VOL.

527, JULY 12, 2007 405

PCI Leasing and Finance, Inc. vs. Giraffe-X Creative Imaging, Inc.
G.R. No. 142618. July 12, 2007. *

PCI LEASING AND FINANCE, INC., petitioner, vs.GIRAFFE-X

CREATIVE IMAGING, INC., respondent.
Financial Leasing; Financing Company Act (R.A. No. 5980), as last amended
by R.A. No. 8556 (Financing Company Act of 1998); R.A. No. 5980, in its original
shape and as amended, partakes of a supervisory or regulatory legislation, merely
providing a regulatory framework for the organization, registration, and
regulation of the operations of financing companies.—R.A. No. 5980, in its
original shape and as amended, partakes of a supervisory or regulatory
legislation, merely providing a regulatory framework for the organization,
registration, and regulation of the operations of financing companies. As couched,
it does not specifically define the rights and obligations of parties to a financial
leasing arrangement. In fact, it does not go beyond defining commercial or
transactional financial leasing and other financial leasing concepts. Thus, the
relevancy of Article 18 of the Civil Code which reads: Article 18.—In matters
which are governed by . . . special laws, their deficiency shall be supplied by the
provisions of this [Civil] Code.
Same; Words and Phrases; “Financial Leasing,” Defined.—The Court can
allow that the underlying lease agreement has the earmarks or made to appear
as a financial leasing, a term defined in Section 3(d) of R.A. No. 8556 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,
. . . 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 . . . 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.
_______________

