RULE 130 SECTION 9 PAROL EVIDENCE RULE

3. PAROL EVIDENCE RULE

Sec. 9 .Evidence of written agreements. When the terms of an agreement have

been reduced to writing, it is considered as containing all the terms agreed upon
and there can be, between the parties and their successors in interest, no evidence
of such terms other than the contents of the written agreement.

However, a party may present evidence to modify, explain or add to the terms of
written agreement if he puts in issue in his pleading:
chanroblesvirt uallawlibrary

(a)An intrinsic ambiguity, mistake or imperfection in the written agreement;

(b)The failure of the written agreement to express the true intent and agreement of
the parties thereto;

(c)The validity of the written agreement; or

(d)The existence of other terms agreed to by the parties or their successors in

interest after the execution of the written agreement.

The term "agreement" includes wills. (7a)

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

BALDOMERO INCIONG, JR., petitioner, vs. COURT OF APPEALS and

PHILIPPINE BANK OF COMMUNICATIONS, respondents.

SYLLABUS

1. REMEDIAL LAW; EVIDENCE; PAROL EVIDENCE RULE; DOES NOT

SPECIFY THAT THE WRITTEN AGREEMENT BE A PUBLIC
INSTRUMENT.- Clearly, the rule does not specify that the written
agreement be a public document. What is required is that the agreement
be in writing as the rule is in fact founded on "long experience that written
evidence is so much more certain and accurate than that which rests in
fleeting memory only, that it would be unsafe, when parties have
expressed the terms of their contract in writing, to admit weaker evidence
to control and vary the stronger and to show that the parties intended a
different contract from that expressed in the writing signed by them"
 [FRANCISCO, THE RULES OF COURT OF THE PHILIPPINES, Vol. VII,
Part I, 1990 ed., p. 179] Thus, for the parol evidence rule to apply, a
written contract need not be in any particular form, or be signed by both
parties. As a general rule, bills, notes and other instruments of a similar
nature are not subject to be varied or contradicted by parol or extrinsic
evidence.

2. CIVIL LAW; OBLIGATIONS; SOLIDARY OR JOINT AND SEVERAL

OBLIGATION, DEFINED.- A solidary or joint and several obligation is one
in which each debtor is liable for the entire obligation, and each creditor is
entitled to demand the whole obligation. [TOLENTINO, CIVIL CODE OF
THE PHILIPPINES, Vol. IV, 1991 ed., p. 217] Section 4, Chapter 3, Title 1,
Book IV of the Civil Code states the law on joint and several
obligations. Under Art. 1207 thereof, when there are two or more debtors
in one and the same obligation, the presumption is that the obligation is
joint so that each of the debtors is liable only for the proportionate part of
the debt. There is a solidary liability only when the obligation expressly so
states, when the law so provides or when the nature of the obligation so
requires.[Sesbreo v. Court of Appeals, G.R. No. 89252, May 24, 1993, 222
SCRA 466, 481.]

3. ID.; GUARANTY; GUARANTOR AS DISTINGUISHED FROM SOLIDARY

DEBTOR.- While a guarantor may bind himself solidarily with the principal
debtor, the liability of a guarantor is different from that of a solidary
debtor. Thus, Tolentino explains: "A guarantor who binds himself in
solidum with the principal debtor under the provisions of the second
paragraph does not become a solidary co-debtor to all intents and
purposes. There is a difference between a solidary co-debtor, and a fiador
in solidum (surety). The latter, outside of the liability he assumes to pay
the debt before the property of the principal debtor has been exhausted,
retains all the other rights, actions and benefits which pertain to him by
reason of the fiansa; while a solidary co-debtor has no other rights than
those bestowed upon him in Section 4, Chapter 3, Title 1, Book IV of the
Civil Code." [Tolentino, Civil Code of the Philippines, Vol. V, 1992 ed., p.
502]

APPEARANCES OF COUNSEL
 Emilio G. Abrogena for petitioner.

Teogenes X. Velez for private respondent.

DECISION

ROMERO, J.:

This is a petition for review on certiorari of the decision of the Court of

Appeals affirming that of the Regional Trial Court of Misamis Oriental, Branch
18,[1] which disposed of Civil Case No. 10507 for collection of a sum of money
and damages, as follows:

"WHEREFORE, defendant BALDOMERO L. INCIONG, JR. is adjudged solidarily

liable and ordered to pay to the plaintiff Philippine Bank of Communications,
Cagayan de Oro City, the amount of FIFTY THOUSAND PESOS (P50,000.00),with
interest thereon from May 5, 1983 at 16% per annum until fully paid; and 6% per
annum on the total amount due, as liquidated damages or penalty from May 5, 1983
until fully paid; plus 10% of the total amount due for expenses of litigation and
attorney's fees; and to pay the costs.

The counterclaim, as well as the cross claim, are dismissed for lack of merit.

SO ORDERED."

Petitioner's liability resulted from the promissory note in the amount of

P50,000.00 which he signed with Rene C. Naybe and Gregorio D.
Pantanosas on February 3, 1983, holding themselves jointly and severally
liable to private respondent Philippine Bank of Communications, Cagayan de
Oro City branch. The promissory note was due on May 5, 1983.

Said due date expired without the promissors having paid their
obligation. Consequently, on November 14, 1983 and on June 8, 1984, private
respondent sent petitioner telegrams demanding payment thereof. [2] On
December 11, 1984 private respondent also sent by registered mail a final
letter of demand to Rene C. Naybe. Since both obligors did not respond to the
demands made, private respondent filed on January 24, 1986 a complaint for
collection of the sum of P50,000.00 against the three obligors.
 On November 25, 1986, the complaint was dismissed for failure of the
plaintiff to prosecute the case. However, on January 9, 1987, the lower court
reconsidered the dismissal order and required the sheriff to serve the
summonses. On January 27, 1987, the lower court dismissed the case
against defendant Pantanosas as prayed for by the private respondent
herein. Meanwhile, only the summons addressed to petitioner was served as
the sheriff learned that defendant Naybe had gone to Saudi Arabia.

In his answer, petitioner alleged that sometime in January 1983, he was

approached by his friend, Rudy Campos, who told him that he was a partner
of Pio Tio, the branch manager of private respondent in Cagayan de Oro City,
in the falcata logs operation business. Campos also intimated to him that
Rene C. Naybe was interested in the business and would contribute a
chainsaw to the venture. He added that, although Naybe had no money to buy
the equipment Pio Tio had assured Naybe of the approval of a loan he would
make with private respondent. Campos then persuaded petitioner to act as a
"co-maker" in the said loan. Petitioner allegedly acceded but with the
understanding that he would only be a co-maker for the loan of P5,000.00.

Petitioner alleged further that five (5) copies of a blank promissory note
were brought to him by Campos at his office. He affixed his signature thereto
but in one copy, he indicated that he bound himself only for the amount of
P5,000.00. Thus, it was by trickery, fraud and misrepresentation that he was
made liable for the amount of P50,000.00.

In the aforementioned decision of the lower court, it noted that the

typewritten figure "P50,000-" clearly appears directly below the admitted
signature of the petitioner in the promissory note. [3] Hence, the latter's
uncorroborated testimony on his limited liability cannot prevail over the
presumed regularity and fairness of the transaction, under Sec. 5 (q) of Rule
131. The lower court added that it was "rather odd" for petitioner to have
indicated in a copy and not in the original, of the promissory note, his
supposed obligation in the amount of P5,000.00 only. Finally, the lower court
held that even granting that said limited amount had actually been agreed
upon, the same would have been merely collateral between him and Naybe
and, therefore, not binding upon the private respondent as creditor-bank.
 The lower court also noted that petitioner was a holder of a Bachelor of
Laws degree and a labor consultant who was supposed to take due care of
his concerns, and that, on the witness stand, Pio Tio denied having
participated in the alleged business venture although he knew for a fact that
the falcata logs operation was encouraged by the bank for its export potential.

Petitioner appealed the said decision to the Court of Appeals which, in its
decision of August 31, 1990, affirmed that of the lower court.His motion for
reconsideration of the said decision having been denied, he filed the instant
petition for review on certiorari.

On February 6,1991, the Court denied the petition for failure of petitioner
to comply with the Rules of Court and paragraph 2 of Circular No. 1-88, and to
sufficiently show that respondent court had committed any reversible error in
its questioned decision.[4] His motion for the reconsideration of the denial of his
petition was likewise denied with finality in the Resolution of April 24, 1991.
[5]
Thereafter, petitioner filed a motion for leave to file a second motion for
reconsideration which, in the Resolution of May 27, 1991, the Court denied. In
the same Resolution, the Court ordered the entry of judgment in this case.[6]

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

clarification. In the latter motion, he asserted that he had attached Registry
Receipt No. 3268 to page 14 of the petition in compliance with Circular No. 1-
88. Thus, on August 7,1991, the Court granted his prayer that his petition be
given due course and reinstated the same.[7]

Nonetheless, we find the petition unmeritorious.

Annexed to the petition is a copy of an affidavit executed on May 3, 1988,

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

The affidavit is clearly intended to buttress petitioner's contention in the

instant petition that the Court of Appeals should have declared the promissory
note null and void on the following grounds: (a) the promissory note was
signed in the office of Judge Pantanosas, outside the premises of the bank;
(b) the loan was incurred for the purpose of buying a second-hand chainsaw
which cost only P5,000.00; (c) even a new chainsaw would cost only
P27,500.00; (d) the loan was not approved by the board or credit committee
which was the practice, at it exceeded P5,000.00; (e) the loan had no
collateral; (f) petitioner and Judge Pantanosas were not present at the time
the loan was released in contravention of the bank practice, and (g) notices of
default are sent simultaneously and separately but no notice was validly sent
to him.[8] Finally, petitioner contends that in signing the promissory note, his
consent was vitiated by fraud as, contrary to their agreement that the loan was
only for the amount of P5,000. 00, the promissory note stated the amount of
P50,000.00.

The above-stated points are clearly factual. Petitioner is to be reminded of

the basic rule that this Court is not a trier of facts. Having lost the chance to
fully ventilate his factual claims below, petitioner may no longer be accorded
the same opportunity in the absence of grave abuse of discretion on the part
of the court below. Had he presented Judge Pantanosas' affidavit before the
lower court, it would have strengthened his claim that the promissory note did
not reflect the correct amount of the loan.

