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

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.