BA V IAC

G.R. No.
76497 January 20, 1993 An experienced businessman who signs

BA FINANCE CORPORATION v important legal papers cannot disclaim the
HON. INTERMEDIATE APPELLATE COURT, RENE consequent liabilities therefor after being a
TAN signatory thereon.
Petitioner lends money to a customer on the condition The transaction between the petitioner and the private
that a deed of sale is executed in its favor covering respondent is what is more popularly known as a
some personal property and thereafter the petitioner "financing lease" under the Financing Company Act
leases back the said property to the same customer for (Republic Act No. 5980, as amended).
his own use.
A financing lease may be seen to be a
Private respondent is the proprietor-manager of the contract sui generis, possessing some
Martina Industries, allegedly loaned from the petitioner but not necessarily all of the elements
with 1975 Volkswagen Sedan as collateral. After the of an ordinary or civil law lease. Thus,
loan was approved, he received the sum of legal title to the equipment leased is
P15,913.06; lodged in the financial lessor. The
financial lessee is entitled to the
Edmundo S. Bacay, then assistant vice-president of the possession and use of the leased
petitioner demanded payment of P2,009.34 as rentals equipment. At the same time, the
due for use of the car in question, otherwise, the financial lessee is obligated to make
private respondent had to relinquish possession of the periodic payments denominated as
same in favor of the petitioner; lease rentals, which enable the
financial lessor to recover the
purchase price of the equipment which
A complaint for fraud and damages was filed by private
had been paid to the supplier thereof.
respondent.
If it were true that what the private respondent intended

Petitioner alleged that the contract entered into
was a contract of loan with the petitioner whereby
between the corporation and one Reinaldo Tan was
Volkswagen would serve as a collateral, there is no
one of lease covering the subject car; that there was
logical explanation for the fact that the private
no unlawful taking of the subject car since it was
respondent had been paying monthly rentals based on
voluntarily surrendered after the private respondent
the subject contract of lease signed by the petitioner
failed and refused to pay the monthly rental; that the
and the private respondent. (terms of the Contract of
surrender was pursuant to the provisions of the
Lease call for 24 monthly rental payment of P991.94
Contract of Lease.
each)
Lower court rendered judgment in favor of the private
Paragraph 15 of the subject contract of lease
respondent.
provides that the lessor (petitioner) is given the option
to cancel the contract before the expiration of its term if
Petitioner argues that the document in question cannot the lessee (private respondent) fails to pay any rental
be mistaken for any agreement other than a lease when it falls due and such option shall be exercised by
contract as its provisions clearly expressed the terms serving a written notice upon the lessee at his last
previously discussed by parties. known address, and that upon cancellation of the
contract, the lessee is obligated to return the
ISSUE: equipment leased at his own expense.
Whether or not the appellate court correctly The petitioner in this case complied with the requisite
ordered the reformation of the subject lease notice stated in the provision of the lease contract and
contract to one of simple loan with the car being was able to recover possession of the subject car after
posted by way of chattel mortgage (Lease versus the private respondent voluntarily surrendered the
Loan) subject car.
RULING: NO Article 1359 of the Civil Code provides, in part, that:
Spouses Tan affixed their signatures on a document Art. 1359. When, there having been a
with its caption "Contract of Lease.” Moreover, meeting of the minds of the parties to a
testimony of the private respondent disclosed that he contract, their true intention is not
could not have signed both the contract of lease and expressed in the instrument purporting
the deed of absolute sale without having been aware of to embody the agreement, by reason
their true nature.
of mistake, fraud, inequitable conduct
or accident, one of the parties may ask
for the reformation of the instrument to
the end that such true intention may be
expressed.
In the case at bar, there is no dispute that there was a

meeting of the minds with respect to the arrangement
whereby the private respondent borrows money
from the petitioner and the subject car serves as
security for the payment of the loaned amount.
Private respondent had insisted that what he merely

intended was to secure a loan with his Volkswagen
Sedan as collateral.
Petitioner by virtue of the private respondent's loan

application, prepared the necessary papers which
included a Deed of Absolute Sale of the subject car in
its favor in order that its legal ownership shall serve as
the security for the repayment of the amount being
loaned through the payment of monthly rentals under a
Contract of Lease
The private respondent has not succeeded in proving

the above circumstances to avail of the remedy of
reformation.
Two kinds of leasing —1. purchase lease-

back, 2. straight lease.
A straight lease is where somebody will buy or

would like to acquire something which has not
yet been transferred to him in ownership or
possession. And in the finance company, we
buy the unit for that particular person and lease
the vehicle or the unit to that borrower.
A purchase lease-back is where a borrower

already owns or has already acquired
possession of the unit and would like to have it
re-financed, in his case, I am using re-finance
as a general term as applied to the finance
industry. And what we do in this kind of
transaction is we purchase this unit from that
borrower and we lease it back to him.
The presumption that an instrument sets out the true

agreement of the parties thereto and that it was
executed for valuable consideration remains. The
private respondent was not able to overturn the
presumption of validity of the Absolute Deed of Sale.
Petition granted.

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G.R. No.

76497 January 20, 1993 An experienced businessman who signs

If it were true that what the private respondent intended

RULING: NO Article 1359 of the Civil Code provides, in part, that:

In the case at bar, there is no dispute that there was a

Private respondent had insisted that what he merely

Petitioner by virtue of the private respondent's loan

The private respondent has not succeeded in proving

Two kinds of leasing —1. purchase lease-

A straight lease is where somebody will buy or

A purchase lease-back is where a borrower

The presumption that an instrument sets out the true

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