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JOSE PONCIO, RAMON INFANTE, and premises in the event that defendant decided to sell the property to the plaintiff at P20 a square
EMMA INFANTE, defendants-appellees. meter"; that on January 30, 1955, Mrs. Infante improved her offer and he agreed to sell the
land and its improvements to her for P3,535; that Poncio has not lost "his mind," to sell his
property, worth at least P4,000, for the paltry sum of P1,177.48, the amount of his obligation to
The issue in this case is whether the Statute of Frauds is applicable thereto.
the Republic Savings Bank; and that plaintiff's action is barred by the Statute of Frauds. Poncio
similarly set up a counterclaim for damages.
Plaintiff Rosario Carbonnel alleges, in her second amended complaint, filed with the Court of
First Instance of Rizal, that, on January 27, 1955, she purchased from defendant Jose Poncio,
As the case came up for trial on February 23, 1956 plaintiff introduced the testimony of one
at P9.50 a square meter, a parcel of land of about 195 square meters, more or less, located in
Constancio Meonada, who said that he is janitor of the Sto. Domingo Church and a high
San Juan del Monte, Rizal, known as Lot No. 13-B of subdivision plan Psd-19567, and more
school, as well as auto-mechanic, graduate; that he has been and still is a paying boarder in
particularly described in Transfer Certificate of Title No. 5040 (now No. 37842), excluding the
plaintiff's house; that Poncio is his townmate, both being from Mahatao, Batanes; that, after
improvements thereon; that plaintiff paid P247.26 on account of the price and assumed
making a rough draft, based upon data furnished by plaintiff, he typed Exhibit A, which is, in the
Poncio's obligation with the Republic Savings Bank amounting to P1,177.48, with the
Batanes dialect; that, thereafter, Poncio came to plaintiff's house, where he was shown Exhibit
understanding that the balance would be payable upon execution of the corresponding deed of
A; that after the witness had read its contents to Poncio and given him a copy thereof, Poncio
conveyance; that one of the conditions of the sale was that Poncio would continue staying in
signed Exhibit A and so did the plaintiff; that Meonada likewise signed at the foot of Exhibit A,
said land for one year, as stated in a document signed by him (and later marked as Exhibit A),
as attesting witness; and that translated freely into English, Exhibit A, reads as follows:
a translation of which was attached to the said complaint: that Poncio refuses to execute the
corresponding deed of sale, despite repeated demand; that plaintiff has thereby suffered
damages in the sum of P5,000, aside from attorney's fees amounting to P1,000; that Poncio From this date, January 27, Jose Poncio may stay in this lot that I bought from him
has conveyed the same property to defendants Ramon R. Infante and Emma L. Infante, who until one year without payment. After that one year and he cannot find any place
knew, of the first sale to plaintiff; and that the Infantes had thereby, caused damages to plaintiff where to transfer his house, he can also stay in this lot and he will pay according
in the sum of P5,000. agreement. (t.s.n., p. 4.)
Plaintiff prayed, therefore, that she be declared owner of the land in question; that the sale to Then, taking the witness stand, plaintiff testified that she has known Poncio since childhood, he
the Infantes be annulled; that Poncio be required to execute the corresponding deed of being related to her mother; that Poncio's lot adjoins her lot, in San Juan, Rizal; that one day
conveyance in plaintiff's favor; that the Register of Deeds of Rizal be directed to issue the Poncio told her that he wanted to sell his property; that, after both had agreed on its price, he
corresponding title in plaintiff's name; and that defendants be sentenced to pay damages. said that his lot is mortgaged to the Republic savings Bank; and that at noon time, on the same
day, he came back stating that both would "go to the bank to pay the balance in arrears." At
this juncture, defense counsel moved to strike out the statement of the witness, invoking, in
Defendants moved to dismiss said complaint upon the ground that plaintiff's claim is
support of the motion, the Statute of Frauds. After an extended discussion, the parties agreed
unenforceable under the Statute of Frauds, and that said pleading does not state facts
to submit memoranda and the hearing was suspended. Later on, the lower court issued an
sufficient to constitute a cause of action. The motion was denied, "without prejudice to
order dismissing plaintiff's complaint, without costs, upon the ground that her cause of action is
considering, when this case is decided on the merits, whether the same falls under the Statute
unenforceable under the Statute of Frauds. The counterclaims were, also, dismissed. Hence,
of Frauds."
this appeal by plaintiff.
Thereafter, the Infantes filed an answer denying, most of the allegations of said complaint and
We are of the opinion and so hold that the appeal is well taken. It is well settled in this
alleged, by way of special defense, that they purchased the land in question in good faith, for
jurisdiction that the Statute of Frauds is applicable only to executory contracts (Facturan vs.
value, and without knowledge of the alleged sale to plaintiff; and that plaintiff's claim is
Sabanal, 81 Phil., 512), not to contracts that are totally or partially performed (Almirol, et
unenforceable under the Statute of Frauds. They, likewise, set up counterclaims for damages.
al., vs. Monserrat, 48 Phil., 67, 70; Robles vs. Lizarraga Hermanos, 50 Phil., 387; Diana vs.
Macalibo, 74 Phil., 70).
In his answer, Poncio denied specifically some allegations of said complaint and alleged that
he had no knowledge sufficient to form a belief as to the truth of the other averments therein.
Subject to a rule to the contrary followed in a few jurisdictions, it is the accepted
By way of special defenses, he alleged that he had consistently turned down several offers,
view that part performance of a parol contract for the sale of real estate has the
made by plaintiff, to buy the land in question, at P15 a square meter, for he believes that it is
effect, subject to certain conditions concerning the nature and extent of the acts
worth not less than P20 a square meter; that Mrs. Infante, likewise, tried to buy the land at P15
constituting performance and the right to equitable relief generally, of taking such
a square meter; that, on or about January 27, 1955, Poncio was advised by plaintiff that should
contract from the operation of the statute of frauds, so that chancery may decree its
she decide to buy the property at P20 a square meter, she would allow him to remain in the
specific performance or grant other equitable relief. It is well settled in Great Britain
property for one year; that plaintiff then induced Poncio to sign a document, copy of which is
and in this country, with the exception of a few states, that a sufficient part
probable, the one appended to the second amended complaint; that Poncio signed it "relying
performance by the purchaser under a parol contract for the sale of real estate
upon the statement of the plaintiff that the document was a permit for him to remain in the
removes the contract from the operation of the statute of frauds. (49 Am. Jur. 722- partial performance was not resorted to as a devise to circumvent the Statute, then the same
723.) should not be applied.
In the words of former Chief Justice Moran: "The reason is simple. In executory contracts there Apart from the foregoing, there are in the case at bar several circumstances indicating that
is a wide field for fraud because unless they be in writing there is no palpable evidence of the plaintiff's claim might not be entirely devoid of factual basis. Thus, for instance, Poncio
intention of the contracting parties. The statute has precisely been enacted to prevent fraud." admitted in his answer that plaintiff had offered several times to purchase his land.
(Comments on the Rules of Court, by Moran, Vol. III [1957 ed.], p. 178.) However, if a contract
has been totally or partially performed, the exclusion of parol evidence would promote fraud or
Again, there is Exhibit A, as document signed by the defendant. It is in the Batanes dialect,
bad faith, for it would enable the defendant to keep the benefits already denied by him from the
which, according to plaintiff's uncontradicted evidence, is the one spoken by, Poncio, he being
transaction in litigation, and, at the same time, evade the obligations, responsibilities or
a native of said region. Exhibit A states that Poncio would stay in the land sold by him to
liabilities assumed or contracted by him thereby.
plaintiff for one year, from January 27, 1955, free of charge, and that, if he cannot find a place
where to transfer his house thereon, he may remain in said lot under such terms as may be
For obvious reasons, it is not enough for a party to allege partial performance in order agreed upon. Incidentally, the allegation in Poncio's answer to the effect that he signed Exhibit
to hold that there has been such performance and to render a decision declaring that the A under the belief that it "was a permit for him to remain in the premises in the event" that "he
Statute of Frauds is inapplicable. But neither is such party required to establish such partial decided to sell the property" to the plaintiff at P20 a sq. m." is, on its face, somewhat difficult to
performance by documentary proof before he could have the opportunity to introduce oral believe. Indeed, if he had not decided as yet to sell the land to plaintiff, who, had never
testimony on the transaction. Indeed, such oral testimony would usually be unnecessary if increased her offer of P15 a square meter, there was no reason for Poncio to get said, Permit
there were documents proving partial performance. Thus, the rejection of any and all from her. Upon the other hand, if plaintiff intended to mislead Poncio, she would have caused
testimonial evidence on partial performance, would nullify the rule that the Statute of Frauds is Exhibit A to be drafted, probably in English, instead of taking the trouble of seeing to it that it
inapplicable to contracts which have been partly executed, and lead to the very evils that the was written precisely in his native dialect, the Batanes. Moreover, Poncio's signature on Exhibit
statute seeks to prevent. A suggests that he is neither illiterate nor so ignorant as to sign a document without reading its
contents, apart from the fact that Meonada had read Exhibit A to him and given him a copy
thereof, before he signed thereon, according to Meonada's uncontradicted testimony.
The true basis of the doctrine of part performance according to the overwhelming
weight of authority, is that it would be a fraud upon the plaintiff if the defendant were
permitted to escape performance of his part of the oral agreement after he has Then, also, defendants say in their brief:
permitted the plaintiff to perform in reliance upon the agreement. The oral contract is
enforced in harmony with the principle that courts of equity will not allow the statute
The only allegation in plaintiff's complaint that bears any relation to her claim that
of frauds to be used as an instrument of fraud. In other words, the doctrine of part
there has been partial performance of the supposed contract of sale, is the notation
performance was established for the same purpose for which, the statute of frauds
of the sum of P247.26 in the bank book of defendant Jose Poncio. The noting or
itself was enacted, namely, for the prevention of fraud, and arose from the necessity
jotting down of the sum of P247.26 in the bank book of Jose Poncio does not prove
of preventing the statute from becoming an agent of fraud for it could not have been
the fact that said amount was the purchase price of the property in question. For all
the intention of the statue to enable any party to commit a fraud with impunity. (49
we knew, the sum of P247.26 which plaintiff claims to have paid to the Republic
Am. Jur., 725-726; emphasis supplied.)
Savings Bank for the account of the defendant, assuming that the money paid to
the, Republic Savings Bank came from the plaintiff, was the result of some usurious
When the party concerned has pleaded partial performance, such party is entitled to a loan or accommodation, rather than earnest money or part payment of the land.
reasonable chance to; establish by parol evidence the truth of this allegation, as well as the Neither is a competent or satisfactory evidence to prove the conveyance on the land
contract itself. "The recognition of the exceptional effect of part performance in taking an oral in question the fact that the bank book account of Jose Poncio happens to be in the
contract out of the statute of frauds involves the principle that oral evidence is admissible in possession of the plaintiff. (Defendants-Appellees' brief, pp. 25-26.)
such cases to prove both the contract and the part performance of the contract" (49 Am. Jur.,
927).
How shall we know why Poncio's bank deposit book is in plaintiff's possession or whether there
is any relation between the P247.26 entry therein and the partial payment of P247.26 allegedly
Upon submission of the case for decision on the merits, the Court should determine whether made by plaintiff to Poncio on account of the price of his land, if we do not allow the plaintiff to
said allegation is true, bearing in mind that parol evidence is easier to concoct and more likely explain it on the witness stand? Without expressing any opinion on the merits of plaintiff's
to be colored or inaccurate than documentary evidence. If the evidence of record fails to prove claim, it is clear, therefore, that she is entitled, legally as well as from the viewpoint of equity, to
clearly that there has been partial performance, then the Court should apply the Statute of an opportunity to introduce parol evidence in support of the allegations of her second amended
Frauds, if the cause of action involved falls within the purview thereof. If the Court is, however, complaint.
convinced that the obligation in question has been partly executed and that the allegation of
Wherefore, the order appealed from is hereby set aside, and let this case be remanded to the superfluity, inasmuch as there is an ordinance in Quezon City which requires the construction
lower court for further proceedings not inconsistent with this decision, with the costs of this of roads in a subdivision before lots therein could be sold; and that, upon the suggestion of
instance against defendants-appellees. It is so ordered. plaintiff's counsel, their promise to construct the roads was not included in the contract
because the ordinance was deemed part of the contract. Defendant further claims that the true
purchase price of the sale was not P235,056.00 but only P185,000.00, the difference of
P50,000.00 being the voluntary contribution of defendant to the cost of the construction of the
roads which plaintiffs assumed to do as abovementioned.
After the reception of the evidence, the trial court sustained the contention of defendant and
dismissed the complaint on the ground that the action of plaintiffs was premature. It found that
plaintiffs really assumed the construction of the roads as a condition precedent to the fulfillment
of the obligation stipulated in the contract on the part of defendant, and since the same has not
been undertaken, plaintiffs have no cause of action. In due time, plaintiffs have appealed.
