parole evidence

RULE 130, SECTION 9

G.R. No. L-40242 December 15, 1982

DOMINGA CONDE, petitioner,
vs.
THE HONORABLE COURT OF APPEALS, MANILA PACIENTE CORDERO, together with his wife, NICETAS
ALTERA, RAMON CONDE, together with his wife, CATALINA T. CONDE, respondents.

MELENCIO-HERRERA, J.:

An appeal by certiorari from the Decision of respondent Court of Appeals 1 (CA-G.R. No. 48133- R) affirming
the judgment of the Court of First Instance of Leyte, Branch IX, Tacloban City (Civil Case No. B-110), which
dismissed petitioner's Complaint for Quieting of Title and ordered her to vacate the property in dispute and
deliver its possession to private respondents Ramon Conde and Catalina Conde.

The established facts, as found by the Court of Appeals, show that on 7 April 1938. Margarita Conde, Bernardo
Conde and the petitioner Dominga Conde, as heirs of Santiago Conde, sold with right of repurchase, within ten
(10) years from said date, a parcel of agricultural land located in Maghubas Burauen Leyte, (Lot 840), with an
approximate area of one (1) hectare, to Casimira Pasagui, married to Pio Altera (hereinafter referred to as the
Alteras), for P165.00. The "Pacto de Retro Sale" further provided:

... (4) if at the end of 10 years the said land is not repurchased, a new agreement shall be made
between the parties and in no case title and ownership shall be vested in the hand of the party
of the SECOND PART (the Alteras).

xxx xxx xxx (Exhibit "B")

On 17 April 1941, the Cadastral Court of Leyte adjudicated Lot No. 840 to the Alteras "subject to the right of
redemption by Dominga Conde, within ten (10) years counting from April 7, 1983, after returning the amount
of P165.00 and the amounts paid by the spouses in concept of land tax ... " (Exhibit "1"). Original Certificate of
Title No. N-534 in the name of the spouses Pio Altera and Casimira Pasagui, subject to said right of repurchase,
was transcribed in the "Registration Book" of the Registry of Deeds of Leyte on 14 November 1956 (Exhibit
"2").

On 28 November 1945, private respondent Paciente Cordero, son-in-law of the Alteras, signed a document in
the Visayan dialect, the English translation of which reads:

MEMORANDUM OF REPURCHASE OVER A PARCEL OF LAND SOLD WITH REPURCHASE WHICH

DOCUMENT GOT LOST

WE, PIO ALTERA and PACIENTE CORDERO, both of legal age, and residents of Burauen Leyte,
Philippines, after having been duly sworn to in accordance with law free from threats and
intimidation, do hereby depose and say:
 1. That I, PIO ALTERA bought with the right of repurchase two parcels of land
from DOMINGA CONDE, BERNARDO CONDE AND MARGARITA CONDE, all
brother and sisters.

2. That these two parcels of land were all inherited by the three.

3. That the document of SALE WITH THE RIGHT OF REPURCHASE got lost in spite
of the diligent efforts to locate the same which was lost during the war.

4. That these two parcels of land which was the subject matter of a Deed of Sale
with the Right of Repurchase consists only of one document which was lost.

5. Because it is about time to repurchase the land, I have allowed the

representative of Dominga Conde, Bernardo Conde and Margarita Conde in the
name of EUSEBIO AMARILLE to repurchase the same.

6. Now, this very day November 28, 1945, 1 or We have received together with
Paciente Cordero who is my son-in-law the amount of ONE HUNDRED SIXTY-FIVE
PESOS (P165. 00) Philippine Currency of legal tender which was the
consideration in that sale with the right of repurchase with respect to the two
parcels of land.

That we further covenant together with Paciente Cordero who is my son-in-law that from this
day the said Dominga Conde, Bernardo Conde and Margarita Conde will again take possession
of the aforementioned parcel of land because they repurchased the same from me. If and when
their possession over the said parcel of land be disturbed by other persons, I and Paciente
Cordero who is my son-in-law will defend in behalf of the herein brother and sisters mentioned
above, because the same was already repurchased by them.

IN WITNESS WHEREOF, I or We have hereunto affixed our thumbmark or signature to our

respective names below this document or memorandum this 28th day of November 1945 at
Burauen Leyte, Philippines, in the presence of two witnesses.

PIO ALTERA (Sgd.) PACIENTE CORDERO

WITNESSES:

1. (SGD.) TEODORO C. AGUILLON

To be noted is the fact that neither of the vendees-a-retro, Pio Altera nor Casimira Pasagui, was a signatory to
the deed. Petitioner maintains that because Pio Altera was very ill at the time, Paciente Cordero executed the
deed of resale for and on behalf of his father-in-law. Petitioner further states that she redeemed the property
with her own money as her co-heirs were bereft of funds for the purpose.

The pacto de retro document was eventually found.

On 30 June 1965 Pio Altera sold the disputed lot to the spouses Ramon Conde and Catalina T. Conde, who are
also private respondents herein. Their relationship to petitioner does not appear from the records. Nor has
the document of sale been exhibited.
Contending that she had validly repurchased the lot in question in 1945, petitioner filed, on 16 January 1969,
in the Court of First Instance of Leyte, Branch IX, Tacloban City, a Complaint (Civil Case No. B-110), against
Paciente Cordero and his wife Nicetas Altera, Ramon Conde and his wife Catalina T. Conde, and Casimira
Pasagui Pio Altera having died in 1966), for quieting of title to real property and declaration of ownership.

Petitioner's evidence is that Paciente Cordero signed the Memorandum of Repurchase in representation of his
father-in-law Pio Altera, who was seriously sick on that occasion, and of his mother-in-law who was in Manila
at the time, and that Cordero received the repurchase price of P65.00.

Private respondents, for their part, adduced evidence that Paciente Cordero signed the document of
repurchase merely to show that he had no objection to the repurchase; and that he did not receive the
amount of P165.00 from petitioner inasmuch as he had no authority from his parents-in-law who were the
vendees-a-retro.

After trial, the lower Court rendered its Decision dismissing the Complaint and the counterclaim and ordering
petitioner "to vacate the property in dispute and deliver its peaceful possession to the defendants Ramon
Conde and Catalina T. Conde".

On appeal, the Court of Appeals upheld the findings of the Court a quo that petitioner had failed to validly
exercise her right of repurchase in view of the fact that the Memorandum of Repurchase was signed by
Paciente Cordero and not by Pio Altera, the vendee-a-retro, and that there is nothing in said document to
show that Cordero was specifically authorized to act for and on behalf of the vendee a retro, Pio Altera.

Reconsideration having been denied by the Appellate Court, the case is before us on review.

There is no question that neither of the vendees-a-retro signed the "Memorandum of Repurchase", and that
there was no formal authorization from the vendees for Paciente Cordero to act for and on their behalf.

Of significance, however, is the fact that from the execution of the repurchase document in 1945, possession,
which heretofore had been with the Alteras, has been in the hands of petitioner as stipulated therein. Land
taxes have also been paid for by petitioner yearly from 1947 to 1969 inclusive (Exhibits "D" to "D-15"; and "E").
If, as opined by both the Court a quo and the Appellate Court, petitioner had done nothing to formalize her
repurchase, by the same token, neither have the vendees-a-retro done anything to clear their title of the
encumbrance therein regarding petitioner's right to repurchase. No new agreement was entered into by the
parties as stipulated in the deed of pacto de retro, if the vendors a retro failed to exercise their right of
redemption after ten years. If, as alleged, petitioner exerted no effort to procure the signature of Pio Altera
after he had recovered from his illness, neither did the Alteras repudiate the deed that their son-in-law had
signed. Thus, an implied agency must be held to have been created from their silence or lack of action, or their
failure to repudiate the agency. 2

Possession of the lot in dispute having been adversely and uninterruptedly with petitioner from 1945 when
the document of repurchase was executed, to 1969, when she instituted this action, or for 24 years, the
Alteras must be deemed to have incurred in laches. 3 That petitioner merely took advantage of the
abandonment of the land by the Alteras due to the separation of said spouses, and that petitioner's
possession was in the concept of a tenant, remain bare assertions without proof.

Private respondents Ramon Conde and Catalina Conde, to whom Pio Altera sold the disputed property in
1965, assuming that there was, indeed, such a sale, cannot be said to be purchasers in good faith. OCT No. 534
in the name of the Alteras specifically contained the condition that it was subject to the right of repurchase
within 10 years from 1938. Although the ten-year period had lapsed in 1965 and there was no annotation of
any repurchase by petitioner, neither had the title been cleared of that encumbrance. The purchasers were
put on notice that some other person could have a right to or interest in the property. It behooved Ramon
Conde and Catalina Conde to have looked into the right of redemption inscribed on the title, and particularly
the matter of possession, which, as also admitted by them at the pre-trial, had been with petitioner since
1945.

Private respondent must be held bound by the clear terms of the Memorandum of Repurchase that he had
signed wherein he acknowledged the receipt of P165.00 and assumed the obligation to maintain the
repurchasers in peaceful possession should they be "disturbed by other persons". It was executed in the
Visayan dialect which he understood. He cannot now be allowed to dispute the same. "... If the contract is
plain and unequivocal in its terms he is ordinarily bound thereby. It is the duty of every contracting party to
learn and know its contents before he signs and delivers it." 4

There is nothing in the document of repurchase to show that Paciente Cordero had signed the same merely to
indicate that he had no objection to petitioner's right of repurchase. Besides, he would have had no
personality to object. To uphold his oral testimony on that point, would be a departure from the parol
evidence rule 5 and would defeat the purpose for which the doctrine is intended.

... The purpose of the rule is to give stability to written agreements, and to remove the
temptation and possibility of perjury, which would be afforded if parol evidence was
admissible. 6

In sum, although the contending parties were legally wanting in their respective actuations, the repurchase by
petitioner is supported by the admissions at the pre-trial that petitioner has been in possession since the year
1945, the date of the deed of repurchase, and has been paying land taxes thereon since then. The imperatives
of substantial justice, and the equitable principle of laches brought about by private respondents' inaction and
neglect for 24 years, loom in petitioner's favor.

WHEREFORE, the judgment of respondent Court of Appeals is hereby REVERSED and SET ASIDE, and petitioner
is hereby declared the owner of the disputed property. If the original of OCT No. N-534 of the Province of
Leyte is still extant at the office of the Register of Deeds, then said official is hereby ordered to cancel the
same and, in lieu thereof, issue a new Transfer Certificate of Title in the name of petitioner, Dominga Conde.

No costs.

SO ORDERED.
G.R. No. 107372 January 23, 1997

RAFAEL S. ORTAÑES, 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. ORTAÑEZ, 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. . .

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 13010 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 Plantation14 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 enforced15 expressly stated that it is subject to an agreement containing the conditions-
precedent 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 . . . 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
intention21 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.

G.R. No. 96405 June 26, 1996

BALDOMERO INCIONG, JR., petitioner,

vs.
COURT OF APPEALS and PHILIPPINE BANK OF COMMUNICATIONS, respondents.

ROMERO, J.:p

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 P50,000.00.

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 "-- 50,000 --" 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 notion 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,
as 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 . . . a mere commercial paper which does not bear the signature of . . .
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 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." 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, self-serving 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 . . . 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. (Emphasis 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 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 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
solidary 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 co-makers, 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.

270 Phil. 299

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 P15,000.00; 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 had 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 aki
n 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 pre?terminated 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 Exhibits "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 F35,000.00 (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 acknowledgement 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:
x x x 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:
x x x 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" 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:

x x x 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.  x x x

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:
x x x 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          -                          4,000.00

----------------

P54,250.00

Less:  (amount received by

the private respondent

from the petitioner)                    (6,000.00)

-----------------

Total amount paid by

the private respondent

to the petitioner                       P48,250.00

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       P51,334.00

private respondent

Total amount paid by the

private respondent                      48,250.00

----------------

Deficiency in the amount

paid by the private respondent P   3,084.00

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, (Chairman), Gancayco, Griño-Aquino, and Medialdea, JJ., concur.

* 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 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.

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:

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.

x x x           x x x          x x x

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 3-9, p. 67, Id.) in
vendor's name; that immediately after the sale, Hugo Loza took possession of the said parcel of
land and declared the same in his name (exhibit 3-10, p. 67, folder of exhibits) starting the year
1935. On March 17, 1941, Hugo Loza bought from Emeterio Lasangue a parcel of land with an
area of four hectares more or less, adjoining the land he (Loza) had earlier bought from Victoria
Limor, and which sale was duly evidenced by a public instrument (exhibit 2, pp. 35-36, folder of
exhibits). This property had the following boundaries, to wit: on the north by Eladio Luno, on
the south, by Simeon Lasangue, on the west, by Gregorio Militar and Emeterio Lasangue and on
the east, by Maximo Lasangue and Hipolito Lastica (exhibit 2, exhibit 2-B, p. 37, Id). After the
execution of the deed of sale, Exhibit 2, Hugo Loza cause the transfer of the declaration in his
own name (tax declaration No. 8832, exh. 2-C, p. 38, Id.) beginning 1945, and started paying the
taxes on the land (exhibits 2-d to 2-i, pp. 39-44, Id.). These two parcels of land (that purchased
by Hugo Loza in 1941 from Emeterio Lasangue, and a portion of that bought by him from
Victoria Limor sometime in 1931) were consolidated and designated, during the cadastral
survey of Lambunao, Iloilo in 1959 as Lot No. 5456; while the remaining portion of the lot
bought from Victorina Limor, adjoining Lot 5456 on the east, was designated as Lot No. 5515 in
the name of the Heirs of Hugo Loza. Defendants claim that the lot bought by plaintiff from
Leoncia Lasangue as evidenced by exhibit A, is situated south of the land now subject of this
action and designated during cadastral survey of Lambunao as Lot No. 5522, in the name of
Victoria Lechugas.

x x x           x x x          x x x

Leoncia Lasangue, plaintiff's vendor in exhibit A, testifying for defendants (pp. 182-115, t.s.n.,
Tambagan; pp. 69-88, t.s.n., Tuble) declared that during his lifetime her father, Emeterio
Lasangue, owned a parcel of land in Lambunao, Iloilo, containing an area of 36 hectares; that
said Emeterio Lasangue sold a slice of 4 hectares of this property to Hugo Loza evidenced by a
deed of sale (Exh. 2) dated March 17, 1941; that other sales were made to other persons,
leaving only some twelve hectares out of the original 36; that these 12 hectares were
transferred by her parents in her (witness) name, being the only child and heir; that on
December 8, 1950, she (Leoncia Lasangue) sold six hectares of her inherited property to
Victoria Lechugas under a public instrument (exhibit A) which was prepared at the instance of
Victoria Lechugas and thumbmarked by herself (the vendor).
Refuting plaintiff's contention that the land sold to her is the very land under question, vendor
Leoncia Lasangue testifies that:

Q. But Victoria Lechugas declared here that, by means of this document, exhibit
'A', you sold to her this very land in litigation; while you declared here now that
this land in litigation was not included in the sale you made of another parcel of
land in her favor. What do you say about that?

A. I only sold six (6) hectares to her.

Q. And that was included in this land in litigation?

A. No.

xxx xxx xxx

Q. Did you tell her where that land you were selling to her was situated?

xxx xxx xxx

A. On the South.

Q. South side of what land, of the land in litigation?

A. The land I sold to her is south of the land in litigation.

xxx xxx xxx

Q. What portion of these thirty-six (36) hectares of land did you sell actually,
according to your agreement with Victoria Lechugas, and was it inside the thirty-
six (36) hectares of land or a portion on one of the sides of thirty-six (36)
hectares?

A. It is on the edge of the whole land.

Q. Where is that edge? on the north, east, west or south?

A . This edge. (witness indicating the lower edge of the piece of paper shown into
her)

Q. Do you know what is east, that is, the direction where the sun rises?

A. I know what is east.

Q. Do you know where the sun sets ?

A. The sun sets on the west.

Q. If you are standing in the middle of your land containing thirty-six (36)
hectares and facing the east, that is, the direction where the sun rises, where is
 that portion of land sold to Victoria Lechugas, on your left, on your right, front of
you or behind you?

A. On my right side. (Witness indicating south). (Testimony of Leoncia Lasangue,

pp. 209-211, rollo) (emphasis supplied).

On the basis of the above findings and the testimony of vendor Leoncia Lasangue herself, who although
illiterate was able to specifically point out the land which she sold to the petitioner, the appellate court upheld
the trial court's decision except that the deed of sale (Exhibit A) was declared as not null and void ab initio
insofar as Leoncia Lasangue was concerned because it could pass ownership of the lot in the south known as
Lot No. 5522 of the Lambunao Cadastre which Leoncia Lasangue intended to sell and actually sold to her
vendee, petitioner Victoria Lechugas.

In her first assignment of error, the petitioner contends that the respondent Court had no legal justification
when it subjected the true intent and agreement to parol evidence over the objection of petitioner and that to
impugn a written agreement, the evidence must be conclusive. Petitioner maintains, moreover, that the
respondent Court relied so much on the testimony of the vendor who did not even file a case for the
reformation of Exhibit A.

The contentions are without merit.

The appellate court acted correctly in upholding the trial court's action in admitting the testimony of Leoncia
Lasangue. The petitioner claims that Leoncia Lasangue was the vendor of the disputed land. The petitioner
denies that Leoncia Lasangue sold Lot No. 5522 to her. She alleges that this lot was sold to her by one Leonora
Lasangue, who, however, was never presented as witness in any of the proceedings below by herein
petitioner.

As explained by a leading commentator on our Rules of Court, the parol evidence rule does not apply, and may
not properly be invoked by either party to the litigation against the other, where at least one of the parties to
the suit is not party or a privy of a party to the written instrument in question and does not base a claim on
the instrument or assert a right originating in the instrument or the relation established thereby. (Francisco on
Evidence, Vol. VII, part I of the Rules of Court, p. 155 citing 32 C.J.S. 79.)

In Horn v. Hansen (57 N.W. 315), the court ruled:

...and the rule therefore applies, that as between parties to a written agreement, or their
privies, parol evidence cannot be received to contradict or vary its terms. Strangers to a
contract are, of course, not bound by it, and the rule excluding extrinsic evidence in the
construction of writings is inapplicable in such cases; and it is relaxed where either one of the
parties between whom the question arises is a stranger to the written agreement, and does not
claim under or through one who is party to it. In such case the rule is binding upon neither. ...

In the case of Camacho v. Municipality of Baliuag, 28 Phil. 466, this Court held that parol evidence which was
introduced by the municipality was competent to defeat the terms of the plaintiff's deed which the latter
executed with the Insular Government. In his concurring opinion, Justice Moreland stated:

It should be noted in the first place, that there is no written instrument between the plaintiff
and the municipality, that is, between the parties to the action; and there is, therefore, no
possibility of the question arising as to the admissibility of parol evidence to vary or contradict
 the terms of an instrument. The written instrument that is, the conveyance on which plaintiff
bases his action was between the Insular Government and the plaintiff, and not between the
municipality and the plaintiff; and therefore, there can arise, as between the plaintiff and
defendant no question relative to the varying or contradicting the terms of a written instrument
between them ...

The petitioner's reliance on the parol evidence rule is misplaced. The rule is not applicable where the
controversy is between one of the parties to the document and third persons. The deed of sale was executed
by Leoncia Lasangue in favor of Victoria Lechugas. The dispute over what was actually sold is between
petitioner and the private respondents. In the case at bar, through the testimony of Leoncia Lasangue, it was
shown that what she really intended to sell and to be the subject of Exhibit A was Lot No. 5522 but not being
able to read and write and fully relying on the good faith of her first cousin, the petitioner, she just placed her
thumbmark on a piece of paper which petitioner told her was the document evidencing the sale of land. The
deed of sale described the disputed lot instead.

This fact was clearly shown in Lasangue's testimony:

Q. And how did you know that that was the description of the land that you
wanted to sell to Victoria Lechugas?

R. I know that because that land came from me.

S. But how were you able to read the description or do you know the
description?

A. Because, since I do not know how to read and write and after the document
was prepared, she made me sign it. So I just signed because I do not know how
to read.

xxx xxx xxx

Q. What explanation did she make to you?

A. She said to me, 'Manang, let us have a document prepared for you to sign on
the land you sold to me.' So, after the document was prepared, I signed.

Q. Did you tell her where that land you were selling to her was situated?

xxx xxx xxx

A. On the South.

Q. South side of what land, of the land in litigation?

A. The land I sold to her is south of the land in litigation.

Q. Did you tell her that before preparing the document you signed?
 A. Yes, I told her so because I had confidence in her because she is my first
cousin. (pp. 198-207, rollo)

From the foregoing, there can be no other conclusion but that Lasangue did not intend to sell as she could not
have sold, a piece of land already sold by her father to the predecessor-in-interest of the respondents.

The fact that vendor Lasangue did not bring an action for the reformation of Exhibit "A" is of no moment. The
undisputed fact is that the respondents have timely questioned the validity of the instrument and have proven
that, indeed Exhibit "A" does not reflect the true intention of the vendor.

There is likewise no merit in the contention of the petitioner that the respondents changed their theory on
appeal.

Respondents, from the very start, had questioned and denied Leoncia Lasangue's capacity to sell the disputed
lot to petitioner. It was their contention that the lot was sold by Leoncia's father Emeterio Lasangue to their
father, Hugo Loza wayback in 1941 while the alleged sale by Leoncia to the petitioner took place only in 1950.
In essence, therefore, the respondents were already attacking the validity of Exhibit "A". Moreover, although
the prior sale of the lot to their father may have been emphasized in their defenses in the civil cases filed
against them by the petitioner in the lower court, nevertheless in their affirmative defense, the respondents
already raised doubt on the true intention of Leoncia Lasangue in signing Exhibit "A" when they alleged that..."
Leoncia Lasangue, publicly, and in writing repudiated said allegation and pretension of the plaintiff, to the
effect that the parcel of land now in litigation in the present case "WAS NOT INCLUDED in the sale she
executed in favor of the plaintiff ... .

Consequently, petitioner cannot impute grave abuse on the part of the appellate court and state that it
allowed a change of theory by the respondents for the first time on appeal for in reality, there was no such
change.

The third issue raised by the petitioner has no merit. There is strong, clear, and convincing evidence as to
which lot was actually sold to her. We see no reason to reverse the factual findings of both the Court of First
Instance and the Court of Appeals on this point. The "reformation" which the petitioner questions was, in fact,
intended to favor her. Instead of declaring the deed of sale null and void for all purposes, the Court upheld its
having passed ownership of Lot No. 5522 to the petitioner.

WHEREFORE, IN VIEW OF THE FOREGOING, the petition is hereby DISMISSED for lack of merit with costs
against the petitioner.

SO ORDERED.

[G.R. No. L-59514. February 25, 1988.]

PACIANO REMALANTE, Petitioner, v. CORNELIA TIBE and THE COURT OF APPEALS, Respondents.

SYLLABUS

1. REMEDIAL LAW; SPECIAL CIVIL ACTION; PETITION FOR CERTIORARI UNDER RULE 45; ONLY QUESTIONS OF
LAW MAY BE RAISED; FINDINGS OF FACT MADE BY COURT OF APPEALS BINDING. — 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.

2. ID.; ID.; ID.; EXCEPTIONS TO RULE THAT FINDINGS OF FACT OF THE COURT OF APPEALS ARE BINDING. — The
following are the exceptional circumstances that would compel the Supreme Court to review findings of fact
of the Court of Appeals: (1) when the conclusion is a finding grounded entirely on speculation, surmises or
conjectures; (2) when the inference made is manifestly absurd, mistaken or impossible; (3) when there is
grave abuse of discretion in the appreciation of facts; (4) when the judgment is premised on a
misapprehension of facts; (5) when the findings of fact are conflicting; (6) when the Court of Appeals, in
making its of transfer. To adopt petitioner’s theory would render nugatory the remedy founded on the basic
rule in the law on contracts that "a contract where consent is given through mistake, violence, intimidation,
undue influence, or fraud is voidable" (Art. 1330, Civil Code).

DECISION

CORTES, J.:

Disputed in this case is the ownership of six (6) parcels of land. The trial court awarded three (3) parcels to
petitioner and the other three (3) to private respondent, but the Court of Appeals held otherwise and
awarded all six (6) to private Respondent. Hence the instant petition.

In a complaint filed before the trial court, private respondent Cornelia Tibe, as plaintiff, sought the annulment
of certain contracts and other documents which became the bases for the transfer of six (6) parcels of land
from private respondent to petitioner Paciano Remalante, the defendant below. Private respondent claimed
that petitioner, through fraud, deceit, abuse of confidence and misrepresentation, induced her to sign three
(3) affidavits of transfer (Exhibits I-3, K and M), purported to be bail bonds, that transferred three (3) parcels of
land under Tax Declaration Nos. 20280, 20273 and 20274 to petitioner. Petitioner thereafter presented the
affidavits to the Provincial Assessor and caused the three (3) parcels of land to be declared under Tax
Declaration Nos. 20323, 20324 and 20325.

Private respondent also claimed that petitioner forged her signature in a deed of absolute sale (Exhibit 22)
whereby her other three parcels of land described under Tax Declaration Nos. 13959, 17388 and 16999 were
transferred to petitioner’s name.

Petitioner in his answer denied the allegations of private respondent and claimed that he is the absolute
owner of the six (6) parcels of land described in the complaint. He further claimed that the first three (3)
parcels of land mentioned were bought by him from Silvino Alminario and that it was private respondent,
who, by means of fraud and misrepresentation caused the transfer of the three (3) parcels of land to her
name, and declared them under Tax Declaration Nos. 20280, 20273 and 20274, purportedly so that she can
use the land as collateral to secure a loan from a bank in Leyte. Petitioner also claimed that he bought the
three (3) parcels of land described under Tax Declaration Nos. 13959, 17388 and 16999 from private
respondent, as evidenced by a deed of absolute sale (Exhibit 22) executed by her in his favor.

Private respondent’s evidence shows that on December 15, 1965, petitioner came to the house of private
respondent and requested her to sign papers purported to be bail bonds for his provisional liberty in
connection with a concubinage case filed against him by his wife. However, private respondent discovered
later that the papers she was made to sign were actually: (1) affidavits of transfer (Exhibits I-3, K and M) of her
three parcels of land under Tax Declaration Nos. 20280, 20273 and 20274 which she purportedly donated to
petitioner; and (2) a deed of absolute sale (Exhibit 22) in favor of petitioner of her other three parcels of land
under Tax Declaration Nos. 13959, 17388 and 16999.

On the other hand, petitioner presented evidence to show that he is the owner of the six (6) parcels of land
subject of this case. He claimed that he bought the first three (3) parcels (those covered by Tax Declaration
Nos. 20280, 20273 and 20274) from Silvino Alminario before they were bought by private Respondent. He
agreed to have the properties transferred to the name of private respondent to accomodate her request to
use the properties as collateral in securing a loan from a bank. However, he found out later that private
respondent did not apply for any loan. Petitioner reported the case to the Municipal Mayor of Dagami, Leyte
and private respondent was summoned before the mayor and was made to sign affidavits of transfer (Exhibits
I-3, K and M) in favor of petitioner.

As to the other three (3) parcels under Tax Declaration Nos. 13959, 17388 and 16999, petitioner claimed that
the properties were voluntarily sold to him by private respondent, as evidenced by a deed of absolute sale
(Exhibit 22).

On the basis of the foregoing facts, the trial court rendered judgment:chanrob1es virtual 1aw library

1. Annulling the deed of sale (Exhibit 22) executed by the plaintiff in favor of the defendant respecting the
properties described in Tax Declaration Nos. 13959, 17388 and 16999, all of Leyte; and declaring the plaintiff
absolute owner thereof;

2. Declaring the defendant absolute owner of the properties declared and described in Tax Declaration Nos.
20280, 20324, 20323, 20274, 20273 and 20325, all in Leyte;**

3. Ordering the plaintiff to deliver the ownership and peaceful possession of the properties mentioned in the
immediately preceding paragraph to the defendant;.

Dismissing the complaint and counterclaim without pronouncement as to costs. (Rollo, p. 33).

From this decision, both parties appealed.

On appeal, respondent court set aside the decision of the trial court and rendered a new one as
follows:chanrob1es virtual 1aw library

1. Annulling Exhibits 9 and 10, the deeds of sale executed by Silvino Alminario in favor of Paciano Remalante
respecting the three parcels of land described under Tax Declaration Nos. 19641, 19676 and 19600, now,
under Tax Declaration Nos. 20323, 20324 and 20325 in the name of Paciano Remalante; and declaring
Cornelia Tibe as the absolute owner thereof;

2. Annulling Exhibits I, K and M, the affidavits of transfer executed by Cornelia Tibe in favor of Paciano
Remalante which became the basis of the cancellation of Tax Declaration Nos. 20280, 20273 and 20274 in the
name of Cornelia Tibe by Tax Declaration Nos. 20323, 20324 and 20325 in the name of Paciano Remalante;
and ordering the cancellation of the immediately preceeding three tax declarations in favor of Cornelia Tibe;

3. Annulling Exhibit 22, the deed of sale executed by Cornelia Tibe in favor of Paciano Remalante respecting
the properties described in Tax Declaration Nos. 13959, 17388 and 16999; and declaring Cornelia Tibe as the
absolute owner thereof;

4. Ordering Paciano Remalante to deliver and/or refrain from disturbing the ownership and peaceful
possession of Cornelia Tibe over the properties mentioned in the preceeding paragraphs; and

5. Ordering Paciano Remalante to pay to Cornelia Tibe the amount of P1,000.00 as attorney’s fees and costs.
(Rollo, pp. 40-41).

In seeking the review of the decision of the Court of Appeals, petitioner makes the following assignment of
errors:chanrob1es virtual 1aw library

THE COURT OF APPEALS ERRED IN AWARDING THE OWNERSHIP OF THE THREE PARCELS OF LAND TO PRIVATE
RESPONDENT UNDER TAX DECLARATION NOS. 20323, 20324 AND 20325, RESPECTIVELY, AS THE SAME
BELONGED TO PETITIONER.

II

THE COURT OF APPEALS ERRED IN NOT GIVING CREDENCE TO THE DECISION OF THE TRIAL COURT AND IN NOT
ADOPTING THE SAME IN TOTO. (Brief for Petitioner-Appellant, p. 1).

From petitioner’s assignment of errors, it is evident that the issues to be resolved are actually anchored on the
proper appreciation of the attendant facts which petitioners would have this Court review.

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 v. Court of Appeals, G.R. No. L-27488, June 30, 1970, 33 SCRA 737, reiterating along 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 v. Court of Appeals, G.R. No. L-62482, April 28, 1983, 121 SCRA 865; Baniqued v. Court of Appeals, G.R.
No. L-47531, February 20, 1984, 127 SCRA 596]. "Barring, therefore, a showing that the findings complained of
are totally devoid of support in the record, or that they are so glaringly erroneous as to constitute serious
abuse of discretion, such findings must stand, for this Court is not expected or required to examine or contrast
the oral and documentary evidence submitted by the parties" [Santa Ana, Jr. v. Hernandez, G.R. No. L-16394,
December 17, 1966, 18 SCRA 973].

In several decisions of recent vintage [Rizal Cement Co., Inc. v. Villareal, G.R. No. L-30272, February 28, 1985,
135 SCRA 15; Ramos v. Court of Appeals, G.R. No. L-25463, April 4, 1975, 63 SCRA 331; Garcia v. Court of
Appeals, G.R. No. L-26490, June 30, 1970, 33 SCRA 623; Ramos v. Pepsi-Cola Bottling Co., G.R. No. L-22533,
February 9, 1967, 19 SCRA 289], the Court summarized and enumerated the exceptional circumstances that
would compel the Supreme Court to review findings of fact of the Court of Appeals, to wit:chanrob1es virtual
1aw library
(1) when the conclusion is a finding grounded entirely on speculation, surmises or conjectures [Joaquin v.
Navarro, 93 Phil. 257 (1953)];

(2) when the inference made is manifestly absurd, mistaken or impossible [Luna v. Linatoc, 74 Phil. 15 (1942)];

(3) when there is grave abuse of discretion in the appreciation of facts (Buyco v. People, 95 Phil. 253 (1954)];

(4) when the judgment is premised on a misapprehension of facts [De la Cruz v. Sosing, 94 Phil. 26 (1953);
Castillo v. Court of Appeals. G.R. No. L-48290, September 29, 1983, 124 SCRA 808];

(5) when the findings of fact are conflicting [Casica v. Villaseca, 101 Phil. 1205 (1957)]; and

(6) when the Court of Appeals, in making its findings, went beyond the issues of the case and the same is
contrary to the admissions of both appellant and appellee [Evangelista v. Alto Surety & Ins. Co., Inc., 103 Phil.
401 (1958)].***

As will be shown below, petitioner has utterly failed to build a case for the reversal of the findings of fact of
the Court of Appeals.

