VOL.

524, JUNE 8, 2007 333

Ong Lim Sing, Jr. vs. FEB Leasing & Finance Corporation
*
G.R. No. 168115. June 8, 2007.

VICENTE ONG LIM SING, JR., petitioner, vs. FEB

LEASING & FINANCE CORPORATION, respondent.

Appeals; Estoppel; Issues raised for the first time on appeal are
barred by estoppelarguments not raised in the original
proceedings cannot be considered on review, otherwise, it would
violate basic principles of fair play.Lim can no longer question
Galangs authority as FEBs authorized representative in filing the
suit against Lim. Galang was the representative of FEB in the
proceedings before the trial court up to the appellate court.
Petitioner never placed in issue the validity of Galangs
representation before the trial and appellate courts. Issues raised
for the first time on appeal are barred by estoppel. Arguments not
raised in the original proceedings cannot be considered on review;
otherwise, it would violate basic principles of fair play.

Procedural Rules and Technicalities; Due Process; Courts have

the prerogative to relax procedural rules of even the most mandatory
character, mindful of the duty to reconcile both the need to speedily
put an end to litigation and the parties right to due process.Courts
have the prerogative to relax procedural rules of even the most
mandatory character, mindful of the duty to reconcile both the need
to speedily put an end to litigation and the parties right to due
process. In numerous cases, this Court has allowed liberal
construction of the rules when to do so would serve the demands of
substantial justice and equity.

Contracts; Contracts of Adhesion; A contract of adhesion is not

void per seit is as binding as any ordinary contract.While we
affirm that the subject lease agreement is a contract of adhesion,
such a contract is not void per se. It is as binding as any ordinary
contract. A party who enters into an adhesion contract is free to
reject the stipulations entirely. If the terms thereof are accepted
without objection, then the contract serves as the law between the
parties.

_______________

* THIRD DIVISION.

334

334 SUPREME COURT REPORTS ANNOTATED

Ong Lim Sing, Jr. vs. FEB Leasing & Finance Corporation

Same; Financial Leasing Transactions; Words and Phrases;

Financial leasing is a mode of extending credit through a
noncancelable lease contract under which the lessor purchases or
acquires, at the instance of the lessee, machinery, equipment, motor
vehicles, appliances, business and office machines, and other
movable or immovable property in consideration of the periodic
payment by the lessee of a fixed amount of money sufficient to
amortize at least seventy (70%) of the purchase price or acquisition
cost, including any incidental expenses and a margin of profit over
an obligatory period of not less than two (2) years during which the
lessee has the right to hold and use the leased property 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 property
from the owner-lessor at the end of the lease contract.The Lease
Contract with corresponding Lease Schedules with Delivery and
Acceptance Certificates is, in point of fact, a financial lease within
the purview of R.A. No. 8556. Section 3(d) thereof defines financial
leasing as: [A] mode of extending credit through a non-cancelable
lease contract under which the lessor purchases or acquires, at the
instance of the lessee, machinery, equipment, motor vehicles,
appliances, business and office machines, and other movable or
immovable property in consideration of the periodic payment by the
lessee of a fixed amount of money sufficient to amortize at least
seventy (70%) of the purchase price or acquisition cost, including
any incidental expenses and a margin of profit over an obligatory
period of not less than two (2) years during which the lessee has the
right to hold and use the leased property 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 property
from the owner-lessor at the end of the lease contract.

Same; Same; The basic purpose of a financial leasing

transaction is to enable the prospective buyer of equipment, who is
unable to pay for such equipment in cash in one lump sum, to lease
such equipment in the meantime for his use, at a fixed rental
sufficient to amortize at least 70% of the acquisition cost (including
the expenses and a margin of profit for the financial lessor) with the
expectation that at the end of the lease period the buyer/financial
lessee will be able to pay any remaining balance of the purchase
price.FEB

335

VOL. 524, JUNE 8, 2007 335

Ong Lim Sing, Jr. vs. FEB Leasing & Finance Corporation

leased the subject equipment and motor vehicles to JVL in

consideration of a monthly periodic payment of P170,494.00. The
periodic payment by petitioner is sufficient to amortize at least 70%
of the purchase price or acquisition cost of the said movables in
accordance with the Lease Schedules with Delivery and Acceptance
Certificates. The basic purpose of a financial leasing transaction is
to enable the prospective buyer of equipment, who is unable to pay
for such equipment in cash in one lump sum, to lease such
equipment in the meantime for his use, at a fixed rental sufficient
to amortize at least 70% of the acquisition cost (including the
expenses and a margin of profit for the financial lessor) with the
expectation that at the end of the lease period the buyer/financial
lessee will be able to pay any remaining balance of the purchase
price.

