The parol evidence rule provides that “[w]hen the terms of an agreement have been reduced to writing, it is considered as containing all the terms agreed upon and there can be, as between the parties and their successors in interest, no evidence of such terms other than the contents of the written agreement.” (Section 10, Rule 130, Rules of Court).
Parol evidence is any evidence, whether oral or written, outside of the written agreement, which is offered to modify, explain or add to the terms of the written agreement.1 The parol evidence rule bars evidence of prior or contemporaneous terms or conditions which would alter the terms of a written contract. The rationale for the rule is that “when the terms of an agreement have been reduced to writing, it is considered as containing all the terms agreed upon.”
To illustrate. On 1 April 2021, seller and buyer executed a deed of absolute sale over a parcel of land in which the price of the lot is stated at P1 million payable in full upon its execution. In a suit by the seller against the buyer to enforce payment of the contract price, may the buyer introduce in evidence an email from the seller dated 1 March 2021 in which the seller agreed that the price would be payable in five annual installments beginning from the execution of the deed of sale?
The answer is in the negative. The parol evidence rule bars evidence of prior or contemporaneous terms or conditions, whether oral or written, which would alter the terms of a written contract. The email dated 1 March 2021 is a prior written term which would alter the manner of paying the price as stipulated in the contract. When the deed of sale was reduced to writing, it was deemed as containing all the terms agreed upon.
The rule is anchored on the theory that the parties to a written contract intended it to integrate all the terms of their agreement. The rule is also intended to lend stability to written contracts and to remove the possibility and temptation of perjury. Commercial stability requires that parties to a contract may rely upon its express terms without worrying that the law will allow the other party to change the terms of the agreement at a later date.
Like many evidentiary rules, the parol evidence rule is subject to exceptions. One of these allows a party to the contract to introduce parol evidence to modify, explain or add to the terms of the written agreement if the party puts in issue in a verified pleading the failure of the written agreement to express the parties’ true intent and agreement (Section 10[b], Rule 130, Rules of Court).
The text of Section 10(b) apparently allows a party to override the parol evidence rule by the simple expedient of making a verified allegation that the written agreement failed to express the parties’ true intent and agreement. Jurisprudence, however, has circumscribed the invocation of the exception so as not to set at naught the rule’s primordial aim of lending stability to written contracts.
Case law has taken two approaches insofar as the true-intent exception is concerned. In both approaches, the exception may be invoked if the terms of the written agreement are obscure or ambiguous. It is in the situation where the terms are clear and unequivocal that the two approaches differ somewhat.
The first approach or what we may call the strict approach absolutely bars parol evidence which would alter or contradict the clear and unequivocal terms of the written contract. This approach treats the parol evidence rule as a rule of substantive law and not one which merely lays down a presumption.2 Under this approach, where the language of a written contract is clear and unambiguous, there is nothing for the court to construe. Rather, the duty of the court is simply to apply the language as written to the facts of the case and decide the case accordingly.3 The exception regarding the failure of the written agreement to express the true intent of the parties may be invoked only if the written agreement is so ambiguous or obscure in terms that the contractual intention of the parties cannot be understood from a mere reading of the instrument.4 This is the approach which is taken by most U.S. courts and a majority of our Supreme Court decisions.5
Thus, in the given illustration, a court would absolutely bar evidence of the email and any other parol evidence which would contradict the clear provision that the purchase price is payable in full upon the execution of the contract. It matters not that there was really an agreement for the payment of the price in installments; if such mode of payment was not incorporated in the written agreement, then the parties are deemed to have waived or abandoned it.6
The second approach, which may be called the modified approach, would allow parol evidence to show the parties’ true intent even if it would contradict the clear terms of the contract provided that such evidence is clear and convincing.7 This approach (stated in a minority of decisions) treats the rule that a written contract embodies the parties’ true intent as one providing for a presumption that may be overthrown by clear and convincing evidence to the contrary. It must be stressed that this approach still pays obeisance to the policy of lending stability to written contracts because it sets a high evidentiary bar for the exception to apply.8
Thus, in the given illustration, a court applying the modified approach would allow the email and corroborating evidence to prove that the parties’ true intent was that the price would be paid in installments if there is clear and convincing evidence on that point.