* FIRST DIVISION.
406
Same; R.A. No. 8556 was, in fact, precisely enacted to regulate financing
companies’ operations with the end in view of strengthening their critical role in
providing credit and services to small and medium enterprises and to curtail acts
and practices prejudicial to the public interest, in general, and to their clienteles,
in particular.—A financing arrangement has a purpose which is at once practical
and salutary. R.A. No. 8556 was, in fact, precisely enacted to regulate financing
companies’ operations with the end in view of strengthening their critical role in
providing credit and services to small and medium enterprises and to curtail acts
and practices prejudicial to the public interest, in general, and to their clienteles,
in particular. As a regulated activity, financing arrangements are not meant to
quench only the thirst for profit. They serve a higher purpose, and R.A. No. 8556
has made that abundantly clear.
Same; Since there is nothing in R.A. No. 8556 which defines the rights and
obligations, as between each other, of the financial lessor and the lessee, the
courts, therefore, in determining the respective responsibilities of the parties to the
agreement, must train a keen eye on the attendant facts and circumstances of the
case in order to ascertain the intention of the parties, in relation to the law and the
written agreement.—We stress, however, that there is nothing in R.A. No. 8556
which defines the rights and obligations, as between each other, of the financial
lessor and the lessee. In determining the respective responsibilities of the parties
to the agreement, courts, therefore, must train a keen eye on the attendant facts
and circumstances of the case in order to ascertain the intention of the parties, in
relation to the law and the written agreement. Likewise, the public interest and
policy involved should be considered. It may not be amiss to state that, normally,
financing contracts come in a standard prepared form, unilaterally thought up
and written by the financing companies requiring only the personal
circumstances and signature of the borrower or lessee; the rates and other
important covenants in these agreements are still largely imposed unilaterally by
the financing companies. In other words, these agreements are usually one-sided
in favor of such companies. A perusal of the lease agreement in question exposes
the many remedies available to the petitioner, while there are only the standard
contractual prohibitions against the respondent. This is characteristic of
standard printed form contracts.
407
Same; Demand Letters; Statutory Construction; Certainly a lawyer would
know that a world of difference exists between “and” and “or” in the manner that
the word is employed in a demand letter; A rule in statutory construction is that
the word “or” is a disjunctive term signifying dissociation and independence of one
thing from other things enumerated unless the context requires a different
interpretation.—Evidently, the letter did not make a demand for the payment of
the P8,248,657.47 AND the return of the equipment; only either one of the two
was required. The demand letter was prepared and signed by Atty. Florecita R.
Gonzales, presumably petitioner’s counsel. As such, the use of “or” instead of
“and” in the letter could hardly be treated as a simple typographical error,
bearing in mind the nature of the demand, the amount involved, and the fact
that it was made by a lawyer. Certainly Atty. Gonzales would have known that a
world of difference exists between “and” and “or” in the manner that the word
was employed in the letter. A rule in statutory construction is that the word “or”
is a disjunctive term signifying dissociation and independence of one thing from
other things enumerated unless the context requires a different interpretation.
In its elementary sense, “or,” as used in a statute, is a disjunctive article
indicating an alternative. It often connects a series of words or propositions
indicating a choice of either. When “or” is used, the various members of the
enumeration are to be taken separately. The word “or” is a disjunctive term
signifying disassociation and independence of one thing from each of the other
things enumerated.
 Same; Recto Law (Art. 1485, Civil Code); Where a lease agreement is in
reality a lease with an option to purchase an equipment to which Article 1485 of
the Civil Code applies.—The demand could only be that the respondent need not
return the equipment if it paid the P8,248,657.47 outstanding balance,
ineluctably suggesting that the respondent can keep possession of the equipment
if it exercises its option to acquire the same by paying the unpaid balance of the
purchase price. Stated otherwise, if the respondent was not minded to exercise
its option of acquiring the equipment by returning them, then it need not pay the
outstanding balance. This is the logical import of the letter: that the transaction
in this case is a lease in name only. The so-called monthly rentals are in truth
monthly amortizations of the price of the leased office equipment. On the whole,
then, we rule, as did the trial court, that the PCI LEASINGGIRAFFE lease
agreement is in reality a lease with an option to
408
purchase the equipment. This has been made manifest by the actions of the
petitioner itself, foremost of which is the declarations made in its demand letter
to the respondent. There could be no other explanation than that if the
respondent paid the balance, then it could keep the equipment for its own; if not,
then it should return them. This is clearly an option to purchase given to the
respondent. Being so, Article 1485 of the Civil Code should apply.
Same; Same; The Supreme Court has long been aware of the practice of
vendors of personal property of denominating a contract of sale on installment as
one of lease to prevent the ownership of the object of the sale from passing to the
vendee until and unless the price is fully paid.—The present case reflects a
situation where the financing company can withhold and conceal—up to the last
moment—its intention to sell the property subject of the finance lease, in order
that the provisions of the Recto Law may be circumvented. It may be, as
petitioner pointed out, that the basic “lease agreement” does not contain a
“purchase option” clause. The absence, however, does not necessarily argue
against the idea that what the parties are into is not a straight lease, but a lease
with option to purchase. This Court has, to be sure, long been aware of the
practice of vendors of personal property of denominating a contract of sale on
installment as one of lease to prevent the ownership of the object of the sale from
passing to the vendee until and unless the price is fully paid.
Same; Same; Replevin; The lessor in a lease with option to purchase, in
choosing, through replevin, to deprive the lessee of possession of the leased
equipment, waived its right to bring an action to recover unpaid rentals on the
said leased items; The remedies provided for in Article 1484 of the Civil Code are
alternative, not cumulative—the exercise of one bars the exercise of the others.—In
choosing, through replevin, to deprive the respondent of possession of the leased
equipment, the petitioner waived its right to bring an action to recover unpaid
rentals on the said leased items. Paragraph (3), Article 1484 in relation to Article
1485 of the Civil Code, which we are hereunder re-reproducing, cannot be any
clearer. As we articulated in Elisco Tool Manufacturing Corp. v. Court of
Appeals, 307 SCRA 731 (1999), the remedies provided for in Article 1484 of the
Civil Code are alternative, not cumulative. The exercise of one bars the exercise
of the others. This limitation applies to contracts purporting to be leases of
personal property with option to buy by virtue
409
of the same Article 1485. The condition that the lessor has deprived the
lessee of possession or enjoyment of the thing for the purpose of applying Article
1485 was fulfilled in this case by the filing by petitioner of the complaint for a
sum of money with prayer for replevin to recover possession of the office
equipment. By virtue of the writ of seizure issued by the trial court, the
petitioner has effectively deprived respondent of their use, a situation which, by
force of the Recto Law, in turn precludes the former from maintaining an action
for recovery of “accrued rentals” or the recovery of the balance of the purchase
price plus interest.
Same; Same; Human Relations; The imperatives of honest dealings given
prominence in the Civil Code under the heading, Human Relations, provide
another reason why we must hold the petitioner to its word as embodied in its
demand letter; The Recto Law was precisely enacted to prevent the kind of
aberration where the financial lessor would end up making an instant killing out
of the transaction at the expense of its client.—The imperatives of honest dealings
given prominence in the Civil Code under the heading: Human Relations, provide
another reason why we must hold the petitioner to its word as embodied in its
demand letter. Else, we would witness a situation where even if the respondent
surrendered the equipment voluntarily, the petitioner can still sue upon its
claim. This would be most unfair for the respondent. We cannot allow the
petitioner to renege on its word. Yet more than that, the very word “or” as used
in the letter conveysdistinctly its intention not to claim both the unpaid balance
and the equipment. It is not difficult to discern why: if we add up the amounts
paid by the respondent, the residual value of the property recovered, and the
amount claimed by the petitioner as sued upon herein (for a total
of P21,779,029.47), then it would end up making an instant killing out of the
transaction at the expense of its client, the respondent. The Recto Law was
precisely enacted to prevent this kind of aberration. Moreover, due to
considerations of equity, public policy and justice, we cannot allow this to
happen. Not only to the respondent, but those similarly situated who may fall
prey to a similar scheme.