Nor is there merit in petitioner's assertion that since the promissory note
"is not a public deed with the formalities prescribed by law but x x x a mere
commercial paper which does not bear the signature of x x x attesting
witnesses," parol evidence may "overcome" the contents of the promissory
note.[9] The first paragraph of the parol evidence rule[10] states:

"When the terms of an agreement have been reduced to writing, it is considered as

containing all the terms agreed upon and there can be, between the parties and their
successors-in-interest, no evidence of such terms other than the contents of the written
agreement."

Clearly, the rule does not specify that the written agreement be a public
document.
 What is required is that agreement be in writing as the rule is in fact
founded on "long experience that written evidence is so much more certain
and accurate than that which rests in fleeting memory only, that it would be
unsafe, when parties have expressed the terms of their contract in writing, to
admit weaker evidence to control and vary the stronger and to show that the
parties intended a different contract from that expressed in the writing signed
by them."[11] Thus, for the parol evidence rule to apply, a written contract need
not be in any particular form, or be signed by both parties. [12] As a general rule,
bills, notes and other instruments of a similar nature are not subject to be
varied or contradicted by parol or extrinsic evidence.[13]

By alleging fraud in his answer,[14] petitioner was actually in the right

direction towards proving that he and his co-makers agreed to a loan of
P5,000.00 only considering that, where a parol contemporaneous agreement
was the inducing and moving cause of the written contract, it may be shown
by parol evidence.[15] However, fraud must be established by clear and
convincing evidence, mere preponderance of evidence, not even being
adequate.[16] Petitioner's attempt to prove fraud must, therefore, fail as it was
evidenced only by his own uncorroborated and, expectedly, self-serving
testimony.

Petitioner also argues that the dismissal of the complaint against Naybe,
the principal debtor, and against Pantanosas, his co-maker, constituted a
release of his obligation, especially because the dismissal of the case against
Pantanosas was upon the motion of private respondent itself. He cites as
basis for his argument, Article 2080 of the Civil Code which provides that:

"The guarantors, even though they be solidary, are released from their obligation
whenever by some act of the creditor, they cannot be subrogated to the rights,
mortgages, and preferences of the latter."

It is to be noted, however, that petitioner signed the promissory note as a

solidary co-maker and not as a guarantor. This is patent even from the first
sentence of the promissory note which states as follows:

"Ninety one (91) days after date, for value received, I/we, JOINTLY and
SEVERALLY promise to pay to the PHILIPPINE BANK OF COMMUNICATIONS
at its office in the City of Cagayan de Oro, Philippines the sum of FIFTY
THOUSAND ONLY (P50,000. 00) Pesos, Philippine Currency, together with interest
x x x at the rate of SIXTEEN (16) per cent per annum until fully paid."

A solidary or joint and several obligation is one in which each debtor is

liable for the entire obligation, and each creditor is entitled to demand the
whole obligation.[17] On the other hand, Article 2047 of the Civil Code states:

"By guaranty a person, called the guarantor, binds himself to the creditor to fulfill the
obligation of the principal debtor in case the latter should fail to do so.

If a person binds himself solidarily with the principal debtor, the provisions of Section
4, Chapter 3, Title I of this Book shall be observed, In such a case the contract is
called a suretyship." (Italics supplied.)

While a guarantor may bind himself solidarily with the principal debtor, the
liability of a guarantor is different from that of a solidary debtor.Thus, Tolentino
explains:

"A guarantor who binds himself in solidum with the principal debtor under the provisions of the
second paragraph does not become a solidary co-debtor to all intents and purposes. There is a
difference between a solidary co-debtor, and a fiador in solidum (surety). The later, outside of the
liability he assumes to pay the debt before the property of the principal debtor has been
exhausted, retains all the other rights, actions and benefits which pertain to him by reason of
the fiansa; while a solidary co-debtor has no other rights than those bestowed upon him in
Section 4, Chapter 3, title I, Book IV of the Civil Code."[18]

Section 4, Chapter 3, Title I, Book IV of the Civil Code states the law on
joint and several obligations. Under Art. 1207 thereof, when there are two or
more debtors in one and the same obligation, the presumption is that the
obligation is joint so that each of the debtors is liable only for a proportionate
part of the debt. There is a solidarity liability only when the obligation
expressly so states, when the law so provides or when the nature of the
obligation so requires.[19]

Because the promissory note involved in this case expressly states that
the three signatories therein are jointly and severally liable, any one, some or
all of them may be proceeded against for the entire obligation. [20] The choice is
left to the solidary creditor to determine against whom he will enforce
collection.[21] Consequently, the dismissal of the case against Judge
Pontanosas may not be deemed as having discharged petitioner from liability
as well. As regards Naybe, suffice it to say that the court never acquired
jurisdiction over him.Petitioner, therefore, may only have recourse against his
co-makers, as provided by law.

WHEREFORE, the instant petition for review on certiorari is hereby

DENIED and the questioned decision of the Court of Appeals is
AFFIRMED. Costs against petitioner.

SO ORDERED.

G.R. No. 85869 November 6, 1992

THE NATIONAL IRRIGATION ADMINISTRATION (NIA), represented by the Project Manager,

Magat River Multi-Purpose Project, petitioner,
vs.
ESTANISLAO GAMIT and THE HONORABLE COURT OF APPEALS, respondents.

PADILLA, J.:

On 23 January 1985, the plaintiff Estanislao Gamit (private respondent herein) filed with the RTC of
Roxas, Isabela, Branch XXIII, a complaint 1 against the defendant National Irrigation Administration
(petitioner herein) for reformation of contract, recovery of possession and damages, docketed therein as
Civil Case No. 4, alleging, among others, as follows:

2. That defendant is in charge of the implementation of the Irrigation Program of the

national government to increase food production nationwide, and in pursuance of the
policy, the Magat River Multi-Purpose Project was undertaken to provide irrigation in
the Cagayan Valley region, particularly in the province of Isabela, funded by a multi-
billion loan from the world bank; that as an indispensable component of the project,
massive infrastructure improvements such as buildings and the like, were
constructed to house the different offices monitoring the actual implementation of the
project;

3. That for the purpose above mentioned and sometime on June 5, 1975, herein
plaintiff and defendant, thru its Officer-in-Charge, Magat River Multi-Purpose Project
(MRMP) then with business office at San Mateo, Isabela, after some negotiations
were made, entered into a CONTRACT OF LEASE, over plaintiff's urban parcel of
land, more particularly described as follows:
 An undivided portion of twenty five thousand (25,000) square meters,
more or less, and forming part of that parcel of land with a total area
of thirty thousand and five (30,005) square maters, more or less,
embraced in TCT No. T-85689 of the land records of Isabela, under
Tax Declaration No. S3-5603, situated at the poblacion (Centro), San
Manuel, Isabela, which portion leased is bounded as follows:

NORTH: Estanislao Gamit; EAST National Road;

SOUTH: Dominador Bullungan; WEST: Dominador
Bullagan

For a consideration or rental in the sum of ten centavos (P0.10) per square meter,
per year for ten (10) years, from date of execution of the instrument, for the use by
defendant on which to construct the Administration Building and other facilities for
Division III, Magat River Multi-Purpose Project at San Manuel, Isabela, and other
purposes that may be deemed necessary for the operation and maintenance of the
system when completed; certified xerox copy of the title is hereto attached as Annex
"A" to form part hereof.

4. That in at least three paragraphs, (4, 8, 9) of the contract of lease the defendant
surreptitiously inserted, the following stipulations, which are hereby quoted:

4. That should LESSEE decides (sic) to continue utilizing the said

portion of twenty five thousand (25.000) square meters, more or less,
beyond the ten (10) year period that this contract is in force, then
lessee may purchase the property and all rentals paid to lessor shall
be considered part of the purchase price (which) shall not exceed
twenty five thousand (P25,000.00) Pesos: (Emphasis Supplied)

xxx xxx xxx

8. That six (6) months before the expiration of the ten (10) year period, LESSOR
shall request LESSEE in writing about the latter's final intention on the herein
(property) leased; likewise, LESSEE shall inform LESSOR in writing about
LESSEE'S definite intention on the area; failure of parties to make bilateral
communication shall be deemed that this contract is in force and effect even after the
ten (10) year period, as if LESSOR, his successors, or assigns allowed continued
use of the property by LESSEE without any additional compensation whatsoever.
(Emphasis Supplied.)

9. That upon payment of the said amount of Twenty Five Thousand

(P25,000.00) Pesos, the land owner, Estanislao Gamit shall be
deemed to have ceded and conveyed all his rights and interest on
the subject property free from all liens and encumbrances in favor of
the National Irrigation Administration. (Emphasis Supplies). Certified
 xerox copy of the contract is hereto attached as Annex "B", to form
part hereof.

5. That prior to the signing of the contract of lease as stated in the immediately
preceding paragraphs, serious negotiations were made, the first was, when the
Municipal Mayor and Chief of Police of the Municipality of San Manuel, Isabela,
approached plaintiff in behalf of defendant, to allow the later thru its Project Manager
or his duly authorized representatives and equipments to enter into and occupy three
(3) hectares or 30,000 square meters of his land on which to establish the Office of
Division III, of the Project, and plaintiff and his wife signed a written permit dated April
24, 1975, witnessed by Mayor Paulino A. Domingo and Chief of Police Pedro R.
Pascua, which permit was granted "pending the perfection of documents pertinent to
a formal lease contract with the right to purchase" to be executed by and between
plaintiff and defendant. Certified xerox copy of the permit is hereto attached as Annex
"B-1", to form part hereof;

That further negotiations followed, and a document denominated as "'AGREEMENT"

was prepared by herein defendant for the signature of plaintiff and the latter and his
wife signed the same, with one Engr. Antonio A. Ramos, then the Chief of Division III,
MRMP, San Manuel, Isabela, signing as an instrumental witness; for reasons known
only to the Asst. Project Manager, the document was not however signed by him, for
which reason, the contract of lease was not perfected possibly because defendant's
Assistant Project Manager wanted to prolong plaintiff's anxiety and the same was
aggravated by the latter's deep financial need, which fact is known by the Assistant
Project Manager during the negotiations, thereby exercising undue influence or
advantage over that of plaintiff, when the contract of lease was finally signed on June
6, 1975. Certified xerox copy of the unperfected agreement is hereto attached as
Annex "B-2", to form part hereof.

