Salun-at Marquez and Nestor Dela Cruz vs. Eloisa Espejo, et al.

When the parties admit the contents of written documents but dispute whether those documents adequately and correctly express their true intention, the court may look beyond the instruments and consider the parties' contemporaneous and subsequent acts; the intention of the contracting parties prevails over the literal wording. The Best Evidence Rule does not apply where the contents are admitted, and the Parol Evidence Rule does not bar extrinsic evidence where a stranger to the document is involved or where intrinsic ambiguity or failure to express true intent is put in issue.

Respondents Espejos were the original registered owners of two agricultural parcels in Bagabag, Nueva Vizcaya: the Lantap property, tenanted by respondent Nemi Fernandez, and the Murong property, tenanted by petitioners Salun-at Marquez and Nestor Dela Cruz. The properties were mortgaged to Rural Bank of Bayombong, Inc., which later became the registered owner through foreclosure. The dispute arose in the context of the Comprehensive Agrarian Reform Program under Republic Act No. 6657, particularly the voluntary land transfer mechanism by which agricultural land could be transferred directly to qualified farmer-beneficiaries.

Respondents Espejos were the original registered owners of two parcels of agricultural land, each with an area of two hectares, located in Bagabag, Nueva Vizcaya. The Lantap property was tenanted by respondent Nemi Fernandez, the husband of respondent Elenita Espejo, while the Murong property was tenanted by petitioners Salun-at Marquez and Nestor Dela Cruz. Respondents mortgaged both parcels to Rural Bank of Bayombong, Inc. (RBBI) to secure certain loans. Upon their failure to pay, the mortgaged properties were foreclosed and sold to RBBI, which eventually consolidated title and obtained transfer certificates of title in its name. TCT No. T-62096, dated January 14, 1985, was issued for the Murong property, while TCT No. T-62836, dated June 4, 1985, was issued for the Lantap property. Both TCTs described their respective subjects as located in “Bagabag Townsite, K-27,” without any reference to either Barangay Lantap or Barangay Murong.

On February 26, 1985, respondents bought back one of the lots from RBBI. The Deed of Sale described the property sold by its technical description and stated that it was covered by TCT No. T-62096, the title corresponding to the Murong property, but it did not mention the barangay where the property was located. There was no evidence that respondents took possession of the Murong property, demanded lease rentals from petitioners, who continued to be the tenants of the Murong property, or otherwise exercised acts of ownership over it. On the other hand, respondent Nemi continued working on the Lantap property without any evidence that he ever paid rentals to RBBI or to any landowner. The Deed of Sale was annotated on TCT No. T-62096 almost a decade later, on July 1, 1994.

Meanwhile, on June 20, 1990, RBBI, pursuant to Sections 20 and 21 of Republic Act No. 6657, executed separate Deeds of Voluntary Land Transfer (VLTs) in favor of petitioners Marquez and Dela Cruz, the tenants of the Murong property. Both VLTs described the subject as an agricultural land located in Barangay Murong and covered by TCT No. T-62836, which, however, is the title corresponding to the Lantap property. After petitioners completed payment of the purchase price of ₱90,000.00 to RBBI, the Department of Agrarian Reform issued the corresponding Certificates of Land Ownership Award (CLOAs) to petitioners on September 5, 1991. Both CLOAs stated that their subjects were parcels of agricultural land situated in Barangay Murong, and both were registered in the Registry of Deeds of Nueva Vizcaya on September 5, 1991.