1. Petitioner contends that the Court of Appeals erred in awarding the three (3) parcels of land covered by Tax
Declaration Nos. 20323, 20324 and 20325 to private Respondent.

However, as petitioner has failed to show convincingly that the records do not support the findings of fact of
the Court of Appeals, this Court finds no basis to disturb the appellate court’s findings and conclusions, to
wit:chanrob1es virtual 1aw library

As regards the first three (3) parcels previously covered by Tax Declaration Nos. 20280, 20273 and 20274 in
the name of Cornelia Tibe and now, under Tax Declaration Nos. 20323, 20324 and 20325 in the name of
Paciano Remalante, this court is convinced that the said three parcels of land were sold by the previous owner
Silvino Mayoc or Alminario only to the plaintiff, Cornelia Tibe and were never sold to defendant, Paciano
Remalante. The preponderance of evidence points towards this direction.

First, the alleged sale of the said properties by Silvino Alminario to Paciano Remalante was repudiated by the
previous owner himself, Silvino Alminario/Mayoc. He testified in court that he sold the said properties only to
Cornelia Tibe and vehemently denied having sold or executed any deed of sale involving the same properties
in favor of Paciano Remalante. He testified further that the only time he ever signed any paper for Remalante
was when he sought the help of Remalante in transferring to his (Silvino’s) name certain parcels of land that
he inherited from his father whereby Remalante made him sign numerous papers purportedly for the said
purpose. It has also been shown that Silvino Alminario/Mayoc cannot read or write, much less understand the
English language in which the deeds of sale (Exhibits 9 and 10) he allegedly executed in favor of Paciano
Remalante was written (TSN, February 25, 1969, pp. 57-68).

Secondly, when Cornelia Tibe sought the transfer of the subject three parcels of land in her name after buying
them from Silvino Alminario/Muyoc, Paciano Remalante readily signed the affidavits of transfer (Exhibits N
and O) in favor of Cornelia Tibe wherein he explicitly recognized the sale of said properties by Silvino
Alminario/Mayoc to Cornelia Tibe (Exhibits N-1 and O-2) and the transfer of the said properties in the name of
Cornelia Tibe in her capacity as vendee (Exhibits N-5 and O-4) . . .

x       x       x
Consequently, this Court is also inclined to believe that the subsequent affidavits of transfer (Exhibits I, K and
M) allegedly signed by Cornelia Tibe in favor of Paciano Remalante were vitiated with substantial error and
fraud. We agree with the finding of the trial court that Paciano Remalante went to Cornelia Tibe on December
15, 1965 and had her sign the affidavits of transfer, Exhibits I, K and M, but we disagree with the notion that
Cornelia Tibe signed the said affidavits of transfer in pursuance of their alleged agreement mentioned in
Exhibit 21 for reasons we have discussed earlier. What was proven by the evidence was that Remalante went
to the house of Cornelia Tibe and requested her to sign a bunch of papers which he made her understand to
be bail bonds for his provisional liberty in connection with the concubinage case filed against Remalante by his
wife, but which papers turned out later to include Exhibits I, K, M and Exhibit 22, the deed of sale respecting
the three parcels of land of Cornelia Tibe described in Tax Declaration Nos. 13959, 17388 and 16999. (Rollo,
pp. 37-39).

Petitioner strongly insists upon the correctness of the holding of the trial court that private respondent was a
buyer in bad faith of property that was the subject of a double sale. However, by virtue of the above-quoted
findings of the Court of Appeals, petitioner’s reliance upon the application of the Civil Code provision on
double sale would have no leg to stand on. Said provision states:chanrob1es virtual 1aw library

Art. 1544. If the same thing should have been sold to different vendees, the ownership shall be transferred to
the person who may have first taken possession thereof in good faith, if it should be movable property.

Should it be immovable property, the ownership shall belong to the person acquiring it who in good faith first
recorded it in the Registry of Property.

Should there be no inscription, the ownership shall pertain to the person who in good faith was first in the
possession; and, in the absence thereof, to the person who presents the oldest title, provided there is good
faith.

Clearly the provision applies to a situation where the same property is sold to different vendees. No such
situation obtains in the instant case. As found by the Court of Appeals, the three parcels of land covered by
Tax Declaration Nos. 20323, 20324 and 20325 were never sold by Silvino Alminario to petitioner. There was
only one sale — the sale to private respondent Cornelia Tibe, as testified by Alminario:chanrob1es virtual 1aw
library

ATTY. QUEJADA:chanrob1es virtual 1aw library

Q Can you recall whether you have sold, mortgaged or encumbered these three parcels of land to other
persons other than Cornelia Tibe?

A No, sir.

Q Do you know a certain attorney by the name of Cornelio Balderian?

A I do not know him.

Q Do you also recall if you ever appeared before Atty. Pasaqui for the sale of the land to Paciano Remalante?

A I do not know. (TSN. October 10, 1966, p. 55).

Petitioner therefore cannot claim a better right by virtue of his prior registration of the deeds of sale in the
Registry of Property as such registration was found to be fraudulent since the three parcels of land were never
sold to him to begin with. Thus, in Espiritu v. Valerio [G.R. No. L-18018, December 26, 1963, 9 SCRA 761],
where the same parcel of land was allegedly sold to two different parties, the Court held that despite the fact
that one deed of sale was registered ahead of the other. Art. 1544 of the Civil Code will not apply where said
deed is found to be a forgery and, thus, the sale to the other vendee should prevail.

In the same vein, petitioner cannot invoke the parol evidence rule (which petitioner erroneously referred to as
the "best evidence rule") to argue that the affidavits of transfer (Exhibits I-3, K and M) constitute conclusive
evidence that petitioner is the absolute owner of the three parcels of land covered by Tax Declaration Nos.
20323, 20324 and 20325 and that the fact that Silvino Alminario testified that he did not sell said parcels of
land to petitioner will not vary the terms of said affidavits.

As stated in Rule 130 of the Revised Rules of Court:chanrob1es virtual 1aw library

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:chanrob1es virtual 1aw library

(a) Where a mistake or imperfection of the writing, of its failure to express the true intent and agreement of
the parties, or the validity of the agreement is put in issue of the pleadings;

(b) When there is an intrinsic ambiguity in the writing.

The term "agreement" includes wills. (Italics supplied.).

In the case at bar, the parol evidence rule finds no application because, precisely, the validity of the affidavits
of transfer (Exhibits I-3, K and M) is the very fact in dispute, the action instituted in the court below being one
for the annulment of the documents of transfer. To adopt petitioner’s theory would render nugatory the
remedy founded on the basic rule in the law on contracts that "a contract where consent is given through
mistake, violence, intimidation, undue influence, or fraud is voidable" (Art. 1330, Civil Code).

2. As his second assignment of error, petitioner contends that the Court of Appeals erred in not giving
credence to the decision of the trial court and in not adopting the same in toto.

We note private respondent’s observation that the second assignment of error places petitioner in a position
at variance with his prior position in appealing the decision of the trial court to the Court of Appeals. In his
appeal, petitioner assigned the following as errors of the trial court:chanrob1es virtual 1aw library

I. THE TRIAL COURT ERRED IN HOLDING THAT EXHIBIT 22 THE DEED OF SALE RESPECTING THE PROPERTIES
DECLARED AND DESCRIBED IN TAX DECLARATION NOS. 13959, 17388 & 16999 IS VITIATED WITH SUBSTANTIAL
ERROR AND FRAUD.

II. THE TRIAL COURT ERRED IN HOLDING THAT CONSENT OF THE PLAINTIFF WAS SECURED THROUGH
SUBSTANTIAL ERROR OR FRAUD. THE PLAINTIFF BELIEVED THE SAME TO BE MERELY AN UNDERTAKING FOR
THE PROVISIONAL LIBERTY OF THE DEFENDANT IN A CONCUBINAGE CASE.
III. THE TRIAL COURT ERRED IN NOT SENTENCING THE PLAINTIFF TO PAY MORAL AND ACTUAL DAMAGES AS
WELL AS ATTORNEY’S FEES TO THE DEFENDANT. (Rollo, pp. 36-37).

Thus, while previously petitioner asked the Court of Appeals to modify the decision or the trial court which
awarded him only three (3) parcels of land and awarded the other three (3) parcels of land to private
respondent, by awarding him all six (6) parcels of land, now, with the second assignment of error, he wants
this Court to reinstate the decision of the trial court from which he appealed.

His prayer causes even more confusion. In his petition (entitled "Appeal By Certiorari"), petitioner prayed "that
defendant-appellant be declared as the real and absolute owner of the properties declared and described in
Tax Declaration Nos. 20323, 20324 and 20325 and that plaintiff-appellant be enjoined to deliver the
ownership and possession of the same also to defendant-appellant plus costs of suit." [Rollo, p. 9]. However,
in his brief he prayed "that a new decision be promulgated reversing the previous decision of the Court of
Appeals by adopting in toto the decision of the trial court." [Brief for Petitioner-Appellant, p. 13].

Petitioner’s change of theory at midstream takes him nowhere.

The Court likewise finds no basis to disturb the findings of the Court of Appeals, which adopted the findings of
the trial court on the ownership of the three parcels of land covered by Tax Declaration Nos. 13959, 17388
and 16999:chanrob1es virtual 1aw library

However, Exhibit 22, the deed of sale respecting the properties declared and described in Tax Declaration Nos.
13959, 17388 and 16999 is vitiated with substantial error and fraud. It seems that the consent of the plaintiff
respecting their disposition was secured through substantial error or fraud, the plaintiff believing the same to
be merely an undertaking for the provisional liberty of the defendant in a concubinage case. This was
substantial error and fraud because if plaintiff knew that what she was signing was a deed of sale in favor of
the defendant of the lands in question, she would not have consented to their alienation . . .

The misrepresentation of the defendant, upon an illiterate woman, not knowing how to read, write and
understand the English language is fraudulent. Had plaintiff known that the document she was about to affix
her signature was a sale rather than a mere bail bond, she would not have done so.

x       x       x

Since it has been established by uncontradicted evidence that the plaintiff is practically unschooled and
illiterate, not knowing how to read, write and understand the English language in which Exhibit 22 was
drafted, it would have been incumbent upon the defendant to show that the terms thereof have been fully
explained to the plaintiff. The evidence is entirely lacking at this point, and the lack of it is fatal to the cause of
the defendant for his failure to discharge and burden of proof.

Art. 1332. When one of the parties is unable to read, or if the contract is in a language not understood by him,
and mistake or fraud is alleged, the person enforcing the contract must show that the terms thereof have
been fully explained to the former. [Civil Code]. (Rollo, pp. 7-8).

Consequently, as the decision of the Court of Appeals is based on its finding of preponderance of evidence in
the record and is in accord with law and jurisprudence, this Court finds no cogent reason to overrule the
decision.
WHEREFORE, the instant petition is denied and the decision of the Court of Appeals is affirmed in toto.

SO ORDERED.

Fernan (Chairman), Gutierrez, Jr. and Bidin, JJ., concur.

Feliciano, J., on leave.

Endnotes:

A motion for extension of time to file a petition to review was filed by petitioner’s former counsel, apparently
without petitioner’s knowledge, and this was docketed as G.R. No. 54456 without a petition for review being
filed. In a resolution dated July 19, 1982, the Court re-resolved to archive G.R. No. 54456 and let G.R. No.
59514, the instant petition, be the active surviving case.

** This refers to three (3) parcels of land which were previously covered by Tax Declaration Nos. 20280, 20273
and 20274 in the name of Cornelia Tibe and which were subsequently declared in the name of Paciano
Remalante under Tax Declaration Nos. 20323, 20324 and 20325.

*** In Sacay v. Sandiganbayan [G.R. No. 66497-98, July 10, 1986, 142 SCRA 593], the Court enumerated four
more exceptions:chanrob1es virtual 1aw library

. . . (7) the findings of the Court of Appeals are contrary to those of the trial court; (8) said findings of fact are
conclusions without citation of specific evidence on which they are based; (9) the facts set forth in the petition
as well as in the petitioners’ main and reply briefs are not disputed by the respondents [Garcia v. Court of
Appeals, G.R. No. L-26490, June 30, 1970, 33 SCRA 622]; (10) the finding of fact of the Court of Appeals is
premised on the supposed absence of evidence and is contradicted by the evidence on record [Salazar v.
Gutierrez, G.R. No. L-21727, May 29, 1970, 33 SCRA 242].

However, in Garcia, supra, the Court considered exception Nos. 7, 8 and 9 as circumstances that, taken
together, compelled it to go into the record of the case in order to find out whether or not it fell within any of
the six established exceptions.

On the other hand, exception No. 10 may be considered as an illustration of the fourth exception — that the
judgment is based on a misapprehension of facts.

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.

G.R. No. 13591           September 4, 1919

MARTINA YACAPIN and her husband RAMON NERI LIÑAN, plaintiffs-appellees,

vs.
FAUSTINO NERI, defendant-appellant.

Jose Varela Calderon and Jose Moreno Lacalle for appellant.

Troadio Galicano for appellees.

MOIR, J.:
The plaintiffs were the owners of various parcels of land situated in the Province of Misamis, Mindanao, which
they sold with the right of repurchase within six years from the 10th of August, 1911, to defendant herein for
P5,500 agreeing to pay quarterly an enormous "rental" for the property. (See Exhibit 1.) As this rental was not
paid in full, the parties made a second document on February 6, 1912, covering the same property but
increasing the amount of the loan to P9,000. Plaintiffs received P2,650 in money at this time with which they
bought other lands. (See Exhibit 2.)

The plaintiffs still paid what they could on this last sum of P9,000, but as the rental was equivalent to an
interest charge of about 50 per cent per annum, they were soon behind P5,000, and on the 3rd of October,
1913, they made a third document, recognizing the debt due as P14,000. (See Exhibit 3.)

The plaintiffs again paid part of the rent or, more truthfully speaking, interest on this loan, which grew faster
than the crops on the land, and on the 13th of July, 1914, plaintiffs found their debt to be P19,000, whereupon
they executed Exhibit 4, which on its face is an absolute sale of the property to defendant for a sale price of
P19,000, represented however, as the evidence shows, by P8,150 of principal and P10,850 in rent or interest,
not to mention the amount of interest or rent actually paid to defendant by plaintiffs, and therefore not
included in the document.

When the parties executed Exhibit 4 on the 13th of July, 1914, defendant agreed that he would execute
another document stating that the absolute sale was "simulated," and that plaintiffs still had the right to
redeem the property.

The defendant delayed and finally refused to make the document, giving plaintiffs the right to redeem and,
because of his refusal, Ramon Neri and Faustino Neri came to blows, and Ramon Neri was put off the land, and
he then brought this action, joining with him his wife who was the real owner of the property by inheritance
from her father. In his petition they prayed the court to declare null and void the absolute sale of the property,
and that the right to redeem still existed in favor of plaintiffs, and for damages in the sum of P50,000.

The defendant answered, denying generally the allegations of the complaint, and, as a special defense, set up
the first sale with right to repurchase at a rental of 55 piculs of copra every three months; that plaintiffs asked
him to increase the loan to P9,000 which was done, and P3,500 paid plaintiffs on February 6, 1912, and they
agreed to pay 90 piculs of copra every three months as rent; that on the 9th of October, 1913, he again gave
the plaintiffs P5,000 and increased the rental to 120 piculs of copra every three months. That the plaintiffs
could not pay the rent agreed, and they sold the property to him, with all the improvements, for P19,000 the
13th of July 1914.

After hearing the evidence the Honorable J. P. Weissenhagen, judge, held that Exhibit No. 4 was null and void
as not containing the true agreement between the parties, and ordered it cancelled. The court extended the
time to repurchase, and further held that defendant's possession was in bad faith, and ordered him to account
for the rents and profits from the land, and in subsequent orders found the amount due for this use and
occupation by the defendant, and ordered it paid to plaintiffs.

The defendant excepted to the judgment and all orders and decrees subsequent thereto, and brought the
record to this court by bill of exceptions, setting up that the court erred —

1. In declaring that Exhibit 4 was made without any consideration;

2. In declaring null and without legal effect said absolute sale;

3. In dictating the dispositive part of its decision.

We agree that the court erred as stated by the appellant. The document, Exhibit 4, is valid and legal.

The sale of the property was made, as Exhibit 4 shows it was made, but this final contract did not embody in it
all the terms and agreements between the parties at that time.

As part of the consideration, the real inducement on plaintiffs' part for making that contract, defendant
agreed to execute another document giving plaintiffs the right to redeem the property.

The defendant is a nephew of plaintiffs, he is a man of education, and he told them he did not want to figure
as a money lender; that he had no license for conducting such business, and that, in order to keep from paying
such license, it would be best for them to execute Exhibit 4, and that he would execute and deliver to them
the agreement, permitting them to repurchase.

The plaintiffs testify that the property was worth sixty-five thousand pesos; that they had been offered
P31,000 for it, and the treasurer's testimony shows it was assessed at nearly P26,000, but the plaintiffs did not
want to sell the property without a right to redeem it, and refused to sell, but they made the sale to defendant
in consideration of the P19,000 due, and the further consideration of defendant's agreement to execute the
document referred to giving them the right to repurchase. The plaintiffs in the meantime were to live on the
property and manage it for defendant, and receive a part of the crops.

Defendant claims that he paid plaintiffs P5,000 at the time of the execution of Exhibit 4, but the trial court
held this statement to be absolutely false, and after a study of the evidence there can be no doubt that the
trial court was correct. It seems to have escaped defendant's attention that in his answer he did not pretend
that this P5,000 was paid plaintiffs, though he did allege a cash sum was paid when the other documents,
increasing the loan at different times, were made, which the evidence shows to be untrue, except as to Exhibit
2.

The court held that the sale with right of repurchase, Exhibit 3, was the only subsisting contract between the
parties.

This is not correct. All former contracts must be considered as merged in the contract, Exhibit 4, made on the
13th of July, 1914, and the verbal agreement to execute the contract in favor of plaintiffs, which was part of
that transaction.

The defendant perpetrated a fraud on his kinsmen when he failed and finally refused to put into writing the
other contract made at the same time as Exhibit 4. We are not unmindful of the fact that we may seem to be
modifying this written contract. But the evidence shows overwhelmingly that we are simply forcing the
defendant to live up to his contract in its entirety, and preventing him from committing a fraud.

The Encyclopedia of United States Supreme Court Reports, vol. 6, p. 417, says:

The most solemn transactions and judgments may, at the instance of the parties, be set aside or
rendered inoperative for fraud. The fact of being a party does not estop a person from obtaining in a
court of equity relief against fraud. It is generally parties that are the victims of fraud. The court of
chancery is always open to hear complaints against it, whether committed in pais or by means of
judicial proceedings. (Johnson vs. Waters, 111 U. S., 640, 667; 28 L. ed., 547.)
And in 12 R. C. L., p. 258, it is said:

One who holds out inducements to another, whose estate is largely encumbered, that he will furnish
means for him to redeem, and thereby prevents him from looking elsewhere, and in the mean time
purchases such encumbrances himself and cuts off the redemption, is guilty of fraud, and will not be
allowed to enforce his advantage.

So, too, a purchaser at a tax sale to whom the owner tenders the proper amount for an assignment of
the certificate of sale, and who orally agrees to make such assignment to the owner within a few days
and receive the money, but in fact obtains a tax deed after the owner, relying upon this promise, has
allowed the time for redemption to expire, and refuses, upon tender of the amount of his bid, with
interest and charges, to convey to the owner, is guilty of a fraud upon the owner, cannot avail himself
of the statute of frauds as a defense, and will be compelled by' equity to convey to the owner.

In Lain vs. McKee (13 Mich., 124; 87 Am. Dec., 738), Justice Cooley said:

It is objected on the part of defendant that the agreement of his part was a parol contract in relation to
lands and therefore void under the statute of frauds, and that there has been no such part
performance of it as will entitle complainant to have it specifically performed.

We do not think this case is to be put on the ground of specific performance solely. The facts charged
and established show that complainant, relying upon the promise of defendant to assign, neglected to
exercise his legal right to redeem, and defendant was thereby enabled to obtain a deed of the lands. It
sufficiently appears that complainant would have made the redemption but for the assurance thus
made to him, and a fraud has thus been perpetrated upon him, against which he is entitled to relief. It
is a matter of no moment whether the fraud was perpetrated by means of a promise upon which he
relied, and which the defendant did not intend to keep, or by untrue statements as to existing facts.
And it is not necessary for us to decide, in this view of the case, whether the agreement to assign the
certificate was or was not void under the statute of frauds.

In the case of Government of Philippine Islands vs. Philippine Sugar Estates Development Co. (30 Phil. Rep., 27).
where plaintiff alleged the contract failed to express the true intent and agreement of the parties, this court
said:

Parol evidence is not admissible to vary or contradict the terms of a written contract. A reservation of
exception cannot be introduced into a written conveyance of real estate by parol evidence.

This case was reversed on appeal to the United States Supreme Court (247 U. S., 385), the court saying:.

It is well settled that courts of equity will reform a written contract, where owing to mutual mistake,
the language used therein did not fully or accurately express the agreement and intention of the
parties. The fact that interpretation or construction of contract presents a question of law and that
therefore the mistake was one of law is not a bar to granting relief.

. . . It is settled that relief by way of reformation will not be granted, unless the proof of mutual mistake
be of the clearest and most satisfactory character.

The case we are considering is much stronger than any of the foregoing. It is not a question of mutual mistake,
but of a clearly established promise on the part of the defendant to give a counter contract expressing the
plaintiffs' right to redeem, and that this promise was part of the consideration, inducing the plaintiffs to
execute Exhibit 4, which is an absolute sale of the property to defendant.

The defendant was guilty of a fraud in procuring the absolute deed to the property, and he should be
compelled to perform the full terms of his contract.

The time within which plaintiffs could redeem the property was not fixed.

In the absence of such agreement the trial court should have fixed the time in accordance with article 1128 of
the Civil Code. (See Yu Chin Piao vs. Lim Tuaco, and cases cited, 33 Phil. Rep., 92.)

We think that one year from the date of this decision should be granted plaintiffs during which to redeem. The
redemption price is that fixed by Exhibit 4; i.e., nineteen thousand pesos.

The trial court made various orders and decrees subsequent to its original decision based on the theory of the
bad faith of defendant. The proven fraud of the defendant should not operate to deprive him of the fruits of
the property during his occupation under Exhibit 4, as the agreement was that he should have the use to the
property.

All such subsequent orders and decrees of the trial court are set aside and annulled, and the original decision
is modified, and the defendant herein is ordered to immediately execute an agreement setting out plaintiff's
right to redeem the property with all its improvements at any time within twelve months from the date of this
judgment, and upon the previous payment to defendant of the sum of nineteen thousand pesos.

The defendant will pay the costs of both instances. So ordered.

G.R. No. L-28498 July 14, 1986

SALVADOR DE LA RAMA, plaintiff-appellant,
vs.
RAFAEL LEDESMA, defendant-appellee.

PARAS, J.:

This is an appeal from the decision of the defunct Court of First Instance of Negros Occidental in Civil Case No.
8284 dismissing plaintiff-appellant's money claim for lack of a cause of action.

On August 18, 1967, Salvador de la Rama, one of the incorporators of the Inocentes de la Rama Inc. filed a
complaint with the Court of First Instance of Negros Occidental docketed as Civil Case No. 8284, concerning a
money claim against Rafael Ledesma who is his own nephew and purchaser of his shares of stock in aforesaid
corporation.
De la Rama alleged that the Inocentes de la Rama Inc. suffered damages during the last war and had an
approved war damage claim with the Philippine War Damage Commission in the sum of P106,000.00. The first
payment on said claim, in the sum of P56,000.00 which was paid by the Commission while De la Rama was still
a stockholder, was, upon resolution of the majority of its stockholders, used for the reconstruction of the Iris
Theater Building. On November 18, 1958, before the additional liquidation of said claim, De la Rama sold to
Ledesma at par value his 140 shares in the corporation by endorsing his certificates of stock in favor of the
latter with an alleged understanding that De la Rama reserved to himself his proportionate equity in the war
damage benefits due on his 140 shares which Ledesma promised to deliver to him upon payment by the
Foreign Claim Settlement Commission of the United States. Upon presentation of the endorsed shares of
stock, new certificates of stock were issued in the name of Ledesma. On March 20, 1965, the corporation
received a final payment of its war damage claim in the sum of P46,696.33. The Board of Directors passed a
resolution distributing the final payment received by said corporation among its stockholders of record as of
March 20, 1965, as dividend computed at P29.59 per share. When Ledesma received the dividends pertaining
to his total shareholding including the 140 shares he had purchased from De la Rama, the latter demanded
from the former the return and delivery to him of his corresponding share in the claim in question. Ledesma
refused and De la Rama filed subject complaint alleging that he suffered moral and exemplary damages in the
sum of not less than P10,000.00 and attorney's fees in the sum of P1,000.00. (Complaint, Record on Appeal,
pp. 1-6; Decision of CFI Negros Occ., Record on Appeal, pp. 1820).

In his answer, Ledesma admits the allegation in the complaint except: (a) the alleged verbal understanding
between De la Rama and himself regarding the unpaid war damage claim; (b) the alleged equity of De la Rama
in the said claim as such equity is with the corporation itself, and not with the stockholders individually; and
(c) his liability for either moral or exemplary damages, much less for attorney's fees, the same having no basis
at all in law or in fact. By way of special defense, Ledesma claimed that the indorsement by De la Rama of the
Stock Certificate in question without qualification or condition constituted the sole and exclusive contract
between the parties and to allow De la Rama to prove any alleged simultaneous oral agreement would run
counter to the Parol Evidence Rule and the Statute of Frauds. Furthermore, the unpaid balance on the said
corporation's war damage claim at the time De la Rama sold his shareholdings belonged to the corporation
itself and not to its stockholders and so was the final payment which was paid to the corporation itself, for its
Board of Directors to do what it deemed best. (Answer, Record on Appeal, pp. 8-11.)

In reply to the special defenses raised by Ledesma, De la Rama avers: (a) that the War Damage Payment made
by the government of the United States to claimants in the Philippines who suffered losses during World War
II is not a profit of the Corporation which can be distributed as dividends; the use and disposition of said funds
as specified by the Philippine Rehabilitation Act of 1946 are reserved for those who suffered losses during the
war like himself; (b) that the Statute of Frauds applies only to Executory Contracts, and not to partially or fully
consummated cases; and (c) that the instant case is exempted from the Parol Evidence Rule since the writing
fails to express the true intent and agreement of the parties, and this fact is pleaded. He further stated that
the war damage benefits while due to the corporation redounds to the benefit of the stockholders who
actually suffered the damage, which means the stockholders of record at the time the damage was inflicted;
that in the disposition of such benefits the Board of Directors should be guided by the spirit and letter of the
Philippine Rehabilitation Act of 1946 and that the oral agreement of the parties is consistent with the trust and
confidence of the parties at the time in view of their close blood relationship. (Record on Appeal, pp. 12-16.)

At the pre-trial of this case, the parties, through counsel, agreed to submit for the resolution of the Court the
question as to whether or not De la Rama is allowed to present parol evidence to prove his alleged reservation
to the war damage benefits in question. The parties further agreed that should the ruling of the Court be in
the negative, then the Court may render judgment on the pleadings. However, should the Court rule in favor
of admissibility of parol evidence, a hearing on the merits will be scheduled for the admission of the evidence
of both parties. (Record on Appeal, pp. 18-19.)

The lower court ruled in the negative, as follows:

Under the foregoing circumstances, the Court believes that any evidence tending to establish
the plaintiff's cause of action would be inadmissible under the parol evidence rule and the
provisions of the Statute of Frauds. In the light of the facts not controverted in the pleading
submitted by the parties, the Court finds that the plaintiff has no cause of action against the
defendant. (Record on Appeal, pp. 25-26.)

From this decision, the plaintiff-appellant appealed, and raised the following assignment of errors:

The lower court erred in holding that defendant is a successor in interest of plaintiff's
appellant's equitable share in the war damage benefits granted to Inocentes de la Rama, Inc. by
operation of the Philippine Rehabilitation Act of 1946 and of the United States Public Law 87-
616.

II

The lower court erred in not holding that plaintiff, as the pre-war shareholder of the Inocentes
de la Rama, Inc. and registered owner of shares of stock in the said corporation up to the year
1958, is the claimant having unpaid balance due on awards as determined by the former
Philippine War Damage Commission prior to its abolishment in April 1951 by operation of the
above stated laws.

III

The lower court erred in holding that the verbal agreement of the herein parties in which
plaintiff reserved and the defendant agreed to the right of plaintiff to the balance of the war
damage claim at the time of plaintiff's sale of his share of stock to defendant in 1958 is barred
by the Statute of Frauds and the Parol Evidence Rule.

The appeal is without merit.

The only issue crucial to this appeal is whether or not the alleged verbal agreement of the parties concerning
plaintiff's reservation of his right to the balance of the war damage claim at the time of the sale of his shares
to the defendant, can be proven by parol evidence under the Parol Evidence Rule and the Statute of Frauds.

There is merit in appellee's contention that the alleged oral reservation and the sale of the shares of stock
were made simultaneously and contemporaneously, so that to allow De la Rama to prove the same would run
counter to the Parol Evidence Rule.

In his brief, appellant alleged that "at the time he sold his shares of stock to the defendant in 1958 he has
reserved to himself the said benefits and to which defendant agreed." (Brief for Appellant, p. 3). Again, in his
third assignment of error he claims that the lower court erred in holding that the disputed oral reservation,
cannot be proved under the Statute of Frauds and the Parol Evidence." (Ibid., p.11.)
It is a well accepted principle of law that evidence of a prior or contemporaneous verbal agreement is
generally not admissible to vary, contradict or defeat the operation of a valid instrument. (American Factors
(Phil.) Inc. vs. Murphy Tire Corporation, et al. (C.A.) 49 O.G. 189.)

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. (Yu Tek & Co. v. Gonzales, 29 Phil. 384.)
Indeed, the exceptions to the rule do not apply in the instant case, there being no intrinsic ambiguity or fraud,
mistake, or failure to express the true agreement of the parties. If indeed the alleged reservation had been
intended, businessmen like the parties would have placed in writing such an important reservation.

In the case at bar, nowhere in the complaint were the exceptions to the rule alleged or put in issue. (See
Infante v. Cunanan, et al., 93 Phil. 691).

The alleged reservation not being admissible under the Parol Evidence Rule, WE do not find it necessary to
discuss the applicability or non-applicability to the present case of the Statute of Frauds.

For the same reason We see no reason for resolving whether the war damage award in favor of the
corporation should be regarded as capital stock or profit. Whether the award be part of one or the other the
fact is that appellant is not entitled to share in the same, having already disposed of his equity in favor of the
appellee.

WHEREFORE, the appealed decision is hereby AFFIRMED, with costs against appellant.

SO ORDERED.

G.R. No. L-46943 June 8, 1978

PHILIPPINE NATIONAL RAILWAYS, petitioner,

vs.
COURT OF FIRST INSTANCE OF ALBAY, Branch I, presided by JUDGE ROMULO P. UNTALAN, CARMEN MYRICK
SALVACION MYRICK, CELSO MILLABAS, JOSEFINA MILLABAS, and CELERINA MILLABAS, respondents.

Jose B. Calimlim, Marcelino B. Bermudez & Natividad G. Gepiga for petitioner.

Madrid Law Office for private respondents.

AQUINO, J.:

This certiorari and prohibition case is about the parol evidence rule.