6. That contemporaneously or subsequently thereafter and sometime on August 27,

1975 or thereabout, the whole rental of the leased premises was offered to be paid
by the defendant and the plaintiff being then in need of cash, as he was then in
financial distress, accepted the offer, and finally received the whole amount, as
evidenced by a certified xerox copy of the corresponding voucher, hereto attached as
Annex "C", to form part hereof.

7. That only recently, in a letter dated November 23, 1984, sent by the Assistant
Project Manager to the plaintiff, herein defendant notified the former, of the election
to purchase the leased premises, allegedly in accordance with stipulation No. 8
quoted above, and contained in the contract of lease (Annex "B"). Certified xerox
copy of the same is hereto attached as Annex "D", to form part hereof.

8. That the contract of lease entered into, by and between herein plaintiff and
defendant does not express the real agreement or intention of the parties, as there
was error or mistake of fact on the part of plaintiff, aggravated by his state of financial
distress at the time the contract was signed, and herein defendant acted fraudulently
or inequitably, exercising undue influence over plaintiff on account of the latter's
financial distress, in such a way that their real agreement was not reflected or
expressed in the contract of lease signed by the parties.

9. That the real agreement or intention of the parties was only for the lease of the
twenty five (25,000) thousand square meters by defendant at the rate of P0.10
centavos per square meter, for a period of ten (10) years from date of execution with
the right of defendant to purchase the area upon the termination of the lease, on a
price certain or consideration to be negotiated and agreed upon, by and between the
parties after the lapse of the ten (10) year period;

10. That it was not the real agreement or intention of the parties, at least that of
herein plaintiff, to have the rentals paid as forming part of the purchase price later to
be negotiated or agreed upon, much less was it their intention at least on the part of
herein plaintiff, that the price shall, not exceed P25,000.00 (see stipulation No. 4,
Lease of Contract), otherwise, there will be a gross inadequacy of the purchase
price, enough to shock the conscience of man and that of the court; that it was not
also the intention or agreement of the parties, at least that of herein plaintiff, that in
case the lease contract is not renewed after the lapse of the ten (10) year period, for
failure of the parties to make bilateral communication, the lessor or his successors or
assigns are deemed to have allowed continued use of the land in suit without any
additional compensation whatsoever (see stipulation No. 8, contract of lease) and
neither was it the true agreement or real intention the parties, at least on the part of
herein plaintiff, that upon payment of the rental amount of P25,000.00, herein plaintiff
shall be deemed to have conveyed and ceded all his rights and interest on the
subject property, in favor of herein defendant. (see stipulation No. 9)

11. That herein defendant acted fraudulently and inequitably, taking advantage of the
financial distress of herein plaintiff, when it caused the unlawful insertion of the
stipulation contained in paragraphs 4, 8 and 9 quoted above, in the contract of lease,
and the same are all contrary to law and void ab-initio, because the fixing of the price
of the land to be purchased can never be left to the discretion or will of one of the
contracting parties; and in this case, it was defendant alone who determined the
price and if this is so, then the validity or compliance of the contract can not be
demanded by herein defendant, for the reason that a contract of sale, is essentially
bilateral in character;

12. That evidently, the contract as drafted and prepared by herein defendant for the
signature of herein plaintiff is a contract commonly known as ADHESION
CONTRACT, which is one where one party (plaintiff herein) merely signs carefully
prepared contracts of big companies, such as contracts of insurance, construction
and the like; as in the case of herein defendant where the project involves multi-
billion contracts funded from the World Bank, thus, the same should be strictly
interpreted against defendant, and liberally in favor of herein plaintiff, because the
latter was virtually helpless to bargain for better terms on account of his financial
need at the time;
13. That the fair and reasonable price or market value of the land in suit which is an
urban land located at the Poblacion or Centro of the town of San Manuel, this
province, is no less than Fifty Pesos (50.00) per square meter, and plaintiff makes
this offer, subject to the acceptance of herein defendant;

14. That as agreed upon, the area to be leased is only twenty five (25.000) thousand
square meters, as evidenced by the encumbrance registered at the back of TCT No.
T-85689, in the name of plaintiff leaving a portion of five (5,000) thousand square
meters, as free from the lien and encumbrance;

15. That after the lease contract was executed and registered, herein defendant
fenced the area leased, but in the process, the latter stealthily and surreptitiously
expanded its occupation and it included the remaining portion of five (5,000)
thousand square meters, unencumbered, as evidenced by a relocation survey
conducted by one Geodetic Engineer Apolinar P. Alvarez in the premises, a blue print
copy of the sketch map is hereto attached as Annex "E" to form part hereof, and
there xerox copy of the letter of plaintiff dated August 27, 1984, addressed to the
Manager of Division III, Magat River Multi-Purpose Project, San Manuel, Isabela,
requesting for a relocation of the leased premises, is hereto attached as Annex "E-1",
to form part hereof;

16. That the encroached area of five (5,000) thousand square meters which is
irrigated, can be easily planted to palay and would yield an average of no less than
one (100) hundred cavans of palay at 46 kilos per cavan, per crop, for three (3)
croppings a year, with a selling price of P3.50 per kilo;

17. That herein plaintiff failed to realize the expected income stated in the
immediately preceding paragraph due to the unlawful occupation of the area by
defendant since the year 1975 to the present, and despite repeated demands, the
defendant refuses to deliver the possession of the encroached portion of 5,000
square meters to the plaintiff, with accounting of its corresponding produce, up to the
present; however, should defendant desires to purchase the remaining portion of
5,000 square meters, plaintiff offers a price of no less than P50.00 per square meter
which is the fair and reasonable market value of the land;

18. That due to the unlawful, inequitable and malicious actuations of herein
defendant, plaintiff was forced to engage the services of counsel for a contingent fee
of 30% of whatever is due plaintiff, plus P300.00 as appearance fee, for the
protection, respect, and preservation of his rights and interests in the premises;

19. That likewise, for fraudulent and inequitable acts committed by defendant,
plaintiff is entitled to actual or compensatory damages representing unrealized
income of the 5,000 square meters encroached portion, which is estimated to be no
less that 25 cavans of palay (25% of 100 as rental per crop, for three (3) croppings a
year), or a total of 75 cavans per year and/or a grand total of 750 cavans of palay at
46 kilos per cavan for the (10) years, at the current price of P3.50 per kilo; and
 entitled to nominal or temperate damages in the sum of P30,000.00 plus moral and
exemplary damages of no less that P60,000.00 for the public good;

WHEREFORE, premises considered, it is most respectfully prayed of this Honorable

Court that judgment be rendered in favor of your plaintiff and against herein
defendant by:

1. Ordering, that the contract of lease with right to purchase (Annex "B") be reformed,
so that the real and true agreement or intention of the parties be reflected and/or
expressed therein;

2. In the alternative, should the defendant pursue to BUY the land in suit (30,000
square meters) at a price certain agreed upon by the parties after serious
negotiations at the rate of P50.00 per square meter, then the necessary and proper
document be drawn and prepared, under the strict supervision of the Court, and the
corresponding purchase price or compensation to be paid by defendant, be
deposited with the court under custodia legis;

3. Ordering the defendant to pay plaintiff, the unrealized income or profit, plaintiff
suffered, by virtue of the unlawful occupation by defendant of the remaining portion
of 5,000 square meters from 1975 to the present or until possession is finally
restored;

4. Ordering defendant to pay plaintiff, the sum of P30,000.00, by way of nominal or

temperate damages and the sum of P60,000.00, by way of moral and exemplary
damages, for the public good, plus attorney's fees on a contingent basis of 30%
depending on the amount finally adjudicated in favor of plaintiff, plus appearance fee
of P3000.00 when the case is called for hearing or for any other purpose;

5. Ordering the parties to strictly abide by, and comply with their commitments in the
documents that may be executed in the premises;

6. If for any reason, the parties can not agree on reasonable terms for the
continuation of their relationship and the lease contract ordered terminated, and/or,
should the defendant elects not to purchase the whole 30,000 square meters,
defendant be ordered to deliver the possession of the land in suit to the plaintiff, and
the defendant allowed to remove the infrastructure improvement introduced on the
land, with right of retention to the former;

In due time, the defendant filed its answer 2 alleging, inter alia, as follows:

2. That defendant admits the allegations in paragraph 2 of the complaint;

3. That defendant admits the allegations in paragraph 3 of the complaint that a

Contract of Lease With Right to Purchase was entered into between the parties on
June 6, 1975, but it specifically denies the rest of the allegation therein, more
specifically that plaintiff's land is urban land, the fact of the matter being that it is
riceland at the time NIA took possession of the same;

4. That defendant specifically denies the material allegations in paragraph 4 of the

complaint alleging that stipulations No. 4, 8 and 9 of the Contract of Lease with Right
to Purchase was surreptitiously inserted it appearing plaintiff is an intelligent person
who knows English, and that his wife, Estilita Santos, is likewise a signatory to the
document;

5. That defendant admits the allegations in paragraph 5 of the compaint concerning

plaintiff's issuance of a permit to enter the property in question on April 24, 1975, but
it specifically denies the rest of the allegations therein, for being without basis in fact
and in law;

6. That defendant admits the allegations in paragraph 6 of the complaint whereby

plaintiff acknowledged receipt of the amount of P25,000.00 as payment for the land
in question, but specifically denies the rest of the allegations therein for being self-
serving and baseless conclusions of fact, it appearing the delay in the payment for
such property was due to plaintiff's fault, who was not paid until he was able to
register the property in his own name;

7. That defendant admits the material allegations in paragraph 7 of the complaint;

8. That defendant specifically denies the allegations in paragraphs 8 and 9 of the

complaint for being self-serving, without basis in fact, and for reasons to be stated in
the Special and Affirmative defenses;

9. That defendant specifically denies the allegations in paragraphs 10, 11, 12 and 13,
of the complaint for being without basis in law and in fact;

10. That defendant admits the allegations in paragraph 14 of the complaint that
25,000 square meters was the subject of the Contract of Lease with Right of
Repurchase, with the qualification that the remaining 5,000 square meters was
intended to be donated by the plaintiff to defendant upon the execution of a Deed of
Sale;

11. That defendant specifically denies the allegations in paragraph 15 of the

complaint for reasons stated in the preceding paragraph;

12. That defendant specifically denies the allegations in paragraphs 16 of the

complaint for being unwarranted conclusions of fact;

13. That defendant specifically denies the allegations in paragraphs 17, 18 and 19 of
the complaint for being self-serving, speculative and without basis in fact; and by way
of
 SPECIAL AND AFFIRMATIVE DEFENSES

defendant respectfully alleges:

14. That it repleads and incorporates the foregoing as integral part hereof;

15. That the contract entered into on June 6, 1975 is the law between the parties and
the same should be complied with in good faith (Art. 1159, Civil Code);

16. That there could not have been any fraud or mistake in the execution of said
contract because plaintiff appears to know English and his wife is a signatory to the
instrument; besides, public officials are entitled to the presumption of regularity in the
performance of their official duties;

17. That from the appearance of their signatures, plaintiff and his wife are not
ignorant or illiterate, otherwise they would have merely used their thumbmarks;

18. That as public entity, defendant has not been motivated by any other
consideration other than to reflect the true intentions of the parties in the instrument
of June 6, 1975;

19. That money claims for damages against the State should have been first had
before the Commission on Audit (Carabao Inc. vs. Agricultural Productivity
Commission, 35 SCRA 224 [1970]; Commissioner of Public Highways vs. San Diego,
31 SCRA 616 [1970];

20. That there was no exhaustion of administrative remedies, and therefore, the
instant suit does not state a valid cause of action (Abe-Abe vs. Manta, 90 SCRA 524
[1979]).