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.

410
Platon, Martinez, Flores, San Pedro and Leaño for petitioner.
Cruz, Cruz and Navarro III for respondent.

GARCIA, J.:

On a pure question of law involving the application of Republic Act (R.A.)

No. 5980, as amended by R.A. No. 8556, in relation to Articles 1484 and
1485 of the Civil Code, petitioner PCI Leasing and Finance, Inc. (PCI
LEASING, for short) has directly come to this Court via this petition for
review under Rule 45 of the Rules of Court to nullify and set aside the
Decision and Resolution dated December 28, 1998 and February 15, 2000,
respectively, of the Regional Trial Court (RTC) of Quezon City, Branch
227, in its Civil Case No. Q-98-34266, a suit for a sum of money and/or
personal property with prayer for a writ of replevin, thereat instituted by
the petitioner against the herein respondent, Giraffe-X Creative Imaging,
Inc. (GIRAFFE, for brevity). The facts:
On December 4, 1996, petitioner PCI LEASING and respondent
GIRAFFE entered into a Lease Agreement, whereby the former leased out
1

to the latter one (1) set ofSilicon High Impact Graphics and accessories
worth P3,900,00.00 and one (1) unit of Oxberry Cinescan 6400-10worth
P6,500,000.00. In connection with this agreement, the parties
subsequently signed two (2) separate documents, each denominated
as Lease Schedule. Likewise forming parts of the basic lease agreement
2

were two (2) separate documents denominated Disclosure Statements of

Loan/Credit Transaction (Single Payment or Installment Plan) that 3

GIRAFFE also executed for each of the leased equipment. These disclosure
statements
inter alia described GIRAFFE, vis-à-vis the two aforementioned
equipment, as the “borrower” who acknowledged the “net proceeds of the
loan,” the “net amount to be financed,” the “financial charges,” the “total
installment payments” that it must pay monthly for thirty-six (36) months,
exclusive of the 36% per annum “late payment charges.” Thus, for
the Silicon High Impact Graphics, GIRAFFE agreed to pay P116,878.21
monthly, and for Oxberry Cinescan, P181.362.00 monthly. Hence, the total
amount GIRAFFE has to pay PCI LEASING for 36 months of the lease,
exclusive of monetary penalties imposable, if proper, is as indicated below:
P116,878.21 @ month (for the Silicon High
Impact Graphics) x 36 months = P 4,207,615.56
-- PLUS-
P181,362.00 @ month (for theOxberry
Cinescan) x 36 months = P 6,529,032.00
Total Amount to be paid by GIRAFFE
(or the NET CONTRACT AMOUNT) P 10,736,647.56
By the terms, too, of the Lease Agreement, GIRAFFE undertook to remit
the amount of P3,120,000.00 by way of “guaranty deposit,” a sort of
performance and compliance bond for the two equipment. Furthermore,
the same agreement embodied a standard acceleration clause, operative in
the event GIRAFFE fails to pay any rental and/or other accounts due.
A year into the life of the Lease Agreement, GIRAFFE defaulted in its
monthly rental-payment obligations. And following a three-month default,
PCI LEASING, through one Atty. Florecita R. Gonzales, addressed a
formal pay-or-surrenderequipment type of demand letter dated February
4

24, 1998 to GIRAFFE.

 The demand went unheeded.
Hence, on May 4, 1998, in the RTC of Quezon City, PCI LEASING
instituted the instant case against GIRAFFE. In its complaint, docketed5

in said court as Civil Case No. 9834266 and raffled to Branch 227 thereof, 6

PCI LEASING prayed for the issuance of a writ of replevin for the
recovery of the leased property, in addition to the following relief:
“2. After trial, judgment be rendered in favor of plaintiff [PCI LEASING] and
against the defendant [GIRAFFE], as follows:

1. a.Declaring the plaintiff entitled to the possession of the subject

properties;
2. b.Ordering the defendant to pay the balance of rental/obligation in the
total amount of P8,248,657.47 inclusive of interest and charges thereon;
3. c.Ordering defendant to pay plaintiff the expenses of litigation and cost of
suit. . . .” (Words in bracket added.)