On February 10, 1997, more than ten years after the Deed of Sale in favor of respondents and almost seven years after the execution of the VLTs in favor of petitioners, respondents filed a Complaint before the Regional Agrarian Reform Adjudicator (RARAD) of Bayombong, Nueva Vizcaya for the cancellation of petitioners' CLOAs, the deposit of leasehold rentals by petitioners in favor of respondents, and the execution of a deed of voluntary land transfer by RBBI in favor of respondent Nemi. Respondents based their claim on the theory that the Murong property, occupied by petitioners, was owned by them by virtue of the 1985 buy-back, because their Deed of Sale referred to TCT No. T-62096, which pertains to the Murong property. Petitioners answered that they bought the Murong property as farmer-beneficiaries, acted in good faith, paid lease rentals to RBBI when it owned the Murong property, believed they were buying the Murong property, and occupied and exercised acts of ownership over it. They argued that what respondents repurchased from RBBI in 1985 was actually the Lantap property, as evidenced by respondents' continued occupation and possession of the Lantap property through respondent Nemi. RBBI answered that it was the Lantap property which was the subject of the buy-back transaction with respondents, denied committing a grave mistake, and maintained its good faith.

The OIC-RARAD gave precedence to the TCT numbers appearing on the Deed of Sale and the VLTs, concluding that respondents' Deed of Sale covered the Murong property and petitioners' VLTs and CLOAs covered the Lantap property; it treated the VLTs' reference to Barangay Murong as a mere typographical error and found petitioners disqualified because they were not the actual tillers of the Lantap property. The DARAB reversed, ruling that respondents failed to support with substantial evidence their allegation that they bought back the Murong property, and giving more credence to RBBI's claim that respondents repurchased the Lantap property; it found petitioners to be the actual tillers of the Murong property and qualified beneficiaries thereof. The Court of Appeals agreed with respondents, holding that the Deed of Sale was the best evidence of its contents and that its reference to TCT No. T-62096 meant the Murong property was sold to respondents, while the VLTs' reference to TCT No. T-62836 meant the Lantap property was transferred to petitioners; it considered the VLTs' additional description of Barangay Murong a mere typographical error and the technical description in the TCT more accurate.

• Best Evidence Rule and True Intent: Petitioners argued that the Court of Appeals erred in using the Best Evidence Rule to determine the subject of the Deed of Sale and the VLTs; the issue was not the contents of the contracts but the intention of the parties that was not adequately expressed, so the Parol Evidence Rule should be applied.
• Intrinsic Ambiguity in the VLTs: Petitioners maintained that the VLTs' reference to “Barangay Murong” reflected their true intention, while the reference to TCT No. T-62836 was a mere error; the documents suffered from intrinsic ambiguity.
• Contemporaneous and Subsequent Acts: Petitioners claimed they bought the Murong property as farmer-beneficiaries, paid lease rentals to RBBI, occupied and exercised acts of ownership over Murong, and that respondents repurchased Lantap as shown by Nemi's continued occupation of Lantap.
• No Need for Reformation: Petitioners argued that no action for reformation was necessary because RBBI and petitioners never disputed the VLTs' interpretation; the issue arose only when strangers to the contracts argued for a different interpretation.
• Propriety of Petition: Petitioners assailed the Court of Appeals' rejection of their evidence as inadmissible under the Best Evidence Rule, a question of admissibility of evidence that is legal; even if factual, exceptions to Rule 45 apply.

• Factual Issues Under Rule 45: Respondents maintained that the instant petition raised factual issues beyond the province of Rule 45.
• Effect of Dismissal of RBBI's Petition: Respondents argued that the dismissal of RBBI's petition for review of the same Court of Appeals decision proved there was no reversible error in the appellate court's decision in their favor.
• Title Numbers Control: Respondents insisted that the title numbers in the deeds should control: the Deed of Sale referred to TCT No. T-62096, the Murong property, so they repurchased Murong; the VLTs and CLOAs referred to TCT No. T-62836, the Lantap property, so petitioners were awarded Lantap.
• Disqualification and Cancellation: Respondents argued that since petitioners were not the actual tillers of the Lantap property, their CLOAs should be cancelled for lack of qualification.
• No Reformation / Typographical Error: Respondents contended that the reference to “Barangay Murong” in the VLTs was a typographical error and questioned why petitioners never filed an action for reformation.

