1

Republic of the Philippines

SUPREME COURT
Manila
SECOND DIVISION
G.R. No. L-28999 May 24, 1977
COMPAIA MARITIMA, plaintiff-appellee,
vs.
ALLIED FREE WORKERS UNION, SALVADOR T. LLUCH,
MARIANO LL. BADELLES, individually and in their capacities
as President and Vice-President, respectively of the Allied
Free Workers Union, NICANOR HALEBAS and LAURENTINO
LL. BADELLES, individually and officers of Allied Free
Workers Union, defendants-appellants.
Halibas, Badelles, Padilla & Sepulveda and Vicente A. Rafael &
Associates for defendants-appellants.
Rufino J. Abadies, Francisco Obach & Jesus Quijano for
appellee.
AQUINO, J.:
Antecedents. - Since the onset in 1954 of litigation between the
parties herein, this is the fifth case between them that has been
elevated to this Court. The incidents preceding the instant appeal
are as follows:
On August 11, 1952 the Compaia Maritima and the Allied Free
Workers Union entered into a written contract whereby the union
agreed to perform arrastre and stevedoring work for the
consignees. vessels at Iligan City. The contract was to be
effective for one month counted from August 12, 1952.
It was stipulated that the company could revoke the contract
before the expiration of the term if the union failed to render
proper service. The contract could be renewed by agreement of
the parties (Exh. J).
At the time the contract was entered into, the union had just been
organized. Its primordial desire was to find work for its members.
The union agreed to the stipulation that the company would not
be liable for the payment of the services of the union "for the
loading, unloading and deliveries of cargoes" and that the
compensation for such services would be paid "by the owners and
consigness of the cargoes" as "has been the practice in the port
of Iligan City" (Par. 2 of Exh. J).
The union found out later that that stipulation was oppressive and
that the company was unduly favored by that arrangement.
Under the contract, the work of the union consisted of arrastre
and stevedoring service. Arrastre, a Spanish word which refers to
hauling of cargo, comprehends the handling of cargo on the wharf
or between the establishment of the consignee or shipper and the
ship's tackle. The service is usually performed by longshoremen.
On the other hand, stevedoring refers to the handling of the cargo
in the holds of the vessel or between the ship's tackle and the
holds of the vessel.
The shippers and consignees paid the union oth for the arrastre
work. They refused to pay for the stevedoring service. They
claimed that the shipowner was the one obligated to pay for the
stevedoring service because the bill of lading provided that the
unloading of the cargo was at the shipowner's expense (Exh. 1).
On the other hand, the company refused to pay for the
stevedoring service because the contract (Exh. J) explicitly
provided that the compensation for both arrastre and stevedoring
work should be paid by the shippers and consignees, as was the
alleged practice in Iligan City, and that the shipowner would not
be liable for the payment of such services.
Thus, the issue of whether the company should pay for the
stevedoring service became a sore point of contention between
the parties. The union members labored under the impression
that they were not being compensated for their stevedoring
service as distinguished from arrastre service.
Although the arrastre and stevedoring contract (Exh. J) was
disadvantageous to the union, it did not terminate the contract
because its members were in dire need of work and work, which
was not adequately compensated, was preferable to having no

work at all (204, 214-5, 226-7 tsn May 20, 1960).

Upon the expiration of the one-month period, the said contract
was verbally renewed. The company allowed the union to
continue performing arrastre and stevedoring work.
On July 23, 1954 the union sent a letter to the company
requesting that it be recognized as the exclusive bargaining unit
to load and unload the cargo of its vessels at Iligan City. The
company ignored that demand. So, the union filed on August 6,
1954 in the Court of Industrial Relations (CIR) a petition praying
that it be certified as the sole collective bargaining unit.
Despite that certification case, the company on August 24, 1954
served a written notice on the union that, in accordance with
payment of the 1952 contract, the same would be terminated on
August 31, 1954. Because of that notice, the union on August 26,
1954 filed in the CIR charges of unfair labor practice against the
company.
On August 31, 1954 the company entered into a new stevedoring
and arrastre contract with the Iligan Stevedoring Association. On
the following day, September 1, the union members picketed the
wharf and prevented the Iligan Stevedoring Association from
performing arrastre and stevedoring work. The picket lasted for
nine days.
On September 8, 1954 the company sued the union and its
officers in the Court of First Instance of Lanao for the rescission of
the aforementioned 1952 contract, to enjoin the union from
interfering with the loading and unloading of the cargo, and for the
recovery of damages.
On the following day, September 9, the lower court issued ex
parte a writ of preliminary injunction after the company had posted
a bond in the sum of P20,000. A few hours lateron that same day
the union was allowed to file a counterbond. The injunction was
lifted. The union members resumed their arrastre and stevedoring
work.
Later, the union assailed in a prohibition action in this Court the
jurisdiction of the trial court to entertain the action for damages,
and injunction.
A majority of this Court held that the lower court had jurisdiction to
issue the injunction and to take cognizance of the damage suit
filed by the company but that the injunction was void because it
was issued ex parte and the procedure laid down in section 9(d)
of Republic Act No. 875 was not followed by the trial court (Allied
Free Workers Union vs. Judge Apostol, 102 Phil. 292, 298).
After trial, the lower court rendered a decision dated December 5,
1960, amended on January 11, 1961, (1) declaring the arrastre
and stevedoring contract terminated on August $1, 1954; (2)
dismissing the union's counterclaim; (3) ordering the union and its
officers to pay solidarily to the company P520,000 as damages,
with six percent interest per annum from September 9, 1954,
when the complaint. was filed; (4) permanently enjoining the
union from performing any arrastre and stevedoring work for the
company at Iligan City, and (5) requiring the union to post a
supersedeas bond in the sum of P520,000 to stay execution.
The union filed a motion for reconsideration. On the other hand,
the company filed a motion for the execution pending appeal of
the money judgment. It filed another motion for the immediate
issuance of a writ of injunction. That second motion was filed in
the municipal court of Iligan City in view of the absence of the
District Judge.
The municipal court issued the writ of injunction. However, this
Court set it aside because it was not an interlocutory order and no
special reasons were adduced to justify its issuance (Allied Free
Workers Union vs. Judge Estipona, 113 Phil. 748).
The union on January 6, 1961 had perfected an appeal from the
lower court's original decision. It did not appeal from the amended
decision. On March 24, 1962 the lower court issued an order
declaring its amended decision final and executory in view of the
union's failure to appeal therefrom. The court directed the clerk of
court to issue a writ of execution. That order was assailed by the
union in a certiorari action filed in this Court. A preliminary
injunction was issued by this Court to restrain the execution of the

2
judgment.
On May 16, 1962 this Court dissolved the injunction at the
instance of the company which had filed a counterbond.
Thereupon, the 225 members of the union yielded their ten-year
old jobs to the new set of workers contracted by the company.
The certiorari incident was decided on June 30, 1966. This Court
noted that the lower court amended its decision for the purpose of
correcting certain errors and omissions which were not substantial
in character and that its amended decision was served upon the
parties after the union had perfected its appeal from the original
decision.
Under those circumstances, this Court held that the union's
appeal should be given due coarse, subject to the amendment of
its record on appeal. This Court reserved to the members of the
union the right to secure restitution under sections 2 and 5, Rule
39 of the Rules of Court (Allied Free Workers Union vs. Estipona,
L-19651, June 30, 1966,17 SCRA 513, 64 O.G. 2701).
Pursuant to that reservation, the union on December 16, 1966
filed a motion for restitution, praying that its 225 members be
restored to their jobs and that the company be ordered to pay P
1,620,000 as damages, consisting of the lost earnings during the
four-years period from May 8, 1962 to May 8, 1966.
On the other hand, the company in its motion of January 18, 1967
reiterated its 1960 motion for the execution of the lower court's
judgment as to the damages, of P520,000 and the permanent
injunction.
Later, the company called the lower court's attention to this
Court's decision dated January 31, 1967. In that decision, this
Court affirmed the CIR's decision holding that the company did
not commit any unfair labor practice and reversed the CIR's
directive that a certification election be held to determine whether
the union should be the exonemtod bargaining unit. This Court
held that the union could not act as a collective bargaining unit
because the union was an independent contractor and its
members were not employees of the company (Allied Free
Workers Union vs. Compaia Maritima, L-22951-2 and L-22971,
19 SCRA 258).
The lower court in its order of April 25, 1967 (1) denied the union's
motion for restitution and to stay execution of its amended
decision on January 11, 1961 and (2) required the union to file a
supersedeas bond in the sum of P100,000 within thirty days from
notice. The bond was reduced to P50,000 in the lower court's
order of August 16, 1967. The union posted the bond on August
24,1967.
The lower court approved the union's amended record on appeal
in its order of October 6, 1967.
The union appealed directly to this Court because the amount
involved exceeds P200,000. The appeal was perfected before
Republic Act No. 5440 took effect on September 9,1968.
Other proceedings. - The company in its original complaint prayed
that the union and its officials be ordered to pay actual damages,
amounting to P15,000 for the union's failure to load and unload
cargo in and from the consignees. vessels from September 1 to 8,
1954; P50,000 as damages, due to the union's inefficiency in
performing arrastre and stevedoring work "during the latter part of
the existence" of the contract; P50,000 as moral and exemplary
damages, (not supported by any allegation in the body of the
complaint) and P5,000 as attorney's Considering (10-12, Record
on Appeal).
On September 15, 1954 the company added a fourth cause
ofaction to its complaint. It alleged that by reason of the acts of
harassment and obstruction perpetrated by the union in the
loading and unloading ofcargo the company suffered additional
damage in the form of lost and unrealized freight and passenger
charges in the amount of P10,000 for September 9 and 10, 1954
(66, Record on Appeal).
On November 2, 1954 the company attached to its motion for the
revival of the injunction against the union an auditor's report dated
September 15, 1954 wherein it was indicated that the company
lost freight revenues amounting to P178,579.20 during the period

from January 1 to September 7, 1954 (121-143, Record on

Appeal).
On November 27, 1954 the company filed another motion for the
restoration of the injunction. In support of that motion the
company attached a trip operation report showing the unloaded
cargoes on the consignees. vessels, when they docked at Iligan
City on September 14, 19, 22 and 26 and October 3 and 5, 1954,
as well as the delays in their departure (157-162, Record on
Appeal).
On March 5, 1955 the company added a fifth cause ofaction too
its complaint. It alleged that during the period from September 12
to December 28, 1954 it lost freight charges on unloaded cargoes
in the sum of P62,680.12, as shown in a detailed statement, and
that it incurred an estimated amount of P20,000 for overhead
expenses. for the delay in the dismissal of its vessels attributable
to the union's unsatisfactory stevedoring and arrastre work (225229, 237-8, Record on Appeal).
Also on March 5, 1955 the union answered the original and
supplemental complaints. It denied that its members had
rendered inefficient service. It averred that the termination of the
contract was prompted by the consignees. desire to give the work
to the Iligan Stevedoring Association which the company had
allegedly organized and subsidized. The union filed a
counterclaim for P200,000 as compensation for its services to the
company and P500,000 as other damages, (239-252, Record on
Appeal).
On March 9, 1960 the company filed a third supplemental
complaint, It alleged that the continuation of the stevedoring and
arrastre work by the union for the company from 1955 to date had
caused losses to the company at the rate of P25,000 annually in
the form of lost freight on shutout cargoes and the expenses. for
the equipment used to assist the union members in performing
their work (320-3, Record on Appeal).
Plaintiff company's evidence. - Jose C. Teves, the consignees.
branch manager at Iligan City, testified that on August 24, 1954
he terminated the arrastre and stevedoring contract with the union
(Exh. J) upon instruction of the head office. The contract was
terminated in order to avoid further losses to the company caused
by the union's inefficient service (85-86 tsn March 11, 1960).
After the termination of the contract, the members of the union
allegedly harassed the company with the help of goons. The
cargoes could not be unloaded in spite of the fact that the
company had sought the protection of the law-enforcing
authorities (88). The consignees. last recourse was to go to court.
(89).
The company supposedly suffered losses as a result of the
union's inefficient service since September 1, 1954 (91). Teves
hired auditors to ascertain the losses suffered by the company
during the period from January 1 to September 11, 1954.
The trial court awarded actual damages, amounting to P450,000
on the basis of the auditor's reports, Exhibits A to I. It did not
carefully examine the said exhibits. Contrary to the trial court's
impression, Exhibits B, C and D are not auditors' reports.
The trial court did not bother to make a breakdown of the alleged
damages, totalling P450,000. The reports of the two hired
accountants, Demetrio S. Jayme and M. J. Siojo, show the
following alleged damages, in the aggregate amount of
P349,245.37 (not P412,663.17, as erroneously added by the
consignees. counsel, 161,163-4 tsn March 11, 1960):
TABULATION OF ALLEGED
DAMAGES CLAIMED BY COMPAIA MARITIMA
(1) Freight for 74,751 bags of fertilizer
allegedly booked for shipment in the
company's vessels but loaded in other vessels
during the period from Jan. 1 to August 31,
1954, Statement A in Exh. A, CPA Jayme's
report.........................................................
P29,900.40
(2) Lost freight on other shutout cargoes
for January 1 to August 31, 1954, Statement A
in Exh. A, of CPA Jayme .........................
4,339.64

3
(3) Lost freight on shutout cargoes for
September 2 to 7, 1954 booked for shipment in
M. V. Mindoro, Panay and Masterhead Knot,
Statement B in Exh. A, CPA Jayme's report...
6,167.16
(4) Losses sustained in voyages of M.V.
Panay and Mindoro in four voyages from
September 4 to 11, 1954, with estimates,
Statement B, Exh. A...............................
3,764.50
(5) Other estimated losses for the said
voyages of M.V. Panay and Mindoro for the
same period, based on interviews of parties at
the wharf, Statement B, Exh. A...............
10,000.00
(6) Additional subsistence expenses. for the
M.V. Mindoro and Panay due to the delays in
their dismissal from January 1 to August 31,
1954 as certified by the pursers of the two
vessels, Statement C, Exh. A.....................
4,407.50
(7) Estimated loss in freight and passenger
revenue for the period from January 1 to
August 31, 1954, based on 1953 freight revenue
for the same period Statement D, Exh. A.....
100,000.00
(8) Estimated loss in passenger fares for
the period from September to December 31,
1954, Statement D, Exh. A.......................
20,000.00
(9) Lost freight charges from September
12 to December 28, 1954, as certified by the
chief clerk of the consignees. Iligan office. Exh.
B.............................................................
62,680.12
(10) Estimated overhead expenses for
delay of vessels in port, Exh. B.................
20,000.00
(11) Forklift operating expenses. for 1955,
consisting of salaries and maintenance
expenses, Exh. E- 1....................................
5,677.54
(12) Lost freight revenue for 1955, Exh. E2...............................................................
17,838.78
(13) Forklift operating expenses. for 1956,
Exh. F- 1...................................................
3,520.90
(14) Lost freight revenue for 1956, Exh. F-2
3,849.56
(15) Forklift operating expenses. for 1957,
Exh. G- 1...................................................
8,259.08
(16) Lost freight revenue for 1957, Exh. G2....................................................................
14,538.10
(17) Forklift operating expenses. for 1958,
Exh. H-1...................................................
7,503.45
(18) Lost freight revenue for 1958, Exh. H2.............................................................
10,193.46
(19) Forklift operating expenses. for 1959,
Exh. I-1....................................................
8,745.35
(20) Lost freight revenue for 1959, Exh. I-2
7,959.83
T OT A L P349,245.37
We tabulated the alleged damages, to show that the trial court's
award to the company of P450,000 as damages, is not supported
by the evidence. On the other hand, the statement of the
consignees. counsel that the damages, totalled P412,663.17
(162- 164 tsn March 11, 1960) is wrong.
Teves, the consignees. branch manager, submitted a statement
(Exh. K) showing the alleged cost of three forklifts, 200 pieces of
pallet boards, 530 pieces of wire rope slings and two pieces of
tarpaulins in the total sum of P27,215. In that statement, he
claims that the damages, to the company by reason of the
depreciation of the said items of equipment amounted to P38,835
or more than the cost thereof.
The company's counsel, in his summary of the damages, ignored
the alleged damages, of P38,835 indicated by Teves in Exhibit K.
The consignees. counsel relied oth on the auditors' reports,
Exhibits A and E to I and on Exhibit B, the chief clerk's statement.
As already noted, those documents show that the total damages,
claimed by the company amounted to P349,245.37.
The best evidence on the cost of the said equipment would have
been the sales invoices instead of the oral testimony of Teves. He

did not produce the sales invoices.

Teves further testified that Salvador T. Lluch was the president of
the union; Nicanor Halibas, the treasurer; Mariano Badelles, the
general manager, and Luarentino Badelles, a vice president.
Appellants' statement of facts. - To sustain their appeal, the
appellants made the following exceedingly short and deficient
recital of the facts:
Sometime in the month of August, 1954, defendant, Allied Free
Workers Union filed an unfair labor practice case against
defendant (should be plaintiff) and its branch manager, Mr. Jose
Teves, with the Court of Industrial Relations, Manila, and
docketed as Case No. 426-UPL: defendant union also filed a
petition for certification election docketed as Case No, 175-MC
against plaintiff; defendant union also filed a notice of strike dated
August 27, 1954; the Secretary of Labor wired the public
defender, Iligan City, on August 27, 1954 (see annexes 1-4,
motion to dismiss, Record on Appeal, pp. 54-65).
To counteract these legitimate moves of labor, plaintiff filed the
complaint docketed as Civil Case No. 577 in the Court of First
Instance of Lanao (now Lanao del Norte) for damages, and/or
resolution of contract with writ of preliminary injunction, On a
decision adverse to their interests, defendants take this appeal.
On the question of jurisdiction taken before this Honorable
Tribunal in G.R. No. L-8876, it was held:
... for the instant case merely refers to the recovery of damages,
occasioned by the picketing undertaken by the members of the
union and the rescission of the arrastre and stevedoring contract
previously entered into between the parties.
The appellants did not discuss their oral and documentary
evidence. *
First assignment of error. - The appellants contend that the trial
court erred in awarding to the company actual damages,
amounting to P450,000, moral damages, of P50,000 and
attorney's Considering of P20,000, and in holding that the four
officers of the union are solidarily liable for the said damages.
Appellants' counsel assailed the award of actual damages, on the
ground that the auditors' reports, on which they were based, were
hearsay.
After analyzing the nature of the damages, awarded, how the
same were computed, and the trustworthiness of the company's
evidence, we find the first assignment of error meritorious.
We have already stress that, on the basis of the reports of the two
accountants, the damages, claimed by the complaint as a matter
of simple addition, does not reach the sum of P 450,000 fixed by
the trial court. The damages, shown in the accountants' reports
and in the statement made by the consignees. chief clerk (who
did not testify) amount to P349,245.37, or much less than
P450,000.
The company argues that the accountants' reports are admissible
in evidence because of the rule that "when the original consists of
numerous accounts or other documents which cannot be
examined in court without great loss-of time and the fact sought to
be established from them is oth the general result of the whole",
the original writings need not be produced (Sec. 2[e], Rule 130,
Rules of Court).
That rule cannot be applied in this case because the voluminous
character of the records, on which the accountants' reports were
based, was not duly established (U. S. vs. Razon and Tayag, 37
Phil. 856, 861; 29 Am Jur 2nd 529).
It is also a requisite for the application of the rule that the records
and accounts should be made accessible to the adverse party so
that the company, of the summary may be tested on crossexamination (29 Am Jur 2nd 517-8; 32A C.J.S. 111).
What applies to this case is the general rule "that an audit made
by, or the testimony of, a private auditor, is inadmissible in
evidence as proof of the original records, books of accounts,
reports or the like" (Anno 52 ALR 1266).
That general rule cannot be relaxed in this case because the
company failed to make a preliminary showing as to the difficulty
or impossibility attending the production of the records in court

4
and their examination and analysis as evidence by the court (29
Am Jur 2nd 529).
A close scrutiny of the accountants' reports reveals their lack of
probative value. The propriety of allowing the different items of
damages, is discussed below.
Unrealized freight and passenger revenue for 1954 ascertained
by Accountant Demetrio S. Jayme. - In his report (Exh. A, pp. 134
to 147, Record on Appeal), Jayme used the pronouns "we" and
"our" and made reference to the examination made by the
"auditors" and his accounting office.
He did not disclose the names of other "auditors" who assisted
him in making the examination of the consignees. records.
He gave the impression that he was an independent accountant
hired by the company to make a "special investigation" of the
consignees. losses for the period from January 1 to September 7,
1954.
The truth is that Jayme was a "personal friend" of Teves, the
consignees. branch manager at Iligan City. Teves was the
consignees. principal witness in this case. He verified the
complaint. herein. He signed for the company the stevedoring and
arrastre contract which he later rescinded. In fact, Teves
intervened in the drafting of the contract. It was his Idea that the
company should not pay the arrastre and stevedoring Considering
and that those charges should be borne by the shippers and
consignees.
Jayme was not only the friend of Teves but was also his coemployee. Jayme was the consignees. branch manager at
Ozamis City and later at Cagayan de Oro City (217-8 tsn May 20,
1960; Exh. 12). He suppressed that fact in his report of
examination. Apparently, the practice of accounting was his
sideline or he practised accounting and, as the saying goes, he
moonlighted as the consignees. branch manager. Obviously,
Jayme would be biased for the company. He violated a rule of the
accountants' code of ethics by not disclosing in his report of
examination that he was an employee of the company (84 tsn
June 2, 1960).
Accountant Jayme allegedly found from the consignees. records
at Iligan City that its freight and passenger revenue for the eightmonth period from January 1 to August 31, 1953 amounted to
P373,333.14 and that for the same period in 1954, that revenue
amounted to P470,716.29, or an increase of P97,383.12
(Statement D of Exh. A, 145, Record on Appeal).
Jayme interpreted those figures as signifying that the company
would have realized more revenue if the union had rendered
better service. He reasoned out that there was a big volume of
business in Iligan City due to the Maria Cristina Fertilizer Plant,
Iligan Steel Mill and NPC Hydroelectric Plant. He imagined that
the consignees. freight revenue during the first eight months of
1954 could have amounted to at least P600,000 and that since it
actually realized oth P 470,716.29, its loss of freight revenue for
that period could be "conservatively" estimated at least P100,000
(item 7 of the tabulation of damages).
He stated that he attached to his report on the comparative
statement of gross revenue a certificate of the captain of the
vessel Panay showing the delays in its dismissal in Iligan City as
indicated in its logbook. No such document was attached to
Jayme's report.
And from the fact that the total fares received by the company
during the eight-month period were reduced in the sum of
P3,951.58 (Jayme fixed the reduction at the round figure of
P4,000), he calculated that the company suffered a loss of at
least P20,000 in passenger revenue up to December 31, 1954
(Item 8 of the tabulation of damages).
Jayme also included in his report (a) damages, amounting to
P10,000 as his estimate of losses supposedly "based on
interviews with disinterested parties at the wharf and city proper
customers"; (b) damages, amounting to P3,764.50 allegedly
suffered in the operation of the vessels Mindoro and Panay from
September 4 to 11, 1954, consisting of extra meals, expenses. for
unloading cargo, estimated loss in passage revenue for four

voyages, and estimated loss from 14 re-routed freights to

competing vessels" (consisting of rice, corn and bananas), and (e)
the sum of P4,407.50 as alleged additional subsistence incurred
for the crew of the Panay and Mindoro from January 1 to August
31, 1954 (items 4, 5 and 6 of the tabulation of damages). The
records of the purser and chief steward were allegedly examined
in ascertaining those damages.
It would not be proper to allow Jayme's estimates as recoverable
damages. They are not supported by reliable evidence. They can
hardly be sanctioned by the "generally accepted auditing
standards" alluded to in Jayme's report. The pertinent records of
the company should have been produced in court. The purser and
steward did not testify.
The rule is that the auditor's summary should not include his
conclusions or inferences (29 Am Jur 2d 519). His opinion is not
evidence.
The trial court unreservedly gave credence to the conjectures of
Jayme. Obviously, his inflated guesses are inherently speculative
and devoid of probative value. Furthermore, his estimate of the
unrealized freight revenue for January 1 to August 31, 1954
overlapped with his computation of the lost freight for the
unloaded 74,751 bags of fertilizer and other cargoes covering the
same period (Statement A of Exh. A).
The foregoing discussion shows Jayme's unreliable modus
operandi in ascertaining the 1954 losses which the company
claimed to have suffered in consequence of the union's alleged
inefficiency or poor service. It is noteworthy that those losses
were not averred with particularity and certitude in the
consignees. complaint.
The same observations apply with equal cogency to the
damages, amounting to P40,407.20 as lost freight revenue also
for the year 1954 (items 1 to 3 of the tabulation of damages)
which were computed by Accountant Jayme.
Those items refer to (1) the sum of P29,900.40 as lost freight
revenue on 74,751 bags of fertilizer, already mentioned, which
were booked for shipment in the consignees. vessels from
January 1 to August 31, 1954 but which were allegedly loaded in
other vessels; (2) P4,339.64 as unrealized freight revenue for
other cargoes booked in the consignees. vessels but not loaded
therein during the same eight-month period, and (3) P6,167,16 as
unrealized freight revenue on shutout cargoes not loaded in the
consignees. vessels during the six-day period from September 2
to 7, 1954.
Jayme allegedly based his computations on the records of the
company which were not produced in court. The union objected to
Jayme's report as inadmissible under the hearsay rule or as not
being the best evidence.
Even if the presentation of the records themselves as exhibits
should have been dispensed with, yet the complaint to show good
faith and fair dealing, could have brought the records in court
(manifests, bills of lading, receipts for the freights, if any, etc.) and
enabled the court and the union's counsel and its expert
accountant to verify the accuracy of Jayme's summaries.
Photostatic copies of some manifests and bills of lading proving
that the company was not able to collect the stipulated freight on
the alleged shutout cargoes should have been proforma. in
evidence as supporting papers for Jayme's report. No such
exhibits were presented.
The flaw or error in relying merely on Jayme's summaries is that,
as pointed out by witness Mariano LL. Badelles, cargoes might be
shutout due to causes other than the supposed inefficiency of the
union. He testified that cargoes were shutout deliberately by the
company because they could not be loaded in one vessel (for
example, 50,000 bags of fertilizer), or a shipper had no allotment,
or because the company did not want to load cargoes like
bananas (189-194 tsn May 20, 1960). Jayme's summaries did not
take into account the probability that a part of the cargo booked in
the consignees. vessel for a certain date might not have been
loaded on that date but was loaded in another vessel of the
company which docked at the port a few days later, In that case,

5
there would be no loss of freight revenue. The mere shutting out
of cargo in a particular voyage did not ipso facto produce loss of
freight revenue.
Our conclusion is that an injustice would be perpetrated if the
damages, aggregating P178,579 computed and estimated in the
report of Jayme, a biased witness, should be accepted at their
face value.
Damages computed by Salvador M. Magante. - The company
also claims as damages, for the period from September 12 to
December 28, 1954 lost freight charges on shutout cargoes in the
sum of P62,680.12, and the sum of P20,000 as "overhead
expenses. for delay of vessels in port", as set forth by Salvador M.
Magante, the consignees. chief clerk at Iligan City, in his
statement, Exhibit B (items 9 and 10 of the tabulation of
damages).
Magante did not testify on his statement. Instead, accountant
Jayme, substituting for Magante, testified on that statement.
Jayme said that he verified the consignees. records on which
Magante based his statement. Jayme assured the court that the
figures in Magante's statement were supported by the
consignees. records.
But as to the damages, of P20,000, Jayme said that he could not
certify as to their company, because he had not finished his
investigation (33 tsn March 9, 1955). In spite of that admission,
the trial court allowed that item of damages.
The trial court erred in allowing the damages, totalling P82,680.12
because Magante's statement, Exhibit B, is hearsay. Magante
should have been proforma. as a witness. Jayme was not
competent to take his place since the statement was prepared by
Magante, not by Jayme. More appropriate still, the documents
and records on which the statement was based should have been
proforma. as evidence or at least brought to the court for
examination by the union's counsel and its accountant. The trial
court required the production of the manifests supporting
Magante's statement (85-86 tsn march 9, 1955). Only one such
manifest, Exhibit C, was produced. The nonproduction of the
other records was not explained.
Lost freight revenue and operating expenses for the forklifts. - The
company claimed as damages, the sum of P87,986.05
(P151,403.85 as erroneously computed by the consignees.
counsel, 163 tsn March 11, 1950) consisting of supposed
unrealized freight charges for shutout or unloaded cargoes for the
year 1955 to 1959 (Exh. E to I, Items 11 to 20 of the tabulation of
damages).
The claim is covered by the company's third supplemental
complaint dated March 9, 1960 wherein it was alleged that due to
the acts of the union and its officers the company had suffered
damages, of not less than P25,000 annually since 1955 (320-3,
Record on Appeal). That supplemental complaint was hurriedly
filed during the trial as directed by the trial court.
The said damages, were computed in the reports of Miguel J.
Siojo, an accountant who, for two days and nights, March 8 to 10,
1960, or shortly before and during the trial, allegedly examined
the consignees. record at Iligan City, such as its cash book, cash
vouchers, reports to the head office, shipping manifests, and
liquidation reports. Those records were not produced in court.
Their nonproduction was not explained. If the accountant was
able to summarize the contents of those records in two days, they
could not have been very voluminous. They should have been
offered in evidence.
The alleged expenses. in the operation of the forklifts consisted of
(a) the wates of the operators hired by the company and (b) the
cost of gasoline and oil and expenses. for repair.
The company's theory is that under the 1952 contract (Exh. J) the
union was obligated to provide for forklifts in the loading and
unloading of cargo. Inasmuch as the union allegedly did not have
forklifts, the complaint to expedite the arrastre and stevedoring
work, purchase forklifts, hired laborers to operate the same, and
paid for the maintenance expenses. The company treated those
expenses as losses or damages.

Those alleged damages, amounting to P87,986.05 are in the

same category as the depreciation allowances amounting to
P38,835 which the company claimed for the forklifts, pallet
boards, tarpaulins and wire rope slings that it purchased for oth
P27,215, We have stated that the consignees. counsel ignored
that depreciation in his recapitulation of the damages, claimed by
the plaintiff.
The union contends that Siojo's reports (Exh. E to I) were
inadmissible evidence because they were hearsay, meaning that
the original documents, on which the reports were based, were
not presented in evidence and, therefore, appellants' counsel and
the court itself were not able to gauge the correctness of the
figures or data contained in the said reports. The person who had
personal knowledge of the operating expenses. was not
examined in court.
We are of the opinion that, to avoid fraud or fabrication, the
documents evidencing the alleged expenses. should have been
proforma. in evidence. Siojo's reports were not the best evidence
on the said operating expenses. The explanation of Badelles with
respect to shutout cargoes and our observations on Jayme's
summaries are applicable to accountant Siojo's reports.
A more substantial ground for rejecting Siojo's reports is that the
said expenses, if really incurred, cannot be properly treated as
darn ages to the company.
The union's witness, Mariano LI. Badelles, testified that the
consignees. forklifts were not used exclusively on the wharf. They
were used in the fertilizer and carbide plants. Sometimes, the
union supplied the driver and the gasoline for the operation of the
forklifts (174-177 tsn May 20, 1960).
Moreover, as stated earlier, the company was not paying the
union a single centavo for arrastre and stevedoring work. The
shippers and consignees paid for the arrastre service rendered by
the union. The union did not receive any compensation for
stevedoring work.
The company complained that the union had been rendering
unsatisfactory arrastre and stevedoring services. That grievance
was controverted by the union.
The use of the forklifts, tarpaulins pallet boards and wire rope
slings immeasurably benefitted the company. It is not proper nor
just that the consignees. investment in those pieces of equipment
should be considered damages, just because it was able to bind
the union to a one-sided contract which exempted it from the
payment of arrastre and stevedoring Considering and which
impliedly obligated the union to purchase the said equipment.
If the service rendered by the union members was unsatisfactory,
it must be because the poor stevedores were underfed and
underpaid. They were underfed and underpaid because the
company was astute enough to insure that it would obtain
stevedoring service without paying for it.
If to improve the arrastre and stevedoring service, the company
had to incur expenses. for the purchase of forklifts, pallet boards,
tarpaulins and wire rope slings and for the operation of the
forklifts, the union should not be required to reimburse the
company for those expenses. The company should bear those
expenses. because the same redounded to its benefit.
The trial court erred in ordering the union and its officials to pay
the amount of the said expenses. as damages, to the company.
Moral damages and attorney's fees. - Considering that the
consignees. claim for moral damages, was based on the same
facts on which it predicated its claim for actual deduction which
we have found to be groundless, it follows that the company, a
juridical person, is not entitled to moral damages.
Anyway, the company did not plead and prove moral damages. It
merely claimed moral damages, in the prayer of its complaint.
That is not sufficient (Darang vs. Ty Belizar, L-19487, January 31,
1967, 19 SCRA 214, 222).
Under the facts of this case, we do not find any justification for
awarding attorney's Considering to the company. Hence, the trial
court's award of P20,000 as attorney's Considering is set aside.
Appellants' first assignment of error, although not properly argued

6
by their counsel, should be sustained.
Other assignments of error. - The union and its officers contend
that the lower court erred in dismissing their counterclaims. Their
counsel did not even bother to state in their brief the amount of
the counterclaims.
The union filed counterclaims for P200,000 as compensation for
stevedoring services from August, 1952 to March 4, 1955;
P500,000 as deduction P10,000 as attorney's Considering and
P5,000 as premium on the counterbond (251-2, Record on
Appeal). In their supplemental counterclaim, they demanded
P500,000 as stevedoring charges for the period from March 4,
1955 to March 4, 1960 and additional damages, of P10,000 (30810, Record on Appeal). The trial court dismissed the said
counterclaims.
The appellants in their three-sentence argument in support of
their counterclaims alleged that the company's bill of lading
provided that the unloading of the cargoes was at the consignees.
expense (Exh. 1); that the company had not paid the sum of
P500,000 as compensation for the stevedoring services rendered
by the laborers up to 1960, and that the stipulation in the arrastre
contract, "that the Compaia Maritima shall not be liable for the
payment of the services rendered by the Allied Free Workers
Union for the loading and deliveries of cargoes as same is
payable by the owners and consignees of cargoes, as it has been
the practice in the port of Iligan City" (Exh. J, pp. 14, 334, 359,
500 Record on Appeal), was 'non- operative" and void, "being
contrary to morals and public policy".
That superficial argument is not well-taken. The printed stipulation
in the bill of lading was superseded by the contractual stipulation.
The contract was prepared by the union officials. As already
noted, it was stipulated in the contract that the stevedoring and
arrastre charges should be paid by the shippers and consignees
in consonance with the practice in Iligan City. That stipulation was
binding and enforceable.
The supposed illegality of that stipulation was not squarely raised
by the union and its officials in their answer. They merely averred
that the contract did not express the true agreement of the
parties. They did not sue for reformation of the instrument
evidencing the contract. The lower court did not err in dismissing
defendants' counterclaims.
The other two errors assigned by the appellants, namely, that the
lower court erred in issuing a permanent injunction against them
and in executing its decision pending appeal, are devoid of merit.
The appellants invoke section 9(d) of the Magna Carta of Labor
regarding the issuance of injunctions. That section has no
application to this case because it was definitively ruled by this
Court in the certification and unfair labor practice cases that there
is no employer-employee relationship between the company and
the stevedores. (They work under the cabo system).
The lower court did not execute the money aspect of its judgment.
It merely required the defendants to file a supersedeas bond of
P50,000.
As to the injunction, it should be recalled that it was this Court
which, in its resolution of May 16, 1962 in the execution and
appeal incident (L-19651, 17 SCRA 513), allowed the company to
terminate the stevedoring and arrastre work of the union and to
use another union to perform that work.
The company had the contractual right to terminate the 1952
contract (Taylor vs. Uy Teng Piao, 43 Phil. 873). The lower court
did not err in sustaining the consignees. rescission of the contract
and in enjoining the union from performing arrastre and
stevedoring work.
WHEREFORE, that portion of the trial court's judgment declaring
the arrastre and stevedoring contract terminated, permanently
enjoining the union and its officials from performing arrastre and
stevedoring work for the vessels of the Compaia Maritima, and
dismissing defendants' counterclaim is affirmed.
The lower court's award of damages, is reversed and set aside.
No costs.
SO ORDERED.