Same; Same; It is settled that the parties are free to agree to

such stipulations, clauses, terms, and conditions as they may want
to include in a contract, and as long as such agreements are not
contrary to law, morals, good customs, public policy, or public order,
they shall have the force of law between the parties.The validity of
Lease No. 27:95:20 between FEB and JVL should be upheld. JVL
entered into the lease contract with full knowledge of its terms and
conditions. The contract was in force for more than four years. Since
its inception on March 9, 1995, JVL and Lim never questioned its
provisions. They only attacked the validity of the contract after they
were judicially made to answer for their default in the payment of
the agreed rentals. It is settled that the parties are free to agree to
such stipulations, clauses, terms, and conditions as they may want
to include in a contract. As long as such agreements are not
contrary to law, morals, good customs, public policy, or public order,
they shall have the force of law between the parties. Contracting
parties may stipulate on terms and conditions as they may see fit
and these have the force of law between them.

Same; Same; Insurance; A lessee has an insurable interest in

the equipment and motor vehicles leased, and the measure of its
insurable interest is the extent to which it may be damnified by loss
or injury thereof.The stipulation in Section 14 of the lease
contract, that the equipment shall be insured at the cost and
expense of the lessee against loss, damage, or destruction from fire,
theft, accident, or other insurable risk for the full term of the lease,
is a binding and valid stipulation. Petitioner, as a lessee, has an
insurable interest in

336

336 SUPREME COURT REPORTS ANNOTATED

Ong Lim Sing, Jr. vs. FEB Leasing & Finance Corporation

the equipment and motor vehicles leased. Section 17 of the

Insurance Code provides that the measure of an insurable interest
in property is the extent to which the insured might be damnified
by loss or injury thereof. It cannot be denied that JVL will be
directly damnified in case of loss, damage, or destruction of any of
the properties leased.

Same; Same; Warranties; The financial lessor, being a financing

company, i.e., an extender of credit rather than an ordinary
equipment rental company, does not extend a warranty of the fitness
of the equipment for any particular use.In the financial lease
agreement, FEB did not assume responsibility as to the quality,
merchantability, or capacity of the equipment. This stipulation
provides that, in case of defect of any kind that will be found by the
lessee in any of the equipment, recourse should be made to the
manufacturer. The financial lessor, being a financing company, i.e.,
an extender of credit rather than an ordinary equipment rental
company, does not extend a warranty of the fitness of the equipment
for any particular use. Thus, the financial lessee was precisely in a
position to enforce such warranty directly against the supplier of
the equipment and not against the financial lessor. We find nothing
contra legem or contrary to public policy in such a contractual
arrangement.

PETITION for review on certiorari of the decision and

resolution of the Court of Appeals.
The facts are stated in the opinion of the Court.
Jesus M. Bautista for petitioner.
HM Ramos, Urmenita and Associates Law Office for
respondent.

NACHURA, J.:

This is 1a petition for review on certiorari assailing

2
the
Decision dated March 15, 2005 and the Resolution dated
May

_______________

1 Rollo, pp. 72-104.

2 Id., at pp. 106-107.

337

VOL. 524, JUNE 8, 2007 337

Ong Lim Sing, Jr. vs. FEB Leasing & Finance Corporation

23, 2005 of the Court of Appeals (CA) in CA-G.R. CV No.