• Propriety of the Petition: Whether the petition raises only questions of law within the scope of Rule 45, or whether the factual issues may be reviewed under the exceptions.
• Effect of Dismissal of RBBI's Petition: Whether the final dismissal of RBBI's Petition for Review in G.R. No. 163320, which assailed the same Court of Appeals decision, bars or forecloses petitioners' appeal or establishes the correctness of the Court of Appeals decision.
• Best Evidence Rule: Whether the Court of Appeals erred in utilizing the Best Evidence Rule to determine the subject of the contracts.
• Subject Properties: Whether the subject of the Deed of Sale between respondents and RBBI is the Lantap or Murong property, and whether the subject of the VLTs and CLOAs of petitioners is the Lantap or Murong property.

• Propriety of the Petition: The petition is proper. The issue of admissibility of evidence is a legal question; moreover, the exceptions to Rule 45 apply because the Court of Appeals misappreciated the facts and the reviewing bodies rendered disparate rulings.
• Effect of Dismissal of RBBI's Petition: No. The dismissal of RBBI's appeal did not bind petitioners; dismissal for failure to show reversible error does not necessarily mean the Court of Appeals decision was correct, and RBBI had already divested itself of title through the VLTs before the action, so the in personam judgment did not bind petitioners.
• Best Evidence Rule: No. The Best Evidence Rule was inapplicable because the contents of the documents were admitted; the real issue was whether those contents expressed the parties' true intention. The Parol Evidence Rule was likewise improper because respondents were strangers to the VLTs and the exceptions for intrinsic ambiguity and failure to express true intent applied.
• Subject Properties: The Deed of Sale dated February 26, 1985 between respondents and RBBI covers the Lantap property under TCT No. T-62836; the VLTs and CLOA Nos. 395 and 396 of petitioners cover the Murong property under TCT No. T-62096.

• Propriety of the Petition: The threshold objection that the petition raised only factual issues was rejected. The admissibility of evidence is a legal question within the Court's authority to review. Even if the matter were factual, Rule 45 admits exceptions, including when findings are grounded entirely on speculations, surmises, or conjectures; when the inference made is manifestly mistaken, absurd, or impossible; when there is grave abuse of discretion; when the judgment is based on a misappreciation of facts; when the findings of fact are conflicting; when the findings are contrary to the admissions of both appellant and appellee; when the findings are contrary to those of the trial court; when the findings are conclusions without citation of specific evidence; when the facts set forth in the petition and briefs are not disputed by the respondent; and when the findings of fact are premised on the supposed absence of evidence and contradicted by the evidence on record. The Court found sufficient basis to apply the exceptions because the appellate court misappreciated the facts through its erroneous application of the Best Evidence Rule, and the disparate rulings of the three reviewing bodies below warranted review.

• Effect of Dismissal of RBBI's Petition: The dismissal of RBBI's petition in G.R. No. 163320 did not preclude petitioners. RBBI failed to convincingly demonstrate the alleged errors in the Court of Appeals decision; it merely raised equitable considerations such as the “clean hands” doctrine without a clear-cut legal basis and cogent arguments. The dismissal of an appeal does not always and necessarily mean that the appealed decision is correct, for it could simply be the result of the appellant's inadequate discussion, ineffectual arguments, or procedural lapses. Petitioners were not parties to RBBI's appeal and duly filed their own separate appeal. A party cannot be deprived of the right to appeal an adverse decision just because another party had already appealed ahead of him, or because the other party's separate appeal had already been dismissed. Moreover, RBBI had executed the VLTs in favor of petitioners prior to the commencement of the action, so RBBI had already divested itself of title to the properties. Under the rule on res judicata, a judgment in personam is conclusive only between the parties and their successors-in-interest by title subsequent to the commencement of the action; transferees whose title predates the action are not bound by any judgment rendered against the vendor.

