Acosta, Mabelle

Hernandez, Carmi
Tongo, Karmela
3 Manresa

RULE ON INTERPRETATION OF DOCUMENTS

Sections 10 to 12

CASES:

CORTES vs. INTERMEDIATE APPELLATE COURT, ET AL.

G.R. No. 73678 July 21, 1989

Facts: Plaintiffs obtained a loan from defendant DBP in the sum of P1,700.00. Said loan
is evidenced by a promissory note) and was secured by a mortgage over a parcel of
land. The promissory note states that in case of non-payment of the amount of said note
or any portion of it on demand, when due or any other amount or amounts due on
account of this note the entire obligation shall become due and demandable'. When
plaintiffs failed to pay the installments due on the loan defendants DBP sent to the
Sheriff of Kalookan City an Application for Foreclosure of Real Estate and Chattel
Mortgage Pursuant to the said application, the City Sheriff of Kalookan prepared the
notice of extrajudicial sale of mortgaged properties under Act No. 3135 as amended
which notice was duly posted. The property covered by the mortgage was sold to Mr.
Arsenio Reyes as the highest bidder thereof.
It is presently argued by petitioners that they should have been allowed to redeem their
property, even after the consolidation of the title thereto in the purchaser's name, in view
of the absence of personal notice to them;

In pleading their case, petitioners invoke paragraph 10 of the Deed of Mortgage (vide, p.
28, Rollo) which provides:

10. All correspondence relative to this mortgage, including

demand letters, summons, subpoenas, or notification of any
judicial or extrajudicial action, shall be sent to the Mortgagor at
______________or at the address that may hereafter be given in
writing by the Mortgagor to the Mortgagee.

Issue: Whether or not personal service to them is necessary.

Ruling: NO.
With respect to the requirement of notice, Section 3 of said Act states:

1
 Sec.3. Notice shall be given by posting notices of the sale for not less than
twenty days (20) in at least three (3) public places of the municipality or
city where the property is situated, and if such property is worth more than
four hundred pesos, such notice shall also be published once a week for
at least three consecutive weeks in a newspaper of general circulation in
the municipality or city.

It is crystal clear from the above provision that personal notice to the mortgagor is not
necessary; only posting and publication, in some cases, are required.

While the above stipulation points to a place (which, notably was clearly stated) where
all correspondence relative to the mortgage are to be sent, it does not specifically
require that personal notice of foreclosure sale be given to petitioner. The said
paragraph 10 presumes that a specific correspondence is made but does not definitely
require which correspondence must be made. It would, therefore, be erroneous to say
that notice of extrajudicial foreclosure to the petitioners is required for such is not the
clear intention of the parties, and, thus, may not be pursued. (Rule 130, Section 10).

But even if the contrary were true, the sending of "All correspondence relative to this
mortgage. . ." to the petitioners may only be deemed, at the most, as an expression of a
general intent. As such, it may not prevail against the parties' specific intent that Act No.
3135 be the controlling law between them. This is so since "a particular intent will
control a general one that is inconsistent with it." (Rule 130, Sec. 10). It is clear from the
Deed of Mortgage that the Mortgagee Bank (DBP) may, under any of the specific
circumstances enumerated, proceed to "foreclose this mortgage ... extrajudicially under
Act No. 3135, as amended." Having invoked the said Act, it shall "govern the manner in
which the sale and redemption shall be effected" (Sec. 1, Act 3135). And as already
shown earlier Act 3135 does not require personal notice of the foreclosure sale to the
mortgagor. Incidentally, it was found by the trial court that notices of the foreclosure sale
were duly posted and published in accordance with law. As such, petitioners are in
estoppel; they cannot now deny that they were not informed of the said sale

LICAROS vs. GATMAITAN

G.R. No. 142838, August 9, 2001

Facts: Global Holiday Ownership Corporation (Global for short) obtained on various
dates several loans from Metrobank in the total principal amount of P5,700,000.00
secured by a real estate mortgage over a condominium unit. Upon default in the
payment of the loan, Global requested for restructuring of its loan or several times in
the total principal amount of P6,375,000.00 as of September 3, 2001.To which
Metrobank acceded hence a Debt Settlement Agreement was executed by the parties.
Global failed to comply with the terms and conditions of the Debt Settlement Agreement.
Despite demands made upon it for payment and May 18, 2006, it still failed and refused
to pay Metrobank the loans which are all past due. Metrobank requested the Clerk of

2
Court of the RTC of Makati City to cause the sale at public auction pursuant to Act 3135
as amended.

Four (4) days before the date of the auction sale or on July 6, 2006,Global filed the
instant complaint for annulment of extrajudicial foreclosure proceedings, damages and
injunction with application for TRO and/or writ of preliminary injunction.
Metrobank argues among others that no personal notice of the extrajudicial foreclosure
is even required as said proceeding is an action in rem where only notice by publication
and posting is necessary to bind the interested parties, citing Bobanan vs. Court of
Appeal. The law itself, Act No. 3135, does not require personal notice to the mortgagor.
Only notice by publication and posting are required. Metrobank claims that Cortes v.
Intermediate Appellate Court should be applied in the resolution of the present
controversy
However, Paragraph 14 of the real estate mortgage contract states that:

All correspondence relative to this mortgage, including demand

letters, summonses, subpoenas or notifications of any judicial or
extra-judicial actions shall be sent to the Mortgagor at the address
hereinabove given or at the address that may hereafter be given in
writing by the Mortgagor to the Mortgagee, and the mere act of
sending any correspondence by mail or by personal delivery to the
said address shall be valid and effective notice to the Mortgagor for
all legal purposes, and the fact that any communication is not
actually received by the Mortgagor, or that it has been returned
unclaimed to the Mortgagee, or that no person was found at the
address given, or that the address is fictitious, or cannot be located,
shall not excuse or relieve the Mortgagor from the effect of such
notice

Issue: Is the ruling in Cortes vs IAC applicable in this case?

