Spouses Bonifacio and Lucia Paras vs. Kimwa Construction and Development Corporation

The Parol Evidence Rule does not bar evidence of the parties' true intent when the written agreement's failure to express that intent is put in issue in the pleadings. Where a party pleads that the written agreement contains a mistake or imperfection, or fails to express the true intent of the parties, and the adverse party responds to such allegations in its answer, the case falls under the exceptions to Rule 130, Section 9 of the Revised Rules on Evidence, and parol evidence may be admitted and considered.

Petitioner Lucia Paras was a concessionaire of a sand and gravel permit at Kabulihan, Toledo City, holding a Special Permit for the rechannelling of Block No. VI of Sapang Daco River along Barangay Ilihan. Respondent Kimwa Construction and Development Corporation was a construction firm that sold concrete aggregates to contractors and haulers in Cebu. The Special Permit granted to Lucia was valid for six months from November 14, 1994, and allowed the extraction of approximately 40,000 cubic meters of aggregates, with the area scheduled for rechanneling on May 15, 1995.

On December 6, 1994, Lucia Paras and Kimwa Construction and Development Corporation entered into a contract denominated "Agreement for Supply of Aggregates," whereby 40,000 cubic meters of aggregates were "allotted" by Lucia as supplier to Kimwa. Under the Agreement, Kimwa was to pick up the allotted aggregates at Lucia's permitted area in Toledo City at ₱240.00 per truckload, with payment due fifteen days after receipt of billing. The Agreement stated that the aggregates were "for the exclusive use of the Contractor" and that the volume allotted was limited to 40,000 cubic meters.

Pursuant to the Agreement, Kimwa hauled 10,000 cubic meters of aggregates. Sometime after this, however, Kimwa stopped hauling aggregates. Claiming that Kimwa thereby violated the Agreement, Lucia, joined by her husband Bonifacio, filed a Complaint for breach of contract with damages.

In their Complaint, Spouses Paras alleged that sometime in December 1994, Kimwa approached Lucia expressing interest in purchasing gravel and sand from her, and asked that it be "assured" of 40,000 cubic meters worth of aggregates. Lucia countered that her concession area was due to be rechanneled on May 15, 1995, when her Special Permit would expire, and she emphasized that she would be willing to enter into a contract with Kimwa "provided the forty thousand cubic meter[s] w[ould] be withdrawn or completely extracted and hauled before 15 May 1995." Kimwa then assured Lucia that it would take only two to three months to completely haul the 40,000 cubic meters of aggregates. Convinced of these assurances, Lucia and Kimwa entered into the Agreement. Spouses Paras added that within a few days, Kimwa was able to extract and haul 10,000 cubic meters of aggregates, but thereafter allegedly transferred to the concession area of a certain Mrs. Remedios dela Torre in violation of the Agreement. Demand letters were addressed to Kimwa, and when these went unheeded, Spouses Paras filed their Complaint.

In its Answer, Kimwa alleged that it never committed to obtain 40,000 cubic meters of aggregates from Lucia, arguing that the quantity represented only an upper limit or maximum quantity that it could haul. It likewise claimed that it neither made any commitment to haul 40,000 cubic meters before May 15, 1995, nor represented that hauling could be completed in two to three months. It denied that the hauling of 10,000 cubic meters was completed in a matter of days, countered that it took weeks to do so, and denied transferring to the concession area of Mrs. Remedios dela Torre. Kimwa asserted that the Agreement articulated the parties' true intent that 40,000 cubic meters was a maximum limit and that May 15, 1995 was never set as a deadline, invoking the Parol Evidence Rule to bar evidence showing that the parties had agreed differently.

The Pre-Trial Order issued by the Regional Trial Court attested to Kimwa's admission that prior to or during the execution of the contract, Spouses Paras furnished Kimwa all the documents and requisite papers, including a copy of Lucia's Special Permit indicating that her authority was good for only six months from November 14, 1994. The Special Permit, introduced as Exhibit "A," stated that the volume to be extracted from the area was approximately 40,000 cubic meters and that the permit was valid for six months from November 14, 1994.

• Parol Evidence Rule Exception: Petitioners argued that the Court of Appeals erred in applying the Parol Evidence Rule because their Complaint pleaded a mistake or imperfection in the Agreement, as well as the Agreement's failure to express the true intent of the parties, thereby falling under the exceptions provided by Rule 130, Section 9 of the Revised Rules on Evidence.
• Obligation to Haul Full Quantity: Petitioners maintained that respondent Kimwa was obliged to haul the entire 40,000 cubic meters of aggregates on or before May 15, 1995, based on Kimwa's assurances and the conditions of Lucia's Special Permit, and that Kimwa's failure to haul the remaining 30,000 cubic meters constituted breach of contract.

