Enriquez vs. Ramos

Where a party alleges in the pleadings that a written contract does not express the true agreement of the parties, parol evidence is admissible to prove a contemporaneous oral condition precedent; failure to comply with that condition renders an action for foreclosure premature.

Plaintiffs Rodrigo Enriquez, et al. were sellers of Quezon City lands intended for subdivision, and defendant Socorro A. Ramos was a buyer who turned out to be a partner of Pedro del Rosario in a prior conditional sale of a Quezon City parcel. A Quezon City ordinance required the construction of roads in a subdivision before lots therein could be sold. The transaction at issue was a deed of sale with mortgage over 20 parcels in Quezon City and a half interest in a Bulacan parcel, executed after a rescission agreement with Del Rosario.

On November 6, 1966 (the decision elsewhere refers to November 6, 1956 as the start of the two-year period), plaintiffs entered into a contract of conditional sale with Pedro del Rosario covering a parcel of land in Quezon City described in Transfer Certificate of Title No. 1148, with a total area of 77,772 square meters, at a purchase price of P10.00 per square meter. To guarantee performance, Del Rosario executed a performance bond of P100,000.00. Del Rosario was given possession of the land for development as a subdivision at his expense and undertook to pay for the subdivision survey, the construction of roads, the installation of light and water, and the income tax plaintiffs might be required to pay arising from the transaction. In consideration, Del Rosario was allowed to buy the property for P600,000.00 within two years from November 6, 1956, with the condition that upon his failure to pay when due, all improvements introduced by him would automatically become part of the property without reimbursement and the conditional sale would be rescinded.

Unable to pay the consideration of P600,000.00, and in order to avoid court litigation, plaintiffs and Del Rosario, together with defendant Socorro A. Ramos, who turned out to be Del Rosario's partner, entered into a contract of rescission on November 24, 1958. To release the performance bond and to enable defendant to pay some of the lots for her own purposes, plaintiffs allowed defendant to buy 20 of the lots involved at P16.00 per square meter on condition that she would assume payment of P50,000.00 as her share in the construction of roads and other improvements required in the subdivision. This led to the execution of the contract of sale Exhibit A, which became the subject of the foreclosure proceedings.

The complaint alleged that on November 24, 1958 defendant purchased from plaintiffs 20 parcels of land in Quezon City covered by transfer certificates of title for P235,056.00, of which only P35,056.00 was paid on the date of sale; that the balance of P200,000.00 was payable within two years from the date of sale, with 6% interest per annum during the first year and 12% interest per annum thereafter if paid later, provided that at least P100,000.00 should be paid during the first year, otherwise the whole unpaid balance would become immediately demandable; that to secure the balance, defendant executed a mortgage in favor of plaintiffs over the 20 parcels and a half interest over a parcel of land in Bulacan, embodied in the same deed of sale; that the deed of sale with mortgage was registered in the Offices of the Registers of Deeds of Quezon City and Pampanga; and that because defendant broke certain stipulations in the deed, plaintiffs instituted the foreclosure proceedings.

Defendant set up as an affirmative defense that the contract mentioned in the complaint did not express the true agreement of the parties because certain important conditions agreed upon were not included by the counsel who prepared the contract. The omitted stipulation was plaintiffs' promise to construct roads in the lands to be subdivided on or before January 1959. According to defendant, the condition was not placed in the contract because plaintiffs' counsel said it was a superfluity, since a Quezon City ordinance required the construction of roads in a subdivision before lots therein could be sold, and the ordinance was deemed part of the contract. Defendant further claimed that the true purchase price was not P235,056.00 but only P185,000.00, the difference of P50,000.00 being her voluntary contribution to the cost of the construction of roads which plaintiffs assumed to undertake.

