Robles vs. Lizarraga Hermanos

A prior or contemporaneous collateral parol agreement that is independent of and not inconsistent with a written contract of sale is admissible in evidence, notwithstanding the parol evidence rule, where it constituted an inducement to or part of the consideration for the sale. The stipulation for appraisal of the property to be taken over did not create a suspensive condition; the defendant was obligated to promote the appraisal in good faith and, having frustrated it, became liable for the true value.

Zacarias Robles was the lessee of the hacienda "Nahalinan" under a lease originally executed by his mother, Anastacia de la Rama, as widow and administratrix of his father's estate. Lizarraga Hermanos was a mercantile partnership organized under Philippine laws and a creditor of Robles, who had purchased supplies from it. The dispute was governed by the Code of Civil Procedure, including its provisions on reformation of instruments and the statute of frauds for sales of goods.

The hacienda "Nahalinan," situated in Pontevedra, Occidental Negros, originally belonged to the spouses Zacarias Robles and Anastacia de la Rama, parents of the plaintiff Zacarias Robles. After the death of Zacarias Robles, Sr., his widow Anastacia de la Rama was appointed administratrix of his estate; on May 20, 1913, as widow and administratrix, she leased the hacienda to the plaintiff for six years beginning at the end of the milling season in May 1915 and terminating at the end of the milling season in May 1920. It was stipulated that any permanent improvements necessary to the cultivation and exploitation of the hacienda should be made at the expense of the lessee without right to indemnity at the end of the term. Because the place was in a run-down state and the lessee would be put to much expense in bringing the property to productive capacity, the annual rent was fixed at P2,000. The plaintiff entered upon the property as lessee and made various improvements and additions: substitution of a new hydraulic press; reconstruction of the dwelling house; construction of new houses for workmen; building of camarins; construction of a chimney; reconstruction of ovens; installation of new coolers; purchase of farming tools and many head of carabao, with other repairs and improvements. All this expense was borne exclusively by the lessee, except that his mother and coheirs contributed P1,500 toward the reconstruction of the dwelling house, one-half of the outlay for that item. Lizarraga Hermanos was well aware of the nature and extent of these improvements because the lessee was a customer of the firm and had purchased from it many of the things that went into the improvements.

In 1916, three years before the lease was to expire, Anastacia de la Rama died, leaving as heirs Zacarias Robles, Jose Robles, Evarista Robles, Magdalena Robles, and Felix Robles. Jose, Evarista, and Zacarias acquired by purchase the shares of their coheirs in the entire inheritance; at this juncture Lizarraga Hermanos proposed to buy from these three all of the other properties belonging to the Robles estate, which included other properties in addition to the hacienda "Nahalinan." During the negotiations, an obstacle was encountered because the lease of Zacarias Robles still had over two years to run. It was proposed that he surrender the last two years of his lease and permit Lizarraga Hermanos to take possession as purchaser in June 1918. A surrender of the two years of the lease would naturally involve a heavy sacrifice on the part of Zacarias Robles, not only because the rent he was bound to pay was low, but because he had already made most of the expenditures in outfitting the farm necessary for farming operations during the entire period of the lease.

The plaintiff alleged, and the trial court found upon sufficient proof, that in consideration that the plaintiff should shorten the term of his lease, the defendant agreed to pay him the value of all betterments he had made on the hacienda and furthermore to purchase from him all that belonged to him personally on the hacienda, including the crop of 1917-18, the cattle, farming implements, and equipment, according to a valuation to be made after the harvest. The plaintiff agreed, and the instrument of conveyance by which Zacarias, Jose, and Evarista Robles conveyed the property to Lizarraga Hermanos was executed on November 16, 1917. By the deed, Jose Robles conveyed his rights, interests, and participation in the estate for P25,266.37; Evarista Robles conveyed hers for P23,036.43; and Zacarias Robles conveyed his for P32,589.59, payable on or before May 30, 1917, with interest at 8 percent per annum. The plaintiff received more than his brother and sister because he was a creditor of his mother's estate while the other two were debtors to it. The deed conveyed only the grantors' interests in the estate of their deceased mother; it did not define what Zacarias conveyed as including the hacienda "Nahalinan" or any rights other than those he possessed as heir. No reference was made in the conveyance to the surrender of the plaintiff's rights as lessee, except in fixing the date when the lease should end; nothing was said concerning the improvements or the personal property the plaintiff had placed on the hacienda.