77498.
The facts are as follows:
On March 9, 1995, FEB Leasing 3
and Finance
Corporation (FEB) entered into a lease of equipment and
motor vehicles with JVL Food Products (JVL). On the same
date, Vicente Ong Lim Sing, 4 Jr. (Lim) executed an
Individual Guaranty Agreement with FEB to guarantee
the prompt and faithful performance of the terms and
conditions of the aforesaid lease agreement. Corresponding
Lease Schedules
5
with Delivery and Acceptance
Certificates over the equipment and motor vehicles formed
part of the agreement. Under the contract, JVL was obliged
to pay FEB an aggregate gross monthly rental of One
Hundred Seventy Thousand Four Hundred Ninety-Four
Pesos (P170,494.00).
JVL defaulted in the payment of the monthly rentals. As
of July 31, 2000, the amount in arrears, including penalty
charges and insurance premiums, amounted to Three
Million Four Hundred Fourteen Thousand Four Hundred
Sixty-Eight and 75/100 Pesos (P3,414,468.75). On August
23, 2000, FEB sent a letter to JVL demanding 6
payment of
the said amount. However, JVL failed to pay. 7
On December 6, 2000, FEB filed a Complaint with the
Regional Trial Court of Manila, docketed as Civil Case No.
00-99451, for sum of money, damages, and replevin against
JVL, Lim, and John Doe. 8
In the Amended Answer, JVL and Lim admitted the
existence of the lease agreement but asserted that it is in
reality a sale of equipment on installment basis, with FEB
acting as

_______________

3 Lease No. 27:95:20; Id., at pp. 121-126.

4 Id., at pp. 127-128.
5 Id., at pp. 129-144.
6 Id., at p. 148.
7 Id., at pp. 146-155.
8 Id., at pp. 156-171.

338

338 SUPREME COURT REPORTS ANNOTATED

Ong Lim Sing, Jr. vs. FEB Leasing & Finance Corporation

the financier. JVL and Lim claimed that this intention was
apparent from the fact that they were made to believe that
when full payment was effected, a Deed of Sale will be
executed9 by FEB as vendor in favor of JVL and Lim as
vendees. FEB purportedly assured them that documenting
the transaction as a lease agreement is just an industry
practice and that the proper documentation would be
effected as soon as full payment for every item was made.
They also contended that the lease agreement is a contract
of adhesion and should, therefore, be construed against the
party who prepared it, i.e., FEB.
In upholding JVL and Lims stance, the trial court
stressed the contradictory terms it found in the lease
agreement. The pertinent portions of the Decision dated
November 22, 2002 read:
A profound scrutiny of the provisions of the contract which is a
contract of adhesion at once exposed the use of several contradictory
terms. To name a few, in Section 9 of the said contractdisclaiming
warranty, it is stated that the lessor is not the manufacturer nor the
latters agent and therefore does not guarantee any feature or
aspect of the object of the contract as to its merchantability.
Merchantability is a term applied in a contract of sale of goods
where conditions and warranties are made to apply. Article 1547 of
the Civil Code provides that unless a contrary intention appears an
implied warranty on the part of the seller that he has the right to
sell and to pass ownership of the object is furnished by law together
with an implied warranty that the thing shall be free from hidden
faults or defects or any charge or encumbrance not known to the
buyer.
In an adhesion contract which is drafted and printed in advance
and parties are not given a real arms length opportunity to
transact, the Courts treat this kind of contract strictly against their
architects for the reason that the party entering into this kind of
contract has no choice but to accept the terms and conditions found
therein even if he is not in accord therewith and for that matter
may not have understood all the terms and stipulations prescribed