• Best Evidence Rule: The Court of Appeals erred in its application of the Best Evidence Rule. The Best Evidence Rule states that when the subject of inquiry is the contents of a document, the best evidence is the original document itself and no other evidence is admissible as a general rule. Here, there was no room for its application because there was no dispute regarding the contents of the documents. The parties admitted that respondents' Deed of Sale referred to TCT No. T-62096 as its subject, while petitioners' VLTs referred to TCT No. T-62836 and further described the property as located in Barangay Murong. The real issue was whether the admitted contents adequately and correctly expressed the true intention of the parties. The Court of Appeals, though citing the Best Evidence Rule, actually applied the Parol Evidence Rule by giving primacy to the literal terms of the contracts and refusing to admit other evidence. Even the Parol Evidence Rule was improperly applied. It is exclusive only as between the parties and their successors-in-interest; respondents are not parties to the VLTs executed between RBBI and petitioners. The parol evidence rule may not be invoked where at least one of the parties to the suit is not a party or privy of a party to the written document in question, and does not base his claim on the instrument or assert a right originating in the instrument. Moreover, the case falls under the exceptions to the Parol Evidence Rule: intrinsic ambiguity, mistake or imperfection in the written agreement, and failure of the written agreement to express the true intent and agreement of the parties. Petitioners' VLTs suffered from intrinsic ambiguity because they described the subject as covered by TCT No. T-62836, the Lantap property, but also described it as located in Barangay Murong. Respondents' Deed of Sale also fell under the exception because it referred to TCT No. T-62096, the Murong property, while RBBI contended that the true intent was to sell the Lantap property. Thus, examination of parol evidence was necessary.

• Subject Properties: Applying Civil Code Articles 1370 and 1371 and Rule 130, Section 13, the Court considered the parties' contemporaneous and subsequent acts. The Deed of Sale between RBBI and respondents was intended to transfer the Lantap property, not the Murong property. After the execution of the Deed of Sale in 1985, respondents did not exercise acts of ownership showing they believed they had repurchased Murong: they did not take possession of Murong, did not demand lease rentals from petitioners who occupied and tilled it without objection, and petitioners paid leasehold rentals to RBBI, not to respondents. Respondent Nemi, the husband of respondent Elenita, continued tilling the Lantap property without turning over the supposed landowner's share to RBBI, indicating that respondents considered themselves the owners of Lantap. The VLTs in favor of petitioners were intended to convey the Murong property. When the VLTs were executed in 1990, petitioners were already the tenant-farmers of Murong and had been paying rentals to RBBI; after the VLTs, they remained in possession and tilled Murong without opposition. After petitioners paid the total purchase price of ₱90,000.00, DAR officials investigated and found them in actual possession and qualified; the CLOAs issued in their favor explicitly referred to the land in Barangay Murong. The reference in the VLTs to TCT No. T-62836 was due to an honest but mistaken belief that the title covered Murong, a mistake not farfetched because TCT No. T-62836 only referred to the Municipality of Bayombong and did not indicate the particular barangay, and both properties were bounded by a road and public land. No action for reformation was required because a cause of action for reformation arises only when one of the contracting parties manifests, by overt acts, an intention not to abide by the true agreement; RBBI and petitioners never disputed the VLTs' interpretation. Accordingly, the Deed of Sale covered the Lantap property under TCT No. T-62836, while the VLTs and CLOAs covered the Murong property under TCT No. T-62096. The Court of Appeals ruling against RBBI should not be executed as such execution would be inconsistent with this ruling; although the Court of Appeals decision had become final as against RBBI, the ruling in favor of petitioners is a supervening cause rendering execution against RBBI unjust and inequitable.