Upon PCI LEASING’s posting of a replevin bond, the trial court issued a
writ of replevin, paving the way for PCI LEASING to secure the seizure
and delivery of the equipment covered by the basic lease agreement.
Instead of an answer, GIRAFFE, as defendant a quo, filed a Motion to
Dismiss, therein arguing that the seizure of the two (2) leased equipment
stripped PCI LEASING of its cause of action. Expounding on the point,
GIRAFFE argues that, pursuant to Article 1484 of the Civil Code on
installment sales of personal property, PCI LEASING is barred from
further pursuing any claim arising from the lease agreement and the
companion contract documents, adding that the agreement between the
parties is in reality a lease of movables with option to buy. The given
situation, GIRAFFE continues, squarely brings into applicable play
Articles 1484 and 1485 of
the Civil Code, commonly referred to as the Recto Law. The cited articles
respectively provide:
“ART. 1484. In a contract of sale of personal property the price of which is
payable in installments, the vendor may exercise any of the following remedies:

1. (1)Exact fulfillment of the obligation, should the vendee fail to pay;

2. (2)Cancel the sale, should the vendee’s failure to pay cover two or more
installments;
3. (3)Foreclose the chattel mortgage on the thing sold, if one has
been constituted, should the vendee’s failure to pay cover two or more
installments. In this case, he shall have no further action against the
purchaser to recover any unpaid balance of the price. Any
agreement to the contrary shall be void.” (Emphasis added.)

“ART. 1485. The preceding article shall be applied to contracts purporting to

be leases of personal property with option to buy, when the lessor has deprived
the lessee of the possession or enjoyment of the thing.”
It is thus GIRAFFE’s posture that the aforequoted Article 1484 of the
Civil Code applies to its contractual relation with PCI LEASING because
the lease agreement in question, as supplemented by the schedules
documents, is really a lease with option to buy under the companion
article, Article 1485. Consequently, so GIRAFFE argues, upon the seizure
of the leased equipment pursuant to the writ of replevin, which seizure is
equivalent to foreclosure, PCI LEASING has no further recourse against
it. In brief, GIRAFFE asserts in its Motion to Dismiss that the civil
complaint filed by PCI LEASING is proscribed by the application to the
case of Articles 1484 and 1485, supra, of the Civil Code.
In its Opposition to the motion to dismiss, PCI LEASING maintains
that its contract with GIRAFFE is astraight lease without an option to
buy. Prescinding therefrom, PCI LEASING rejects the applicability to the
suit of Article 1484 in relation to Article 1485 of the Civil Code, claiming
that, under
the terms and conditions of the basic agreement, the relationship between
the parties is one between an ordinary lessor and an ordinary lessee.
In a decision dated December 28, 1998, the trial court granted
7

GIRAFFE’s motion to dismiss mainly on the interplay of the following

premises: 1) the lease agreement package, as memorialized in the contract
documents, is akin to the contract contemplated in Article 1485 of the
Civil Code, and 2) GIRAFFE’s loss of possession of the leased equipment
consequent to the enforcement of the writ of replevin is “akin to
foreclosure, . . . the condition precedent for application of Articles 1484
and 1485 [of the Civil Code].” Accordingly, the trial court dismissed Civil
Case No. Q-98-34266, disposing as follows:
“WHEREFORE, premises considered, the defendant [GIRAFFE] having
relinquished any claim to the personal properties subject of replevin which are
now in the possession of the plaintiff [PCI LEASING], plaintiff is DEEMED fully
satisfied pursuant to the provisions of Articles 1484 and 1485 of the New Civil
Code. By virtue of said provisions, plaintiff is DEEMED estopped from further
action against the defendant, the plaintiff having recovered thru (replevin) the
personal property sought to be payable/leased on installments, defendants being
under protection of said RECTO LAW. In view thereof, this case is hereby
DISMISSED.”
With its motion for reconsideration having been denied by the trial court
in its resolution of February 15, 2000, petitioner has directly come to this
8

Court via this petition for review raising the sole legal issue of whether or
not the underlying Lease Agreement, Lease Schedules and the Disclosure
Statements that embody the financial leasing arrangement between the
parties are covered by and subject to the consequences of Articles 1484
and 1485 of the New Civil Code.
_______________

