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[G.R. No.

145842, June 27, 2008]


EDSA SHANGRI-LA HOTEL AND RESORT, INC., RUFO B. COLAYCO, RUFINO L.
SAMANIEGO, KUOK KHOON CHEN, AND KUOK KHOON TSEN, PETITIONERS, VS. BF
CORPORATION RESPONDENT.
G.R. NO. 145873
CYNTHIA ROXAS-DEL CASTILLO, PETITIONER, VS. BF CORPORATION,
RESPONDENT.
DECISION
VELASCO JR., J.:
Before us are these two (2) consolidated petitions for review under Rule 45 to nullify certain issuances
of the Court of Appeals (CA).
In the first petition, docketed as G.R. No. 145842, petitioners Edsa Shangri-la Hotel and Resort, Inc.
(ESHRI), Rufo B. Colayco, Rufino L. Samaniego, Kuok Khoon Chen, and Kuok Khoon Tsen assail the
Decision[1] dated November 12, 1999 of the CA in CA-G.R. CV No. 57399, affirming the
Decision[2] dated September 23, 1996 of the Regional Trial Court (RTC), Branch 162 in Pasig City in
Civil Case No. 63435 that ordered them to pay jointly and severally respondent BF Corporation (BF) a
sum of money with interests and damages. They also assail the CA Resolution dated October 25, 2000
which, apart from setting aside an earlier Resolution[3] of August 13, 1999 granting ESHRI's application
for restitution and damages against bond, affirmed the aforesaid September 23, 1996 RTC Decision.
In the second petition, docketed as G.R. No. 145873, petitioner Cynthia Roxas-del Castillo also
assails the aforementioned CA Decision of November 12, 1999 insofar at it adjudged her jointly and
severally liable with ESHRI, et al. to pay the monetary award decreed in the RTC Decision.
Both petitions stemmed from a construction contract denominated as Agreement for the Execution of
Builder's Work for the EDSA Shangri-la Hotel Project [4] that ESHRI and BF executed for the
construction of the EDSA Shangri-la Hotel starting May 1, 1991. Among other things, the contract
stipulated for the payment of the contract price on the basis of the work accomplished as described in
the monthly progress billings. Under this arrangement, BF shall submit a monthly progress billing to
ESHRI which would then re-measure the work accomplished and prepare a Progress Payment
Certificate for that month's progress billing.[5]
In a memorandum-letter dated August 16, 1991 to BF, ESHRI laid out the collection procedure BF was
to follow, to wit: (1) submission of the progress billing to ESHRI's Engineering Department; (2)
following-up of the preparation of the Progress Payment Certificate with the Head of the Quantity
Surveying Department; and (3) following-up of the release of the payment with one Evelyn San
Pascual. BF adhered to the procedures agreed upon in all its billings for the period from May 1, 1991
to June 30, 1992, submitting for the purpose the required Builders Work Summary, the monthly
progress billings, including an evaluation of the work in accordance with the Project Manager's
Instructions (PMIs) and the detailed valuations contained in the Work Variation Orders (WVOs) for final
re-measurement under the PMIs. BF said that the values of the WVOs were contained in the progress

billings under the section "Change Orders."[6]


From May 1, 1991 to June 30, 1992, BF submitted a total of 19 progress billings following the
procedure agreed upon. Based on Progress Billing Nos. 1 to 13, ESHRI paid BF PhP 86,501,834.05. [7]
According to BF, however, ESHRI, for Progress Billing Nos. 14 to 19, did not re-measure the work
done, did not prepare the Progress Payment Certificates, let alone remit payment for the inclusive
periods covered. In this regard, BF claimed having been misled into working continuously on the
project by ESHRI which gave the assurance about the Progress Payment Certificates already being
processed.
After several futile attempts to collect the unpaid billings, BF filed, on July 26, 1993, before the RTC a
suit for a sum of money and damages.
In its defense, ESHRI claimed having overpaid BF for Progress Billing Nos. 1 to 13 and, by way of
counterclaim with damages, asked that BF be ordered to refund the excess payments. ESHRI also
charged BF with incurring delay and turning up with inferior work accomplishment.
The RTC found for BF
On September 23, 1996, the RTC, on the main finding that BF, as plaintiff a quo, is entitled to the
payment of its claim covered by Progress Billing Nos. 14 to 19 and to the retention money
corresponding to Progress Billing Nos. 1 to 11, with interest in both instances, rendered judgment for
BF. The fallo of the RTC Decision reads:
WHEREFORE, defendants [EHSRI], Ru[f]o B. Colayco, Rufino L. Samaniego, Cynthia del Castillo, Kuok
Khoon Chen, and Kuok Khoon Tsen, are jointly and severally hereby ordered to:
1.

Pay plaintiff the sum of P24,780,490.00 representing unpaid construction work


accomplishments under plaintiff's Progress Billings Nos. 14-19;

2.

Return to plaintiff the retention sum of P5,810,000.00;

3.

Pay legal interest on the amount of P24,780,490.80 representing the construction work
accomplishments under Progress Billings Nos. 14-19 and on the amount of P5,810,000.00
representing the retention sum from date of demand until their full Payment;

4.

Pay plaintiff P1,000,000.00 as moral damages, P1,000,000.00 as exemplary damages,


P1,000,000.00 as attorney's fees, and cost of the suit. [8]

According to the RTC, ESHRI's refusal to pay BF's valid claims constituted evident bad faith entitling BF
to moral damages and attorney's fees.
ESHRI subsequently moved for reconsideration, but the motion was denied by the RTC, prompting
ESHRI to appeal to the CA in CA-G.R. CV No. 57399.
Pending the resolution of CA-G.R. CV No. 57399, the following events and/or incidents transpired:
(1) The trial court, by Order dated January 21, 1997, granted BF's motion for execution pending

appeal. ESHRI assailed this order before the CA via a petition for certiorari, docketed as CA-G.R. SP
No. 43187.[9] Meanwhile, the branch sheriff garnished from ESHRI's bank account in the Philippine
National Bank (PNB) the amount of PhP 35 million.
(2) On March 7, 1997, the CA issued in CA-G.R. SP No. 43187 a writ of preliminary injunction
enjoining the trial court from carrying out its January 21, 1997 Order upon ESHRI's posting of a PhP 1
million bond. In a supplemental resolution issued on the same day, the CA issued a writ of preliminary
mandatory injunction directing the trial court judge and/or his branch sheriff acting under him (a) to
lift all the garnishments and levy made under the enjoined order of execution pending appeal; (b) to
immediately return the garnished deposits to PNB instead of delivering the same to ESHRI; and (c) if
the garnished deposits have been delivered to BF, the latter shall return the same to ESHRI's deposit
account.
(3) By a Decision dated June 30, 1997 in CA-G.R. SP No. 43187, the CA set aside the trial court's
January 21, 1997 Order. The CA would later deny BF's motion for reconsideration.
(4) Aggrieved, BF filed before this Court a petition for review of the CA Decision, docketed as G.R. No.
132655.[10] On August 11, 1998, the Court affirmed the assailed decision of the CA with the
modification that the recovery of ESHRI's garnished deposits shall be against BF's bond. [11]
We denied the motions for reconsideration of ESHRI and BF.
(5) Forthwith, ESHRI filed, and the CA by Resolution of August 13, 1999 granted, an application for
restitution or damages against BF's bond. Consequently, BF and Stronghold Insurance Co., Inc., the
bonding company, filed separate motions for reconsideration.
On November 12, 1999, in CA-G.R. CV No. 57399, the CA rendered a Decision resolving (1) the
aforesaid motions of BF and its surety and (2) herein petitioners' appeal from the trial court's Decision
dated September 23, 1996. This November 12, 1999 Decision, finding for BF and now assailed in
these separate recourses, dispositively reads:
WHEREFORE, premises considered, the decision appealed from isAFFIRMED in toto. This Court's
Resolution dated 13 August 1999 is reconsidered and set aside, and defendants-appellants' application
for restitution is denied for lack of merit.
SO ORDERED.[12]
The CA predicated its ruling on the interplay of two main reasons. First, the issues the parties raised in
their respective briefs were, for the most part, factual and evidentiary. Thus, there is no reason to
disturb the case disposition of the RTC, inclusive of its award of damages and attorney's fees and the
reasons underpinning the award. Second, BF had sufficiently established its case by preponderance of
evidence. Part of what it had sufficiently proven relates to ESHRI being remiss in its obligation to remeasure BF's later work accomplishments and pay the same. On the other hand, ESHRI had failed to
prove the basis of its disclaimer from liability, such as its allegation on the defective work
accomplished by BF.
Apropos ESHRI's entitlement to the remedy of restitution or reparation arising from the execution of
the RTC Decision pending appeal, the CA held that such remedy may peremptorily be allowed only if
the executed judgment is reversed, a situation not obtaining in this case.

Following the denial by the CA, per its Resolution[13] dated October 25, 2000, of their motion for
reconsideration, petitioners are now before the Court, petitioner del Castillo opting, however, to file a
separate recourse.
G.R. No. 145842
In G.R. No. 145842, petitioners ESHRI, et al. raise the following issues for our consideration:
I.

Whether or not the [CA] committed grave abuse of discretion in disregarding issues of law
raised by petitioners in their appeal [particularly in admitting in evidence photocopies of
Progress Billing Nos. 14 to 19, PMIs and WVOs].

II.

Whether or not the [CA] committed grave abuse of discretion in not holding respondent guilty
of delay in the performance of its obligations and, hence, liable for liquidated damages [in
view that respondent is guilty of delay and that its works were defective].

III.

Whether or not the [CA] committed grave abuse of discretion in finding petitioners guilty of
malice and evidence bad faith, and in awarding moral and exemplary damages and attorney's
fees to respondent.

IV.

Whether or not the [CA] erred in setting aside its Resolution dated August 13, 2000. [14]

The petition has no merit.


Prefatorily, it should be stressed that the second and third issues tendered relate to the correctness of
the CA's factual determinations, specifically on whether or not BF was in delay and had come up with
defective works, and whether or not petitioners were guilty of malice and bad faith. It is basic that in
an appeal by certiorari under Rule 45, only questions of law may be presented by the parties and
reviewed by the Court.[15] Just as basic is the rule that factual findings of the CA, affirmatory of that of
the trial court, are final and conclusive on the Court and may not be reviewed on appeal, except for
the most compelling of reasons, such as when: (1) the conclusion is grounded on speculations,
surmises, or conjectures; (2) the inference is manifestly mistaken, absurd, or impossible; (3) there is
grave abuse of discretion; (4) the judgment is based on a misapprehension of facts; (5) the findings
of fact are conflicting; (6) such findings are contrary to the admissions of both parties; and (7) the CA
manifestly overlooked certain relevant evidence and undisputed facts, that, if properly considered,
would justify a different conclusion.[16]
In our review of this case, we find that none of the above exceptions obtains. Accordingly, the factual
findings of the trial court, as affirmed by the CA, that there was delay on the part of ESHRI, that there
was no proof that BF's work was defective, and that petitioners were guilty of malice and bad faith,
ought to be affirmed.
Admissibility of Photocopies of Progress Billing Nos. 14 to 19, PMIs and WVOs
Petitioners fault the CA, and necessarily the trial court, on the matter of the admission in evidence of
the photocopies of Progress Billing Nos. 14 to 19 and the complementing PMIs and the WVOs.
According to petitioners, BF, before being allowed to adduce in evidence the photocopies adverted to,
ought to have laid the basis for the presentation of the photocopies as secondary evidence,

conformably to the best evidence rule.


Respondent BF, on the other hand, avers having complied with the laying-the-basis requirement.
Defending the action of the courts below in admitting into evidence the photocopies of the documents
aforementioned, BF explained that it could not present the original of the documents since they were
in the possession of ESHRI which refused to hand them over to BF despite requests.
We agree with BF. The only actual rule that the term "best evidence" denotes is the rule requiring that
the original of a writing must, as a general proposition, be produced [17] and secondary evidence of its
contents is not admissible except where the original cannot be had. Rule 130, Section 3 of the Rules of
Court enunciates the best evidence rule:
SEC. 3. Original document must be produced; exceptions. - When the subject of inquiry is the
contents of a document, no evidence shall be admissible other than the original document itself,
except in the following cases:
(a) When the original has been lost or destroyed, or cannot be produced in court, without bad faith on
the part of the offeror;
(b) When the original is in the custody or under the control of the party against whom the
evidence is offered, and the latter fails to produce it after reasonable notice; (Emphasis
added.)
Complementing the above provision is Sec. 6 of Rule 130, which reads:
SEC. 6. When original document is in adverse party's custody or control.- If the document is in the
custody or under control of the adverse party, he must have reasonable notice to produce it. If after
such notice and after satisfactory proof of its existence, he fails to produce the document, secondary
evidence may be presented as in the case of loss.
Secondary evidence of the contents of a written instrument or document refers to evidence other than
the original instrument or document itself.[18] A party may present secondary evidence of the contents
of a writing not only when the original is lost or destroyed, but also when it is in the custody or under
the control of the adverse party. In either instance, however, certain explanations must be given
before a party can resort to secondary evidence.
In our view, the trial court correctly allowed the presentation of the photocopied documents in
question as secondary evidence. Any suggestion that BF failed to lay the required basis for presenting
the photocopies of Progress Billing Nos. 14 to 19 instead of their originals has to be dismissed. The
stenographic notes of the following exchanges between Atty. Andres and Atty. Autea, counsel for BF
and ESHRI, respectively, reveal that BF had complied with the requirements:
ATTY. ANDRES:
During the previous hearing of this case, your Honor, likewise, the witness testified that certain
exhibits namely, the Progress Payment Certificates and the Progress Billings the originals of these
documents were transmitted to ESHRI, all the originals are in the possession of ESHRI since these are
internal documents and I am referring specifically to the Progress Payment Certificates. We
requested your Honor, that in order that plaintiff [BF] be allowed to present secondary
original, that opposing counsel first be given opportunity to present the originals which are
in their possession. May we know if they have brought the originals and whether they will present
the originals in court, Your Honor. (Emphasis added.)

ATTY. AUTEA:
We have already informed our client about the situation, your Honor, that it has been claimed by
plaintiff that some of the originals are in their possession and our client assured that, they will try to
check. Unfortunately, we have not heard from our client, Your Honor.
Four factual premises are readily deducible from the above exchanges, to wit: (1) the existence of the
original documents which ESHRI had possession of; (2) a request was made on ESHRI to produce the
documents; (3) ESHRI was afforded sufficient time to produce them; and (4) ESHRI was not inclined
to produce them.
Clearly, the circumstances obtaining in this case fall under the exception under Sec. 3(b) of Rule 130.
In other words, the conditions sine qua non for the presentation and reception of the photocopies of
the original document as secondary evidence have been met. These are: (1) there is proof of the
original document's execution or existence; (2) there is proof of the cause of the original document's
unavailability; and (3) the offeror is in good faith.[19] While perhaps not on all fours because it involved
a check, what the Court said in Magdayao v. People, is very much apt, thus:
x x x To warrant the admissibility of secondary evidence when the original of a writing is in the
custody or control of the adverse party, Section 6 of Rule 130 provides that the adverse party must be
given reasonable notice, that he fails or refuses to produce the same in court and that the offeror
offers satisfactory proof of its existence.
xxxx
The mere fact that the original of the writing is in the custody or control of the party against whom it
is offered does not warrant the admission of secondary evidence. The offeror must prove that he has
done all in his power to secure the best evidence by giving notice to the said party to produce the
document. The notice may be in the form of a motion for the production of the original or made in
open court in the presence of the adverse party or via a subpoena duces tecum, provided that the
party in custody of the original has sufficient time to produce the same.When such party has the
original of the writing and does not voluntarily offer to produce it or refuses to produce it,
secondary evidence may be admitted.[20] (Emphasis supplied.)
On the Restitution of the Garnished Funds
We now come to the propriety of the restitution of the garnished funds. As petitioners maintain, the
CA effectively, but erroneously, prevented restitution of ESHRI's improperly garnished funds when it
nullified its own August 13, 1999 Resolution in CA-G.R. SP No. 43187. In this regard, petitioners invite
attention to the fact that the restitution of the funds was in accordance with this Court's final and
already executory decision in G.R. No. 132655, implying that ESHRI should be restored to its own
funds without awaiting the final outcome of the main case. For ease of reference, we reproduce what
the appellate court pertinently wrote in its Resolution of August 13, 1999:
BASED ON THE FOREGOING, the Application (for Restitution/Damages against Bond for Execution
Pending Appeal) dated May 12, 1999 filed by [ESHRI] is GRANTED. Accordingly, the surety of [BF],
STRONGHOLD Insurance Co., Inc., is ORDERED to PAY the sum of [PhP 35 million] to [ESHRI] under
its SICI Bond. x x x In the event that the bond shall turn out to be insufficient or the surety
(STRONGHOLD) cannot be made liable under its bond, [BF], being jointly and severally liable under
the bond is ORDERED to RETURN the amount of [PhP 35 million] representing the garnished deposits
of the bank account maintained by [ESHRI] with the [PNB] Shangri-la Plaza Branch, Mandaluyong City.
Otherwise, this Court shall cause the implementation of the Writ of Execution dated April 24, 1998

issued in Civil Case No. 63435 against both [BF], and/or its surety, STRONGHOLD, in case they should
fail to comply with these directives.
SO ORDERED.[21]
Petitioners' contention on the restitution angle has no merit, for, as may be recalled, the CA,
simultaneously with the nullification and setting aside of its August 13, 1999 Resolution, affirmed, via
its assailed November 12, 1999 Decision, the RTC Decision of September 23, 1996, the execution
pending appeal of which spawned another dispute between the parties. And as may be recalled
further, the appellate court nullified its August 13, 1999 Resolution on the basis of Sec. 5, Rule 39,
which provides:
Sec. 5. Effect of reversal of executed judgment. - Where the executed judgment is reversed totally or
partially, or annulled, on appeal or otherwise, the trial court may, on motion, issue such orders of
restitution or reparation of damages as equity and justice may warrant under the circumstances.
On the strength of the aforequoted provision, the appellate court correctly dismissed ESHRI's claim for
restitution of its garnished deposits, the executed appealed RTC Decision in Civil Case No. 63435
having in fact been upheld in toto.
It is true that the Court's Decision of August 11, 1998 in G.R. No. 132655 recognized the validity of
the issuance of the desired restitution order. It bears to emphasize, however, that the CA had since
then decided CA-G.R. CV No. 57399, the main case,on the merits when it affirmed the underlying RTC
Decision in Civil Case No. 63435. This CA Decision on the original and main case effectively rendered
our decision on the incidental procedural matter on restitution moot and academic. Allowing restitution
at this point would not serve any purpose, but only prolong an already protracted litigation.
G.R. No. 145873
Petitioner Roxas-del Castillo, in her separate petition, excepts from the CA Decision affirming, in its
entirety, the RTC Decision holding her, with the other individual petitioners in G.R. No. 145842, who
were members of the Board of Directors of ESHRI, jointly and severally liable with ESHRI for the
judgment award. She presently contends:
I.

The [CA] erred in not declaring that the decision of the trial court adjudging petitioner
personally liable to respondent void for not stating the factual and legal basis for such award.

II.

The [CA] erred in not ruling that as former Director, Petitioner cannot be held personally liable
for any alleged breach of a contract entered into by the corporation.

III.
IV.
V.

The [cA] erred in not ruling that respondent is not entitled to an award of moral damages.
The [CA] erred in holding petitioner personally liable to respondent for exemplary damages.
The [CA] erred in not ruling that respondent is not entitled to any award of attorney's fees. [22]

First off, Roxas-del Castillo submits that the RTC decision in question violated the requirements of due
process and of Sec. 14, Article VII of the Constitution that states, "No decision shall be rendered by
any court without expressing therein clearly and distinctly the facts and the law on which it is based."
Roxas-del Castillo's threshold posture is correct. Indeed, the RTC decision in question, as couched,

does not provide the factual or legal basis for holding her personally liable under the premises. In fact,
only in the dispositive portion of the decision did her solidary liability crop up. And save for her
inclusion as party defendant in the underlying complaint, no reference is made in other pleadings thus
filed as to her liability.
The Court notes that the appellate court, by its affirmatory ruling, effectively recognized the
applicability of the doctrine on piercing the veil of the separate corporate identity. Under the
circumstances of this case, we cannot allow such application. A corporation, upon coming to existence,
is invested by law with a personality separate and distinct from those of the persons composing it.
Ownership by a single or a small group of stockholders of nearly all of the capital stock of the
corporation is not, without more, sufficient to disregard the fiction of separate corporate personality.
[23]
Thus, obligations incurred by corporate officers, acting as corporate agents, are not theirs but
direct accountabilities of the corporation they represent. Solidary liability on the part of corporate
officers may at times attach, but only under exceptional circumstances, such as when they act with
malice or in bad faith.[24] Also, in appropriate cases, the veil of corporate fiction shall be disregarded
when the separate juridical personality of a corporation is abused or used to commit fraud and
perpetrate a social injustice, or used as a vehicle to evade obligations. [25]In this case, no act of malice
or like dishonest purpose is ascribed on petitioner Roxas-del Castillo as to warrant the lifting of the
corporate veil.
The above conclusion would still hold even if petitioner Roxas-del Castillo, at the time ESHRI defaulted
in paying BF's monthly progress bill, was still a director, for, before she could be held personally liable
as corporate director, it must be shown that she acted in a manner and under the circumstances
contemplated in Sec. 31 of the Corporation Code, which reads:
Section 31. Directors or trustees who willfully or knowingly vote for or assent to patently
unlawful acts of the corporation or acquire any pecuniary interest in conflict with their duty
as such directors or trustees shall be liable jointly and severally for all damages resulting therefrom
suffered by the corporation, its stockholders or members and other persons. (Emphasis ours.)
We do not find anything in the testimony of one Crispin Balingit to indicate that Roxas-del Castillo
made any misrepresentation respecting the payment of the bills in question. Balingit, in fact, testified
that the submitted but unpaid billings were still being evaluated. Further, in the said testimony, in no
instance was bad faith imputed on Roxas-del Castillo.
Not lost on the Court are some material dates. As it were, the controversy between the principal
parties started in July 1992 when Roxas-del Castillo no longer sat in the ESHRI Board, a reality BF
does not appear to dispute. In fine, she no longer had any participation in ESHRI's corporate affairs
when what basically is the ESHRI-BF dispute erupted. Familiar and fundamental is the rule that
contracts are binding only among parties to an agreement. Art. 1311 of the Civil Code is clear on this
point:
Article 1311. Contracts take effect only between the parties, their assigns and heirs, except in cases
where the rights and obligations are not transmissible by their nature, or by stipulation or by provision
of law.
In the instant case, Roxas-del Castillo could not plausibly be held liable for breaches of contract
committed by ESHRI nor for the alleged wrongdoings of its governing board or corporate officers
occurring after she severed official ties with the hotel management.
Given the foregoing perspective, the other issues raised by Roxas-del Castillo as to her liability for
moral and exemplary damages and attorney's fees are now moot and academic.

And her other arguments insofar they indirectly impact on the liability of ESHRI need not detain us any
longer for we have sufficiently passed upon those concerns in our review of G.R. No. 145842.
WHEREFORE, the petition in G.R. No. 145842 is DISMISSED, while the petition in G.R. No. 145873
is GRANTED. Accordingly, the appealed Decision dated November 12, 1999 of the CA in CA-G.R. CV
No. 57399 is AFFIRMED with MODIFICATION that the petitioner in G.R. No. 145873, Cynthia
Roxas-del Castillo, is absolved from any liability decreed in the RTC Decision dated September 23,
1996 in Civil Case No. 63435, as affirmed by the CA.
SO ORDERED.

G.R. NO. 144435

February 6, 2007

GUILLERMINA BALUYUT, Petitioner,


vs.
EULOGIO POBLETE, SALUD POBLETE and THE HON.COURT OF
APPEALS, Respondents.
DECISION
AUSTRIA-MARTINEZ, J.:
Before the Court is a Petition for Review on Certiorari under Rule 45 of the Rules of
Court seeking to reverse the Decision1 of the Court of Appeals (CA) dated December
21, 1999 and its Resolution2 of August 4, 2000 in CA-G.R. CV No. 51534. The
assailed CA Decision affirmed the Decision of the Regional Trial Court (RTC) of
Pasig, Branch 167 which dismissed herein petitioners Complaint in Civil Case No.
52268, while the questioned Resolution denied petitioners Motion for
Reconsideration.
The facts of the case are as follows:
On July 20, 1981, herein petitioner, Guillermina Baluyut (Baluyut), loaned from the
spouses Eulogio and Salud Poblete the sum of P850,000.00. As evidence of her
indebtedness, Baluyut signed, on even date, a promissory note for the amount
borrowed3 . Under the promissory note, the loan shall mature in one month. To
secure the payment of her obligation, she conveyed to the Poblete spouses, by way
of a real estate mortgage contract, a house and lot she owns, covered by Transfer
Certificate of Title (TCT) No. 137129 and located in Barrio Mapuntod, then
Municipality of Mandaluyong, Province of Rizal. 4 Upon maturity of the loan, Baluyut
failed to pay her indebtedness. The Poblete spouses subsequently decided to
extrajudicially foreclose the real estate mortgage. On August 27, 1982, the
mortgaged property was sold on auction by the Provincial Sheriff of Rizal to the
Poblete spouses who were the highest bidders, as evidenced by a Certificate of
Sale issued pursuant thereto.5 Baluyut failed to redeem the subject property within
the period required by law prompting Eulogio Poblete to execute an Affidavit of
Consolidation of Title.6 Subsequently, TCT No. 43445 was issued in the name of
Eulogio and the heirs of Salud, who in the meantime, died. 7 However, Baluyut
remained in possession of the subject property and refused to vacate the same.
Hence, Eulogio and the heirs of Salud filed a Petition for the issuance of a writ of
possession with the RTC of Pasig. The case was docketed as Case No. R-3457.
Subsequently, the trial court issued an order granting the writ of possession.
However, before Eulogio and the heirs of Salud could take possession of the

property, Baluyut filed an action for annulment of mortgage, extrajudicial foreclosure


and sale of the subject property, as well as cancellation of the title issued in the
name of Eulogio and the heirs of Salud, plus damages. The case was docketed as
Civil Case No. 52268 and was subsequently consolidated with Case No. R-3457. In
the meantime, Eulogio died and was substituted by his heirs. After trial on the merits,
the trial court issued a Decision on September 13, 1995 dismissing Baluyuts
complaint.8
Aggrieved by the trial courts Decision, herein petitioner filed an appeal with the CA.
On December 21, 1999, the CA promulgated the presently assailed Decision
affirming the judgment of the trial court.9
Petitioner filed a Motion for Reconsideration but the same was denied in a
Resolution issued by the CA on August 4, 2000.10
Hence, the present petition with the following assignment of errors:
I
The decision and the resolution are both palpably infirm in holding that no prior
demand to pay is necessary for a loan to mature when there is conflict between the
date of maturity of the loan as stated in the Deed of Real Estate Mortgage and the
Promissory Note on the one hand and the real date of its maturity on the other.
II
The decision and the resolution are both palpably infirm in holding that the sheriff
who conducted the foreclosure proceedings should be presumed to have regularly
performed his duty in conducting the foreclosure proceedings despite the inability of
the Office of the Provincial Sheriff who had been ordered by the trial court to produce
the records of the foreclosure in question and show that there was compliance with
the required posting of notices in three public places and with the required
publication for three consecutive weeks in a newspaper of general circulation.
III
That the Decision and Resolution are legally infirm in holding that because the
Petitioner-Appellant failed to invoke her right to be sent an Assessment Notice by the
highest bidder thirty days before the expiration of the right of legal redemption during
the trial and on appeal, it should be deemed that she had waived her right to this
benefit under the law despite a clear showing that the said mandatory requirement

should have been strictly observed before title could be consolidated in favor of the
highest bidder as provided for in the certificate of sale issued by the sheriff. 11

In her first assigned error, petitioner contends that herein private respondents
witness, a certain Atty. Edwina Mendoza, is a competent witness and that her
testimony, that the maturity of the loan is one year, is acceptable proof of the
existence of collateral agreements which were entered into by the parties who
executed the Promissory Note and the Real Estate Mortgage prior,
contemporaneous and subsequent to the execution of these documents. Petitioner
also argues that the issue of the real date of the maturity of the loan can be settled
only by a formal letter of demand indicating the sum due and the specific date of
payment which is the duty of the private respondents to give; that absent said letter
of demand, the loan may not be considered to have matured; that, as a
consequence, the property given as a collateral may not be foreclosed and the
subsequent consolidation of title over the subject property should be annulled.
Petitioner further contends that even if the issue on the term of the loan was first
brought up in petitioners Addendum to the Motion for Reconsideration filed with the
CA, the appellate court may still properly consider this issue in the interest of justice
and equity considering that this is a matter of record and has some bearing on the
other issues submitted for resolution.
Anent her second assignment of error, petitioner contends that the CA erred in
relying on the rule on presumption of regularity in the sheriffs performance of his
duties relative to the foreclosure of the questioned property absent any evidence
presented by petitioner to prove that the sheriff failed to comply with the legal
requirements in the sale of the foreclosed properties. Petitioner argues that under
the law, the sheriff is required to submit an Affidavit of Posting of Notices to the clerk
of court and to the judge before he is allowed to schedule an auction sale. However,
per letter from the Office of the Clerk of Court, there are no records of the
foreclosure proceedings involving the subject property. Based on this premise,
petitioner concludes that since the existence of these documents is supposed to be
in the custody of the sheriffs office and that the private respondents are supposed to
have copies of these documents, being the ones who prosecuted the foreclosure
proceedings, petitioners contention that there was non-compliance with the legal
requirements for the validity of the foreclosure proceedings partakes of a negative
allegation which she need not prove. Petitioner argues that in the absence of
documents evidencing the foreclosure proceedings over the subject property, the
lower court should have acted judiciously by annulling the foreclosure and ordering
the repeat of the proceedings.