The plaintiff said that when the instrument was presented to him, he saw that in the sixth paragraph it was declared that his lease should subsist only until June 30, 1918, instead of May 1920, while the promise of the defendant to compensate him for the improvements and to purchase the existing crop, cattle, and other things was wanting. He called attention to this, and the representative of the defendant explained that this was unnecessary in view of the confidence existing between the parties, at the same time calling attention to the fact that the plaintiff was already debtor to the house of Lizarraga Hermanos in the amount of P49,000, for which the firm had no security. Upon this manifestation the plaintiff subsided; believing that the agreement with respect to compensation would be carried out in good faith, he did not further insist upon its incorporation into the document. The supposed agreement was not otherwise reduced to writing. On the part of the defendant, it was claimed that the agreement with respect to compensating the plaintiff for improvements and other things was never made. According to the defendant's answer, after the sale of the hacienda had been effected, the plaintiff offered to sell the defendant firm the crop of cane then existing uncut on the hacienda, together with the carabao then in use on the place. This proposition was favorably received; an agreement was arrived at with respect to the value of the carabao, which were taken over for the agreed price, but it was claimed that with respect to the crop the parties did not come into accord.

Upon the issue of fact, the Supreme Court was of the opinion that the preponderance of the evidence supported the contention of the plaintiff and the finding of the trial court: in consideration of the shortening of the period of the lease by nearly two years, the defendant undertook to pay for the improvements the plaintiff had placed on the hacienda and take over at a fair valuation, to be made by appraisers, the personal property such as carabao, tools, and farming implements that the plaintiff had placed upon the hacienda at his own personal expense. The plaintiff introduced in evidence a letter, Exhibit D, written on March 1, 1917, by Severiano Lizarraga to the plaintiff, referring to an appraisal and liquidation; the Court found this letter vague and insufficient if it stood alone and a written contract were necessary, but the contract was otherwise proved by oral testimony. Carmelo Lizarraga himself admitted, contrary to the statement of the defendant's answer, that a few days before the conveyance was executed the plaintiff proposed that the defendant should buy all the things the plaintiff then had on the hacienda, whereupon the Lizarragas informed him that they would buy those things if an agreement should be arrived at as to the price. As regards the improvements, the defendant's position was that they pertained to the hacienda at the time the purchase was effected and necessarily passed with it to the defendant. Against the denials of the Lizarraga, the Court had the direct testimony of the plaintiff and his brother Jose to the effect that the agreement was as claimed by the plaintiff, supported by the natural probabilities of the case in connection with a subsequent appraisal that was rendered futile by the course pursued by the defendants. No exception was taken to the finding of the trial court that a verbal contract was made in the sense claimed by the plaintiff.

With respect to the crop, it appeared that only in November 1917 did the defendant finally notify the plaintiff that it would not take the cane off the plaintiff's hands. Having relied upon the promise of the defendant, the plaintiff had made no prior arrangements to have the cane ground himself, and he had failed to contract ahead for the necessary laborers to harvest the crop. Due to this lack of hands, the milling of the cane was delayed, and things that ought to have been done in December 1917 were only accomplished in February 1918. The milling of the cane was not completed until July 1918. The trial court took judicial notice that protracted delay in the milling of sugar cane results in loss and estimated the damage to the plaintiff's crop at P1,142.

• Parol Evidence: Lizarraga Hermanos argued that the trial court erred in admitting oral evidence of a contract different from the written contract of sale, Exhibit B, insisting that the written contract must be taken as expressing all of the pacts, agreements, and stipulations entered into between the parties with respect to the acquisition of the hacienda, and that the complaint did not allege that the written contract failed to express the agreement of the parties.
• Statute of Frauds: It contended that under subsection 4 of article 335 of the Code of Civil Procedure, a contract for the sale of goods, chattels, or things in action at a price of not less than P100 was unenforceable unless the contract or some note or memorandum thereof was in writing and subscribed by the party charged or by his agent, and that the trial court erred in admitting proof of the verbal contract over the objection of the defendant's attorney.
• Suspensive Condition: It maintained that the true meaning of the proven verbal agreement was that, in case the parties should fail to agree upon the price after an appraisal of the property, the agreement would not be binding; the stipulation for appraisal and agreement as to the price was a suspensive condition, and since the parties never arrived at any agreement on the price except as to the carabao, the obligation of the defendant never became effective.
• Improvements: It insisted that the improvements placed on the hacienda by the plaintiff became a part of the realty and as such passed to the defendant by virtue of the transfer effected by the three owners in the deed of conveyance, Exhibit B, so the plaintiff should not be permitted to recover their value again from the defendant.
• Damages: It challenged the action of the trial court in awarding to the plaintiff the sum of P1,142 as compensation for the damage caused by the failure of the defendant to take the existing crop of cane from the hacienda at the proper time.