Ruling: NO. What is stated in Cortes no longer applies in light of the Courts rulings in
Wong and all the subsequent cases, which have been consistent. Cortes has never
been cited in subsequent rulings of the Court, nor has the doctrine therein ever been
reiterated. Its doctrinal value has been diminished by the policy enunciated in Wong and
the subsequent cases; that is, that in addition to Section 3 of Act 3135, the parties may
stipulate that personal notice of foreclosure proceedings may be required. Act 3135
remains the controlling law, but the parties may agree, in addition to posting and
publication, to include personal notice to the mortgagor, the non-observance of which
renders the foreclosure proceedings null and void, since the foreclosure proceedings
become an illegal attempt by the mortgagee to appropriate the property for itself.

3
Thus, we restate: the general rule is that personal notice to the mortgagor in
extrajudicial foreclosure proceedings is not necessary, and posting and publication will
suffice. Sec. 3 of Act 3135 governing extra-judicial foreclosure of real estate mortgages,
as amended by Act 4118, requires only posting of the notice of sale in three public
places and the publication of that notice in a newspaper of general circulation.
The exception is when the parties stipulate that personal notice is additionally required
to be given the mortgagor. Failure to abide by the general rule, or its exception, renders
the foreclosure proceedings null and void.18

Globals right to be furnished with personal notice of the extrajudicial foreclosure

proceedings has been established. Thus, to continue with the extrajudicial sale without
proper notice would render the proceedings null and void; injunction is proper to protect
Globals rights and to prevent unnecessary injury that would result from the conduct of
an irregular sale. It is beyond question that a writ of preliminary injunction is issued to
prevent an extrajudicial foreclosure, upon a clear showing of a violation of the
mortgagors unmistakable right. The trial court was thus correct in granting an
injunction.

EQUITABLE PCI BANKING CORPORATION vs. RCBC CAPITAL CORPORATION

G.R. No. 182248, December 18, 2008

Facts: Equitable PCI Bank, Inc. (EPCIB) and the individual shareholders of Bankard,
Inc., as sellers, and respondent RCBC Capital Corporation (RCBC), as buyer, executed
a Share Purchase Agreement (SPA) for the purchase of petitioners interests in Bankard
for the price of PhP 1,786,769,400. To expedite the purchase, RCBC agreed to
dispense with the conduct of a due diligence audit on the financial status of Bankard.

Under the SPA, RCBC undertakes, on the date of contract execution, to deposit, as
downpayment, 20% of the purchase price, or PhP 357,353,880, in an escrow account.
The other relevant provisions of the SPA are:

Section 5. Sellers Representations and Warranties

The SELLERS jointly and severally represent and warrant to the BUYER that:

xxxx

The Financial Condition of Bankard

g. The audited financial statements of Bankard for the three (3) fiscal years ended December 31,
1997, 1998 and 1999, and the unaudited financial statements for the first quarter ended 31 March
2000, are fair and accurate, and complete in all material respects, and have been prepared in
accordance with generally accepted accounting principles consistently followed throughout the
period indicated and:

4
 i) the balance sheet of Bankard as of 31 December 1999, as prepared and certified by
SGV & Co. ("SGV"), and the unaudited balance sheet for the first quarter ended 31
March 2000, present a fair and accurate statement as of those dates, of Bankards
financial condition and of all its assets and liabilities, and is complete in all material
respects; and

ii) the statements of Bankards profit and loss accounts for the fiscal years 1996 to 1999,
as prepared and certified by SGV, and the unaudited profit and loss accounts for the first
quarter ended 31 March 2000, fairly and accurately present the results of the operations
of Bankard for the periods indicated, and are complete in all material respects.

h. Except as disclosed in the Disclosures, and except to the extent set forth or reserved in the
audited financial statements of Bankard as of 31 December 1999 and its unaudited financial
statements as of 31 March 2000, Bankard, as of such dates and up to 31 May 2000, had and
shall have no liabilities, omissions or mistakes in its records which will have material adverse
effect on the net worth or financial condition of Bankard to the extent of more than One Hundred
Million Pesos (P100,000,000.00) in the aggregate

Section 7. Remedies for Breach of Warranties

a. If any of the representations and warranties of any or all of the SELLERS or the BUYER (the
"Defaulting Party") contained in Sections 5 and 6 shall be found to be untrue when made and/or
as of the Closing Date, the other party, i.e., the BUYER if the Defaulting Party is any or all of the
SELLERS and the SELLERS if the Defaulting Party is the BUYER (hereinafter referred to as the
"Non-Defaulting Party") shall have the right to require the Defaulting Party, at the latters expense,
to cure such breach, and/or seek damages, by providing notice or presenting a claim to the
Defaulting Party, reasonably specifying therein the particulars of the breach. The foregoing
remedies shall be available to the Non-Defaulting Party only if the demand therefor is presented
in writing to the Defaulting Party within three (3) years from the Closing Date except that the
remedy for a breach of the SELLERS representation and warrant in Section 5 (h) shall be
available only if the demand therefor is presented to the Defaulting Party in writing together with
schedules and to substantiate such demand, within six (6) months from the Closing Date.

Thereafter, the parties executed an Amendment to Share Purchase Agreement. Its

paragraph 2(e) provided that:
e) Notwithstanding the provisions of Sec. 7 of the Share Purchase Agreement to the
contrary, the remedy for a breach of the SELLERS representation and warranty in
Section 5(h) of the Share Purchase Agreement shall be available if the demand
therefor is presented to the SELLERS in writing together with schedules and data to
substantiate such demand, on or before 31 December 2000. (Emphasis added.)

Following unsuccessful attempts at settlement, RCBC, in accordance with Sec. 10 of

the SPA, filed a Request for Arbitration dated May 12, 2004 with the ICC-ICA. In the
request, RCBC charged Bankard with deviating from, contravening and not following
generally accepted accounting principles and practices in maintaining their books. Due
to these improper accounting practices, RCBC alleged that both the audited and
unaudited financial statements of Bankard prior to the stock purchase were far from fair
and accurate and, hence, violated the representations and warranties of petitioners in
the SPA. Per RCBC, its overpayment amounted to PhP 556 million. It thus prayed for
the rescission of the SPA, restitution of the purchase price, payment of actual

5
damages,legal interest on the purchase price until actual restitution, moral damages,
and litigation and attorneys fees. As alternative to rescission and restitution, RCBC
prayed for damages in the amount of at least PhP 809,796,092 plus legal interest.