The true-intent exception was the subject of a 2001 remedial law bar exam question:9
Q Pedro filed a complaint against Lucio for the recovery of a sum of money based on a promissory note executed by Lucio. In his verified complaint, Pedro alleged that although the promissory note says that it is payable within 120 days, the truth is that the note is payable immediately after 90 days but that if Pedro is willing, he may, upon request of Lucio give the latter up to 120 days to pay the note. During the hearing, Pedro testified that the truth is that the agreement between him and Lucio is for the latter to pay immediately after ninety days’ time. Over the objection of Lucio, will Pedro be allowed to testify as to the true agreement or contents of the promissory note? Why?
Suggested answer (using the strict approach):
No, Pedro should not be allowed to testify as to the true agreement or contents of the promissory note over Lucio’s objection that such testimony would violate the parol evidence rule. The exception to the parol evidence rule regarding the failure of the written agreement to express the parties’ true intent is available only where the written contract is so ambiguous or obscure that the parties’ contractual intention cannot be understood from a mere reading of the instrument. Here, there is no ambiguity or obscurity as to the period of payment which is stated clearly as 120 days.10
In the recent case of Heirs of Bandoy v. Bandoy, G.R. No. 255258, 19 October 2022, at issue was the application of the true-intent exception. There, the spouses Ambrocio and Matilde had three children: Arturo, Angelita, and Alexander. Ambrocio died in 1981. Matilde waived her hereditary share in favor of her children. Arturo, Angelita, and Alexander then executed a deed of extrajudicial settlement of Ambrocio’s estate wherein they adjudicated to themselves Lot 3515, consisting of 14,765 square meters, in undivided equal shares. In the deed, Arturo, Angelita, and Alexander sold a 9,329 square-meter-portion of the lot to Benitez. The remainder of Lot 3515, consisting of 5,436 square meters, became Lot 3516-B.
Arturo and Angelita died in 1993 and 2014, respectively. The heirs of Arturo and Angelita demanded from Alexander the partition of Lot 3516-B, but the latter refused claiming exclusive ownership thereof. Alexander asserted that it was only Arturo’s and Angelita’s shares which were actually sold to Benitez. Alexander contended that there was an oral agreement between the siblings that his share would not be included in the sale to Benitez. Alexander presented a handwritten note from Angelita executed in 2013 wherein Angelita stated that it was only her share and that of Arturo’s that had been sold to Benitez. Alexander also presented Angelita’s 2014 affidavit wherein she reiterated what she had stated in the note.
The heirs of Arturo and Angelita argued that Angelita’s note and affidavit were barred admission under the parol evidence rule because these contradicted the clear terms of the deed of extrajudicial settlement. They pointed out that under the deed of extrajudicial settlement, what was sold were the undivided shares of Arturo, Angelita, and Alexander; thus, the remaining portion or Lot 3516-B was held in equal shares by the three and not by Alexander alone. They also argued that the note and affidavit were inadmissible for being hearsay.
On the other hand, Alexander argued that the note and affidavit may be admitted as an exception to the parol evidence rule since the deed of extrajudicial settlement failed to express the true intent of the parties. He also argued that the note and affidavit were declarations against interest and thus excepted from the hearsay rule.
The Court held that Angelita’s note and affidavit may not be admitted as an exception to the parol evidence rule. The Court stated that the exception regarding the failure of the written agreement to express the true intent of the parties may be invoked only if the written agreement is so ambiguous or obscure in terms that the contractual intention of the parties cannot be understood from a mere reading of the instrument. The Court found that it is clear from the deed of extrajudicial settlement that what was sold to Benitez were the undivided shares of the three children of Ambrocio and thus the remaining portion also belonged to the children in equal undivided shares. It can be seen that the Court applied the strict approach. The Court’s ruling clearly implied that the note and affidavit were inadmissible in evidence under the parol evidence rule.
The Court however ruled that the note and affidavit were admissible against the heirs of Angelita since these were admissions against interest.11 Hence, the Court ruled that the heirs of Angelita no longer have a right to demand partition since Angelita had sold her entire undivided share to Benitez.