Barredo, Antonio, and Martin, JJ., concur.

Concepcion Jr., J., took no part.
Martin, J., was designated to sit in the Second Division.
Separate Opinions
FERNANDO, J., concurring:
Concur in the exhaustive and ably-written opinion of Justice
Aquino with the observation that the objective of industrial peace
and the Ideal of a "compassionate society" so clearly manifested
in the present Constitution call for greater understanding and
more sympathetic approach on the part of management.
Separate Opinions
FERNANDO, J., concurring:
Concur in the exhaustive and ably-written opinion of Justice
Aquino with the observation that the objective of industrial peace
and the Ideal of a "compassionate society" so clearly manifested
in the present Constitution call for greater understanding and
more sympathetic approach on the part of management.
Footnotes
* This case was submitted for decision on July 9, 1970. One
reason for the delay in its disposition is the fact that the briefs are
exceedingly brief and do not give much enlightenment to the
Court.
The decision under appeal consists of 70 printed pages; the
record on appeal, 883 printed pages; the folder of exhibits, 140
pages, and the transcripts of the testimonies, 1, 101 pages.
The briefs do not conform with the requirements of sections 16
and l7, Rule 46 of the Rules of Court. Their subject indexes do not
contain a digest of the argument (Secs. 16[a] and 17[a], Rule 46).
Appellants' inadequate statement of the case does not contain "a
clear and concise statement of the nature of the action, a
summary of the proceedings, the appealed rulings and orders of
the court, the nature of the judgment and any other matters
necessary to an understanding of the nature of the controversy,
with page references to the record." (Sec. 16[c], Rule 46).
Their statement of facts does not contain "a clear and concise
statement in a narrative form of the facts admitted by both parties
and of those in controversy, together with the substance of the
proof relating thereto in sufficient detail to make it clearly
intelligible, with page reference to the record" (See. 16[d], Rule
46).
Under section l(g), Rule 50 of the Rules of Court, this Court may
dismiss motu proprio the union's appeal for want of page
references to the record in its skimpy statement of facts
(Genobiagon vs. Court of Appeals, L-44323, March 2, 1977).

Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-23893
October 29, 1968
VILLA REY TRANSIT, INC., plaintiff-appellant,
vs.
EUSEBIO E. FERRER, PANGASINAN TRANSPORTATION
CO., INC. and PUBLIC SERVICE COMMISSION, defendants.
EUSEBIO E. FERRER and PANGASINAN TRANSPORTATION
CO., INC., defendants-appellants.
PANGASINAN TRANSPORTATION CO., INC., third-party
plaintiff-appellant,
vs.
JOSE M. VILLARAMA, third-party defendant-appellee.
Chuidian Law Office for plaintiff-appellant. Bengzon, Zarraga &
Villegas for defendant-appellant / third-party plaintiffappellant. Laurea & Pison for third-party defendant-appellee.
ANGELES, J.:
This is a tri-party appeal from the decision of the Court of First

7
Instance of Manila, Civil Case No. 41845, declaring null and void
the sheriff's sale of two certificates of public convenience in favor
of defendant Eusebio E. Ferrer and the subsequent sale thereof
by the latter to defendant Pangasinan Transportation Co., Inc.;
declaring the plaintiff Villa Rey Transit, Inc., to be the lawful owner
of the said certificates of public convenience; and ordering the
private defendants, jointly and severally, to pay to the plaintiff, the
sum of P5,000.00 as and for attorney's fees. The case against the
PSC was dismissed.
The rather ramified circumstances of the instant case can best be
understood by a chronological narration of the essential facts, to
wit:
Prior to 1959, Jose M. Villarama was an operator of a bus
transportation, under the business name of Villa Rey Transit,
pursuant to certificates of public convenience granted him by the
Public Service Commission (PSC, for short) in Cases Nos. 44213
and 104651, which authorized him to operate a total of thirty-two
(32) units on various routes or lines from Pangasinan to Manila,
and vice-versa. On January 8, 1959, he sold the aforementioned
two certificates of public convenience to the Pangasinan
Transportation Company, Inc. (otherwise known as Pantranco),
for P350,000.00 with the condition, among others, that the seller
(Villarama) "shall not for a period of 10 years from the date of this
sale, apply for any TPU service identical or competing with the
buyer."
Barely three months thereafter, or on March 6, 1959: a
corporation called Villa Rey Transit, Inc. (which shall be referred
to hereafter as the Corporation) was organized with a capital
stock of P500,000.00 divided into 5,000 shares of the par value of
P100.00 each; P200,000.00 was the subscribed stock; Natividad
R. Villarama (wife of Jose M. Villarama) was one of the
incorporators, and she subscribed for P1,000.00; the balance of
P199,000.00 was subscribed by the brother and sister-in-law of
Jose M. Villarama; of the subscribed capital stock, P105,000.00
was paid to the treasurer of the corporation, who was Natividad R.
Villarama.
In less than a month after its registration with the Securities and
Exchange Commission (March 10, 1959), the Corporation, on
April 7, 1959, bought five certificates of public convenience, fortynine buses, tools and equipment from one Valentin Fernando, for
the sum of P249,000.00, of which P100,000.00 was paid upon the
signing of the contract; P50,000.00 was payable upon the final
approval of the sale by the PSC; P49,500.00 one year after the
final approval of the sale; and the balance of P50,000.00 "shall be
paid by the BUYER to the different suppliers of the SELLER."
The very same day that the aforementioned contract of sale was
executed, the parties thereto immediately applied with the PSC
for its approval, with a prayer for the issuance of a provisional
authority in favor of the vendee Corporation to operate the service
therein involved.1 On May 19, 1959, the PSC granted the
provisional permit prayed for, upon the condition that "it may be
modified or revoked by the Commission at any time, shall be
subject to whatever action that may be taken on the basic
application and shall be valid only during the pendency of said
application." Before the PSC could take final action on said
application for approval of sale, however, the Sheriff of Manila, on
July 7, 1959, levied on two of the five certificates of public
convenience involved therein, namely, those issued under PSC
cases Nos. 59494 and 63780, pursuant to a writ of execution
issued by the Court of First Instance of Pangasinan in Civil Case
No. 13798, in favor of Eusebio Ferrer, plaintiff, judgment creditor,
against Valentin Fernando, defendant, judgment debtor. The
Sheriff made and entered the levy in the records of the PSC. On
July 16, 1959, a public sale was conducted by the Sheriff of the
said two certificates of public convenience. Ferrer was the highest
bidder, and a certificate of sale was issued in his name.
Thereafter, Ferrer sold the two certificates of public convenience
to Pantranco, and jointly submitted for approval their
corresponding contract of sale to the PSC. 2 Pantranco therein
prayed that it be authorized provisionally to operate the service

involved in the said two certificates.

The applications for approval of sale, filed before the PSC, by
Fernando and the Corporation, Case No. 124057, and that of
Ferrer and Pantranco, Case No. 126278, were scheduled for a
joint hearing. In the meantime, to wit, on July 22, 1959, the PSC
issued an order disposing that during the pendency of the cases
and before a final resolution on the aforesaid applications, the
Pantranco shall be the one to operate provisionally the service
under the two certificates embraced in the contract between
Ferrer and Pantranco. The Corporation took issue with this
particular ruling of the PSC and elevated the matter to the
Supreme Court,3 which decreed, after deliberation, that until the
issue on the ownership of the disputed certificates shall have
been finally settled by the proper court, the Corporation should be
the one to operate the lines provisionally.
On November 4, 1959, the Corporation filed in the Court of First
Instance of Manila, a complaint for the annulment of the sheriff's
sale of the aforesaid two certificates of public convenience (PSC
Cases Nos. 59494 and 63780) in favor of the defendant Ferrer,
and the subsequent sale thereof by the latter to Pantranco,
against Ferrer, Pantranco and the PSC. The plaintiff Corporation
prayed therein that all the orders of the PSC relative to the parties'
dispute over the said certificates be annulled.
In separate answers, the defendants Ferrer and Pantranco
averred that the plaintiff Corporation had no valid title to the
certificates in question because the contract pursuant to which it
acquired them from Fernando was subject to a suspensive
condition the approval of the PSC which has not yet been
fulfilled, and, therefore, the Sheriff's levy and the consequent sale
at public auction of the certificates referred to, as well as the sale
of the same by Ferrer to Pantranco, were valid and regular, and
vested unto Pantranco, a superior right thereto.
Pantranco, on its part, filed a third-party complaint against Jose
M. Villarama, alleging that Villarama and the Corporation, are one
and the same; that Villarama and/or the Corporation was
disqualified from operating the two certificates in question by
virtue of the aforementioned agreement between said Villarama
and Pantranco, which stipulated that Villarama "shall not for a
period of 10 years from the date of this sale, apply for any TPU
service identical or competing with the buyer."
Upon the joinder of the issues in both the complaint and thirdparty complaint, the case was tried, and thereafter decision was
rendered in the terms, as above stated.
As stated at the beginning, all the parties involved have appealed
from the decision. They submitted a joint record on appeal.
Pantranco disputes the correctness of the decision insofar as it
holds that Villa Rey Transit, Inc. (Corporation) is a distinct and
separate entity from Jose M. Villarama; that the restriction clause
in the contract of January 8, 1959 between Pantranco and
Villarama is null and void; that the Sheriff's sale of July 16, 1959,
is likewise null and void; and the failure to award damages in its
favor and against Villarama.
Ferrer, for his part, challenges the decision insofar as it holds that
the sheriff's sale is null and void; and the sale of the two
certificates in question by Valentin Fernando to the Corporation, is
valid. He also assails the award of P5,000.00 as attorney's fees in
favor of the Corporation, and the failure to award moral damages
to him as prayed for in his counterclaim.
The Corporation, on the other hand, prays for a review of that
portion of the decision awarding only P5,000.00 as attorney's
fees, and insisting that it is entitled to an award of P100,000.00 by
way of exemplary damages.
After a careful study of the facts obtaining in the case, the vital
issues to be resolved are: (1) Does the stipulation between
Villarama and Pantranco, as contained in the deed of sale, that
the former "SHALL NOT FOR A PERIOD OF 10 YEARS FROM
THE DATE OF THIS SALE, APPLY FOR ANY TPU SERVICE
IDENTICAL OR COMPETING WITH THE BUYER," apply to new
lines only or does it include existing lines?; (2) Assuming that said
stipulation covers all kinds of lines, is such stipulation valid and

8
enforceable?; (3) In the affirmative, that said stipulation is valid,
did it bind the Corporation?
For convenience, We propose to discuss the foregoing issues by
starting with the last proposition.
The evidence has disclosed that Villarama, albeit was not an
incorporator or stockholder of the Corporation, alleging that he did
not become such, because he did not have sufficient funds to
invest, his wife, however, was an incorporator with the least
subscribed number of shares, and was elected treasurer of the
Corporation. The finances of the Corporation which, under all
concepts in the law, are supposed to be under the control and
administration of the treasurer keeping them as trust fund for the
Corporation, were, nonetheless, manipulated and disbursed as if
they were the private funds of Villarama, in such a way and extent
that Villarama appeared to be the actual owner-treasurer of the
business without regard to the rights of the stockholders. The
following testimony of Villarama,4 together with the other evidence
on record, attests to that effect:
Q.
Doctor, I want to go back again to the incorporation of the
Villa Rey Transit, Inc. You heard the testimony presented here by
the bank regarding the initial opening deposit of ONE HUNDRED
FIVE THOUSAND PESOS, of which amount Eighty-Five
Thousand Pesos was a check drawn by yourself personally. In
the direct examination you told the Court that the reason you drew
a check for Eighty-Five Thousand Pesos was because you and
your wife, or your wife, had spent the money of the stockholders
given to her for incorporation. Will you please tell the Honorable
Court if you knew at the time your wife was spending the money
to pay debts, you personally knew she was spending the money
of the incorporators?
A.
You know my money and my wife's money are one. We
never talk about those things.
Q.
Doctor, your answer then is that since your money and
your wife's money are one money and you did not know when
your wife was paying debts with the incorporator's money?
A.
Because sometimes she uses my money, and sometimes
the money given to her she gives to me and I deposit the money.
Q.
Actually, aside from your wife, you were also the custodian
of some of the incorporators here, in the beginning?
A.
Not necessarily, they give to my wife and when my wife
hands to me I did not know it belonged to the incorporators.
Q.
It supposes then your wife gives you some of the money
received by her in her capacity as treasurer of the corporation?
A.
Maybe.
Q.
What did you do with the money, deposit in a regular
account?
A.
Deposit in my account.
Q.
Of all the money given to your wife, she did not receive any
check?
A.
I do not remember.
Q.
Is it usual for you, Doctor, to be given Fifty Thousand
Pesos without even asking what is this?
xxx
xxx
xxx
JUDGE: Reform the question.
Q.
The subscription of your brother-in-law, Mr. Reyes, is FiftyTwo Thousand Pesos, did your wife give you Fifty-two Thousand
Pesos?
A.
I have testified before that sometimes my wife gives me
money and I do not know exactly for what.
The evidence further shows that the initial cash capitalization of
the corporation of P105,000.00 was mostly financed by Villarama.
Of the P105,000.00 deposited in the First National City Bank of
New York, representing the initial paid-up capital of the
Corporation, P85,000.00 was covered by Villarama's personal
check. The deposit slip for the said amount of P105,000.00 was
admitted in evidence as Exh. 23, which shows on its face that
P20,000.00 was paid in cash and P85,000.00 thereof was
covered by Check No. F-50271 of the First National City Bank of
New York. The testimonies of Alfonso Sancho5 and Joaquin
Amansec,6 both employees of said bank, have proved that the

drawer of the check was Jose Villarama himself.

Another witness, Celso Rivera, accountant of the Corporation,
testified that while in the books of the corporation there appears
an entry that the treasurer received P95,000.00 as second
installment of the paid-in subscriptions, and, subsequently, also
P100,000.00 as the first installment of the offer for second
subscriptions worth P200,000.00 from the original subscribers, yet
Villarama directed him (Rivera) to make vouchers liquidating the
sums.7 Thus, it was made to appear that the P95,000.00 was
delivered to Villarama in payment for equipment purchased from
him, and the P100,000.00 was loaned as advances to the
stockholders. The said accountant, however, testified that he was
not aware of any amount of money that had actually passed
hands among the parties involved,8 and actually the only money
of the corporation was the P105,000.00 covered by the deposit
slip Exh. 23, of which as mentioned above, P85,000.00 was paid
by Villarama's personal check.
Further, the evidence shows that when the Corporation was in its
initial months of operation, Villarama purchased and paid with his
personal checks Ford trucks for the Corporation. Exhibits 20 and
21 disclose that the said purchases were paid by Philippine Bank
of Commerce Checks Nos. 992618-B and 993621-B, respectively.
These checks have been sufficiently established by Fausto Abad,
Assistant Accountant of Manila Trading & Supply Co., from which
the trucks were purchased9 and Aristedes Solano, an employee of
the Philippine Bank of Commerce,10 as having been drawn by
Villarama.
Exhibits 6 to 19 and Exh. 22, which are photostatic copies of
ledger entries and vouchers showing that Villarama had comingled his personal funds and transactions with those made in
the name of the Corporation, are very illuminating evidence.
Villarama has assailed the admissibility of these exhibits,
contending that no evidentiary value whatsoever should be given
to them since "they were merely photostatic copies of the
originals, the best evidence being the originals themselves."
According to him, at the time Pantranco offered the said exhibits,
it was the most likely possessor of the originals thereof because
they were stolen from the files of the Corporation and only
Pantranco was able to produce the alleged photostat copies
thereof.
Section 5 of Rule 130 of the Rules of Court provides for the
requisites for the admissibility of secondary evidence when the
original is in the custody of the adverse party, thus: (1) opponent's
possession of the original; (2) reasonable notice to opponent to
produce the original; (3) satisfactory proof of its existence; and (4)
failure or refusal of opponent to produce the original in court. 11
Villarama has practically admitted the second and fourth
requisites.12 As to the third, he admitted their previous existence
in the files of the Corporation and also that he had seen some of
them.13 Regarding the first element, Villarama's theory is that
since even at the time of the issuance of the subpoena duces
tecum, the originals were already missing, therefore, the
Corporation was no longer in possession of the same. However, it
is not necessary for a party seeking to introduce secondary
evidence to show that the original is in the actual possession of
his adversary. It is enough that the circumstances are such as to
indicate that the writing is in his possession or under his control.
Neither is it required that the party entitled to the custody of the
instrument should, on being notified to produce it, admit having it
in his possession.14 Hence, secondary evidence is admissible
where he denies having it in his possession. The party calling for
such evidence may introduce a copy thereof as in the case of
loss. For, among the exceptions to the best evidence rule is
"when the original has been lost, destroyed, or cannot be
produced in court."15 The originals of the vouchers in question
must be deemed to have been lost, as even the Corporation
admits such loss. Viewed upon this light, there can be no doubt
as to the admissibility in evidence of Exhibits 6 to 19 and 22.
Taking account of the foregoing evidence, together with Celso
Rivera's testimony,16 it would appear that: Villarama supplied the

9
organization expenses and the assets of the Corporation, such as
trucks and equipment;17 there was no actual payment by the
original subscribers of the amounts of P95,000.00 and
P100,000.00 as appearing in the books;18 Villarama made use of
the money of the Corporation and deposited them to his private
accounts;19 and the Corporation paid his personal accounts.20
Villarama himself admitted that he mingled the corporate funds
with his own money.21 He also admitted that gasoline purchases
of the Corporation were made in his name22 because "he had
existing account with Stanvac which was properly secured and he
wanted the Corporation to benefit from the rebates that he
received."23
The foregoing circumstances are strong persuasive evidence
showing that Villarama has been too much involved in the affairs
of the Corporation to altogether negative the claim that he was
only a part-time general manager. They show beyond doubt that
the Corporation is his alter ego.
It is significant that not a single one of the acts enumerated above
as proof of Villarama's oneness with the Corporation has been
denied by him. On the contrary, he has admitted them with
offered excuses.
Villarama has admitted, for instance, having paid P85,000.00 of
the initial capital of the Corporation with the lame excuse that "his
wife had requested him to reimburse the amount entrusted to her
by the incorporators and which she had used to pay the
obligations of Dr. Villarama (her husband) incurred while he was
still the owner of Villa Rey Transit, a single proprietorship." But
with his admission that he had received P350,000.00 from
Pantranco for the sale of the two certificates and one unit,24 it
becomes difficult to accept Villarama's explanation that he and his
wife, after consultation,25 spent the money of their relatives (the
stockholders) when they were supposed to have their own
money. Even if Pantranco paid the P350,000.00 in check to him,
as claimed, it could have been easy for Villarama to have
deposited said check in his account and issued his own check to
pay his obligations. And there is no evidence adduced that the
said amount of P350,000.00 was all spent or was insufficient to
settle his prior obligations in his business, and in the light of the
stipulation in the deed of sale between Villarama and Pantranco
that P50,000.00 of the selling price was earmarked for the
payments of accounts due to his creditors, the excuse appears
unbelievable.
On his having paid for purchases by the Corporation of trucks
from the Manila Trading & Supply Co. with his personal checks,
his reason was that he was only sharing with the Corporation his
credit with some companies. And his main reason for mingling his
funds with that of the Corporation and for the latter's paying his
private bills is that it would be more convenient that he kept the
money to be used in paying the registration fees on time, and
since he had loaned money to the Corporation, this would be set
off by the latter's paying his bills. Villarama admitted, however,
that the corporate funds in his possession were not only for
registration fees but for other important obligations which were not
specified.26
Indeed, while Villarama was not the Treasurer of the Corporation
but was, allegedly, only a part-time manager,27 he admitted not
only having held the corporate money but that he advanced and
lent funds for the Corporation, and yet there was no Board
Resolution allowing it.28
Villarama's explanation on the matter of his involvement with the
corporate affairs of the Corporation only renders more credible
Pantranco's claim that his control over the corporation, especially
in the management and disposition of its funds, was so extensive
and intimate that it is impossible to segregate and identify which
money belonged to whom. The interference of Villarama in the
complex affairs of the corporation, and particularly its finances,
are much too inconsistent with the ends and purposes of the
Corporation law, which, precisely, seeks to separate personal
responsibilities from corporate undertakings. It is the very
essence of incorporation that the acts and conduct of the

corporation be carried out in its own corporate name because it

has its own personality.
The doctrine that a corporation is a legal entity distinct and
separate from the members and stockholders who compose it is
recognized and respected in all cases which are within reason
and the law.29 When the fiction is urged as a means of
perpetrating a fraud or an illegal act or as a vehicle for the
evasion of an existing obligation, the circumvention of statutes,
the achievement or perfection of a monopoly or generally the
perpetration of knavery or crime,30 the veil with which the law
covers and isolates the corporation from the members or
stockholders who compose it will be lifted to allow for its
consideration merely as an aggregation of individuals.
Upon the foregoing considerations, We are of the opinion, and so
hold, that the preponderance of evidence have shown that the
Villa Rey Transit, Inc. is an alter ego of Jose M. Villarama, and
that the restrictive clause in the contract entered into by the latter
and Pantranco is also enforceable and binding against the said
Corporation. For the rule is that a seller or promisor may not make
use of a corporate entity as a means of evading the obligation of
his covenant.31 Where the Corporation is substantially the alter
ego of the covenantor to the restrictive agreement, it can be
enjoined from competing with the covenantee.32
The Corporation contends that even on the supposition that Villa
Rey Transit, Inc. and Villarama are one and the same, the
restrictive clause in the contract between Villarama and
Pantranco does not include the purchase of existing lines but it
only applies to application for the new lines. The clause in dispute
reads thus:
(4) The SELLER shall not, for a period of ten (10) years from the
date of this sale apply for any TPU service identical or competing
with the BUYER. (Emphasis supplied)
As We read the disputed clause, it is evident from the context
thereof that the intention of the parties was to eliminate the seller
as a competitor of the buyer for ten years along the lines of
operation covered by the certificates of public convenience
subject of their transaction. The word "apply" as broadly used has
for frame of reference, a service by the seller on lines or routes
that would compete with the buyer along the routes acquired by
the latter. In this jurisdiction, prior authorization is needed before
anyone can operate a TPU service,33whether the service consists
in a new line or an old one acquired from a previous operator. The
clear intention of the parties was to prevent the seller from
conducting any competitive line for 10 years since, anyway, he
has bound himself not to apply for authorization to operate along
such lines for the duration of such period.34
If the prohibition is to be applied only to the acquisition of new
certificates of public convenience thru an application with the
Public Service Commission, this would, in effect, allow the seller
just the same to compete with the buyer as long as his authority
to operate is only acquired thru transfer or sale from a previous
operator, thus defeating the intention of the parties. For what
would prevent the seller, under the circumstances, from having a
representative or dummy apply in the latter's name and then later
on transferring the same by sale to the seller? Since stipulations
in a contract is the law between the contracting parties,
Every person must, in the exercise of his rights and in the
performance of his duties, act with justice, give everyone his due,
and observe honesty and good faith. (Art. 19, New Civil Code.)
We are not impressed of Villarama's contention that the rewording of the two previous drafts of the contract of sale between
Villarama and Pantranco is significant in that as it now appears,
the parties intended to effect the least restriction. We are
persuaded, after an examination of the supposed drafts, that the
scope of the final stipulation, while not as long and prolix as those
in the drafts, is just as broad and comprehensive. At most, it can
be said that the re-wording was done merely for brevity and
simplicity.
The evident intention behind the restriction was to eliminate the
sellers as a competitor, and this must be, considering such factors

10
as the good will35 that the seller had already gained from the
riding public and his adeptness and proficiency in the trade. On
this matter, Corbin, an authority on Contracts has this to say. 36
When one buys the business of another as a going concern, he
usually wishes to keep it going; he wishes to get the location, the
building, the stock in trade, and the customers. He wishes to step
into the seller's shoes and to enjoy the same business relations
with other men. He is willing to pay much more if he can get the
"good will" of the business, meaning by this the good will of the
customers, that they may continue to tread the old footpath to his
door and maintain with him the business relations enjoyed by the
seller.
... In order to be well assured of this, he obtains and pays for the
seller's promise not to reopen business in competition with the
business sold.
As to whether or not such a stipulation in restraint of trade is valid,
our jurisprudence on the matter37says:
The law concerning contracts which tend to restrain business or
trade has gone through a long series of changes from time to time
with the changing condition of trade and commerce. With trifling
exceptions, said changes have been a continuous development of
a general rule. The early cases show plainly a disposition to avoid
and annul all contract which prohibited or restrained any one from
using a lawful trade "at any time or at any place," as being against
the benefit of the state. Later, however, the rule became well
established that if the restraint was limited to "a certain time" and
within "a certain place," such contracts were valid and not
"against the benefit of the state." Later cases, and we think the
rule is now well established, have held that a contract in restraint
of trade is valid providing there is a limitation upon either time or
place. A contract, however, which restrains a man from entering
into business or trade without either a limitation as to time or
place, will be held invalid.
The public welfare of course must always be considered and if it
be not involved and the restraint upon one party is not greater
than protection to the other requires, contracts like the one we are
discussing will be sustained. The general tendency, we believe, of
modern authority, is to make the test whether the restraint is
reasonably necessary for the protection of the contracting parties.
If the contract is reasonably necessary to protect the interest of
the parties, it will be upheld. (Emphasis supplied.)
Analyzing the characteristics of the questioned stipulation, We
find that although it is in the nature of an agreement suppressing
competition, it is, however, merely ancillary or incidental to the
main agreement which is that of sale. The suppression or restraint
is only partial or limited: first, in scope, it refers only to application
for TPU by the seller in competition with the lines sold to the
buyer; second, in duration, it is only for ten (10) years; and third,
with respect to situs or territory, the restraint is only along the
lines covered by the certificates sold. In view of these limitations,
coupled with the consideration of P350,000.00 for just two
certificates of public convenience, and considering, furthermore,
that the disputed stipulation is only incidental to a main
agreement, the same is reasonable and it is not harmful nor
obnoxious to public service.38 It does not appear that the ultimate
result of the clause or stipulation would be to leave solely to
Pantranco the right to operate along the lines in question, thereby
establishing monopoly or predominance approximating thereto.
We believe the main purpose of the restraint was to protect for a
limited time the business of the buyer.
Indeed, the evils of monopoly are farfetched here. There can be
no danger of price controls or deterioration of the service because
of the close supervision of the Public Service Commission. 39 This
Court had stated long ago,40 that "when one devotes his property
to a use in which the public has an interest, he virtually grants to
the public an interest in that use and submits it to such public use
under reasonable rules and regulations to be fixed by the Public
Utility Commission."
Regarding that aspect of the clause that it is merely ancillary or
incidental to a lawful agreement, the underlying reason sustaining

its validity is well explained in 36 Am. Jur. 537-539, to wit:

... Numerous authorities hold that a covenant which is incidental
to the sale and transfer of a trade or business, and which purports
to bind the seller not to engage in the same business in
competition with the purchaser, is lawful and enforceable. While
such covenants are designed to prevent competition on the part
of the seller, it is ordinarily neither their purpose nor effect to stifle
competition generally in the locality, nor to prevent it at all in a
way or to an extent injurious to the public. The business in the
hands of the purchaser is carried on just as it was in the hands of
the seller; the former merely takes the place of the latter; the
commodities of the trade are as open to the public as they were
before; the same competition exists as existed before; there is the
same employment furnished to others after as before; the profits
of the business go as they did before to swell the sum of public
wealth; the public has the same opportunities of purchasing, if it is
a mercantile business; and production is not lessened if it is a
manufacturing plant.
The reliance by the lower court on tile case of Red Line
Transportation Co. v. Bachrach41 and finding that the stipulation is
illegal and void seems misplaced. In the said Red Line case, the
agreement therein sought to be enforced was virtually a division
of territory between two operators, each company imposing upon
itself an obligation not to operate in any territory covered by the
routes of the other. Restraints of this type, among common
carriers have always been covered by the general rule
invalidating agreements in restraint of trade. 42
Neither are the other cases relied upon by the plaintiff-appellee
applicable to the instant case. In Pampanga Bus Co., Inc. v.
Enriquez,43the undertaking of the applicant therein not to apply for
the lifting of restrictions imposed on his certificates of public
convenience was not an ancillary or incidental agreement. The
restraint was the principal objective. On the other hand, in Red
Line Transportation Co., Inc. v. Gonzaga,44 the restraint there in
question not to ask for extension of the line, or trips, or increase of
equipment was not an agreement between the parties but a
condition imposed in the certificate of public convenience itself.
Upon the foregoing considerations, Our conclusion is that the
stipulation prohibiting Villarama for a period of 10 years to "apply"
for TPU service along the lines covered by the certificates of
public convenience sold by him to Pantranco is valid and
reasonable. Having arrived at this conclusion, and considering
that the preponderance of the evidence have shown that Villa Rey
Transit, Inc. is itself the alter ego of Villarama, We hold, as prayed
for in Pantranco's third party complaint, that the said Corporation
should, until the expiration of the 1-year period abovementioned,
be enjoined from operating the line subject of the prohibition.
To avoid any misunderstanding, it is here to be emphasized that
the 10-year prohibition upon Villarama is not against his
application for, or purchase of, certificates of public convenience,
but merely the operation of TPU along the lines covered by the
certificates sold by him to Pantranco. Consequently, the sale
between Fernando and the Corporation is valid, such that the
rightful ownership of the disputed certificates still belongs to the
plaintiff being the prior purchaser in good faith and for value
thereof. In view of the ancient rule of caveat emptor prevailing in
this jurisdiction, what was acquired by Ferrer in the sheriff's sale
was only the right which Fernando, judgment debtor, had in the
certificates of public convenience on the day of the sale.45
Accordingly, by the "Notice of Levy Upon Personalty" the
Commissioner of Public Service was notified that "by virtue of an
Order of Execution issued by the Court of First Instance of
Pangasinan, the rights, interests, or participation which the
defendant, VALENTIN A. FERNANDO in the above entitled
case may have in the following realty/personalty is attached or
levied upon, to wit: The rights, interests and participation on the
Certificates of Public Convenience issued to Valentin A.
Fernando, in Cases Nos. 59494, etc. ... Lines Manila to
Lingayen, Dagupan, etc. vice versa." Such notice of levy only
shows that Ferrer, the vendee at auction of said certificates,

11
merely stepped into the shoes of the judgment debtor. Of the
same principle is the provision of Article 1544 of the Civil Code,
that "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."
There is no merit in Pantranco and Ferrer's theory that the sale of
the certificates of public convenience in question, between the
Corporation and Fernando, was not consummated, it being only a
conditional sale subject to the suspensive condition of its approval
by the Public Service Commission. While section 20(g) of the
Public Service Act provides that "subject to established limitation
and exceptions and saving provisions to the contrary, it shall be
unlawful for any public service or for the owner, lessee or operator
thereof, without the approval and authorization of the Commission
previously had ... to sell, alienate, mortgage, encumber or lease
its property, franchise, certificates, privileges, or rights or any part
thereof, ...," the same section also provides:
... Provided, however, That nothing herein contained shall be
construed to prevent the transaction from being negotiated or
completed before its approval or to prevent the sale, alienation, or
lease by any public service of any of its property in the ordinary
course of its business.
It is clear, therefore, that the requisite approval of the PSC is not a
condition precedent for the validity and consummation of the sale.
Anent the question of damages allegedly suffered by the parties,
each of the appellants has its or his own version to allege.
Villa Rey Transit, Inc. claims that by virtue of the "tortious acts" of
defendants (Pantranco and Ferrer) in acquiring the certificates of
public convenience in question, despite constructive and actual
knowledge on their part of a prior sale executed by Fernando in
favor of the said corporation, which necessitated the latter to file
the action to annul the sheriff's sale to Ferrer and the subsequent
transfer to Pantranco, it is entitled to collect actual and
compensatory damages, and attorney's fees in the amount of
P25,000.00. The evidence on record, however, does not clearly
show that said defendants acted in bad faith in their acquisition of
the certificates in question. They believed that because the bill of
sale has yet to be approved by the Public Service Commission,
the transaction was not a consummated sale, and, therefore, the
title to or ownership of the certificates was still with the seller. The
award by the lower court of attorney's fees of P5,000.00 in favor
of Villa Rey Transit, Inc. is, therefore, without basis and should be
set aside.
Eusebio Ferrer's charge that by reason of the filing of the action to
annul the sheriff's sale, he had suffered and should be awarded
moral, exemplary damages and attorney's fees, cannot be
entertained, in view of the conclusion herein reached that the sale
by Fernando to the Corporation was valid.
Pantranco, on the other hand, justifies its claim for damages with
the allegation that when it purchased ViIlarama's business for
P350,000.00, it intended to build up the traffic along the lines
covered by the certificates but it was rot afforded an opportunity to
do so since barely three months had elapsed when the contract
was violated by Villarama operating along the same lines in the
name of Villa Rey Transit, Inc. It is further claimed by Pantranco
that the underhanded manner in which Villarama violated the
contract is pertinent in establishing punitive or moral damages. Its
contention as to the proper measure of damages is that it should
be the purchase price of P350,000.00 that it paid to Villarama.
While We are fully in accord with Pantranco's claim of entitlement
to damages it suffered as a result of Villarama's breach of his
contract with it, the record does not sufficiently supply the
necessary evidentiary materials upon which to base the award
and there is need for further proceedings in the lower court to
ascertain the proper amount.
PREMISES CONSIDERED, the judgment appealed from is
hereby modified as follows:
1. The sale of the two certificates of public convenience in
question by Valentin Fernando to Villa Rey Transit, Inc. is

declared preferred over that made by the Sheriff at public auction

of the aforesaid certificate of public convenience in favor of
Eusebio Ferrer;
2. Reversed, insofar as it dismisses the third-party complaint filed
by Pangasinan Transportation Co. against Jose M. Villarama,
holding that Villa Rey Transit, Inc. is an entity distinct and
separate from the personality of Jose M. Villarama, and insofar as
it awards the sum of P5,000.00 as attorney's fees in favor of Villa
Rey Transit, Inc.;
3. The case is remanded to the trial court for the reception of
evidence in consonance with the above findings as regards the
amount of damages suffered by Pantranco; and
4. On equitable considerations, without costs. So ordered.
Concepcion, C. J., Reyes, J.B.L., Dizon, Makalintal, Castro and
Fernando, JJ., concur.
Sanchez and Capistrano, JJ., took no part.
Zaldivar, J., is on leave.

Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-10824 December 24, 1915
E. MICHAEL & CO., INC., plaintiff-appellant,
vs.
ADRIANO ENRIQUEZ, defendant-appellee.
Sepulveda, Pelaez and Espina for appellant. No appearance for
appellee.
MORELAND, J.:
This is an appeal from a judgment of the Court of First Instance of
Cebu dismissing the action after trial on the ground that the
plaintiff did not prove facts sufficient to constitute a cause of
action.
We are of the opinion that the judgment must be reversed and a
new trial ordered.itc-a1f
The action is based on a sale with a right to repurchase made by
Adriano Enriquez in favor of E. Michael and E. Michael & Co.,
sociedad en comandita, of which appellant claims to be the
successor, by reason of an instrument, duly executed and
delivered by said companies to appellant, transferring property,
business and assets of every kind, including the land which is the
subject of this litigation. It is alleged in the complaint that the time
to repurchase having expired, the title to the property became
absolute in appellant and that it is accordingly the owner of the
land described in said instruments. On the trial appellant sought
to prove the execution and delivery of the conveyance transferring
to it the land described in the sale with right to repurchase. The
trial court prevented appellant from the proving the fact. Appellant
also attempted to prove the fact that the instrument so executed
and delivered was lost, it being his purpose to lay the basis for the
introduction of secondary evidence as to its contents. The trial
court also prevented appellant from proving that fact.
While the efforts of appellant's counsel to prove the execution and
delivery were at times rather informal and inartificial and
objections to such questions were properly sustained, at others
the questions put for the purpose of proving those facts were well
framed and answer should have been allowed to them; but, even
in such cases, the trial court also sustained objections to the
questions and the evidence sought to be adduced was excluded.
The same may be said with respect to the attempts to establish
the loss of the document. Exceptions were taken by plaintiff's
counsel to all adverse rulings of the court respecting the
admission of evidence tending to establish the execution and
delivery and the subsequent loss of the document in question,
thus laying them proper foundation for the bringing up the rulings
of the court on those matters.
Trial courts do well in refusing at all times to permit the
introduction of incompetent evidence and particularly secondary

12
evidence of the contents of written instruments unless the facts
required by the Code of Civil Procedure as the conditions
precedent for such evidence are clearly shown to exist. Section
321 of the Code provides: "An original writing must be produced
and proved, except as otherwise provided in this Act. If it has
been lost, proof of the loss must first be made before evidence
can be given of its contents. Upon such proof being made,
together with proof of the due execution of the writing, its contents
may be proved by a copy or by a recital of its contests in some
authentic document, or by the recollection of a witness."
As will be seen from this section, the writing itself must be
produced unless it has been lost or destroyed in which case,
before its contents may be proved by other evidence, it must be
shown by the person offering the secondary evidence (1) that the
document was duly executed and delivered, where delivery is
necessary, and (2) that it has been lost or destroyed. The
execution and delivery of the document may be established by
the person or persons who executed it, by the person before
whom its execution was acknowledged, pr by any person who
was present and saw it executed and delivered or who, after its
execution and delivery, saw it and recognized the signatures; or
by a person to whom the parties to the instruments had previously
confessed the execution thereof. The destruction of the
instrument may be proved by any person knowing the fact. The
loss may be shown by any person who knew the fact of its loss, or
by anyone who has made, in the judgment of the court, a
sufficient examination in the place where the document or papers
of similar character are usually kept by the person in whose
custody the document lost was, and has been unable to find it; or
who has made any other investigation which is sufficient to satisfy
the court that the instrument is indeed lost. If it appears, on an
attempt to prove the loss, that the document is in fact in
existence, then the proof of the loss or destruction fails and
secondary evidence is inadmissible unless section 322 of the
Code of Civil Procedure should be applicable. After proper proof
of the due execution and delivery of the instrument and its loss or
destruction, oral evidence may be give of its contents by any
person who signed the document, or who read it, or who heard it
read knowing, or it being proved from other sources, that the
document so read was the one in question. Such evidence may
also be given by any person who was present when the contents
of the document were talked over between the parties thereto to
such an extent as to give him reasonably full information as to its
contents; or the contents may be proved by any person to whom
the parties to the instrument have confessed or stated the
contents thereof; or by a copy thereof; or by a recital of its
contents in some authentic document.
Objections were sustained by the trial court to several question
put by appellants counsel relative to the due execution and
delivery of the instrument of transfer between the partnership of
E. Michael & Co., sociedad en comandita, and appellant, on the
ground that counsel, in an attempt to identify the document to
which his question referred, described or characterized it as an
instrument of transfer or cession. Counsel, if he had desired to
identify the instrument to which the question referred, might have
done better, perhaps, if he asked the witness if he knew of the
execution of an instrument between appellant and its predecessor
in interest relating to the lands described in the complaint or to the
property and business of E. Michael & Co., sociedad en
comandita, instead of asking him if he knew of the execution of a
document between appellant and his predecessors in interest
transferring the lands in question, or the property and business of
E. Michael & Co., sociedad en comandita, the appellant. Having
obtained an affirmative answer to the question indicated counsel
could then have shown how the witness came to know of the
execution or existence of the document, and, if such
circumstances disclosed that the witness was sufficiently
acquainted with the facts, he would have been allowed to testify
to its execution and delivery. After this had been done the
document might then have been presented for identification and

when identified, offered in evidence. If its contents showed that it

referred to the lands described in the complaint, its admissibility
would have been instantly evident.
The mere fact that counsel for appellant, in putting his question to
the witness, characterized or described the instrument as one of
transfer, while objectionable, was not sufficient to cut him off
altogether from proving the execution and delivery of the
document if other requisites were present. While it is always best
to avoid characterizations of that kind, its harm is minimized
where the case is tried before a court instead of a jury, the court
well knowing that it cannot accept the characterization as
evidence but must go to the document itself or the evidence of its
contents to determine its nature and legal effect. Trial courts
should not be so strict with reference to matters of the character
under discussion as to cause a miscarriage of justice; but on the
other hand, they should see to it that they are not impose on by
the introduction of fabricated testimony and that injustice shall not
result from an evasion of the rules of evidence by designing
persons.1awphil.net
We are of the opinion on the whole record that proper questions,
tending to the production of very material and competent
evidence, were put by plaintiff's counsel, objections to which were
sustained by the trial court; and that the error thus committed was
not cure by subsequent questions and answers or by the
introduction of the same evidence in different manner or form.
The judgment must be reversed and a new trial ordered without
costs in this instance. So ordered.
Arellano, C.J., Torres, Carson, Trent and Araullo, JJ., concur.

Republic of the Philippines

SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 83377 February 9, 1993
BASILIO DE VERA, LUIS DE VERA, FELIPE DE VERA, HEIRS
OF EUSTAQUIA DE VERA-PAPA represented by GLICERIA
PAPA-FRANCISCO, et al., petitioners,
vs.
SPOUSES MARIANO AGUILAR and LEONA V. AGUILAR,
respondents.
Pablo M. Gancayaco for petitioners.
De Mesa, Villarica & Associates for respondents.
CAMPOS, JR., J.:
This is a petition for review on certiorari of the decision * of the
Court of Appeals dated November 27, 1987 in CA-GR CV No.
07448 entitled, "Basilio de Vera, Luis de Vera, Felipe de Vera,
Heirs of Eustaquia de Vera-Papa, represented by Gliceria PapaFrancisco, and Heirs of Maria de Vera-Torres, represented by
Luis V. Torres, plaintiffs-appellees versus Spouses Mariano
Aguilar and Leona V. Aguilar, defendants-appellants", which
reversed the decision ** of the Regional Trial Court of Bulacan,
Third Judicial Region, Branch 14, for failure of petitioners to prove
the loss or destruction of the original deed of sale and of all its
duplicate original copies.
The undisputed facts are as follows:
Petitioners Basilio, Luis, Felipe, Eustaquia and Maria, all
surnamed de Vera and respondent Leona, married to respondent
Mariano Aguilar, are the children and heirs of the late Marcosa
Bernabe who died on May 10, 1960. In her lifetime, Marcosa
Bernabe owned the disputed parcel of land situated in Camalig,
Meycauayan, Bulacan, with an area of 4,195 square meters,
designated as Cadastral Lot No. 3621, Cad. 337, Case No. 4,
Meycauayan Cadastre.
The disputed property was mortgaged by petitioners Basilio and
Felipe de Vera to a certain Atty. Leonardo Bordador. When the
mortgage had matured, the respondents redeemed the property

13
from Atty. Leonardo Bordador and in turn Marcosa Bernabe sold
the same to them as evidenced by a deed of absolute sale dated
February 11, 1956.
On February 13, 1956, the respondents registered the deed with
the Registry of Deeds of Bulacan resulting in the cancellation of
the tax declaration in the name of Marcosa Bernabe and the
issuance of another in the name of the Aguilars. Since then and
up to the present, the Aguilars have been paying taxes on the
land.
On July 20, 1977, respondent Mariano Aguilar was issued a free
patent to the land on the basis of which Original Certificate of Title
No. P-1356(M) was issued in his name.
On September 1, 1980, the petitioners wrote to the respondents
claiming that as children of Marcosa Bernabe, they were coowners of the property and demanded partition thereof on threats
that the respondents would be charged with perjury and/or
falsification. The petitioners also claimed that the respondents
had resold the property to Marcosa Bernabe on April 28, 1959.
On September 27, 1980, the respondents wrote in reply to the
petitioners that they were the sole owners of the disputed parcel
of land and denied that the land was resold to Marcosa Bernabe.
True to petitioners' threat, they filed a falsification case against the
respondents. However, on March 31, 1981, Assistant Provincial
Fiscal Arsenio N. Mercado of Bulacan recommended dismissal of
the charge of falsification of public document against the
respondents for lack of a prima facie case.
On March 26, 1981, petitioners filed a suit for reconveyance of the
lot covered by Original Certificate of Title No. P-1356(M).
On July 31, 1985, the trial court rendered its decision *** the
dispositive portion of which reads as follows:
WHEREFORE, judgment is hereby rendered ordering defendants:
1. To reconvey the property in question to the plaintiffs;
2. To pay plaintiffs P10,000.00 as litigation expenses;
3. To pay plaintiffs P5,000.00 as exemplary damages;
4. To pay P10,000.00 as attorney's fees.
SO ORDERED. 1
In ruling in favor of the petitioners, the trial court admitted, over
the objection of the respondents, Exhibit A purporting to be a
xeroxed copy of an alleged deed of sale executed on April 28,
1959 by the respondents selling, transferring and conveying unto
Marcosa Bernabe the disputed parcel of land for and in
consideration of P1,500.00.
Not contented with the decision, respondents appealed to the
Court of Appeals contending that they never sold back to Marcosa
Bernabe the disputed parcel of land. Furthermore, respondents
contended that since the petitioners have failed to produce the
original of the alleged deed of sale dated April 28, 1959, the same
was not the best evidence of the alleged sale hence it should
have been excluded and should not have been accorded any
evidentiary value. On the other hand, the petitioners claimed that
the existence of the document of sale dated April 28, 1959 had
been duly established by the testimony of the notary public before
whom it was acknowledged and by Luis de Vera who was present
during its execution and that the loss of the original document had
been proven by the testimony of the representatives of the offices
of the National Archives and the Provincial Assessor of Bulacan.
On November 29, 1987, the Court of Appeals rendered its
decision reversing the trial court's decision. It found that the loss
or destruction of the original deed of sale has not been duly
proven by the petitioners. Hence, secondary evidence, i.e.,
presentation of the xeroxed copy of the alleged deed of sale is
inadmissible.
Hence this petition.
The crux of this case is whether or not the petitioners have
satisfactorily proven the loss of the original deed of sale so as to
allow the presentation of the xeroxed copy of the same.
We rule in the negative.
Section 4 of Rule 130 (now Section 5, Rule 130) of the Rules of
Court on Secondary Evidence states:
Sec. 4. Secondary evidence when original is lost or destroyed.

When the original writing has been lost or destroyed, or cannot be

produced in court, upon proof of its execution and loss or
destruction, or unavailability, its contents may be proved by a
copy, or by a recital of its contents in some authentic document,
or by the recollection of witnesses.
Secondary evidence is admissible when the original documents
were actually lost or destroyed. But prior to the introduction of
such secondary evidence, the proponent must establish the
former existence of the instrument. The correct order of proof is
as follows: Existence; execution; loss; contents although this
order may be changed if necessary in the discretion of the court.
The sufficiency of proof offered as a predicate for the admission
of an alleged lost deed lies within the judicial discretion of the trial
court under all the circumstances of the particular case. 2
A reading of the decision of the trial court shows that it merely
ruled on the existence and due execution of the alleged deed of
sale dated April 28, 1959. It failed to look into the facts and
circumstances surrounding the loss or destruction of the original
copies of the alleged deed of sale.
In the case at bar, the existence of an alleged sale of a parcel of
land was proved by the presentation of a xeroxed copy of the
alleged deed of absolute sale.
In establishing the execution of a document the same may be
established by the person or persons who executed it, by the
person before whom its execution was acknowledged, or by any
person who was present and saw it executed or who, after its
execution, saw it and recognized the signatures; or by a person to
whom the parties to the instrument had previously confessed the
execution thereof. 3
We agree with the trial court's findings that petitioners have
sufficiently established the due execution of the alleged deed of
sale through the testimony of the notary public to wit:
Preponderance of evidence clearly disclosed the facts that Atty.
Ismael Estela prepared Exhibit A. Atty. Emiliano Ibasco, Jr.
positively identified the signatures appearing therein to be that
(sic) of the spouses and witnesses Luis de Vera and Ismael
Estela, in his capacity as Notary Public who ratified the document.
4

After the due execution of the document has been established, it

must next be proved that said document has been lost or
destroyed. The destruction of the instrument may be proved by
any person knowing the fact. The loss may be shown by any
person who knew the fact of its loss, or by any one who had
made, in the judgment of the court, a sufficient examination in the
place or places where the document or papers of similar
character are usually kept by the person in whose custody the
document lost was, and has been unable to find it; or who has
made any other investigation which is sufficient to satisfy the court
that the instrument is indeed lost. 5
However, all duplicates or counterparts must be accounted for
before using copies. For, since all the duplicates or multiplicates
are parts of the writing itself to be proved, no excuse for nonproduction of the writing itself can be regarded as established
until it appears that all of its parts are unavailable (i.e. lost,
retained by the opponent or by a third person or the like). 6
In the case at bar, Atty. Emiliano Ibasco, Jr., notary public who
notarized the document testified that the alleged deed of sale has
about four or five original copies. 7 Hence, all originals must be
accounted for before secondary evidence can be given of any
one. This petitioners failed to do. Records show that petitioners
merely accounted for three out of four or five original copies.
In reversing the trial court, the respondent Court of Appeals
considered the following points:
Asked on the witness stand where the original of the document
(Exhibit A) was, plaintiff-appellee Luis de Vera answered that it
was with the Provincial Assessor in Malolos, Bulacan, whereupon
the appellees reserved its (sic) right to present it in evidence (p.
11, tsn., August 11, 1981, Steno, Tecson). The same question
propounded to the same witness at the next hearing, he replied
that in the early part of 1976 his sister Maria borrowed from him

14
the original document and a certified true copy thereof and
brought them to the Office of the Register of Deeds in Malolos "for
the purpose of having it registered;" and that when she returned
she told him that the original copy of the document was submitted
to that office "and it (the property) was transferred in the name of
Marcosa Bernabe instead of Mariano Aguilar" (p. 8, tsn.,
December 10, 1981, Steno, Crisostomo; p. 9, tsn., Mar. 16, 1982,
Steno, Vallarta).
Indeed, upon the appellees' own evidence the original of the deed
of sale in question, a purported xerox copy and certified true copy
of which are marked as Exhibits A and B, has not been lost or
destroyed. It was submitted to the Office of the Register of Deeds
of Malolos for registration. The appellees, therefore, should have
asked the office to produce it in court and if it could not be
produced for one reason or another should have called the
Register of Deeds or his representative to explain why. That they
failed to do. The loss or destruction of the original of the
document in question has not, therefore, been established.
Hence, secondary evidence of it is inadmissible . . . .
Neither did the testimony of notary public Ibasco, Jr. to the effect
that he did not have a copy of the deed of sale in question
because his files were burned when his office at Ronquillo Street,
Manila was gutted by fire in 1971 and 1972 (p. 4, tsn., November
10, 1981, Steno, Crisostomo) establish the loss or destruction of
the original document in question. What was lost or destroyed in
the custody of Atty. Ibasco, Jr. was but one of the duplicate
original copies on file with him. Nor did the testimony of Hipolito
Timoteo, representative of the Assessor's Office of Bulacan, to
the effect that he failed to see the deed of absolute sale
annotated on the simple copy of tax declaration No. 15412 (p. 7,
tsn., Aug. 12, 1982, Steno, Vallarta) and of David Montenegro, Jr.
of the National Archives to the effect that his office had no copy of
the document in question because the notary public might not
have submitted a copy thereof; or that it was lost or destroyed
during the transmittal; and that most of the record before 1960
were destroyed by termites (pp. 8-12, tsn., Oct. 5, 1982, Steno,
Tecson), prove loss or destruction of the original and of all the
duplicate original copies of the document in question. 8
We find no cogent reason to rule otherwise.
WHEREFORE, the decision of the Court of Appeals dated
November 27, 1987 is hereby AFFIRMED.
SO ORDERED.

G.R. No. L-18077, Enriquez et al. v. Ramos, 6 SCRA 219

content follows
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
September 29, 1962
G.R. No. L-18077
RODRIGO ENRIQUEZ, ET AL., plaintiffs-appellants,
vs.
SOCORRO A. RAMOS, defendant-appellee.
Gelacio L. Dimaano for plaintiffs-appellants. Vicente K. Aranda
for defendant-appellee.
BAUTISTA ANGELO, J.:
This is an action for foreclosure of a real estate mortgage.
It is alleged that on November 24, 1958 defendant purchased
from plaintiffs 20 parcels of land located in Quezon City and
covered by transfer certificates of title for the amount of
P235,056.00 of which only the amount of P35,056.00 was paid on
the date of sale, the balance of P200,000.00 being payable within
two years from the date of sale, with 6% interest per annum
during the first year, and the remainder to draw 12% interest per
annum if paid thereafter, provided that at least P100,000.00
should be paid during the first year, otherwise the whole unpaid
balance would become immediately demandable; that to secure
the payment of the balance of P200,000.00 defendant executed a

mortgage in favor of plaintiffs upon the 20 parcels of land sold and

on a half interest over a parcel of land in Bulacan which was
embodied in the same deed of sale; that said deed of sale with
mortgage was registered in the Offices of the Registers of Deeds
of Quezon City and Pampanga; and that as defendant broke
certain stipulations contained in said deed of sale with mortgage,
plaintiffs instituted the present foreclosure proceedings.
Defendant set up as affirmative defense that the contract
mentioned in the complaint does not express the true agreement
of the parties because certain important conditions agreed upon
were not included therein by the counsel who prepared the
contract; that the stipulation that was omitted from the contract
was the promise assumed by plaintiffs that they would construct
roads in the lands which were to be subdivided for sale on or
before January, 1959; that said condition was not placed in the
contract because, according to plaintiffs' counsel, it was a
superfluity, inasmuch as there is an ordinance in Quezon City
which requires the construction of roads in a subdivision before
lots therein could be sold; and that, upon the suggestion of
plaintiff's counsel, their promise to construct the roads was not
included in the contract because the ordinance was deemed part
of the contract. Defendant further claims that the true purchase
price of the sale was not P235,056.00 but only P185,000.00, the
difference of P50,000.00 being the voluntary contribution of
defendant to the cost of the construction of the roads which
plaintiffs assumed to do as abovementioned.
After the reception of the evidence, the trial court sustained the
contention of defendant and dismissed the complaint on the
ground that the action of plaintiffs was premature. It found that
plaintiffs really assumed the construction of the roads as a
condition precedent to the fulfillment of the obligation stipulated in
the contract on the part of defendant, and since the same has not
been undertaken, plaintiffs have no cause of action. In due time,
plaintiffs have appealed.
The evidence of record discloses the following facts: On
November 6, 1966, plaintiffs entered into a contract of conditional
sale with one Pedro del Rosario covering a parcel of land in
Quezon City described in Transfer Certificate of Title No. 1148
which has a total area of 77,772 square meters in consideration of
a purchase price of P10.00 per square meter. To guarantee the
performance of the conditions stipulated therein a performance
bond in the amount of P100,000.00 was executed by Pedro del
Rosario. Del Rosario was given possession of the land for
development as a subdivision at his expense. He undertook to
pay for the subdivision survey, the construction of roads, the
installation of light and water, and the income tax plaintiffs may be
required to pay arising from the transaction, in consideration of
which Del Rosario was allowed to buy the property for
P600,000.00 within a period of two years from November 6, 1956
with the condition that, upon his failure to pay said price when
due, all the improvements introduced by him would automatically
become part of the property without any right on his part to
reimbursement and the conditional sale would be rescinded.
Unable to pay the consideration of P600,000.00 as agreed upon,
and in order to avoid court litigation, plaintiffs and Del Rosario,
together with defendant Socorro A. Ramos, who turned out to be
a partner of the latter, entered into a contract of rescission on
November 24, 1958. To release the performance bond and to
enable defendant to pay some of the lots for her own purposes,
plaintiffs allowed defendant to buy 20 of the lots herein involved at
the rate of P16.00 per square meter on condition that she will
assume the payment of P50,000.00 as her share in the
construction of roads and other improvements required in the
subdivision. This situation led to the execution of the contract of
sale Exhibit A subject of the present foreclosure proceedings.
The main issues closed in this appeal are: (1) Is the purchase
price of the 20 lots bought by defendant from plaintiffs the sum of
P185,000.00, as claimed by defendant, or P235.056.00, as
claimed by plaintiffs?; and (2) Was an oral agreement,
coetaneous to the execution of the contract of sale, entered into

15
between the parties to the effect that plaintiffs would undertake
the construction of the roads on the lots sold before defendant
could be required to comply with her financial obligation?
Defendant contends that the contract of sale Exhibit A does not
express the true agreement of the parties because certain
important conditions agreed upon were not included therein by
plaintiffs' counsel among which is the promise assumed by
plaintiffs that they would undertake to construct the roads that
may be required in the subdivision subject sale of the sale on or
before January, 1959; that said condition was not placed in the
contract because plaintiffs' counsel said that it was a superfluity
inasmuch as there was then in Quezon City an ordinance which
requires the construction of road in a subdivision before the lots
therein could be sold; and that, upon the suggestion of plaintiffs'
counsel, such commitment was not included in the contract
because the ordinance aforesaid was already deemed to be part
of the contract.
Plaintiffs, on the other hand, dispute the above contention arguing
that there was no such oral agreement or understanding because
all that was agreed upon between the parties was already
expressed and included in the contract of sale Exhibit A executed
between the parties, and since defendant failed to pay the
balance of her obligation within the period stipulated the whole
obligation became due and demandable thus giving plaintiffs the
right to foreclose the mortgage in accordance with law.
After considering and evaluating the evidence submitted by both
parties, the court a quo found defendant's contention well-taken,
thereby concluding that the action of plaintiffs was premature. In
reaching this conclusion; the court a quo made the following
comment:
. . . The Court is of the opinion that the construction of the roads
was a condition precedent to the enforcement of the terms of
Exhibit A, particularly the foreclosure of mortgage, for the reason
that the subdivision regulations of Quezon City requires, as a
matter of law, that the sellers of lands therein to be converted into
subdivision lots must construct the roads in said subdivision
before the lots could be sold. This requirement must have been
uppermost in the mind of the parties in this case which led to the
execution of the so-called 'Explanation' (Exhibit 3) wherein it is
stated that the sum of P50,000.00 was a contribution of the herein
defendant for the construction of the roads which the plaintiffs
would undertake 'in accordance with the provisions of the City
Ordinance of Quezon City' (Exhibit 3). It is to be noted that Exhibit
3 was executed on November 24, 1958, the very day when
Exhibit A was also executed. Exhibit 3 also proves that the
purchase price is not, as appearing in the deed of sale with
mortgage Exhibit A, actually P235,000.00 but only P185,000.00
which would approximately be the price of the entire area of the
land sold at the rate of P16.00 per square meter.
We find no error in the conclusion reached by the court a quo for
indeed that is the condition to be expected by a person who
desires to purchase a big parcel of land for purposes of
subdivision. In a subdivision the main improvement to be
undertaken before it could be sold to the public is feeder roads as
otherwise it would be inaccessible and valueless and would offer
no attraction to the buying public. And so it is correct to presume
was the court a quo did, that when the sale in question was being
negotiated the construction of roads in the prospective subdivision
must have been uppermost in the mind of defendant for her
purpose in purchasing the property was to develop it into a
subdivision. That such requirement was uppermost in the mind of
defendant is proven by the execution by the plaintiffs of the socalled "Explanation" (Exhibit 3) on the very day the deed of sale
was executed wherein it was stated that the sum of P50,000.00
was advanced by defendant as her contribution to the
construction of the roads which plaintiffs assumed to undertake
"in accordance with the provisions of the City Ordinance of
Quezon City." It is to be noted that said document specifically
states that the amount of P50,000.00 should be deducted from
the purchase price of P235,056.00 appearing in the deed of sale,

and this is a clear indication that the real purchase price is only
P185,000.00 as claimed by defendant, which would
approximately be the price of the entire area of the land at the
rate of P16.00 per square meter.
A circumstance which lends cogency to defendant's claim that the
commitment of plaintiffs to construct roads was not inserted in the
contract because of the insurance made by their counsel that it
would be a superfluity is the fact that in Quezon City there was
really an ordinance which requires the construction of roads it
subdivision before lots therein could be sold, and considering that
this assurance came from the very counsel who prepared the
document who even intimated that ordinance was deemed part of
the contract, defendant must have agreed to the omission relying
on the good faith plaintiffs and their counsel. At any rate, the
execute of the document Exhibit 3 clarifies whatever doubt may
have existed with regard to the true terms of the agreement on
the matter.
It is argued that the court a quo erred in allowing presentation of
parole evidence to prove that a conteporaneous oral agreement
was also reached between parties relative to the construction of
the roads for same is in violation of our rule which provides that
when the terms of an agreement had been reduced to writing it is
to be considered as containing all that has been agreed upon and
that no evidence other than the terms there can be admitted
between the parties (Section 22, Rule 123). This rule, however,
only holds true if there is allegation that the agreement does not
express the intent of the parties. If there is and this claim is in
issue in the pleadings, the same may be the subject parole
evidence (Idem.). The fact that such failure has been put in issue
in this case is patent in the answer wherein defendant has
specifically pleaded that the contract of sale in question does not
express the true intent of the parties with regard to the
construction of the roads.
It appearing that plaintiffs have failed to comply with the condition
precedent relative to the construction of the roads in the
subdivision in question, it follows that their action is premature as
found by the court a quo. The failure of defendant to pay the
realty and income taxes as agreed upon, as well as to register the
mortgage with respect to the Bulacan property, aside from being
minor matters, appear sufficiently explained in the brief of
defendant-appellee.
WHEREFORE, the decision appealed from is affirmed, with costs
against appellants.
Bengzon, C.J., Padilla, Labrador, Reyes, J.B.L., Paredes, Dizon
and Makalintal, JJ., concur. Regala, J., took no part.

Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-11346
March 21, 1918
ESPIRIDIONA CANUTO, plaintiff-appellee,
vs.
JUAN MARIANO, defendant-appellant.
Alfredo Chicote, Jose Arnaiz and Pascual B. Azanza for
appellant. Alfonso E. Mendoza for appellee.
CARSON, J.:
This is an appeal from a judgment of the Court of First Instance of
Manila, providing for the execution of a deed evidencing the
repurchase by the plaintiff of a parcel of land from the defendant,
upon the payment by the former of the sum of P360.
On December 4, 1913, the plaintiff executed a deed of sale of the
parcel of land described in the complaint, to the defendant, for the
sum of P360, reserving the right to repurchase the land for that
amount within one year from the date of the deed of sale. The
redemption period having elapsed, and the plaintiff having failed
to exercise her right to repurchase within that period, the
defendant set up a claim of absolute ownership to the land,
notwithstanding the insistent demand of the plaintiff that she be

16
permitted to exercise her reserved right of repurchase in
accordance with an alleged oral agreement for the extension of
the r redemption period down to the end of the month of
December, 1914. She claims that on the second day of
December, 1914, two days before the expiration of the original
redemption period, she asked the defendant for an extension of
time for the repurchase of the land and that upon her promise to
make the repurchase during the month of December, 1914, the
defendant agreed to extend the redemption set out in the written
contract, to the end of that month; that after the expiration of the
original redemption period, she thought to make the repurchase in
accordance with the agreement as to the extension of the time
therefor; but the defendant failed to appear at the time and place
agreed upon for the payment of the purchase price and has
refused since that time to execute a deed of resale, or to reserve
the purchase price agreed upon, despite the plaintiff's repeated
demands and tender of the purchase price.
The plaintiff testified that on the morning of December the second,
1914, while she was washing clothes near a well, the defendant
passed by; that she seized the opportunity to beg an extension of
time in which to repurchase the land, promising the defendant that
she would borrow the money and make payment if he would
extend the redemption period until the end of the month; that after
some demur the defendant agreed to allow her the whole of the
month of December in which to redeem the land; that the
following Sunday she went to the house of the defendant and that
he promised to meet her at the house of Mercado, an attorney, at
4 o'clock of the next day, there to receive the purchase price and
execute the necessary documents evidencing the transaction;
that she took the money to the lawyer's office at the time
appointed, and waited there until dark, but that the defendant
failed to meet his engagement; that she then went to his house,
but was told that he was not at home; and that since that time
defendant has refused to carry out his oral agreement, claiming
that the redemption period set out in the original deed of sale
expired on the fourth day of December, 1914, and that she had no
right to repurchase the land after that date. Severino Pascual,
who was present when the oral agreement to extend the time for
the repurchase of the land was made, corroborated her testimony
in this regard, and we find nothing in the record which would
justify us in disturbing the findings of the trial judge who accepted
her testimony as a substantially true account of all that occurred,
and declined to believe the conflicting testimony of the defendant
which he characterized as vague and incredible.
The defendant having extended the time within which the plaintiff
could repurchase the land on condition that she would find the
money and make repurchase within the extended period, it is
clear that he cannot be permitted to repudiate his promise, it
appearing that the plaintiff stood ready to make the payment
within the extended period, and was only prevented from doing so
by the conduct of the defendant himself. (Villegas vs. Capistrano,
9 Phil. Rep., 416; Fructo vs. Fuentes, 15 Phil. Rep., 362; Retes
vs. Suelto, 20 Phil. Rep., 394; Rosales vs. Reyes and Ordoveza,
25 Phil. Rep., 495.)
The contention that the plaintiff should not be permitted to alter,
vary, or contradict the terms of the written instrument by the
introduction of oral evidence is manifestly untenable under the
circumstances of the case, as will readily appear from the
following citation from 17 Cyc., p. 734, and numerous cases cited
in support of the doctrine:
The rule forbidding the admission of parol or extrinsic evidence to
alter, vary, or contradict a written instrument does not apply so as
to prohibit the establishment by parol of an agreement between
the parties to a writing, entered into subsequent to the time when
the written instrument was executed, notwithstanding such
agreement may have the effect of adding to, changing, modifying,
or even altogether abrogating the contract of the parties as
evidenced by the writing; for the parol evidence does not in any
way deny that the original agreement of the parties was that
which the writing purports to express, but merely goes to show

that the parties have exercised their right to change or abrogate

the same, or to make a new and independent contract.
It makes no difference how soon after the execution of the written
contract the parol one was made. If it was in fact subsequent and
is otherwise unobjectionable it may be proved and enforced.
The contention that the plaintiff lost her right to redeem because
she failed to make judicial deposit of the purchase price when the
defendant declined to receive it, is not entitled to serious
consideration in view of the repeated decisions of this court to the
contrary collated and discussed in the case of Rosales vs. Reyes
and Ordoveza (25 Phil. Rep., 495). In that case and in the cases
cited therein we declared that the settled rule in this jurisdiction is
that a bona fide offer or tender of the price agreed upon for the
repurchase is sufficient to preserve the rights of the party making
it, without the necessity of making judicial deposit, if the offer or
tender is refused; and in the case of Fructo vs. Fuentes (15 Phil.
Rep., 362) we said that in such cases when diligent effort is made
by the vendor of the land to exercise the right to repurchase
reserved by him in his deed of sale "and fails by reason of
circumstances over which he has no control, we are of the opinion
and so hold that he does not lose his right to repurchase on the
day of maturity."
We conclude that the judgment entered in the court below should
be affirmed with costs of this instance against the appellant. So
ordered.

Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-9935
February 1, 1915
YU TEK and CO., plaintiff-appellant,
vs.
BASILIO GONZALES, defendant-appellant.
Beaumont, Tenney and Ferrier for plaintiff. Buencamino and
Lontok for defendant.
TRENT, J.:
The basis of this action is a written contract, Exhibit A, the
pertinent paragraphs of which follow:
1. That Mr. Basilio Gonzalez hereby acknowledges receipt of the
sum of P3,000 Philippine currency from Messrs. Yu Tek and Co.,
and that in consideration of said sum be obligates himself to
deliver to the said Yu Tek and Co., 600 piculs of sugar of the first
and second grade, according to the result of the polarization,
within the period of three months, beginning on the 1st day of
January, 1912, and ending on the 31st day of March of the same
year, 1912.
2. That the said Mr. Basilio Gonzales obligates himself to deliver
to the said Messrs. Yu Tek and Co., of this city the said 600 piculs
of sugar at any place within the said municipality of Santa Rosa
which the said Messrs. Yu Tek and Co., or a representative of the
same may designate.
3. That in case the said Mr. Basilio Gonzales does not deliver to
Messrs. Yu Tek and Co. the 600 piculs of sugar within the period
of three months, referred to in the second paragraph of this
document, this contract will be rescinded and the said Mr. Basilio
Gonzales will then be obligated to return to Messrs. Yu Tek and
Co. the P3,000 received and also the sum of P1,200 by way of
indemnity for loss and damages.
Plaintiff proved that no sugar had been delivered to it under this
contract nor had it been able to recover the P3,000. Plaintiff
prayed for judgment for the P3,000 and, in addition, for P1,200
under paragraph 4, supra. Judgment was rendered for P3,000
only, and from this judgment both parties appealed.
The points raised by the defendant will be considered first. He
alleges that the court erred in refusing to permit parol evidence
showing that the parties intended that the sugar was to be
secured from the crop which the defendant raised on his
plantation, and that he was unable to fulfill the contract by reason

17
of the almost total failure of his crop. This case appears to be one
to which the rule which excludes parol evidence to add to or vary
the terms of a written contract is decidedly applicable. There is
not the slightest intimation in the contract that the sugar was to be
raised by the defendant. Parties are presumed to have reduced to
writing all the essential conditions of their contract. While parol
evidence is admissible in a variety of ways to explain the meaning
of written contracts, it cannot serve the purpose of incorporating
into the contract additional contemporaneous conditions which
are not mentioned at all in the writing, unless there has been
fraud or mistake. In an early case this court declined to allow
parol evidence showing that a party to a written contract was to
become a partner in a firm instead of a creditor of the firm. (Pastor
vs. Gaspar, 2 Phil. Rep., 592.) Again, in Eveland vs. Eastern
Mining Co. (14 Phil. Rep., 509) a contract of employment
provided that the plaintiff should receive from the defendant a
stipulated salary and expenses. The defendant sought to
interpose as a defense to recovery that the payment of the salary
was contingent upon the plaintiff's employment redounding to the
benefit of the defendant company. The contract contained no
such condition and the court declined to receive parol evidence
thereof.
In the case at bar, it is sought to show that the sugar was to be
obtained exclusively from the crop raised by the defendant. There
is no clause in the written contract which even remotely suggests
such a condition. The defendant undertook to deliver a specified
quantity of sugar within a specified time. The contract placed no
restriction upon the defendant in the matter of obtaining the sugar.
He was equally at liberty to purchase it on the market or raise it
himself. It may be true that defendant owned a plantation and
expected to raise the sugar himself, but he did not limit his
obligation to his own crop of sugar. Our conclusion is that the
condition which the defendant seeks to add to the contract by
parol evidence cannot be considered. The rights of the parties
must be determined by the writing itself.
The second contention of the defendant arises from the first. He
assumes that the contract was limited to the sugar he might raise
upon his own plantation; that the contract represented a perfected
sale; and that by failure of his crop he was relieved from
complying with his undertaking by loss of the thing due. (Arts.
1452, 1096, and 1182, Civil Code.) This argument is faulty in
assuming that there was a perfected sale. Article 1450 defines a
perfected sale as follows:
The sale shall be perfected between vendor and vendee and shall
be binding on both of them, if they have agreed upon the thing
which is the object of the contract and upon the price, even when
neither has been delivered.
Article 1452 reads: "The injury to or the profit of the thing sold
shall, after the contract has been perfected, be governed by the
provisions of articles 1096 and 1182."
This court has consistently held that there is a perfected sale with
regard to the "thing" whenever the article of sale has been
physically segregated from all other articles Thus, a particular
tobacco factory with its contents was held sold under a contract
which did not provide for either delivery of the price or of the thing
until a future time. McCullough vs. Aenlle and Co. (3 Phil. Rep.,
295). Quite similar was the recent case of Barretto vs. Santa
Marina (26 Phil. Rep., 200) where specified shares of stock in a
tobacco factory were held sold by a contract which deferred
delivery of both the price and the stock until the latter had been
appraised by an inventory of the entire assets of the company. In
Borromeo vs. Franco (5 Phil. Rep., 49) a sale of a specific house
was held perfected between the vendor and vendee, although the
delivery of the price was withheld until the necessary documents
of ownership were prepared by the vendee. In Tan Leonco vs. Go
Inqui (8 Phil. Rep., 531) the plaintiff had delivered a quantity of
hemp into the warehouse of the defendant. The defendant drew a
bill of exchange in the sum of P800, representing the price which
had been agreed upon for the hemp thus delivered. Prior to the
presentation of the bill for payment, the hemp was destroyed.

Whereupon, the defendant suspended payment of the bill. It was

held that the hemp having been already delivered, the title had
passed and the loss was the vendee's. It is our purpose to
distinguish the case at bar from all these cases.
In the case at bar the undertaking of the defendant was to sell to
the plaintiff 600 piculs of sugar of the first and second classes.
Was this an agreement upon the "thing" which was the object of
the contract within the meaning of article 1450, supra? Sugar is
one of the staple commodities of this country. For the purpose of
sale its bulk is weighed, the customary unit of weight being
denominated a "picul." There was no delivery under the contract.
Now, if called upon to designate the article sold, it is clear that the
defendant could only say that it was "sugar." He could only use
this generic name for the thing sold. There was no "appropriation"
of any particular lot of sugar. Neither party could point to any
specific quantity of sugar and say: "This is the article which was
the subject of our contract." How different is this from the
contracts discussed in the cases referred to above! In the
McCullough case, for instance, the tobacco factory which the
parties dealt with was specifically pointed out and distinguished
from all other tobacco factories. So, in the Barretto case, the
particular shares of stock which the parties desired to transfer
were capable of designation. In the Tan Leonco case, where a
quantity of hemp was the subject of the contract, it was shown
that that quantity had been deposited in a specific warehouse,
and thus set apart and distinguished from all other hemp.
A number of cases have been decided in the State of Louisiana,
where the civil law prevails, which confirm our position. Perhaps
the latest is Witt Shoe Co. vs. Seegars and Co. (122 La., 145; 47
Sou., 444). In this case a contract was entered into by a traveling
salesman for a quantity of shoes, the sales having been made by
sample. The court said of this contract:
But it is wholly immaterial, for the purpose of the main question,
whether Mitchell was authorized to make a definite contract of
sale or not, since the only contract that he was in a position to
make was an agreement to sell or an executory contract of sale.
He says that plaintiff sends out 375 samples of shoes, and as he
was offering to sell by sample shoes, part of which had not been
manufactured and the rest of which were incorporated in plaintiff's
stock in Lynchburg, Va., it was impossible that he and Seegars
and Co. should at that time have agreed upon the specific
objects, the title to which was to pass, and hence there could
have been no sale. He and Seegars and Co. might have agreed,
and did (in effect ) agree, that the identification of the objects and
their appropriation to the contract necessary to make a sale
should thereafter be made by the plaintiff, acting for itself and for
Seegars and Co., and the legend printed in red ink on plaintiff's
billheads ("Our responsibility ceases when we take transportation
Co's. receipt `In good order'" indicates plaintiff's idea of the
moment at which such identification and appropriation would
become effective. The question presented was carefully
considered in the case of State vs. Shields, et al. (110 La., 547,
34 Sou., 673) (in which it was absolutely necessary that it should
be decided), and it was there held that in receiving an order for a
quantity of goods, of a kind and at a price agreed on, to be
supplied from a general stock, warehoused at another place, the
agent receiving the order merely enters into an executory contract
for the sale of the goods, which does not divest or transfer the title
of any determinate object, and which becomes effective for that
purpose only when specific goods are thereafter appropriated to
the contract; and, in the absence of a more specific agreement on
the subject, that such appropriated takes place only when the
goods as ordered are delivered to the public carriers at the place
from which they are to be shipped, consigned to the person by
whom the order is given, at which time and place, therefore, the
sale is perfected and the title passes.
This case and State vs. Shields, referred to in the above quotation
are amply illustrative of the position taken by the Louisiana court
on the question before us. But we cannot refrain from referring to
the case of Larue and Prevost vs. Rugely, Blair and Co. (10 La.

18
Ann., 242) which is summarized by the court itself in the Shields
case as follows:
. . . It appears that the defendants had made a contract for the
sale, by weight, of a lot of cotton, had received $3,000 on account
of the price, and had given an order for its delivery, which had
been presented to the purchaser, and recognized by the press in
which the cotton was stored, but that the cotton had been
destroyed by fire before it was weighed. It was held that it was still
at the risk of the seller, and that the buyer was entitled to recover
the $3,000 paid on account of the price.
We conclude that the contract in the case at bar was merely an
executory agreement; a promise of sale and not a sale. At there
was no perfected sale, it is clear that articles 1452, 1096, and
1182 are not applicable. The defendant having defaulted in his
engagement, the plaintiff is entitled to recover the P3,000 which it
advanced to the defendant, and this portion of the judgment
appealed from must therefore be affirmed.
The plaintiff has appealed from the judgment of the trial court on
the ground that it is entitled to recover the additional sum of
P1,200 under paragraph 4 of the contract. The court below held
that this paragraph was simply a limitation upon the amount of
damages which could be recovered and not liquidated damages
as contemplated by the law. "It also appears," said the lower
court, "that in any event the defendant was prevented from
fulfilling the contract by the delivery of the sugar by condition over
which he had no control, but these conditions were not sufficient
to absolve him from the obligation of returning the money which
he received."
The above quoted portion of the trial court's opinion appears to be
based upon the proposition that the sugar which was to be
delivered by the defendant was that which he expected to obtain
from his own hacienda and, as the dry weather destroyed his
growing cane, he could not comply with his part of the contract.
As we have indicated, this view is erroneous, as, under the
contract, the defendant was not limited to his growth crop in order
to make the delivery. He agreed to deliver the sugar and nothing
is said in the contract about where he was to get it.
We think is a clear case of liquidated damages. The contract
plainly states that if the defendant fails to deliver the 600 piculs of
sugar within the time agreed on, the contract will be rescinded
and he will be obliged to return the P3,000 and pay the sum of
P1,200 by way of indemnity for loss and damages. There cannot
be the slightest doubt about the meaning of this language or the
intention of the parties. There is no room for either interpretation
or construction. Under the provisions of article 1255 of the Civil
Code contracting parties are free to execute the contracts that
they may consider suitable, provided they are not in contravention
of law, morals, or public order. In our opinion there is nothing in
the contract under consideration which is opposed to any of these
principles.
For the foregoing reasons the judgment appealed from is modified
by allowing the recovery of P1,200 under paragraph 4 of the
contract. As thus modified, the judgment appealed from is
affirmed, without costs in this instance.

Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-17820
April 24, 1963
LAND SETTLEMENT AND DEVELOPMENT CORPORATION,
plaintiff-appellant,
vs.
GARCIA PLANTATION CO., INC., and/or SALUD GARCIA and
VICENTE B. GARCIA, defendants-appellees.
Lucido A. Guinto, Alfonso O. Alindogan and Marcelino A. Yumol
for plaintiff-appellant. Bausa and Ampil for defendants-appellees.
PAREDES, J.:
This is a case of specific performance of contract, instituted by the

Land Settlement and Development Corporation, against the

Garcia Plantation Co., Inc. and/or Salud C. De Garcia and Vicente
B. Garcia, for the recovery of the sum of P5,955.30, representing
the unpaid balance of the purchase price of two tractors, bought
by the defendant Garcia Plantation Co., Inc. from the plaintiff.
Salud C. de Garcia was made alternative
co-defendant because of two promissory notes executed by her,
whereby she personally assumed the account of the company
with the plaintiff, and the defendant Vicente B. Garcia was
included as husband of Salud C. de Garcia. The defendants, in
their answer, admitted the execution of the two promissory notes,
but contended that the same had been novated by a subsequent
agreement contained in a letter (Exh. L) sent by Filomeno C.
Kintanar, Manager, Board of Liquidators of the LASEDECO,
giving the defendant Salud C. de Garcia an extension up to May
31, 1957, within which to pay the account, and since the
complaint was filed on February 20, 1957, they claimed that the
action was premature and prayed that the complaint be
dismissed. The plaintiff in the reply and answer to the
counterclaim, admitted the due execution and genuineness of the
letter marked Exhibit L, but contended that the same did not
express the true and intent agreement of the parties, thereby
placing the fact in issue, in the pleadings.
Wherefore, the parties respectfully pray that the foregoing
stipulation of facts be admitted and approved by this Honorable
Court, without prejudice to the parties adducing other evidence to
prove their case not covered by this stipulation of facts.
1wph1.t
After several postponements requested by both parties on the
ground of pending amicable settlement, trial on the merits was
ordered and held on July 25, 1957, at 1:00 o'clock in the
afternoon. At the trial, the defendant admitted all the documentary
evidence adduced by the plaintiffs, showing that they were
indebted to said plaintiff. However, when the plaintiff presented
Atty. Lucido A. Guinto, Legal Officer of the Board of Liquidators,
to testify on the true agreement and the intention of the parties at
the time the letter (Exh. L for the defendants) was drafted and
prepared, the lower court presided by the Hon. B. A. Tan, upon
the objection of the counsel for defendants, ruled out said
testimony and prevented the introduction of evidence under the
parol evidence rule (Sec. 22, Rule 123). Plaintiff also intended to
present Mr. Kintanar, the writer of the letter, to testify on the same
matter, but in view of the ruling of the lower court, it rested its
case. The lower court dismissed the case, stating that the action
was premature. Plaintiff appealed to the Court of Appeals, which
certified the case to us, pointing that the questions presented
were purely legal in nature.
Appellants allege that the lower court erred (1) In forcing the
parties to trial despite requests by both parties for more time to
submit an amicable settlement of the case; (2) In excluding parol
evidence, tending to prove the true intention and agreement of the
parties and the existence of a condition precedent, before the
extension granted the defendants, contained in Exhibit L, could
become effective and (3) In holding that the action was premature
and in dismissing the case on this ground.
The disposal of the second issue would render the determination
of the other issues unnecessary. The fact that the letter Exhibit L,
failed "to express the true intent and agreement of the parties",
Section 22, Rule 123, had been put in issue by the Answer of the
plaintiff to defendants' counterclaim (Heirs of Dela Rama v.
Talisay-Silay Milling Co., 54 Phil., 580). The parol evidence
consisted of the testimony of Attys. Guinto and Kintanar, to the
effect that in view of the plea of defendant Vicente B. Garcia to
give the defendants an extension of time to pay their accounts,
Atty. Kintanar gave the defendants up to May 31, 1957, to
coincide with their ramie harvest "provided that they will make a
substantial down payment immediately, with the understanding
that upon non-payment of the substantial amount, the extension
shall be deemed as not granted and the LASEDECO shall feel
free to seek redress in court". That there was such condition

19
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 subjectmatter treated therein, was one of the exceptions to the parol
evidence rule. When the operation of the contract is made to
depend upon the occurrence of an event, which, for that reason is
a condition precedent, such may be established by parol
evidence. This is not varying the terms of the written contract by
extrinsic agreement, for the simple reason that there is no
contract in existence; there is nothing to which to apply the
excluding rule (Heitman vs. Commercial Bank of Savannah, 6 Ga.
App. 584, 65 SE 590, cited in Comments on the Rules of Court,
1957 Ed., 200), "... This rule does not prevent the introduction of
extrinsic evidence to show that a supposed contract never
became effective by reason of the failure of some collateral
condition or stipulation, pre-requisite to liability" (Peabody & Co. v.
Bromfield & Ross, 38 Phil. 841).The rule excluding parol evidence
to vary or contradict a writing, does not extend so far as to
preclude the admission of extrinsic evidence, to show prior or
contemporaneous collateral parol agreements between the
parties, but such evidence may be received, regardless of
whether or not the written agreement contains reference to such
collateral agreement (Robles v. Lizarraga Hnos., 50 Phil. 387). In
the case at bar, reference is made of a previous agreement, in the
second paragraph of letter Exhibit L, and although a document is
usually to be interpreted in the precise terms in which it is
couched, Courts, in the exercise of sound discretion, may admit
evidence of surrounding circumstances, in order to arrive at the
true intention of the parties (Aves & Alzona v. Orilleneda, 70 Phil.
262). Rulings by the same effect were also announced by the
United States courts (Payne v. Campbell, 6 E & B, 370; Wilson v.
Powers, 131 Mass. 540; Blewitt v. Brown, 142 NY 357; Burke v.
Delany, 153 US 288).
Had the trial court permitted, as it should, the plaintiff to prove the
condition precedent to the extension of the payment the said
plaintiff would have been able to show that because the
defendants had failed to pay a substantial down payment, the
agreement was breached and the contract contained in Exhibit
"L", never became effective and the extension should be
considered as not having been given at all. So that, although the
complaint was filed on February 20, 1957, three months before
the deadline of the extension on May 31, 1957, there would be no
premature institution of the case. The lower court, therefore, erred
in dismissing the case.
The decision appealed from is reversed, and the case remanded
to the lower court for further proceedings. Costs against the
appellees.
Bengzon, C.J., Padilla, Bautista Angelo, Concepcion, Reyes,
J.B.L., Barrera, Dizon, Regala and Makalintal, JJ.,
concur. Labrador, J., took no part.

Republic of the Philippines

SUPREME COURT

Manila
EN BANC
G.R. No. L-8844 December 16, 1914
FERNANDO MAULINI, ET AL., plaintiffs-appellees,
vs.
ANTONIO G. SERRANO, defendant-appellant.
R. M. Calvo for appellant. Jose Arnaiz for appellees.
MORELAND, J.:
This is an appeal from a judgment of the Court of First Instance of
the city of Manila in favor of the plaintiff for the sum of P3,000,
with interest thereon at the rate of
1 per cent month from September 5, 1912, together with the
costs.
The action was brought by the plaintiff upon the contract of
indorsement alleged to have been made in his favor by the
defendant upon the following promissory note:
3,000. Due 5th of September, 1912.
We jointly and severally agree to pay to the order of Don Antonio
G. Serrano on or before the 5th day of September, 1912, the sum
of three thousand pesos (P3,000) for value received for
commercial operations. Notice and protest renounced. If the sum
herein mentioned is not completely paid on the 5th day of
September, 1912, this instrument will draw interest at the rate of
1 per cent per month from the date when due until the date of its
complete payment. The makers hereof agree to pay the additional
sum of P500 as attorney's fees in case of failure to pay the note.
Manila, June 5, 1912.
(Sgd.) For Padern, Moreno & Co., by F. Moreno, member of the
firm. For Jose Padern, by F. Moreno. Angel Gimenez.
The note was indorsed on the back as follows:
Pay note to the order of Don Fernando Maulini, value received.
Manila, June 5, 1912. (Sgd.) A.G. Serrano.
The first question for resolution on this appeal is whether or not,
under the Negotiable Instruments Law, an indorser of a
negotiable promissory note may, in an action brought by his
indorsee, show, by parol evidence, that the indorsement was
wholly without consideration and that, in making it, the indorser
acted as agent for the indorsee, as a mere vehicle of transfer of
the naked title from the maker to the indorsee, for which he
received no consideration whatever.
The learned trial court, although it received parol evidence on the
subject provisionally, held, on the final decision of the case, that
such evidence was not admissible to alter, very, modify or
contradict the terms of the contract of indorsement, and,
therefore, refused to consider the evidence thus provisionally
received, which tended to show that, by verbal agreement
between the indorser and the indorsee, the indorser, in making
the indorsement, was acting as agent for the indorsee, as a mere
vehicle for the transference of naked title, and that his
indorsement was wholly without consideration. The court also
held that it was immaterial whether there was a consideration for
the transfer or not, as the indorser, under the evidence offered,
was an accommodation indorser.
We are of the opinion that the trial court erred in both
findings.1awphil.net
In the first place, the consideration of a negotiable promissory
note, or of any of the contracts connected therewith, like that of
any other written instrument, is, between the immediate parties to
the contract, open to attack, under proper circumstances, for the
purpose of showing an absolute lack or failure of consideration.
It seems, according to the parol evidence provisionally admitted
on the trial, that the defendant was a broker doing business in the
city of Manila and that part of his business consisted in looking up
and ascertaining persons who had money to loan as well as those
who desired to borrow money and, acting as a mediary, negotiate
a loan between the two. He had done much business with the
plaintiff and the borrower, as well as with many other people in
the city of Manila, prior to the matter which is the basis of this
action, and was well known to the parties interested. According to

20
his custom in transactions of this kind, and the arrangement made
in this particular case, the broker obtained compensation for his
services of the borrower, the lender paying nothing therefor.
Sometimes this was a certain per cent of the sum loaned; at other
times it was a part of the interest which the borrower was to pay,
the latter paying 1 per cent and the broker per cent.
According to the method usually followed in these transactions,
and the procedure in this particular case, the broker delivered the
money personally to the borrower, took note in his own name and
immediately transferred it by indorsement to the lender. In the
case at bar this was done at the special request of the indorsee
and simply as a favor to him, the latter stating to the broker that
he did not wish his name to appear on the books of the borrowing
company as a lender of money and that he desired that the broker
take the note in his own name, immediately transferring to him
title thereto by indorsement. This was done, the note being at
once transferred to the lender.
According to the evidence referred to, there never was a moment
when Serrano was the real owner of the note. It was always the
note of the indorsee, Maulini, he having furnished the money
which was the consideration for the note directly to the maker and
being the only person who had the slightest interest therein,
Serrano, the broker, acting solely as an agent, a vehicle by which
the naked title to the note passed fro the borrower to the lender.
The only payment that the broker received was for his services in
negotiating the loan. He was paid absolutely nothing for becoming
responsible as an indorser on the paper, nor did the indorsee
lose, pay or forego anything, or alter his position thereby.
Nor was the defendant an accommodation indorser. The learned
trial court quoted that provision of the Negotiable Instruments Law
which defines an accommodation party as "one who has signed
the instrument as maker, drawer, acceptor, or indorser, without
receiving value therefor, and for the purpose of lending his name
to some other person. Such a person is liable on the instrument to
a holder for value, notwithstanding such holder at the time of
taking the instrument knew the same to be only an
accommodation party." (Act No. 2031, sec. 29.)
We are of the opinion that the trial court misunderstood this
definition. The accommodation to which reference is made in the
section quoted is not one to the person who takes the note that
is, the payee or indorsee, but one to the maker or indorser of the
note. It is true that in the case at bar it was an accommodation to
the plaintiff, in a popular sense, to have the defendant indorse the
note; but it was not the accommodation described in the law, but,
rather, a mere favor to him and one which in no way bound
Serrano. In cases of accommodation indorsement the indorser
makes the indorsement for the accommodation of the maker.
Such an indorsement is generally for the purpose of better
securing the payment of the note that is, he lend his name to
the maker, not to the holder. Putting it in another way: An
accommodation note is one to which the accommodation party
has put his name, without consideration, for the purpose of
accommodating some other party who is to use it and is expected
to pay it. The credit given to the accommodation part is sufficient
consideration to bind the accommodation maker. Where,
however, an indorsement is made as a favor to the indorsee, who
requests it, not the better to secure payment, but to relieve
himself from a distasteful situation, and where the only
consideration for such indorsement passes from the indorser to
the indorsee, the situation does not present one creating an
accommodation indorsement, nor one where there is a
consideration sufficient to sustain an action on the indorsement.
The prohibition in section 285 of the Code of Civil Procedure does
not apply to a case like the one before us. The purpose of that
prohibition is to prevent alternation, change, modification or
contradiction of the terms of a written instrument, admittedly
existing, by the use of parol evidence, except in the cases
specifically named in the section. The case at bar is not one
where the evidence offered varies, alters, modifies or contradicts
the terms of the contract of indorsement admittedly existing. The

evidence was not offered for that purpose. The purpose was to
show that no contract of indorsement ever existed; that the minds
of the parties never met on the terms of such contract; that they
never mutually agreed to enter into such a contract; and that there
never existed a consideration upon which such an agreement
could be founded. The evidence was not offered to vary, alter,
modify, or contradict the terms of an agreement which it is
admitted existed between the parties, but to deny that there ever
existed any agreement whatever; to wipe out all apparent
relations between the parties, and not to vary, alter or contradict
the terms of a relation admittedly existing; in other words, the
purpose of the parol evidence was to demonstrate, not that the
indorser did not intend to make the particular indorsement which
he did make; not that he did not intend to make the indorsement
in the terms made; but, rather, to deny the reality of any
indorsement; that a relation of any kind whatever was created or
existed between him and the indorsee by reason of the writing on
the back of the instrument; that no consideration ever passed to
sustain an indorsement of any kind whatsoever.
The contention has some of the appearances of a case in which
an indorser seeks prove forgery. Where an indorser claims that
his name was forged, it is clear that parol evidence is admissible
to prove that fact, and, if he proves it, it is a complete defense, the
fact being that the indorser never made any such contract, that no
such relation ever existed between him and the indorsee, and that
there was no consideration whatever to sustain such a contract.
In the case before us we have a condition somewhat similar.
While the indorser does not claim that his name was forged, he
does claim that it was obtained from him in a manner which,
between the parties themselves, renders, the contract as
completely inoperative as if it had been forged.
Parol
evidence
was
admissible
for
the
purpose
named.1awphil.net
There is no contradiction of the evidence offered by the defense
and received provisionally by the court. Accepting it as true the
judgment must be reversed.
The judgment appealed from is reversed and the complaint
dismissed on the merits; no special finding as to costs.
Arellano, C.J., Johnson and Trent, JJ., concur.
Separate Opinions
TORRES, J., concurring:
Act No. 2031, known as the Negotiable Instruments Law, which
governs the present case, establishes various kinds of
indorsements by means of which the liability of the indorser is in
some manner limited, distinguishing it from that of the regular or
general indorser, and among those kinds is that of the qualified
indorsement which, pursuant to section 38 of the same Act,
constitutes the indorser a mere assignor of the title to the
instrument, and may be made by adding to the indorser's
signature the words "without recourse" or any words of similar
import.
If the defendant, Antonio G. Serrano, intervened, as he alleged
and tried to prove that he did at the trial, only as a broker or agent
between the lender and plaintiff, Maulini, and the makers of the
promissory note, Padern, Moreno & Co. and Angel Gimenez, in
order to afford an opportunity to the former to invest the amount of
the note in such manner that it might bring him interest, the
defendant could have qualified the indorsement in question by
adding to his signature the words "without recourse" or any others
such as would have made known in what capacity he intervened
in that transaction. As the defendant did not do so ad as he
signed the indorsement in favor of the plaintiff Maulini for value
received from the latter, his liability, according to section 66 of the
Act aforecited, is that of a regular or general indorser, who, this
same section provides, engages that if the instrument be
dishonored, and the necessary proceedings on dishonor be duly
taken, he will pay the amount thereof to the holder, or to any
subsequent indorser who may be compelled to pay it. And the
evidence which the defendant presented, tending to show what
were the conditions to which the defendant presented, tending to

21
show what were the conditions to which he obligated himself and
in what capacity he intervened in making that indorsement and
that this latter was absolutely without consideration, should not
have been admitted so that he might elude the aforesaid
obligation, or, if admitted, should not be taken into account,
because as a regular indorser he warranted, pursuant to the said
section 66, that the instrument was genuine and in all respects
what it purported to be, that he had a good title to it, and that it
was at the time of his indorsement valid and subsisting. He
cannot, therefore, by means of any evidence, and much less of
such as consists of his own testimony, and as such interested
party, alter, modify, contradict or annul, as he virtually claimed
and claims to be entitled to do, what in writing and with a full and
perfect knowledge of the meaning and import of the words
contained in the indorsement, he set forth therein over his
signature.
Section 63 of the Act above cited says that a person placing his
signature upon an instrument otherwise than as maker, drawer, or
acceptor is deemed to be an indorser, unless he clearly indicates
by appropriate words his contention to be bound indicates by
appropriate words his intention to be bound in some other
capacity. This provision of the law clearly indicates that in every
negotiable instrument it is absolutely necessary to specify the
capacity in which the person intervenes who is mentioned therein
or takes part in its negotiation, because only by so doing can it be
determined what liabilities arise from that intervention and from
whom, how and when they must be exacted. And if, in the vent of
a failure to express the capacity in which the person who signed
the negotiable instrument intended to be bound, he should be
deemed to be an indorser, when the very words of the instrument
expressly and conclusively show that such he is, as occurs in the
present case, and when the indorsement contains no restriction,
modification, condition or qualification whatever, there cannot be
attributed to him, without violating the provisions of the said Act,
any other intention than that of being bound in the capacity in
which he appears in the instrument itself, nor can evidence be
admitted or, if already admitted, taken into consideration, for the
purpose of proving such other intention, for the simple reason that
if the law has already fixed ad determined the capacity in which it
must be considered that the person who signed the negotiable
instrument intervened and the intention of his being bound in a
definite capacity, for no other purpose, undoubtedly, than that
there shall be no evidence given in the matter, when the capacity
appears in the instrument itself and the intention is determined by
the very same capacity, as occurs in this case, the admission of
evidence in reference thereto is entirely unnecessary, useless,
and contrary to the purposes of the law, which is clear and
precise in its provisions and admits of no subterfuges or evasions
for escaping obligations contracted upon the basis of credit, with
evident and sure detriment to those who intervened or took part in
the negotiation of the instrument.
However, it is held in the majority opinion, for the purpose of
sustaining the premises that the proofs presented by the
defendant could have been admitted without violating the
provisions of section 285 of the Code of Civil Procedure, that the
evidence was not offered to vary, alter, modify, or contradict the
terms of an agreement which it is admitted existed between the
parties, but to deny that there ever existed any agreement
whatever; to wipe out all apparent relations between the parties,
and not to vary, alter or contradict the terms of a relation
admittedly existing; in other words, the purpose of the parol
evidence was to demonstrate, not that the indorser did not intend
to make the particular indorsement in the terms made, but rather
to deny the reality of any indorsement; to deny that a relation of
any kind whatsoever was created or existed between him and the
indorsee by reason of the writing on the back of the instrument; to
deny that any consideration ever passed to sustain an
indorsement of any kind whatsoever. It is stated in the same
decision that the contention has some of the appearances of a
case in which an indorser seeks to prove forgery.