To the Request for Arbitration, petitioners denied RCBCs inculpatory averments and
setting up the following affirmative allegations: the period for filing of the asserted claim
had already lapsed by force of Sec. 7 of the SPA; RCBC is not entitled to rescission
having had ample opportunity and reasonable time to file a claim against petitioners;
RCBC is not entitled to its alternative prayer of damages, being guilty of laches and
failing to set out the details of the breach as required under Sec. 7.

On the matter of prescription, the tribunal held that RCBCs claim is not time-barred, the
claim properly falling under the contemplation of Sec. 5(g) and not Sec. 5(h). As such,
the tribunal concluded, RCBCs claim was filed within the three (3)-year period under
Sec. 5(g) and that the six (6)-month period under Sec. 5(h) did not apply.

In his Dissenting Opinion which he submitted to and which was received on September
24, 2007 by the ICC-ICA, Justice Kapunan stated the observation that RCBCs claim is
time-barred, falling as such claim did under Sec. 5(h), which prescribes a comparatively
shorter prescriptive period, not 5(g) as held by the majority of the tribunal. To wit:

Ultimately, the Claim is one for recovery of overpayment in the purchase price of the
shares. And it is in this context, that I respectfully submit that Section 5(h) and not
Section 5(g), applies to the present controversy.26

xxxx

True, without Section 5(h), the Claim for price recovery would fall under Section 5(g).
The recovery of the pecuniary loss of the Claimant in the form of the excess price paid
would be in the nature of a claim for actual damages by way of compensation. In that
situation, all the accounts in the 1999 financial statements would be the subject of the
warranty in Section 5(g).

However, since the parties explicitly included Section 5(h) in their SPA, which assures
the Claimant that there were no "omissions or mistakes in the records" that would
misstate the 1999 net worth account, I am left with no other conclusion but that the
accuracy of the net worth was the subject of the warranty in Section 5(h), while
the accuracy or correctness of the other accounts that did not bear on, or affect
Bankards net worth, were guaranteed by Section 5(g).

xxxx

This manner of reconciling the two provisions is consistent with the principle in Rule
130, Section 12 of the Rules of Court that "when a general and a particular provision
are inconsistent, the latter is paramount to the former [so] a particular intent will
control a general one that is inconsistent with it."

6
Petitioners argue that RCBCs claim under Sec. 5(g) is based on overvaluation of
Bankards revenues, assets, and net worth, hence, for price reduction falling under Sec.
5(h), in which case it was belatedly filed, for RCBC presented the claim to petitioners on
May 5, 2003, when the period for presenting it under Sec. 5(h) expired on December
31, 2000. As a counterpoint, RCBC asserts that its claim clearly comes under Sec. 5(g)
in relation to Sec. 7 which thus gave it three (3) years from the closing date of June 2,
2000, or until June 1, 2003, within which to make its claim. RCBC contends having
acted within the required period, having presented its claim-demand on May 5, 2003.

Issue: Is RCBCs claim time barred?

Ruling: No. A scrutiny of Sec. 5(g) and Sec. 5(h) in relation to Sec. 7 of the SPA would
indicate the following remedies available to RCBC should it be discovered, as of closing
date, that there is overvaluation which will constitute breach of the warranty clause
under either Sec. 5(g) or (h), to wit:

(1) An overvaluation of Bankards actual financial condition as of closing date

taints the veracity and accuracy of the AFS for 1997, 1998, and 1999 and the
UFS for the first quarter of 2000 and is an actionable breach of petitioners
warranties under Sec. 5(g).

(2) An overvaluation of Bankards financial condition as of May 31, 2000,

encompassing the warranted financial condition as of December 31, 1999
through the AFS for 1999 and as of March 31, 2000 through the UFS for the
first quarter of 2000, is a breach of petitioners representations and warranties
under Sec. 5(h).

Thus, RCBC has two distinct alternative remedies in case of an overvaluation of

Bankards financial condition. It may invoke Sec. 5(h) when the conditions of the
threshold aggregate overvaluation and the claim made within the six-month time-bar are
present. In the alternative, it may invoke Sec. 5(g) when it finds that a claim for "curing
the breach" and/or damages will be more advantageous to its interests provided it is
filed within three (3) years from closing date. Since it has two remedies, RCBC may opt
to exercise either one. Of course, the exercise of either one will preclude the other.

Moreover, the language employed in Sec. 5(g) and Sec. 5(h) is clear and bereft of any
ambiguity. The SPAs stipulations reveal that the non-use or waiver of Sec. 5(h) does not
preclude RCBC from availing itself of the second relief under Sec. 5(g). Article 1370 of
the Civil Code is explicit that "if terms of a contract are clear and leave no doubt upon
the intention of the contracting parties the literal meaning of its stipulations shall
control." Since the terms of a contract have the force of law between the parties, then
the parties must respect and strictly conform to it. Lastly, it is a long held cardinal rule
that when the terms of an agreement are reduced to writing, it is deemed to contain all
the terms agreed upon and no evidence of such terms can be admitted other than the

7
contents of the agreement itself. Since the SPA is unambiguous, and petitioners failed
to adduce evidence to the contrary, then they are legally bound to comply with it.

As to the dissenting opinion of Justice Kapunan, the Supreme Court held that it was
incorrect.

While it is true that Sec. 5(h), as couched, is a warranty on the accuracy of the
Bankards net worth while Sec. 5(g), as also couched, is a warranty on the veracity,
accuracy, and completeness of the AFS in all material respects as prepared in
accordance with generally accepted accounting principles consistently followed
throughout the period audited, yet both warranties boil down to the same thing and stem
from the same accounts as summarized in the AFS. Since the net worth is the
balance of Bankards assets less its liabilities, it necessarily includes all the
accounts under the AFS. In short, there are no accounts in the AFS that do not
bear on the net worth of Bankard. Moreover, as earlier elucidated, any overvaluation
of Bankards net worth is necessarily a misrepresentation of the veracity, accuracy, and
completeness of the AFS and also a breach of the warranty under Sec. 5(g). Thus, the
subject of the warranty in Sec. 5(h) is also covered by the warranty in Sec. 5(g), and
Sec. 5(h) cannot exclude such breach from the ambit of Sec. 5(g). There is no need to
rely on Sec. 12, Rule 130 of the Rules of Court for both Sec. 5(g) and Sec. 5(h) as
alternative remedies are of equal footing and one need not categorize one section as a
general provision and the other a particular provision.