The evidence of record discloses the following facts: On November 6, 1966, plaintiffs entered
into a contract of conditional sale with one Pedro del Rosario covering a parcel of land in
Quezon City described in Transfer Certificate of Title No. 1148 which has a total area of 77,772
square meters in consideration of a purchase price of P10.00 per square meter. To guarantee
the performance of the conditions stipulated therein a performance bond in the amount of
P100,000.00 was executed by Pedro del Rosario. Del Rosario was given possession of the
land for development as a subdivision at his expense. He undertook to pay for the subdivision
survey, the construction of roads, the installation of light and water, and the income tax
plaintiffs may be required to pay arising from the transaction, in consideration of which Del
Rosario was allowed to buy the property for P600,000.00 within a period of two years from
November 6, 1956 with the condition that, upon his failure to pay said price when due, all the
improvements introduced by him would automatically become part of the property without any
right on his part to reimbursement and the conditional sale would be rescinded.
Unable to pay the consideration of P600,000.00 as agreed upon, and in order to avoid court
RODRIGO ENRIQUEZ, ET AL., plaintiffs-appellants, vs. SOCORRO A. RAMOS, defendant- litigation, plaintiffs and Del Rosario, together with defendant Socorro A. Ramos, who turned out
appellee. to be a partner of the latter, entered into a contract of rescission on November 24, 1958. To
release the performance bond and to enable defendant to pay some of the lots for her own
purposes, plaintiffs allowed defendant to buy 20 of the lots herein involved at the rate of
This is an action for foreclosure of a real estate mortgage. P16.00 per square meter on condition that she will assume the payment of P50,000.00 as her
share in the construction of roads and other improvements required in the subdivision. This
It is alleged that on November 24, 1958 defendant purchased from plaintiffs 20 parcels of land situation led to the execution of the contract of sale Exhibit A subject of the present foreclosure
located in Quezon City and covered by transfer certificates of title for the amount of proceedings.
P235,056.00 of which only the amount of P35,056.00 was paid on the date of sale, the balance
of P200,000.00 being payable within two years from the date of sale, with 6% interest per The main issues closed in this appeal are: (1) Is the purchase price of the 20 lots bought by
annum during the first year, and the remainder to draw 12% interest per annum if paid defendant from plaintiffs the sum of P185,000.00, as claimed by defendant, or P235.056.00, as
thereafter, provided that at least P100,000.00 should be paid during the first year, otherwise claimed by plaintiffs?; and (2) Was an oral agreement, coetaneous to the execution of the
the whole unpaid balance would become immediately demandable; that to secure the payment contract of sale, entered into between the parties to the effect that plaintiffs would undertake
of the balance of P200,000.00 defendant executed a mortgage in favor of plaintiffs upon the 20 the construction of the roads on the lots sold before defendant could be required to comply
parcels of land sold and on a half interest over a parcel of land in Bulacan which was with her financial obligation?
embodied in the same deed of sale; that said deed of sale with mortgage was registered in the
Offices of the Registers of Deeds of Quezon City and Pampanga; and that as defendant broke
certain stipulations contained in said deed of sale with mortgage, plaintiffs instituted the Defendant contends that the contract of sale Exhibit A does not express the true agreement of
present foreclosure proceedings. the parties because certain important conditions agreed upon were not included therein by
plaintiffs' counsel among which is the promise assumed by plaintiffs that they would undertake
to construct the roads that may be required in the subdivision subject sale of the sale on or
Defendant set up as affirmative defense that the contract mentioned in the complaint does not before January, 1959; that said condition was not placed in the contract because plaintiffs'
express the true agreement of the parties because certain important conditions agreed upon counsel said that it was a superfluity inasmuch as there was then in Quezon City an ordinance
were not included therein by the counsel who prepared the contract; that the stipulation that which requires the construction of road in a subdivision before the lots therein could be sold;
was omitted from the contract was the promise assumed by plaintiffs that they would construct and that, upon the suggestion of plaintiffs' counsel, such commitment was not included in the
roads in the lands which were to be subdivided for sale on or before January, 1959; that said contract because the ordinance aforesaid was already deemed to be part of the contract.
condition was not placed in the contract because, according to plaintiffs' counsel, it was a
Plaintiffs, on the other hand, dispute the above contention arguing that there was no such oral It is argued that the court a quo erred in allowing presentation of parole evidence to prove that
agreement or understanding because all that was agreed upon between the parties was a conteporaneous oral agreement was also reached between parties relative to the
already expressed and included in the contract of sale Exhibit A executed between the parties, construction of the roads for same is in violation of our rule which provides that when the terms
and since defendant failed to pay the balance of her obligation within the period stipulated the of an agreement had been reduced to writing it is to be considered as containing all that has
whole obligation became due and demandable thus giving plaintiffs the right to foreclose the been agreed upon and that no evidence other than the terms there can be admitted between
mortgage in accordance with law.1awphl.nt the parties (Section 22, Rule 123). This rule, however, only holds true if there is allegation that
the agreement does not express the intent of the parties. If there is and this claim is in issue in
the pleadings, the same may be the subject parole evidence (Idem.). The fact that such failure
After considering and evaluating the evidence submitted by both parties, the court a quo found has been put in issue in this case is patent in the answer wherein defendant has specifically
defendant's contention well-taken, thereby concluding that the action of plaintiffs was pleaded that the contract of sale in question does not express the true intent of the parties with
premature. In reaching this conclusion; the court a quo made the following comment: regard to the construction of the roads.
. . . The Court is of the opinion that the construction of the roads was a condition It appearing that plaintiffs have failed to comply with the condition precedent relative to the
precedent to the enforcement of the terms of Exhibit A, particularly the foreclosure construction of the roads in the subdivision in question, it follows that their action is premature
of mortgage, for the reason that the subdivision regulations of Quezon City requires, as found by the court a quo. The failure of defendant to pay the realty and income taxes as
as a matter of law, that the sellers of lands therein to be converted into subdivision agreed upon, as well as to register the mortgage with respect to the Bulacan property, aside
lots must construct the roads in said subdivision before the lots could be sold. This from being minor matters, appear sufficiently explained in the brief of defendant-appellee.
requirement must have been uppermost in the mind of the parties in this case which
led to the execution of the so-called 'Explanation' (Exhibit 3) wherein it is stated that
the sum of P50,000.00 was a contribution of the herein defendant for the WHEREFORE, the decision appealed from is affirmed, with costs against appellants.
construction of the roads which the plaintiffs would undertake 'in accordance with
the provisions of the City Ordinance of Quezon City' (Exhibit 3). It is to be noted that
Exhibit 3 was executed on November 24, 1958, the very day when Exhibit A was
also executed. Exhibit 3 also proves that the purchase price is not, as appearing in
the deed of sale with mortgage Exhibit A, actually P235,000.00 but only
P185,000.00 which would approximately be the price of the entire area of the land
sold at the rate of P16.00 per square meter.
We find no error in the conclusion reached by the court a quo for indeed that is the condition to
be expected by a person who desires to purchase a big parcel of land for purposes of
subdivision. In a subdivision the main improvement to be undertaken before it could be sold to
the public is feeder roads as otherwise it would be inaccessible and valueless and would offer
no attraction to the buying public. And so it is correct to presume was the court a quo did, that
when the sale in question was being negotiated the construction of roads in the prospective
subdivision must have been uppermost in the mind of defendant for her purpose in purchasing
the property was to develop it into a subdivision. That such requirement was uppermost in the
mind of defendant is proven by the execution by the plaintiffs of the so-called "Explanation"
(Exhibit 3) on the very day the deed of sale was executed wherein it was stated that the sum of
P50,000.00 was advanced by defendant as her contribution to the construction of the roads
which plaintiffs assumed to undertake "in accordance with the provisions of the City Ordinance
of Quezon City." It is to be noted that said document specifically states that the amount of
P50,000.00 should be deducted from the purchase price of P235,056.00 appearing in the deed
of sale, and this is a clear indication that the real purchase price is only P185,000.00 as
claimed by defendant, which would approximately be the price of the entire area of the land at
the rate of P16.00 per square meter.
A circumstance which lends cogency to defendant's claim that the commitment of plaintiffs to
construct roads was not inserted in the contract because of the insurance made by their
counsel that it would be a superfluity is the fact that in Quezon City there was really an
ordinance which requires the construction of roads it subdivision before lots therein could be
sold, and considering that this assurance came from the very counsel who prepared the
document who even intimated that ordinance was deemed part of the contract, defendant must
have agreed to the omission relying on the good faith plaintiffs and their counsel. At any rate,
the execute of the document Exhibit 3 clarifies whatever doubt may have existed with regard to
the true terms of the agreement on the matter.
The plaintiff testified that on the morning of December the second, 1914, while she was
washing clothes near a well, the defendant passed by; that she seized the opportunity to beg
an extension of time in which to repurchase the land, promising the defendant that she would
borrow the money and make payment if he would extend the redemption period until the end of
the month; that after some demur the defendant agreed to allow her the whole of the month of
December in which to redeem the land; that the following Sunday she went to the house of the
defendant and that he promised to meet her at the house of Mercado, an attorney, at 4 o'clock
of the next day, there to receive the purchase price and execute the necessary documents
evidencing the transaction; that she took the money to the lawyer's office at the time
appointed, and waited there until dark, but that the defendant failed to meet his engagement;
that she then went to his house, but was told that he was not at home; and that since that time
defendant has refused to carry out his oral agreement, claiming that the redemption period set
out in the original deed of sale expired on the fourth day of December, 1914, and that she had
no right to repurchase the land after that date. Severino Pascual, who was present when the
oral agreement to extend the time for the repurchase of the land was made, corroborated her
testimony in this regard, and we find nothing in the record which would justify us in disturbing
the findings of the trial judge who accepted her testimony as a substantially true account of all
that occurred, and declined to believe the conflicting testimony of the defendant which he
characterized as vague and incredible.
The defendant having extended the time within which the plaintiff could repurchase the land on
condition that she would find the money and make repurchase within the extended period, it is
clear that he cannot be permitted to repudiate his promise, it appearing that the plaintiff stood
ready to make the payment within the extended period, and was only prevented from doing so
ESPIRIDIONA CANUTO, plaintiff-appellee, vs. JUAN MARIANO, defendant-appellant. by the conduct of the defendant himself. (Villegas vs. Capistrano, 9 Phil. Rep., 416; Fructo vs.
Fuentes, 15 Phil. Rep., 362; Retes vs. Suelto, 20 Phil. Rep., 394; Rosales vs. Reyes and
This is an appeal from a judgment of the Court of First Instance of Manila, providing for the Ordoveza, 25 Phil. Rep., 495.)
execution of a deed evidencing the repurchase by the plaintiff of a parcel of land from the
defendant, upon the payment by the former of the sum of P360. The contention that the plaintiff should not be permitted to alter, vary, or contradict the terms of
the written instrument by the introduction of oral evidence is manifestly untenable under the
On December 4, 1913, the plaintiff executed a deed of sale of the parcel of land described in circumstances of the case, as will readily appear from the following citation from 17 Cyc., p.
the complaint, to the defendant, for the sum of P360, reserving the right to repurchase the land 734, and numerous cases cited in support of the doctrine:
for that amount within one year from the date of the deed of sale. The redemption period
having elapsed, and the plaintiff having failed to exercise her right to repurchase within that The rule forbidding the admission of parol or extrinsic evidence to alter, vary, or
period, the defendant set up a claim of absolute ownership to the land, notwithstanding the contradict a written instrument does not apply so as to prohibit the establishment by
insistent demand of the plaintiff that she be permitted to exercise her reserved right of parol of an agreement between the parties to a writing, entered into subsequent to
repurchase in accordance with an alleged oral agreement for the extension of the r redemption the time when the written instrument was executed, notwithstanding such
period down to the end of the month of December, 1914. She claims that on the second day of agreement may have the effect of adding to, changing, modifying, or even
December, 1914, two days before the expiration of the original redemption period, she asked altogether abrogating the contract of the parties as evidenced by the writing; for the
the defendant for an extension of time for the repurchase of the land and that upon her parol evidence does not in any way deny that the original agreement of the parties
promise to make the repurchase during the month of December, 1914, the defendant agreed was that which the writing purports to express, but merely goes to show that the
to extend the redemption set out in the written contract, to the end of that month; that after the parties have exercised their right to change or abrogate the same, or to make a new
expiration of the original redemption period, she thought to make the repurchase in and independent contract.
accordance with the agreement as to the extension of the time therefor; but the defendant
failed to appear at the time and place agreed upon for the payment of the purchase price and
has refused since that time to execute a deed of resale, or to reserve the purchase price It makes no difference how soon after the execution of the written contract the parol
agreed upon, despite the plaintiff's repeated demands and tender of the purchase price. one was made. If it was in fact subsequent and is otherwise unobjectionable it may
be proved and enforced.
The contention that the plaintiff lost her right to redeem because she failed to make judicial 2. That the said Mr. Basilio Gonzales obligates himself to deliver to the said Messrs.
deposit of the purchase price when the defendant declined to receive it, is not entitled to Yu Tek and Co., of this city the said 600 piculs of sugar at any place within the said
serious consideration in view of the repeated decisions of this court to the contrary collated municipality of Santa Rosa which the said Messrs. Yu Tek and Co., or a
and discussed in the case of Rosales vs. Reyes and Ordoveza (25 Phil. Rep., 495). In that representative of the same may designate.
case and in the cases cited therein we declared that the settled rule in this jurisdiction is that a
bona fide offer or tender of the price agreed upon for the repurchase is sufficient to preserve
3. That in case the said Mr. Basilio Gonzales does not deliver to Messrs. Yu Tek and
the rights of the party making it, without the necessity of making judicial deposit, if the offer or
Co. the 600 piculs of sugar within the period of three months, referred to in the
tender is refused; and in the case of Fructo vs. Fuentes (15 Phil. Rep., 362) we said that in
second paragraph of this document, this contract will be rescinded and the said Mr.
such cases when diligent effort is made by the vendor of the land to exercise the right to
Basilio Gonzales will then be obligated to return to Messrs. Yu Tek and Co. the
repurchase reserved by him in his deed of sale "and fails by reason of circumstances over
P3,000 received and also the sum of P1,200 by way of indemnity for loss and
which he has no control, we are of the opinion and so hold that he does not lose his right to
damages.
repurchase on the day of maturity."