As to her third assigned error, petitioner asserts that despite the fact that she is
entitled under the law to an Assessment Notice or Notice of Redemption coming
from the highest bidder 30 days before the expiration of the period to redeem
apprising her of the principal amount, the interest, taxes and other lawful fees due in
case she opts to exercise her right of redemption, she did not receive any notice of
this kind. Petitioner contends that her right to this notice is not subject to waiver and
that her failure to invoke the same during trial and on appeal does not preclude her
from invoking such right in her motion for reconsideration filed with the CA and in the
present petition.
In their Motion to Dismiss, which the Court treated as their comment on the petition,
private respondents contend that the petition should be dismissed on the ground
that no question of law was raised therein. Private respondents argue that the issue
as to the supposed conflict between the date of maturity of the loan as stated in the
Deed of Real Estate Mortgage and the Promissory Note, on one hand, and the real
date of maturity as agreed upon by the parties, on the other, as well as the question
of whether or not the sheriff who conducted the foreclosure proceedings involving
the subject property complied with the legal requirements of posting and publication
are questions of fact which are not proper subjects of a petition for review
on certiorari. Furthermore, private respondents also assert in their Memorandum
that the questions of fact being raised by petitioner had already been ruled upon by
the RTC and the CA in favor of private respondents; that the findings of fact of the
RTC and the CA are binding on this Court.
The Court finds the petition without merit.
Petitioner admits that the issue regarding the date of maturity of the loan which she
incurred from the Poblete spouses was first brought up only in her Addendum to the
Motion for Reconsideration filed before the CA. In an effort to clothe her argument
with merit, petitioner contends that the CA should have properly considered this
issue in the interest of justice and equity. The Court is not persuaded. It is settled
that an issue not raised during trial could not be raised for the first time on appeal as
to do so would be offensive to the basic rules of fair play, justice, and due
process.12Contrary to petitioners contention, it would be the height of injustice if the
CA allowed her to raise an issue at a very late stage of the proceedings. It would be
unfair to the adverse party who would have no opportunity to present evidence in
contra to the new theory, which it could have done had it been aware of it at the time
of the hearing before the trial court.13 It is true that this rule admits of exceptions as in
cases of lack of jurisdiction, where the lower court committed plain error, where

there are jurisprudential developments affecting the issues, or when the issues
raised present a matter of public policy.14 However, the Court finds that none of these
exceptions are present in the instant case.
In addition, the issue regarding the date of maturity of the loan is factual and settled
is the rule that only questions of law may be raised in a petition for review
on certiorari under Rule 45 of the Rules of Court, as the Supreme Court is not a trier
of facts.15 It is not the function of this Court to review, examine and evaluate or weigh
the probative value of the evidence presented. 16 While there are also exceptions to
this rule such as when the factual findings of the trial court and the CA are
contradictory; when the inference made by the CA is manifestly mistaken or absurd;
when the judgment of the CA is premised on its misapprehension of facts; and,
when the CA failed to resolve relevant facts which, if properly considered, would
justify a modification or reversal of the decision of the appellate court, 17 this Court
finds that the present case does not fall under any of these exceptions.
Even if petitioner had properly raised the issue regarding the real date of maturity of
the loan, it is a long-held cardinal rule that when the terms of an agreement are
reduced to writing, it is deemed to contain all the terms agreed upon and no
evidence of such terms can be admitted other than the contents of the agreement
itself.18 In the present case, the promissory note and the real estate mortgage are the
law between petitioner and private respondents. It is not disputed that under the
Promissory Note dated July 20, 1981, the loan shall mature in one month from date
of the said Promissory Note.
Petitioner makes much of the testimony of Atty. Edwina Mendoza that the maturity of
the loan which petitioner incurred is one year. However, evidence of a prior or
contemporaneous verbal agreement is generally not admissible to vary, contradict or
defeat the operation of a valid contract.19 While parol evidence is admissible 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 writing, unless there has been fraud or mistake. 20 In the instant case, aside
from the testimony of Atty. Mendoza, no other evidence was presented to prove that
the real date of maturity of the loan is one year. In fact there was not even any
allegation in the Complaint and in the Memorandum filed by petitioner with the trial
court to the effect that there has been fraud or mistake as to the date of the loans
maturity as contained in the Promissory Note of July 20, 1981.

Moreover, during her cross-examination, petitioner herself never claimed that the
loan shall mature in one year despite being questioned regarding its maturity. She
testified thus:
Q You said that you borrowed P850,000.00 to [sic] Mrs. Poblete, is that correct?
A Yes sir.
Q In fact, you signed a Real Estate Mortgage marked as Exhibit "B"?
A Yes sir.
Q When you signed this Deed of Real Estate Mortgage, you also signed a
Promisory [sic] Note, is that correct?
RECORD: Witness did not answer.
Q Did you sign or not a Promisory [sic] note in relation to this Real Estate Mortgage.
A I dont remember sir.
Q You dont remember. I am showing to you a Promisory Note with your signature,
did you not sign this dated July 20, 1981?
A Yes sir.
Q Now, according to this Promisory [sic] Note, the loan is for one (1) month from
July 20, 1981, did you pay for that loan on its maturity date?
A I did not sir.
Q Up to now, you have not paid that loan?
A I have not sir.
Q What happen [sic] to the mortgage when you did not paid [sic] that loan from one
(1) month after July 20, 1981?
A None sir.21

In sum, petitioner failed to present clear and convincing evidence to prove her
allegation that the real agreement of the parties is for the loan to mature in one year.
As to the second assigned error, the prevailing jurisprudence is that foreclosure
proceedings have in their favor the presumption of regularity and the burden of
evidence to rebut the same is on the petitioner.22 Moreover, the Court agrees with the
CA that a mortgagor who alleges absence of a requisite has the burden of
establishing that fact.23Petitioner failed in this respect as she did not present any
evidence to prove her allegations.
Moreover, the fact that the records of the foreclosure proceedings involving the
subject property could not be found does not necessarily mean that the legal
requirements of posting and publication had not been complied with. Private
respondents were able to present the Affidavit of Publication 24 executed by the
publisher of Nuevo Horizonte, a newspaper of general circulation, together with a
clipping25 of the published notice attached thereto, to prove that notices of the sale of
the subject property were validly published in accordance with law. The affidavit of
publication executed by the publisher of a newspaper stating therein that said
newspaper is of general circulation and that the requisite notice of foreclosure sale
was published in said paper in accordance with law constitutes prima facieevidence
of compliance with the required publication.26
As to the alleged lack of posting of the notices of sale in at least three public places,
herein petitioner failed to discharge her burden of proving by convincing evidence
her allegation that there was actually no compliance with the posting requirement.
Hence, in the absence of contrary evidence, the presumption prevails that the sheriff
performed his official duty of posting the notices of sale. 27
The Courts ruling in Olizon v. Court of Appeals,28 insofar as posting and publication
requirements in mortgage foreclosure sales are concerned, is instructive:
We take judicial notice of the fact that newspaper publications have more farreaching effects than posting on bulletin boards in public places. There is a greater
probability that an announcement or notice published in a newspaper of general
circulation, which is distributed nationwide, shall have a readership of more people
than that posted in a public bulletin board, no matter how strategic its location may
be, which caters only to a limited few. Hence, the publication of the notice of sale
in [a] newspaper of general circulation alone is more than sufficient
compliance with the notice-posting requirement of the law. By such publication,

a reasonably wide publicity had been effected such that those interested might
attend the public sale, and the purpose of the law had been thereby subserved.
The object of a notice of sale is to inform the public of the nature and condition of the
property to be sold, and of the time, place and terms of the sale. Notices are given
for the purpose of securing bidders and to prevent a sacrifice of the property. If these
objects are attained, immaterial errors and mistakes will not affect the sufficiency of
the notice; but if mistakes or omissions occur in the notices of sale, which are
calculated to deter or mislead bidders, to depreciate the value of the property, or to
prevent it from bringing a fair price, such mistakes or omissions will be fatal to the
validity of the notice, and also to the sale made pursuant thereto.
In the instant case, the aforesaid objective was attained since there was
sufficient publicity of the sale through the newspaper publication. There is
completely no showing that the property was sold for a price far below its
value as to insinuate any bad faith, nor was there any showing or even an
intimation of collusion between the sheriff who conducted the sale and
respondent bank. This being so, the alleged non-compliance with the posting
requirement, even if true, will not justify the setting aside of the sale.29
1awphi1.net

In the present case, there was sufficient evidence to prove that notices of the
foreclosure sale of the subject property were published in accordance with law and
that there was no allegation, much less proof, that the property was sold for a price
which is considerably lower than its value as to show collusion between the sheriff
and herein private respondents. Hence, even granting that the sheriff failed to post
the notices of foreclosure in at least three public places, such failure, pursuant
to Olizon, is not a sufficient basis in nullifying the auction sale and the subsequent
issuance of title in favor of private respondents.
As to petitioners argument that the sheriff in charge of the auction sale is required to
execute an affidavit of posting of notices, the Court agrees with private respondents
contention that petitioners reliance on the provisions of Section 5, Republic Act
(R.A.) No. 720, as amended by R.A. No. 593930 , as well as on the cases of Roxas v.
Court of Appeals,31 Pulido v. Court of Appeals32 and Tambunting v. Court of
Appeals,33 is misplaced as the said provision of law refers specifically and
exclusively to the foreclosure of mortgages covering loans granted by rural banks. In
the present case, the contracts of loan and mortgage are between private
individuals. The governing law, insofar as the extrajudicial foreclosure proceedings
are concerned, is Act No. 3135, as amended by Act No. 4118. 34 Section 3 of the said
law reads as follows:

Sec. 3. Notice shall be given by posting notices of the sale for not less than twenty
days in at least three public places of the municipality or city where the property is
situated and if such property is worth more than four hundred pesos, such notice
shall also be published once a week for at least three consecutive weeks in a
newspaper of general circulation in the municipality or city.
Unlike in the amended provisions of Section 5, R.A. No. 720, nowhere in the abovequoted provision of Act No. 3135, as amended, or in any Section thereof, is it
required that the sheriff must execute an affidavit to prove that he published notices
of foreclosure in accordance with the requirements of law.
As to the last assigned error, suffice it to say that the Court agrees with the findings
of the CA that the issue regarding petitioners right to receive an Assessment Notice
or Notice of Redemption from private respondents as the highest bidders during the
auction sale was raised only in her Addendum to Motion for Reconsideration of the
Decision of the CA. The Court reiterates the rule that points of law, theories, issues
and arguments not brought to the attention of the lower court need not be, and
ordinarily will not be, considered by a reviewing court, as these cannot be raised for
the first time on appeal.35
Moreover, like the issue regarding the date of maturity of the loan, the question of
whether or not petitioner received a copy of an Assessment Notice or Notice of
Redemption from private respondents is also factual. As earlier explained, questions
of fact are not proper subjects of appeal by certiorari under Rule 45 of the Rules of
Court as this mode of appeal is confined to questions of law.36
Besides, there is nothing under Act No. 3135 which requires the highest bidder or
purchaser to furnish the mortgagor or redemptioner an Assessment Notice or Notice
of Redemption prior to the expiration of the period of redemption. Even the pertinent
provisions of Section 30, Rule 3937 of the old Rules of Court, which are the rules
applicable in the present case, do not require that the mortgagor or redemptioner be
furnished by the purchaser notice of any assessments or taxes which the latter may
have paid after the purchase of the auctioned property, thus:
Sec. 30. Time and manner of, and amounts payable on, successive redemptions,
notice to be given and filed. The judgment debtor or redemptioner may redeem the
property from the purchaser at any time within twelve (12) months after the sale, on
paying the purchaser the amount of his purchase with one per centum per month
interest thereon in addition, up to the time of redemption, together with the amount
of any assessments or taxes which the purchaser may have paid thereon after

purchase and interest on such last named amount at the same rate; and if the
purchaser be also a creditor having a prior lien to that of the redemptioner, other
than the judgment under which such purchase was made, and the amount of such
other lien, with interest. Property so redeemed may again be redeemed within sixty
(60) days after the last redemption upon payment of the sum paid on the last
redemption, with two per centum thereon in addition, and the amount of any
assessments or taxes which the last redemptioner may have paid thereon after
redemption by him, with interest of such last-named amount, and in addition, the
amount of any liens held by said last redemptioner prior to his own, with interest.
The property may be again, and as often as a redemptioner is so disposed,
redeemed from any previous redemptioner within sixty (60) days after the last
redemption, on paying the sum paid on the last previous redemption, with
two per centum thereon in addition, and the amounts of any assessments or taxes
which the last previous redemptioner paid after the redemption thereon, with interest
thereon, and the amount of any liens held by the last redemptioner prior to his own,
with interest.
Written notice of any redemption must be given to the officer who made the
sale and a duplicate filed with the Registrar of Deeds of the province, and if
any assessment of taxes are paid by the redemptioner or if he has or acquires
any lien other than that upon which the redemption was made, notice thereof
must in like manner be given to the officer and filed with the Registrar of
Deeds; if such notice be not filed, the property may be redeemed without
paying such assessments, taxes, or liens. (emphasis supplied)
Hence, even granting, for the sake of argument, that private respondents failed to
comply with the directive in the Certificate of Sale issued by the Ex-Officio Provincial
Sheriff of Rizal and the Deputy Sheriff In-Charge by giving a copy of statements of
the amount of assessments or taxes which they may have paid on account of the
purchase of the subject property, such failure would not invalidate the auction sale
and the subsequent transfer of title over the subject property in their favor.
It bears to note that the purpose for requiring the purchaser to furnish copies of the
amounts of assessments or taxes which he may have paid is to inform the
mortgagor or redemptioner of the actual amount which he should pay in case he
chooses to exercise his right of redemption. If no such notice is given, the only effect
is that the property may be redeemed without paying such assessments or
taxes.38 In fact, it would have been beneficial on the part of herein petitioner if private
respondents failed to submit to the office of the sheriff and furnish her a copy of the

statements of the taxes and assessments they paid because in such a case
petitioner would have been excused from reimbursing such assessments and taxes
if she redeemed the property. The fact remains, however, that petitioner failed to
redeem the subject property.
WHEREFORE, the instant petition is DENIED and the assailed Decision and
Resolution of the Court of Appeals areAFFIRMED in toto.Costs against
petitioner.SO ORDERED.

G.R. No. 90369 October 31, 1990


FLORENTINO CRUZ AND LINA CRUZ, petitioners,
vs.
THE HONORABLE COURT OF APPEALS AND GOVERNMENT SERVICE INSURANCE
SYSTEM, respondents.

Isidro D. Amoroso for petitioners.

GANCAYCO, J.:
The enforceability of a deed of sale with assumption of mortgage of property encumbered to
the Government Service Insurance System (GSIS), entered into without the previous
consent of the latter, is the center of controversy in this petition.
On May 22,1970, petitioners bought a parcel of land with an area of approximately 250
square meters from the spouses Oscar and Eva De los Reyes, registered owners thereof,
under Transfer Certificate of Title (TCT) No. 135319 issued by the Register of Deeds of
Quezon City. At the time of the sale of the property, it was mortgaged to the GSIS for
P20,000.00 which obligation petitioners assumed.

The mortgage contract of the De los Reyes spouses with the GSIS stipulates that
"the mortgagor shall not sell, dispose of, mortgage nor in any manner encumber the
mortgaged property without the prior consent of the mortgagee. 1
Petitioner Florentino Cruz went to the Real Estate Department of the GSIS to secure
its approval. He was interviewed by one Mr. Tobias Jaylo to whom he left a copy of
the deed of sale with assumption of mortgage, 2 and his letter request that he be
allowed to assume the mortgage obligation of the De los Reyes spouses. After two
weeks he returned to Mr. Jaylo only to be informed that the records of the
transaction with the De los Reyes spouses could not be found, hence, his request
could not be acted upon. As his follow-up proved fruitless, he left the matter to Mr.
Jaylo.
On March 12, 1974, petitioner Florentino Cruz wrote to the GSIS wherein petitioner asked
for the status of the loan and for a notification as to arrearages, if any, for liquidation. The
GSIS denied having received this letter.
In the meanwhile, the amortization of the De los Reyes spouses fell due and the GSIS
demanded payment. When the arrearages remained unpaid, the GSIS applied for
extrajudicial foreclosure of the property. The foreclosure proceeding was actually held on
September 29, 1978. After the one-year period of redemption expired, the GSIS
consolidated its ownership and TCT No. 281934 was issued in its favor on September 25,
1981.

On September 17, 1982, the GSIS wrote a letter to petitioner Florentino Cruz and
informed him that he was given the opportunity to repurchase the property for

P70,000.00 and to pay the monthly rental of P600.00 beginning September 1978
until the corresponding contract of sale shall have been made in favor of petitioners.
Petitioner rejected the offer and insisted that he be allowed to liquidate the mortgage
indebtedness on the property as of May 20, 1979. 3
Hence, the Cruz spouses filed a complaint for annulment of foreclosure, reconveyance and
damages in the Regional Trial Court of Quezon City.
On August 14, 1984, the Regional Trial Court rendered its decision dismissing the complaint
with costs de oficio.
Petitioners appealed to the Court of Appeals wherein in due course a decision was
rendered on September 25, 1989 affirming the appealed decision with costs against
petitioners.
Now come the petitioners with the herein petition for review on certiorari raising the sole
issue of whether or not the respondent Court of Appeals committed errors of law in affirming
the order of dismissal issued by the lower court.
The petition is devoid of merit.
In the first place, there can be no question that petitioners purchased the property in
question from the De los Reyes spouses by virtue of a deed of sale with assumption of
mortgage of the property without the previous consent of the respondent GSIS. Petitioners
thereby took a calculated risk knowing as they did that under the mortgage contract of the
De los Reyes spouses with the GSIS, its previous consent must be secured in transactions
of this nature. When petitioners brought this action to question the validity of the
extrajudicial foreclosure sale of the property, the burden was on them to prove their
allegations. Unfortunately, petitioners failed to discharge their burden.
In the second place, the contention of petitioners, to the effect that the said foreclosure
proceeded without their knowledge or prior notice to them and that this invalidated the
foreclosure proceeding, is untenable. Since there is no privity of contract between the
petitioners and the GSIS, the latter had no legal duty to notify the petitioners of the said
foreclosure proceeding. Moreover, the prior publication of the subject extrajudicial
foreclosure sale in a newspaper of general circulation operates as a constructive notice to
the whole world, including petitioners, of the sale.
In the third place, there is no provision of law which requires that when said extrajudicial
sale is conducted special notice to petitioners as alleged successors-in-interest of the
mortgagors should be made. Section 3 of Act No. 3135 governing extrajudicial foreclosure
sales provides as follows:

Sec. 3. Notice shall be given by notices of the sale for not less than twenty
days in at least three public places of the municipality or city where the
property is situated, and if such property is worth more than four hundred
pesos, such notice shall also be published once a week for at least three
consecutive weeks in a newspaper of general circulation in the municipality or
city.
The foregoing provision of law does not require any particular notice to the mortgagors
much less to their alleged successors-in-interest like the petitioners herein.
In the fourth place, the court a quo correctly observed that petitioners have not established
a cause of action against the respondent GSIS as its previous written approval of the deed
of sale with assumption of mortgage had not been secured by the petitioners. While it is true
that the petitioners attempted to secure such approval subsequently by submitting a copy of
the deed to the GSIS through one Mr. Jaylo, the fact remains that the approval sought had
not been granted.
In the fifth place, the Court takes note of the fact that while petitioners appear to have
purchased the property in 1970, they took no positive steps to pay the mortgage obligation
in the amount of P20,000.00 to the respondent GSIS except through its letter dated March
12, 1974 receipt of which is even denied by the GSIS. They knew that the mortgage
obligation they assumed is to be paid in monthly amortizations. They should have paid the
same as stipulated but they failed to do so. Thus, they have only themselves to blame.
Moreover, even after the property was foreclosed and its ownership was consolidated in the
name of the respondent GSIS, in a letter to petitioners dated September 7, 1982, the GSIS
nevertheless gave them the opportunity to redeem the property for P70,000.00 plus an
amount corresponding to reasonable rentals therefrom. However, petitioners rejected this
opportunity and instead insisted that they be allowed to liquidate the mortgage
indebtedness of the property.
Lastly, the petitioners appeal that on the basis of equity they should be allowed to redeem
the property by liquidating the mortgage indebtedness thereof. The Court finds no cogent
basis to grant this. As earlier stated petitioners took the risk of entering into a deed of sale
with assumption of mortgage to the property without securing the prior consent of the
respondent GSIS. Besides, petitioners did not pay the amortization due to stave off a
foreclosure. The recourse of the petitioners, if at all, the should be against the De los Reyes
spouses and not against GSIS.
WHEREFORE, the petition is DISMISSED without pronouncement as to costs.
SO ORDERED.

G.R. No. L-18077


RODRIGO ENRIQUEZ, ET AL., plaintiffs-appellants,
vs.
SOCORRO A. RAMOS, defendant-appellee.
Gelacio L. Dimaano for plaintiffs-appellants.
Vicente K. Aranda for defendant-appellee.
, J.:
This is an action for foreclosure of a real estate mortgage.
It is alleged that on November 24, 1958 defendant purchased from plaintiffs 20 parcels of
land located in Quezon City and covered by transfer certificates of title for the amount of
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 annum during the first year, and the remainder to draw 12% interest per
annum if paid thereafter, provided that at least P100,000.00 should be paid during the first
year, otherwise the whole unpaid balance would become immediately demandable; that to
secure the payment of the balance of P200,000.00 defendant executed a mortgage in favor
of plaintiffs upon the 20 parcels of land sold and on a half interest over a parcel of land in
Bulacan which was 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 present foreclosure proceedings.
Defendant set up as affirmative defense that the contract mentioned in the complaint does
not express the true agreement of the parties because certain important conditions agreed
upon were not included therein by the counsel who prepared the contract; that the
stipulation that was omitted from the contract was the promise assumed by plaintiffs that
they would construct roads in the lands which were to be subdivided for sale on or before
January, 1959; that said condition was not placed in the contract because, according to
plaintiffs' counsel, it was a superfluity, inasmuch as there is an ordinance in Quezon City
which requires the construction of roads in a subdivision before lots therein could be sold;
and that, upon the suggestion of 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 JpPz6FXN.
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
litigation, plaintiffs and Del Rosario, together with defendant Socorro A. Ramos, who turned
out 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 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 situation led to the execution of the contract of sale Exhibit A subject of
the present foreclosure proceedings.
The main issues closed in this appeal are: (1) Is the purchase price of the 20 lots bought by
defendant from plaintiffs the sum of P185,000.00, as claimed by defendant, or
P235.056.00, as claimed by plaintiffs?; and (2) Was an oral agreement, coetaneous to the
execution of the contract of sale, entered into between the parties to the effect that
plaintiffs would undertake the construction of the roads on the lots sold before defendant
could be required to comply with her financial obligation?
Defendant contends that the contract of sale Exhibit A does not express the true agreement

of 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 before January, 1959; that said condition was not placed in the contract because
plaintiffs' counsel said that it was a superfluity inasmuch as there was then in Quezon City
an ordinance which requires the construction of road in a subdivision before the lots therein
could be sold; and that, upon the suggestion of plaintiffs' counsel, such commitment was
not included in the contract because the ordinance aforesaid was already deemed to be part
of the contract.
Plaintiffs, on the other hand, dispute the above contention arguing that there was no such
oral agreement or understanding because all that was agreed upon between the parties was
already expressed and included in the contract of sale Exhibit A executed between the
parties, and since defendant failed to pay the balance of her obligation within the period
stipulated the whole obligation became due and demandable thus giving plaintiffs the right
to foreclose the mortgage in accordance with law.
After considering and evaluating the evidence submitted by both parties, the court a
quo found defendant's contention well-taken, thereby concluding that the action of plaintiffs
was premature. In reaching this conclusion; the court a quo made the following comment:
. . . The Court is of the opinion that the construction of the roads was a condition precedent
to the enforcement of the terms of Exhibit A, particularly the foreclosure of mortgage, for
the reason that the subdivision regulations of Quezon City requires, as a matter of law, that
the sellers of lands therein to be converted into subdivision lots must construct the roads in
said subdivision before the lots could be sold. This 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 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.
It is argued that the court a quo erred in allowing presentation of parole evidence to prove
that a conteporaneous oral agreement was also reached between parties relative to the
construction of the roads for same is in violation of our rule which provides that when the
terms of an agreement had been reduced to writing it is to be considered as containing all
that has been agreed upon and that no evidence other than the terms there can be
admitted between 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 has been put in issue in this case is patent in the answer
wherein defendant has specifically pleaded that the contract of sale in question does not
express the true intent of the parties with regard to the construction of the roads.
It appearing that plaintiffs have failed to comply with the condition precedent relative to the
construction of the roads in the subdivision in question, it follows that their action is
premature as found by the court a quo. The failure of defendant to pay the realty and
income taxes as agreed upon, as well as to register the mortgage with respect to the
Bulacan property, aside from being minor matters, appear sufficiently explained in the brief
of defendant-appellee.
WHEREFORE, the decision appealed from is affirmed, with costs against appellants.
Bengzon, C.J., Padilla, Labrador, Reyes, J.B.L., Paredes, Dizon and Makalintal, JJ., concur.
Regala, J., took no part. .

