Manufacturers Building, Inc. vs. Court of Appeals

The parol evidence rule prohibits the introduction of evidence to vary the terms of a valid written agreement, and absent an express stipulation to capitalize interest due and unpaid, such interest shall not earn new interest.

Philippine Merchant Marine School (PMMS) leased spaces from Manufacturers Building, Inc. in 1979 and 1980. PMMS defaulted on rent, prompting an ejectment suit. A court-approved compromise agreement was executed in 1984, followed by a deed of second real estate mortgage in 1986 to secure arrearages. PMMS eventually vacated the premises, but petitioner claimed the properties were damaged and sought to enforce higher interest rates and collect repair costs.

• Lease and Default: PMMS leased three portions of Manufacturers Building from 1979 to 1980. Default on monthly rentals prompted petitioner to file an ejectment complaint on April 12, 1984.
• Compromise Agreement: On May 7, 1984, the parties executed a compromise agreement, approved by the trial court on May 21, 1984. Respondents admitted rental indebtedness and other charges totaling P510,220.03 as of June 1984, agreed to pay increased monthly rentals, and stipulated that failure to comply would entitle petitioner to the immediate issuance of a writ of execution for ejectment.
• Second Mortgage: Respondents failed to comply with the compromise agreement. On January 23, 1986, respondents executed a deed of second real estate mortgage over two parcels of land in favor of petitioner to guarantee the payment of P823,494.50 within six months, with a legal interest of 12% per annum on the outstanding balance.
• Execution and Levy: Petitioner secured alias writs of execution. On August 22, 1986, the sheriff levied upon the two parcels of land registered under PMMS's name.
• Vacatur and Claimed Damages: Respondents vacated the leased premises on October 30, 1986. Petitioner claimed the 5th floor and Room 406 sustained considerable damage, requiring P112,020.00 and P39,500.00 in repairs, respectively.
• Injunction: After the sheriff scheduled a public auction for December 29, 1989, respondents filed a petition for injunction with the RTC, arguing the compromise judgment did not authorize levy and sale, and that partial payment had been made.

• Parol Evidence Rule: Petitioner argued that the Court of Appeals erred in applying the parol evidence rule to compute monthly rentals, asserting that evidence of prior or subsequent agreements should be admissible to vary the written terms.
• Interest Rate: Petitioner maintained that the Court of Appeals erred in upholding the 12% per annum interest rate instead of the alleged agreement of 2.5% per month (30% per annum) on the outstanding balance of rental arrearages.
• Damages: Petitioner contended that the denial of the claim for damages for the repair and rehabilitation of the leased premises was erroneous.

• Validity of Levy and Sale: Respondent countered that the public auction sale was invalid because the judgment by compromise did not stipulate the levy and sale of property, providing only for ejectment.
• Payment of Arrearages: Respondent argued that the amount of P446,371.46, representing unpaid rents ending June 1984, had been partially settled through the sale of PMMS personal property.

• Parol Evidence Rule: Whether the Court of Appeals erred in applying the parol evidence rule to prohibit the introduction of evidence varying the terms of the written compromise agreement and deed of second mortgage.
• Interest Rate and Compounding: Whether the applicable interest rate is 12% per annum as stipulated in the deed of second mortgage or 2.5% per month based on alleged prior agreements, and whether compound interest is permissible.
• Actual Damages: Whether petitioner is entitled to actual damages for the repair and rehabilitation of the leased premises despite insufficient evidentiary proof.

• Parol Evidence Rule: The application of the parol evidence rule was proper. Parties are bound by the terms of their written agreements and cannot adduce evidence to alter those terms. None of the recognized exceptions—intrinsic ambiguity, failure to express true intent, validity of the agreement, or subsequent agreements—find application in this case.
• Interest Rate and Compounding: The 12% per annum interest rate was correctly upheld because the deed of second mortgage expressly stipulated this rate, superseding any prior agreements. Compound interest was properly denied because there was no stipulation to capitalize interest due and unpaid, as mandated by Article 1959 of the Civil Code.
• Actual Damages: The claim for actual damages was correctly denied. Petitioner failed to adduce sufficient evidence to prove the actual amount of loss with a reasonable degree of certainty. Actual damages cannot be based on speculation, conjecture, or guesswork, but must depend on competent proof.

• Parol Evidence Rule — When an agreement has been reduced to writing, the parties cannot be permitted to adduce evidence to prove alleged practices that would alter the terms of the written agreement. Whatever is not found in the writing is understood to have been waived and abandoned. Exceptions exist where a party puts in issue: (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; (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 Court applied this to bar petitioner from introducing evidence of interest rates and rental amounts varying from the written compromise agreement and deed of second mortgage.
• Actual Damages — To seek recovery of actual damages, it is necessary to prove the actual amount of loss with a reasonable degree of certainty, premised on competent proof and the best evidence obtainable. Absent such proof, damages cannot be awarded based on speculation. The Court applied this to deny the claim for repair and rehabilitation costs due to lack of evidentiary support.
• Compounding of Interest — Interest due and unpaid shall not earn interest unless the contracting parties expressly stipulate to capitalize the interest due and unpaid, which added to the principal, shall earn new interest. The Court applied this to deny petitioner's claim for accumulated interest absent a stipulation in the compromise agreement or deed of second mortgage.

• "The so-called 'parole 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."
• "To seek recovery of actual damages, it is necessary to prove the actual amount of loss with a reasonable degree of certainty, premised on competent proof and on the best evidence obtainable by the injured party."

• CKH Industrial and Development Corporation v. Court of Appeals, 338 Phil. 837 (1997) — Followed regarding the definition, operation, and exceptions of the parol evidence rule.
• Polotan, Sr. v. Court of Appeals, 296 SCRA 247 (1998) — Followed regarding the ten recognized exceptions to the rule that factual findings of the trial court, when affirmed by the Court of Appeals, are final and conclusive.
• Development Bank of the Philippines v. Court of Appeals, 348 Phil. 15 (1998) — Followed regarding the requirement of competent proof to substantiate a claim for actual damages.

• Article 1959, Civil Code — Provides that interest due and unpaid shall not earn interest unless the contracting parties expressly stipulate to capitalize the interest due and unpaid, which added to the principal, shall earn new interest. Applied to deny the imposition of compound or accumulated interest absent an express stipulation in the written agreements.

Davide, Jr., Puno, Kapunan, and Ynares-Santiago, JJ.