7 Rollo, pp. 24-27.

8 Id., at p. 29.
As in the court below, petitioner contends that the financial leasing
arrangement it concluded with the respondent represents a straight lease
covered by R.A. No. 5980, theFinancing Company Act, as last amended by
R.A. No. 8556, otherwise known as Financing Company Act of 1998, and is
outside the application and coverage of the Recto Law. To the petitioner,
R.A. No. 5980 defines and authorizes its existence and business.
The recourse is without merit.
R.A. No. 5980, in its original shape and as amended, partakes of a
supervisory or regulatory legislation, merely providing a regulatory
framework for the organization, registration, and regulation of the
operations of financing companies. As couched, it does not specifically
define the rights and obligations of parties to a financial leasing
arrangement. In fact, it does not go beyond defining commercial or
transactional financial leasing and other financial leasing concepts. Thus,
the relevancy of Article 18 of the Civil Code which reads:
“Article 18.—In matters which are governed by . . . special laws, their deficiency
shall be supplied by the provisions of this [Civil] Code.”
Petitioner foists the argument that the Recto Law, i.e., the Civil Code
provisions on installment sales of movable property, does not apply to a
financial leasing agreement because such agreement, by definition, does
not confer on the lessee the option to buy the property subject of the
financial lease. To the petitioner, the absence of an option-to-buy
stipulation in a financial leasing agreement, as understood under R.A. No.
8556, prevents the application thereto of Articles 1484 and 1485 of the
Civil Code.
We are not persuaded.
The Court can allow that the underlying lease agreement has the
earmarks or made to appear as a financial leasing, a term defined in
9

Section 3(d) of R.A. No. 8556 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, . . . 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 . . . 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.”
In its previous holdings, however, the Court, taking into account the
following mix: the imperatives of equity, the contractual stipulations in
question and the actuations of parties vis-à-vis their contract, treated
disguised transactions technically tagged as financing lease, like here, as
creating a different contractual relationship. Notable among the Court’s
decisions because of its parallelism with this case is BA Finance
Corporation v. Court of Appeals which involved a motor vehicle. Thereat,
10
the Court has treated a purported financial lease as actually a sale of a
movable property on installments and prevented recovery beyond the
buyer’s arrearages. Wrote the Court in BA Finance:
The transaction involved . . . is one of a “financial lease” or“financial
leasing,” where a financing company would, in effect, initially purchase
a mobile equipment and turn around to lease it to a client who gets, in
addition, an option to purchase the property at the expiry of the lease
period. x x x.
The pertinent provisions of [RA] 5980, thus implemented, read:
“ ‘Financing companies,’ . . . are primarily organized for the purpose of extending credit
facilities to consumers . . . either by . . . leasing of motor vehicles, . . . and office machines
and equipment, . . . and other movable property.”
“ ‘Credit’ shall mean any loan, . . . any contract to sell, or sale or contract of sale of
property or service, . . . under which part or all of the price is payable subsequent to the
making of such sale or contract; any rental-purchase contract; . . . .”;
The foregoing provisions indicate no less than a mere financing scheme
extended by a financing company to a client in acquiring a motor vehicle and
allowing the latter to obtain the immediate possession and use thereof pending
full payment of the financial accommodation that is given.
In the case at bench, x x x. [T]he term of the contract [over a motor
vehicle]was for thirty six (36) months at a “monthly rental” . . . (P1,689.40), or for
a total amount of P60,821.28. The contract also contained [a] clause [requiring
the Lessee to give a guaranty deposit in the amount of P20,800.00] x x x
After the private respondent had paid the sum of P41,670.59, excluding the
guaranty deposit of P20,800.00, he stopped further payments. Putting the two
sums together, the financing company had in its hands the amount of P62,470.59
as against the total agreed “rentals” of P60,821.28 or an excess of P1,649.31.
The respondent appellatecourt considered it only just and equitable for the
guaranty deposit made by the private respondent to be applied to his arrearages
and thereafter to hold the contract terminated. Adopting the ratiocination of the
court aquo, the appellate court said:
x x x In view thereof, the guaranty deposit of P20,800.00 made by the defendant should
and must be credited in his favor, in the interest of fairness, justice and equity. The
plaintiff should not be allowed to unduly enrich itself at the expense of the
defendant. xxx This is even more compelling in this case where although the
transaction, on its face, appear ostensibly, to be a contract of lease, it is
actually a financing agreement, with the plaintiff financing the purchase of
defendant’s automobile . . . . The
Court is constrained, in the interest of truth and justice, to go into this aspect of the
transaction between the plaintiff and the defendant . . . with all the facts
and circumstances existing in this case, and which the court must consider in deciding
the case, if it is to decide the case according to all the facts. x x x.
xxx xxx xxx
Considering the factual findings of both the court a quo and the appellate
court, the only logical conclusion is that the private respondent did opt,
as he has claimed, to acquire the motor vehicle, justifying then the
application of the guarantee deposit to the balance still due and
obligating the petitioner to recognize it as an exercise of the option by
the private respondent. The result would thereby entitle said
respondent to the ownership and possession of the vehicle as the buyer
thereof. We, therefore, see no reversible error in the ultimate judgment of the
appellate court.” (Italics in the original; underscoring supplied and words in
11

