Republic of the Philippines SUPREME COURT Manila EN BANC DECISION

September 29, 1962 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. 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 51lZxewxg. 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 zfCb2eV2. 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.

Republic of the Philippines SUPREME COURT Manila EN BANC G.R. No. L-11346 March 21, 1918

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 of Rosales 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. Johnson, J., did not sign.

Republic of the Philippines SUPREME COURT Manila EN BANC G.R. No. L-9935 February 1, 1915

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. 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. 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. Republic of the Philippines SUPREME COURT Manila EN BANC G.R. No. L-17820 April 24, 1963

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. 1wph1.t After several postponements requested by both parties on the ground of pending amicable settlement, trial on the merits was ordered and held on July 25, 1957, at 1:00 o'clock in the afternoon. At the trial, the defendant admitted all the documentary evidence adduced by the plaintiffs, showing that they were indebted to said plaintiff. However, when the plaintiff presented Atty. 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.

Republic of the Philippines SUPREME COURT Manila EN BANC DECISION December 16, 1914 G.R. No. L-8844 FERNANDO MAULINI, ET AL., plaintiffs-appellees, vs. ANTONIO G. SERRANO, defendant-appellant. R. M. Calvo for appellant. Jose Arnaiz for appellees. MORELAND, J.: This is an appeal from a judgment of the Court of First Instance of the city of Manila in favor of the plaintiff for the sum of P3,000, with interest thereon at the rate of 1 per cent month from September 5, 1912, together with the costs. The action was brought by the plaintiff upon the contract of indorsement alleged to have been made in his favor by the defendant upon the following promissory note: 3,000. Due 5th of September, 1912. We jointly and severally agree to pay to the order of Don Antonio G. Serrano on or before the 5th day of September, 1912, the sum of three thousand pesos (P3,000) for value received for commercial operations. Notice and protest renounced. If the sum herein mentioned is not completely paid on the 5th day of September, 1912, this instrument will draw interest at the rate of 1 per cent per month from the date when due until the date of its complete payment. The makers hereof agree to pay the additional sum of P500 as attorney's fees in case of failure to pay the note. Manila, June 5, 1912.

(Sgd.) For Padern, Moreno & Co., by F. Moreno, member of the firm. For Jose Padern, by F. Moreno. Angel Gimenez. The note was indorsed on the back as follows: Pay note to the order of Don Fernando Maulini, value received. Manila, June 5, 1912. (Sgd.) A.G. Serrano. The first question for resolution on this appeal is whether or not, under the Negotiable Instruments Law, an indorser of a negotiable promissory note may, in an action brought by his indorsee, show, by parol evidence, that the indorsement was wholly without consideration and that, in making it, the indorser acted as agent for the indorsee, as a mere vehicle of transfer of the naked title from the maker to the indorsee, for which he received no consideration whatever. The learned trial court, although it received parol evidence on the subject provisionally, held, on the final decision of the case, that such evidence was not admissible to alter, very, modify or contradict the terms of the contract of indorsement, and, therefore, refused to consider the evidence thus provisionally received, which tended to show that, by verbal agreement between the indorser and the indorsee, the indorser, in making the indorsement, was acting as agent for the indorsee, as a mere vehicle for the transference of naked title, and that his indorsement was wholly without consideration. The court also held that it was immaterial whether there was a consideration for the transfer or not, as the indorser, under the evidence offered, was an accommodation indorser. We are of the opinion that the trial court erred in both findings. In the first place, the consideration of a negotiable promissory note, or of any of the contracts connected therewith, like that of any other written instrument, is, between the immediate parties to the contract, open to attack, under proper circumstances, for the purpose of showing an absolute lack or failure of consideration. It seems, according to the parol evidence provisionally admitted on the trial, that the defendant was a broker doing business in the city of Manila and that part of his business consisted in looking up and ascertaining persons who had money to loan as well as those who desired to borrow money and, acting as a mediary, negotiate a loan between the two. He had done much business with the plaintiff and the borrower, as well as with many other people in the city of Manila, prior to the matter which is the basis of this action, and was well known to the parties interested. According to his custom in transactions of this kind, and the arrangement made in this particular case, the broker obtained compensation for his services of the borrower, the lender paying nothing therefor. Sometimes this was a certain per cent of the sum loaned; at other times it was a part of the interest which the borrower was to pay, the latter paying 1 per cent and the broker per cent. According to the method usually followed in these transactions, and the procedure in this particular case, the broker delivered the money

personally to the borrower, took note in his own name and immediately transferred it by indorsement to the lender. In the case at bar this was done at the special request of the indorsee and simply as a favor to him, the latter stating to the broker that he did not wish his name to appear on the books of the borrowing company as a lender of money and that he desired that the broker take the note in his own name, immediately transferring to him title thereto by indorsement. This was done, the note being at once transferred to the lender. According to the evidence referred to, there never was a moment when Serrano was the real owner of the note. It was always the note of the indorsee, Maulini, he having furnished the money which was the consideration for the note directly to the maker and being the only person who had the slightest interest therein, Serrano, the broker, acting solely as an agent, a vehicle by which the naked title to the note passed fro the borrower to the lender. The only payment that the broker received was for his services in negotiating the loan. He was paid absolutely nothing for becoming responsible as an indorser on the paper, nor did the indorsee lose, pay or forego anything, or alter his position thereby. Nor was the defendant an accommodation indorser. The learned trial court quoted that provision of the Negotiable Instruments Law which defines an accommodation party as "one who has signed the instrument as maker, drawer, acceptor, or indorser, without receiving value therefor, and for the purpose of lending his name to some other person. Such a person is liable on the instrument to a holder for value, notwithstanding such holder at the time of taking the instrument knew the same to be only an accommodation party." (Act No. 2031, sec. 29.) We are of the opinion that the trial court misunderstood this definition. The accommodation to which reference is made in the section quoted is not one to the person who takes the note that is, the payee or indorsee, but one to the maker or indorser of the note. It is true that in the case at bar it was an accommodation to the plaintiff, in a popular sense, to have the defendant indorse the note; but it was not the accommodation described in the law, but, rather, a mere favor to him and one which in no way bound Serrano. In cases of accommodation indorsement the indorser makes the indorsement for the accommodation of the maker. Such an indorsement is generally for the purpose of better securing the payment of the note that is, he lend his name to the maker, not to the holder. Putting it in another way: An accommodation note is one to which the accommodation party has put his name, without consideration, for the purpose of accommodating some other party who is to use it and is expected to pay it. The credit given to the accommodation part is sufficient consideration to bind the accommodation maker. Where, however, an indorsement is made as a favor to the indorsee, who requests it, not the better to secure payment, but to relieve himself from a distasteful situation, and where the only consideration for such indorsement passes from the indorser to the indorsee, the situation does not present one creating an accommodation indorsement, nor one where there is a consideration sufficient to sustain an action on the indorsement.

The prohibition in section 285 of the Code of Civil Procedure does not apply to a case like the one before us. The purpose of that prohibition is to prevent alternation, change, modification or contradiction of the terms of a written instrument, admittedly existing, by the use of parol evidence, except in the cases specifically named in the section. The case at bar is not one where the evidence offered varies, alters, modifies or contradicts the terms of the contract of indorsement admittedly existing. The evidence was not offered for that purpose. The purpose was to show that no contract of indorsement ever existed; that the minds of the parties never met on the terms of such contract; that they never mutually agreed to enter into such a contract; and that there never existed a consideration upon which such an agreement could be founded. The evidence was not offered to vary, alter, modify, or contradict the terms of an agreement which it is admitted existed between the parties, but to deny that there ever existed any agreement whatever; to wipe out all apparent relations between the parties, and not to vary, alter or contradict the terms of a relation admittedly existing; in other words, the purpose of the parol evidence was to demonstrate, not that the indorser did not intend to make the particular indorsement which he did make; not that he did not intend to make the indorsement in the terms made; but, rather, to deny the reality of any indorsement; that a relation of any kind whatever was created or existed between him and the indorsee by reason of the writing on the back of the instrument; that no consideration ever passed to sustain an indorsement of any kind whatsoever. The contention has some of the appearances of a case in which an indorser seeks prove forgery. Where an indorser claims that his name was forged, it is clear that parol evidence is admissible to prove that fact, and, if he proves it, it is a complete defense, the fact being that the indorser never made any such contract, that no such relation ever existed between him and the indorsee, and that there was no consideration whatever to sustain such a contract. In the case before us we have a condition somewhat similar. While the indorser does not claim that his name was forged, he does claim that it was obtained from him in a manner which, between the parties themselves, renders, the contract as completely inoperative as if it had been forged v7uoi. Parol evidence was admissible for the purpose named. There is no contradiction of the evidence offered by the defense and received provisionally by the court. Accepting it as true the judgment must be reversed. The judgment appealed from is reversed and the complaint dismissed on the merits; no special finding as to costs. Arellano, C.J., Johnson and Trent, JJ., concur. Separate Opinions

TORRES, J., concurring:

Act No. 2031, known as the Negotiable Instruments Law, which governs the present case, establishes various kinds of indorsements by means of which the liability of the indorser is in some manner limited, distinguishing it from that of the regular or general indorser, and among those kinds is that of the qualified indorsement which, pursuant to section 38 of the same Act, constitutes the indorser a mere assignor of the title to the instrument, and may be made by adding to the indorser's signature the words "without recourse" or any words of similar import. If the defendant, Antonio G. Serrano, intervened, as he alleged and tried to prove that he did at the trial, only as a broker or agent between the lender and plaintiff, Maulini, and the makers of the promissory note, Padern, Moreno & Co. and Angel Gimenez, in order to afford an opportunity to the former to invest the amount of the note in such manner that it might bring him interest, the defendant could have qualified the indorsement in question by adding to his signature the words "without recourse" or any others such as would have made known in what capacity he intervened in that transaction. As the defendant did not do so ad as he signed the indorsement in favor of the plaintiff Maulini for value received from the latter, his liability, according to section 66 of the Act aforecited, is that of a regular or general indorser, who, this same section provides, engages that if the instrument be dishonored, and the necessary proceedings on dishonor be duly taken, he will pay the amount thereof to the holder, or to any subsequent indorser who may be compelled to pay it. And the evidence which the defendant presented, tending to show what were the conditions to which the defendant presented, tending to show what were the conditions to which he obligated himself and in what capacity he intervened in making that indorsement and that this latter was absolutely without consideration, should not have been admitted so that he might elude the aforesaid obligation, or, if admitted, should not be taken into account, because as a regular indorser he warranted, pursuant to the said section 66, that the instrument was genuine and in all respects what it purported to be, that he had a good title to it, and that it was at the time of his indorsement valid and subsisting. He cannot, therefore, by means of any evidence, and much less of such as consists of his own testimony, and as such interested party, alter, modify, contradict or annul, as he virtually claimed and claims to be entitled to do, what in writing and with a full and perfect knowledge of the meaning and import of the words contained in the indorsement, he set forth therein over his signature. Section 63 of the Act above cited says that a person placing his signature upon an instrument otherwise than as maker, drawer, or acceptor is deemed to be an indorser, unless he clearly indicates by appropriate words his contention to be bound indicates by appropriate words his intention to be bound in some other capacity. This provision of the law clearly indicates that in every negotiable instrument it is absolutely necessary to specify the capacity in which the person intervenes who is mentioned therein or takes

part in its negotiation, because only by so doing can it be determined what liabilities arise from that intervention and from whom, how and when they must be exacted. And if, in the vent of a failure to express the capacity in which the person who signed the negotiable instrument intended to be bound, he should be deemed to be an indorser, when the very words of the instrument expressly and conclusively show that such he is, as occurs in the present case, and when the indorsement contains no restriction, modification, condition or qualification whatever, there cannot be attributed to him, without violating the provisions of the said Act, any other intention than that of being bound in the capacity in which he appears in the instrument itself, nor can evidence be admitted or, if already admitted, taken into consideration, for the purpose of proving such other intention, for the simple reason that if the law has already fixed ad determined the capacity in which it must be considered that the person who signed the negotiable instrument intervened and the intention of his being bound in a definite capacity, for no other purpose, undoubtedly, than that there shall be no evidence given in the matter, when the capacity appears in the instrument itself and the intention is determined by the very same capacity, as occurs in this case, the admission of evidence in reference thereto is entirely unnecessary, useless, and contrary to the purposes of the law, which is clear and precise in its provisions and admits of no subterfuges or evasions for escaping obligations contracted upon the basis of credit, with evident and sure detriment to those who intervened or took part in the negotiation of the instrument. However, it is held in the majority opinion, for the purpose of sustaining the premises that the proofs presented by the defendant could have been admitted without violating the provisions of section 285 of the Code of Civil Procedure, that the evidence was not offered to vary, alter, modify, or contradict the terms of an agreement which it is admitted existed between the parties, but to deny that there ever existed any agreement whatever; to wipe out all apparent relations between the parties, and not to vary, alter or contradict the terms of a relation admittedly existing; in other words, the purpose of the parol evidence was to demonstrate, not that the indorser did not intend to make the particular indorsement in the terms made, but rather to deny the reality of any indorsement; to deny that a relation of any kind whatsoever was created or existed between him and the indorsee by reason of the writing on the back of the instrument; to deny that any consideration ever passed to sustain an indorsement of any kind whatsoever. It is stated in the same decision that the contention has some of the appearances of a case in which an indorser seeks to prove forgery WOtF6ERkD. First of all, we do not see that there exists any appearance or similarity whatever between the case at bar and one where forgery is sought to be proved. The defendant did not, either civilly or criminally, impugn the indorsement as being false. He admitted its existence, as stated in the majority opinion itself, and did not disown his signature

written in the indorsement. His denial to the effect that the indorsement was wholly without consideration, aside from the fact that it is i contradiction to the statements that he over his signature made in the instrument, does not allow the supposition that the instrument was forged. The meaning which the majority opinion apparently wishes to convey, in calling attention to the difference between what, as it says, was the purpose of the evidence presented by the defendant and what was sought to be proved thereby, is that the defendant does not endeavor to contradict or alter the terms of the agreement, which is contained in the instrument and is admitted to exist between the parties; but to deny the existence of such an agreement between them, that is, the existence of any indorsement at all, and that any consideration ever passed to sustain the said indorsement, or, in other words, that the defendant acknowledged the indorsement as regards the form in which it appears to have been drawn up, but not with respect to its essence, that is, to the truth of the particular facts set forth in the indorsement. It cannot be denied that the practical result evidence is other than to contradict, modify, alter or even to annul the terms of the agreement contained in the indorsement: so that, in reality, the distinction does not exist that is mentioned as a ground of the decision of the majority of the court in support of the opinion that the evidence in question might have been admitted, without violating the provisions of the aforementioned section 285 of the Code of Civil Procedure. This section is based upon the same principle which is taken into account in the Negotiable Instruments Law to write into it such positive and definite provisions which purport, without possibility of discussion or doubt, the uselessness of taking evidence when the capacity of the person who intervened in a negotiable instrument or his intention of being bound in a particular way appears in the instrument itself or has been fixed by statute, if it is not shown that he did so in some other capacity than that of maker, drawer or acceptor. But aside from what the Code of Civil Procedure prescribes with respect to this matter, as the present case is governed by the Negotiable Instruments Law, we must abide by its provisions. Section 24 of this Act, No. 2031, says that every negotiable instrument is deemed prima facie to have been issued for a valuable consideration; and every person whose signature appears thereon, to have become a party thereto for value. If the Act establishes this presumption for the case where there might be doubt with respect to the existence of a valuable consideration, in order to avoid the taking of evidence in the matter, when the consideration appears from the instrument itself by the expression of the value, the introduction of evidence is entirely unnecessary and improper. According to section 25 of the same Act, value is any consideration sufficient to support