G.R. No. 11346


ESPIRIDIONA CANUTO, plaintiff-appellee,
vs.
JUAN MARIANO, defendant-appellant.
Alfredo Chicote, Jose Arnaiz and Pascual B. Azanza for appellant.
Alfonso E. Mendoza for appellee.
CARSON, J.:
This is an appeal from a judgment of the Court of First Instance of Manila, providing for the
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.
On December 4, 1913, the plaintiff executed a deed of sale of the parcel of land described in
the complaint, to the defendant, for the sum of P360, reserving the right to repurchase the
land 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 period, the defendant set up a claim of absolute ownership to the land,
notwithstanding the insistent demand of the plaintiff that she be permitted to exercise her
reserved right of repurchase in accordance with an alleged oral agreement for the extension
of the r redemption period down to the end of the month of December, 1914. She claims
that on the second day of December, 1914, two days before the expiration of the original
redemption period, she asked the defendant for an extension of time for the repurchase of
the land and that upon her promise to make the repurchase during the month of December,
1914, the defendant agreed to extend the redemption set out in the written contract, to the

end of that month; that after the expiration of the original redemption period, she thought
to make the repurchase in 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 agreed upon, despite the plaintiff's repeated demands and
tender of the purchase price.
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 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 Ordoveza, 25 Phil. Rep., 495.)
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 circumstances of the case, as will readily appear from the following citation from
17 Cyc., p. 734, and numerous cases cited in support of the doctrine:
The rule forbidding the admission of parol or extrinsic evidence to alter, vary, or contradict a
written instrument does not apply so as to prohibit the establishment by parol of an
agreement between the parties to a writing, entered into subsequent to the time when the
written instrument was executed, notwithstanding such agreement may have the effect of
adding to, changing, modifying, or even altogether abrogating the contract of the parties as
evidenced by the writing; for the parol evidence does not in any way deny that the original
agreement of the parties was that which the writing purports to express, but merely goes to
show that the parties have exercised their right to change or abrogate the same, or to make
a new and independent contract.

It makes no difference how soon after the execution of the written contract the parol 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
deposit of the purchase price when the defendant declined to receive it, is not entitled to
serious consideration in view of the repeated decisions of this court to the contrary collated
and discussed in the case ofRosales vs. Reyes and Ordoveza (25 Phil. Rep., 495). In that
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 the rights of the party making it, without the necessity of making judicial deposit,
if the offer or tender is refused; and in the case of Fructo vs. Fuentes (15 Phil. Rep., 362)
we said that in such cases when diligent effort is made by the vendor of the land to exercise
the right to repurchase reserved by him in his deed of sale "and fails by reason of
circumstances over which he has no control, we are of the opinion and so hold that he does
not lose his right to repurchase on the day of maturity."
We conclude that the judgment entered in the court below should be affirmed with costs of
this instance against the appellant. So ordered.
Arellano, C.J., Street, Malcolm, Avancea, and Fisher, JJ., concur.
Torres and Araullo, JJ., concur in the result Uh0AJR7CRC.
Johnson, J., did not sign. .

G.R. No. L-9935


YU TEK and CO., plaintiff-appellant,
vs.
BASILIO GONZALES, defendant-appellant.
Beaumont, Tenney and Ferrier for plaintiff.
Buencamino and Lontok for defendant.
TRENT, J.:
The basis of this action is a written contract, Exhibit A, the pertinent paragraphs of which

follow:
1. That Mr. Basilio Gonzalez hereby acknowledges receipt of the sum of P3,000 Philippine
currency from Messrs. Yu Tek and Co., and that in consideration of said sum be obligates
himself to deliver to the said Yu Tek and Co., 600 piculs of sugar of the first and second
grade, according to the result of the polarization, within the period of three months,
beginning on the 1st day of January, 1912, and ending on the 31st day of March of the
same year, 1912.
2. That the said Mr. Basilio Gonzales obligates himself to deliver to the said Messrs. Yu Tek
and Co., of this city the said 600 piculs of sugar at any place within the said municipality of
Santa Rosa which the said Messrs. Yu Tek and Co., or a representative of the same may
designate.
3. That in case the said Mr. Basilio Gonzales does not deliver to Messrs. Yu Tek and Co. the
600 piculs of sugar within the period of three months, referred to in the second paragraph
of this document, this contract will be rescinded and the said Mr. Basilio Gonzales will then
be obligated to return to Messrs. Yu Tek and Co. the P3,000 received and also the sum of
P1,200 by way of indemnity for loss and damages.
Plaintiff proved that no sugar had been delivered to it under this contract nor had it been
able to recover the P3,000. Plaintiff prayed for judgment for the P3,000 and, in addition, for
P1,200 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 evidence thereof.
In the case at bar, it is sought to show that the sugar was to be obtained exclusively from
the 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 within a specified time. The contract placed no restriction upon the defendant in the

matter of obtaining the sugar. He was equally at liberty to purchase it on the market or raise
it himself. It may be true that defendant owned a plantation and expected to raise the sugar
himself, but he did not limit his obligation to his own crop of sugar. Our conclusion is that
the condition which the defendant seeks to add to the contract by parol evidence cannot be
considered. The rights 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
was limited to the sugar he might raise upon his own plantation; that the contract
represented a perfected sale; and that by failure of his crop he was relieved from complying
with his undertaking by loss of the thing due. (Arts. 1452, 1096, and 1182, Civil Code.) This
argument is faulty in assuming that there was a perfected sale. Article 1450 defines a
perfected sale as follows:
The sale shall be perfected between vendor and vendee and shall be binding on both of
them, if they have agreed upon the thing which is the object of the contract and upon the
price, even when neither has been delivered.
Article 1452 reads: "The injury to or the profit of the thing sold shall, after the contract has
been perfected, be governed by the provisions of articles 1096 and 1182."
This court has consistently held that there is a perfected sale with regard to the "thing"
whenever the article of sale has been physically segregated from all other articles Thus, a
particular tobacco factory with its contents was held sold under a contract which did not
provide for either delivery of the price or of the thing until a future time. McCullough vs.
Aenlle and Co. (3 Phil. Rep., 295). Quite similar was the recent case of Barretto vs. Santa
Marina (26 Phil. Rep., 200) where specified shares of stock in a tobacco factory were held
sold by a contract which deferred delivery of both the price and the stock until the latter had
been appraised by an inventory of the entire assets of the company. In Borromeo vs.
Franco (5 Phil. Rep., 49) a sale of a specific house was held perfected between the vendor
and vendee, although the delivery of the price was withheld until the necessary documents
of ownership were prepared by the vendee. In Tan Leonco vs. Go Inqui (8 Phil. Rep., 531)
the plaintiff had delivered a quantity of hemp into the warehouse of the defendant. The
defendant drew a bill of exchange in the sum of P800, representing the price which had
been agreed upon for the hemp thus delivered. Prior to the presentation of the bill for
payment, the hemp was destroyed. Whereupon, the defendant suspended payment of the
bill. It was held that the hemp having been already delivered, the title had passed and the
loss was the vendee's. It is our purpose to distinguish the case at bar from all these cases.
In the case at bar the undertaking of the defendant was to sell to the plaintiff 600 piculs of
sugar of the first and second classes. Was this an agreement upon the "thing" which was
the object of the contract within the meaning of article 1450, supra? Sugar is one of the
staple commodities of this country. For the purpose of sale its bulk is weighed, the
customary unit of 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 "sugar." He could only use this generic name for the thing sold. There
was no "appropriation" of any particular lot of sugar. Neither party could point to any
specific quantity of sugar and say: "This is the article which was the subject of our contract."
How different is this from the contracts discussed in the cases referred to above! In the
McCullough case, for instance, the tobacco factory which the parties dealt with was
specifically pointed out and distinguished from 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 deposited in a specific warehouse,
and thus set apart and distinguished from all other hemp RLpgy.
A number of cases have been decided in the State of Louisiana, where the civil law prevails,
which confirm our position. Perhaps the latest is Witt Shoe Co. vs. Seegars and Co. (122
La., 145; 47 Sou., 444). In this case a contract was entered into by a traveling salesman for
a quantity of shoes, the sales having been made by sample. The court said of this contract:
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 that he was in
a position to make was an agreement to sell or an executory contract of sale. He says that
plaintiff sends out 375 samples of shoes, and as he was 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 specific objects, the title to which was to pass, and hence
there could have been no 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 make a sale should thereafter be made by the plaintiff, acting for itself and for
Seegars and Co., and the legend printed in red ink on plaintiff's billheads ("Our
responsibility ceases when we take transportation Co's. receipt `In good order'" indicates
plaintiff's idea of the moment at which such identification and appropriation would become
effective. The question presented was carefully considered in the case of State vs. Shields,
et al. (110 La., 547, 34 Sou., 673) (in which it was absolutely necessary that it should be
decided), and it was there held that in receiving an order for a quantity of goods, of a kind
and at a price agreed on, to be supplied from a general stock, warehoused at another place,
the agent receiving the order merely enters into an executory contract for the sale of the
goods, which does not divest or transfer the title of any determinate object, and which
becomes effective for that purpose only when specific goods are thereafter appropriated to
the contract; and, in the absence of a more specific agreement on the subject, that such
appropriated takes place only when the goods as ordered are delivered to the public carriers
at the place from which they are to be shipped, consigned to the person by whom the order
is given, at which time and place, therefore, the sale is perfected and the title passes
ftroEBY.
This case and State vs. Shields, referred to in the above quotation are amply illustrative of
the position taken by the Louisiana court on the question before us. But we cannot refrain
from referring to the case of Larue and Prevost vs. Rugely, Blair and Co. (10 La. Ann., 242)
which is summarized by the court itself in the Shields case as follows:
. . . It appears that the defendants had made a contract for the sale, by weight, of a lot of
cotton, had received $3,000 on account of the price, and had given an order for its delivery,
which had been presented to the purchaser, and recognized by the press in which the cotton
was stored, but that the cotton had been destroyed by fire before it was weighed. It was
held that it was still at the risk of the seller, and that the buyer was entitled to recover the
$3,000 paid on account of the price.
We conclude that the contract in the case at bar was merely an executory agreement; a
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 that the sugar which was to be delivered by the defendant was that which he
expected to 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 agreed to deliver the sugar and nothing is said in the contract
about where he was to get it.
We think is a clear case of liquidated damages. The contract plainly states that if the
defendant fails to deliver the 600 piculs of sugar within the time agreed on, the contract will
be rescinded and he will be obliged to return the P3,000 and pay the sum of P1,200 by way
of indemnity for loss and damages. There cannot be the slightest doubt about the meaning
of this language or the intention of the parties. There is no room for either interpretation or
construction. Under the provisions of article 1255 of the Civil Code contracting parties are
free to execute the contracts that they may consider suitable, provided they are not in
contravention of law, morals, or public order. In our opinion there is nothing in the contract
under consideration which is opposed to any of these principles.
For the foregoing reasons the judgment appealed from is modified by allowing the recovery
of P1,200 under paragraph 4 of the contract. As thus modified, the judgment appealed from
is affirmed, without costs in this instance.
Arellano, C.J., Torres, Carson and Araullo, JJ., concur.
Johnson, J., dissents. .

G.R. No. L-17820


LAND SETTLEMENT AND DEVELOPMENT CORPORATION, plaintiff-appellant,
vs.
GARCIA PLANTATION CO., INC., and/or SALUD GARCIA and VICENTE B. GARCIA,
defendants-appellees.
Lucido A. Guinto, Alfonso O. Alindogan and Marcelino A. Yumol for plaintiff-appellant.

Bausa and Ampil for defendants-appellees.


Paredes, J.:
This is a case of specific performance of contract, instituted by the Land Settlement and
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., Inc. from the plaintiff. Salud C. de Garcia was made alternative
co-defendant because of two promissory notes executed by her, whereby she personally
assumed the account of the company with the plaintiff, and the defendant Vicente B. Garcia
was included as husband of Salud C. de Garcia. The defendants, in their answer, admitted
the execution of the two promissory notes, but contended that the same had been novated
by a subsequent agreement contained in a letter (Exh. L) sent by Filomeno C. Kintanar,
Manager, Board of Liquidators of the LASEDECO, giving the defendant Salud C. de Garcia an
extension up to May 31, 1957, within which to pay the account, and since the complaint was
filed 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 due execution and genuineness of the letter marked Exhibit L, but contended that the
same did not express the true and intent agreement of the parties, thereby placing the fact
in issue, in 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.
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. Lucido A. 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 (Exh. L for the
defendants) 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 purely legal in
nature.
Appellants allege that the lower court erred (1) In forcing the parties to trial despite
requests by both parties for more time to submit an amicable settlement of the case; (2) In
excluding parol evidence, tending to prove the true intention and agreement of the parties
and the existence of a condition precedent, before the extension granted the defendants,
contained in Exhibit L, could become effective and (3) In holding that the action was
premature and in dismissing the case on this ground.
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 of the parties", Section 22, Rule 123, had been put in issue by the Answer of the
plaintiff to defendants' counterclaim (Heirs of Dela Rama v. Talisay-Silay Milling Co., 54 Phil.
580). The parol evidence consisted of the testimony of Attys. Guinto and Kintanar, to the

effect that in view of the plea of defendant Vicente B. Garcia to give the defendants an
extension of time to pay their accounts, Atty. Kintanar gave the defendants up to May 31,
1957, to coincide with their ramie harvest "provided that they will make a substantial down
payment immediately, with the understanding that upon non-payment of the substantial
amount, the extension shall be deemed as not granted and the LASEDECO shall feel free to
seek redress in court". That there was such condition precedent is manifested by the second
paragraph of the letter Exhibit L, quoted hereunder:
November 20, 1956
Mrs. Salud de Garcia Tacurong, Cotabato
Dear Madam;
Please be advised that the Board has granted you an extension up to May 31, 1957, within
which to pay your account.
This matter has been the subject of agreement between your husband and this office.
Respectfully,
(Sgd.) FILOMENO C. KINTANAR
The subject of agreement alluded to in the second paragraph of the above letter, was the
condition to be complied with or the consideration given for the extension of time, within
which the Garcia spouses pay their account. The lower court should have admitted the parol
evidence sought to be introduced to prove the failure of the document in question to
express the true intent and agreement of the parties. It should not have improvidently and
hastily excluded said parol evidence, knowing that the subject-matter treated therein, was
one of the exceptions to the parol evidence rule. When the operation of the contract is made
to depend upon the occurrence of an event, which, for that reason is a condition precedent,
such may be established by parol evidence. This is not varying the terms of the written
contract by extrinsic agreement, for the simple reason that there is no contract in existence;
there is nothing to which to apply the excluding rule (Heitman vs. Commercial Bank of
Savannah, 6 Ga. App. 584, 65 SE 590, cited in Comments on the Rules of Court, 1957 Ed.,
200), "... This rule does not prevent the introduction of extrinsic evidence to show that a
supposed contract never became effective by reason of the failure of some collateral
condition or stipulation, pre-requisite to liability" (Peabody & Co. v. Bromfield & Ross, 38
Phil. 841).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 parties, but such evidence may be received,
regardless of whether or not the written agreement contains reference to such collateral
agreement (Robles v. Lizarraga Hnos., 50 Phil. 387). In the case at bar, reference is made of
a previous agreement, in the second paragraph of letter Exhibit L, and although a document
is usually to be interpreted in the precise terms in which it is couched, Courts, in the
exercise of sound discretion, may admit evidence of surrounding circumstances, in order to
arrive at the true intention of the parties (Aves & Alzona v. Orilleneda, 70 Phil. 262). Rulings
by the same effect were also announced by the United States courts (Payne v. Campbell, 6
E & B, 370; Wilson v. Powers, 131 Mass. 540; Blewitt v. Brown, 142 NY 357; Burke v.
Delany, 153 US 288).
Had the trial court permitted, as it should, the plaintiff to prove the condition precedent to
the extension of the payment the said plaintiff would have been able to show that because

the defendants had failed to pay a substantial down payment, the agreement was breached
and the contract contained in Exhibit "L", never became effective and the extension should
be considered as not having been given at all. So that, although the complaint was filed on
February 20, 1957, three months before the deadline of the extension on May 31, 1957,
there would be no premature institution of the case. The lower court, therefore, erred in
dismissing the case.
The decision appealed from is reversed, and the case remanded to the lower court for
further proceedings. Costs against the appellees.
Bengzon, C.J., Padilla, Bautista Angelo, Concepcion, Reyes, J.B.L., Barrera, Dizon, Regala
and Makalintal, JJ., concur.
Labrador, J., took no part. P1ES.

G.R. No. L-39972 & L-40300 August 6, 1986


VICTORIA LECHUGAS, petitioner,
vs.
HON. COURT OF APPEALS, MARINA LOZA, SALVADOR LOZA, ISIDRO LOZA,
CARMELITA LOZA, DAVID LOZA, AMPARO LOZA, ERLINDA LOZA and ALEJANDRA
LOZA, respondents.
A.R. Montemayor for petitioner.
Arturo L. Limoso for private respondents.

GUTIERREZ, JR., J:
This petition for review invokes the parol evidence rule as it imputes grave abuse of
discretion on the part of the appellate court for admitting and giving credence to the
testimony of the vendor regarding the sale of the disputed lot. The testimony is contrary to
the contents of the deed of sale executed by the vendor in favor of the petitioner.

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:
Wherefore, premises considered, judgment is rendered, to wit:
a. dismissing the complaints in two cases;
b. declaring defendants except Salvador Anona and Jose Lozada as owners
and lawful possessors of the land in question together with all the
improvements thereon;
c. dismissing the claim for damages of all defendants except that of Jose
Lozada;
d. ordering plaintiff to pay defendant Jose Lozada the sum of P500.00 as
attorney's fees and the amount of P300.00 as litigation expenses; and
e. ordering plaintiff to pay the costs of both proceedings.
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:
I
THAT THE RESPONDENT COURT ERRED IN CONSIDERING PAROL
EVIDENCE OVER THE OBJECTION OF THE PETITIONER IN ORDER TO
VARY THE SUBJECT MATTER OF THE DEED OF DEFINITE SALE
(EXHIBIT A) ALTHOUGH THE LAND THEREIN IS DESCRIBED AND
DELIMITED BY METES AND BOUNDS AND IdENTIFIED AS LOT NO. 5456
OF LAMBUNAO CADASTRE.

II
THAT THE RESPONDENT COURT ERRED IN CONSIDERING THE
THEORY OF THE DEFENDANTS-APPELLEES FOR THE FIRST TIME ON
APPEAL THAT THE LAND DESCRIBED IN THE DEED OF SALE (EXHIBIT
A) IS LOT NO. 5522 INSTEAD OF LOT NO. 5456 OF THE LAMBUNAO
CADASTRE, THEIR ORIGINAL THEORY BEING THAT THE DEED OF SALE
(EXHIBIT A) IS NULL AND VOID AB INITIO BECAUSE LEONCIA
LASANGUE CAN NOT SELL THE LAND IN QUESTION IN 1950 SINCE IT
WAS ALLEGEDLY SOLD IN 1941 BY HER FATHER EMETERIO
LASANGUE.
III
THAT THE RESPONDENT COURT CANNOT REFORM THE DEED OF
DEFINITE SALE BY CHANGING ITS SUBJECT MATTER IN THE ABSENCE
OF STRONG, CLEAR AND CONVINCING EVIDENCE AND ON THE
STRENGTH OF LONG TESTIMONY OF THE VENDOR AND ALTHOUGH
NO DIRECT ACTION FOR REFORMATION WAS FILED IN THE COURT OF
ORIGIN.
A summary of the facts which brought about the controversy is contained in the findings of
the appellate court:
Plaintiff (petitioner) Victoria Lechugas testified that she bought the land now
subject of this litigation from Leoncia Lasangue as evidenced by a public
"Deed of Absolute Sale" which plaintiff had caused to be registered in the
Office of the Register of Deeds; preparatory to the execution of the deed
Exhibit "A", plaintiff had the land segregated from the bigger portion of 12
hectares owned by Leoncia Lasangue by contracting a private land surveyor,
the Sirilan Surveying Office, to survey the land on December 3, 1950 and
establish its boundaries, shape, form and area in accordance with the said
plan which was attached to exhibit A as Annex A thereof. She also states that
she caused the declaration of the said portion of six hectares subject of
Exhibit A in her name beginning the year 1951 under tax declaration No.
7912, paid taxes on the same land, and has taken possession of the land
through her tenants Jesus Leoncio, Roberta Losarita and Simeon Guinta,
who shared one-half of the produce of the riceland with her, while she
shouldered some of the expenses in cultivation and seeds, and one-third
share in other crops, like coffee beans, bamboos, coconuts, corn and the like.
xxx xxx xxx

Plaintiff's declaration is corroborated by her tenant Simeon Guinta who


testifies that the land subject of the complaint was worked on by him 1954
when its former tenant, Roberto Lazarita, now deceased, left the land. As
tenant thereof, he planted rice, corn peanuts, coffee, and other minor
products, sharing the same with the owner, plaintiff Victoria Lechugas; that on
June 14, 1958, while witness was plowing Lot A preparatory to rice planting,
defendants entered the land and forced him to stop his work. Salvador Anona
and Carmelita Losa, particularly, told witness that if he (witness) would sign
an affidavit recognizing them as his landlords, they would allow him to
continue plowing the land. On that occasion, Salvador Anona, David Loza
and Jose Loza were carrying unsheathed bolos, which made this witness
very afraid, so much so that he left the land and reported the matter to
Victoria Lechugas who reportedly went to the Chief of Police of Lambunao to
ask the latter to intervene. The advise however of the chief of police, who
responded to the call of plaintiff, was not heeded by the defendants who
stayed adamantly on Lot A and refused to surrender the possession thereof to
plaintiff appropriating the harvest to themselves. This witness further declares
that on June 24, 1958, defendants entered Lot B of the land in question,
situated on the northern portion, and cut the bamboo poles growing thereof
counted by plaintiff's brother and overseer in the land, Bienvenido Laranja, to
be 620 bamboo poles all in all. Despite the warning of the overseer Laranja,
defendants did not stop cutting the bamboos, and they remained on the land,
refusing to leave the same. To top it all, in June of 1959, defendants, not
contended with just occupying the middle and northern portions of the land
(Lots A and B), grabbed the whole parcel containing six hectares to the
damage and prejudice of herein plaintiff, so that plaintiff was left with no other
recourse but to file Civil Case No. 5303 for ownership, recovery of possession
and damages.
Defendants, on the other hand, maintain that the land which plaintiff bought
from Leoncia Lasangue in 1950 as evidenced by the deed exhibit A, is
different from the land now subject of this action, and described in paragraph
2 of plaintiff's complaint. To prove this point, defendants called as their first
witness plaintiff herself (pp. 6167, t.s.n., Tuble), to elicit from her the reason
why it was that although her vendor Leoncia Lasangue was also residing at
the municipality of Lambunao, Iloilo, plaintiff did not care to call her to the
witness stand to testify regarding the Identity of the land which she (plaintiff)
bought from said vendor Leoncia Lasangue; to which query witness
Lechugas countered that she had tried to call her vendor, but the latter
refused, saying that she (Lasangue) had already testified in plaintiff's favor in
the forcible entry case in the Justice of the Peace Court. In connection with
her testimony regarding the true Identity of the land plaintiff, as witness of

defendants, stated that before the execution of Exhibit "A" on December 8,


1950 the lot in question was surveyed (on December 3, 1950) by the Sirilan
Surveyor Company after due notice to the boundary owners including
Leoncia Lasangue.
Defendant's evidence in chief, as testified to by Carmelita Lozada (pp. 100130, t.s.n., Trespeces; pp. 131-192, t.s.n., Tuble) shows that on April 6, 1931
Hugo Loza father of Carmelita Loza and predecessor-in-interest of the rest of
the heirs of herein defendants, (with the exception of Jose Loza and Salvador
Anona) purchased a parcel of land from one Victorina Limor as evidenced by
the deed "Venta Definitiva" (exhibit 3, pp. 49-50, folder of exhibits). This land,
containing 53,327 square meters is bounded on the north by Ramon
Lasangue, on the south by Emeterio Lasangue and covered by tax
declaration No. 7346 (exhibit 3-9, p. 67, Id.) in vendor's name; that
immediately after the sale, Hugo Loza took possession of the said parcel of
land and declared the same in his name (exhibit 3-10, p. 67, folder of
exhibits) starting the year 1935. On March 17, 1941, Hugo Loza bought from
Emeterio Lasangue a parcel of land with an area of four hectares more or
less, adjoining the land he (Loza) had earlier bought from Victoria Limor, and
which sale was duly evidenced by a public instrument (exhibit 2, pp. 35-36,
folder of exhibits). This property had the following boundaries, to wit: on the
north by Eladio Luno, on the south, by Simeon Lasangue, on the west, by
Gregorio Militar and Emeterio Lasangue and on the east, by Maximo
Lasangue and Hipolito Lastica (exhibit 2, exhibit 2-B, p. 37, Id). After the
execution of the deed of sale, Exhibit 2, Hugo Loza cause the transfer of the
declaration in his own name (tax declaration No. 8832, exh. 2-C, p. 38, Id.)
beginning 1945, and started paying the taxes on the land (exhibits 2-d to 2-i,
pp. 39-44, Id.). These two parcels of land (that purchased by Hugo Loza in
1941 from Emeterio Lasangue, and a portion of that bought by him from
Victoria Limor sometime in 1931) were consolidated and designated, during
the cadastral survey of Lambunao, Iloilo in 1959 as Lot No. 5456; while the
remaining portion of the lot bought from Victorina Limor, adjoining Lot 5456 on
the east, was designated as Lot No. 5515 in the name of the Heirs of Hugo
Loza. Defendants claim that the lot bought by plaintiff from Leoncia Lasangue
as evidenced by exhibit A, is situated south of the land now subject of this
action and designated during cadastral survey of Lambunao as Lot No. 5522,
in the name of Victoria Lechugas.
xxx xxx xxx
Leoncia Lasangue, plaintiff's vendor in exhibit A, testifying for defendants (pp.
182-115, t.s.n., Tambagan; pp. 69-88, t.s.n., Tuble) declared that during his
lifetime her father, Emeterio Lasangue, owned a parcel of land in Lambunao,

Iloilo, containing an area of 36 hectares; that said Emeterio Lasangue sold a


slice of 4 hectares of this property to Hugo Loza evidenced by a deed of sale
(Exh. 2) dated March 17, 1941; that other sales were made to other persons,
leaving only some twelve hectares out of the original 36; that these 12
hectares were transferred by her parents in her (witness) name, being the
only child and heir; that on December 8, 1950, she (Leoncia Lasangue) sold
six hectares of her inherited property to Victoria Lechugas under a public
instrument (exhibit A) which was prepared at the instance of Victoria
Lechugas and thumbmarked by herself (the vendor).
Refuting plaintiff's contention that the land sold to her is the very land under
question, vendor Leoncia Lasangue testifies that:
Q. But Victoria Lechugas declared here that, by means of this
document, exhibit 'A', you sold to her this very land in litigation;
while you declared here now that this land in litigation was not
included in the sale you made of another parcel of land in her
favor. What do you say about that?
A. I only sold six (6) hectares to her.
Q. And that was included in this land in litigation?
A. No.
xxx xxx xxx
Q. Did you tell her where that land you were selling to her was
situated?
xxx xxx xxx
A. On the South.
Q. South side of what land, of the land in litigation?
A. The land I sold to her is south of the land in litigation.
xxx xxx xxx
Q. What portion of these thirty-six (36) hectares of land did you
sell actually, according to your agreement with Victoria

Lechugas, and was it inside the thirty-six (36) hectares of land


or a portion on one of the sides of thirty-six (36) hectares?
A. It is on the edge of the whole land.
Q. Where is that edge? on the north, east, west or south?
A . This edge. (witness indicating the lower edge of the piece of
paper shown into her)
Q. Do you know what is east, that is, the direction where the
sun rises?
A. I know what is east.
Q. Do you know where the sun sets ?
A. The sun sets on the west.
Q. If you are standing in the middle of your land containing
thirty-six (36) hectares and facing the east, that is, the direction
where the sun rises, where is that portion of land sold to
Victoria Lechugas, on your left, on your right, front of you or
behind you?
A. On my right side. (Witness indicating south). (Testimony of
Leoncia Lasangue, pp. 209-211, rollo) (emphasis supplied).
On the basis of the above findings and the testimony of vendor Leoncia Lasangue herself,
who although illiterate was able to specifically point out the land which she sold to the
petitioner, the appellate court upheld the trial court's decision except that the deed of sale
(Exhibit A) was declared as not null and void ab initio insofar as Leoncia Lasangue was
concerned because it could pass ownership of the lot in the south known as Lot No. 5522 of
the Lambunao Cadastre which Leoncia Lasangue intended to sell and actually sold to her
vendee, petitioner Victoria Lechugas.
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
objection of petitioner and that to impugn a written agreement, the evidence must be
conclusive. Petitioner maintains, moreover, that the respondent Court relied so much on the
testimony of the vendor who did not even file a case for the reformation of Exhibit A.
The contentions are without merit.