bracket added.)
In Cebu Contractors Consortium Co. v. Court of Appeals, the Court viewed
12

and thus declared a financial lease agreement as having been simulated to

disguise a simple loan with security, it appearing that the financing
company purchased equipment already owned by a capital-strapped client,
with the intention of leasing it back to the latter.
In the present case, petitioner acquired the office equipment in
question for their subsequent lease to the respondent, with the latter
undertaking to pay a monthly fixed rental therefor in the total amount of
P292,531.00, or a total of P10,531,116.00 for the whole 36 months. As a
measure of good faith, respondent made an up-front guarantee deposit in
the amount of P3,120,000.00. The basic agreement provides that in the
event the respondent fails to pay any rental due or
is in a default situation, then the petitioner shall
havecumulative remedies, such as, but not limited to, the following: 13

1. 1.Obtain possession of the property/equipment;

2. 2.Retain all amounts paid to it. In addition, the guaranty deposit
may be applied towards the payment of “liquidated damages”;
3. 3.Recover all accrued and unpaid rentals;
4. 4.Recover all rentals for the remaining term of the lease had
it not been cancelled, as additional penalty;
5. 5.Recovery of any and all amounts advanced by PCI
LEASING for GIRAFFE’s account x x x;
6. 6.Recover all expenses incurred in repossessing, removing,
repairing and storing the property; and,
7. 7.Recover all damages suffered by PCI LEASING by reason of the
default.

In addition, Sec. 6.1 of the Lease Agreement states that the guaranty
deposit shall be forfeited in the event the respondent, for any reason,
returns the equipment before the expiration of the lease.
At bottom, respondent had paid the equivalent of about a year’s lease
rentals, or a total of P3,510,372.00, more or less. Throw in the guaranty
deposit (P3,120,000.00) and the respondent had made a total cash outlay
ofP6,630,372.00 in favor of the petitioner. The replevin-seized leased
equipment had, as alleged in the complaint, an
estimated residual value of P6,900.000.00 at the timeCivil Case No. Q-
9834266 was instituted on May 4, 1998. Adding all cash advances thus
made to the residual value of the equipment, the total value which the
petitioner had actually obtained by virtue of its lease agreement with the
respondent amounts to P13,530,372.00 (P3,510,372.00 + P3,120,000.00 +
P6,900.000.00 = P13,530,372.00).
The acquisition cost for both the Silicon High Impact Graphics
equipment and the Oxberry Cinescan was, as stated in no less than the
petitioner’s letter to the respondent dated November 11, 1996 approving
14

in the latter’s favor a lease facility, was P8,100,000.00. Subtracting the

acquisition cost of P8,100,000.00 from the total amount, i.e.,
P13,530,372.00, creditable to the respondent, it would clearly appear that
petitioner realized a gross income of P5,430,372.00 from its lease
transaction with the respondent. The amount of P5,430,372.00 is not yet a
final figure as it does not include the rentals in arrears, penalties thereon,
and interestearned by the guaranty deposit.
As may be noted, petitioner’s demand letter fixed the amount of
15

P8,248,657.47 as representing the respondent’s “rental” balance which

became due and demandable consequent to the application of the
acceleration and other clauses of the lease agreement. Assuming, then,
that the respondent may be compelled to pay P8,248,657.47, then it would
end up paying a total of P21,779,029.47(P13,530,372.00 + P8,248,657.47 =
P21,779,029.47) for its use - for a year and two months at the most - of the
equipment. All in all, for an investment of P8,100,000.00, the petitioner
stands to make in a year’s time, out of the transaction, a total of
P21,779,029.47, or a net ofP13,679,029.47, if we are to believe its
outlandish legal submission that the PCI LEASING-GIRAFFE Lease
Agreement was an honest-to-goodness straight lease.
A financing arrangement has a purpose which is at once practical and
salutary. R.A. No. 8556 was, in fact, precisely enacted to regulate
financing companies’ operations with the end in view of strengthening
their critical role in providing credit and services to small and medium
enterprises and to curtail acts and practices prejudicial to the public
interest, in
general, and to their clienteles, in particular. As a regulated activity,
16