a simple contract, and so broad is the scope the law gives to the meaning of "value" in this kind of instruments that it considers as such a prior of preexistent debt, whether the instrument be payable on demand or at some future date AD0g8mhsga. Section 26 provides that where value has at any time been given for the instrument, the holder is deemed a holder for value, both in respect to the maker and to the defendant indorser, it is immaterial whether he did so directly to the person who appears in the promissory note as the maker or whether he delivered the sum to the defendant in order that this latter might in turn deliver it to the maker PAkjI7gZnk. The defendant being the holder of the instrument, he is also unquestionably the holder in due course. In the first place, in order to avoid doubts with respect to this matter which might require the introduction of evidence, the Act before mentioned has provided, in section 59, that every holder is deemed prima facie to be a holder in due course, and such is the weight it gives to this presumption and to the consequences derived therefrom, that it imposes upon the holder the burden to prove that he or some person under whom he claims acquired the title in due course, only when it is shown that the title of any person who has negotiated the instrument was defective. This rule, however, pursuant to the said section, does not apply in favor of a party who became bound on the instrument prior to the acquisition of such defective title, in which case the defendant Serrano is not included, because, in the first place, he was not bound on the instrument prior to the acquisition of the title by the plaintiff, but it was the maker of the promissory note who was bound on the instrument executed in favor of the defendant or indorser prior to the acquisition of the title by the plaintiff; and, in the second place, it does not appear, nor was it proved, as will be seen hereinafter, that the title in question was defective. According to section 52 of the same Act, the plaintiff is the holder in due course of the instrument in question, that is, of the promissory note containing the obligation compliance with which is demanded of him by the defendant, because he took the instrument under the condition: (a) That it was complete and regular upon its face; (b) that he became the holder of it before it was overdue, and without notice that it had been previously dishonored; (c) that he took it in good faith and for value; and (d) that at the time it was negotiated to him he had no notice of any deficiency in the instrument or defect in the title of the person negotiating it. Pursuant to section 56 of the said Act, to constitute notice of a deficiency in the instrument or defect in the title of the person negotiating the same, the person to whom it is transferred must have had actual knowledge of the deficiency or defect, or knowledge of such facts that his action in taking the instrument amounted to bad faith.

In the present case it cannot be said, for it is not proven, that the plaintiff, upon accepting the instrument from the defendant, had actual knowledge of any deficiency or defect in the same, for the simple reason that it contains no deficiency or defect. Its terms are very clear and positive. There is nothing ambiguous, concealed, or which might give rise to any doubt whatever with respect to its terms or to the agreement made by the parties. Furthermore, as stated in the majority opinion, the defendant did not intend to make the particular indorsement which he did make in the terms, form and manner in which it was made, nor did he intend to change or alter the terms of the agreement which is admitted to have existed between the parties. All of which indicates that, neither as regards the plaintiff nor as regards the defendant, was there any deficiency or defect in the title or in the instrument, and that the plaintiff, upon taking or receiving the instrument from the defendant, had no knowledge of any fact from which bad faith on his part might be implied. Besides, no evidence was produced of the existence of any such bad faith, nor of the knowledge of any deficiency or defect. Moreover, section 55 of Act No. 2031 provides that the title of a person who negotiates an instrument is defective within the meaning of this Act when he obtained the instrument, or any signature thereto, by fraud, duress, or force and fear, or other unlawful means, or for an illegal consideration, or when he negotiates it in breach of faith, or under such circumstances as amount to a fraud. As no evidence was taken on these points, the only ones that may be proven as regards negotiable instruments, the defendant must be deemed to be the holder of the instrument in due course, pursuant to the provisions of the aforecited section 59, and he cannot be required to prove that he or his predecessor in interest acquired the title as such holder in due course NGnAum2. Now then, according to section 28 of the same Act, as against the holder of the instrument in due course absence or failure of consideration is not a matter of defense; and, pursuant to section 57, a holder in due course holds the instrument free from any defect of title of prior parties, and free from defenses available to prior parties among themselves, and may enforce payment of the instrument for the full amount thereof against all parties liable thereon. And the next section, No. 58 prescribes that in the hands of any holder other than a holder in due course, a negotiable instrument is subject to the same defenses as if it were nonnegotiable. So it could not be clearer than that, pursuant to the provisions of the Negotiable Instrument Law, which governs the case at bar, as the plaintiff is the holder in due course of the instrument in question, no proof whatever from the defendant could be admitted, nor if admitted should be taken into account, bearing on the lack of consideration in the indorsement, as alleged by him, and for the purpose of denying the existence of any indorsement and that any relation whatever was created or existed between him and the indorsee; likewise, that no defense of any kind could have been

admitted from the defendant in respect to the said instrument, and, finally, that the defendant is obligated to pay the sum mentioned in the said indorsement, it being immaterial whether or not he be deemed to be an accommodation party in the instrument, in order that compliance with the said obligation may be required of him in his capacity of indorser. Basing our conclusions on the foregoing grounds, and regretting to dissent from the opinion of the majority of our colleagues, we believe that the judgment appealed from should be affirmed, with the costs against the appellant.
Republic of the Philippines SUPREME COURT Manila EN BANC G.R. No. L-4388 August 13, 1952

PHILIPPINE NATIONAL BANK, petitioner, vs. BENITO SEETO, respondent. Ramon B. de los Reyes for petitioner. Montano A. Ortiz for respondent. LABRADOR, J.: On March 13, 1948, respondent Benito Seeto called at the branch of the Philippine National Bank, petitioner herein, at Surigao, and presented a check, No. A-21096, in the amount of P5,000 dated at Cebu on March 10, 1948, payable to cash or bearer, and drawn by one Gan Yek Kiao against the Cebu branch of the Philippine National Bank of Communications. After consultation with the employees of the branch, Seeto made a general and unqualified indorsement of the check, and petitioner's agency accepted it and paid respondent the amount of P5,000 therefor. The check was mailed to petitioner's Cebu branch on March 20, 1948, and was presented to the drawee bank for payment on April 9, 1948, but the check was dishonored for "insufficient funds." So the check was returned to petitioner's Surigao agency, and upon receipt thereof by it on April 14, 1948, said branch immediately sent a letter to the respondent herein demanding immediate refund of in the value of the check. A second communication of the same tenor was sent on April 26, 1948, to which respondent answered asking that plaintiff's contemplated suit be deferred while he was making inquiries about the reasons for the dishonor of the check. Thereafter, respondent refused to make the refund demanded, claiming that at the time of the negotiation o the check the drawer had sufficient funds in the drawee bank, and that the petitioner's Surigao agency not delayed to forward the check until the drawer's funds were exhausted, the same would have been paid.

Thereupon petitioner presented a complaint in the Court of First Instance of Surigao, alleging that respondent Benito Seeto gave assurance to petitioner's agency in Surigao that the drawer of the check had sufficient funds with the drawee bank, and that upon these assurances petitioner's agency delivered the P5,000 to the respondent after the latter had made a general and unqualified indorsement thereon. Respondent denied having made the alleged assurances. Upon this issue petitioner submitted two witnesses at the time of the trial, who testified that it was not the practice of petitioner's agency to cash out of town checks, and that the check was cashed because of the assurances given by the respondent that the drawer had sufficient funds, and that he (respondent) would refund the amount paid by petitioner's agency in case the check is dishonored. Respondent denied having given the assurances. The trial court found notwithstanding respondent's denial to the contrary, that the respondent made an undertaking to refund the amount of the checks in the event of dishonor. In support of this finding it found that as the drawee bank is not in Cebu, it was impossible for petitioner's agency to make an independent verification of the drawer's solvency, and must have taken precautions to protect itself against loss by requiring the respondent to give assurances that he would return the amount of the check in the case of nonpayment. It also found that there was no unreasonable delay in the presentation of the check, and, therefore, rendered judgment sentencing respondent to refund the amount he had received for the check. On appeal to the Court of Appeals, this court held that petitioner was guilty of unreasonably retaining and with-holding the check, and that the delay in the presentment for payment was inexcusable, so that respondent was thereby discharged from liability. It also held that parol evidence is incompetent to show that one signing of a check as indorser is merely a surety or guarantor, rejecting the evidence adduced at the trial court about the respondent's assurance and promise to refund. It, therefore, reversed the judgment of the trial court and dismissed the complaint, with costs. Against this judgment an appeal by certiorari has been brought to this Court, petitioner Philippine National Bank contending that the Court of Appeals erred in applying sections 143 and 144 of the Negotiable Instruments Law and declaring respondent Benito Seeto discharged of his liability as indorser of the check, and in not admitting parol evidence to show that respondent made oral assurances to refund the value of the check in case of dishonor. In support of petitioner's first assignment of error, it is argued that inasmuch as a check need not to be presented for acceptance, unlike a bill of exchange as required by Section 143, Section 144 of the law is not applicable to the case at bar but Section 84, which provides: SEC. 84. Liability of person secondarily liable, when instrument dishonored. Subject to the provisions of this Act, when the instrument is dishonored by nonpayment, as immediate right of recourse to all parties secondarily liable thereon accrues to the holder. It is true that Section 143 and 144 of the law are not applicable, because these are provisions having to do with the presentation of a bill of exchange for acceptance, and are not applicable to a check, as to which presentment for acceptance is not required. It is also true that Section 84 is applicable, but its application is subject to the condition imposed by Section 186, to the effect that the check must be presented for payment within a reasonable time after its issue.

SEC. 186. Within what time a check must be presented. A check must be presented for payment within a reasonable time after its issue or the drawer will be discharged from liability thereon to the extent of the loss caused by the delay. Counsel for the petitioner, however, argues that inasmuch as the above section expressly provides for the discharge of the drawer from liability to the extent of the loss caused by the delay, and, on the other hand, it is silent as to the liability of the indorser, the latter may not be considered discharged from liability by reason of the delay in the presentment of payment under the general principle inclusio unius est exclusion alterius. We find no reason nor merit in the argument. The silence of Section 186 as to the indorser is due to the fact that his discharge is already expressly covered by the provision of Section 84, the indorser being a person secondarily liable on the instrument. The reason for the difference between the liability of the indorser and that of the drawer in case of dishonor is that the drawer is not probably or necessarily prejudiced thereby, while an indorser is, actually or by legal presumption. Innumerable decisions have already been rendered in the state courts of the United States to the effect that although the drawer of a check is discharged only to the extent of loss caused by unreasonable delay in presentment, an indorser is wholly discharged thereby irrespective of any question of loss or injury. ( Swift & Co. vs. Miller, 62 Ind. App. 312, 113 N.E. 447, cited in Brannan's Negotiable Instruments Law, p. 1134, Nuzum vs. Sheppard, 87 W. Va. 243, 104 S.E. 587, 11 A.L.R. 1024, Ibid.) The proposition maintained in the reported case (Nuzum vs. Sheppard., ante. 1024) that the indorser of a check, unlike the drawer, is relieved of liability thereon by an unreasonable delay in presenting the same for payment, whether or not he is injured by the delay, is supported by the great weight of authority, (Cases cited.) The Court, in Gough v. Staats (N.Y.) supra, says: "Upon the question of due diligence to charge an indorser, whether he has been prejudiced or not by the delay is perfectly immaterial. It is not inquired into. The law presumes he has been prejudiced." According to the Court in Caroll v. Sweet (1891) 128 N.Y. 19, 13 L.R.A. 43, 27 N.E. 763, "presentment to due time as fixed by the law merchant was a condition upon performance of which the liability of the defendant, as indorser, depended, and this delay was not excused, although the drawer of the check had no funds, or was insolvent, or because presentment would not been unavailing as a means of procuring payment." Only where there is affirmative proof that the indorser knew when he cashed the check that there would be no funds in the bank to meet it can the rule be avoided. Otherwise, the failure to present the check in due course of payment will discharge the indorser even though such presentment would have been unavailing. Start v. Tupper (Vt.) supra. (11 A.L.R. Annotation, pp. 1028-1029.) We have been unable to find any authority sustaining the proposition that an indorser of a check is not discharged from liability for an unreasonable delay in presentation for payment. This is contrary to the essential nature and character of negotiable instruments their negotiability. They are supposed to be passed on with promptness in the ordinary course of business

transactions; not to be retained or kept for such time as the holder may want, otherwise the smooth flow of commercial transactions would be hindered. There seems to be an intimation in the decision appealed from that inasmuch as the check was drawn payable elsewhere than at the place of business of the drawer, it must be presented for acceptance or negotiable within a reasonable time, and upon failure to do so the drawer and all indorsers thereof are discharged pursuant to Section 144 of the law. Against this insinuation the petitioner argues that the application of sections 143 and 144 is not proper, and that it may not be presumed that the check in question was not drawn and executed in Cebu, the residence or place of business of the drawer. There is no evidence at all as to the place where the check was drawn. However, we have already pointed out above that neither Section 143 nor Section 144 is applicable. But our ruling that respondent was discharged upon the dishonor of the check is based on Sections 84 and 186, the latter expressly requiring that a check must be presented for payment within a reasonable time after issue. It is not claimed by the petitioner on this appeal that the conclusion of the Court of Appeals that there was unreasonable delay in the presentation of the check for payment at the drawee bank is erroneous. The petitioner concedes the correctness of this conclusion, although for purposes of argument merely. We find that the conclusion is correct. The fact, admitted by the witnesses for the petitioner, the checks for the drawer issued subsequent to March 13, 1948, drawn against the same bank and cashed at the same Surigao agency, were not dishonored positively shows that the drawer had enough funds when he issued the check in question, and that had it not been for the unreasonable delay in its presentation for payment, the petitioner herein would have been able to receive payment therefor. The check is dated March 10, and was cashed by the petitioner's agency on March 13, 1948. It was not mailed until seven days thereafter, i.e., on March 20, 1948, or ten days after issue. No excuse was given for this delay. Assuming that it took one week, or say ten days, or until March 30, for the check to reach Cebu, neither can there be any excuse for not presenting it for payment at the drawee bank until April 9, 1948, or 10 days after it reached Cebu. We, therefore, find no reason for disturbing the conclusion of the Court of Appeals that there was unreasonable delay in the presentation of the check for payment at the drawee bank, and that is a consequence thereof, the indorser, respondent herein, was thereby discharged. With respect to the second assignment of error, petitioner argues that the verbal assurances given by the respondent to the employees of the bank that he was ready to refund the amount if the check should be dishonored by the drawee bank is a collateral agreement, separate and distinct from the indorsement, by virtue of which petitioner herein was induced to cash the check, and, therefore, admissible as an exception that the parol evidence rule. Petitioners contention in this respect is not entirely unfounded. In the case of Tan Machan vs. De La Trinidad, et al., 4 Phil., 684, this court held that parol evidence is admissible to show that parties signing as principals merely did so as sureties. In the case of Robles vs. Lizarraga Hermanos, 50 Phil., 387, it was also held by this court that parol evidence is admissible to prove "an independent thereof." (Ibid., p. 395.) In Philips vs. Preston, 5 How. (U.S.) 278, 12 L. ed, 152, the Supreme Court of the United States held that any prior or contemporaneous conversation in connection with a note or its indorsement, may be proved by parol evidence. And Wigmore