The appellate court acted correctly in upholding the trial court's action in admitting the
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 presented as witness in any of the proceedings below by herein petitioner.
As explained by a leading commentator on our Rules of Court, the parol evidence rule does
not apply, and may not properly be invoked by either party to the litigation against the other,
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 in the instrument or the relation established thereby. (Francisco on Evidence,
Vol. VII, part I of the Rules of Court, p. 155 citing 32 C.J.S. 79.)
In Horn v. Hansen (57 N.W. 315), the court ruled:
...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 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 one of the parties between whom
the question arises is a stranger to the written agreement, and does not claim
under or through one who is party to it. In such case the rule is binding upon
neither. ...
In the case of Camacho v. Municipality of Baliuag, 28 Phil. 466, this Court held that parol
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
opinion, Justice Moreland stated:
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 the
action; and there is, therefore, no possibility of the question arising as to the
admissibility of parol evidence to vary or contradict the terms of an
instrument. The written instrument that is, the conveyance on which plaintiff
bases his action was between the Insular Government and the plaintiff, and
not between the municipality and the plaintiff; and therefore, there can arise,
as between the plaintiff and defendant no question relative to the varying or
contradicting the terms of a written instrument between them ...
The petitioner's reliance on the parol evidence rule is misplaced. The rule is not applicable
where the controversy is between one of the parties to the document and third persons. The
deed of sale was executed by Leoncia Lasangue in favor of Victoria Lechugas. The dispute
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 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 of land. The deed of sale described the disputed lot instead.
This fact was clearly shown in Lasangue's testimony:
Q. And how did you know that that was the description of the
land that you wanted to sell to Victoria Lechugas?
R. I know that because that land came from me.
S. But how were you able to read the description or do you
know the description?
A. Because, since I do not know how to read and write and
after the document was prepared, she made me sign it. So I
just signed because I do not know how to read.
xxx xxx xxx
Q. What explanation did she make to you?
A. She said to me, 'Manang, let us have a document prepared
for you to sign on the land you sold to me.' So, after the
document was prepared, I signed.
Q. Did you tell her where that land you were selling to her was
situated?
xxx xxx xxx
A. On the South.
Q. South side of what land, of the land in litigation?
A. The land I sold to her is south of the land in litigation.
Q. Did you tell her that before preparing the document you
signed?
A. Yes, I told her so because I had confidence in her because
she is my first cousin. (pp. 198-207, rollo)

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-interest of the respondents.
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 instrument and have proven that, indeed Exhibit "A" does not reflect the true intention
of the vendor.
There is likewise no merit in the contention of the petitioner that the respondents changed
their theory on appeal.
Respondents, from the very start, had questioned and denied Leoncia Lasangue's capacity
to sell the disputed lot to petitioner. It was their contention that the lot was sold by Leoncia's
father Emeterio Lasangue to their father, Hugo Loza wayback in 1941 while the alleged sale
by 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 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 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 INCLUDED in the sale she executed in favor of the
plaintiff ... .
Consequently, petitioner cannot impute grave abuse on the part of the appellate court and
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.
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
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
ownership of Lot No. 5522 to the petitioner.
WHEREFORE, IN VIEW OF THE FOREGOING, the petition is hereby DISMISSED for lack
of merit with costs against the petitioner.
SO ORDERED.

G.R. No. 158762

April 4, 2007

SILVANO B. GAJE, EMILIO C. MELLONIDA, and DESIDERIO DALISAY,


JR.,* Petitioners,
vs.
PATRICIA S. VDA. DE DALISAY, for herself and in her capacity as the Special
Administratrix of the Estate of Desiderio F. Dalisay, Sr., Respondent.
DECISION
CHICO-NAZARIO, J.:
The Case
Assailed in the instant Petition for Review on Certiorari 1 are the Decision2 dated 13
March 2003 and Resolution3 dated 6 June 2003 of the Court of Appeals in CA-G.R.
CV No. 66343. The Court of Appeals affirmed in toto with costs against petitioners,
the Decision4 dated 10 January 2000 of the Regional Trial Court (RTC) Branch 31,
Tagum City, in Civil Case No. 2877. The RTC resolved, inter alia, to declare null and
void the two Deeds of Sale executed between petitioners Desiderio Dalisay, Jr. and
Emilio C. Mellonida over a parcel of land known as Lot No. 729-F; and between
Desiderio Dalisay, Jr. and Silvano Gaje involving a parcel of land known as Lot No.
729-A, both located in San Miguel, Tagum City, Davao.
The Facts
As culled from the evidence on record, the antecedent facts are as follows:
On 15 June 1973, Desiderio Dalisay, Sr. (Dalisay, Sr.) bought from Juan Abrea and
Ricarte Agudong two parcels of land located in San Miguel, Tagum, Davao,
otherwise known as Lots No. 729-A5 and 729-F with an area of 27,169 square
meters, and 20,000 square meters, respectively. The Deeds of Sale indicated the
name of Desiderio Dalisay, Jr. (Dalisay, Jr.) as vendee per instructions of Dalisay, Sr.
for expediency and convenience. Dalisay, Sr. maintained possession of the two
parcels of land from the date of sale in 1973 until his death in 1989. They became
part of the landholdings of Desidal Fruits, Inc. which is owned by Dalisay, Sr. In

1981, the parcels of land were leased by Dalisay, Sr. to Davao Premier Fruits
Corporation.
Following the death of Dalisay, Sr. in 1989, his widow, Patricia S. vda. de Dalisay
(Patricia) was named special administratrix of his testate estate by virtue of Letters
of Administration issued by the RTC, Branch 1, Tagum, in Sp. Proc. Case No.
397.6 Patricia exercised her powers as Special Administratrix by taking actual
possession of the aforementioned two parcels of land. She planted banana trees,
corn, and lemonsitos7 thereon. On 7 January 1991, she donated 100 square meters
thereof to the Barangay San Miguel Water System Association, Inc. to be used as a
site for the installation of the water pump and reservoir of the said water system. 8
On 21 October 1994, petitioner Dalisay, Jr. sold Lot No. 729-A to petitioner Silvano
B. Gaje (Gaje) in consideration of the amount of P450,000.00.9 Likewise, on even
date, the former sold Lot No. 729-F to Emilio C. Mellonida (Mellonida)
for P350,000.00.
Hence, on 27 February 1995, Patricia, for herself and in her capacity as special
administratrix of the testate estate of Dalisay, Sr., initiated with the RTC, Branch 31,
Tagum City, a Complaint10 for Annulment of Deeds of Sale and Reconveyance with
prayer for Preliminary Injunction and Temporary Restraining Order, docketed as Civil
Case No. 2877, naming Gaje, Mellonida, and Dalisay, Jr. as defendants therein. The
Complaint averred that the two parcels of land were owned by Dalisay, Sr. and thus
formed part of his testate estate. Dalisay, Sr. had taken possession of the lots from
the time of purchase on 15 June 1973 until his demise on 18 September 1989. The
same parcels of land were leased by Dalisay, Sr. to Davao Premier Fruits
Corporation in 1981. The Complaint further alleged that on 20 August 1994, all of the
heirs of Dalisay, Sr. conducted a meeting whereby a Memorandum of Agreement
was drawn indicating their consensus to have the estate of Dalisay, Sr. divided
among all seven (7) of them, including Dalisay, Jr. The aforesaid Agreement similarly
indicated the two parcels of land as part of the estate. In fine, the Complaint prayed
for the declaration of nullity of the Deeds of Sale executed by Dalisay, Jr. in favor of
Gaje and Mellonida.
In their joint Answer, petitioners contended that the contested parcels of land never
formed part of the estate of Dalisay, Sr., as the rights of these lots were sold to
Dalisay, Jr. who bought them with his personal money. Petitioners alleged that
Dalisay, Sr. utilized the land for a limited period of time for the commercial
production of bananas out of the liberality and generosity of Dalisay, Jr. who allowed
his father to make use of the lots.

Petitioners likewise challenged the jurisdiction of the RTC, Branch 31, by filing a
Motion to Dismiss11 dated 26 April 1996. They argued that the jurisdiction of the
Complaint is lodged with the RTC, Branch I, Tagum City, which issued the letters of
administration to Patricia. Petitioners likewise raised the additional ground of lack of
sufficient cause of action contending that respondents assertion that it was Dalisay,
Sr. who bought the parcels of land is a "wild and useless allegation" which cannot be
established by evidence, the best evidence to prove ownership being the two Deeds
of Sale executed on 15 June 1973, naming Dalisay, Jr., as vendee.
On 10 June 1996, the RTC issued an Order12 denying the Motion to Dismiss for utter
lack of merit, which denial was assailed by petitioners before the Court of Appeals
via a Petition for Certiorari in CA-G.R. SP No. 41202. The appellate court rendered a
Resolution13 dated 18 July 1996 denying the Petition. Petitioners Motion for
Reconsideration thereon was similarly denied in a subsequent Resolution 14 dated 4
October 1996. Petitioners sought the reversal of the aforesaid Resolutions before
the Supreme Court in G.R. No. 126974 by way of Petition for Certiorari. On 18
December 1996, this Court dismissed said Petition. 15 Petitioners sought
reconsideration of the dismissal. Finally, on 3 September 1997, this Court issued a
Resolution denying the Motion after finding no compelling reason to warrant the
reconsideration sought.16 Hence, trial ensued.
Ruling of the RTC
The trial court ruled in favor of respondent and against the petitioners. It held that
the subject parcels of land are owned by Dalisay, Sr. It explained that, Dalisay, Jr.
never exercised attributes of ownership over the two parcels of land since the time
of the execution of the Deeds of Sale in 1973, in glaring contrast to Dalisay, Sr., who
owned and possessed the parcels of land without intention of transferring the same
to Dalisay, Jr. to the exclusion of other heirs. From the time of the sale, the
ownership of Dalisay, Sr. over the properties was undisturbed. Even after his death,
his widow, Patricia, continued to introduce improvements thereon. As the
administratrix of the estate, Patricia donated a parcel of land to Barangay San
Miguel which was not objected to or questioned by Dalisay, Jr. despite his claim of
ownership of the land. It was only after a period of twenty-one (21) years or in 1994
when Dalisay, Jr. attempted to exercise his supposed ownership over the property
through the execution of the Deeds of Sale in favor of Gaje and Mellonida over Lot
No. 729-A and Lot No. 729-F, respectively.
The RTC pronounced further that even prior to the sales, Dalisay, Jr. failed to show
that he exercised attributes of ownership over the parcels of land. The RTC did not

give weight to Dalisay, Jr.s act of paying realty taxes on the subject properties
before the Deeds of Sale were drawn, stating that the same is a scheme to claim
ownership over the lots. In its findings of fact, the RTC held:
To claim ownership over the property under litigation at this late stage despite
absence in its exercise for a period of twenty[-]one (21) years is certainly untenable.
In fine, defendant Desiderio Dalisay, Jr. has never exercised attributes of ownership
since then. The following are the traditional attributes of ownership:
Jus utendi or the right to use[;]
Jus fruinde (sic) or the right to enjoy the fruits;
Jus abutendi or the right to consume the thing by its use (Jurados Civil Law, page
252)
Other facts which militate against the claim of Desiderio Dalisay, Jr. is his absence of
possession over the property in litigation. The two parcels of land were in the
possession of the late Desiderio Dalisay, Sr. until his death in 1989, and such
possession was transferred to the plaintiff, the wife of the late Desiderio Dalisay, Sr.
or the second marriage.
By possession, we mean the holding of a thing or the enjoyment of a right, either by
material occupation of by fact of subjecting the thing or right to the action over will. 17
The dispositive portion of the Decision reads:
WHEREFORE, in view of the foregoing, judgment is hereby rendered:
1. Declaring null and void the two Deeds of Sale between Desiderio Dalisay, Jr.,
Vendor and Emilio C. Mellonida, Vendee for a parcel of land situated at San Miguel,
Tagum City otherwise known as Lot No. 729-F-7070, Cad-10025, containing an area
of twenty thousand (20,000) square meters under the notarial book of Atty. Alberto
Maala, Doc. No. 57; Page No. 12; Book No. VII, Series of 1994; between Desiderio
Dalisay, Jr., Vendor and Silvano Gaje, Vendee for a parcel of land situated at San
Miguel, Tagum City otherwise known as Lot No. 729-A-Cad-10628-0 containing an
area of twenty seven thousand one hundred sixty nine (27,169) square meters under
the notarial book of Atty. Maala, Doc. No. 58; Page No. 12; Book No. VII; Series of
1994;

2. Declaring the above-mentioned parcels of land a part of the testate estate of the
late Desiderio Dalisay, Sr.;
3. Directing defendants to pay attorneys fee jointly and severally the amount
of P50,000.00 and to pay the cost. (sic)18

The Ruling of the Court of Appeals


On appeal, the Court of Appeals rendered a Decision dated 13 March 2003 affirming
in toto the Decision of the court a quo. The appellate court echoed the finding of the
RTC that Dalisay, Sr. was the owner of the two parcels of land. It declared that
Dalisay, Jr. could not have exercised the attributes of ownership because he is not
the owner of the lots. It added that it was not impressed at the claim of Dalisay, Jr.
that his ownership of the properties has been proven by his payment of real estate
taxes on the properties. The appellate court emphasized that the taxes as claimed
were paid by petitioners Gaje and Mellonida. Even then, no proof of actual
possession was shown by Dalisay, Jr.
In affirming the findings of fact of the court a quo, the appellate court held:
All in all, the uncontroverted evidence as found by the lower court and established
during the trial indubitably show[s] that: indeed, Desiderio, Sr. bought the subject
properties from Agudong and Abrea in 1973, but the same were acquired in the
name of Desiderio, Jr., only for convenience; he took possession of the subject
properties, cultivated the same, and introduced improvements on them through his
corporation, Desidal Fruits, Inc.; he leased the subject properties to Davao Fruits,
Inc.; Desiderio Dalisay, Jr. and Anunciacion Dalisay never received any
payment/rentals for their use by either Desidal Fruits, Inc. or Davao Fruits, Inc.; even
though Anunciacion Dalisay was a member of the Board of Desidal Fruits, Inc., she
did not insist nor demand the payment of the rentals; the two (2) official receipts
corresponding to the payment of real estate taxes over the subject properties reveal
that from 1973 up to 1994, or for a total period of 21 years, not a single centavo of
the real estate taxes [were] paid; the receipts further show that said taxes were paid
by defendants-appellants Silvano Gaje and Emilio Mellonida; when Anunciacion
Dalisay was asked to show the location of the properties in a sketch, she pointed to
a location a great distance from the actual location of the properties; and finally,
Anunciacion Dalisay admitted the existence of the Memorandum of Agreement
(MOA) of August 20, 1994 drafted by Atty. Veronica D. Tirol wherein the subject
properties were included.19

The decretal portion of the Decision states:


Wherefore, premises considered, the assailed decision dated January 10, 2000 of
the Regional Trial Court, Branch 31, Tagum City in Civil Case No. 2877 is hereby
AFFIRMED in toto, with costs against defendants-appellants. 20
Petitioners filed a Motion for Reconsideration thereon which the Court of Appeals
denied in its Resolution dated 6 June 2003.
The Issues
Unsatisfied with the ruling of the Court of Appeals, petitioners come to this Court by
way of the instant Petition for Review on Certiorari alleging grave and serious
reversible error on the part of the appellate court. Petitioners aver that the Court of
Appeals erred in the following instances, to wit:
I
IN AFFIRMING THE TRIAL COURTS JUDGMENT DECLARING THE RESPECTIVE
DEEDS OF SALE IN FAVOR OF THE HEREIN PETITIONERS WHO ARE PRESUMED
BUYERS IN GOOD FAITH AS NULL AND VOID; and
II
IN NOT SETTING ASIDE THE AWARD OF ATTORNEYS FEES IN FAVOR OF
RESPONDENT PATRICIA VDA. DE DALISAY IN THE AMOUNT OF FIFTY THOUSAND
(P50,000.00) PESOS AS WELL AS THE COST OF SUIT IN SPITE OF THE TOTAL
ABSENCE OF ANY EXPLANATION AND/OR JUSTIFICATION THEREFOR IN THE BODY
OF THE DECISION.

The Courts Ruling


I
Petitioners question the findings of fact made by the trial court and the Court of
Appeals, especially on the matter of the ownership over the disputed subject
properties. Petitioners assert that the Deeds of Sale, which state the name of
Dalisay, Jr. as vendee of the two parcels of land, are notarized documents and
regarded as evidence of a high character which should be entitled to full faith and
credit on their faces.

The first assignment of error entails a resolution of the factual question of whether
Dalisay, Jr. or Dalisay, Sr. is the owner of the subject properties. In submitting the
issue, petitioners would require this Court to review and evaluate the evidence as
they were introduced and presented before the trial court. Petitioners want this Court
to make a declaration that the subject parcels of land were sold to Dalisay, Jr.,
instead of to his father, respondent Dalisay, Sr. In the alternative, they want this
Court to make a determination as to whether petitioners Mellonida and Gaje were
not aware of the flaw in the title or mode of acquisition of Dalisay, Jr. that invalidates
the same.
The issues beg a review of the evidence presented by the parties, despite the
finding of the Court of Appeals that no error was committed by the trial court in
appreciating the evidence established during the trial; hence, it is clearly a question
of fact. "Such questions as whether certain items of evidence should be accorded
probative value or weight, or rejected as feeble or spurious, or whether or not the
proofs on one side or the other are clear and convincing and adequate to establish a
proposition in issue, are without doubt questions of fact." 21 The resolution of factual
issues is the function of lower courts, whose findings on these matters are received
with respect and are in fact generally binding on this Court. 22 A question of law which
the court may pass upon must not involve an examination of the probative value of
the evidence presented by the litigants.23
The jurisdiction of the Supreme Court in cases brought before it from the Court of
Appeals via Rule 45 of the Rules of Court is limited to reviewing errors of law.24 What
Section 1,25 Rule 45 of the Rules of Court proscribes is this Court supplanting by its
own judgment that of the RTC and the Court of Appeals by conducting its own
evaluation of the evidence. Precisely, under the Rules, it is peremptory that in a
verified petition for review on certiorari filed under Rule 45, the petition shall raise
only questions of law which must be distinctly set forth therein. Otherwise stated, it is
not the function of this Court to review evidence all over again. 26
It is settled doctrine that in a civil case, final and conclusive are the factual findings
of the court,27 if supported by clear and convincing evidence on record. 28 Usually, the
Supreme Court does not review those findingsespecially when affirmed by the
Court of Appeals, as in this case.29 Both the trial court and the appellate court ruled
in favor of respondents witnesses to support the ownership by Dalisay, Sr. In
Pilipinas Bank v. Glee Chemical Laboratories, Inc; 30 this Court reiterated the
unbending jurisprudence that findings of the trial court on the matter of credibility of

witnesses are entitled to the highest degree of respect and will not be disturbed on
appeal.31
Indeed, in the case at bar, the appellate court affirmed in toto the factual findings of
the court a quo. There is a congruence between the findings of facts of the trial court
and the Court of Appeals that the subject parcels of land are owned by Dalisay, Sr.
The findings of both courts are in full accord with each other.
To reiterate, Section 1, Rule 45 of the Rules of Court forecloses this Court from the
task of going over once more the evidence presented by both parties, and analyze,
assess and weigh them to ascertain if the trial court and the appellate court were
correct in according superior credit to this or that piece of evidence of one party or
the other.32
SECTION 1. Filing of petition with Supreme Court. x x x. The petition shall raise
only questions of law which must be distinctly set forth.
A considered study of the records reveals that the decisions of the court a quo and
the Court of Appeals are amply supported by the evidence on record.
Petitioners reliance on the presumption of regularity of notarized documents cannot
overcome the evidence on record which supports the ownership of Dalisay, Sr. over
the parcels of land. Foremost, the presumption of truthfulness engendered by
notarized documents is rebuttable, yielding as it does to clear and convincing
evidence to the contrary.33 Even as the Deeds of Sale indicate the name of Dalisay,
Jr. as vendee of the parcels of land, it was established by strong evidence that
Dalisay, Sr. remained the owner thereof, and had no intention of transferring the
ownership of the parcels of land exclusively to Dalisay, Jr. to the exclusion of all his
other heirs. It is telling why Dalisay, Jr., during the length of time from the execution
of the Deeds of Sale on 15 June 1973 and until such time when he sold the subject
parcels of land to his co-petitioners, Gaje and Mellonida, neither possessed nor
exercised attributes of ownership over the lands. Dalisay, Sr. remained in
possession over the properties from the time they were bought from Abrea and
Agudong. As found by the trial court and the Court of Appeals, during the lifetime of
Dalisay, Sr., he utilized the parcels of land in the concept of an owner. He used the
parcels of land as a banana plantation of his corporation, the Desidal Fruits. Corn
and calamansi trees were likewise planted on the subject premises, which fact was
even admitted by petitioner Mellonida. Moreover, as held by the trial court,
respondent Gaje similarly found improvements on the subject properties, including
plantings of banana and fruit trees, among others, and 200 lemonsito trees.

Subsequently, in 1990, the property was leased by Dalisay, Sr. to Davao Fruits. No
participation by Dalisay, Jr. either in the utilization of the land or in the lease thereof
was shown. No objection was similarly heard from Dalisay, Jr. when Patricia donated
a portion of the subject properties to the San Miguel Water System Multi-purpose
Cooperative. His silence conflicts with human naturean owner of the property
being expected to oppose the commission by other parties of acts of ownership
which would diminish or wrest away his interest in the property.
Second, petitioners contention that the Deeds of Sale indicating the name of
Dalisay, Jr. as vendee is the best evidence to prove his ownership of the parcels of
land does not hold water. In the case at bar, Patricia, is not party to the Deeds of
Sale. The rule excluding extrinsic evidence in the construction of writings is
inapplicable in a case where one of the parties to the case is a stranger to the
contract.34 Patricia, the widow of Dalisay, Sr., is a stranger to the said Deeds of Sale;
thus, the trial court properly admitted extrinsic evidence adduced by respondent
against its efficacy, and can be deemed competent to defeat the deed. 35
II
Petitioners bewail the award of attorneys fees in favor of respondent in the amount
of P50,000.00 on the ground that there was an absence of any explanation or
justification therefor in the body of the challenged Decision.
We agree.
Article 220836(2) of the Civil Code provides that in the absence of stipulation,
attorneys fees and expenses of litigation, other than judicial costs, cannot be
recovered except when the defendants acts or omission has compelled the plaintiff
to litigate with third persons or to incur expenses to protect his interest. In People v.
Colonia,37 this Court underscored that the award of attorneys fees is the exception
rather than the rule, as they are not awarded every time a party prevails in a suit
because of the policy that no premium should be placed on the right to litigate.
Therein, we deleted the award of litigation expenses and attorneys fees because
the body of the decision of the trial court was wanting of justification. The trial court
awarded attorneys fees only in the dispositive portion of its decision. Thus:
The award of attorneys fees is the exception rather than the rule. As such, it is
necessary for the court to make findings of fact and law that would bring the case
within the exception and justify the grant of such award. Aside from the dispositive

portion, nothing was ever said by the trial court in the body of the decision to justify
the award of attorneys fees and litigation expenses. Hence, we disallow them. 38
In the case at bar, even a cursory reading of the Decision of the trial court shows
that the court a quo failed to justify its award of attorneys fees. There was no
explanation set forth. Neither do we see any basis propounded by the trial court in
its grant of attorneys fees. We find the same puncture in the ruling of the Court of
Appeals. In its affirmance in toto of the 10 January 2000 Decision of the RTC, which
necessarily includes its concurrence in the award by the court a quo of attorneys
fees to the respondent, the appellate court was mute as to its justification. No
explanation was similarly threshed out to support its award. Therefore, we delete the
award of attorneys fees in favor of respondent.
WHEREFORE, the Petition is PARTLY GRANTED. The Decision and Resolution of
the Court of Appeals, dated 13 March 2003 and 6 June 2003, respectively, in CAG.R. CV No. 66343 are AFFIRMED WITH MODIFICATION that the award of
attorneys fees in favor of respondent, is DELETED. As to all other matters, the
assailed Decision and Resolution are AFFIRMED. Costs against petitioners.
SO ORDERED.

