The Parol Evidence Rule: Why What’s Written Matters Most in Philippine Contracts

TLDR: This Supreme Court case reinforces the parol evidence rule in the Philippines. Verbal agreements or understandings that contradict a clear, written contract will generally not be considered by courts. Businesses and individuals must ensure their written contracts accurately reflect their true intentions, as these documents will be the primary basis for resolving disputes.

G.R. No. 127367, May 03, 1999

INTRODUCTION

Imagine agreeing to a business deal based on a handshake and some informal conversations, only to find later that the written contract says something completely different. This scenario highlights the critical importance of written agreements in the Philippines, a principle underscored in the Supreme Court case of Gold Loop Properties, Inc. v. Philippine International Trading Corporation. This case serves as a stark reminder that when disputes arise, Philippine courts will primarily rely on the clear terms of a written contract, rather than on potentially conflicting verbal understandings or prior agreements. The case revolves around a property developer, Gold Loop Properties (GLP), and a government trading corporation, Philippine International Trading Corporation (PITC), and a disagreement over whether their deal was a simple property-for-cement swap or a sale on credit. The central legal question was: When a written contract exists, can a party introduce evidence outside of that contract to prove a different agreement?

LEGAL CONTEXT: THE PAROL EVIDENCE RULE IN THE PHILIPPINES

The Philippines, like many jurisdictions, adheres to the parol evidence rule. This rule, deeply embedded in contract law, dictates when and to what extent external evidence can be used to interpret or modify a written agreement. It is enshrined in Rule 130, Section 9 of the Rules of Court of the Philippines, which states:

“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 itself, except in the following cases:

(a) When there is an intrinsic ambiguity, mistake or imperfection in the written agreement;
(b) When the failure of the written agreement to express the true intent and agreement of the parties, or
(c) When the validity of the written agreement is put in issue.
(d) When there is subsequent agreement between the parties.”

In simpler terms, the parol evidence rule presumes that when parties put their agreement in writing, that written document is the complete and final expression of their agreement. The purpose of this rule is to bring stability and predictability to contractual relations. Without it, contracts could be easily undermined by conflicting oral testimonies and subjective recollections, leading to uncertainty and protracted litigation. The exceptions to the rule, such as ambiguity or mistake in the contract, are narrowly construed and require clear and convincing proof. The rule essentially prioritizes the objective, written terms of the contract over potentially unreliable and self-serving accounts of what parties *thought* or *believed* the agreement to be.

CASE BREAKDOWN: GOLD LOOP PROPERTIES, INC. VS. PHILIPPINE INTERNATIONAL TRADING CORPORATION

The story begins with an initial agreement between Gold Loop Properties, Inc. (GLP) and Philippine International Trading Corporation (PITC) in February 1991. GLP, seeking to dispose of condominium units, entered into a Deed of Exchange with PITC, trading ten condo units for a large quantity of cement. This initial transaction, a clear swap, was successfully executed.

Later, GLP offered another condominium unit for what was described as