The Court upholds the conclusion of the tribunal and rules that the claim of RCBC under
Sec. 5(g) is not time-barred

GUIDE QUESTIONS:

1. In Cortes, what specific intent overrode what general intent?

The specific intent of the party here is that, Act No. 3135 will be the
controlling law between them. In the Deed of Mortgage it was stated that
DBP may under any specific circumstance proceed to foreclose the mortgage
extrajudicially under Act 3135. It means that personal notice is not a
requirement for the foreclosure sale of the Deed of Mortgage. It was treated
by the Supreme Court as specific intent as compared to the general intent
which is the one provided in paragraph 10 of their Deed of Mortgage.

In Paragraph 10 of the Deed of Mortgage, it requires the sending of "All

correspondence relative to this mortgage. . ." This provision was treated by
the Court as the general intent of the parties. The Court said in this cases that
although the stipulations in paragraph 10 points to a place where relative
correspondence are to be sent, however there is no specific requirement that
the personal notice of foreclosure be given to the petitioner. Paragraph 10
presumes that a specific correspondence is made but does not require which

8
 correspondence must be made. Furthermore the Court said that it would be
erroneous to say that the notice of extrajudicial foreclosure to the petitioners
is required for it is not the clear intention of the parties, thus, may not be
pursued pursuant to Sec 10 of Article 130.

The Court further stated:

But even if the contrary were true, the sending of "All correspondence
relative to this mortgage. . ." to the petitioners may only be deemed, at the
most, as an expression of a general intent. As such, it may not prevail
against the parties' specific intent that Act No. 3135 be the controlling law
between them. This is so since "a particular intent will control a general one
that is inconsistent with it." (Rule 130, Sec. 10)

2. Why was the ruling in Cortes not applied in Global Holiday?

The ruling in Cortes was not applied in Global Holiday because the Court
said that its doctrinal value has been diminished by the policy cases
enunciated in subsequent by the Court. The Court said that the general rule is
that Section 3 of Act 3135 remains to be the controlling law, that is, no
personal notice of foreclosure may be required. But a party may agree to
include personal notice to the mortgagor. Failure to comply with their
stipulation would make the foreclosure proceedings as null and void.

In the case at bar the right of Global to be furnished with personal notice has
been established. Unlike in the case of Cortes wherein the Court said that the
intent of the parties regarding the correspondent to be sent was not clear.
Thus, the ruling of Cortes was not applied in this case

3. In Licaros, how did the Supreme Court differentiate between conventional

subrogation and a mere assignment of credit?

The Supreme Court said that: An assignment of credit has been defined
as the process of transferring the right of the assignor to the assignee who
would then have the right to proceed against the debtor. The assignment may
be done gratuitously or onerously, in which case, the assignment has an
effect similar to that of a sale.
On the other hand, subrogation has been defined as the transfer of all the
rights of the creditor to a third person, who substitutes him in all his rights. It
may either be legal or convention. Legal subrogation is that which takes place
without agreement but by operation of law because of certain acts.
Conventional subrogation is that which takes place by agreement of parties.

9
 The crucial distinction deals with the necessity of the consent of the debtor in
the original transaction. In an assignment of credit, the consent of the debtor
is not necessary in order that the assignment may fully produce legal effects.
What the law requires in an assignment of credit is not the consent of the
debtor but merely notice to him as the assignments takes effect only from the
time he has knowledge thereof. A creditor may, therefore, validly assign his
credit and its accessories without the debtor's consent. On the other hand,
conventional subrogation requires an agreement among the three parties
concerned the original creditor, the debtor, and the new creditor. It is a new
contractual relation based on the mutual agreement among all the necessary
parties. Thus, Article 1301 of the Civil Code explicitly states that
"(C)onventional subrogation of a third person requires the consent of the
original parties and of the third person."

4. In Licaros, from what specific facts did the Supreme Court determine the
true intention of the parties to the contract?

The Supreme Court cited here Sec 12, Rule 130 of the Rules of Court wherein it
is basic in the interpretation of contracts that the intention of the parties must be the one
pursued.
In this case, the Supreme Court looked into the stipulations in the contract of
Licaros and Gatmaitan which was the Memorandum of Agreement. Basing on the
provision in the Memorandum of Agreement which states with the express conformity
of the third parties concerned the intent of the parties is that there should be an
express conformity on the part of Anglo-Asean bank which in this case is the creditor.
Furthermore the Supreme Court pointed out the stipulation With our conforme
which was place above the words ANGLO-ASEAN BANK AND TRUST written by hand.
The Supreme Court said here that this provision which contemplates the signed
conformity of Anglo-Asean Bank, taken together with the aforementioned preambulatory
clause leads to the conclusion that both parties intended that Anglo-Asean Bank should
signify its agreement and conformity to the contractual arrangement between petitioner
and respondent

Based on those stipulations in their Memorandum of Agreement the Supreme Court

determined the true intentions of the parties which was consistent with Conventional
Subrogation.

5. Explain how the Supreme Court applied Rule 130, Section 11, in relation to
Article 1374 of the Civil Code, in finally determining the nature of the
contractual relationship of the parties in Licaros?

10
 Article 1374 of the Civil Code provides "The various stipulations of a contract
shall be interpreted together, attributing to the doubtful ones that sense which may
result from all of them taken jointly.
The Court said here that the Memorandum of Agreement embodies certain
provisions that are consistent with either a conventional subrogation or assignment of
credit. However nowhere in the clause or provision is inconsistent or incompatible with
conventional subrogation. The court even found out that there were provisions that were
inconsistent with a contract of assignment of credit. The Court said that if it will be
interpreted as an assignment of credit then the stipulations regarding the conformity of
Anglo Asian Bank would be useless.
The Supreme Court here tried to harmonize the provisions as to give effect to the
true intention of the parties. And since the provisions were intended to effect a
conventional subrogation upon examining the stipulation, the Court treated it as such.

6. In Equitable, why did the Supreme Court rule that there was no need to rely
on Sec. 12, Rule 130 despite the fact that two different provisions of the
contract applied to the same subject matter?

The Supreme Court ruled that there was no need to rely on Sec. 12, Rule 130
despite the fact that two provisions of contract applied to the same subject matter. It
held that both the provisions, Sec 5(g) and Sec 5(h) are alternative remedies and are of
equal footing. With that, the Court said that there is no need to categorize one as a
general provision and the other a particular provision. Therefore, the court did not apply
Sec 12 of Rule 130.