financing arrangements are not meant to quench only the thirst for profit.
They serve a higher purpose, and R.A. No. 8556 has made that abundantly
clear.
We stress, however, that there is nothing in R.A. No. 8556 which
defines the rights and obligations, as between each other, of the financial
lessor and the lessee. In determining the respective responsibilities of the
parties to the agreement, courts, therefore, must train a keen eye on the
attendant facts and circumstances of the case in order to ascertain the
intention of the parties, in relation to the law and the written agreement.
Likewise, the public interest and policy involved should be considered. It
may not be amiss to state that, normally, financing contracts come in a
standard prepared form, unilaterally thought up and written by the
financing companies requiring only the personal circumstances and
signature of the borrower or lessee; the rates and other important
covenants in these agreements are still largely imposed unilaterally by the
financing companies. In other words, these agreements are usually one-
sided in favor of such companies. A perusal of the lease agreement in
question exposes the many remedies available to the petitioner, while
there are only the standard contractual prohibitions against the
respondent. This is characteristic of standard printed form contracts.
There is more. In the adverted February 24, 1998 demand letter sent 17

to the respondent, petitioner fashioned its claim in the

alternative: payment of the full amount of P8,248,657.47, representing the
unpaid balance for the entire 36-month lease period or the surrender of
the financed asset under pain of legal action. To quote the letter:
“Demand is hereby made upon you to pay in full your outstanding balance in the
amount of P8,248,657.47 on or before March
04, 1998 OR to surrender to us the one (1) set Silicon High Impact Graphics and
one (1) unit Oxberry Cinescan 6400-10. . .
We trust you will give this matter your serious and preferential attention.”
(Emphasis added).
Evidently, the letter did not make a demand for the payment of the
P8,248,657.47 AND the return of the equipment; only either one of the
two was required. The demand letter was prepared and signed by Atty.
Florecita R. Gonzales, presumably petitioner’s counsel. As such, the use of
“or” instead of “and” in the letter could hardly be treated as a simple
typographical error, bearing in mind the nature of the demand, the
amount involved, and the fact that it was made by a lawyer. Certainly
Atty. Gonzales would have known that a world of difference exists
between “and” and “or” in the manner that the word was employed in the
letter.
“A rule in statutory construction is that the word “or” is a disjunctive term
signifying dissociation and independence of one thing from other things
enumerated unless the context requires a different interpretation.18

In its elementary sense, “or,” as used in a statute, is a disjunctive article

indicating an alternative. It often connects a series of words or propositions
indicating a choice of either. When “or” is used, the various members of the
enumeration are to be taken separately. 19

The word “or” is a disjunctive term signifying disassociation and independence

of one thing from each of the other things enumerated.”20

The demand could only be that the respondent need not return the
equipment if it paid the P8,248,657.47 outstanding balance, ineluctably
suggesting that the respondent can keep
possession of the equipment if it exercises its option to acquire the same
by paying the unpaid balance of the purchase price. Stated otherwise, if
the respondent was not minded to exercise its option of acquiring the
equipment by returning them, then it need not pay the outstanding
balance. This is the logical import of the letter: that the transaction in this
case is a lease in name only. The so-called monthly rentals are in truth
monthly amortizations of the price of the leased office equipment.
 On the whole, then, we rule, as did the trial court, that the PCI
LEASING-GIRAFFE lease agreement is in reality a lease with an option
to purchase the equipment. This has been made manifest by the actions of
the petitioner itself, foremost of which is the declarations made in its
demand letter to the respondent. There could be no other explanation than
that if the respondent paid the balance, then it could keep the equipment
for its own; if not, then it should return them. This is clearly an option to
purchase given to the respondent. Being so, Article 1485 of the Civil Code
should apply.
The present case reflects a situation where the financing company can
withhold and conceal—up to the last moment—its intention to sell the
property subject of the finance lease, in order that the provisions of
the Recto Lawmay be circumvented. It may be, as petitioner pointed out,
that the basic “lease agreement” does not contain a “purchase option”
clause. The absence, however, does not necessarily argue against the idea
that what the parties are into is not a straight lease, but a lease with
option to purchase. This Court has, to be sure, long been aware of the
practice of vendors of personal property of denominating a contract of sale
on installment as one of lease to prevent the ownership of the object of the
sale from passing to the vendee until and unless
the price is fully paid. As this Court noted in Vda. de Jose v. Barrueco: 21