The plaintiff seasonably filed a reply 3 to the defendant's answer, after which the case was set for pre-
trial.

After the pre-trial, the court a quo issued on 4 March 1986 an order 4 incorporating therein the facts
admitted by the parties during the pre-trial, and stating therein that:

The parties agreed that the issue in this case is only a question of law because it
involved the interpretation of the contract between the parties whether it is an
absolute sale or a contract of lease only. That there is no genuine issue of material
fact on the basis of which the court should try the case on the merits and require
presentation of evidence to prove such issue of material fact.

As there is no genuine issue of material fact this case could be decided by way of
summary judgment pursuant to Sec. 3, Rule 20 of the Rules of Court which provides
as follows:
 Sec. 3. Judgment on the pleadings and summary judgment at pre-
trial. If at the pre-trial the court finds that facts exist upon which a
judgment on the pleadings or a summary judgment may be made, it
may render judgment on the pleadings or a summary judgment as
justice may require.

Hence, the court a quo, without conducting a trial on the merits of the case, rendered on 20 March
1986 a decision 5 interpreting the contract between the parties as a contract of lease with the right to
purchase. Thus, the trial court held:

That the issue in this case, is a question of law not a question of fact because it
involved the interpretation of the contract between the parties only. Therefore, there
is no genuine issue of material fact to be determined by the court in a trial on the
merits and the case may be decided by way of summary judgment under Sec. 3,
Rule 20 of the Rules of Court

The pre-trial order was furnished to the parties giving them reasonable period of time
to file any objection if any as mandated by Sec. 4 of Rule 20 of the Rules of Court to
which the parties did not submit or file any pleading for the correction or amendment
of the pre-trial order.

With respect to the interpretation of the contract between the parties sought to be
reformed in this case whether or not the contract is a lease contract or a contract of
sale, there are terms and conditions of the agreement which maybe very pertinent
and determinative of the nature of the contract entered into by the parties to wit:

1. That the contract is denominated as contract of lease with the right to purchase
and not a deed of sale;

2. That the contract stipulated a period of ten (10) years from June 6, 1975 the date
when it was executed to June 6, 1985;

3. That the defendant has an option to buy the property.

The parties are not ordinary parties to a contract and the court is of the opinion, that
they intended there contract to be a contract of lease not sale. If it were otherwise,
the party could have denominated their contract a deed of sale not a contract of
lease with right of purchase. If the parties intended to execute a contract of sale over
the two and one-half hectares they should have executed a deed of sale and not a
contract of lease. The plaintiff much less the defendant could not claim ignorance of
the contract executed by them because the latter is represented by a battery of
corporate counsel aside from the office of the Solicitor General and a project
Manager whose educational qualification is above an ordinary citizen or individual.
The court cannot therefore sustain the contention of the defendant that the contract
entered into is that of sale and hereby holds that it is a lease contract with the right to
purchase not sale. The mere fact that there is a period agreed upon by the parties
 which is ten (10) years from June 6, 1975 to June 6, 1985 clearly indicate that the
contract between them is a lease contract not sale. A contract of sale does not have
any period because it is final and absolute. Likewise, the contract cannot be deemed
to be that of sale because the defendant is given the option to buy and if the latter
chooses to buy the land in question the price should be that which has already been
paid the plaintiff as the consideration of the lease which was paid in advance in the
amount of P25,000.00 The option to buy is not embodied in a contract of sale but it is
a term which maybe agreed upon in a contract of lease. The agreement of the
parties to be the P25,000.00 paid in full to the plaintiff to the purchase price of the
two and one-half hectares however, cannot be considered as the consideration for
purposes of the option to buy of the defendant for the reason that the said amount
was paid to the plaintiff as rentals for the use of the property during the period of ten
(10) years when the option to buy of the defendant is not yet being exercised by the
latter otherwise it will be considered as pactum commissorium which in the eyes of
the law is illegal per se. To hold otherwise, would deprived the plaintiff the reasonable
rentals of the two and one-half hectares during the duration of the lease contract
because then the P25,000.00 would be considered as advance payment of the
land. . . .

xxx xxx xxx

. . . Hence, there is no need to reform the agreement. First, because it has already
expired and second, the contract is very clear that it is only a contract of lease with
option or right to purchase. However, the agreement or stipulation that should the
defendant exercise its option to buy the amount of P25,000.00 paid as rental should
be considered null and void as if there is no such agreement between the parties for
it being illegal.

Dissatisfied, the defendant appealed to the Court of Appeals, where it was docketed as CA-G.R. No.
CV No. 11538. On 14 November 1988, the Court of Appeals * promulgated a decision 6 affirming with
modification the decision of the trial court, the dispositive portion of which reads:

WHEREFORE, the judgment appealed from is AFFIRMED with the following

modifications:

1) That in case the defendant would exercise its option to buy under the contract, the
total purchase price of the two and one-half hectares is P25,000.00; and

2) The amount of attorney's fees is reduced to P30,000.00.

SO ORDERED.

Hence, the present petition for review on certiorari of the decision of the Court of Appeals, the
petitioner NIA formulating for resolution the following ISSUES:

I
 WHETHER OR NOT THE COURT OF APPEALS HAS PROPERLY INTERPRETED
THE CONTRACT.

II

WHETHER OR NOT THE STIPULATION IN THE CONTRACT THAT RENTALS PAID

SHALL BE CONSIDERED PART OF THE PURCHASE PRICE IS NULL AND VOID,
BEING PACTUM COMMISSORIUM.

III

WHETHER OR NOT THE COURT OF APPEALS ERRED IN AWARDING DAMAGES

AND ATTORNEY'S FEES.

" A contract", according to Article 1305 of the Civil Code, "is a meeting of the minds between two
persons whereby one binds himself, with respect to the other, to give something or to render some
service." Once the minds of the contracting parties meet, a valid contract exists, whether it is
reduced to writing or not. And, 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,
except when it fails to express the true intent and agreement of the parties thereto, 7 in which case,
one of the parties may bring an action for the reformation of the instrument to the end that such true
intention may be expressed. 8

Equity orders the reformation of an instrument in order that the true intention of the contracting
parties may be expressed. The courts do not attempt to make another contract for the parties. The
rationale of the doctrine of reformation is that it would be unjust and inequitable to allow the
enforcement of a written instrument which does not reflect or disclose the real meeting of the minds
of the parties. The rigor of the legalistic rule that a written instrument should be the final and
inflexible criterion and measure of the rights and obligations of the contracting parties is thus
tempered, to forestall the effect of mistake, fraud, inequitable conduct or accident. 9

In order that an action for reformation of instrument as provided in Article 1359 of the Civil Code may
prosper, the following requisites must concur: (1) there must have been a meeting of the minds of
the parties to the contract; (2) the instrument does not express the true intention of the parties; and
(3) the failure of the instrument to express the true intention of the parties is due to mistake, fraud,
inequitable conduct or accident.

A perusal of the complaint at bar and the relief prayed for therein shows that this is clearly a case for
reformation of instrument under Articles 1359 and 1362 10 of the Civil Code of the Philippines. Thus, the
complaint alleges:

8. That the contract of lease entered into, by and between herein plaintiff and
defendant does not express the real agreement or intention of the parties, as there
was error or mistake of fact on the part of plaintiff, aggravated by his state of financial
distress at the time the contract was signed, and herein defendant acted fraudulently
 or inequitably, exercising undue influence over plaintiff on account of the latter's
financial distress, in such a way that their real agreement was not reflected or
expressed in the contract of lease signed by the parties.

9. That the real agreement or intention of the parties was only for the lease of the
twenty five (25,000) thousand square meters, by defendant at the rate of P0.10
centavos per square meter, for a period of ten (10) years from date of execution with
the right of defendant to purchase the are upon the termination of the lease, on a
price certain or consideration to be negotiated and agreed upon, by and between the
parties after the lapse of the ten (10) year period;

10. That it was not the real agreement or intention of the parties, at least that of
herein plaintiff, to have the rentals paid as forming part of the purchase price later to
be negotiated or agreed upon, much less was it their intention at last on the part of
herein plaintiff, that the price shall not exceed P25,000.00 (see stipulation No. 4,
Lease of Contract), otherwise, there will be a gross inadequacy of the purchase
price, enough to shock the conscience of man and that of the court; that it was not
also the intention or agreement of the parties, at least that of herein plaintiff, that in
case the lease contract is not renewed after the lapse of the ten (10) year period, for
failure of the parties to make bilateral communication, the lessor or his successors or
assigns are deemed to have allowed continued use of the land in suit without any
additional compensation whatsoever (see stipulation No. 8, contract of lease) and
neither was it the true agreement or real intention of the parties, at least on the part
of herein plaintiff, that upon payment of the rental amount of P25,000.00, herein
plaintiff shall be deemed to have conveyed and ceded all his rights and interest on
the subject property, in favor of herein defendant. (see stipulation No. 9);

11. That herein defendant acted fraudulently and inequitably, taking advantage of the
financial distress of herein plaintiff, when it caused the unlawful insertion of the
stipulation contained in paragraphs 4, 8 and 9 quoted above, in the contract of lease,
and the same are all contrary to law and void ab initio, because the fixing of the price
of the land to be purchased can never be left to the discretion or will of one of the
contracting parties; and in this case, it was defendant alone who determined the
price and if this is so, then the validity or compliance of the contract can not be
demanded by herein defendant, for the reason that contract of sale, is essentially
bilateral in character;"

and prays, among others, as follows:

1. Ordering, that the contract of lease with right to purchase (Annex "B") be reformed,
so that the real and true agreement or intention of the parties be reflected and/or
expressed therein;

Otherwise stated, the complaint at bar alleged that the contract of lease with right to purchase does
not express the true intention and agreement of thej parties thereto due to mistake on the part of the
plaintiff (private respondent) and fraud on the part of the defendant (petitioner), i.e., by unlawfully
inserting the stipulations contained in paragraphs 4, 8 and 9 in said contract of lease.