_______________

9 Id., at p. 159.

339

VOL. 524, JUNE 8, 2007 339

Ong Lim Sing, Jr. vs. FEB Leasing & Finance Corporation

thereat. Contracts of this character are prepared unilaterally by the

stronger party with the best legal talents at its disposal. It is upon
that thought that the Courts are called upon to analyze closely said
contracts so that the weaker party could be fully protected.
Another instance is when the alleged lessee was required to
insure the thing against loss, damage or destruction.
In property insurance against loss or other accidental causes, the
assured must have an insurable interest, 32 Corpus Juris 1059.
xxxx
It has also been held that the test of insurable interest in
property is whether the assured has a right, title or interest therein
that he will be benefited by its preservation and continued existence
or suffer a direct pecuniary loss from its destruction or injury by the
peril insured against. If the defendants were to be regarded as only
a lessee, logically the lessor who asserts ownership will be the one
directly benefited or injured and therefore the lessee is not
supposed to be the assured as he has no insurable interest.
There is also an observation from the records that the actual
value of each object of the contract would be the result after
computing the monthly rentals by multiplying the said rentals by
the number of months specified when the rentals ought to be paid.
Still another observation is the existence in the records of a Deed
of Absolute Sale by and between the same parties, plaintiff and
defendants which was an exhibit of the defendant where the
plaintiff sold to the same defendants one unit 1995 Mitsubishi L-
200 STRADA DC PICK UP and in said Deed, The Court noticed
that the same terms as in the alleged lease were used in respect to
warranty, as well as liability in case of loss and other conditions.
This action of the plaintiff unequivocally exhibited their real
intention to execute the corresponding Deed after the defendants
have paid in full and as heretofore discussed and for the sake of
emphasis the obscurity in the written contract cannot favor the
party who caused the obscurity.
Based on substantive Rules on Interpretation, if the terms are
clear and leave no doubt upon the intention of the contracting
parties, the literal meaning of its stipulations shall control. If the
words appear to be contrary to the evident intention of the parties,
their contemporaneous and subsequent acts shall be principally
considered. If the doubts are cast upon the principal object of the
contract

340

340 SUPREME COURT REPORTS ANNOTATED

Ong Lim Sing, Jr. vs. FEB Leasing & Finance Corporation

in such a way that it cannot be known what may have been the
intention or will of the parties, the contract shall be null and
10
void.

Thus, the court concluded with the following disposition:

In this case, which is held by this Court as a sale on installment

there is no chattel mortgage on the thing sold, but it appears
amongst the Complaints prayer, that the plaintiff elected to exact
fulfillment of the obligation.
For the vehicles returned, the plaintiff can only recover the
unpaid balance of the price because of the previous payments made
by the defendants for the reasonable use of the units, specially so,
as it appears, these returned vehicles were sold at auction and that
the plaintiff can apply the proceeds to the balance. However, with
respect to the unreturned units and machineries still in the
possession of the defendants, it is this Courts view and so hold that
the defendants are liable therefore and accordingly are ordered
jointly and severally to pay the price thereof to the plaintiff together
with attorneys fee and the costs of suit in the sum of Php25,000.00.
11
SO ORDERED.
12
On December 27, 2002, FEB filed its Notice of Appeal.
Accordingly,
13
on January 17, 2003, the court issued an
Order elevating the entire records of the case to the CA.
FEB averred that the trial court erred:

A. When it ruled that the agreement between the

Parties-Litigants is one of sale of personal
properties on installment and not of lease;
B. When it ruled that the applicable law on the case is
Article 1484 (of the Civil Code) and not R.A. No.
8556;
C. When it ruled that the Plaintiff-Appellant can no
longer recover the unpaid balance of the price
because of the previous payments made by the
defendants for the reasonable use of the units;

_______________

10 Id., at pp. 218-220.

11 Id., at p. 222.
12 Id., at pp. 223-224.
13 Id., at p. 225.

341

VOL. 524, JUNE 8, 2007 341

Ong Lim Sing, Jr. vs. FEB Leasing & Finance Corporation

D. When it failed to make a ruling or judgment on the

Joint and Solidary Liability 14
of Vicente Ong Lim, Jr.
to the Plaintiff-Appellant.
15
On March 15, 2005, the CA issued its Decision declaring
the transaction between the parties as a financial
16
lease
agreement under Republic Act (R.A.) No. 8556. The fallo
of the assailed Decision reads:
WHEREFORE, the instant appeal is GRANTED and the assailed
Decision dated 22 November 2002 rendered by the Regional Trial
Court of Manila, Branch 49 in Civil Case No. 00-99451 is
REVERSED and SET ASIDE, and a new judgment is hereby
ENTERED ordering appellees JVL Food Products and Vicente Ong
Lim, Jr. to solidarily pay appellant FEB Leasing and Finance
Corporation the amount of Three Million Four Hundred
Fourteen Thousand Four Hundred Sixty Eight Pesos and
75/100 (Php3,414,468.75), with interest at the rate of twelve
percent (12%) per annum starting from the date of judicial demand
on 06 December 2000, until full payment thereof. Costs against
appellees.
17
SO ORDERED.

Lim filed the instant Petition for Review on Certiorari

under Rule 45 contending that:

THE HONORABLE COURT OF APPEALS ERRED WHEN IT

FAILED TO CONSIDER THAT THE UNDATED COMPLAINT
WAS FILED BY SATURNINO J. GALANG, JR., WITHOUT ANY
AUTHORITY FROM RESPONDENTS BOARD OF DIRECTORS
AND/OR SECRETARYS CERTIFICATE.