On September 28, 1971, Carmen Myrick, Salvacion Myrick, and Celso, Josefina and Celerina, all surnamed
Millabas, filed in the Court of First Instance of Albay a complaint to annul a supposed conditional donation of
two parcels of land located at Comum Camalig, Albay, with areas of "47-52" and "1-25-00" square meters, a
donation which they had allegedly made in !963 to the Philippine National Railways (PNR).
The ground for the annulment was the alleged non-fulfillment of the five conditions of the donation (Civil Case
No. 4507). No deed of donation or actionable document was annexed to the complaint. (See. sec. 7, Rule 8,
Rules of Court.)

The PNR in its answer denied the donation for lack of sufficient knowledge thereof but it contradicted 'that
denial by stating in its affirmative defenses that the donation was unconditionally made by the late Antonio J.
A. Myrick and that the plaijtiffs are guilty of laches. No deed of donation was attached to the answer to sustain
the defense that the donation was pure and unconditional. (In the complaint it was alleged that Antonio was
deceased brother of plaintiffs Carmen Myrick and Salvacion Myrick but it was not alleged that he was the
donor or that the plaintiffs are his legal heirs.)

At the hearing of the case on March 6 (11), 1974, while plaintiff Salvacion Myrick was testifying, she was asked
to identify a deed of donation dated August 23, 1962 made by her brother, Antonio, which is reproduced
below (Exh. B or 1):

DEED OF DONATION

KNOW ALL MEN BY THESE PRESENTS

This DEED OF DONATION made and executed by ANTONIO J. A. MYRICK, of legal age,
single/married to , with residence at , hereinafter called the DONOR, in favor of the Manila
Railroad Company, a government-owned corporation, duly organized and existed under and by
virtue of the laws of the Philippines, with principal office at tutuban Terminal, Azcarraga,
Manila, herein represented by P. T. CASES, its general Manager, hereinafter called the DONEE.

WITNESSETH

That the DONOR is theowner in fee simple of that certain real property with the buildings
and/or improvements thereon, situated in the barrio of Taladong, Camalig, Albay, and more
particularly described in Original/Transfer Certificate of title no. Lot 3118 of the Land Registry of
ALBAY PROVINCE, as follows, to wit:

A portion or 1/4 o fparcel of land situated in the barrio of Taladong, Camalig, Albay, Philippines
containing an area of THIRTEEN THOUSAND SIX HUNDRED THREE (13, 603) square meters more
or less bounded on the N, by Meliton Naz; on the E, by Pedro Moron; on the S, by Louis Myrik;
and on the W, by Pedro Moros; declared under tax No. 19739 in the name of Cenon Zamora
and assessed for ONE THOUSAND TWO HUNDRED THIRTY PESOS (P1,230.00). Said property was
acquired by the donor by way of inheritance from his late father Louis Myrik who likewise
acquired the property by way of Abslute Sale from Felix Nimo.

That for and in consideration of his generosity and benevolence, as well as his love for public
service, the DONOR by this presents, transfers and conveys by way of DONATION, unto the said
DONEE, its successors and assigns, a portion of the above-described real property free from all
liens and encumbrances, tentatively described, as follows:

A portion of SIX THOUSAND ONE HUNDRED EIGHTY-EIGHT (6,188) square meters more or less
traversed and encroached by the MRRCo. Sorsogon RR Ext. Project's right-of-way at Km. 464 ÷
780 - ÷ 888.86 in the above described property bounded on the N, by Antonio Myrik; on the E,
by Dominador Muyo; on the S, by Antonio J. A. Myrik and on the W, by Lot Nos. 3120-A & 3119-
A; subject to the technical description that may hereinafter be made by the Survey TEam of the
MMRCo, and the plan thereof approved by the Director of lands; said donated portion will be
used for railway tracks or railroad purposes.

That the DONOR does hereby state, for the purpose of giving full effect to this donation that
he/she has reserved for himself/herself in full ownership sufficient property to support him/her
in a manner appropriate to his/her needs.

That the DONEE does hereby accept this donation of the above-described real property, and
does hereby express their gratitutde for the kindness and liberality of the DONOR, and the
acceptance thereof is to be executed in a separate instrument in the City of Manila, Philippines.

IN WITNESS WHEREOF, THE DONOR have hereunto set his/her hand this 23rd day of August,
1962, at Municipality of Camalig, Albay, Philippines.

(Sgd.) ANTONIO J.A.

MYRIK

DON
OR

WITNESSES

1. (Sgd.) SALVACION E. A. MYRIK

2. (Sgd.) LIBORIO MARMOL

(NOTARIAL ACKNOWLEDGMENT IS OMITTED)

DEED OF ACCEPTANCE OF THE AFORECITED

DONATION:

The undersigned duly appointed General Manager of the MRRCo. hereby these presents accept
and receive the abovementioned donation.

MANILA RAILROAD COMPANY

By

(Sgd.) P. T. CASES

General Manager

WITNESSES

1. (Sgd.)ILLEGIBLE 2. (Sgd.) ILLEGIBLE

(NOTARIAL ACKNOWLEDGMENT IS OMITTED)

It may be noted that the alleged donation was made in 1962 to the Manila Railroad Company that it was made
by Antonio J. A. Myrick (Myrick) and not by the plaintiffs, now the private respondents; that the land donated
is located at Barrio Taladong (not Comun) Camalig and that the area of the land donated is 6,188 square
meters.

After Salvacion Myrick had Identified the deed of donation quoted above, her counsel propounded the
following questions:

Q. You said that you know of the execution of this Deed of Donation which is
marked Exhibit 1 for the defendant and also marked as Exhibit B for the plaintiffs
during the pre-trial, and which I am also adopting now that the same be marked
Exhibit B for the trial on the merits,

Having known of the execution of this Deed of Donation. will not tell this
Honorable Court why as a brother (sic) and co-heir of your late brother Antonio,
why you did not sign in this Deed of Donation?

A. (of Salvacion Myrick) Because the Philippine National Railways should first
comply with the promise in the donation.

Q. Will you tell this Court the promise of the PNR with respect to the execution
of this Deed of Donation, Exhibit B

A. ATTY. ABELLERA (counsel of the PNR): I firmly object to the question. Counsel
is trying to elicit oral evidence which is violative of the parol evidence rule. The
Deed of Donation is very clear. It has no condition whatsoever. If the condition
now is place on the record that will alter the condition of the donation.

In view of that objection, the hearing was suspended. The trial court ordered the parties to submit
memoranda on the issue of Whether or not that question should be allowed under the parol evidence rule.
That issue remained pending until the lower court, through respondent Judge, resolved it ill the third of July 7,
1977, now being assailed herein.

The lower court held that the question should be allowed the objection should be overruled because to allow
the witness answer the question would not be a transgression of tilt parol evidence rule.

We hold that, under the pleadings and considering the defense of lack of cause of action interposed by the
PNR, that lower court committed a grave abuse of discretion in not sustaining petitioner's objection based on
the parol evidence rule. That rule is found in Rule 130 of the Rules of Court which provides:

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 The agreement
other than the contents of the writing, except in the following case:

(a) Where a mistake or imperfection of the writing, or it failure to express The true intent and
agreement of the parties, or the 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.

Section 7 requires that in order that parol or extrinsic evidence may be admitted to vary the terms of the
writing, the mistake or imperfection thereof or its failure to express the true intent and agreement of the
parties should be put in issue by the pleadings. In the instant case, the plaintiffs did not expressly plead that
the deed of donation was incomplete or that its execution was vitiated by mistake or that it did not reflect the
intention of the donor and the donee.

The plaintiffs in paragraph four of their complaint merely alleged that the donation was subject to five
conditions. Then, they prayed that the donation should be annulled or rescinded for noncompliance with
those conditions.

At the trial they tried to prove those conditions by parol evidence. Obviously, they could not introduce parol
evidence to vary the terms of the agreement because they did not plead any of the exceptions mentioned in
the parol evidence rule. Their case is covered by the general rule that the contents of the writing constitute
the sole repository of the terms of the agreement between the parties.

Thus, it was held that where there is no allegation in the complaint that there was any mistake or imperfection
in the written agreement or that it failed to express the true intent of the parties, parol evidence is
inadmissible to vary the terms of the agreement (Villanueva vs. Yulo, 106 Phil. 1170).

On the other hand, if the defendant set up the affirmative defense that the contract mentioned in the
complaint does not express the true agreement of the parties, then parol evidence is admissible to prove the
true agreement of the parties (Enriquez vs. Ramos, 11 6 Phil. 525, 531; Philippine Sugar E. D. Co. vs.
Philippines, 62 L. Ed. 1177, 247 U. S. 385; Heirs of De la Rama vs. Talisay-Silay Milling Co., 54 Phil. 580, 588;
Land Settlement and Dev. Corp. vs. Garcia Plantation Co., Inc., 117 Phil. 761, 765).

The plaintiffs or their predecessor, the donor, Antonio J. A. Myrick, could have asked for the reformation of
the deed of donation. Instead of doing so, they asked for its annulment or rescission on the theory that there
was non-compliance with the supra resolutory conditions of the donation (See art. 764, Civil Code: Parks vs.
Province of Tarlac, 49 Phil. 142).

But whether the action is for revocation or reformation, it was necessary for the plaintiffs, in order to prove
that the donation was conditional, to plead that the deed of donation did not express the true intent of the
parties. Not having done so, their parol evidence on the alleged conditions is dismissible upon seasonable
objection interposed during the trial by the donee's counsel. (Yu Tek & Co. vs. Gonzalez, 29 Phil. 384; Soriano
vs. Cia. General de Tabacos de Filipinas, L-17392, December 17, 1966. 18 SCRA 999, 1015.)

Other considerations may be adduced to fortify the holding that the plaintiffs cannot prove the conditional
character of the donation.

It should be observed that the action for annulment was brought by the alleged collateral relatives of the
deceased donor. Their capacity to bring the action has not been specifically pleaded (See sec. 4, Rule 8, Rules
of Court: Concepcion vs. Sta. Ana, 87 Phil. 787).

The anomalous or odd situation in this case is that the plaintiffs belatedly filed an action to annul (not reform)
a donation made by their collateral relative. Evidently, they had no copy of the deed of donation because they
did not attach a copy thereof to their complaint. They were not cognizant of the terms thereof. They did not
know the exact date of the donation and the description, location and area of the lands donated- They
pretended that five conditions were engrafted on the deed of donation which to the does not take any
condition at all. How they came to know of those conditions, when they were not the donors, was not pleaded
in their complaint.

The private respondents contend that the rulings ot a trial judge on the admission of evidence are reviewable
on appeal and cannot be assailed by means of certiorari (Philippine Air Lines, Inc vs. Teodoro, 9 7 Phi1. 461);

That is the general rule, Where, as in this case, petitioner's contention is clearly tenable and the lower court, in
overruling the objection to the evidence, committed a patent mistake amounting to a grave abuse of
discretion, the error may be corrected by means of certiorari (De Laureano vs. Adil, L-43345, July 29, 1976, 72
SCRA 148, 161).

As to private respondents' contention in their memorandum in the lower court that Antonio J.A. Myrick was
not the absolute owner of the donated properties See page 41 of Rollo). that ultimate fact should likewise
have been alleged in their complaint,

WHEREFORE, the trial court's order of July 7, 1977 is reversed and set aside. Costs against the private
respondents.

SO ORDERED.

G.R. No. 11897           September 24, 1918

J. F. RAMIREZ, plaintiff-appellee,
vs.
THE ORIENTALIST CO., and RAMON J. FERNANDEZ, defendants-appellants.

Jose Moreno Lacalle for appellant Fernandez.

Sanz, Opisso & Luzuriaga for appellant "The Orientalist Co."
No appearance for appellee.

STREET, J.:

The Orientalist Company is a corporation, duly organized under the laws of the Philippine Islands, and in 1913
and 1914, the time of the occurrences which gave rise to this lawsuit, was engaged in the business of
maintaining and conducting a theatre in the city of Manila for the exhibition of cinematographic films. Under
the articles of incorporation the company is authorized to manufacture, buy, or otherwise obtain all
accessories necessary for conducting such a business. The plaintiff J. F. Ramirez was, at the same time, a
resident of the city of Paris, France, and was engaged in the business of marketing films for a manufacturer or
manufacturers, there engaged in the production or distribution of cinematographic material. In this enterprise
the plaintiff was represented in the city of Manila by his son, Jose Ramirez.

In the month of July, 1913, certain of the directors of the Orientalist Company, in Manila, became apprised of
the fact that the plaintiff in Paris had control of the agencies for two different marks of films, namely, the
"Eclair Films" and the "Milano Films;" and negotiations were begun with said officials of the Orientalist
Company by Jose Ramirez, as agent of the plaintiff, for the purpose of placing the exclusive agency of these
films in the hands of the Orientalist Company. The defendant Ramon J. Fernandez, one of the directors of the
Orientalist Company and also its treasure, was chiefly active in this matter, being moved by the suggestions
and representations of Vicente Ocampo, manage of the Oriental Theater, to the effect that the securing of the
said films was necessary to the success of the corporation.

Near the end of July of the year aforesaid, Jose Ramirez, as representative of his father, placed in the hands of
Ramon J. Fernandez an offer, dated July 4, 1913, stating detail the terms upon which the plaintiff would
undertake to supply from Paris the aforesaid films. This officer was declared to be good until the end of July;
and as only about for the Orientalist Company to act on the matter speedily, if it desired to take advantage of
said offer. Accordingly, Ramon J. Fernandez, on July 30, had an informal conference with all the members of
the company's board of directors except one, and with approval of those with whom he had communicated,
addressed a letter to Jose Ramirez, in Manila, accepting the offer contained in the memorandum of July 4th
for the exclusive agency of the Eclair films. A few days later, on August 5, he addressed another letter couched
in the same terms, likewise accepting the office of the exclusive agency for the Milano Films.

The memorandum offer contained a statement of the price at which the films would be sold, the quantity
which the representative of each was required to take and information concerning the manner and intervals
of time for the respective shipments. The expenses of packing, transportation and other incidentals were to be
at the cost of the purchaser. There was added a clause in which J. F. Ramirez described his function in such
transactions as that of a commission agent and stated that he would see to the prompt shipment of the films,
would pay the manufacturer, and take care that the films were insured — his commission for such services
being fixed at 5 per cent.

What we consider to be the most portion of the two letters of acceptance written by R. J. Fernandez to Jose
Ramirez is in the following terms:

We willingly accepted the officer under the terms communicated by your father in his letter dated at
Paris on July 4th of the present year.

These communications were signed in the following form, in which it will be noted the separate signature of R.
J. Fernandez, as an individual, is placed somewhat below and to the left of the signature of the Orientalist
Company as singed by R. J. Fernandez, in the capacity of treasurer:

THE ORIENTALIST COMPANY,

By R. J. FERNANDEZ,
Treasurer,

R. J. FERNANDEZ.

Both of these letters also contained a request that Jose Ramirez should at once telegraph to his father in Paris
that his offer had been accepted by the Orientalist Company and instruct him to make a contract with the film
companies, according to the tenor of the offer, and in the capacity of attorney-in-fact for the Orientalist
Company. The idea behind the latter suggestion apparently was that the contract for the films would have to
be made directly between the film-producing companies and the Orientalist Company; and it seemed
convenient, in order to save time, that the Orientalist Company should clothed J. F. Ramirez with full authority
as its attorney-in-fact. This idea was never given effect; and so far as the record shows, J. F. Ramirez himself
procured the films upon his own responsibility, as he indicated in the officer of July 4 that he would do, with
the result that the only contracting parties in this case are J. F. Ramirez of the one part, and the Orientalist
Company, with Ramon J. Fernandez of the other.
In due time the films began to arrive in Manila, a draft for the cost and expenses incident to each shipment
being attached to the proper bill of lading. It appears that the Orientalist Company was without funds to meet
these obligations and the first few drafts were dealt with in the following manner: The drafts, upon presented
through the bank, were accepted in the name of the Orientalist Company by its president B. Hernandez, and
were taken up by the latter with his own funds. As the drafts had thus been paid by B. Hernandez, the films
which had been procured by he payment of said drafts were treated by him as his own property; and they in
fact never came into the actual possession of the Orientalist Company as owner at all, though it is true
Hernandez rented the films to the Orientalist Company and they were exhibited by it in the Oriental Theater
under an arrangement which was made between him and the theater's manager.

During the period between February 27, 1914, and April 30, 1914, there arrived in the city of Manila several
remittances of films from Paris, and it is these shipments which have given occasion for the present action. All
of the drafts accompanying these films were drawn, as on former occasions, upon the Orientalist Company;
and all were accepted in the name of B. Hernandez, except the last, which was accepted by B. Hernandez
individually. None of the drafts thus accepted were taken up by the drawee or by B. Hernandez when they fell
due; and it was finally necessary for the plaintiff himself to take them up as dishonored by non-payment.

Thereupon this action was instituted by the plaintiff on May 19, 1914, against the Orientalist Company, and
Ramon J. Fernandez. As the films which accompanied the dishonored were liable to deteriorate, the court,
upon application of the plaintiff, and apparently without opposition on the part of the defendants, appointed
a receiver who took charge of the films and sold them. The amount realized from this sale was applied to the
satisfaction of the plaintiff's claim and was accordingly delivered to him in part payment thereof. At trial
judgment was given for the balance due to the plaintiff, namely P6,018.93, with interest from May 19, 1914,
the date of the institution of the action. In the judgment of the trial court the Orientalist Company was
declared to be a principal debtor and Ramon J. Fernandez was declared to be liable subsidiarily as guarantor.
From this judgment both of the parties defendant appealed.

In this Court neither of the parties appellant make any question with respect to the right of the plaintiff to
recover from somebody the amount awarded by the lower court; but each of the defendants insists the other
is liable for the whole. It results that the real contention upon this appeal is between the two defendants.

It is stated in the brief of the appellant Ramon J. Fernandez and the statement is not challenged by the
Orientalist Company that the judgment has already been executed as against the company is exclusively and
primarily liable the entire indebtedness, the question as to the liability of Ramon J. Fernandez would be
academic. But if the latter is liable as principal obligor for the whole or any part of the debt, it will be necessary
to modify the judgment in order to adjust the rights of the defendants in accordance with such finding.

It will be noted that the action is primarily founded upon the liability created by the letters dated July 30th and
August 5, 1913, in connection with the plaintiff's offer of July 4, 1913; and both of the letters mentioned are
copied into the complaint as the foundation of the action. The action is not based upon the dishonored drafts
which were accepted by B. Hernandez in the name of the Orientalist Company; and although these drafts, as
well as the last draft, which was accepted by B. Hernandez individually, have been introduced in evidence, this
was evidently done for the purpose of proving the amount of damages which the plaintiff was entitled to
recover.

In the discussion which is to follow we shall consider, first, the question of the liability of the corporation upon
the contracts contained in the letters of July 30 and August 5, 1913, and, secondly the question of the liability
of Ramon J. Fernandez, based upon his personal signature to the same documents.
As to the liability of the corporation a preliminary point of importance arises upon the pleadings. The action,
as already stated, is based upon documents purporting to be signed by the Orientalist Company, and copies of
the documents are set out in the complaint. It was therefore incumbent upon the corporation, if it desired to
question the authority of Fernandez to bind it, to deny the due execution of said contracts under oath, as
prescribed in section 103 of the Code of Civil procedure. Said section, in the part pertinent to the situation
now under consideration, reads as follows:

When an action is brought upon a written instrument and the complaint contains or has annexed or
has annexed a copy of such instrument, the genuineness and due execution of the instrument shall be
deemed admitted, unless specifically denied under oath in the answer.

No sworn answer denying the genuineness and due execution of the contracts in question or questioning the
authority of Ramon J. Fernandez to bind the Orientalist Company was filed in this case; but evidence was
admitted without objection from the plaintiff, tending to show that Ramon J. Fernandez had no such
authority. This evidence consisted of extracts from the minutes of the proceedings of the company's board of
directors and also of extracts from the minutes of the proceedings of the company's stockholders, showing
that the making of this contract had been under consideration in both bodies and that the authority to make
the same had been withheld by the stockholders. It therefore becomes necessary for us to consider whether
the administration resulting from the failure of the defendant company to deny the execution of the contracts
under oath is binding upon it for all purposes of this lawsuit, or whether such failure should be considered a
mere irregularity of procedure which was waived when the evidence referred to was admitted without
objection from the plaintiff. The proper solution of this problem makes it necessary to consider carefully the
principle underlying the provision above quoted.

That the situation was one in which an answer under oath denying the authority of the agent should have
been interposed, supposing that the company desired to contest this point, is not open to question. In the
case of Merchant vs. International Banking Corporation, (6 Phil. Rep., 314), it appeared that one Brown has
signed the name of the defendant bank as guarantor of a promissory note. The bank was sued upon this
guaranty and at the hearing attempted to prove that Brown had no authority to bind the bank by such
contract. It was held that buy failing to deny the contract under oath, the bank had admitted the genuineness
and due execution thereof, and that this admission extended not only to the authenticity of the signature of
Brown but also to his authority. Said Justice Willard: "The failure of the defendant to deny the genuineness
and due execution of this guaranty under oath was an admission not only of the signature of Brown, but also
his authority to make the contract in behalf of the defendant and of the power the contract in behalf of the
defendant and of the power of the defendant to enter into such a contract.

The rule thus stated is in entire accord with the doctrine prevailing in the United States, as will be seen by
reference to the following, among other authorities:

The case of Barrett Mining Co. vs. Tappan (2 Colo., 124) was an action against a mining corporation upon an
appeal bond. The name of the company had been affixed to the obligation by an agent, and no sufficient
affidavit was filed by the corporation questioning its signature or the authority of the agent to bind the
company. It was held that the plaintiff did not have to prove the due execution of the bond and that the
corporation as to be taken as admitting the authority of the agent to make the signature. Among other things
the court said: "But it is said that the authority of Barrett to execute the bond is distinguishable from the
signing and, although the signature must be denied under oath, the authority of the agent need not be. Upon
this we observe that the statute manifestly refers to the legal effect of the signature, rather than the manual
act of singing. If the name of the obligor, in a bond, is subscribed by one in his presence, and by his direction,
the effect is the same as if his name should be signed with his own hand, and under such circumstances we do
not doubt that the obligor must deny his signature under oath, in order to put the obligee to proof of the
fact. Quit facit per aliam facit per se, and when the name is signed by one thereunto authorized, it is as much
as the signature of the principal as if written with his own hand. Therefore, if the principal would deny the
authority of the agent, as the validity of the signature is thereby directly attacked, the denial must be under
oath.

In Union Dry Company vs. Reid (26 Ga., 107), an action was brought upon a promissory note purporting to
have been given by on A. B., as the treasurer of the defendant company. Said the court: "Under the Judiciary
Act of 1799, requiring the defendant to deny on oath an instrument of writing, upon which he is sued, the plea
in this case should have been verified.

If the person who signed this note for the company, and upon which they are sued, was not authorized to
make it, let them say so upon oath, and the onus is then on the plaintiff to overcome the plea."

It should be noted that the provision contained in section 103 of our Code of Civil Procedure is embodied in
some form or other in the statutes of probably all of the American States, and it is not by any means peculiar
to the laws of California, though it appears to have been taken immediately from the statutes of that State.
(Secs. 447, 448, California Code of Civil Procedure.)

There is really a broader question here involved than that which relates merely to the formality of verifying
the answer with an affidavit. This question arises from the circumstance that the answer of the corporation
does not in any was challenge the authority of Ramon J. Fernandez to bind it by the contracts in question and
does not set forth, as a special defense, any such lack of authority in him. Upon well-established principles of
pleading lack of authority in an officer of a corporation to bind it by a contract executed by him in its name is a
defense which should be specially pleaded — and this quite apart from the requirement, contained in section
103, that the answer setting up such defense should be verified by oath. But is should not here escape
observation that section 103 also requires — in denial contemplated in that section shall be specific. An attack
on the instrument in general terms is insufficient, even though the answer is under oath. (Songco vs. Sellner,
37 Phil. Rep., 254.)

In the first edition of a well-known treatise on the laws of corporations we find the following proposition:

If an action is brought against a corporation upon a contract alleged to be its contract, if it desires to
set up the defense that the contract was executed by one not authorized as its agent, it must
plead non est factum. (Thompson on Corporations, 1st ed., vol. 6, sec. 7631.)

Again, says the same author:

A corporation can not avail itself of the defense that it had no power to enter into the obligation to
enforce which the suit is brought, unless it pleads that defense. This principle applies equally where the
defendant intends to challenge the power of its officer or agent to execute in its behalf the contract
upon which the action brought and where it intends to defend on the ground of total want of power in
the corporation to make such a contract. (Opus citat. sec. 7619.)

In Simon vs. Calfee (80 Ark., 65), it was said:

Though the power of the officers of a business corporation to issue negotiable paper in its name is not
presumed, such corporation can not avail itself of a want of power in its officers to bind it unless the
defense was made on such ground.
The rule has been applied where the question was whether corporate officer, having admitted power to make
a contract, had in the particular instance exceeded that authority, (Merill vs. Consumers' Coal Co., 114 N.Y.,
216); and it has been held that where the answer in a suit against a corporation on its note relies simply on the
want of power of the corporation to issue notes, the defendant can not afterwards object that the plaintiff has
not shown that the officer executing the note were empowered to do so. (Smith vs. Eureka Flour Mills Co., 6
Cal., 1.)

The reason for the rule enunciated in the foregoing authorities will, we think, be readily appreciated. In
dealing with corporations the public at large is bound to rely to a large extent upon outward appearances. If a
man is found acting for a corporation with the external indicia of authority, any person, not having notice of
want of authority, may usually rely upon those appearances; and if it be found that the directors had
permitted the agent to exercise that authority and thereby held him out as a person competent to bind the
corporation, or had acquiesced in a contract and retained the benefit supposed to have been conferred by it,
the corporation will be bound, notwithstanding the actual authority may never have been granted. The public
is not supposed nor required to know the transactions which happen around the table where the corporate
board of directors or the stockholders are from time to time convoked. Whether a particular officer actually
possesses the authority which he assumes to exercise is frequently known to very few, and the proof of it
usually is not readily accessible to the stranger who deals with the corporation on the faith of the ostensible
authority exercised by some of the corporate officers. It is therefore reasonable, in a case where an officer of a
corporation has made a contract in its name, that the corporation should be required, if it denies his authority,
to state such defense in its answer. By this means the plaintiff is apprised of the fact that the agent's authority
is contested; and he is given an opportunity to adduce evidence showing either that the authority existed or
that the contract was ratified and approved.

We are of the opinion that the failure of the defendant corporation to make any issue in its answer with
regard to the authority of Ramon J. Fernandez to bind it, and particularly its failure to deny specifically under
oath the genuineness and due execution of the contracts sued upon, have the effect of elimination the
question of his authority from the case, considered as a matter of mere pleading. The statute (sec. 103) plainly
says that if a written instrument, the foundation of the suit, is not denied upon oath, it shall be deemed to be
admitted. It is familiar doctrine that an admission made in a pleading can not be controverted by the party
making such admission; and all proof submitted by him contrary thereto or inconsistent therewith should
simply be ignored by the court, whether objection is interposed by the opposite party or not. We can see no
reason why a constructive admission, created by the express words of the statute, should be considered to
have less effect than any other admission.

The parties to an action are required to submit their respective contentions to the court in their complaint and
answer. These documents supply the materials which the court must use in order to discover the points of
contention between the parties; and where the statute says that the due execution of a document which
supplies the foundation of an action is to be taken as admitted unless denied under oath, the failure of the
defendant to make such denial must be taken to operate as a conclusive admission, so long as the pleadings
remain that form.

It is true that it is declared in section 109 of the Code of Civil Procedure that immaterial variances between the
allegations of a pleading and the proof shall be disregarded and the facts shall be found according to the
evidence. The same section, however, recognizes the necessity for an amendment of the pleadings. And
judgment must be in conformity with the case made in conformity with the case made in the pleadings and
established by the proof, and relief can not be granted that is substantially inconsistent with either. A party
can no more succeed upon a case proved but not alleged than upon a case alleged but nor proved. This rule of
course operates with like effect upon both parties, and applies equality to the defendants special defense as
to the plaintiffs cause of action.

Of course this Court, under section 109 of the Code of Civil Procedure, has authority even now to permit the
answer of the defendant to be amended; and if we believed that the interests of justice so required, we would
either exercise that authority or remand the cause for a new trial in court below. As will appear further on in
this opinion, however, we think that the interests of justice will best be promoted by deciding the case,
without more ado, upon the issues presented in the record as it now stands.

That we may not appear to have overlooked the matter, we will observe that two cases are cited from
California in which the Supreme Court of the State has held that where a release is pleaded by way of defense
and evidence tending to destroy its effect is introduced without objection, the circumstance that it was not
denied under oath is immaterial. In the earlier of these cases, Crowley, vs. Railroad Co. (60 Cal., 628), an action
was brought against a railroad company to recover damages for the death of the plaintiff's minor son, alleged
to have been killed by the negligence of the defendant. The defendant company pleaded by way of defense a
release purporting to be signed by the plaintiff, and in its answer inserted a copy of the release. The execution
of the release was not denied under oath; but at the trial evidence was submitted on behalf of the plaintiff
tending to show that at the time he signed the release, he was incompetent by reason of drunkenness to bind
himself thereby. It was held that inasmuch as this evidence had been submitted by the plaintiff without
objection, it was proper for the court to consider it. We do not question the propriety of that decision,
especially as the issue had been passed upon by a jury; but we believe that the decision would have been
more soundly planted if it had been said that the incapacity of the plaintiff, due to his drunken condition, was
a matter which did not involve either the genuineness or due execution of the release. Like the defenses of
fraud, coercion, imbecility, and mistake, it was a matter which could be proved under the general issue and
did not have to be set up in a sworn reply. (Cf. Moore vs. Copp, 119 Cal., 429, 432, 433.) A somewhat similar
explanation can, we think, be given of the case of Clark vs. Child in which the rule declared in the earlier case
was followed. With respect to both decisions which we merely observe that upon point of procedure which
they are supposed to maintain, the reasoning of the court is in our opinion unconvincing.

We shall now consider the liability of the defendant company on the merits just as if that liability had been
properly put in issue by a specific answer under oath denying the authority of Fernandez go to bind it. Upon
this question it must at the outset be premised that Ramon J. Fernandez, as treasurer, had no independent
authority to bind the company by signing its name to the letters in question. It is declared by signing its name
to the letters in question. It is declared in section 28 of the Corporation Law that corporate power shall be
exercised, and all corporate business conducted by the board of directors; and this principle is recognized in
the by-laws of the corporation in question which contain a provision declaring that the power to make
contracts shall be vested in the board of directors. It is true that it is also declared in the same by-laws that the
president shall have the power, and it shall be his duty, to sign contract; but this has reference rather to the
formality of reducing to proper form the contract which are authorized by the board and is not intended to
confer an independent power to make contract binding on the corporation.

The fact that the power to make corporate contract is thus vested in the board of directors does not signify
that a formal vote of the board must always be taken before contractual liability can be fixed upon a
corporation; for the board can create liability, like an individual, by other means than by a formal expression of
its will. In this connection the case of Robert Gair Co. vs. Columbia Rice Packing Co. (124 La., 194) is instructive.
If there appeared that the secretary of the defendant corporation had signed an obligation on its behalf
binding it as guarantor of the performance of an important contract upon which the name of another
corporation appeared as principal. The defendant company set up by way of defense that is secretary had no
authority to bind it by such an engagement. The court found that the guaranty was given with the knowledge
and consent of the president and directors, and that this consent of the president and directors, and that this
consent was given with as much observance of formality as was customary in the transaction of the business
of the company. It was held that, so far as the authority of the secretary was concerned, the contract was
binding. In discussing this point, the court quoted with approval the following language form one of its prior
decisions:

The authority of the subordinate agent of a corporation often depends upon the course of dealings
which the company or its director have sanctioned. It may be established sometimes without reference
to official record of the proceedings of the board, by proof of the usage which the company had
permitted to grow up in business, and of the acquiescence of the board charged with the duty of
supervising and controlling the company's business.

