Filipinas Manufacturers Bank v. Eastern Rizal Fabricators
REITERATIONFacts
The Antecedents: Filipinas Manufacturers Bank (FMB), after a merger, filed a complaint against Eastern Rizal Fabricators (ERF) for a P370,000.00 money market loan evidenced by a promissory note dated July 30, 1976, with a maturity date of August 30, 1976. The note stipulated 14% interest per annum, a 2% handling fee, and 10% attorney's fees for non-payment. ERF admitted the indebtedness but claimed the action was premature, alleging an agreement with FMB to forbear collection until ERF received payment from its supplier, Jose Lecaros Abel, expected within 180 banking days from December 2, 1978. Procedural History: FMB filed a motion for judgment on the pleadings, arguing that ERF's answer admitted material allegations and failed to tender an issue. FMB contended that the alleged agreement to postpone collection was untenable and contrary to the parol evidence rule. The trial court granted the motion, ordering ERF to pay the full amount plus interest, damages, and attorney's fees. The Petition: ERF appealed to the Court of Appeals, which certified the case to the Supreme Court due to a pure question of law. ERF argued that the trial court erred in rendering judgment on the pleadings because the existence of the forbearance agreement was a material issue requiring a hearing. FMB maintained that no such agreement existed and, even if it did, it was not a valid defense.
Issue(s)
Whether the trial court erred in rendering a judgment on the pleadings despite ERF's affirmative defense of forbearance. Whether evidence of a subsequent oral agreement to modify the terms of a written promissory note is admissible under the parol evidence rule.
Ruling
The Supreme Court set aside the judgment on the pleadings. It ordered Eastern Rizal Fabricators to pay Filipinas Manufacturers Bank the sum of P230,000.00 plus 14% interest per annum computed from July 30, 1976, 2% handling damages, and 10% attorney's fees.
Ratio Decidendi
On the issue of whether the trial court erred in rendering a judgment on the pleadings: The Supreme Court held that the trial court erred in rendering a judgment on the pleadings. The defense of forbearance interposed by Eastern Rizal Fabricators raised a material issue that could not be disregarded without a presentation of evidence. The Court emphasized that a judgment on the pleadings is proper only when the answer admits the material allegations of the complaint or fails to tender an issue. In this case, ERF's answer, while admitting the indebtedness, presented an affirmative defense that required factual determination. On the issue of whether evidence of a subsequent oral agreement to modify the terms of a written promissory note is admissible under the parol evidence rule: The Supreme Court ruled that the parol evidence rule, which prohibits the admission of oral evidence to vary or contradict a written contract, does not apply to subsequent modifications of such contracts. The Court cited Wigmore and other cases to explain that parties have the right to change or abrogate their original understanding through subsequent agreements, which may be made orally. Such subsequent agreements do not violate the parol evidence rule because they do not deny the original agreement but merely prove a change or a new, independent one. Therefore, evidence of the alleged forbearance agreement was admissible to prove a subsequent modification of the promissory note.
Main Doctrine
A subsequent modification of a written contract may be made orally, and evidence thereof does not violate the parol evidence rule, as the rule only prohibits the admission of oral evidence to vary or contradict the original written contract, not to prove a subsequent agreement.