Sections 13 to 15

CASES:

BANK OF COMMERCE vs. GOLDMAN FIELDER

G.R. No. 191561, March 7, 2011

Facts: Keraj Marketing Company (Keraj), represented by Sunil K. Amarnani sought a

distributorship agreement from Goodman Fielder International Philippines, Inc
(Goodman). As a pre-requisite to the latters consent, a credit line/bank guaranty was
required from Keraj thus, Amarnani applied for a credit line/bank guaranty with the Bank
of Commerce.

11
 Pending submission of the required documents for processing and approval of
the credit line, Amarnani sent a letter to the bank requesting for the issuance of a
conditional certification from the banks branch manager Eli Aragon. Replying to the said
request, Aragon sent Goodman a letter which provides: xxx At the request of our client,
KERAJ MARKETING COMPANY xxx we are pleased to inform you that said
Corporation has arranged for a credit line in the amount of FIVE HUNDRED
THOUSAND PESOS ONLY subject to the compliance by said client of the policies,
terms and conditions imposed by the bank on said credit line.

Subsequently, Goodman and Keraj entered into a Distributorship Agreement.

Keraj however did not pursue its application for a credit line despite follow-up advice
from the bank. A year later, Goodman informed the bank its intent to claim against the
bank guaranty it issued to settle Keraj unpaid accounts. Negotiations for settlement
between them however failed, thus prompting Goodman to file a complaint for collection
of sum of money against Keraj, Amarnani, the bank and Aragon before the RTC of
Pasig. In its defense the bank claimed that the letters merely certified that Keraj applied
for the issuance of a bank guaranty, but no actual bank guaranty was approved, as
Keraj failed to present the required documents for processing the application.

Issue: Whether or not the Bank of Commerce intended to issue a bank guaranty in view
of the notice/certification issued by its manager Aragon? NO.

Ruling: Supreme Court ruled that the notice issued by Aragon did not constitute a bank
guaranty. The Supreme Court cited Section 13, Rule 130, Rules of Court to wit: For the
proper construction of an instrument, the circumstances under which it was made,
including the situation of the subject thereof and of the parties to it, may be shown so
that the judge may be placed in the position of those whose language he is to interpret.

In this case, the Supreme Court in ruling that the bank did not intend to issue a
bank guaranty considered the circumstances under which Aragon's letter-certifications
were issued to wit:

First, Amarnani's letter-request for a conditional certification from Aragon was

granted two days later when Aragon issued the letter-certification addressed to
Goodman. Within that period, it could not have been possible for the bank to even
process the application, given that Amarnani had not even complied with the
requirements.

12
 Second, the Distributorship Agreement between Goodman and Keraj was forged
on October 2, 2000 or 39 days after the issuance of the letter-certification, long enough
for the former to verify if indeed a bank guaranty was granted.

MARQUEZ vs. ESPEJO

G.R. No. 168387, August 25, 2010

Facts: The Espejos were the original registered owners of two parcels of agricultural
land; one one referred as the Lantap property which was tenanted by Nemi Fernandez
and the other referred as Murong property which is tenanted by Salun-at Marquez and
Nestor Dela Cruz.

The Espejos mortgaged both parcels of land to Rural Bank of Bayombong, Inc.
(RBBI) to secure certain loans. Upon their failure to pay the loans, the mortgaged
properties were foreclosed and sold to RBBI. RBBI eventually consolidated title to the
properties and transfer certificates of title (TCTs) were issued in the name of RBBI. TCT
No. T-62096 was issued for the Murong property and and TCT No. T-62836 for the
Lantap property.

Subsequently, Espejos bought back one of their lots from RBBI. The Deed of
Sale executed did not mention the barangay where the property was located but
mentioned the title of the property (TCT No. T-62096), which title corresponds to the
Murong property. Espejos never took possession of the Murong property and Nemi
continued working on the Lantap property.

Meanwhile, RBBI executed separate Deeds of Voluntary Land Transfer (VLTs) in

favor of Marquez and Dela Cruz, the tenants of the Murong property. Both VLTs
described the subject thereof as an agricultural land located in Barangay
Murong and covered by TCT No. T-62836 which however is the title corresponding to
the Lantap property.

After the Espejos completed the payment of the purchase price to RBBI, the DAR
issued the corresponding Certificates of Land Ownership Award (CLOAs) to Marquez
and Dela Cruz stating therein that their subjects were parcels of agricultural land
situated in Barangay Murong.

Years after the execution of the two transactions, the Espejos filed a
complaint for the cancellation of Marquez CLOAs, and the execution of a deed of
voluntary land transfer by RBBI in favor of Nemi alleging that the Murong property,
occupied by Marquez, was owned by the Espejos by virtue of the 1985 buy-back as

13
documented in the Deed of Sale. The Court of Appeals applying the Best Evidence Rule
held that the title numbers indicated in the respective deeds of conveyance should
control in determining the subjects thereof. The additional description in the VLTs is a
mere typographical error.

ISSUE 1: Whether or not the Best Evidence Rule is applicable in the case at bar? No.

RULING 1: The Supreme Court ruled that Best Evidence Rule was inapplicable
because there was no dispute regarding the contents of the documents. The Best
Evidence Rule states that when the subject of inquiry is the contents of a document, the
best evidence is the original document itself and no other evidence is admissible as a
general rule. The real issue here is whether the admitted contents of these documents
adequately and correctly express the true intention of the parties.

ISSUE 2: Whether or not the application of the Parol Evidence Rule would be proper?
No.

RULING 2: The Supreme Court ruled that the application of the Parol Evidence Rule is
improper in the case at bar. Rule 130, Section 9 specifically provides that parol
evidence rule is exclusive only as "between the parties and their successors-in-interest."
The Parol evidence rule may not be invoked where at least one of the parties to the suit
is not a party or a privy of a party to the written document in question, and does not
base his claim on the instrument or assert a right originating in the instrument. Here, the
Espejos are not parties to the VLTs executed between RBBI and Marquez; they are
strangers to the written contracts.