• Maximum Limit Interpretation: Respondent argued that the 40,000 cubic meters represented only an upper limit or maximum quantity that it could haul, and that it never committed to obtain the full quantity.
• No Deadline: Respondent claimed that it neither made any commitment to haul 40,000 cubic meters before May 15, 1995, nor represented that hauling could be completed in two to three months, and that the contract was silent on any definite time frame.
• Parol Evidence Rule: Respondent invoked the Parol Evidence Rule, insisting that Spouses Paras were barred from introducing evidence which would show that the parties had agreed differently from the written terms of the Agreement.

• Parol Evidence Rule: Whether the Court of Appeals erred in applying the Parol Evidence Rule to exclude evidence of the parties' alleged true intent.
• Obligation to Haul: Whether respondent Kimwa was obliged to haul 40,000 cubic meters of aggregates on or before May 15, 1995, and consequently liable for failing to haul the remaining 30,000 cubic meters.

• Parol Evidence Rule: No. The Court of Appeals erred in applying the Parol Evidence Rule. The exceptions under Rule 130, Section 9 of the Revised Rules on Evidence were properly put in issue in the pleadings — Spouses Paras' Complaint alleged a mistake or imperfection in the Agreement and its failure to express the true intent of the parties, and Kimwa's Answer responded to these allegations. Parol evidence was therefore admissible.
• Obligation to Haul: Yes. Respondent Kimwa was obliged to haul 40,000 cubic meters of aggregates on or before May 15, 1995. Considering its admission that it did not haul 30,000 cubic meters of aggregates, Kimwa was liable for breach of contract.

• Parol Evidence Rule: The Court explained that Rule 130, Section 9 of the Revised Rules on Evidence provides that when the terms of an agreement have been reduced to writing, no evidence of such terms other than the contents of the written agreement may be admitted, except when a party puts in issue in its pleading any of four items: (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 after the execution of the written agreement. The Court found that Spouses Paras' Complaint, while not using the specific words "mistake," "imperfection," or "failure to express the true intent," clearly asserted that the Agreement was founded on the parties' understanding that the quantity of aggregates must be hauled by May 15, 1995. This was the very foundation of their claim. Kimwa's Answer responded to these allegations, demonstrating that the issue was properly joined. The Court also noted two flaws in the Court of Appeals' reasoning: it was inconsistent to say both that the trial court erred on the basis of "evidence presented" in violation of the Parol Evidence Rule and that Spouses Paras showed "no proof," and the Court of Appeals concluded that the evidence was in violation of the Parol Evidence Rule without even accounting for the exceptions provided by the rule. The Court held that two things must be established for parol evidence to be admitted: first, that the existence of any of the four exceptions has been put in issue in a party's pleading or has not been objected to by the adverse party; and second, that the parol evidence sought to be presented serves to form the basis of the conclusion proposed by the presenting party.
• Obligation to Haul: The Court found that the parol evidence adduced established that Kimwa was obliged to haul 40,000 cubic meters on or before May 15, 1995. The Pre-Trial Order attested to Kimwa's admission that it was furnished a copy of Lucia's Special Permit indicating that her authority was good for only six months from November 14, 1994. The Special Permit stated that the volume to be extracted was approximately 40,000 cubic meters and that it was valid for six months. Having been admittedly furnished a copy of this Special Permit, Kimwa was well aware that only about 40,000 cubic meters of aggregates could be extracted and that Lucia's operations could not extend beyond May 15, 1995. The Special Permit's condition lent credence to the position that the aggregates "allotted" to Kimwa was in consideration of its corresponding commitment to haul all 40,000 cubic meters, especially in light of the Agreement's statement that the aggregates were "for the exclusive use of" Kimwa. The Court reasoned that by allotting the entire 40,000 cubic meters, Lucia bound her entire business to Kimwa, and rational human behavior dictated that she must have done so with corresponding assurances from Kimwa. The Court invoked the evidentiary presumption that a person takes ordinary care of his concerns, and concluded that Kimwa was obliged to haul 40,000 cubic meters on or before May 15, 1995. As it admittedly hauled only 10,000 cubic meters, Kimwa was liable for breach of contract in respect of the remaining 30,000 cubic meters.

