SEAOIL PETROLEUM CORPORATION, PETITIONER, VS. AUTOCORP GROUP AND PAUL Y. RODRIGUEZ, RESPONDENTS.

Seaoil Petroleum versus Autocorp Group

The Case

This is a petition for review on certiorari brought by Seaoil Petroleum Corporation against Autocorp Group and Paul Rodriguez. Autocorp sued Seaoil in the Regional Trial Court of Pasig City for recovery of personal property with damages and replevin, after Seaoil stopped payment on the postdated checks that covered an excavator it had bought from Autocorp. Seaoil's defense was that the sale was a mere conduit arrangement between two foreign corporations, and it filed a third-party complaint against Rodriguez, a stockholder and director of Autocorp. The case matters because it gathers in one decision four rules a bar candidate must command: the parol evidence rule, the best evidence rule as applied to commercial documents, the separate personality of corporations, and the proper office of a third-party complaint.

Procedural History

Autocorp filed its complaint for recovery of personal property with damages and replevin before the Regional Trial Court of Pasig City. In a decision rendered in September 2001, the trial court held that the transaction between Autocorp and Seaoil was a simple contract of sale payable in installments. It ordered Seaoil to pay the balance of the purchase price with interest and attorney's fees, and it dismissed Seaoil's third-party complaint against Rodriguez for lack of merit. Seaoil elevated the matter to the Court of Appeals by petition for review. The Court of Appeals dismissed the petition and affirmed the trial court in full, holding that the alleged verbal arrangement could not alter the written sales contract under the parol evidence rule, that Autocorp's separate corporate personality could not be disregarded, and that the third-party complaint was properly dismissed. Seaoil then came to the Supreme Court by petition for review on certiorari under Rule 45.

Facts

In September 1994, Seaoil purchased one unit of Robex 200 LC Excavator from Autocorp. The original cost was 2,500,000 pesos, but it rose to 3,112,519.94 pesos because the price was payable in twelve monthly installments up to September 1995. The sale was embodied in a vehicle sales invoice and a vehicle sales confirmation, both signed by Francis Yu, president of Seaoil, on behalf of the corporation. It was agreed that despite delivery, ownership would remain with Autocorp until the obligation was fully settled. Seaoil's contractor initially issued postdated checks, but Autocorp refused them because they were not in Seaoil's name. Yu then signed and issued twelve postdated checks for 259,376.62 pesos each, payable to Autocorp. The excavator was delivered in September 1994 and received at Seaoil's depot in Batangas.

The first check bounced but was replaced with a good one, and the second check was honored. The remaining ten checks were not honored because Seaoil ordered payment stopped. Despite repeated demands, Seaoil refused to pay the remaining balance of 2,593,766.20 pesos, and Autocorp sued in January 1995.

Seaoil's theory was that it and Autocorp were merely conduits. A foreign entity, Uniline, owned by Rodriguez, owed money to another foreign entity, Focus Point, owned by Yu. Uniline allegedly proposed to settle the debt by conveying vehicles and heavy equipment, including the excavator, to Focus Point. Seaoil claimed that Rodriguez issued postdated checks to fund the checks Yu issued to Autocorp, and that Rodriguez stopped payment on his checks, forcing Seaoil to do the same. The lower courts found the transaction to be a simple sale and held Seaoil liable.

Issues

• Whether or not the Court of Appeals erred in applying the parol evidence rule so as to disregard the alleged true nature of the transaction between the parties.
• Whether or not the Court of Appeals gravely erred based on a misapprehension of facts contradicted by the evidence on record.
• Whether or not the dismissal of the third-party complaint operates as res judicata that would unjustly preclude Seaoil from enforcing its claim against Rodriguez in a separate action.
• Whether or not the lower courts should have pierced the corporate veil.

Applicable Provisions

Section 9 of Rule 130 of the Revised Rules on Evidence embodies the parol evidence rule:

Section 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 the 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.

This provision governs Seaoil's attempt to vary the written sales invoice with testimony about a verbal conduit arrangement, and it supplies the exceptions Seaoil invoked but failed to prove.

Section 11 of Rule 6 of the Revised Rules on Civil Procedure defines a third-party complaint:

Section 11. Third, (fourth, etc.) party complaint. A third, (fourth, etc.) party complaint is a claim that a defending party may, with leave of court, file against a person not a party to the action, called the third, (fourth, etc.) party defendant, for contribution, indemnity, subrogation or any other relief, in respect of his opponent's claim.

