G.R. No.

96405 June 26, 1996

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

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.
CA denied and ordered the entry of judgment in this
case.

ROMERO, J.:

Nonetheless, we find the petition unmeritorious.

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.

Annexed to the petition is a copy of an affidavit executed

on May 3, 1988, or after the rendition of the decision of
the lower court, by Gregorio Pantanosas, Jr., an MTCC
judge and petitioner's co-maker in the promissory note. It
supports petitioner's allegation that they were induced to
sign the promissory note on the belief that it was only for
P5,000.00, adding that it was Campos who caused the
amount of the loan to be increased to P50,000.00.

Petitioner alleged that sometime in January 1983, he

was approached by his friend, Rudy Campos, who told
him that he was a partner of Pio Tio, the branch
manager of private respondent in Cagayan de Oro City,
in the falcata logs operation business. Campos also
intimated to him that Rene C. Naybe was interested in
the business and would contribute a chainsaw to the
venture. He added that, although Naybe had no money
to buy the equipment, Pio Tio had assured Naybe of the
approval of a loan he would make with private
respondent. Campos then persuaded petitioner to act as
a "co-maker" in the said loan. Petitioner allegedly
acceded but with the understanding that he would only
be a co-maker for the loan of P50,000.00.
Petitioner alleged further that five (5) copies of a
blank promissory note were brought to him by
Campos at his office. He affixed his signature
thereto but in one copy, he indicated that he bound
himself only for the amount of P5,000.00. Thus, it was
by trickery, fraud and misrepresentation that he was
made liable for the amount of P50,000.00.
In the aforementioned decision of the lower court, it
noted that the typewritten figure "P50,000-" clearly
appears directly below the admitted signature of the
petitioner in the promissory note. 3 Hence, the latter's
uncorroborated testimony on his limited liability
cannot prevail over the presumed regularity and fairness
of the transaction, under Sec. 5 (q) of Rule 131. The
lower court added that it was "rather odd" for petitioner
to have indicated in a copy and not in the original, of
the promissory note, his supposed obligation in the
amount of P5,000.00 only. Finally, the lower court held
that even granting that said limited amount had actually
been agreed upon, the same would have been merely
collateral between him and Naybe and, therefore, not
binding upon the private respondent as creditor-bank.
The lower court also noted that petitioner was a holder of
a Bachelor of Laws degree and a labor consultant who
was supposed to take due care of his concerns, and
that, on the witness stand, Pio Tio denied having

Nor is there merit in petitioner's assertion that since the

promissory note "is not a public deed with the formalities
prescribed by law but . . . a mere commercial paper
which does not bear the signature of . . . attesting
witnesses," parol evidence may "overcome" the contents
9
of the promissory note. The first paragraph of the parol
10
evidence rule states:
When the terms of an agreement have been reduced to
writing, it is considered as containing all the terms
agreed upon and there can be, between the parties and
their successors in interest, no evidence of such terms
other than the contents of the written agreement.
Clearly, the rule does not specify that the written
agreement be a public document.
What is required is that agreement be in writing as the
rule is in fact founded on "long experience that written
evidence is so much more certain and accurate than that
which rests in fleeting memory only, that it would be
unsafe, when parties have expressed the terms of their
contract in writing, to admit weaker evidence to control
and vary the stronger and to show that the parties
intended a different contract from that expressed in the
writing signed by them." 11 Thus, for the parol
evidence rule to apply, a written contract need not
be in any particular form, or be signed by both
parties. 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.
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.
G.R. No. 174719
HEIRS OF PACRES vs. HEIRS OF YGONIA
While contracts are generally obligatory in whatever
form they may have been entered into, it remains imperative

for a party that seeks the performance thereof to prove the

existence and the terms of the contract by a preponderance of
evidence. Bare assertions are not the quantum of proof
contemplated by law.
Factual Antecedents
Lot No. 9 is a 1,007 square meter parcel of land
located at Kinasang-an, Pardo, Cebu City and fronting
the Cebu provincial highway. The lot originally belonged to
Pastor Pacres (Pastor) who left it intestate to his
[6]
heirs Margarita, Simplicia, Rodrigo, Francisco, Mario
(petitioners predecessor-in-interest) and Vearanda (herein
petitioner). Petitioners admitted that at the time of Pastors
death in 1962, his heirs were already occupying definite
portions of Lot No. 9. The front portion along the provincial
highway was occupied by the co-owned Pacres ancestral
[7]
home, and beside it stood Rodrigos hut (also fronting the
provincial highway). Marios house stood at the back of the
[8]
ancestral house. This is how the property stood in 1968, as
confirmed by petitioner Valentinas testimony.
[9]

On the same year, the heirs leased the ground

floor of the [ancestral home] together with a lot area of 300
square meters including the area occupied by the house to
respondent Hilario Ramirez (Ramirez), who immediately took
possession thereof. Subsequently in 1974, four of the Pacres
[10]
siblings (namely, Rodrigo, Francisco, Simplicia and
Margarita) sold their shares in the ancestral home and the lot
on which it stood to Ramirez. The deeds of sale described
the subjects thereof as part and portion of the 300
square meters actually in possession and enjoyment by
vendee and her spouse, Hilario Ramirez, by virtue of a
[11]
contract of lease in their favor. The Deed of Sale of
Right in a House executed by Rodrigo and Francisco was
more detailed, to wit:
x x x do hereby sell, cede, transfer and convey, forever and in
absolute manner, our shares interests and participation in a
house of mixed materials under roof of nipa which is
[12]
constructed inside Lot No. 5506 of the Cadastral Survey of
Cebu, the lot on which the house is constructed has already
been sold to and bought by the herein vendee from our
brothers and sisters; that this sale pertains only to our rights
and interests and participation in the house which we inherited
[13]
from our late father Pastor Pacres.
With the sale, respondent Ramirezs possession as lessee
turned into a co-ownership with petitioners Mario and
Vearanda, who did not sell their shares in the house and
lot.
]

[15]

On various dates in 1971, Rodrigo, Francisco, and

Simplicia sold their remaining shares in Lot No. 9 to
respondent Cecilia Ygoa (Ygoa). In 1983, Margarita also
sold her share to Ygoa. The total area sold to Ygoa was
493 square meters.
In 1984, Ygoa filed a petition to survey and
[18]
segregate the portions she bought from Lot No. 9. Mario
objected on the ground that he wanted to exercise his right as
co-owner to redeem his siblings shares. Vendee Rodrigo
also opposed on the ground that he wanted to annul the sale

for failure of consideration. On the other hand, Margarita and

the widow of Francisco both manifested their assent to
Ygoas petition. By virtue of such manifestation, the court
[19]
issued a writ of possession respecting Margaritas and
Franciscos shares in favor of Ygoa. It is by authority of this
writ that Ygoa built her house on a portion of Lot No.
9. Considering, however, the objections of the two other
Pacres siblings, the trial court subsequently dismissed the
petition so that the two issues could be threshed out in the
proper proceeding. Mario filed the intended action while
Rodrigo no longer pursued his objection.
[20]

The complaint for legal redemption, filed by Mario

and Vearanda, was dismissed on the ground of improper
exercise of the right. The decision was affirmed by the
[21]
appellate court and attained finality in the Supreme
[22]
Court on December 28, 1992. The CA held that the
complaint was filed beyond the 30-day period provided in
Article 1623 of the New Civil Code and failed to comply with
the requirement of consignation. It was further held that
Ygoa built her house on Lot No. 9 in good faith and it would
be unjust to require her to remove her house thereon.
On June 18, 1993, the Republic of the Philippines,
through the Department of Public Works and Highways
(DPWH), expropriated the front portion of Lot No. 9 for the
expansion of the Cebu south road. The petition for
expropriation was filed in Branch 9 of the RTC
of Cebu City and docketed as Civil Case No. CEB[23]
14150. As occupant of the expropriated portion, Ygoa
moved to withdraw her corresponding share in the
expropriation payment. Petitioners opposed the said
[24]
motion. The parties did not supply the Court with the
pleadings in the expropriation case; hence, we are unaware of
the parties involved and the issues presented
therein. However, from all indications, the said motion of
Ygoa remains unresolved.
On July 20, 1993, the Pacres siblings (Margarita and
Francisco were already deceased at that time and were only
represented by their heirs) executed a Confirmation of Oral
[25]
Partition/Settlement of Estate of Pastor Pacres. The
relevant statements in the affidavit read:
1.

That our father the late Pastor Pacres died

instestate at Kinasang-an, Pardo, Cebu City on January
2, 1962;

2.