This portion of the decision seems quite paradoxical. If the note and affidavit were inadmissible for the purpose of altering the written deed of extrajudicial partition by virtue of the parol evidence rule, they should still be inadmissible for the same purpose even if they were excepted from the hearsay rule. The hearsay exceptions address only the hearsay objection, not other exclusionary rules like the parol evidence rule.
The analysis in Heirs of Bandoy might have been justified under the modified approach, in which the note and the affidavit would be considered as clear and convincing evidence that Angelita had sold her entire pro indiviso share. A perusal of the case shows however that the evidentiary standard applied was preponderance of evidence.12 At any rate, it is quite doubtful whether the hearsay statements of Angelita, executed more than three decades after the execution of the deed of extrajudicial settlement, would amount to clear and convincing evidence sufficient to overthrow the clear terms of the deed which had been signed by Alexander himself.13 It is respectfully opined that the note and affidavit should not have been admitted for the purpose of varying the clear terms of the deed of extrajudicial settlement pursuant to the parol evidence rule.
- ANTONIO R. BAUTISTA, BASIC EVIDENCE 36 (2004 ed.). ↩︎
- Many U.S. legal scholars are of the view that the parol evidence rule is a rule of substantive law rather than a rule of evidence (BAUTISTA 36). Parol evidence is excluded regardless of its credibility (9 WIGMORE, EVIDENCE 76 [3rd ed., 1940]). ↩︎
- Baker v. Bailey, 782 P.2d 1286 (Mont. 1989). ↩︎
- Financial Building Corp. v. Rudlin International Corp., 632 SCRA 18, 45 (2010); Seaoil Petroleum Corp. v. Autocorp Group, 569 SCRA 387, 396-397 (2008); RCBC v. Bernardino, 803 SCRA 586, 608 (2016); Ortañez v. Court of Appeals, 266 SCRA 561, 566-567 (1997); Sardane v. Court of Appeals, 167 SCRA 524, 529-530 (1988); Heirs of del Rosario v. Santos, 108 SCRA 43, 58 (1981). ↩︎
- The remedy of a party who claims that a written agreement, despite its clear terms, failed to express the parties’ true intent by reason of fraud, mistake, accident, or inequitable conduct is to file an action or counterclaim for reformation of the instrument (Financial Building Corp. v. Rudlin International Corp., supra; Articles 1359-1365, Civil Code). ↩︎
- Supra at note 3. ↩︎
- Philippine National Bank v. Cua, 861 SCRA 569, 581-582 (2018); Bernardo v. Court of Appeals, 332 SCRA 1, 7-8 (2000); Sierra v. Court of Appeals, 211 SCRA 785, 789-790 (1992); 5 MANUEL V. MORAN, COMMENTS ON THE RULES OF COURT 125 (1980 ed.). ↩︎
- In fact, in the cases cited in the preceding note, the Court did not find the evidence to be clear and convincing and thus upheld the clear terms of the written agreement. ↩︎
- Question No. 16(a). I have changed the facts a bit by making the complaint a verified one. This is to conform with the requirement under the 2019 Rules of Evidence that the exception must be put in issue in a verified pleading. ↩︎
- The suggested answer of the UPLC and of Dean Willard Riano (EVIDENCE: The Bar Lecture Series 228 [2009]), which is anchored on the bare text of Sec. 10(b) of Rule 130, is that Pedro may be allowed to testify as to the true agreement. A purely textual analysis discounts the prevailing jurisprudence and undermines the parol evidence rule’s aim of upholding the stability of written contracts. Note that even if the modified approach is applied, Pedro’s uncorroborated testimony can hardly rise to the level of clear and convincing evidence. ↩︎
- My opinion is that the note and affidavit are more precisely characterized as declarations against interest. Angelita, who had already died, was not a party to the partition case filed by her heirs against Alexander. ↩︎
- Decision, p. 8. ↩︎
- For instance, the fact that the remainder of Lot 3515 after the sale to Benitez consisted of 5,436 square meters, rather than 4,921.67 square meters which is Alexander’s 1/3 share, is consistent with the petitioners’ contention that what was sold to Benitez were the shares of all three children of Ambrocio and inconsistent with Alexander’s claim that his 1/3 share was not sold to Benitez. ↩︎