G.R. No. 164326

October 17, 2008

SEAOIL PETROLEUM CORPORATION, petitioners,


vs.
AUTOCORP GROUP and PAUL Y. RODRIGUEZ, respondents.
DECISION
NACHURA, J.:
Before this Court is a Petition for Review on Certiorari under Rule 45 of the Rules of
Court assailing the Decision1 of the Court of Appeals (CA) dated May 20, 2004 in

CA-G.R. CV No. 72193, which had affirmed in toto the Decision2 of the Regional
Trial Court (RTC) of Pasig City, Branch 157, dated September 10, 2001 in Civil Case
No. 64943.
The factual antecedents, as summarized by the CA, are as follows:
On September 24, 1994, defendant-appellant Seaoil Petroleum Corporation (Seaoil, for
brevity) purchased one unit of ROBEX 200 LC Excavator, Model 1994 from plaintiffappellee Autocorp Group (Autocorp for short). The original cost of the unit
was P2,500,000.00 but was increased to P3,112,519.94 because it was paid in 12 monthly
installments up to September 30, 1995. The sales agreement was embodied in the Vehicle
Sales Invoice No. A-0209 and Vehicle Sales Confirmation No. 258. Both documents were
signed by Francis Yu (Yu for short), president of Seaoil, on behalf of said corporation.
Furthermore, it was agreed that despite delivery of the excavator, ownership thereof was to
remain with Autocorp until the obligation is fully settled. In this light, Seaoils contractor,
Romeo Valera, issued 12 postdated checks. However, Autocorp refused to accept the
checks because they were not under Seaoils name. Hence, Yu, on behalf of Seaoil, signed
and issued 12 postdated checks for P259,376.62 each with Autocorp as payee.
The excavator was subsequently delivered on September 26, 1994 by Autocorp and was
received by Seaoil in its depot in Batangas.
The relationship started to turn sour when the first check bounced. However, it was
remedied when Seaoil replaced it with a good check. The second check likewise was also
good when presented for payment. However, the remaining 10 checks were not honored by
the bank since Seaoil requested that payment be stopped. It was downhill from thereon.
Despite repeated demands, Seaoil refused to pay the remaining balance of P2,593,766.20.
Hence, on January 24, 1995, Autocorp filed a complaint for recovery of personal property
with damages and replevin in the Regional Trial Court of Pasig. The trial court ruled for
Autocorp. Hence, this appeal.
Seaoil, on the other hand, alleges that the transaction is not as simple as described above.
It claims that Seaoil and Autocorp were only utilized as conduits to settle the obligation of
one foreign entity named Uniline Asia (herein referred to as Uniline), in favor of another
foreign entity, Focus Point International, Incorporated (Focus for short). Paul Rodriguez
(Rodriguez for brevity) is a stockholder and director of Autocorp. He is also the owner of
Uniline. On the other hand, Yu is the president and stockholder of Seaoil and is at the same
time owner of Focus. Allegedly, Uniline chartered MV Asia Property (sic) in the amount of
$315,711.71 from its owner Focus. Uniline was not able to settle the said amount. Hence,
Uniline, through Rodriguez, proposed to settle the obligation through conveyance of
vehicles and heavy equipment. Consequently, four units of Tatamobile pick-up trucks
procured from Autocorp were conveyed to Focus as partial payment. The excavator in

controversy was allegedly one part of the vehicles conveyed to Focus. Seaoil claims that
Rodriguez initially issued 12 postdated checks in favor of Autocorp as payment for the
excavator. However, due to the fact that it was company policy for Autocorp not to honor
postdated checks issued by its own directors, Rodriguez requested Yu to issue 12 PBCOM
postdated checks in favor of Autocorp. In turn, said checks would be funded by the
corresponding 12 Monte de Piedad postdated checks issued by Rodriguez. These Monte
de Piedad checks were postdated three days prior to the maturity of the PBCOM checks.
Seaoil claims that Rodriguez issued a stop payment order on the ten checks thus
constraining the former to also order a stop payment order on the PBCOM checks.
In short, Seaoil claims that the real transaction is that Uniline, through Rodriguez, owed
money to Focus. In lieu of payment, Uniline instead agreed to convey the excavator to
Focus. This was to be paid by checks issued by Seaoil but which in turn were to be funded
by checks issued by Uniline. x x x3

As narrated above, respondent Autocorp filed a Complaint for Recovery of Personal


Property with Damages and Replevin4 against Seaoil before the RTC of Pasig City.
In its September 10, 2001 Decision, the RTC ruled that the transaction between
Autocorp and Seaoil was a simple contract of sale payable in installments. 5 It also
held that the obligation to pay plaintiff the remainder of the purchase price of the
excavator solely devolves on Seaoil. Paul Rodriguez, not being a party to the sale of
the excavator, could not be held liable therefor. The decretal portion of the trial
courts Decision reads, thus:
WHEREFORE, judgment is hereby rendered in favor of plaintiff Autocorp Group and against
defendant Seaoil Petroleum Corporation which is hereby directed to pay plaintiff:
- P2,389,179.23 plus 3% interest from the time of judicial demand until full payment; and
- 25% of the total amount due as attorneys fees and cost of litigation.
The third-party complaint filed by defendant Seaoil Petroleum Corporation against thirdparty defendant Paul Rodriguez is hereby DISMISSED for lack of merit.
SO ORDERED.

Seaoil filed a Petition for Review before the CA. In its assailed Decision, the CA
dismissed the petition and affirmed the RTCs Decision in toto.6 It held that the
transaction between Yu and Rodriguez was merely verbal. This cannot alter the
sales contract between Seaoil and Autocorp as this will run counter to the parol
evidence rule which prohibits the introduction of oral and parol evidence to modify

the terms of the contract. The claim that it falls under the exceptions to the parol
evidence rule has not been sufficiently proven. Moreover, it held that Autocorps
separate corporate personality cannot be disregarded and the veil of corporate
fiction pierced. Seaoil was not able to show that Autocorp was merely an alter ego of
Uniline or that both corporations were utilized to perpetrate a fraud. Lastly, it held
that the RTC was correct in dismissing the third-party complaint since it did not arise
out of the same transaction on which the plaintiffs claim is based, or that the third
partys claim, although arising out of another transaction, is connected to the
plaintiffs claim. Besides, the CA said, such claim may be enforced in a separate
action.
Seaoil now comes before this Court in a Petition for Review raising the following
issues:
I
Whether or not the Court of Appeals erred in partially applying the parol evidence rule to
prove only some terms contained in one portion of the document but disregarded the rule
with respect to another but substantial portion or entry also contained in the same document
which should have proven the true nature of the transaction involved.
II
Whether or not the Court of Appeals gravely erred in its judgment based on
misapprehension of facts when it declared absence of facts which are contradicted by
presence of evidence on record.
III
Whether or not the dismissal of the third-party complaint would have the legal effect of res
judicata as would unjustly preclude petitioner from enforcing its claim against respondent
Rodriguez (third-party defendant) in a separate action.
IV
Whether or not, given the facts in evidence, the lower courts should have pierced the
corporate veil.

The Petition lacks merit. We sustain the ruling of the CA.


We find no fault in the trial courts appreciation of the facts of this case. The findings
of fact of the trial court are conclusive upon this Court, especially when affirmed by

the CA. None of the exceptions to this well-settled rule has been shown to exist in
this case.
Petitioner does not question the validity of the vehicle sales invoice but merely
argues that the same does not reflect the true agreement of the parties. However,
petitioner only had its bare testimony to back up the alleged arrangement with
Rodriguez.
The Monte de Piedad checks the supposedly "clear and obvious link" 7 between the
documentary evidence and the true transaction between the parties are equivocal
at best. There is nothing in those checks to establish such link. Rodriguez denies
that there is such an agreement.
Unsubstantiated testimony, offered as proof of verbal agreements which tends to
vary the terms of a written agreement, is inadmissible under the parol evidence rule. 8
Rule 130, Section 9 of the Revised Rules on Evidence embodies the parol evidence
rule and states:
SEC. 9. Evidence of written agreements.When the terms of an agreement have been
reduced to writing, it is 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.
However, a party may present evidence to modify, explain or add to the terms of the written
agreement if he puts in issue in his pleading:
(a) An intrinsic ambiguity, mistake or imperfection in the written agreement;
(b) The failure of the written agreement to express the true intent and agreement of the
parties thereto;
(c) The validity of the written agreement; or
(d) The existence of other terms agreed to by the parties or their successors-in-interest after
the execution of the written agreement.
The term "agreement" includes wills.

The parol evidence rule forbids any addition to, or contradiction of, the terms of a
written agreement by testimony or other evidence purporting to show that different
terms were agreed upon by the parties, varying the purport of the written contract. 9

This principle notwithstanding, petitioner would have the Court rule that this case
falls within the exceptions, particularly that the written agreement failed to express
the true intent and agreement of the parties. This argument is untenable.
Although parol evidence is admissible to explain the meaning of a contract, 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.10 Evidence of a prior or contemporaneous verbal agreement is generally
not admissible to vary, contradict or defeat the operation of a valid contract. 11
The Vehicle Sales Invoice12 is the best evidence of the transaction. A sales invoice is
a commercial document. Commercial documents or papers are those used by
merchants or businessmen to promote or facilitate trade or credit
transactions.13 Business forms, e.g., order slip, delivery charge invoice and the like,
are commonly recognized in ordinary commercial transactions as valid between the
parties and, at the very least, they serve as an acknowledgment that a business
transaction has in fact transpired.14 These documents are not mere scraps of paper
bereft of probative value, but vital pieces of evidence of commercial transactions.
They are written memorials of the details of the consummation of contracts. 15
The terms of the subject sales invoice are clear. They show that Autocorp sold to
Seaoil one unit Robex 200 LC Excavator paid for by checks issued by one Romeo
Valera. This does not, however, change the fact that Seaoil Petroleum Corporation,
as represented by Yu, is the customer or buyer. The moment a party affixes his or
her signature thereon, he or she is bound by all the terms stipulated therein and is
subject to all the legal obligations that may arise from their breach. 16
Oral testimony on the alleged conditions, coming from a party who has an interest in
the outcome of the case, depending exclusively on human memory, is not as reliable
as written or documentary evidence.17
Hence, petitioners contention that the document falls within the exception to the
parol evidence rule is untenable. The exception obtains only where "the written
contract is so ambiguous or obscure in terms that the contractual intention of the
parties cannot be understood from a mere reading of the instrument. In such a case,
extrinsic evidence of the subject matter of the contract, of the relations of the parties
to each other, and of the facts and circumstances surrounding them when they
entered into the contract may be received to enable the court to make a proper
interpretation of the instrument."18

Even assuming there is a shred of truth to petitioners contention, the same cannot
be made a basis for holding respondents liable therefor.
As pointed out by the CA, Rodriguez is a person separate and independent from
Autocorp. Whatever obligations Rodriguez contracted cannot be attributed to
Autocorp19 and vice versa. In fact, the obligation that petitioner proffers as its
defense under the Lease Purchase Agreement was not even incurred by
Rodriguez or by Autocorp but by Uniline.
The Lease Purchase Agreement20 clearly shows that the parties thereto are two
corporations not parties to this case: Focus Point and Uniline. Under this Lease
Purchase Agreement, it is Uniline, as lessee/purchaser, and not Rodriguez, that
incurred the debt to Focus Point. The obligation of Uniline to Focus Point arose out
of a transaction completely different from the subject of the instant case.
It is settled that a corporation has a personality separate and distinct from its
individual stockholders or members, and is not affected by the personal rights,
obligations and transactions of the latter.21 The corporation may not be held liable for
the obligations of the persons composing it, and neither can its stockholders be held
liable for its obligation.22
Of course, this Court has recognized instances when the corporations separate
personality may be disregarded. However, we have also held that the same may
only be done in cases where the corporate vehicle is being used to defeat public
convenience, justify wrong, protect fraud, or defend crime. 23 Moreover, the
wrongdoing must be clearly and convincingly established. It cannot be presumed. 24
To reiterate, the transaction under the Vehicle Sales Invoice is separate and distinct
from that under the Lease Purchase Agreement. In the former, it is Seaoil that owes
Autocorp, while in the latter, Uniline incurred obligations to Focus. There was never
any allegation, much less any evidence, that Autocorp was merely an alter ego of
Uniline, or that the two corporations separate personalities were being used as a
means to perpetrate fraud or wrongdoing.
Moreover, Rodriguez, as stockholder and director of Uniline, cannot be held
personally liable for the debts of the corporation, which has a separate legal
personality of its own. While Section 31 of the Corporation Code 25 lays down the
exceptions to the rule, the same does not apply in this case. Section 31 makes a
director personally liable for corporate debts if he willfully and knowingly votes for or
assents to patently unlawful acts of the corporation. Section 31 also makes a

director personally liable if he is guilty of gross negligence or bad faith in directing


the affairs of the corporation.26 The bad faith or wrongdoing of the director must be
established clearly and convincingly. Bad faith is never presumed. 27
The burden of proving bad faith or wrongdoing on the part of Rodriguez was, on
petitioner, a burden which it failed to discharge. Thus, it was proper for the trial court
to have dismissed the third-party complaint against Rodriguez on the ground that he
was not a party to the sale of the excavator.
Rule 6, Section 11 of the Revised Rules on Civil Procedure defines a third-party
complaint as a claim that a defending party may, with leave of court, file against a
person not a party to the action, called the third-party defendant, for contribution,
indemnity, subrogation or any other relief, in respect of his opponents claim.
The purpose of the rule is to permit a defendant to assert an independent claim
against a third party which he, otherwise, would assert in another action, thus
preventing multiplicity of suits.28 Had it not been for the rule, the claim could have
been filed separately from the original complaint. 29
Petitioners claim against Rodriguez was fully ventilated in the proceedings before
the trial court, tried and decided on its merits. The trial courts ruling operates as res
judicata against another suit involving the same parties and same cause of action.
This is rightly so because the trial court found that Rodriguez was not a party to the
sale of the excavator. On the other hand, petitioner Seaoils liability has been
successfully established by respondent.
A last point. We reject Seaoils claim that "the ownership of the subject excavator,
having been legally and completely transferred to Focus Point International, Inc.,
cannot be subject of replevin and plaintiff [herein respondent Autocorp] is not legally
entitled to any writ of replevin."30 The claim is negated by the sales invoice which
clearly states that "[u]ntil after the vehicle is fully paid inclusive of bank clearing time,
it remains the property of Autocorp Group which reserves the right to take
possession of said vehicle at any time and place without prior notice." 31
Considering, first, that Focus Point was not a party to the sale of the excavator and,
second, that Seaoil indeed failed to pay for the excavator in full, the same still
rightfully belongs to Autocorp. Additionally, as the trial court found, Seaoil had
already assigned the same to its contractor for the construction of its depot in
Batangas.32 Hence, Seaoil has already enjoyed the benefit of the transaction even as

it has not complied with its obligation. It cannot be permitted to unjustly enrich itself
at the expense of another.
WHEREFORE, the foregoing premises considered, the Petition is
hereby DENIED. The Decision of the Court of Appeals dated May 20, 2004 in CAG.R. CV No. 72193 is AFFIRMED.
SO ORDERED.

G.R. No. 171036

October 17, 2008

ADELA G. RAYMUNDO, EDGARDO R. RAYMUNDO, LOURDES R. RAYMUNDO,


TERESITA N. RAYMUNDO, EVELYN R. SANTOS, ZENAIDA N. RAYMUNDO,
LUIS N. RAYMUNDO, JR. and LUCITA R. DELOS REYES,petitioners,
vs.
ERNESTO LUNARIA, ROSALINDA RAMOS and HELEN
MENDOZA, respondents.
DECISION
QUISUMBING, J.:

Assailed in this petition for review are the Court of Appeals Decision 1 dated October
10, 2005 and the Resolution2dated January 10, 2006 in CA-G.R. CV No. 75593.
The facts in this case are as follows:
Sometime in May 1996, petitioners approached respondent Lunaria to help them
find a buyer for their property situated at Marilao, Bulacan with an area of 12,126
square meters for the amount of P60,630,000. Respondent Lunaria was promised a
5% agents commission in the event that he finds a buyer. After respondents found a
buyer, Cecilio Hipolito, an "Exclusive Authority to Sell" 3 was executed embodying the
agreement made by the parties. After the corresponding Deed of Absolute Sale of
Real Property4 was registered in the Registry of Deeds, a copy thereof was given to
the Far East Bank and Trust Co., which was then holding in escrow the amount
of P50,000,000 to be disbursed or paid against the total consideration or price of the
property.
On February 14, 1997, Ceferino G. Raymundo, one of the co-owners, advised
respondents to go to the bank to receive the amount of P1,196,000 as partial
payment of their total commission. Also, respondents were instructed to return after
seven days to get the balance of the commission due them.
On February 21, 1997, respondents returned to the bank. However, the check
covering the balance of their commission was already given by the bank manager to
Lourdes R. Raymundo, the representative of the petitioners. Respondents tried to
get the check from the petitioners, however, they were told that there is nothing
more due them by way of commission as they have already divided and distributed
the balance of the commissions among their nephews and nieces.
For their part, petitioners counter that there was a subsequent verbal agreement
entered into by the parties after the execution of the written agreement. Said verbal
agreement provides that the 5% agents commission shall be divided as follows: 2/5
for the agents, 2/5 for Lourdes Raymundo, and 1/5 for the buyer, Hipolito. The share
given to Lourdes Raymundo shall be in consideration for the help she would extend
in the processing of documents of sale of the property, the payment of the capital
gains tax to the Bureau of Internal Revenue and in securing an order from the court.
The 1/5 commission given to Hipolito, on the other hand, will be used by him for the
payment of realty taxes.
Hence, for failure of the respondents to receive the balance of their agents
commission, they filed an action for the collection of a sum of money before the

Regional Trial Court of Valenzuela City, Branch 172. On January 22, 2002, the trial
court rendered a Decision5 in favor of the respondents. The dispositive portion of
said decision reads:
WHEREFORE, judgment is hereby rendered as follows:
1) Ordering the defendants, jointly and severally, to pay the plaintiffs the amount
of P1,834,900.00, representing the unpaid commission, plus interest thereon at the legal
rate from the filing of this case until fully paid;
2) Ordering the defendants to, jointly and severally, pay the plaintiffs the amount
of P200,000.00 as moral damages and the amount of P100,000.00 as exemplary damages;
and
3) Ordering the defendants [to], jointly and severally, pay the plaintiffs the amount
of P150,000.00 as attorneys fees, plus the costs of suit.
SO ORDERED.6

Aggrieved, petitioners appealed. In a Decision dated October 10, 2005, the Court of
Appeals affirmed the decision of the trial court with the modification that the amount
of moral and exemplary damages awarded to respondents shall be reduced. The
dispositive portion reads:
WHEREFORE, the appealed Decision dated January 22, 2002 is affirmed, subject to the
modification that the award of moral damages is reduced to P50,000.00 and exemplary
damages to P25,000.00.
SO ORDERED.7

On October 28, 2005, petitioners filed a Motion for Reconsideration. 8 However, it


was denied in a Resolution dated January 10, 2006. Hence, the instant petition
raising the following issues:
I.
THE HONORABLE COURT SERIOUSLY ERRED IN APPLYING THE PAROLE EVIDENCE
RULE IN THIS CASE (DECISION, PAGE 7, PARAGRAPH 1). THIS PRINCIPLE HAS NO
APPLICATION TO THE FACTS OF THE INSTANT CASE.
II.

FURTHER, IT ERRED IN REQUIRING, ALBEIT IMPLICITLY, THE PETITIONERS TO


ESTABLISH THE VERBAL AGREEMENT MODIFYING THE EARLIER WRITTEN
AGREEMENT (THE EXCLUSIVE AUTHORITY TO SELL) BY MORE THAN A
PREPONDERANCE OF EVIDENCE (DECISION, PAGE 8). THIS IS PLAINLY CONTRARY
TO LAW THAT MERELY REQUIRES PREPONDERANCE OF EVIDENCE IN CIVIL
CASES.
III.
FINALLY, EVEN CONCEDING FOR THE SAKE OF ARGUMENT THAT PETITIONERS
STILL OWE THE RESPONDENTS THE "BALANCE" OF THEIR COMMISSION, THE
HONORABLE COURT ERRED IN RULING THE PETITIONERS ARE EACH JOINTLY AND
SEVERALLY [LIABLE] FOR THE PAYMENT OF THE ENTIRE BROKERS FEES. THIS
RULING HAS NO LEGAL BASIS AND IS CONTRARY TO ART. 1207 OF THE NEW CIVIL
CODE.9

Plainly stated, the issues for resolution are: Did the Court of Appeals err (1) in
applying the parol evidence rule; (2) in requiring petitioners to establish their case by
more than a preponderance of evidence; and (3) in holding petitioners jointly and
severally liable for the payment of the entire brokers fees?
Anent the first issue, petitioners contend that the Court of Appeals erred in applying
the parol evidence rule to the facts of the case because the verbal agreement was
entered into subsequent to the written agreement. Further, they aver that there is no
rule that requires an agreement modifying an earlier agreement to be in the same
form as the earlier agreement in order for such modification or amendment to be
valid.
Conversely, respondents argue that the Court of Appeals did not apply the parol
evidence rule in this case. Although the appellate court stated and emphasized the
general legal principle and rule on parol evidence, it did not apply the parol evidence
rule with regard to the evidence adduced by the petitioners.
We rule for the respondents. To begin with, we agree with petitioners claim that the
parol evidence rule does not apply to the facts of this case. First, the parol evidence
rule forbids any addition to or contradiction of the terms of a written instrument by
testimony or other evidence purporting to show that, "at or before" the execution of
the parties written agreement, other or different terms were agreed upon by the
parties, varying the purport of the written contract. 10Notably, the claimed verbal
agreement was agreed upon not prior to but "subsequent to" the written agreement.
Second, the validity of the written agreement is not the matter which is being put in

issue here. What is questioned is the validity of the claim that a subsequent verbal
agreement was agreed upon by the parties after the execution of the written
agreement which substantially modified their earlier written agreement.
Nonetheless, even if we apply the parol evidence rule in this case, the evidence
presented by the petitioners fell short in proving that a subsequent verbal agreement
was in fact entered into by the parties. We subscribe to the findings of both the trial
court and the appellate court that the evidence presented by petitioners did not
establish the existence of the alleged subsequent verbal agreement. As pointed out
by the trial court:
Note that no written evidence was presented by the defendants to show that the plaintiffs
[herein respondents] agreed to the above-sharing of the commission. The fact is that the
plaintiffs are denying having ever entered into such sharing agreement. For if the plaintiffs
as sales agents indeed agreed to share the commission they are entitled to receive by
virtue of the Exclusive Authority to Sell with Lourdes G. Raymundo and Hipolito, it passes
understanding why no written agreement to that effect was ever made. The absence of such
written agreement is mute but telling testimony that no such sharing arrangement was ever
made.11

As to the second issue, petitioners contend that the appellate court erred in requiring
them to prove the existence of the subsequent verbal agreement by more than a
mere preponderance of evidence since no rule of evidence requires them to do so.
In support of this allegation, petitioners presented petitioner Lourdes Raymundo who
testified that she was given 2/5 share of the commission pursuant to the verbal
sharing scheme because she took care of the payment of the capital gains tax, the
preparation of the documents of sale and of securing an authority from the court to
sell the property.
For their part, respondents counter that the appellate court did not require petitioners
to prove the existence of the subsequent oral agreement by more than a mere
preponderance of evidence. What the appellate court said is that the petitioners
failed to prove and establish the alleged subsequent verbal agreement even by
mere preponderance of evidence.
Petitioners abovecited allegation has no merit. By preponderance of evidence is
meant that the evidence as a whole adduced by one side is superior to that of the
other.12 It refers to the weight, credit and value of the aggregate evidence on either
side and is usually considered to be synonymous with the term "greater weight of
evidence" or "greater weight of the credible evidence". It is evidence which is more

convincing to the court as worthy of belief than that which is offered in opposition
thereto.13
Both the appellate court and trial court ruled that the evidence presented by the
petitioners is not sufficient to support their allegation that a subsequent verbal
agreement was entered into by the parties. In fact, both courts correctly observed
that if Lourdes Raymundo was in reality offered the 2/5 share of the agents
commission for the purpose of assisting respondent Lunaria in the documentation
requirement, then why did the petitioners not present any written court order on her
authority, tax receipt or sales document to support her self-serving testimony?
Moreover, even the worksheet allegedly reflecting the commission sharing was
unilaterally prepared by petitioner Lourdes Raymundo without any showing that
respondents participated in the preparation thereof or gave their assent thereto.
Even the alleged payment of 1/5 of the commission to the buyer to be used in the
payment of the realty taxes cannot be given credence since the payment of realty
taxes is the obligation of the owners, and not the buyer. Lastly, if the said sharing
agreement was entered into pursuant to the wishes of the buyer, then he should
have been presented as witness to corroborate the claim of the petitioners.
However, he was not.
As to the third issue, petitioners contend that the appellate court erred in holding that
the petitioners were each jointly and severally liable for the payment of the brokers
fees. They contend that the Civil Code provides that unless the parties have
expressly agreed to be jointly and severally liable for the entire brokers fees, each
of the petitioners should only be held liable to the extent of their pro-indiviso share in
the property sold.
For their part, respondents argue that the appellate court did not err in affirming the
joint and several liability of the petitioners. They aver that if there was error on the
part of the trial court, it was not raised or assigned as error by petitioners in their
appeal. It was also not included in the Statement of Issues in their brief which they
submitted for resolution by the Court of Appeals. In fact, the same was never
mentioned, much less questioned, by petitioners in their brief.
On this score, we agree with respondents. The general rule is that once an issue
has been adjudicated in a valid final judgment of a competent court, it can no longer
be controverted anew and should be finally laid to rest. 14 In this case, petitioners
failed to address the issue on their solidary liability when they appealed to the Court
of Appeals. They are now estopped to question that ruling. As to them, the issue on
their liability is already valid and binding.