That he left some real properties, one of which is a

parcel of land (Lot No. 9, PCS 07-01-000006, Cebu Cad.,
located at Kinasang-an, Pardo, Cebu City);

3.

That after the death of Pastor Pacres, the abovenamed children declared themselves extra-judicially as
heirs of Pastor Pacres and they likewise adjudicated unto
themselves the above described lot and forthwith MADE
AN ORAL PARTITION;

4.

That in that ORAL PARTITION, the shares or

portion to be allotted to Mario Pacres and Vearanda
Pacres Vda. de Ababa shall be fronting the national

highway, while the shares of the rest shall be located

at the rear;
5.

That recently, the said heirs had the said lot

surveyed to determine specifically their respective
locations in accordance with the oral partition made after
the death of Pastor Pacres;

6.

That a sketch of the subdivision plan is hereto

attached, duly labeled, indicating the respective locations
of the shares of each and every heir.

On September 30, 1994, Mario, petitioners

predecessor-in-interest, filed an ejectment suit against
Ramirez successor-in-interest Vicentuan. Mario claimed sole
ownership of the lot occupied by Ramirez/Vicentuan by virtue
of the oral partition. He argued that Ramirez/Vicentuan should
pay rentals to him for occupying the front lot and should
transfer to the rear of Lot No. 9 where the lots of Ramirezs
vendors are located.
The court dismissed Marios assertion that his
siblings sold the rear lots to Ramirez. It held that the deeds of
sale in favor of Ramirez clearly described the object of the sale
[26]
as the ancestral house and lot. Thus, Ramirez has a right
to continue occupying the property he bought. The court
further held that since Mario did not sell his pro-indiviso shares
in the house and lot, at the very least, the parties are coowners thereof. Co-owners are entitled to occupy the co[27]
owned property.
The Complaint for Specific Performance
On June 3, 1996, Vearanda and the heirs of Mario
[28]
filed the instant complaint for specific performance against
Ygoa and Ramirez. Contrary to Marios allegations of coownership over Lot No. 9 in the legal redemption case,
Marios heirs insist in the action for specific performance that
the heirs agreed on a partition prior to the sale. They seek
compliance with such agreement from their siblings vendees,
Ygoa and Ramirez, on the basis that the two were privy to
these agreements, hence bound to comply therewith. In
compliance with such partition, Ygoa and Ramirez should
desist from claiming any portion of the expropriation payment
for the front lots.
Their other cause of action is directed solely at
Ygoa, whom they insist agreed to additional, albeit unwritten,
obligations other than the payment of the purchase price of
the shares in Lot No. 9. Vearanda and Marios heirs insist
that Ygoa contracted with her vendors to assume all
obligations regarding the payment of past and present estate
taxes, survey Lot No. 9 in accordance with the oral partition,
and obtain separate titles for each portion. While these
obligations were not written into the deeds of sale, petitioners
insist it is not subject to the Statute of Frauds since these
obligations were allegedly partly complied with by
Ygoa. They cite as evidence of Ygoas compliance the
survey of her purchased lots and payment of realty taxes.

Respondents denied privity with the heirs oral partition.

They further maintained that no such partition took place and
that the portions sold to and occupied by them were located in
front of Lot No. 9; hence they are the ones entitled to the
[29]
expropriation payment. They sought damages from the
unfounded suit leveled against them. To discredit petitioners
assertion of an oral partition, respondents presented Exhibit
No. 1, which petitioner Valentina herself executed during her
testimony. Exhibit No. 1 demonstrated Valentinas recollection
of the actual occupation of the Pacres siblings, their heirs and
vendees. The sketch undermined petitioners allegation that
the heirs partitioned the propertyand immediately took
possession of their allotted lots/shares. Ygoa also denied
ever agreeing to the additional obligations being imputed
against her.
Ruling of the Regional Trial Court
[30]

The trial court ruled in favor of respondents. It held

that petitioners failed to prove partition of the lot in accordance
with petitioners version. Instead, the trial court held that the
parties actual occupation of their portions in Lot No. 9, as
evidenced by petitioner Valentinas sketch, is the real
agreement to which the parties are bound. Apparently
unsatisfied with the parties state of affairs, the trial court
further ordered that a survey of the lot according to the parties
actual occupation thereof be conducted.
Petitioners motion for
reconsideration
was
[31]
denied. Unsatisfied with the adverse decision, petitioners
appealed to the CA questioning the factual findings of the trial
court and its reliance on Exhibit 1. They maintained that
Valentina was incompetent and barely literate; hence, her
sketch should not be given weight.
Ruling of the Court of Appeals
The appellate court sustained the ruling of the trial court
insofar as it dismissed petitioners complaint for lack of
evidence. It held that the oral partition was not valid
because the heirs did not ratify it by taking possession of
their shares in accordance with their oral
agreement. Moreover, the CA ruled that Ygoas sole
undertaking under the deeds of sale was the payment of the
purchase price. Since petitioners did not question the validity
of the deeds and did not assail its terms as failing to express
the true intent of the parties, the written document stands
superior over the allegations of an oral agreement.
It, however, reversed the trial court on the latters order
to survey the lot in accordance with Valentinas sketch. The
appellate court explained that while it was conclusive that
Ygoa and Ramirez bought portions of the property from
some of the Pacres siblings, the issue of the actual area and
location of the portions sold to them remains unresolved. The
CA narrated all the unresolved matters that prevented a
finding that definitively settles the partition of Lot No. 9. The
CA emphasized that the question regarding ownership of the
front lots and the expropriation payment should be threshed
out in the proper proceeding.

The CA likewise found no basis for the award of

damages to either party. Petitioners Motion for
Reconsideration was denied, hence this petition.
Issues
[34]

Petitioners formulated the following issues:

1.

Whether or not this complaint for

specific performance, damages and
attorneys fee [sic] with a prayer for the
issuance of a restraining order and later
on issuance of a writ of permanent
injunction is tenable.

2.

Whether or not the area

purchased and owned by respondents
in Lot No. 9 is located along or fronting
the national highway.

3.

4.

Whether or not the lower court

committed grave abuse of discretion by
rendering a decision not in accord with
laws and applicable decisions of the
Supreme Court, resulting to the unrest
of this case.
Whether or not it is lawful for the
respondents to claim ownership of
the P220,000.00 which the government
set aside for the payment of the
expropriated area in Lot No. 9, fronting
the highway, covered by the road
widening.

Consolidated and simplified, the issues to be resolved

are:
I
Whether petitioners were able to prove the
existence of the alleged oral agreements
such as the partition and the additional
obligations of surveying and titling
II
Whether the issue of ownership regarding
the front portion of Lot No. 9 and entitlement
to the expropriation payment may be
resolved in this action
Our Ruling
Whether petitioners were able to prove the existence of the
alleged oral agreements such as the partition and the
additional obligations of surveying and titling
Both the trial and appellate courts dismissed
petitioners complaint on the ground that they had failed to
prove the existence of an oral partition. Petitioners now insist
that the two courts overlooked facts and circumstances that

are allegedly of much weight and will alter the decision if

[35]
properly considered.
Petitioners would have the Court review the evidence
presented by the parties, despite the CAs finding that the trial
court committed no error in appreciating the evidence
presented during the trial. This goes against the rule that this
Court is not a trier of facts. Such questions as whether
certain items of evidence should be accorded probative value
or weight, or rejected as feeble or spurious, or whether or not
the proofs on one side or the other are clear and convincing
and adequate to establish a proposition in issue, are without
[36]
doubt questions of fact. Questions like these are not
reviewable by this Court which, as a rule, confines its review of
cases decided by the CA only to questions of law, which may
be resolved without having to re-examine the probative value
[37]
of the evidence presented.
We find no compelling reason to deviate from the
foregoing rule and disturb the trial and appellate courts factual
finding that the existence of an oral partition was not
proven. Our examination of the records indicates that,
contrary to petitioners contention, the lower courts conclusion
was justified.
Petitioners only piece of evidence to prove the
alleged oral partition was the joint affidavit (entitled
Confirmation
of
Oral
Partition/Settlement
of
Estate) supposedly executed by some of the Pacres siblings
and their heirs in 1993, to the effect that such an oral partition
had previously been agreed upon. Petitioners did not
adequately explain why the affidavit was executed only in
1993, several years after respondents Ygoa and Ramirez
[38]
took possession of the front portions of Lot No. 9. If there
had been an oral partition allotting the front portions to
petitioners since Pastors death in 1962, they should have
immediately objected to respondents occupation. Instead,
they only asserted their ownership over the front lots
beginning in 1993 (with the execution of their joint affidavit)
when expropriation became imminent and was later filed in
court.
Petitioners assertion of partition of Lot No. 9 is further
belied by their predecessor-in-interests previous assertion of
co-ownership over the same lot in the legal redemption case
[39]
filed 10 years before. The allegations therein, sworn to as
truth by Mario and Vearanda, described Lot No. 9 as a parcel
of land that is co-owned by the Pacres siblings pro indiviso. It
was further alleged that Ygoa bought the undivided shares of
Rodrigo, Francisco, Margarita, and Simplicia.
The statements in the legal redemption case are
[40]
extrajudicial admissions, which were not disputed by
petitioners. These admissions may be given in evidence
[41]
against them. At the very least, the polarity of their previous
admissions and their present theory makes the latter highly
suspect.
Moreover, petitioners failed to show that the Pacres
siblings took possession of their allotted shares after they had
supposedly agreed on the oral partition. Actual possession
and exercise of dominion over definite portions of the property