It appears in evidence, in the case now before us, that on July 30, the date upon which the letter accepting the
offer of the Eclair films was dispatched the board of directors of the Orientalist Company convened in special
session in the office of Ramon J. Fernandez at the request of the latter. There were present the four members,
including the president, who had already signified their consent to the making of the contract. At this meeting,
as appears from the minutes, Fernandez informed the board of the offer which had been received from the
plaintiff with reference to the importation of films. The minutes add that terms of this offer were approved;
but at the suggestion of Fernandez it was decided to call a special meeting of the stockholders to consider the
matter and definite action was postponed.

The stockholders meeting was convoked upon September 18, 1913, upon which occasion Fernandez informed
those present of the offer in question and of the terms upon which the films could be procured. He estimated
that the company would have to make an outlay of about P5,500 per month, if the offer for the two films
should be accepted by it.

The following extracts from the minutes of this meeting are here pertinent:

Mr. Fernandez informed the stockholders that, in view of the urgency of the matter and for the
purpose of avoiding that other importers should get ahead of the corporation in this regard, he and
Messrs. B. Hernandez, Leon Monroy, and Dr. Papa met for the purpose of considering the acceptance
of the offer together with the responsibilities attached thereto, made to the corporation by the film
manufacturers of Eclair and Milano of Paris and Italy respectively, inasmuch as the first shipment of
films was then expected to arrive.

At the same time he informed the said stockholders that he had already made arrangements with
respect to renting said films after they have been once exhibited in the Cine Oriental, and that the
corporation could very well meet the expenditure involved and net a certain profit, but that, if we
could enter into a contract with about nine cinematographs, big gains would be obtained through such
a step.

The possibility that the corporation might not see fit to authorize the contract, or might for lack of funds be
unable to make the necessary outlay, was foreseen; and in such contingency the stockholders were informed,
that the four gentlemen above mentioned (Hernandez, Fernandez, Monroy, and Papa) "would continue
importing said films at their own account and risk, and shall be entitled only to a compensation of 10 per cent
of their outlay in importing the films, said payment to be made in shares of said corporation, inasmuch as the
corporation is lacking available funds for the purpose, and also because there are 88 shares of stock remaining
still unsold."
In view of this statement, the stockholders adopted a resolution to the effect that the agencies of the Eclair
and Milano films should be accepted, if the corporation could obtain the money with which to meet the
expenditure involved, and to this end appointed a committee to apply to the bank for a credit. The evidence
shows that an attempt was made, on behalf of the corporation, to obtain a credit of P10,000 from the Bank of
the Philippine Islands for the purpose indicated, but the bank declined to grant his credit. Thereafter another
special meeting of the shareholders of the defendant corporation was called at which the failure of their
committee to obtain a credit from the bank was made known. A resolution was thereupon passed to the effect
that the company should pay to Hernandez, Fernandez, Monroy, and Papa an amount equal to 10 per cent of
their outlay in importing the films, said payment to be made in shares of the company in accordance with the
suggestion made at the previous meeting. At the time this meeting was held three shipment of the films had
already been received in Manila.

We believe it is a fair inference from the recitals of the minutes of the stockholders meeting of September 18,
and especially from the first paragraph above quoted, that this body was then cognizant that the officer had
already been accepted in the name of the Orientalist Company and that the films which were then expected
to arrive were being imported by virtue of such acceptance. Certainly four members of the board of directors
there present were aware of this fact, as the letter accepting the offer had been sent with their knowledge and
consent. In view of this circumstance, a certain doubt arises whether they meant to utilize the financial
assistance of the four so-called importers in order that the corporation might bet the benefit of the contract
for the films, just as it would have utilized the credit of the bank if such credit had been extended. If such was
the intention of the stockholders their action amounted to a virtual, though indirect, approval of the contract.
It is not however, necessary to found the judgment on this interpretation of the stockholders proceedings,
inasmuch as we think for reasons presently to be stated, that the corporation is bound, and we will here
assume that in the end the contract were not approved by the stockholders.

It will be observed that Ramon J. Fernandez was the particular officer and member of the board of directors
who was most active in the effort to secure the films for the corporation. The negotiations were conducted by
him with the knowledge and consent of other members of the board; and the contract was made with their
prior approval. As appears from the papers in this record, Fernandez was the person to who keeping was
confided the printed stationery bearing the official style of the corporation, as well as rubber stencil with
which the name of the corporation could be signed to documents bearing its name.

Ignoring now, for a moment, the transactions of the stockholders, and reverting to the proceedings of the
board of directors of the Orientalist Company, we find that upon October 27, 1913, after Fernandez had
departed from the Philippine Islands, to be absent for many months, said board adopted a resolution
conferring the following among other powers on Vicente Ocampo, the manager of the Oriental theater,
namely:

(1) To rent a box for the films in the "Kneeler Building."

(4) To be in charge of the films and of the renting of the same.

(5) To advertise in the different newspapers that we are importing films to be exhibited in the Cine
Oriental.

(6) Not to deliver any film for rent without first receiving the rental therefor or the guaranty for the
payment thereof.

(7) To buy a book and cards for indexing the names of the films.
 (10) Upon the motion of Mr. Ocampo, it was decided to give ample powers to the Hon. R. Acuña to
enter into agreements with cinematograph proprietors in the provinces for the purpose of renting
films from us.

It thus appears that the board of directors, before the financial inability of the corporation to proceed with the
project was revealed, had already recognized the contract as being in existence and had proceeded to take the
steps necessary to utilize the films. Particularly suggestive is the direction given at this meeting for the
publication of announcements in the newspapers to the effect that the company was engaged in importing
films. In the light of all the circumstances of the case, we are of the opinion that the contracts in question
were thus inferentially approved by the company's board of directors and that the company is bound unless
the subsequent failure of the stockholders to approve said contracts had the effect of abrogating the liability
thus created.

Both upon principle and authority it is clear that the action of the stockholders, whatever its character, must
be ignored. The functions of the stockholders of a corporation are, it must be remembered, of a limited
nature. The theory of a corporation is that the stockholders may have all the profits but shall turn over the
complete management of the enterprise to their representatives and agents, called directors. Accordingly,
there is little for the stockholders to do beyond electing directors, making by-laws, and exercising certain other
special powers defined by-law. In conformity with this idea it is settled that contract between a corporation
and third person must be made by the director and not by the stockholders. The corporation, in such matters,
is represented by the former and not by the latter. (Cook on Corporations, sixth ed., secs. 708, 709.) This
conclusion is entirely accordant with the provisions of section 28 of our Corporation Law already referred to. It
results that where a meeting of the stockholders is called for the purpose of passing on the propriety of
making a corporate contract, its resolutions are at most advisory and not in any wise binding on the board.

In passing upon the liability of a corporation in cases of this kind it is always well to keep in mind the situation
as it presents itself to the third party with whom the contract is made. Naturally he can have little or no
information as to what occurs in corporate meetings; and he must necessarily rely upon the external
manifestations of corporate consent. The integrity of commercial transactions can only be maintained by
holding the corporation strictly to the liability fixed upon it by its agents in accordance with law, and we would
be sorry to announce a doctrine which would permit the property of a man in the city of Paris to be whisked
out of his hands and carried into a remote quarter of the earth without recourse against the corporations
whose name and authority had been used in the manner disclosed in this case. As already observed, it is
familiar doctrine that if a corporation knowingly permits one of its officer, or any other agent, to do acts within
the scope of an apparent authority, and thus hold him out to the public as possessing power to do those acts,
the corporation will as against any one who has in good faith dealt with the corporation through such agent,
be estopped from denying his authority; and where it is said "if the corporation permits" this means the same
as "if the thing is permitted by the directing power of the corporation."

It being determined that the corporation is bound by the contract in question, it remains to consider the
character of the liability assumed by R. J. Fernandez, in affixing his personal signature to said contract. The
question here is whether Fernandez is liable jointly with the Orientalists Company as a principal obligor, or
whether his liability is that of a guarantor merely.

As appears upon the face of the contracts, the signature of Fernandez, in his individual capacity, is not in line
with the signature of the Orientalist Company, but is set off to the left of the company's signature and
somewhat who sign contracts in some capacity other than that of principal obligor to place their signature
alone would justify a court in holding that Fernandez here took upon himself the responsibility of a guarantor
rather than that of a principal obligor. We do, however, think, that the form in which the contract is signed
raises a doubt as to what the real intention was; and we feel justified, in looking to the evidence to discover
that intention. In this connection it is entirely clear, from the testimony of both Ramirez and Ramon J.
Fernandez, that the responsibility of the latter was intended to be that of guarantor. There is, to be sure, a
certain difference between these witnesses as to the nature of this guaranty, inasmuch as Fernandez would
have us believe that his name was signed as a guaranty that the contract would be approved by the
corporation, while Ramirez says that the name was put on the contract for the purpose of guaranteeing, not
the approval of the contract, but its performance. We are convinced that the latter was the real intention of
the contracting parties.

We are not unmindful of the force of that rule of law which declares that oral evidence is admissible to show
the character in which the signature was affixed. This conclusion is perhaps supported by the language of the
second paragraph of article 1281 of the Civil Code, which declares that if the words of a contract should
appear contrary to the evident intention of the parties, the intention shall prevail. But the conclusion reached
is, we think, deducible from the general principle that in case of ambiguity parol evidence is admissible to
show the intention of the contracting parties.

It should be stated in conclusion that as the issues in this case have been framed, the only question presented
to this court is: To what extent are the signatory parties to the contract liable to the plaintiff J. F. Ramirez? No
contentious issue is raised directly between the defendants, the Orientalist Company and Ramon H.
Fernandez; nor does the present the present action involve any question as to the undertaking of Fernandez
and his three associates to effect the importation of the films upon their own account and risk. Whether they
may be bound to hold the company harmless is a matter upon which we express no opinion.

The judgment appealed from is affirmed, with costs equally against the two appellant. So ordered.

G.R. No. L-26743             October 19, 1927

THE BANK OF THE PHILIPPINE ISLANDS, plaintiff-appellee,

vs.
FIDELITY & SURETY COMPANY OF THE PHIL., defendant-appellant.

Ross, Lawrence and Selph for appellant.

Araneta and Zaragoza for appellee.

MALCOLM, J.:

The purpose of this action is through the reformation of a written instrument of guaranty upon the ground of
mistake — the alleged mistake consisting of the substitution of the words "Laguna Coconut Oil Co." for "Bank
of the Philippine Islands" — to obtain for the Bank of the Philippine Islands a judgment for P55,000, with
interest, against the Fidelity and Surety Company of the Philippine Islands. The case is an old friend of the
courts which has been with us twice before, and which, are ungracious enough in our welcome to hope, has
been seen by the court for the last time.

STATEMENT OF THE CASE

The original action was commenced by the Bank of the Philippine Islands against the Laguna Coconut Oil Co.
and the Fidelity and Surety Company of the Philippine Islands on August 25, 1922. The Fidelity and Surety
Company interposed a demurrer to the plaintiff's complaint which was sustained by the trial court. The
plaintiff thereupon filed an amended complaint. The Fidelity and Surety Company again demurred to the
amended complaint, and again it was sustained. Plaintiff appealed to the Supreme Court where the ruling was
reversed and the case remanded for further proceedings (44 Phil., 618). Thus ended the preliminary skirmish.

On the return of the record to the lower court, the Fidelity and Surety Company filed an answer. The Laguna
Coconut Oil Co. made no defense, and judgment by default was obtained against it. The case was submitted to
the court upon a stipulation of facts. Upon the pleadings and the agreed facts, the trial court rendered
judgment against the Fidelity and Surety Company of the Philippine Islands for the full amount of the note,
with interest. From this judgment, the Fidelity and Surety Company appealed to be well taken, for the
principal reason that the action involved a reformation of the contract of guaranty, which was not put in issue
by the pleadings. Accordingly, the judgment was reversed and the action dismissed, "without prejudice to the
bringing of another action upon the same cause." (48 Phil., 5.) Thus ended a major engagement between the
parties.

On October 20, 1925, the Bank of Philippine Islands commenced a new action against the defendant, the
Fidelity and Surety Company of the Philippine Islands, in the Court of First Instance of Manila. The defendant
demurred. The trial court overruled the demurrer, and the defendant answered. Evidence was produced on
behalf of the plaintiff. The judgment was in favor of the plaintiff for the sum of P50,000 plus interest,
attorney's fees, and costs. It is from this judgment that the defendant has appealed, assigning six errors which,
it is alleged, were committed by the trial court. Our decision should now conclude the judicial warfare.

STATEMENT OF THE FACTS

On April 26, 1920, the Laguna Coconut Oil Co. executed in favor of the Philippine Vegetable Oil Company, Inc.,
the following promissory note:

LAGUNA COCONUT OIL CO.

Vegetable Oil Manufacturers
Manila, P. I.

P50,000

One month after date, we promise to pay to the Philippine Vegetable Company, Inc., or order at
the City of Manila, Philippine Island, the sum of fifty thousand pesos (P50,000) Philippine
currency; value received.

In case of non-payment of this note at maturity, we agree to pay interest at the rate of nine per
cent (9%) per annum on the said amount and the further sum of P5,000 in full, without any
deduction as and for costs, expenses and attorney's fees for collection whether actually
incurred or not.

Manila, Philippine Islands, April 26, 1920.

LAGUNA COCONUT OIL CO.          

BY (Sgd.) BALDOMERO COSME President          
On May 3, 1920, the Fidelity and Surety Company of the Philippine Islands made a notation on the note
reading as follows:

MANILA,           May 3, 1920          

For value, received, we hereby obligate ourselves to hold the Laguna Coconut Oil Co. harmless against loss for
having discounted the foregoing note at the value stated therein.

FIDELITY AND SURETY CO. OF THE PHILIPPINE ISLANDS

By (Sgd.) J. ELMER DELANEY          

Vice-President          
Cedula F-3443, Jan. 2,1920, Manila, P.I.          

Attest:

(Sdg.) A.D. TANNER          

Secretary-Treasurer          
Cedula F-3447, Jan. 2, 1920, Manila, P. I.          

On May 4, 1920, the Philippine Vegetable Oil Company endorsed the note in blank and delivered it to the Bank
of the Philippine Islands. It is possible that the Philippine Vegetable Oil Company was paid the sum of P50,000
therefor. At least after maturity of the note, demand for its payment was made on the Laguna Coconut Oil Co.,
the Philippine Vegetable Oil Company, and the Fidelity and Surety Company of the Philippine Islands, all of
whom refused to pay, the Laguna Coconut Oil Co. being admittedly insolvent. The correspondence of the bank
with the Fidelity and Surety Company is in the record, and is emphasized by the plaintiff as indicative of
responsibility assumed by the defendant, but is objected to by the defendant as for minor importance.

The effort of the plaintiff on its last appearance in the trial court was to connect up the promissory note of
P50,000 with an existing obligation of the Philippine Vegetable Oil Company in the form of another promissory
note. The evidence was also intended to demonstrate that a clear error had been committed when reference
was made to the Laguna Coconut Oil Co. in the notation on the note. The plaintiff's theory was confirmed by
the trial judge. His Honor emphasized that the note could not have been discounted by the Laguna Coconut
Oil Co., and that this must logically have been done by the Bank of the Philippine Islands. Without paying
particular attention to certain of the assignment of errors, let us ascertain if this position is tenable and if the
plaintiff has made out its case.

OPINION

According to section 285 of the Code of Civil Procedure, a written agreement is presumed to contain all the
terms of the agreement. The Civil Code has articles to the same effect. However, the Code of Civil Procedure
permits evidence of the terms of the agreement other than the contents of the writing in the following case:
Where a mistake or imperfection of the writing, or its failure to express the true intent and agreement of the
parties, is put in issue by the pleadings. This provision of our local law was construed by the United States
Supreme Court in the well-known case of the Philippine Sugar Estates Development Company vs. Government
of the Philippine Islands ([1917], 247 U. S.385). It was there announced that the courts of equity will reform a
written contract where, owing to mutual mistake, the language used therein did not fully or accurately express
the agreement and intent of the parties. It was also stated that the relief by way of reformation will not be
granted unless the proof of mutual mistake be "of the clearest and most satisfactory character." The court
finally said that the evidence introduced by the appellant met these stringent requirements.

Our local decisions have applied the rule that the amount of evidence necessary to sustain a prayer for relief
where it is sought to impugn a fact in a document is always more than a mere preponderance of the evidence.
(Centenera vs. Garcia Palicio [1915], 29 Phil., 470; Mendozana vs. Philippine Sugar Estates Development Co.
and De Garay [1921], 41 Phil., 475.) Has the plaintiff carried the burden of proof in this manner and to this
extent? That is the question.

In reaching out to consider the possibilities of the case, we are first confronted with the language of the court
when the case was last here. Mr. Justice Ostrand, in the course of the opinion in that instance, observed: "The
writing upon which the action is brought does not in terms show any obligation in favor of the plaintiff and the
action can only be maintained upon the theory that the writing does not express the true intent of the parties.
We may surmise that the guarantee in question was intended for the benefit of the party who subsequently
discounted the note, but we cannot be certain." It was then pointed out that the note may have been merely
an accommodation note, and that the guaranty may have been intended for the protection of the maker.
However, the parties have not seen fit to take advantage of this suggestion.

An examination of the note and the guaranty discloses that in the notation to the note the word "hold" is
interlined. This indicates that the Vice-President of the Fidelity and Surety Company had his particular
attention called to the language of the note, and corrected the typewritten matter by inserting in ink the word
quoted. That the writer of the notation fell into a further error in obligating the company to the Laguna
Coconut Oil Co. may be possible. That the writer may have had in mind to use the words Philippine Vegetable
Oil Company, Inc. may also be possible. The names of the two parties before the guarantor were Laguna
Coconut Oil Co. and Philippine Vegetable Oil Company, Inc. The guaranteeing company could mot very well
have assumed that the Bank of the Philippine Islands at a later date was contemplating discounting the note.

It is also apparent on the face of the note that it was to draw interest at maturity. This fact would disprove
discount of the note by the Bank of the Philippine Islands on or before May 3, 1920. In truth, it is not certain
that the bank ever did discount the note. At least, plaintiff in its second amended complaint averred that the
promissory note "was discounted by Philippine Vegetable Oil Company, Inc."

The bookkeeping entries of the bank are hardly competent against a stranger to the transaction, such as the
defendant in this case. Moreover, it will not escape notice that one entry at least in plaintiff's Exhibit E has
been changed by erasing the words "y Fidelity and Surety Co. of the Phil. Islands" and substituting "Philippine
Vegetable Oil Co. garatizado p. Fidelity & Surety Co. of the Phil. Islands." The book entries taken at their face
value are not conclusive.

The correspondence between the parties fails to disclose either an express or implied admission that the
defendant had executed the guaranty in question in favor of the plaintiff bank. There is nothing in these
exhibits from which any such admission can be inferred. An attempt to interpret the correspondence merely
leads open further into the field of speculation. Yet the rule is that an admission or declaration to be
competent must have been expressed in definite, certain, and unequivocal language. (1 R. C. L., 481.) Here the
exhibits are couched in language which is neither definite, certain, nor unequivocal for nowhere do they
contain an admission of a guaranty made by the defendant company for the protection of the Bank of the
Philippine Islands. 1awph!l.net

To justify the reformation of a written instrument upon the ground of mistake, the concurrence of three things
are necessary: First, that the mistake should be of a fact; second, that the mistake should be proved by clear
and convincing evidence; and, third, that the mistake should be common to both parties to the instrument.
The rule is, as has been above stated, that the mistake must be mutual. There may have been a mistake here.
It would, however, seem to be straining the natural course of events to hold the Fidelity and Surety Company
of the Philippine Islands a party to that mistake.

It may be that the majority has not approached a decision in this case in a spirit of tolerant sympathy. The
plaintiff has filed three distinct and conflicting complaints. It has not remained loyal to any one theory of the
case. For instance, it has alleged at various times that the guaranty of the defendant was in favor of the
Laguna Coconut Oil Co., and that the guaranty was in favor of the Bank of the Philippine Islands; that the note
was discounted by the Philippine Vegetable Oil Company and that the note was discounted by the Bank of the
Philippine Islands; that there was no mutual mistake and that there was mutual mistake. The court was thus
justified in its statement when the case was here before when it said: In view of the fact that the case has
been pending for several years, that it has been before this court once before, and that the plaintiff has had
ample opportunity to remedy the defect in its pleadings, we would be warranted in definitely absolving the
appellant from the complaint, but the majority of the court is of the opinion that the plaintiff should be given
another opportunity to prosecute its claim."

With all the various pleadings, all the various incidents, all the various facts, all the various legal principles, and
all the various possibilities to the forefront, we cannot bring ourselves to conclude that the plaintiff, by proof
of the clearest and most satisfactory character constituting more than a preponderance of the evidence, has
established a mutual mistake. Instead, the proof is left far behind that goal.

In accordance with the foregoing, the judgment appealed from will be reversed, and the proceedings
definitely dismissed, without special pronouncement as to costs in either instance. This order will also serve to
deny the two motions of reconsideration filed by the appellee.

Johnson, Ostrand, Johns and Villa-Real, JJ., concur.

Separate Opinions

AVANCEÑA, C.J., STREET, VILLAMOR and ROMUALDEZ, JJ., dissenting:

In the opinion of the undersigned this is a clear case for reformation of an instrument and enforcement of the
same as reformed. The contract which is the subject of the action is found in the indorsement of the
defendant Fidelity and Surety Company appended to a note for P50,000, signed by the Laguna Coconut Oil
Co., and payable to the Philippine Vegetable Oil Co., Inc. The indorsement referred to reads as follows:

MANILA, May 3, 1920          

For value received, we hereby obligated ourselves to hold the Laguna Coconut Oil Co. harmless against loss for
having discounted the foregoing note at the value stated therein.
 FIDELITY AND SURETY CO. OF THE P.I.                    
BY J. ELMER DELANEY"                    

This contract has already been the subject of a former action by the same plaintiff against the same defendant
and the Coconut Oil Co.; but in that case reformation of the contract was not sought and this court held that,
as the contract did not purport to bind the defendant Surety Company to the Bank of the Philippine Islands no
recovery could be had thereon by the bank. But at the same time the decision was made without prejudice to
another action, the idea evidently being that an action could be maintained for the reformation and
enforcement of the instrument.

The parties concerned are now before us in an action seeking in effect reformation and enforcement of the
contract as reformed, though in the petitory part of the complaint it is not put exactly in that way. Under the
facts proved and prayer for general relief, a right to obtain reformation and enforcement of the reformed
contract is evident.

An examination of the indorsement, or contract, which is the subject of the action shows that the Fidelity and
Surety Company acknowledges that it has received value for placing its signature on said indorsement,
thereby nominally obligating itself to hold that Laguna Coconut Oil Co. (sic?) harmless against loss for having
discounted the note. Although the mistake is not obvious to the superficial reader, the words used make an
impossible situation and completely frustrate the manifest intention of the parties. It is proved as a fact that
the Laguna Coconut Oil Co. was debtor to the Philippine Vegetable Oil Co. and that the note to which the
indorsement of guaranty is appended was given for that indebtedness. That an error was made in the wording
of the indorsement is obvious and undeniable. The intention of the contracting parties could only have been
that the Fidelity and Surety Company should hold harmless the person or entity discounting the note. The
plaintiff did in fact discount said note on the faith of this indorsement, and the instrument should be reformed
so as to give expression to the liability of the defendant company to the bank.

In dealing with this situation, it should not be forgotten that the defendant company evidently intended to
obligate itself to someone or other, and the attitude of the court should be favorable to the giving of effect to
the intention of the parties rather than favorable to its frustration. By the decision of the court in this case, the
Fidelity and Surety Company is entirely free from the obligation of guaranty in respect to this note, although it
received value for that very undertaking. We therefore dissent.

G.R. No. L-17392      December 17, 1966

JOSE SORIANO, plaintiff-appellant,
vs.
COMPAÑIA GENERAL DE TABACOS DE FILIPINAS, defendant-appellant.

Tañada, Teehankee and Carreon for plaintiff and appellant.

Ponce Enrile, Sequion, Reyna, Montecillo and Bello for defendant and appellant.

BARRERA, J.:

This is an appeal taken by both parties from the decision of the Court of First Instance of Manila which
rendered judgment for the plaintiff-appellant, Jose Soriano, on the principal claim, denying, however, the
latter's claim for damages but granting to defendant-appellant, Compañia General de Tabacos de Filipinas, its
counterclaim.
Plaintiff's complaint alleges, among others, the following: That sometime in September 1937, defendant
granted plaintiff a crop loan account to finance the planting, cultivation, harvesting, and milling of sugar cane
in plaintiff's various sugar cane plantations in Negros Occidental; that to secure payment of the various
amounts which plaintiff would withdraw from said crop loan account, plus the correspondent interest, plaintiff
on September 17, 1937, executed a deed of mortgage in favor of defendant, mortgaging to the latter the
properties specified and described therein; that the parties expressly stipulated that subject to its terms and
conditions, the deed of mortgage could be renewed upon their mutual agreement at the end of the crop year;
that pursuant to the said renewal clause, plaintiff and defendant executed on or about August 5, 1941 another
document entitled "Credito Sobre Azucar Renovacion De hipoteca Con Garnatia Adicional" for the 1941-42
crop year, by virtue of which the former deed of mortgage was renewed and plaintiff granted an additional
crop loan of P253,000.00 for the 1941-42 crop year; that to guarantee the payment of this additional crop loan
plus the interest that would be due thereon as well as the payment of the outstanding balance under the
previous crop loans, plaintiff mortgaged in favor of defendant the same sugar plantations formerly mortgaged
under the previous deed; that as additional security therefor, plaintiff likewise mortgaged the sugar cane crops
that would be planted and harvested from the sugar plantations during the 1941-42 crop year, the sugar that
would be produced and milled from said sugar cane crops during the said crop year, and all the centrifugal
sugar with 96 degrees or more of polarization that would be produced from any sugar cane plantation of
plaintiff for the 1941-42 crop year; that plaintiff obligated himself to assign and deliver to defendant the
correspondent quedans pertaining to all the sugar mortgaged; that during the crop year 1941-42 plaintiff
produced a total of 65,787.53 piculs of export sugar, which, together with the other sugar produced by
plaintiff, was, pursuant to the agreement, delivered by plaintiff to defendant for its sale at the most
advantageous prices, the proceeds of which sale to be credited to plaintiff's account; that pursuant to the
agreement of August 5, 1941, plaintiff had been obtaining various sums from defendant from time to time,
which with interest thereon, and after deducting the proceeds of the sale in 1941 of a small part of plaintiff's
sugar delivered to defendant, amounted to P648,806.06 as of December 29, 1941; that in the computation of
the balance due from plaintiff, defendant did not include the proceeds of the sale of 51,528,01 piculs of sugar
belonging to plaintiff and delivered to defendant, which sale was willfully withheld from plaintiff; that the
amount of P648,806.06 was carried in the books of the defendant as the total indebtedness of plaintiff for
which defendant continued to charge plaintiff interest at the rate of seven per cent (7%) per annum
compounded every six months, which was and is the usual rate of interest charged by defendant on crop loans
granted by it to planer; that during the Japanese occupation defendant sent periodic statement of accounts to
plaintiff, who, noticing from said statements that his debt was considerably increasing due to the
accumulation of the interest charged by the defendant and in view of defendant's demand for payment as
expressed or implied in said statements of account, decided to pay and did pay as much of his supposed debt
as he could during the Japanese occupation by borrowing money from his business associates and selling
some of his valuable real and personal properties; that shortly after the liberation, plaintiff made several
inquiries from defendant about the status of his export sugar produced during the 1941-42 crop year
amounting to 65,787.53 piculs which plaintiff delivered to defendant; that plaintiff was informed by the
defendant that said sugar was destroyed during the war and it advised plaintiff to file a war damage claim
before the War Damage Commission of the United States; that acting on the said advice and by virtue of the
certification in writing issued by defendant attesting to the loss of said sugar during the war, plaintiff filed the
corresponding war damage claim and was accordingly paid by the War Damage Commission the sum of
P130,000.00 which plaintiff is willing to return to the United States Government; that plaintiff received from
defendant an itemized statement of account dated May 28, 1949 regarding his pre-war crop loan for the 1940-
41 and 1941-42 crop years, which account, after deduction of the payments made by plaintiff during the
Japanese occupation, showed a balance of P28,677.35 due the defendant as of March 10, 1945 which amount
increased to P37,078.00 as of December 29, 1948 as a result of the addition of compound interest being
charged by defendant; that after receipt of the above mentioned statement of account, plaintiff investigated
as to what really happened to the export sugar he delivered to defendant and discovered that 51,528.01 piculs
of sugar, instead of having been burned and destroyed during the last war as falsely represented by the
defendant to plaintiff and to the War Damage Commission, had actually been shipped to and sold by the
defendant in the United States on different dates in 1941, months before the out break of the war; that the
proceeds of such sale were kept and retained by defendant for its own use without crediting the same for the
account of plaintiff, to the damage and prejudice of plaintiff; that on June 27, 1956, plaintiff wrote defendant a
letter informing it of what he had recently discovered and demanded that it pay to plaintiff the proceeds of
the sale of the 51,528.01 piculs of sugar; that as defendant could not deny this startling discovery, it disclosed
and admitted on August 2, 1956, in a letter of even date and or other occasions subsequent thereto, that it
really had sold plaintiff's export sugar amounting to 51,528.01 piculs before the outbreak of the war, but
claimed that according to its existing records it had sold a total of 63,528.01 piculs of sugar (including 12,000
piculs previously credited to plaintiff's account and never disputed) at the rate of P5,508 per picul; that
plaintiff questioned the price of P5,508 per picul at which defendant allegedly sold plaintiff's sugar; that
plaintiff informed defendant that according to his investigation the price of sugar on February 21, 1941 was
P6.44 per picul which on May 27, 1941 went up to P7.55 per picul; that after a long negotiation and several
exchange of communication between plaintiff and defendant, the latter proposed to fix the price at P6.20 per
picul which plaintiff accepted; that notwithstanding repeated demands defendant refused and still refuses to
pay plaintiff the value of the 51,528.01 piculs of sugar in the total sum of P319,473.66 plus accrued interest of
seven per cent (7%)per annum compounded semi-annually from the dates the sugar shipments were
respectively sold; that the total proceeds, with interest thereon as above alleged, amounted to P737,681.00 as
of June 30, 1956; that defendant in representing to and inducing plaintiff to believe that the export sugar
produced during the 1940-41 crop year was destroyed during the war, when in fact it had sold said sugar, and
in retaining the proceeds of said sale while charging plaintiff 7% interest compounded semi-annually on
plaintiff's debts, and compelling plaintiff to sell his valuable property to liquidate practically the whole of said
debt, acted in bad faith and with malice and wanton attitude for which it stands liable to pay plaintiff moral
and exemplary damages; that as a consequence of the willfull refusal of defendant to pay plaintiff the
amounts mentioned, plaintiff was forced to engage the services of counsel for the purpose of recovering the
said amounts, the reasonable value of which service is submitted to the discretion of the court. The complaint
accordingly prays that judgment be rendered in favor of plaintiff ordering defendant to pay the plaintiff the
sum of P319,473.66, the value of plaintiff's sugar sold by defendant plus the accumulated interest thereon at
7% per annum compounded semi-annually, which total amount with said interest, added up to P373,681.00 as
of June 30, 1956; to pay the sum of P50,000.00 for moral and exemplary damages; to pay reasonable
attorneys fees; and to pay the costs of the suit.