First of all, we do not see that there exists any appearance or

similarity whatever between the case at bar and one where
forgery is sought to be proved. The defendant did not, either civilly
or criminally, impugn the indorsement as being false. He admitted
its existence, as stated in the majority opinion itself, and did not
disown his signature written in the indorsement. His denial to the
effect that the indorsement was wholly without consideration,
aside from the fact that it is i contradiction to the statements that
he over his signature made in the instrument, does not allow the
supposition that the instrument was forged.
The meaning which the majority opinion apparently wishes to
convey, in calling attention to the difference between what, as it
says, was the purpose of the evidence presented by the
defendant and what was sought to be proved thereby, is that the
defendant does not endeavor to contradict or alter the terms of
the agreement, which is contained in the instrument and is
admitted to exist between the parties; but to deny the existence of
such an agreement between them, that is, the existence of any
indorsement at all, and that any consideration ever passed to
sustain the said indorsement, or, in other words, that the
defendant acknowledged the indorsement as regards the form in
which it appears to have been drawn up, but not with respect to
its essence, that is, to the truth of the particular facts set forth in
the indorsement. It cannot be denied that the practical result
evidence is other than to contradict, modify, alter or even to annul
the terms of the agreement contained in the indorsement: so that,
in reality, the distinction does not exist that is mentioned as a
ground of the decision of the majority of the court in support of the
opinion that the evidence in question might have been admitted,
without violating the provisions of the aforementioned section 285
of the Code of Civil Procedure. This section is based upon the
same principle which is taken into account in the Negotiable
Instruments Law to write into it such positive and definite
provisions which purport, without possibility of discussion or
doubt, the uselessness of taking evidence when the capacity of
the person who intervened in a negotiable instrument or his
intention of being bound in a particular way appears in the
instrument itself or has been fixed by statute, if it is not shown that
he did so in some other capacity than that of maker, drawer or
acceptor.
But aside from what the Code of Civil Procedure prescribes with
respect to this matter, as the present case is governed by the
Negotiable Instruments Law, we must abide by its provisions.
Section 24 of this Act, No. 2031, says that every negotiable
instrument is deemed prima facie to have been issued for a
valuable consideration; and every person whose signature
appears thereon, to have become a party thereto for value. If the
Act establishes this presumption for the case where there might
be doubt with respect to the existence of a valuable consideration,
in order to avoid the taking of evidence in the matter, when the
consideration appears from the instrument itself by the expression
of the value, the introduction of evidence is entirely unnecessary
and improper.
According to section 25 of the same Act, value is any
consideration sufficient to support a simple contract, and so broad
is the scope the law gives to the meaning of "value" in this kind of
instruments that it considers as such a prior of preexistent debt,
whether the instrument be payable on demand or at some future
date.
Section 26 provides that where value has at any time been given
for the instrument, the holder is deemed a holder for value, both in
respect to the maker and to the defendant indorser, it is
immaterial whether he did so directly to the person who appears
in the promissory note as the maker or whether he delivered the
sum to the defendant in order that this latter might in turn deliver it
to the maker.
The defendant being the holder of the instrument, he is also
unquestionably the holder in due course. In the first place, in
order to avoid doubts with respect to this matter which might
require the introduction of evidence, the Act before mentioned has

22
provided, in section 59, that every holder is deemed prima facie to
be a holder in due course, and such is the weight it gives to this
presumption and to the consequences derived therefrom, that it
imposes upon the holder the burden to prove that he or some
person under whom he claims acquired the title in due course,
only when it is shown that the title of any person who has
negotiated the instrument was defective. This rule, however,
pursuant to the said section, does not apply in favor of a party
who became bound on the instrument prior to the acquisition of
such defective title, in which case the defendant Serrano is not
included, because, in the first place, he was not bound on the
instrument prior to the acquisition of the title by the plaintiff, but it
was the maker of the promissory note who was bound on the
instrument executed in favor of the defendant or indorser prior to
the acquisition of the title by the plaintiff; and, in the second place,
it does not appear, nor was it proved, as will be seen hereinafter,
that the title in question was defective.
According to section 52 of the same Act, the plaintiff is the holder
in due course of the instrument in question, that is, of the
promissory note containing the obligation compliance with which
is demanded of him by the defendant, because he took the
instrument under the condition: (a) That it was complete and
regular upon its face; (b) that he became the holder of it before it
was overdue, and without notice that it had been previously
dishonored; (c) that he took it in good faith and for value; and (d)
that at the time it was negotiated to him he had no notice of any
deficiency in the instrument or defect in the title of the person
negotiating it.
Pursuant to section 56 of the said Act, to constitute notice of a
deficiency in the instrument or defect in the title of the person
negotiating the same, the person to whom it is transferred must
have had actual knowledge of the deficiency or defect, or
knowledge of such facts that his action in taking the instrument
amounted to bad faith.
In the present case it cannot be said, for it is not proven, that the
plaintiff, upon accepting the instrument from the defendant, had
actual knowledge of any deficiency or defect in the same, for the
simple reason that it contains no deficiency or defect. Its terms
are very clear and positive. There is nothing ambiguous,
concealed, or which might give rise to any doubt whatever with
respect to its terms or to the agreement made by the parties.
Furthermore, as stated in the majority opinion, the defendant did
not intend to make the particular indorsement which he did make
in the terms, form and manner in which it was made, nor did he
intend to change or alter the terms of the agreement which is
admitted to have existed between the parties. All of which
indicates that, neither as regards the plaintiff nor as regards the
defendant, was there any deficiency or defect in the title or in the
instrument, and that the plaintiff, upon taking or receiving the
instrument from the defendant, had no knowledge of any fact from
which bad faith on his part might be implied. Besides, no evidence
was produced of the existence of any such bad faith, nor of the
knowledge of any deficiency or defect.
Moreover, section 55 of Act No. 2031 provides that the title of a
person who negotiates an instrument is defective within the
meaning of this Act when he obtained the instrument, or any
signature thereto, by fraud, duress, or force and fear, or other
unlawful means, or for an illegal consideration, or when he
negotiates it in breach of faith, or under such circumstances as
amount to a fraud. As no evidence was taken on these points, the
only ones that may be proven as regards negotiable instruments,
the defendant must be deemed to be the holder of the instrument
in due course, pursuant to the provisions of the aforecited section
59, and he cannot be required to prove that he or his predecessor
in interest acquired the title as such holder in due course.
Now then, according to section 28 of the same Act, as against the
holder of the instrument in due course absence or failure of
consideration is not a matter of defense; and, pursuant to section
57, a holder in due course holds the instrument free from any
defect of title of prior parties, and free from defenses available to

prior parties among themselves, and may enforce payment of the

instrument for the full amount thereof against all parties liable
thereon. And the next section, No. 58 prescribes that in the hands
of any holder other than a holder in due course, a negotiable
instrument is subject to the same defenses as if it were
nonnegotiable.
So it could not be clearer than that, pursuant to the provisions of
the Negotiable Instrument Law, which governs the case at bar, as
the plaintiff is the holder in due course of the instrument in
question, no proof whatever from the defendant could be
admitted, nor if admitted should be taken into account, bearing on
the lack of consideration in the indorsement, as alleged by him,
and for the purpose of denying the existence of any indorsement
and that any relation whatever was created or existed between
him and the indorsee; likewise, that no defense of any kind could
have been admitted from the defendant in respect to the said
instrument, and, finally, that the defendant is obligated to pay the
sum mentioned in the said indorsement, it being immaterial
whether or not he be deemed to be an accommodation party in
the instrument, in order that compliance with the said obligation
may be required of him in his capacity of indorser.
Basing our conclusions on the foregoing grounds, and regretting
to dissent from the opinion of the majority of our colleagues, we
believe that the judgment appealed from should be affirmed, with
the costs against the appellant.
Araullo, J., dissents.
#Separate Opinions
TORRES, J., concurring:
Act No. 2031, known as the Negotiable Instruments Law, which
governs the present case, establishes various kinds of
indorsements by means of which the liability of the indorser is in
some manner limited, distinguishing it from that of the regular or
general indorser, and among those kinds is that of the qualified
indorsement which, pursuant to section 38 of the same Act,
constitutes the indorser a mere assignor of the title to the
instrument, and may be made by adding to the indorser's
signature the words "without recourse" or any words of similar
import.
If the defendant, Antonio G. Serrano, intervened, as he alleged
and tried to prove that he did at the trial, only as a broker or agent
between the lender and plaintiff, Maulini, and the makers of the
promissory note, Padern, Moreno & Co. and Angel Gimenez, in
order to afford an opportunity to the former to invest the amount of
the note in such manner that it might bring him interest, the
defendant could have qualified the indorsement in question by
adding to his signature the words "without recourse" or any others
such as would have made known in what capacity he intervened
in that transaction. As the defendant did not do so ad as he
signed the indorsement in favor of the plaintiff Maulini for value
received from the latter, his liability, according to section 66 of the
Act aforecited, is that of a regular or general indorser, who, this
same section provides, engages that if the instrument be
dishonored, and the necessary proceedings on dishonor be duly
taken, he will pay the amount thereof to the holder, or to any
subsequent indorser who may be compelled to pay it. And the
evidence which the defendant presented, tending to show what
were the conditions to which the defendant presented, tending to
show what were the conditions to which he obligated himself and
in what capacity he intervened in making that indorsement and
that this latter was absolutely without consideration, should not
have been admitted so that he might elude the aforesaid
obligation, or, if admitted, should not be taken into account,
because as a regular indorser he warranted, pursuant to the said
section 66, that the instrument was genuine and in all respects
what it purported to be, that he had a good title to it, and that it
was at the time of his indorsement valid and subsisting. He
cannot, therefore, by means of any evidence, and much less of
such as consists of his own testimony, and as such interested
party, alter, modify, contradict or annul, as he virtually claimed
and claims to be entitled to do, what in writing and with a full and

23
perfect knowledge of the meaning and import of the words
contained in the indorsement, he set forth therein over his
signature.
Section 63 of the Act above cited says that a person placing his
signature upon an instrument otherwise than as maker, drawer, or
acceptor is deemed to be an indorser, unless he clearly indicates
by appropriate words his contention to be bound indicates by
appropriate words his intention to be bound in some other
capacity. This provision of the law clearly indicates that in every
negotiable instrument it is absolutely necessary to specify the
capacity in which the person intervenes who is mentioned therein
or takes part in its negotiation, because only by so doing can it be
determined what liabilities arise from that intervention and from
whom, how and when they must be exacted. And if, in the vent of
a failure to express the capacity in which the person who signed
the negotiable instrument intended to be bound, he should be
deemed to be an indorser, when the very words of the instrument
expressly and conclusively show that such he is, as occurs in the
present case, and when the indorsement contains no restriction,
modification, condition or qualification whatever, there cannot be
attributed to him, without violating the provisions of the said Act,
any other intention than that of being bound in the capacity in
which he appears in the instrument itself, nor can evidence be
admitted or, if already admitted, taken into consideration, for the
purpose of proving such other intention, for the simple reason that
if the law has already fixed ad determined the capacity in which it
must be considered that the person who signed the negotiable
instrument intervened and the intention of his being bound in a
definite capacity, for no other purpose, undoubtedly, than that
there shall be no evidence given in the matter, when the capacity
appears in the instrument itself and the intention is determined by
the very same capacity, as occurs in this case, the admission of
evidence in reference thereto is entirely unnecessary, useless,
and contrary to the purposes of the law, which is clear and
precise in its provisions and admits of no subterfuges or evasions
for escaping obligations contracted upon the basis of credit, with
evident and sure detriment to those who intervened or took part in
the negotiation of the instrument.
However, it is held in the majority opinion, for the purpose of
sustaining the premises that the proofs presented by the
defendant could have been admitted without violating the
provisions of section 285 of the Code of Civil Procedure, that the
evidence was not offered to vary, alter, modify, or contradict the
terms of an agreement which it is admitted existed between the
parties, but to deny that there ever existed any agreement
whatever; to wipe out all apparent relations between the parties,
and not to vary, alter or contradict the terms of a relation
admittedly existing; in other words, the purpose of the parol
evidence was to demonstrate, not that the indorser did not intend
to make the particular indorsement in the terms made, but rather
to deny the reality of any indorsement; to deny that a relation of
any kind whatsoever was created or existed between him and the
indorsee by reason of the writing on the back of the instrument; to
deny that any consideration ever passed to sustain an
indorsement of any kind whatsoever. It is stated in the same
decision that the contention has some of the appearances of a
case in which an indorser seeks to prove forgery.
First of all, we do not see that there exists any appearance or
similarity whatever between the case at bar and one where
forgery is sought to be proved. The defendant did not, either civilly
or criminally, impugn the indorsement as being false. He admitted
its existence, as stated in the majority opinion itself, and did not
disown his signature written in the indorsement. His denial to the
effect that the indorsement was wholly without consideration,
aside from the fact that it is i contradiction to the statements that
he over his signature made in the instrument, does not allow the
supposition that the instrument was forged.
The meaning which the majority opinion apparently wishes to
convey, in calling attention to the difference between what, as it
says, was the purpose of the evidence presented by the

defendant and what was sought to be proved thereby, is that the

defendant does not endeavor to contradict or alter the terms of
the agreement, which is contained in the instrument and is
admitted to exist between the parties; but to deny the existence of
such an agreement between them, that is, the existence of any
indorsement at all, and that any consideration ever passed to
sustain the said indorsement, or, in other words, that the
defendant acknowledged the indorsement as regards the form in
which it appears to have been drawn up, but not with respect to
its essence, that is, to the truth of the particular facts set forth in
the indorsement. It cannot be denied that the practical result
evidence is other than to contradict, modify, alter or even to annul
the terms of the agreement contained in the indorsement: so that,
in reality, the distinction does not exist that is mentioned as a
ground of the decision of the majority of the court in support of the
opinion that the evidence in question might have been admitted,
without violating the provisions of the aforementioned section 285
of the Code of Civil Procedure. This section is based upon the
same principle which is taken into account in the Negotiable
Instruments Law to write into it such positive and definite
provisions which purport, without possibility of discussion or
doubt, the uselessness of taking evidence when the capacity of
the person who intervened in a negotiable instrument or his
intention of being bound in a particular way appears in the
instrument itself or has been fixed by statute, if it is not shown that
he did so in some other capacity than that of maker, drawer or
acceptor.
But aside from what the Code of Civil Procedure prescribes with
respect to this matter, as the present case is governed by the
Negotiable Instruments Law, we must abide by its provisions.
Section 24 of this Act, No. 2031, says that every negotiable
instrument is deemed prima facie to have been issued for a
valuable consideration; and every person whose signature
appears thereon, to have become a party thereto for value. If the
Act establishes this presumption for the case where there might
be doubt with respect to the existence of a valuable consideration,
in order to avoid the taking of evidence in the matter, when the
consideration appears from the instrument itself by the expression
of the value, the introduction of evidence is entirely unnecessary
and improper.
According to section 25 of the same Act, value is any
consideration sufficient to support a simple contract, and so broad
is the scope the law gives to the meaning of "value" in this kind of
instruments that it considers as such a prior of preexistent debt,
whether the instrument be payable on demand or at some future
date.
Section 26 provides that where value has at any time been given
for the instrument, the holder is deemed a holder for value, both in
respect to the maker and to the defendant indorser, it is
immaterial whether he did so directly to the person who appears
in the promissory note as the maker or whether he delivered the
sum to the defendant in order that this latter might in turn deliver it
to the maker.
The defendant being the holder of the instrument, he is also
unquestionably the holder in due course. In the first place, in
order to avoid doubts with respect to this matter which might
require the introduction of evidence, the Act before mentioned has
provided, in section 59, that every holder is deemed prima facie to
be a holder in due course, and such is the weight it gives to this
presumption and to the consequences derived therefrom, that it
imposes upon the holder the burden to prove that he or some
person under whom he claims acquired the title in due course,
only when it is shown that the title of any person who has
negotiated the instrument was defective. This rule, however,
pursuant to the said section, does not apply in favor of a party
who became bound on the instrument prior to the acquisition of
such defective title, in which case the defendant Serrano is not
included, because, in the first place, he was not bound on the
instrument prior to the acquisition of the title by the plaintiff, but it
was the maker of the promissory note who was bound on the

24
instrument executed in favor of the defendant or indorser prior to
the acquisition of the title by the plaintiff; and, in the second place,
it does not appear, nor was it proved, as will be seen hereinafter,
that the title in question was defective.
According to section 52 of the same Act, the plaintiff is the holder
in due course of the instrument in question, that is, of the
promissory note containing the obligation compliance with which
is demanded of him by the defendant, because he took the
instrument under the condition: (a) That it was complete and
regular upon its face; (b) that he became the holder of it before it
was overdue, and without notice that it had been previously
dishonored; (c) that he took it in good faith and for value; and (d)
that at the time it was negotiated to him he had no notice of any
deficiency in the instrument or defect in the title of the person
negotiating it.
Pursuant to section 56 of the said Act, to constitute notice of a
deficiency in the instrument or defect in the title of the person
negotiating the same, the person to whom it is transferred must
have had actual knowledge of the deficiency or defect, or
knowledge of such facts that his action in taking the instrument
amounted to bad faith.
In the present case it cannot be said, for it is not proven, that the
plaintiff, upon accepting the instrument from the defendant, had
actual knowledge of any deficiency or defect in the same, for the
simple reason that it contains no deficiency or defect. Its terms
are very clear and positive. There is nothing ambiguous,
concealed, or which might give rise to any doubt whatever with
respect to its terms or to the agreement made by the parties.
Furthermore, as stated in the majority opinion, the defendant did
not intend to make the particular indorsement which he did make
in the terms, form and manner in which it was made, nor did he
intend to change or alter the terms of the agreement which is
admitted to have existed between the parties. All of which
indicates that, neither as regards the plaintiff nor as regards the
defendant, was there any deficiency or defect in the title or in the
instrument, and that the plaintiff, upon taking or receiving the
instrument from the defendant, had no knowledge of any fact from
which bad faith on his part might be implied. Besides, no evidence
was produced of the existence of any such bad faith, nor of the
knowledge of any deficiency or defect.
Moreover, section 55 of Act No. 2031 provides that the title of a
person who negotiates an instrument is defective within the
meaning of this Act when he obtained the instrument, or any
signature thereto, by fraud, duress, or force and fear, or other
unlawful means, or for an illegal consideration, or when he
negotiates it in breach of faith, or under such circumstances as
amount to a fraud. As no evidence was taken on these points, the
only ones that may be proven as regards negotiable instruments,
the defendant must be deemed to be the holder of the instrument
in due course, pursuant to the provisions of the aforecited section
59, and he cannot be required to prove that he or his predecessor
in interest acquired the title as such holder in due course.
Now then, according to section 28 of the same Act, as against the
holder of the instrument in due course absence or failure of
consideration is not a matter of defense; and, pursuant to section
57, a holder in due course holds the instrument free from any
defect of title of prior parties, and free from defenses available to
prior parties among themselves, and may enforce payment of the
instrument for the full amount thereof against all parties liable
thereon. And the next section, No. 58 prescribes that in the hands
of any holder other than a holder in due course, a negotiable
instrument is subject to the same defenses as if it were
nonnegotiable.
So it could not be clearer than that, pursuant to the provisions of
the Negotiable Instrument Law, which governs the case at bar, as
the plaintiff is the holder in due course of the instrument in
question, no proof whatever from the defendant could be
admitted, nor if admitted should be taken into account, bearing on
the lack of consideration in the indorsement, as alleged by him,
and for the purpose of denying the existence of any indorsement

and that any relation whatever was created or existed between

him and the indorsee; likewise, that no defense of any kind could
have been admitted from the defendant in respect to the said
instrument, and, finally, that the defendant is obligated to pay the
sum mentioned in the said indorsement, it being immaterial
whether or not he be deemed to be an accommodation party in
the instrument, in order that compliance with the said obligation
may be required of him in his capacity of indorser.
Basing our conclusions on the foregoing grounds, and regretting
to dissent from the opinion of the majority of our colleagues, we
believe that the judgment appealed from should be affirmed, with
the costs against the appellant.
Araullo, J., dissents.

Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-4388
August 13, 1952
PHILIPPINE NATIONAL BANK, petitioner,
vs.
BENITO SEETO, respondent.
Ramon B. de los Reyes for petitioner. Montano A. Ortiz for
respondent.
LABRADOR, J.:
On March 13, 1948, respondent Benito Seeto called at the branch
of the Philippine National Bank, petitioner herein, at Surigao, and
presented a check, No. A-21096, in the amount of P5,000 dated
at Cebu on March 10, 1948, payable to cash or bearer, and drawn
by one Gan Yek Kiao against the Cebu branch of the Philippine
National Bank of Communications. After consultation with the
employees of the branch, Seeto made a general and unqualified
indorsement of the check, and petitioner's agency accepted it and
paid respondent the amount of P5,000 therefor. The check was
mailed to petitioner's Cebu branch on March 20, 1948, and was
presented to the drawee bank for payment on April 9, 1948, but
the check was dishonored for "insufficient funds." So the check
was returned to petitioner's Surigao agency, and upon receipt
thereof by it on April 14, 1948, said branch immediately sent a
letter to the respondent herein demanding immediate refund of in
the value of the check. A second communication of the same
tenor was sent on April 26, 1948, to which respondent answered
asking that plaintiff's contemplated suit be deferred while he was
making inquiries about the reasons for the dishonor of the check.
Thereafter, respondent refused to make the refund demanded,
claiming that at the time of the negotiation o the check the drawer
had sufficient funds in the drawee bank, and that the petitioner's
Surigao agency not delayed to forward the check until the
drawer's funds were exhausted, the same would have been paid.
Thereupon petitioner presented a complaint in the Court of First
Instance of Surigao, alleging that respondent Benito Seeto gave
assurance to petitioner's agency in Surigao that the drawer of the
check had sufficient funds with the drawee bank, and that upon
these assurances petitioner's agency delivered the P5,000 to the
respondent after the latter had made a general and unqualified
indorsement thereon. Respondent denied having made the
alleged assurances. Upon this issue petitioner submitted two
witnesses at the time of the trial, who testified that it was not the
practice of petitioner's agency to cash out of town checks, and
that the check was cashed because of the assurances given by
the respondent that the drawer had sufficient funds, and that he
(respondent) would refund the amount paid by petitioner's agency
in case the check is dishonored. Respondent denied having given
the assurances. The trial court found notwithstanding
respondent's denial to the contrary, that the respondent made an
undertaking to refund the amount of the checks in the event of
dishonor. In support of this finding it found that as the drawee
bank is not in Cebu, it was impossible for petitioner's agency to
make an independent verification of the drawer's solvency, and

25
must have taken precautions to protect itself against loss by
requiring the respondent to give assurances that he would return
the amount of the check in the case of nonpayment. It also found
that there was no unreasonable delay in the presentation of the
check, and, therefore, rendered judgment sentencing respondent
to refund the amount he had received for the check.
On appeal to the Court of Appeals, this court held that petitioner
was guilty of unreasonably retaining and with-holding the check,
and that the delay in the presentment for payment was
inexcusable, so that respondent was thereby discharged from
liability. It also held that parol evidence is incompetent to show
that one signing of a check as indorser is merely a surety or
guarantor, rejecting the evidence adduced at the trial court about
the respondent's assurance and promise to refund. It, therefore,
reversed the judgment of the trial court and dismissed the
complaint, with costs. Against this judgment an appeal by
certiorari has been brought to this Court, petitioner Philippine
National Bank contending that the Court of Appeals erred in
applying sections 143 and 144 of the Negotiable Instruments Law
and declaring respondent Benito Seeto discharged of his liability
as indorser of the check, and in not admitting parol evidence to
show that respondent made oral assurances to refund the value
of the check in case of dishonor.
In support of petitioner's first assignment of error, it is argued that
inasmuch as a check need not to be presented for acceptance,
unlike a bill of exchange as required by Section 143, Section 144
of the law is not applicable to the case at bar but Section 84,
which provides:
SEC. 84. Liability of person secondarily liable, when instrument
dishonored. Subject to the provisions of this Act, when the
instrument is dishonored by nonpayment, as immediate right of
recourse to all parties secondarily liable thereon accrues to the
holder.
It is true that Section 143 and 144 of the law are not applicable,
because these are provisions having to do with the presentation
of a bill of exchange for acceptance, and are not applicable to a
check, as to which presentment for acceptance is not required.
It is also true that Section 84 is applicable, but its application is
subject to the condition imposed by Section 186, to the effect that
the check must be presented for payment within a reasonable
time after its issue.
SEC. 186. Within what time a check must be presented. A
check must be presented for payment within a reasonable time
after its issue or the drawer will be discharged from liability
thereon to the extent of the loss caused by the delay.
Counsel for the petitioner, however, argues that inasmuch as the
above section expressly provides for the discharge of the drawer
from liability to the extent of the loss caused by the delay, and, on
the other hand, it is silent as to the liability of the indorser, the
latter may not be considered discharged from liability by reason of
the delay in the presentment of payment under the general
principle inclusio unius est exclusion alterius. We find no reason
nor merit in the argument. The silence of Section 186 as to the
indorser is due to the fact that his discharge is already expressly
covered by the provision of Section 84, the indorser being a
person secondarily liable on the instrument. The reason for the
difference between the liability of the indorser and that of the
drawer in case of dishonor is that the drawer is not probably or
necessarily prejudiced thereby, while an indorser is, actually or by
legal presumption.
Innumerable decisions have already been rendered in the state
courts of the United States to the effect that although the drawer
of a check is discharged only to the extent of loss caused by
unreasonable delay in presentment, an indorser is wholly
discharged thereby irrespective of any question of loss or injury. (
Swift & Co. vs. Miller, 62 Ind. App. 312, 113 N.E. 447, cited in
Brannan's Negotiable Instruments Law, p. 1134, Nuzum vs.
Sheppard, 87 W. Va. 243, 104 S.E. 587, 11 A.L.R. 1024, Ibid.)
The proposition maintained in the reported case (Nuzum vs.
Sheppard., ante. 1024) that the indorser of a check, unlike the

drawer, is relieved of liability thereon by an unreasonable delay in

presenting the same for payment, whether or not he is injured by
the delay, is supported by the great weight of authority, (Cases
cited.)
The Court, in Gough v. Staats (N.Y.) supra, says: "Upon the
question of due diligence to charge an indorser, whether he has
been prejudiced or not by the delay is perfectly immaterial. It is
not inquired into. The law presumes he has been prejudiced."
According to the Court in Caroll v. Sweet (1891) 128 N.Y. 19, 13
L.R.A. 43, 27 N.E. 763, "presentment to due time as fixed by the
law merchant was a condition upon performance of which the
liability of the defendant, as indorser, depended, and this delay
was not excused, although the drawer of the check had no funds,
or was insolvent, or because presentment would not been
unavailing as a means of procuring payment." Only where there is
affirmative proof that the indorser knew when he cashed the
check that there would be no funds in the bank to meet it can the
rule be avoided. Otherwise, the failure to present the check in due
course of payment will discharge the indorser even though such
presentment would have been unavailing. Start v. Tupper (Vt.)
supra. (11 A.L.R. Annotation, pp. 1028-1029.)
We have been unable to find any authority sustaining the
proposition that an indorser of a check is not discharged from
liability for an unreasonable delay in presentation for payment.
This is contrary to the essential nature and character of
negotiable instruments their negotiability. They are supposed
to be passed on with promptness in the ordinary course of
business transactions; not to be retained or kept for such time as
the holder may want, otherwise the smooth flow of commercial
transactions would be hindered.
There seems to be an intimation in the decision appealed from
that inasmuch as the check was drawn payable elsewhere than at
the place of business of the drawer, it must be presented for
acceptance or negotiable within a reasonable time, and upon
failure to do so the drawer and all indorsers thereof are
discharged pursuant to Section 144 of the law. Against this
insinuation the petitioner argues that the application of sections
143 and 144 is not proper, and that it may not be presumed that
the check in question was not drawn and executed in Cebu, the
residence or place of business of the drawer. There is no
evidence at all as to the place where the check was drawn.
However, we have already pointed out above that neither Section
143 nor Section 144 is applicable. But our ruling that respondent
was discharged upon the dishonor of the check is based on
Sections 84 and 186, the latter expressly requiring that a check
must be presented for payment within a reasonable time after
issue.
It is not claimed by the petitioner on this appeal that the
conclusion of the Court of Appeals that there was unreasonable
delay in the presentation of the check for payment at the drawee
bank is erroneous. The petitioner concedes the correctness of this
conclusion, although for purposes of argument merely. We find
that the conclusion is correct. The fact, admitted by the witnesses
for the petitioner, the checks for the drawer issued subsequent to
March 13, 1948, drawn against the same bank and cashed at the
same Surigao agency, were not dishonored positively shows that
the drawer had enough funds when he issued the check in
question, and that had it not been for the unreasonable delay in
its presentation for payment, the petitioner herein would have
been able to receive payment therefor. The check is dated March
10, and was cashed by the petitioner's agency on March 13,
1948. It was not mailed until seven days thereafter, i.e., on March
20, 1948, or ten days after issue. No excuse was given for this
delay. Assuming that it took one week, or say ten days, or until
March 30, for the check to reach Cebu, neither can there be any
excuse for not presenting it for payment at the drawee bank until
April 9, 1948, or 10 days after it reached Cebu. We, therefore, find
no reason for disturbing the conclusion of the Court of Appeals
that there was unreasonable delay in the presentation of the
check for payment at the drawee bank, and that is a consequence

26
thereof, the indorser, respondent herein, was thereby discharged.
With respect to the second assignment of error, petitioner argues
that the verbal assurances given by the respondent to the
employees of the bank that he was ready to refund the amount if
the check should be dishonored by the drawee bank is a collateral
agreement, separate and distinct from the indorsement, by virtue
of which petitioner herein was induced to cash the check, and,
therefore, admissible as an exception that the parol evidence rule.
Petitioners contention in this respect is not entirely unfounded. In
the case of Tan Machan vs. De La Trinidad, et al., 4 Phil., 684,
this court held that parol evidence is admissible to show that
parties signing as principals merely did so as sureties. In the case
of Robles vs. Lizarraga Hermanos, 50 Phil., 387, it was also held
by this court that parol evidence is admissible to prove "an
independent thereof." (Ibid., p. 395.) In Philips vs. Preston, 5 How.
(U.S.) 278, 12 L. ed, 152, the Supreme Court of the United States
held that any prior or contemporaneous conversation in
connection with a note or its indorsement, may be proved by parol
evidence. And Wigmore states that "an extrinsic agreement
between indorser and indorsee which cannot be embodied in the
instrument without impairing its credit is provable by parol." (9
Wigmore 148, section 2445 [3].) If, therefore, the supposed
assurances that the drawer had funds and that the respondent
herein would refund the amount of the check if the drawer had no
funds, were the considerations or reasons that induced the
branch agency of the petitioners to go out of its ordinary practice
of not cashing out of town checks and accept the check and to
pay its face value, the same would be provable by parol,
provided, of course, that the assurances or inducements offered
would not vary, alter, or destroy the obligations attached by law to
the indorsement.
We find, however, that the supposed assurances of refund in
case of dishonor of the check are precisely the ordinary
obligations of an indorser, and these obligations are, under the
law, considered discharged by an unreasonable delay in the
presentation of the check for payment.
SEC. 66. Liability of general indorser. . . . .
And, in addition, he engages that on due presentment, it shall be
accepted or paid, or both, as the case may be, according to its
tenor, and that if it be dishonored, and the necessary proceedings
on dishonor be duly taken, he will pay the amount thereof to the
holder, or to any subsequent indorser who may be compelled to
pay it. (Emphasis ours.)
There was no express obligation assumed by the respondent
herein that the drawer would always have funds, or that he (the
indorser) would refund the amount of the check even if there was
delay in its presentation, so that while the Court of Appeals may
have committed an error in disregarding the evidence submitted
by petitioner at the trial of the assurances made by respondent
herein at the time of the negotiation of the check, such error was
without prejudice, because the supposed assurances given were
part of his obligations as an indorser, which were discharged by
the unreasonable delay in the presentation of the check for
payment.
The judgment appealed from is, therefore, affirmed, with costs
against the petitioner.
Paras, C.J., Feria, Bengzon, Padilla, Tuason, Montemayor and
Bautista Angelo, JJ., concur.

Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-4811
July 31, 1953
CHARLES F. WOODHOUSE, plaintiff-appellant,
vs.
FORTUNATO F. HALILI, defendant-appellant.
Taada,
Pelaez
&
Teehankee
for
defendant
and
appellant. Gibbs, Gibbs, Chuidian & Quasha for plaintiff and

appellant.
LABRADOR, J.:
On November 29, 1947, the plaintiff entered on a written
agreement, Exhibit A, with the defendant, the most important
provisions of which are (1) that they shall organize a partnership
for the bottling and distribution of Mision soft drinks, plaintiff to act
as industrial partner or manager, and the defendant as a
capitalist, furnishing the capital necessary therefor; (2) that the
defendant was to decide matters of general policy regarding the
business, while the plaintiff was to attend to the operation and
development of the bottling plant; (3) that the plaintiff was to
secure the Mission Soft Drinks franchise for and in behalf of the
proposed partnership; and (4) that the plaintiff was to receive 30
per cent of the net profits of the business. The above agreement
was arrived at after various conferences and consultations by and
between them, with the assistance of their respective attorneys.
Prior to entering into this agreement, plaintiff had informed the
Mission Dry Corporation of Los Angeles, California, U.S.A.,
manufacturers of the bases and ingridients of the beverages
bearing its name, that he had interested a prominent financier
(defendant herein) in the business, who was willing to invest half
a million dollars in the bottling and distribution of the said
beverages, and requested, in order that he may close the deal
with him, that the right to bottle and distribute be granted him for a
limited time under the condition that it will finally be transferred to
the corporation (Exhibit H). Pursuant for this request, plaintiff was
given "a thirty-days" option on exclusive bottling and distribution
rights for the Philippines" (Exhibit J). Formal negotiations between
plaintiff and defendant began at a meeting on November 27,
1947, at the Manila Hotel, with their lawyers attending. Before this
meeting plaintiff's lawyer had prepared the draft of the agreement,
Exhibit II or OO, but this was not satisfactory because a
partnership, instead of a corporation, was desired. Defendant's
lawyer prepared after the meeting his own draft, Exhibit HH. This
last draft appears to be the main basis of the agreement, Exhibit
A.
The contract was finally signed by plaintiff on December 3, 1947.
Plaintiff did not like to go to the United States without the
agreement being not first signed. On that day plaintiff and
defendant went to the United States, and on December 10, 1947,
a franchise agreement (Exhibit V) was entered into the Mission
Dry Corporation and Fortunato F. Halili and/or Charles F.
Woodhouse, granted defendant the exclusive right, license, and
authority to produce, bottle, distribute, and sell Mision beverages
in the Philippines. The plaintiff and the defendant thereafter
returned to the Philippines. Plaintiff reported for duty in January,
1948, but operations were not begun until the first week of
February, 1948. In January plaintiff was given as advance, on
account of profits, the sum of P2,000, besides the use of a car; in
February, 1948, also P2,000, and in March only P1,000. The car
was withdrawn from plaintiff on March 9, 1948.
When the bottling plant was already on operation, plaintiff
demanded of defendant that the partnership papers be executed.
At first defendant executed himself, saying there was no hurry.
Then he promised to do so after the sales of the product had
been increased to P50,000. As nothing definite was forthcoming,
after this condition was attained, and as defendant refused to give
further allowances to plaintiff, the latter caused his attorneys to
take up the matter with the defendant with a view to a possible
settlement. as none could be arrived at, the present action was
instituted.
In his complaint plaintiff asks for the execution of the contract of
partnership, an accounting of the profits, and a share thereof of
30 per cent, as well as damages in the amount of P200,000. In
his answer defendant alleges by way of defense (1) that
defendant's consent to the agreement, Exhibit A, was secured by
the representation of plaintiff that he was the owner, or was about
to become owner of an exclusive bottling franchise, which
representation was false, and plaintiff did not secure the
franchise, but was given to defendant himself; (2) that defendant

27
did not fail to carry out his undertakings, but that it was plaintiff
who failed; (3) that plaintiff agreed to contribute the exclusive
franchise to the partnership, but plaintiff failed to do so. He also
presented a counter-claim for P200,000 as damages. On these
issues the parties went to trial, and thereafter the Court of First
Instance rendered judgment ordering defendant to render an
accounting of the profits of the bottling and distribution business,
subject of the action, and to pay plaintiff 15 percent thereof. it held
that the execution of the contract of partnership could not be
enforced upon the parties, but it also held that the defense of
fraud was not proved. Against this judgment both parties have
appealed.
The most important question of fact to be determined is whether
defendant had falsely represented that he had an exclusive
franchise to bottle Mission beverages, and whether this false
representation or fraud, if it existed, annuls the agreement to form
the partnership. The trial court found that it is improbable that
defendant was never shown the letter, Exhibit J, granting plaintiff
had; that the drafts of the contract prior to the final one can not be
considered for the purpose of determining the issue, as they are
presumed to have been already integrated into the final
agreement; that fraud is never presumed and must be proved;
that the parties were represented by attorneys, and that if any
party thereto got the worse part of the bargain, this fact alone
would not invalidate the agreement. On this appeal the defendant,
as appellant, insists that plaintiff did represent to the defendant
that he had an exclusive franchise, when as a matter of fact, at
the time of its execution, he no longer had it as the same had
expired, and that, therefore, the consent of the defendant to the
contract was vitiated by fraud and it is, consequently, null and
void.
Our study of the record and a consideration of all the surrounding
circumstances lead us to believe that defendant's contention is
not without merit. Plaintiff's attorney, Mr. Laurea, testified that
Woodhouse presented himself as being the exclusive grantee of a
franchise, thus:
A. I don't recall any discussion about that matter. I took along with
me the file of the office with regards to this matter. I notice from
the first draft of the document which I prepared which calls for the
organization of a corporation, that the manager, that is, Mr.
Woodhouse, is represented as being the exclusive grantee of a
franchise from the Mission Dry Corporation. . . . (t.s.n., p.518)
As a matter of fact, the first draft that Mr. Laurea prepared, which
was made before the Manila Hotel conference on November 27th,
expressly states that plaintiff had the exclusive franchise. Thus,
the first paragraph states:
Whereas, the manager is the exclusive grantee of a franchise
from the Mission Dry Corporation San Francisco, California, for
the bottling of Mission products and their sale to the public
throughout the Philippines; . . . .
3. The manager, upon the organization of the said corporation,
shall forthwith transfer to the said corporation his exclusive right to
bottle Mission products and to sell them throughout the
Philippines. . . . .
(Exhibit II; emphasis ours)
The trial court did not consider this draft on the principle of
integration of jural acts. We find that the principle invoked is
inapplicable, since the purpose of considering the prior draft is not
to vary, alter, or modify the agreement, but to discover the intent
of the parties thereto and the circumstances surrounding the
execution of the contract. The issue of fact is: Did plaintiff
represent to defendant that he had an exclusive franchise?
Certainly, his acts or statements prior to the agreement are
essential and relevant to the determination of said issue. The act
or statement of the plaintiff was not sought to be introduced to
change or alter the terms of the agreement, but to prove how he
induced the defendant to enter into it to prove the
representations or inducements, or fraud, with which or by which
he secured the other party's consent thereto. These are expressly
excluded from the parol evidence rule. (Bough and Bough vs.

Cantiveros and Hanopol, 40 Phil., 209; port Banga Lumber Co.

vs. Export & Import Lumber Co., 26 Phil., 602; III Moran 221,1952
rev. ed.) Fraud and false representation are an incident to the
creation of a jural act, not to its integration, and are not governed
by the rules on integration. Were parties prohibited from proving
said representations or inducements, on the ground that the
agreement had already been entered into, it would be impossible
to prove misrepresentation or fraud. Furthermore, the parol
evidence rule expressly allows the evidence to be introduced
when the validity of an instrument is put in issue by the pleadings
(section 22, par. (a), Rule 123, Rules of Court),as in this case.
That plaintiff did make the representation can also be easily
gleaned from his own letters and his own testimony. In his letter to
Mission Dry Corporation, Exhibit H, he said:.
. . . He told me to come back to him when I was able to speak
with authority so that we could come to terms as far as he and I
were concerned. That is the reason why the cable was sent.
Without this authority, I am in a poor bargaining position. . .
I would propose that you grant me the exclusive bottling and
distributing rights for a limited period of time, during which I may
consummate my plants. . . .
By virtue of this letter the option on exclusive bottling was given to
the plaintiff on October 14, 1947. (See Exhibit J.) If this option for
an exclusive franchise was intended by plaintiff as an instrument
with which to bargain with defendant and close the deal with him,
he must have used his said option for the above-indicated
purpose, especially as it appears that he was able to secure,
through its use, what he wanted.
Plaintiff's own version of the preliminary conversation he had with
defendant is to the effect that when plaintiff called on the latter,
the latter answered, "Well, come back to me when you have the
authority to operate. I am definitely interested in the bottling
business." (t. s. n., pp. 60-61.) When after the elections of 1949
plaintiff went to see the defendant (and at that time he had
already the option), he must have exultantly told defendant that
he had the authority already. It is improbable and incredible for
him to have disclosed the fact that he had only an option to the
exclusive franchise, which was to last thirty days only, and still
more improbable for him to have disclosed that, at the time of the
signing of the formal agreement, his option had already expired.
Had he done so, he would have destroyed all his bargaining
power and authority, and in all probability lost the deal itself.
The trial court reasoned, and the plaintiff on this appeal argues,
that plaintiff only undertook in the agreement "to secure the
Mission Dry franchise for and in behalf of the proposed
partnership." The existence of this provision in the final agreement
does not militate against plaintiff having represented that he had
the exclusive franchise; it rather strengthens belief that he did
actually make the representation. How could plaintiff assure
defendant that he would get the franchise for the latter if he had
not actually obtained it for himself? Defendant would not have
gone into the business unless the franchise was raised in his
name, or at least in the name of the partnership. Plaintiff assured
defendant he could get the franchise. Thus, in the draft prepared
by defendant's attorney, Exhibit HH, the above provision is
inserted, with the difference that instead of securing the franchise
for the defendant, plaintiff was to secure it for the partnership. To
show that the insertion of the above provision does not eliminate
the probability of plaintiff representing himself as the exclusive
grantee of the franchise, the final agreement contains in its third
paragraph the following:
. . . and the manager is ready and willing to allow the capitalists to
use the exclusive franchise . . .
and in paragraph 11 it also expressly states:
1. In the event of the dissolution or termination of the partnership,
. . . the franchise from Mission Dry Corporation shall be
reassigned to the manager.
These statements confirm the conclusion that defendant believed,
or was made to believe, that plaintiff was the grantee of an
exclusive franchise. Thus it is that it was also agreed upon that

28
the franchise was to be transferred to the name of the
partnership, and that, upon its dissolution or termination, the
same shall be reassigned to the plaintiff.
Again, the immediate reaction of defendant, when in California he
learned that plaintiff did not have the exclusive franchise, was to
reduce, as he himself testified, plaintiff's participation in the net
profits to one half of that agreed upon. He could not have had
such a feeling had not plaintiff actually made him believe that he
(plaintiff) was the exclusive grantee of the franchise.
The learned trial judge reasons in his decision that the assistance
of counsel in the making of the contract made fraud improbable.
Not necessarily, because the alleged representation took place
before the conferences were had, in other words, plaintiff had
already represented to defendant, and the latter had already
believed in, the existence of plaintiff's exclusive franchise before
the formal negotiations, and they were assisted by their lawyers
only when said formal negotiations actually took place.
Furthermore, plaintiff's attorney testified that plaintiff had said that
he had the exclusive franchise; and defendant's lawyer testified
that plaintiff explained to him, upon being asked for the franchise,
that he had left the papers evidencing it.(t.s.n., p. 266.)
We conclude from all the foregoing that plaintiff did actually
represent to defendant that he was the holder of the exclusive
franchise. The defendant was made to believe, and he actually
believed, that plaintiff had the exclusive franchise. Defendant
would not perhaps have gone to California and incurred expenses
for the trip, unless he believed that plaintiff did have that exclusive
privilege, and that the latter would be able to get the same from
the Mission Dry Corporation itself. Plaintiff knew what defendant
believed about his (plaintiff's) exclusive franchise, as he induced
him to that belief, and he may not be allowed to deny that
defendant was induced by that belief. (IX Wigmore, sec. 2423;
Sec. 65, Rule 123, Rules of Court.)
We now come to the legal aspect of the false representation.
Does it amount to a fraud that would vitiate the contract? It must
be noted that fraud is manifested in illimitable number of degrees
or gradations, from the innocent praises of a salesman about the
excellence of his wares to those malicious machinations and
representations that the law punishes as a crime. In
consequence, article 1270 of the Spanish Civil Code distinguishes
two kinds of (civil) fraud, the causal fraud, which may be a ground
for the annulment of a contract, and the incidental deceit, which
only renders the party who employs it liable for damages. This
Court had held that in order that fraud may vitiate consent, it must
be the causal (dolo causante), not merely the incidental (dolo
causante), inducement to the making of the contract. (Article
1270, Spanish Civil Code; Hill vs. Veloso, 31 Phil. 160.) The
record abounds with circumstances indicative that the fact that the
principal consideration, the main cause that induced defendant to
enter into the partnership agreement with plaintiff, was the ability
of plaintiff to get the exclusive franchise to bottle and distribute for
the defendant or for the partnership. The original draft prepared
by defendant's counsel was to the effect that plaintiff obligated
himself to secure a franchise for the defendant. Correction
appears in this same original draft, but the change is made not as
to the said obligation but as to the grantee. In the corrected draft
the word "capitalist"(grantee) is changed to "partnership." The
contract in its final form retains the substituted term "partnership."
The defendant was, therefore, led to the belief that plaintiff had
the exclusive franchise, but that the same was to be secured for
or transferred to the partnership. The plaintiff no longer had the
exclusive franchise, or the option thereto, at the time the contract
was perfected. But while he had already lost his option thereto
(when the contract was entered into), the principal obligation that
he assumed or undertook was to secure said franchise for the
partnership, as the bottler and distributor for the Mission Dry
Corporation. We declare, therefore, that if he was guilty of a false
representation, this was not the causal consideration, or the
principal inducement, that led plaintiff to enter into the partnership
agreement.

But, on the other hand, this supposed ownership of an exclusive

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

29
resolver si el deudor puede ser precisado a realizar el hecho y
porque medios.
Se tiene por corriente entre los autores, y se traslada
generalmente sin observacion el principio romano nemo potest
precise cogi ad factum. Nadie puede ser obligado violentamente
a haceruna cosa. Los que perciben la posibilidad de la
destruccion deeste principio, aaden que, aun cuando se pudiera
obligar al deudor, no deberia hacerse, porque esto constituiria
una violencia, y noes la violenciamodo propio de cumplir las
obligaciones (Bigot, Rolland, etc.). El maestro Antonio Gomez
opinaba lo mismo cuandodecia que obligar por la violencia seria
infrigir la libertad eimponer una especie de esclavitud.
xxx
xxx
xxx
En efecto; las obligaciones contractuales no se acomodan
biencon el empleo de la fuerza fisica, no ya precisamente porque
seconstituya de este modo una especie de esclavitud, segun el
dichode Antonio Gomez, sino porque se supone que el acreedor
tuvo encuenta el caracter personalisimo del hecho ofrecido, y
calculo sobre laposibilidad de que por alguna razon no se
realizase. Repugna,ademas, a la conciencia social el empleo de
la fuerza publica, mediante coaccion sobre las personas, en las
relaciones puramente particulares; porque la evolucion de las
ideas ha ido poniendo masde relieve cada dia el respeto a la
personalidad humana, y nose admite bien la violencia sobre el
individuo la cual tiene caracter visiblemente penal, sino por
motivos que interesen a la colectividad de ciudadanos. Es, pues,
posible y licita esta violencia cuando setrata de las obligaciones
que hemos llamado ex lege, que afectanal orden social y a la
entidad de Estado, y aparecen impuestas sinconsideracion a las
conveniencias particulares, y sin que por estemotivo puedan
tampoco ser modificadas; pero no debe serlo cuandola obligacion
reviste un interes puramente particular, como sucedeen las
contractuales, y cuando, por consecuencia, paraceria salirseel
Estado de su esfera propia, entrado a dirimir, con apoyo dela
fuerza colectiva, las diferencias producidas entre los ciudadanos.
(19 Scaevola 428, 431-432.)
The last question for us to decide is that of damages,damages
that plaintiff is entitled to receive because of defendant's refusal to
form the partnership, and damages that defendant is also entitled
to collect because of the falsity of plaintiff's representation. (Article
1101, Spanish Civil Code.) Under article 1106 of the Spanish Civil
Code the measure of damages is the actual loss suffered and the
profits reasonably expected to be received, embraced in the
terms dao emergente and lucro cesante. Plaintiff is entitled
under the terms of the agreement to 30 per cent of the net profits
of the business. Against this amount of damages, we must set off
the damage defendant suffered by plaintiff's misrepresentation
that he had obtained a very high percentage of share in the
profits. We can do no better than follow the appraisal that the
parties themselves had adopted.
When defendant learned in Los Angeles that plaintiff did not have
the exclusive franchise which he pretended he had and which he
had agreed to transfer to the partnership, his spontaneous
reaction was to reduce plaintiff's share form 30 per cent to 15 per
cent only, to which reduction defendant appears to have readily
given his assent. It was under this understanding, which amounts
to a virtual modification of the contract, that the bottling plant was
established and plaintiff worked as Manager for the first three
months. If the contract may not be considered modified as to
plaintiff's share in the profits, by the decision of defendant to
reduce the same to one-half and the assent thereto of plaintiff,
then we may consider the said amount as a fair estimate of the
damages plaintiff is entitled to under the principle enunciated in
the case of Varadero de Manila vs. Insular Lumber Co., 46 Phil.
176. Defendant's decision to reduce plaintiff's share and plaintiff's
consent thereto amount to an admission on the part of each of the
reasonableness of this amount as plaintiff's share. This same
amount was fixed by the trial court. The agreement contains the
stipulation that upon the termination of the partnership, defendant
was to convey the franchise back to plaintiff (Par. 11, Exhibit A).

The judgment of the trial court does not fix the period within which
these damages shall be paid to plaintiff. In view of paragraph 11
of Exhibit A, we declare that plaintiff's share of 15 per cent of the
net profits shall continue to be paid while defendant uses the
franchise from the Mission Dry Corporation.
With the modification above indicated, the judgment appealed
from is hereby affirmed. Without costs.
Paras, C.J., Pablo, Bengzon, Tuason, Montemayor, Reyes, Jugo
and Bautista Angelo, JJ., concur.

Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-26173
July 13, 1927
ZACARIAS ROBLES, plaintiff-appellee,
vs.
LIZARRAGA HERMANOS, defendant-appellant.
J. Arroyo, Jose Lopez Vito, and Francisco, Lualhati and Lopez for
appellant. Paredes, Buencamino and Yulo for appellee.
STREET, J.:
This action was instituted in the Court of First Instance of
Occidental Negros by Zacarias Robles against Lizarraga
Hermanos, a mercantile partnership organized under the laws of
the Philippine Islands, for the purpose of recovering
compensation for improvements made by the plaintiff upon the
hacienda "Nahalinan" and the value of implements and farming
equipment supplied to the hacienda by the plaintiff, as well as
damages for breach of contract. Upon hearing the cause the trial
court gave judgment for the plaintiff to recover of the defendant
the sum of P14,194.42, with costs. From this judgment the
defendant appealed.
It appears that the hacienda "Nahalinan," situated in the
municipality of Pontevedra, Occidental Negros, belonged
originally to the spouses Zacarias Robles and Anastacia de la
Rama, parents of the present plaintiff, Zacarias Robles. Upon the
death of Zacarias Robles, sr., several years ago, his widow
Anastacia de la Rama was appointed administratrix of his estate;
and on May 20, 1913, as widow and administratrix, she leased
the hacienda to the plaintiff, Zacarias Robles, for the period of six
years beginning at the end of the milling season in May, 1915,
and terminating at the end of the milling season in May, 1920. It
was stipulated that any permanent improvements necessary to
the cultivation and exploitation of the hacienda should be made at
the expense of the lessee without right to indemnity at the end of
the term. As the place was in a run-down state, and it was
foreseen that the lessee would be put to much expense in
bringing the property to its productive capacity, the annual rent
was fixed at the moderate amount of P2,000 per annum.
The plaintiff accordingly entered upon the property, in the
character of lessee; and, in order to put the farm in good
condition, he found it necessary to make various improvements
and additions to the plant. Briefly stated, the changes and
additions thus effected were these: Substitution of a new
hydraulic press; reconstruction of dwelling house; construction of
new houses for workmen; building of camarins; construction of
chimney; reconstruction of ovens; installment of new coolers;
purchase of farming tools and many head of carabao, with other
repairs and improvements. All this expense was borne exclusively
by the lessee, with the exception that his mother and coheirs
contributed P1,500 towards the expense of the reconstruction of
the dwelling house, which was one-half the outlay for that item.
The firm of Lizarraga Hermanos was well aware of the nature and
extent of these improvements, for the reason that the lessee was
a customer of the firm and had purchased from it many of the
things that went into the improvements.
In 1916, or three years before the lease was to expire, Anastacia
de la Rama died, leaving as heirs Zacarias Robles (the plaintiff),
Jose Robles, Evarista Robles, Magdalena Robles, Felix Robles,

30
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

31
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

32
trial court in awarding to the plaintiff the sum of P1,142 as
compensation for the damage caused by the failure of the
defendant to take the existing crop of cane from the hacienda at
the proper time. In this connection it appears that it was only in
November, 1917, that the defendant finally notified the plaintiff
that he would not take the cane off the plaintiff's hands. Having
relied upon the promise of the defendant with respect to this
matter, the plaintiff had made no prior arrangements to have the
cane ground himself, and he had failed to contract ahead for the
necessary laborers to harvest the crop. Due to this lack of hands
the milling of the cane was delayed, and things that ought to have
been done in December, 1917, were only accomplished in
February, 1918. It resulted also that the milling of the cane was
not completed until July, 1918. The trial court took judicial notice
of the fact that protracted delay in the milling of sugar-cane results
in loss; and his Honor estimated the damage to the plaintiff's crop
upon this account in the amount above stated. As fortifying his
position on this point his Honor quoted extensively in his opinion
from scientific treatises on the subject of the sugar industry in this
and other countries. That there must have been damage
attributable to the cause above stated is manifest; and although
the estimate made by the court was based upon what may be
considered matter of judicial notice without any specific estimate
from farmers, we see no reason to conclude that any injustice
was done to the plaintiff in said estimate.
Upon the whole we find no reason to modify the conclusions of
the trial court upon any point, and the judgement appealed from
must be affirmed. It is so ordered, with costs against the
appellant.
Avancea, C. J., Johnson, Malcolm, Villamor and Villa-Real, JJ.,
concur.
THIRD DIVISION
[G.R. No. 79962 : December 10, 1990.]
192 SCRA 209
LUCIO R. CRUZ, Petitioner, vs. COURT OF APPEALS AND
CONRADO Q. SALONGA, Respondents.
DECISION
CRUZ, J.:
The private respondent Conrado Salonga filed a complaint for
collection and damages against petitioner Lucio Cruz ** in the
Regional Trial Court of Lucena City alleging that in the course of
their business transactions of buying and selling fish, the
petitioner borrowed from him an amount of P35,000.00,
evidenced by a receipt dated May 4, 1982, marked as Exhibit D,
reading as follows:
5/4/82
Received the amount of Thirty Five Thousand Cash from Rodrigo
Quiambao and Conrado Salonga on the day of May 4, 1982.
Sgd. Lucio Cruz
The plaintiff claimed that of this amount, only P20,000.00 had
been paid, leaving a balance of P10,000.00; that in August 1982,
he and the defendant agreed that the latter would grant him an
exclusive right to purchase the harvest of certain fishponds leased
by Cruz in exchange for certain loan accommodations; that
pursuant thereto, Salonga delivered to Cruz various loans totaling
P15,250.00, evidenced by four receipts and an additional
P4,000.00, the receipt of which had been lost; and that Cruz failed
to comply with his part of the agreement by refusing to deliver the
alleged harvest of the fishpond and the amount of his
indebtedness.
Cruz denied having contracted any loan from Salonga. By way of
special defense, he alleged that he was a lessee of several
hectares of a fishpond owned by Nemesio Yabut and that
sometime in May 1982, he entered into an agreement with
Salonga whereby the latter would purchase (pakyaw) fish in

certain areas of the fishpond from May 1982 to August 15, 1982.
They also agreed that immediately thereafter, Salonga would
sublease (bubuwisan) the same fishpond for a period of one year.
Cruz admitted having received on May 4, 1982, the amount of
P35,000.00 and on several occasions from August 15, 1982, to
September 30, 1982, an aggregate amount of P15,250.00. He
contended however, that these amounts were received by him not
as loans but as consideration for their "pakyaw" agreement and
payment for the sublease of the fishpond. He added that it was
the private respondent who owed him money since Salonga still
had unpaid rentals for the 10-month period that he actually
occupied the fishpond. Cruz also claimed that Salonga owed him
an additional P4,000.00 arising from another purchase of fish
from other areas of his leased fishpond.
In a pre-trial conference held on August 24, 1984, petitioner and
private respondent entered into the following partial stipulation of
facts.
COURT:
Plaintiff and defendant, through their respective counsel, during
the pre-trial conference, agreed on the following stipulation of
facts:
1) That plaintiff Conrado Salonga entered into a contract of what
is commonly called as 'pakyawan' with defendant
Lucio Cruz on the fishes contained in a fishpond
which defendant Lucio Cruz was taking care of as
lessee from the owner Mr. Nemesio Yabut, with a
verbal contract for the sum of P28,000.00 sometime
in May 1982.
2) That because of the necessity, defendant Lucio Cruz at that
time needed money, he requested plaintiff Conrado
Salonga to advance the money of not only
P28,000.00 but P35,000.00 in order that Lucio Cruz
could meet his obligation with the owner of the
fishpond in question, Mr. Nemesio Yabut;
3) That the amount of P35,000.00 as requested by defendant
Lucio Cruz was in fact delivered by plaintiff Conrado
Salonga duly received by the defendant Lucio Cruz,
as evidenced by a receipt dated May 4, 1982, duly
signed by defendant Lucio Cruz
4) That pursuant to said contract of "pakyaw," plaintiff Conrado
Salonga was able to harvest the fishes contained in
the fishpond administered by Lucio Cruz in August
1982.
5) Immediately thereafter the aforesaid harvest thereon, they
entered again on a verbal agreement whereby
plaintiff Conrado Salonga and defendant Lucio Cruz
had agreed that defendant Lucio Cruz will sublease
and had in fact subleased the fishpond of Nemesio
Yabut to the herein plaintiff for the amount of
P28,000.00 for a period of one year beginning
August 15, 1982.
6) That sometime on June 15, 1983, Mayor Nemesio Yabut, who
is the owner of the fishpond, took back the subject
matter of this case from the defendant Lucio Cruz.
7) That defendant Lucio Cruz in compliance with their verbal
sublease agreement had received from the plaintiff
Conrado Salonga the following sums of money:
a) P8,000.00 on August 15, 1982 as evidenced by Annex "B" of
the Complaint. (Exh. E);
b) The sum of P500.00 on September 4, 1982, as evidenced by
Annex "C" of the complaint (Exh.
F);
c) The sum of P3,000.00 on September 19, 1982 as evidenced by
Annex "D" of the complaint (Exh.
G); and
d) The sum of P3,750.00 on September 30, 1982 as Annex "E" of
the complaint (Exh. H).
At the trial, the private respondent claimed that aside from the
amounts of P35,000.00 (Exh. D), P8,000.00 (Exh. E), P500.00
(Exh. F), P3,000.00 (Exh. G) and P3,750.00 (Exh. H) mentioned

33
in the partial stipulation of facts, he also delivered to the petitioner
P28,000.00, which constituted the consideration for their "pakyaw"
agreement. This was evidenced by a receipt dated May 14, 1982
marked as Exhibit I and reading as follows:
May 14, 1982
Tinatanggap ko ang halagang dalawampu't walong libong piso
(P28,000.00) bilang halaga sa pakyaw nila sa akin
sa sangla sa kahong bilang #8 maliit at sa kaputol
na sapa sa gawing may bomba. Ito ay tatagal
hanggang Agosto 1982.
SGD. LUCIO CRUZ
Salonga also claimed that he had paid Cruz the amount of P4,000
but the receipt of which had been lost and denied being indebted
to the petitioner for P4,000 for the lease of other portions of the
fishpond.
For his part, the petitioner testified that he entered into a "pakyaw"
and sublease agreement with the private respondent for a
consideration of P28,000 for each transaction. Out of the P35,000
he received from the private respondent on May 4, 1982, P28,000
covered full payment of their "pakyaw" agreement while the
remaining P7,000 constituted the advance payment for their
sublease agreement. The petitioner denied having received
another amount of P28,000 from Salonga on May 14, 1982. He
contended that the instrument dated May 14, 1982 (Exh. I) was
executed to evidence their "pakyaw" agreement and to fix its
duration. He was corroborated by Sonny Viray, who testified that
it was he who prepared the May 4, 1982, receipt of P35,000.00,
P28,000 of which was payment for the "pakyaw" and the excess
of P7,000.00 as advance for the sublease.
The trial court ruled in favor of the petitioner and ordered the
private respondent to pay the former the sum of P3,054.00 plus
P1,000.00 as litigation expenses and attorney's fees, and the
costs. Judge Eriberto U. Rosario, Jr. found that the transactions
between the petitioner and the private respondent were indeed
"pakyaw" and sublease agreements, each having a consideration
of P28,000.00, for a total of P56,000.00. Pursuant to these
agreements, Salonga paid Cruz P35,000.00 on May 4, 1982 (Exh.
D); P8,000.00 on August 15, 1982 (Exh. E); P500.00 on
September 4, 1982 (Exh. F); P3,000 on September 19, 1982;
P3,750 on September 30, 1982 (Exh. H) and P4,000.00 on an
unspecified date. The trial court noted an earlier admission of the
private respondent that on an unspecified date he received the
sum of P6,000.00 from the petitioner. This amount was credited to
the petitioner and deducted from the total amount paid by the
private respondent. As the one-year contract of sublease was preterminated two months short of the stipulated period, the rentals
were correspondingly reduced.
On appeal, the decision of the trial court was reversed. The
respondent court instead ordered the petitioner to pay the private
respondent the sum of P24,916.00 plus P1,500.00 as litigation
expenses and attorney's fees, on the following justification:
Exhibit "I" is very clear in its non-reference to the transaction
behind Exhibit "D." What only gives the semblance that Exhibit "I"
is an explanation of the transaction behind Exhibit "D" are the oral
testimonies given by the defendant and his two witnesses. On the
other hand, Exhibit "I" is very clear in its language. Thus, its tenor
must not be clouded by any parol evidence introduced by the
defendant. And with the tenor of Exhibit "I" remaining
unembellished, the conclusion that Exhibit "D" is a mere tentative
receipt becomes untenable.
The trial court erred when it relied on the self-serving testimonies
of the defendant and his witness as against the receipts both
parties presented and adopted as their own exhibits. As said
before, Exhibit "I" is very clear in its tenor. And if it is really the
intention of Exhibit "I" to explain the contents of Exhibit "D", such
manifestation or intention is not found in the four corners of the
former document.
The respondent court also found that the amounts of P35,000.00,
P8,000.00, P500.00, P3,000.00, P3,750.00 and P4,000.00 were
not payments for the "pakyaw" and sublease agreement but for

loans extended by Salonga to Cruz. It also accepted Salonga's

claim that the amount of P28,000.00 was delivered to the
petitioner on May 14, 1982, as payment on the "pakyaw"
agreement apart from the P35,000.00 (Exh. D) that was paid on
May 4, 1982. However, it agreed that the amount of P6,000.00
received by the private respondent from the petitioner should be
credited in favor of the latter.
The petitioner is now before this Court, raising the following
issues:
1. The public respondent Court of Appeals gravely erred in (1)
disregarding parol evidence to Exhibits "D" and "I"
despite the fact that these documents fall under the
exceptions provided for in Sec. 7, Rule 130 of the
Rules of Court and thereby in (2) making a
sweeping conclusion that the transaction effected
between the private respondent and petitioner is
one of contract of loan and not a contract of lease.
2. Assuming for the sake of argument that exhibits "D" and "I"
evidence separate transactions, the latter document
should be disregarded, the same not having been
pleaded as a cause of action.
3. Whether or not the Stipulation of Facts entered into by the
parties herein relative to their executed transactions
during the hearing of their case a quo, are binding
upon them and as well as, upon the public
respondent?
Our ruling follows:
Rule 130, Sec. 7, of the Revised Rules of Court provides: 1
Sec. 7. Evidence of Written Agreements. When the terms of an
agreement have been reduced to writing, it is to be considered as
containing all such terms, and therefore, there can be, between
the parties and their successors in interest, no evidence of the
terms of the agreement other than the contents of the writing,
except in the following cases:
a) When a mistake or imperfection of the writing or its failure to
express the true intent and agreement of the parties, or the
validity of the agreement is put in issue by the pleadings;
b) When there is an intrinsic ambiguity in the writing. The term
"agreement" includes wills.
The reason for the rule is the presumption that when the parties
have reduced their agreement to writing they have made such
writing the only repository and memorial of the truth, and
whatever is not found in the writing must be understood to have
been waived or abandoned. 2
The rule, however, is not applicable in the case at bar, Section 7,
Rule 130 is predicated on the existence of a document
embodying the terms of an agreement, but Exhibit D does not
contain such an agreement. It is only a receipt attesting to the fact
that on May 4, 1982, the petitioner received from the private
respondent the amount of P35,000. It is not and could have not
been intended by the parties to be the sole memorial of their
agreement. As a matter of fact, Exhibit D does not even mention
the transaction that gave rise to its issuance. At most, Exhibit D
can only be considered a casual memorandum of a transaction
between the parties and an acknowledgment of the receipt of
money executed by the petitioner for the private respondent's
satisfaction. A writing of this nature, as Wigmore observed is not
covered by the parol evidence rule.
A receipt i.e. a written acknowledgment, handed by one party
to the other, of the manual custody of money or other personality
will in general fall without the line of the rule; i.e. it is not
intended to be an exclusive memorial, and the facts may be
shown irrespective of the terms of the receipt. This is because
usually a receipt is merely a written admission of a transaction
independently existing, and, like other admissions, is not
conclusive. 3
The "pakyaw" was mentioned only in Exhibit I, which also
declared the petitioner's receipt of the amount of P28,000.00 as
consideration for the agreement. The petitioner and his witnesses
testified to show when and under what circumstances the amount