in accordance with the alleged partition would have been

[42]
strong proof of an oral partition. In this case, however,
petitioners failed to present any evidence that the petitioners
took actual possession of their respective allotted shares
according to the supposed partition. In fact, the evidence of
the parties point to the contrary. Petitioner Valentina herself
[43]
drew a sketch showing the location of the actual occupants
of Lot No. 9, but the actual occupation shown in her sketch is
not in accordance with the terms of the alleged oral
[44]
partition. According to the terms of the alleged oral partition,
the front portions of Lot No. 9 were supposed to have been
occupied by petitioners, but Valentinas sketch indicates that
the actual occupants of the said portions are respondents.
In fine, we rule that the records contain ample
support for the trial and appellate courts factual findings that
petitioners failed to prove their allegation of oral
partition. While petitioners claim that the trial and appellate
courts did not appreciate their evidence regarding the
existence of the alleged oral partition, the reality is that their
evidence is utterly unconvincing.
With respect to the alleged additional obligations
which petitioners seek to be enforced against respondent
Ygoa, we likewise find that the trial and appellate courts did
not err in rejecting them. Petitioners allege that when Ygoa
bought portions of Lot No. 9 from petitioners four siblings,
aside from paying the purchase price, she also bound herself
to survey Lot No. 9 including the shares of the petitioners (the
non-selling siblings); to deliver to petitioners, free of cost, the
titles corresponding to their definite shares in Lot No. 9; and to
pay for all their past and present estate and realty
[45]
taxes. According to petitioners, Ygoa agreed to these
undertakings as additional consideration for the sale, even
though they were not written in the Deeds of Sale.
Like the trial and appellate courts, we find that these
assertions by petitioners have not been sufficiently
established.
In the first place, under Article 1311 of the Civil Code,
contracts take effect only between the parties, their assigns
and heirs (subject to exceptions not applicable here). Thus,
only a party to the contract can maintain an action to enforce
[46]
the obligations arising under said contract. Consequently,
petitioners, not being parties to the contracts of sale between
Ygoa and the petitioners siblings, cannot sue for the
enforcement of the supposed obligations arising from said
contracts.
It is true that third parties may seek enforcement of a
contract under the second paragraph of Article 1311, which
provides that if a contract should contain some stipulation in
favor of a third person, he may demand its fulfillment. This
refers to stipulations pour autrui, or stipulations for the benefit
of third parties. However, the written contracts of sale in this
case contain no such stipulation in favor of the
petitioners. While petitioners claim that there was
an oral stipulation, it cannot be proven under the Parol
Evidence Rule. Under this Rule, [w]hen 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
[47]
agreement. While the Rule admits of exception, no such
exception was pleaded, much less proved, by petitioners.
The Parol Evidence Rule applies to the parties and
their successors in interest. Conversely, it has no application
to a stranger to a contract. For purposes of the Parol
Evidence Rule, a person who claims to be the beneficiary of
an alleged stipulation pour autrui in a contract (such as
petitioners) may be considered a party to that contract. It has
been held that a third party who avails himself of a
stipulation pour autrui under a contract becomes a party to
[48]
that contract. This is why under Article 1311, a beneficiary
of a stipulation pour autrui is required to communicate his
acceptance to the obligor before its revocation.
Moreover, to preclude the application of Parol
Evidence Rule, it must be shown that 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
[49]
relation established thereby.
A beneficiary of a
stipulation pour autrui obviously bases his claim on the
contract. He therefore cannot claim to be a stranger to
the contract and resist the application of the Parol
Evidence Rule.
Thus, even assuming that the alleged oral
undertakings invoked by petitioners may be deemed
stipulations pour autrui, still petitioners claim cannot prosper,
because they are barred from proving them by oral evidence
under the Parol Evidence Rule.
Whether the issue of ownership regarding the front
portion of Lot No. 9 and entitlement to the expropriation
payment may be resolved in this action
Petitioners characterize respondents claim over the
expropriation payment as unlawful on the ground that the
expropriated portion belongs to petitioners per the alleged oral
partition. They also maintain that Ygoa is barred by laches
from claiming the front portion because she waited 13 years
from the time of the sale to claim her share via petition for
subdivision and survey.
On the other hand, respondents charge petitioners with
forum-shopping on the ground that the issue of ownership had
already been submitted to the expropriation court. The trial
court affirmed this argument stating that petitioners resorted to
forum-shopping, while the appellate court ruled that it could
not determine the existence of forum-shopping considering
that it was not provided with the pleadings in the expropriation
case.
We agree with the CA on this score. The parties did
not provide the Court with the pleadings filed in the
expropriation case, which makes it impossible to know the
extent of the issues already submitted by the parties in the
expropriation case and thereby assess whether there was
forum-shopping.

Nonetheless, while we cannot rule on the existence of

forum-shopping for insufficiency of evidence, it is correct that
the issue of ownership should be litigated in the expropriation
[50]
court. The court hearing the expropriation case is
empowered to entertain the conflicting claims of ownership of
the condemned property and adjudge the rightful owner
[51]
thereof, in the same expropriation case. This is due to the
intimate relationship of the issue of ownership with the claim
for the expropriation payment. Petitioners objection regarding
respondents claim over the expropriation payment should
have been brought up in the expropriation court as opposition
to respondents motion. While we do not know if such
[52]
objection was already made, the point is that the proper
venue for such issue is the expropriation court, and not here
where a different cause of action (specific performance) is
being litigated.
We also cannot agree with the trial courts order to
partition the lot in accordance with Exhibit No. 1 or the sketch
prepared by petitioner Valentina. To do so would resolve the
issue of ownership over portions of Lot No. 9 and effectively
preempt the expropriation court, based solely on actual
occupation (which was the only thing which Exhibit No. 1
could have possibly proved). It will be remembered that
Exhibit No. 1 is simply a sketch demonstrating the portions of
Lot No. 9 actually occupied by the parties. It was offered
simply to impeach petitioners assertion of actual occupation in
accordance with the terms of the alleged oral partition.
Let it be made clear that our ruling, just like those of
the trial court and the appellate court, is limited to resolving
petitioners action for specific performance. Given the finding
that petitioners failed to prove the existence of the alleged oral
partition and the alleged additional consideration for the sale,
they cannot compel respondents to comply with these
inexistent obligations. In this connection, there is no basis for
petitioners claim that the CA Decision was incomplete by not
definitively ruling on the ownership over the front lots. The CA
decision is complete. It ruled that petitioners failed to prove
the alleged obligations and are therefore not entitled to specific
performance thereof.
WHEREFORE, the petition is DENIED. The assailed
October 28, 2005 Decision of the Court of Appeals in CA-G.R.
No. 174719, as well as its August 31, 2006 Resolution,
are AFFIRMED.
G.R. No. 95529 August 22, 1991
MAGELLAN MANUFACTURING MARKETING
CORPORATION, * petitioner,
vs.
COURT OF APPEALS, ORIENT OVERSEAS
CONTAINER LINES and F.E. ZUELLIG, INC.
respondents.
FACTS:
1. Petitioner Magellan Manufacturers Marketing Corp.
(MMMC) entered into a contract with Choju Co. of
Yokohama, Japan to export 136,000 anahaw fans.