states that "an extrinsic agreement between indorser and indorsee which cannot be embodied in the instrument without impairing its credit is provable by parol." (9 Wigmore 148, section 2445 [3].) If, therefore, the supposed assurances that the drawer had funds and that the respondent herein would refund the amount of the check if the drawer had no funds, were the considerations or reasons that induced the branch agency of the petitioners to go out of its ordinary practice of not cashing out of town checks and accept the check and to pay its face value, the same would be provable by parol, provided, of course, that the assurances or inducements offered would not vary, alter, or destroy the obligations attached by law to the indorsement. We find, however, that the supposed assurances of refund in case of dishonor of the check are precisely the ordinary obligations of an indorser, and these obligations are, under the law, considered discharged by an unreasonable delay in the presentation of the check for payment. SEC. 66. Liability of general indorser. . . . . And, in addition, he engages that on due presentment, it shall be accepted or paid, or both, as the case may be, according to its tenor, and that if it be dishonored, and the necessary proceedings on dishonor be duly taken, he will pay the amount thereof to the holder, or to any subsequent indorser who may be compelled to pay it. (Emphasis ours.) There was no express obligation assumed by the respondent herein that the drawer would always have funds, or that he (the indorser) would refund the amount of the check even if there was delay in its presentation, so that while the Court of Appeals may have committed an error in disregarding the evidence submitted by petitioner at the trial of the assurances made by respondent herein at the time of the negotiation of the check, such error was without prejudice, because the supposed assurances given were part of his obligations as an indorser, which were discharged by the unreasonable delay in the presentation of the check for payment. The judgment appealed from is, therefore, affirmed, with costs against the petitioner. Paras, C.J., Feria, Bengzon, Padilla, Tuason, Montemayor and Bautista Angelo, JJ., concur. Republic of the Philippines SUPREME COURT Manila EN BANC G.R. No. L-4811 July 31, 1953

CHARLES F. WOODHOUSE, plaintiff-appellant, vs. FORTUNATO F. HALILI, defendant-appellant. Taada, Pelaez & Teehankee for defendant and appellant. Gibbs, Gibbs, Chuidian & Quasha for plaintiff and appellant.

LABRADOR, J.: On November 29, 1947, the plaintiff entered on a written agreement, Exhibit A, with the defendant, the most important provisions of which are (1) that they shall organize a partnership for the bottling and distribution of Mision soft drinks, plaintiff to act as industrial partner or manager, and the defendant as a capitalist, furnishing the capital necessary therefor; (2) that the defendant was to decide matters of general policy regarding the business, while the plaintiff was to attend to the operation and development of the bottling plant; (3) that the plaintiff was to secure the Mission Soft Drinks franchise for and in behalf of the proposed partnership; and (4) that the plaintiff was to receive 30 per cent of the net profits of the business. The above agreement was arrived at after various conferences and consultations by and between them, with the assistance of their respective attorneys. Prior to entering into this agreement, plaintiff had informed the Mission Dry Corporation of Los Angeles, California, U.S.A., manufacturers of the bases and ingridients of the beverages bearing its name, that he had interested a prominent financier (defendant herein) in the business, who was willing to invest half a million dollars in the bottling and distribution of the said beverages, and requested, in order that he may close the deal with him, that the right to bottle and distribute be granted him for a limited time under the condition that it will finally be transferred to the corporation (Exhibit H). Pursuant for this request, plaintiff was given "a thirty-days" option on exclusive bottling and distribution rights for the Philippines" (Exhibit J). Formal negotiations between plaintiff and defendant began at a meeting on November 27, 1947, at the Manila Hotel, with their lawyers attending. Before this meeting plaintiff's lawyer had prepared the draft of the agreement, Exhibit II or OO, but this was not satisfactory because a partnership, instead of a corporation, was desired. Defendant's lawyer prepared after the meeting his own draft, Exhibit HH. This last draft appears to be the main basis of the agreement, Exhibit A. The contract was finally signed by plaintiff on December 3, 1947. Plaintiff did not like to go to the United States without the agreement being not first signed. On that day plaintiff and defendant went to the United States, and on December 10, 1947, a franchise agreement (Exhibit V) was entered into the Mission Dry Corporation and Fortunato F. Halili and/or Charles F. Woodhouse, granted defendant the exclusive right, license, and authority to produce, bottle, distribute, and sell Mision beverages in the Philippines. The plaintiff and the defendant thereafter returned to the Philippines. Plaintiff reported for duty in January, 1948, but operations were not begun until the first week of February, 1948. In January plaintiff was given as advance, on account of profits, the sum of P2,000, besides the use of a car; in February, 1948, also P2,000, and in March only P1,000. The car was withdrawn from plaintiff on March 9, 1948. When the bottling plant was already on operation, plaintiff demanded of defendant that the partnership papers be executed. At first defendant executed himself, saying there was no hurry. Then he promised to do so after the sales of the product had been increased to P50,000. As nothing definite was forthcoming, after this condition was attained, and as defendant refused to give further allowances to plaintiff, the latter caused his attorneys to take up the matter with the defendant with a view to a possible settlement. as none could be arrived at, the present action was instituted.

In his complaint plaintiff asks for the execution of the contract of partnership, an accounting of the profits, and a share thereof of 30 per cent, as well as damages in the amount of P200,000. In his answer defendant alleges by way of defense (1) that defendant's consent to the agreement, Exhibit A, was secured by the representation of plaintiff that he was the owner, or was about to become owner of an exclusive bottling franchise, which representation was false, and plaintiff did not secure the franchise, but was given to defendant himself; (2) that defendant did not fail to carry out his undertakings, but that it was plaintiff who failed; (3) that plaintiff agreed to contribute the exclusive franchise to the partnership, but plaintiff failed to do so. He also presented a counter-claim for P200,000 as damages. On these issues the parties went to trial, and thereafter the Court of First Instance rendered judgment ordering defendant to render an accounting of the profits of the bottling and distribution business, subject of the action, and to pay plaintiff 15 percent thereof. it held that the execution of the contract of partnership could not be enforced upon the parties, but it also held that the defense of fraud was not proved. Against this judgment both parties have appealed. The most important question of fact to be determined is whether defendant had falsely represented that he had an exclusive franchise to bottle Mission beverages, and whether this false representation or fraud, if it existed, annuls the agreement to form the partnership. The trial court found that it is improbable that defendant was never shown the letter, Exhibit J, granting plaintiff had; that the drafts of the contract prior to the final one can not be considered for the purpose of determining the issue, as they are presumed to have been already integrated into the final agreement; that fraud is never presumed and must be proved; that the parties were represented by attorneys, and that if any party thereto got the worse part of the bargain, this fact alone would not invalidate the agreement. On this appeal the defendant, as appellant, insists that plaintiff did represent to the defendant that he had an exclusive franchise, when as a matter of fact, at the time of its execution, he no longer had it as the same had expired, and that, therefore, the consent of the defendant to the contract was vitiated by fraud and it is, consequently, null and void. Our study of the record and a consideration of all the surrounding circumstances lead us to believe that defendant's contention is not without merit. Plaintiff's attorney, Mr. Laurea, testified that Woodhouse presented himself as being the exclusive grantee of a franchise, thus: A. I don't recall any discussion about that matter. I took along with me the file of the office with regards to this matter. I notice from the first draft of the document which I prepared which calls for the organization of a corporation, that the manager, that is, Mr. Woodhouse, is represented as being the exclusive grantee of a franchise from the Mission Dry Corporation. . . . (t.s.n., p.518) As a matter of fact, the first draft that Mr. Laurea prepared, which was made before the Manila Hotel conference on November 27th, expressly states that plaintiff had the exclusive franchise. Thus, the first paragraph states: Whereas, the manager is the exclusive grantee of a franchise from the Mission Dry Corporation San Francisco, California, for the bottling of Mission products and their sale to the public throughout the Philippines; . . . .

3. The manager, upon the organization of the said corporation, shall forthwith transfer to the said corporation his exclusive right to bottle Mission products and to sell them throughout the Philippines. . . . . (Exhibit II; emphasis ours) The trial court did not consider this draft on the principle of integration of jural acts. We find that the principle invoked is inapplicable, since the purpose of considering the prior draft is not to vary, alter, or modify the agreement, but to discover the intent of the parties thereto and the circumstances surrounding the execution of the contract. The issue of fact is: Did plaintiff represent to defendant that he had an exclusive franchise? Certainly, his acts or statements prior to the agreement are essential and relevant to the determination of said issue. The act or statement of the plaintiff was not sought to be introduced to change or alter the terms of the agreement, but to prove how he induced the defendant to enter into it to prove the representations or inducements, or fraud, with which or by which he secured the other party's consent thereto. These are expressly excluded from the parol evidence rule. (Bough and Bough vs. Cantiveros and Hanopol, 40 Phil., 209; port Banga Lumber Co. vs. Export & Import Lumber Co., 26 Phil., 602; III Moran 221,1952 rev. ed.) Fraud and false representation are an incident to the creation of a jural act, not to its integration, and are not governed by the rules on integration. Were parties prohibited from proving said representations or inducements, on the ground that the agreement had already been entered into, it would be impossible to prove misrepresentation or fraud. Furthermore, the parol evidence rule expressly allows the evidence to be introduced when the validity of an instrument is put in issue by the pleadings (section 22, par. (a), Rule 123, Rules of Court),as in this case. That plaintiff did make the representation can also be easily gleaned from his own letters and his own testimony. In his letter to Mission Dry Corporation, Exhibit H, he said:. . . . He told me to come back to him when I was able to speak with authority so that we could come to terms as far as he and I were concerned. That is the reason why the cable was sent. Without this authority, I am in a poor bargaining position. . . I would propose that you grant me the exclusive bottling and distributing rights for a limited period of time, during which I may consummate my plants. . . . By virtue of this letter the option on exclusive bottling was given to the plaintiff on October 14, 1947. (See Exhibit J.) If this option for an exclusive franchise was intended by plaintiff as an instrument with which to bargain with defendant and close the deal with him, he must have used his said option for the above-indicated purpose, especially as it appears that he was able to secure, through its use, what he wanted. Plaintiff's own version of the preliminary conversation he had with defendant is to the effect that when plaintiff called on the latter, the latter answered, "Well, come back to me when you have the authority to operate. I am definitely interested in the bottling business." (t. s. n., pp. 60-61.) When after the elections of 1949 plaintiff went to see the defendant (and at that time he had already the option), he must have exultantly told defendant that he had the authority already. It

is improbable and incredible for him to have disclosed the fact that he had only an optionto the exclusive franchise, which was to last thirty days only, and still more improbable for him to have disclosed that, at the time of the signing of the formal agreement, his option had already expired. Had he done so, he would have destroyed all his bargaining power and authority, and in all probability lost the deal itself. The trial court reasoned, and the plaintiff on this appeal argues, that plaintiff only undertook in the agreement "to secure the Mission Dry franchise for and in behalf of the proposed partnership." The existence of this provision in the final agreement does not militate against plaintiff having represented that he had the exclusive franchise; it rather strengthens belief that he did actually make the representation. How could plaintiff assure defendant that he would get the franchise for the latter if he had not actually obtained it for himself? Defendant would not have gone into the business unless the franchise was raised in his name, or at least in the name of the partnership. Plaintiff assured defendant he could get the franchise. Thus, in the draft prepared by defendant's attorney, Exhibit HH, the above provision is inserted, with the difference that instead of securing the franchise for the defendant, plaintiff was to secure it for the partnership. To show that the insertion of the above provision does not eliminate the probability of plaintiff representing himself as the exclusive grantee of the franchise, the final agreement contains in its third paragraph the following: . . . and the manager is ready and willing to allow the capitalists to use the exclusive franchise . . . and in paragraph 11 it also expressly states: 1. In the event of the dissolution or termination of the partnership, . . . the franchise from Mission Dry Corporation shall be reassigned to the manager. These statements confirm the conclusion that defendant believed, or was made to believe, that plaintiff was the grantee of an exclusive franchise. Thus it is that it was also agreed upon that the franchise was to be transferred to the name of the partnership, and that, upon its dissolution or termination, the same shall be reassigned to the plaintiff. Again, the immediate reaction of defendant, when in California he learned that plaintiff did not have the exclusive franchise, was to reduce, as he himself testified, plaintiff's participation in the net profits to one half of that agreed upon. He could not have had such a feeling had not plaintiff actually made him believe that he (plaintiff) was the exclusive grantee of the franchise. The learned trial judge reasons in his decision that the assistance of counsel in the making of the contract made fraud improbable. Not necessarily, because the alleged representation took place before the conferences were had, in other words, plaintiff had already represented to defendant, and the latter had already believed in, the existence of plaintiff's exclusive franchise before the formal negotiations, and they were assisted by their lawyers only when said formal negotiations actually took place. Furthermore, plaintiff's attorney testified that plaintiff had said that he had the exclusive franchise; and defendant's lawyer testified that plaintiff explained to him, upon being asked for the franchise, that he had left the papers evidencing it.(t.s.n., p. 266.)

