that the true agreement equipment, not as owner but as creditor-mortgagee for
between them was a loan secured by a chattel mortgage. the purpose of foreclosing the chattel mortgage.

RTC: Lease agreement is valid; judgment in favor of PCI PCI's sale to a third party of the mortgaged equipment and
collection of the proceeds of the sale can be deemed in
CA: Set aside the decision of the RTC; sale with lease was the exercise of its right to foreclose the chattel mortgage
a loan secured by chattel mortgage as creditor-mortagee.
Directed PCI to refund P1.1M to TMI

ISSUE/HELD: WON the sale with lease agreement


the parties entered into was a financial lease or a
loan secured y the chattel mortgage -

Petitioner (PCI): transaction between the parties was a


sale and leaseback financing arrangement, which is not
contrary to law, morals, good customs, public order or
public policy; guaranty deposit should be forfeited in its
favor, as provided in the lease agreement

Respondents (TMI): transfer of ownership to PCI was


never the intention of the parties; guaranty deposit will

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