2. As payment thereof, a letter of credit was issued to

MMMC by the buyer.
3. Through its president, James Cu, MMMC then
contracted F.E. Zuellig, a shipping agent, to ship the
anahaw fans through the other private respondent,
Orient Overseas Container Lines, Inc., (OOCL)
specifying that he needed an on-board bill of lading
and that transhipment is not allowed under the letter
of credit.
4. MMMC paid F.E. Zuellig the freight charges and
secured a copy of the bill of lading which was
presented to Allied Bank.
5. The bank then credited the amount covered by the
letter of credit to MMMC's account. ($23,000)
6. However, when MMMC's president James Cu, went
back to the bank, he was informed that the payment
was refused by the buyer allegedly because there
was no on-board bill of lading, and there was a
transhipment of goods.
7. As a result of the refusal of the buyer to accept,
upon MMMC's request, the anahaw fans were
shipped back to Manila by OOCL.
8. When petitioner informed F.E Zuelig about what
happened, the latter issued a certificate stating that
its bill of lading it issued is an on-board bill of lading
and that there was no actual transhipment of the
fans. According to private respondents when the
goods are transferred from one vessel to another
which both belong to the same owner which was
what happened to the Anahaw fans, then there is
(no) transhipment. Petitioner sent this certification to
Choju Co., Ltd., but the said company still refused to
accept the goods in Japan.
9. Private respondents billed petitioner for the amount
of such shipment and for demurrage in Japan.
10. In a letter, private respondents gave petitioner the
option of paying the sum of P51,271.02 or to
abandon the Anahaw fans to enable private
respondents to sell them at public auction to cover
the cost of shipment and demurrages.
11. Petitioner opted to abandon the goods. However, in
a letter, private respondents demanded for payment
from petitioner the amount representing the freight
charges and demurrage incurred in Japan and
Manila; and charges for stripping the container van
of the Anahaw fans.
12. Petitioner filed a complaint praying that private
respondents be ordered to pay whatever petitioner
was not able to earn from Choju Co., Ltd., and other
damages since private respondents are to blame for
the refusal of Choju Co., Ltd. to accept the Anahaw
fans.
13. In answer thereto the private respondents alleged
that the bill of lading clearly shows that there will be
a transhipment and that petitioner was well aware
that MV (Pacific) Despatcher was only up to
Hongkong where the subject cargo will be
transferred to another vessel for Japan.
14. Private respondents also filed a counterclaim
praying that petitioner be ordered to pay freight
charges from Japan to Manila and the demurrages.

15. LC decided in favor of private respondents. It

dismissed the complaint on the ground that
petitioner had given its consent to the contents of
the bill of lading where it is clearly indicated that
there will be transhipment.
16. CA reduced the amount of freight charges
ISSUE: WHETHER CA ERRED IN AFFIRMING THE
DECISION OF THE TRIAL COURT WHICH DISMISSED
PETITIONERS COMPLAINT
HELD:
I. Petitioner insists that "(c)onsidering that there was no
actual transhipment of the Anahaw fans, then there is no
occasion under which the petitioner can agree to the
transhipment of the Anahaw fans because there is
nothing like that to agree to" and "(i)f there is no actual
transhipment but there appears to be a transhipment in
the bill of lading, then there can be no possible reason
for it but a mistake on the part of the private
respondents.
Petitioner, in effect, is saying that since there was a
mistake in documentation on the part of private
respondents, such a mistake militates against the
conclusiveness of the bill of lading insofar as it reflects
the terms of the contract between the parties, as an
exception to the parol evidence rule, and would therefore
permit it to explain or present evidence to vary or
contradict the terms of the written agreement, that is, the
bill of lading involved herein.
It is a long standing jurisprudential rule that a bill of
lading operates both as a receipt and as a contract. It is
a receipt for the goods shipped and a contract to
transport and deliver the same as therein stipulated. As
a contract, it names the parties, which includes the
consignee, fixes the route, destination, and freight rates
or charges, and stipulates the rights and obligations
assumed by the parties. Being a contract, it is the law
between the parties who are bound by its terms and
conditions provided that these are not contrary to law,
morals, good customs, public order and public policy. A
bill of lading usually becomes effective upon its delivery
to and acceptance by the shipper. It is presumed that the
stipulations of the bill were, in the absence of fraud,
concealment or improper conduct, known to the shipper,
and he is generally bound by his acceptance whether he
reads the bill or not.
The holding in most jurisdictions has been that a shipper
who receives a bill of lading without objection after an
opportunity to inspect it, and permits the carrier to act on
it by proceeding with the shipment is presumed to have
accepted it as correctly stating the contract and to have
assented to its terms. In other words, the acceptance of
the bill without dissent raises the presumption that all the
terms therein were brought to the knowledge of the
shipper and agreed to by him and, in the absence of
fraud or mistake, he is estopped from thereafter denying

that he assented to such terms. This rule applies with

particular force where a shipper accepts a bill of lading
with full knowledge of its contents and acceptance under
such circumstances makes it a binding contract.
In the light of the series of events that transpired in the
case at bar, there can be no logical conclusion other
than that the petitioner had full knowledge of, and
actually consented to, the terms and conditions of the bill
of lading thereby making the same conclusive as to it,
and it cannot now be heard to deny having assented
thereto. As borne out by the records, James Cu himself,
in his capacity as president of MMMC, personally
received and signed the bill of lading. On practical
considerations, there is no better way to signify consent
than by voluntarily signing the document which
embodies the agreement.
Under the parol evidence rule, the terms of a contract
are rendered conclusive upon the parties, and evidence
aliunde is not admissible to vary or contradict a complete
and enforceable agreement embodied in a document,
subject to well defined exceptions which do not obtain in
this case. The parol evidence rule is based on the
consideration that when the parties have reduced their
agreement on a particular matter into writing, all their
previous and contemporaneous agreements on the
matter are merged therein. Accordingly, evidence of a
prior or contemporaneous verbal agreement is generally
not admissible to vary, contradict or defeat the operation
of a valid instrument. The mistake contemplated as an
exception to the parol evidence rule is one which is a
mistake of fact mutual to the parties. Furthermore, the
rules on evidence, as amended, require that in order that
parol evidence may be admitted, said mistake must be
put in issue by the pleadings, such that if not raised
inceptively in the complaint or in the answer, as the case
may be, a party cannot later on be permitted to introduce
parol evidence thereon. Needless to say, the mistake
adverted to by herein petitioner, and by its own
admission, was supposedly committed by private
respondents only and was raised by the former rather
belatedly only in this instant petition. Clearly then, and
for failure to comply even only with the procedural
requirements thereon, we cannot admit evidence to
prove or explain the alleged mistake in documentation
imputed to private respondents by petitioner.
[G.R. No. L-18077. September 29, 1962.]
RODRlGO ENRIQUEZ, ET AL., plaintiffs-appellants,
vs. SOCORRO A. RAMOS, defendant-appellee.
Gelacio L. Dimaano for plaintiff-appellants.
Vicente K. Aranda for defendant-appellee.
PAROLE EVIDENCE PERMISSIBLE IF THERE IS
ALLEGATION
IN
THE
PLEADINGS
THAT
AGREEMENT DOES NOT EXPRESS TRUE INTENT.
Section 22, Rule 123 of the Rules of Court, which
provides that when the terms of an agreement have
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 thereof can be admitted

between the parties, holds true only if there is no
allegation in the pleadings that the agreement does not
express the true intent of the parties.
Action for foreclosure of a real estate mortgage.
BAUTISTA ANGELO, J p:
Events prior to the present case:

Plaintiffs entered into a contract of conditional sale

with one Pedro del Rosario.
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.

Present case:
1. Defendant purchased from plaintiffs 20 parcels of
land located in Quezon City and covered by TCTs
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.
2. To secure the payment of the balance of
P200,000.00 defendant executed a mortgage in
favor of plaintiff 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;
registered in the Office of the Registers of Deeds of
Quezon City and Pampanga;

3. Defendant broke certain stipulations contained in

said deed of sale with mortgage, plaintiffs instituted
the present foreclosure proceedings.
4. Defendant set up as affirmative defense:
a. 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;
b. 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;
c. 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;
d. and that, upon the suggestion of plaintiffs'
counsel, their promise to construct the roads
was not included in the contract because the
ordinance was deemed part of the contract.
e. 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.
5. Trial Court sustained the contention of defendant
and dismissed the complaint on the ground that the
action of plaintiffs was premature.
6. 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.

ISSUE: Was an oral agreement, coetaneous to the

execution of the contract of sale, entered into between
the parties to the effect that plaintiffs would undertake
the construction of the roads on the lots sold before
defendant could be required to comply with her financial
obligation?
RULING:
It is argued that the court a quo erred in allowing the
presentation of parole evidence to prove that a
contemporaneous oral agreement was also reached
between the parties relative to the construction of the
roads for the 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 thereof can be admitted between the
parties (Section 22, Rule 123). This rule, however, only
holds true if there is no allegation that the agreement

does not express the true intent of the parties. If there is

and this claim is put in issue in the pleadings, the same
may be the subject of 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.
[G.R. No. 94563. March 5, 1991.]
MEYNARDO C. POLICARPIO and LOURDES
POLICARPIO, petitioners, vs. HONORABLE COURT
OF APPEALS, EVELYN Q. CATABAS, ROMULO Q.
CATABAS and CLEMENTE CATABAS, respondents.

