G.R. No. 168115, June 8, 2007
VICENTE ONG LIM SING, JR., petitioner, vs. FEB LEASING & FINANCE CORPORATION, respondent.

FACTS

FEB Leasing and Finance Corporation entered into a lease agreement with JVL Food Products for equipment and motor vehicles, with petitioner Vicente Ong Lim Sing, Jr. executing an Individual Guaranty Agreement to secure JVL’s obligations. JVL defaulted on the monthly rentals. FEB filed a complaint for sum of money and replevin. In defense, JVL and Lim contended the agreement was not a true lease but a sale on installment, alleging FEB assured them a deed of sale would be executed upon full payment and that documenting it as a lease was mere industry practice. They argued the contract was one of adhesion.
The Regional Trial Court ruled in favor of JVL and Lim, declaring the contract a sale on installment. The court based its decision on perceived contradictory terms within the agreement, such as the use of “merchantability” (a concept pertinent to sales) and the requirement for the lessee to insure the property (implying an insurable interest akin to an owner). The Court of Appeals reversed this decision, prompting Lim’s petition to the Supreme Court.

ISSUE

Whether the contract between FEB and JVL is a contract of lease or a contract of sale on installment.

RULING

The Supreme Court denied the petition, affirming the Court of Appeals. The contract is unequivocally a lease, not a sale. The legal logic rests on the principle that the intention of the parties is determined primarily from the clear and unambiguous language of their written agreement. The contract was explicitly denominated a “LEASE AGREEMENT” and contained standard lease provisions, such as the lessor’s retention of ownership, the lessee’s duty to return the equipment upon termination, and the payment of periodic rentals for the use of the property.
The Court rejected the claim that the contract was a disguised sale. The use of terms like “merchantability” and the insurance requirement do not alter the contract’s fundamental nature. These are merely protective stipulations for the lessor, who retains ownership and a clear insurable interest in preserving its property. The supposed “contradictory terms” cited by the trial court were misapprehended. The contemporaneous and subsequent acts of the parties, such as JVL’s payment of rentals and not installment payments for purchase, consistently adhered to a lease. The existence of a separate deed of sale for a different vehicle was irrelevant to interpreting the present contract. Where the terms of a contract are clear, they control, and no extrinsic evidence is needed to ascertain intent.