In a dispute between Rizal Commercial Banking Corporation (RCBC) and Marcopper Mining Corporation, the Supreme Court definitively ruled that parties are bound by the explicit terms of their written agreements, particularly in loan restructuring scenarios. The Court reversed the lower courts’ decisions, ordering Marcopper to fulfill its financial obligations to RCBC based on the non-negotiable promissory notes it had signed. This ruling underscores the crucial importance of documenting all material terms and conditions in written contracts, ensuring that unwritten understandings cannot override clearly established contractual duties.

When Verbal Agreements Clash with Written Contracts: Who Wins?

The legal battle between RCBC and Marcopper stemmed from a loan Marcopper obtained to finance its acquisition of equipment. Over time, Marcopper faced financial difficulties, leading to a proposed loan restructuring. Marcopper suggested assigning its Forbes Park property to RCBC as partial payment, with a repayment scheme for the remaining balance. While RCBC accepted the property assignment, a dispute arose concerning Marcopper’s claim that RCBC had verbally agreed to release certain mortgaged assets (mining trucks and equipment) as a condition for the property transfer. The heart of the legal issue was whether this alleged verbal agreement was binding on RCBC, even though it wasn’t explicitly written into their formal arrangements.

The Regional Trial Court (RTC) initially sided with Marcopper, finding that RCBC had indeed agreed to the release. The Court of Appeals (CA) affirmed the RTC’s decision with modifications. RCBC then elevated the case to the Supreme Court, arguing that there was no written evidence of the purported agreement, and therefore, it should not be bound by it. The Supreme Court, after carefully reviewing the documented exchanges between RCBC and Marcopper, agreed with RCBC. The Court emphasized that contracts are the law between the parties and that, in the absence of a clear written agreement mandating the release of the mortgaged assets, Marcopper’s claim could not stand.

The Supreme Court highlighted the importance of the Parol Evidence Rule, which generally prohibits the introduction of extrinsic evidence (such as oral agreements) to vary, contradict, or add to the terms of a written agreement that is clear and unambiguous. The Court noted that while Marcopper’s witnesses testified about a verbal agreement, the written communications between the parties did not support this claim. This lack of written confirmation proved crucial in the Court’s assessment. As the Court reviewed the letters exchanged, the judges saw no evidence that release of collateral was formally tied to assignment of the Forbes Park property. This demonstrated that without a clear connection established in the writings, parol evidence was inadmissable to alter what appeared clear on the surface of the agreement.

Building on this principle, the Court noted that Marcopper itself had executed an additional Deed of Pledge, covering one share of stock in the Philippine Columbian Association, after the Forbes Park property assignment. This act contradicted Marcopper’s assertion that the property assignment was contingent upon the release of all pledged assets. Had the release truly been a condition, Marcopper wouldn’t have offered further security. Marcopper argued it executed this agreement in error, but the Supreme Court held they were now bound to this judicial admission and barred from retracting on appeal. This approach contrasts with situations where mutual intention is unambiguous but is ineffectively drafted into contractual language, a principle this case firmly refuted in favor of established judicial evidence.

The Court further emphasized that Marcopper’s attempt to introduce new arguments regarding the chattel mortgage’s validity at the motion for reconsideration stage was improper. These issues should have been raised earlier in the proceedings. The Court reiterated the principle that a party cannot change its theory of the case on appeal. The Supreme Court reaffirmed the principle that parties are expected to adhere to the claims and defenses they raise during the initial stages of litigation. As such, a change in tactics may create further confusion for a litigant.

In sum, the Supreme Court’s decision firmly upheld the principle that written contracts are paramount and parties are bound by their explicit terms. Verbal agreements or understandings not reflected in the written document will generally not be enforced, absent strong evidence of fraud, mistake, or other compelling circumstances. It also highlighted the importance of raising all relevant arguments and defenses at the earliest possible stage in legal proceedings, as well as of demonstrating consistent behavior. Litigants should refrain from contradictory evidence, or risk losing credibility on appeal. This ruling serves as a cautionary tale for businesses engaging in contractual negotiations, emphasizing the need for comprehensive written agreements that accurately capture the parties’ intentions.

FAQs

What was the central issue in this case?	The key issue was whether Marcopper could enforce an alleged verbal agreement with RCBC for the release of mortgaged assets, even though it wasn’t included in their written loan restructuring agreement.
What did the Supreme Court decide?	The Supreme Court ruled in favor of RCBC, holding that Marcopper was bound by the terms of the written agreements and could not enforce the alleged verbal agreement.
What is the significance of the Parol Evidence Rule?	The Parol Evidence Rule generally prevents parties from introducing extrinsic evidence to contradict or vary the terms of a clear and unambiguous written agreement. It played a crucial role in the Court’s decision.
Why was Marcopper’s additional Deed of Pledge significant?	The Court saw Marcopper’s execution of the Pledge as contradicting their claim that the Forbes Park property assignment was conditional on the release of pledged assets, strengthening the court’s stance against them.
Can a party change their legal arguments on appeal?	No, the Supreme Court reiterated that a party cannot change its legal theory or introduce new arguments for the first time on appeal; these arguments must be raised in the lower courts.
What should businesses learn from this case?	Businesses should ensure that all material terms and conditions of their agreements are clearly documented in writing, as verbal understandings may not be enforceable.
What was the initial agreement between RCBC and Marcopper?	Initially, Marcopper secured a loan from RCBC to purchase mining equipment, and then the problems came when the company faced difficulty paying it back, leading to proposed repayment and restructuring deals.
What were the lower court’s decisions?	The Regional Trial Court and the Court of Appeals both sided with Marcopper, but their decisions were ultimately overturned by the Supreme Court.
Why was there disagreement about the release of the mortgaged assets?	Marcopper claimed the parties had agreed for it to transfer its North Forbes property in the amount of $8.9 million in exchange for releasing mortgage on several mining vehicles, an allegation which the other party denied.

This Supreme Court case serves as an important reminder that detailed documentation is essential when entering contracts. In doing so, parties may guarantee their intent can be enforced, as written agreement prevails over unspoken promises in Philippine contract law.

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: Rizal Commercial Banking Corporation v. Marcopper Mining Corporation, G.R. No. 170738, October 30, 2009