We conclude from all the foregoing that plaintiff did actually represent to defendant that he was the holder of the exclusive franchise. The defendant was made to believe, and he actually believed, that plaintiff had the exclusive franchise. Defendant would not perhaps have gone to California and incurred expenses for the trip, unless he believed that plaintiff did have that exclusive privilege, and that the latter would be able to get the same from the Mission Dry Corporation itself. Plaintiff knew what defendant believed about his (plaintiff's) exclusive franchise, as he induced him to that belief, and he may not be allowed to deny that defendant was induced by that belief. (IX Wigmore, sec. 2423; Sec. 65, Rule 123, Rules of Court.) We now come to the legal aspect of the false representation. Does it amount to a fraud that would vitiate the contract? It must be noted that fraud is manifested in illimitable number of degrees or gradations, from the innocent praises of a salesman about the excellence of his wares to those malicious machinations and representations that the law punishes as a crime. In consequence, article 1270 of the Spanish Civil Code distinguishes two kinds of (civil) fraud, the causal fraud, which may be a ground for the annulment of a contract, and the incidental deceit, which only renders the party who employs it liable for damages. This Court had held that in order that fraud may vitiate consent, it must be the causal (dolo causante), not merely the incidental (dolo causante), inducement to the making of the contract. (Article 1270, Spanish Civil Code; Hill vs. Veloso, 31 Phil. 160.) The record abounds with circumstances indicative that the fact that the principal consideration, the main cause that induced defendant to enter into the partnership agreement with plaintiff, was the ability of plaintiff to get the exclusive franchise to bottle and distribute for the defendant or for the partnership. The original draft prepared by defendant's counsel was to the effect that plaintiff obligated himself to secure a franchise for the defendant. Correction appears in this same original draft, but the change is made not as to the said obligation but as to the grantee. In the corrected draft the word "capitalist"(grantee) is changed to "partnership." The contract in its final form retains the substituted term "partnership." The defendant was, therefore, led to the belief that plaintiff had the exclusive franchise, but that the same was to be secured for or transferred to the partnership. The plaintiff no longer had the exclusive franchise, or the option thereto, at the time the contract was perfected. But while he had already lost his option thereto (when the contract was entered into), the principal obligation that he assumed or undertook was to secure said franchise for the partnership, as the bottler and distributor for the Mission Dry Corporation. We declare, therefore, that if he was guilty of a false representation, this was not the causal consideration, or the principal inducement, that led plaintiff to enter into the partnership agreement. But, on the other hand, this supposed ownership of an exclusive franchise was actually the consideration or price plaintiff gave in exchange for the share of 30 percent granted him in the net profits of the partnership business. Defendant agreed to give plaintiff 30 per cent share in the net profits because he was transferring his exclusive franchise to the partnership. Thus, in the draft prepared by plaintiff's lawyer, Exhibit II, the following provision exists: 3. That the MANAGER, upon the organization of the said corporation, shall forthwith transfer to the said corporation his exclusive right to bottle Mission products and to sell them throughout the Philippines. As a consideration for such transfer, the CAPITALIST shall transfer to the Manager fully paid non assessable shares of the said

corporation . . . twenty-five per centum of the capital stock of the said corporation. (Par. 3, Exhibit II; emphasis ours.) Plaintiff had never been a bottler or a chemist; he never had experience in the production or distribution of beverages. As a matter of fact, when the bottling plant being built, all that he suggested was about the toilet facilities for the laborers. We conclude from the above that while the representation that plaintiff had the exclusive franchise did not vitiate defendant's consent to the contract, it was used by plaintiff to get from defendant a share of 30 per cent of the net profits; in other words, by pretending that he had the exclusive franchise and promising to transfer it to defendant, he obtained the consent of the latter to give him (plaintiff) a big slice in the net profits. This is the dolo incidentedefined in article 1270 of the Spanish Civil Code, because it was used to get the other party's consent to a big share in the profits, an incidental matter in the agreement. El dolo incidental no es el que puede producirse en el cumplimiento del contrato sino que significa aqui, el que concurriendoen el consentimiento, o precediendolo, no influyo para arrancar porsi solo el consentimiento ni en la totalidad de la obligacion, sinoen algun extremo o accidente de esta, dando lugar tan solo a una accion para reclamar indemnizacion de perjuicios. (8 Manresa 602.) Having arrived at the conclusion that the agreement may not be declared null and void, the question that next comes before us is, May the agreement be carried out or executed? We find no merit in the claim of plaintiff that the partnership was already a fait accompli from the time of the operation of the plant, as it is evident from the very language of the agreement that the parties intended that the execution of the agreement to form a partnership was to be carried out at a later date. They expressly agreed that they shall form a partnership. (Par. No. 1, Exhibit A.) As a matter of fact, from the time that the franchise from the Mission Dry Corporation was obtained in California, plaintiff himself had been demanding that defendant comply with the agreement. And plaintiff's present action seeks the enforcement of this agreement. Plaintiff's claim, therefore, is both inconsistent with their intention and incompatible with his own conduct and suit. As the trial court correctly concluded, the defendant may not be compelled against his will to carry out the agreement nor execute the partnership papers. Under the Spanish Civil Code, the defendant has an obligation to do, not to give. The law recognizes the individual's freedom or liberty to do an act he has promised to do, or not to do it, as he pleases. It falls within what Spanish commentators call a very personal act (acto personalismo), of which courts may not compel compliance, as it is considered an act of violence to do so. Efectos de las obligaciones consistentes en hechos personalismo.Tratamos de la ejecucion de las obligaciones de hacer en el solocaso de su incumplimiento por parte del deudor, ya sean los hechos personalisimos, ya se hallen en la facultad de un tercero; porque el complimiento espontaneo de las mismas esta regido por los preceptos relativos al pago, y en nada les afectan las disposiciones del art. 1.098.

Esto supuesto, la primera dificultad del asunto consiste en resolver si el deudor puede ser precisado a realizar el hecho y porque medios. Se tiene por corriente entre los autores, y se traslada generalmente sin observacion el principio romanonemo potest precise cogi ad factum. Nadie puede ser obligado violentamente a haceruna cosa. Los que perciben la posibilidad de la destruccion deeste principio, aaden que, aun cuando se pudiera obligar al deudor, no deberia hacerse, porque esto constituiria una violencia, y noes la violenciamodo propio de cumplir las obligaciones (Bigot, Rolland, etc.). El maestro Antonio Gomez opinaba lo mismo cuandodecia que obligar por la violencia seria infrigir la libertad eimponer una especie de esclavitud. xxx xxx xxx

En efecto; las obligaciones contractuales no se acomodan biencon el empleo de la fuerza fisica, no ya precisamente porque seconstituya de este modo una especie de esclavitud, segun el dichode Antonio Gomez, sino porque se supone que el acreedor tuvo encuenta el caracter personalisimo del hecho ofrecido, y calculo sobre laposibilidad de que por alguna razon no se realizase. Repugna,ademas, a la conciencia social el empleo de la fuerza publica, mediante coaccion sobre las personas, en las relaciones puramente particulares; porque la evolucion de las ideas ha ido poniendo masde relieve cada dia el respeto a la personalidad humana, y nose admite bien la violencia sobre el individuo la cual tiene caracter visiblemente penal, sino por motivos que interesen a la colectividad de ciudadanos. Es, pues, posible y licita esta violencia cuando setrata de las obligaciones que hemos llamado ex lege, que afectanal orden social y a la entidad de Estado, y aparecen impuestas sinconsideracion a las conveniencias particulares, y sin que por estemotivo puedan tampoco ser modificadas; pero no debe serlo cuandola obligacion reviste un interes puramente particular, como sucedeen las contractuales, y cuando, por consecuencia, paraceria salirseel Estado de su esfera propia, entrado a dirimir, con apoyo dela fuerza colectiva, las diferencias producidas entre los ciudadanos. (19 Scaevola 428, 431-432.) The last question for us to decide is that of damages,damages that plaintiff is entitled to receive because of defendant's refusal to form the partnership, and damages that defendant is also entitled to collect because of the falsity of plaintiff's representation. (Article 1101, Spanish Civil Code.) Under article 1106 of the Spanish Civil Code the measure of damages is the actual loss suffered and the profits reasonably expected to be received, embraced in the terms dao emergente and lucro cesante. Plaintiff is entitled under the terms of the agreement to 30 per cent of the net profits of the business. Against this amount of damages, we must set off the damage defendant suffered by plaintiff's misrepresentation that he had obtained a very high percentage of share in the profits. We can do no better than follow the appraisal that the parties themselves had adopted. When defendant learned in Los Angeles that plaintiff did not have the exclusive franchise which he pretended he had and which he had agreed to transfer to the partnership, his spontaneous reaction was to reduce plaintiff's share form 30 per cent to 15 per cent only, to which reduction

defendant appears to have readily given his assent. It was under this understanding, which amounts to a virtual modification of the contract, that the bottling plant was established and plaintiff worked as Manager for the first three months. If the contract may not be considered modified as to plaintiff's share in the profits, by the decision of defendant to reduce the same to one-half and the assent thereto of plaintiff, then we may consider the said amount as a fair estimate of the damages plaintiff is entitled to under the principle enunciated in the case of Varadero de Manila vs. Insular Lumber Co., 46 Phil. 176. Defendant's decision to reduce plaintiff's share and plaintiff's consent thereto amount to an admission on the part of each of the reasonableness of this amount as plaintiff's share. This same amount was fixed by the trial court. The agreement contains the stipulation that upon the termination of the partnership, defendant was to convey the franchise back to plaintiff (Par. 11, Exhibit A). The judgment of the trial court does not fix the period within which these damages shall be paid to plaintiff. In view of paragraph 11 of Exhibit A, we declare that plaintiff's share of 15 per cent of the net profits shall continue to be paid while defendant uses the franchise from the Mission Dry Corporation. With the modification above indicated, the judgment appealed from is hereby affirmed. Without costs. Paras, C.J., Pablo, Bengzon, Tuason, Montemayor, Reyes, Jugo and Bautista Angelo, JJ., concur Republic of the Philippines SUPREME COURT Manila EN BANC G.R. No. L-26173 July 13, 1927

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. 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 propositon 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 impliments, 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. 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.

THIRD DIVISION [G.R. No. 79962 : December 10, 1990.] 192 SCRA 209 LUCIO R. CRUZ, Petitioner, vs. COURT OF APPEALS AND CONRADO Q. SALONGA, Respondents. DECISION CRUZ, J.:

The private respondent Conrado Salonga filed a complaint for collection and damages against petitioner Lucio Cruz ** in the Regional Trial Court of Lucena City alleging that in the course of their business transactions of buying and selling fish, the petitioner borrowed from him an amount of P35,000.00, evidenced by a receipt dated May 4, 1982, marked as Exhibit D, reading as follows: 5/4/82 Received the amount of Thirty Five Thousand Cash from Rodrigo Quiambao and Conrado Salonga on the day of May 4, 1982. Sgd. Lucio Cruz The plaintiff claimed that of this amount, only P20,000.00 had been paid, leaving a balance of P10,000.00; that in August 1982, he and the defendant agreed that the latter would grant him an exclusive right to purchase the harvest of certain fishponds leased by Cruz in exchange for certain loan accommodations; that pursuant thereto, Salonga delivered to Cruz various loans totaling P15,250.00, evidenced by four receipts and an additional P4,000.00, the receipt of which had been lost; and that Cruz failed to comply with his part of the agreement by refusing to deliver the alleged harvest of the fishpond and the amount of his indebtedness. Cruz denied having contracted any loan from Salonga. By way of special defense, he alleged that he was a lessee of several hectares of a fishpond owned by Nemesio Yabut and that sometime in May 1982, he entered into an agreement with Salonga whereby the latter would purchase (pakyaw) fish in certain areas of the fishpond from May 1982 to August 15, 1982. They also agreed that immediately thereafter, Salonga would sublease (bubuwisan) the same fishpond for a period of one year. Cruz admitted having received on May 4, 1982, the amount of P35,000.00 and on several occasions from August 15, 1982, to September 30, 1982, an aggregate amount of P15,250.00. He contended however, that these amounts were received by him not as loans but as consideration for their "pakyaw" agreement and payment for the sublease of the fishpond. He added that it was the private respondent who owed him money since Salonga still had unpaid rentals for the 10-month period that he actually occupied the fishpond. Cruz also claimed that Salonga owed him an additional P4,000.00 arising from another purchase of fish from other areas of his leased fishpond. In a pre-trial conference held on August 24, 1984, petitioner and private respondent entered into the following partial stipulation of facts. COURT: Plaintiff and defendant, through their respective counsel, during the pre-trial conference, agreed on the following stipulation of facts: 1) That plaintiff Conrado Salonga entered into a contract of what is commonly called as 'pakyawan' with defendant Lucio Cruz on the fishes contained in a fishpond which defendant Lucio Cruz was taking care of as lessee from the owner Mr. Nemesio Yabut, with a verbal contract for the sum of P28,000.00 sometime in May 1982.

2) That because of the necessity, defendant Lucio Cruz at that time needed money, he requested plaintiff Conrado Salonga to advance the money of not only P28,000.00 but P35,000.00 in order that Lucio Cruz could meet his obligation with the owner of the fishpond in question, Mr. Nemesio Yabut; 3) That the amount of P35,000.00 as requested by defendant Lucio Cruz was in fact delivered by plaintiff Conrado Salonga duly received by the defendant Lucio Cruz, as evidenced by a receipt dated May 4, 1982, duly signed by defendant Lucio Cruz 4) That pursuant to said contract of "pakyaw," plaintiff Conrado Salonga was able to harvest the fishes contained in the fishpond administered by Lucio Cruz in August 1982. 5) Immediately thereafter the aforesaid harvest thereon, they entered again on a verbal agreement whereby plaintiff Conrado Salonga and defendant Lucio Cruz had agreed that defendant Lucio Cruz will sublease and had in fact subleased the fishpond of Nemesio Yabut to the herein plaintiff for the amount of P28,000.00 for a period of one year beginning August 15, 1982. 6) That sometime on June 15, 1983, Mayor Nemesio Yabut, who is the owner of the fishpond, took back the subject matter of this case from the defendant Lucio Cruz. 7) That defendant Lucio Cruz in compliance with their verbal sublease agreement had received from the plaintiff Conrado Salonga the following sums of money: a) P8,000.00 on August 15, 1982 as evidenced by Annex "B" of the Complaint. (Exh. E); b) The sum of P500.00 on September 4, 1982, as evidenced by Annex "C" of the complaint (Exh. F); c) The sum of P3,000.00 on September 19, 1982 as evidenced by Annex "D" of the complaint (Exh. G); and d) The sum of P3,750.00 on September 30, 1982 as Annex "E" of the complaint (Exh. H). At the trial, the private respondent claimed that aside from the amounts of P35,000.00 (Exh. D), P8,000.00 (Exh. E), P500.00 (Exh. F), P3,000.00 (Exh. G) and P3,750.00 (Exh. H) mentioned in the partial stipulation of facts, he also delivered to the petitioner P28,000.00, which constituted the consideration for their "pakyaw" agreement. This was evidenced by a receipt dated May 14, 1982 marked as Exhibit I and reading as follows: May 14, 1982 Tinatanggap ko ang halagang dalawampu't walong libong piso (P28,000.00) bilang halaga sa pakyaw nila sa akin sa sangla sa kahong bilang #8 maliit at sa kaputol na sapa sa gawing may bomba. Ito ay tatagal hanggang Agosto 1982. SGD. LUCIO CRUZ

Salonga also claimed that he had paid Cruz the amount of P4,000 but the receipt of which had been lost and denied being indebted to the petitioner for P4,000 for the lease of other portions of the fishpond. For his part, the petitioner testified that he entered into a "pakyaw" and sublease agreement with the private respondent for a consideration of P28,000 for each transaction. Out of the P35,000 he received from the private respondent on May 4, 1982, P28,000 covered full payment of their "pakyaw" agreement while the remaining P7,000 constituted the advance payment for their sublease agreement. The petitioner denied having received another amount of P28,000 from Salonga on May 14, 1982. He contended that the instrument dated May 14, 1982 (Exh. I) was executed to evidence their "pakyaw" agreement and to fix its duration. He was corroborated by Sonny Viray, who testified that it was he who prepared the May 4, 1982, receipt of P35,000.00, P28,000 of which was payment for the "pakyaw" and the excess of P7,000.00 as advance for the sublease. The trial court ruled in favor of the petitioner and ordered the private respondent to pay the former the sum of P3,054.00 plus P1,000.00 as litigation expenses and attorney's fees, and the costs. Judge Eriberto U. Rosario, Jr. found that the transactions between the petitioner and the private respondent were indeed "pakyaw" and sublease agreements, each having a consideration of P28,000.00, for a total of P56,000.00. Pursuant to these agreements, Salonga paid Cruz P35,000.00 on May 4, 1982 (Exh. D); P8,000.00 on August 15, 1982 (Exh. E); P500.00 on September 4, 1982 (Exh. F); P3,000 on September 19, 1982; P3,750 on September 30, 1982 (Exh. H) and P4,000.00 on an unspecified date. The trial court noted an earlier admission of the private respondent that on an unspecified date he received the sum of P6,000.00 from the petitioner. This amount was credited to the petitioner and deducted from the total amount paid by the private respondent. As the one-year contract of sublease was preterminated two months short of the stipulated period, the rentals were correspondingly reduced. On appeal, the decision of the trial court was reversed. The respondent court instead ordered the petitioner to pay the private respondent the sum of P24,916.00 plus P1,500.00 as litigation expenses and attorney's fees, on the following justification: Exhibit "I" is very clear in its non-reference to the transaction behind Exhibit "D." What only gives the semblance that Exhibit "I" is an explanation of the transaction behind Exhibit "D" are the oral testimonies given by the defendant and his two witnesses. On the other hand, Exhibit "I" is very clear in its language. Thus, its tenor must not be clouded by any parol evidence introduced by the defendant. And with the tenor of Exhibit "I" remaining unembellished, the conclusion that Exhibit "D" is a mere tentative receipt becomes untenable. The trial court erred when it relied on the self-serving testimonies of the defendant and his witness as against the receipts both parties presented and adopted as their own exhibits. As said before, Exhibit "I" is very clear in its tenor. And if it is really the intention of Exhibit "I" to explain the contents of Exhibit "D", such manifestation or intention is not found in the four corners of the former document.

