Sardane vs. Court of Appeals

Unambiguous promissory notes and vales cannot be varied by parol evidence claiming they were receipts of partnership contributions, and a party who fails to deny under oath the genuineness and due execution of an actionable document is deemed to have admitted them.

Romeo J. Acojedo and Nobio Sardane moved in the same business circles in Zamboanga del Norte. Acojedo served as manager of the basnig Sarcado, from whose net profits he received 50%, while Sardane owned the Sardane Trucking Service, held government contracts for the construction of wharfs and seawall, and sat on the City Council of Dapitan. The dispute between them turned on the character of the sums Acojedo had advanced to Sardane — loans, as Acojedo claimed, or contributions to a partnership in the basnig operations, as Sardane claimed.

Romeo J. Acojedo sued Nobio Sardane in the City Court of Dipolog to collect P5,217.25, the aggregate of several sums the former had advanced to the latter and which the latter had acknowledged in a series of written instruments. Exhibit B is a printed promissory note for P1,117.25 dated May 13, 1972; Exhibit C is another printed promissory note for P1,400.00; Exhibit D is a printed promissory note dated May 31, 1977 for P100.00; Exhibit E is a "vale" reading "Good for: two hundred pesos (Sgd) Nobio Sardane"; Exhibit F reads "Received from Mr. Romeo Acojedo the sum Pesos: Two Thousand Two Hundred (P2,200.00) ONLY, to be paid on or before December 25, 1975. (Sgd) Nobio Sardane."; and Exhibits G and H are vales for P100.00 each dated August 25, 1972 and September 12, 1972.

Acojedo demanded payment of the total amount on many occasions. When Sardane failed to pay, Acojedo engaged a lawyer, who sent a formal demand letter (Exhibit 1). Sardane still did not pay, and the collection suit was filed on April 23, 1976.

Sardane failed to appear at the scheduled trial and did not file an answer. On motion of Acojedo, the City Court of Dipolog issued an order dated May 18, 1976 declaring Sardane in default and allowing Acojedo to present his evidence ex parte. On the strength of that evidence the City Court rendered a judgment by default in Acojedo's favor. Sardane moved to lift the order of default, and the City Court granted the motion in an order dated May 24, 1976, considering that the answer had been filed within two hours after the ex parte hearing.

After trial on the merits, the City Court rendered its decision on September 14, 1976, ordering Sardane to pay Acojedo P5,217.25 with legal interest from April 23, 1976, P200.00 as attorney's fees, and the costs of the proceeding. Sardane appealed to the Court of First Instance of Zamboanga del Norte.

Before the CFI, Sardane testified that a partnership existed between him and Acojedo and that the promissory notes were not evidence of personal loans but mere receipts for his contributions to that partnership. He had acted as manager of the basnig Sarcado and received 50% of its net profits, although he had no voice in the management of its affairs. The CFI noted that the casco bore Sardane's name, while the CA found this was merely a concession because it was he who had obtained the engine used in the Sardaco from the Department of Local Government and Community Development. The parties' use of the pronoun "our" in referring to "our basnig," "our catch," "our deposit," or "our boseros" was, on the CA's assessment, indicative only of camaraderie and not evidentiary of a partnership.

• Parol Evidence: Petitioner argued that the promissory notes were ambiguous and that parol evidence was admissible to show that the sums covered were not his personal debts to private respondent but his contributions to a partnership between them.
• Waiver of Implied Admission: Petitioner maintained that private respondent waived the presumption accorded him by Section 8, Rule 8 of the Rules of Court by failing to cross-examine petitioner on his sur-rebuttal testimony.
• Jurisdiction of the CA: Petitioner argued that the petition for review before the CA should have been dismissed for lack of jurisdiction, since the CFI decision did not affirm in full the judgment of the City Court of Dipolog, which he claimed was a sine qua non under Section 29, Republic Act No. 296 as amended by Republic Act No. 5433.

• Parol Evidence: Whether the oral testimony of Sardane that a partnership existed between him and Acojedo is admissible to vary the meaning of the promissory notes and vales.
• Actionable Documents / Waiver: Whether the failure of Acojedo to cross-examine Sardane on his sur-rebuttal testimony constituted a waiver of the presumption under Section 8, Rule 8 of the Rules of Court.
• Jurisdiction of the CA: Whether the CA should have dismissed the petition for review for lack of jurisdiction because the CFI decision did not affirm in full the judgment of the City Court.

• Parol Evidence: No. The promissory notes and vales are unambiguous contracts of loan, and neither exception to the parol evidence rule under Sec. 7, Rule 130 applies; even if aliunde evidence were admitted, it is insufficient to establish a partnership.
• Actionable Documents / Waiver: No. Sardane did not deny under oath the genuineness and due execution of the notes, and the failure to cross-examine him on a sur-rebuttal that introduced no new matter did not waive the implied admission.
• Jurisdiction of the CA: No. The objection is one of procedure, not jurisdiction, and the requirement of affirmance in full was not carried over into R.A. No. 6031 and the CA's Resolution of August 12, 1971.