In its answer to this complaint, defendant denies certain allegations while admitting others. As first affirmative
and special defense, defendant alleged that the totality of the export sugar produced by plaintiff and delivered
to it amounted to only 64,253.26 piculs for the 1940-41 crop year; that in accordance with the agreement of
August 5, 1941, plaintiff irrevocably authorized defendant to receive the former's export sugar in the latter's
own name and for the latter's sale and disposition under the obligation to sell the same for the account of the
plaintiff, whenever ordered to do so; that it was and has been the long established practice known to plaintiff
for defendant to ship abroad in its own name as much sugar as ship space allowed, and when any of
defendant's clients, such as plaintiff, sent instructions to defendant to sell at a certain price, defendant merely
credits the client's crop loan account with the value of the sugar so ordered sold at the price prevailing on the
date of the instructions received by defendant; that plaintiff pursuant to such establish method ordered the
sale of only 16,000 piculs of sugar out of the 64,253.26 piculs assigned to defendant but never expressed to
defendant his desire to sell the rest of his sugar; that the sugar claimed by plaintiff as shipped to the United
States in 1941 was so shipped in the name and for the account of defendant and not for the account of
plaintiff; that the rest of plaintiff's sugar, aside from the aforesaid 16,000 piculs was included in the 500,000
piculs stored in defendant's warehouse in Iloilo which were burned by the Philippine Army on April 15, 1942,
for the loss of which he was duly compensated by the War Damage Commission. As second affirmative and
special defense, defendant alleged that granting, without conceding, that plaintiff is legally entitled to be
credited with the 51,528.01 piculs of sugar he claims to have been shipped for his account, (1) automatic
compensation should take place by operation of law to the concurrent amounts between the two debts
because the plaintiff is a debtor of the defendant on his crop loan account and at the same time a creditor of
the defendant for the proceeds of the sale of plaintiff's sugar; (2) if plaintiff wants to be credited for the sale of
the sugar received by the defendant for the 1940-41 crop year, plaintiff must be contended with receiving the
price of sugar in the world market at those times when plaintiff's sugar was delivered to defendant, which was
approximately P4.00 per picul, and consequently the value of the 51,528.01 piculs of sugar at the said price
would be P206,112.04; (3)that plaintiff's total debt to defendant at the beginning of the Japanese Occupation
would be P648,806.06 less the credit of P206,112.04 and the interest charged for this amount; (4) that plaintiff
made undue excess payment during the Japanese Occupation in Japanese currency which excess payments
were accepted in good faith by defendant; (5)that such undue excess payments by plaintiff to defendant in
Japanese currency became valueless after liberation; (6)That defendant cannot be held liable for said excess
payments made by plaintiff in Japanese currency. By way of first counterclaim, defendant alleges that plaintiff
borrowed from defendant after liberation various sums for the purchase of fertilizer to be used in his sugar
plantations, which sums with interest as agreed upon in writing amounted to P55,518.86 as of June 30, 1956;
that plaintiff notwithstanding repeated demands for the payment of such account, refused and still refuses to
pay defendant such amount. By way of second counterclaim, defendant alleges that the complaint is
unfounded, capricious, and malicious; consequently, defendant is entitled to be reimbursed for such
attorney's fees as the court might find just and equitable. The said answer accordingly prays that judgment be
rendered in favor of defendant — (1) dismissing the complaint of plaintiff, with costs against him; (2) on the
first counterclaim, ordering plaintiff to pay defendant the sum of P55,518.86 on his post-war account plus
interest thereon at 7% per annum compounded semi-annually from June 30, 1956, and 93) on the second
counterclaim, ordering plaintiff to pay the defendant such amounts for attorney's fees and damages as this
Court might find just and equitable. Plaintiff's repay to defendant's answer alleges amount others, that while
under the crop loan agreement plaintiff's sugar could be sold by defendant only with the prior consent of
plaintiff, yet said crop loan agreement also specifically granted defendant the full authority, in its exclusive
discretion and without plaintiff's further consent, to sell at the best obtainable price in the market, any of
plaintiff's sugar remaining unsold after the month of June following the end of each milling season (October to
March), the proceeds of such sale to be applied to the account of plaintiff; that sometime in 1940, because of
worsening international situation there developed an acute shortage of shipping space and the probability
arose that the tremendous amount of sugar the defendant had then in its possession belonging to its several
customers, might not be shipped and sold to the United States, the plaintiff, upon request of defendant, had
ordered and authorized the latter to dispose of and ship to the United States, at the first available space, all of
his export sugar that he would be producing from time to time, with the understanding that the proceeds
would be credited to the amount of plaintiff; that it was in pursuance of this arrangement that defendant had
always been shipping and selling, for plaintiff's account, all the latter's export sugar that were mortgaged to
defendant; that after defendant had been informed by plaintiff of his discovery about the sale of his pre-war
export sugar by defendant, the latter, expressly confirmed to plaintiff that long before the outbreak of the war
it actually shipped to the United States on different dates, for the account of plaintiff, on board S/S Pan Royal,
Yaka, Raphael Semmes and Sagoland, said plaintiff's 51,528.01 piculs of sugar which were all covered by
several quedans assigned and delivered to it under the terms of the crop loan agreement; that plaintiff
therefore denies that the said 51,528.01 piculs of sugar was part of the 500,000 piculs allegedly burned by the
Philippines Army on April 15, 1942; that the proceeds derived by defendant from the sale of said 51,528.01
piculs were never credited to the account of plaintiff but were instead wrongfully and maliciously retained by
defendant for its own use to the prejudice of plaintiff; that plaintiff never requested defendant to furnish him
a statement of his account during the Japanese Occupation; that the statement of account sent to him by
defendant during the Japanese Occupation had been received in the ordinary course of business and were to
all intents and purposes demands for payment, particularly that defendant continued to charge interest on his
indebtedness as shown in said statement, at the rate of seven percent (7%) per annum, compounded every six
months; that the statement of account dated May 28, 1950 which was received by plaintiff on or about
December 27, 1950, moved plaintiff to investigate what really happened to his prewar export sugar and led to
the discovery of the facts alleged in the complaint; that the sale by defendant of said 51,528.01 piculs of sugar
belonging to plaintiff, was never the subject of any proposed compromise, but said sale was freely, voluntarily
and spontaneously admitted by defendant; that the only points of difference between plaintiff and defendant
that they discussed with a view of reaching a compromise referred to the price at which the said 51,528.012
piculs of sugar were to be liquidated and to the basis of computing the amount that should be refunded to
plaintiff; that in the course of said discussion, defendant offered plaintiff to credit the latter with the value of
his 51,528.01 piculs at the rate of P6.20 per picul as to the date they were shipped to the United States and
that whatever amount he paid during the occupation in Japanese war notes in excess of his indebtedness
would be refunded to plaintiff upon the basis of the Ballantyne Scale; that although plaintiff was agreeable to
the price of P6.20 per picul, he rejected defendant's proposal not only because of the refusal of defendant to
pay him the interest at 7% per annum to be compounded semi-annually, but also because said proposition
was obviously unfair and unjust; that this is so because had defendant credited plaintiff with the proceeds it
had derived from the sale of said sugar at the time they were sold to the United States, plaintiff would not
have some of his valuable properties and he would not have been forced to borrow money from his business
associates during the Japanese Occupation. By way of reply to defendant's first and second affirmative
defenses, plaintiff among others, alleges that as defendant did not credit him with the proceeds it derived
from the sale of the 51,528.01 piculs of sugar, and inasmuch as plaintiff's debt to defendant before the war
was almost liquidated and paid during the Japanese Occupation when required to do so by defendant, the
latter is now estopped to claim automatic compensation allegedly by operation of law, and that since
defendant had admittedly sold plaintiff's sugar as the latter's agent, said defendant is now bound to turn over
to plaintiff (as its principal), the said proceeds that it had derived from the sale of the sugar in question which,
together with the corresponding interest thereon, amounted to P787,681.00 as of June 30, 1956. By way of
answer to defendant's first counterclaim, plaintiff alleged that after he discovered that defendant was
indebted to him in the sum of P787,681.00 as of June 30, 1956 for the sale of the sugar in question and which
sum was not credited to his account, plaintiff made several demands upon defendant for the payment thereof
with specific instructions that the sum of P55,515.60 (not P55,518.86) which he owes defendant under the
fertilizer account as of June 30, 1956, be deducted therefrom, which defendant, however, up to the present,
had not compiled. And by way of answer to defendant's second counterclaim, plaintiff alleges, among others,
that he has a good a valid cause of action against defendant. Said reply accordingly prays that judgment be
rendered against defendant in accordance with the prayer embodied in plaintiff' complaint, with the
modification that defendant be credited with the sum of P55,518.60 which plaintiff owes defendant under the
fertilizer account.

Upon these pleadings and the oral and documentary evidence adduced by both parties, the case was
submitted for decision. On May 3, 1960, the lower court found for the plaintiff, stating in part as follows:

RESPONSIVE TO ALL THE FOREGOING, judgment is hereby rendered ordering defendant to pay to
plaintiff the total amount of P220,273.66, being the proceeds from the sale of the 35,528.01 piculs of
sugar in question with interest thereon at the rate of six (6%) per cent per annum from June 27, 1956
until fully paid, plus six (6%) per cent interest pa annum on the amount of P99,220.00 from August 18,
1941 to December 31, 1942, and on defendant's counterclaim, ordering plaintiff, in turn to pay to
defendant the amount of P55,518.60, with cost against the defendant.

From this decision both parties appealed raising several questions.

It is defendant's first contention in this appeal that the question regarding the exportation of plaintiff's 16,000
piculs of sugar could not be raised anymore because plaintiff was already credit on December 31, 1942, with
the sum of P64,016.08, the value of the sugar in question. Plaintiff, however, maintains that the issue involved
here is not whether plaintiff should be credited or not but whether plaintiff should have been credited with
the proceeds of the sugar on August 18, 1941, the date when the sugar was exported instead of on December
31, 1942; and whether the plaintiff should be credited with sum of P99,200.00 (at the rate of p6.20 per picul)
with interest thereon.

It is clear from the record and admitted by the defendant that in August, 1941, 16,000 piculs of sugar were in
fact exported for the account of plaintiff; that defendant "first obtained the special permission" of the plaintiff
for authority to export the latter's sugar in the defendant's bodega in Iloilo; and "armed with that authority"
did in fact export 16,000 piculs of sugar. However, the issue begins where defendant maintains that because
plaintiff did not give instructions to sell the 16,000 piculs of sugar exported for his account, this remained
unliquidated and placed in a suspense account when the war broke out.

Defendants position is untenable. If it had indeed exported plaintiff's sugar in question on the strength of and
"armed with" the authority granted to it by plaintiff, the defendant would no longer need additional authority
to sell said 16,000 piculs of sugar for plaintiff's account. The authority given by plaintiff to defendant to export
the former's sugar, is understood to include, and does include the authority to sell said sugar for plaintiff's
account. Having admitted the authority to export the sugar, defendant need not wait for further instructions
from plaintiff to sell. As the lower court correctly stated:

It appearing from plaintiff's arguments and defendant's counter arguments just quoted, that they are
at one as to the fact that "TABACALERA EXPORTED 16,000 PICULS OF SUGAR FOR THE ACCOUNT OF
JOSE SORIANO SOME TIME IN AUGUST OF 1941," it was defendant's obligation to credit plaintiff's
account with the proceeds thereof as of the date last mentioned, without a need for any instructions
of confirmation by or from plaintiff. Having credited plaintiff with the said proceeds only as of
December 31, 1942, instead of August 18, 1941, defendants is deemed to have incurred in delay in the
performance of its obligation, resulting in the payment of stipulated interest on the proceeds in
question by plaintiff from August 18, 1941 to December of 1942 ...

Plaintiff therefore is entitled to be credited with the proceeds of the sugar from the date of shipment, on
August 18, 1941, at the price per picul and with the rate of interest to be determined elsewhere in this
opinion.

The next question raised in this appeal refers to the remaining 35,528.01 piculs of sugar left in defendant's
possession after the sale of the 16,000 piculs of sugar for plaintiff's account. The lower court in this connection
found that defendant even admits having sold the said sugar for its own account and accordingly for its own
profit." The defendant now contends that this finding by the lower court is "without basis whatsoever"; the
defendant arguing that if this admission had in fact been made, there would be no case at all because the very
issue is whether the defendant did in fact export plaintiff's sugar, defendant denying that it did, and
maintaining that the same remained in Iloilo and was never exported because what was exported — granting
that plaintiff's quedans were used — was defendant's own sugar and finally because the use of plaintiff's
quedans did not mean the use of plaintiff's sugar.

The record bears out defendant's admission in this connection. In answer to paragraph IX of plaintiff's
complaint, which in effect states that the sugar in question, instead of having been burned and destroyed
during the war as falsely represented by defendant, had actually been shipped and sold in the United States
on different occasions in 1941, the defendant alleged in part as follows: that the sugar referred to in said
paragraph was shipped to the United States for defendant's own account and not for the account of plaintiff.
As first affirmative and special defense, defendant likewise alleged that it was and had been the long establish
practice known to plaintiff, for defendant to ship abroad in its own name as much sugar as ship space allowed,
and when any of defendant's clients, such as the plaintiff, sent instructions to sell at a certain price, defendant
merely credits the client's crop loan account with the value of the sugar sold at the price prevailing on the date
of the instructions received by defendant. And lastly defendant averred that the sugar claimed by plaintiff as
shipped to the United States in 1941, was so shipped, in the name and for the account of defendant and not
for the account of plaintiff.

In addition to this, some documents — Exhibit K, a letter of defendant addressed to plaintiff; Exhibit K-2, a
statement of plaintiff's sugar production for the 1940-41 crop year; Exhibit M-1, a memorandum prepared for
the General Manager of defendant corporation - invariably and evidently point to the fact that at several
instances, defendant had made export of plaintiff's various amounts of sugar.

In view of defendant's pleading, as well as the above-mentioned documentary evidence, it is undeniable that
defendant had admitted having actually shipped to the United States the sugar in question many months
before the war broke out, although the defendant claims to have made said shipments for its own account
and not for plaintiff's account.

The issue then boils down to whether plaintiff is entitled to be credited with the proceeds of the sale of the
said 35,528.01 piculs of sugar.

Defendant avers that plaintiff should not be credited with the proceeds of the said sugar because the same
was exported and sold in the United States without plaintiff's authority and for defendant's own account; that
it is the company practice to credit plaintiff with the proceeds of such sugar as ordered sold by the latter for
his account, and since plaintiff allegedly did not instruct the defendant to either export or sell the 35,528.01
piculs of sugar, it follows plaintiff can not be credited with the proceeds thereof.

This contention cannot be sustained. In line with what we had stated in the previous assignment of error,
there was no need for an authorization from plaintiff to export his sugar because the defendant was expressly
authorized to sell plaintiff's sugar delivered to it, in pursuance to the crop loan agreement. And this is
conclusively shown by the clause contained in the agreement. The authority to sell reads as follows:

VENTAS. Los azucares quedan desde el dia de la expedicion de los quedanes, en el caso de entregarse
por medio de estos o desde el momento de recibirse en los almacenes de la compania en el caso de
entregarse en sacos, a la libre disposicion de la Acreedora Hipotecaria, que podra, a su discrecion,
almacenarlos en espera de mejora de precios, venderlos en plaza o embarcarlos para el exterior por
cuenta y riesgo del Deudor Hipotecario, todos ellos o parte de ellos, en el momento que lo estimare
conveniente u oportuno, con la conformidad el Deudor Hipotecario, al precio corriente en la plaza de
Iloilo en la fecha o fechas en que la venta o ventas se verificaren, pero despues de pasar los 90 dias
desde la fecha de expedicion de los quedanes o de la entrega en el almacen de los azucares, la
Acreedora Hipotecaria queda expresamente autorizada y facultada para ven derlos inmediatamente
sin la conformidad del Deudor Hipotecario al precio corriente en plaza en la fecha o fechas de la venta
o ventas. (Emphasis supplied)

Pero el caso, sin embargo, de que el Deudor Hipotecariotuviere — un saldo deudor en su cuentas con
la Acreedora Hipotecaria que provenga de otros creditos aparte del concedido para la presente
cosecha, la Acreedora Hipotecaria queda tambien expresamente autorizada y facultada para vender
los azucares del Deudor Hipotecario — a su entera discrecion en cualquier tiempo, al precio corriente
 en plaza en la fecha o fechas en que se verificaren dicha venta o ventas, sin la conformidad del Deudor
Hipotecario.

This authority to sell was likewise stated in another printed document which the plaintiff signed:

Por cuanto, he convenido con la citada Compañia General de Tabacos de Filipinas, en todo ellos y en
que dicha Compañia General de Tabacos de Filipinas pueda vender con mi (nuestro) consentimiento
los azucares correspondientes a dichos quedanes aplicando su importe al pago a mi (nuestra) deuda
con intereses y demas gastos, entendiendose que si el dia 30 de Junio de 19 (41) los susodichos
azucares o parte alguna de ellos estuvieren aun sin vender, entonces dicha Compañia General de
Tabacos de Filipinas podra venderlos al precio en plaza en la fecha o fechas que a su exclusiva
discrecion creyere mas conveniente, para lo cual le autorizo desde ahora renunciando a todo derecho
en contrario que pudiera tener.

By virtue of the above quoted provisions of the loan agreement between the parties, the defendant was
authorized to sell plaintiff's sugar produced during the crop year 1940-41 even without the consent or
instruction of the plaintiff when (1) the plaintiff's crop loan account for 1940-41 crop year was not fully
liquidated within the period of 90 days from the date the quedans were issued or from the date the sugar was
stored; and (2) when the plaintiff had outstanding obligations due to the defendant arising from credit
accommodations other than the ones covered by the crop loan contract for the year
1940-41.

Since it is borne by the records that at the start of the crop year 1940-41, plaintiff still had an outstanding debt
to the defendant in the amount of P428,829.29, pertaining to the crop year 1939-40, the defendant, upon the
receipt of the quedans and the sugar covered by them from plaintiff's crop in 1940-41, could have sold the
said sugar at its entire discretion at any time and at the current price obtaining on the date of sale even
without the permission of the plaintiff. Now, as it is a proven fact as admitted by defendant that it had shipped
35,528.01 piculs of sugar belonging to plaintiff, it stands to reason — in view of defendant's authority as
embodied in the crop loan agreement — that it shipped said sugar for the account of plaintiff. Defendant
cannot avail of its defense that it had so shipped the sugar for its own account on the ground that plaintiff did
not instruct it to export the sugar for plaintiff's account. The trial court therefore correctly ruled that
"defendant was expressly authorized to sell plaintiff's sugar delivered by the latter to the former at prices best
obtainable in the market, and to credit plaintiff's account with the proceeds of the sale."

However, as a corollary to this particular assignment of error, defendant argues that although the crop loan
agreement expressly authorized it to sell plaintiff's sugar without the latter's consent, it had, nevertheless, not
availed of such authority because of its policy to first secure the prior authority or instruction of the planters
before it could sell the sugar.

This contention is untenable. Although defendant presented evidence to show its alleged practice of first
securing its client's permission to sell sugar, the evidence is inadmissible. The agreement between the parties
had been reduced to writing, and under its terms defendant could sell and was so authorized to sell plaintiff's
sugar in any manner it deemed convenient, provided that the proceeds thereof be credited to plaintiff's
account. Defendant now cannot be permitted to adduce evidence to prove its alleged practice, which to all
purposes, would alter the terms of the written agreement. Section 22, Rule 123 of the Rules of Court provides:
"When the terms of an agreement have been reduced to writing, it is to be considered as containing all those
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: ...." Whatever
therefore is not found in the writing must be understood to have been waived and abandoned (3 Moran 189).
Inasmuch as the case at bar does not fall under any of the exceptions mentioned in the Rule cited, defendant
may not adduce evidence to show a practice other than that permitted by the terms of the agreement. The
lower court therefore correctly ruled against the admissibility of such evidence.

Defendant also contends that it was its practice to indiscriminately use its clients' quedans delivered to it
under the terms of the crop loan agreement and whenever it thus used said quedans it is argued, it did not
necessarily mean it used the sugar covered by the said quedans.

Contrary therefore to defendant's contention, plaintiff's 35,528.01 piculs of sugar was not left in its bodegas
and burned during the Japanese Occupation. Evidence clearly proves that defendant had exported plaintiff's
sugar and did not credit the latter with the proceeds thereof. In view of the foregoing, plaintiff is entitled to be
credited with the proceeds of the sale of the remaining 35,528.01 piculs of sugar.

The trial court having held that the sugar exported by defendant belonged to the plaintiff and that the latter is
entitled to credit for its value, defendant now contends on appeal that the lower court erred in not reducing
the value by the war damage compensation admittedly received by the plaintiff and in not ordering the
plaintiff to pay the defendant the P130,000.00 admittedly received by plaintiff from the War Damage
Commission.

The records reveal that because of defendant's certification that plaintiff had lost 35,528.01 piculs of sugar
stored in defendant's bodega during the war, plaintiff was able to receive from the War Damage Commission
the sum of P130,000.00 as war damage compensation. It is defendant's argument now that in view of the
lower court's finding that defendant exported the 35,528.01 piculs of sugar in question, plaintiff did not lose
said sugar but instead, it was defendant who lost the sugar burned in its bodegas, and who should be entitled
to the War Damage compensation.

On the other hand, plaintiff, citing the provisions of the Philippine Rehabilitation Act of 1946 (Title 50 U.S.C.A.),
maintains that in view of the false representations made by defendant in its certification to the War Damage
Commission in favor of plaintiff, the War Damage Commission, under section 1757 of said law, "could take
such actions as may be necessary to recover" from the plaintiff whatever amount paid to him on the strength
of the false certification issued by the defendant; that since the payment made to the plaintiff was erroneous,
the money he received retains its character as public funds of the U.S. Government and could not be disposed
of except by the said Government through its authorized agency, and consequently defendant should direct its
petition to the War Damage Commission; that defendant has not presented evidence showing loss or damage
it had suffered during the last war for which it should be compensated with the sum which plaintiff received as
war damage compensation.

We believe and so hold in this connection, that the defendant is the one entitled to the payment of the
P130,000.00 war damage compensation because, as the lower court found, the sugar lost in the bodega for
which the war damage compensation was paid, belonged to the defendant and not to the plaintiff. But since
the one who filed the claim and who received the war damage compensation is the plaintiff, and it now results
that the claim as presented was false because the representation made therein that the sugar lost was his
when in fact, as now established, belongs to the defendant, plaintiff has incurred certain liability with the War
Damage Commission in respect to the amount received by him. He is not now at liberty to dispose the amount
without the knowledge and consent of the War Damage Commission. In other words, said amount does not
legally belong to him and consequently, he can not turn it over to defendant. If this is so, the amount can not
be deducted from whatever may be found to be due from the defendant to the plaintiff, because the War
Damage Commission, not being a party to this action, can not be bound by the judgment to be rendered by
this Court. But neither is the plaintiff entitled to retain the war damage compensation. We note plaintiff's
recognition of this fact and its undertaking the refund thereof to the War Damage Commission. However, in
fairness to the defendant, we believe the proper remedy is to make a judicial consignment of the sum of
P130,000.00 by the plaintiff to permit the defendant and the War Damage Commission to interplead and have
their respective rights or claims thereto judicially determined.

Defendant, after making several analyses of the various effect of the payments that plaintiff made during the
Japanese Occupation, contends that the lower court erred in not applying the law on automatic set off, so that
payments by the plaintiff during the occupation in occupation currency were overpayments which lost their
value.

Defendant's analyses are of no consequence because its first analysis is premised on the theory that plaintiff's
sugar was destroyed by the Japanese Forces — which theory we have disregarded earlier in this opinion —
while the second analysis is premised on the theory that payments made during the occupation were in the
nature of deposits on plaintiff's current account maintained with defendant and consequently valueless by
virtue of Executive Order No. 49 issued by President Garcia — which theory, again, we cannot sustain because
the payments made by plaintiff, as the records will bear, were not deposits but actual payments of the crop
loan extended to plaintiff by defendant. Furthermore, plaintiff is not praying for any reimbursement of any
alleged overpayments but on the contrary, he is praying for the value of the 35,528.01 piculs of sugar which
defendant exported without crediting to his account.

Defendant cannot also avail of the defense of automatic compensation because under the provisions of Article
1195 of the Old Civil Code, as well as Article 1278 of the New Civil Code, compensation takes place when two
persons in their own right are creditors and debtors of each other. Now, if, as defendant theorizes, the sugar
was "shipped to the United States for the defendant's own account", it cannot then reverse its stand and
consider plaintiff as its creditor. And even if, for the sake of argument, we consider plaintiff to be defendant's
creditor to the extent of the value of the 35,528.01 piculs of sugar which defendant exported without
crediting to plaintiff's account, the plaintiff would be defendant's creditor only because of defendant's fault
and breach of the crop loan agreement by not crediting plaintiff with the sale of the sugar.

Neither could defendant invoke the provisions of Article 1895 of the Old Civil Code on solutio indebiti because
the doctrine is clearly not applicable to the case at bar. What plaintiff is demanding in this action is not a
return of any erroneous payment — as is maintained by the defendant — but the payment of the proceeds
realized by defendant from the sale of plaintiff's 35,528.01 piculs of sugar.

Defendant's next contention is that the trial court erred in requiring defendant to pay the plaintiff for the
sugar in question at the rate of P6.20 per picul after it had found the said price to "have been reckoned with as
reasonable and fair by both parties", because plaintiff has not presented any evidence to prove the prices of
sugar on the dates his sugar in question were shipped by defendant and because the price of P6.20 per picul
was only the price at which defendant was willing to liquidate plaintiff's sugar and offered solely for purposes
of a compromise agreement which failed.

Defendant's contention cannot be sustained. Plaintiff's Exhibit L, a letter written by plaintiff to the General
Manager of the defendant company, quotes the price of sugar ranging from P7.30 to P7.55 per picul in 1941,
which prices were obtained from the Lopez Sugar Central Milling Co. and the Elizalde & Company. In fact,
defendant's own official, Mr. Alfonso Dampiere, testified that the price of sugar in 1941 was between P6.00
and P7.00 per picul. It therefore appears that plaintiff in order to avoid litigation was agreeable to liquidate
the sugar in question at P6.20 per picul as offered in compromise but the compromise failed due to some
other reason explained in plaintiff's brief.
With respect to defendant's contention as to the admissibility of said price in evidence, he brings to light our
decision in the case of El Varadero de Manila vs. Insular Lumber Company (46 Phil. 176, 178) that as a general
rule, an offer of compromise is inadmissible in evidence, but where the amount named in the offer to accept a
certain sum in settlement appears to have been arrived at as a fair estimate of value, it is relevant. In this case
we held that the rule of exclusion of compromise negotiations does not apply where there is no denial
expressed or implied of liability for the 35,528.01 piculs of sugar. The records bear that defendant admitted
having shipped the sugar and consequently admitted liability therefor. From all that appears on the record,
the only question that seemed to have been the subject of the compromise negotiations was the price at
which the said sugar would be credited to plaintiff's account. And inasmuch as the price of P6.20 per picul
appears to be a fair estimate of the value based on the prices quoted by the other sugar centrals during the
1941 period and the declaration of defendant's own witness to that effect, said price is relevant evidence and
not falling within the exclusive rule.

Defendant's last assignment of error is that the lower court erred in ordering it to pay 6% interest on the
P99,200.00 representing the value of the 16,000 piculs of sugar it had exported from August 18, 1941 to
December 31, 1942.

The evidence establishes that defendant exported plaintiff's 16,000 piculs of sugar on August 18, 1941 but did
not credit plaintiff with the proceeds thereof on the said date but credited plaintiff only on December 31, 1942
with the sum of P64,016.80. Pursuant to the crop loan agreement, it was defendant's obligation to credit
plaintiff's account with the proceeds of the sale as of August 18, 1941. The lower court therefore correctly
found that the defendant incurred in delay in the performance of its obligation in this respect and correctly
ordered the defendant to pay the stipulated interest on the proceeds in question from August 18, 1941 to
December 31, 1942. In determining the value of said sugar, the lower court correctly considered from the
evidence the price of P6.20 per picul, the price then prevailing in the market in 1941, so that the value of the
16,000 piculs of sugar should be P99,200.00 instead of P64,016.80. Having incurred in delay, in crediting
plaintiff with the said amount, defendant should pay plaintiff 6% interest on the sum of P99,200.00 from
August 18, 1941 to December 31, 1942.

Plaintiff as appellant, however, first contends that the trial court erred in holding that "it finds no legal
contractual or factual basis for awarding plaintiff's claim for interest at seven (7%) per cent per annum
compounded semi-annually on the proceeds of the sale of the sugar, to be computed from the dates when the
sugar were respectively shipped and sold in the United States to the date of payment." In this connection the
lower court stated:

In other words, defendant justifies its acts complained of in reliance upon the alleged practices which,
although not found in the parties' written agreement, were followed by it and its clients. In thus relying
upon the said practices, it can hardly be said that the defendant, acted from a desire to defraud
plaintiff so as to bring said defendant's acts within the contemplation of the word "fraud" used in said
Article 1101 of the old Civil Code. This is so for the reason that said acts, being in accordance with
practices previously followed by defendant and known to its clients, may be inconsistent with any
deliberate, wilful or malicious intention on its part to take advantage of plaintiff's property at the
latter's expense, while on the other hand, they may be perfectly consistent with good faith and the
honest belief that the said practices were regular and above board. That this Court has now found that
the said practices could not be made to prevail over the written covenants between the parties, and
that the defendant is accordingly liable to the plaintiff for the proceeds of the 35,528.01 piculs of sugar
in question, does not detract from the sincerity of the defendant's acts and much less taint them with
any fraudulent purpose.
After finding no fraud in defendant's failure to credit plaintiff with the value of the 35,528.01 piculs of sugar,
the lower court went further to consider the extent of the damage suffered by plaintiff but did not, however,
award any interest. Said the lower court:

Nevertheless, it is undoubted that because of the defendant's failure to credit plaintiff's account with
the proceeds of said 35,528.01 piculs of sugar, plaintiff was unjustifiably compelled to pay the
stipulated interest thereon, he was damaged and prejudiced to the extent of this undue payment, as to
the exact or approximate amount of which neither plaintiff nor defendant has seen fit to enlighten this
court.

The question therefore, to be determined in this particular assignment of error is whether defendant was
guilty of fraud in failing to credit plaintiff with the proceeds of the sale of the sugar in question and whether
plaintiff is entitled to interest by way of damages and at what rate.

The records show that pursuant to the crop loan agreement, the defendant usually sold plaintiff's sugar and
thereafter credited him with the proceeds thereof. But in the earlier portion of this opinion, we found that
defendant did in fact export 35,528.01 piculs of plaintiff's sugar on certain dates for which the plaintiff was not
credited. Consequently, plaintiff's debt to the defendant remained outstanding, a great part of which,
however, was liquidated by plaintiff during the Japanese Occupation leaving a balance as of January 1, 1945.
After the liberation, plaintiff inquired from defendant as to what happened to the sugar he produced during
the crop year 1940-41, to which defendant replied that plaintiff's sugar had been burned by the Philippine
Army on April 15, 1942. Armed with defendant's certification attesting to said loss, plaintiff filed a war damage
claim with the War Damage Commission and was consequently paid therefor. However, sometime in 1951,
plaintiff learned from the General Manager of the offices of the La Carlota Sugar Central that the sugar
produced and delivered to the defendant during the above-mentioned crop year, and which defendant claims
to have been lost during the war, was in reality shipped and sold by defendant in the United States many
months before the outbreak of the war, without crediting plaintiff with the proceeds thereof. Thereupon,
plaintiff notified defendant of what he found out and there began a series of negotiations between the parties
which later proved to be failures.

It is plaintiff's contention that these facts clearly and convincingly prove the evident dishonest intention of
defendant to defraud plaintiff and to keep for itself the proceeds derived from the sale of the sugar, and that
defendant's act of hiding from plaintiff the fact that it had shipped his sugar is sufficient proof to show
deceitful and fraudulent intent of defendant to enrich itself at the expense of the plaintiff. Plaintiff further
states that had defendant acted in good faith and credited plaintiff with the proceeds of the sale, his debt
would have been greatly reduced and plaintiff would not have had to incur difficulties in paying the same.

Under the circumstances, we believe, and so hold, that defendant is guilty of fraud in the transaction. The trial
court in declaring defendant free from fraud relied upon the alleged practice of defendant to first obtain the
permission of its clients before selling the latter's sugar, the court reasoning that defendant's act in
accordance with the alleged practice "may be inconsistent with any deliberate, willful or malicious intention
on its part to take advantage of plaintiff's property."