34
of P28,000.00 was received. Their testimonies do not in any way
vary or contradict the terms of Exhibit I. While Exhibit I is dated
May 14, 1982, it does not make any categorical declaration that
the amount of P28,000.00 stated therein was received by the
petitioner on that same date. That date may not therefore be
considered conclusive as to when the amount of P28,000.00 was
actually received.
A deed is not conclusive evidence of everything it may contain.
For instance, it is not the only evidence of the date of its
execution, nor its omission of a consideration conclusive evidence
that none passed, nor is its acknowledgment of a particular
consideration an objection to other proof of other and consistent
considerations; and, by analogy, the acknowledgment in a deed is
not conclusive of the fact. 4
A distinction should be made between a statement of fact
expressed in the instrument and the terms of the contractual act.
The former may be varied by parol evidence but not the latter. 5
Section 7 of Rule 130 clearly refers to the terms of an agreement
and provides that "there can be, between the parties and their
successors in interest, no evidence of the terms of the agreement
other than the contents of the writing."
The statement in Exhibit I of the petitioner's receipt of the
P28,000.00 is just a statement of fact. It is a mere
acknowledgment of the distinct act of payment made by the
private respondent. Its reference to the amount of P28,000.00 as
consideration of the "pakyaw" contract does not make it part of
the terms of their agreement. Parol evidence may therefore be
introduced to explain Exhibit I, particularly with respect to the
petitioner's receipt of the amount of P28,000.00 and of the date
when the said amount was received.
Even if it were assumed that Exhibits D and I are covered by the
parol evidence rule, its application by the Court of Appeals was
improper. The record shows that no objection was made by the
private respondent when the petitioner introduced evidence to
explain the circumstances behind the execution and issuance of
the said instruments. The rule is that objections to evidence must
be made as soon as the grounds therefor become reasonably
apparent. 6 In the case of testimonial evidence, the objection
must be made when the objectionable question is asked or after
the answer is given if the objectionable features become apparent
only by reason of such answer. 7
For failure of the private respondent to object to the evidence
introduced by the petitioner, he is deemed to have waived the
benefit of the parol evidence rule. Thus, in Abrenica v. Gonda, 8
this Court held:
. . . it has been repeatedly laid down as a rule of evidence that a
protest or objection against the admission of any evidence must
be made at the proper time, and that if not so made it will be
understood to have been waived. The proper time to make a
protest or objection is when, from the question addressed to the
witness, or from the answer thereto, or from the presentation of
proof, the inadmissibility of evidence is, or may be inferred.
It is also settled that the court cannot disregard evidence which
would ordinarily be incompetent under the rules but has been
rendered admissible by the failure of a party to object thereto.
Thus:
. . . The acceptance of an incompetent witness to testify in a civil
suit, as well as the allowance of improper questions that may be
put to him while on the stand is a matter resting in the discretion
of the litigant. He may assert his right by timely objection or he
may waive it, expressly or by silence. In any case the option rests
with him. Once admitted, the testimony is in the case for what it is
worth and the judge has no power to disregard it for the sole
reason that it could have been excluded, if it had been objected
to, nor to strike it out on its own motion. (Emphasis supplied.) 9
We find that it was error for the Court of Appeals to disregard the
parol evidence introduced by the petitioner and to conclude that
the amount of P35,000.00 received on May 4, 1982 by the
petitioner was in the nature of a loan accommodation. The Court
of Appeals should have considered the partial stipulation of facts

and the testimonies of the witnesses which sought to explain the

circumstances surrounding the execution of Exhibits D and I and
their relation to one another.
We are satisfied that the amount of P35,000.00 was received by
the petitioner as full payment of their "pakyaw" agreement for
P28,000.00 and the remaining P7,000.00 as advance rentals for
their sublease agreement. The claim that the excess of P7,000.00
was advance payment of the sublease agreement is bolstered by
the testimony of the private respondent himself when during the
cross examination he testified that:
ATTY. CRUZ:
Q And during the time you were leasing the fishpond, is it not a
fact that you pay lease rental to the defendant?
SALONGA:
A No sir, because I have already advanced him money.
Q What advance money are you referring to?
A Thirty-Five Thousand Pesos (P35,000.00), sir. 10
It was also error to treat the amounts received by the petitioner
from August 15, 1982, to September 30, 1982, from the private
respondent as loan accommodations when the partial stipulation
of facts clearly stated that these were payments for the sublease
agreement. The pertinent portions read:
7) That defendant Lucio Cruz in compliance with their verbal
sublease agreement had received from the plaintiff Conrado
Salonga the following sums of money: (Emphasis Supplied.)
(a) P8,000.00 on August 15, 1982, as evidenced by Annex "B" of
the complaint;
(b) the sum of P500.00 on September 4, 1982, as evidenced by
Annex "C" of the complaint;
(c) the sum of P3,000.00 on September 19, 1982, as evidenced
by Annex "D" of the complaint;
(d) the sum of P3,750.00 on September 30, 1982, as Annex "E" of
the complaint; 11
These admissions bind not only the parties but also the court,
unless modified upon request before the trial to prevent manifest
injustice.
We find, however, that the Court of Appeals did not act in excess
of its jurisdiction when it appreciated Exhibit I despite the fact that
it was not pleaded as a cause of action and was objected to by
the petitioner. According to Rule 10 of the Rules of Court:
Sec. 5. Amendment to conform to or authorize presentation of
evidence. When issues not raised by the pleadings are tried by
express or implied consent of the parties, they shall be treated in
all respects, as if they had been raised in the pleadings. Such
amendment of the pleadings as may be necessary to cause them
to conform to the evidence and to raise these issues may be
made upon motion of any party at any time, even after judgment;
but failure to amend does not affect the result of the trial of these
issues. If evidence is objected to at the trial on the ground that it is
not within the issues made by the pleadings, the court may allow
the pleadings to be amended and shall do so freely when the
presentation of the merits of the action will be subserved thereby
and the objecting party fails to satisfy the court that the admission
of such evidence would prejudice him in maintaining his action or
defense upon the merits. The court may grant a continuance to
enable the objecting party to meet such evidence.
In Co Tiamco v. Diaz, 12 the Supreme Court held:
. . . When evidence is offered on a matter not alleged in the
pleadings, the court may admit it even against the objection of the
adverse party, when the latter fails to satisfy the court that the
admission of the evidence would prejudice him in maintaining his
defense upon the merits, and the court may grant him
continuance to enable him to meet the situation created by the
evidence . . .
While it is true that the private respondent did not even file a
motion to amend his complaint in order that it could conform to
the evidence presented, this did not prevent the court from
rendering a valid judgment on the issues proved. As we held in
the Co Tiamco case:
. . . where the failure to order an amendment does not appear to

35
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 48,250.00
Amount to be paid by the private respondent to the petitioner:
1. Pakyaw P28,000.00
2. Sublease 28,000 per annum
Less: 2 months: 4,666 23,334.00

Total amount to be paid by

the private respondent to
the petitioner P51,334.00
Total amount to be paid
by the private respondent P51,334.00
Total amount paid by
the private respondent 48,250.00

Deficiency in the amount

paid by the private respondent P3,084.00
ACCORDINGLY, the decision of the respondent Court of Appeals
is REVERSED and that of the Regional Trial Court of Laguna
AFFIRMED, with the modification that the private respondent shall
pay the petitioner the sum of P3,084.00 instead of P3,054.00,
plus costs. It is so ordered.
Narvasa, Gancayco, Grio-Aquino and Medialdea, JJ.,
concur.

Republic of the Philippines

SUPREME COURT
Manila
SECOND DIVISION
G.R. No. L-39972 & L-40300 August 6, 1986
VICTORIA LECHUGAS, petitioner,
vs.
HON. COURT OF APPEALS, MARINA LOZA, SALVADOR
LOZA, ISIDRO LOZA, CARMELITA LOZA, DAVID LOZA,
AMPARO LOZA, ERLINDA LOZA and ALEJANDRA LOZA,
respondents.
A.R. Montemayor for petitioner.
Arturo L. Limoso for private respondents.
GUTIERREZ, JR., J:
This petition for review invokes the parol evidence rule as it
imputes grave abuse of discretion on the part of the appellate
court for admitting and giving credence to the testimony of the
vendor regarding the sale of the disputed lot. The testimony is
contrary to the contents of the deed of sale executed by the
vendor in favor of the petitioner.
The petitioner filed a complaint for forcible entry with damages
against the private respondents, alleging that the latter by means
of force, intimidation, strategy and stealth, unlawfully entered lots
A and B, corresponding to the middle and northern portion of the

property owned by the petitioner known as Lot No. 5456. She

alleged that they appropriated the produce thereof for themselves,
and refused to surrender the possession of the same despite
demands made by the petitioner. The complaint was dismissed.
Petitioner appealed to the then Court of First Instance (CFI) of
Iloilo where the case was docketed as Civil Case No. 5055.
While the above appeal was pending, the petitioner instituted
another action before the CFI of Iloilo for recovery and possession
of the same property against the private respondents.
This case was docketed as Civil Case No. 5303. The two cases
were tried jointly. After trial, the court rendered judgment. The
dispositive portion of the decision states:
Wherefore, premises considered, judgment is rendered, to wit:
a. dismissing the complaints in two cases;
b. declaring defendants except Salvador Anona and Jose Lozada
as owners and lawful possessors of the land in question together
with all the improvements thereon;
c. dismissing the claim for damages of all defendants except that
of Jose Lozada;
d. ordering plaintiff to pay defendant Jose Lozada the sum of
P500.00 as attorney's fees and the amount of P300.00 as
litigation expenses; and
e. ordering plaintiff to pay the costs of both proceedings.
The petitioner appealed to the Court of Appeals but the latter
sustained the dismissal of the cases. Hence, this petition with the
petitioner making the following assignments of errors:
I
THAT THE RESPONDENT COURT ERRED IN CONSIDERING
PAROL EVIDENCE OVER THE OBJECTION OF THE
PETITIONER IN ORDER TO VARY THE SUBJECT MATTER OF
THE DEED OF DEFINITE SALE (EXHIBIT A) ALTHOUGH THE
LAND THEREIN IS DESCRIBED AND DELIMITED BY METES
AND BOUNDS AND IdENTIFIED AS LOT NO. 5456 OF
LAMBUNAO CADASTRE.
II
THAT THE RESPONDENT COURT ERRED IN CONSIDERING
THE THEORY OF THE DEFENDANTS-APPELLEES FOR THE
FIRST TIME ON APPEAL THAT THE LAND DESCRIBED IN THE
DEED OF SALE (EXHIBIT A) IS LOT NO. 5522 INSTEAD OF
LOT NO. 5456 OF THE LAMBUNAO CADASTRE, THEIR
ORIGINAL THEORY BEING THAT THE DEED OF SALE
(EXHIBIT A) IS NULL AND VOID AB INITIO BECAUSE LEONCIA
LASANGUE CAN NOT SELL THE LAND IN QUESTION IN 1950
SINCE IT WAS ALLEGEDLY SOLD IN 1941 BY HER FATHER
EMETERIO LASANGUE.
III
THAT THE RESPONDENT COURT CANNOT REFORM THE
DEED OF DEFINITE SALE BY CHANGING ITS SUBJECT
MATTER IN THE ABSENCE OF STRONG, CLEAR AND
CONVINCING EVIDENCE AND ON THE STRENGTH OF LONG
TESTIMONY OF THE VENDOR AND ALTHOUGH NO DIRECT
ACTION FOR REFORMATION WAS FILED IN THE COURT OF
ORIGIN.
A summary of the facts which brought about the controversy is
contained in the findings of the appellate court:
Plaintiff (petitioner) Victoria Lechugas testified that she bought the
land now subject of this litigation from Leoncia Lasangue as
evidenced by a public "Deed of Absolute Sale" which plaintiff had
caused to be registered in the Office of the Register of Deeds;
preparatory to the execution of the deed Exhibit "A", plaintiff had
the land segregated from the bigger portion of 12 hectares owned
by Leoncia Lasangue by contracting a private land surveyor, the
Sirilan Surveying Office, to survey the land on December 3, 1950
and establish its boundaries, shape, form and area in accordance
with the said plan which was attached to exhibit A as Annex A
thereof. She also states that she caused the declaration of the
said portion of six hectares subject of Exhibit A in her name
beginning the year 1951 under tax declaration No. 7912, paid
taxes on the same land, and has taken possession of the land
through her tenants Jesus Leoncio, Roberta Losarita and Simeon

36
Guinta, who shared one-half of the produce of the riceland with
her, while she shouldered some of the expenses in cultivation and
seeds, and one-third share in other crops, like coffee beans,
bamboos, coconuts, corn and the like.
xxx xxx xxx
Plaintiff's declaration is corroborated by her tenant Simeon Guinta
who testifies that the land subject of the complaint was worked on
by him 1954 when its former tenant, Roberto Lazarita, now
deceased, left the land. As tenant thereof, he planted rice, corn
peanuts, coffee, and other minor products, sharing the same with
the owner, plaintiff Victoria Lechugas; that on June 14, 1958,
while witness was plowing Lot A preparatory to rice planting,
defendants entered the land and forced him to stop his work.
Salvador Anona and Carmelita Losa, particularly, told witness that
if he (witness) would sign an affidavit recognizing them as his
landlords, they would allow him to continue plowing the land. On
that occasion, Salvador Anona, David Loza and Jose Loza were
carrying unsheathed bolos, which made this witness very afraid,
so much so that he left the land and reported the matter to
Victoria Lechugas who reportedly went to the Chief of Police of
Lambunao to ask the latter to intervene. The advise however of
the chief of police, who responded to the call of plaintiff, was not
heeded by the defendants who stayed adamantly on Lot A and
refused to surrender the possession thereof to plaintiff
appropriating the harvest to themselves. This witness further
declares that on June 24, 1958, defendants entered Lot B of the
land in question, situated on the northern portion, and cut the
bamboo poles growing thereof counted by plaintiff's brother and
overseer in the land, Bienvenido Laranja, to be 620 bamboo poles
all in all. Despite the warning of the overseer Laranja, defendants
did not stop cutting the bamboos, and they remained on the land,
refusing to leave the same. To top it all, in June of 1959,
defendants, not contended with just occupying the middle and
northern portions of the land (Lots A and B), grabbed the whole
parcel containing six hectares to the damage and prejudice of
herein plaintiff, so that plaintiff was left with no other recourse but
to file Civil Case No. 5303 for ownership, recovery of possession
and damages.
Defendants, on the other hand, maintain that the land which
plaintiff bought from Leoncia Lasangue in 1950 as evidenced by
the deed exhibit A, is different from the land now subject of this
action, and described in paragraph 2 of plaintiff's complaint. To
prove this point, defendants called as their first witness plaintiff
herself (pp. 6167, t.s.n., Tuble), to elicit from her the reason why it
was that although her vendor Leoncia Lasangue was also
residing at the municipality of Lambunao, Iloilo, plaintiff did not
care to call her to the witness stand to testify regarding the
Identity of the land which she (plaintiff) bought from said vendor
Leoncia Lasangue; to which query witness Lechugas countered
that she had tried to call her vendor, but the latter refused, saying
that she (Lasangue) had already testified in plaintiff's favor in the
forcible entry case in the Justice of the Peace Court. In
connection with her testimony regarding the true Identity of the
land plaintiff, as witness of defendants, stated that before the
execution of Exhibit "A" on December 8, 1950 the lot in question
was surveyed (on December 3, 1950) by the Sirilan Surveyor
Company after due notice to the boundary owners including
Leoncia Lasangue.
Defendant's evidence in chief, as testified to by Carmelita Lozada
(pp. 100-130, t.s.n., Trespeces; pp. 131-192, t.s.n., Tuble) shows
that on April 6, 1931 Hugo Loza father of Carmelita Loza and
predecessor-in-interest of the rest of the heirs of herein
defendants, (with the exception of Jose Loza and Salvador
Anona) purchased a parcel of land from one Victorina Limor as
evidenced by the deed "Venta Definitiva" (exhibit 3, pp. 49-50,
folder of exhibits). This land, containing 53,327 square meters is
bounded on the north by Ramon Lasangue, on the south by
Emeterio Lasangue and covered by tax declaration No. 7346
(exhibit 3-9, p. 67, Id.) in vendor's name; that immediately after
the sale, Hugo Loza took possession of the said parcel of land

and declared the same in his name (exhibit 3-10, p. 67, folder of
exhibits) starting the year 1935. On March 17, 1941, Hugo Loza
bought from Emeterio Lasangue a parcel of land with an area of
four hectares more or less, adjoining the land he (Loza) had
earlier bought from Victoria Limor, and which sale was duly
evidenced by a public instrument (exhibit 2, pp. 35-36, folder of
exhibits). This property had the following boundaries, to wit: on
the north by Eladio Luno, on the south, by Simeon Lasangue, on
the west, by Gregorio Militar and Emeterio Lasangue and on the
east, by Maximo Lasangue and Hipolito Lastica (exhibit 2, exhibit
2-B, p. 37, Id). After the execution of the deed of sale, Exhibit 2,
Hugo Loza cause the transfer of the declaration in his own name
(tax declaration No. 8832, exh. 2-C, p. 38, Id.) beginning 1945,
and started paying the taxes on the land (exhibits 2-d to 2-i, pp.
39-44, Id.). These two parcels of land (that purchased by Hugo
Loza in 1941 from Emeterio Lasangue, and a portion of that
bought by him from Victoria Limor sometime in 1931) were
consolidated and designated, during the cadastral survey of
Lambunao, Iloilo in 1959 as Lot No. 5456; while the remaining
portion of the lot bought from Victorina Limor, adjoining Lot 5456
on the east, was designated as Lot No. 5515 in the name of the
Heirs of Hugo Loza. Defendants claim that the lot bought by
plaintiff from Leoncia Lasangue as evidenced by exhibit A, is
situated south of the land now subject of this action and
designated during cadastral survey of Lambunao as Lot No. 5522,
in the name of Victoria Lechugas.
xxx xxx xxx
Leoncia Lasangue, plaintiff's vendor in exhibit A, testifying for
defendants (pp. 182-115, t.s.n., Tambagan; pp. 69-88, t.s.n.,
Tuble) declared that during his lifetime her father, Emeterio
Lasangue, owned a parcel of land in Lambunao, Iloilo, containing
an area of 36 hectares; that said Emeterio Lasangue sold a slice
of 4 hectares of this property to Hugo Loza evidenced by a deed
of sale (Exh. 2) dated March 17, 1941; that other sales were
made to other persons, leaving only some twelve hectares out of
the original 36; that these 12 hectares were transferred by her
parents in her (witness) name, being the only child and heir; that
on December 8, 1950, she (Leoncia Lasangue) sold six hectares
of her inherited property to Victoria Lechugas under a public
instrument (exhibit A) which was prepared at the instance of
Victoria Lechugas and thumbmarked by herself (the vendor).
Refuting plaintiff's contention that the land sold to her is the very
land under question, vendor Leoncia Lasangue testifies that:
Q. But Victoria Lechugas declared here that, by means of this
document, exhibit 'A', you sold to her this very land in litigation;
while you declared here now that this land in litigation was not
included in the sale you made of another parcel of land in her
favor. What do you say about that?
A. I only sold six (6) hectares to her.
Q. And that was included in this land in litigation?
A. No.
xxx xxx xxx
Q. Did you tell her where that land you were selling to her was
situated?
xxx xxx xxx
A. On the South.
Q. South side of what land, of the land in litigation?
A. The land I sold to her is south of the land in litigation.
xxx xxx xxx
Q. What portion of these thirty-six (36) hectares of land did you
sell actually, according to your agreement with Victoria Lechugas,
and was it inside the thirty-six (36) hectares of land or a portion on
one of the sides of thirty-six (36) hectares?
A. It is on the edge of the whole land.
Q. Where is that edge? on the north, east, west or south?
A . This edge. (witness indicating the lower edge of the piece of
paper shown into her)
Q. Do you know what is east, that is, the direction where the sun
rises?
A. I know what is east.

37
Q. Do you know where the sun sets ?
A. The sun sets on the west.
Q. If you are standing in the middle of your land containing thirtysix (36) hectares and facing the east, that is, the direction where
the sun rises, where is that portion of land sold to Victoria
Lechugas, on your left, on your right, front of you or behind you?
A. On my right side. (Witness indicating south). (Testimony of
Leoncia Lasangue, pp. 209-211, rollo) (emphasis supplied).
On the basis of the above findings and the testimony of vendor
Leoncia Lasangue herself, who although illiterate was able to
specifically point out the land which she sold to the petitioner, the
appellate court upheld the trial court's decision except that the
deed of sale (Exhibit A) was declared as not null and void ab initio
insofar as Leoncia Lasangue was concerned because it could
pass ownership of the lot in the south known as Lot No. 5522 of
the Lambunao Cadastre which Leoncia Lasangue intended to sell
and actually sold to her vendee, petitioner Victoria Lechugas.
In her first assignment of error, the petitioner contends that the
respondent Court had no legal justification when it subjected the
true intent and agreement to parol evidence over the objection of
petitioner and that to impugn a written agreement, the evidence
must be conclusive. Petitioner maintains, moreover, that the
respondent Court relied so much on the testimony of the vendor
who did not even file a case for the reformation of Exhibit A.
The contentions are without merit.
The appellate court acted correctly in upholding the trial court's
action in admitting the testimony of Leoncia Lasangue. The
petitioner claims that Leoncia Lasangue was the vendor of the
disputed land. The petitioner denies that Leoncia Lasangue sold
Lot No. 5522 to her. She alleges that this lot was sold to her by
one Leonora Lasangue, who, however, was never presented as
witness in any of the proceedings below by herein petitioner.
As explained by a leading commentator on our Rules of Court, the
parol evidence rule does not apply, and may not properly be
invoked by either party to the litigation against the other, where at
least one of the parties to the suit is not party or a privy of a party
to the written instrument in question and does not base a claim on
the instrument or assert a right originating in the instrument or the
relation established thereby. (Francisco on Evidence, Vol. VII,
part I of the Rules of Court, p. 155 citing 32 C.J.S. 79.)
In Horn v. Hansen (57 N.W. 315), the court ruled:
...and the rule therefore applies, that as between parties to a
written agreement, or their privies, parol evidence cannot be
received to contradict or vary its terms. Strangers to a contract
are, of course, not bound by it, and the rule excluding extrinsic
evidence in the construction of writings is inapplicable in such
cases; and it is relaxed where either one of the parties between
whom the question arises is a stranger to the written agreement,
and does not claim under or through one who is party to it. In
such case the rule is binding upon neither. ...
In the case of Camacho v. Municipality of Baliuag, 28 Phil. 466,
this Court held that parol evidence which was introduced by the
municipality was competent to defeat the terms of the plaintiff's
deed which the latter executed with the Insular Government. In
his concurring opinion, Justice Moreland stated:
It should be noted in the first place, that there is no written
instrument between the plaintiff and the municipality, that is,
between the parties to the action; and there is, therefore, no
possibility of the question arising as to the admissibility of parol
evidence to vary or contradict the terms of an instrument. The
written instrument that is, the conveyance on which plaintiff bases
his action was between the Insular Government and the plaintiff,
and not between the municipality and the plaintiff; and therefore,
there can arise, as between the plaintiff and defendant no
question relative to the varying or contradicting the terms of a
written instrument between them ...
The petitioner's reliance on the parol evidence rule is misplaced.
The rule is not applicable where the controversy is between one
of the parties to the document and third persons. The deed of sale
was executed by Leoncia Lasangue in favor of Victoria Lechugas.

The dispute over what was actually sold is between petitioner and
the private respondents. In the case at bar, through the testimony
of Leoncia Lasangue, it was shown that what she really intended
to sell and to be the subject of Exhibit A was Lot No. 5522 but not
being able to read and write and fully relying on the good faith of
her first cousin, the petitioner, she just placed her thumbmark on
a piece of paper which petitioner told her was the document
evidencing the sale of land. The deed of sale described the
disputed lot instead.
This fact was clearly shown in Lasangue's testimony:
Q. And how did you know that that was the description of the land
that you wanted to sell to Victoria Lechugas?
R. I know that because that land came from me.
S. But how were you able to read the description or do you know
the description?
A. Because, since I do not know how to read and write and after
the document was prepared, she made me sign it. So I just
signed because I do not know how to read.
xxx xxx xxx
Q. What explanation did she make to you?
A. She said to me, 'Manang, let us have a document prepared for
you to sign on the land you sold to me.' So, after the document
was prepared, I signed.
Q. Did you tell her where that land you were selling to her was
situated?
xxx xxx xxx
A. On the South.
Q. South side of what land, of the land in litigation?
A. The land I sold to her is south of the land in litigation.
Q. Did you tell her that before preparing the document you
signed?
A. Yes, I told her so because I had confidence in her because she
is my first cousin. (pp. 198-207, rollo)
From the foregoing, there can be no other conclusion but that
Lasangue did not intend to sell as she could not have sold, a
piece of land already sold by her father to the predecessor-ininterest 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

38
the deed of sale null and void for all purposes, the Court upheld
its having passed ownership of Lot No. 5522 to the petitioner.
WHEREFORE, IN VIEW OF THE FOREGOING, the petition is
hereby DISMISSED for lack of merit with costs against the
petitioner.
SO ORDERED.
Feria (Chairman), Fernan, Alampay and Paras, JJ., concur.

SECOND DIVISION
[G.R. No. 96405. June 26, 1996]
BALDOMERO INCIONG, JR., petitioner, vs. COURT OF
APPEALS and PHILIPPINE BANK OF COMMUNICATIONS,
respondents.
SYLLABUS
1. REMEDIAL LAW; EVIDENCE; PAROL EVIDENCE RULE;
DOES NOT SPECIFY THAT THE WRITTEN
AGREEMENT BE A PUBLIC INSTRUMENT.- Clearly,
the rule does not specify that the written agreement be a
public document. What is required is that the agreement
be in writing as the rule is in fact founded on "long
experience that written evidence is so much more certain
and accurate than that which rests in fleeting memory
only, that it would be unsafe, when parties have
expressed the terms of their contract in writing, to admit
weaker evidence to control and vary the stronger and to
show that the parties intended a different contract from
that expressed in the writing signed by them"
[FRANCISCO, THE RULES OF COURT OF THE
PHILIPPINES, Vol. VII, Part I, 1990 ed., p. 179] Thus, for
the parol evidence rule to apply, a written contract need
not be in any particular form, or be signed by both
parties. As a general rule, bills, notes and other
instruments of a similar nature are not subject to be
varied or contradicted by parol or extrinsic evidence.
2. CIVIL LAW; OBLIGATIONS; SOLIDARY OR JOINT AND
SEVERAL OBLIGATION, DEFINED.- A solidary or joint
and several obligation is one in which each debtor is
liable for the entire obligation, and each creditor is entitled
to demand the whole obligation. [TOLENTINO, CIVIL
CODE OF THE PHILIPPINES, Vol. IV, 1991 ed., p. 217]
Section 4, Chapter 3, Title 1, Book IV of the Civil Code
states the law on joint and several obligations. Under Art.
1207 thereof, when there are two or more debtors in one
and the same obligation, the presumption is that the
obligation is joint so that each of the debtors is liable only
for the proportionate part of the debt. There is a solidary
liability only when the obligation expressly so states,
when the law so provides or when the nature of the
obligation so requires. [Sesbreo v. Court of Appeals,
G.R. No. 89252, May 24, 1993, 222 SCRA 466, 481.]
3. ID.; GUARANTY; GUARANTOR AS DISTINGUISHED FROM
SOLIDARY DEBTOR.- While a guarantor may bind
himself solidarily with the principal debtor, the liability of a
guarantor is different from that of a solidary debtor. Thus,
Tolentino explains: "A guarantor who binds himself in
solidum with the principal debtor under the provisions of
the second paragraph does not become a solidary codebtor to all intents and purposes. There is a difference
between a solidary co-debtor, and a fiador in solidum
(surety). The latter, outside of the liability he assumes to
pay the debt before the property of the principal debtor
has been exhausted, retains all the other rights, actions
and benefits which pertain to him by reason of the fiansa;
while a solidary co-debtor has no other rights than those
bestowed upon him in Section 4, Chapter 3, Title 1, Book
IV of the Civil Code." [Tolentino, Civil Code of the
Philippines, Vol. V, 1992 ed., p. 502]
APPEARANCES OF COUNSEL
Emilio G. Abrogena for petitioner.

Teogenes X. Velez for private respondent.