• Parol Evidence: Whether the trial court erred in admitting oral evidence of a contract different from that expressed in the written contract of sale, Exhibit B.
• Statute of Frauds: Whether the oral agreement for the sale of goods, chattels, or things in action valued at not less than P100 was unenforceable under subsection 4 of article 335 of the Code of Civil Procedure for lack of a writing subscribed by the party charged or his agent.
• Suspensive Condition: Whether the stipulation for appraisal and agreement as to the price created a suspensive condition that prevented the defendant's obligation from becoming effective.
• Improvements: Whether the plaintiff could recover the value of improvements that had become part of the realty and passed to the defendant under the deed of conveyance.
• Damages: Whether the award of P1,142 as compensation for damage caused by the defendant's failure to take the existing crop of cane at the proper time was proper.

• Parol Evidence: No. The oral agreement was an independent or collateral agreement constituting an inducement to or part of the consideration for the sale, and evidence of it was admissible despite the parol evidence rule.
• Statute of Frauds: No. The oral agreement was enforceable because the defendant accepted and received part of the goods and chattels, bringing the case within the exception to subsection 4 of article 335 of the Code of Civil Procedure.
• Suspensive Condition: No. The stipulation for appraisal did not create a suspensive condition; the defendant was obligated to promote the appraisal in good faith and, having frustrated it, became liable for the true value.
• Improvements: Yes. Although the defendant acquired the fixed improvements with the land, it was obligated to indemnify the plaintiff for his outlay because the promise to indemnify induced the surrender of the lease.
• Damages: Yes. The award was proper because the defendant's failure to take the cane at the proper time delayed milling and caused loss, and no injustice was shown in the trial court's estimate.

• Parol Evidence: The Court rejected the first assignment of error. The case was not one for the reformation of a document on the ground of mistake or fraud in its execution under section 285 of the Code of Civil Procedure; the purpose was to enforce an independent or collateral agreement that constituted an inducement to the making of the sale or part of the consideration therefor. Although the execution of a contract in writing is deemed to supersede all oral negotiations or stipulations concerning its terms and subject matter which preceded the execution of the instrument, in the absence of accident, fraud, or mistake of fact, proof is admissible of any collateral parol agreement that is not inconsistent with the terms of the written contract, though it may relate to the same subject matter. The deed of conveyance purported to transfer to the defendant only such interests in certain properties as had come to the conveyors by inheritance; nothing was said concerning the rights in the hacienda which the plaintiff had acquired by lease or concerning the things he had placed thereon by way of improvement or had acquired by purchase. The verbal contract established by the plaintiff was therefore clearly independent of the main contract of conveyance, and evidence of such verbal contract was admissible. The rule that a preliminary or contemporaneous oral agreement is not admissible to vary a written contract had more particular reference to the obligation expressed in the written agreement and had never been interpreted as applicable to matters of consideration or inducement. The written contract was complete in itself; the oral agreement was also complete in itself and collateral to the written contract, notwithstanding that it dealt with related matters.
• Statute of Frauds: The Court rejected the second assignment of error. Subsection 4 of article 335 of the Code of Civil Procedure declared that a contract for the sale of goods, chattels, or things in action, at a price of not less than P100, shall be unenforceable unless the contract or some note or memorandum thereof shall be in writing and subscribed by the party charged or by his agent. But the same subsection contained a qualification: "unless the buyer accept and receive part of such goods and chattels." The trial court found that the personal property, consisting of farming implements and other movables placed on the farm by the plaintiff, had been utilized by the defendant in the cultivation of the hacienda, and that the defendant was benefiting by those things. No effort was made in the court below by the defendant to controvert the proof submitted on this point in behalf of the plaintiff, and no error was assigned in the Supreme Court to the findings of fact with reference thereto made by the trial judge. Proof of the oral agreement with respect to the movables was therefore properly received by the trial judge, even over the objection of the defendant's attorney.
• Suspensive Condition: The Court rejected the third assignment of error. The stipulation with respect to the appraisal of the property did not create a suspensive condition. The true sense of the contract evidently was that the defendant would take over the movables and the improvements at an appraised valuation, and the defendant obligated itself to promote the appraisal in good faith. As the defendant partially frustrated the appraisal, it violated a term of the contract and made itself liable for the true value of the things contracted about, as such value may be established in the usual course of proof. Furthermore, it would result in unjust enrichment of the defendant to allow it to appropriate the movables without compensating the plaintiff therefor.
• Improvements: The Court rejected the fourth assignment of error. There could be no doubt that the defendant acquired the fixed improvements when it acquired the land, but the question was whether the defendant was obligated to indemnify the plaintiff for his outlay in making the improvements. It was upon the consideration of the defendant's promise to indemnify the plaintiff that the latter agreed to surrender the lease nearly two years early. There was no doubt as to the validity of the promise made under these circumstances to the plaintiff.
• Damages: The Court rejected the fifth assignment of error. It appeared that only in November 1917 did the defendant finally notify the plaintiff that it would not take the cane off the plaintiff's hands. Having relied upon the promise of the defendant with respect to this matter, the plaintiff had made no prior arrangements to have the cane ground himself, and he had failed to contract ahead for the necessary laborers to harvest the crop. Due to this lack of hands, the milling of the cane was delayed, and things that ought to have been done in December 1917 were only accomplished in February 1918. The milling of the cane was not completed until July 1918. The trial court took judicial notice of the fact that protracted delay in the milling of sugar cane results in loss and estimated the damage to the plaintiff's crop at P1,142. The Supreme Court found that damage attributable to the cause stated was manifest, and although the estimate was based upon what may be considered matter of judicial notice without any specific estimate from farmers, there was no reason to conclude that any injustice was done in said estimate.