• Parol Evidence: Under Sec. 7, Rule 130, when the terms of an agreement have been reduced to writing, the writing is considered as containing all such terms, and no evidence of the terms other than its contents is admissible between the parties and their successors in interest, except (a) where a mistake or imperfection of the writing, or its failure to express the true intent and agreement of the parties, or the validity of the agreement is put in issue by the pleadings, and (b) where there is an intrinsic ambiguity in the writing. The SC agreed with the CA that neither exception applies. Exhibits B, C, and D are printed promissory notes containing a promise to pay a sum certain in money, payable on demand, and to bear the costs of litigation should the debtor fail to pay upon extrajudicial demand; the vales denote that Sardane was obliged to return the sum loaned to him. Nothing on their face is vague or ambiguous. The SC found it difficult to see how an educated man like Sardane — long engaged in business as owner of the Sardane Trucking Service, a government contractor for the construction of wharfs and seawall, and a member of the City Council of Dapitan — could have been misled into signing documents whose terms he did not mean them to bear, especially since he himself had been responsible for the printing of Exhibits B, C, and D. Even assuming that aliunde evidence was admissible, the SC held it insufficient to prove a partnership. Acojedo's receipt of 50% of net profits did not conclusively establish that he was a partner, because Art. 1769(4) of the Civil Code expressly provides that no such inference shall be drawn if the profits were received in payment as wages of an employee, and Acojedo had no voice in the management of the basnig. Fortis vs. Gutierrez Hermanos and Bastida vs. Menzi & Co., Inc. controlled. Other circumstances noted by the CA negated the claim: Acojedo did not ask to be joined as a party plaintiff in Sardane's action for damages against North Zamboanga Timber Co., Inc.; although Sardane claimed Acojedo was treasurer of the alleged partnership, it was Sardane who was demanding an accounting; the casco's bearing Acojedo's name was a mere concession; and the use of "our" was indicative of camaraderie. These factual findings of the CA are binding on the SC absent a showing that they fall within the exceptions to the rule limiting appellate review to questions of law.

• Actionable Documents / Waiver: Under Sec. 8, Rule 8, when an action or defense is founded on a written instrument copied in or attached to the corresponding pleading, the genuineness and due execution of the instrument are deemed admitted unless the adverse party, under oath, specifically denies them and sets forth what he claims to be the facts; the rule does not apply when the adverse party does not appear to be a party to the instrument or when compliance with an order for inspection of the original is refused. Sardane did not deny under oath in his answer the authenticity and due execution of the promissory notes that had been duly pleaded and attached to the complaint, and even at trial he did not question the fact that he had signed them. What he presented was testimonial evidence that the notes were receipts of his supposed contributions to the alleged partnership, which under Sec. 7, Rule 130 could not be admitted to vary or alter the explicit meaning conveyed by the notes. The presumed genuineness and due execution of the notes were unaffected, since those aspects were not questioned but admitted. Petitioner's invocation of Yu Chuck vs. Kong Li Po and Central Surety & Insurance Co. vs. C.N. Hodges did not sustain his thesis that Acojedo had waived the protection of Sec. 8, Rule 8. The implied admission may be waived, but only if the party acts in a manner indicative of an express or tacit waiver, and such a finding of waiver is proper only where a case has been tried in complete disregard of the rule, the plaintiff having pleaded a document by copy presents oral evidence to prove due execution, and no objections are made to the defendant's evidence in refutation. That situation did not obtain. Neither did the failure to cross-examine Sardane on his sur-rebuttal testimony constitute a waiver, since that testimony consisted solely of a denial of Acojedo's testimony and introduced no new or additional matter to exonerate Sardane from his obligations under the notes.

• Jurisdiction of the CA: The SC waived procedural technicalities in order to put the issue at rest, noting that in the same motion for reconsideration Sardane had sought affirmative relief from the CA, praying that it sustain the trial court's decision, thereby invoking and submitting to its jurisdiction which he would now assail. The objection he raises is actually not one of jurisdiction but of procedure. Petitioner anchored it on Sec. 29, R.A. No. 296 as amended by R.A. No. 5433, effective September 9, 1968. But the procedure for appeal to the CA from decisions of the then courts of first instance in the exercise of their appellate jurisdiction over cases originating from the municipal courts was subsequently provided by R.A. No. 6031, amending Sec. 45 of the Judiciary Act, effective August 4, 1969, and the requirement of affirmance in full of the inferior court's decision was not adopted or reproduced in that law. Since R.A. No. 6031 failed to provide for the procedure or mode of appeal in the cases contemplated, the CA en banc provided for it in its Resolution of August 12, 1971, requiring a petition for review but not requiring that the judgment of the court of first instance had affirmed in full that of the lower court. That mode of appeal and its procedural requirements governed the appeal taken in 1977 from the CFI to the CA.