GUTIERREZ, JR., J p:
1. Petitioners-spouses Meynardo C. Policarpio and
Lourdes Policarpio and private respondents
Evelyn Romulo and Clemente, all surnamed
Catabas executed a "Contract to Sell" whereby
the private respondents agreed to buy and the
petitioners-spouses to sell a residential lot of
about 300 square meters with a house and other
improvements located at Servillana Street, UE
Village, Cainta, Rizal.
2. The property is covered by TCT No. 501812
Registry of Deeds, Province of Rizal. The
agreed purchase price was the amount of
P270,000 payable as follows: (1) P10,000.00
upon signing of the Contract to Sell; and (2) the
balance of P260,000.00 to be paid from the
proceeds of the private respondents' PAG-IBIG
loan thru its designated bank, the Urban Bank
and which they guarantee and warrant to be
approved and thereafter release on or before the
first week of December 1983; and to deliver to
the petitioners-spouses the whole amount of
P260,000.00 on or before the first week of
December 1983.
3. The "Contract to Sell" also provides that failure
on the part of the vendees to pay the balance on
the first week of December, 1983 will
automatically annul the contract and the vendors
shall immediately return the downpayment and
that after full payment of the purchase price the

vendors shall execute a deed of absolute sale in

favor of the vendee.
4. The private respondents were not able to pay
the balance price on the first week of December
1983.
5. However, the petitioners-spouses did not return
the P10,000 downpayment.
6. The private respondents continued to make
partial payments which were received by the
petitioners-spouses.
7. All in all, the private respondents made partial
payments of P75,000.00 broken down as
follows: (1) P10,000.00 at the time of the
execution of the Contract to Sell; (2) P50,000.00
on May 9, 1984; (3) P10,000.00 on June 4, 1984
and (4) P5,000.00 on June 7, 1984. Cdpr
8. On March 1, 1985, the private respondents filed
with the Regional Trial Court of Pasig, Metro
Manila a case for specific performance and
damages against the petitioners-spouses.
9. As stated earlier, the trial court's decision was
reversed and set aside by the Court of Appeals.
A motion for reconsideration was denied. Hence,
this petition.
Issue: whether the Contract to Sell was
automatically cancelled upon violation by the buyers
(private respondents)
HELD:
DOCTRINE:
In view of the conflicting findings of facts of the trial court
and the appellate court we have decided to review the
evidence on record in order to arrive at the correct
findings based on the record. (Robleza v. Court of
Appeals, 174 SCRA 354 [1989]).
It is to be observed that the parties' conflicting evidence
centers on the Contract to Sell and Deed of Absolute
Sale executed by the parties on April 9, 1984. The
parties introduced conflicting testimonies regarding the
true nature of the subject documents. This, in effect
results in the non-application of the Parol Evidence Rule
under Section 9, Rule 130 of the Rules of Court, to wit:
"SEC.
9.Evidence
of
written
agreements. When the terms of an
agreement have been reduced to
writing, it is considered as containing
all the terms agreed upon and there
can be between the parties and their
successors in interest, no evidence of
such terms other than the contents of
the written agreement."

The record shows that neither of the parties

objected to the different testimonies.

the subject contract they cannot

performance of the said contract.

After a thorough examination of the record we are

constrained to reverse the findings of the appellate court.

Under the facts of the case, we agree with the trial

court that the petitioners-spouses are entitled to
moral damages, to wit:

The appellate court's conclusion that the petitionersspouses were at fault in the non-release of the private
respondents' PAG-IBIG loan thru Urban Bank, has no
factual basis.

Moreover, under the contract to sell, it is provided

therein that failure on the part of the vendees (private
respondents) to pay the balance of the price on the first
week of December 1983 will automatically cancel the
contract. The private respondents' obligation to pay was
a suspensive condition to the obligation of the
petitioners-spouses to sell and deliver the subject
property. Since, admittedly, the private respondents
failed on their obligation to pay, this rendered the
contract to sell ineffective and without force and effect.
The subsequent execution of the deed of sale did not in
any manner transfer ownership of the property to the
private respondents. It is clear that the deed of sale was
executed merely to facilitate the release of the private
respondents' PAG-IBIG loan from the Urban Bank and
not for the purpose of actually transferring
ownership. cdll
With these findings, we rule that the private
respondents
are
not
entitled
to
specific
performance. The obligation in a contract of sale is
reciprocal. (Cortez v. Bibano and Borromeo, 41 Phil. 298
[1920]). Since, the vendees admittedly had not paid the
full price of the property which was their obligation under

compel

"The defendants' claim of the trauma

they suffered upon being sued by the
plaintiffs inspires belief. After doing
everything in good faith within their
capability to help accelerate the
release of plaintiffs' loan, their shock
was
understandable
when
the
plaintiffs, in brazen disregard of their
failure to comply with their contractual
obligation, suddenly filed the instant
complaint.
Rather
than
being
commended, as should have been
expected, for walking the Biblical
second
mile
in
generous
accommodation of the plaintiffs, the
defendants
were
instead
unceremoniously brought to Court.
(Rollo, p. 90)

The subject property was mortgaged to the Philippine

Commercial and Industrial Bank (PCIB). This fact was
known to the private respondents. In such a case, it may
be assumed that the PCIB would not release the title of
the land without first getting paid. Consequently, the
petitioners-spouses' contention that payment of the
balance price of the subject parcel of land was not
dependent upon the release of their title from the PCIB
which would be used as collateral by the private
respondents to secure their PAG-IBIG loan thru Urban
Bank, is more credible.
Moreover, the Urban Bank letter signed by Assistant
Manager Ms. Liza M. de los Reyes to PCIB dated July 2,
1984 (Exhibits G and G-1) shows that there is no basis
for the conclusion that the petitioner-spouses ". . .
reneged on their agreement that Urban Bank would pay
their mortgage loan obligation with PCIB so that their
TCT No. 501812 over the subject property could be
released free of encumbrance and transferred in
appellants' name as the latter intended to use the title as
collateral for their loan from Urban Bank."
We rule that the findings of facts of the trial court which
are at variance with those of the appellate court are
more in consonance with the evidence on record.

now

WHEREFORE, the questioned decision and Resolution

of the Court of Appeals are REVERSED and SET
ASIDE. The decision of the Regional Trial Court Pasig,
Metro Manila is hereby REINSTATED except that the
award for moral damages is reduced to P15,000.00 and
the awards for exemplary damages in the amount of
P20,000.00 and attorney's fees in the amount of
P30,000.00 are deleted.
SO ORDERED.
Fernan, C.J., Feliciano, Bidin and Davide, Jr., JJ.,
concur.

G.R. No. 75290 November 4, 1992

AMADO T. GURANGO and ESTER GURANGO,
Petitioners, vs. IAC and EDWARD L. FERREIRA,
Respondents.
DOCTRINE: The mistake contemplated as an
exception to the parol evidence rule is one which is a
mistake of fact mutual to the parties.
FACTS: NOCON, J.: petition for review on certiorari

January 26, 1977, private respondent Edward

Ferreira sold to petitioner Amado Gurango one
booklet of raffle tickets valued at (P500.00)
consisting of (100) tickets bearing ticket numbers
162501 to 162600 in connection with a fund-raising
project sponsored by the Makati Jaycees.

Ticket number 162574 in the name of Armando

"Boyet" Gurango, the minor son of the petitioners,
but in the custody or possession of private
respondent, won a Toyota Corolla car.

Gurango alleged that he issued Check No. 00730

dated April 12, 1977 for the payment of the (60)
raffle tickets in the amount of (300.00) Pesos.
The following morning, private respondent called up
petitioner to inform the latter that he had already
paid petitioner's remaining unpaid balance of
(P200.00) and, for the latter to turnover the (40)
claim stubs representing the unpaid balance.
Petitioner inquired from the private respondent if any
of his tickets won a car during the raffle but was told
by the latter that no Jaycee had won any car in said
raffle.
When private respondent asked for the (40) claim
stubs from the petitioner, the latter informed the
former that he is willing to honor their previous
agreement and even tendered a check for
(P200.00); but private respondent refused,
maintaining that the money he advanced the
previous night will be charged against his company
and he only needs the claim stubs of said tickets to
justify said expenses.
Private respondent asked the petitioner to put down
their agreement into writing which the latter did in a
piece of yellow paper and in his own handwriting
This is a mutual agreement between
Mads Gurango & Ed Ferreira that they
bought a booklet of Raffle Tickets of
Makati JC worth P500.00. All the stubs
in our possessions remains our share
and any number happened to win in the
raffle corresponding to the stub numbers
each one of us is holding will own the
prize solely w/o the other party claims
co-ownership, even that the name
printed in the such raffle stubs is in the
name of one party or any other person.
This is a Gentlemen and Jayceely agreement
that both of us will stick to this simple and
binding agreement.