As a general rule, parol evidence is not admissible for the purpose of varying the terms of a contract.
However, when the issue that a contract does not express the intention of the parties and the proper
foundation is laid therefor as in the present case the court should hear the evidence for the
purpose of ascertaining the true intention of the parties. 11

From the foregoing premises, we hold that the trial court erred in holding that the issue in this case is
a question of law and not a question of fact because it merely involves the interpretation of the
contract between the parties. The lower court erred in not conducting a trial for the purpose of
determining the true intention of the parties. It failed to appreciate the distinction between
interpretation and reformation of contracts. While the aim in interpretation of contracts is to ascertain
the true intention of the parties, interpretation is not, however, equivalent to reformation of contracts.

"Interpretation" is the act of making intelligible what was before not understood, ambiguous, or not
obvious. It is a method by which the meaning of language is ascertained. 12 The "interpretation" of a
contract is the determination of the meaning attached to the words written or spoken which make the
contract. 13 On the other hand, "reformation" is that remedy in equity by means of which a written
instrument is made or construed so as to express or conform to the real intention of the parties. 14 In
granting reformation, therefore, equity is not really making a new contract for the parties, but is confirming
and perpetuating the real contract between the parties which, under the technical rules of law, could not
be enforced but for such reformation. 15 As aptly observes by the Code Commission, the rational of the
doctrine is that it would be unjust and inequitable to allow the enforcement of a written instrument which
does not reflect or disclose the real meeting of the minds of the parties. 16

Since the compaint in the case at bar raises the issue that the contract of lease does not express the
true intention or agreement of the parties due to mistake on the part of the plaintiff (private
respondent) and fraud on the part of the defendant (petitioner), the court a quo should have
conducted a trial and received the evidence of the parties for the purpose of ascertaining the true
intention of the parties when they executed the instrument in question.

Summary judgment can be resorted to only where there are no question of fact in issue or where the
material allegations of the pleadings are not
disputed. 17 A cursory reading of the pleadings in this case shows that there is a genuine issue or material
controversy raised therein. Hence, summary judgment is not proper.

WHEREFORE, the decision of the trial court dated 20 March 1986 as well as the decision of the
Court of Appeals dated 14 November 1988 are hereby SET ASIDE and the case should be, as it is
hereby, REMANDED to the court of origin for further proceedings in accordance with this decision.
Without costs.

SO ORDERED.

G.R. No. 75290 November 4, 1992

AMADO T. GURANGO and ESTER GURANGO, petitioners,
vs.
INTERMEDIATE APPELLATE COURT and EDWARD L. FERREIRA, respondents.

NOCON, J.:

This is a petition for review on certiorari to annul and set aside the decision dated March 12, 1986 of
the then Intermediate Appellate Court 1 reversing the decision of the trial court 2 and ordering petitioners
spouses Amado and Ester Gurango to pay private respondent Edward Ferreira the sum of P36,000.00
representing the price of the car and P5,000.00 as attorney's fees, as well as the Resolution dated July
11, 1986 3 denying petitioners' Motion for Reconsideration in the appealed decision.

It appears on record that, on January 26, 1977, private respondent Edward Ferreira sold to petitioner
Amado Gurango one (1) booklet of raffle tickets valued at Five Hundred (P500.00) Pesos consisting
of one hundred (100) tickets bearing ticket numbers 162501 to 162600 in connection with a fund-
raising project sponsored by the Makati Jaycees to be held in the evening of April 14, 1977 at the
Manila Peninsula Hotel.

At around 10:00 p.m. of April 14, 1977, ticket number 162574 in the name of Armando "Boyet"
Gurango, a minor son of the petitioners, but in the custody or possession of private respondent, won
a Toyota Corolla car.

Petitioner Amado Gurango alleged that on April 14, 1977, he issued Check No. 00730 dated April 12,
1977 for the payment of the sixty (60) raffle tickets in the amount of Three Hundred (300.00) Pesos.
Thereafter, petitioner called his cashier, Miriam Burgo, and instructed the latter to fill up the stubs of
the one hundred (100) raffle tickets with the names of his family members before surrendering the
same to the messenger of private respondent who would go there to collect the check for the
payment of said raffle tickets.

When petitioner arrived at his office in the afternoon of that same day, his cashier gave him the one
hundred (100) claim stubs and informed him that the messenger of the private respondent took the
check as well as all the raffle tickets. Thereafter, petitioner instructed his cashier to keep said claim
stubs as he was in a hurry to return to Cavite City for the induction of the officers and directors of the
Cavite Jaycees.

The following morning or on April 15, 1977, private respondent called up petitioner Amado Gurango
to inform the latter that he had already paid petitioner's remaining unpaid balance of Two Hundred
(P200.00) Pesos to the Makati Jaycees the previous night during the raffle and, subsequently,
arranged a meeting with the petitioner for the latter to turnover the forty (40) claim stubs representing
the unpaid balance. During said telephone conversation, 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.
Upon private respondent's arrival at the office of the petitioner, the latter inquired again from the
former if any of his tickets, won a car to which private respondent answered again in the negative.
When private respondent asked for the forty (40) claim stubs from the petitioner, the latter informed
the former that he is still willing to honor their previous agreement and even tendered a check for
Two Hundred (P200.00) Pesos dated April 30, 1977 but private respondent refused to accept said
check 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.

As petitioner was in a hurry to finish his income tax return, he handed all the claim stubs to the
private respondent who selected forty (40) claim stubs from the lot representing the unpaid balance.
Thereafter, 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, to wit:

14 April 1977

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.

(SGD.) (SGD.)
MADS GURANGO EDWARD L. FERREIRA

Further any holder of the winning stub shall be printed as the sole winner and owner,
even though it was in other's name.

This is a Gentlemen and Jayceely agreement that both of us will stick to this simple
and binding agreement.

(SGD.) (SGD.)
MADS GURANGO EDWARD L. FERREIRA 4

On April 18, 1977, petitioner was shown a copy of Daily Express and learned from an item in said
newspaper that ticket No. 162574 won a Toyota Corolla car but was surprised to find out that the
winning stub was among those taken by the private respondent.

That same evening, petitioner attended a meeting of the Metropolitan Jaycees at the Metro Jaycee
Clubhouse and confronted private respondent about the winning stub. Upon being shown a copy of
their agreement, petitioner realized his mistake in dating said agreement on April 14, 1977 instead of
April 15, 1977 which he distinctly remembered to be the date said agreement was executed since it
was the last day to file the income tax return but must have erroneously wrote down the wrong date
due to his tight schedule on that day.
On the other hand, private respondent claimed that on April 12, 1977, petitioner informed the former
that he is only buying sixty (60) tickets and offered to return the remaining forty (40) tickets since he
needed the money for the payment of his income tax on April 15, 1977, which was accepted by the
private respondent and the latter agreed to appropriate for himself the remaining tickets.

Consequently, in the morning of April 14, 1977, petitioner turned over the one hundred (100) tickets
to be dropped in the "tambiolo" and his check for Three Hundred (P300.00) Pesos for the sixty (60)
tickets he bought from the private respondent.

Upon noticing that all the returned tickets were in the name of the petitioner Amado Gurango or
members of his family, private respondent, during his meeting with the petitioner at Manila Midtown
Ramada Hotel at around 6 p.m. of April 14, 1977, asked the latter to write down their agreement
signed by them on April 14, 1977 (Exhibit "A").

Thereafter, private respondent and petitioner met at the Metro Jaycee Clubhouse were the former
asked the latter to comply with their agreement but petitioner refused and wrote a letter to the Makati
Jaycees disclaiming said agreement. 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.

Consequently, on August 25, 1977, private respondent filed a complaint for damages against
petitioners with the then Court of First Instance of Rizal, Branch XX in Civil Case No. 27163.

After trial on the merits, a decision was rendered by the Regional Trial Court, the dispositive portion
of which reads as follows:

IN VIEW OF ALL THE FOREGOING, the Court dismisses the complaint, for failure
on the part of the plaintiff to have established a cause of action against the
defendants.

On the counterclaim, the Court orders the plaintiff to pay the defendants the sum of
Ten Thousand Pesos (P10,000.00) as moral damages, and the sum of Two
Thousand Five Hundred Pesos (P2,500.00) as and for attorney's fees and expenses
of litigation. However, the defendants are ordered to reimburse the plaintiff the sum
of Two Hundred Pesos (P200.00), the balance price of the forty (40) tickets paid for
by the plaintiff. 5

Not satisfied with said decision, private respondent appealed to the respondent court which reversed
the decision of the trial court. The pertinent portion of its decision reads:

We find therefore and so hold that the agreement (Exh. A or A-1) was prepared and
signed by the parties on April 14, 1977 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.
 WHEREFORE, the decision of the lower court appealed from is hereby REVERSED
ordering defendants-appellees to pay plaintiff-appellant the sum of P36,000.00
representing the price of the car and the sum of P5,000.00 as and for counsel fees.
No damages and costs. 6

The principal issue presented to Us in the instant case is the validity of the agreement executed
between petitioner and private respondent on April 14, 1977.

As a rule, only legal questions are reviewable by this Court on appeals from decisions of the Court of
Appeals. However, one of the exceptions to the rule is when there is a conflict in factual findings of
the Court of Appeals and the trial court. 7

Section 9, Rule 130 of the Revised Rules of Court in the Philippines provides that:

Sec. 9. 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.

