LUCIO R. CRUZ, PETITIONER, VS. COURT OF APPEALS AND CONRADO Q. SALONGA, RESPONDENTS.

The private respondent Conrado Salonga filed a complaint for collection and damages
against petitioner Lucio Cruz* in the Regional Trial Court of Lucena City alleging that in the course of their business
transactions of buying and selling fish, the petitioner borrowed from him an
amount of P35,000.00, evidenced by a receipt dated May 4, 1982, marked as
Exhibit D, reading as follows:

5/4/82

Received the amount of Thirty Five Thousand Cash from Rodrigo Quiambao and Conrado Salonga on the day of May 4, 1982

Sgd.
Lucio Cruz

The plaintiff claimed that of this amount, only P20,000.00 had
been paid, leaving a balance of P15,000.00; that in August 1982, he and the
defendant agreed that the latter would grant him an exclusive right to purchase
the harvest of certain fishponds leased by Cruz in exchange for certain loan
accommodations; that pursuant thereto, Salonga
delivered to Cruz various loans totaling P15,250.00, evidenced by four receipts
and an additional P4,000.00, the receipt of which had been lost; and that Cruz
failed to comply with his part of the agreement by refusing to deliver the
alleged harvest of the fishpond and the amount of his indebtedness.

Cruz denied having contracted any loan from Salonga.  By way of special defense, he alleged that he
was a lessee of several hectares of a fishpond owned by Nemesio
Yabut and that sometime in May 1982, he entered into
an agreement with Salonga whereby the latter would
purchase (pakyaw) fish in certain areas of the
fishpond from May 1982 to August 15,
1982.  They also agreed that
immediately thereafter, Salonga would sublease (bubuwisan) the same fishpond for a period of one year.  Cruz admitted having received on May 4, 1982, the amount of P35,000.00
and on several occasions from August
15, 1982, to September 30,
1982, an aggregate amount of P15,250.00.  He contended however, that these amounts were
received by him not as loans but as consideration for their “pakyaw” agreement and payment for the sublease of the
fishpond.  He added that it was the
private respondent who owed him money since Salonga
still had unpaid rentals for the 10-month period that he had actually occupied
the fishpond.  Cruz also claimed that Salonga owed him an additional P4,000.00 arising from
another purchase of fish from other areas of his leased fishpond.

In a pre-trial conference held on August 24, 1984, petitioner and private respondent entered
into the following partial stipulation of facts.

COURT:

Plaintiff and defendant, through their respective counsel, during
the pre-trial conference, agreed on the
following stipulation of facts:

1) That plaintiff Conrado Salonga entered into a contract of what is commonly called
as “pakyawan” with defendant Lucio Cruz on the fishes contained in a fishpond which
defendant Lucio Cruz was taking care of as lessee
from the owner Mr. Nemesio Yabut,
with a verbal contract for the sum of P28,000.00 sometime in May 1982.

2) That because of the necessity, defendant Lucio
Cruz at that time needed money, he requested plaintiff Conrado
Salonga to advance the money of not only P28,000.00
but  P35,000.00 in order that Lucio Cruz could meet his obligation with the owner of the
fishpond in question, Mr. Nemesio Yabut;

3) That the amount of P35,000.00 as requested by defendant Lucio Cruz was in fact delivered by plaintiff Conrado Salonga duly received by
the defendant Lucio Cruz, as  evidenced by a receipt dated May 4, 1982,
duly signed by defendant Lucio Cruz.

4) That pursuant to said contract of “pakyaw,”
plaintiff Conrado Salonga
was able to harvest the fishes contained in the fishpond administered by Lucio Cruz in August 1982.

5) Immediately thereafter the aforesaid harvest thereon, they
entered again on a verbal agreement whereby plaintiff Conrado
Salonga and defendant Lucio
Cruz had agreed that defendant Lucio Cruz will
sublease and had in fact subleased the
fishpond of Nemesio Yabut
to the herein plaintiff for the amount of P28,000.00 for a period of one year
beginning August 15, 1982.

6) That sometime on June
15, 1983, Mayor Nemesio Yabut, who is the owner of the fishpond, took back the
subject matter of this case from the
defendant Lucio Cruz.

7) That defendant Lucio Cruz in
compliance with their verbal sublease agreement had received from the plaintiff
Conrado Salonga the
following sums of money:

a) P8,000.00 on August 15,
1982 as evidenced by Annex “B” of the Complaint (Exh. E);

b) the sum of P500.00 on September
4, 1982, as evidenced by Annex
“C” of the complaint (Exh. F);

c) The sum of P3,000.00 on September
19, 1982 as evidenced by Annex
“D” of the complaint (Exh. G); and

d) The sum of P3,750.00 on September
30, 1982 as Annex “E” of the complaint (Exh. H).