Moreover, the instant case falls under the exceptions to the Parol Evidence Rule,
as provided in the second paragraph of Rule 130, Section 9:

However, a party may present evidence to modify, explain or add to the terms of
the written agreement if he puts in issue in his pleading:

(1) An intrinsic ambiguity, mistake or imperfection in the written agreement;

(2) The failure of the written agreement to express the true intent and agreement
of the parties thereto;

14
 Here, both the Marquez VLTs and Espejos Deed of Sale suffered from intrinsic
ambiguity as both failed to express the true intent of the parties. In such instance, the
law provides that it will be the intention of the contracting parties that will prevail and not
its wording which is prone to mistakes, inadequacies, or ambiguities. So here, the
resolution of the case would now necessitate an examination of the parties respective
parol evidence, in order to determine the true intent of the parties

ISSUE 3: What are the subject properties of the parties respective contracts with RBBI?

RULING 3: Taking into consideration the contemporaneous and subsequent actions of

RBBI and that of the Espejos and Marquez, the Supreme Court ruled to wit:

The subject of the Deed of Sale between RBBI and the Espejos was the Lantap
property, and not the Murong property while the subject of the Deeds of Voluntary Land
Transfer (VLTs) in favor of Marquez was the Murong property, and not the Lantap
property.

DE LOS SANTOS vs. VIBAR

G.R. No. 150931, July 16, 2008

FACTS: Jose De Leon obtained a loan from Priscilla Vibar as evidenced by a

typewritten promissory note. Cecilia DE los Santos signed the same as a witness under
the phrase "signed in the presence of. However, Atty. Bautista, the sister of Priscilla
brought up the need for Cecilia to sign as guarantor. Thereupon, de Leon, in his own
handwriting, inserted the word "guarantor" beside Cecilias name, as Cecilia nodded her
head to what de Leon was doing.

On maturity date, de Leon failed to pay any of the monthly installments. Priscila
then made several verbal demands on both de Leon and Cecilia de Leon for payment of
the loan. Cecilia however, only remitted P 15,000 to Priscila covering only one months
interest on the loan. The failure of De Leon and Cecilia to fully pay the loan prompted
Priscilla to file an action for recovery of money against them. De Leon did not file an
answer and the trial court declared him in default. Cecilia, on the other hand, filed an
answer denying that she signed as guarantor of de Leons loan. Cecilia denies that she
had actual knowledge of the guaranty. On the other hand, Priscila points to the
promissory note and Cecilias actions as the best evidence to prove that Cecilia signed
as guarantor.

15
ISSUE: Whether Cecilia is liable as guarantor of de Leons loan from Priscila? Yes.

RULING: The Supreme Court ruled that Cecilia was a guarantor of de Leons loan.

Cecilias conduct in the course of the negotiations and contract signing shows
that she consented to be a guarantor of the loan as witnessed by everyone present. Her
act of "nodding her head," and at the same time even smiling, expressed her voluntary
assent to the insertion of the word "guarantor" after her signature. It is the same as
saying that she agreed to the insertion. And also, records show that Cecilia had several
meetings with Priscila and the latters counsel before the demand letters were sent and
in these meetings, Cecilia acknowledged her liability as guarantor. In fact, Cecilia made
an initial payment of P15,000 as partial compliance of her obligation as guarantor. This
only shows that Cecilia never denied her liability to Priscila as guarantor until this case
was filed in court.

Furthermore, in a letter wrote by Cecilia to the Register of Deeds of Baguio, she

clearly stated that she "appears to be a guarantor" in the promissory note. This serves
as a written admission that Cecilia knew she was a guarantor.

Here, the Supreme Court ruled that the written word "guarantor" appearing in the
letter prevails over the typewritten word "witness." In case of conflict, the written word
prevails over the printed word. Section 15 of Rule 130 provides that when an instrument
consists partly of written words and partly of a printed form, and the two are
inconsistent, the former controls the latter.

JARQUE vs. SMITH, BELL AND CO.

G.R. No. L-32986, November 11, 1930

Facts: Francisco Jarque was the owner of the motorboat Pandan and held a marine
insurance policy for the sum of P45,000 on the boat as issued by the National Union
Fire Insurance Company. The insurance contract is printed and one of the its clauses
reads: xxx and of all other Perils, Losses and Misfortunes, that have or shall come to
the Hurt, Detriment, or Damage of the said Vessel or any part thereof; and in case of
any Loss or Misfortunes, it shall be lawful for the Assured to sue, safeguard and
recovery of the said Vessel or any Charges whereof the said Company, will contribute
xxx

Attached to the said policy over and above the said clause is a "rider" containing
typewritten provisions, among which appears in capitalized type the following clause:

16
xxx against the absolute total loss of the vessel only, and to pay proportionate salvage
charges of the declared value.

On October 1928, the ship ran into very heavy sea off the Islands of Ticlin, and it
became necessary to jettison a portion of the cargo. As a result of the jettison, the
National Union Fire Insurance Company was assessed in the sum of P2,610.86 as its
contribution to the general average. However, the insurance company, refused to
contribute to the settlement of the general average .insisting that its obligation did not
extend beyond the insurance of the "absolute total loss of the vessel only, and to pay
proportionate salvage of the declared value; as provided in the typewritten rider
attached to the policy.

ISSUE: What would prevail, the printed clause in the insurance contract or the
typewritten rider attached thereto?

RULING: The Supreme Court ruled that in case repugnance exists between written and
printed portions of a policy, the written portion prevails, and there can be no question
that as far as any inconsistency exists, the above-mentioned typed "rider" prevails over
the printed clause it covers. Section 291 of the Code of Civil Procedure provides that
"when an instrument consists partly of written words and partly of a printed form and the
two are inconsistent, the former controls the latter.

However, in this case the Supreme Court ruled that the liability for contribution in
general average is not based on the express terms of the policy, but rest upon the
theory that from the relation of the parties and for their benefit, a quasi-contract is
implied by law. Article 859 of the Code of Commerce provides that the insurers, whether
for the vessel or for the freight or for the cargo, are bound to contribute to the indemnity
of the general average. Hence, here, the insurance company was still held to be liable
for general average.

GUIDE QUESTIONS:

1. In Goldman, what particular facts and circumstances supported the

Supreme Courts conclusion that the bank did not intend to issue a bank
guaranty?