The difficulty with this reasoning is that it makes use of the alleged practice of defendant as a basis to presume
good faith on the part of the defendant when the said practice was not proved during the trial, and
furthermore, evidence of said practice was not even accepted by the lower court. It is inconsistent for the
lower court to first rule out said alleged practice for being unmeritorious and as nothing but a "concoction and
an afterthought defense" to later take the same into account in determining whether defendant is guilty of
fraud, bad faith and wanton malice.
The main reason, however, which makes us believe that defendant acted in bad faith is the fact that it
completely concealed the shipment of plaintiff's sugar. If it is true as defendant contends in its brief — that
defendant shipped plaintiff's sugar for its own account and therefore, under that theory, not obligated to
credit plaintiff with the same, then why did defendant not inform plaintiff of this fact? What makes
defendant's conduct more doubtful in this regard is that it even led plaintiff to believe that plaintiff's sugar was
burned. Borrowing the lower court's language, "to add insult to injury", defendant even helped plaintiff to
secure a war damage compensation from the War Damage Commission. Furthermore, if defendant had really
shipped the sugar for its own account, why had defendant gone through a series of negotiations with plaintiff
regarding the price per picul for which plaintiff would be credited? The inevitable conclusion is that defendant
fraudulently led plaintiff to believe that the latter's sugar had been burned, concealing the fact that the said
sugar had actually been shipped for which plaintiff had not been credited.

Whether plaintiff is entitled to damages for defendant's fraudulent act is a point which plaintiff discusses at
length in his brief.

It is plaintiff's main contention that defendant should be made to pay the same rate of interest it had been
charging and collecting from plaintiff (7% compounded semi-annually) and which plaintiff should not have paid
had defendant duly credited him with the proceeds of the sale of the sugar. However, as an alternative
argument, plaintiff also maintains that in the event that this Court finds no legal, contractual, or factual basis
to grant his demand for the payment of the 7% interest as above stated, the defendant is nevertheless liable,
as an agent of plaintiff, to pay interest at the rate of 6% per annum on the same amount in question. Lastly,
plaintiff argues that in the event the last contention be not sustained by this Court, defendant is still liable to
pay plaintiff the interest at the rate of 6% per annum on the amount of P220,273.66 from the date of plaintiff's
first extrajudicial demand till the date of payment.

Suffice it to state that the records do not sufficiently prove the existence of an agency between the plaintiff
and the defendant, for although defendant was authorized to sell plaintiff's sugar at the best price obtainable
and to credit plaintiff with the sale thereof, these facts alone do not establish the existence of an agency. The
authorities relied upon by plaintiff to support his contention that an agent is liable to pay interest to the
principal is therefore not applicable. Neither can plaintiff now successfully argue that defendant was not
authorized under the crop loan agreement to charge 7% interest compounded semi-annually and thus be
obliged to return the amount collected as interest at that rate because plaintiff did not raise this issue before
the lower court and cannot now raise the same for the first time on appeal. In any case, the defendant is liable
to make good the loss or injury that it had occasioned the plaintiff from its wrongful concealment of the
shipment and disposition of plaintiffs sugar. Legally looked at, defendant had incurred in delay in its obligation
to credit plaintiff with the proceeds of the sale of the 35,528.01 piculs of sugar. Hence, under the provisions of
Article 11081 of the old Civil Code as well as Article 22092 of the New Civil Code, plaintiff is entitled to the
payment of the legal interest from the date the shipments were made — which were the same dates that
plaintiff was entitled to be credited therefore to the date of payment.

As previously stated elsewhere in this opinion, the plaintiff is entitled to be credited and in fact was credited
with the sum of P64,916.80 for the sale of the 16,000 piculs of sugar shipped on August 18, 1941. We also
sustained the findings of the lower court fixing the value of the 16,000 piculs of sugar at P99,200.00 at the rate
of P6.20 per picul. However, in this connection, plaintiff points out that the lower court did not order the
defendant to pay the sum of P35,183.20 which is the difference between the sum of P99,200.00 the value of
the sugar as fixed heretofore, and the sum of P64,016.80 which is the amount with which defendant credited
plaintiff for his sugar on December 31, 1942. It is beyond question therefore that plaintiff is, in consonance
with our findings in the preceding paragraphs, entitled to recover from defendant the sum of P35,183.20 plus
six per cent interest per annum from the date when the sugar was exported to the time of payment. In
addition to this, defendant should likewise pay plaintiff six per cent interest per annum on the sum of
P64,016.80 from the date of shipment of the 16,000 piculs of sugar on August 18, 1941 to December 31, 1942,
the time when defendant only credited plaintiff with the said amount.

Plaintiff next alleges that the lower court erred in not ordering defendant to pay him interest at the rate of 6%
per annum on the accrued interest on the various amount due from defendant, from the filing of the
complaint to the date of payment. Plaintiff cites Article 2212 of the new Civil Code providing that "interest due
shall earn legal interest from the time it is judicially demanded, although the obligation may be silent upon this
point."

We have held in several instances that accrued interest draws legal interest from the time that the suit is filed
for its recovery. (Bachrach v. Golingo 39 Phil. 912; Hodges v. Regalado, 69 Phil. 588; Salvador v. Palencia, 25
Phil. 661; Philippine Engineering Co. v. Green, 48 Phil. 466). However, in Zobel v. City of Manila (47 Phil. 169,
187), we held that Article 1109 of the Old Civil Code (from which Article 2212 of the New Civil Code was taken)
providing for interest upon interest is applicable only to obligations containing a stipulation for interest. In the
case at bar, while it is true that plaintiff is entitled to the payment of interest on the various amounts due from
the defendant, nevertheless these interests have been granted by the way of damages. The interest granted
to the plaintiff did not arise from an obligation of the defendant to pay the same on a contractual basis. The
event which gave rise to plaintiff's right to recover interest was not a conventional obligation, but defendant's
failure to credit plaintiff with the proceeds of the sugar for which he incurred in delay. Plaintiff's contention
therefore cannot be sustained.

Plaintiff also maintains that the lower court erred in not holding that plaintiff is liable to pa defendant only the
sum of P29,256.00 on the fertilizer account which he incurred after the liberation, because the original
account for the fertilizer amounted only to P29,256.00 and this increased to P55,518.86, as of June 30, 1956
because of the interest of 7% per annum compounded semi-annually which defendant is charged. It is argued
that since at the time this account was incurred defendant was already indebted to plaintiff for the value of
the sugar the latter exported, said fertilizer account should ipso facto be compensated by plaintiff's credit
against the defendant.

This contention is untenable. Plaintiff does not deny the existence of the fertilizer account. In fact in his
answer to defendant's court counterclaim, he prays that "defendant be credited as of June 30, 1956, under
the fertilizer account." Having admitted the debt and not having questioned the same during the proceedings
in the lower court, the plaintiff cannot now raise the issue on appeal. The trial court's finding in this
connection is therefore affirmed.

Plaintiff lastly prays that the defendant be ordered to pay a reasonable amount for moral and exemplary
damages and attorney's fees.

As to the payment of moral and exemplary damages, while it may be stated that this Court finds the
defendant guilty of fraud and bad faith in leading plaintiff to believe that his sugar was lost, nevertheless, it is
a fact that the fraud was perpetrated prior to the effectivity of the New Civil Code. Plaintiff's complaint states
that shortly after the liberation, he had inquired from defendant about the status of the sugar he produced
during the crop year 1940-41 and it was then when defendant informed him that his sugar was burned and
eventually aided him in filing the war damage claim. Now, under the old Civil Code, practically the only
damages allowed therein are compensatory and those agreed upon in a penal clause. Moral damage was not
expressly recognized in the said Code. In fact, this Court prior to the New Civil Code, had awarded moral
damages only in a few cases (Report of the Code Commission, p. 72). In view of the foregoing, it is doubtful if
plaintiff is entitled to the payment of either moral or exemplary damages.
As to the payment of attorney's fees, however, we believe that inasmuch as defendant had acted in evident
bad faith in refusing to satisfy plaintiff's plainly valid, just and demandable claim, the plaintiff is entitled to the
payment of reasonable attorney's fees. Under the circumstances obtaining in this case, this Court finds it just
and equitable that attorney's fees and expenses of litigation be recovered by plaintiff. Accordingly, and taking
into account the extent and nature of the legal work employed and the amount involved, this Court holds that
defendant should pay plaintiff the amount of P15,000.00 as attorney's fees.

WHEREFORE, modified as above indicated, the decision of the lower court is hereby affirmed, with costs in
both instances against the defendant-appellant.

Plaintiff, upon obtaining full satisfaction of this judgment, shall consign with the proper court, the sum of
P130,000.00 for the purpose indicated in this decision. So ordered.

Concepcion, C.J., Reyes, J.B.L., Dizon, Regala, Makalintal, Bengzon, J.P., Zaldivar, Sanchez and, Castro,
JJ., concur.

Footnotes
1
 Should the obligation consist in the payment of a sum of money, if the debtor should become in
default, the indemnity for losses and damages, in the absence of a stipulation to the contrary, shall
consist in the payment of the interest agreed upon or should there be no agreement, in the payment
of interest at the legal rate.

Until another rate is fixed by the Government, the legal rate of interest shall be six per cent per annum.
2
 If the obligation consists in the payment of a sum of money, and the debtor incurs in delay, the
indemnity for damages, there being no stipulation to the contrary, shall be the payment of the interest
agreed upon, and in the absence of stipulation, the legal interest, which is six per cent per annum.

G.R. No. L-19012            October 30, 1967

VICTORIA JULIO, plaintiff-appellant,
vs.
EMILIANO DALANDAN and MARIA DALANDAN, defendants-appellees.

Pedro Magsalin and O.M. Herrera for plaintiff-appellant.

Cornelio R. Magsarili for defendants-appellees.

SANCHEZ, J.:

Disputing the correctness of the lower court's order of April 29, 1961 dismissing the complaint, plaintiff
elevated the case1 to this Court on appeal.

Plaintiff's complaint — which defendants, by a motion to dismiss, successfully overturned in the court below
— is planted upon a document Annex "A" of the complaint, labeled in the national language "SALAYSAY"
(Statement). It was in the form of an affidavit subscribed and sworn to by one Clemente Dalandan on
September 8, 1950. By the terms of this writing, Clemente Dalandan, deceased father of defendants Emiliano
and Maria Dalandan, acknowledged that a four-hectare piece of riceland in Las acknowledged that a four-
hectare piece of riceland in Las Piñas, Rizal belonging to Victoriana Dalandan, whose only child and heir is
plaintiff Victoria Julio, was posted as security for an obligation which he, Clemente Dalandan, assumed but,
however, failed to fulfill. The result was that Victoriana's said land was foreclosed. The key provisions of said
document are:2

3. Na ang lupang palayang ito na pagaari ni VICTORIANA DALANDAN at sa kasalukuyan ay walang ibang
tagapagmana kung di si VICTORIA JULIO, ay napafianza sa akin nuong bago pa dumating ang huling
digmaan at dahil sa hindi ako nakatupad sa aking pananagutang na sasagutan ng bukid niyang ito ay
naembargo ang nasabi niyang lupa;

[That this riceland owned by VICTORIANA DALANDAN whose sole heir is VICTORIA JULIO was posted as
security for an obligation assumed by me even before the outbreak of the last war and because I failed
to fulfill the obligation secured by her said farm the same was foreclosed;]

4. Na dahil dito ay ako samakatuwid ay nanagot sa kanya (VICTORIA JULIO), sa pagkakaembargo ng

lupa niyang iyong kung kaya't nagkasundo kami na ako ay nanagot sa kanya sa pagkaembargong iyon
at ipinangako ko sa kanya na ang lupa niyang iyon na naembargo ng dahil sa aking pananagutan ay
aking papalitan ng bukid din na may mahigit na APAT (4) na hectarea (o humigit kumulang sa APAT NA
KABANG BINHI);

[That because of this, and as agreed upon between us, I accordingly held myself liable to Victoria Julio
for the foreclosure of her said land, and I promised her that I would replace her aforesaid land which
was foreclosed because of my obligation with another farm of more than four; (4) hectares, that is, one
planted to four cavanes of seedlings, more or less;]

5. Na hindi maaring pilitin ang aking mga anak (EMILIANO AT MARIA DALANDAN), na hingin ang ani ng
bukid na nabangit sa itaas ng salaysay na ito;

[That my children (EMILIANO AND MARIA DALANDAN) may not be forced to give up the harvest of the
farm herein above mentioned;]

6. Na hindi rin maaring hingin kaaggad sa lalong madaling panahon ang kapalit ng bukid na may apat na
kabang binhi;

[That neither may the land — which was exchanged for the farm with four cavanes of seedlings — be
demanded immediately;]

Victoria Julio, in turn, joined Clemente Dalandan in the execution of, and also swore to, the said document, in
this wise:

Na, ako VICTORIA JULIO, na binabanggit sa itaas nito sa salaysay ni CLEMENTE DALANDAN, ay
nagpapatunay na tutoong lahat ang kanyang salaysay na iyon at tinatanggap ko ang kanyang mga
sinasabi.

[That I, VICTORIA JULIO, mentioned in the above statement of CLEMENTE DALANDAN, attest to the
truth of, and accept, all that he stated therein.]
Back to the complaint herein. Plaintiff went on to aver that the land of Clemente Dalandan set forth in the
document, Annex "A" of the complaint, referred to six small parcels described in paragraph 4 thereof with a
total area of barely two hectares — "the only land owned by Clemente Dalandan at the time of the execution
of the document" — except fifty plots or "banigan" (saltbeds), which were previously conveyed to plaintiff's
mother by mean of pacto de retro sale and title to which had already been vested in the latter; that after the
death of Clemente Dalandan, plaintiff requested from defendants, Clemente's legitimate and surviving heirs
who succeeded in the possession of the land thus conveyed, to deliver the same to her; that defendants
"insisted that according to the agreement", neither delivery of the land nor the fruits thereof could
immediately be demanded, and that "plaintiff acceded to this contention of defendants and allowed them to
continue to remain in possession" thereof; that demands have "been made upon defendants to fix the period
within which they would deliver to the herein plaintiff the above-described parcels of land but defendants
have refused and until now still refuse to fix a specific time within which they would deliver to plaintiff the
aforementioned parcels of land." Predicated upon the foregoing allegations, plaintiff prayed for judgment
against defendants:

(a) Adjudging the herein plaintiff as owner of the land described in paragraph 4 hereof;

(b) Fixing a time within which defendants should deliver the said parcels of land to the herein plaintiff
as well as the fruits thereof;

(c) Adjudging that upon the expiration of the said time defendants convey and deliver to the herein
plaintiff the said parcels of land as well as the fruits thereof;

(d) Ordering the defendants to pay the plaintiff the sum of P2,000.00 as attorneys' fees;

(e) Ordering the defendants to pay the costs of the suit; and granting such other relief and remedy as
may be just and equitable in the premises.

Defendants met the complaint with a motion to dismiss grounded on: (1) prescription of plaintiff's action; (2)
pendency of another suit between the same parties for the same cause; and (3) release and/or abandonment
of the claim set forth in plaintiff's complaint.

By its order of April 29, 1961, the lower court ruled that plaintiff's suit, viewed either as an action for specific
performance or for the fixing of a term, had prescribed. Reason: the 10-year period from the date of the
document had elapsed. The lower court found it unnecessary to pass upon the other grounds for the motion
to dismiss. Hence, this appeal.

1. The threshold problem, basic to an understand of the issues herein involved, is the meaning to be attached
to the document now under review. Undoubtedly, bad more felicitous terms been employed, the intention of
the parties could easily be read. Unfortunately, ineptness of expression exacts of us an examination of the
document. Familiar rules of interpretation of documents tell us that in ascertaining the intention of the
parties, the contents thereof should not be interpreted piecemeal; all parts, provisions or terms are to be
considered; each paragraph clause or phrase must be read not in isolation, but in the light of the entire
writing; doubtful ones should be given that sense which may result from all of them, considered as a whole.
Such construction will be adopted as will result from an overall view of the document itself.

It is, in this perspective that we now look into the writing. Adverting to paragraph 4 of the deed, defendants
take the position that the deceased Clemente Dalandan simply "promised" to Victoria Julio a farm of about
four hectares to replace the land of Victoriana Dalandan (mother of Victoria Julio) which was foreclosed. But
this view loses sight of the later provisions thereof. By paragraph 5, Clemente's children may not be forced to
give up the harvest of the farm mentioned in the deed. This was followed by paragraph 6 which states that
Victoria Julio may not immediately demand the substitute (kapalit) for the forfeited land. These last two
statements in the deed express the dominant purpose of the instrument. They convey the idea that the naked
ownership of the land in substitution was, indeed, transferred to Victoria Julio. Else there would have been no
sense in the proviso that the fruits as well as the physical possession of the land could not immediately be
demanded by Victoria Julio from Clemente's children, the herein defendants. For, the right to demand fruits
and physical possession of property has been known to be attributes of ownership.

The disputed complaint in paragraphs 6 and 7 thereof, in essence, avers plaintiff's request for the delivery of
the real property; defendants' answer that "according to the agreement" neither land nor fruits thereof could
immediately be taken away from them, and plaintiff's conformity thereto; and plaintiff's demands that the
period for delivery be fixed and defendants' refusal.

The allegations of the complaint just noted carry us to another aspect of the document: defendants' rights
over the land vis-a-vis plaintiff's. What rights were transmitted to defendants by their father, Clemente
Dalandan? Paragraphs 6 and 7 of the document supply the answer. They are usufructuaries for an
undetermined length of time. For so long as that period has not been fixed and has not elapsed, they hold the
property. Theirs is to enjoy the fruits of the land and to hold the same as trustees of Victoria Julio. And this
because, by the deed, Clemente Dalandan divested himself of the ownership — qualified solely by withholding
enjoyment of the fruits and physical possession. In consequence, Clemente Dalandan cannot transmit to his
heirs, the present defendants, such ownership.3 Nemo dat quod non habet. And then, the document is a
declaration by Clemente Dalandan, now deceased, against his own proprietary interests. Such document is
binding upon his heirs.4

2. But, defendants aver that recognition of the trust may not be proved by evidence aliunde. They argue that
by the express terms of Article 1443 of the Civil Code, "[n]o express trusts concerning an immovable or any
interest therein may be proved by parol evidence." This argument overlooks the fact that no oral evidence is
necessary. The express trust imposed upon defendants by their predecessor appears in the document itself.
For, while it is true that said deed did not in definitive words institute defendants as trustees, a duty is therein
imposed upon them — when the proper time comes — to turn over both the fruits and the possession of the
property to Victoria Julio. Not that this view is without statutory support. Article 1444 of the Civil Code states
that: "No particular words are required for the creation of an express trust, it being sufficient that a trust is
clearly intended." In reality, the development of the trust as a method of disposition of property, so
jurisprudence teaches, "seems in large part due to its freedom from formal requirements." 5 This principle
perhaps accounts for the provisions in Article 1444 just quoted. For, "technical or particular forms of words or
phrases are not essential to the manifestation of intention to create a trust or to the establishment
thereof."6 Nor would the use of some such words as "trust" or "trustee" essential to the constitution of a trust
as we have held in Lorenzo vs. Posadas, 64 Phil. 353, 368. Conversely, the mere fact that the word "trust" or
"trustee" was employed would not necessarily prove an intention to create a trust. What is important is
whether the trustor manifested an intention to create the kind of relationship which in law is known as a trust.
It is unimportant that the trustor should know that the relationship "which he intends to create is called a
trust, and whether or not he knows the precise characteristics of the relationship which is called a
trust."7 Here, that trust is effective as against defendants and in favor of the beneficiary thereof, plaintiff
Victoria Julio, who accepted it in the document itself.8

3. Plaintiff is not to be handicapped by a lack of a clear statement as to the actual description of the land
referred to in the trust deed, basis of plaintiff's cause of action. Obviously, the document was not prepared by
a learned scrivener. It imperfectly speaks of a "farm of more than four (4) hectares." But averment in the
complaint is not lacking to clear the uncertainty as to the identity of the land mentioned in that document.
Plaintiff points out in paragraph 4 of her complaint that while said deed does not specifically define its
boundaries "the parties to the said document actually refer" to the land which was "the only land owned by
Clemente Dalandan at the time of the execution" thereof, and which is set forth in small parcels under said
paragraph. This allegation in the complaint does not add any new term or stipulation to the writing. Rather, it
explains an obscurity occasioned by lack of precision in a clumsily prepared document. Thus it is, that
authorities are not wanting in support of the view that "in so far as the identity of land involved" in a trust is
concerned, "it has also been held that the writings, in being considered for the purpose of satisfying the
statute of frauds, are to be considered in their setting, and that parol evidence is admissible to make clear the
terms of a trust the existence of which is established by a writing, . . ." 9

4. This case having been brought before us on a motion to dismiss, we need but stress that we are to be
guided solely by the averments of the complaint. So guided, we must say that there is sufficient showing in the
complaint that there is an acknowledgment on the part of defendants that they hold the property not as their
own, but in trust. There is no statement in the complaint intimating disavowal of such trust; the complaint
alleges refusal to deliver possession. In the sense in which we understand the complaint to be, it cannot be
said that plaintiff's action to recover the property thus held in trust has prescribed. Given the fiduciary relation
which according to the complaint is recognized by defendants, the latter may not invoke the statute of
limitations as a bar to plaintiff's action.10

5. Even on the assumption that defendants have not been constituted as trustees under the document in
question, still we arrive at the same conclusion. For, plaintiff's action is aimed, by an alleged owner of real
property at recovery of possession thereof, conditioned upon the fixing of the period therefor. Since plaintiff
claims ownership, possession, in the words of this Court "is a mere consequence of ownership." 11 It may not
be said that plaintiff's suit is barred by the statute of limitations. She is protected by Article 1141 of the Civil
Code, which reads: "Real actions over immovables prescribe after thirty years." We take this view for the
obvious reason that defendants' motion to dismiss on this score is directed at the prescription of plaintiff's
action — not on acquisitive prescription.

6. Defendants in their brief draw attention, by way of counter-assignment of error, to their claim that this case
should also be dismissed upon the ground that there exists another action pending between the same parties
for the same cause, and on the further ground of release and/or abandonment.

The facts bearing on this issue are: In Land Registration Case N-706, G.L.R.O. Record No. N-7014, Court of First
Instance of Rizal, defendants are applicants. That case — so defendants aver — covers the very same land set
forth in plaintiff's complaint. In their opposition to that application, herein plaintiff prayed that the same land
— the subject of this suit — (covered by Plan PSU 129514) be registered "in the names of the herein
applicants and oppositor with the specific mention therein that the herein oppositor owns fifty salt beds
therein and having an absolute right to the use of the depositories." Defendants argue that if plaintiff was the
real owner of the entire area, opposition should have been presented on the whole, not merely as to fifty salt
beds.

Parenthetically, the question of ownership over the portion of fifty salt beds had already been resolved by this
Court in a decision promulgated on February 29, 1964 in L-19101 (Emiliano Dalandan and Maria Dalandan,
plaintiffs, vs. Victoria Julio, et al., defendants). There, this Court affirmed the order dismissing the complaint
filed by defendants herein, plaintiffs therein, for the repurchase of fifty salt beds which were the subject of a
sale with pacto de retro executed on September 24, 1932 by Clemente Dalandan in favor of Victoriana
Dalandan, predecessor of plaintiff.
There is no point in the argument that an action is pending between plaintiff and defendants. Because, with
the exception of the fifty salt beds — which according to the complaint is not included in the deed — plaintiff
filed no opposition to defendants' application for land registration. Failure to so object in reference to the
registration of a bigger portion of the land, simply means that there is no case between the parties in
reference thereto in the land registration proceeding.

Not that plaintiff released or abandoned the claim to that bigger portion. For, there is an averment in the
complaint that an agreement exists between plaintiff and defendants to defer delivery thereof; and that
defendants thereafter refused to fix the period for such delivery. So that, on the assumption that defendants
should succeed in obtaining title to the property in the land registration case, such would not bar Victoria Julio
from requiring them to execute a conveyance of the property in her favor, in the event she (plaintiff herein)
prevails in the present case. And this, because defendants could here be declared as mere trustees of plaintiff,
if the averments of the complaint are found to be true." 12

For the reasons given, the order of the Court of First Instance of Rizal dated April 29, 1961 dismissing the
complaint is hereby reversed and set aside, with instructions to remand the case to the court below for
further proceedings.

Costs against defendants-appellees. So ordered.

Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal, Bengzon, J.P., Zaldivar, Castro, Angeles and Fernando,
JJ., concur.

Footnotes
1
 Civil Case No. 324-R of the Court of First Instance of Rizal, entitled "Victoria Julio, plaintiff, vs. Emiliano
Dalandan and Maria Dalandan, defendants."
2
 All English translations of the provisions of this document are ours.
3
 Articles 774, 775, 776, 781, Civil Code.
4
 Section 32, Rule 130, Rules of Court.
5
 54 Am. Jur., p. 50.
6
 Id.
7
 See Scott on Trusts Vol. I. pp. 146-147, cited in IV Tolentino, Civil Code of the Philippines, 1962 ed., p.
612.
8
 Article 1446, Civil Code.
9
 89 C.J.S. p. 766; emphasis supplied. See also V Moran, Comments on the Rules of Court, 1963 ed., pp.
110-114.
 10
 "The juridical concept of a trust, which in a broad sense involves, arises from, or is the result of, a
fiduciary relation between the trustee and the cestui que trust as regards certain property — real,
personal, funds or money, or chooses in action — must not be confused with an action for specific
performance. When the claim to the lots in the cadastral case was withdrawn by the respondents
relying upon the assurance and promise made in open court by Dr. Mariano Yulo in behalf of Jose Yulo
y Regalado, the predecessor-in-interest of the petitioners, a trust or a fiduciary relation between them
arose, or resulted therefrom, or was created thereby. The trustee cannot invoke the statute of
limitations to bar the action and defeat the right of the cestui que trustent." Pacheco vs. Arro, 85 Phil.
505, 514-515.

"The action brought by the plaintiffs is clearly an action for the specific conveyance of the property
registered in the name of defendants' predecessor in interest. The deceased vendor was issued the
certificate of title for and in behalf, and in trust for the benefit, of the plaintiffs. The action is one to
compel a trustee to convey the property registered in his name in trust for the benefit of the cestui
que trust, and the same does not prescribe." Manalang vs. Canlas, 94 Phil. 776, 777-778, citing cases.

"Prescription cannot be set up as a defense in an action that seeks to recover property held in trust for
the benefit of another. Neither could laches be set up as a defense in the case at bar, it being similar to
prescription." Cuison vs. Fernandez, 56 O.G. No. 33, pp. 5162, 5164.

"And while implied or constructive trust prescribes in 10 years, the rule does not apply where a
fiduciary relation exists and the trustee recognizes the trust. Continuous recognition of a resulting trust
precludes any defense of laches in a suit to declare and enforce the trust." De Buencamino vs. Matias,
L-19397, April 30, 1966.

G.R. No. L-25931 October 30, 1978

ROBERTO LABASAN, AVELINO LABASAN, JOSEFINA LABASAN, and MARCELA COLOMA, petitioners,

vs.
ADELA LACUESTA, DOMINGA LACUESTA and NORBERTO LACUESTA, respondents.

Tipon & Fernandez for petitioners.

Andres B. Plan for respondents.

MUÑOZ PALMA, J.:

Is the contract entered into between spouses Clemente and Hermenigilda Lacuesta on one hand and spouses
Gelacio and Marcela Labasan on the other a pacto de retro sale or an equitable mortgage? This is the lone
question involved in this litigation.

Sometime in 1927, spouses Lacuesta were the owners of an unregistered, irrigated riceland located in the
municipality of Badoc, province of Ilocos Norte, and declared for taxation purposes under Tax Declaration No.
026181 in the name of Hermenigilda Lacuesta. 1 On April 20, 1927, the spouses executed in favor of spouses
Labasan a document written in the Ilocano dialect the English translation of which marked as Exhibit "1-A"
follows:
 We, the spouses, Clemente Lacuesta and Hermenigilda Lacuesta, both of legal age, are
residents of barrio Salapasap No. 16, Badoc, Ilocos Norte. We declare the truth that in view of
our urgent necessity for money, we thought of selling one parcel of land owned by us situated
in Sitio Mabusay No. 18 within the jurisdiction of said municipality, to the spouses Gelacio
Labasan and Marcela Coloma, residents of barrio Puzo of the municipality of Pinili, Ilocos Norte,
for the amount of TWO HUNDRED TWENTY-FIVE (P225.00) pesos, Philippine Currency, which
we have already received in lump sum.

The sale of this parcel of land owned by us to the said spouses can be reconveyed provided ten
years shall not have elapsed and we have the same amount of the money which we had taken
from them, as agreed upon by us .

This parcel of land has a circumference of 240 square meters, yielding two 'uyones' and three
baares of palay. Bounded on the north by Fernando Lacuesta and Vicente Coloma; on the east
by Matias Coloma, on the south by Valeriana Lacuesta and on the west by Fernando Lacuesta.

We further agreed that during the period of their ownership of this parcel of land, I will be
responsible for all tenancy matters over this land.

For this reason this receipt is made as security to the spouses for all matters pertaining thereto.
But in case there shall arise adverse claims with respect to the ownership of the vendees over
this parcel of land I and my wife shall answer the same as well as defray all expenses of
litigation an if we shall be adjudged otherwise, and, if the vendees of this parcel of land shall be
deprived of their ownership, we shall give another parcel of land with the same yield and area
so that our sacred agreement shall not be beclouded with bad faith.

In witness to the truth of what we have done, we sign our names for those who know how to
write and affix the cross for those who do not know how to write, together with the signatures
of the witnesses.

Done this 20th of April, 1927. (pp. 8-10, Petitioner's brief)

On April 23, 1948 spouses Lacuesta filed with the Court of First Instance of Ilocos Norte a complaint against
spouses Labasan, seeking the reconveyance of the parcel of land subject of the above-quoted document.
During the pendency of the case, the Lacuesta died and were substituted by their children, all surnamed
Lacuesta. In the meantime, defendant Gleacio Labasan also died and was substituted by his children.

In the complaint, it was alleged that spouses Lacuesta secured a loan P225.00 from Gelacio Labasan and as
security for the payment of that loan, they offered their riceland; sometime in 1943, they tendered payment
of the loan but Labasan refused to accept it; after "liberation" they offered again to pay their loan and
demanded the return of their land but they were once more refused because defendants claimed that they
were the owners of the property. 1-A

In the answer to the complaint only one special defense was raised — that the Lacuesta conveyed by means of
a written document the land with right to repurchase the same within the period of ten years, but because of
plaintiff's failure to exercise that right within the stipulated period, the vendees a retro have became the
absolute owners of the land and the latter in fact donated the property to their son Roberto Labasan who is
now the owner of the property. 2
On the basis of the evidence adduced by the parties the trial court presided then by Judge Wenceslao M.
Ortega rendered on May 11, 1959 a decision declaring that the document executed by the Lecuestas was
a pacto de retro sale and that the latter lost their right to redeem the land for not having taken any step within
the agreed of ten years.3

The plaintiffs elevated the case to the Court of Appeals on the sole issue of the nature of the document
marked Exhibit "1-A".

The Court of Appeals, in its decision of February 18, 1966, set aside the judgment of the trial court and
declared the contract an equitable mortgage and ordered the defendants Labasan to reconvey the land to the
Lacuestas without the latter paying the loan of P225.00 inasmuch as the same was deemed paid from the
fruits of the property which the Labasans had been receiving for the past thirty-two years. 4

We affirm the decision of the appellate court under well-settled principles embodied in the law and existing
jurisprudence.

1. It is a basic fundamental rule in the interpretation of a contract that if the terms thereof are clear and leave
no doubt upon the intention of the contracting parties the literal meaning of the stipulation shall control, 5 but
when the words appear to be contrary to the evident intention of the parties, the latter shall prevail over the
former. 6

Examining Exhibit "1-A" in this case, it is evident that the terms of the document are not clear and explicit on
the real intent of the parties when they executed the aforesaid document. For instance, the words or
clauses, vis: "urgent necessity for money," "selling the land," ownership," I will be responsible for all tenancy
matters," "This receipt is made as security," are sufficient to create a doubt as to what the document truly
purports to be. Under those terms is the contract one of loan with security or a pacto de retro sale?

2. In view of the ambiguity caused by conflicting terminologies in the document, it becomes necessary to
inquire into the reason behind the transaction and other circumstances accompanying it so as to determine
the true intent of the parties. Once the intent becomes clear then it shall be made to prevail over what on its
face the document appears to be. Each case is to be resolved on the basis of the circumstances attending the
transaction.