At the trial, the private respondent claimed that aside from the
amounts of P35,000.00 (Exh. D), P8,000.00 (Exh. E), P500.00 (Exh. F),
P3,000.00 (Exh. G) and P3,750.00 (Exh.
H) mentioned in the partial stipulation of facts, he also delivered to the
petitioner P28,000.00, which constituted the consideration for their “pakyaw” agreement. 
This was evidenced by a receipt dated May 14, 1982, marked as Exhibit I and reading as follows:

May 14, 1982

Tinatanggap ko ang halagang dalawampu’t
walong libong piso (P28,000.00) bilang halaga sa pakyaw
nila sa akin sa sangla sa
kahong bilang #8 maliit at sa kaputol
na sapa sa
gawing may bomba.  Ito ay tatagal hanggang Agosto, 1982.

SGD. LUCIO CRUZ

Salonga also claimed that he had paid
Cruz the amount of P4,000 but the receipt of which had been lost and denied
being indebted to the petitioner for P4,000 for the lease of other portions of
the fishpond.

For his part, the petitioner testified that he entered into a
“pakyaw” and sublease agreement with the
private respondent for a consideration of P28,000 for each transaction.  Out of the P35,000 he received from the
private respondent on May 4, 1982, P28,000 covered full payment of their “pakyaw” agreement while the remaining P7,000
constituted the advance payment for their sublease agreement.  The petitioner denied having received another
amount of P28,000 from Salonga on May 14, 1982.  He contended that the instrument dated May 14, 1982 (Exh.
I) was executed to evidence their “pakyaw”
agreement and to fix its duration.  He
was corroborated by Sonny Viray, who testified that
it was he who prepared the May 4, 1982,
receipt of P35,000.00, P28.000 of which was payment for the “pakyaw” and the excess of P7,000.00 as advance for the
sublease.

The trial court ruled in favor of the petitioner and ordered the
private respondent to pay the former the sum of P3,054.00 plus P1,000.00 as
litigation expenses and attorney’s fees, and the costs.  Judge Eriberto U.
Rosario, Jr. found that the transactions between the petitioner and the private
respondent were indeed “pakyaw” and
sublease agreements, each having a consideration of P28,000.00, for a
total  of P56,000.00.  Pursuant to these agreements, Salonga paid Cruz P35,000.00 on May 4, 1982 (Exh. D);
P8,000.00 on August 15, 1982
(Exh. E); P500.00 on September 4, 1982 (Exh. F);
P3,000 on September 19, 1982;
P3,750 on September 30, 1982
(Exh. H) and P4,000.00 on an unspecified date.  The trial court noted an earlier admission of
the private respondent that on an unspecified date he received the sum of
P6,000.00 from the petitioner.  This
amount was credited to the petitioner and deducted from the total amount paid
by the private respondent.  As the
one-year contract of sublease was pre?terminated two months short of the
stipulated period, the rentals were correspondingly reduced.

On appeal, the decision of the trial court was reversed.  The respondent court instead ordered the
petitioner to pay the private respondent the sum of P24,916.00 plus P1,500.00
as litigation expenses and attorney’s fees, on the following justification:

Exhibit “I” is very clear in its non-reference to the
transaction behind Exhibit “D.” What only gives the semblance that
Exhibit “I” is an explanation of the transaction behind Exhibit
“D” are the oral testimonies given by the defendant and his two witnesses. 
On the other hand, Exhibit “I” is very clear in its
language.  Thus, its tenor must not be
clouded by any parol evidence introduced by the
defendant.  And with the tenor of Exhibit
“I” remaining unembellished, the conclusion that Exhibit
“D” is a mere tentative receipt becomes untenable.

The trial court erred when it relied on the self-serving
testimonies of the defendant and his witness as against the receipts both
parties presented and adopted as their own exhibits.  As said before, Exhibit “I” is very
clear in its tenor.  And if it is really
the intention of Exhibit “I”
to explain the contents of Exhibits “D”, such manifestation or
intention is not found in the four corners of the former document.