After the reception of the evidence, the trial court sustained defendant's contention and dismissed the complaint on the ground that plaintiffs' action was premature. It found that plaintiffs really assumed the construction of roads as a condition precedent to the fulfillment of defendant's obligation under the contract, and since that condition had not been undertaken, plaintiffs had no cause of action. Plaintiffs appealed. The Supreme Court found no error, noting that Exhibit 3, the "Explanation," was executed on November 24, 1958, the same day as Exhibit A, and stated that P50,000.00 was advanced by defendant as her contribution to the construction of roads which plaintiffs assumed to undertake "in accordance with the provisions of the City Ordinance of Quezon City." Exhibit 3 also stated that the P50,000.00 should be deducted from the purchase price of P235,056.00 appearing in the deed of sale, indicating that the real purchase price was only P185,000.00.

• No Oral Agreement / Written Contract Complete: Plaintiffs argued that there was no oral agreement or understanding because all that was agreed upon between the parties was already expressed and included in the contract of sale Exhibit A.
• Right to Foreclose: Plaintiffs maintained that since defendant failed to pay the balance of her obligation within the stipulated period, the whole obligation became due and demandable, giving plaintiffs the right to foreclose the mortgage in accordance with law.
• Parol Evidence Rule: Plaintiffs argued that the trial court erred in allowing parol evidence to prove a contemporaneous oral agreement, because when the terms of an agreement have been reduced to writing, the writing is considered as containing all that has been agreed upon and no evidence other than its terms can be admitted between the parties under Section 22, Rule 123.

• True Agreement Not in Writing: Defendant contended that Exhibit A did not express the true agreement of the parties because certain important conditions agreed upon were not included by plaintiffs' counsel.
• Road Construction as Condition Precedent: Defendant claimed that plaintiffs promised to construct roads in the subdivision on or before January 1959; the promise was omitted because plaintiffs' counsel said it was superfluous since a Quezon City ordinance required road construction before lots could be sold, and the ordinance was deemed part of the contract.
• True Purchase Price: Defendant claimed that the true purchase price was P185,000.00, not P235,056.00, the P50,000.00 difference being her voluntary contribution to the cost of road construction plaintiffs assumed to perform.
• Prematurity: Defendant set up as an affirmative defense that the action was premature because plaintiffs had not complied with the condition precedent.

• Purchase Price: Whether the purchase price of the 20 lots bought by defendant from plaintiffs was P185,000.00, as claimed by defendant, or P235,056.00, as claimed by plaintiffs.
• Contemporaneous Oral Agreement / Condition Precedent: Whether an oral agreement, coetaneous to the execution of the contract of sale, was entered into between the parties to the effect that plaintiffs would undertake the construction of the roads on the lots sold before defendant could be required to comply with her financial obligation.
• Parol Evidence: Whether the trial court erred in allowing parol evidence to prove the contemporaneous oral agreement despite the written contract of sale.

• Purchase Price: P185,000.00. The contemporaneous "Explanation" (Exhibit 3) stated that P50,000.00 was defendant's contribution to road construction and should be deducted from the P235,056.00 price in the deed, indicating the real price was P185,000.00.
• Contemporaneous Oral Agreement / Condition Precedent: Yes. The construction of roads was a condition precedent to enforcement of Exhibit A, particularly foreclosure, because the Quezon City ordinance required roads before subdivision lots could be sold, and Exhibit 3 clarified the parties' true agreement.
• Parol Evidence: Admissible. The parol evidence rule does not apply where the party alleges in the pleadings that the written agreement does not express the true intent of the parties; defendant specifically pleaded this in her answer.

• Purchase Price: The trial court's conclusion was affirmed. Exhibit 3 was executed on November 24, 1958, the same day as Exhibit A. It stated that P50,000.00 was advanced by defendant as her contribution to the construction of roads which plaintiffs assumed to undertake "in accordance with the provisions of the City Ordinance of Quezon City." Because Exhibit 3 specifically stated that the P50,000.00 should be deducted from the purchase price of P235,056.00 appearing in the deed, the real purchase price was only P185,000.00, approximately the price of the entire area at P16.00 per square meter.
• Contemporaneous Oral Agreement / Condition Precedent: In a subdivision, the main improvement before sale is feeder roads; without them the land would be inaccessible and valueless. The construction of roads must have been uppermost in defendant's mind because her purpose was to develop the property into a subdivision. This was proven by Exhibit 3. The omission of the commitment from the written contract was explained by plaintiffs' counsel's assurance that it was superfluous because the Quezon City ordinance was deemed part of the contract; defendant agreed to the omission relying on the good faith of plaintiffs and their counsel. Since plaintiffs failed to comply with the condition precedent, their action was premature. The failure of defendant to pay realty and income taxes and to register the Bulacan mortgage were minor matters and sufficiently explained.
• Parol Evidence: The rule that a written agreement contains all that has been agreed upon and that no other evidence may be admitted between the parties holds only if there is no allegation that the agreement does not express the intent of the parties. If such an allegation is made and is in issue in the pleadings, parol evidence may be admitted. Defendant's answer specifically pleaded that the contract of sale did not express the true intent of the parties regarding the construction of roads. Therefore, the trial court did not err in admitting parol evidence.