Article 1371, New Civil Code: In order to judge the intention of the contracting parties, their
contemporaneous and subsequent acts shall be principally considered. (same as Art. 1282, Old
Civil Code)

In the case at bar, the collective weight of the following considerations lead Us to agree with the findings and
conclusion of the appellate court that Exhibit "1-A" is a mere loan with security and not a pacto de retro sale.

First, the reason behind the execution of Exhibit "1-A" was that the Lacuestas were in "urgent necessity for
money" and had to secure a loan of P225.00 from Gelacio Labasan for which the riceland was given as
"security". In Jayme, et al. v. Salvador, et al., 1930, this Court upheld a judgment of the Court of First Instance
of Iloilo which found the transaction between the parties to be a loan instead of a sale of real property
notwithstanding the terminology used in the document, after taking into account the surrounding
circumstances of the transaction. The Court through Justice Norberto Romualdez stated that while it was true
that plaintiffs were aware of the contents of the contracts, the preponderance of the evidence showed
however that they signed knowing that said contracts did not express their real intention, and if they did so
notwithstanding this, it was due to the urgent necessity of obtaining funds. 7 "Necessitous men are not, truly
speaking, free men; but to answer a present emergency, will submit to any terms that the crafty may impose
upon them." 8

Second, the amount of P225.00, even in 1927, was too inadequate for a purchase price of an irrigated riceland
with an alleged "perimeter" of 240 meters and an "area of 1,269 square meters" yielding annually one "uyon"
and five "baares" of palay, 9 the land being valued at the time for no less than P1,000.00. 9-A In Quinga v. Court
of Appeals, et al., 1961, although the contract between the parties upon its face was one of sale, nevertheless,
this Court upheld the findings of the Court of Appeals that the transaction was not a sale but a loan secured by
an equitable mortgage under the prevailing circumstances of the case, such as, that the price of the land was
grossly inadequate and the vendor remained in possession of the land and enjoyed the fruits. 10

In fact, Article 1602 paragraph 1 of the New Civil Code expressly provides that in case of doubt a contract
purporting to be a sale with a right to repurchase shall be construed as an equitable mortgage when the price
or consideration of the sale is unusually inadequate.

Third, although symbolically the possession of the property was transferred to Gelacio Labasan, it was
Lacuesta, the supposed vendor, who continued to be in physical possession of the property, took charge of its
cultivation, and all tenancy matters. The second paragraph of Article 1602 of the New Civil Code provides that
when the vendor remains in possession as lessee or otherwise, the contract shall be construed as an equitable
mortgage.

Fourth, Gelacio Labasan, the supposed vendee a retro never declared the property in his name for taxation
purposes nor did he pay the taxes thereon since the execution of the document in 1927. Roberto Labasan,
now one of the petitioners and who claims to have acquired the property from his father Gelacio by way of
donation, declared the property in his name under Tax Declaration No. 55683-C-1 only sometime in 1944. (p.
13, Respondents' brief; see also CFI decision, p. 18, Record on Appeal) In Santos v. Duata, this Court, in
affirming a decision of the Court of Appeals, considered the facts that the vendor remained in possession of
the land and continued paying the taxes thereon significant circumstances which justified a judgment holding
the transaction between the parties as an equitable mortgage and not a pacto de retro sale, thereby applying
Article 1602 of the New Civil Code which the Court held to be a remedial measure which may be applied
retroactively to cases arising prior to the effectivity of the New Civil Code. 11

Fifth, as noted in the decision of the appellate court, the supposed vendees a retro, now the herein
petitioners, failed to take any step since 1927 to consolidate their alleged ownership over the land. Under
Article 1509 of the Old or Spanish Civil Code, if the vendor failed to redeem within the period agreed upon, the
vendee's title became irrevocable by the mere registration of an affidavit of consolidation. Thus, under the old
law, a judicial order was not necessary as is required now under Article 1607 of the New Civil Code. The failure
of Gelacio Labasan or his heirs to carry out that act of consolidation strongly corroborates the claim of
Lacuesta that there was no intent at all on the part of the parties to transfer ownership of the riceland in
question.

3. Finally, We have the rule that in case of any doubt concerning the surrounding circumstances in the
execution of a contract, the least transmission of rights and interests shall prevail if the contract is gratuitous,
and, if onerous the doubt is to be settled in favor of the greatest reciprocity of interest. 12

Thus, in the early case of Olino v. Medina 1909, Olino filed a complaint against Medina to recover a parcel of
riceland which he alleged to have mortgaged for P175.00 and which Medina refused to return on the ground
that the latter allegedly bought the property. In deciding the conflict of allegations between the parties, this
Court, through Justice Florentino Torres, considered the transaction over the property as a loan, reasoning
that "such a contract involves a smaller transmission of rights and interests, and the debtor does not surrender
all rights to his property but simply confers upon the creditor the right to collect what is owing from the value
of the thing given as security, there existing between the parties a greater reciprocity of rights and
obligations.13

With the foregoing considerations, there is no further necessity for Us to dwell on the other reasons given by
the Court of Appeals in rendering judgment in favor of private respondents, which reasons We believe are not
decisive of the issue posed in this case.

PREMISES CONSIDERED, We find no reversible error in the petition under review and We affirm the same.
With costs against petitioners.

So ordered.

G.R. No. L-13510             October 23, 1918

HENRY W. PEABODY & COMPANY, plaintiff-appellant,

vs.
J. F. BROMFIELD and JAMES ROSS, defendants-appellees.

Wolfson & Wolfson for appellant.

Kincaid & Perkins for appellees.

STREET, J.:

This action was instituted by the plaintiff, Henry W. Peabody & Company, in the Court of First Instance of the
city of Manila, to recover a sum of money of the two defendants named in the caption hereof. From a
judgment dismissing the action the plaintiff has appealed.

The liability which is sought to be established is based upon a document (Exhibit B) purporting to be a contract
of guaranty signed by the two defendants herein, J. F. Bromfield and James Ross, also by Edward B. Bruce, the
latter not being included as a defendant in this action.

At the time when the document in question was executed, the Commercial Vehicle Company, a corporation
organized under the laws of the Philippine Islands, was engaged in the business of selling automobiles and
automobile supplies in the city of Manila, its purchases being made in the United States through the plaintiff,
Henry W. Peabody & Company, a partnership having its office in the city of New York. The capital resources of
the Commercial Vehicle Company were apparently inadequate for the business it was conducting, and it was
compelled to rely upon the credit extended to it by the plaintiff. In the year 1912, the officials in charge of the
affairs of the Vehicle Company were informed by the plaintiff that their capital must be increased to P50,000,
or the plaintiff would exercise its right, under the contract then existing between the two parties, to curtail the
credit which the plaintiff had been extending.

It should be explained here that the house of Henry W. Peabody & Company was then represented in manila,
by its agent P. M. Scott, and the latter occupied the position of local manager at all times during the period
when the matters here under consideration were being transacted. In the original contract, dated November
11, 1911, by which henry W. Peabody & Company undertook to purchase and forward merchandise to the
Commercial Vehicle Company, it was provided that the plaintiff's local manager should be a member of the
board of directors of the Commercial Vehicle Company and should have the right to determine whether
orders given by the Commercial Vehicle Company for goods shipped from the United States were from
responsible people. In conformity with this provision Scott became a member of the board of directors of the
Commercial Vehicle Company, attended its meetings upon all occasions, and consulted with the other
directors about the company's business. In order to qualify him in this respect one share of the stock of the
Commercial Vehicle Company was issued to him, and in July, 1912, when the stock issue was increased he
subscribed for common shares of the Vehicle Company in the sum of P2,000 and for preferred shares of the
same company in a like amount. The evidence shows that the taking of these shares in the name of P.M. Scott
was a mere formality and that the real subscriber, or party in interest, was the house of henry W. Peabody &
Company itself. This clearly appears in a letter written on July 29, 1917, by Scott to Bradlee, manager of the
home office in New York City, wherein Scott says: "As I do not desire to become personally interested I have
taken up these shares in the interest of Henry W. Peabody & Company." 1awph!l.net

With reference to the relation of P.M. Scott to the home office of Henry W. Peabody & Company it is further
to be observed that, as manager in this city, he exercised authority in the conduct of the affairs of this branch;
and so far as the facts pertinent to this lawsuit are concerned, it must be considered that Henry W. Peabody &
Company in Manila and P.M. Scoot are one and the same. The home office did not interfere in any way with
his management, and Scott exercised in this city, throughout the transactions which are now under scrutiny,
all the powers of a vice-principal.

After the plaintiff had, as above stated, notified the management of the Commercial Vehicle Company that its
capital must be increased, several of the individuals principally interested in the affairs of the latter company
discussed the matter among themselves and arrived at the conclusion that the necessary capital could not be
raised by an increase of stock. The meeting of the board of directors at which this conclusion was announced
and accepted occurred apparently in July, 1912. There were present on this occasion, of the board of
directors, Edward B. Bruce, J. F. Bromfield, James Ross, and P.M. Scott, the latter in representation of Henry
W. Peabody & Company should remain firm and discontinue or curtail its credit, the Commercial Vehicle
Company would have to be liquidated. In contemplation of this eventuality, Clark, the company's auditor and
accountant, was called upon to make a statement to the board as to its financial condition. He said that the
company's affairs were in an excellent shape and that it could then be liquidated at a profit.

One alternative, however, had been suggested, and was already to some extend under consideration. This was
that a few responsible persons interested in the success of the Commercial Vehicle Company should sign a
contract of guaranty, holding Henry W. Peabody & Company harmless in case the Commercial Vehicle
Company should prove unable to satisfy any debt which it might contract with the former.

When Clarke, at the meeting above mentioned, informed the directors that the business of the Commercial
Vehicle Company was in a promising condition and could be liquidated at a profit, one of the directors
interested exclusive in the Commercial Vehicle Company, speaking for all three, observed that it would be
better to liquidate than for them to give a guaranty of the tenor above stated. Upon this Scott said that he saw
no reason why this should be done, as his company — Henry W. Peabody & Company — merely desired
something that would serve in lieu of an increased capitalization. One of the three Bruce, Bromfield, or Ross,
thereupon said to Scott that, if this were so, he (Scott) would probably have no objection to becoming a party
to such a guaranty himself. Scott assented and after some further conversation it was agreed that the four, to
wit, Bruce, Bromfield, Ross, and Scott, would sign the guaranty. That Scott made this agreement is proved not
only by the testimony of Ross but also by a letter written a few days later by Scott himself to Bradlee, to his
own house in New York City. In this letter, dated July 29, 1912, Scott says:
 . . . For our own protection I have arranged a personal guarantee in the terms of the enclosed
agreement to reimburse H. W. P. & co. all loss resultant from their financing this business, to which will
be attached the signature of the majority of stockholders — their individual positions warranting this a
good security for any reasonable amount. To bring this about they required me to take a personal
interest in the Company by purchasing shares to the value of P2,000 preferred stock of the Company;
an additional P5,000 being subscribed by present members of the Company, thereby increasing the
capital from P10,000 to P19,000 and having the articles of incorporation altered to allow for this
increase. My name therefore will appear as one of the guarantors to H. W. P. & Co., but as I do not
desire to become personally interested have taken up these shares in the interest of H. W. P. & Co. . . .

It is furthermore noteworthy that, although Scott appeared in court as a witness for the plaintiff, he did not
deny making the agreement to sign the guaranty. It is therefore to be considered that the making of this
agreement is as fully and satisfactorily demonstrated as if its existence had been formally admitted in court by
the adverse party.

The proof shows that the labor of drafting the contract of guaranty, in pursuance of the mutual agreement
which had been made, was assigned to Bruce. Accordingly, Bruce drew up the document in question and, after
it had been signed by the three gentlemen whose names appear thereon forwarded it on August 5, 1912, with
a note to Scott couched in the following terms:

Dear Scott:

I enclose herewith the guarantee of the account of the Commercial Vehicle Company with
Henry W. Peabody & Company, which has been signed by Bromfield, Ross and myself.

Faithfully yours,

EDWARD B. BRUCE.          

The material portion of the guaranty itself is as follows:

Whereas, the undersigned are stockholders in the Commercial Vehicle Company, which company has
entered into an arrangement with Henry W. Peabody & Company, by the terms of which said Henry W.
Peabody has undertaken to finance the said Company, as provided in a certain agreement entered into
between said Henry W. Peabody and the Commercial Vehicle Company, under date of November 11,
1911:

xxx     xxx     xxx

Now, therefore in consideration of the promises, the undersigned hereby, jointly and severally, bind
themselves to reimburse Henry W. Peabody & Company for any loss which said company shall incur by
reason of the business done by said company for the Commercial Vehicle Company in purchasing
automobiles and automobile supplies for the Commercial Vehicle Company, extending drafts and
rendering other accommodations in accordance with the terms of said contract.

This guarantee shall remain in full force and effect as to all business transacted up to January 1, 1915.

This guarantee shall remain in full force and effect as to all business transacted up to January 1, 1915.
 In witness whereof the undersigned have executed this instrument, this 22 day of July, 1912.

(Sgd.) EDWARD B. BRUCE.         

(Sgd.) J. F. BROMFIELD.         
(Sgd.) JAMES ROSS.         

Upon receiving this document, Scott appears to have put it away, without signing it himself; and it remained in
his possession until produced two years later at the time demand was made upon the guarantors for the
performance of the obligation expressed therein. The record fails to show that Scott sent any written
communication acknowledging the receipt of this document to Bruce; and it can be surmised that he wished
to reflect upon whether to put his own name upon it. In the end — if not at once — he evidently decided not
to do so. It is possible that Scott may have imagined that his participation in the contract was waived by the
failure of Bruce, in his note of transmissal, to mention as a condition of the liability of the signatory parties
that Scott himself should also sign. At any rate, it is so contended here in behalf of the plaintiff on this appeal;
and one of the questions to be decided in this case is whether or not the delivery of the guaranty to Scott in
the manner above stated operated as a waiver of the requirement of his signature.

Leaving this question for later discussion, we proceed with the narrative of subsequent events in the history of
the Commercial Vehicle Company. This is brief is a story of commercial disaster. Even at the time the guaranty
was made the company apparently was not as prosperous as its auditor had reported; and, at any rate, in the
next two years the company lost heavily. Under date of June 19, 1914, Henry W. Peabody & Company, by
Scott, addressed a letter to Bruce, Ross, and Bromfield, as signatory parties to the contract of guaranty, in
which, among other things, it was said:

In view of the fact that a serious loss in the account of the Commercial Vehicle Co. is quite inevitable
and cannot be averted, we are obliged to have recourse upon you on the terms of your undertaking of
July 22, 1912, and to make demand upon you for the amount due from the said company, which the
latter has been unable to pay. . . .

We draw your attention to former letters addressed to Mr. E.B. Bruce on this subject, and would ask
that you kindly arrange to cover the balance due to us and subsequent interest on or before July 1,
1914, or make some definite arrangement in regard to payment.

Our head office writes that the fact of your inability to collect the outstanding accounts of the
Commercial Vehicle Co. is no reason that we should await payment due to us, and we therefore
request that you take prompt action in regard to this matter.

No written reply seems to have been made to this communication, and Scott again wrote upon July 31, 1914,
calling attention to the fact that no attention had apparently been paid to his prior demand, and he added: "I
have received further instructions from our head office to press for payment, and unless terms of settlement
are arranged prior to August 10th I shall be reluctantly compelled to adopt other methods of procedure."

In reply to this, the three gentlemen, Ross, Bruce, and Bromfield, on August 3, 1914, addressed a letter signed
by all of them to Henry W. Peabody & Company, in which they observed that they had no desire to interpose
any legal objection to the enforcement of the undertaking, but they at the same time called attention to the
abnormal financial conditions which had supervened in the Philippine Islands as a consequence of the
outbreak of the European War, and said that it was absolutely impossible for them at once to raise the
amount, about P46,000, which Henry W. Peabody & Company demanded. They also stated that there were
some large outstanding accounts due to the Commercial Vehicle Company and that a every effort was being
made to get these assets in. "We believe," the letter continued, "that if a reasonable time is allowed for this
purpose, a substantial amount can be realized. We therefore make the following proposition: the six months
be allowed us to effect the collection of as many of these accounts as possible, the proceeds to be applied in
reduction of your account. In view of all the circumstances connected with this transaction, we submit to you
that a fair and equitable adjustment of this matter would be to reduce your account to an amount which will
reimburse your firm for all sums actually paid out on account of the Commercial Vehicle Company. If the
above propositions meet with your approval we will, at the expiration of the six months period above referred
to, each give you a note for one third of the balance due you, payable at a time to be arranged with your
representative."

The letter does not explain what the circumstances were which, in the opinion of the authors of the letter,
made it fair and equitable for Henry W. Peabody & company to reduce the amount of their claim. Other
evidence, however, adduced in the case supplies the explanation, which is, that, when the original contract
was made, the necessity for Henry W. Peabody & Company to reduce the amount of their claim. Other
evidence, however, adduced in the case supplies the explanation, which is, that, when the original contract
was made, the necessity for Henry W. Peabody & company to extend its credit to the Commercial Vehicle
Company had been considered; and it was the contention of Bruce and his associates that the commissions
which Henry W. Peabody & Company were allowed under the contract were substantially larger than would
have been justified if it had been understood that a personal guaranty would be given to secure Henry W.
Peabody & Company from any possible loss.

The offer of adjustment contained in the letter of August 3, 1914, was rejected by Henry W. Peabody &
Company; and as Ross and Bromfield remained obdurate, this action was in consequence instituted against
them on June 30, 1916, to recover the sum of P31,582.62, with interest. Their defense is based on the failure
of Scott personally to sign the guaranty. As against this, it is insisted for the plaintiff that the contract sued
upon is complete in its terms and that the delivery of the contract made by Bruce on August 5, 1912, was an
absolute and unconditional delivery to henry W. Peabody & Company.

The proper solution of the problem requires us to consider, first, and chiefly, the effect of the agreement
made in July, 1912, when four men present at the meeting of the board of directors of the Commercial Vehicle
Company mutually agreed to sign the contract in question. In making that agreement Scott was acting for his
principal, Henry W. Peabody & Company; and when the situation is examined it will be seen that its effect was
substantially the same as if it had been agreed that henry W. Peabody & Company should, jointly with the
other guarantors, carry one fourth the risk of any loss that might result from the extension of its credit to the
Commercial Vehicle Company. The circumstance that the object in view was to be effected by Scott putting his
personal name to the contract of guaranty is of no significance, for he himself immediately informed his
principal in his letter of July 29, 1912, that although his name would appear as one of the guarantors he had
no desire to become personally liable.

It was evidently in the interest of Henry W. Peabody & company to secure the substitution of a responsible
personal guaranty in place of the unsecured obligation of the commercial Vehicle Company. Furthermore, by
the arrangement which was in contemplation, the prior contract was continued in force by which the house of
Henry W. Peabody & Company was entitled to the same commissions as before, and the necessity of
liquidating the business of the Commercial Vehicle Company, then apparently in a prosperous condition, was
avoided. It is possible that in the opinion of Scott the equity of the situation justified some concession from
Henry W. Peabody & Company; and the making of the agreement by which his company was to bear one
fourth of the risk incident to the future business of the Commercial Vehicle Company, down to January 1,
1915, appears to have been reasonable and judicious. No pretense can be made that his action is so agreeing
was beyond the scope of his authority; but even so, it is clear that his principal, after receiving Scoot's letter of
July 29, 1912, must have acquiesced in the course which he proposed to pursue.

The original agreement between the parties being such as we have described, it is manifest that said
agreement could not reach the state of a completed contract until the written document should be signed by
each of the four who had agreed to put their names upon it; and when the three gentlemen whose names
appear thereon as guarantors, had affixed their respective signatures, the contract, though externally perfect,
was still incomplete, and it could only be completed by the addition of a fourth signature, to-wit, the name of
P.M. Scott. The intention of the parties as revealed in their agreement, was that the words "the undersigned,"
appearing in the contract, should comprehend four persons; and the contract naturally could not operate in
this sense until it should have passed into the hands of Scott and been signed by him.

Such being the situation, the contract was, as we have seen, dispatched on August 5, 19121, to Scott by Bruce
with a simple note of transmission in which nothing is said about Scott's signature being required. The most
natural interpretation of this act is that it was intended to place the contract in Scott's signature being
required. The most natural interpretation of this act is that it was intended to place the contract in Scott's
hands that it might be completed, and kept by him as the agent of the plaintiff for the purpose shown on its
face. Scott knew that the agreement, in the form in which it was transmitted to him was incomplete and
would remain so until his name should be put upon it. By failing, under these circumstances, to sign, he most
undoubtedly placed his principal, Henry W. Peabody & Company in such a position that it cannot enforce this
contract; for it is obvious that there is a lack of essential agreement in its creation, the document submitted
being admittedly different from the agreement which was in fact made. It is undoubtedly the duty of the
courts to lend their assistance to the enforcement of any contract which has been honesty made; and evasion
are not to be tolerated. But it is to be remembered the performance of the obligations of a contract is a duty
incumbent on both parties; and where it appears, as here, that the agent of the plaintiff; and where it appears,
as here, that the agent of the plaintiff, through whose activities the contract was procured, has evaded the
obligation which he proposed to assume, the enforcement of the contract is wholly out of the question.

Nor is there anything in the circumstances of the case which preclude the guarantors from making this
defense. It can not be successfully maintained that the signatory parties have waived the personal
participation of Scott in the contract of guaranty by the unconditional note of transmittal. It is true that in this
note Bruce had the delicacy not to remind Scot of the obligation he was under to sign the paper; and
considering the fact that Bruce was speaking for parties whose business could be forced into liquidation on
any day by Scott, it is not surprising that the writer of the letter refrained from using peremptory language.
There is nothing whatever in this communication to show that the three signatory parties intended to depart
in any respect from the agreement which had in fact been made; and it must be considered that the act of
delivering the document to Scott was an act done in pursuance of the original agreement. It was impossible
for the contract to be completed until Scott should sign, and the physical delivery of the document to him was
necessary to that end. Delivery, under such circumstances as these, did not perfect the contract, nor make it
any more complete than it had already been.

The case has been chiefly argued as if it turned exclusively upon the question of delivery. But in the making of
any contract there is something antecedent to the final delivery of the document and even more important. It
is the fundamental requisite of the approximation of the contracting minds in the act of agreement. The
consent of the parties in an essential requisite of the contract (article 1261, Civil Code), and there is no
consent until their minds meet in mutual agreement. If a document is produced, and it is admitted that it does
not express the agreement of the parties, it can have no legal effect, however perfect it may be upon its face.
The contract before us fails to express the agreement of the parties by placing on three men a burden which
was intended to be borne by four.
Of course, if the parties who signed this guaranty had, by the manner of delivery or any other act, intentionally
and deliverately led Scott to act on the assumption that they had excused him from signing, they could not in
this or in any other action be permitted to take advantage of his failure to sign. (Section 333, Code of Civil
Procedure.) There is , however, nothing in the record to show that Scott was in any wise misled on this point.
On the contrary, it is more probable that his retention of the contract, without revealing his failure to sing, had
the effect of misleading the other parties to their possible prejudice.

Much reliance is place by the attorneys for the appellant upon American and English decisions in which the
doctrine of delivery in escrow is applied; and we entirely agree with the proposition that the delivery which
was made by Bruce on August 5, 1912, was not a delivery in order that the contract might be completed. If
Scott had put his name on the paper before locking it upon his safe, no further delivery could, of course, have
ever been made. Speaking retrospectively, in such case, any court would have said that delivery occurred
when Bruce transmitted the document to Scott. but a contract may for lack of essential agreement even
though the external act of delivery is accomplished; and such is our opinion in the case now before us. It is not
delivery which is here lacking; the trouble lies in the incompleteness of the execution. the inference which the
appellant insists should be drawn from the fact that the delivery of the instrument was effected without any
express reservation therefore fails.

We are not unmindful of the fact that many cases can be cited as authority for the proposition that a creditor
in whose favor a contract of guaranty, or bond, is executed is not bound by a reservation, made without
knowledge of such creditor, by the guarantor or surety, upon placing his signature on the document, to the
effect that he will not be bound unless some other person should sign in a similar capacity. In such case the
creditor, not being cognizant of such reservation, cannot be effected by it. This well-known rule cannot
operate in a case where, as here, the party in whose favor the instrument was executed was cognizant of the
condition upon which the guarantors signed and agreed that the contract should be signed up in the manner
contemplated.

Although the case has been argued chiefly on the point of delivery, the appellant also relies on the proposition
that extrinsic evidence is not admissible to vary the terms of the guaranty by showing that there was an
anterior agreement by virtue of which the liability of the three signatory parties was dependent on the
addition of the signature of Scott as one of the guarantors. The rule that, generally speaking, extrinsic
evidence is not admissible to vary the terms of a written contract is not to open to question. Nevertheless, it
must be remembered that this rule is concerned with evidence which, if admitted, would contradict the
obligation expressed in a contract the existence of which is admitted to proved. It has no application to
conditions and stipulations which are antecedent to the existence of the contract and on the faith of which the
supposed contract is executed. (10 Ruling Case Law, 1038.) Or, as it is commonly expressed, a separate or
collateral stipulation is admissible in evidence, though it relates to the same subject matter as the written
contract, provided it does not contradict or vary the terms of such contract. (Opus citat, pp. 1033 et seq.) In
the case now before us the stipulation that Scott should sign the contract in question in no wise varied any
term of the guaranty in question. The making of said stipulation operated rather as one of the inducements
which cased the others to sign.

The attorney for the appellant further insists that the letter of August 3, 1914, (Exhibit G) from which we have
already quoted, contains an admission by Ross, Bruce, and Bromfield of their liability on the contract in
question. Certainly, if the defendants herein had denied their signatures to the contract, the letter referred to
would have furnished to the contract the sufficient proof that they signed it. But that is not in dispute, and the
question is whether the supposed contract of guaranty created a legal liability. Upon this point it is evident
that if the execution and delivery of the contract in the manner already considered did not created legal
liability the letter could not have such effect. The trial judge excluded the letter from consideration on the
ground that, as appears on its face, it was intended merely as an offer of compromise. Whether admitted or
rejected, it can in our opinion have no effect upon the determination of the lawsuit.

A question has been asked as to whether it would be possible to allow a recovery in favor of the plaintiff to the
extent to which the defendant herein would have been liable if Scott had signed the guaranty. This suggestion
contemplates performance by Scott and the enforcement of the obligation as thus reformed or completed.
Apart from the fact that no such relief is sought by either litigant, it is apparent that the facts involved supply
no basis for any such equitable adjustment of liability. the plaintiff neither asks nor offers to do equity. It
stands upon its legal right under the supposed contract, and is met by a defense based on the assertion that
no contract was made. The case must, in our opinion, be determined on the issue thus defined. In this
connection it should be observed that by the terms of the contract in question the liability of the parties was
solidary and not apportionable

But the further question may be asked; Cannot the court ignore the written contract as incomplete and yet
permit recovery upon the oral contract made by the four individuals who agreed to become guarantors? The
impossibility of such a course must be apparent when it is considered that the parties to the preliminary
negotiation intended that a contract should be executed as the formal repository of their agreement. It was,
indeed, necessary that their agreement should be reduced to writing in order to satisfy that provision of the
law which says that a promise to answer for the debt or default of another shall be unenforceable unless
reduced to writing and subscribed by the party to be charge. (Section 335, subsection 2, Code of Civil
Procedure.) It is therefore evident that the parties could not have intended that any contract should exist
except that which should be executed in accordance with this intention. Their purpose, as we have seen, failed
of effect because the agent of the plaintiff, himself one of the proposed guarantors, refrained from performing
the act which would have made him liable with the other signatory parties. The necessary consequence, in our
opinion, is that no action can be maintained by the plaintiff either on the preliminary verbal agreement or the
imperfect contact which failed of effect.

It is no doubt true that if the three gentlemen who signed the contract (Exhibit B) had so desired, they could
upon learning of Scott's failure to sign the document, have forced him to sign it or return it to them; and this
could have been accomplished by legal action, supposing that the parties could have had access to his letter
file and have obtained the communication to Bradlee in which the making of the agreement is admitted in
writing. We are unable, however, to see that this circumstance strengthens the case of the plaintiff company
as against them.

From what has been said it is apparent that the trial court committed no error in absolving the defendants.
The judgment appealed from is accordingly affirmed, with costs. So ordered.

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. 1äwphï1.ñët

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.

G.R. No. 74978 September 8, 1989

MARKET DEVELOPERS, INC. (MADE), petitioner,
vs.
HON. INTERMEDIATE APPELLATE COURT and GAUDIOSO UY, respondents.

Tanjuatco, Oreta, Tanjuatco & Factoran for petitioner.

Rodolfo M. Morelos for private respondent.

CRUZ, J.:

What one rnay notice at the outset about this case is that the private respondent, although the plaintiff in the
court a quo, seems to have lost all interest after the decision in his favor was appealed to the respondent
court. He did not even submit a brief. 1 Later, when this petition was filed and he was required to comment, he
also failed to do so. Required to show cause for his non-compliance, he explained that his records of the case
had been misplaced. Anyway, he said, he could not add to the evidence presented at the trial; hence, he was
submitting the case for resolution by this Court without further pleadings. 2

It is not as simple as that. The petitioner has raised substantial arguments not touched in the decision under
challenge. It was in the private respondent's interest to refute these arguments if he was to maintain his
advantage. Notably, the issues raised by the petitioner are mainly legal and could have been answered
without much need of referring to the records. If there was such a need, it would have been easy for the
private respondent to consult the records in this Court, which were available to him. But it is now too late for
him to do so because of his waiver.

The private respondent's seeming indifference becomes an the more costly to him in the light of the
challenged decision of the respondent court. 3 It was rather sketchy, to say the least. Hardly an original idea or
finding was volunteered. The appellate court made a brief recital of the facts, summarized the allegations of
the plaintiff and the defendant, quoted at length the findings and conclusions of the trial court 4 declared them
well-taken and meritorious," and concluded by aiming the appealed decision in toto. It was a mistake for the
private respondent to fully rely on that unsatisfactory decision.

It appears that on June 20, 1978, petitioner Market Developers, Inc. (MADE) entered into a written barging
and to wage contract with private respondent Gaudioso Uy for the shipment of the former's cargo from Iligan
City to Kalibo, Aklan, at the rate of P 1.45 per bag. The petitioner was allowed 4 lay days and agreed to pay
demurrage at the rate of P5,000.00 for every day of delay, or in excess of the stipulated allowance. 5 On June
26, 1978, Uy sent a barge and a tugboat to Iligan City and loading of the petitioner's cargo began immediately.
It is not clear who made the request, but upon completion of the loading on June 29, 1978, the parties agreed
to divert the barge to Culasi, Roxas City, with the cargo being consigned per bill of lading to Modem Hardware
in that City. 6 This new agreement was not reduced to writing. The shipment arrived in Roxas City on July 13,
1978, and the cargo was eventually unloaded and duly received by the consignee. There is some dispute as to
the time consumed for such unloading. At any rate, about six months later, Uy demanded payment of
demurrage charges in the sum of P40,855.40 for an alleged delay of eight days and 4/25 hours. 7 MADE
ignored this demand, and Uy filed suit. He was sustained by the trial court, which ordered the petitioner to
pay him the said amount with interest plus P4,000.00 attomey's fees and the cost of the suit. 8 As earlier
stated, this decision was fully affirmed on appeal to the respondent court, which is the reason for this petition.
Agreeing with the trial court, the respondent court held that since the diversion of tile cargo to Roxas City was
not covered by a new written agreement, the original agreement must prevail.

It is this conclusion that is now disputed by the petitioner, which contends that the first written contract was
replaced by a new verbal agreement that did not contain any stipulation for demurrage. There is the further
insistence that the alleged delay in the unloading of the cargo in Roxas City should not have been readily
assumed as a fact by the trial and respondent courts because it had not been established by competent
evidence and was based on mere hearsay. The petitioner also argues that the claim for demurrage was barred
by laches, the private respondent having asserted it tardily and obviously only as an afterthought. 9

After considering the issues and the arguments of the parties, we find that it was erroneous for the
respondent courts to affirm that the original contract concluded on June 20, 1978, continued to regulate the
relations of the parties. What it should have held instead was that the first written contract had been
cancelled and replaced by the second verbal contract because of the change in the destination of the cargo.