“Sellers desirous of making conditional sales of their goods, but who do not wish
openly to make a bargain in that form, for one reason or another, have frequently
resorted to the device of making contracts in the form of leases either
with options to the buyer to purchase for a small consideration at the
end of term, provided the so-called rent has been duly paid, or with
stipulations that if the rent throughout the term is paid, title shall
thereupon vest in the lessee. It is obvious that such transactions are
leases only in name.The so-called rent must necessarily be regarded as
payment of the price in installments since the due payment of the agreed amount
results, by the terms of the bargain, in the transfer of title to the lessee.”
In another old but still relevant case of U.S. Commercial v. Halili, a lease
22

agreement was declared to be in fact a sale of personal property by

installments. Said the Court:
“. . . There can hardly be any question that the so-called contracts of lease on
which the present action is based were veritable leases of personal property with
option to purchase, and as such come within the purview of the above article
[Art. 1454-A of the old Civil Code on sale of personal property by installment]. x x
x
Being leases of personal property with option to purchase as contemplated in
the above article, the contracts in question are subject to the provision that when
the lessor in such case “has chosen to deprive the lessee of the enjoyment of such
personal property,” “he shall have no further action” against the lessee “for the
recovery of any unpaid balance” owing by the latter, “agreement to the contrary
being null and void.”
In choosing, through replevin, to deprive the respondent of possession of
the leased equipment, the petitioner waived its right to bring an action to
recover unpaid rentals on the said
leased items. Paragraph (3), Article 1484 in relation to Article 1485 of the
Civil Code, which we are hereunder rereproducing, cannot be any clearer.
“ART. 1484.In a contract of sale of personal property the price of which is payable
in installments, the vendor may exercise any of the following remedies:
xxx xxx xxx
(3) Foreclose the chattel mortgage on the thing sold, if one has been
constituted, should the vendee’s failure to pay cover two or more installments. In
this case, he shall haveno further action against the purchaser to recover any
unpaid balance of the price. Any agreement to the contrary shall be void.
ART.1485.The preceding article shall be applied to contracts purporting to be
leases of personal property with option to buy, when the lessor has deprived the
lessee of the possession or enjoyment of the thing.”
As we articulated in Elisco Tool Manufacturing Corp. v. Court of
Appeals, the remedies provided for in Article 1484 of the Civil Code are
23

alternative, not cumulative. The exercise of one bars the exercise of the
others. This limitation applies to contracts purporting to be leases of
personal property with option to buy by virtue of the same Article 1485.
The condition that the lessor has deprived the lessee of possession or
enjoyment of the thing for the purpose of applying Article 1485 was
fulfilled in this case by the filing by petitioner of the complaint for a sum
of money with prayer for replevin to recover possession of the office
equipment.24 By virtue of the writ of seizure issued by the trial court, the
petitioner has effectively deprived respondent of their use,a situation
which, by force of theRecto Law, in turn precludes the former from
maintaining an action for recovery of “accrued rentals”
or the recovery of the balance of the purchase price plus interest. 25

The imperatives of honest dealings given prominence in the Civil Code

under the heading: Human Relations, provide another reason why we
must hold the petitioner to its word as embodied in its demand letter.
Else, we would witness a situation where even if the respondent
surrendered the equipment voluntarily, the petitioner can still sue upon
its claim. This would be most unfair for the respondent. We cannot allow
the petitioner to renege on its word. Yet more than that, the very word
“or” as used in the letter conveys distinctly its intention not to claim both
the unpaid balance and the equipment. It is not difficult to discern why: if
we add up the amounts paid by the respondent, the residual value of the
property recovered, and the amount claimed by the petitioner as sued
upon herein (for a total of P21,779,029.47), then it would end up making
an instant killing out of the transaction at the expense of its client, the
respondent. The Recto Law was precisely enacted to prevent this kind of
aberration. Moreover, due to considerations of equity, public policy and
justice, we cannot allow this to happen. Not only to the respondent, but
those similarly situated who may fall prey to a similar scheme.
 WHEREFORE, the instant petition is DENIED and the trial court’s
decision is AFFIRMED.
Costs against petitioner.
SO ORDERED.
Puno (C.J., Chairperson), Corona and Azcuna, JJ., concur.
Sandoval-Gutierrez, J., On Leave.
Petition denied, judgment affirmed.
Notes.—In a contract of sale of personal property payable in
installments, the mere fact that the vendor secures possession of the
unpaid articles through an attachment does not necessarily mean that it
would resort to a foreclosure of the mortgage. (Palma vs. Court of
Appeals, 232 SCRA 714 [1994])
In a contract involving installment payments with interest chargeable
against the remaining balance of the obligation, it is the duty of the
creditor to inform the debtor of the amount of interest that falls due and
that he is applying the installment payments to cover said interest.
(Rapanut vs. Court of Appeals, 246 SCRA 323 [1995])

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