The respondent court also found that the amounts of P35,000.00, P8,000.00, P500.00, P3,000.00, P3,750.00 and P4,000.00 were not payments for the "pakyaw" and sublease agreement but for loans extended by Salonga to Cruz. It also accepted Salonga's claim that the amount of P28,000.00 was delivered to the petitioner on May 14, 1982, as payment on the "pakyaw" agreement apart from the P35,000.00 (Exh. D) that was paid on May 4, 1982. However, it agreed that the amount of P6,000.00 received by the private respondent from the petitioner should be credited in favor of the latter. The petitioner is now before this Court, raising the following issues: 1. The public respondent Court of Appeals gravely erred in (1) disregarding parol evidence to Exhibits "D" and "I" despite the fact that these documents fall under the exceptions provided for in Sec. 7, Rule 130 of the Rules of Court and thereby in (2) making a sweeping conclusion that the transaction effected between the private respondent and petitioner is one of contract of loan and not a contract of lease. 2. Assuming for the sake of argument that exhibits "D" and "I" evidence separate transactions, the latter document should be disregarded, the same not having been pleaded as a cause of action. 3. Whether or not the Stipulation of Facts entered into by the parties herein relative to their executed transactions during the hearing of their case a quo, are binding upon them and as well as, upon the public respondent? Our ruling follows: Rule 130, Sec. 7, of the Revised Rules of Court provides: 1 Sec. 7. Evidence of Written Agreements. When the terms of an agreement have been reduced to writing, it is to be considered as containing all such terms, and therefore, there can be, between the parties and their successors in interest, no evidence of the terms of the agreement other than the contents of the writing, except in the following cases: a) When a mistake or imperfection of the writing or its failure to express the true intent and agreement of the parties, or the validity of the agreement is put in issue by the pleadings; b) When there is an intrinsic ambiguity in the writing. The term "agreement" includes wills. The reason for the rule is the presumption that when the parties have reduced their agreement to writing they have made such writing the only repository and memorial of the truth, and whatever is not found in the writing must be understood to have been waived or abandoned. 2 The rule, however, is not applicable in the case at bar, Section 7, Rule 130 is predicated on the existence of a document embodying the terms of an agreement, but Exhibit D does not contain such an agreement. It is only a receipt attesting to the fact that on May 4, 1982, the petitioner received from the private respondent the amount of P35,000. It is not and could have not been intended by the parties to be the sole memorial of their agreement. As a matter of fact, Exhibit D does not even mention the transaction that

gave rise to its issuance. At most, Exhibit D can only be considered a casual memorandum of a transaction between the parties and an acknowledgment of the receipt of money executed by the petitioner for the private respondent's satisfaction. A writing of this nature, as Wigmore observed is not covered by the parol evidence rule. A receipt i.e. a written acknowledgment, handed by one party to the other, of the manual custody of money or other personality will in general fall without the line of the rule; i.e. it is not intended to be an exclusive memorial, and the facts may be shown irrespective of the terms of the receipt. This is because usually a receipt is merely a written admission of a transaction independently existing, and, like other admissions, is not conclusive. 3 The "pakyaw" was mentioned only in Exhibit I, which also declared the petitioner's receipt of the amount of P28,000.00 as consideration for the agreement. The petitioner and his witnesses testified to show when and under what circumstances the amount of P28,000.00 was received. Their testimonies do not in any way vary or contradict the terms of Exhibit I. While Exhibit I is dated May 14, 1982, it does not make any categorical declaration that the amount of P28,000.00 stated therein was received by the petitioner on that same date. That date may not therefore be considered conclusive as to when the amount of P28,000.00 was actually received. A deed is not conclusive evidence of everything it may contain. For instance, it is not the only evidence of the date of its execution, nor its omission of a consideration conclusive evidence that none passed, nor is its acknowledgment of a particular consideration an objection to other proof of other and consistent considerations; and, by analogy, the acknowledgment in a deed is not conclusive of the fact. 4 A distinction should be made between a statement of fact expressed in the instrument and the terms of the contractual act. The former may be varied by parol evidence but not the latter. 5 Section 7 of Rule 130 clearly refers to the terms of an agreement and provides that "there can be, between the parties and their successors in interest, no evidence of the terms of the agreement other than the contents of the writing." The statement in Exhibit I of the petitioner's receipt of the P28,000.00 is just a statement of fact. It is a mere acknowledgment of the distinct act of payment made by the private respondent. Its reference to the amount of P28,000.00 as consideration of the "pakyaw" contract does not make it part of the terms of their agreement. Parol evidence may therefore be introduced to explain Exhibit I, particularly with respect to the petitioner's receipt of the amount of P28,000.00 and of the date when the said amount was received. Even if it were assumed that Exhibits D and I are covered by the parol evidence rule, its application by the Court of Appeals was improper. The record shows that no objection was made by the private respondent when the petitioner introduced evidence to explain the circumstances behind the execution and issuance of the said instruments. The rule is that objections to evidence must be made as soon as the grounds therefor become reasonably apparent. 6 In the case of testimonial evidence, the objection must be made when the objectionable question is asked or after the answer is given if the objectionable features become apparent only by reason of such answer. 7

For failure of the private respondent to object to the evidence introduced by the petitioner, he is deemed to have waived the benefit of the parol evidence rule. Thus, in Abrenica v. Gonda, 8 this Court held: . . . it has been repeatedly laid down as a rule of evidence that a protest or objection against the admission of any evidence must be made at the proper time, and that if not so made it will be understood to have been waived. The proper time to make a protest or objection is when, from the question addressed to the witness, or from the answer thereto, or from the presentation of proof, the inadmissibility of evidence is, or may be inferred. It is also settled that the court cannot disregard evidence which would ordinarily be incompetent under the rules but has been rendered admissible by the failure of a party to object thereto. Thus: . . . The acceptance of an incompetent witness to testify in a civil suit, as well as the allowance of improper questions that may be put to him while on the stand is a matter resting in the discretion of the litigant. He may assert his right by timely objection or he may waive it, expressly or by silence. In any case the option rests with him. Once admitted, the testimony is in the case for what it is worth and the judge has no power to disregard it for the sole reason that it could have been excluded, if it had been objected to, nor to strike it out on its own motion. (Emphasis supplied.) 9 We find that it was error for the Court of Appeals to disregard the parol evidence introduced by the petitioner and to conclude that the amount of P35,000.00 received on May 4, 1982 by the petitioner was in the nature of a loan accommodation. The Court of Appeals should have considered the partial stipulation of facts and the testimonies of the witnesses which sought to explain the circumstances surrounding the execution of Exhibits D and I and their relation to one another. We are satisfied that the amount of P35,000.00 was received by the petitioner as full payment of their "pakyaw" agreement for P28,000.00 and the remaining P7,000.00 as advance rentals for their sublease agreement. The claim that the excess of P7,000.00 was advance payment of the sublease agreement is bolstered by the testimony of the private respondent himself when during the cross examination he testified that: ATTY. CRUZ: Q And during the time you were leasing the fishpond, is it not a fact that you pay lease rental to the defendant? SALONGA: A No sir, because I have already advanced him money. Q What advance money are you referring to? A Thirty-Five Thousand Pesos (P35,000.00), sir. 10 It was also error to treat the amounts received by the petitioner from August 15, 1982, to September 30, 1982, from the private respondent as loan accommodations when the partial stipulation of facts clearly stated that these were payments for the sublease agreement. The pertinent portions read:

7) That defendant Lucio Cruz in compliance with their verbal sublease agreement had received from the plaintiff Conrado Salonga the following sums of money: (Emphasis Supplied.) (a) P8,000.00 on August 15, 1982, as evidenced by Annex "B" of the complaint; (b) the sum of P500.00 on September 4, 1982, as evidenced by Annex "C" of the complaint; (c) the sum of P3,000.00 on September 19, 1982, as evidenced by Annex "D" of the complaint; (d) the sum of P3,750.00 on September 30, 1982, as Annex "E" of the complaint; 11 These admissions bind not only the parties but also the court, unless modified upon request before the trial to prevent manifest injustice. We find, however, that the Court of Appeals did not act in excess of its jurisdiction when it appreciated Exhibit I despite the fact that it was not pleaded as a cause of action and was objected to by the petitioner. According to Rule 10 of the Rules of Court: Sec. 5. Amendment to conform to or authorize presentation of evidence. When issues not raised by the pleadings are tried by express or implied consent of the parties, they shall be treated in all respects, as if they had been raised in the pleadings. Such amendment of the pleadings as may be necessary to cause them to conform to the evidence and to raise these issues may be made upon motion of any party at any time, even after judgment; but failure to amend does not affect the result of the trial of these issues. If evidence is objected to at the trial on the ground that it is not within the issues made by the pleadings, the court may allow the pleadings to be amended and shall do so freely when the presentation of the merits of the action will be subserved thereby and the objecting party fails to satisfy the court that the admission of such evidence would prejudice him in maintaining his action or defense upon the merits. The court may grant a continuance to enable the objecting party to meet such evidence. In Co Tiamco v. Diaz, 12 the Supreme Court held: . . . When evidence is offered on a matter not alleged in the pleadings, the court may admit it even against the objection of the adverse party, when the latter fails to satisfy the court that the admission of the evidence would prejudice him in maintaining his defense upon the merits, and the court may grant him continuance to enable him to meet the situation created by the evidence . . . While it is true that the private respondent did not even file a motion to amend his complaint in order that it could conform to the evidence presented, this did not prevent the court from rendering a valid judgment on the issues proved. As we held in the Co Tiamco case: . . . where the failure to order an amendment does not appear to have caused a surprise or prejudice to the objecting party, it may be allowed as a harmless error. Well-known is the rule that departures from procedure may be forgiven when they do not appear to have impaired the substantial rights of the parties.

The following computation indicates the accountability of the private respondent to the petitioner: Exh. D, May 4, 1982 P35,000.00 Exh. E, Aug. 15, 1982 8,000.00 Exh. F, Sept. 4, 1982 500.00 Exh. G, Sept. 19, 1982 3,000.00 Exh. H, Sept. 30, 1982 3,750.00 Lost receipt P54,250.00 Less: (amount received by the private respondent from the petitioner) Total amount paid by the private respondent to the petitioner 48,250.00 Amount to be paid by the private respondent to the petitioner: 1. Pakyaw P28,000.00 2. Sublease 28,000 per annum Less: 2 months: 4,666 23,334.00 Total amount to be paid by the private respondent to the petitioner P51,334.00 Total amount to be paid by the private respondent P51,334.00 Total amount paid by the private respondent 48,250.00 Deficiency in the amount paid by the private respondent P3,084.00 (6,000.00) 4,000.00

ACCORDINGLY, the decision of the respondent Court of Appeals is REVERSED and that of the Regional Trial Court of Laguna AFFIRMED, with the modification that the private respondent shall pay the petitioner the sum of P3,084.00 instead of P3,054.00, plus costs. It is so ordered. Narvasa, Gancayco, Grio-Aquino and Medialdea, JJ., concur. Endnotes ** The ponente is not related to the petitioner or his counsel. 1. Now Sec. 9, Rule 130, Revised Rules on Evidence, Effective July 1, 1989. 3. PAROL EVIDENCE RULE 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. (7a) 2. Van Sychkel v. Dalrymple, 32 N.J. Eq., 233 cited in Vol. 5, F. Moran, Comments on the Rules of Court 104 (1970 ed.) 3. IX J. Wigmore, Wigmore on Evidence, Sec. 2432 (1940). 4. Baum v. Lynn, 72 Miss. 932, 18 So. 428, cited in IX Wigmore Sec. 2433. 5. Ibid. 6. Section 36, Rule 132, Revised Rules of Court. Now Sec. 36, Rule 132, as amended provides: Sec. 36. Objection. Objection to evidence offered orally must be made immediately after the offer is made. Objection to a question propounded in the course of the oral examination of a witness shall be made as soon as the grounds therefor shall become reasonably apparent. An offer of evidence in writing shall be objected to within three (3) days after notice of the offer unless a different period is allowed by the court.

In any case, the grounds for the objections must be specified. 7. II F. Regalado, Remedial Law Compendium, 435 (5th ed., 1988). 8. 34 Phil. 739. 9. Marella v. Reyes, 12 Phil. 1. 10. TSN, September 28, 1984, pp. 26-27. 11. TSN, August 24, 1984, pp. 14-15. 12. 75 Phil. 672.

Republic of the Philippines SUPREME COURT Manila SECOND DIVISION 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. 100-130, 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 39, 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 thirtysix (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. Feria (Chairman), Fernan, Alampay and Paras, JJ., concur.

[G.R. No. 96405. June 26, 1996]

BALDOMERO INCIONG, JR., petitioner, vs. COURT OF APPEALS and PHILIPPINE BANK OF COMMUNICATIONS, respondents.