17
 In the case of Bank of Commerce vs Goldman Fielder, the facts and
circumstances that supported the Supreme Courts conclusion that the bank did
not intend to issue a bank guaranty are the following:

a Amarnani's letter-request for a conditional certification from Aragon was

granted two days later when Aragon issued the letter-certification addressed
to Goodman. Within that period, it could not have been possible for the bank
to even process the application, given that Amarnani had not even complied
with the requirements.

b The Distributorship Agreement between Goodman and Keraj was forged on

October 2, 2000 or 39 days after the issuance of the letter-certification, long
enough for Goodman to verify if indeed a bank guaranty was granted but here
Goodman did not do so.

c Goodman merely rely to its finance manager Leonora Armi Salvador's

conclusion that the letter-certifications received were bank guarantees
considering their similarity with other bank guarantees made by other
distributors in favor of Goodman and the fact that Goodman inquiries with the
bank only after Keraj defaulted in the payment of its obligation.

2. In Marquez, how was Rule 130, Section 13, in relation to Articles 1370-71 of
the Civil Code, used to determine the applicability of the Parol Evidence
Rule?

Rule 130 Section 13 in relation to Articles 1370 -71 of the Civil Code provides
for the rules in the interpretation of contracts. If the terms of a contract are
clear and leave no doubt upon the intention of the contracting parties, the
literal meaning of its stipulations shall control. This is in consonance with the
Parol Evidence Rule which provides the 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. Hence when the agreement is clear as to the parties intentions
the Parol Evidence Rule should be applied.

However, this will not be the case where there is doubt in the interpretation of
said agreements such as when there is intrinsic ambiguity or when the written
agreement failed to express the true intent of the parties. In such instance,
the law provides that it will be the intention of the contracting parties that will
prevail and not its wording which is prone to mistakes, inadequacies, or
ambiguities. So here, Parol Evidence Rule should not be applied for the
reason that the resolution of the doubt in the case would now necessitate an

18
 examination of the parties respective parol evidence, in order to determine
the true intent of the parties. To resolve the ambiguity or to determine the true
intent of parties, resort must be had to evidence outside of the instruments
and also into the contemporaneous and subsequent actions of the parties.

3. Also in Marquez, why did the Supreme Court hold that the Best Evidence
Rule was inapplicable?

In the case of Marquez vs Espejo, the Supreme Court ruled that the Best
Evidence Rule was inapplicable because there was no dispute regarding the
contents of the documents. The Best Evidence Rule states that when the
subject of inquiry is the contents of a document, the best evidence is the
original document itself and no other evidence are admissible as a general
rule. The real issue here is whether the admitted contents of these documents
adequately and correctly express the true intention of the parties. This dispute
reflects an intrinsic ambiguity and to be resolve, must resort to evidence
outside of the instruments.

4. In Jarque, how did the Supreme Court apply the rule that written words
control the printed?
In the case of Jarque vs Smith Bell, the Supreme Court ruled that in case
repugnance exists between written and printed portions of a policy, the written
portion prevails, and there can be no question that as far as any
inconsistency exists, the typed "rider" attached to the insurance policy
prevails over the printed clause it covers. Section 291 of the Code of Civil
Procedure provides that "when an instrument consists partly of written words
and partly of a printed form and the two are inconsistent, the former controls
the latter." In the absence of positive legislation to the contrary, the liability of
the insurance company on its policy would, perhaps, be limited to "absolute
loss of the vessel only, and to pay proportionate salvage of the declared value
as provided in the attached rider."

However, in this case the Supreme Court still held the insurance company
liable for general average ruling that the liability for contribution in general
average is not based on the express terms of the policy, but rest upon the
theory that from the relation of the parties and for their benefit, a quasi-
contract is implied by law.

5. In Vibar, what printed and written words were inconsistent?

19
 In the case of De los Santos vs Vibar, the printed phrase signed in the
presence of" (referring as witness) appearing in the promissory note is
inconsistent with that of the written phrase appears to be a guarantor
appearing in the letter sent by Cecilia to the Register of Deeds.

6. Still in Vibar, what fact or facts did the Supreme Court consider in
determining whether the petitioner De Los Santos was a guarantor of De
Leons debt?

In the case of De Los Santos vs Vibar, the Supreme Court considered the
following facts in determining that Cecilia De los Santos was a guarantor of
De Leons loan:

First, Cecilias act of "nodding her head" signified her assent to the insertion
of the word "guarantor." Since de Leon made the insertion only after Atty.
Bautista had raised the need for Cecilia to be a guarantor, a positive or
negative reaction was expected from Cecilia, who responded by giving her
nod of approval. Otherwise, Cecilia should have immediately expressed her
objection to the insertion of the word "guarantor."

Second, Priscila would not have extended a loan to de Leon without the
representations of Cecilia. Cecilia vouched for de Leons capacity to pay. As a
friend and common link between the borrower and lender, Cecilia took active
part in the first loan of P100,000 and even signed as guarantor. Here, it was
only natural for Priscila to commit to the second bigger loan subject at least to
the same guarantee as the first smaller loan.

Third, Cecilia had several meetings with Priscila and the latters counsel
before the demand letters were sent and in these meetings, Cecilia
acknowledged her liability as guarantor but simply claimed that she had no
money to pay Priscila. In fact, Cecilia made an initial payment of P15,000 as
partial compliance of her obligation as guarantor. This only shows that Cecilia
never denied her liability to Priscila as guarantor until this case was filed in
court.

Fourth, Cecilia wrote a letter to the Register of Deeds of Baguio City wherein
she clearly stated that she "appears to be a guarantor" in the promissory
note. This serves as a written admission that Cecilia knew she was a
guarantor.

Sections 16 to 19

20
CASES:

ASTURIAS SUGAR CENTRAL vs. THE PURE CANE MOLASSES CO.

57 Phil. 519

Facts: Pure Cane Molasses Co. (appellant) seeks the amendment and cancellation of a
contract of sale of molasses entered with Asturias Sugar Central (appellee). The
appellant alleged that their contract includes an option to cancel upon payment of a
bond of P6,000, which the appellant would like to exercise. Although there was no
stipulation in the contract about the option or right to cancel, there were a series of
letters from the appellees General Manager referring to the payment of P6,000 as
sometimes a guaranty or bond and at other times as indemnity for damages in case of
breach of contract. This made it understood that the amount may be applied as
indemnity for damages or compensation in case appellant chose to rescind the contract.