Plaintiff proved that no sugar had been delivered to it under this contract nor had it been able
We conclude that the judgment entered in the court below should be affirmed with costs of this
to recover the P3,000. Plaintiff prayed for judgment for the P3,000 and, in addition, for P1,200
instance against the appellant. So ordered.
under paragraph 4, supra. Judgment was rendered for P3,000 only, and from this judgment
both parties appealed.
The points raised by the defendant will be considered first. He alleges that the court erred in
refusing to permit parol evidence showing that the parties intended that the sugar was to be
secured from the crop which the defendant raised on his plantation, and that he was unable to
fulfill the contract by reason of the almost total failure of his crop. This case appears to be one
to which the rule which excludes parol evidence to add to or vary the terms of a written
contract is decidedly applicable. There is not the slightest intimation in the contract that the
sugar was to be raised by the defendant. Parties are presumed to have reduced to writing all
the essential conditions of their contract. While parol evidence is admissible in a variety of
ways to explain the meaning of written contracts, it cannot serve the purpose of incorporating
into the contract additional contemporaneous conditions which are not mentioned at all in the
writing, unless there has been fraud or mistake. In an early case this court declined to allow
parol evidence showing that a party to a written contract was to become a partner in a firm
instead of a creditor of the firm. (Pastor vs. Gaspar, 2 Phil. Rep., 592.) Again, in
Eveland vs. Eastern Mining Co. (14 Phil. Rep., 509) a contract of employment provided that
the plaintiff should receive from the defendant a stipulated salary and expenses. The
defendant sought to interpose as a defense to recovery that the payment of the salary was
contingent upon the plaintiff's employment redounding to the benefit of the defendant
company. The contract contained no such condition and the court declined to receive parol
YU TEK and CO., plaintiff-appellant, vs. BASILIO GONZALES, defendant-appellant. evidence thereof.
The basis of this action is a written contract, Exhibit A, the pertinent paragraphs of which In the case at bar, it is sought to show that the sugar was to be obtained exclusively from the
follow: crop raised by the defendant. There is no clause in the written contract which even remotely
suggests such a condition. The defendant undertook to deliver a specified quantity of sugar
1. That Mr. Basilio Gonzalez hereby acknowledges receipt of the sum of P3,000 within a specified time. The contract placed no restriction upon the defendant in the matter of
Philippine currency from Messrs. Yu Tek and Co., and that in consideration of said obtaining the sugar. He was equally at liberty to purchase it on the market or raise it himself. It
sum be obligates himself to deliver to the said Yu Tek and Co., 600 piculs of sugar may be true that defendant owned a plantation and expected to raise the sugar himself, but he
of the first and second grade, according to the result of the polarization, within the did not limit his obligation to his own crop of sugar. Our conclusion is that the condition which
period of three months, beginning on the 1st day of January, 1912, and ending on the defendant seeks to add to the contract by parol evidence cannot be considered. The rights
the 31st day of March of the same year, 1912. of the parties must be determined by the writing itself.
The second contention of the defendant arises from the first. He assumes that the contract A number of cases have been decided in the State of Louisiana, where the civil law prevails,
was limited to the sugar he might raise upon his own plantation; that the contract represented which confirm our position. Perhaps the latest is Witt Shoe Co. vs. Seegars and Co. (122 La.,
a perfected sale; and that by failure of his crop he was relieved from complying with his 145; 47 Sou., 444). In this case a contract was entered into by a traveling salesman for a
undertaking by loss of the thing due. (Arts. 1452, 1096, and 1182, Civil Code.) This argument quantity of shoes, the sales having been made by sample. The court said of this contract:
is faulty in assuming that there was a perfected sale. Article 1450 defines a perfected sale as
follows:
But it is wholly immaterial, for the purpose of the main question, whether Mitchell
was authorized to make a definite contract of sale or not, since the only contract
The sale shall be perfected between vendor and vendee and shall be binding on that he was in a position to make was an agreement to sell or an executory contract
both of them, if they have agreed upon the thing which is the object of the contract of sale. He says that plaintiff sends out 375 samples of shoes, and as he was
and upon the price, even when neither has been delivered. offering to sell by sample shoes, part of which had not been manufactured and the
rest of which were incorporated in plaintiff's stock in Lynchburg, Va., it was
impossible that he and Seegars and Co. should at that time have agreed upon the
Article 1452 reads: "The injury to or the profit of the thing sold shall, after the contract has been
specific objects, the title to which was to pass, and hence there could have been no
perfected, be governed by the provisions of articles 1096 and 1182."
sale. He and Seegars and Co. might have agreed, and did (in effect ) agree, that
the identification of the objects and their appropriation to the contract necessary to
This court has consistently held that there is a perfected sale with regard to the "thing" make a sale should thereafter be made by the plaintiff, acting for itself and for
whenever the article of sale has been physically segregated from all other articles Thus, a Seegars and Co., and the legend printed in red ink on plaintiff's billheads ("Our
particular tobacco factory with its contents was held sold under a contract which did not responsibility ceases when we take transportation Co's. receipt `In good order'"
provide for either delivery of the price or of the thing until a future time. McCullough vs. Aenlle indicates plaintiff's idea of the moment at which such identification and appropriation
and Co. (3 Phil. Rep., 295). Quite similar was the recent case of Barretto vs. Santa Marina (26 would become effective. The question presented was carefully considered in the
Phil. Rep., 200) where specified shares of stock in a tobacco factory were held sold by a case of State vs. Shields, et al. (110 La., 547, 34 Sou., 673) (in which it was
contract which deferred delivery of both the price and the stock until the latter had been absolutely necessary that it should be decided), and it was there held that in
appraised by an inventory of the entire assets of the company. In Borromeo vs. Franco (5 Phil. receiving an order for a quantity of goods, of a kind and at a price agreed on, to be
Rep., 49) a sale of a specific house was held perfected between the vendor and vendee, supplied from a general stock, warehoused at another place, the agent receiving the
although the delivery of the price was withheld until the necessary documents of ownership order merely enters into an executory contract for the sale of the goods, which does
were prepared by the vendee. In Tan Leonco vs. Go Inqui (8 Phil. Rep., 531) the plaintiff had not divest or transfer the title of any determinate object, and which becomes
delivered a quantity of hemp into the warehouse of the defendant. The defendant drew a bill of effective for that purpose only when specific goods are thereafter appropriated to
exchange in the sum of P800, representing the price which had been agreed upon for the the contract; and, in the absence of a more specific agreement on the subject, that
hemp thus delivered. Prior to the presentation of the bill for payment, the hemp was destroyed. such appropriated takes place only when the goods as ordered are delivered to the
Whereupon, the defendant suspended payment of the bill. It was held that the hemp having public carriers at the place from which they are to be shipped, consigned to the
been already delivered, the title had passed and the loss was the vendee's. It is our purpose to person by whom the order is given, at which time and place, therefore, the sale is
distinguish the case at bar from all these cases. perfected and the title passes.
In the case at bar the undertaking of the defendant was to sell to the plaintiff 600 piculs of This case and State vs. Shields, referred to in the above quotation are amply illustrative of the
sugar of the first and second classes. Was this an agreement upon the "thing" which was the position taken by the Louisiana court on the question before us. But we cannot refrain from
object of the contract within the meaning of article 1450, supra? Sugar is one of the staple referring to the case of Larue and Prevost vs. Rugely, Blair and Co. (10 La. Ann., 242) which is
commodities of this country. For the purpose of sale its bulk is weighed, the customary unit of summarized by the court itself in the Shields case as follows:
weight being denominated a "picul." There was no delivery under the contract. Now, if called
upon to designate the article sold, it is clear that the defendant could only say that it was
. . . It appears that the defendants had made a contract for the sale, by weight, of a
"sugar." He could only use this generic name for the thing sold. There was no "appropriation"
lot of cotton, had received $3,000 on account of the price, and had given an order
of any particular lot of sugar. Neither party could point to any specific quantity of sugar and
for its delivery, which had been presented to the purchaser, and recognized by the
say: "This is the article which was the subject of our contract." How different is this from the
press in which the cotton was stored, but that the cotton had been destroyed by fire
contracts discussed in the cases referred to above! In the McCullough case, for instance, the
before it was weighed. It was held that it was still at the risk of the seller, and that
tobacco factory which the parties dealt with was specifically pointed out and distinguished from
the buyer was entitled to recover the $3,000 paid on account of the price.
all other tobacco factories. So, in the Barretto case, the particular shares of stock which the
parties desired to transfer were capable of designation. In the Tan Leonco case, where a
quantity of hemp was the subject of the contract, it was shown that that quantity had been We conclude that the contract in the case at bar was merely an executory agreement; a
deposited in a specific warehouse, and thus set apart and distinguished from all other hemp. promise of sale and not a sale. At there was no perfected sale, it is clear that articles 1452,
1096, and 1182 are not applicable. The defendant having defaulted in his engagement, the
plaintiff is entitled to recover the P3,000 which it advanced to the defendant, and this portion of
the judgment appealed from must therefore be affirmed.
The plaintiff has appealed from the judgment of the trial court on the ground that it is entitled to
recover the additional sum of P1,200 under paragraph 4 of the contract. The court below held
that this paragraph was simply a limitation upon the amount of damages which could be
recovered and not liquidated damages as contemplated by the law. "It also appears," said the
lower court, "that in any event the defendant was prevented from fulfilling the contract by the
delivery of the sugar by condition over which he had no control, but these conditions were not
sufficient to absolve him from the obligation of returning the money which he received."
The above quoted portion of the trial court's opinion appears to be based upon the proposition LAND SETTLEMENT AND DEVELOPMENT CORPORATION, plaintiff-appellant, vs. GARCIA
that the sugar which was to be delivered by the defendant was that which he expected to PLANTATION CO., INC., , defendants-appellees.
obtain from his own hacienda and, as the dry weather destroyed his growing cane, he could
not comply with his part of the contract. As we have indicated, this view is erroneous, as, under
the contract, the defendant was not limited to his growth crop in order to make the delivery. He This is a case of specific performance of contract, instituted by the Land Settlement and
agreed to deliver the sugar and nothing is said in the contract about where he was to get it. Development Corporation, against the Garcia Plantation Co., Inc. and/or Salud C. De Garcia
and Vicente B. Garcia, for the recovery of the sum of P5,955.30, representing the unpaid
balance of the purchase price of two tractors, bought by the defendant Garcia Plantation Co.,
We think is a clear case of liquidated damages. The contract plainly states that if the defendant Inc. from the plaintiff. Salud C. de Garcia was made alternative
fails to deliver the 600 piculs of sugar within the time agreed on, the contract will be rescinded co-defendant because of two promissory notes executed by her, whereby she personally
and he will be obliged to return the P3,000 and pay the sum of P1,200 by way of indemnity for assumed the account of the company with the plaintiff, and the defendant Vicente B. Garcia
loss and damages. There cannot be the slightest doubt about the meaning of this language or was included as husband of Salud C. de Garcia. The defendants, in their answer, admitted the
the intention of the parties. There is no room for either interpretation or construction. Under the execution of the two promissory notes, but contended that the same had been novated by a
provisions of article 1255 of the Civil Code contracting parties are free to execute the contracts subsequent agreement contained in a letter sent by Filomeno C. Kintanar, Manager, Board of
that they may consider suitable, provided they are not in contravention of law, morals, or public Liquidators of the LASEDECO, giving the defendant Salud C. de Garcia an extension up
order. In our opinion there is nothing in the contract under consideration which is opposed to to May 31, 1957, within which to pay the account, and since the complaint was filed
any of these principles. on February 20, 1957, they claimed that the action was premature and prayed that the
complaint be dismissed. The plaintiff in the reply and answer to the counterclaim, admitted the
For the foregoing reasons the judgment appealed from is modified by allowing the recovery of due execution and genuineness of the letter marked Exhibit L, but contended that the same did
P1,200 under paragraph 4 of the contract. As thus modified, the judgment appealed from is not express the true and intent agreement of the parties, thereby placing the fact in issue, in
affirmed, without costs in this instance. the pleadings.