Under the aforementioned provision, when the parties have reduced their agreement in writing, the
contents of said agreement are rendered conclusive upon the parties and evidence aliunde is
inadmissible to change a valid and enforceable agreement embodied in a document. "The mistake
contemplated as an exception to the parol evidence rule is one which is a mistake of fact mutual to
the parties," 8 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, We find 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. Being the author of the agreement, petitioner
is presumed to have actual knowledge of the true intent of the parties and the surrounding
circumstance that attended the preparation of the document in question including the date when said
agreement was executed. If it is true that the date if execution was on April 15, 1977, petitioner
should have written said date in the agreement and not April 14, 1977 considering that one does not
usually forget a date that has a special significance to him as alleged by the petitioner. 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.

SO ORDERED.

[G.R. No. 111890. May 7, 1997]

CKH INDUSTRIAL AND DEVELOPMENT CORPORATION and RUBI

SAW, petitioners, vs. THE COURT OF APPEALS, (FORMER 13TH
DIVISION), THE REGISTER OF DEEDS OF METRO MANILA -
DISTRICT III (VALENZUELA), CENTURY-WELL PHIL.
CORPORATION, LOURDES CHONG, CHONG TAK KEI and UY
CHI KIM, respondents.

DECISION

TORRES, JR., J.:

The present petition springs from a civil action instituted by herein

petitioners, to rescind and/or annul the sale of two parcels of land, from
petitioner CKH Industrial and Development Corporation (CKH, for brevity) to
private respondent Century-Well Phil. Corporation (Century-Well, for brevity),
for failure to pay the stipulated price of P800,000.00.

Petitioners specifically assail the Decision of the respondent Court of

[1]

Appeals, which denied the annulment of the sale. The appellate court found
that there was payment of the consideration by way of compensation, and
ordered petitioners to pay moral damages and attorney's fees to private
respondents. The dispositive portion of the questioned decision reads:

"WHEREFORE, in view of all the foregoing, the appealed Decision is

REVERSED. The complaint is DISMISSED with costs against the
plaintiffs. The plaintiffs jointly and severally are required to pay each of the
defendants Lourdes Chong, Chong Tak Kei, and Uy Chi Kim moral damages
of P20,000.00; and further requiring the plaintiffs, jointly and severally, to pay
to each of the defendants Century-Well Phil. Corporation, Lourdes Chong,
Chong Tak Kei and Uy Chi Kim attorney's fees of P20,000.00

With costs in this instance against the plaintiffs-appellees.

 SO ORDERED." [2]

The said decision reversed the disposition of the Regional Trial Court of
Valenzuela, Branch 172 in Civil Case No. 2845-V-88 entitled "CKH Industrial &
Development Corporation vs. Century-Well Philippine Corporation, Lourdes
Chong, Chong Tak Kei, Uy Chi Kim, and the Register of Deeds of Metro
Manila, District III (Valenzuela)." The trial court's decision stated pertinently:

"WHEREFORE, in view of the foregoing, judgment is hereby rendered in favor of

plaintiff:

1. Ordering the rescission/annulment of the Deed of Absolute Sale of Realty.

2. Ordering defendants Lourdes Chong, Chong Tak Kei and Century-Well to pay
plaintiffs moral damages in the sum of P200,000.00;

3. Ordering defendants Lourdes Chong, Chong Tak Kei and Century Well to pay
plaintiffs Attorney's fees in the amount of 15% of the agreed price of P800,000.00
plus appearance fees of P500.00 per appearance;

4. Ordering defendants Lourdes Chong, Chong Tak Kei and Century Well to pay the
costs of suit;

5. As the writ of preliminary injunction was denied, the defendant Register of Deeds
of Valenzuela is hereby ordered to cancel the certificates of title issued to Century-
Well by virtue of the Deed of Absolute Sale of Realty and to reissue a new title in the
name of CKH.

The case is dismissed as far as defendant Uy Chi Kim is concerned.

His counterclaim is likewise dismissed considering that by his
mediation he took it upon himself to assume the damages he allegedly
suffered.

SO ORDERED." [3]

The records disclose that petitioner CKH is the owner of two parcels of
land, consisting of 4,590 sq. m. and 300 sq. m. respectively, located in
Karuhatan, Valenzuela, and covered by Transfer Certificates of Title Nos.
8710 and 8711, Register of Deeds of Caloocan City (now Register of Deeds
District III [Valenzuela]). CKH is a corporation established under Philippine
[4]

law by the late Cheng Kim Heng (Cheng), an immigrant of Chinese

descent. Upon Cheng's demise, control over the petitioner corporation was
transferred to Rubi Saw, also of Chinese descent, and Cheng's second wife.

It also appears that before coming to the Philippines, Cheng Kim Heng
was married to Hung Yuk Wah (Wah), who lived in Hongkong together with
their children, Chong Tak Kei, (Kei), Chong Tak Choi (Choi), and Chong Tak
Yam (Yam). After Cheng immigrated to the Philippines in 1976, and married
Rubi Saw in 1977, he brought his first wife, Heng, and their children to this
country, and established himself and his Chinese family as naturalized Filipino
citizens. Heng died in 1984.

On May 8, 1988, Rubi Saw and Lourdes Chong, the wife of Cheng's son,
Kei, met at the 1266 Soler St., Sta. Cruz, Manila, the residence of Cheng's
friend, Uy Chi Kim, and executed a Deed of Absolute Sale, whereby Rubi [5]

Saw, representing CKH, agreed to sell the subject properties to Century-Well,

a corporation owned in part by Lourdes Chong, Kei and Choi. [6]

The pertinent portions of the Deed of Sale are hereby reproduced:

"KNOW ALL MEN BY THESE PRESENTS:

This Deed of Absolute Sale of Realty executed by and between:

CKH INDUSTRIAL & DEVELOPMENT CORPORATION, a corporation

duly organized and existing under and by virtue of the laws of the Republic of
the Philippines, with business address at 553 Bermuda St., Sta. Cruz, Manila,
represented in this act by its authorized representative, Ms. RUBI SAW,
hereinafter referred to as VENDOR,

- in favor of -

CENTURY-WELL PHIL. CORPORATION, a corporation duly organized and

existing under and by virtue of the laws of the Republic of the Philippines at
least sixty (60%) percent of the subscribed capital stock of which is owned by
Filipino citizens, duly qualified to own and acquire lands in the Philippines,
 with office and business address at 66 F Bautista St., Valenzuela, Metro
Manila and represented in this act by its Treasurer and authorized
representative, Ms. Lourdes Chong, hereinafter referred to as VENDEE,

WITNESSETH:

That vendor is the registered owner of two adjacent parcels of residential land
situated in the Bo. of Karuhatan, Municipality of Valenzuela, Metro Manila,
covered by Transfer Certificates of Titles Nos. B-8710 and B-8711 of the
Registry of Deeds for Metro Manila District III, and more particularly
described as follows:

xxx

That for and in consideration of the sum of EIGHT HUNDRED THOUSAND

(P800,000.00) PESOS, Philippine Currency, paid by VENDEE to VENDOR,
receipt of which is hereby acknowledged by the latter to its entire satisfaction,
said VENDOR, by these presents, has SOLD, CEDED, TRANSFERRED, and
CONVEYED by way of absolute sale unto said VENDEE, its successors and
assigns, the two parcels of land above described and any and all improvements
therein;

That the above-described parcels of land are free from liens and encumbrances
of whatever kind and nature.

IN WITNESS WHEREOF, the parties hereto and their instrumental witnesses

have hereunto set their hand on ________ at ________."

Rubi Saw signed on behalf of CKH, while Lourdes Chong signed for
Century Well. The document was notarized the day after the parties signed
[7]

the same, i. e., March 9, 1988. [8]

Claiming that the consideration for the sale of the subject properties was
not paid by the private respondent-vendee despite several demands to do so,
Petitioners CKH and Rubi Saw filed the instant complaint on May 23, 1988,
[9]

with the Regional Trial Court of Valenzuela, Branch 172, against Century-Well,
Lourdes Chong, Chong Tak Kei and Uy Chi Kim. Petitioners prayed for the
annulment/rescission of the Deed of Absolute Sale, and in the meantime, for
the issuance of a writ of preliminary injunction restraining the Register of
Deeds of Valenzuela from registering the Certificates of Title over the subject
properties in the name of the private respondent Century-Well.

The trial court synthesized the petitioners' submissions as follows:

"The complaint alleges the following:

Lourdes Chong and Rubi Saw agreed that the full payment
of P800,000.00 as purchase price shall be in the form of a Manager's
Check, to be delivered to Rubi Saw upon the execution of the Deed of
Sale, the preparation of which, Lourdes Chong undertook. On May 8,
1988, the date agreed upon for the execution of the Deed of Sale,
plaintiff Rubi Saw, accompanied by her friend Aurora Chua Ng, went
to 1266 Soler St., Sta. Cruz, Manila which is the residence and place of
business of defendant Uy Chi Kim, an elderly man of Chinese ancestry
and the place suggested by Lourdes Chong as their meeting
place. During the meeting, Uy Chi Kim who was there presented to
Rubi Saw a Deed of Absolute Sale in favor of defendant Century Well
for her signature. Before Rubi Saw signed the Deed of Absolute Sale
she inquired about the payment of the P800,000.00. Defendant Uy Chi
Kim presented to her a personal check but she refused the same
because it was contrary to her arrangement with Lourdes Chong that
the payment would be in the form of Manager's Check. Uy Chi Kim
then explained to Rubi Saw that since it was a Sunday that day, they
were unable to obtain the Manager's Check. He assured her that he had
sufficient cash money at the first floor of his residence which is a store
owned by Uy Chi Kim. Before Uy Chi Kim left on the pretext of
getting the money, he persuaded plaintiff Rubi Saw to sign the Deed of
Absolute Sale and give the same to Lourdes Chong together with the
two Certificates of Title. Since Uy Chi Kim is an elderly Chinese
whom Rubi Saw had no reason to mistrust, following Chinese custom,
plaintiff Rubi Saw acceded to the request of Uy Chi Kim, trusting that
he had sufficient cash amounting to P800,000.00 kept in the first floor
of his residence. When Uy Chi Kim returned, he told Rubi Saw that he
had only P20,000 on hand. He assured plaintiff, however, that there
was no cause for her to worry (as) he was certain he would have the
 entire amount ready by the next day when the banks would be open.
Again, trusting the elderly defendant Uy Chi Kim, Rubi Saw did not
object and did not insist on the return of the Deed of Absolute Sale that
she signed, together with the Certificate of Title which she delivered to
Lourdes Chong. The next day, May 9, 1988 Rubi Saw called Lourdes
Chong and Uy Chi Kim over the telephone but was told they were not
around. She could not go to the residence of Uy Chi Kim because she
could not leave her office due to business concerns. On May 10, 1988
Rubi Saw repeatedly called the two but was informed they were not
around. On May 11, 1988 already anxious, she personally went to the
residences and offices of the two defendants but they were not
around. On May 12, 1988 Rubi Saw wrote defendant Century Well
advising Lourdes Chong of the rescission and cancellation of the Deed
of Absolute Sale because of lack of consideration. Lourdes Chong
refused to receive the letter. Thereafter, several demand letters were
sent to the defendants but they refused to pay plaintiffs. Worried that
defendants might surreptitiously transfer the certificates of title to their
names, Rubi Saw wrote the public defendant Register of Deeds on
May 16, 1988, giving information about the circumstances of the sale
and requesting not to allow registration of the Deed of Absolute Sale,
together with an Affidavit of Adverse Claim. On May 20, 1988,
plaintiffs' representative was informed by the Register of Deeds that
defendants have made representations with defendant to Register the
Deed of Absolute Sale on May 23, 1988.

