L & L Lawrence Footwear, Inc. v. PCI Leasing and Finance Corporation
REITERATIONFacts
The Antecedents: Petitioners L & L Lawrence Footwear, Inc. (L & L) and its former President, Sae Chae Lee, entered into several "LOAN" contracts with respondent PCI Leasing and Finance Corporation (PCI Leasing) from 1994 to 1997, involving shoe-making equipment. As a condition, L & L provided a 30% guaranty deposit and made rental payments totaling US$1,164,380.42. Sae Chae Lee also signed a Continuing Guaranty of Lease Obligations. Due to economic crisis, L & L failed to meet its obligations. PCI Leasing demanded payment of the outstanding balance of US$826,003.27 plus penalty or surrender of the leased equipment. Procedural History: PCI Leasing filed a complaint for recovery of sum of money and/or personal property with replevin. The Regional Trial Court (RTC) granted the writ of replevin, and the subject properties were turned over to PCI Leasing. L & L and Sae Chae Lee were declared in default for failure to file an Answer. Despite a motion to set aside the order of default, the RTC denied it and allowed PCI Leasing to present evidence ex parte. The RTC rendered judgment in favor of PCI Leasing, ordering L & L and Sae Chae Lee to pay the outstanding balance and affirming PCI Leasing's right to possession of the replevined properties. The Court of Appeals (CA) affirmed the RTC decision. The Petition: Petitioners filed a Petition for Review under Rule 45 of the Rules of Court, challenging the CA decision.
Issue(s)
Whether a plaintiff is automatically entitled to the relief prayed for in its Complaint by reason of a declaration in default, without regard to the evidence presented. Whether a corporation can be held in estoppel by reason of the representation of its officer. Whether a surety can be held liable for an obligation that is not specified in the surety agreement.
Ruling
The Petition is unmeritorious. The assailed Decision of the Court of Appeals is affirmed.
Ratio Decidendi
On the issue of automatic entitlement upon default: The Court clarified that a declaration of default does not automatically grant the plaintiff all the relief prayed for. Section 3 of Rule 9 of the Rules of Court allows the court to proceed to render judgment granting the claimant such relief as his pleading may warrant, but it also gives the court discretion to require the claimant to submit evidence. In this case, PCI Leasing presented its evidence ex parte, and the trial court weighed this evidence before rendering judgment. Therefore, the relief granted was based on the evidence presented, not automatically awarded due to the default. On the issue of estoppel: The petitioners' argument that PCI Leasing's deduction of proceeds from the sale of leased properties implied ownership by L & L and thus constituted a loan, not a lease, was rejected. The Court explained that such actions are consistent with the nature of a financial leasing agreement, where the finance company purchases equipment for the lessee and then leases it back. The testimony of the account officer reinforced, rather than contradicted, the existence of a financial leasing agreement. The Court reiterated that financial leasing is a recognized and legitimate commercial transaction. On the issue of surety liability: The contention that Sae Chae Lee, as surety, should not be held liable because the Continuing Guaranty referenced a Lease Agreement dated May 13, 1994, while the actual agreement was notarized on May 27, 1994, was found untenable. The Court noted that the existence of the Continuing Guaranty and the subsequent Lease Agreement were not contested. It reasoned that since no Lease Agreement was executed on May 13, 1994, the Continuing Guaranty could only have referred to the agreement that was subsequently notarized. The terms of the Continuing Guaranty were clear, making Sae Chae Lee solidarily liable for the company's obligations under the Lease Agreement, which are binding as they are not contrary to law, morals, good customs, public order, or public policy.
Main Doctrine
A financial leasing agreement is a legitimate and recognized transaction in commerce, distinct from a simple loan. The terms of a continuing guaranty are binding, even if there is a slight discrepancy in the date of the referenced lease agreement, provided the intent is clear and the agreement was subsequently executed.