In his testimony, the private respondent said he felt there was no need to draft another agreement as anyway
the rates remained unchanged at P1.45 per sack of the petitioner's cargo. He did not consider, however, that
there was a substantial difference between Roxas City and Kalibo, Aklan, as ports of destination, that affected
the continued existence of the first contract.

As correctly pointed out by the petitioner, Roxas City is a much busier poet, than Kalibo, Aklan, where
unloading of its cargo could have been accomplished faster because of the lighter traffic. That is why he
agreed to pay demurrage charges under the original contract but not under the revised verbal agreement.
Testifying for the petitioner, Julian Chua, its sales manager, declared that he had expressed misgivings about
paying demurrage charges in Roxas City but was assured by Uy that there would be no such charges. 10 This
testimony was never denied by the private respondent.

Indeed, it would have been foolhardy for the petitioner to assume demurrage charges in Roxas City,
considering the crowded condition of the port in that place. Such assumption should not have been lightly
inferred, especially since it is based on the resurrection of a contract already voided because of the change in
the port of destination. To hold that the old agreement was still valid and subsisting notwithstanding this
substantial change was to impose upon the petitioner a condition he had not, and would not have, accepted
under the new agreement.

In ruling that in the absence of a new written agreement the old agreement must prevail, the courts a
quo were saying that the first agreement continued to be valid because the second was void. That is hardly a
logical conclusion. If the first contract was, indeed, still valid, then it was clearly violated because of the
diversion of the cargo which, if we follow the reasoning of the courts a quo, could not have been agreed upon
verbally.

Was the second contract invalid because it was not in writing?

Article 1356 of the Civil Code provides:

Contracts shall be obligatory in whatever form they may have been entered into, provided all
the essential requisites for their validity are present. However, when the law requires that a
contract be in some form in order that it may be valid or enforceable, or that a contract be
proved in a certain way, that requirement is absolute and indispensable. ...
We affirmed this rule only recently when we said in Tong v. Intermediate Appellate Court 11 that "a contract
may be entered into in whatever form except where the law requires a document or other special form as in
the contracts enumerated in Article 1388 of the Civil Code. The general rule, therefore, is that a contract may
be oral or written."

The contract executed by MADE and Uy was a contract of affreightment. As defined, a contract of
affreightment is a contract with the shipowner to hire his ship or part of it, for the carriage of goods, and
generally takes the form either of a charter party or a bin of lading. 12

Article 652 of the Code of Commerce provides that "a charter party must be drawn in duplicate and signed by
the contracting parties" and enumerates the conditions and information to be embodied in the contract,
including "the lay days and extra lay days to be allowed and the demurrage to be paid for each of them."

But while the rule clearly shows that this kind of contract must be in writing, the succeeding Article 653 just as
clearly provides:

If the cargo should be received without a charter party having been signed, the contract shall
be understood as executed in accordance with what appears in the bill of lading, the sole
evidence of title with regard to the cargo for determining the rights and obligations of the ship
agent, of the captain and of the charterer.

We read this last provision as meaning that the charter party may be oral, in which case the terms thereof, not
having been reduced to writing, shall be those embodied in the bin of lading.

Conformably, we recognized in Compania Maritima v. Insurance Company of North America, 13 the existence

of a contract of affreightment entered into by telephone, where it was shown that this oral agreement was
later confirmed by a formal and written booking issued by the shipper's branch office and later carried out by
the carrier.

We see no reason why the second agreement of the parties to deliver the petitioner's cargo to Roxas City
instead of Kalibo, Aklan, should not be recognized simply because it was not in writing. Law and jurisprudence
support the validity of such a contract. And there is no justification either to incorporate in such contract the
stipulation for demurrage in the original written contract which provided for a different port of destination
than that later agreed upon by the parties. It was precisely this vital change in the second contract that
rendered that first contract ineffectual.

If the rate provided for in the old written contract was maintained in the new oral contract, it was simply
because, as the private respondent himself declared, the rates for Kalibo, Aklan and Culasi, Roxas City, where
the same. But the demurrage charges cannot be deemed stipulated also in the verbal contract because the
conditions in the ports of Aklan and Roxas City were, unlike the rates, not the same. In fact, they were vastly
different.

The parol evidence rule is clearly inapplicable because that involves the verbal modification usually not
allowed a written agreement admittedly still valid and subsisting. In the case at bar, the first written
agreement had not merely been modified but actually replaced by the second verbal agreement, which is
perfectly valid even if not in writing like the first. As has been correctly held:

No principle of law makes it necessary that a new contract upon the same subject between the
same persons shall be reduced to writing because the old contract was written. 14
Regarding the bill of lading, an examination thereof will reveal that there is no condition or requirement
therein for the payment of demurrage charges. Under the afore-quoted Article 653 of the Code of Commerce,
therefore, there was no reason to read any stipulation for demurrage into the second contract.

At that, even assuming that the original agreement for demurrage had been carried over in the second
contract, there is no acceptable evidence of the delay allegedly incurred by the petitioner in the unloading of
its cargo in Roxas City. Uy's testimony on this matter is self-serving, let alone the fact that he admittedly was
not present at the unloading. His corroboration is hearsay. This consisted merely of Exhibits B and C, 15 the so-
called statement of facts regarding the unloading of the cargo from the barge, prepared by the barge patron, a
certain Ding Julian. This person was not presented at the trial to testify on his report and could therefore not
be subjected to cross examination.

A no less important consideration is the timeliness of the private respondent's demand for the payment of
demurrage charges as this would indicate the real intention of the parties regarding this matter.

The petitioner points out that the original bill sent by the private respondent charged it only for the freight but
made no mention of the demurrage charges. The trial court correctly noted, and the respondent court agreed,
that "this is so because at the time Exhibit '2' was made which was on July 8, 1978, there was yet no
demurrage. As a matter of fact, unloading had not yet started. The unloading started on July 13, 1978. (Exh.
"D")

True. But accepting arguendo the facts stated in the mentioned exhibits, we find that after sending the
petitioner the billing dated July 8, 1978, the private respondent did not make any additional billing for
demurrage following the completion of the unloading on July 24, 1978, as alleged. It is also a matter of record
that on September 1, 1978, the petitioner remitted to Uy a check "in full payment of our account," 16 which
was accepted without protest and eventually encashed by the private respondent. Furthermore, the
petitioner's sales manager testified that MADE and Uy entered into at least one more voyage afterwards, and
there was no demand made then for the demurrage charges for the voyage to Roxas City. 17 This has not been
denied. Uy says he made such demand verbally several times but offered no corroboration. It was only on
February 5, 1979, that he made his demand in writing. 18

Considering that Uy's original billing for freightage was made even while the petitioner's cargo was still being
unloaded in Roxas City, one can only wonder why the billing for the demurrage charges was not made with
similar dispatch, that is, soon after the alleged delay. Uncharacteristically, that billing was not at all prompt;
indeed, it was inexplicably deferred. It is not explained either why, when the petitioner remitted what it
expressly described as "fun payment" of its account, Uy did not make haste to say that the demurrage charges
were still outstanding nor did he mention this claim when he later entered into another freightage contract
with the petitioner. More curiously, it took all of six months before it occurred to Uy to make a written
demand for demurrage although he says his several verbal demands had been consistently ignored.

The Court finds that while this delay, standing by itself, is not long enough to constitute laches, it nevertheless
clearly reflects on the private respondent's credibility when assessed in relation to the facts above narrated.

The sum of it all is that while private respondent could have met all the arguments of the petitioner frontally,
he elected to rely merely on the decisions of the trial court and the respondent court, perhaps feeling smuggly
that he had already won. That was his error. He misjudged those judgments. It should never be assumed that
when this Court sits to review the decisions of the lower courts, it will merely and automatically affirm them
without further inquiry on the convenient assumption that they are correct. That may be a presumption, and
it is often valid, but it is never conclusive upon us. Such decisions are always examined carefully and
thoroughly by this Court, in the light of the issues and arguments raised by the parties before it, and may be
modified or even reversed whenever warranted to give the deserving suitor the appropriate relief As in this
case.

WHEREFORE, the petition is GRANTED. The decision of the respondent court is REVERSED. Civil Case No. R
18095 in the Regional Trial Court of Cebu is hereby dismissed, with costs against the private respondent.

SO ORDERED.

G.R. No. 121506 October 30, 1996

MACTAN CEBU INTERNATIONAL AIRPORT AUTHORITY, petitioner,

vs.
COURT OF APPEALS, REGIONAL TRIAL COURT, BRANCH 9, CEBU CITY, MELBA LIMBACO, LINDA C. LOGARTA
and RAMON C. LOGARTA, respondents.

RESOLUTION

FRANCISCO, J.:p

Petitioner Mactan Cebu International Airport Authority (MCIAA) 1 seeks a reversal of the decision 2 of the
Court of Appeals (CA) dated March 23, 1995 as well as the resolution 3 dated August 7, 1995 denying
petitioner's motion for reconsideration. The facts, as stated in the assailed decision, and which we adopt, are
as follows:

Sometime in 1949, officers of the National Airport Corporation informed the owners of the
various lots surrounding the Lahug Airport that the government will purchase their lands for the
expansion of the airport. The landowners were convinced to sell their properties, otherwise,
the government will be forced to institute expropriation proceedings in courts. They were also
assured that their properties will be turned to them when these are no longer being used by
the airport (TSN-Daclan, 15 June 1992, pp. 5-7; TSN-Sanchez, 29 September 1992, p. 12; TSN-
Daclan, 9 February 1993, pp. 7-9, 12).

Initially, Inez Ouano did not want to sell her property because she does not have enough to
bequeath to her grandchildren and the price offered by the government was very low.
Nonetheless, she agreed to sell since the government was going to expropriate the land
anyway. She was also reassured by the promise that the land will be returned to her when it is
no longer in use (TSN-Daclan, 15 June 1992, pp. 5-6).

Eufemio Vercide, one of the affected landowners testified that in a meeting called by the NAC,
the landowners were given documents to sign, and he asked for a rider or certification which
would indicate that the land will be returned to him should it not be used by the airport. He
testified that it was only after the rider was given to him that he signed the document of sale
(TSN-Catin, 24 September 1992; Deposition of Eufemio Vercide; Records pp. 146-155). The rider
dated 8 November, 1949, signed by Mariano Reyes for the NAC and Vercide reads, as follows:
 This RIDDER (sic), shall remain in full force up to whensoever and whatever the
Lahug Airport may happen in the future. All statements in anticipations herein
below stated, shall remain valid in favor of the landowners.

That in the event that this Lahug Airport will be left dead and of no use, or be
transferred to another place or locality, then the parcels of land mentioned in
the attached Doc. no. 698, Page 8, Book No. XVII, Series of 1949 by Atty. Daniel
Tumulak, shall be returned to the same owner, EUFEMIO O. VERCIDE at the
same selling price without any interest (Exhibit "F-1"; Records, p. 92).

The sale of Inez' properly was covered by a Deed of Sale signed by her and Mariano Reyes
representing the NAC. The deed indicates that the Lot 742 was sold for P2,596.40; and Lot 953
for P 1,125.20. The deed does not contain any provision regarding Inez' right to repurchase the
properties. Nor does she have any rider such as the one given to Vercide.

Nonetheless, during her lifetime, Inez used to remind her granddaughter Melba Limbaco, who
was living with her, about the assurance by the NAC officials that the properties will be
returned. Inez also made Melba understand that the latter can recover the land herself should
Inez die before the proper time arises.

xxx xxx xxx

Upon learning that other landowners were able to recover their properties and that the then
Pres. Aquino had ordered that the airport be transferred to Mactan, the appellees tried to
repurchase the properties originally owned by their grandmother. On 2 October 1991, they
wrote to Capt. Antonio Oppus, the manager of appellant, signifying their intention to
repurchase the properties originally owned by their grandmother (Exhibit "D", Records, pp. 82-
83). Capt. Oppus replied through a letter dated 17 October 1991 denying their request because
the deed of sale covering the properties does not contain any condition relating to the right to
repurchase. These properties, it was explained, had become the absolute properties of the NAC
(Exhibit "E", Records, p. 84). 4

Private respondents thereafter filed a case for reconveyance with the Regional Trial Court (RTC) which ruled in
their favor. On appeal to the CA, the same was affirmed in toto. Hence, this petition assigning the following
errors:

I. RESPONDENT COURT ERRED IN RULING THAT THERE WAS AN AGREEMENT ALLOWING INEZ
OUANO AND HER SUCCESSORS TO REPURCHASE THE LOTS IN QUESTION ABSENT ANY "RIDER"
IN THE DEED OF SALE SIMILAR TO THE SALES OF ADJACENT LOTS WHICH CONTAINED RIDERS.

II. RESPONDENT COURT ERRED IN RULING THAT THE STATUTE OF FRAUDS DOES NOT APPLY IN
THE INSTANT CASE AS THE CONTRACT HAS BEEN PARTIALLY EXECUTED. 5

Anent the first error, the CA's finding that there was an agreement allowing the right of repurchase, was
established after admitting the parol evidence presented by private respondents. We reject petitioner's
argument that in the absence of any rider providing for such right of repurchase, no evidence, whatsoever can
be received to establish that such a right indeed exists. Both the RTC and the CA correctly ruled that the right
of repurchase granted by the NAC to Inez Ouano can be sufficiently established by parol evidence. The Court
of Appeals, based on the parol evidence presented by private respondents, thus stated:
 We see no reason, however, why Inez should be considered as not similarly situated as the
owners of these other lots. All these lots surround the Lahug Airport and were acquired by the
government for the proposed expansion of the airport. The appellee has not presented any
evidence to show that Inez' lots were acquired for a different purpose or under different
conditions. Why then should the sale of such lots be singled out as not subject to the right to
repurchase when a good number of the lots around them were already repurchased by their
original owners? 6

Under the parol evidence rule, when the terms of an agreement have been reduced into 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, the failure of the written agreement to express the true intent of the parties thereto. 7 In
the case at bench, the fact which private respondents seek to establish by parol evidence consists of the
agreement or representation made by the NAC that induced Inez Ouano to execute the deed of sale; that the
vendors and their heirs are given the right of repurchase should the government no longer need the property.
Where a parol contemporaneous agreement was the moving cause of the written contract, or where the parol
agreement forms part of the consideration of the written contract, and it appears that the written contract
was executed on the faith of the parol contract or representation, such evidence is admissible. 8 It is
recognized 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. The rule excluding parol evidence to
vary or contradict a writing does not extend so far as to preclude the admission of existing 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. 9

More importantly, no objection was made by petitioner when private respondents introduced evidence to
show the right of repurchase granted by the NAC to Inez Ouano. 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 if not so made, it will be understood to have been waived. 10

As regards the second assigned error, the CA correctly held that the Statute of Frauds does not apply to the
case at bench. In support thereof, the CA declared:

It will be stressed that the right to repurchase is part of the contract of sale, albeit not
incorporated in the deed of sale. It is not an independent agreement or contract. It is,
therefore, correct for the trial court to hold that the contract has been partially executed by the
sale of the properties to the appellant. 11

Under Art. 1403 of the Civil Code, a contract for the sale of real property shall be unenforceable unless the
same or some note or memorandum thereof be in writing and subscribed by the party charged or his agent.
Evidence of the agreement cannot be received without the writing, or a secondary evidence of its contents. In
the case at bench, the deed of sale and the verbal agreement allowing the right of repurchase should be
considered as an integral whole. The deed of sale relied upon by petitioner is in itself the note or
memorandum evidencing the contract. Thus, the requirement of the Statute of Frauds has been sufficiently
complied with. Moreover, the principle of the Statute of Frauds only applies to executory contracts and not to
contracts either partially or totally performed, 12 as in this case, where the sale has been consummated; hence,
the same is taken out of the scope of the Statute of Frauds. As the deed of sale has been consummated, by
virtue of which, petitioner accepted some benefits thereunder, it cannot now deny the existence of the
agreement. 13 The Statute of Frauds was enacted for the purpose of preventing fraud. It should not be made
the instrument to further them. 14

ACCORDINGLY, the petition is hereby DENIED.

SO ORDERED.

G.R. No. L-10100            August 15, 1916

GALO ABRENICA, plaintiff-appellee,
vs.
MANUEL GONDA and MARCELO DE GARCIA, defendants-appellees.

Marcelo Caringal for appellants.

Ramon Diokno for appellee.

ARAULLO, J.:

These proceedings were brought by the plaintiff to compel the defendant to return to him the two parcels of
land described in the complaint which he alleges were sold by him under right of repurchase to the defendant
on February 21, 1916, for the sum of P75 and for the period of seven years. The plaintiff alleged that the
defendant refused to deliver said property to him when, upon the expiration of the period mentioned, he
endeavored to redeem the same and tendered payment to the defendant of the sum aforesaid.

The first of the defendants, Manuel Gonda (who had already sold said parcels to the other defendant
Marcelino de Gracia, for which reason the latter was also made a party defendant) alleged that about 19 years
ago he was the sole possessor and owner of said parcels, and in the course of the trial endeavored to prove
that they had been sold to him by the plaintiff and his mother.

The issue presented by the pleadings, therefore, is whether said two parcels of land were sold under right of
repurchase by the plaintiff to the defendant for the period of seven years, for the sum of P75, or whether they
were conveyed to the defendant in absolute sale by the plaintiff's parents.

The justice of the peace of the provincial capital, who tried the case by assignment of the judge of the Court of
First Instance of the same province, heard the evidence introduced by the parties and after making a
sufficiently clear summary of and duly considering the same, reached the conclusion that the proofs
introduced by the plaintiff were entitled to the greater credit and, on the grounds that the plaintiff had not yet
lost his right to recover the lands from the defendant Gonda and that the sale made by this defendant to the
other defendant De Gracia, supposing it to be genuine, could have no legal effect as Gonda was not the true
owner of the land, entered judgment in behalf of the plaintiff and against the two defendants whereby he
ordered each and both of them to return and deliver to the plaintiff the parcels of land claimed by him, after
payment to Gonda of the sum of P75 that had been deposited with the clerk of the court, and assessed the
costs against the defendants in equal shares. The court made no finding in regard to the damages demanded
by the plaintiff as there was no evidence to show that any had been caused. The defendants moved for a new
trial. Their motion having been overruled, they excepted to the ruling and, by proper bill of exceptions,
appealed to the Supreme Court. In this instance the appellants allege in the first place that the trial judge
erred in holding that he had jurisdiction to try the case, and in trying the same in spite of the fact that the Act
which authorizes justices of the peace to try by assignment cases filed with the Court of First Instance is
unconstitutional.
Before the hearing in first instance, counsel for the defendant did in fact challenge the jurisdiction of the
justice of the peace of the provincial capital to try the case at bar, on the ground that Act No. 2041 of the
Philippine Legislature is unconstitutional. In deciding this question, said justice of the peace held that he did
have jurisdiction and immediately proceeded to enter judgment in the manner aforestated.

This Supreme Court has held on various occasions, among them in the decision rendered on December 24,
1914, in the case of Calampiano vs. Tolentino (29 Phil. Rep., 116) that said Act No. 2041 is valid and does not
conflict with the provisions of the Act of Congress of July 1, 1902; that a justice of the peace, acting under the
designation under the law just referred to, acts not as a justice of the peace or holds a justice's court, but acts
as a judge of the zone of first instance and holds, in effect, a Court of First Instance; and finally, that for this
reason the objection that this case falls within that of Barrameda vs. Moir, 25 Phil. Rep., 44 (which is the one
cited by the appellants in their brief to show that the error aforementioned was incurred), is not well taken.
This assignment of error cannot, therefore, be sustained.

The second error assigned by the appellants to the judgment of the trial court consists, as they maintain, in
that the court founded its judgment on inadmissible and illegal evidence which was rejected by the same
court during the course of the trial.

In effect, the plaintiff ought to have proven that on February 21, 1906, he sold, under right of repurchase for
the period of seven years, the two parcels of land mentioned in the complaint, or, what amounts to the same
thing, that a contract of sale with right of repurchase (or one of pledge or mortgage, as it was improperly
called in the complaint and so termed by the plaintiff) was entered into between this latter and the defendant,
on the date aforementioned, in respect to said parcels of land.

The plaintiff, testifying at the trial in regard to the existence of the contract, stated that it was a verbal one
between himself and said defendant. Assuredly such a contract could not be proven a trial, except by means
of some written instrument in accordance with the provisions of subsections 1 and 5, section 335, of the Code
of Civil Procedure. The plaintiff, however, having been placed on the stand as a witness by his on attorney,
testified at length and answered all the questions asked him with respect to the said contract, the details of
the same, the persons who witnessed it, the place where it was made, and various other circumstances
connected with its execution. These questions and answers cover six pages of the record, and yet the
defendants' counsel raised no objection to the examination, aside from challenging one of the questions as
leading and another of them as irrelevant. It seems that only when the examination was terminated did
counsel for defendants move to strike out all of the testimony given and statements made by plaintiff in
regard to the contract, on the ground that the period for the fulfillment of the contract exceeded one year and
that it could not be proven except by means of a written instrument. The court sustained this motion, to which
an exception was entered by the plaintiff.

Defendants' counsel moved that the case be dismissed on the ground that, as the aforementioned testimony
was stricken out, there was no proof of the contract. This motion being denied by the court, counsel excepted
to the ruling and on cross-examination put several question to the plaintiff relative to the plaintiff's ownership
in said parcels of land and the manner in which he acquired it. Among these questions some were asked which
bore upon the answers given by the plaintiff on direct examination regarding the existence of the contract by
which, according to the plaintiff, the defendant Gonda came to hold said parcels. These questions on cross-
examination and their respective answers are as follows:

CARINGAL: (To the plaintiff). Prior to the day on which the defendant Manuel Gonda went to see you
or to visit you in the house of Domingo Tamayo, you had not spoken to him with regard to the pledge
of some land of yours, had you? —
A.       No, sir.

Q.       Did you then take advantage of that circumstance of his having gone to visit you? —

A.       Yes, sir.

Q.       You knew then that he was married, did you not? —

A.       Yes, sir.

Q.       Did you not think of necessary to speak to Manuel Gonda's wife about the mortgage? —

A.       No, sir, because I considered him as an uncle of mine.

xxx           xxx           xxx

CARINGAL: So that you knew, did you, that it was Manuel Gonda who paid the land tax? —

A.       Yes, sir.

Q.       Who paid the land tax before the lands were pledged? —

A.       I could not declare them before they were pledged. I have not yet paid the land tax, because I
have not been able to declare those lands.

xxx           xxx           xxx

Q.       Tell us where Manuel Gonda was living on the date when, as you said, the pledge was made. —

A.       In the barrio of Moson.

Q.       Of Taal or Bauan? —

A.       Bauan.

Q.       What is the distance between the then domicile or residence of Manuel Gonda and the house of
Domingo Tamayo in which you were living? —

A.       I think it is the same as between Bauan and Taal.

Q.       And notwithstanding that distance, Manuel Gonda went purposely to take the money to you? —

A.       He took the money to the house of Domingo Tamayo.

Q.       Was there no written contract of that mortgage? —

A.       No, sir.

That is all.
Continuing to present evidence, the plaintiff put three witnesses on the stand and they were examined.

One of them, Juan Carandang, testified in regard to the plaintiff's ownership and possession of the lands. The
court sustained a motion by defendants' counsel to strike out one of the statements made by this witness in
which he stated that he knew by hearsay that said lands had been "pledged" (sic).

Another of these witnesses, Domingo Tamayo, testified that he was present at the time the plaintiff asked the
defendant for the P75 mentioned in the complaint, and when the agreement was made with regard thereto
between the two men in connection with the so-called pledge of the lands in question. He also testified that
he received that sum from the defendant, at the plaintiff's suggestion.

And, finally, the third witness, Pedro Mendoza, also the plaintiff's, testified that he was present when the
money was tendered by the defendant to the plaintiff, and heard the latter tell the witness Domingo Tamayo
to receive it. He stated that Tamayo did in fact take the money.

In the course of the examination of these witnesses, the defendants' counsel moved that their testimony be
stricken out. The court sustained one of these motions, while as to the rest of them be said that counsel's
motion would be taken under consideration; later, when one of these witnesses, replying to a question by the
court, stated that the contract was not executed in writing, the court said that the motion was sustained, but,
notwithstanding this ruling, and immediately after it had been made, the defendants' counsel put the
following question to this witness on cross-examination:

Q.       Do you remember positively that it was on a Sunday the first time, and on a Tuesday or a
Wednesday the second time, that Manuel Gonda went to your house and delivered the money? —

A.       Yes, sir.

The court finally granted the motion of counsel for defendants for strike out the testimony given by this
witness. Counsel for plaintiff excepted to this ruling.

Now then, 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 the proof, the inadmissiblity of the
evidence is, or may be, inferred.

A motion to strike out parol or documentary evidence from the record is useless and ineffective if made
without timely protest, objection, or opposition on the part of the party against whom it was presented.

Objection to the introduction of evidence should be made before the question is answered. When no
such objection is made, a motion to strike out the answer ordinarily comes too late. (De Dios Chua
Soco vs. Veloso, 2 Phil. Rep., 658).

In the case of Conlu vs. Araneta and Guanko (15 Phil. Rep., 387) in which one of the points discussed was the
inadmissibility of parol evidence to prove contracts involving real property, in accordance with the provisions
of section 335 of the Code of Civil Procedure, no objection having been made to such evidence, this court said:

A failure to except to the evidence because it does not conform with the statute, is a waiver of the
provisions of the law.
 An objection to a question put to a witness must be made at the time question is asked. (Kreigh vs.
Sherman, 105 Ill., 49; 46 Am. Dig., Century Ed., 932.)

Objections to evidence and the reason therefor must be stated in apt time." (Kidder vs. McIlhenny, 81 N. C.,
123; 46 Am. Dig., Century Ed., 933.)

It is held in general that by failing to object to the proof of an oral contract a party waives the benefit
of the statute and cannot afterward claim it. (20 Cyc., 320, where several decisions on the subject are
cited.)

Many rulings have been made in regard to this matter by the courts of the United States, and among them we
cite a few found in volume 46 of the American Digest, page 933:

Where plaintiff without objection proved by parol evidence that certain land belonged to him,
defendant cannot afterwards object that the deed should have been produced. (Clay vs. Boyer, 10 Ill.
[5 Gilman], 506.)

After a question has been repeatedly asked and answered without objection, it is too late to object to
its repetition on the ground that the answer is in itself inadmissible. (McKee vs. Nelson, 4 Cow., 355; 15
Am. Dec., 384.)

An objection to the admission of evidence on the ground of incompetency, taken after the testimony
has been given, is too late. (In re Morgan, 104 N. Y., 74; 9 N. E., 861.)

Plaintiff having testified to conversation between defendant's son and himself until the direct
examination extended through about 12 folios, defendant could not sit by and then objet to the
"foregoing testimony." (Boehme vs. Michael, 5 N. Y. St. Rep., 492.)

The first witness to testify at the trial was the plaintiff himself. From the first question put to him, it clearly
appeared, as may be seen in folios 5, 6, and 7 of the stenographic notes, that the contract of pledge or
mortgage of the lands, as the plaintiff himself improperly calls it, or the sale of said lands with right of
repurchase, between him and the defendant Gonda, was a verbal one and for the period of seven years, made
in the course of a conversation between the plaintiff and said defendant in the house of Domingo Tamayo.
The defendants' counsel, however, did not endeavor immediately to obtain from the witness a statement as
to whether that contract was set forth in any instrument; he did not object to the witness' continuing to testify
in regard to the contract, nor did he in any way object to the questions they continued to ask the witness
concerning the matter, though he did object to one question as leading and to another one as irrelevant, thus
indicating that he had no other objection to make to those questions. Only after witness, the plaintiff, had
finished answering all the questions put to him on the subject of the contract, did counsel for the defendants
move that all of his testimony and statements be stricken out. It is obvious that the court should not have
granted that motion; but we must also bear in mind that the court did not grant other similar and subsequent
motions made during the examination of the other witnesses; he merely said that he would take them under
advisement. The fact that the defendants' counsel asked various cross-questions, both of the plaintiff and of
the other witness, in connection with the answers given by them in their direct examination, with respect to
particulars concerning the contract, implies a waiver on his part to have the evidence stricken out.

It is true that, before cross-examining the plaintiff and one of the witnesses, this same counsel requested the
permission of the court, and stipulated that his clients' rights should not be prejudiced by the answers to those
witnesses in view of the motion presented to strike out their testimony; buy this stipulation of the defendants'
counsel has no value or importance whatever, because, if the answers of those witnesses were stricken out,
the cross-examination could have no object whatsoever, and if the questions were put to the witnesses and
answered by them, they could only be taken into account by connecting them with the answers given by those
witnesses on direct examination.

As no timely objection or protest was made to the admission of the testimony of the plaintiff with respect to
the contract; and as the motion to strike out said evidence came to late; and, furthermore, as the defendants
themselves, by the cross-questions put by their counsel for the witnesses in respect to said contract, tacitly
waived their right to have it stricken out, that evidence, therefore, cannot be considered either inadmissible or
illegal, and court, far from having erred in taking it into consideration and basing his judgment thereon,
notwithstanding the fact that it was ordered to be stricken out during the trial, merely corrected the error he
committed in ordering it to be so stricken out and complied with the rules of procedure hereinbefore cited.

The lower court was guided by the evidence in making that finding, for it was proved that the plaintiff sold to
the defendant Gonda for the period of seven years, with right of repurchase, the two aforementioned parcels
of land, on February 21, 1906, for the sum of P75, Philippine currency. The testimony of the plaintiff himself
and of the witnesses Juan Carandang, Domingo Tamayo, and Pedro Mendoza, of which mentioned is made in
the judgment, proves those facts. As against this testimony, the defendants presented that of one of
themselves, Manuel Gonda, who stated that said two parcels of land were sold to him outright by the plaintiff
Galo Abrenica and his mother, Mamerta Bonio, more than 19 years ago, for the sum of P75; but this allegation
was in no matter proven, for, having stated that an instrument of sale was executed but that it had been lost,
he furnished absolutely no proof of the existence of the instrument, nor of any such sale having been made
between himself and the plaintiff. This defendant did, indeed, exhibit a copy of the affidavit filed by him on
May 26, 1906, in the municipality of Taal, for the purpose of the assessment of a piece of land which he says
included the two parcels in question; but the plaintiff has explained why the tax declaration of said parcels was
not made by him, but by the defendant Gonda. It is easily understood that the latter might have made this
declaration on May 26, 1906, that is, three months after the land had been sold to him by the plaintiff under
right of repurchase, inasmuch as said defendant had been the owner of said parcels since the month of
February of the same year and, by reason of said sale, was to be their owner for seven years, so long as the
plaintiff did not make use of his right to redeem them. On the other hand, the very fact that the defendant
Gonda did not declare these parcels of land before May 26, 1906, is proof that he did not purchase them
outright from the plaintiff and the latter's mother 19 years ago.

As the plaintiff made use of his right to recover the property within the period stipulated by the contract and
which did not exceed ten years, and as he deposited with the clerk of the court the sum of P75, the price of
the purchase, in due time, the defendant is not entitled to oppose the recovery, and the said parcels of land
must be delivered to the plaintiff, even though they be in the possession of the other defendant, Marcelino de
Garcia, to whom they were sold by his codefendant Gonda, for the latter could not sell them to De Gracia
except under the condition that they could be repurchased by the plaintiff within the said period of seven
years. Even still less right could the defendant De Gracia have to retain possession of these lands, if the
contract executed between the plaintiff and Manuel Gonda had been one of mortgage (as it was styled all
along by the plaintiff and the defendants at the trial and by the lower court himself in the judgment appealed
from) for, as the defendant Gonda was not the owner of the lands, he could not lawfully convey them to his
codefendant.

There being no proof that any damages was caused to the plaintiff by the defendants' refusal to return said
parcels of land to him, no finding should be made against the defendants with respect thereto.
We therefore affirm the judgment appealed from, with the costs of this instance against the appellants. So
ordered.