WHEREFORE, the petition is DENIED for lack of merit. The Decision dated October
10, 2005 and the Resolution dated January 10, 2006 of the Court of Appeals in CAG.R. CV No. 75593 are AFFIRMED. Costs against petitioners.
SO ORDERED.

G.R. No. L-10265

March 3, 1916

EUTIQUIANO CUYUGAN, plaintiff-appellant,


vs.
ISIDORO SANTOS, defendant-appellee.
Ramon Diokno for appellant.
William A. Kincaid and Thomas L. Hartigan for appellee.
CARSON, J.:
The complaint in this case alleges that the plaintiff is the sole heir of his mother,
Guillerma Cuyugan y Candia, deceased; that in the year 1895 she borrowed the
sum of P3,500 from the defendant and executed, at the same time, the document,
Exhibit C, attached to the complaint, which purports on its face to be a deed of sale
of the land described therein, with a reservation in favor of the vendor of the right to
repurchase for the sum of P3,500; that although the instrument purports on its face
to be a deed of sale, it was intended by the parties merely to evidence the loan of
the nominal purchase price and to serve as a security for the repayment of the
amount of the loan; that under the terms of the instrument plaintiff's mother was left
in possession of the land as a nominal tenant of the defendant at an annual rental of
P420, an amount equal to the agreed upon annual interest on the loan at the rate of
12 per cent per annum; that in the year 1897 the borrower paid P1,000 on the loan,
whereupon the nominal rent on the land was reduced from P420 to P300 per
annum, that being the amount of the interest on the unpaid balance of the loan at
the rate of 12 per cent per annum; that plaintiff and his mother continued in the

peaceable possession of the land until the defendant, in the year prior to the
institution of this action, served notice on the plaintiff that an annual payment of
P420 would be required of him thereafter, that is to say, the original amount of the
annual payments as agreed upon prior to the payment of P1,000 on the debt in the
year 1897; that upon plaintiff's refusal to meet this demand, defendant set up a claim
of ownership in himself and threatened to eject the plaintiff from the land; that
thereupon plaintiff offered to pay, and still stands ready to pay the balance due on
the original indebtedness and the unpaid interest thereon for one year, but that
defendant declined and continues to decline to accept the amount tendered and to
cancel the formal deed of sale to the land.
The prayer of the complaint is that the defendant be required to accept the amount
thus tendered, and to cancel the formal deed of conveyance.
A demurrer to the complaint was sustained by the court below on the ground that it
does not set forth facts constituting a cause of action it appearing on the face of
the deed of conveyance attached to the complaint that it was a deed of sale of land
with a reserved right in the vendor to repurchase; and the allegations of the
complaint disclosing that the deed of conveyance was executed by plaintiff's mother,
that the stipulated price of repurchase has not been paid in full, and that the time
allowed in the deed for repurchase has long since expired.
This is an appeal from the order sustaining the demurrer and dismissing the
complaint.
We are of opinion that the demurrer should have been overruled on two separate
and distinct grounds, either one of which is sufficient to sustain the ruling.
1. Since the demurrer to the complaint admits all the material facts well pleaded
therein, it follows that, for the purposes of the demurrer, the defendant admits that
the true nature and intent of the transaction mentioned in the complaint was a mere
loan of money secured by a formal conveyance of the land of the vendor; that the
written instrument, purporting to be a deed of sale of the land, with a right of
repurchase reserved by the vendor, did not set forth the real nature of the
agreement between the parties thereto; and that the true intention and
understanding of the parties at the time when the deed was executed and delivered
was that it should be held by the defendant, not as a deed of sale of the land, but
rather as an instrument in the nature of a mortgage, evidencing a loan secured by
the lands of the borrower. The demurrer further admits that the borrower's successor
in interest had tendered the full amount of the indebtedness together with the

interest due and payable thereon at the time of the tender, and that he stands ready
at any time to pay the full amount due on the loan with interest, upon the
cancellation by the defendant of the formal deed of conveyance of the land.
But proof of these facts would clearly entitle the plaintiff to the relief prayed for. The
demurrer should therefore have been overruled and the plaintiff should have been
given an opportunity to submit his evidence in support of the allegation of his
complaint.
It is contended, however, that even if all these allegations in the complaint were true
in fact, nevertheless, the demurrer should be sustained, because, as it is said, these
allegations of fact can not be sustained at the trial by the introduction of competent
testimony, since the court will be compelled to exclude any evidence offered by the
plaintiff which would tend to alter, vary, or defeat the terms of the written deed of
conveyance which is attached to the complaint as an exhibit, and the execution of
which the plaintiff's mother is expressly alleged and admitted in the complaint.
In support of this contention we are cited to various decisions of this court wherein
we have held that the intent of the parties executing instruments purporting to
evidence sales of lands with the right of repurchase reserved to the vendors was
sufficiently and satisfactorily disclosed by the terms of the instruments themselves;
and that the intent of the parties as disclosed by the terms of these instruments
should be given full force and effect in accordance therewith, despite the contentions
of the vendors that the original transactions between the parties were had in
contemplation of, and to give effect to contracts or agreements for the loan of
money, the repayment of which was to be secured by the lands of the borrower.
It is true that in a number of cases submitted to this court in which such a contention
has been advanced, and in which the language of the instrument evidencing the
transaction under investigation clearly and without ambiguity set forth a contract of
sale with a reserved right to repurchase, we have uniformly declined to maintain
such contentions, and have enforced the contract in accord with the terms of the
instrument by which it was evidence. But it does not necessarily follow that such a
contention can never be successfully asserted and maintained in the courts in this
jurisdiction.
An examination of these cases will disclose that the true ground upon which they are
based was the lack of evidence sufficiently clear, satisfactory and convincing to
sustain a holding that the true nature of the transaction between the parties was any
other than that set forth in written instruments executed by them and purporting to

evidence sales of land with a right of repurchase reserved to the vendors. And the
fact that, in the cases relied upon, the court examined and weighed the evidence
before rejecting it as insufficient affords reasonable ground for an inference that had
the court been of the opinion that the parol evidence submitted in any of these cases
was clear, satisfactory and convincing, it might, and doubtless would have arrived at
a different conclusion.
But however this may be, and without entering upon an extend review of the
reported opinions of this court to ascertain whether language has been used in any
of them which might be construed as an intimation by this court of its views on the
question now under consideration, we are of the opinion that the issues raised on
this appeal are such as to impose on us the duty of reexamining the whole question
as to the power of the courts in this jurisdiction to admit extraneous parol evidence in
support of allegations that an instrument in writing, purporting on its face to transfer
the absolute title to property, or to transfer the title with a mere right of repurchase
under specified conditions reserved to the vendor, was in truth and in fact given
merely as a security; and upon proof of the truth of such allegations to enforce such
an agreement or understanding in accord with the true intend of the parties at the
time when it was executed. The question having been brought here on an appeal
from a ruling on a demurrer, the issue of law is squarely presented, without being
obscured or befogged by the intervention of any doubtful question of fact, or of the
relevancy, materiality, competence or probative value of specific questions and
answers in a particular case.
We are of opinion, and so hold, that on both principle and authority, this question
must be answered in the affirmative.
The Supreme Court of Porto Rico in the case of Monagas vs. Albertucci (17 Porto
Rico, 684, cited and in effect affirmed as to this ruling by the Supreme Court of the
United States, 235 U. S., 81) observed in the course of a discussion of a similar
question that "The American doctrine on this subject does not differ materially
from the principles set forth in our Civil Code," a code which is substantially identical
with the Civil Code of the Philippines in all its provisions with relation to the question
under consideration; and we are satisfied on a full review of the whole question that,
under our Codes, both substantive and adjective, the doctrine which must be applied
in this jurisdiction "does not differ materially" from the equitable doctrine frequently
announced and applied by the Supreme Court of the United States in the numerous
cases in which similar questions have come to it from the various states and
territories within its jurisdiction.

We shall consider first, whether the provisions of the new Code of Civil Procedure
should be so construed as to deny the right to the borrower in such cases, to
introduce extraneous and parol evidence to support his allegations as to the
existence of a parol agreement, whereby the lender obligated himself to hold the title
to the lands merely as security for the repayment of the debt; and further whether
there is anything in that Code which would deny the right of the borrower in such
cases, upon proof of such allegations, to enforce the agreement in accordance with
its terms. The authors of the new Code of Civil Procedure (Act No. 190 of the Civil
Commission) were American lawyers, and the avowed purpose and object of its
enactment was to introduce in these Islands a system of procedure of civil cases
modelled upon precedents in general use in the United States. Most of its provisions
are borrowed directly from the statute books of one or other of the States of the
Union, and many of its more important provisions have been construed and applied
by both state and federal courts of last resort. We have, therefore, in the Supreme
Court Reports of the various States from which these provisions were borrowed,
numerous precedents of strong and persuasive, if not conclusive authority; and,
except in so far as they are affected by the substantive law in force in this jurisdiction
or necessarily modified by local conditions, we have always felt ourselves bound by
the rulings of the Supreme Court of the United States in construing and applying
statutory enactments modelled upon or borrowed from English or American
originals.
The various provisions of the new Code of Civil Procedure which have any bearing
on the question now under consideration, or statutory provisions of like tenor and
effect, have been construed and applied by all or nearly all the courts of last resorts
in England and the United States; and while these courts are not wholly in accord as
to the reasoning upon which their conclusions are based, it may safely be asserted
that with substantial, if not absolute unanimity, they have arrived a substantially
similar results.
But we shall not shop at this time to review all the questions which have been raised
in connection with the subject now under consideration. It will be sufficient for our
purposes to examine the obligations which have been advanced against the
admission of parol evidence to sustain allegations similar in effect to those set forth
in the case at bar, based either on the ground that such evidence should be
excluded under the "Statute of Frauds," the alleged agreement not having been
reduced to writing, or on the ground that its admission would violate the rule that
parol evidence will not be admitted to vary or contradict the terms of a written
instrument.

For this purpose we can do no better than to insert here a few citations from the
books, which set forth quite fully the doctrine in this regard that has been announced
by the great weight of authority, and which in our opinion should prevail in this
jurisdiction in applying and construing the pertinent provisions of the new Code of
Civil Procedure. But, before doing so, it may be well to indicate that we do not adopt
every proposition advanced in these somewhat extended citations from text-book
and judicial authority, and that, at this time, we make the doctrine our own only to the
extent of declaring that the provisions of the new Code of Civil Procedure do not
have the effect of excluding parol evidence in support of allegations such as those
set forth in the complaint in the case at bar, or of denying the right of the borrower in
cases of this kind to enforce the alleged agreement in accordance with its terms.
Supported by numerous citations the doctrine summarily stated in 27 Cyclopedia,
page 1023, is as follows:
Effect of statute of frauds. The statute of frauds does not stand in the way of
treating an absolute deed as a mortgage, when such was the intention of the parties,
although the agreement for redemption or defeasance rests wholly in parol, or is
proved by parol evidence. The courts will not permit the statute to be used as a
shield for fraud, or as a means for perpetrating fraud.
Rule prohibiting contradiction of written documents. The admission of parol
testimony to prove that a deed absolute in form was in fact given and accepted as a
mortgage does not violate the rule against the admission of oral evidence to vary or
contradict the terms of a written instrument.

In the case of Russell vs. Southard (53 U. S., 139, 147), the Supreme Court of the
United States dealt with these objections in part as follows:
The first question is, whether this transaction was a mortgage, or a sale.
It is insisted, on behalf of the defendants, that this question is to be determined by
inspection of the written papers alone, oral evidence not being admissible to
contradict, vary, or add to, their contents. But we have no doubt extraneous evidence
is admissible to inform the court of every material fact known to the parties when the
deed and memorandum were executed. This is clear, both upon principle and
authority. To insist on what was really a mortgage, as a sale, is in equity a fraud,
which cannot be successfully practiced, under the shelter of any written papers,
however precise and complete they may appear to be. In Conway vs. Alexander (7
Cranch, 238), Ch. J. Marshall says: `Having made these observations on the deed
itself, the court will proceed to examine those extrinsic circumstances, which are to
determine whether it was a sale or a mortgage;' and inMorris vs. Nixon (1 How.,

126), it is stated; 'The charge against Nixon is, substantially, a fraudulent attempt to
convert that into an absolute sale, which was originally meant to be a security for a
loan. It is in this view of the case that the evidence is admitted to ascertain the truth
of the transaction, though the deed be absolute on its face.'
These views are supported by many authorities. (Maxwell vs. Montacute, Pr. in Ch.,
526; Dixon vs. Parker, 2 Ves., Sen., 225; Prince vs. Bearden, 1 A. K. Marsh. [Ky.],
170; Oldham vs. Halley, 2 J. J. March. [Ky.], 114; Whittick vs. Kane, 1 Paige [N. Y.],
202; Taylor vs. Luther, 2 Sumn, 232; Flagg vs. Mann, Id., 538; Overton vs. Bigelow, 3
Yerg. [Tenn.] 513; Brainerd vs. Brainerd, 15 Conn., 575; Wright vs. Bates, 13 Vt.,
341; McIntyre vs. Humphries, 1 Hoffm. [N. Y.] Ch., 331; 4 Kent, 143, note A., and 2
Green. Cruise, 86, n.)
It is suggested that a different rule is held by the highest court of equity in Kentucky.
If it were, with great respect for that learned court, this court would not feel bound
thereby. This being a suit in equity, and oral evidence being admitted, or rejected, not
by the mere force of any state statute, but upon the principles of general equity
jurisprudence, this court must be governed by its own views of those principles.
(Robinson vs. Campbell, 3 Wheat., 212; United States vs. Howland, 4 Id., 108; Boyle
vs. Zacharie et al., 6 Pet., 658; Swift vs. Tyson, 16 Id., 1; Foxcroft vs. Mallett, 4 How.,
379.) But we do not perceive that the rule held in Kentucky differs from that above
laid down. The rule, as stated in Thomas vs. McCormack (9 Dana [Ky.], 109), is that
oral evidence is not admissible in opposition to the legal import of the deed, and the
positive denial in the answer, unless a foundation for such evidence had been first
laid by an allegation, and some proof of fraud or mistake in the execution of the
conveyance, or some vice in the consideration.
But the inquiry still remains, what amounts to an allegation of fraud, or of some vice
in the consideration and it is the doctrine of this court, that when it is alleged and
proved that a loan on security was really intended, and the defendant sets up the
loan as a payment of purchase money, and the conveyance as a sale, both fraud
and a vice in the consideration are sufficiently averred and proved to require a court
of equity to hold the transaction to be a mortgage; and we know of no court which
has stated this doctrine with more distinctness, than the Court of Appeals of the
State of Kentucky. In Edrington vs. Harper (3 J. J. Marsh. [Ky.], 355), that court
declared: `The fact that the real transaction between the parties was a borrowing and
lending, will, whenever, or however it may appear, show that a deed absolute on its
face was intended as a security for money; and whenever it can be ascertained to be
a security for money, it is only a mortgage, however artfully it may be disguised.'
xxx

xxx

xxx

In respect to the written memorandum, it was clearly intended to manifest a


conditional sale. Very uncommon pains are taken to do this. Indeed, so much anxiety
is manifested on this point, as to make it apparent that the draftsman considered he
had a somewhat difficult task to perform. But it is not to be forgotten, that the same
language which truly describes a real sale, may also be employed to cut off the right
of redemption, in case of a loan on security; that it is the duty of the court to watch
vigilantly these exercises of skill, lest they should be effectual to accomplish what
equity forbids; and that, in doubtful cases, the court leans to the conclusion that the
reality was a mortgage, and not a sale. (Conway vs. Alexander, 7 Cranch, 218; Flagg
vs. Mann, 2 Sumn., 533; Secrest vs. Turner, 2 J. J. March. [Ky.], 471; Edrington vs.
Harper, 3 Id., 354; Crane vs. Bonnell, 1 Green [N. J.] Ch., 264; Robertson vs.
Campbell, 2 Call. [Va.], 421; Poindexter vs. McCannon, 1 Dev. [N. C.] Eq., 373.)
It is true Russell must have given his assent to this form of the memorandum; but the
distress for money under which he then was, places him in the same condition as
other borrowers, in numerous cases reported in the books, who have submitted to
the dictation of the lender under the pressure of their wants; and a court of equity
does not consider a consent, thus obtained, to be sufficient to fix the rights of the
parties. `Necessitous men,' says the Lord Chancellor, in Vernon vs. Bethell (2 Eden,
113), `are not, truly speaking, free men; but, to answer a present emergency, will
submit to any terms that the crafty may impose upon them.'
The memorandum does not contain any promise by Russell to repay the money, and
no personal security was taken; but it is settled that this circumstance does not make
the conveyance less effectual as a mortgage. (Floyer vs. Lavington, 1 P. Wms., 268;
Lawly vs. Hooper, 3 Atk., 278; Scott vs. Fields, 7 Watts. [Pa.], 360; Flagg vs. Mann, 2
Sumn., 533; Ancaster vs. Mayer, 1 Bro. C. C., 464.) And consequently it is not only
entirely consistent with the conclusion that a mortgage was intended, but in a case
where it was the design of one of the parties to clothe the transaction with the forms
of a sale, in order to cut off the right of redemption, it is not to be expected that the
party would, by taking personal security, effectually defeat his own attempt to avoid
the appearance of a loan.

Citing and relying upon this case Mr. Justice Field speaking for the Supreme Court
of the United States (Brick vs. Brick, 98 U. S., 514) announced the doctrine with
relation to transactions in personal property, which is summarized as follows in the
head notes:
Parol evidence is admissible in equity to show that a certificate of stock issued to a
party as owner was delivered to him as security for a loan of money. A court of equity
will look beyond the terms of an instrument to the real transaction, and when that is

shown to be one of security and not of sale, it will give effect to the actual contract of
the parties.
The rule which excludes such evidence to contradict or vary a written instrument
does not forbid an inquiry into the object of the parties in execution and receiving it.

In the case of Monagas vs. Albertucci (235 U. S., 81, 83) the Supreme Court of the
United States inserts the following excerpt from the opinion of the Supreme Court of
Porto Rico (17 Porto Rico, 684, 686):
The whole case really turns on the question of whether the written instrument in
controversy was a mortgage or a conditional sale. If it is the latter, it must be
complied with according to its terms; if the former, the plaintiff must be allowed to
repay the money received and take a reconveyance of the land. The real intention of
the parties at the time the written instrument was made must govern in the
interpretation given to it by the courts. This must be ascertained from the
circumstances surrounding the transaction and from the language of the document
itself. The correct test, where it can be applied, is the continued existence of a debt
or liability between the parties. If such exists, the conveyance may be held to be
merely a security for the debt or an indemnity against the liability. On the contrary, if
no debt or liability is found to exist, then the transaction is not a mortgage, but merely
a sale with a contract of repurchase within a fixed time. While every case depends
on its own special facts, certain circumstances are considered as important, and the
courts regard them as throwing much light upon the real intent of the parties and
upon the nature of such transactions: such are the existence of a collateral
agreement made by the grantor for the payment of money to the grantee, his liability
to pay interest, inadequacy of price paid for the conveyance, the grantor still
remaining in possession of the land conveyed, and any negotiation or application for
a loan made preceding or during the transaction resulting in the conveyance. The
American doctrine on this subject does not differ materially from the principles set
forth in our Civil Code.

We insert here an extract of some length from the discussion of the subject
(supported by numerous citations of authority) found in Jones' Commentaries on
Evidence, (1913) volume 3, paragraphs 446, 447:
446. To show that instruments apparently absolute are only securities. It has long
been the settled rule that in courts exercising equitable jurisdiction it is admissible to
prove by parol that instruments in writing apparently transferring the absolute title are
in fact only given as security. The doctrine is thus stated by Mr. Field: `It is an
established doctrine that a court of equity will treat a deed, absolute in form, as a
mortgage, when it is executed as security for loan of money. That court looks beyond

the terms of the instrument to the real transaction; and when that is shown to be one
of security and not of sale, it will give effect to the actual contract of the parties. As
the equity, upon which the court acts in such cases, arises from the real character of
the transaction, any evidence, written or oral, tending to show this is admissible. The
rule which excludes parol testimony to contradict or vary a written instrument has
reference to the language used by the parties. That cannot be qualified or varied
from its natural import, but must speak for itself. The rule does not forbid an inquiry
into theobject of the parties in executing and receiving the instrument.' Although in
some of the earlier cases this evidence was received only on the grounds of fraud or
mistake, yet in later cases it was deemed sufficient evidence of fraud for the grantee
to treat the conveyance as absolute, when in fact it was not, and the tendency of the
modern decisions is that such evidence may be received to show the real nature and
object of the transaction, although no fraud or mistake of any kind is alleged or
proved. It is held that "the agreement for the defeasance, whether written or
unwritten, is no more than one of the conditions upon which the deed was given, and
therefore constitutes a part of the consideration for the conveyance . . . . Where the
deed does not contain the defeasance, the presumption arises that the conveyance
is absolute, and, in making proof that a defeasance was intended by the parties, and
was in fact a part of the consideration upon which the conveyance was made, this
presumption must be removed by testimony before the debtor can use the evidence
showing his right to defeat the absolute character of the conveyance . . . . It comes
finally to a question of what was the understanding and the intention of the parties at
the time the instrument was made; and this, like any other fact, depends for its
support upon what was said and done by the parties at the time, together with all the
other circumstances bearing upon the question.'
447. Same Real intention of the parties to be ascertained. In applying the
exception under discussion, the extrinsic evidence will not be received because of
any particular form of language which the parties may have adopted. As we have
shown in the preceding section, the intention of the parties must govern; and it
matters not what peculiar form the transaction may have taken. The inquiry always
is, Was a security for the loan of money or other property intended? But where the
deed and accompanying papers on their face constitute a mortgage, parol evidence
is not competent to show the contrary. In solving the question upon the facts, a few
things are absolutely necessary to be found to exist before the deed can be
construed a mortgage. A debt owing to the mortgagee, or a liability incurred for the
grantor, either preexisting or created at the time the deed is made, is essential to
give the deed the character of a mortgage. The relation of debtor and creditor must
appear. The existence of the debt is one of the tests. The amount of the debt, as well
as its continuance, should also be made to appear where a foreclosure is asked in
the same suit wherein it is sought to establish the character of the instrument. It is
also of importance to know precisely when the character claimed for the instrument

was fixed. In construing the deed to be a mortgage, its character as such must have
existed from its very inception, created at the time the conveyance was made.
The character of the transaction is precisely what the intention of the parties at the
time made it. It will therefore be discovered that the testimony of those who were
present at the time the instrument was made, and especially of those who
participated in the transaction, becomes most important. In arriving at the real intent
of the parties, their statements and acts at the time of the transaction, the
inadequacy of the consideration named in the deed, the prior existence of a debt,
and the recognition of its continuance, as by the payment of interest or other acts,
are all facts to be considered, and are relevant to the issue. But although parol
evidence is received in such cases to show the real nature of the transaction, the
presumption is that the instrument is what it purports to be; and before a deed
absolute in form can be shown to be a mortgage, the proof should be clear and
convincing. The burden rests upon the moving party of overcoming the strong
presumption arising from the terms of a written instrument. If the proofs are doubtful
and unsatisfactory, if there is a failure to overcome this presumption by testimony
entirely plain and convincing beyond reasonable controversy, the writing will be held
to express correctly the intention of the parties. A judgment of the court, a deliberate
deed or writing, are of too much solemnity to be brushed away by loose and
inconclusive evidence. Proof tending to show that no transfer of title was
contemplated does not fall within the condemnation of the rule prohibiting oral
evidence to vary the terms of a written instrument. As the rule has often been stated,
`to convert a deed absolute into a mortgage, the evidence should be so clear as to
leave no substantial doubt that the real intention of the parties was to execute a
mortgage.'"

Having disposed of the contention that the provisions of the new Code of Civil
Procedure, enacted under American sovereignty, forbid the introduction of parol
evidence to establish the true nature of transactions such as that under
consideration in the case at bar, we come now to consider whether there is anything
in the Spanish Codes which denies the power of the courts to enforce the equitable
doctrine announced by the Supreme Court of the United States with reference to
agreements and understandings of this nature.
But first, it may be well at this time to emphasize the fact that the courts of these
Islands are not organized with reference to the old English and American
classification into courts of law and equity; and that our Codes recognize no
distinction between actions at law and suits in equity, as these terms are understood
in English and American jurisdictions, wherein a distinction is made between law and
equity in the enforcement of private rights and the redress of private wrongs.

Deeply embedded among the fundamental principles on which the authors of the
Civil Code of Spain erected that monument to their genuis as codifiers, is the broad
equitable rule that "No man may wrongfully (tortiously) enrich himself at the expense
of (to the injury of) another." ("E aun dixeron, que ninguno non deue enriqueszer
tortizeramente con dao de otro"). (Regla 17, Title 34, Setena Partida, sentencias
Tribunal de Espaa, May 1, 1875; December 16, 1880; May 24, 1882, April 24,
1896.)
As deeply embedded at the very foundation of all the provisions of the Spanish
Code touching the nature and effect of all contractual obligations is the maxim that
the will of the contracting parties is the law of their contract a maxim which is
amplified in the elementary propositions that "contracts are perfected by mere
consent" (article 1258); that "the contracting parties may make any agreement and
establish any clauses and conditions which they may deem advisable, provided they
are not in contravention of law, morals, or public order" (article 1255); that "the
validity and fulfillment of contracts cannot be left to the will of one of the contracting
parties" (article 1256); and that "contracts shall be binding, whatever be the form in
which they may have been executed, provided the essential conditions required for
their validity exist" (article 1278).
In the light of these elementary and basic principles of the Code there can be no
question, in the absence of express statutory prohibition, as to the validity of an
agreement or understanding whereby the lender of money, who as security for the
repayment of the loan has taken a deed to land, absolute on its face or in the form of
a deed reserving a mere right of repurchase to the vendor, obligates himself to hold
such deed, not as evidence of a contract of sale but by way of security for the
repayment of the debt; and that unless the rights of innocent third persons have
intervened the lender of the money may be compelled to comply specifically with the
terms of such an agreement, whether it be oral or written; and further, that he will not
be permitted, in violation of its terms, to set up title in himself or to assert a claim or
absolute ownership.
If the parties actually enter into such an agreement, the lender of the money is
legally and morally bound to fulfill it. Of course such an oral contract does not give
the borrower a real right in the lands unless it is executed in compliance with the
formalities prescribed by law. If entered into orally, it creates a mere personal
obligation which in no wise effects the lands, and if the lender conveys the lands to
innocent third persons, the borrower must content himself with a mere right of action
for damages against the lender, for failure to comply with his agreement. But so long

as the land remains in the hands of the lender, the borrower may demand the
fulfillment of the agreement, and a mere lack of any of the formalities prescribed
under the Spanish Code for the execution of contracts affecting real estate will not
defeat his right to have the contract fulfilled, as the lender may be compelled in
appropriate proceedings to execute the contract with the necessary prescribed
formalities.
We have frequently held that under the Spanish Codes an oral contract affecting
lands, even an oral contract for the sale of lands, was valid and enforceable,
provided none of the essential requisites of all valid contracts is lacking, that is to
say, (1) consent, (2) definite object, and (3) causa or consideration. The lack of the
formal requisites prescribed by the Code in order that such contracts may become
effective to bind or convey the property, such as their execution in public instruments
and the like, does not invalidate them as personal obligations, as "either party may
compel the other to comply with such formalities" from the moment the valid
personal obligation has been entered into. (Article 1279 of the Civil Code.)
In like manner an agreement such as we have just described, entered into by a
lender of money, who has taken lands and security for its repayment, is a valid
contract, and we know of no provision in the Codes which denies the right of the
borrower to demand its fulfillment. On the contrary, provided the rights of innocent
purchasers for valuable consideration have not intervened, and provided of course
that the borrower can establish satisfactorily the fact that such a contract was
actually entered into, the principle that no man may wrongfully enrich himself at the
expense of another imposes an imperative obligation on the lender to carry out his
contract, and secures the right to the borrower to have it enforced by the courts. And
on the other hand, the same principle secures to the lender the right to enforce the
contract upon the failure of the borrower to comply with its terms, that is to say, to
have the lands held as security sold and the proceeds applied to the payment of the
debt.
But this conclusion is in substance and in effect identical with that arrived at by the
courts in England and the United States, when they declare that the transaction in
such cases will be treated as in the nature of an equitable mortgage and enforced as
such. That is merely to say that the parties will be compelled to comply with the
terms of the agreement that the lands should be held as security for the debt,
provided of course the agreement can be established by competent evidence and
the rights of innocent third parties have not intervened.