_______________

14 Id., at p. 87.
15 Penned by Associate Justice Celia C. Librea-Leagogo.
16 An Act Amending Republic Act No. 5980, as amended, otherwise
known as The Financing Company Act.
17 Rollo, pp. 101-102.

342

342 SUPREME COURT REPORTS ANNOTATED

Ong Lim Sing, Jr. vs. FEB Leasing & Finance Corporation

II

THE HONORABLE COURT OF APPEALS ERRED WHEN IT

FAILED TO STRICTLY APPLY SECTION 7, RULE 18 OF THE
1997 RULES OF CIVIL PROCEDURE AND NOW ITEM 1, A(8) OF
A.M. NO. 03-1-09 SC (JUNE 8, 2004).

III
 THE HONORABLE COURT OF APPEALS ERRED IN NOT
DISMISSING THE APPEAL FOR FAILURE OF THE
RESPONDENT TO FILE ON TIME ITS APPELLANTS BRIEF
AND TO SEPARATELY RULE ON THE PETITIONERS MOTION
TO DISMISS.

IV

THE HONORABLE COURT OF APPEALS ERRED IN

FINDING THAT THE CONTRACT BETWEEN THE PARTIES IS
ONE OF A FINANCIAL LEASE AND NOT OF A CONTRACT OF
SALE.

THE HONORABLE COURT OF APPEALS ERRED IN RULING

THAT THE PAYMENTS PAID BY THE PETITIONER TO THE
RESPONDENT ARE RENTALS AND NOT INSTALLMENTS
PAID FOR THE PURCHASE PRICE OF THE SUBJECT MOTOR
VEHICLES, HEAVY MACHINES AND EQUIPMENT.

VI

THE HONORABLE COURT OF APPEALS ERRED IN RULING

THAT THE PREVIOUS CONTRACT OF SALE INVOLVING THE
PICK-UP VEHICLE IS OF NO CONSEQUENCE.

VII

THE HONORABLE COURT OF APPEALS FAILED TO TAKE

INTO CONSIDERATION THAT THE CONTRACT OF LEASE, A
CONTRACT OF ADHESION, CONCEALED THE TRUE
INTENTION OF THE PARTIES, WHICH IS A CONTRACT OF
SALE.

VIII

THE HONORABLE COURT OF APPEALS ERRED IN RULING

THAT THE PETITIONER IS A LESSEE WITH INSURABLE
INTEREST OVER THE SUBJECT PERSONAL PROPERTIES.

343

VOL. 524, JUNE 8, 2007 343

Ong Lim Sing, Jr. vs. FEB Leasing & Finance Corporation

IX
THE HONORABLE COURT OF APPEALS ERRED IN
CONSTRUING THE INTENTIONS OF THE COURT A QUO IN
18
ITS USAGE OF THE TERM MERCHANTABILITY.

We affirm the ruling of the appellate court.

First, Lim can no longer question Galangs authority as
FEBs authorized representative in filing the suit against
Lim. Galang was the representative of FEB in the
proceedings before the trial court up to the appellate court.
Petitioner never placed in issue the validity of Galangs
representation before the trial and appellate courts. Issues
raised for the first time on appeal are barred by estoppel.
Arguments not raised in the original proceedings cannot be
considered on review; 19
otherwise, it would violate basic
principles of fair play.
Second, there is no legal basis for Lim to question the
authority of the CA to go beyond the matters agreed upon
during the pre-trial conference, or in not dismissing the
appeal for failure of FEB to file its brief on time, or in not
ruling separately on the petitioners motion to dismiss.
Courts have the prerogative to relax procedural rules of
even the most mandatory character, mindful of the duty to
reconcile both the need to speedily put an end to litigation
and the parties right to due process. In numerous cases,
this Court has allowed liberal construction of the rules
when to do so would 20
serve the demands of substantial
justice and equity. In Aguam v. Court of Appeals, the
Court explained:

The court has the discretion to dismiss or not to dismiss an

appellants appeal. It is a power conferred on the court, not a duty.
The discretion must be a sound one, to be exercised in accordance
with

_______________

18 Id., at pp. 41-42.

19 Cruz v. Fernando, Sr., G.R. No. 145470, December 9, 2005, 477 SCRA 182,
183.
20 Barnes v. Padilla, G.R. No. 160753, June 28, 2005, 461 SCRA 539.