Wherefore, the parties respectfully pray that the foregoing stipulation of facts be admitted and
approved by this Honorable Court, without prejudice to the parties adducing other evidence to
prove their case not covered by this stipulation of facts. 1wph1.t
After several postponements requested by both parties on the ground of pending amicable
settlement, trial on the merits was ordered and held on July 25, 1957, at 1:00 o'clock in the
afternoon. At the trial, the defendant admitted all the documentary evidence adduced by the
plaintiffs, showing that they were indebted to said plaintiff. However, when the plaintiff
presented Atty. Guinto, Legal Officer of the Board of Liquidators, to testify on the true
agreement and the intention of the parties at the time the letter was drafted and prepared, the
lower court presided by the Hon. B. A. Tan, upon the objection of the counsel for defendants,
ruled out said testimony and prevented the introduction of evidence under the parol evidence
rule (Sec. 22, Rule 123). Plaintiff also intended to present Mr. Kintanar, the writer of the letter,
to testify on the same matter, but in view of the ruling of the lower court, it rested its case. The
lower court dismissed the case, stating that the action was premature. Plaintiff appealed to the
Court of Appeals, which certified the case to us, pointing that the questions presented were evidence to show that a supposed contract never became effective by reason of the failure of
purely legal in nature. some collateral condition or stipulation, pre-requisite to liability".The rule excluding parol
evidence to vary or contradict a writing, does not extend so far as to preclude the admission of
extrinsic evidence, to show prior or contemporaneous collateral parol agreements between the
Appellants allege that the lower court erred (1) In forcing the parties to trial despite requests by
parties, but such evidence may be received, regardless of whether or not the written
both parties for more time to submit an amicable settlement of the case; (2) In excluding parol
agreement contains reference to such collateral agreement. In the case at bar, reference is
evidence, tending to prove the true intention and agreement of the parties and the existence of
made of a previous agreement, in the second paragraph of letter Exhibit L, and although a
a condition precedent, before the extension granted the defendants, contained in Exhibit L,
document is usually to be interpreted in the precise terms in which it is couched, Courts, in the
could become effective and (3) In holding that the action was premature and in dismissing the
exercise of sound discretion, may admit evidence of surrounding circumstances, in order to
case on this ground.
arrive at the true intention of the parties. Rulings by the same effect were also announced by
the United States courts
The disposal of the second issue would render the determination of the other issues
unnecessary. The fact that the letter Exhibit L, failed "to express the true intent and agreement
Had the trial court permitted, as it should, the plaintiff to prove the condition precedent to the
of the parties", Section 22, Rule 123, had been put in issue by the Answer of the plaintiff to
extension of the payment the said plaintiff would have been able to show that because the
defendants' counterclaim. The parol evidence consisted of the testimony of Attys. Guinto and
defendants had failed to pay a substantial down payment, the agreement was breached and
Kintanar, to the effect that in view of the plea of defendant Vicente B. Garcia to give the
the contract contained in Exhibit "L", never became effective and the extension should be
defendants an extension of time to pay their accounts, Atty. Kintanar gave the defendants up to
considered as not having been given at all. So that, although the complaint was filed on
May 31, 1957, to coincide with their ramie harvest "provided that they will make a substantial
February 20, 1957, three months before the deadline of the extension on May 31, 1957, there
down payment immediately, with the understanding that upon non-payment of the substantial
would be no premature institution of the case. The lower court, therefore, erred in dismissing
amount, the extension shall be deemed as not granted and the LASEDECO shall feel free to
the case.
seek redress in court". That there was such condition precedent is manifested by the second
paragraph of the letter Exhibit L, quoted hereunder:
The decision appealed from is reversed, and the case remanded to the lower court for further
proceedings. Costs against the appellees.
November 20, 1956
It is true that Section 143 and 144 of the law are not applicable, because these are provisions We have been unable to find any authority sustaining the proposition that an indorser of a
having to do with the presentation of a bill of exchange for acceptance, and are not applicable check is not discharged from liability for an unreasonable delay in presentation for payment.
to a check, as to which presentment for acceptance is not required. This is contrary to the essential nature and character of negotiable instruments their
negotiability. They are supposed to be passed on with promptness in the ordinary course of
business transactions; not to be retained or kept for such time as the holder may want,
It is also true that Section 84 is applicable, but its application is subject to the condition
otherwise the smooth flow of commercial transactions would be hindered.
imposed by Section 186, to the effect that the check must be presented for payment within a
reasonable time after its issue.
There seems to be an intimation in the decision appealed from that inasmuch as the check
was drawn payable elsewhere than at the place of business of the drawer, it must be
SEC. 186. Within what time a check must be presented. A check must be
presented for acceptance or negotiable within a reasonable time, and upon failure to do so the
presented for payment within a reasonable time after its issue or the drawer will be
drawer and all indorsers thereof are discharged pursuant to Section 144 of the law. Against this
discharged from liability thereon to the extent of the loss caused by the delay.
insinuation the petitioner argues that the application of sections 143 and 144 is not proper, and We find, however, that the supposed assurances of refund in case of dishonor of the check are
that it may not be presumed that the check in question was not drawn and executed in Cebu, precisely the ordinary obligations of an indorser, and these obligations are, under the law,
the residence or place of business of the drawer. There is no evidence at all as to the place considered discharged by an unreasonable delay in the presentation of the check for payment.
where the check was drawn. However, we have already pointed out above that neither Section
143 nor Section 144 is applicable. But our ruling that respondent was discharged upon the
SEC. 66. Liability of general indorser. . . . .
dishonor of the check is based on Sections 84 and 186, the latter expressly requiring that a
check must be presented for payment within a reasonable time after issue.
And, in addition, he engages that on due presentment, it shall be accepted or paid,
or both, as the case may be, according to its tenor, and that if it be dishonored, and
It is not claimed by the petitioner on this appeal that the conclusion of the Court of Appeals that
the necessary proceedings on dishonor be duly taken, he will pay the amount
there was unreasonable delay in the presentation of the check for payment at the drawee bank
thereof to the holder, or to any subsequent indorser who may be compelled to pay
is erroneous. The petitioner concedes the correctness of this conclusion, although for purposes
it. (Emphasis ours.)
of argument merely. We find that the conclusion is correct. The fact, admitted by the witnesses
for the petitioner, the checks for the drawer issued subsequent to March 13, 1948, drawn
against the same bank and cashed at the same Surigao agency, were not dishonored There was no express obligation assumed by the respondent herein that the drawer would
positively shows that the drawer had enough funds when he issued the check in question , and always have funds, or that he (the indorser) would refund the amount of the check even if there
that had it not been for the unreasonable delay in its presentation for payment, the petitioner was delay in its presentation, so that while the Court of Appeals may have committed an error
herein would have been able to receive payment therefor. The check is dated March 10, and in disregarding the evidence submitted by petitioner at the trial of the assurances made by
was cashed by the petitioner's agency on March 13, 1948. It was not mailed until seven days respondent herein at the time of the negotiation of the check, such error was without prejudice,
thereafter, i.e., on March 20, 1948, or ten days after issue. No excuse was given for this delay. because the supposed assurances given were part of his obligations as an indorser, which
Assuming that it took one week, or say ten days, or until March 30, for the check to reach were discharged by the unreasonable delay in the presentation of the check for payment.
Cebu, neither can there be any excuse for not presenting it for payment at the drawee bank
until April 9, 1948, or 10 days after it reached Cebu. We, therefore, find no reason for The judgment appealed from is, therefore, affirmed, with costs against the petitioner.
disturbing the conclusion of the Court of Appeals that there was unreasonable delay in the
presentation of the check for payment at the drawee bank, and that is a consequence thereof,
the indorser, respondent herein, was thereby discharged.
With respect to the second assignment of error, petitioner argues that the verbal assurances
given by the respondent to the employees of the bank that he was ready to refund the amount
if the check should be dishonored by the drawee bank is a collateral agreement, separate and
distinct from the indorsement, by virtue of which petitioner herein was induced to cash the
check, and, therefore, admissible as an exception that the parol evidence rule. Petitioners
contention in this respect is not entirely unfounded. In the case of Tan Machan vs. De La
Trinidad, et al., 4 Phil., 684, this court held that parol evidence is admissible to show that
parties signing as principals merely did so as sureties. In the case of Robles vs. Lizarraga
Hermanos, 50 Phil., 387, it was also held by this court that parol evidence is admissible to
prove "an independent thereof." (Ibid., p. 395.) In Philips vs. Preston, 5 How. (U.S.) 278, 12 L.
ed, 152, the Supreme Court of the United States held that any prior or contemporaneous
conversation in connection with a note or its indorsement, may be proved by parol evidence.
And Wigmore states that "an extrinsic agreement between indorser and indorsee which cannot
be embodied in the instrument without impairing its credit is provable by parol." (9 Wigmore
148, section 2445 [3].) If, therefore, the supposed assurances that the drawer had funds and
that the respondent herein would refund the amount of the check if the drawer had no funds,
were the considerations or reasons that induced the branch agency of the petitioners to go out
of its ordinary practice of not cashing out of town checks and accept the check and to pay its
face value, the same would be provable by parol, provided, of course, that the assurances or
inducements offered would not vary, alter, or destroy the obligations attached by law to the
indorsement.
LAPULAPU FOUNDATION, INC. and ELIAS Q. TAN, Petitioners, vs. COURT OF APPEALS According to petitioner Tan, the respondent Banks employee required him to affix two
(Seventeenth Division) and ALLIED BANKING CORP., Respondents. signatures on every promissory note, assuring him that the loan documents would be filled out
in accordance with their agreement. However, after he signed and delivered the loan
documents to the respondent Bank, these were filled out in a manner not in accord with their
Before the Court is the petition for review on certiorari filed by the Lapulapu Foundation, Inc. agreement, such that the petitioner Foundation was included as party thereto. Further, prior to
and Elias Q. Tan seeking to reverse and set aside the Decision 1 dated June 26, 1996 of the its filing of the complaint, the respondent Bank made no demand on him.
Court of Appeals (CA) in CA-G.R. CV No. 37162 ordering the petitioners, jointly and solidarily,
to pay the respondent Allied Banking Corporation the amount of P493,566.61 plus interests
and other charges. Likewise, sought to be reversed and set aside is the appellate courts After due trial, the court a quo rendered judgment the dispositive portion of which reads:
Resolution dated August 19, 1996 denying the petitioners motion for reconsideration.
WHEREFORE, in view of the foregoing evidences [sic], arguments and considerations, this
The case stemmed from the following facts: court hereby finds the preponderance of evidence in favor of the plaintiff and hereby renders
judgment as follows:
Sometime in 1977, petitioner Elias Q. Tan, then President of the co-petitioner Lapulapu
Foundation, Inc., obtained four loans from the respondent Allied Banking Corporation covered "1. Requiring the defendants Elias Q. Tan and Lapulapu Foundation, Inc. [the
by four promissory notes in the amounts of P100,000 each. The details of the promissory notes petitioners herein] to pay jointly and solidarily to the plaintiff Allied Banking
are as follows: Corporation [the respondent herein] the amount of P493,566.61 as principal
obligation for the four promissory notes, including all other charges included in the
same, with interest at 14% per annum, computed from January 24, 1979, until the
P/N No. Date of P/N Maturity Date Amount as of 1/23/79 same are fully paid, plus 2% service charges and 1% monthly penalty charges.
BD No. 839 Jan. 5, 1978 May 5, 1978 P120,455.542 "3. Requiring the defendants Elias Q. Tan and Lapulapu Foundation, Inc., to pay
jointly and solidarily litigation expenses of P1,000.00 plus costs of the suit."3
As of January 23, 1979, the entire obligation amounted to P493,566.61 and despite demands On appeal, the CA affirmed with modification the judgment of the court a quo by deleting the
made on them by the respondent Bank, the petitioners failed to pay the same. The respondent award of attorneys fees in favor of the respondent Bank for being without basis.
Bank was constrained to file with the Regional Trial Court of Cebu City, Branch 15, a complaint
seeking payment by the petitioners, jointly and solidarily, of the sum of P493,566.61
representing their loan obligation, exclusive of interests, penalty charges, attorneys fees and The appellate court disbelieved petitioner Tans claim that the loans were his personal loans as
costs. the promissory notes evidencing them showed upon their faces that these were obligations of
the petitioner Foundation, as contracted by petitioner Tan himself in his "official and personal
character." Applying the parol evidence rule, the CA likewise rejected petitioner Tans assertion
In its answer to the complaint, the petitioner Foundation denied incurring indebtedness from that there was an unwritten agreement between him and the respondent Bank that he would
the respondent Bank alleging that the loans were obtained by petitioner Tan in his personal pay the loans from the proceeds of his shares of stocks in the Lapulapu Industries Corp.
capacity, for his own use and benefit and on the strength of the personal information he
furnished the respondent Bank. The petitioner Foundation maintained that it never authorized
petitioner Tan to co-sign in his capacity as its President any promissory note and that the Further, the CA found that demand had been made by the respondent Bank on the petitioners
respondent Bank fully knew that the loans contracted were made in petitioner Tans personal prior to the filing of the complaint a quo. It noted that the two letters of demand dated January
capacity and for his own use and that the petitioner Foundation never benefited, directly or 3, 19794 and January 30, 19795 asking settlement of the obligation were sent by the
indirectly, therefrom. The petitioner Foundation then interposed a cross-claim against petitioner respondent Bank. These were received by the petitioners as shown by the registry return
Tan alleging that he, having exceeded his authority, should be solely liable for said loans, and a cards6 presented during trial in the court a quo.
counterclaim against the respondent Bank for damages and attorneys fees.
Finally, like the court a quo, the CA applied the doctrine of piercing the veil of corporate entity
For his part, petitioner Tan admitted that he contracted the loans from the respondent Bank in in holding the petitioners jointly and solidarily liable. The evidence showed that petitioner Tan
his personal capacity. The parties, however, agreed that the loans were to be paid from the had represented himself as the President of the petitioner Foundation, opened savings and
proceeds of petitioner Tans shares of common stocks in the Lapulapu Industries Corporation, current accounts in its behalf, and signed the loan documents for and in behalf of the latter.
a real estate firm. The loans were covered by promissory notes which were automatically The CA, likewise, found that the petitioner Foundation had allowed petitioner Tan to act as
renewable ("rolled-over") every year at an amount including unpaid interests, until such time as though he had the authority to contract the loans in its behalf. On the other hand, petitioner Tan
petitioner Tan was able to pay the same from the proceeds of his aforesaid shares. could not escape liability as he had used the petitioner Foundation for his benefit.