Plaintiff Rubi Saw filed this Complaint alleging that Lourdes Chong
and Uy Chi Kim maliciously misled her to believe that they would pay
the P800,000 as consideration when in fact they had no intention to
pay plaintiffs, and prayed that they should be awarded moral damages;
that defendants be restrained from registering the Deed of Absolute
Sale, and be ordered to return to them the 2 titles of the properties
together with the Deed of Absolute Sale." [10]

On the other hand, private respondents Century-Well, Lourdes Chong, and

Chong Tak Kei alleged that:
"...the consideration for the two parcels of land was paid by means of off-
setting or legal compensation in the amount of P700,000 thru alleged
promissory notes executed by Cheng Kim Heng in favor of his sons Chong
Tak Choi and Chong Tak Kei (Exh. 6, 7, & 8) and payment of P100,000.00 in
cash.

The defendant Century Well filed its Answer stating that during the operation
of plaintiff CKH, the latter borrowed from Chong Tak Choi and Chong Tak
Kei the total sum of P700,000.00 paying interest on P300,000.00 while the
remaining P400,000.00 was interest free, and upon the death of Cheng Kim
Heng, it stopped making said payments. Defendant tried to prove that the
source of this P700,000 was Hung Yuk Wah while she was still residing in
Hongkong, sent via bank draft from Hongkong to Chong Tak Choi and Chong
Tak Kei on a bank to bank transfer.Defendant likewise tried to prove that after
the death of Cheng Kim Heng, Rubi Saw unilaterally arrogated to herself the
executive positions in plaintiff corporation such as President, Secretary,
Treasurer and General Manager; thus effectively shunting aside Hung Yuk
Wah and her children in the management of plaintiff corporation. Family
differences (arose) between Rubi Saw on one hand, and Hung Yuk Wah and
her children on the other hand which turned to worst after the death of Cheng
Kim Heng. This brought about the entry of Chinese mediators between them,
one of whom is defendant Uy Chi Kim, a reason why the execution of the
Deed of Absolute Sale was to be done at the residence and business address of
Uy Chi Kim." [11]

Uy Chi Kim, on the other hand, answered on his behalf, that:

"...his only participation in the transaction was as a mediator, he being one of

the closest friends of Cheng Kim Heng; that because the heirs of Cheng Kim
Heng could not settle their problems he, together with Machao Chan and
Tomas Ching tried to mediate in accordance with Chinese traditions; that after
long and tedious meetings the parties finally agreed to meet at his residence at
1266 Soler St., Sta. Cruz, Manila for the purpose of pushing thru the sale of
the properties in question as part of the settlement of the estate. Defendant Uy
Chi Kim corroborated the defense of his co-defendants that the purchase price
of the properties was P800,000.00 the payment of which consists in the form
of P100,000.00 in cash Philippine Currency; and the balance of P700,000.00
 will be applied as a set-off to the amount borrowed by plaintiff CKH from
Chong Tak Choi and Chong Tak Kei. He advanced the amount of P100,000.00
by way of his personal check to Rubi Saw but because Rubi Saw refused, he
gave Rubi Saw P100,000 in the form of P100 bills which Rubi Saw and
Jacinto Say even counted. After the P100,000.00 cash was given and the
promissory notes, Rubi Saw signed the document of sale. It was during the
registration of the sale that a problem arose as to the payment of the capital
gains (tax) which Rubi Saw refused to pay. The buyer likewise refused to pay
the same. The complaint against him is baseless and which besmirched his
reputation. Hence his counterclaim for damages." [12]

The trial court denied the petitioners' prayer for issuance of the writ of
preliminary injunction in its Order dated August 4, 1988. [13]

After trial, the lower court rendered its Decision on February 4, 1991,
finding that the annulment of the Deed of Absolute Sale was merited, as there
was no payment of the stipulated consideration for the sale of the real
properties involved to Rubi Saw.

In the first place, said the court, the Deed of Sale itself, which is the best
evidence of the agreement between the parties, did not provide for payment
by off-setting a portion of the purchase price with the outstanding obligation of
Cheng Kim Heng to his sons Chong Tak Choi and Chong Tak Kei. On the
contrary, it provided for payment in cash, in the amount of P800,000.00. The
evidence presented, however, did not disclose that payment of the said
amount had ever been made by the private respondent. Moreover, there
cannot be any valid off-setting or compensation in this case, as Article 1278 of
the Civil Code requires, as a prerequisite for compensation, that the parties
[14]

be mutually bound principally as creditors and debtors, which is not the case
in this instance. The rescission of the contract is, therefore, called for, ruled
the court.

Upon appeal, the respondent Court of Appeals reversed the findings and
pronouncements of the trial court. In its Decision dated April 21, 1993, the
[15]

appellate court expressed its own findings, that the execution of the Deed of
Absolute Sale was in settlement of a dispute between Rubi Saw and the first
family of Cheng Kim Heng, which arose upon Cheng's death. The appellate
court described the history of their dispute as follows:

"In 1977, Heng formed plaintiff-appellee CKH Industrial & Development

Corporation (CKH), with his first wife Wah, children Choi and Kei, and
second wife Rubi as his co-incorporators/stockholders, along with other
individuals (Exhs. C and D; ibid., p. 9 and pp. 10-13, respectively).On April
15 and July 17 the following year, Heng, on behalf of CHK [sic], obtained
loans of P400,000.00 and P100,000.00 from Choi, for which Heng executed
two promissory notes in Choi's favor (Exhs. 6 and 7; ibid., p. 40 and p. 41,
respectively). On November 24, 1981, Heng obtained from his other son, Kei,
another loan this time in the sum of P200,000.00 on behalf of CKH for which
he issued another promissory note (Exh. 8, ibid., p. 42).

After its incorporation, CKH acquired two parcels of land situated in

Karuhatan, Valenzuela, Bulacan (now Metro Manila) covered by Transfer
Certificates of Title Nos. B-8710 (Annex A-Complaint; Record, p. 13) and B-
8711 (Annex B-Complaint; ibid., p. 14), which are now the subject of
litigation in instant case.

On October 11, 1982, Kei was married to defendant-appellant Lourdes Chong

nee Lourdes Gochico Hai Huat (Lourdes). During their marriage, Kei and
Lourdes resided in the house on Tetuan St., Sta. Cruz, Manila, which CKH
was then utilizing as its office. At about this time, Heng and Rubi had moved
residence from Valenzuela, Metro Manila, to Bermuda St., Sta. Cruz, Manila.

Two years later, or in late 1984, Heng died. Thenceforth, there appeared to be
a falling out between Heng's first wife Wah and their three children on the one
hand, and his second wife Rubi, on the other, which came to a head when,
Rubi as president of CKH wrote a letter dated August 21, 1985 to the mayor
of Valenzuela, Metro Manila, to prevent issuance of a business permit to
American Metals managed by Chong Tak Choi, stating that CKH has not
allowed it to make use of the property, and on November 7, 1985, when CKH,
through counsel, demanded that Wah, Choi and Yam vacate the residential and
factory buildings and premises owned by CKH and located on one of the
subject lots on 76 F. Bautista St., Valenzuela, which the three and the
 corporation (of which two of them were stockholders), had been allegedly
illegally occupying (Exhs. 10 and 10-A; Folio, pp. 44-45).

Respected mediators from the Chinese community in the persons of

defendant-appellant Uy Chi Kim, Ma Chao, Tomas Cheng and Johnny Saw,
were called in to mediate. The mediation efforts which resulted in the
withdrawal by Rubi Saw of her letter about the withholding of a license to
American Metals, Inc. and much later, had culminated in the transaction now
under litigation.

The formula for settlement in the dispute was for the Valenzuela properties of
CKH to be sold to Century Well for the amount of P800,000.00,P100,000.00
of which will be paid in cash and the balance of P700,000.00 to be set-off by
the three (3) promissory notes executed in behalf of CKH in favor of Chong
Tak Choi and Chong Tak Kei (Exhs. 6, 7 and 8) the accumulated interests
thereon to be waived as unstated consideration of the sale.

Having reached such agreement, on May 8, 1988, the parties met at the
residence of Kim at Soler St., where the corresponding deed of absolute sale
of realty was executed (Exhs. 11, 11-A to 11-C; ibid., pp. 46-49), with
mediator Cheng and CKH stockholder and Rubi's secretary, Jacinto Say,
signing as instrumental witnesses. After having received the cash
consideration of P100,000.00 and the promissory notes amounting
to P700,000.00 Rubi had signed the deed, and thereafter delivered to Lourdes
the document of sale and the owner's copies of the certificates of title for the
two lots. The deed having been executed on a Sunday, the parties agreed to
have the same notarized the following day, May 9, 1988. The parties again
met the next day, May 9, 1988, when they acknowledged the deed before a
notary public."[16]

In sum, the appellate court found that there was indeed payment of the
purchase price, partially in cash for P100,000.00 and partially by
compensation by off-setting the debt of Cheng Kim Heng to his sons Choi and
Kei for P500,000.00 and P200,000.00 respectively, against the remainder of
the stipulated price. Such mode of payment is recognized under Article
1249 of the Civil Code.
[17]
 As observed by the appellate court:

We are of the considered view that the appellees have not established what
they claim to be the invalidity of the subject deed of sale. The appellees are
therefore neither entitled to the rescission or annulment of the document nor to
the award made in their favor in the decision under question and those other
reliefs they are seeking.
[18]

The question the Court is now tasked to answer is whether or not there
was payment of the consideration for the sale of real property subject of this
case. More specifically, was there a valid compensation of the obligations of
Cheng Kim Heng to his sons with the purchase price of the sale?