The respondent court also found that the amounts of P35,000.00,
P8,000.00, P500.00, P3,000.00, P3,750.00 and P4,000.00 were not payments for
the “pakyaw” and sublease agreement but for
loans extended by Salonga to Cruz.  It also accepted Salonga’s
claim that the amount of P28,000.00 was delivered to the petitioner on May 14,
1982, as payment on the “pakyaw” agreement
apart from the F35,000.00 (Exh. D) that was paid on May 4, 1982.  However, it agreed that the amount of
P6,000.00 received by the private respondent from the petitioner should be
credited in favor of the latter.

The petitioner is now before this Court, raising the following
issues:

1.  The public respondent
Court of Appeals gravely erred in (1) disregarding parol
evidence to Exhibits “D” and “I” despite the fact that
these documents fall under the exceptions provided for in Sec. 7, Rule 130 of
the Rules of Court and thereby in (2) making a sweeping conclusion that the transaction effected between the private
respondent and petitioner is one of contract of loan and not a contract of
lease.

2.  Assuming for the sake of
argument that exhibits “D” and “I” evidence separate transactions,
the latter document should be disregarded, the same not having been pleaded as
a cause of action.

3.  Whether or not the
Stipulation of Facts entered into by the parties herein relative to their
executed transactions during the hearing of their case a quo, are binding upon
them and as well as, upon the public respondent?

Our ruling follows.

Rule 130, Sec. 7, of the Revised Rules of Court provides:^[1]

Sec. 7 Evidence of Written Agreements. – When the terms of
an agreement have been reduced to writing, it is to be considered as containing
all such terms, and therefore, there can
be, between the parties and their successors in interest, no evidence of the
terms of the agreement other than the contents of the writing, except in the
following cases:

a) When a mistake or imperfection of the writing or its failure to
express the true intent and agreement of the parties, or the validity of the agreement is put in issue by the pleadings;

b) When there is an
intrinsic ambiguity in the writing.

The term “agreement” includes wills.

The reason for the rule is the presumption that when the parties
have reduced their agreement to writing, they have made such writing the only
repository and memorial of the truth, and whatever is not found in the writing
must be understood to have been waived or abandoned.^[2]

The rule, however, is not applicable in the case at bar.  Section 7, Rule 130 is predicated on the
existence of a document embodying the terms of an agreement, but Exhibit D does
not contain such an agreement.  It is
only a receipt attesting to the fact that on May 4, 1982, the petitioner received from the private
respondent the amount of P35,000.  It is
not and could have not been intended by the parties to be the sole memorial of
their agreement.  As a matter of fact,
Exhibit D does not even mention the transaction that gave rise to its
issuance.  At most, Exhibit D can only be
considered a casual memorandum of a transaction between the parties and an
acknowledgment of the receipt of money executed by the petitioner for the
private respondent’s satisfaction.  A
writing of this nature, as Wigmore observed is not
covered by the parol evidence rule.

A receipt – i.e. a written acknowledg­ment, handed by one party to
the other, of the manual custody of money or other personality – will in
general fall without the line of the rule; i.e. it is not intended to be an
exclusive memorial, and the facts may be shown irrespective of the terms of the
receipt.  This is because usually a
receipt is merely a written admission of a transaction independently existing,
and, like other admissions, is not conclusive.^[3]

The “pakyaw” was mentioned
only in Exhibit I, which also declared the petitioner’s receipt of the amount
of P28,000.00 as consideration for the agreement.  The petitioner and his witnesses testified to
show when and under what circumstances the amount of P28,000.00 was
received.  Their testimonies do not in
any way vary or contradict the terms of Exhibit I.  While Exhibit I is dated May 14, 1982, it does not make any categorical
declaration that the amount of P28,000.00 stated therein  was received by the petitioner on that same
date.  That date may not therefore be
considered conclusive as to when the amount of P28,000.00 was actually
received.

A deed is not conclusive evidence of everything it may
contain.  For instance, it is not the only
evidence of the date of its execution, nor its omission of a consideration conclusive evidence that none passed, nor is
its acknowledgment of a particular consideration an objection to other proof of
other and consistent considerations; and, by analogy, the acknowledgement in a
deed is not conclusive of the fact.^[4]

A distinction should be made between a statement of fact
expressed in the instrument and the terms of the contractual act.  The former may be varied by parol evidence but not the latter.^[5]
Section 7 of Rule 130 clearly refers to the terms of an agreement and provides
that “there can be, between the parties and their successors in interest,
no evidence of the terms of the agreement other than the contents of the
writing.”