• Parol Evidence Rule — When the terms of an agreement have been reduced to writing, the writing is considered as containing all such terms, and no evidence of the terms other than its contents is admissible between the parties and their successors in interest. The recognized exceptions are (a) mistake or imperfection of the writing, or its failure to express the true intent and agreement of the parties, or the validity of the agreement being put in issue by the pleadings, and (b) intrinsic ambiguity in the writing. Applied here, the promissory notes and vales were unambiguous loan documents, so Sardane's testimony that they were partnership receipts was inadmissible.

• Implied Admission of Genuineness and Due Execution of Actionable Documents — When an action or defense is founded on a written instrument copied in or attached to the pleading, its genuineness and due execution are deemed admitted unless the adverse party, under oath, specifically denies them and sets forth what he claims to be the facts. The rule does not apply when the adverse party does not appear to be a party to the instrument or when compliance with an order for inspection of the original is refused. Applied here, Sardane never denied the notes under oath and in fact admitted signing them.

• Waiver of the Implied Admission — The implied admission may be waived, but only where a party acts in a manner indicative of an express or tacit waiver — as where the case has been tried in complete disregard of the rule, the plaintiff having pleaded the document by copy presents oral evidence to prove due execution, and no objection is made to the defendant's evidence in refutation. Applied here, no such disregard obtained, and the failure to cross-examine on a sur-rebuttal that introduced no new matter did not waive the admission.

• Share of Profits as Prima Facie Evidence of Partnership — Under Art. 1769(4) of the Civil Code, the receipt by a person of a share of the profits of a business is prima facie evidence that he is a partner, but no such inference shall be drawn if the profits were received in payment as wages of an employee. Applied here, Acojedo's 50% share of net profits as manager of the basnig did not make him a partner, especially since he had no voice in management.

• Binding Effect of the CA's Factual Findings — Factual findings of the CA are binding on the SC where there is no showing that they fall within the exceptions to the rule limiting appellate review to questions of law. Applied here, the CA's findings on the absence of a partnership, the casco as a mere concession, and the use of "our" as camaraderie were accepted.

• "On their face, nothing appears to be vague or ambigous, for the terms of the promissory notes clearly show that it was incumbent upon the private respondent to pay the amount involved in the promissory notes if and when the petitioner demands the same." — The CA's finding, adopted by the SC, that the writings contained no intrinsic ambiguity, which foreclosed the second exception to the parol evidence rule.
• "Article 1769(4) of the Civil Code is explicit that while the receipt by a person of a share of the profits of a business is prima facie evidence that he is a partner in the business, no such inference shall be drawn if such profits were received in payment as wages of an employee." — The rule that defeated Sardane's partnership theory even on the assumption that parol evidence was admissible.
• "His arguments on this score reflect a misapprehension of the rule on parol evidence as distinguished from the rule on actionable documents." — The SC's separation of the two rules: parol evidence governs what the writing means, while the actionable-document rule governs whether the writing's genuineness and due execution are in issue.
• "Furthermore, the objection that he raises is actually not one of jurisdiction but of procedure." — The characterization that disposed of Sardane's belated challenge to the CA's jurisdiction.

• Fortis vs. Gutierrez Hermanos, 6 Phil. 100 (1906) — Controlling precedent; a contract of employment where the plaintiff had no voice or vote in management was not a partnership, and compensation measured by profits did not make him a partner.
• Bastida vs. Menzi & Co., Inc., 58 Phil. 188 (1933) — Same rule reiterated in an identical factual and legal setting.
• Yu Chuck vs. Kong Li Po, 46 Phil. 608 (1924) — Cited by petitioner for waiver of the implied admission; distinguished, since waiver requires a trial in complete disregard of the rule.
• Central Surety & Insurance Co. vs. C.N. Hodges, 38 SCRA 159 (1971) — Reiterated Yu Chuck; likewise distinguished on the same ground.
• Manila Railroad Co. vs. Attorney-General, 20 Phil. 523 (1911) — Cited for treating the objection as procedural rather than jurisdictional.

• Sec. 7, Rule 130, Rules of Court — The parol evidence rule; its two exceptions were held inapplicable because the writings were unambiguous and their validity was not put in issue by the pleadings.
• Sec. 8, Rule 8, Rules of Court — The actionable documents rule; Sardane's failure to deny the notes under oath resulted in an implied admission of genuineness and due execution.
• Art. 1769(4), Civil Code — Share of profits as prima facie evidence of partnership, with the exception for profits received as wages of an employee; applied to defeat the partnership claim.
• Sec. 29, R.A. No. 296 as amended by R.A. No. 5433 — The provision on which petitioner anchored the affirmance-in-full requirement; held superseded.
• R.A. No. 6031, amending Sec. 45 of the Judiciary Act — Effective August 4, 1969; did not adopt or reproduce the affirmance-in-full requirement.
• CA en banc Resolution of August 12, 1971 — Prescribed the petition for review as the mode of appeal but did not require affirmance in full; governed the 1977 appeal.
• Sec. 22, B.P. Blg. 129; Paras. 20, 21, and 22(b), Interim or Transitional Rules and Guidelines — Noted in the footnote as the procedure obtaining at the time of the decision.