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De La Rama vs.

Ledesma
Doctrine

Paras, J.
July 14, 1986
G.R. No. L-28498
Parol Evidence Rule Evidence of a prior or contemporaneous verbal agreement is generally not admissible
to vary, contradict or defeat the operation of a valid instrument.
While parol evidence is admissible in a variety of ways to explain the meaning of written contracts, it cannot
serve the purpose of incorporating into the contract additional contemporaneous conditions which are not
mentioned at all in the writing, unless there has been fraud or mistake.

Summary

Facts

Petitioner sued his nephew, the respondent, over a money claim. It transpired from the war damages claim to
be received by Inocentes de la Rama Inc. wherein petitioner was a stockholder. Petitioner alleged that he
sold his 140 shares to the respondent with an understanding that the latter would deliver to him his
(petitioners) proportionate equity in the war damage benefits upon payment by the US foreign claim
settlement commission. However, respondent failed to deliver the said payment. Petitioner relied on their
verbal understanding as evidence for his cause of action, however the trial court, as affirmed by the Court,
ruled in favour of respondent. It held that parol evidence cannot serve the purpose of incorporating into the
contract additional contemporaneous conditions which are not mentioned at all in the writing, unless there
has been fraud or mistake.
Petitioner was a stockholder of Inocentes de la Rama Inc. which suffered damages during the last
war. The corporation had an approved war damage claim with the Philippine War Damage
Commission (P106,000.00) and the first payment (P56,000) was made while De la Rama was still a
stockholder. Upon resolution of the majority of its stockholders, it was used for the reconstruction
of the Iris Theater Building.
Petitioner sold his shares to his nephew. On Nov. 18, 1958, prior to the payment of the balance of
the war damage claim, De La Rama sold to Ledesma at par value his 140 shares in the corporation
by endorsing his certificates of stock in favor of the latter. This was done with an alleged
understanding that De la Rama reserved to himself his proportionate equity in the war damage
benefits due on his 140 shares. Ledesma promised to deliver to him this equity upon payment by the
Foreign Claim Settlement Commission of the United States of the remaining balance.
The corporation received a final payment of its war damage claim (P46,696.33) on March 20.1965
and the Board of Directors passed a resolution distributing the final payment received by said
corporation among its stockholders as dividend computed at P29.59 per share.
o When Ledesma received the dividends pertaining to his total shareholding including the 140
shares he had purchased from De la Rama, the latter demanded from the former the return
and delivery to him of his corresponding share, yet he refused.
Thus, he filed a complaint against respondent, asking for moral and exemplary damages, including
attorneys fees.
o In his answer, Ledesma admitted the allegation in the complaint except: (a) the alleged
verbal understanding between De la Rama and himself regarding the unpaid war damage
claim; (b) the alleged equity of De la Rama in the said claim as such equity is with the
corporation itself, and not with the stockholders individually; and (c) his liability for
damages.
o By way of special defense, he claimed that the indorsement by De La Rama was their
exclusive contract and to allow the latter to prove an alleged simultaneous oral agreement
would be contrary to the Parol Evidence Rule and the Statute of Frauds. Also, the war
damage claim belongs to the corporation, not to the individual stockholders.
o In Reply to the special defense, De La Rama said that the said claim should go to those who
actually suffered damages during the war and that it is not profit of the corporation; that the

Statute of Frauds only applies to executory contracts, not to partially fulfilled ones; and that
the instant case is exempted from the Parol Evidence Rule since the writing fails to express
the true intent and agreement of the parties, and this fact is pleaded.
o He also alleged that the Board of Directors should be guided by the spirit and letter of the
Philippine Rehabilitation Act of 1946 and that the oral agreement of the parties is consistent
with the trust and confidence of the parties at the time in view of their close blood
relationship.
The trial court, on the issue on whether De La Rama is allowed to present parol evidence to prove
his alleged reservation to the war damage benefits, ruled in the negative.
1. Whether the alleged verbal agreement of the parties concerning plaintiff's reservation of his
Ratio/Issue
right to the balance of the war damage claim at the time of the sale of his shares to the
s
defendant, can be proven by parol evidence under the Parol Evidence Rule and the Statute of
Frauds (NO)
COURT: A. (See doctrine) The exceptions to the rule do not apply in the instant case, there being no
intrinsic ambiguity or fraud, mistake, or failure to express the true agreement of the parties. If indeed the
alleged reservation had been intended, businessmen like the parties would have placed in writing such an
important reservation.
B. In the case at bar, nowhere in the complaint were the exceptions to the rule alleged or put in issue.
C. Since the alleged reservation is not admissible under the Parol Evidence Rule, the Court does not find it
necessary to discuss the applicability or non-applicability to the present case of the Statute of Frauds.
Held
Appealed decision affirmed
Prepared by: Eunice V. Guadalope [Evidence]

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