The statement in Exhibit I of the petitioner’s receipt of the
P28,000.00 is just a statement of fact. 
It is a mere acknowledgment of the distinct act of payment made by the
private respondent.  Its reference to the
amount of P28,000.00 as consideration of the “pakyaw”
contract does not make it part of the terms of their agreement.  Parol evidence may
therefore be introduced to explain Exhibit I, particularly with respect to the
petitioner’s receipt of the amount of P28,000.00 and of the date when the said
amount was received.

Even if it were assumed that Exhibits D and I are covered by the parol evidence rule, its application by the Court of
Appeals was improper.  The record shows
that no objection was made by the private respondent when the petitioner
introduced evidence to explain the circumstances behind the execution and
issuance of the said instruments.  The
rule is that objections to evidence must be made as soon as the grounds therefor become reasonably apparent.^[6]
In the case of testimonial evidence, the objection must be made when the
objectionable question is asked or after the answer is given if the
objectionable features become apparent only by reason of such answer.^[7]

For failure of the private respondent to object to the evidence
introduced by the petitioner, he is deemed to have waived the benefit of the parol evidence rule. 
Thus, in Abrenica v. Gonda,^[8]
this Court held:

x x x it has
been repeatedly laid down as a rule of evidence that a protest or objection
against the admission of any evidence must be made at the proper time, and that
if not so made it will be understood to have been  waived.  The proper time to make a protest or
objection is when, from the question addressed to the witness, or from the
answer thereto, or from the presentation of proof, the inadmissibility of
evidence is, or may be inferred.

It is also settled that the court cannot disregard evidence which
would ordinarily be incompetent under the rules but has been rendered
admissible by the failure of a party to object thereto.  Thus:

x x x The
acceptance of an incompetent witness to testify in a civil suit, as well as the
allowance of improper questions that may be put to him while on the stand is a
matter resting in the discretion of the litigant.  He may assert his right by timely objection
or he may waive it, expressly or by silence. 
In any case the option rests with him. 
Once admitted, the testimony is in the case for what it is worth and
the judge has no power to disregard it for the sole reason that it could have
been excluded, if it had been objected to, nor to strike it out on its own
motion.  (Emphasis supplied.)^[9]

We find that it was error for the Court of Appeals to disregard
the parol evidence introduced by the petitioner and
to conclude that the amount of P35,000.00 received on May 4, 1982 by the petitioner was in the nature of
a loan accommodation.  The Court of
Appeals should have considered the partial stipulation of facts and the
testimonies of the witnesses which sought to explain the circumstances
surrounding the execution of Exhibits D and I and their relation to one
another.

We are satisfied that the amount of P35,000.00 was received by
the petitioner as full payment of their “pakyaw”
agreement for P28,000.00 and the remaining P7,000.00 as advance rentals for
their sublease agreement.  The claim that
the excess of P7,000.00 was advance payment of the sublease agreement is
bolstered by the testimony of the private respondent himself when during the
cross examination he testified that:

ATTY. CRUZ:

Q:   And
during the time you were leasing the fishpond, is it not a fact that you pay lease rental to the defendant?

SALONGA:

A:    No
sir, because I have already advanced him money.

Q:   What
advance money are you referring to?

A:    Thirty-Five
Thousand Pesos (P35,000.00), sir.^[10]

It was also error to treat the amounts received by the petitioner
from August 15, 1982, to September 30, 1982, from the private
respondent as loan accommodations when the partial stipulation of facts clearly
stated that these were payments for the sublease agreement.  The pertinent portions read:

7).  That defendant Lucio Cruz in compliance with their verbal sublease
agreement had received from the plaintiff Conrado Salonga the following sums of money:  (Emphasis Supplied.)

(a) P8,000.00 on August
15, 1982, as evidenced by Annex “B” the complaint;

(b) the sum of P500.00 on September
4, 1982, as evidenced by Annex
“C” of the complaint;

(c) the sum of P3,000.00 on September
19, 1982, as evidenced by Annex “D” of the complaint;

(d) the sum of P3,750.00 on September
30,1982, as Annex “E” of the complaint;^[11]

These admissions bind not only the parties but also the court,
unless modified upon request before the trial to prevent manifest injustice.