• Parol Evidence Rule – Exception for Failure of Written Agreement to Express True Intent — When the terms of an agreement have been reduced to writing, the writing is considered as containing all that has been agreed upon, and no evidence other than its terms can be admitted between the parties. This rule does not apply where a party alleges that the agreement does not express the intent of the parties and that claim is in issue in the pleadings; in such case, parol evidence may be admitted. The Court applied this exception because defendant pleaded in her answer that Exhibit A did not express the true intent of the parties regarding road construction.
• Condition Precedent in Subdivision Sale — The construction of roads in a subdivision may be a condition precedent to the enforcement of the buyer's financial obligation, particularly foreclosure, where a local ordinance requires roads to be constructed before subdivision lots may be sold. The Court found that plaintiffs assumed this obligation, that it was omitted from the written contract upon counsel's assurance that the ordinance was deemed part of the contract, and that plaintiffs' failure to comply rendered the foreclosure action premature.
• Contemporaneous Document as Evidence of True Purchase Price — A document executed on the same day as the deed of sale may clarify the true terms of the agreement, including the real purchase price. The Court relied on Exhibit 3, which stated that P50,000.00 of the stated P235,056.00 price was defendant's contribution to road construction and should be deducted, thereby showing the real price was P185,000.00.
• Prematurity of Foreclosure — An action for foreclosure is premature when the plaintiff has not complied with a condition precedent to the defendant's obligation to pay. The Court affirmed the dismissal because plaintiffs had not constructed the roads they had assumed to construct.

• "This rule, however, only holds true if there is allegation that the agreement does not express the intent of the parties. If there is and this claim is in issue in the pleadings, the same may be the subject parole evidence (Idem.)." — States the exception to the parol evidence rule that allowed proof of the contemporaneous oral agreement.
• "It appearing that plaintiffs have failed to comply with the condition precedent relative to the construction of the roads in the subdivision in question, it follows that their action is premature as found by the court a quo." — States the ratio decidendi for affirming the dismissal of the foreclosure complaint.
• "It is to be noted that said document specifically states that the amount of P50,000.00 should be deducted from the purchase price of P235,056.00 appearing in the deed of sale, and this is a clear indication that the real purchase price is only P185,000.00 as claimed by defendant, which would approximately be the price of the entire area of the land at the rate of P16.00 per square meter." — Explains the Court's finding on the true purchase price.
• "In a subdivision the main improvement to be undertaken before it could be sold to the public is feeder roads as otherwise it would be inaccessible and valueless and would offer no attraction to the buying public." — Explains why the Court treated road construction as a condition precedent.

• Section 22, Rule 123 — The parol evidence rule: when the terms of an agreement have been reduced to writing, the writing is considered as containing all that has been agreed upon, and no evidence other than its terms can be admitted between the parties. The Court held that the rule did not bar parol evidence because defendant alleged in her answer that the written contract did not express the true intent of the parties.
• Quezon City ordinance (as cited in the decision) — Required the construction of roads in a subdivision before lots therein could be sold. The Court treated this ordinance as part of the contract and as the basis for holding that plaintiffs' road construction obligation was a condition precedent.

Bengzon, C.J., Padilla, Labrador, Reyes, J.B.L., Paredes, Dizon and Makalintal, JJ., concur. Regala, J., took no part.