Under neither system will the contract be given the effect of a duly recorded or a
valid mortgage, so as to bind the lands in the hands of innocent third persons; but
the result under both systems is substantially identical in that as long as the property
remains in the hands of the lender he cannot deny the right of the borrower to
recover the lands by the payment of the debt, nor can he set up a claim of absolute
ownership on the lands which will defeat the right of the borrower in this regard until
and unless the borrower's right of action has prescribed.
The real difficulty which has confronted the borrowers in attempting to enforce
alleged contracts of this nature has not lain in the failure of the law to recognize their
rights in the premises, but rather in the inherent difficulties confronting them in their
attempts to prove the existence of such a contract.
In the very nature of things the disqualification of those directly interested in an
action to testify as witnesses, prescribed in article 1247 of the Spanish Code, must
have enormously increased the difficulties confronting a borrower in an attempt to
establish the existence of such an oral contract, prior to the enactment of the new
Code of Civil Procedure prescribing new rules in this regard. This because, as a
rule, the existence of such contracts is made known to few persons other than the
contracting parties themselves.
And while the new rules of evidence have removed this difficulty from the path of the
lender seeking to establish the existence of such an agreement, they by no means
relief him of the necessity of establishing his allegations by clear, convincing and
satisfactory evidence. The principle on which the codifiers rested the rule laid down
in article 1248 of the Civil Code is not less imperative under the new rules of
evidence than under those found in the Spanish Code. That article is as follows:
The probative force of the testimony of the witnesses shall be valued by the courts in
accordance with the provisions of the Law of Civil Procedure, taking care to avoid
that, by the simple coincidence of some testimony, unless its truthfulness be evident,
the affairs may be finally decided in which are usually employed public deeds,
private documents, or any commencement of written evidence.

In this jurisdiction, as in the United States, the existence of an oral agreement or


understanding such as that alleged in the complaint in the case at bar cannot be
maintained on vague, uncertain and indefinite testimony, against the reasonable
presumption that prudent men who enter into such contracts will execute them in
writing, and comply with the formalities prescribed by law for the creation of a valid
mortgage. But where the evidence as to the existence of such an understanding or

agreement is clear, convincing and satisfactory, the same broad principles of equity
operate in this jurisdiction as in the United States to compel the parties to live up to
the terms of their contract.
2. The second ground upon which the demurrer should have been overruled is that it
admits the truth of the allegation of the complaint that in the year 1897, two years
after the date of the execution of the instrument purporting to be a deed of sale, the
nominal vendor paid the nominal purchaser P1,000, whereupon the nominal rent of
the land was reduced from P420 to P300 per annum, the real purpose and object of
this arrangement being to reduce the amount of the annual interest on the original
loan made to the nominal vendor of the land, proportionately to the reduction of the
amount of the loan itself by the payment of P1,000. If it be true that two years after
the transaction evidenced by the instrument attached to the complaint, the
defendant accepted from the plaintiff's mother the sum of P1,000, and thereafter
reduced the amount of the annual payments to be made by her, it cannot be
doubted that the plaintiff has a good cause of action against the defendant.
The acceptance by the defendant of this large sum of money, under the
circumstances as they appear from the complaint, can only be accounted for on one
of two hypotheses. Either the original transaction was in truth and in fact an
arrangement or agreement by virtue of which a loan of money was made and
secured by a formal deed of sale of land with a reserved right of repurchase; or, if
the original transaction was in truth and in fact one of purchase and sale of real
estate, with a reserved right of repurchase in the vendor, then the purchaser, by the
acceptance from the vendor of the sum of P1,000, waived and surrendered his
rights under the original contract, and entered into a new contract with the vendor,
under which he obligated himself to cancel the deed, or resell the land to the original
vendor on the payment of the balance of the original purchase price, and bound
himself not to exercise his right, under the original deed of sale, to refuse to allow
the original vendor to repurchase after the expiration of the period stipulated in the
original contract for that purpose.
Upon either hypothesis, plaintiff would clearly be entitled to the relief prayed for in
his complaint. Of course the defendant is not entitled to keep both the land and the
payment of a thousand pesos. The acceptance and retention of such a payment is
wholly inconsistent with a claim of a right of absolute ownership in the land, without
any obligation to resell it to the original vendor. Defendant can not eat his cake and
have it too.

In the case of Lichauco vs. Berenguer (20 Phil. Rep., 12), we found the fact that
various partial payments had been made by the vendor, and accepted by the
purchaser, for the purpose of repaying the original purchase price, absolutely
incompatible "with the idea of the irrevocability of the title of ownership of the
purchaser" at the expiration of the term stipulated in the original contract for the
exercise of the right of repurchase. Speaking through the Chief Justice, we said in
that case:
The vendee, who has been reimbursed by the vendor for a part of the repurchase
price, is bound to fulfill the obligation to sell back, derived from the sale with right to
repurchase, or must show reason why he may keep this part of the price and,
notwithstanding his so doing, be considered released from effecting the resale. He
may be entitled to require the completion of the price, or that he be paid other
expenses before he returns the thing which he had purchased under such a
condition subsequent; but the exercise of the right of redemption having been begun
and admitted, the irrevocability of the ownership in such manner acquired is in all
respects incompatible with these acts so performed.

The order entered in the court below, sustaining the demurrer to the complaint must
be reversed, and the record remanded for further proceedings, without costs in this
instance.
Let judgment be entered in accordance herewith. So ordered.
Arellano, C.J., Torres, Trent, and Araullo, JJ., concur.
Johnson and Moreland, JJ., took no part.

G.R. No. 171707

July 28, 2008

SPOUSES WILFREDO and ANGELA AMONCIO, Petitioners,


vs.
AARON GO BENEDICTO, Respondent.
DECISION

CORONA, J.:
At bar is an appeal by certiorari under Rule 45 of the Rules of Court assailing the
decision of the Court of Appeals (CA) in CA-G.R. CV No. 79341 1 which, in turn,
affirmed the decision of the Regional Trial Court (RTC), Branch 82 of Quezon City.
The facts follow.
On July 15, 1997, petitioners Wilfredo and Angela Amoncio entered into a contract of
lease with a certain Ernesto Garcia over a 120 sq. m. portion of their 600 sq. m.
property in Quezon City.
On August 20, 1997, petitioners entered into another contract of lease, this time with
respondent Aaron Go Benedicto over a 240 sq. m. portion of the same property. The
contract read:
WHEREAS, the Lessor is the absolute owner of a parcel of land with an area of
(600) [sq. m.] situated in Neopolitan, Quezon City covered by T.C. T. No. 50473 of
the Register of Deeds of Quezon City, 240 [sq. m.] of which is being leased to the
lessee;
That for and in consideration of the amount of NINETEEN THOUSAND TWO
HUNDRED PESOS (P19,200.00), Philippines Currency, monthly rental[,] the Lessor
herein lease a portion of said parcel of land with an area of 240 sq. m. to the lessee,
subject to the following terms and conditions:
1. That the term of the lease is for [f]ive (5) years renewable annually for a maximum
of five (5) years from the execution of this contract;
2. The Lessee shall pay in advance the monthly rental for the land in the amount of
ONE HUNDRED FIFTEEN THOUSAND TWO HUNDRED PESOS (P115,200.00)
Philippines Currency equivalent to three (3) months deposit and three (3) months
advance rental; commencing November, 1997;
3. The [Lessee] shall issue postdated checks for the succeeding rentals to the
Lessor;
4. That in the event of failure to complete the term of the lease, the lessee is still
liable to answer for the rentals of the remaining period;
5. That all the improvement on the land leased shall automatically become the
property of the Lessor after the expiration of the term of the lease;

6. That the leased parcel of land shall be devoted exclusively for the construction
supply business of the [Lessee];2
xxx

xxx

xxx

10. Design specification needs final approval by the Lessor[,] while structural
improvements would have to conform to local government specification, taxes on
structural improvement will be for the account of the Lessee. 3

In December 1997, Garcia and respondent took possession of their respective


leased portions.
In July 1999, Garcia pre-terminated his contract with petitioners. Respondent, on the
other hand, stayed on until June 8, 2000. According to petitioners, respondent
stopped paying his monthly rentals in December 1999. Shortly thereafter, petitioners
claimed they discovered respondent putting up improvements on another 120 sq. m.
portion of their property which was never leased to him nor to Garcia. They added
he had also occupied Garcias portion immediately after the latter left. 4
Petitioners asked respondent to pay his arrears and desist from continuing with his
construction but he took no heed. Because of respondents failure to meet
petitioners demands, they asked him to vacate the property. On January 27, 2000,
they rescinded the lease contract.
On June 23, 2000, petitioners filed in the RTC of Quezon City a case 5 for recovery of
possession of real property against respondent. In the complaint, petitioners asked
respondent to pay the following: (1) rent from January 27, 2000 or from the time his
lease contract was rescinded until he vacated the property; (2) rent for Garcias
portion from August 1999 until he vacated it and (3) rent for the remaining 120 sq. m.
which was not covered by his or Garcias contract. Petitioners likewise insisted that
respondent was liable to pay his arrears from December 1999 until the expiration of
his lease contract in August 2002. According to them, the lease contract provided:
"in the event of [respondents] failure to complete the term of the lease, [he would]
still be liable to answer for the rentals of the remaining period." 6
In his answer with counterclaim, respondent denied petitioners accusations and
alleged that it was them who owed him money. According to him, he and petitioner
Wilfredo Amoncio agreed to construct five commercial buildings on petitioners
property. One of the buildings was to go to Garcia, two to petitioners and the last two

to him. They also agreed that he was to finance the construction and petitioners
were to pay him for the two buildings assigned to them.
Respondent added he was to pay the rentals for five years and surrender the
buildings (on his leased portion) to petitioners after the lapse of said period.
However, in June 2000, he vacated the premises after he and petitioners could no
longer settle things amicably.
Respondent asked to be paid: (1) P600,000 for the construction cost of the two
buildings that went to petitioners7; (2)P300,000 as adjusted cost of the portion
leased to him and (3) P10,000 as attorneys fees.
After trial, the RTC gave credence to respondents version and dismissed
petitioners case for lack of factual and legal basis. It also granted respondents
counterclaim:
WHEREFORE, premises considered. Judgment is hereby rendered in favor of
[respondent] and against [petitioners] DISMISSING the latters complaint for lack of
factual and legal basis.
On the counterclaim, [petitioners] are hereby ordered to pay [respondent] as follows:
a. The sum of SIX HUNDRED THOUSAND (P600,000) PESOS representing the
cost of the two improvements constructed on the remaining portion of the
[petitioners] lot.
b. The sum of THREE HUNDRED THOUSAND PESOS (P300,000) PESOS
representing the adjusted cost of the two improvements likewise constructed by
[respondent][,] possession of which was terminated two and a half years before the
stipulated term of five (5) years.
c. The sum of TEN THOUSAND (P10,000) PESOS as and by way of attorneys fees.

SO ORDERED.8
Petitioners elevated the case to the CA. There, petitioners argued that the RTC
erred in (1) denying their claim for payment of rentals both for the unexpired period
of the lease and for the portions of the property used by respondent which was not
covered by his lease contract and (2) granting respondents counterclaim although
they did not allow the construction of the buildings. Petitioners likewise contended
the trial court disregarded the parol evidence rule 9 which disallowed the court from

looking into any other evidence relating to the agreement of the parties outside the
written contract between them.
In its assailed decision, the CA affirmed the RTCs decision and dismissed
petitioners appeal. It held that:
(1) petitioners did not adduce evidence to prove that respondent had actually
occupied portions of their property not covered by his contract;
(2) petitioners could not insist that respondent pay the remaining period under the
contract since they were the ones who demanded that respondent vacate the
premises and
(3) the rule on parol evidence could no longer apply after they failed to object to
respondents testimony (in the lower court) about their agreement regarding the
construction of the buildings.10

Petitioners filed a motion for reconsideration but it was denied. 11 Hence, this
petition.12
In support of this petition, petitioners essentially argue that the CA erred in ruling
that: (1) they consented to the construction of the buildings by respondent; (2) they
waived their right to respondents assertion of facts that were not embodied in the
lease contract and (3) respondent was not a builder in bad faith. 13
Petitioners Allowed The
Construction Of The Buildings
1avvphi1

Petitioners first argument necessitates a review of the facts of the case which, as a
general rule, is not the task of this Court. Under Rule 45 of the Rules, this Court
shall not pass upon the findings of fact by lower courts unless they ignored salient
points that would otherwise affect the outcome of the case. 14 There is no reason for
us to overturn the factual conclusions of the lower courts.
Moreover, the lower courts findings of fact were supported by the records of the
case which indubitably showed petitioners acquiescence to the construction of the
buildings on their property. Petitioners denial cannot negate the overwhelming proof
that it was petitioner Wilfredo Amoncio himself who secured the building permit for
the project. He also required that all design specifications were to be approved by
him.15

Application Of The
Parol Evidence Rule
Rule 130, Section 9 of the Rules of Court provides:
Section 9. Evidence of written agreements. When the terms of the agreement
have been reduced in writing, it is considered as containing all the terms agreed
upon and there can be, between the parties and their successors, no evidence of
such terms other than the contents of the written agreement.
xxx

xxx

xxx

The so-called "parol evidence" forbids any addition to or contradiction of the terms of
a written instrument by testimony purporting to show that, at or before the signing of
the document, other terms were orally agreed on by the parties. 16Under the
aforecited rule, the terms of the written contract are conclusive upon the parties and
evidence aliunde is inadmissible to vary an enforceable agreement embodied in the
document. However, the rule is not absolute and admits of exceptions:
xxx

xxx

xxx

However, a party may present evidence to modify, explain or add to the terms of the
written agreement if he puts in issue in his pleading:
(a) An intrinsic ambiguity, mistake or imperfection in the written agreement;
(b) The failure of the written agreement to express the true intent and agreement of
the parties thereto;
(c) The validity of the written agreement; or
(d) The existence of other terms agreed to by the parties or their successors in
interest after the execution of the written agreement.

The term "agreement" shall include wills.


The first exception applies when the ambiguity or uncertainty is readily apparent
from reading the contract. The wordings are so defective that what the author of the
document intended to say cannot be deciphered.17 It also covers cases where the
parties commit a mutual mistake of fact,18 or where the document is manifestly

incomplete as the parties do not intend to exhibit the whole agreement but only to
define some of its terms.19
The second exception includes instances where the contract is so obscure that the
contractual intention of the parties cannot be understood by mere inspection of the
instrument.20 Thus, extrinsic proof of its subject matter, of the relation of the parties
and of the circumstances surrounding them when they entered into the contract may
be received as evidence.21
Under the third exception, the parol evidence rule does not apply where the purpose
of introducing the evidence is to show the invalidity of the contract. 22 This includes
cases where a party alleges that no written contract ever existed, or the parties fail
to agree on the terms of the contract, or there is no consideration for such
agreement.23
The fourth exception involves a situation where the due execution of the contract or
document is in issue.24
The present case does not appear to fall under any of the given
exceptions. However, a party to a contract may prove the existence of any separate
oral agreement as to any matter which is not inconsistent with its terms.25 This may
be done if, from the circumstances of the case, the court believes that the document
does not convey entirely the whole of the parties transaction.26
In this case, there are tell-tale signs that petitioners and respondent had other
agreements aside from those established by the lease contract. And we find it
difficult to ignore them. We agree with the trial court:
[T]hat [respondent], indeed, undertook the construction subject hereof, is not
disputed by [petitioners]. [Respondent] testified that two units thereof were intended
for [petitioners], another two units for him and one for Garcia at the cost
of P300,000.00 per unit or for a total budget of P1.5 million.
Evidence further disclosed that the [b]uilding [p]ermit issued therefor by the Building
Official bore the signature of [petitioner] Wilfredo Amoncio
the Court cannot be unmindful of [petitioner Wilfredo Amoncios denial by any
knowledge of the whole construction undertaken by herein [respondent.] But it is
evident that [petitioners] have chosen to adopt inconsistent positions which, by
applicable jurisprudence, [are] barred. Said the Court in this regard:

The doctrine of estoppel prohibits a party from assuming inconsistent position based
on the principle of election, and precludes him from repudiating an obligation
voluntarily assumed after having accepted benefits therefrom. To countenance such
repudiation would be contrary to equity and would put a premium on fraud and
misrepresentation27
Moreover, petitioners also failed to make a timely objection against respondents
assertion of their prior agreement on the construction of the buildings. Where a party
entitled to the benefit of the parol evidence rule allows such evidence to be received
without objection, he cannot, after the trial has closed and the case has been
decided against him, invoke the rule in order to secure a reversal of the
judgment.28 Hence, by failing to object to respondents testimony in the trial court,
petitioners waived the protection of the parol evidence rule. 29
Payment Of Rental
Petitioners demand the payment of the following: (1) rent from December 19, 1999
to June 8, 2000;30 (2) rent for the unexpired period of the lease or until August
200231 and (3) rent corresponding to the portions of the property used by respondent
which, according to petitioners, were not covered by his lease contract. 32
Pursuant to the lease agreement, respondent paid three months advance and three
months deposit (at the inception of the lease contract), in effect already settling his
rentals for six months from December 1999 to June 8, 2000. The CA correctly ruled:
While [respondent] stopped paying rentals in December 1999 and left before June 8,
2000, a period covering six (6) months, [respondent], nonetheless, had already paid
[petitioners] the amount equivalent to six (6) months rentals [advance
payment equivalent to three (3) monthly rentals plus deposit equivalent to [another]
three (3) monthly rentals]33 (emphasis supplied)
Regarding petitioners second claim (rent for the unexpired period of lease), we
agree with the lower courts that they (petitioners) are not entitled to it.
Without doubt, petitioners already benefited immensely from the construction of the
five buildings on their property. The amount of their claim is a pittance compared to
the increase in value of their property over the years. It would unjustly enrich them if
we were to rule in their favor considering that they did not spend a single centavo for
the construction of the buildings. It was respondent who financed the entire project
which, however, was taken over completely by petitioners.

As a rule, the contract is the law between the parties that must be enforced in sensu
strictione. However, it cannot be done under the circumstances of this case. To do
so would result in a patently unjust juridical situation. We, as a court not only of
justice but of equity as well, may exercise our equitas jurisdictio to refine the rough
edges of the rule and avoid injustice.34
Lastly, petitioners claim for rental payment for the portions (not covered by
respondents lease contract) must be dismissed. This claim was never
substantiated.
Petitioners Liability To Respondent
What remains to be resolved is petitioners liability to respondent, as held by both
the RTC and the CA. Were petitioners indeed liable to respondent for the cost of the
buildings constructed on their property? Yes.
Since the trial court allowed respondents testimony as evidence of the parties prior
agreement (regarding the construction of the buildings and the cost thereof),
petitioners should pay respondent. Petitioners never disputed the construction of the
two buildings given to them. If one of the contracting parties derived some benefit
but did not give anything for it to the other, it is only fair that he should return the
amount by which he was unjustly enriched.35 Equity dictates that petitioners be held
liable for the expenses incurred by respondent in constructing the buildings that
went to them. No man ought to be enriched by anothers injury.36 Nemo ex alterius
incommonde debet lecupletari.
Finally, following our ruling that petitioners knew of the construction of the buildings,
any discussion on the issue of whether respondent was a builder in bad faith is no
longer necessary.
WHEREFORE, the assailed decision of the Court of Appeals in CA-G.R. CV No.
79341 is hereby AFFIRMED.
Treble costs against petitioners.
SO ORDERED.
RENATO C. CORONA
Associate Justice

WE CONCUR:

G.R. No. 26173


ZACARIAS ROBLES, plaintiff-appellee,
vs.
LIZARRAGA HERMANOS, defendant-appellant.
J. Arroyo, Jose Lopez Vito, and Francisco, Lualhati and Lopez for appellant.
Paredes, Buencamino and Yulo for appellee.
STREET, J.:
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 Philippine Islands, for the purpose of recovering compensation for improvements made
by the plaintiff upon the hacienda "Nahalinan" and the value of implements and farming
equipment supplied to the hacienda by the plaintiff, as well as damages for breach of
contract. Upon hearing the cause the trial court gave judgment for the plaintiff to recover of
the defendant the sum of P14,194.42, with costs. From this judgment the defendant
appealed.
It appears that the hacienda "Nahalinan," situated in the municipality of Pontevedra,
Occidental Negros, belonged originally to the spouses Zacarias Robles and Anastacia de la
Rama, 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; and on May 20, 1913, as widow and administratrix, she leased the hacienda to the
plaintiff, 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 permanent improvements necessary to the cultivation and exploitation of
the hacienda should be made at the expense of the lessee without right to indemnity at the
end of the term. As the place was in a run-down state, and it was foreseen that the lessee
would be put to much expense in bringing the property to its productive capacity, the annual
rent was fixed at the moderate amount of P2,000 per annum.
The plaintiff accordingly entered upon the property, in the character of lessee; and, in order
to put the farm in good condition, he found it necessary to make various improvements and
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
houses for workmen; building of camarins; construction of chimney; reconstruction of
ovens; installment of new coolers; purchase of farming tools and many head of carabao,
with other repairs and improvements. All this expense was borne exclusively by the lessee,
with the exception that his mother and coheirs contributed P1,500 towards the expense of

the reconstruction of the dwelling house, which was one-half the outlay for that item. The
firm of Lizarraga Hermanos was well aware of the nature and extent of these improvements,
for the reason that the lessee was a customer of the firm and had purchased from it many
of the things that went into the improvements.
In 1916, or three years before the lease was to expire, Anastacia de la Rama died, leaving
as heirs Zacarias Robles (the plaintiff), Jose Robles, Evarista Robles, Magdalena Robles,
Felix Robles, Jose Robles, and Evarista Robles acquired by purchase the shares of their
coheirs in the entire inheritance; and at this juncture Lizarraga Hermanos came forward
with a proposal to buy from these three all of the other properties belonging to the Robles
estate (which included other properties in addition to the hacienda "Nahalinan").
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 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 oPhjLGEoN.
The plaintiff alleges and the trial court found, upon what we believe to be sufficient proof,
that, in consideration that the plaintiff should shorten the term of his lease to the extent
stated, the defendant agreed to pay him the value of all betterments that he had made on
the hacienda and furthermore to purchase from him all that belonged to him personally on
the hacienda, including the crop of 1917-18, the cattle, farming implements and equipment,
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,
conveyed the property to Lizarraga Hermanos was accordingly executed on November 16,
1917.
The effective clauses of conveyance by which each of the three owner transferred their
respective interest to the purchaser read as follows:
(a) Por la presente, Don Jose Robles, en consideracion a la cantidad de P25,266.37 que
declara haber ya recibido de la casa comercial Lizarraga Hermanos, vende, cede y traspasa
a la mencionada casa comercial Lizarraga Hermanos, representada en este acto por D.
Severiano Lizarraga, como gerente de la misma, sus sucesores y causahabientes, 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
participacion adquiridos conjuntamente por el y sus hermanos Da. Evarista Robles y D.
Zacarias Robles de D. Rafael Campos y Hurtado y de Da. Magdalena Robles.
(b) Y Da. Evarista Robles, con la debida licencia marital de su esposo D. Enrique Martin,
quien concurre al otorgamiento de este documento, en consideracion a la cantidad de
P23,036.43, que declara haber ya recibido de la casa comercial Lizarraga Hermanos,
representada en este acto por D. Severano Lizarraga, como gerente de la misma, sus
sucesores y causahabientes, vende, cede y traspasa todos sus derechos, intereses y
participacion en la testamentaria de la difunta Da. Anastacia de la Rama, como una de

interes y participacion adquiridos por ella juntamente con sus hermanos D. Jose Robles y D.
Zacarias Robles de D. Rafael Campos y Hurtado y de Da. Magdalena Robles.
(c) Y, finalmente, D. Zacarias Robles, en consideracion a la cantidad de P32,589.59 que la
casa Lizarraga Hermanos, representada en este acto por D. Severiano Lizarraga, por la
presente promete pagarle en o antes del 30 de mayo de 1917, con los intereses a razon de
8 por ciento anual, vende, cede y traspasa a favor de la mencionada casa comercial
Lizarraga Hermanos, sus sucesores y causahabientes, 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, Da. Evarista Robles y D. Jose Robles, de D. Rafael
Campos y Hurtado y de Da. Magdalena Robles."
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 difference in the amounts paid to each resulted from the adjustments of their respective
rights. Furthermore, it will be noted that the three grantors in the deed conveyed only their
deceased mother; and precisely the same words are used in defining what was conveyed by
Zacarias Robles as in defining what was conveyed by the other two. These words are
noteworthy, and in the original Spanish they run as follows: "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." 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 other than those which he possessed in the character of heir.
No reference is made in this conveyance to the surrender of the plaintiff's rights as lessee,
except in fixing the date when the lease should end; nor is anything said concerning the
improvements or the property of a personal nature which the plaintiff had placed on the
hacienda. The plaintiff says that, when the instrument was presented to him, he saw that in
the sixth paragraph it was declared that the plaintiff's lease should subsist only until June
30, 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 crop, together with the cattle and other things, was wanting; and he says that upon
his calling attention to this, the representative of the defendant explained that this was
unnecessary in view of the confidence existing between the parties, at the same time calling
the attention of the plaintiff to the fact that the plaintiff was already debtor to the house of
Lizarraga Hermanos in the amount of P49,000, for which the firm had no security. Upon this
manifestation the plaintiff subsided; and, believing that the agreement with respect to
compensation would be carried out in good faith, he did not further insist upon the
incorporation of said agreement into this document. Nor was the supposed agreement
otherwise reduced to writing.
On the part of the defendant it is claimed that the agreement with respect to compensating
the plaintiff for improvements and other things was never in fact made. What really