Subsequently, petitioner was shown a copy of Daily

Express and learned that ticket No. 162574 won a
Toyota Corolla, but was surprised to find out that the
winning stub was among those taken by the private
respondent.
Private respondent claimed that petitioner informed
the former that he is only buying (60) tickets and
offered to return the remaining (40) tickets since he
needed the money for the payment of his income
tax.
Upon noticing that all the returned tickets were in the
name of the petitioner or members of his family,
private respondent asked the latter to write down

their agreement signed by them on April 14, 1977

(Exhibit "A").

Eventually, the car was awarded to petitioners' son.

Subsequent demands by the private respondent to
the petitioner to comply with their agreement were
ignored by the latter.

Private respondent filed a complaint for damages

against petitioners with CFI-Rizal, which dismissed
the complaint.

IAC reversed the decision of the trial court. It found

the agreement (Exh. A or A-1) was prepared and
signed by the parties before the raffle. Considering
the business and social backgrounds of the parties.
Exhibit A or A-1 is the most practical covenant for
their mutual protection before the raffle.

ISSUE: Is agreement executed between petitioner and

private respondent on April 14, 1977 valid? YES.
HELD:
Section 9, Rule 130.
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 party
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)

Where a mistake or imperfection of the writing,

or its failure to express the true intent and
agreement of the parties, or the validity if the
agreement is put in issue by the pleading;

(b)
When there is an intrinsic ambiguity in the
writing.
The mistake contemplated as an exception to the parol
evidence rule is one which is a mistake of fact mutual
to the parties, which is not present on this case.
Moreover, in view of the parties' conflicting claims
regarding the true nature of the agreement executed by
them, SC finds the version of the private respondent
more credible for the terms of said agreement are clear
and require no room for interpretation since the intention
of the parties, as expressly specified in said agreement,
do not contradict each other.
The fact that the agreement was prepared and written by
petitioner himself further indicated that said agreement
was entered into by the parties freely and voluntarily
which renders petitioners' claim of fraud in the execution
of the agreement unbelievable.
In the instant case, it is highly improbable that
petitioner's consent was given through fraud since the
document was prepared and executed by petitioner
himself. Therefore, the agreement is valid and binding
upon petitioner and respondent.

WHEREFORE, finding no reversible error in the

questioned decision of the appellate court, the petitioner
for certiorari is hereby DENIED for lack of merit.

The trial court, however, dismissed their complaint

relying on the validity of the deed of sale as the best
evidence of the transaction between the parties.

G.R. No. 103038 March 31, 1993

JULIA ANG ENG MARIANO, petitioner,
vs.
THE COURT OF APPEALS, JUANITO FAUSTINO and
TERESITA FAUSTINO, respondents.

On appeal, the appellate court saw otherwise and

reversed and set aside the decision of the lower court.
Thus, this petition.

NOCON, J.:

Behind this flowery legalese is the simple question

adverted to at the start of this decision: can parol
evidence be admitted to show that the Deed of Sale,
which petitioner claims truly represented the
contract between the parties and "drawn up with all
5
the solemnities prescribed by law" and properly
notarized, a sham transaction as claimed by the
private respondents?
The rule on parol evidence recognizes the following
exceptions:
(a) where 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) . . . (Sec. 7, Rule 130).
As can be clearly gleaned from the foregoing, the rule
making a writing the exclusive evidence of the
agreement therein stated, is not applicable when the
validity of such agreement is the fact in dispute. A
contract may be annulled where the consent of one of
the contracting parties was procured by mistake, fraud,
intimidation, violence or undue influence (Art. 1330, New
Civil Code). In fact, as early as 1919 in the case of
Bough v. Cantiveros, 40 Phil. 209, this Court laid down
the rule that where the validity of the agreement is the
issue, parol evidence may be introduced to establish
illegality or fraud.
xxx xxx xxx
While the writing itself may have been accompanied by
the most solemn formalities, no instrument is so sacred
when tainted with fraud as to place it beyond the scrutiny
of extrinsic evidence. This evidence overcomes the
known
presumption fraus
est
odiosa
et
non
praesumenda (Yturralde v. Vagilidad, 28 SCRA 393
7
[1969]).
8
In the case at bar, petitioner relies heavily on the
notarial certification of the Deed of Absolute Sale by
Notary Public Alfonso B. Capacillo on September 24,
1987 that said document was executed by the
parties named therein in the presence of witnesses
9
Juanito Chan and Gaspar Dandan.
Private respondents' evidence clearly shows that all
10
they wanted was to contact a financier who would
lend them money to finance the transformation of
11
their inherited agricultural land in Deparo,
Caloocan City into a subdivision. In the meantime
12
they had already spent P6,000.00 for the subdivision
13
survey. A certain person approached them and told
them that a certain Julia Ang could help them in the
14
development of their subdivision. After private
respondent Juanito Faustino was introduced to Julia

Petitioner claims that the private respondents

approached her on October 28, 1986 for a loan of
P250,000.00 on the security of a mortgage on their lot at
Deparo, Kalookan City and covered by TCT No. 129613
in their names. On January 15, 1987, they secured
another loan of P250,000.00 on the basis of the same
security. Forseeing their inability to pay this when they
become due, private respondents sold the same
parcel of land mortgaged to petitioner for an
additional P320,550.00 on September 29, 1987. Thus,
a deed of sale was drawn up on said date and a new
TCT No. 156493 issued in petitioner's name.
However, the private respondents refused to turn over
possession of the land to her and instead sued her for
annulment of deed of sale and damages.
Private respondents' story is that all they wanted was to
transform their small piece of land, which they had
inherited from their parents, into a subdivision. They
looked for financiers who would be able to lend them
money for their project and petitioner expressed her
desire to help them.
Being unschooled farmers, and relying completely
on the trust and confidence they have on petitioner,
they signed the prepared mortgage forms that
petitioner told them to sign. They first mortgaged
their land on October 28, 1986 for P250,000.00 with
the condition that they were to construct a house on
said lot so that they would be able to secure another
P250,000.00 with the house and lot as security. They
received, however, only P150,000.00 for the first
mortgage. After the house was constructed, they were
made to sign another document for another P250,000.00
on January 15, 1987 for which they received again only
P150,000.00. Thereafter, petitioner told them that she
could easily secure a bank loan of P1,000,000.00 for
their project but they had to sign over their property
to her as the bank would require that the property be
in her name for the loan to be processed. Thus,
trusting her completely, they signed on September 29,
1987 a prepared deed of sale which petitioner handed
over to them for their signature. When they discovered
that there was no loan and that they were being asked to
vacate their land, they took petitioner to court.
Private respondents sued petitioner for annulment
of the deed of sale and the cancellation of the
Transfer Certificate of Title in her name.

Issue/Held:

Ang, the latter promised him that he will be given a loan

of P250,000.00 to start the development of his
15
subdivision. After the private respondents signed the
mortgage document for P250,000.00, petitioner gave
them only P150,000.00 saying that the balance covered
16
interest and other expenses. Private respondents,
however, had to construct a house on the property as
required by petitioner to be able to get additional loans
17
for the development of their subdivision. Thereafter, an
additional mortgage document was prepared for
P250,000.00 but, as before they were only given
18
P150,000.00.
Private respondents' version was, in fact,
corroborated by petitioner when she testified on
cross-examination that the real intention of the
parties in the execution of the deed of sale was to
secure a loan of P1,000,000.00 on the property in her
name and that whatever private respondents owed
her would be deducted from the proceeds of the
loan with the private respondents assuming the
21
payment thereof. Her own words make out a case
of fraud which she practiced upon the private
respondents.
Moreover, petitioner could have easily rebutted and
22
belied private respondents' negative averment in the
trial court. All she had to do was to present the Notary
Public who notarized the Deed of Sale and the two
witnesses to the deed. Upon their word that private
respondents had signed the deed of sale in their
presence and had received the consideration of
23
P320,550.00, private respondents would have had to
kiss their cause of action goodbye.
No such testimony was given by the petitioner in the
trial court and her corroborating testimony cited in
the footnote shows why there is no such loan, the
deed of sale was a scheme to get the property from
private respondents.
We find that the appellate court's ratiocination on why
this deed of sale is, in reality, a sham transaction
more in accord with business common sense and
ordinary experience of mankind, which We quote with
approval:
Were reliance to be placed exclusively on the deed of
sale, there is no doubt that appellants' protests would
have to be rejected. However, in cases such as this one
where the parties are seriously at odds on the nature of
the transaction between them, the circumstances, before
and after, must be scrutinized.
1. Appellee has stated below
. . . defendant testified that previous to the sale,
the lot in question was twice mortgaged to her to
secure two loans of P250,000.00 each both
maturing within one (1) year. When their
aggregate obligation of P500,000.00 matured,
plaintiffs could not pay the same. They thus
decided to sell the land to defendant for an