This provision frames the issue on whether the dismissal of Seaoil's third-party complaint against Rodriguez was proper and what effect that dismissal carries.

Section 31 of the Corporation Code states the liability of directors:

Section 31. Liability of directors, trustees or officers. Directors or trustees who willfully and knowingly vote for or assent to patently unlawful acts of the corporation or who are guilty of gross negligence or bad faith in directing the affairs of the corporation or acquire any personal or pecuniary interest in conflict with their duty as such directors or trustees shall be liable jointly and severally for all damages resulting therefrom suffered by the corporation, its stockholders or members and other persons.

This provision is the exception to separate corporate personality that Seaoil invoked against Rodriguez, and the Court found it inapplicable.

Ruling

On the first issue, the Court held that the parol evidence rule bars Seaoil's testimony. The vehicle sales invoice is the best evidence of the transaction, and a sales invoice is a commercial document that serves as a written memorial of the consummation of a contract. The terms of the invoice are clear: Autocorp sold the excavator to Seaoil, represented by Yu, and the fact that the checks were issued by a contractor does not change who the buyer is. The Court stressed that unsubstantiated testimony offered to prove verbal agreements that vary a written agreement is inadmissible, and that the exception for failure of the writing to express the true intent applies only where the contract is so ambiguous that its meaning cannot be gathered from a mere reading of the instrument. That is not the situation here.

On the second issue, the Court found no misapprehension of facts. The findings of the trial court, affirmed by the Court of Appeals, are conclusive, and none of the recognized exceptions was shown to exist. The Monte de Piedad checks that Seaoil called the clear and obvious link were equivocal at best, and Rodriguez denied the alleged agreement.

On the third issue, the Court held that the dismissal of the third-party complaint was proper and that it operates as res judicata against another suit involving the same parties and cause of action. The purpose of the rule is to avoid multiplicity of suits, and Seaoil's claim against Rodriguez was fully ventilated, tried, and decided on the merits. The trial court found that Rodriguez was not a party to the sale of the excavator.

On the fourth issue, the Court refused to pierce the corporate veil. A corporation has a personality separate and distinct from its stockholders, and the corporate vehicle may be disregarded only where it is used to defeat public convenience, justify wrong, protect fraud, or defend crime, and the wrongdoing must be clearly and convincingly established, never presumed. The lease purchase agreement showed that the parties to the other transaction were Focus Point and Uniline, not Rodriguez or Autocorp. Rodriguez, as a director, could be held personally liable only under Section 31, and Seaoil failed to discharge its burden of proving bad faith or wrongdoing. The Court also rejected the claim that ownership had passed to Focus Point, because the sales invoice expressly reserved ownership in Autocorp until full payment, and Seaoil had already assigned the excavator to its contractor and enjoyed the benefit of the transaction without paying for it.

Doctrine

First, when the terms of an agreement are reduced to writing, the writing is deemed to contain all the terms agreed upon, and oral testimony that varies or contradicts it is inadmissible unless the party puts in issue one of the four exceptions under Section 9 of Rule 130. Second, a sales invoice is a commercial document and a written memorial of a contract, and the party who signs it is bound by its terms. Third, a corporation has a personality separate and distinct from its stockholders and directors, and the veil may be pierced only where the corporate vehicle is used to defeat public convenience, justify wrong, protect fraud, or defend crime, with the wrongdoing clearly and convincingly established. Fourth, a director is personally liable for corporate debts only under the terms of Section 31 of the Corporation Code, and bad faith is never presumed. Fifth, a third-party complaint exists to avoid multiplicity of suits, and its dismissal on the merits operates as res judicata against a later suit on the same parties and cause of action.

Disposition

The Supreme Court denied the petition and affirmed the decision of the Court of Appeals in full, holding Seaoil liable to Autocorp for the balance of the purchase price with interest and attorney's fees, and sustaining the dismissal of the third-party complaint against Rodriguez.

Remember This

Memorize this line: unsubstantiated testimony offered to prove verbal agreements that vary the terms of a written agreement is inadmissible under the parol evidence rule. Examiners use this case to test the parol evidence rule and its exceptions, the treatment of commercial documents as best evidence, and the requisites for piercing the corporate veil and for holding a director personally liable.