CKH Industrial & Dev't Corp vs CA : 111890 : May 7, 1997 : J. Torres, Jr : Second Division

• FACTS:
  Cheng Kim Heng (Cheng), an immigrant of Chinese descent, was the owner of CKH, a corporation established under Philippine law. CKH corporation owns two parce of land located in Karuhatan, Valenzuela, and covered by TCT Nos, 8710 and 8711 in Caloocan City. Cheng Kim Heng was married to Wah, and they had three children Kei, Choi, and Yam. After Cheng immigrated to the Philippines he married Rubi Saw. Cheng brought his first family to the Philippines and they became Filipino Citizens. Heng died in 1984. Upon Cheng’s death, control over the corporation CKH was transferred to Rubi Saw, Cheng’s second wife.
  
  On may 9, 1988 Rubi Saw executed a Deed of Abosolute Sale wherevy Rubi Saw, representing CKH corporation agreed to sell the subject properties to Century- Well, a corporation owned in part by Lourdes Chong( the wife of Cheng’s son Kei), Kei, and Choi
  
  Both vendor and vendee agreed that payment would be in a form of manager’s check. Nevertheless, a certain Uy Chi Kim, representing the vendees managed to persuade Rubi to sign the Deed of Absolute Sale in consideration of a personal check and P 20,000 cash. He assured Rubi that there was no cause for her to worry as he was certain he would have the entire amount ready by the next day when the banks would be open. Rubi in turn surrendered the TCTs to Chong.
  The pertinent portions of the Deed of Sale are hereby reproduced:
  W I T N E S S E T H :
  That for and in consideration of the sum of EIGHT HUNDRED THOUSAND (P800,000.00) PESOS, Philippine Currency, paid by VENDEE to VENDOR, receipt of which is hereby acknowledged by the latter to its entire satisfaction, said VENDOR, by these presents, has SOLD, CEDED, TRANSFERRED, and CONVEYED by way of absolute sale unto said VENDEE, its successors and assigns, the two parcels of land above described and any and all improvements therein;
  Rubi Saw signed on behalf of CKH, while Lourdes Chong signed for Century Well.The document was notarized the day after the parties signed the same, i. e., March 9, 1988.
  
  Thereafter, Rubi communicated to the vendees for the payment. Demand letters were sent to them but they refused to pay, this prompting Rubi to file a Complaint for the annulment of the Deed of Sale for lack of consideration, and injunction to restrain the Registry of Deeds from registering the Deed of Absolute Sale in favor of the defendant vendees.
  
  During the trial, defendant vendees contended that:
  
  “…the consideration for the two parcels of land was paid by means of off-setting or legal compensation in the amount of P700,000 thru alleged promissory notes executed by Cheng Kim Heng in favor of his sons Choi and Keik, and payment of P 100,000.00 in cash. They claim that the Deed of Sale does not express the true agreement of the parties, specifically with regard to the mode of payment and that it was a culmination of mediateion of dispute of the first and second families of Cheng Kim Heng. They alleged that during the operation of plaintiff CKH, the latter borrowed from Choi Kei the total sum of P 700,000.00.
  
  Uy Chi Kim, on the other hand, answered on his behalf, that his only participation in the transaction was as a mediator, he being one of the closest friends of Cheng Kim Heng
  
  After trial, the RTC rendered its Decision finding that the annulment of the Deed of Absolute Sale was merited, as there was no payment of the stipulated consideration for the sale of the real properties involved to Rubi Saw.
  
  Court of Appeals reversed the findings and pronouncements of the trial court and found that there was indeed payment of the purchase price, partially in cash for P100,000.00 and partially by compensation by off-setting the debt of Cheng Kim Heng to his sons Choi and Kei for P500,000.00 and P200,000.00 respectively, against the remainder of the stipulated price. Such mode of payment is recognized under Article 1249 of the Civil Code.

  
  ISSUES:
  
  Whether or not parol evidence could be used in order to supply the terms of the written contract, especially with regards to the mode of payment agreed upon?
  
  RULING:

   No. The best test to establish the true intent of the parties remains to be the Deed of Absolute Sale, whose genuineness and due execution, are unchallenged.
  
  Section 9 of Rule 130 of the Rules of Court states that “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.”
  
  The so-called “parol evidence rule” forbids any addition to or contradiction of the terms of a written instrument by testimony or other evidence purporting to show that, at or before the execution of the parties’ written agreement, other or different terms were agreed upon by the parties, varying the purport of the written contract. When an agreement has been reduced to writing, the parties cannot be permitted to adduce evidence to prove alleged practices which to all purposes would alter the terms of the written agreement. Whatever is not found in the writing is understood to have been waived and abandoned.
  The rule is not without exceptions, however, as it is likewise provided that a party to an action may present evidence to modify, explain, or add to the terms of the written agreement if he puts in issue in his pleadings:
   (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.

  Further held:The foregoing stipulation is clear enough in manifesting the vendor’s admission of receipt of the purchase price, thereby lending sufficient, though reluctant, credence to the private respondents’ submission that payment had been made by off-setting P700,000.00 of the purchase price with the obligation of Cheng Kim Heng to his sons Choi and Kei.
  
  By signing the Deed of Absolute Sale, petitioner Rubi Saw has given her imprimatur to the provisions of the deed, and she cannot now challenge its veracity, however, this does not mean the transaction of Sale was valid.
  
  Agreements affecting the civil relationship of the contracting parties must come under the scrutiny of the provisions of law existing and effective at the time of the execution of the contract.
  
  We refer particularly to the provisions of the law on compensation as a mode of extinguishment of obligations. Under Article 1231 of the Civil Code, an obligation may be extinguished:
  
  One of the modes of extinguishment of obligations under Article 1231 of the Civil Code is by compensation
  “Article 1279. In order that compensation may be proper, it is necessary:
  (1) That each one of the obligors be bound principally, and that he be at the same time a principal creditor of the other;
  The requirements of conventional compensation are (1) that each of the parties can dispose of the credit he seeks to compensate, and (2) that they agree to the mutual extinguishment of their credits.
  
  In the instant case, there can be no valid compensation of the purchase price with the obligations of Cheng Kim Heng reflected in the promissory notes, for the reason that CKH and Century-Well the principal contracting parties, are not mutually bound as creditors and debtors in their own name. A close scrutiny of the promissory notes does not indicate the late Cheng, as then president of CKH, acknowledging any indebtedness to Century-Well. As worded, the promissory notes reveal CKH’s indebtedness to Choi and Kei.
  Their interest in the promissory notes cannot be off-set against the obligations between CKH and Century-Well arising out of the deed of absolute sale, absent any allegation, much less, even a scintilla of substantiation, that Choi and Kei’s interest in Century-Well are so considerable as to merit a declaration of unity of their civil personalities. Under present law, corporations, such as Century-Well, have personalities separate and distinct from their stockholders, except only when the law sees it fit to pierce the veil of corporate identity, particularly when the corporate fiction is shown to be used to defeat public convenience, justify wrong, protect fraud or defend crime, or where a corporation the mere alter ego or business conduit of a person.