happened, accordingly to the defendant's answer, is that, after the sale of the hacienda had
been effected, the plaintiff offered to sell the defendant firm the crop of cane then existing
uncut on the hacienda, together with the carabao then in use on the place. This proposition
was favorably received by the defendant; and it is admitted that an agreement was arrived
at with respect to the value of the carabao, which were taken over for the agreed price, but
it is claimed with respect to the crop that the parties did not come into accord.
Upon the issue of fact thus made we are of the opinion that the preponderance of the
evidence supports the contention of the plaintiff and the finding of the trial court to the
effect that, in consideration of the shortening of the period of the lease by nearly two years,
the defendant undertook to pay for the improvements which the plaintiff had placed on the
hacienda and take over at a fair valuation, to be made by appraisers, the personal property,
such as carabao, tools and farming implements, which the plaintiff had placed upon the
hacienda at his own personal expense. The plaintiff introduced in evidence a letter (Exhibit
D), written on March 1, 1917, by Severiano Lizarraga to the plaintiff, in which reference is
made to an appraisal and liquidation. This letter is relied upon by the plaintiff as constituting
written evidence of the 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.
When testifying as a witness of the defense Carmelo Lizarraga himself admitted contrary
to the statement of defendant's answer that a few days before the conveyance was
executed the plaintiff proposed that the defendant should buy all the things that the plaintiff
then had on the hacienda, whereupon the Lizarragas informed him that they would buy
those things if an agreement should be arrived at as to the price. We note that as regards
the improvements the position of the defendant is that they pertained to the hacienda at the
time the purchase was effected and necessarily passed with it to the defendant.
As against the denials of the Lizarraga we have the direct testimony of the plaintiff and his
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 the property, which was rendered futile by the course pursued by the defendants. It is,
however, unnecessary to enter into details with respect to this, because, upon examining
the assignments of error of the appellant in this court, it will be found that no exception has
been taken to the finding of the trial court to the effect that a verbal contract was made in
the sense claimed by the plaintiff.
We now proceed to discuss seriatim the errors assigned by the appellant. Under the first,
exception is taken to the action of the trial court in admitting oral evidence of a contract
different from that expressed in the contract of sale (Exhibit B); and it is insisted that the
written contract must be taken as expressing all of the pacts, agreements and stipulations
entered into between the parties with respect to the acquisition of the hacienda. In this
connection stress is placed upon the fact that there is no allegation in the complaint that the
written contract fails to express the agreement of the parties. This criticism is in our opinion
not well directed. The case is not one for the reformation of a document on the ground of

mistake or fraud in its 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 making of the sale, or part of the consideration therefor.
There is no rule of evidence of wider application than that which declares extrinsic evidence
inadmissible either to contradict or vary the terms of a written contract. The execution of a
contract in writing is deemed to supersede all oral negotiations or stipulations concerning its
terms and the subject-matter which preceded the execution of the instrument, in the
absence of accident, fraud or mistake of fact (10 R. C. L., p. 1016). But it is recognized that
this rule is to be taken with proper qualifications; and all the authorities are agreed that
proof is admissible of any collateral, parol agreement that is not 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 not extend
so far as to preclude the admission of extrinsic evidence to show prior or contemporaneous
collateral parol agreements between the parties, but such evidence may be received,
regardless of whether or not the written agreement contains any reference to such collateral
agreement, and whether the action is at law or in equity." (22 C. J., p. 1245.) It has
accordingly been held that, in case of a written contract of lease, the lessee may prove an
independent verbal agreement on the part of the landlord to put the leased premises in a
safe condition; and a vendor of realty may show by parol evidence that crops growing on
the land were reserved, though no such reservation was made in the deed of conveyance
(10 R. C. L., p. 1037). In the case before us the deed of conveyance purports to transfer to
the defendant only such interests in certain properties as had come to the conveyors by
inheritance. Nothing is said concerning the rights in the hacienda which the plaintiff had
acquired by lease or concerning the things that he had placed thereon by way of
improvement or had acquired by purchase. The verbal contract which the plaintiff has
established in this case is therefore clearly independent of the main contract of conveyance,
and evidence of such verbal contract is admissible under the doctrine above stated. The rule
that a preliminary or contemporaneous oral agreement is not admissible to vary a written
contract appears to have more particular reference to the obligation expressed in the
written agreement, and the rule had never been 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 is a collateral to the written
contract, notwithstanding the fact that it deals with related matters.
Under the second assignment of error the appellant directs attention to subsection 4 of
article 335 of the Code of Civil Procedure wherein it is declared that a contract for the sale
of goods, chattels or things in action, at a price of not less than P100, shall be
unenforceable unless the contract, or some note or memorandum thereof shall be in writing
and subscribed by the party charged, or by his agent; and it is insisted that the court erred
in admitting proof of a verbal contract over the objection of the defendant's attorney. But it
will be noted that the same subsection contains a qualification, which is stated in these
words, "unless the buyer accept and receive part of such goods and chattels." In the case
before us the trial court found that the personal property, consisting of farming implements
and other movables placed on the farm by the plaintiff, have been utilized by the defendant
in the cultivation of the hacienda, and that the defendant is benefiting by those things. No

effort was made in the court below by the defendant to controvert the proof submitted on
this point in behalf of the plaintiff, and no error is assigned in this court to the findings of
fact with reference thereto made by the trial judge. It is evident therefore that proof of the
oral agreement with respect to the movables was properly received by the trial judge, even
over the objection of the defendant's attorney.
The appellant's third assignment of error has reference to the alleged suspensive condition
annexed to the oral agreement. In this connection it is claimed that the true meaning of the
proven verbal agreement is that, in case the parties should fail to agree upon the price,
after 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 fourth assignment of error is concerned with the improvements. Attention is here
directed to the fact that the improvements placed on the hacienda by the plaintiff became a
part of the realty and as such passed to the defendant by virtue of the transfer effected by
the three owner in the deed of conveyance (Exhibit B.). It is therefore insisted that, the
defendant having thus acquired the improvements, the plaintiff should not be permitted to
recover their value again from the defendant. This criticism misses the point. There can be
no doubt that the defendant acquired the fixed improvements when it acquired the land, but
the question is whether the defendant is obligated to indemnify the plaintiff for his outlay in
making the improvements. It was upon the consideration of the defendant's promise so to
indemnify the plaintiff that the latter agreed to surrender the lease nearly two no doubt as
to the validity of the promise made under these circumstances to the plaintiff 4zXWGlo.
The fifth assignment of error is directed towards the action of the trial court in awarding to
the 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
connection it appears that it was only in November, 1917, that the defendant finally notified
the plaintiff that he would not take the cane off the plaintiff's hands. Having relied upon the
promise of the defendant with respect to this matter, the plaintiff had made no prior
arrangements to have the cane ground himself, and he had failed to contract ahead for the
necessary laborers to harvest the crop. Due to this lack of hands the milling of the cane was
delayed, and things that ought to have been done in December, 1917, were only
accomplished in February, 1918. It resulted also that the milling of the cane was not
completed until July, 1918. The trial court took judicial notice of the fact that protracted

delay in the milling of sugar-cane results in loss; and his Honor estimated the damage to
the plaintiff's crop upon this account in the amount above stated. As fortifying his position
on this point his Honor quoted extensively in his opinion from scientific treatises on the
subject of the sugar industry in this and other countries. That there must have been
damage attributable to the cause above stated is manifest; and although the estimate made
by the court was based upon what may be considered matter of judicial notice without any
specific estimate from farmers, we see no reason to conclude that any injustice was done to
the plaintiff in said estimate.
Upon the whole we find no reason to modify the conclusions of the trial court upon any
point, and the judgement appealed from must be affirmed. It is so ordered, with costs
against the appellant.
Avancea, C. J., Johnson, Malcolm, Villamor and Villa-Real, JJ., concur. .

G.R. No. 103066 April 25, 1996


WILLEX PLASTIC INDUSTRIES, CORPORATION, petitioner,
vs.
HON. COURT OF APPEALS and INTERNATIONAL CORPORATE BANK, respondents.

MENDOZA,

J.:p

This is a petition for review on certiorari of the decision 1 of the Court of Appeals in
C.A.-G.R. CV No. 19094, affirming the decision of the Regional Trial Court of the
National Capital Judicial Region, Branch XLV, Manila, which ordered petitioner
Willex Plastic Industries Corporation and the Inter-Resin Industrial Corporation,
jointly and severally, to pay private respondent International Corporate Bank certain
sums of money, and the appellate court's resolution of October 17, 1989 denying
petitioner's motion for reconsideration.
The facts are as follows:

Sometime in 1978, Inter-Resin Industrial Corporation opened a letter of credit with the
Manila Banking Corporation. To secure payment of the credit accomodation, Inter-Resin
Industrial and the Investment and Underwriting Corporation of the Philippines (IUCP)
executed two documents, both entitled "Continuing Surety Agreement" and dated
December 1, 1978, whereby they bound themselves solidarily to pay Manilabank
"obligations of every kind, on which the [Inter-Resin Industrial] may now be indebted or
hereafter become indebted to the [Manilabank]." The two agreements (Exhs. J and K) are
the same in all respects, except as to the limit of liability of the surety, the first surety
agreement being limited to US$333,830.00, while the second one is limited to
US$334,087.00.
On April 2, 1979, Inter-Resin Industrial, together with Willex Plastic Industries Corp.,
executed a "Continuing Guaranty" in favor of IUCP whereby "For and in consideration of the
sum or sums obtained and/or to be obtained by Inter-Resin Industrial Corporation" from
IUCP, Inter-Resin Industrial and Willex Plastic jointly and severally guaranteed "the prompt
and punctual payment at maturity of the NOTE/S issued by the DEBTOR/S . . . to the extent
of the aggregate principal sum of FIVE MILLION PESOS (P5,000,000.00) Philippine
Currency and such interests, charges and penalties as hereafter may be specified."
On January 7, 1981, following demand upon it, IUCP paid to Manilabank the sum of
P4,334,280.61 representing Inter-Resin Industrial's outstanding obligation. (Exh. M-1) On
February 23 and 24, 1981, Atrium Capital Corp., which in the meantime had succeeded
IUCP, demanded from Inter-Resin Industrial and Willex Plastic the payment of what it
(IUCP) had paid to Manilabank. As neither one of the sureties paid, Atrium filed this case in
the court below against Inter-Resin Industrial and Willex Plastic.
On August 11, 1982, Inter-Resin Industrial paid Interbank, which had in turn succeeded
Atrium, the sum of P687,600.00 representing the proceeds of its fire insurance policy for the
destruction of its properties.
In its answer, Inter-Resin Industrial admitted that the "Continuing Guaranty" was intended to
secure payment to Atrium of the amount of P4,334,280.61 which the latter had paid to
Manilabank. It claimed, however, that it had already fully paid its obligation to Atrium Capital.
On the other hand, Willex Plastic denied the material allegations of the complaint and
interposed the following Special Affirmative Defenses:
(a) Assuming arguendo that main defendant is indebted to plaintiff, the
former's liability is extinguished due to the accidental fire that destroyed its
premises, which liability is covered by sufficient insurance assigned to
plaintiff;

(b) Again, assuming arguendo, that the main defendant is indebted to plaintiff,
its account is now very much lesser than those stated in the complaint
because of some payments made by the former;
(c) The complaint states no cause of action against WILLEX;
(d) WLLLEX is only a guarantor of the principal obliger, and thus, its liability is
only secondary to that of the principal;
(e) Plaintiff failed to exhaust the ultimate remedy in pursuing its claim against
the principal obliger;
(f) Plaintiff has no personality to sue.
On April 29, 1986, Interbank was substituted as plaintiff in the action. The case then
proceeded to trial.
On March 4, 1988, the trial court declared Inter-Resin Industrial to have waived the right to
present evidence for its failure to appear at the hearing despite due notice. On the other
hand, Willex Plastic rested its case without presenting any evidence. Thereafter Interbank
and Willex Plastic submitted their respective memoranda.
On April 5, 1988, the trial court rendered judgment, ordering Inter-Resin Industrial and
Willex Plastic jointly and severally to pay to Interbank the following amounts:
(a) P3, 646,780.61, representing their indebtedness to the plaintiff, with
interest of 17% per annum from August 11, 1982, when Inter-Resin Industrial
paid P687,500.00 to the plaintiff, until full payment of the said amount;
(b) Liquidated damages equivalent to 178 of the amount due; and
(c) Attorney's fees and expenses of litigation equivalent to 208 of the total
amount due.
Inter-Resin Industrial and Willex Plastic appealed to the Court of Appeals. Willex Plastic
filed its brief, while Inter-Resin Industrial presented a "Motion to Conduct Hearing and to
Receive Evidence to Resolve Factual Issues and to Defer Filing of the Appellant's Brief."
After its motion was denied, Inter-Resin Industrial did not file its brief anymore.
On February 22, 1991, the Court of Appeals rendered a decision affirming the ruling of the
trial court.

Willex Plastic filed a motion for reconsideration praying that it be allowed to present
evidence to show that Inter-Resin Industrial had already paid its obligation to Interbank, but
its motion was denied on December 6, 1991:
The motion is denied for lack of merit. We denied defendant-appellant InterResin Industrial's motion for reception of evidence because the situation or
situations in which we could exercise the power under BP 129 did not exist.
Movant here has not presented any argument which would show otherwise.
Hence, this petition by Willex Plastic for the review of the decision of February 22, 1991 and
the resolution of December 6, 1991 of the Court of Appeals.
Petitioner raises a number of issues.
[1] The main issue raised is whether under the "Continuing Guaranty" signed on April 2,
1979 petitioner Willex Plastic may be held jointly and severally liable with Inter-Resin
Industrial for the amount paid by Interbank to Manilabank.
As already stated, the amount had been paid by Interbank's predecessor-in-interest, Atrium
Capital, to Manilabank pursuant to the "Continuing Surety Agreements" made on December
1, 1978. In denying liability to Interbank for the amount, Willex Plastic argues that under the
"Continuing Guaranty," its liability is for sums obtained by Inter-Resin Industrial from
Interbank, not for sums paid by the latter to Manilabank for the account of Inter-Resin
Industrial. In support of this contention Willex Plastic cites the following portion of the
"Continuing Guaranty":
For and in consideration of the sums obtained and/or to be obtained by
INTER-RESIN INDUSTRIAL CORPORATION, hereinafter referred to as the
DEBTOR/S, from you and/or your principal/s as may be evidenced by
promissory note/s, checks, bills receivable/s and/or other evidence/s of
indebtedness (hereinafter referred to as the NOTE/S), I/We hereby jointly and
severally and unconditionally guarantee unto you and/or your principal/s,
successor/s and assigns the prompt and punctual payment at maturity of the
NOTE/S issued by the DEBTOR/S in your and/or your principal/s,
successor/s and assigns favor to the extent of the aggregate principal sum of
FIVE MILLION PESOS (P5,000,000.00), Philippine Currency, and such
interests, charges and penalties as may hereinafter be specified.
The contention is untenable. What Willex Plastic has overlooked is the fact that evidence
aliunde was introduced in the trial court to explain that it was actually to secure payment to
Interbank (formerly IUCP) of amounts paid by the latter to Manilabank that the "Continuing
Guaranty" was executed. In its complaint below, Interbank's predecessor-in-interest, Atrium
Capital, alleged:

5. to secure the guarantee made by plaintiff of the credit accommodation


granted to defendant IRIC [Inter-Resin Industrial] by Manilabank, the plaintiff
required defendant IRIC [Inter-Resin Industrial] to execute a chattel mortgage
in its favor and a Continuing Guaranty which was signed by the other
defendant WPIC [Willex Plastic].

In its answer, Inter-Resin Industrial admitted this allegation although it claimed that it
had already paid its obligation in its entirety. On the other hand, Willex Plastic, while
denying the allegation in question, merely did so "for lack of knowledge or
information of the same." But, at the hearing of the case on September 16, 1986,
when asked by the trial judge whether Willex Plastic had not filed a crossclaim
against Inter-Resin Industrial, Willex Plastic's counsel replied in the negative and
manifested that "the plaintiff in this case [Interbank] is the guarantor and my client
[Willex Plastic] only signed as a guarantor to the guarantee." 2
For its part Interbank adduced evidence to show that the "Continuing Guaranty" had
been made to guarantee payment of amounts made by it to Manilabank and not of
any sums given by it as loan to Inter-Resin Industrial. Interbank's witness testified
under cross examination by counsel for Willex Plastic that Willex "guaranteed the
exposure/of whatever exposure of ACP [Atrium Capital] will later be made because
of the guarantee to Manila Banking Corporation." 3
It has been held that explanatory evidence may be received to show the
circumstances under which a document has been made and to what debt it
relates. 4 At all events, Willex Plastic cannot now claim that its liability is limited to
any amount which Interbank, as creditor, might give directly to Inter-Resin Industrial
as debtor because, by failing to object to the parol evidence presented, Willex
Plastic waived the protection of the parol evidence rule. 5
Accordingly, the trial court found that it was "to secure the guarantee made by
plaintiff of the credit accommodation granted to defendant IRIC [Inter-Resin
Industrial] by Manilabank, [that] the plaintiff required defendant IRIC to execute a
chattel mortgage in its favor and a Continuing Guaranty which was signed by the
defendant Willex Plastic Industries Corporation." 6
Similarly, the Court of Appeals found it to be an undisputed fact that "to secure the
guarantee undertaken by plaintiff-appellee [Interbank] of the credit accommodation
granted to Inter-Resin Industrial by Manilabank, plaintiff-appellee required
defendant-appellants to sign a Continuing Guaranty." These factual findings of the
trial court and of the Court of Appeals are binding on us not only because of the rule

that on appeal to the Supreme Court such findings are entitled to great weight and
respect but also because our own examination of the record of the trial court
confirms these findings of the two courts. 7
Nor does the record show any other transaction under which Inter-Resin Industrial may
have obtained sums of money from Interbank. It can reasonably be assumed that InterResin Industrial and Willex Plastic intended to indemnify Interbank for amounts which it may
have paid Manilabank on behalf of Inter-Resin Industrial.
Indeed, in its Petition for Review in this Court, Willex Plastic admitted that it was "to secure
the aforesaid guarantee, that INTERBANK required principal debtor IRIC [Inter-Resin
Industrial] to execute a chattel mortgage in its favor, and so a "Continuing Guaranty" was
executed on April 2, 1979 by WILLEX PLASTIC INDUSTRIES CORPORATION (WILLEX
for brevity) in favor of INTERBANK for and in consideration of the loan obtained by IRIC
[Inter-Resin Industrial]."

[2] Willex Plastic argues that the "Continuing Guaranty," being an accessory
contract, cannot legally exist because of the absence of a valid principal
obligation. 8 Its contention is based on the fact that it is not a party either to the
"Continuing Surety Agreement" or to the loan agreement between Manilabank and
Interbank Industrial.
Put in another way the consideration necessary to support a surety obligation need
not pass directly to the surety, a consideration moving to the principal alone being
sufficient. For a "guarantor or surety is bound by the same consideration that makes
the contract effective between the principal parties thereto. It is never necessary that
a guarantor or surety should receive any part or benefit, if such there be, accruing to
his principal." 9 In an analogous case, 10 this Court held:
At the time the loan of P100,000.00 was obtained from petitioner by Daicor,
for the purpose of having an additional capital for buying and selling cocoshell charcoal and importation of activated carbon, the comprehensive surety
agreement was admittedly in full force and effect. The loan was, therefore,
covered by the said agreement, and private respondent, even if he did not
sign the promissory note, is liable by virtue of the surety agreement. The only
condition that would make him liable thereunder is that the Borrower "is or
may become liable as maker, endorser, acceptor or otherwise." There is no
doubt that Daicor is liable on the promissory note evidencing the
indebtedness.
The surety agreement which was earlier signed by Enrique Go, Sr. and
private respondent, is an accessory obligation, it being dependent upon a

principal one which, in this case is the loan obtained by Daicor as evidenced
by a promissory note.

[3] Willex Plastic contends that the "Continuing Guaranty" cannot be retroactivelt
applied so as to secure payments made by Interbank under the two "Continuing
Surety Agreements." Willex Plastic invokes the ruling in El Vencedor
v.Canlas 11 and Dio v. Court of Appeals 12 in support of its contention that a contract
of suretyship or guaranty should be applied prospectively.
The cases cited are, however, distinguishable from the present case. In El Vencedor
v. Canlas we held that a contract of suretyship "is not retrospective and no liability attaches
for defaults occurring before it is entered into unless an intent to be so liable is indicated."
There we found nothing in the contract to show that the paries intended the surety bonds to
answer for the debts contracted previous to the execution of the bonds. In contrast, in this
case, the parties to the "Continuing Guaranty" clearly provided that the guaranty would
cover "sums obtained and/or to be obtained" by Inter-Resin Industrial from Interbank.
On the other hand, in Dio v. Court of Appeals the issue was whether the sureties could be
held liable for an obligation contracted after the execution of the continuing surety
agreement. It was held that by its very nature a continuing suretyship contemplates a future
course of dealing. "It is prospective in its operation and is generally intended to provide
security with respect to future transactions." By no means, however, was it meant in that
case that in all instances a contrast of guaranty or suretyship should be prospective in
application.

Indeed, as we also held in Bank of the Philippine Islands v. Foerster, 13 although a


contract of suretyship is ordinarily not to be construed as retrospective, in the end
the intention of the parties as revealed by the evidence is controlling. What was said
there 14 applies mutatis mutandis to the case at bar:
In our opinion, the appealed judgment is erroneous. It is very true that bonds
or other contracts of suretyship are ordinarily not to be construed as
retrospective, but that rule must yield to the intention of the contracting parties
as revealed by the evidence, and does not interfere with the use of the
ordinary tests and canons of interpretation which apply in regard to other
contracts.
In the present case the circumstances so clearly indicate that the bond given
by Echevarria was intended to cover all of the indebtedness of the Arrocera
upon its current account with the plaintiff Bank that we cannot possibly adopt
the view of the court below in regard to the effect of the bond.

[4] Willex Plastic says that in any event it cannot be proceeded against without first
exhausting all property of Inter-Resin Industrial. Willex Plastic thus claims the benefit of
excussion. The Civil Code provides, however:
Art. 2059. This excussion shall not take place:
(1) If the guarantor has expressly renounced it;
(2) If he has bound himself solidarily with the debtor;
The pertinent portion of the "Continuing Guaranty" executed by Willex Plastic and InterResin Industrial in favor of IUCP (now Interbank) reads:
If default be made in the payment of the NOTE/s herein guaranteed you
and/or your principal/s may directly proceed against Me/Us without first
proceeding against and exhausting DEBTOR/s properties in the same
manner as if all such liabilities constituted My/Our direct and primary
obligations. (emphasis supplied)
This stipulation embodies an express renunciation of the right of excussion. In addition,
Willex Plastic bound itself solidarily liable with Inter-Resin Industrial under the same
agreement:
For and in consideration of the sums obtained and/or to be obtained by
INTER-RESIN INDUSTRIAL CORPORATION, hereinafter referred to as the
DEBTOR/S, from you and/or your principal/s as may be evidenced by
promissory note/s, checks, bills receivable/s and/or other evidence/s of
indebtedness (hereinafter referred to as the NOTE/S), I/We hereby jointly and
severally and unconditionally guarantee unto you and/or your principal/s,
successor/s and assigns the prompt and punctual payment at maturity of the
NOTE/S issued by the DEBTOR/S in your and/or your principal/s,
successor/s and assigns favor to the extent of the aggregate principal sum of
FIVE MILLION PESOS (P5,000,000.00), Philippine Currency, and such
interests, charges and penalties as may hereinafter he specified.
[5] Finally it is contended that Inter-Resin Industrial had already paid its indebtedness to
Interbank and that Willex Plastic should have been allowed by the Court of Appeals to
adduce evidence to prove this. Suffice it to say that Inter-Resin Industrial had been given
generous opportunity to present its evidence but it failed to make use of the same. On the
otherhand, Willex Plastic rested its case without presenting evidence.

The reception of evidence of Inter-Resin Industrial was set on January 29, 1987, but
because of its failure to appear on that date, the hearing was reset on March 12, 26 and
April 2, 1987.
On March 12, 1987 Inter-Resin Industrial again failed to appear. Upon motion of Willex
Plastic, the hearings on March 12 and 26, 1987 were cancelled and "reset for the last time"
on April 2 and 30, 1987.
On April 2, 1987, Inter-Resin Industrial again failed to appear. Accordingly the trial court
issued the following order:
Considering that, as shown by the records, the Court had exerted every
earnest effort to cause the service of notice or subpoena on the defendant
Inter-Resin Industrial but to no avail, even with the assistance of the
defendant Willex the defendant Inter-Resin Industrial is hereby deemed to
have waived the right to present its evidence.
On the other hand, Willex Plastic announced it was resting its case without
presenting any evidence.
Upon motion of Inter-Resin Industrial, however, the trial court reconsidered its order and set
the hearing anew on July 23, 1987. But Inter-Resin Industrial again moved for the
postponement of the hearing be postponed to August 11, 1987. The hearing was, therefore,
reset on September 8 and 22, 1987 but the hearings were reset on October 13, 1987, this
time upon motion of Interbank. To give Interbank time to comment on a motion filed by InterResin Industrial, the reception of evidence for Inter-Resin Industrial was again reset on
November 17, 26 and December 11, 1987. However, Inter-Resin Industrial again moved for
the postponement of the hearing. Accordingly the hearing was reset on November 26 and
December 11, 1987, with warning that the hearings were intransferrable.
Again, the reception of evidence for Inter-Resin Industrial was reset on January 22, 1988
and February 5, 1988 upon motion of its counsel. As Inter-Resin Industrial still failed to
present its evidence, it was declared to have waived its evidence.
To give Inter-Resin Industrial a last opportunity to present its evidence, however, the hearing
was postponed to March 4, 1988. Again Inter-Resin Industrial's counsel did not appear. The
trial court, therefore, finally declared Inter-Resin Industrial to have waived the right to
present its evidence. On the other hand, Willex Plastic, as before, manifested that it was not
presenting evidence and requested instead for time to file a memorandum.
There is therefore no basis for the plea made by Willex Plastic that it be given the
opportunity of showing that Inter-Resin Industrial has already paid its obligation to
Interbank.

WHEREFORE, the decision of the Court of Appeals is AFFIRMED, with costs against the
petitioner.
SO ORDERED.