II. THE COURT OF APPEALS GRAVELY ERRED IN APPLYING THE PAROL These contentions are untenable.
EVIDENCE RULE AND THE DOCTRINE OF PIERCING THE VEIL OF
CORPORATE ENTITY AS BASIS FOR ADJUDGING JOINT AND SOLIDARY
LIABILITY ON THE PART OF PETITIONERS ELIAS Q. TAN AND LAPULAPU The Court particularly finds as incredulous petitioner Tans allegation that he was made to sign
FOUNDATION, INC.7 blank loan documents and that the phrase "IN MY OFFICIAL/PERSONAL CAPACITY" was
superimposed by the respondent Banks employee despite petitioner Tans protestation. The
Court is hard pressed to believe that a businessman of petitioner Tans stature could have
The petitioners assail the appellate courts finding that the loans had become due and been so careless as to sign blank loan documents.
demandable in view of the two demand letters sent to them by the respondent Bank. The
petitioners insist that there was no prior demand as they vigorously deny receiving those
letters. According to petitioner Tan, the signatures on the registry return cards were not his. In contrast, as found by the CA, the promissory notes 11 clearly showed upon their faces that
they are the obligation of the petitioner Foundation, as contracted by petitioner Tan "in his
official and personal capacity." 12 Moreover, the application for credit accommodation, 13 the
The petitioners denial of receipt of the demand letters was rightfully given scant consideration signature cards of the two accounts in the name of petitioner Foundation, 14 as well as New
by the CA as it held: Current Account Record,15 all accompanying the promissory notes, were signed by petitioner
Tan for and in the name of the petitioner Foundation. 16 These documentary evidence
unequivocally and categorically establish that the loans were solidarily contracted by the
Exhibits "R" and "S" are two letters of demand, respectively dated January 3, 1979 and petitioner Foundation and petitioner Tan.
January 30, 1979, asking settlement of the obligations covered by the promissory notes. The
first letter was written by Ben Tio Peng Seng, Vice-President of the bank, and addressed to
Lapulapu Foundation, Inc., attention of Mr. Elias Q. Tan, President, while the second was a As a corollary, the parol evidence rule likewise constrains this Court to reject petitioner Tans
final demand written by the appellees counsel, addressed to both defendants-appellants, and claim regarding the purported unwritten agreement between him and the respondent Bank on
giving them five (5) days from receipt within which to settle or judicial action would be instituted the payment of the obligation. Section 9, Rule 130 of the of the Revised Rules of Court
against them. Both letters were duly received by the defendants, as shown by the registry provides that "[w]hen the terms of an agreement have been reduced to writing, it is to be
return cards, marked as Exhibits "R-2" and "S-1," respectively. The allegation of Tan that he considered as containing all the terms agreed upon and there can be, between the parties and
does not know who signed the said registry return receipts merits scant consideration, for there their successors-in-interest, no evidence of such terms other than the contents of the written
is no showing that the addresses thereon were wrong. Hence, the disputable presumption "that agreement."17
a letter duly directed and mailed was received in the regular course of mail" (per par. V, Section
3, Rule 131 of the Revised Rules on Evidence) still holds. 8
In this case, the promissory notes are the law between the petitioners and the respondent
Bank. These promissory notes contained maturity dates as follows: February 5, 1978, March
There is no dispute that the promissory notes had already matured. However, the petitioners 28, 1978, April 11, 1978 and May 5, 1978, respectively. That these notes were to be paid on
insist that the loans had not become due and demandable as they deny receipt of the these dates is clear and explicit. Nowhere was it stated therein that they would be renewed on
respondent Banks demand letters. When presented the registry return cards during the trial, a year-to-year basis or "rolled-over" annually until paid from the proceeds of petitioner Tans
petitioner Tan claimed that he did not recognize the signatures thereon. The petitioners shares in the Lapulapu Industries Corp. Accordingly, this purported unwritten agreement could
allegation and denial are self-serving. They cannot prevail over the registry return cards which not be made to vary or contradict the terms and conditions in the promissory notes.
constitute documentary evidence and which enjoy the presumption that, absent clear and
convincing evidence to the contrary, these were regularly issued by the postal officials in the
performance of their official duty and that they acted in good faith. 9 Further, as the CA correctly Evidence of a prior or contemporaneous verbal agreement is generally not admissible to vary,
opined, mails are presumed to have been properly delivered and received by the addressee "in contradict or defeat the operation of a valid contract. 18 While parol evidence is admissible to
the regular course of the mail." 10 As the CA noted, there is no showing that the addresses on explain the meaning of written contracts, it cannot serve the purpose of incorporating into the
the registry return cards were wrong. It is the petitioners burden to overcome the presumptions contract additional contemporaneous conditions which are not mentioned at all in writing,
by sufficient evidence, and other than their barefaced denial, the petitioners failed to support unless there has been fraud or mistake. 19 No such allegation had been made by the petitioners
their claim that they did not receive the demand letters; therefore, no prior demand was made in this case.
on them by the respondent Bank.
Finally, the appellate court did not err in holding the petitioners jointly and solidarily liable as it
Having established that the loans had become due and demandable, the Court shall now applied the doctrine of piercing the veil of corporate entity. The petitioner Foundation asserts
resolve the issue of whether the CA correctly held the petitioners jointly and solidarily liable that it has a personality separate and distinct from that of its President, petitioner Tan, and that
therefor. it cannot be held solidarily liable for the loans of the latter.1wphi1
In disclaiming any liability for the loans, the petitioner Foundation maintains that these were The Court agrees with the CA that the petitioners cannot hide behind the corporate veil under
contracted by petitioner Tan in his personal capacity and that it did not benefit therefrom. On the following circumstances:
the other hand, while admitting that the loans were his personal obligation, petitioner Tan avers
The evidence shows that Tan has been representing himself as the President of Lapulapu
Foundation, Inc. He opened a savings account and a current account in the names of the
corporation, and signed the application form as well as the necessary specimen signature
cards (Exhibits "A," "B" and "C") twice, for himself and for the foundation. He submitted a
notarized Secretarys Certificate (Exhibit "G") from the corporation, attesting that he has been
authorized, inter alia, to sign for and in behalf of the Lapulapu Foundation any and all checks,
drafts or other orders with respect to the bank; to transact business with the Bank, negotiate
loans, agreements, obligations, promissory notes and other commercial documents; and to
initially obtain a loan for P100,000.00 from any bank (Exhibits "G-1" and "G-2"). Under these
circumstances, the defendant corporation is liable for the transactions entered into by Tan on
its behalf.20
Per its Secretarys Certificate, the petitioner Foundation had given its President, petitioner Tan,
ostensible and apparent authority to inter alia deal with the respondent Bank. Accordingly, the
petitioner Foundation is estopped from questioning petitioner Tans authority to obtain the
subject loans from the respondent Bank. It is a familiar doctrine that if a corporation knowingly
permits one of its officers, or any other agent, to act within the scope of an apparent authority,
it holds him out to the public as possessing the power to do those acts; and thus, the
corporation will, as against anyone who has in good faith dealt with it through such agent, be
estopped from denying the agents authority.21
In fine, there is no cogent reason to deviate from the CAs ruling that the petitioners are jointly
and solidarily liable for the loans contracted with the respondent Bank.
WHEREFORE, premises considered, the petition is DENIED and the Decision dated June 26,
1996 and Resolution dated August 19, 1996 of the Court of Appeals in CA-G.R. CV No. 37162
are AFFIRMED in toto.
In course of the negotiations an obstacle was encountered in the fact that the lease of Zacarias
Robles still had over two years to run. It was accordingly proposed that he should surrender
the last two years of his lease and permit Lizarraga Hermanos to take possession as
purchaser in June, 1918. A surrender of the two years of the lease would naturally involve a
heavy sacrifice on the part of Zacarias Robles not only because the rent which he was bound
ZACARIAS ROBLES, plaintiff-appellee, vs. LIZARRAGA HERMANOS, defendant-appellant. to pay was low, but because he had already made most of the expenditures in outfitting the
farm which would be necessary for farming operations during the entire period of the lease.
This action was instituted in the Court of First Instance of Occidental Negros by Zacarias
Robles against Lizarraga Hermanos, a mercantile partnership organized under the laws of the The plaintiff alleges and the trial court found, upon what we believe to be sufficient proof, that,
Philippine Islands, for the purpose of recovering compensation for improvements made by the in consideration that the plaintiff should shorten the term of his lease to the extent stated, the
plaintiff upon the hacienda "Nahalinan" and the value of implements and farming equipment defendant agreed to pay him the value of all betterments that he had made on
supplied to the hacienda by the plaintiff, as well as damages for breach of contract. Upon the hacienda and furthermore to purchase from him all that belonged to him personally on
hearing the cause the trial court gave judgment for the plaintiff to recover of the defendant the the hacienda, including the crop of 1917-18, the cattle, farming implements and equipment,
sum of P14,194.42, with costs. From this judgment the defendant appealed. according to a valuation to be made after the harvest. The plaintiff agreed to this; and the
instrument of conveyance by which the three owners, Zacarias, Jose and Evarista Robles,
It appears that the hacienda "Nahalinan," situated in the municipality of Pontevedra, Occidental conveyed the property to Lizarraga Hermanos was accordingly executed on November 16,
Negros, belonged originally to the spouses Zacarias Robles and Anastacia de la Rama, 1917.
parents of the present plaintiff, Zacarias Robles. Upon the death of Zacarias Robles, sr.,
several years ago, his widow Anastacia de la Rama was appointed administratrix of his estate; The effective clauses of conveyance by which each of the three owner transferred their
and on May 20, 1913, as widow and administratrix, she leased the hacienda to the plaintiff, respective interest to the purchaser read as follows:
Zacarias Robles, for the period of six years beginning at the end of the milling season in May,
1915, and terminating at the end of the milling season in May, 1920. It was stipulated that any
(a) Por la presente, Don Jose Robles, en consideracion a la cantidad de
permanent improvements necessary to the cultivation and exploitation of the hacienda should
P25,266.37 que declara haber ya recibido de la casa comercial Lizarraga
be made at the expense of the lessee without right to indemnity at the end of the term. As the
Hermanos, vende, cede y traspasa a la mencionada casa comercial Lizarraga
place was in a run-down state, and it was foreseen that the lessee would be put to much
Hermanos, representada en este acto por D. Severiano Lizarraga, como gerente de
expense in bringing the property to its productive capacity, the annual rent was fixed at the
la misma, sus sucesores y causahabientes, todos sus derechos, interes y
moderate amount of P2,000 per annum.
participacion en la testamentaria de la difunta Da. Anastacia de la Rama, como uno
de los herederos forzosos de la misma y todos los derechos, interes y participacion
The plaintiff accordingly entered upon the property, in the character of lessee; and, in order to adquiridos conjuntamente por el y sus hermanos Da. Evarista Robles y D. Zacarias
put the farm in good condition, he found it necessary to make various improvements and Robles de D. Rafael Campos y Hurtado y de Da. Magdalena Robles.
additions to the plant. Briefly stated, the changes and additions thus effected were these:
Substitution of a new hydraulic press; reconstruction of dwelling house; construction of new
(b) Y Da. Evarista Robles, con la debida licencia marital de su esposo D. Enrique
houses for workmen; building of camarins; construction of chimney; reconstruction of ovens;
Martin, quien concurre al otorgamiento de este documento, en consideracion a la
installment of new coolers; purchase of farming tools and many head of carabao, with other
cantidad de P23,036.43, que declara haber ya recibido de la casa comercial
repairs and improvements. All this expense was borne exclusively by the lessee, with the
Lizarraga Hermanos, representada en este acto por D. Severano Lizarraga, como
exception that his mother and coheirs contributed P1,500 towards the expense of the
gerente de la misma, sus sucesores y causahabientes, vende, cede y traspasa
reconstruction of the dwelling house, which was one-half the outlay for that item. The firm of
todos sus derechos, intereses y participacion en la testamentaria de la difunta Da.
Lizarraga Hermanos was well aware of the nature and extent of these improvements, for the
Anastacia de la Rama, como una de interes y participacion adquiridos por ella
reason that the lessee was a customer of the firm and had purchased from it many of the
juntamente con sus hermanos D. Jose Robles y D. Zacarias Robles de D. Rafael
things that went into the improvements.
Campos y Hurtado y de Da. Magdalena Robles.
In 1916, or three years before the lease was to expire, Anastacia de la Rama died, leaving as
(c) Y, finalmente, D. Zacarias Robles, en consideracion a la cantidad de P32,589.59
heirs Zacarias Robles (the plaintiff), Jose Robles, Evarista Robles, Magdalena Robles, Felix
que la casa Lizarraga Hermanos, representada en este acto por D. Severiano
Robles, Jose Robles, and Evarista Robles acquired by purchase the shares of their coheirs in
Lizarraga, por la presente promete pagarle en o antes del 30 de mayo de 1917, con
the entire inheritance; and at this juncture Lizarraga Hermanos came forward with a proposal
los intereses a razon de 8 por ciento anual, vende, cede y traspasa a favor de la
to buy from these three all of the other properties belonging to the Robles estate (which
mencionada casa comercial Lizarraga Hermanos, sus sucesores y causahabientes,
included other properties in addition to the hacienda "Nahalinan").
todos sus derechos, interes y participacion en la testamentaria de la difunta Da.