additional
amount
of
P320,550.00.
(Memorandum, p. 4, Record, p. 86).
The argument is repeated, almost verbatim, in the brief
(at p. 16).
The fallacy of the argument is readily apparent.
The first of the two mortgages was executed on
October 28, 1986, the second, on January 15,
1987. The deed of sale was executed on
September 29, 1987. Both mortgage accounts
therefore were not yet due on the date of the
deed of sale, consequently the motivation for the
sale stated by the appellee is not true.
2. Appellee says in her brief
The consideration of P320,550.00 stated in
the deed of sale is more consistent with the
claim of the appellee that it is in addition to
the previous loans of appellants in the
aggregate amount of P500,000.00 (at pp. 1314).
In the course of her testimony however, the
appellee said the only consideration for the deed
of sale was the P320,550.00 'because the
P500,000.00 is considered as a mortgage.' (tsn,
January 4, 1990, p. 7)
3. Appellee herself revealed the true
nature of the deed of sale when she
said, on cross-examination, that the
intention was merely to secure a loan of
P1M on the property, on her credit as a
businesswoman and that whatever the
appellants owed her would be deducted
from the proceeds, to be paid to her, the
appellants to assume the P1M mortgage
(ibid., pp.10-11). Additionally, as stated
earlier, the P1M mortgage loan never
materialized.
Finally, having ostensibly acquired full
ownership of the land on September 29,
1987, appellee has not taken any step
to get possession, although the
appellants stay on the premises. As a
matter of fact, her answer dated
November 22, 1988 did not even
interpose
any
counterclaim
on
possession.
These circumstances taken together
lead to the conclusion espoused by the
appellants, that the deed of sale is a
sham transaction, not representing the
true intent of the parties and that no
consideration passed or was received. .
G.R. No. 138941. October 8, 2001]

AMERICAN HOME ASSURANCE

COMPANY, petitioner, vs. TANTUCO ENTERPRISES,
INC., respondent.
DECISION

(c) P300,000.00 for and as attorneys fees; and

(d) Pay the costs.
SO ORDERED.

[6]

PUNO, J.:
Before
us
is
a
Petition
for
Review
on Certiorari assailing the Decision of the Court of
Appeals in CA-G.R. CV No. 52221 promulgated on
January 14, 1999, which affirmed in toto the Decision of
the Regional Trial Court, Branch 53, Lucena City in Civil
Case No. 92-51 dated October 16, 1995.
Respondent Tantuco Enterprises, Inc. is engaged in
the coconut oil milling and refining industry. It owns two
oil mills. Both are located at its factory compound at
Iyam, Lucena City. It appears that respondent
commenced its business operations with only one oil
mill. In 1988, it started operating its second oil mill. The
latter came to be commonly referred to as the new oil
mill.
The two oil mills were separately covered by fire
insurance policies issued by petitioner American Home
[1]
Assurance Co., Philippine Branch. The first oil mill was
insured for three million pesos (P3,000,000.00) under
Policy No. 306-7432324-3 for the period March 1, 1991
[2]
to 1992. The new oil mill was insured for six million
pesos (P6,000,000.00) under Policy No. 306-7432321-9
[3]
for the same term. Official receipts indicating payment
for the full amount of the premium were issued by the
[4]
petitioner's agent.
A fire that broke out in the early morning of
September 30,1991 gutted and consumed the new oil
mill. Respondent immediately notified the petitioner of
the incident. The latter then sent its appraisers who
inspected the burned premises and the properties
destroyed. Thereafter, in a letter dated October 15,
1991, petitioner rejected respondents claim for the
insurance proceeds on the ground that no policy was
issued by it covering the burned oil mill. It stated that the
description of the insured establishment referred to
another building thus: Our policy nos. 306-7432321-9
(Ps 6M) and 306-7432324-4 (Ps 3M) extend insurance
coverage to your oil mill under Building No. 5, whilst the
[5]
affected oil mill was under Building No. 14.
A complaint for specific performance and damages
was consequently instituted by the respondent with the
RTC, Branch 53 of Lucena City. On October 16, 1995,
after trial, the lower court rendered a Decision finding the
petitioner liable on the insurance policy thus:

Petitioner assailed this judgment before the Court of

Appeals. The appellate court upheld the same in a
Decision promulgated on January 14, 1999, the pertinent
portion of which states:
WHEREFORE, the instant appeal is hereby
DISMISSED for lack of merit and the trial courts
Decision dated October 16, 1995 is hereby
AFFIRMED in toto.
SO ORDERED.

[7]

Petitioner moved for reconsideration. The motion,

however, was denied for lack of merit in a Resolution
promulgated on June 10, 1999.
Hence, the present course of action, where
petitioner ascribes to the appellate court the following
errors:
(1) The Court of Appeals erred in its conclusion
that the issue of non-payment of the premium was
beyond its jurisdiction because it was raised for the
[8]
first time on appeal.
(2) The Court of Appeals erred in its legal
interpretation of 'Fire Extinguishing Appliances
[9]
Warranty' of the policy.
(3) With due respect, the conclusion of the Court of
Appeals giving no regard to the parole evidence
[10]
rule and the principle of estoppel is erroneous.
The petition is devoid of merit.
The primary reason advanced by the petitioner in
resisting the claim of the respondent is that the burned
oil mill is not covered by any insurance
policy. According to it, the oil mill insured is specifically
described in the policy by its boundaries in the following
manner:
Front: by a driveway thence at 18 meters distance by
Bldg. No. 2.
Right:

by an open space thence by Bldg. No. 4.

Left:
4.

Adjoining thence an imperfect wall by Bldg. No.

(a) P4,406,536.40 representing damages for loss by fire

of its insured property with interest at the legal rate;

Rear:

by an open space thence at 8 meters distance.

(b) P80,000.00 for litigation expenses;

However, it argues that this specific boundary

description clearly pertains, not to the burned oil mill, but

WHEREFORE, judgment is rendered in favor of the

plaintiff ordering defendant to pay plaintiff:

to the other mill. In other words, the oil mill gutted by fire
was not the one described by the specific boundaries in
the contested policy.
What exacerbates respondents predicament,
petitioner posits, is that it did not have the supposed
wrong description or mistake corrected. Despite the fact
that the policy in question was issued way back in 1988,
or about three years before the fire, and despite the
Important Notice in the policy that Please read and
examine the policy and if incorrect, return it immediately
for alteration, respondent apparently did not call
petitioners attention with respect to the misdescription.
By way of conclusion, petitioner argues that
respondent is barred by the parole evidence rule from
presenting evidence (other than the policy in question) of
its self-serving intention (sic) that it intended really to
insure the burned oil mill, just as it is barred
by estoppel from claiming that the description of the
insured oil mill in the policy was wrong, because it
retained the policy without having the same corrected
before the fire by an endorsement in accordance with its
Condition No. 28.
These contentions can not pass judicial muster.
In construing the words used descriptive of a
building insured, the greatest liberality is shown by the
[11]
courts in giving effect to the insurance. In view of the
custom of insurance agents to examine buildings before
writing policies upon them, and since a mistake as to the
identity and character of the building is extremely
unlikely, the courts are inclined to consider that the
policy of insurance covers any building which the parties
manifestly intended to insure, however inaccurate the
[12]
description may be.
Notwithstanding, therefore, the misdescription in the
policy, it is beyond dispute, to our mind, that what the
parties manifestly intended to insure was the new oil
mill. This is obvious from the categorical statement
embodied in the policy, extending its protection:
On machineries and equipment with complete
accessories usual to a coconut oil mill including stocks of
copra, copra cake and copra mills whilst contained in
the new oil mill building, situate (sic) at UNNO. ALONG
NATIONAL HIGH WAY, BO. IYAM, LUCENA CITY
[13]
UNBLOCKED. (emphasis supplied.)
If the parties really intended to protect the first oil
mill, then there is no need to specify it as new.
Indeed, it would be absurd to assume that
respondent would protect its first oil mill for different
amounts and leave uncovered its second one. As
mentioned earlier, the first oil mill is already covered
under Policy No. 306-7432324-4 issued by the
petitioner. It is unthinkable for respondent to obtain the
other policy from the very same company. The latter
ought to know that a second agreement over that same
realty results in its overinsurance.

