Laureano v. Kilayco
REITERATIONFacts
The Antecedents: The plaintiff, Jesusa Laureano, executed a conveyance of certain lands and 186 shares of stock in El Hogar Filipino to the defendant, Eugenio Kilayco, for a stated consideration of P49,550. The plaintiff alleged that no part of this consideration was paid or intended to be paid. Instead, the defendant allegedly agreed to hold and administer the property, make payments from its rents and profits to El Hogar Filipino for the plaintiff's debt, and reconvey the property upon demand. Procedural History: During the trial, the plaintiff attempted to present evidence to prove the alleged contemporaneous oral agreement for reconveyance and the lack of consideration for the written conveyance. However, the trial court sustained objections to this evidence on the ground that it was incompetent and tended to vary or modify the terms of the written agreement. Consequently, all evidence supporting the plaintiff's cause of action was excluded, leading the court to dismiss the complaint on the merits. The Appeal: The plaintiff appealed the judgment, presenting the sole issue of whether she had the right to prove the parol agreement for reconveyance. The appellant argued that the conveyance was made without consideration, with the understanding that the defendant would administer the property, use its income to pay her debt to El Hogar Filipino, and reconvey it upon demand. The core question was whether parol evidence was admissible to prove such an arrangement despite the written conveyance being absolute on its face.
Issue(s)
Whether parol evidence is admissible to prove a contemporaneous collateral oral agreement that a deed absolute in form was intended as a mortgage or to secure a debt, and that the property should be reconveyed upon demand, despite the written instrument being absolute on its face and containing no conditions. Whether the exclusion of evidence tending to show a lack of consideration and a collateral agreement for reconveyance was proper.
Ruling
The Supreme Court ruled that parol evidence should have been admitted to show the contemporaneous oral agreement between the parties. The judgment of the lower court was reversed, and the case was remanded for further proceedings.
Ratio Decidendi
On Issue 1: The Court held that parol evidence is admissible to prove a contemporaneous collateral agreement that a conveyance absolute in form was intended as a mortgage or as security for a debt, and that the property should be reconveyed upon demand. This principle is well-established in law, and the admission of such evidence does not violate the parol evidence rule, which pertains to varying the terms of the written instrument itself. Instead, this evidence aims to show a separate agreement by which the conveyance could be defeated. The Court cited numerous authorities, including Reeves vs. Abercrombie and Russell vs. Southard, to support the admissibility of parol evidence in such circumstances. The Court emphasized that equity looks beyond the written terms to the real transaction and the parties' intent, especially to prevent fraud and injustice. On Issue 2: The Court found that the exclusion of evidence tending to show a lack of consideration and a collateral agreement for reconveyance was improper. The Court reasoned that the evidence was not offered to invalidate the deed as a conveyance but to reinforce the claim of a contemporaneous agreement to reconvey. The absence of consideration, if proven, would lend further credence to the appellant's contention that the transaction was not an outright sale but a conditional arrangement. The Court stated that the true consideration of a deed may be proved by parol evidence, and a deed absolute on its face can be shown to have been executed as security for money, thus being treated as a mortgage. The right to establish the defeasible character of an absolute written conveyance by parol evidence is too well-fixed to be questioned.
Main Doctrine
The Supreme Court held that parol evidence is admissible to prove a contemporaneous collateral agreement that a conveyance, absolute on its face, was intended as a mortgage or as security for a debt, and that the property should be reconveyed upon demand. This is permissible even if the written instrument contains no conditions, as equity looks beyond the terms of the instrument to the real transaction intended by the parties, particularly when fraud or lack of consideration is alleged. The Court clarified that such evidence is not offered to vary the terms of the written instrument but to show a separate, collateral agreement by which the conveyance could be defeated.