To resolve this issue, it is first required that we establish the true

agreement of the parties.

Both parties take exception to the provisions of the Deed of Absolute Sale
to bolster their respective claims. Petitioners, while submitting that as worded,
the Deed of Absolute Sale does not provide for payment by compensation,
thereby ruling out the intention of the parties to provide for such mode of
payment, submit on the other hand, that they had not received payment of the
stipulated cash payment of P800,000.00. The testimony of Rubi Saw during
the hearings for preliminary injunction and during trial was submitted to
advance the submission that she was never paid the price of the subject lots,
in cash or in promissory notes.

On the other side of the fence, private respondents, who, ironically, were
the parties who drafted the subject document, claim that the Deed of Sale
does not express the true agreement of the parties, specifically with regard to
the mode of payment. Private respondents allege that the execution of the
deed of absolute sale was the culmination of mediation of the dispute of the
first and second families of Cheng Kim Heng, over the properties of the
decedent; that the price of the real property subject of the contract of sale was
partly in cash, and the reminder to be compensated against Cheng's
indebtedness to his sons Choi and Kei, reflected in the promissory notes
submitted as Exhibits 6, 7 and 8 during the trial; that by virtue of such
compensation, the sale has been consummated and the private respondent
Century-Well is entitled to the registration of the certificates of title over the
subject properties in its name.

These contrasting submissions of the circumstances surrounding the

execution of the subject document have led to this stalemate of sorts. Still, the
best test to establish the true intent of the parties remains to be the Deed of
Absolute Sale, whose genuineness and due execution, are unchallenged. [19]

Section 9 of Rule 130 of the Rules of Court states that 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 so-called parol evidence rule forbids any addition to or contradiction of

the terms of a written instrument by testimony or other evidence purporting to
show that, at or before the execution of the parties written agreement, other or
different terms were agreed upon by the parties, varying the purport of the
written contract. When an agreement has been reduced to writing, the parties
cannot be permitted to adduce evidence to prove alleged practices which to
all purposes would alter the terms of the written agreement. Whatever is not
found in the writing is understood to have been waived and abandoned. [20]

The rule is not without exceptions, however, as it is likewise provided that

a party to an action may present evidence to modify, explain, or add to the
terms of the written agreement if he puts in issue in his pleadings: (a) An
intrinsic ambiguity, mistake or imperfection in the written agreement; (b) The
failure of the written agreement to express the true intent and agreement of
the parties thereto; (c) The validity of the written agreement; or (d) The
existence of other terms agreed to by the parties or their successors in
interest after the execution of the written agreement. [21]

We reiterate the pertinent provisions of the deed:

That for and in consideration of the sum of EIGHT HUNDRED THOUSAND

(P800,000.00) PESOS, Philippine Currency, paid by VENDEE to VENDOR,
receipt of which is hereby acknowledged by the latter to its entire satisfaction,
 said VENDOR, by these presents, has SOLD, CEDED, TRANSFERRED, and
CONVEYED by way of absolute sale unto said VENDEE, its successors and
assigns, the two parcels of land above described and any and all
improvements therein; [22]

The foregoing stipulation is clear enough in manifesting the vendors

admission of receipt of the purchase price, thereby lending sufficient, though
reluctant, credence to the private respondents submission that payment had
been made by off-setting P700,000.00 of the purchase price with the
obligation of Cheng Kim Heng to his sons Choi and Kei. By signing the Deed
of Absolute Sale, petitioner Rubi Saw has given her imprimatur to the
provisions of the deed, and she cannot now challenge its veracity.

However, the suitability of the said stipulations as benchmarks for the

intention of the contracting parties, does not come clothed with the cloak of
validity. It must be remembered that agreements affecting the civil relationship
of the contracting parties must come under the scrutiny of the provisions of
law existing and effective at the time of the execution of the contract.

We refer particularly to the provisions of the law on compensation as a

mode of extinguishment of obligations. Under Article 1231 of the Civil Code,
an obligation may be extinguished: (1) by payment or performance; (2) by the
loss of the thing due, (3) by the condonation or remission of the debt; (4) by
the confusion or merger of the rights of creditor and debtor, (5) by
compensation; or (6) by novation. Other causes of extinguishment of
obligations include annulment, rescission, fulfillment of a resolutory condition
and prescription.

Compensation may take place by operation of law (legal compensation),

when two persons, in their own right, are creditors and debtors of each other.
Article 1279 of the Civil Code provides for the requisites of legal
[23]

compensation:

Article 1279. In order that compensation may be proper, it is necessary:

(1) That each one of the obligors be bound principally, and that he be
at the same time a principal creditor of the other;
 (2) That both debts consist in a sum of money, or if the things due are
consumable, they be of the same kind, and also of the same quality if
the latter has been stated;

(3) That the two debts be due;

(4) That they be liquidated and demandable;

(5) That over neither of them there be any retention or controversy,

commenced by third persons and communicated in due time to the
debtor.

Compensation may also be voluntary or conventional, that is, when the

parties, who are mutually creditors and debtors agree to compensate their
respective obligations, even though not all the requisites for legal
compensation are present. Without the confluence of the characters of mutual
debtors and creditors, contracting parties cannot stipulate to the
compensation of their obligations, for then the legal tie that binds contracting
parties to their obligations would be absent. At least one party would be
binding himself under an authority he does not possess. As observed by a
noted author, the requirements of conventional compensation are (1) that
each of the parties can dispose of the credit he seeks to compensate, and (2)
that they agree to the mutual extinguishment of their credits. [24]

In the instant case, there can be no valid compensation of the purchase

price with the obligations of Cheng Kim Heng reflected in the promissory
notes, for the reason that CKH and Century-Well the principal contracting
parties, are not mutually bound as creditors and debtors in their own name. A
close scrutiny of the promissory notes does not indicate the late Cheng, as
then president of CKH, acknowledging any indebtedness to Century-Well. As
worded, the promissory notes reveal CKHs indebtedness to Chong Tak Choi
and Chong Tak Kei.

Exhibit 6

Metro Manila, Philippines

April 15, 1978

For Value Received, We, CKH INDUSTRIAL & DEVELOPMENT
CORPORATION, a duly registered corporation with postal address at Rm.
330, MTM Bldg. 1002 C. M. Recto Avenue, Manila, promises [sic] to pay on
demand to Mr. CHONG TAK CHOI, the sum of FOUR HUNDRED
THOUSAND PESOS, Philippine currency (P400,000.00)

To certify the correctness of the indebtedness to the party, I, CHENG KIM

HENG, President of CKH INDUSTRIAL & DEVELOPMENT
CORPORATION, do hereby signed [sic] in behalf of the Corporation.

CKH INDUSTRIAL & DEVELOPMENT

CORPORATION

signed:

CHENG KIM HENG"

Exhibit 7

Manila,

July 17, 1978

For Value received, we, CKH INDUSTRIAL & DEVELOPMENT

CORPORATION, a duly registered domestic corporation in the City of
Manila, represented by its president, CHENG KIM HENG with residence
certificate no. 118824650 issued at Manila, on 2-28-78 do promise to pay on
demand the sum of ONE HUNDRED THOUSAND PESOS ONLY
(P100,000.00), Philippine currency with interest from the date hereof at the
rate of ten per cent (10%) per annum to Mr. CHONG TAK CHOI.

In witness hereof on the consents [sic] of the parties to this promissory note, I,
CHENG KIM HENG, president of CKH INDUSTRIAL & DEVELOPMENT
CORPORATION do hereby affixed [sic] my signature below.

signed:

CHENG KIM HENG

 Exhibit 8

Manila, Philippines,

November 24, 1981

I, CHENG KIM HENG, President of CKH INDUSTRIAL &

DEVELOPMENT CORPORATION, 831 Tetuan St. (2nd floor) Sta. Cruz,
Manila, promises to pay to CHONG TAK KEI, with postal address at 76 F.
Bautista St., Valenzuela, Metro Manila, the sum of PESOS: TWO HUNDRED
THOUSAND ONLY (P200,000.00) Philippine Currency, with interest at the
rate of Ten per cent (10%) per annum from date stated above to a period of
one year and I hereby consent to any renewal, or extension of same amount to
a same period which may be requested by any one of us for the payment of
this note.

I also acknowledge the receipt of the above sum of money today from MR.
CHONG TAK KEI.

CKH IND. & DEV. CORP.

signed:

CHENG KIM HENG

President

In fact, there is no indication at all, that such indebtedness was contracted

by Cheng from Choi and Kei as stockholders of Century-Well. Choi and Kei, in
turn, are not parties to the Deed of Absolute Sale. They are merely
stockholders of Century-Well, and as such, are not bound principally, not
[25]

even in a representative capacity, in the contract of sale. Thus, their interest in

the promissory notes cannot be off-set against the obligations between CKH
and Century-Well arising out of the deed of absolute sale, absent any
allegation, much less, even a scintilla of substantiation, that Choi and Keis
interest in Century-Well are so considerable as to merit a declaration of unity
of their civil personalities. Under present law, corporations, such as Century-
Well, have personalities separate and distinct from their stockholders, except
[26]
only when the law sees it fit to pierce the veil of corporate identity, particularly
when the corporate fiction is shown to be used to defeat public convenience,
justify wrong, protect fraud or defend crime, or where a corporation the mere
alter ego or business conduit of a person. The Court cannot, in this instance
[27]

make such a ruling absent a demonstration of the merit of such a disposition.

Considering the foregoing premises, the Court finds it proper to grant the
prayer for rescission of the subject deed of sale, for failure of consideration.[28]

IN VIEW WHEREOF, the Court hereby RESOLVED to GRANT the present

petition. The decision of the Court of Appeals dated April 21, 1993, is hereby
REVERSED and SET ASIDE. The decision of the Regional Trial Court of
Valenzuela, Branch 173 dated February 4, 1991, is hereby REINSTATED, with
the MODIFICATION that the award of moral damages and attorney's fees to
Rubi Saw, and the order for payment of costs are DELETED.

The parties shall bear their respective costs.

SO ORDERED.