• Parol Evidence Rule and Collateral Agreements — A written contract supersedes all oral negotiations or stipulations concerning its terms and subject matter which preceded the execution of the instrument, in the absence of accident, fraud, or mistake of fact. However, extrinsic evidence is admissible to prove a prior or contemporaneous collateral parol agreement that is not inconsistent with the written contract, even if it relates to the same subject matter and even if the written agreement contains no reference to the collateral agreement. The Court applied this doctrine because the deed conveyed only inheritance interests and said nothing about the lease rights, improvements, or personal property; the oral agreement was independent and collateral and formed part of the consideration or inducement for the sale.
• Statute of Frauds — Exception for Receipt of Goods — Under subsection 4 of article 335 of the Code of Civil Procedure, a contract for the sale of goods, chattels, or things in action at a price of not less than P100 is unenforceable unless the contract or some note or memorandum thereof is in writing and subscribed by the party charged or his agent, unless the buyer accepts and receives part of such goods and chattels. The Court applied the exception because the defendant utilized the farming implements and other movables in cultivating the hacienda and benefited from them, and no error was assigned to the trial court's finding on this point.
• Appraisal Stipulation Not a Suspensive Condition — A stipulation for the appraisal of property to be taken over does not create a suspensive condition where the obligor is bound to promote the appraisal in good faith. If the obligor frustrates the appraisal, it violates a term of the contract and becomes liable for the true value of the things contracted about, as that value may be established in the usual course of proof. The Court applied this doctrine because the defendant partially frustrated the appraisal, making itself liable for the true value and avoiding unjust enrichment.
• Indemnity for Improvements Passing with Land — Although fixed improvements become part of the realty and pass with the land to the purchaser, the purchaser may still be obligated to indemnify the lessee for his outlay in making the improvements where the promise to indemnify induced the lessee to surrender the lease. The Court applied this doctrine because the plaintiff agreed to surrender nearly two years of his lease upon the consideration of the defendant's promise to indemnify him for the improvements.
• Unjust Enrichment — A person should not be allowed to appropriate the property or benefits of another without compensating that other person. The Court invoked this principle as a supporting reason for holding the defendant liable for the movables it had taken over and used without compensating the plaintiff.

• "The purpose is to enforce an independent or collateral agreement which constituted an inducement to the making of the sale, or part of the consideration therefor." — This passage states the ratio for admitting parol evidence: the action was not for reformation but to enforce a collateral agreement that induced the sale or formed part of its consideration.
• "The rule excluding parol evidence to vary or contradict a writing does not extend so far as to preclude the admission of extrinsic evidence to show prior or contemporaneous collateral parol agreements between the parties, but such evidence may be received, regardless of whether or not the written agreement contains any reference to such collateral agreement, and whether the action is at law or in equity." — This is the Court's canonical formulation of the collateral-agreement exception to the parol evidence rule.
• "The true sense of the contract evidently was that the defendant would take over the movables and the improvements at an appraised valuation, and the defendant obligated itself to promote the appraisal in good faith." — This passage defines why the appraisal stipulation was not a suspensive condition and why the defendant's frustration of the appraisal created liability.
• "There can be no doubt that the defendant acquired the fixed improvements when it acquired the land, but the question is whether the defendant is obligated to indemnify the plaintiff for his outlay in making the improvements." — This passage frames the improvements issue and explains that acquisition of the land did not by itself extinguish the defendant's separate promise to indemnify.

• Section 285, Code of Civil Procedure — The provision permits reformation of a document on the ground of mistake or fraud in its execution. The Court cited it to clarify that the case was not one for reformation; the purpose was to enforce an independent or collateral agreement that induced the sale or formed part of the consideration.
• Subsection 4, Article 335, Code of Civil Procedure — This provision declares that a contract for the sale of goods, chattels, or things in action at a price of not less than P100 shall be unenforceable unless the contract or some note or memorandum thereof is in writing and subscribed by the party charged or his agent, unless the buyer accepts and receives part of such goods and chattels. The Court applied the exception because the defendant accepted, received, and used the personal property, making the oral agreement enforceable despite the absence of a writing.

Avanceña, C.J., Johnson, Malcolm, Villamor, and Villa-Real, JJ.