344

344 SUPREME COURT REPORTS ANNOTATED

Ong Lim Sing, Jr. vs. FEB Leasing & Finance Corporation
the tenets of justice and fair play, having in mind the circumstances
obtaining in each case. Technicalities, however, must be avoided.
The law abhors technicalities that impede the cause of justice. The
courts primary duty is to render or dispense justice. A litigation is
not a game of technicalities. Lawsuits unlike duels are not to be
won by a rapiers thrust. Technicality, when it deserts its proper
office as an aid to justice and becomes its great hindrance and chief
enemy, deserves scant consideration from courts. Litigations must
be decided on their merits and not on technicality. Every party
litigant must be afforded the amplest opportunity for the proper
and just determination of his cause, free from the unacceptable plea
of technicalities. Thus, dismissal of appeals purely on technical
grounds is frowned upon where the policy of the court is to
encourage hearings of appeals on their merits and the rules of
procedure ought not to be applied in a very rigid, technical sense;
rules of procedure are used only to help secure, not override
substantial justice. It is a far better and more prudent course of
action for the court to excuse a technical lapse and afford the
parties a review of the case on appeal to attain the ends of justice
rather than dispose of the case on technicality and cause a grave
injustice to the parties, giving a false impression of speedy disposal
of cases while actually resulting in more delay, if not a miscarriage
21
of justice.

Third, while we affirm that the subject lease agreement is

a contract of adhesion, such a contract is not void per se. It
is as binding as any ordinary contract. A party who enters
into an 22
adhesion contract is free to reject the stipulations
entirely. If the terms thereof are accepted without
objection, then the contract serves as the law between the
parties.
In Section 23 of the lease contract, it was expressly
stated that:

SECTION 23. ENTIRE AGREEMENT; SEVERABILITY CLAUSE

23.1. The LESSOR and the LESSEE agree this instrument
constitute the entire agreement between them, and that no repre-

_______________

21 G.R. No. 137672, May 31, 2000, 332 SCRA 789, 790.
22 Fabrigas v. San Francisco Del Monte, Inc., G.R. No. 152346, November 25,
2005, 476 SCRA 263.

345
 VOL. 524, JUNE 8, 2007 345
Ong Lim Sing, Jr. vs. FEB Leasing & Finance Corporation

sentations have been made other than as set forth herein. This
Agreement shall not be amended or altered in any manner, unless
such amendment be made in writing and signed by the parties
hereto.

Petitioners claim that the real intention of the parties was

a contract of sale of personal property on installment basis
is more likely a mere afterthought in order to defeat the
rights of the respondent.
The Lease Contract with corresponding Lease Schedules
with Delivery and Acceptance Certificates is, in point of
fact, a financial lease within the purview of R.A. No. 8556.
Section 3(d) thereof defines financial leasing as:

[A] mode of extending credit through a non-cancelable lease

contract under which the lessor purchases or acquires, at the
instance of the lessee, machinery, equipment, motor vehicles,
appliances, business and office machines, and other movable or
immovable property in consideration of the periodic payment by the
lessee of a fixed amount of money sufficient to amortize at least
seventy (70%) of the purchase price or acquisition cost, including
any incidental expenses and a margin of profit over an obligatory
period of not less than two (2) years during which the lessee has the
right to hold and use the leased property 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 property
from the owner-lessor at the end of the lease contract.