SYLLABUS 1. REMEDIAL LAW; EVIDENCE; PAROL EVIDENCE RULE; DOES NOT SPECIFY THAT THE WRITTEN AGREEMENT BE A PUBLIC INSTRUMENT.- Clearly, the rule does not specify that the written agreement be a public document. What is required is that the agreement be in writing as the rule is in fact founded on "long experience that written evidence is so much more certain and accurate than that which rests in fleeting memory only, that it would be unsafe, when parties have expressed the terms of their contract in writing, to admit weaker evidence to control and vary the stronger and to show that the parties intended a different contract from that expressed in the writing signed by them" [FRANCISCO, THE RULES OF COURT OF THE PHILIPPINES, Vol. VII, Part I, 1990 ed., p. 179] Thus, for the parol evidence rule to apply, a written contract need not be in any particular form, or be signed by both parties. As a general rule, bills, notes and other instruments of a similar nature are not subject to be varied or contradicted by parol or extrinsic evidence. 2. CIVIL LAW; OBLIGATIONS; SOLIDARY OR JOINT AND SEVERAL OBLIGATION, DEFINED.- A solidary or joint and several obligation is one in which each debtor is liable for the entire obligation, and each creditor is entitled to demand the whole obligation. [TOLENTINO, CIVIL CODE OF THE PHILIPPINES, Vol. IV, 1991 ed., p. 217] Section 4, Chapter 3, Title 1, Book IV of the Civil Code states the law on joint and several obligations. Under Art. 1207 thereof, when there are two or more debtors in one and the same obligation, the presumption is that the obligation is joint so that each of the debtors is liable only for the proportionate part of the debt. There is a solidary liability only when the obligation expressly so states, when the law so provides or when the nature of the obligation so requires. [Sesbreo v. Court of Appeals, G.R. No. 89252, May 24, 1993, 222 SCRA 466, 481.] 3. ID.; GUARANTY; GUARANTOR AS DISTINGUISHED FROM SOLIDARY DEBTOR.- While a guarantor may bind himself solidarily with the principal debtor, the liability of a guarantor is different from that of a solidary debtor. Thus, Tolentino explains: "A guarantor who binds himself in solidum with the principal debtor under the provisions of the second paragraph does not become a solidary co-debtor to all intents and purposes. There is a difference between a solidary co-debtor, and a fiador in solidum (surety). The latter, outside of the liability he assumes to pay the debt before the property of the principal debtor has been exhausted, retains all the other rights, actions and benefits which pertain to him by reason of the fiansa; while a solidary co-debtor has no other rights than those bestowed upon him in Section 4, Chapter 3, Title 1, Book IV of the Civil Code." [Tolentino, Civil Code of the Philippines, Vol. V, 1992 ed., p. 502] APPEARANCES OF COUNSEL Emilio G. Abrogena for petitioner. Teogenes X. Velez for private respondent. DECISION

ROMERO, J.: This is a petition for review on certiorari of the decision of the Court of Appeals affirming that of the Regional Trial Court of Misamis Oriental, Branch 18,[1] which disposed of Civil Case No. 10507 for collection of a sum of money and damages, as follows: "WHEREFORE, defendant BALDOMERO L. INCIONG, JR. is adjudged solidarily liable and ordered to pay to the plaintiff Philippine Bank of Communications, Cagayan de Oro City, the amount of FIFTY THOUSAND PESOS (P50,000.00),with interest thereon from May 5, 1983 at 16% per annum until fully paid; and 6% per annum on the total amount due, as liquidated damages or penalty from May 5, 1983 until fully paid; plus 10% of the total amount due for expenses of litigation and attorney's fees; and to pay the costs. The counterclaim, as well as the cross claim, are dismissed for lack of merit. SO ORDERED." Petitioner's liability resulted from the promissory note in the amount of P50,000.00 which he signed with Rene C. Naybe and Gregorio D. Pantanosas on February 3, 1983, holding themselves jointly and severally liable to private respondent Philippine Bank of Communications, Cagayan de Oro City branch. The promissory note was due on May 5, 1983. Said due date expired without the promissors having paid their obligation. Consequently, on November 14, 1983 and on June 8, 1984, private respondent sent petitioner telegrams demanding payment thereof.[2] On December 11, 1984 private respondent also sent by registered mail a final letter of demand to Rene C. Naybe. Since both obligors did not respond to the demands made, private respondent filed on January 24, 1986 a complaint for collection of the sum of P50,000.00 against the three obligors. On November 25, 1986, the complaint was dismissed for failure of the plaintiff to prosecute the case. However, on January 9, 1987, the lower court reconsidered the dismissal order and required the sheriff to serve the summonses. On January 27, 1987, the lower court dismissed the case against defendant Pantanosas as prayed for by the private respondent herein. Meanwhile, only the summons addressed to petitioner was served as the sheriff learned that defendant Naybe had gone to Saudi Arabia. In his answer, petitioner alleged that sometime in January 1983, he was approached by his friend, Rudy Campos, who told him that he was a partner of Pio Tio, the branch manager of private respondent in Cagayan de Oro City, in the falcata logs operation business. Campos also intimated to him that Rene C. Naybe was interested in the business and would contribute a chainsaw to the venture. He added that, although Naybe had no money to buy the equipment Pio Tio had assured Naybe of the approval of a loan he would make with private respondent. Campos then persuaded petitioner to act as a "co-maker" in the said loan. Petitioner allegedly acceded but with the understanding that he would only be a co-maker for the loan of P5,000.00. Petitioner alleged further that five (5) copies of a blank promissory note were brought to him by Campos at his office. He affixed his signature thereto but in one copy,

he indicated that he bound himself only for the amount of P5,000.00. Thus, it was by trickery, fraud and misrepresentation that he was made liable for the amount of P50,000.00. In the aforementioned decision of the lower court, it noted that the typewritten figure "P50,000-" clearly appears directly below the admitted signature of the petitioner in the promissory note.[3] Hence, the latter's uncorroborated testimony on his limited liability cannot prevail over the presumed regularity and fairness of the transaction, under Sec. 5 (q) of Rule 131. The lower court added that it was "rather odd" for petitioner to have indicated in a copy and not in the original, of the promissory note, his supposed obligation in the amount of P5,000.00 only. Finally, the lower court held that even granting that said limited amount had actually been agreed upon, the same would have been merely collateral between him and Naybe and, therefore, not binding upon the private respondent as creditor-bank. The lower court also noted that petitioner was a holder of a Bachelor of Laws degree and a labor consultant who was supposed to take due care of his concerns, and that, on the witness stand, Pio Tio denied having participated in the alleged business venture although he knew for a fact that the falcata logs operation was encouraged by the bank for its export potential. Petitioner appealed the said decision to the Court of Appeals which, in its decision of August 31, 1990, affirmed that of the lower court. His motion for reconsideration of the said decision having been denied, he filed the instant petition for review on certiorari. On February 6,1991, the Court denied the petition for failure of petitioner to comply with the Rules of Court and paragraph 2 of Circular No. 1-88, and to sufficiently show that respondent court had committed any reversible error in its questioned decision. [4] His motion for the reconsideration of the denial of his petition was likewise denied with finality in the Resolution of April 24, 1991.[5] Thereafter, petitioner filed a motion for leave to file a second motion for reconsideration which, in the Resolution of May 27, 1991, the Court denied. In the same Resolution, the Court ordered the entry of judgment in this case.[6] Unfazed, petitioner filed a motion for leave to file a motion for clarification. In the latter motion, he asserted that he had attached Registry Receipt No. 3268 to page 14 of the petition in compliance with Circular No. 1-88. Thus, on August 7,1991, the Court granted his prayer that his petition be given due course and reinstated the same.[7] Nonetheless, we find the petition unmeritorious. Annexed to the petition is a copy of an affidavit executed on May 3, 1988, or after the rendition of the decision of the lower court, by Gregorio Pantanosas, Jr., an MTCC judge and petitioner's co-maker in the promissory note. It supports petitioner's allegation that they were induced to sign the promissory note on the belief that it was only for P5,000.00, adding that it was Campos who caused the amount of the loan to be increased to P50,000.00.

The affidavit is clearly intended to buttress petitioner's contention in the instant petition that the Court of Appeals should have declared the promissory note null and void on the following grounds: (a) the promissory note was signed in the office of Judge Pantanosas, outside the premises of the bank; (b) the loan was incurred for the purpose of buying a second-hand chainsaw which cost only P5,000.00; (c) even a new chainsaw would cost only P27,500.00; (d) the loan was not approved by the board or credit committee which was the practice, at it exceeded P5,000.00; (e) the loan had no collateral; (f) petitioner and Judge Pantanosas were not present at the time the loan was released in contravention of the bank practice, and (g) notices of default are sent simultaneously and separately but no notice was validly sent to him.[8] Finally, petitioner contends that in signing the promissory note, his consent was vitiated by fraud as, contrary to their agreement that the loan was only for the amount of P5,000. 00, the promissory note stated the amount of P50,000.00. The above-stated points are clearly factual. Petitioner is to be reminded of the basic rule that this Court is not a trier of facts. Having lost the chance to fully ventilate his factual claims below, petitioner may no longer be accorded the same opportunity in the absence of grave abuse of discretion on the part of the court below. Had he presented Judge Pantanosas' affidavit before the lower court, it would have strengthened his claim that the promissory note did not reflect the correct amount of the loan. Nor is there merit in petitioner's assertion that since the promissory note "is not a public deed with the formalities prescribed by law but x x x a mere commercial paper which does not bear the signature of x x x attesting witnesses," parol evidence may "overcome" the contents of the promissory note.[9] The first paragraph of the parol evidence rule[10] states: "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." Clearly, the rule does not specify that the written agreement be a public document. What is required is that agreement be in writing as the rule is in fact founded on "long experience that written evidence is so much more certain and accurate than that which rests in fleeting memory only, that it would be unsafe, when parties have expressed the terms of their contract in writing, to admit weaker evidence to control and vary the stronger and to show that the parties intended a different contract from that expressed in the writing signed by them."[11] Thus, for the parol evidence rule to apply, a written contract need not be in any particular form, or be signed by both parties. [12] As a general rule, bills, notes and other instruments of a similar nature are not subject to be varied or contradicted by parol or extrinsic evidence.[13] By alleging fraud in his answer,[14] petitioner was actually in the right direction towards proving that he and his co-makers agreed to a loan of P5,000.00 only considering that, where a parol contemporaneous agreement was the inducing and moving cause of the written contract, it may be shown by parol evidence.[15] However,

fraud must be established by clear and convincing evidence, mere preponderance of evidence, not even being adequate.[16] Petitioner's attempt to prove fraud must, therefore, fail as it was evidenced only by his own uncorroborated and, expectedly, selfserving testimony. Petitioner also argues that the dismissal of the complaint against Naybe, the principal debtor, and against Pantanosas, his co-maker, constituted a release of his obligation, especially because the dismissal of the case against Pantanosas was upon the motion of private respondent itself. He cites as basis for his argument, Article 2080 of the Civil Code which provides that: "The guarantors, even though they be solidary, are released from their obligation whenever by some act of the creditor, they cannot be subrogated to the rights, mortgages, and preferences of the latter." It is to be noted, however, that petitioner signed the promissory note as a solidary co-maker and not as a guarantor. This is patent even from the first sentence of the promissory note which states as follows: "Ninety one (91) days after date, for value received, I/we, JOINTLY and SEVERALLY promise to pay to the PHILIPPINE BANK OF COMMUNICATIONS at its office in the City of Cagayan de Oro, Philippines the sum of FIFTY THOUSAND ONLY (P50,000. 00) Pesos, Philippine Currency, together with interest x x x at the rate of SIXTEEN (16) per cent per annum until fully paid." A solidary or joint and several obligation is one in which each debtor is liable for the entire obligation, and each creditor is entitled to demand the whole obligation.[17] On the other hand, Article 2047 of the Civil Code states: "By guaranty a person, called the guarantor, binds himself to the creditor to fulfill the obligation of the principal debtor in case the latter should fail to do so. If a person binds himself solidarily with the principal debtor, the provisions of Section 4, Chapter 3, Title I of this Book shall be observed, In such a case the contract is called a suretyship." (Italics supplied.) While a guarantor may bind himself solidarily with the principal debtor, the liability of a guarantor is different from that of a solidary debtor. Thus, Tolentino explains: "A guarantor who binds himself in solidum with the principal debtor under the provisions of the second paragraph does not become a solidary co-debtor to all intents and purposes. There is a difference between a solidary co-debtor, and a fiador in solidum (surety). The later, outside of the liability he assumes to pay the debt before the property of the principal debtor has been exhausted, retains all the other rights, actions and benefits which pertain to him by reason of the fiansa; while a solidary codebtor has no other rights than those bestowed upon him in Section 4, Chapter 3, title I, Book IV of the Civil Code."[18] Section 4, Chapter 3, Title I, Book IV of the Civil Code states the law on joint and several obligations. Under Art. 1207 thereof, when there are two or more debtors in one and the same obligation, the presumption is that the obligation is joint so that each of the debtors is liable only for a proportionate part of the debt. There is a solidarity liability

only when the obligation expressly so states, when the law so provides or when the nature of the obligation so requires.[19] Because the promissory note involved in this case expressly states that the three signatories therein are jointly and severally liable, any one, some or all of them may be proceeded against for the entire obligation.[20] The choice is left to the solidary creditor to determine against whom he will enforce collection.[21] Consequently, the dismissal of the case against Judge Pontanosas may not be deemed as having discharged petitioner from liability as well. As regards Naybe, suffice it to say that the court never acquired jurisdiction over him. Petitioner, therefore, may only have recourse against his comakers, as provided by law. WHEREFORE, the instant petition for review on certiorari is hereby DENIED and the questioned decision of the Court of Appeals is AFFIRMED. Costs against petitioner. SO ORDERED. Regalado (Chairman), Puno, Mendoza, and Torres, Jr., JJ., concur.
THIRD DIVISION [G.R. No. 107372. January 23, 1997] RAFAEL S. ORTAEZ, petitioner, vs. THE COURT OF APPEALS, OSCAR INOCENTES, AND ASUNCION LLANES INOCENTES,respondents. RESOLUTION FRANCISCO, J.: On September 30, 1982, private respondents sold to petitioner two (2) parcels of registered land in Quezon City for a consideration of P35,000.00 and P20,000.00, respectively. The first deed of absolute sale covering Transfer Certificate of Title (TCT) No. 258628 provides in part: "That for and in consideration of the sum of THIRTY FIVE THOUSAND (P35,000.00) PESOS, receipt of which in full is hereby acknowledged, we have sold, transferred and conveyed, as we hereby sell, transfer and convey, that subdivided portion of the property covered by TCT No. 258628 known as Lot No. 684-G-1-B-2 in favor of RAFAEL S. ORTANEZ, of legal age, Filipino. whose marriage is under a regime of complete separation of property, and a resident of 942 Aurora Blvd., Quezon City, his heirs or assigns."[1] while the second deed of absolute sale covering TCT No. 243273 provides: "That for and in consideration of the sum of TWENTY THOUSAND (P20,000.00) PESOS receipt of which in full is hereby acknowledged, we have sold, transferred and conveyed, as we hereby sell, transfer and convey, that consolidated-subdivided portion of the property covered by TCT No. 243273 known as Lot No. 5 in favor of RAFAEL S. ORTANEZ, of legal age, Filipino, whose marriage is under a regime of complete separation of property, and a resident of 942 Aurora Blvd., Cubao, Quezon City his heirs or assigns.[2] Private respondents received the payments for the above-mentioned lots, but failed to deliver the titles to petitioner. On April 9, 1990 the latter demanded from the former the delivery of said titles.[3] Private respondents, however, refused on the ground that the title of the first lot is