We find, however, that the Court of Appeals did not act in excess
of its jurisdiction when it appreciated Exhibit I despite the fact that it was
not pleaded as a cause of action and was objected to by the petitioner.  According to Rule 10 of the Rules of Court:

Sec. 5.  Amendment to
conform to or authorize presentation of evidence.  – When issues not raised by the pleadings are
tried by express or implied consent of the parties, they shall be treated in
all respects, as if they had been raised in the pleadings.  Such amendment of the pleadings as may be
necessary to cause them to conform to the evidence and to raise these issues
may be made upon motion of any party at any time, even after judgment; but
failure to amend does not affect the result of the trial of these issues.  If evidence is objected to at the trial on
the ground that it is not within the issues made by the pleadings, the court
may allow the pleadings to be amended and shall do so freely when the
presentation of the merits of the action will be subserved
thereby and the objecting party fails to satisfy the court that the admission
of such evidence would prejudice him in maintaining his action or defense upon
the merits.  The court may grant a
continuance to enable the objecting party to meet such evidence.

In Co Tiamco v. Diaz,^[12]
the Supreme Court held:

x x x When
evidence is offered on a matter not alleged in the pleadings, the court may
admit it even against the objection of the adverse party, when the latter fails
to satisfy the court that the admission of the evidence would prejudice him in
maintaining his defense upon the
merits, and the court may grant him continuance to enable him to meet the
situation created by the evidence.  x x x

While it is true that the private respondent did not even file a
motion to amend his complaint in order that it could conform to the evidence
presented, this did not prevent the court from rendering a valid judgment on
the issues proved.  As we held in the Co Tiamco case:

x x x where the
failure to order an amendment does not appear to have caused a surprise or
prejudice to the objecting party, it may be allowed as a harmless error.  Well-known is the rule that departures from
procedure may be forgiven when they do not appear to have impaired the
substantial rights of the parties.

The following computation indicates the accountability of the
private respondent to the petitioner:

Exh.
D, May 4, 1982        –          P35,000.00

Exh.
E, Aug. 15, 1982      –               8,000.00

Exh.
F, Sept. 4, 1982       –                  500.00

Exh.
G, Sept. 19, 1982    –               3,000.00

Exh.
H, Sept. 30, 1982    –               3,750.00

Lost receipt          –                          4,000.00

—————-

P54,250.00

Less:  (amount received by

the private respondent

from the petitioner)                    (6,000.00)

—————–

Total amount paid by

the private respondent

to the petitioner                       P48,250.00

Amount to be paid by the private respondent to the petitioner:

1. Pakyaw                                    P28,000.00

2. Sublease -28,000
per annum

Less:  2 months: 
4,666                 23,334.00

—————–

Total amount to be
paid by the

private respondent to
the

petitioner                                   P51,334.00

Total
amount to be paid by the       P51,334.00

private respondent

Total amount paid by
the

private respondent                      48,250.00

—————-

Deficiency in the
amount

paid by the private
respondent P   3,084.00

ACCORDINGLY, the decision of the respondent Court of
Appeals is REVERSED and that of the Regional Trial Court of Laguna AFFIRMED,
with the modification that the private respondent shall pay the petitioner the
sum of P3,084.00 instead of P3,054.00, plus costs.  It is so ordered.

Narvasa, (Chairman), Gancayco, Griño-Aquino, and Medialdea, JJ., concur.

---

*
The ponente is not related to the petitioner
or his counsel.

^[1]
Now Sec. 9, Rule 130, Revised Rules on Evidence, Effective July 1, 1989.

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 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 interest
after the execution of the written agreement.

The term
“agreement” includes wills. 
(7a)

^[2] Van Sychkel v.
Dalrymple, 32 N.J. Eq., 233
cited in Vol. 5, F. Moran, Comments on the Rules of Court 104 (1970 ed.)

^[3]
IX J. Wigmore, Wigmore on
Evidence, Sec. 2432 (1940).

^[4] Baum v. Lynn, 72 Miss. 932, 18 So. 428, cited in IX Wigmore Sec. 2433.

^[5] Ibid.

^[6] Section
36, Rule 132, Revised Rules of Court. 
Now Sec. 36 Rule 132, as amended provides:

Sec. 36.  Objection. – Objection to evidence offered
orally must be made immediately after the offer is made.

Objection to a
question propounded in the course of the oral examination of a witness shall be
made as soon as the grounds therefor shall become
reasonably apparent.

An offer of
evidence in writing shall be objected to within three (3) days after notice of
the offer unless a different period is
allowed by the court.

In any case,
the grounds for the objections must be specified.

^[7]
II F. Regalado, Remedial Law Compendium, 435 (5th
ed., 1988).

^[8] 34 Phil. 739.

^[9] Marella v. Reyes, 12 Phil. 1.

^[10]
TSN, September 28, 1984,
pp. 26-27.

^[11] TSN, August 24, 1984, pp. 14-15.

^[12]
75 Phil. 672.