FEB leased the subject equipment and motor vehicles to

JVL in consideration of a monthly periodic payment of
P170,494.00. The periodic payment by petitioner is
sufficient to amortize at least 70% of the purchase price or
acquisition cost of the said movables in accordance with the
Lease Schedules with Delivery and Acceptance Certificates.
The basic purpose of a financial leasing transaction is to
enable the prospective buyer of equipment, who is unable
to pay for such equipment in cash in one lump sum, to
lease such equipment in the meantime for his use, at a
fixed rental sufficient to

346
346 SUPREME COURT REPORTS ANNOTATED
Ong Lim Sing, Jr. vs. FEB Leasing & Finance Corporation

amortize at least 70% of the acquisition cost (including the

expenses and a margin of profit for the financial lessor)
with the expectation that at the end of the lease period the
buyer/financial lessee will be 23able to pay any remaining
balance of the purchase price.
The allegation of petitioner that the rent for the use of
each movable constitutes the value of the vehicle or
equipment leased is of no moment. The law on financial
lease does not prohibit such a circumstance and this alone
does not make the transaction between the parties a sale of
personal property on installment. In fact, the value of the
lease, usually constituting the value or amount of the
property involved, is a benefit allowed by law to the lessor
for the use of the property by the lessee for the duration of
the lease. It is recognized that the value of these movables
depreciates through wear and tear upon24 use by the lessee.
In Beltran v. PAIC Finance Corporation, we stated that:

Generally speaking, a financing company is not a buyer or seller of

goods; it is not a trading company. Neither is it an ordinary leasing
company; it does not make its profit by buying equipment and
repeatedly leasing out such equipment to different users thereof.
But a financial lease must be preceded by a purchase and sale
contract covering the equipment which becomes the subject matter
of the financial lease. The financial lessor takes the role of the
buyer of the equipment leased. And so the formal or documentary
tie between the seller and the real buyer of the equipment, i.e., the
financial lessee, is apparently severed. In economic reality, however,
that relationship remains. The sale of the equipment by the
supplier thereof to the financial lessor and the latters legal
ownership thereof are intended to secure the repayment over time
of the purchase price of the equipment, plus financing charges,
through the payment of lease rentals; that legal title is the upfront
security held by the financial

_______________

23 Beltran v. PAIC Finance Corporation, G.R. No. 83113, May 19, 1992, 209
SCRA 118.
24 Id.

347
 VOL. 524, JUNE 8, 2007 347
Ong Lim Sing, Jr. vs. FEB Leasing & Finance Corporation

lessor, a security probably superior in some instances to a chattel

25
mortgagees lien.

Fourth, the validity of Lease No. 27:95:20 between FEB

and JVL should be upheld. JVL entered into the lease
contract with full knowledge of its terms and conditions.
The contract was in force for more than four years. Since
its inception on March 9, 1995, JVL and Lim never
questioned its provisions. They only attacked the validity of
the contract after they were judicially made to answer for
their default in the payment of the agreed rentals.
It is settled that the parties are free to agree to such
stipulations, clauses, terms, and conditions as they may
want to include in a contract. As long as such agreements
are not contrary to law, morals, good customs, public policy,
or public
26
order, they shall have the force of law between the
parties. Contracting parties may stipulate on terms and
conditions as they 27may see fit and these have the force of
law between them. 28
The stipulation in Section 14 of the lease contract, that
the equipment shall be insured at the cost and expense of
the lessee against loss, damage, or destruction from fire,
theft, accident, or other insurable risk for the full term of
the lease, is a binding and valid stipulation. Petitioner, as a
lessee, has an insurable interest in the equipment and
motor vehicles leased. Section 17 of the Insurance Code
provides that the measure of an insurable interest in
property is the extent to which the insured might be
damnified by loss or injury thereof. It cannot be denied that
JVL will be directly damni-

_______________

25 Id., at pp. 118-119.

26 Herrera v. Petrophil Corporation, G.R. No. L-48349, December 29,
1986, 146 SCRA 389.
27 Philippine Communications Satellite Corporation v. Globe Telecom,
Inc., G.R. No. 147324, May 25, 2004, 429 SCRA 153.
28 Rollo, p. 123.

348
348 SUPREME COURT REPORTS ANNOTATED
Ong Lim Sing, Jr. vs. FEB Leasing & Finance Corporation

fied in case of loss, damage, or destruction of any of the

properties leased.
Likewise, the stipulation in Section 9.1 of the lease
contract that the lessor does not warrant the
merchantability of the equipment is a valid stipulation.
Section 9.1 of the lease contract is stated as:

9.1 IT IS UNDERSTOOD BETWEEN THE PARTIES THAT THE

LESSOR IS NOT THE MANUFACTURER OR SUPPLIER OF THE
EQUIPMENT NOR THE AGENT OF THE MANUFACTURER OR
SUPPLIER THEREOF. THE LESSEE HEREBY
ACKNOWLEDGES THAT IT HAS SELECTED THE EQUIPMENT
AND THE SUPPLIER THEREOF AND THAT THERE ARE NO
WARRANTIES, CONDITIONS, TERMS, REPRESENTATION OR
INDUCEMENTS, EXPRESS OR IMPLIED, STATUTORY OR
OTHERWISE, MADE BY OR ON BEHALF OF THE LESSOR AS
TO ANY FEATURE OR ASPECT OF THE EQUIPMENT OR ANY
PART THEREOF, OR AS TO ITS FITNESS, SUITABILITY,
CAPACITY, CONDITION OR MERCHANTABILITY, NOR AS TO
WHETHER THE EQUIPMENT WILL MEET THE
REQUIREMENTS OF ANY LAW, RULE, SPECIFICATIONS OR
CONTRACT WHICH PROVIDE FOR SPECIFIC MACHINERY OR
29
APPARATUS OR SPECIAL METHODS.

In the financial lease agreement, FEB did not assume

responsibility as to the quality, merchantability, or capacity
of the equipment. This stipulation provides that, in case of
defect of any kind that will be found by the lessee in any of
the equipment, recourse should be made to the
manufacturer. The financial lessor, being a financing
company, i.e., an extender of credit rather than an ordinary
equipment rental company, does not extend a warranty of
the fitness of the equipment for any particular use. Thus,
the financial lessee was precisely in a position to enforce
such warranty directly against the supplier of the
equipment and not against the

_______________

29 Id., at pp. 122-123.

349
 VOL. 524, JUNE 8, 2007 349
Ong Lim Sing, Jr. vs. FEB Leasing & Finance Corporation

financial lessor. We find nothing contra legem or contrary

30
to
public policy in such a contractual arrangement.
Fifth, petitioner further proffers the view that the real
intention of the parties was to enter into a contract of sale
on installment in the same manner that a previous
transaction between the parties over a 1995 Mitsubishi L-
200 Strada DCPick-Up was initially covered by an
agreement denominated as a lease and eventually became
the subject of a Deed of Absolute Sale.
We join the CA in rejecting this view because to allow
the transaction involving the pick-up to be read into the
terms of the lease agreement would expand the coverage of
the agreement,
31
in violation of Article 1372 of the New Civil
Code. The lease contract subject of the complaint speaks
only of a lease. Any agreement between the parties after
the lease contract has ended is a different transaction
altogether and should not be included as part of the lease.
Furthermore, it is a cardinal rule in the interpretation of
contracts that if the terms of a contract are clear and leave
no doubt as to the intention of the contracting parties, the
literal meaning of its stipulations shall control. No amount
of extrinsic aid 32
is necessary in order to determine the
parties intent.
WHEREFORE, in the light of all the foregoing, the
petition is DENIED. The Decision of the CA in CA-G.R. CV
No. 77498 dated March 15, 2005 and Resolution dated May
23, 2005 are AFFIRMED. Costs against petitioner.

_______________

30 Beltran v. PAIC Finance Corporation, supra, p. 119.

31 Article 1372. However general the terms of a contract may be, they
shall not be understood to comprehend things that are distinct and cases
that are different from those upon which the parties intended to agree.
32 Inter-Asia Services Corp. (International) v. Court of Appeals, G.R.
No. 106427, October 21, 1996, 263 SCRA 417.

350

350 SUPREME COURT REPORTS ANNOTATED

Pasamba vs. National Labor Relations Commission
 SO ORDERED.

Ynares-Santiago (Chairperson), Austria-Martinez

and Chico-Nazario, JJ., concur.

Petition denied.

Notes.The Supreme Court can take judicial notice of

the pernicious practice involving virtual contracts of
adhesion entrapping innocent subdivision buyers through
default clauses guaranteeing huge monetary windfalls for
the developers in the event their buyers default by failing
to come up with certain requirements. (Realty Exchange
Venture Corporation vs. Sendino, 233 SCRA 665 [1994])
Financial leasing or financing lease are not new to
the commercial world and have been recognized as genuine
or legitimate contracts, accorded with statutory and
administrative recognition. (Cebu Contractors Consortium
Co. vs. Court of Appeals, 407 SCRA 154 [2003])

o0o

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