in the possession of another person,[4] and petitioner's acquisition of the title of the other lot is subject to certain conditions. Offshoot, petitioner sued private respondents for specific performance before the RTC. In their answer with counterclaim private respondents merely alleged the existence of the following oral conditions[5] which were never reflected in the deeds of sale:[6] "3.3.2 Title to the other property (TCT No. 243273) remains with the defendants (private respondents) until plaintiff (petitioner) shows proof that all the following requirements have been met: (i) Plaintiff will cause the segregation of his right of way amounting to 398 sq. m.; (ii) Plaintiff will submit to the defendants the approved plan for the segregation; (iii) Plaintiff will put up a strong wall between his property and that of defendants' lot to segregate his right of way; (iv) Plaintiff will pay the capital gains tax and all other expenses that may be incurred by reason of sale. x x x." During trial, private respondent Oscar Inocentes, a former judge, orally testified that the sale was subject to the above conditions,[7] although such conditions were not incorporated in the deeds of sale. Despite petitioner's timely objections on the ground that the introduction of said oral conditions was barred by the parol evidence rule, the lower court nonetheless, admitted them and eventually dismissed the complaint as well as the counterclaim. On appeal, the Court of Appeals (CA) affirmed the court a quo. Hence, this petition. We are tasked to resolve the issue on the admissibility of parol evidence to establish the alleged oral conditions-precedent to a contract of sale, when the deeds of sale are silent on such conditions. The parol evidence herein introduced is inadmissible. First, private respondents' oral testimony on the alleged conditions, coming from a party who has an interest in the outcome of the case, depending exclusively on human memory, is not as reliable as written or documentary evidence.[8] Spoken words could be notoriously unreliable unlike a written contract which speaks of a uniform language.[9] Thus, under the general rule in Section 9 of Rule 130[10] of the Rules of Court, when the terms of an agreement were reduced to writing, as in this case, it is deemed to contain all the terms agreed upon and no evidence of such terms can be admitted other than the contents thereof.[11] Considering that the written deeds of sale were the only repository of the truth, whatever is not found in said instruments must have been waived and abandoned by the parties.[12] Examining the deeds of sale, we cannot even make an inference that the sale was subject to any condition. As a contract, it is the law between the parties.[13] Secondly, to buttress their argument, private respondents rely on the case of Land Settlement Development, Co. vs. Garcia Plantation[14] where the Court ruled that a condition precedent to a contract may be established by parol evidence. However, the material facts of that case are different from this case. In the former, the contract sought to be enforced[15] expressly stated that it is subject to an agreement containing the conditionsprecedent which were proven through parol evidence. Whereas, the deeds of sale in this case,

made no reference to any pre- conditions or other agreement. In fact, the sale is denominated as absolute in its own terms. Third, the parol evidence herein sought to be introduced would vary, contradict or defeat the operation of a valid instrument,[16] hence, contrary to the rule that: The parol evidence rule forbids any addition to x x x the terms of a written instrument by testimony purporting to show that, at or before the signing of the document, other or different terms were orally agreed upon by the parties.[17] 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." [18] No such fraud or mistake exists in this case. Fourth, we disagree with private respondents' argument that their parol evidence is admissible under the exceptions provided by the Rules, specifically, the alleged failure of the agreement to express the true intent of the parties. Such exception obtains only in the following instance: "[W]here 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." [19] In this case, the deeds of sale are clear, without any ambiguity, mistake or imperfection, much less obscurity or doubt in the terms thereof. Fifth, we are not persuaded by private respondents contention that they "put in issue by the pleadings" the failure of the written agreement to express the true intent of the parties. Record shows[20] that private respondents did not expressly plead that the deeds of sale were incomplete or that it did not reflect the intention[21] of the buyer (petitioner) and the seller (private respondents). Such issue must be "squarely presented."[22] Private respondents merely alleged that the sale was subject to four (4) conditions which they tried to prove during trial by parol evidence.[23] Obviously, this cannot be done, because they did not plead any of the exceptions mentioned in the parol evidence rule.[24] Their case is covered by the general rule that the contents of the writing are the only repository of the terms of the agreement. Considering that private respondent Oscar Inocentes is a lawyer (and former judge) he was "supposed to be steeped in legal knowledge and practices" and was "expected to know the consequences"[25] of his signing a deed of absolute sale. Had he given an iota's attention to scrutinize the deeds, he would have incorporated important stipulations that the transfer of title to said lots were conditional.[26] One last thing, assuming arguendo that the parol evidence is admissible, it should nonetheless be disbelieved as no other evidence appears from the record to sustain the existence of the alleged conditions. Not even the other seller, Asuncion Inocentes, was presented to testify on such conditions. ACCORDINGLY, the appealed decision is REVERSED and the records of this case REMANDED to the trial court for proper disposition in accordance with this ruling.

SO ORDERED. Narvasa, C.J., (Chairman), Davide, Jr., Melo, and Panganiban, JJ., concur. THIRD DIVISION [G.R. No. 137232. June 29, 2005] ROSARIO TEXTILE MILLS CORPORATION and EDILBERTO YUJUICO, petitioners, vs. HOME BANKERS SAVINGS AND TRUST COMPANY, respondent. DECISION SANDOVAL-GUTIERREZ, J.: For our resolution is the petition for review on certiorari assailing the Decision[1] of the Court of Appeals dated March 31, 1998 in CA-G.R. CV No. 48708 and its Resolution dated January 12, 1999. The facts of the case as found by the Court of Appeals are: Sometime in 1989, Rosario Textile Mills Corporation (RTMC) applied from Home Bankers Savings & Trust Co. for an Omnibus Credit Line for P10 million. The bank approved RTMCs credit line but for only P8 million. The bank notified RTMC of the grant of the said loan thru a letter dated March 2, 1989 which contains terms and conditions conformed by RTMC thru Edilberto V. Yujuico. On March 3, 1989, Yujuico signed a Surety Agreement in favor of the bank, in which he bound himself jointly and severally with RTMC for the payment of all RTMCs indebtedness to the bank from 1989 to 1990. RTMC availed of the credit line by making numerous drawdowns, each drawdown being covered by a separate promissory note and trust receipt. RTMC, represented by Yujuico, executed in favor of the bank a total of eleven (11) promissory notes. Despite the lapse of the respective due dates under the promissory notes and notwithstanding the banks demand letters, RTMC failed to pay its loans. Hence, on January 22, 1993, the bank filed a complaint for sum of money against RTMC and Yujuico before the Regional Trial Court, Br. 16, Manila. In their answer (OR, pp. 44-47), RTMC and Yujuico contend that they should be absolved from liability. They claimed that although the grant of the credit line and the execution of the suretyship agreement are admitted, the bank gave assurance that the suretyship agreement was merely a formality under which Yujuico will not be personally liable. They argue that the importation of raw materials under the credit line was with a grant of option to them to turn-over to the bank the imported raw materials should these fail to meet their manufacturing requirements. RTMC offered to make such turn-over since the imported materials did not conform to the required specifications. However, the bank refused to accept the same, until the materials were destroyed by a fire which gutted down RTMCs premises. For failure of the parties to amicably settle the case, trial on the merits proceeded. After the trial, the Court a quo rendered a decision in favor of the bank, the decretal part of which reads: WHEREFORE, PREMISES CONSIDERED, judgment is hereby rendered in favor of plaintiff and against defendants who are ordered to pay jointly and severally in favor of plaintiff, inclusive

of stipulated 30% per annum interest and penalty of 3% per month until fully paid, under the following promissory notes: P737,088.25 9-18-90 (maturity) 90-1320 7-13-90 P650,000.00 10-11-90 90-1334 7-17-90 P422,500.00 10-15-90 90-1335 7-17-90 P422,500.00 10-15-90 90-1347 7-18-90 P795,000.00 10-16-90 90-1373 7-20-90 P715,900.00 10-18-90 90-1397 7-27-90 P773,500.00 10-20-90 90-1429 7-26-90 P425,750.00 10-24-90 90-1540 8-7-90 P720,984.00 11-5-90 90-1569 8-9-90 P209,433.75 11-8-90 90-0922 5-28-90 P747,780.00 8-26-90 The counterclaims of defendants are hereby DISMISSED. SO ORDERED. (OR, p. 323; Rollo, p. 73).[2] Dissatisfied, RTMC and Yujuico, herein petitioners, appealed to the Court of Appeals, contending that under the trust receipt contracts between the parties, they merely held the goods described therein in trust for respondent Home Bankers Savings and Trust Company (the bank) which owns the same. Since the ownership of the goods remains with the bank, then it should bear the loss. With the destruction of the goods by fire, petitioners should have been relieved of any obligation to pay. The Court of Appeals, however, affirmed the trial courts judgment, holding that the bank is merely the holder of the security for its advance payments to petitioners; and that the goods they purchased, through the credit line extended by the bank, belong to them and hold said goods at their own risk. Petitioners then filed a motion for reconsideration but this was denied by the Appellate Court in its Resolution dated January 12, 1999. Hence, this petition for review on certiorari ascribing to the Court of Appeals the following errors: I THE HONORABLE COURT OF APPEALS ERRED IN NOT HOLDING THAT THE ACTS OF THE PETITIONERS-DEFENDANTS WERE TANTAMOUNT TO A VALID AND EFFECTIVE TENDER OF THE GOODS TO THE RESPONDENT-PLAINTIFF. II THE HONORABLE COURT OF APPEALS ERRED IN NOT APPLYING THE DOCTRINE OF RES PERIT DOMINO IN THE CASE AT BAR CONSIDERING THE VALID AND EFFECTIVE TENDER OF THE DEFECTIVE RAW MATERIALS BY THE PETITIONERS-DEFENDANTS TO THE RESPONDENT-PLAINTIFF AND THE EXPRESS STIPULATION IN THEIR CONTRACT THAT OWNERSHIP OF THE GOODS REMAINS WITH THE RESPONDENT-PLAINTIFF. 90-1116 6-20-90

III THE HONORABLE COURT OF APPEALS VIOLATED ARTICLE 1370 OF THE CIVIL CODE AND THE LONG-STANDING JURISPRUDENCE THAT INTENTION OF THE PARTIES IS PRIMORDIAL IN ITS FAILURE TO UPHOLD THE INTENTION OF THE PARTIES THAT THE SURETY AGREEMENT WAS A MERE FORMALITY AND DID NOT INTEND TO HOLD PETITIONER YUJUICO LIABLE UNDER THE SAME SURETY AGREEMENT. IV ASSUMING ARGUENDO THAT THE SURETYSHIP AGREEMENT WAS VALID AND EFFECTIVE, THE HONORABLE COURT OF APPEALS VIOLATED THE BASIC LEGAL PRECEPT THAT A SURETY IS NOT LIABLE UNLESS THE DEBTOR IS HIMSELF LIABLE. V THE HONORABLE COURT OF APPEALS VIOLATED THE PURPOSE OF TRUST RECEIPT LAW IN HOLDING THE PETITIONERS LIABLE TO THE RESPONDENT. The above assigned errors boil down to the following issues: (1) whether the Court of Appeals erred in holding that petitioners are not relieved of their obligation to pay their loan after they tried to tender the goods to the bank which refused to accept the same, and which goods were subsequently lost in a fire; (2) whether the Court of Appeals erred when it ruled that petitioners are solidarily liable for the payment of their obligations to the bank; and (3) whether the Court of Appeals violated the Trust Receipts Law. On the first issue, petitioners theorize that when petitioner RTMC imported the raw materials needed for its manufacture, using the credit line, it was merely acting on behalf of the bank, the true owner of the goods by virtue of the trust receipts. Hence, under the doctrine of res perit domino, the bank took the risk of the loss of said raw materials. RTMCs role in the transaction was that of end user of the raw materials and when it did not accept those materials as they did not meet the manufacturing requirements, RTMC made a valid and effective tender of the goods to the bank. Since the bank refused to accept the raw materials, RTMC stored them in its warehouse. When the warehouse and its contents were gutted by fire, petitioners obligation to the bank was accordingly extinguished. Petitioners stance, however, conveniently ignores the true nature of its transaction with the bank. We recall that RTMC filed with the bank an application for a credit line in the amount of P10 million, but only P8 million was approved. RTMC then made withdrawals from this credit line and issued several promissory notes in favor of the bank. In banking and commerce, a credit line is that amount of money or merchandise which a banker, merchant, or supplier agrees to supply to a person on credit and generally agreed to in advance. [3]It is the fixed limit of credit granted by a bank, retailer, or credit card issuer to a customer, to the full extent of which the latter may avail himself of his dealings with the former but which he must not exceed and is usually intended to cover a series of transactions in which case, when the customers line of credit is nearly exhausted, he is expected to reduce his indebtedness by payments before making any further drawings.[4] It is thus clear that the principal transaction between petitioner RTMC and the bank is a contract of loan. RTMC used the proceeds of this loan to purchase raw materials from a supplier abroad. In order to secure the payment of the loan, RTMC delivered the raw materials

to the bank as collateral. Trust receipts were executed by the parties to evidence this security arrangement. Simply stated, the trust receipts were mere securities. In Samo vs. People,[5] we described a trust receipt as a security transaction intended to aid in financing importers and retail dealers who do not have sufficient funds or resources to finance the importation or purchase of merchandise, and who may not be able to acquire credit except through utilization, as collateral, of the merchandise imported or purchased.[6] In Vintola vs. Insular Bank of Asia and America,[7] we elucidated further that a trust receipt, therefore, is a security agreement, pursuant to which a bank acquires a security interest in the goods. It secures an indebtedness and there can be no such thing as security interest that secures no obligation.[8] Section 3 (h) of the Trust Receipts Law (P.D. No. 115) defines a security interest as follows: (h) Security Interest means a property interest in goods, documents, or instruments to secure performance of some obligation of the entrustee or of some third persons to the entruster and includes title, whether or not expressed to be absolute, whenever such title is in substance taken or retained for security only. Petitioners insistence that the ownership of the raw materials remained with the bank is untenable. In Sia vs. People,[9] Abad vs. Court of Appeals,[10] and PNB vs. Pineda,[11]we held that: If under the trust receipt, the bank is made to appear as the owner, it was but an artificial expedient, more of legal fiction than fact, for if it were really so, it could dispose of the goods in any manner it wants, which it cannot do, just to give consistency with purpose of the trust receipt of giving a stronger security for the loan obtained by the importer. To consider the bank as the true owner from the inception of the transaction would be to disregard the loan feature thereof...[12] Thus, petitioners cannot be relieved of their obligation to pay their loan in favor of the bank. Anent the second issue, petitioner Yujuico contends that the suretyship agreement he signed does not bind him, the same being a mere formality. We reject petitioner Yujuicos contentions for two reasons. First, there is no record to support his allegation that the surety agreement is a mere formality; and Second, as correctly held by the Court of Appeals, the Suretyship Agreement signed by petitioner Yujuico binds him. The terms clearly show that he agreed to pay the bank jointly and severally with RTMC. The parole evidence rule under Section 9, Rule 130 of the Revised Rules of Court is in point, thus: SEC. 9. Evidence of written agreements. When the terms of an 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 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) (c) (d)