• Parol Evidence Rule (Rule 130, Section 9, Revised Rules on Evidence) — 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 a written agreement if he puts in issue in his pleading: (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 after the execution of the written agreement. The Court applied this rule by holding that the exceptions were properly pleaded and that parol evidence was therefore admissible.
• Two-Part Test for Admission of Parol Evidence — For parol evidence to be admitted, two things must be established: first, that the existence of any of the four exceptions has been put in issue in a party's pleading or has not been objected to by the adverse party; and second, that the parol evidence sought to be presented serves to form the basis of the conclusion proposed by the presenting party. The Court applied this test to find that both requirements were satisfied in this case.
• Presumption of Ordinary Care (Rule 131, Section 3(d), Revised Rules on Evidence) — The evidentiary rules proceed from the position that individuals act as rational human beings, i.e., that a person takes ordinary care of his concerns. The Court applied this presumption to conclude that Lucia would not have allotted her entire business to Kimwa without corresponding assurances that the full quantity would be hauled.

• "In sum, two (2) things must be established for parol evidence to be admitted: first, that the existence of any of the four (4) exceptions has been put in issue in a party's pleading or has not been objected to by the adverse party; and second, that the parol evidence sought to be presented serves to form the basis of the conclusion proposed by the presenting party." — This passage articulates the canonical two-part test for the admissibility of parol evidence under the exceptions to Rule 130, Section 9, and is the controlling framework applied by the Court.
• "Our evidentiary rules impel us to proceed from the position (unless convincingly shown otherwise) that individuals act as rational human beings, i.e, '[t]hat a person takes ordinary care of his concerns.'" — This passage states the evidentiary presumption of rational human behavior that the Court relied upon in concluding that Lucia would not have allotted her entire business to Kimwa without corresponding assurances.
• "By allotting the entire 40,000 cubic meters, petitioner Lucia Paras bound her entire business to respondent Kimwa. Rational human behavior dictates that she must have done so with the corresponding assurances from it. It would have been irrational, if not ridiculous, of her to oblige herself to make this allotment without respondent Kimwa's concomitant undertaking that it would obtain the entire amount allotted." — This passage captures the Court's reasoning on why the allotment of the full quantity implied a corresponding obligation on Kimwa's part to haul the entire amount.

• Abella vs. Court of Appeals, 327 Phil. 270 (1996) — Cited for the proposition that oral testimony depending exclusively on human memory is not as reliable as written or documentary evidence, supporting the policy underlying the Parol Evidence Rule.
• Philippine National Railways vs. Court of First Instance of Albay, 173 Phil. 5 (1978) — Cited for the rule that if a defendant sets up the affirmative defense that the contract does not express the true agreement of the parties, parol evidence is admissible to prove the true agreement.
• Seaoil Petroleum Corporation vs. Autocorp Group, 590 Phil. 410 (2008) — Cited for the definition of the Parol Evidence Rule as forbidding any addition to or contradiction of the terms of a written agreement by testimony or other evidence purporting to show that different terms were agreed upon.
• Ortañez vs. Court of Appeals, 334 Phil. 514 (1997) — Cited for the evidentiary rationale that oral testimony from a party with an interest in the outcome is not as reliable as written or documentary evidence.
• Inciong, Jr. vs. Court of Appeals, 327 Phil. 364 (1996) — Cited for the proposition that the Parol Evidence Rule applies regardless of the formalities observed in reducing the agreement to writing.

• Rule 130, Section 9, Revised Rules on Evidence — The Parol Evidence Rule, which provides that when the terms of an agreement have been reduced to writing, no evidence of such terms other than the contents of the written agreement may be admitted, subject to the four enumerated exceptions. The Court applied this provision to determine that the exceptions were properly pleaded and that parol evidence was admissible.
• Rule 128, Sections 3 and 4, Revised Rules on Evidence — Admissibility and relevancy of evidence. The Court cited these provisions to explain that parol evidence must be relevant, tending to induce belief in the existence of the flaw, true intent, or subsequent extraneous terms averred by the party seeking to introduce it.
• Rule 131, Section 3(d), Revised Rules on Evidence — The disputable presumption that a person takes ordinary care of his concerns. The Court applied this presumption in concluding that Lucia acted rationally in allotting her entire business to Kimwa only upon receiving corresponding assurances.

Carpio, J. (Chairperson), Brion, J., Del Castillo, J., and Mendoza, J. concurred in the decision.