6 LEYNES BPI v. Fidelity and Surety

THE BANK OF THE PHILIPPINE ISLANDS, plaintiff-appellee, vs. FIDELITY & SURETY COMPANY OF THE PHIL., defendant-appellant. October 19, 1927 MALCOLM, J. Digest by Eugenio Leynes Note: Case history is not important. But just in case she asks… Topic and Provisions: Parol Evidence Rule 3. PAROL EVIDENCE RULE Sec. 9 .Evidence of written agreements. — 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 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 thereto; (c)The validity of the written agreement; or (d)The existence of other terms agreed to by the parties or their successors in interest after the execution of the written agreement. The term "agreement" includes wills. (7a) Facts (Case history):  The action is a reformation of a written instrument of guaranty upon the ground of mistake. o The alleged mistake consisting of the substitution of the words “Laguna Coconut Oil Co.” for “Bank of the Philippines Islands”  The case has been to the SC twice. (History of the case)  1st - The original action was commenced by the Bank of the Philippine Islands against the Laguna Coconut Oil Co. and the Fidelity and Surety Company of the Philippine Islands on August 25, 1922. o Fidelity and Surety Company of the Philippines Islands interposed a demurrer which was sustained by the trial court and the CA, which was reversed by the SC and the case was remanded for further proceedings.  On the return of the record to the lower court, the Fidelity and Surety Company filed an answer. o The Laguna Coconut Oil Co. made no defense, and judgment by default was obtained against it. o The case was submitted to the court upon a stipulation of facts. o Upon the pleadings and the agreed facts, the trial court rendered judgment against the Fidelity and Surety Company of the Philippine Islands for the full amount of the note, with interest. o From this judgment, the Fidelity and Surety Company appealed to be well taken, for the principal reason that the action involved a reformation of the contract of guaranty, which was not put in issue by the pleadings. o Accordingly, the judgment was reversed and the action dismissed, "without prejudice to the bringing of another action upon the same cause."  On October 20, 1925, the Bank of Philippine Islands commenced a new action against the defendant, the Fidelity and Surety Company of the Philippine Islands, in the Court of First Instance of Manila. The defendant demurred. The trial court overruled the demurrer, and the defendant answered. Evidence was produced on behalf of the plaintiff. The judgment was in favor of the plaintiff for the sum of P50,000 plus interest, attorney's fees, and costs. It is from this judgment that the defendant has appealed, assigning six errors which, it is alleged, were committed by the trial court. Actual Facts:  On April 26, 1920, the Laguna Coconut Oil Co. executed in favor of the Philippine Vegetable Oil Company, Inc., the following promissory note:

One month after date, we promise to pay to the Philippine Vegetable Company, Inc., or order at the City of Manila, Philippine Island, the sum of fifty thousand pesos (P50,000) Philippine currency; value received. o In case of non-payment of this note at maturity, we agree to pay interest at the rate of nine per cent (9%) per annum on the said amount and the further sum of P5,000 in full, without any deduction as and for costs, expenses and attorney's fees for collection whether actually incurred or not. On May 3, 1920, the Fidelity and Surety Company of the Philippine Islands made a notation on the note reading as follows: o For value, received, we hereby obligate ourselves to hold the Laguna Coconut Oil Co. harmless against loss for having discounted the foregoing note at the value stated therein. On May 4, 1920, the Philippine Vegetable Oil Company endorsed the note in blank and delivered it to the Bank of the Philippine Islands. At least after maturity of the note, demand for its payment was made on the Laguna Coconut Oil Co., the Philippine Vegetable Oil Company, and the Fidelity and Surety Company of the Philippine Islands, all of whom refused to pay, the Laguna Coconut Oil Co. being admittedly insolvent. The effort of the plaintiff on its last appearance in the trial court was to connect up the promissory note of P50,000 with an existing obligation of the Philippine Vegetable Oil Company in the form of another promissory note. The evidence was also intended to demonstrate that a clear error had been committed when reference was made to the Laguna Coconut Oil Co. in the notation on the note. o The plaintiff's theory was confirmed by the trial judge. His Honor emphasized that the note could not have been discounted by the Laguna Coconut Oil Co., and that this must logically have been done by the Bank of the Philippine Islands. o

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Issues: 1) WON the plaintiffs has presented enough evidence to justify the reformation of the instrument. Held: NO. It has not. Dispositive: In accordance with the foregoing, the judgment appealed from will be reversed, and the proceedings definitely dismissed, without special pronouncement as to costs in either instance. This order will also serve to deny the two motions of reconsideration filed by the appellee. Ratio:  According to section 285 of the Code of Civil Procedure (same as current parol evidence rule), a written agreement is presumed to contain all the terms of the agreement. The Civil Code has articles to the same effect. However, the Code of Civil Procedure permits evidence of the terms of the agreement other than the contents of the writing in the following case: o Where a mistake or imperfection of the writing, or its failure to express the true intent and agreement of the parties, is put in issue by the pleadings.  Our local decisions have applied the rule that the amount of evidence necessary to sustain a prayer for relief where it is sought to impugn a fact in a document (reformation of a document) is always more than a mere preponderance of the evidence. (Centenera vs. Garcia Palicio [1915], 29 Phil., 470; Mendozana vs. Philippine Sugar Estates Development Co. and De Garay [1921], 41 Phil., 475.)  To justify the reformation of a written instrument upon the ground of mistake, the concurrence of three things are necessary: o First, that the mistake should be of a fact; o Second, that the mistake should be proved by clear and convincing evidence; and, o Third, that the mistake should be common to both parties to the instrument.  The rule is, as has been above stated, that the mistake must be mutual. There may have been a mistake here. It would, however, seem to be straining the natural course of events to hold the Fidelity and Surety Company of the Philippine Islands a party to that mistake.  With all the various pleadings, all the various incidents, all the various facts, all the various legal principles, and all the various possibilities to the forefront, we cannot bring ourselves to

conclude that the plaintiff, by proof of the clearest and most satisfactory character constituting more than a preponderance of the evidence, has established a mutual mistake. Instead, the proof is left far behind that goal.