The failure of the written agreement to express the true intent and agreement of the parties thereto; The validity of the written agreement; or The existence of other terms agreed to by the parties or their successors in interest after the execution of the written agreement.

x x x. Under this Rule, the terms of a contract are rendered conclusive upon the parties and evidence aliunde is not admissible to vary or contradict a complete and enforceable agreement embodied in a document.[13] We have carefully examined the Suretyship Agreement signed by Yujuico and found no ambiguity therein. Documents must be taken as explaining all the terms of the agreement between the parties when there appears to be no ambiguity in the language of said documents nor any failure to express the true intent and agreement of the parties.[14] As to the third and final issue At the risk of being repetitious, we stress that the contract between the parties is a loan. What respondent bank sought to collect as creditor was the loan it granted to petitioners. Petitioners recourse is to sue their supplier, if indeed the materials were defective. WHEREFORE, the petition is DENIED. The assailed Decision and Resolution of the Court of Appeals in CA-G.R. CV No. 48708 are AFFIRMED IN TOTO. Costs against petitioners. SO ORDERED. Panganiban, (Chairman), Corona, Carpio-Morales, and Garcia, JJ., concur. THIRD DIVISION [G.R. No. 142944. April 15, 2005] EDENBERT MADRIGAL AND VIRGILIO MALLARI, petitioners, vs. THE COURT OF APPEALS AND JOSE MALLARI, respondents. DECISION GARCIA, J.: Under consideration is this appeal by way of a petition for review on certiorari under Rule 45 of the Rules of Court to nullify and set aside the following issuances of the Court of Appeals in CA-G.R. CV No. 45488, to wit: 1. Decision dated 15 October 1999,[1] affirming an earlier decision of the Regional Trial Court at Olongapo City in a suit for annulment, redemption and damages with prayer for preliminary injunction and/or temporary restraining order, thereat commenced by the herein private respondent against the petitioners; and 2. Resolution dated 10 April 2000,[2] denying petitioners motion for reconsideration. The case is cast against the following factual backdrop: Private respondent Jose Mallari and his wife Fermina Mallari are the owners of a 340square meter residential lot with a 2-storey residential house erected thereon, situated at Olongapo City. The couple had ten (10) children, five (5) of whom are staying with them in the same house while the other five (5) are either residing abroad or elsewhere in the Philippines.

In need of money for his wifes planned travel to the United States, Jose thought of mortgaging the above property with a bank. However, his son Virgilio Mallari who is residing with his own family somewhere in San Ildefonso, Bulacan convinced Jose not to proceed with the intended mortgage and to instead assign to him a portion of the same property, assuring his father that the latter could continue in occupancy of the property and that he will allow his sister Elizabeth who operates a store thereat to continue with the same. Virgilio told his father, however, that he will occupy one of the rooms in the house in case he goes to Olongapo City on vacation and that he will renovate the other room and reserve it for his mother when she comes back from the States. Virgilio assured his father that he will not dispose of the property without his fathers consent and that the latter could redeem the said property any time he acquires money. And so, finding no reason to doubt Virgilios words, Jose did not anymore proceed with his original idea of mortgaging the property with a bank. Instead, on 22 October 1987, he and his wife Fermina executed a document denominated as Deed of Absolute Sale, whereunder the couple appeared to have conveyed to their son Virgilio Mallari the house and lot in question for a consideration of P50,000.00 although the property easily commands much more at that time. Worse, the deed of conveyance described the properties sold as a one-storey residential house and the 135-square meter lot whereon it stands even as the subject properties actually consist of a 2-storey residential house sitting on a 340-square meter parcel of land. Things turned for the worse to the unsuspecting Jose Mallari when, without his knowledge, his son Virgilio, via a document bearing date 25 June 1988 and entitled Kasulatan ng Bilihang Tuluyan, sold the same property for the same amount of P50,000.00 to Edenbert Madrigal, a longtime neighbor of the Mallaris in the area. True enough, sometime thereafter, to Joses great shock, he was demanded by Edenbert Madrigal to vacate the subject property. It was then that Jose came to know for the first time of the sale of his property by his son Virgilio in favor of Edenbert Madrigal thru the aforementioned June 25, 1988 Kasulatan ng Bilihang Tuluyan. It was against the foregoing backdrop of events when, on 7 September 1988, in the Regional Trial Court at Olongapo City, Jose Mallari filed against his son Virgilio Mallari and Edenbert Madrigal the complaint for annulment, redemption and damages with prayer for preliminary injunction/temporary restraining order in this case. In his complaint, docketed in the same court as Civil Case No. 481-0-88 and raffled to Branch 72 thereof, plaintiff Jose Mallari prayed that the Deed of Absolute Sale executed by him and his wife Fermina on 22 October 1987 in favor of their son Virgilio Mallari be declared null and void, or, in the alternative, that he be allowed to redeem the subject property at a reasonable price. He likewise prayed the court for a writ of preliminary injunction and/or to issue ex parte a temporary restraining order enjoining defendants Virgilio Mallari and Edenbert Madrigal from entering, demolishing or introducing improvements on the subject properties, plus an award of actual and moral damages and attorneys fees. After due proceedings, the trial court, in a decision dated 29 September 1993,[3] rendered judgment for plaintiff Jose Mallari by ordering defendant Edenbert Madrigal to allow the former to redeem the subject property based on the same amount it was sold to him by his codefendant Virgilio Mallari, and for the two (2) defendants jointly and severally to pay plaintiff

Jose Mallari moral and exemplary damages, attorneys fees and the cost of suit. More specifically, the trial courts decision dispositively reads: PREMISES CONSIDERED, this Court finds and so holds that since plaintiff has sufficiently established preponderance of evidence against the defendants, judgment is hereby rendered ordering defendant Edenbert Madrigal to allow plaintiff to redeem the subject property based on the consideration of sale marked as Exhibit B; and for defendants jointly and severally to pay plaintiff (1) moral damages in the sum of P15,000.00; (2) exemplary damages of P5,000.00; (3) P10,000.00 as attorneys fees; and (4) to pay the cost of suit. All claims of defendants are denied for lack of merit. SO ORDERED. Obviously dissatisfied, both defendants went on appeal to the Court of Appeals whereat their recourse was docketed as CA-G.R. CV No. 45488. As stated at threshold hereof, the Court of Appeals, in a decision dated 15 October 1999, [4] affirmed en toto the appealed decision of the trial court, thus: WHEREFORE, finding that the lower court did not err in issuing the assailed Decision, this Court hereby AFFIRMS the same in its entirety. SO ORDERED. In time, appellants Virgilio Mallari and Edenbert Madrigal moved for a reconsideration but their motion was denied by the appellate court in its Resolution of 10 April 2000.[5] Hence, their present recourse, submitting for our consideration the following issues: I WHETHER OR NOT THE COURT OF APPEALS ERRED IN RULING THAT THE QUESTIONED DEED OF SALE IS A MORTGAGE II WHETHER OR NOT THE COURT OF APPEALS ERRED IN NOT RULING THAT PETITIONER EDENBERT MADRIGAL WAS A BUYER ON (sic) GOOD FAITH III WHETHER OR NOT THE COURT OF APPEALS ERRED IN AFFIRMING THE TRIAL COURTS DECISION AWARDING MORAL, EXEMPLARY DAMAGES AND ATTORNEYS FEES IN FAVOR OF PRIVATE RESPONDENT We DENY. Petitioners fault the two (2) courts below for construing the Deed of Absolute Sale executed by private respondent Jose Mallari and his wife Fermina Mallari in favor of their son Virgilio Mallari as an equitable mortgage and not as an outright sale as the document itself proclaims. We rule and so hold that both courts correctly construed the aforementioned Deed of Absolute Sale as an equitable mortgage and not a sale, as it purports to be. As aptly pointed out

by the Court of Appeals in its assailed decision of 15 October 1999, to which we are in full accord: xxx. Evidence clearly shows that there was indeed no intent to sell the subject property. Rather, what transpired between the parties, who were father and son, was only a mortgage involving P50,000.00 over a portion of a lot with a house in Olongapo City. Circumstances surrounding the transaction between [respondent Jose Mallari] and [petitioner] Virgilio Mallari pointed only to one thing, that [respondent Jose Mallari] was in need of money to finance the US trip of his wife and he planned to mortgage the subject property with a bank but he was prevailed by his son, herein [petitioner] Virgilio Mallari, not to proceed with his plan and he gave a tempting offer to his father which the latter cannot refuse. In dire need of money, coupled with the fact that the one who offered help was his son who agreed to all the conditions such as, the property will not be disposed without the consent of [respondent]; petitioner [Virgilio Mallari]will renovate a room which will be used by his mother upon her return from the US; [petitioner Virgilio Mallari] will allow his sister to continue using a portion of the property as a store; one room will be for [petitioner Virgilio Mallaris] use while on vacation; and [respondent Jose Mallari] would redeem the property as soon as his finances will improve and for [petitioner Virgilio Mallari] to return the same, [respondent Jose Mallari] signed a document, a Deed of Sale, although the agreement was only a mortgage. The consideration appearing in the Deed of Sale is grossly inadequate considering the location of the property, the area and the fact that it was a two-storey building or house. If the intention was really to sell, why was there a need for [petitioner Virgilio Mallari] to seek the consent of [respondent Jose Mallari] if the property will be sold to third person? Consistent with their thesis that the aforesaid Deed of Absolute Sale executed by Virgilios parents is clearly a document of sale as its very language unmistakably states, petitioners fault the trial court for receiving parol evidence to establish that the instrument in question is actually one of equitable mortgage. Indirectly, petitioners also put the Court of Appeals to task for giving weight to those evidence instead of rejecting them, conformably with the Parol Evidence Rule under Section 9, Rule 130 of the Rules of Court. We are not persuaded. To begin with, we cannot view the Deed of Absolute Sale in question in isolation of the circumstances under which the same was executed by Virgilios parents, more so in the light of his fathers disavowal of what the document, on its face, purports to state. Then, too, there is the ruling of this Court in Lustan vs. CA[6] to the effect that even if the document appears to be a sale, parol evidence may be resorted to if the same does not express the true intent of the parties. In the very words of Lustan: Even when a document appears on its face to be a sale, the owner of the property may prove that the contract is really a loan with mortgage by raising as an issue the fact that the document does not express the true intent of the parties. In this case, parol evidence then becomes competent and admissible to prove that the instrument was in truth and in fact given merely as a security for the repayment of a loan. And upon proof of the truth of such allegations, the court will enforce the agreement or understanding in consonance with the true intent of the parties at the time of the execution of the contract.

In any event, at bottom of petitioners first submission is their inability to accept the factual findings of the two (2) courts below that the transaction between petitioner Virgilio Mallari and his parents, albeit denominated as one of absolute sale, is in reality an equitable mortgage. In short, petitioners would want us to revisit the factual findings of both courts, scrutinize and examine those findings anew and calibrate the validity of their conclusions on the basis of our own factual assessment. The desired task cannot be done. Time and again, we have made it clear that this Court is not a trier of facts, and that in a petition for review under Rule 45, only questions of law may be raised in this Court. To reiterate what we have said in Bernardo vs. CA:[7] The Supreme Courts jurisdiction is limited to reviewing errors of law that may have been committed by the lower court. The Supreme Court is not a trier of facts. It leaves these matters to the lower court, which have more opportunity and facilities to examine these matters. This same Court has declared that it is the policy of the Court to defer to the factual findings of the trial judge, who has the advantage of directly observing the witnesses on the stand and to determine their demeanor whether they are telling or distorting the truth. And again in Remalante vs. Tibe:[8] The rule in this jurisdiction is that only questions of law may be raised in a petition for certiorari under Rule 45 of the Revised Rules of Court. The jurisdiction of the Supreme Court in cases brought to it from the Court of Appeals is limited to reviewing and revising the errors of law imputed to it, its findings of fact being conclusive. [Chan vs. Court of Appeals, G.R. No. L27488, June 30, 1970, 33 SCRA 737, reiterating a long line of decisions]. This Court has emphatically declared that it is not the function of the Supreme Court to analyze or weigh such evidence all over again, its jurisdiction being limited to reviewing errors of law that might have been committed by the lower court [Tiongco v. De la Merced, G.R. No. L-24426, July 25, 1974, 58 SCRA 89; Corona vs. Court of Appeals, G.R. No. L-62482, April 28, 1983, 121 SCRA 865; Banigued vs. Court of Appeals, G.R. No. L-47531, February 20, 1984, 127 SCRA 596]. We do acknowledge that the rule thus stated is not casts in stone. For sure, it admits of exceptions. So it is that in Insular Life Assurance Company, Ltd. Vs. CA,[9] we wrote: [i]t is a settled rule that in the exercise of the Supreme Courts power of review, the Court is not a trier of facts and does not normally undertake the re-examination of the evidence presented by the contending parties during the trial of the case considering that the findings of facts of the CA are conclusive and binding on the Court. However, the Court had recognized several exceptions to this rule, to wit: (1) when the findings are grounded entirely on speculation, surmises or conjectures; (2) when the inference made is manifestly mistaken; (3) when there is grave abuse of discretion; (4) when the judgment is based on a misapprehension of facts; (5) when the findings of facts are conflicting; (6) when in making its findings the Court of Appeals went beyond the issues of the case, or its findings are contrary to the admissions of both the appellant and the appellee; (7) when the findings are contrary to the trial court; (8) when the findings are conclusions without citation of specific evidence on which they are based; (9) when the facts set forth in the petition as well as in the petitioners main and reply briefs are not disputed by the respondent; (10) when the findings of fact are premised on the supposed absence of evidence and contradicted by the evidence on record; and (11) when the Court of

Appeals manifestly overlooked certain relevant facts not disputed by the parties, which, if properly considered, would justify a different conclusion. Unfortunately for the petitioners, however, we have made a close hard look into this case and found none of the foregoing exceptions as obtaining herein to warrant our departure from the established norm. Nor are we inclined to disturb the findings of the two (2) courts below that petitioner Edenbert Madrigal is not buyer in good faith. Again, a reversal of such finding would impose upon us a reevaluation of the same set of facts appreciated by said courts in arriving at their common conclusion that Madrigal, contrary to what he proclaims himself to be, is not a buyer in good faith. At any rate, we nonetheless took the pains of reviewing the factors taken into account by both courts in rejecting Madrigals claim of being a buyer in good faith and found no reason to disagree with their rejection thereof. With the view we take of this case, petitioners lament against the award of moral and exemplary damages and attorneys fees in favor of respondent Jose Mallari, based as their lament is on their contention that respondent has no cause of action against them, must simply fall. WHEREFORE, the instant petition is hereby DENIED and the assailed decision and resolution of the Court of Appeals AFFIRMED. Costs against petitioners. SO ORDERED. Panganiban, (Chairman), Sandoval-Gutierrez, Corona, and Carpio-Morales, JJ., concur.