DECISION
ROMERO, J.:
This is a petition for review on certiorari of the decision of the
Court of Appeals affirming that of the Regional Trial Court of
Misamis Oriental, Branch 18,[if !supportFootnotes][1][endif] 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.[if !supportFootnotes][2][endif] On December 11, 1984
private respondent also sent by registered mail a final letter of
demand to Rene C. Naybe. Since both obligors did not respond
to the demands made, private respondent filed on January 24,
1986 a complaint for collection of the sum of P50,000.00 against
the three obligors.
On November 25, 1986, the complaint was dismissed for failure of
the plaintiff to prosecute the case. However, on January 9, 1987,
the lower court reconsidered the dismissal order and required the
sheriff to serve the summonses. On January 27, 1987, the lower
court dismissed the case against defendant Pantanosas as
prayed for by the private respondent herein. Meanwhile, only the
summons addressed to petitioner was served as the sheriff
learned that defendant Naybe had gone to Saudi Arabia.
In his answer, petitioner alleged that sometime in January 1983,
he was approached by his friend, Rudy Campos, who told him
that he was a partner of Pio Tio, the branch manager of private
respondent in Cagayan de Oro City, in the falcata logs operation
business. Campos also intimated to him that Rene C. Naybe was
interested in the business and would contribute a chainsaw to the
venture. He added that, although Naybe had no money to buy
the equipment Pio Tio had assured Naybe of the approval of a
loan he would make with private respondent. Campos then
persuaded petitioner to act as a "co-maker" in the said
loan. Petitioner allegedly acceded but with the understanding that
he would only be a co-maker for the loan of P5,000.00.
Petitioner alleged further that five (5) copies of a blank promissory
note were brought to him by Campos at his office. He affixed his
signature thereto but in one copy, he indicated that he bound
himself only for the amount of P5,000.00. Thus, it was by trickery,
fraud and misrepresentation that he was made liable for the
amount of P50,000.00.
In the aforementioned decision of the lower court, it noted that the
typewritten figure "P50,000-" clearly appears directly below the
admitted signature of the petitioner in the promissory note.[if
!supportFootnotes][3][endif]
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,

39
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.[if
!supportFootnotes][4][endif]
His motion for the reconsideration of the denial
of his petition was likewise denied with finality in the Resolution of
April 24, 1991.[if !supportFootnotes][5][endif] 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.[if
!supportFootnotes][6][endif]

Unfazed, petitioner filed a motion for leave to file a motion for

clarification. In the latter motion, he asserted that he had
attached Registry Receipt No. 3268 to page 14 of the petition in
compliance with Circular No. 1-88. Thus, on August 7,1991, the
Court granted his prayer that his petition be given due course and
reinstated the same.[if !supportFootnotes][7][endif]
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 comaker in the promissory note. It supports petitioner's allegation
that they were induced to sign the promissory note on the belief
that it was only for P5,000.00, adding that it was Campos who
caused the amount of the loan to be increased to P50,000.00.
The affidavit is clearly intended to buttress petitioner's contention
in the instant petition that the Court of Appeals should have
declared the promissory note null and void on the following
grounds: (a) the promissory note was signed in the office of
Judge Pantanosas, outside the premises of the bank; (b) the loan
was incurred for the purpose of buying a second-hand chainsaw
which cost only P5,000.00; (c) even a new chainsaw would cost
only P27,500.00; (d) the loan was not approved by the board or
credit committee which was the practice, at it exceeded
P5,000.00; (e) the loan had no collateral; (f) petitioner and Judge
Pantanosas were not present at the time the loan was released in
contravention of the bank practice, and (g) notices of default are
sent simultaneously and separately but no notice was validly sent
to him.[if !supportFootnotes][8][endif] Finally, petitioner contends that in
signing the promissory note, his consent was vitiated by fraud as,
contrary to their agreement that the loan was only for the amount
of P5,000. 00, the promissory note stated the amount of
P50,000.00.
The above-stated points are clearly factual. Petitioner is to be
reminded of the basic rule that this Court is not a trier of
facts. Having lost the chance to fully ventilate his factual claims
below, petitioner may no longer be accorded the same
opportunity in the absence of grave abuse of discretion on the
part of the court below. Had he presented Judge Pantanosas'
affidavit before the lower court, it would have strengthened his
claim that the promissory note did not reflect the correct amount
of the loan.
Nor is there merit in petitioner's assertion that since the
promissory note "is not a public deed with the formalities
prescribed by law but x x x a mere commercial paper which does

not bear the signature of x x x attesting witnesses," parol

evidence may "overcome" the contents of the promissory note. [if
!supportFootnotes][9][endif]
The first paragraph of the parol evidence rule[if
!supportFootnotes][10][endif]
states:
"When the terms of an agreement have been reduced to writing, it
is considered as containing all the terms agreed upon and there
can be, between the parties and their successors-in-interest, no
evidence of such terms other than the contents of the written
agreement."
Clearly, the rule does not specify that the written agreement be a
public document.
What is required is that agreement be in writing as the rule is in
fact founded on "long experience that written evidence is so much
more certain and accurate than that which rests in fleeting
memory only, that it would be unsafe, when parties have
expressed the terms of their contract in writing, to admit weaker
evidence to control and vary the stronger and to show that the
parties intended a different contract from that expressed in the
writing signed by them."[if !supportFootnotes][11][endif] Thus, for the parol
evidence rule to apply, a written contract need not be in any
particular form, or be signed by both parties.[if !supportFootnotes][12][endif]
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.[if !supportFootnotes][13][endif]
By alleging fraud in his answer,[if !supportFootnotes][14][endif] petitioner was
actually in the right direction towards proving that he and his comakers 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.[if !supportFootnotes][15][endif] However, fraud must be established
by clear and convincing evidence, mere preponderance of
evidence, not even being adequate.[if !supportFootnotes][16][endif]
Petitioner's attempt to prove fraud must, therefore, fail as it was
evidenced only by his own uncorroborated and, expectedly, selfserving testimony.
Petitioner also argues that the dismissal of the complaint against
Naybe, the principal debtor, and against Pantanosas, his comaker, constituted a release of his obligation, especially because
the dismissal of the case against Pantanosas was upon the
motion of private respondent itself. He cites as basis for his
argument, Article 2080 of the Civil Code which provides that:
"The guarantors, even though they be solidary, are released from
their obligation whenever by some act of the creditor, they cannot
be subrogated to the rights, mortgages, and preferences of the
latter."
It is to be noted, however, that petitioner signed the promissory
note as a solidary co-maker and not as a guarantor. This is
patent even from the first sentence of the promissory note which
states as follows:
"Ninety one (91) days after date, for value received, I/we,
JOINTLY and SEVERALLY promise to pay to the PHILIPPINE
BANK OF COMMUNICATIONS at its office in the City of Cagayan
de Oro, Philippines the sum of FIFTY THOUSAND ONLY
(P50,000. 00) Pesos, Philippine Currency, together with interest x
x x at the rate of SIXTEEN (16) per cent per annum until fully
paid."
A solidary or joint and several obligation is one in which each
debtor is liable for the entire obligation, and each creditor is
entitled to demand the whole obligation.[if !supportFootnotes][17][endif] On
the other hand, Article 2047 of the Civil Code states:
"By guaranty a person, called the guarantor, binds himself to the
creditor to fulfill the obligation of the principal debtor in case the
latter should fail to do so.
If a person binds himself solidarily with the principal debtor, the
provisions of Section 4, Chapter 3, Title I of this Book shall be
observed, In such a case the contract is called a suretyship."
(Italics supplied.)
While a guarantor may bind himself solidarily with the principal
debtor, the liability of a guarantor is different from that of a
solidary debtor. Thus, Tolentino explains:

40
"A guarantor who binds himself in solidum with the principal
debtor under the provisions of the second paragraph does not
become a solidary co-debtor to all intents and purposes. There is
a difference between a solidary co-debtor, and a fiador in solidum
(surety). The later, outside of the liability he assumes to pay the
debt before the property of the principal debtor has been
exhausted, retains all the other rights, actions and benefits which
pertain to him by reason of the fiansa; while a solidary co-debtor
has no other rights than those bestowed upon him in Section 4,
Chapter 3, title I, Book IV of the Civil Code."[if !supportFootnotes][18][endif]
Section 4, Chapter 3, Title I, Book IV of the Civil Code states the
law on joint and several obligations. Under Art. 1207 thereof,
when there are two or more debtors in one and the same
obligation, the presumption is that the obligation is joint so that
each of the debtors is liable only for a proportionate part of the
debt. There is a solidarity liability only when the obligation
expressly so states, when the law so provides or when the nature
of the obligation so requires.[if !supportFootnotes][19][endif]
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.[if !supportFootnotes][20][endif] The choice is left to the
solidary creditor to determine against whom he will enforce
collection.[if !supportFootnotes][21][endif] Consequently, the dismissal of the
case against Judge Pontanosas may not be deemed as having
discharged petitioner from liability as well. As regards Naybe,
suffice it to say that the court never acquired jurisdiction over
him. Petitioner, therefore, may only have recourse against his comakers, as provided by law.
WHEREFORE, the instant petition for review on certiorari
is hereby DENIED and the questioned decision of the Court of
Appeals is AFFIRMED. Costs against petitioner.
SO ORDERED.
Regalado (Chairman), Puno, Mendoza, and Torres, Jr., JJ.,
concur.

THIRD DIVISION
[G.R. No. 107372. January 23, 1997]
RAFAEL S. ORTAEZ, petitioner, vs. THE COURT OF
APPEALS, OSCAR INOCENTES, AND ASUNCION LLANES
INOCENTES, respondents.
RESOLUTION
FRANCISCO, J.:
On September 30, 1982, private respondents sold to petitioner
two (2) parcels of registered land in Quezon City for a
consideration of P35,000.00 and P20,000.00, respectively. The
first deed of absolute sale covering Transfer Certificate of Title
(TCT) No. 258628 provides in part:
"That for and in consideration of the sum of THIRTY FIVE
THOUSAND (P35,000.00) PESOS, receipt of which in full is
hereby acknowledged, we have sold, transferred and conveyed,
as we hereby sell, transfer and convey, that subdivided portion of
the property covered by TCT No. 258628 known as Lot No. 684G-1-B-2 in favor of RAFAEL S. ORTANEZ, of legal age, Filipino.
whose marriage is under a regime of complete separation of
property, and a resident of 942 Aurora Blvd., Quezon City, his
heirs or assigns."[if !supportFootnotes][1][endif]
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 consolidatedsubdivided 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.[if !supportFootnotes][2][endif]

Private respondents received the payments for the abovementioned lots, but failed to deliver the titles to petitioner. On April
9, 1990 the latter demanded from the former the delivery of said
titles.[if !supportFootnotes][3][endif] Private respondents, however, refused
on the ground that the title of the first lot is in the possession of
another person,[if !supportFootnotes][4][endif] 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[if !supportFootnotes][5][endif] which were never reflected in
the deeds of sale:[if !supportFootnotes][6][endif]
"3.3.2 Title to the other property (TCT No. 243273) remains with
the defendants (private respondents) until plaintiff (petitioner)
shows proof that all the following requirements have been met:
(i) Plaintiff will cause the segregation of his right of way amounting
to 398 sq. m.;
(ii) Plaintiff will submit to the defendants the approved plan for the
segregation;
(iii) Plaintiff will put up a strong wall between his property and that
of defendants' lot to segregate his right of way;
(iv) Plaintiff will pay the capital gains tax and all other expenses
that may be incurred by reason of sale. x x x."
During trial, private respondent Oscar Inocentes, a former judge,
orally testified that the sale was subject to the above conditions, [if
!supportFootnotes][7][endif]
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.[if !supportFootnotes][8][endif] Spoken
words could be notoriously unreliable unlike a written contract
which speaks of a uniform language.[if !supportFootnotes][9][endif] Thus,
under the general rule in Section 9 of Rule 130[if
!supportFootnotes][10][endif]
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. [if
!supportFootnotes][11][endif]
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.[if !supportFootnotes][12][endif] 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. [if
!supportFootnotes][13][endif]

Secondly, to buttress their argument, private respondents rely on

the case of Land Settlement Development, Co. vs. Garcia
Plantation[if !supportFootnotes][14][endif] where the Court ruled that a
condition precedent to a contract may be established by parol
evidence. However, the material facts of that case are different
from this case. In the former, the contract sought to be enforced[if
!supportFootnotes][15][endif]
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, [if
!supportFootnotes][16][endif]
hence, contrary to the rule that:

41
The parol evidence rule forbids any addition to x x x the terms of
a written instrument by testimony purporting to show that, at or
before the signing of the document, other or different terms were
orally agreed upon by the parties.[if !supportFootnotes][17][endif]
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." [if !supportFootnotes][18][endif] 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." [if !supportFootnotes][19][endif]
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[if !supportFootnotes][20][endif] that private respondents did not
expressly plead that the deeds of sale were incomplete or that it
did not reflect the intention[if !supportFootnotes][21][endif] of the buyer
(petitioner) and the seller (private respondents). Such issue must
be "squarely presented."[if !supportFootnotes][22][endif] Private respondents
merely alleged that the sale was subject to four (4) conditions
which they tried to prove during trial by parol evidence.[if
!supportFootnotes][23][endif]
Obviously, this cannot be done, because they
did not plead any of the exceptions mentioned in the parol
evidence rule.[if !supportFootnotes][24][endif] 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"[if
!supportFootnotes][25][endif]
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.[if !supportFootnotes][26][endif]
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.

Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-7991
January 29, 1914
LEON J. LAMBERT, plaintiff-appellant,
vs.
T. J. FOX, defendant-appellee.

O'Brien and DeWitt and C. W. Ney, for appellant. J. C. Hixon, for

appellee.
MORELAND, J.:
This is an action brought to recover a penalty prescribed on a
contract as punishment for the breach thereof.
Early in 1911 the firm known as John R. Edgar & Co., engaged in
the retail book and stationery business, found itself in such
condition financially that its creditors, including the plaintiff and the
defendant, together with many others, agreed to take over the
business, incorporate it and accept stock therein in payment of
their respective credits. This was done, the plaintiff and the
defendant becoming the two largest stockholders in the new
corporation called John R. Edgar & Co., Incorporated. A few days
after the incorporation was completed plaintiff and defendant
entered into the following agreement:
Whereas the undersigned are, respectively, owners of large
amounts of stock in John R. Edgar and Co, Inc; and,
Whereas it is recognized that the success of said corporation
depends, now and for at least one year next following, in the
larger stockholders retaining their respective interests in the
business of said corporation:
Therefore, the undersigned mutually and reciprocally agree not to
sell, transfer, or otherwise dispose of any part of their present
holdings of stock in said John R. Edgar & Co. Inc., till after one
year from the date hereof.
Either party violating this agreement shall pay to the other the
sum of one thousand (P1,000) pesos as liquidated damages,
unless previous consent in writing to such sale, transfer, or other
disposition be obtained.
Notwithstanding this contract the defendant Fox on October 19,
1911, sold his stock in the said corporation to E. C. McCullough of
the firm of E. C. McCullough & Co. of Manila, a strong competitor
of the said John R. Edgar & Co., Inc.
This sale was made by the defendant against the protest of the
plaintiff and with the warning that he would be held liable under
the contract hereinabove set forth and in accordance with its
terms. In fact, the defendant Foz offered to sell his shares of stock
to the plaintiff for the same sum that McCullough was paying them
less P1,000, the penalty specified in the contract.
The learned trial court decided the case in favor of the defendant
upon the ground that the intention of the parties as it appeared
from the contract in question was to the effect that the agreement
should be good and continue only until the corporation reached a
sound financial basis, and that that event having occurred some
time before the expiration of the year mentioned in the contract,
the purpose for which the contract was made and had been
fulfilled and the defendant accordingly discharged of his obligation
thereunder. The complaint was dismissed upon the merits.
It is argued here that the court erred in its construction of the
contract. We are of the opinion that the contention is sound. The
intention of parties to a contract must be determined, in the first
instance, from the words of the contract itself. It is to be presumed
that persons mean what they say when they speak plain English.
Interpretation and construction should by the instruments last
resorted to by a court in determining what the parties agreed to.
Where the language used by the parties is plain, then
construction and interpretation are unnecessary and, if used,
result in making a contract for the parties. (Lizarraga Hermanos
vs. Yap Tico, 24 Phil. Rep., 504.)
In the case cited the court said with reference to the construction
and interpretation of statutes: "As for us, we do not construe or
interpret this law. It does not need it. We apply it. By applying the
law, we conserve both provisions for the benefit of litigants. The
first and fundamental duty of courts, in our judgment, is to apply
the law. Construction and interpretation come only after it has
been demonstrated that application is impossible or inadequate
without them. They are the very last functions which a court
should exercise. The majority of the law need no interpretation or
construction. They require only application, and if there were
more application and less construction, there would be more

42
stability in the law, and more people would know what the law is."
What we said in that case is equally applicable to contracts
between persons. In the case at bar the parties expressly
stipulated that the contract should last one year. No reason is
shown for saying that it shall last only nine months. Whatever the
object was in specifying the year, it was their agreement that the
contract should last a year and it was their judgment and
conviction that their purposes would not be subversed in any less
time. What reason can give for refusing to follow the plain words
of the men who made the contract? We see none.
The appellee urges that the plaintiff cannot recover for the reason
that he did not prove damages, and cites numerous American
authorities to the effect that because stipulations for liquidated
damages are generally in excess of actual damages and so work
a hardship upon the party in default, courts are strongly inclined to
treat all such agreements as imposing a penalty and to allow a
recovery for actual damages only. He also cites authorities
holding that a penalty, as such, will not be enforced and that the
party suing, in spite of the penalty assigned, will be put to his
proof to demonstrate the damages actually suffered by reason of
defendants wrongful act or omission.
In this jurisdiction penalties provided in contracts of this character
are enforced . It is the rule that parties who are competent to
contract may make such agreements within the limitations of the
law and public policy as they desire, and that the courts will
enforce them according to their terms. (Civil Code, articles 1152,
1153, 1154, and 1155; Fornow vs. Hoffmeister, 6 Phil. Rep., 33;
Palacios vs. Municipality of Cavite, 12 Phil. Rep., 140; Gsell vs.
Koch, 16 Phil. Rep., 1.) The only case recognized by the Civil
Code in which the court is authorized to intervene for the purpose
of reducing a penalty stipulated in the contract is when the
principal obligation has been partly or irregularly fulfilled and the
court can see that the person demanding the penalty has
received the benefit of such or irregular performance. In such
case the court is authorized to reduce the penalty to the extent of
the benefits received by the party enforcing the penalty.
In this jurisdiction, there is no difference between a penalty and
liquidated damages, so far as legal results are concerned.
Whatever differences exists between them as a matter of
language, they are treated the same legally. In either case the
party to whom payment is to be made is entitled to recover the
sum stipulated without the necessity of proving damages. Indeed
one of the primary purposes in fixing a penalty or in liquidating
damages, is to avoid such necessity.
It is also urged by the appelle in this case that the stipulation in
the contract suspending the power to sell the stock referred to
therein is an illegal stipulation, is in restraint of trade and,
therefore, offends public policy. We do not so regard it. The
suspension of the power to sell has a beneficial purpose, results
in the protection of the corporation as well as of the individual
parties to the contract, and is reasonable as to the length of time
of the suspension. We do not here undertake to discuss the
limitations to the power to suspend the right of alienation of stock,
limiting ourselves to the statement that the suspension in this
particular case is legal and valid.
The judgment is reversed, the case remanded with instructions to
enter a judgment in favor of the plaintiff and against the defendant
for P1,000, with interest; without costs in this instance.
Arellano, C.J., Trent and Araullo, JJ., concur.
Separate Opinions
CARSON, J., dissenting:
I concur.
I think it proper to observe, however that the doctrine touching the
construction and interpretation of penalties prescribed in ordinary
civil contracts as set forth in the opinion is carried to is extreme
limits and that its statement in this form is not necessary to
sustain the decision upon the facts in this case.
Without entering upon an extended discussion of the authorities, it
is sufficient for my purposes to cite the opinion of the supreme

court of Spain, dated June 13, 1906, construing the provisions of

article 6 of Book 4, Title 1 of the Civil Code which treats of
"contracts with a penal clause." In that case the court held:
The rules and prescriptions governing penal matters are
fundamentally applicable to the penal sanctions of civil character.
This as well as other cases which might be cited from American
as well as Spanish authorities indicate that special rules of
interpretations are and should be made use of by the courts in
construing penal clauses in civil contracts, and that case may well
arise wherein the broad doctrine laid down in the opinion of the
court may not be applicable.

Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-18857
December 11, 1967
THE CAPITAL INSURANCE and SURETY CO., INC., plaintiffappellant,
vs.
ESTEBAN M. SADANG and MARIA LACHICA, defendantsappellees.
Achacoso, Ocampo and Simbulan for plaintiff-appellant. L. Alba
for defendants-appellees.
MAKALINTAL, J.:
The following statement of facts, reproduced from the brief for
plaintiff-appellant, the Capital Insurance Surety Co., Inc., is
admitted as correct by defendants-appellees:
Plaintiff Capital Insurance & Surety Co., Inc., subscribed on June
21, 1954 to a bond (Exhibit A) in the amount of P42,000.00 in
behalf of Mateo Pinto and in favor of the Macondray Farms, Inc.,
the purpose of which was to guarantee the payment of rentals of
the fishpond and other obligations of Mateo Pinto as contained in
the lease agreement marked as Exhibit A-1.lawphil.net
To protect the interest of plaintiff Capital Insurance & Surety Co.,
Inc. from any liability that may arise from the above-mentioned
bond, Mateo Pinto and the defendants in this case, Esteban M.
Sadang and Maria Lachica, executed an idemnity agreement
(Exhibit B) and a deed of real of real estate mortage (Exhibit C)
on the property of the defendants located in the Province of
Nueva Vizcaya and covered by Transfer Certificate of Title No.
2216 issued by the Register of Deeds of Nueva Vizcaya.
Mateo Pinto failed to pay the rentals of the leased fishpond to
Macondray Farms, Inc., in the total amount of P24,668.83.1
Because of the failure of Mateo Pinto to pay the said amount of
P24,668.83 to Macondray Farms, Inc., plaintiff in the instant case
as surety had to pay, as it did pay Macondray Farms, Inc., the
amount of P24,668.83 on May 14, 1956 to settle the obligation of
Mateo Pinto with the said Macondray Farms, Inc.
Notwithstanding repeated demands, Mateo Pinto and his
indemnitors including herein defendants failed to reimburse the
Capital Insurance & Surety Co., Inc., the the said amount of
P24,688.83.
Because of such failure to make reimbursement, the Capital
Insurance & Surety Co., Inc., filed Civil Case No. 30061 against
Mateo Pinto and his indemnitors including the defendants in this
instant case for the collection of the above-mentioned amount.
On the strength of the agreement of the parties Civil Case No.
30061 (Exhibit E) wherein it is agreed among others, that if after
the sale of all the said properties, the judment shall not have been
fully satisfied, then plaintiff may file as separate civil action
against the defendants-spouses, Esteban M. Sadang and Maria
Lachica, the other indemnitors, but at the same time dismissed
the case against the herein defendants without prejudice (Exhibit
F-1).
Two executions were issued by the court for the enforcement of
the above-mentioned decision in Civil Case No. 30061 and after
applying the proceeds of the sale of the properties in public
auction there is still a deficiency in the amount of P14,456.44

43
which, in view of the failure of the herein dependants to pay in
spite of plaintiff's repeated demands, had to become the subject
of this instant case.
It is the contention of plaintiff that by virtue of the indemnity
agreement (Exhibit B) and the estate mortgage (exhibit C) of the
herein defendants, they are liable for the said deficiency of
P14,456.44, plus interest, plus attorney's feest and costs of the
suit.itc-alf On the other hand, defendants contend that their
liability under the mortgage contract (Exhibit C) is limited to the
first P20,000.00 that might be incurred under the bond and that
since Mateo Pinto actually paid Macondray Farms, Inc., the
amount of P19,700.00, they are liable to pay only amount of
P300.00 which remain after deducting what was paid by Mateo
Pinto to Macondray Farms, Inc. from the first liability of
P20,000.00.
After due hearing, the trial court rendered judgment on April 20,
1961 (pp. 93-101, Record on Appeal) ordering defendants to pay
to plaintiff only, the amount of P300.00 and without costs.
To point on which the parties disagree is the interpretation of the
following stipulation in the mortgage contract executed by
defendants-appellees:
This mortgage is constituted to indemnify the mortgagee for any
damage, cost, expenses and charges of whatever kind and nature
that it may incur or sustain as a consequence of having acted as
surety on the bond referred to above, and or its substitution,
modification, alteration, change and/or renewals. That liability
secured by the above properties is limited to the first P20,000.00
that might be incurred under the bond issued in favor of the
Macondray Farms, Inc.
Appellant lays stress on the general statement of appellees'
liability as it appears in the contract, to wit; "to indemnify the
mortgagee for any damage, cost, expenses and charges of
whatever kind and nature that it may incur or sustain as a
consequence of having acted as surety or the bond. . . ." Similar
stress is laid on the fact that because the principal debtor, Mateo
Pinto, paid to Macondray Farms, Inc., the sum of P19,700.00
before he became in default, no liability ever attached to appellant
under its bond for that amount, and hence it should not be
considered as part of, or applied to, "the first P20,000.00 that
might be incurred under the bond . . .," which defined the limit of
appellees' obligation.
At first blush the argument seems logical. But the real intention of
the parties is revealed by the testimony of appellee Esteban
Sadang concerning the circumstances which led to the inclusion
of the particular stipulation aforequoted. We quote from the
record:lawphil.net
Q.
In the course of your testimony in the last hearing you
mentioned that there have been two contracts of mortgage
prepared in connection with this property belonging to you and
situated in Nueva Vizcaya and you also stated that the first draft
or first copy of the Deed of contract was not signed by You.itc-alf
Will you please state to the Court the reason for not signing the
first deed of mortgage that was presented to you for signature?
A.
When Mr. Pinto brought me to the Capital Insurance
Company I was permitted to see the written document prepared
by Atty. Achacoso with Atty. Nera as his companion and in the
presence of one, the mestizo who was supposed to be the
manager of the Bonding Department. At that time, I was made to
understand that if I would consent to be one of the bondsmen I
would only answer to the first P20,000.00 of the total P42,000.00
bond which the Capital Insurance was supposed to underwrite to
Mateo Pinto in favor of Macondray Farms and I told
Atty.lawphil.net Achacoso in the presence of the mestizo the then
Manager of the Bonding Department that I was only supposed to
answer to the first P20,000.00 of the total bond indebtedness of
P42,000.00. That the moment the first P20,000.00 is paid the
bonding company automatically releases my responsibility to
them.
Q.
Showing to you again this Exhibit C for the plaintiff, is this
the second draft or second contract that was prepared by Mr.

Achacoso after you have made that interview in clarifying in so far

as liability with the bond is concerned?
(Witness looking at Exhibit C)
A.
Yes, this last letter was the one inserted, "That the liability
secured by the above properties is limited to the first P20,000.00
that might be incurred under the bond issued in favor of the
Macondray Farms, Inc."
Q.
In the first draft of the contract of mortgage that was sought
to be signed by you do you mean then that this last three lines of
the second paragraph of page 2 of Exhibit 3 did not exist?
A.
It did not and so I insisted it should be specifically
mentioned that I was answerable only to the first P20,000.00.
Q.
Who made you understand that?
A.
Atty. Achaeoso in fact Atty. Nera was present including that
mestizo.
Q.
What did Mr. Achacoso explain to you as to the extend of
the liability of the property on the last three lines of the second
page of Exhibit C?
A.
He emphatically informed me that when that liability will be
paid may free me to some connected liability with the other
bondsmen and he said, it is very clear. So I consented to sign
with my wife.
The foregoing testimony is clear enough. Esteban Sadang agreed
to be an indemnitor only on condition that he would answer for the
"first P20,000.00 of the total P42,000.00 bond," and that "the
moment the first P20,000.00 is paid the bonding company
automatically releases my responsibility to them." The trial court
found the said testimony to be uncontradicted. If the mortgage
contract as actually drafted seems to be vague or ambiguous, the
doubt must be resolved against appellant, whose lawyer prepared
the document, and in accordance with the real intention of the
parties as explained by defendants-appellees.
The trial court correctly held said defendants-appellants liable
only for the sum of P300.00. However, it failed to provide for the
stipulated interest thereon at the rate of 12% per annum, which if
not paid would be liquidated and added to the capital, quarterly,
and to order foreclosure of the mortgaged properties in case of
non-payment.
WHEREFORE, the judgment appealed from is affirmed, with the
modification indicated above concerning interest, the same to
begin from the date of the filing of the complaint. In case of nonpayment of the sum thus adjudged, including interest, the
mortgaged properties will be sold as provided in Rule 68. No
costs in this instance.
Concepcion, C.J., Reyes, J.B.L., Dizon, Bengzon, J.P., Zaldivar,
Sanchez, Castro, Angeles and Fernando, JJ., concur.

G.R. No. , People v. De Jesus, 129 SCRA 4

content follows
Republic of the Philippines
SUPREME COURT Manila
SECOND DIVISION

DECISION
March 31, 1984
G.R. No. THE PEOPLE OF THE PHILIPPINES, plaintiff-appellee,
vs.
ROGELIO DE JESUS y QUIZON, alias "ELIONG," accusedappellant.
The Solicitor General for plaintiff-appellee. Rafael D. Abierra Jr.
for accused-appellant.
CONCEPCION, JR., J.:
The accused, Rogelio de Jesus y Quizon appeals from the
decision of the Circuit Criminal Court, First Judicial District in its
Criminal Case No. CCC-1-80, Isabela (II-329) finding him guilty
beyond reasonable doubt, of the crime of rape as defined and

44
penalized under Article 335, paragraph 2 of the Revised Penal
Code and sentencing him, after appreciating in his favor the
mitigating circumstance of voluntary surrender, to suffer the
penalty of reclusion perpetua to indemnify the offended party
Clara Mina y Simon in the amount of P10,000.00 plus another
P5,000.00 as moral and exemplary damages, without subsidiary
imprisonment in case of insolvency, and to pay the costs.
The facts are as follows:
Clara Mina, an unmarried woman of 28, lived with her parents in
barrio Amistad, Alicia, Isabela (p. 7, tsn., March 21, 1974).
Clara Mina, however, is feeble-minded. She is unable to comb her
hair, bathe herself and wash her clothes (pp. 21, 31, 32, tsn.,
March 21, 1974). Because of her mental condition, she just
stayed in the house, doing no household chores (p. 31, tsn., Id.).
The accused, Rogelio de Jesus, a 19-year old farmer, who lived
in the house of his sister some 15 meters away from the victim's
house, knew of Clara's mental infirmity, and has often seen her
left alone in the house (p. 20, tsn., March 21, 1974; pp. 38, 47, 49,
tsn., April 25, 1974).
At about 2:00 o'clock in the afternoon of Jan. 3, 1974, Pastora
Simon went out to the field in order to plant palay, leaving her
daughter Clara Mina alone in the house. Her husband (Clara's
father), had gone to a place called Soliven four days before, while
the other members of the household had also left for the field (pp.
17, 18, 19, tsn., March 21, 1974).
That afternoon, Clara Mina was seated on top of a trunk when
Rogelio de Jesus suddenly entered the house, carried her in his
arms and laid her on the floor (pp. 8, 13, tsn., March 21, 1974).
Objecting to what was being done to her, Clara gave an outcry
"Madi! Madi!" (which translated means "I don't like! I don't like!")
Rogelio, ignoring her cries, removed her panties as well as his
own trousers. He lay on top of her, inserted his penis into her
vagina and performed the sexual act (pp. 7, 8, 9, 13,14, 15, tsn.,
Id.).
Meanwhile, Pastora Simon, who had already walked some 150
meters away from their house, when sensing it was about to rain,
hurried back to the house to get cellophane with which to shield
her from the rain (p. 17, tsn., March 21, 1974). Upon her return to
the house, she found Rogelio de Jesus naked lying on top of
Clara Mina whose legs were spread apart (p. 19, tsn., Id.). Seeing
them in that position, she rushed to the kitchen to get a club but
Rogelio spotted her and ran away. (p. 20, tsn., Id.).
The barrio captain, Glicerio Guzman, to whom Pastora Simon had
immediately reported the incident, looked for Rogelio but failed to
locate him (p. 20, tsn., March 21, 1974; pp. 10, 20, tsn., March 22,
1974).
Returning from the barrio captain's house, Pastora Simon
investigated Clara, who revealed to her that she was carried away
from the trunk where she was seated, then forcibly laid on the
floor to have sexual intercourse with Rogelio (pp. 20, 21, tsn.,
March 21, 1974).
The next day - January 4, 1974 - Clara Mina, accompanied by her
parents, denounced Rogelio de Jesus to the police authorities (p.
20, tsn., March 22, 1974). Clara Mina was examined by Fernando
Babaran, Municipal Health Officer of Echague, lsabela at the
Southern Isabela Emergency Hospital, the municipal health officer
of Alicia being then on leave (p. 6, tsn., March 22, 1974). The
medical certificate, Exhibit "C", issued by Dr. Babaran, shows the
following findings:
(1) hymenal lacerations at 3 o'clock, 8 o'clock and 11 o'clock.
(2) vagina admits one finger with ease. Two fingers with difficulty.
(3) fresh perineal abrasion.
(4) smear, not done due to lack of microscope.
(5) contusion - left temporal area. Lesions to heal within one
week. (p. 3, Record).

According to Dr. Babaran, the abrasions were possibly inflicted

the day prior to the examination and that the contusion on the left
temporal area of the girl's head could have been caused when her
head was pushed against a hard object (pp. 11, 12, tsn., March
22, 1974).
Subsequently, Rogelio de Jesus was surrendered by his brotherin-law, a councilor to the Alicia Police Department. He executed
an affidavit, Exhibit "D" subscribed before Alicia Municipal Judge
Flor Egipto on January 5, 1974, admitting that he had sexual
intercourse once with Clara Mina, but denying that he raped her
(p. 7, record).
The accused denied that he had forced the complainant to have
sexual intercourse with him and that he only inserted his
forefinger inside the complainant's private parts. He testified that
he admitted having sexual intercourse once with complainant in
his affidavit[[1]] because of maltreatment employed upon him by
the jail guards.
While the affidavit executed by the accused is not admissible in
evidence for lack of evidence showing that the accused during the
custodial investigation was apprised of his constitutional rights
under Art. IV, Sec. 20, of the New Constitution,[[2]] still there is
sufficient evidence on record that the accused had performed the
sexual act to wit:
1. The accused testified that he merely inserted his forefinger into
the complainant's vagina to cure her of her mental malady. The
records, however show, from the testimony of both the
prosecution and the defense, that the accused laid on top of
complainant. If appellant's purpose was merely to insert his
forefinger into the complainant's vagina, then there is no necessity
of lying on top of complainant.
2. Complainant testified, contrary to the testimony of the accused,
that the latter brought out his penis and inserted it into her vagina
which pained her a lot.
3. The hymenal lacerations and the fresh perineal abrasions in
complainant's vagina corroborated her testimony that the accused
had sexual intercourse with her.
The accused assailed the competence of the complainant as a
witness on the ground that being feeble minded she is not a
competent witness in contemplation of the rules and therefore her
testimony should have been rejected by the lower court. That the
complainant was feeble-minded and had displayed difficulty in
comprehending the questions propounded on her is an
undisputed fact. However, there is no showing that she could not
convey her Ideas by words or signs. It appears in the records that
complainant gave sufficiently intelligent answers to the questions
propounded by the court and the counsels. The court is satisfied
that the complainant can perceive and transmit in her own way
her own perceptions to others. She is a competent witness.
Having sexual intercourse with a feeble-minded woman is rape.
The offense is described under paragraph 2 of Article 335 of the
Revised Penal Code, that is, the offender having carnal
knowledge of a woman deprived of reason. The Court, in the case
of People vs. Daing,[[3]] said:
The offense committed by appellant is rape described under
paragraph 2 of Article 335 of the Revised Penal Code, that is, the
offender having carnal knowledge of a woman deprived of reason.
The deprivation of reason contemplated by law does not need to
be complete. Mental abnormality or deficiency is enough. So it
was held by the Supreme Court of Spain that a man having carnal
knowledge of a woman whose mental faculties are not normally
developed or who is suffering from hemiplegia and mentally
backward or who is an Idiot commits the crime of rape. ...
Being feeble-minded, complainant is incapable of thinking and
reasoning like any normal human being and not being able to
think and reason from birth as aforesaid, and undoubtedly devoid
or deficient in those instincts and other mental faculties that
characterize the average and normal mortal, she really has no will
that is free and voluntary of her own; hers is a defective will,
which is incapable of freely and voluntarily giving such consent so
necessary and essential in lifting coitus from the place of

45
criminality.[[4]] In this connection, the Solicitor General properly
stated:
That complainant possesses such a low mental capacity, to the
extent of being incapable of giving consent, could be gleaned
from the fact, as testified to by her mother, that she is unable to
do the simple tasks of combing her hair and bathing herself. Thus,
even granting it to be true, as counsel has insinuated, that
complainant had submitted to the sexual act without resistance (p.
9 Appellant's Brief) such cannot be construed as consent on her
part, so as to preclude it from being rape. Incapable of giving
consent, she could not thus consent in intelligently.[[5]]
WHEREFORE, the appealed decision is AFFIRMED in toto.
Makasiar (Chairman), Aquino, Guerrero, Abad Santos, De Castro
and Escolin, JJ., concur.