G.R. No. 53623 March 22, 1990
INTERNATIONAL HARVESTER MACLEOD, INC., petitioner, vs. MARIANO MEDINA, JR. and HON. TOMAS P. MADDELA, JR., in his capacity as Presiding Judge of the Court of First Instance of Manila, respondents.

FACTS

The petitioner, International Harvester Macleod, Inc. (IHMI), is a company primarily engaged in the sale of automotive products and machinery. Between 1971 and 1973, private respondent Mariano Medina, Jr. purchased twenty-four truck engines from IHMI on an installment basis. IHMI imposed and collected finance charges totaling P325,596.79 from Medina, as evidenced by documents like Retail Notes Analysis and transmittal letters signed by him. These documents used terms such as “Finance Income Unearned” and “Finance Rate,” and correspondence from IHMI’s “Finance Operations” personnel referenced the company’s financing of Medina’s accounts.
The trial court ruled in favor of Medina, declaring that by imposing and collecting such finance charges, IHMI engaged in the business of a financing company without the requisite authority from the Securities and Exchange Commission, in violation of Republic Act No. 5980 (The Financing Company Act). The court ordered IHMI to reimburse the collected finance charges with interest, pay moral damages and attorney’s fees, and costs. IHMI filed this petition for certiorari, arguing it did not violate R.A. 5980.

ISSUE

Whether IHMI, by imposing and collecting finance charges on installment sales of its own products, engaged in the business of a financing company under R.A. 5980 without SEC authorization.

RULING

The Supreme Court granted the petition and reversed the trial court’s decision. The legal logic centers on the fundamental distinction between a seller extending credit on its own sales and a financing company’s business as defined by law. R.A. 5980 defines a financing company as one engaged in extending credit facilities by discounting or factoring commercial papers, buying and selling evidences of indebtedness, or leasing movable property. This typically involves a trilateral relationship among the buyer, the seller, and a separate financing entity that purchases the credit from the seller.
IHMI’s transaction with Medina was strictly bilateral. There was no discounting, factoring, or assignment of IHMI’s credit to any third-party finance company. Medina paid his installments directly to IHMI, the seller. The finance charges collected were essentially interest on the unpaid balance of the purchase price, a practice governed by the Truth in Lending Act (R.A. 3765) which mandates disclosure of credit costs. The use of the term “finance charge” was appropriate under R.A. 3765 and did not transform the seller into a financing company under R.A. 5980. Since IHMI’s activity was merely seller-financing incidental to its primary business of sale, it did not need SEC authorization under R.A. 5980. The two laws are not repugnant; R.A. 3765 governs credit cost disclosure, while R.A. 5980 regulates the distinct business of financing companies. The complaint was dismissed, and Medina was ordered to pay attorney’s fees to IHMI.