Issue: Whether appellant is entitled to the rescission or cancellation of the contract

upon payment of P6,000 to the appellee.

Ruling: Yes, it appears that the appellee granted the appellant the right to cancel the
contract upon payment of said amount. The intention of the parties was to consider the
quotations in the General Managers letters as an integral part of the sale contract. Any
obscurity in the contract, where the terms are susceptible of different interpretations,
should be interpreted in favor of the appellant because the right to cancel was
established for its benefit and it was the appellee, through its General Manager, that
gave rise to the ambiguity in accordance to Article 1377 of the New Civil Code and Rule
130, Section 17 of the Rules of Evidence.

ENRIQUEZ vs. A.S. WATSON & CO. LTD.

G.R. No. L-7180, March 30, 1912

Facts: The plaintiffs are owners and lessors of building properties which they leased to
the defendant. A principal wall exists in the building necessary to safely maintain the
building against earthquakes and typhoons. The plaintiffs alleged that the defendant
engaged in the destruction and removal of the said wall causing irreparable injury to the
plaintiffs and varying the form and substance of the leased premises. As a result, the
plaintiffs filed a case to prohibit the defendants from destroying and removing said wall,
to order them to rebuild or replace the part of the wall destroyed or removed and the
termination and rescission of the lease contract. As a special defense, the defendant
alleged that under the provisions in Paragraph M of the lease contract, they are allowed
to make such works (obras in the original Spanish version of the lease agreement) on
the building as their business requires provided they do not impair the strength nor the
value of the building. However, the plaintiff claims that the term obras must be
interpreted to mean reparaciones, found in Paragraph K of the same agreement,
imposing upon the lessee the obligation to make the repairs required by the building for
its conservation.

21
Issue: Whether the term obras in Clause M of the lease agreement should be used in
its ordinary and general sense or in a technical or special sense with meaning similar to
the term reparaciones found in Clause K of the agreement.

Ruling: Yes, the term obra must be used in its ordinary and general sense in
accordance to Sections 290 and 293 of the Code of Civil Procedure. No proof has been
presented to show that "obras" was used in a technical or special sense, or that it has a
local signification, thus it must be considered as used in its ordinary and general sense.
If there exist any ambiguity and if the separate meanings given to the word obras by
both parties are proper, the stipulation must be construed in favor of the party to whom
the provision was made. In this case, Clause M of the contract is a stipulation in the
favor of the lessee and must be construed in his favor. Further, it is not necessary to
refer to the articles of the Civil Code that deals with contracts of lease to define the
meaning of obras but to give fair and reasonable interpretation to the meaning of
clause M of the lease contract providing certain limitations on the exercise of the right to
make alterations.

HORRIGAN vs. TROIKA COMMERCIAL

G.R. No. 148411, November 29, 2005

Facts: Troika Commercial, Inc. (respondent) sub-leased the ground floor of a two-story
building to Martha Horrigan (petitioner), to be used for her restaurant Tia Maria. The
contract of sub-lease between the parties was prepared by petitioners husband. It
provided, among others, a stipulation of a guaranteed yearly increase equivalent to
10% thereof which interpretation is the issue of the case. Respondent construed the
10% guaranteed yearly increase to apply to both the original monthly rental and the
additional rental while the petitioner claimed that the 10% "guaranteed yearly increase"
is applicable only to the additional rental. The trial court rendered its decision in favor of
the respondent which the Court of Appeals affirmed.

Issue: Whether the 10% guaranteed yearly increase of rental rates applies to both the
original monthly rental and the additional monthly rental.

Ruling: Yes, the yearly increase should apply to both the original monthly rental and
additional rental for the benefit of the respondent. In accordance to Article 1377 of the
Civil Code, the party who draws up the contract bears the responsibility for causing the
ambiguity or obscurity and thus must be construed against him. Since it was petitioners
spouse who prepared the sub-lease contract in question, the ambiguity must be
construed against the petitioner as she is presumed to have confirmed the same. Also
in line with Section 17, Rule 130, any doubt in the interpretation of an agreement must
be interpreted in the favor of the party to whom the provision was made. The provision
of additional yearly increase is for the benefit of respondent, being the sub-lessor of the
premises. As such, any doubt in its interpretation must be interpreted in its favor.

22
GUIDE QUESTIONS:

1. How did the Supreme Court interpret the term obras in Enriquez? What
older incarnations of present rules of interpretation did the Supreme Court
use to aid its interpretation? The term obra was interpreted in its ordinary and
general sense in accordance to Sections 290 and 293 of the Code of Civil
Procedure which are older incarnations of Sections 14 and 17 of Rule 130,
respectively, of the Rules on Evidence. The Supreme Court found that no proof
has been presented to show that "obras" was used in a technical or special
sense, or that it has a local signification, thus it must be considered as used in its
ordinary and general sense. If there exist any ambiguity and if the separate
meanings given to the word obras by both parties are proper, the stipulation
must be construed in favor of the party to whom the provision was made. In this
case, Clause M of the contract is a stipulation in the favor of the lessee thus must
be construed in his favor.

2. Explain the ambiguity that the Supreme Court interpreted in Horrigan. The
ambiguity lies in the different interpretations of the phrase "a guaranteed yearly
increase equivalent to 10% thereof" in the parties sub-lease agreement.
Respondent construed the 10% guaranteed yearly increase to apply to both the
original monthly rental and the additional rental while the petitioner claimed that
the 10% "guaranteed yearly increase" is applicable only to the additional rental.

3. Still in Horrigan, how did the Supreme Court apply Rule 130, Section 17 and
Article 1377 of the Civil Code? Under Rule 130, Section 17, any doubt in the
interpretation of an agreement must be interpreted in the favor of the party to
whom the provision was made. As the provision of additional yearly increase is
for the benefit of respondent, being the sub-lessor of the premises, the
interpretation of the provision on the 10% annual increase should cover both the
original monthly rental and additional rental. While the application of Article 1377
of the Civil Code was made to the effect that the interpretation of the ambiguity or
obscurity was construed against the petitioner whose spouse prepared the sub-
lease contract where the ambiguity or obscurity appears and by presumption,
she had confirmed.

23