The imperfection in the description of the insured oil

mills
boundaries
can
be
attributed
to
a
misunderstanding between the petitioners general
agent, Mr. Alfredo Borja, and its policy issuing clerk, who
made the error of copying the boundaries of the first oil
mill when typing the policy to be issued for the new
one. As testified to by Mr.Borja:
Atty. G. Camaligan:
Q:

What did you do when you received the report?

A:

I told them as will be shown by the map the

intention really of Mr. Edison Tantuco is to cover
the new oil mill that is why when I presented the
existing policy of the old policy, the policy
issuing clerk just merely (sic) copied the wording
from the old policy and what she typed is
that the description of the boundaries from
the old policy was copied but she inserted
covering the new oil mill and to me at that
time the important thing is that it covered the
new oil mill because it is just within one
compound and there are only two oil mill[s]
and so just enough, I had the policy
prepared. In fact, two policies were prepared
having the same date one for the old one and
the other for the new oil mill and exactly the
[14]
same policy period, sir. (emphasis supplied)

It is thus clear that the source of the discrepancy

happened during the preparation of the written contract.
These facts lead us to hold that the present case
falls within one of the recognized exceptions to the
parole evidence rule. Under the Rules of Court, a party
may present evidence to modify, explain or add to the
terms of the written agreement if he puts in issue in his
pleading, among others, its failure to express the true
[15]
intent and agreement of the parties thereto. Here, the
contractual intention of the parties cannot be understood
from a mere reading of the instrument. Thus, while the
contract explicitly stipulated that it was for the insurance
of the new oil mill, the boundary description written on
the policy concededly pertains to the first oil mill. This
irreconcilable difference can only be clarified by
admitting evidence aliunde, which will explain the
imperfection and clarify the intent of the parties.
Anent petitioners argument that the respondent is
barred by estoppel from claiming that the description of
the insured oil mill in the policy was wrong, we find that
the same proceeds from a wrong assumption. Evidence
on record reveals that respondents operating manager,
Mr. Edison Tantuco, notified Mr. Borja (the petitioners
agent with whom respondent negotiated for the contract)
about the inaccurate description in the policy. However,
Mr. Borja assured Mr. Tantuco that the use of the
adjective new will distinguish the insured property. The
assurance convinced respondent that, despite the
impreciseness in the specification of the boundaries, the
insurance will cover the new oil mill. This can be seen
from the testimony on cross of Mr. Tantuco:
"ATTY. SALONGA:

Q:

You mentioned, sir, that at least in so far as

Exhibit A is concern you have read what the
policy contents.(sic)
Kindly take a look in the page of Exhibit A
which was marked as Exhibit A-2 particularly the
boundaries of the property insured by the
insurance policy Exhibit A, will you tell us as the
manager of the company whether the
boundaries stated in Exhibit A-2 are the
boundaries of the old (sic) mill that was burned
or not.

A:

It was not, I called up Mr. Borja regarding this

matter and he told me that what is important
is the word new oil mill. Mr. Borja said, as a
matter of fact, you can never insured (sic) one
property with two (2) policies, you will only do
that if you will make to increase the amount and
[16]
it is by indorsement not by another policy, sir."

We again stress that the object of the court in

construing a contract is to ascertain the intent of the
parties to the contract and to enforce the agreement
which the parties have entered into. In determining what
the parties intended, the courts will read and construe
the policy as a whole and if possible, give effect to all the
parts of the contract, keeping in mind always, however,
the prime rule that in the event of doubt, this doubt is to
be resolved against the insurer. In determining the
intent of the parties to the contract, the courts will
[17]
consider the purpose and object of the contract.
In a further attempt to avoid liability, petitioner
claims that respondent forfeited the renewal policy for its
failure to pay the full amount of the premium and breach
of the Fire Extinguishing Appliances Warranty.
The amount of the premium stated on the face of
the policy was P89,770.20. From the admission of
respondents own witness, Mr. Borja, which the
petitioner cited, the former only paid itP75,147.00,
leaving a difference of P14,623.20. The deficiency,
petitioner argues, suffices to invalidate the policy, in
[18]
accordance with Section 77 of the Insurance Code.
The Court of Appeals refused to consider this
contention of the petitioner. It held that this issue was
raised for the first time on appeal, hence, beyond its
jurisdiction to resolve, pursuant to Rule 46, Section 18 of
[19]
the Rules of Court.
Petitioner, however, contests this finding of the
appellate court. It insists that the issue was raised in
paragraph 24 of its Answer, viz.:
24. Plaintiff has not complied with the condition of
the policy and renewal certificate that the renewal
premium should be paid on or before renewal
date.
Petitioner adds that the issue was the subject of the
cross-examination of Mr. Borja, who acknowledged that
the paid amount was lacking by P14,623.20 by reason of

a discount or rebate, which rebate under Sec. 361 of the

Insurance Code is illegal.
The argument fails to impress. It is true that the
asseverations petitioner made in paragraph 24 of its
Answer ostensibly spoke of the policys condition for
payment of the renewal premium on time and
respondents non-compliance with it. Yet, it did not
contain any specific and definite allegation that
respondent did not pay the premium, or that it did not
pay the full amount, or that it did not pay the amount on
time.
Likewise, when the issues to be resolved in the trial
court were formulated at the pre-trial proceedings, the
question of the supposed inadequate payment was
never raised. Most significant to point, petitioner fatally
neglected to present, during the whole course of the trial,
any witness to testify that respondent indeed failed to
pay the full amount of the premium. The thrust of the
cross-examination of Mr. Borja, on the other hand, was
not for the purpose of proving this fact. Though it briefly
touched on the alleged deficiency, such was made in the
course of discussing a discount or rebate, which the
agent apparently gave the respondent. Certainly, the
whole tenor of Mr. Borjas testimony, both during direct
and cross examinations, implicitly assumed a valid and
subsisting insurance policy. It must be remembered that
he was called to the stand basically to demonstrate that
an existing policy issued by the petitioner covers the
burned building.
Finally, petitioner contends that respondent violated
the express terms of the Fire Extinguishing Appliances
Warranty. The said warranty provides:
WARRANTED that during the currency of this
Policy, Fire Extinguishing Appliances as mentioned
below shall be maintained in efficient working order
on the premises to which insurance applies:
- PORTABLE EXTINGUISHERS
- INTERNAL HYDRANTS
- EXTERNAL HYDRANTS
- FIRE PUMP
- 24-HOUR SECURITY SERVICES
BREACH of this warranty shall render this policy
null and void and the Company shall no longer be
[20]
liable for any loss which may occur.
Petitioner argues that the warranty clearly obligates
the insured to maintain all the appliances specified
therein. The breach occurred when the respondent
failed to install internal fire hydrants inside the burned
building as warranted. This fact was admitted by the oil
mills expeller operator, Gerardo Zarsuela.

Again, the argument lacks merit. We agree with the

appellate courts conclusion that the aforementioned
warranty did not require respondent to provide for all the
fire
extinguishing
appliances
enumerated
therein. Additionally, we find that neither did it require
that the appliances are restricted to those mentioned in
the warranty. In other words, what the warranty
mandates is that respondent should maintain in efficient
working condition within the premises of the insured
property, fire fighting equipments such as, but not limited
to, those identified in the list, which will serve as the oil
mills first line of defense in case any part of it bursts into
flame.
To be sure, respondent was able to comply with the
warranty. Within the vicinity of the new oil mill can be
found the following devices: numerous portable fire
[21]
[22]
extinguishers, two fire hoses, fire hydrant, and an
[23]
emergency fire engine. All of these equipments were
in efficient working order when the fire occurred.
It ought to be remembered that not only are
warranties strictly construed against the insurer, but they
should, likewise, by themselves be reasonably
[24]
interpreted. That reasonableness is to be ascertained
in light of the factual conditions prevailing in each
case. Here, we find that there is no more need for an
internal hydrant considering that inside the burned
building were: (1) numerous portable fire extinguishers,
(2) an emergency fire engine, and (3) a fire hose which
has a connection to one of the external hydrants.
IN VIEW WHEREOF, finding no reversible error in
the impugned Decision, the instant petition is hereby
DISMISSED.