In Norton Resources and Development Corporation v. All Asia Bank Corporation, the Supreme Court reiterated the importance of adhering to the literal terms of a contract when its stipulations are clear and leave no doubt as to the parties’ intentions. The Court emphasized that the written agreement is the primary evidence of the parties’ obligations, reinforcing the application of the parol evidence rule. This means that when parties put their agreement in writing, that writing contains all the terms, and no other evidence can be used to vary it. The ruling highlights the necessity for parties to ensure that written contracts accurately reflect their intentions, as courts will generally not allow extrinsic evidence to contradict unambiguous terms. Ultimately, this decision underscores the judiciary’s respect for the freedom of contract and the enforcement of agreements as written.

Commitment Fees and Unbuilt Units: Can Oral Agreements Override Written Contracts?

Norton Resources and Development Corporation (Norton) secured a loan from All Asia Bank Corporation (AAB) for a housing project. A Memorandum of Agreement (MOA) stipulated a commitment fee of P320,000.00, deducted from the loan proceeds. Norton, however, only constructed a fraction of the planned units and sought a refund of a portion of the commitment fee, claiming an oral agreement tied the fee to the number of units built. The central legal question before the Supreme Court was whether the unambiguous terms of the written MOA should prevail over Norton’s claim of an oral agreement that modified the commitment fee structure.

The Supreme Court, in resolving this issue, relied on the principle of contract interpretation, specifically Article 1370 of the Civil Code, which states that “[i]f the terms of a contract are clear and leave no doubt upon the intention of the contracting parties, the literal meaning of its stipulations shall control.” This echoes the “plain meaning rule,” prioritizing the express language of the agreement. The Court also invoked the “four corners” rule, emphasizing that the intent of the parties should be objectively manifested in the written contract. Therefore, the initial inquiry is whether the contract is ambiguous. A contract is ambiguous if it is susceptible to two reasonable interpretations. However, if the contract is not ambiguous, the court must interpret it as a matter of law.

Building on this principle, the Court considered Section 9, Rule 130 of the Rules of Court, codifying the parol evidence rule. This rule generally prohibits the introduction of extrinsic evidence to vary the terms of a written agreement. Specifically, Section 9 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.

The rule, however, admits exceptions where a party puts in issue in their 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 Court emphasized that none of these exceptions applied to Norton’s case, particularly the claim that the MOA failed to reflect the parties’ true intentions regarding the commitment fee.

The MOA clearly stated that Norton “offers and agrees to pay a commitment and service fee of THREE HUNDRED TWENTY THOUSAND PESOS (P320,000.00),” without any mention of a per-unit basis. The Court found the CA’s observation compelling: the subdivision survey plan offered by Norton to support its per-unit claim was dated after the MOA’s execution, making it impossible for the bank to have relied on it during negotiations. The Supreme Court sided with the Court of Appeals and stated:

Paragraph 4 of Exhibit “B” is clear and explicit in its terms, leaving no room for different interpretation. Considering the absence of any credible and competent evidence of the alleged true and real intention of the parties, the terms of Paragraph 4 of Exhibit “B” remains as it was written. Therefore, the payment of P320,000.00 commitment/service fee mentioned in Exhibit “B” must be paid in lump sum and not on a per unit basis. Consequently, we rule that [petitioner] is not entitled to the return of P250,000.00.

The Court reiterated that a contract is the law between the parties, and courts must enforce it unless it contravenes law, morals, good customs, or public policy. Courts cannot rewrite agreements or stipulate for the parties; their role is to give effect to the parties’ intentions as expressed in the contract. This principle safeguards the freedom of contract and prevents judicial interference in private agreements.

Moreover, the Court addressed Norton’s belated claim that the MOA was a contract of adhesion. Because the claim was not presented before the lower courts, the Court did not entertain this argument. The Court also reiterated that points of law, theories, issues, and arguments not adequately brought to the attention of the trial court need not be, and ordinarily will not be, considered by a reviewing court. It is offensive to the basic rules of fair play, justice and due process.

The Court clarified that while contracts of adhesion—where one party imposes a ready-made contract on the other—are not inherently invalid, the adhering party must still give consent. As the Court found no grounds to overturn the CA’s decision, it denied Norton’s petition and affirmed the ruling.

FAQs

What was the central issue in this case?	The central issue was whether Norton was entitled to recover a portion of the commitment fee paid to All Asia Bank, based on an alleged oral agreement that contradicted the written terms of their MOA.
What is a commitment fee in a loan agreement?	A commitment fee is a fee paid to a lender to compensate them for reserving funds for a borrower. It is often non-refundable, regardless of whether the borrower fully utilizes the reserved funds.
What is the parol evidence rule?	The parol evidence rule prevents parties from introducing evidence of prior or contemporaneous agreements to contradict, vary, or add to the terms of a written contract that is intended to be the final expression of their agreement.
What are the exceptions to the parol evidence rule?	Exceptions include cases where there is an ambiguity in the written contract, a mistake, a failure to express the parties’ true intent, or evidence of subsequent modifications to the agreement.
What is a contract of adhesion?	A contract of adhesion is a contract where one party drafts the terms and the other party simply adheres to them without any real negotiation. While not inherently invalid, they are scrutinized for fairness.
Why didn’t the Court consider Norton’s claim of a contract of adhesion?	The Court did not consider the claim because Norton raised it for the first time on appeal, not having presented it before the lower courts.
What did the Court say about interpreting contracts?	The Court stated that if the terms of a contract are clear and unambiguous, the literal meaning of its stipulations shall control, reflecting the parties’ intentions as objectively manifested in the written agreement.
What is the significance of a written agreement?	A written agreement serves as the primary evidence of the parties’ rights, duties, and obligations, and is considered to contain all the terms agreed upon by the parties.
Can courts modify contracts?	No, courts cannot stipulate for the parties or amend their agreement; their role is to give force and effect to the intention of the parties as expressed in the contract.

This case serves as a reminder of the importance of clearly defining all terms and conditions in written contracts, especially in loan agreements. Parties must ensure that the written document accurately reflects their mutual understanding, as courts will generally uphold the express terms of the agreement.

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: Norton Resources and Development Corporation v. All Asia Bank Corporation, G.R. No. 162523, November 25, 2009