In Seaoil Petroleum Corporation v. Autocorp Group and Paul Y. Rodriguez, the Supreme Court affirmed the principle that written agreements, such as sales invoices, take precedence over verbal agreements unless there is clear evidence of fraud or mistake. This case underscores the importance of reducing agreements to writing to avoid disputes based on differing recollections or interpretations. The ruling clarifies the application of the parol evidence rule, ensuring that the terms of a written contract are upheld, providing stability and predictability in commercial transactions.

Excavating the Truth: Can Verbal Promises Override a Signed Sales Invoice?

Seaoil Petroleum Corporation purchased an excavator from Autocorp Group, with the sale documented in a Vehicle Sales Invoice. When Seaoil defaulted on payments, Autocorp sued to recover the property. Seaoil argued that the written agreement did not reflect the true nature of the transaction, claiming it was actually a conduit to settle a debt between two foreign entities. The core legal question was whether the court should uphold the terms of the written sales invoice or consider parol (verbal) evidence that contradicted it. This case highlights the tension between the certainty of written contracts and the potential for unwritten agreements to alter their meaning.

The Regional Trial Court (RTC) ruled in favor of Autocorp, finding that the transaction was a straightforward sale payable in installments. The Court of Appeals (CA) affirmed this decision, emphasizing the importance of the parol evidence rule. The CA stated that the verbal agreement between Yu (of Seaoil) and Rodriguez (of Autocorp) could not alter the sales contract because it would violate the parol evidence rule. The parol evidence rule is a principle in contract law that prevents parties from introducing evidence of prior or contemporaneous agreements to vary, contradict, or add to the terms of a fully integrated written contract.

The Supreme Court upheld the CA’s decision, reinforcing the significance of the parol evidence rule as enshrined in Rule 130, Section 9 of the Revised Rules on Evidence. This rule states:

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-in-interest after the execution of the written agreement.

The Supreme Court emphasized that the Vehicle Sales Invoice was the best evidence of the transaction between Seaoil and Autocorp. A sales invoice is recognized as a commercial document, which is used by businesses to facilitate trade or credit transactions. The court underscored that such documents are not mere scraps of paper but vital pieces of evidence representing the details of contractual agreements. Once a party affixes their signature to a document, they are bound by its terms and the legal obligations arising from any breach.

Seaoil argued that the case fell under the exceptions to the parol evidence rule, specifically that the written agreement failed to express the true intent of the parties. However, the Court found this argument untenable, stating that while parol evidence is admissible to explain a contract, it cannot introduce additional conditions not mentioned in the writing unless there is evidence of fraud or mistake. The Court reasoned that Seaoil’s unsubstantiated testimony, which depended solely on human memory, was not reliable compared to the written sales invoice. As the Supreme Court noted in Spouses Sabio v. The International Corporate Bank, Inc.,

Unsubstantiated testimony, offered as proof of verbal agreements which tends to vary the terms of a written agreement, is inadmissible under the parol evidence rule.

Furthermore, the Court addressed the issue of piercing the corporate veil. Seaoil argued that Autocorp’s separate corporate personality should be disregarded, and Paul Rodriguez, as a stockholder and director, should be held liable. The Court rejected this argument, reiterating that a corporation has a distinct legal personality separate from its stockholders. The Court acknowledged exceptions to this rule, such as when the corporate vehicle is used to defeat public convenience, justify wrong, protect fraud, or defend crime. However, the Court emphasized that such wrongdoing must be clearly and convincingly established, which Seaoil failed to do.

The Lease Purchase Agreement presented by Seaoil involved different parties and a separate transaction from the Vehicle Sales Invoice. The Lease Purchase Agreement showed that Uniline, not Rodriguez or Autocorp, incurred the debt to Focus Point. The Court found no evidence that Autocorp was merely an alter ego of Uniline or that their separate personalities were being used to perpetrate fraud or wrongdoing.

Regarding the third-party complaint against Rodriguez, the Court held that the trial court’s dismissal operated as res judicata, preventing Seaoil from enforcing its claim against Rodriguez in a separate action. The Court noted that Rodriguez was not a party to the sale of the excavator, and Seaoil’s liability to Autocorp had been successfully established. In sum, the dismissal of the third-party complaint was correct because Rodriguez’s potential liability did not arise directly from Autocorp’s claim against Seaoil. The third-party complaint allows a defendant to bring in another party who may be liable for the defendant’s liability to the plaintiff.

FAQs

What is the parol evidence rule?	The parol evidence rule prevents parties from introducing evidence of prior or contemporaneous agreements to contradict or vary the terms of a written contract. It generally favors the written terms of the agreement as the most reliable evidence of the parties’ intentions.
What was the main evidence presented in this case?	The main evidence was the Vehicle Sales Invoice, a commercial document detailing the sale of the excavator from Autocorp to Seaoil. This document was critical in establishing the terms of the agreement.
What did Seaoil argue in its defense?	Seaoil argued that the Vehicle Sales Invoice did not reflect the true agreement, claiming it was a conduit to settle a debt between two foreign entities. They also argued for piercing the corporate veil to hold Rodriguez personally liable.
Why did the Court reject Seaoil’s arguments?	The Court rejected Seaoil’s arguments because they were based on unsubstantiated testimony and failed to provide clear and convincing evidence to overcome the parol evidence rule or justify piercing the corporate veil.
What does it mean to “pierce the corporate veil”?	Piercing the corporate veil is a legal concept where a court disregards the separate legal personality of a corporation to hold its shareholders or directors personally liable for the corporation’s actions or debts. This is typically done when the corporation is used to commit fraud or injustice.
What is the significance of a sales invoice in commercial transactions?	A sales invoice serves as a written memorial of a commercial transaction, detailing the goods or services sold, the price, and the parties involved. It is considered a vital piece of evidence in proving the terms of the agreement.
What is res judicata, and how did it apply in this case?	Res judicata is a legal doctrine that prevents a party from relitigating an issue that has already been decided by a court. In this case, it prevented Seaoil from pursuing a separate claim against Rodriguez because the issue had already been decided in the initial trial.
Are there exceptions to the parol evidence rule?	Yes, the parol evidence rule has exceptions. Evidence can be presented to modify, explain, or add to the terms of a written agreement if there is ambiguity, mistake, failure to express true intent, or evidence of subsequent modifications.

The Supreme Court’s decision in Seaoil Petroleum Corporation v. Autocorp Group reaffirms the importance of written contracts and the parol evidence rule in ensuring certainty and stability in commercial transactions. The ruling serves as a reminder that parties should carefully document their agreements in writing to avoid future disputes based on conflicting verbal understandings.

For inquiries regarding the application of this ruling to specific circumstances, please contact ASG Law through contact or via email at frontdesk@asglawpartners.com.

Disclaimer: This analysis is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please consult with a qualified attorney.
Source: SEAOIL PETROLEUM CORPORATION VS. AUTOCORP GROUP AND PAUL Y. RODRIGUEZ, G.R. No. 164326, October 17, 2008