Anastacia de la Rama, como uno de los herederos forzosos de la misma, y todos
los derechos, interes y participcion adquiridospor el, juntamente con sus hermanos, 1917, by Severiano Lizarraga to the plaintiff, in which reference is made to an appraisal and
Da. Evarista Robles y D. Jose Robles, de D. Rafael Campos y Hurtado y de Da. liquidation. This letter is relied upon by the plaintiff as constituting written evidence of the
Magdalena Robles." agreement; but it seems to us so vague that, if it stood alone, and a written contract were really
necessary, it could not be taken as sufficient proof of the agreement in question. But we
believe that the contract is otherwise proved by oral testimony.
It will be seen from the clauses quoted that the plaintiff received some thousands of pesos of
the purchase money more than his brother and sister. This is explained by the fact that the
plaintiff was a creditor of his mother's estate while the other two were debtors to it; and the When testifying as a witness of the defense Carmelo Lizarraga himself admitted contrary to
difference in the amounts paid to each resulted from the adjustments of their respective rights. the statement of defendant's answer that a few days before the conveyance was executed
Furthermore, it will be noted that the three grantors in the deed conveyed only their deceased the plaintiff proposed that the defendant should buy all the things that the plaintiff then had on
mother; and precisely the same words are used in defining what was conveyed by Zacarias the hacienda, whereupon the Lizarragas informed him that they would buy those things if an
Robles as in defining what was conveyed by the other two. These words are noteworthy, and agreement should be arrived at as to the price. We note that as regards the improvements the
in the original Spanish they run as follows: "Sus derechos, interes y participacion en la position of the defendant is that they pertained to the hacienda at the time the purchase was
testamentaria de la difunta Da. Anastacia de la Rama, como uno de los herederos forzosos de effected and necessarily passed with it to the defendant.
la misma." What was conveyed by the plaintiff is not defined as being, in part,
the hacienda "Nahalinan," nor as including any of his rights in or to the property conveyed
As against the denials of the Lizarraga we have the direct testimony of the plaintiff and his
other than those which he possessed in the character of heir.
brother Jose to the effect that the agreement was as claimed by the plaintiff; and this is
supported by the natural probabilities of the case in connection with a subsequent appraisal of
No reference is made in this conveyance to the surrender of the plaintiff's rights as lessee, the property, which was rendered futile by the course pursued by the defendants. It is,
except in fixing the date when the lease should end; nor is anything said concerning the however, unnecessary to enter into details with respect to this, because, upon examining the
improvements or the property of a personal nature which the plaintiff had placed on assignments of error of the appellant in this court, it will be found that no exception has been
the hacienda. The plaintiff says that, when the instrument was presented to him, he saw that in taken to the finding of the trial court to the effect that a verbal contract was made in the sense
the sixth paragraph it was declared that the plaintiff's lease should subsist only until June 30, claimed by the plaintiff.
1918, instead of in May, 1920, which was the original term, while at the same time the promise
of the defendant to compensate for him for the improvements and to purchase the existing
We now proceed to discuss seriatim the errors assigned by the appellant. Under the first,
crop, together with the cattle and other things, was wanting; and he says that upon his calling
exception is taken to the action of the trial court in admitting oral evidence of a contract
attention to this, the representative of the defendant explained that this was unnecessary in
different from that expressed in the contract of sale (Exhibit B); and it is insisted that the written
view of the confidence existing between the parties, at the same time calling the attention of
contract must be taken as expressing all of the pacts, agreements and stipulations entered into
the plaintiff to the fact that the plaintiff was already debtor to the house of Lizarraga Hermanos
between the parties with respect to the acquisition of the hacienda. In this connection stress is
in the amount of P49,000, for which the firm had no security. Upon this manifestation the
placed upon the fact that there is no allegation in the complaint that the written contract fails to
plaintiff subsided; and, believing that the agreement with respect to compensation would be
express the agreement of the parties. This criticism is in our opinion not well directed. The
carried out in good faith, he did not further insist upon the incorporation of said agreement into
case is not one for the reformation of a document on the ground of mistake or fraud in its
this document. Nor was the supposed agreement otherwise reduced to writing.
execution, as is permitted under section 285 of the Code of Civil Procedure. The purpose is to
enforce an independent or collateral agreement which constituted an inducement to the
On the part of the defendant it is claimed that the agreement with respect to compensating the making of the sale, or part of the consideration therefor. There is no rule of evidence of wider
plaintiff for improvements and other things was never in fact made. What really happened, application than that which declares extrinsic evidence inadmissible either to contradict or vary
accordingly to the defendant's answer, is that, after the sale of the hacienda had been effected, the terms of a written contract. The execution of a contract in writing is deemed to supersede
the plaintiff offered to sell the defendant firm the crop of cane then existing uncut on all oral negotiations or stipulations concerning its terms and the subject-matter which preceded
the hacienda, together with the carabao then in use on the place. This propositon was the execution of the instrument, in the absence of accident, fraud or mistake of fact (10 R. C.
favorably received by the defendant; and it is admitted that an agreement was arrived at with L., p. 1016). But it is recognized that this rule is to be taken with proper qualifications; and all
respect to the value of the carabao, which were taken over for the agreed price, but it is the authorities are agreed that proof is admissible of any collateral, parol agreement that is not
claimed with respect to the crop that the parties did not come into accord. inconsistent with the terms of the written contract, though it may relate to the same subject-
matter (10 R. C. L., p. 1036). As expressed in a standard legal encyclopedia, the doctrine here
referred to is as follows: "The rule excluding parol evidence to vary or contradict a writing does
Upon the issue of fact thus made we are of the opinion that the preponderance of the evidence
not extend so far as to preclude the admission of extrinsic evidence to show prior or
supports the contention of the plaintiff and the finding of the trial court to the effect that, in
contemporaneous collateral parol agreements between the parties, but such evidence may be
consideration of the shortening of the period of the lease by nearly two years, the defendant
received, regardless of whether or not the written agreement contains any reference to such
undertook to pay for the improvements which the plaintiff had placed on the hacienda and take
collateral agreement, and whether the action is at law or in equity." (22 C. J., p. 1245.) It has
over at a fair valuation, to be made by appraisers, the personal property, such as carabao,
accordingly been held that, in case of a written contract of lease, the lessee may prove an
tools and farming impliments, which the plaintiff had placed upon the hacienda at his own
independent verbal agreement on the part of the landlord to put the leased premises in a safe
personal expense. The plaintiff introduced in evidence a letter (Exhibit D), written on March 1,
condition; and a vendor of realty may show by parol evidence that crops growing on the land The fourth assignment of error is concerned with the improvements. Attention is here directed
were reserved, though no such reservation was made in the deed of conveyance (10 R. C. L., to the fact that the improvements placed on the hacienda by the plaintiff became a part of the
p. 1037). In the case before us the deed of conveyance purports to transfer to the defendant realty and as such passed to the defendant by virtue of the transfer effected by the three owner
only such interests in certain properties as had come to the conveyors by inheritance. Nothing in the deed of conveyance (Exhibit B.). It is therefore insisted that, the defendant having thus
is said concerning the rights in the hacienda which the plaintiff had acquired by lease or acquired the improvements, the plaintiff should not be permitted to recover their value again
concerning the things that he had placed thereon by way of improvement or had acquired by from the defendant. This criticism misses the point. There can be no doubt that the defendant
purchase. The verbal contract which the plaintiff has established in this case is therefore acquired the fixed improvements when it acquired the land, but the question is whether the
clearly independent of the main contract of conveyance, and evidence of such verbal contract defendant is obligated to indemnify the plaintiff for his outlay in making the improvements. It
is admissible under the doctrine above stated. The rule that a preliminary or contemporaneous was upon the consideration of the defendant's promise so to indemnify the plaintiff that the
oral agreement is not admissible to vary a written contract appears to have more particular latter agreed to surrender the lease nearly two no doubt as to the validity of the promise made
reference to the obligation expressed in the written agreement, and the rule had never been under these circumstances to the plaintiff.
interpreted as being applicable to matters of consideration or inducement. In the case before
us the written contract is complete in itself; the oral agreement is also complete in itself, and it
The fifth assignment of error is directed towards the action of the trial court in awarding to the
is a collateral to the written contract, notwithstanding the fact that it deals with related matters.
plaintiff the sum of P1,142 as compensation for the damage caused by the failure of the
defendant to take the existing crop of cane from the hacienda at the proper time. In this
Under the second assignment of error the appellant directs attention to subsection 4 of article connection it appears that it was only in November, 1917, that the defendant finally notified the
335 of the Code of Civil Procedure wherein it is declared that a contract for the sale of goods, plaintiff that he would not take the cane off the plaintiff's hands. Having relied upon the promise
chattels or things in action, at a price of not less than P100, shall be unenforceable unless the of the defendant with respect to this matter, the plaintiff had made no prior arrangements to
contract, or some note or memorandum thereof shall be in writing and subscribed by the party have the cane ground himself, and he had failed to contract ahead for the necessary laborers
charged, or by his agent; and it is insisted that the court erred in admitting proof of a verbal to harvest the crop. Due to this lack of hands the milling of the cane was delayed, and things
contract over the objection of the defendant's attorney. But it will be noted that the same that ought to have been done in December, 1917, were only accomplished in February, 1918.
subsection contains a qualification, which is stated in these words, "unless the buyer accept It resulted also that the milling of the cane was not completed until July, 1918. The trial court
and receive part of such goods and chattels." In the case before us the trial court found that took judicial notice of the fact that protracted delay in the milling of sugar-cane results in loss;
the personal property, consisting of farming implements and other movables placed on the and his Honor estimated the damage to the plaintiff's crop upon this account in the amount
farm by the plaintiff, have been utilized by the defendant in the cultivation of the hacienda, and above stated. As fortifying his position on this point his Honor quoted extensively in his opinion
that the defendant is benefiting by those things. No effort was made in the court below by the from scientific treatises on the subject of the sugar industry in this and other countries. That
defendant to controvert the proof submitted on this point in behalf of the plaintiff, and no error there must have been damage attributable to the cause above stated is manifest; and although
is assigned in this court to the findings of fact with reference thereto made by the trial judge. It the estimate made by the court was based upon what may be considered matter of judicial
is evident therefore that proof of the oral agreement with respect to the movables was properly notice without any specific estimate from farmers, we see no reason to conclude that any
received by the trial judge, even over the objection of the defendant's attorney. . injustice was done to the plaintiff in said estimate.
The appellant's third assignment of error has reference to the alleged suspensive condition Upon the whole we find no reason to modify the conclusions of the trial court upon any point,
annexed to the oral agreement. In this connection it is claimed that the true meaning of the and the judgement appealed from must be affirmed. It is so ordered, with costs against the
proven verbal agreement is that, in case the parties should fail to agree upon the price, after appellant.
an appraisal of the property, the agreement would not be binding; in other words, that the
stipulation for appraisal and agreement as to the price was a suspensive condition in the
contract: and since the parties have never arrived at any agreement on the price (except as to
the carabao), it is contended that the obligation of the defendant has never become effective.
We are of the opinion that the stipulation with respect to the appraisal of the property did not
create a suspensive condition. The true sense of the contract evidently was that the defendant
would take over the movables and the improvements at an appraised valuation, and the
defendant obligated itself to promote the appraisal in good faith. As the defendant partially
frustrated the appraisal, it violated a term of the contract and made itself liable for the true
value of the things contracted about, as such value may be established in the usual course of
proof. Furthermore, it must occur to any one, as the trial judge pointed out, that an unjust
enrichment of the defendant would result from allowing it to appropriate the movables without
compensating the plaintiff thereof.
The petitioner filed a complaint for forcible entry with damages against the private
respondents, alleging that the latter by means of force, intimidation, strategy and stealth,
unlawfully entered lots A and B, corresponding to the middle and northern portion of the
property owned by the petitioner known as Lot No. 5456. She alleged that they appropriated
the produce thereof for themselves, and refused to surrender the possession of the same
despite demands made by the petitioner. The complaint was dismissed. Petitioner appealed to
the then Court of First Instance (CFI) of Iloilo where the case was docketed as Civil Case No.
5055.
While the above appeal was pending, the petitioner instituted another action before the CFI of
Iloilo for recovery and possession of the same property against the private respondents.
This case was docketed as Civil Case No. 5303. The two cases were tried jointly. After trial, the
court rendered judgment. The dispositive portion of the decision states:
c. dismissing the claim for damages of all defendants except that of Jose
Lozada;
The petitioner appealed to the Court of Appeals but the latter sustained the dismissal of the
cases. Hence, this petition with the petitioner making the following assignments of errors:
Refuting plaintiff's contention that the land sold to her is the very land
A . This edge. (witness indicating the lower edge of
under question, vendor Leoncia Lasangue testifies that:
the piece of paper shown into her)
Q. Do you know what is east, that is, the direction in the instrument or the relation established thereby. (Francisco on Evidence, Vol. VII, part I of
where the sun rises? the Rules of Court, p. 155 citing 32 C.J.S. 79.)
A. I know what is east. In Horn v. Hansen (57 N.W. 315), the court ruled:
Q. Do you know where the sun sets ? ...and the rule therefore applies, that as between parties to a written
agreement, or their privies, parol evidence cannot be received to
contradict or vary its terms. Strangers to a contract are, of course, not
A. The sun sets on the west.
bound by it, and the rule excluding extrinsic evidence in the construction
of writings is inapplicable in such cases; and it is relaxed where either
Q. If you are standing in the middle of your land one of the parties between whom the question arises is a stranger to the
containing thirty-six (36) hectares and facing the written agreement, and does not claim under or through one who is party
east, that is, the direction where the sun rises, to it. In such case the rule is binding upon neither. ...
where is that portion of land sold to Victoria
Lechugas, on your left, on your right, front of you or
In the case of Camacho v. Municipality of Baliuag, 28 Phil. 466, this Court held that parol
behind you?
evidence which was introduced by the municipality was competent to defeat the terms of the
plaintiff's deed which the latter executed with the Insular Government. In his concurring
A. On my right side. (Witness indicating south). opinion, Justice Moreland stated:
(Testimony of Leoncia Lasangue, pp. 209-211,
rollo) (emphasis supplied).
It should be noted in the first place, that there is no written instrument
between the plaintiff and the municipality, that is, between the parties to
On the basis of the above findings and the testimony of vendor Leoncia Lasangue herself, who the action; and there is, therefore, no possibility of the question arising as
although illiterate was able to specifically point out the land which she sold to the petitioner, the to the admissibility of parol evidence to vary or contradict the terms of an
appellate court upheld the trial court's decision except that the deed of sale (Exhibit A) was instrument. The written instrument that is, the conveyance on which
declared as not null and void ab initio insofar as Leoncia Lasangue was concerned because it plaintiff bases his action was between the Insular Government and the
could pass ownership of the lot in the south known as Lot No. 5522 of the Lambunao Cadastre plaintiff, and not between the municipality and the plaintiff; and therefore,
which Leoncia Lasangue intended to sell and actually sold to her vendee, petitioner Victoria there can arise, as between the plaintiff and defendant no question
Lechugas. relative to the varying or contradicting the terms of a written instrument
between them ...
In her first assignment of error, the petitioner contends that the respondent Court had no legal
justification when it subjected the true intent and agreement to parol evidence over the The petitioner's reliance on the parol evidence rule is misplaced. The rule is not applicable
objection of petitioner and that to impugn a written agreement, the evidence must be where the controversy is between one of the parties to the document and third persons. The
conclusive. Petitioner maintains, moreover, that the respondent Court relied so much on the deed of sale was executed by Leoncia Lasangue in favor of Victoria Lechugas. The dispute
testimony of the vendor who did not even file a case for the reformation of Exhibit A. over what was actually sold is between petitioner and the private respondents. In the case at
bar, through the testimony of Leoncia Lasangue, it was shown that what she really intended to
The contentions are without merit. sell and to be the subject of Exhibit A was Lot No. 5522 but not being able to read and write
and fully relying on the good faith of her first cousin, the petitioner, she just placed her
thumbmark on a piece of paper which petitioner told her was the document evidencing the sale
The appellate court acted correctly in upholding the trial court's action in admitting the of land. The deed of sale described the disputed lot instead.
testimony of Leoncia Lasangue. The petitioner claims that Leoncia Lasangue was the vendor
of the disputed land. The petitioner denies that Leoncia Lasangue sold Lot No. 5522 to her.
She alleges that this lot was sold to her by one Leonora Lasangue, who, however, was never This fact was clearly shown in Lasangue's testimony:
presented as witness in any of the proceedings below by herein petitioner.
Q. And how did you know that that was the
As explained by a leading commentator on our Rules of Court, the parol evidence rule does description of the land that you wanted to sell to
not apply, and may not properly be invoked by either party to the litigation against the other, Victoria Lechugas?
where at least one of the parties to the suit is not party or a privy of a party to the written
instrument in question and does not base a claim on the instrument or assert a right originating R. I know that because that land came from me.
S. But how were you able to read the description or There is likewise no merit in the contention of the petitioner that the respondents changed their
do you know the description? theory on appeal.
A. Because, since I do not know how to read and Respondents, from the very start, had questioned and denied Leoncia Lasangue's capacity to
write and after the document was prepared, she sell the disputed lot to petitioner. It was their contention that the lot was sold by Leoncia's
made me sign it. So I just signed because I do not father Emeterio Lasangue to their father, Hugo Loza wayback in 1941 while the alleged sale by
know how to read. Leoncia to the petitioner took place only in 1950. In essence, therefore, the respondents were
already attacking the validity of Exhibit "A". Moreover, although the prior sale of the lot to their
father may have been emphasized in their defenses in the civil cases filed against them by the
xxx xxx xxx
petitioner in the lower court, nevertheless in their affirmative defense, the respondents already
raised doubt on the true intention of Leoncia Lasangue in signing Exhibit "A" when they alleged
Q. What explanation did she make to you? that..." Leoncia Lasangue, publicly, and in writing repudiated said allegation and pretension of
the plaintiff, to the effect that the parcel of land now in litigation in the present case "WAS NOT
A. She said to me, 'Manang, let us have a INCLUDED in the sale she executed in favor of the plaintiff ... .
document prepared for you to sign on the land you
sold to me.' So, after the document was prepared, I Consequently, petitioner cannot impute grave abuse on the part of the appellate court and
signed. state that it allowed a change of theory by the respondents for the first time on appeal for in
reality, there was no such change.
Q. Did you tell her where that land you were selling
to her was situated? The third issue raised by the petitioner has no merit. There is strong, clear, and convincing
evidence as to which lot was actually sold to her. We see no reason to reverse the factual
xxx xxx xxx findings of both the Court of First Instance and the Court of Appeals on this point. The
"reformation" which the petitioner questions was, in fact, intended to favor her. Instead of
declaring the deed of sale null and void for all purposes, the Court upheld its having passed
A. On the South. ownership of Lot No. 5522 to the petitioner.
Q. South side of what land, of the land in litigation? WHEREFORE, IN VIEW OF THE FOREGOING, the petition is hereby DISMISSED for lack of
merit with costs against the petitioner.
A. The land I sold to her is south of the land in
litigation.
From the foregoing, there can be no other conclusion but that Lasangue did not intend to sell
as she could not have sold, a piece of land already sold by her father to the predecessor-in- This is a petition for review on certiorari of the decision of the Court of Appeals affirming that of
interest of the respondents. the Regional Trial Court of Misamis Oriental, Branch 18, 1 which disposed of Civil Case No.
10507 for collection of a sum of money and damages, as follows:
The fact that vendor Lasangue did not bring an action for the reformation of Exhibit "A" is of no
moment. The undisputed fact is that the respondents have timely questioned the validity of the WHEREFORE, defendant BALDOMERO L. INCIONG, JR. is adjudged
instrument and have proven that, indeed Exhibit "A" does not reflect the true intention of the solidarily liable and ordered to pay to the plaintiff Philippine Bank of
vendor. Communications, Cagayan de Oro City, the amount of FIFTY
THOUSAND PESOS (P50,000.00), with interest thereon from May 5,
1983 at 16% per annum until fully paid; and 6% per annum on the total The lower court also noted that petitioner was a holder of a Bachelor of Laws degree and a
amount due, as liquidated damages or penalty from May 5, 1983 until labor consultant who was supposed to take due care of his concerns, and that, on the witness
fully paid; plus 10% of the total amount due for expenses of litigation and stand, Pio Tio denied having participated in the alleged business venture although he knew for
attorney's fees; and to pay the costs. SO ORDERED. a fact that the falcata logs operation was encouraged by the bank for its export potential.
Petitioner's liability resulted from the promissory note in the amount of P50,000.00 which he Petitioner appealed the said decision to the Court of Appeals which, in its decision of August
signed with Rene C. Naybe and Gregorio D. Pantanosas on February 3, 1983, holding 31, 1990, affirmed that of the lower court. His motion for reconsideration of the said decision
themselves jointly and severally liable to private respondent Philippine Bank of having been denied, he filed the instant petition for review on certiorari.
Communications, Cagayan de Oro City branch. The promissory note was due on May 5, 1983.
On February 6, 1991, the Court denied the petition for failure of petitioner to comply with the
Said due date expired without the promissors having paid their obligation. Consequently, on Rules of Court and paragraph 2 of Circular No. 1-88, and to sufficiently show that respondent
November 14, 1983 and on June 8, 1984, private respondent sent petitioner telegrams court had committed any reversible error in its questioned decision. 4 His motion for the
demanding payment thereof. 2 On December 11, 1984 private respondent also sent by reconsideration of the denial of his petition was likewise denied with finality in the Resolution of
registered mail a final letter of demand to Rene C. Naybe. Since both obligors did not respond April 24, 1991. 5 Thereafter, petitioner filed a motion for leave to file a second motion for
to the demands made, private respondent filed on January 24, 1986 a complaint for collection reconsideration which, in the Resolution of May 27, 1991, the Court denied. In the same
of the sum of P50,000.00 against the three obligors. Resolution, the Court ordered the entry of judgment in this case. 6
On November 25, 1986, the complaint was dismissed for failure of the plaintiff to prosecute the Unfazed, petitioner filed a notion for leave to file a motion for clarification. In the latter motion,
case. However, on January 9, 1987, the lower court reconsidered the dismissal order and he asserted that he had attached Registry Receipt No. 3268 to page 14 of the petition in
required the sheriff to serve the summonses. On January 27, 1987, the lower court dismissed compliance with Circular No. 1-88. Thus, on August 7, 1991, the Court granted his prayer that
the case against defendant Pantanosas as prayed for by the private respondent herein. his petition be given due course and reinstated the same. 7
Meanwhile, only the summons addressed to petitioner was served as the sheriff learned that
defendant Naybe had gone to Saudi Arabia.
Nonetheless, we find the petition unmeritorious.
In his answer, petitioner alleged that sometime in January 1983, he was approached by his
Annexed to the petition is a copy of an affidavit executed on May 3, 1988, or after the rendition
friend, Rudy Campos, who told him that he was a partner of Pio Tio, the branch manager of
of the decision of the lower court, by Gregorio Pantanosas, Jr., an MTCC judge and petitioner's
private respondent in Cagayan de Oro City, in the falcata logs operation business. Campos
co-maker in the promissory note. It supports petitioner's allegation that they were induced to
also intimated to him that Rene C. Naybe was interested in the business and would contribute
sign the promissory note on the belief that it was only for P5,000.00, adding that it was
a chainsaw to the venture. He added that, although Naybe had no money to buy the
Campos who caused the amount of the loan to be increased to P50,000.00.
equipment, Pio Tio had assured Naybe of the approval of a loan he would make with private
respondent. Campos then persuaded petitioner to act as a "co-maker" in the said loan.
Petitioner allegedly acceded but with the understanding that he would only be a co-maker for The affidavit is clearly intended to buttress petitioner's contention in the instant petition that the
the loan of P50,000.00. Court of Appeals should have declared the promissory note null and void on the following
grounds: (a) the promissory note was signed in the office of Judge Pantanosas, outside the
premises of the bank; (b) the loan was incurred for the purpose of buying a second-hand
Petitioner alleged further that five (5) copies of a blank promissory note were brought to him by
chainsaw which cost only P5,000.00; (c) even a new chainsaw would cost only P27,500.00; (d)
Campos at his office. He affixed his signature thereto but in one copy, he indicated that he
the loan was not approved by the board or credit committee which was the practice, as it
bound himself only for the amount of P5,000.00. Thus, it was by trickery, fraud and
exceeded P5,000.00; (e) the loan had no collateral; (f) petitioner and Judge Pantanosas were
misrepresentation that he was made liable for the amount of P50,000.00.
not present at the time the loan was released in contravention of the bank practice, and (g)
notices of default are sent simultaneously and separately but no notice was validly sent to
In the aforementioned decision of the lower court, it noted that the typewritten figure "-- 50,000 him. 8 Finally, petitioner contends that in signing the promissory note, his consent was vitiated
--" clearly appears directly below the admitted signature of the petitioner in the promissory by fraud as, contrary to their agreement that the loan was only for the amount of P5,000.00,
note. 3 Hence, the latter's uncorroborated testimony on his limited liability cannot prevail over the promissory note stated the amount of P50,000.00.
the presumed regularity and fairness of the transaction, under Sec. 5 (q) of Rule 131. The
lower court added that it was "rather odd" for petitioner to have indicated in a copy and not in
The above-stated points are clearly factual. Petitioner is to be reminded of the basic rule that
the original, of the promissory note, his supposed obligation in the amount of P5,000.00 only.
this Court is not a trier of facts. Having lost the chance to fully ventilate his factual claims
Finally, the lower court held that, even granting that said limited amount had actually been
below, petitioner may no longer be accorded the same opportunity in the absence of grave
agreed upon, the same would have been merely collateral between him and Naybe and,
abuse of discretion on the part of the court below. Had he presented Judge Pantanosas
therefore, not binding upon the private respondent as creditor-bank.
affidavit before the lower court, it would have strengthened his claim that the promissory note Ninety one (91) days after date, for value received, I/we, JOINTLY and
did not reflect the correct amount of the loan. SEVERALLY promise to pay to the PHILIPPINE BANK OF
COMMUNICATIONS at its office in the City of Cagayan de Oro,
Philippines the sum of FIFTY THOUSAND ONLY (P50,000.00) Pesos,
Nor is there merit in petitioner's assertion that since the promissory note "is not a public deed
Philippine Currency, together with interest . . . at the rate of SIXTEEN
with the formalities prescribed by law but . . . a mere commercial paper which does not bear
(16) per cent per annum until fully paid.
the signature of . . . attesting witnesses," parol evidence may "overcome" the contents of the
promissory note. 9 The first paragraph of the parol evidence rule 10states:
A solidary or joint and several obligation is one in which each debtor is liable for the entire
obligation, and each creditor is entitled to demand the whole obligation. 17 on the other hand,
When the terms of an agreement have been reduced to writing, it is
Article 2047 of the Civil Code states:
considered as containing all the terms agreed upon and there can be,
between the parties and their successors in interest, no evidence of such
terms other than the contents of the written agreement. By guaranty a person, called the guarantor, binds himself to the creditor
to fulfill the obligation of the principal debtor in case the latter should fail
to do so.
Clearly, the rule does not specify that the written agreement be a public document.
(ii) Plaintiff will submit to the defendants the approved plan for the
segregation;
(iii) Plaintiff will put up a strong wall between his property and that of
defendants' lot to segregate his right of way;
RAFAEL S. ORTAES, petitioner, vs. THE COURT OF APPEALS, respondents.
(iv) Plaintiff will pay the capital gains tax and all other expenses that may
On September 30, 1982, private respondents sold to petitioner two (2) parcels of registered
be incurred by reason of sale. . .
land in Quezon City for a consideration of P35,000.00 and P20,000.00, respectively. The first
deed of absolute sale covering Transfer Certificate of Title (TCT) No. 258628 provides in part:
During trial, private respondent Oscar Inocentes, a former judge, orally testified that the sale
was subject to the above conditions, 7 although such conditions were not incorporated in the
That for and in consideration of the sum of THIRTY FIVE THOUSAND
deeds of sale. Despite petitioner's timely objections on the ground that the introduction of said
(P35,000.00) PESOS, receipt of which in full is hereby
oral conditions was barred by the parol evidence rule, the lower court nonetheless, admitted
acknowledged, we have sold, transferred and conveyed, as we hereby
them and eventually dismissed the complaint as well as the counterclaim. On appeal, the
sell, transfer and convey, that subdivided portion of the property covered
Court of Appeals (CA) affirmed the court a quo. Hence, this petition.
by TCT No. 258628 known as Lot No. 684-G-1-B-2 in favor of RAFAEL
S. ORTAEZ, of legal age, Filipino, whose marriage is under a regime of
complete separation of property, and a resident of 942 Aurora Blvd., We are tasked to resolve the issue on the admissibility of parol evidence to establish the
Quezon City, his heirs or assigns. 1 alleged oral conditions-precedent to a contract of sale, when the deeds of sale are silent on
such conditions.
while the second deed of absolute sale covering TCT. No. 243273 provides:
The parol evidence herein introduced is inadmissible. First, private respondents' oral testimony
on the alleged conditions, coming from a party who has an interest in the outcome of the case,
That for and in consideration of the sum of TWENTY THOUSAND
depending exclusively on human memory, is not as reliable as written or documentary
(P20,000.00) PESOS receipt of which in full is hereby acknowledged, we
evidence. 8 Spoken words could be notoriously unreliable unlike a written contract which
have sold, transferred and conveyed, as we hereby sell, transfer and
speaks of a uniform language. 9 Thus, under the general rule in Section 9 of Rule 130 10 of the
convey, that consolidated-subdivided portion of the property covered by
Rules of Court, when the terms of an agreement were reduced to writing, as in this case, it is
TCT No. 243273 known as Lot No. 5 in favor of RAFAEL S. ORTANEZ,
deemed to contain all the terms agreed upon and no evidence of such terms can be admitted
of legal age, Filipino, whose marriage is under a regime of complete
other than the contents thereof. 11 Considering that the written deeds of sale were the only
separation of property, and a resident of 942 Aurora Blvd., Cubao,
repository of the truth, whatever is not found in said instruments must have been waived and
Quezon City his heirs or assigns. 2
abandoned by the parties. 12 Examining the deeds of sale, we cannot even make an inference
that the sale was subject to any condition. As a contract, it is the law between the parties. 13
Private respondents received the payments for the above-mentioned lots, but failed to deliver
the titles to petitioner. On April 9, 1990 the latter demanded from the former the delivery of said
Secondly, to buttress their argument, private respondents rely on the case of Land Settlement
titles. 3 Private respondents, however, refused on the ground that the title of the first lot is in the
Development, Co. vs. Garcia Plantation 14 where the Court ruled that a condition precedent to a
possession of another person, 4 and petitioner's acquisition of the title of the other lot is subject
contract may be established by parol evidence. However, the material facts of that case are
to certain conditions.
different from this case. In the former, the contract sought to be enforced 15expressly stated that
it is subject to an agreement containing the conditions-precedent which were proven through
Offshoot, petitioner sued private respondents for specific performance before the RTC. In their parol evidence. Whereas, the deeds of sale in this case, made no reference to any pre-
answer with counterclaim private respondents merely alleged the existence of the following conditions or other agreement. In fact, the sale is denominated as absolute in its own terms.
oral conditions 5 which were never reflected in the deeds of sale: 6
Third, the parol evidence herein sought to be introduced would vary, contradict or defeat the
3.3.2 Title to the other property (TCT No. 243273) remains with the operation of a valid instrument, 16 hence, contrary to the rule that:
defendants (private respondents) until plaintiff (petitioner) shows proof
that all the following requirements have been met:
The parol evidence rule forbids any addition to . . . the terms of a written
instrument by testimony purporting to show that, at or before the signing
of the document, other or different terms were orally agreed upon by the
parties. 17
Fourth, we disagree with private respondents' argument that their parol evidence is admissible
under the exceptions provided by the Rules, specifically, the alleged failure of the agreement to
express the true intent of the parties. Such exception obtains only in the following instance:
In this case, the deeds of sale are clear, without any ambiguity, mistake or
imperfection, much less obscurity or doubt in the terms thereof.
Fifth, we are not persuaded by private respondents' contention that they "put in issue by the
pleadings" the failure of the written agreement to express the true intent of the parties. Record
shows 20 that private respondents did not expressly plead that the deeds of sale were
incomplete or that it did not reflect the
intention 21 of the buyer (petitioner) and the seller (private respondents). Such issue must be,
"squarely presented." 22Private respondents merely alleged that the sale was subject to four (4)
conditions which they tried to prove during trial by parol evidence. 23 Obviously, this cannot be
done, because they did not plead any of the exceptions mentioned in the parol evidence
rule. 24 Their case is covered by the general rule that the contents of the writing are the only
repository of the terms of the agreement. Considering that private respondent Oscar Inocentes
is a lawyer (and former judge) he was "supposed to be steeped in legal knowledge and
practices" and was "expected to know the consequences" 25 of his signing a deed of absolute
sale. Had he given an iota's attention to scrutinize the deeds, he would have incorporated
important stipulations that the transfer of title to said lots were conditional. 26
One last thing, assuming arguendo that the parol evidence is admissible, it should nonetheless
be disbelieved as no other evidence appears from the record to sustain the existence of the
alleged conditions. Not even the other seller, Asuncion Inocentes, was presented to testify on
such conditions.
ACCORDINGLY, the appealed decision is REVERSED and the records of this case
REMANDED to the trial court for proper disposition in accordance with this ruling.
Therefore, the undersigned mutually and reciprocally agree not to sell, transfer, or
otherwise dispose of any part of their present holdings of stock in said John R.
Edgar & Co. Inc., till after one year from the date hereof.
Either party violating this agreement shall pay to the other the sum of one thousand
(P1,000) pesos as liquidated damages, unless previous consent in writing to such
sale, transfer, or other disposition be obtained.
Notwithstanding this contract the defendant Fox on October 19, 1911, sold his stock in the said
corporation to E. C. McCullough of the firm of E. C. McCullough & Co. of Manila, a strong
competitor of the said John R. Edgar & Co., Inc. This sale was made by the defendant against
the protest of the plaintiff and with the warning that he would be held liable under the contract
hereinabove set forth and in accordance with its terms. In fact, the defendant Foz offered to
sell his shares of stock to the plaintiff for the same sum that McCullough was paying them less
P1,000, the penalty specified in the contract.
The learned trial court decided the case in favor of the defendant upon the ground that the
intention of the parties as it appeared from the contract in question was to the effect that the
agreement should be good and continue only until the corporation reached a sound financial
basis, and that that event having occurred some time before the expiration of the year
mentioned in the contract, the purpose for which the contract was made and had been fulfilled
and the defendant accordingly discharged of his obligation thereunder. The complaint was
dismissed upon the merits. It is argued here that the court erred in its construction of the
contract. We are of the opinion that the contention is sound. The intention of parties to a
contract must be determined, in the first instance, from the words of the contract itself. It is to
LEON J. LAMBERT, plaintiff-appellant, vs. T. J. FOX, defendant-appellee. be presumed that persons mean what they say when they speak plain English. Interpretation
and construction should by the instruments last resorted to by a court in determining what the
parties agreed to. Where the language used by the parties is plain, then construction and
This is an action brought to recover a penalty prescribed on a contract as punishment for the interpretation are unnecessary and, if used, result in making a contract for the parties.
breach thereof.
In the case cited the court said with reference to the construction and interpretation of statutes:
Early in 1911 the firm known as John R. Edgar & Co., engaged in the retail book and stationery "As for us, we do not construe or interpret this law. It does not need it. We apply it. By applying
business, found itself in such condition financially that its creditors, including the plaintiff and the law, we conserve both provisions for the benefit of litigants. The first and fundamental duty
the defendant, together with many others, agreed to take over the business, incorporate it and of courts, in our judgment, is to apply the law. Construction and interpretation come only after it
accept stock therein in payment of their respective credits. This was done, the plaintiff and the has been demonstrated that application is impossible or inadequate without them. They are the
defendant becoming the two largest stockholders in the new corporation called John R. Edgar very last functions which a court should exercise. The majority of the law need no interpretation
& Co., Incorporated. A few days after the incorporation was completed plaintiff and defendant or construction. They require only application, and if there were more application and less
entered into the following agreement: construction, there would be more stability in the law, and more people would know what the
law is."
Whereas the undersigned are, respectively, owners of large amounts of stock in
John R. Edgar and Co, Inc; and, What we said in that case is equally applicable to contracts between persons. In the case at
bar the parties expressly stipulated that the contract should last one year. No reason is shown
Whereas it is recognized that the success of said corporation depends, now and for for saying that it shall last only nine months. Whatever the object was in specifying the year, it
at least one year next following, in the larger stockholders retaining their respective was their agreement that the contract should last a year and it was their judgment and
interests in the business of said corporation: conviction that their purposes would not be subversed in any less time. What reason can give
for refusing to follow the plain words of the men who made the contract? We see none.
The appellee urges that the plaintiff cannot recover for the reason that he did not prove In this jurisdiction, there is no difference between a penalty and liquidated damages, so far as
damages, and cites numerous American authorities to the effect that because stipulations for legal results are concerned. Whatever differences exists between them as a matter of
liquidated damages are generally in excess of actual damages and so work a hardship upon language, they are treated the same legally. In either case the party to whom payment is to be
the party in default, courts are strongly inclined to treat all such agreements as imposing a made is entitled to recover the sum stipulated without the necessity of proving damages.
penalty and to allow a recovery for actual damages only. He also cites authorities holding that Indeed one of the primary purposes in fixing a penalty or in liquidating damages, is to avoid
a penalty, as such, will not be enforced and that the party suing, in spite of the penalty such necessity.
assigned, will be put to his proof to demonstrate the damages actually suffered by reason of
defendants wrongful act or omission.
It is also urged by the appelle in this case that the stipulation in the contract suspending the
power to sell the stock referred to therein is an illegal stipulation, is in restraint of trade and,
In this jurisdiction penalties provided in contracts of this character are enforced . It is the rule therefore, offends public policy. We do not so regard it. The suspension of the power to sell has
that parties who are competent to contract may make such agreements within the limitations of a beneficial purpose, results in the protection of the corporation as well as of the individual
the law and public policy as they desire, and that the courts will enforce them according to their parties to the contract, and is reasonable as to the length of time of the suspension. We do not
terms. (Civil Code, articles 1152, 1153, 1154, and 1155; Fornow vs. Hoffmeister, 6 Phil. Rep., here undertake to discuss the limitations to the power to suspend the right of alienation of
33; Palacios vs. Municipality of Cavite, 12 Phil. Rep., 140; Gsell vs. Koch, 16 Phil. Rep., 1.) stock, limiting ourselves to the statement that the suspension in this particular case is legal and
The only case recognized by the Civil Code in which the court is authorized to intervene for the valid.
purpose of reducing a penalty stipulated in the contract is when the principal obligation has
been partly or irregularly fulfilled and the court can see that the person demanding the penalty
The judgment is reversed, the case remanded with instructions to enter a judgment in favor of
has received the benefit of such or irregular performance. In such case the court is authorized
the plaintiff and against the defendant for P1,000, with interest; without costs in this instance.
to reduce the penalty to the extent of the benefits received by the party enforcing the penalty.