• Primacy of Contractual Intention / Interpretation of Contracts — Under Civil Code Articles 1370 and 1371, if the terms of a contract are clear and leave no doubt upon the intention of the contracting parties, the literal meaning of its stipulations controls; but if the words appear contrary to the evident intention of the parties, the latter prevails. In judging intention, the contemporaneous and subsequent acts of the parties shall principally be considered. The Court applied this doctrine to hold that despite erroneous TCT references, the Deed of Sale covered the Lantap property and the VLTs/CLOAs covered the Murong property.
• Best Evidence Rule — Rule 130, Section 3 requires the original document when the subject of inquiry is its contents. It does not apply where the contents are admitted and the dispute concerns whether the documents express the true intention of the parties. The Court found no dispute as to the contents of the Deed of Sale and VLTs, so the Court of Appeals erred in invoking the Best Evidence Rule.
• Parol Evidence Rule and Its Exceptions — Rule 130, Section 9 generally bars extrinsic evidence to contradict, vary, add to, or subtract from written terms between the parties and their successors-in-interest. It cannot be invoked where at least one party to the suit is not a party or privy to the written document and does not base a claim on the instrument or assert a right originating in it. Exceptions allow evidence of intrinsic ambiguity, mistake or imperfection, or failure of the written agreement to express the true intent of the parties. The Court applied both the stranger rule and the exceptions.
• Res Judicata and In Personam Judgments — Rule 39, Section 47(b) makes a judgment in personam conclusive only between the parties and their successors-in-interest by title subsequent to the commencement of the action. A transferee whose title predates the action is not bound by a judgment against the vendor. The Court held petitioners, as prior transferees under the VLTs, were not bound by the dismissal of RBBI's appeal.
• Dismissal of Appeal Does Not Necessarily Affirm Correctness — The dismissal of an appeal for failure to show reversible error does not always mean the appealed decision is correct; it may result from inadequate argument, ineffectual discussion, or procedural lapse. The Court used this to reject respondents' claim that RBBI's dismissed appeal foreclosed petitioners.
• Reformation of Contract — A cause of action for reformation arises only when one of the contracting parties manifests, by overt acts, an intention not to abide by the true agreement. The Court held petitioners had no cause to reform the VLTs because RBBI and petitioners never disputed their interpretation.
• Presumption of Regularity in Performance of Official Duties — DAR officials' issuance of CLOAs after investigation, without evidence of anomaly, is presumed regular. The Court noted this in finding petitioners were qualified beneficiaries of the Murong property.

• "When the parties admit the contents of written documents but put in issue whether these documents adequately and correctly express the true intention of the parties, the deciding body is authorized to look beyond these instruments and into the contemporaneous and subsequent actions of the parties in order to determine such intent." — This opening statement states the ratio decidendi: admission of contents does not bar extrinsic evidence on true intent.
• "Well-settled is the rule that in case of doubt, it is the intention of the contracting parties that prevails, for the intention is the soul of a contract, not its wording which is prone to mistakes, inadequacies, or ambiguities." — This canonical formulation supports the Court's preference for intent over erroneous title references.
• "In the instant case, there is no room for the application of the Best Evidence Rule because there is no dispute regarding the contents of the documents." — This directly resolves the second issue and explains why the Court of Appeals' evidentiary framework was erroneous.
• "The parol evidence rule may not be invoked where at least one of the parties to the suit is not a party or a privy of a party to the written document in question, and does not base his claim on the instrument or assert a right originating in the instrument." — This states the stranger exception to the Parol Evidence Rule, applied because respondents were not parties to the VLTs.

• People vs. Exala, G.R. No. 76005, April 23, 1993, 221 SCRA 494, 499 — Cited for the rule that a question involving admissibility of evidence is a legal question reviewable by the Court.
• Reyes vs. Montemayor, G.R. No. 166516, September 3, 2009, 598 SCRA 61, 74 — Cited for the exceptions to the rule that a petition for review should raise only questions of law.
• Borromeo vs. Court of Appeals, 162 Phil. 430, 438 (1976) — Cited for the principle that a party cannot be deprived of the right to appeal because another party already appealed ahead of him.
• Citibank, N.A. vs. Sabeniano, G.R. No. 156132, October 16, 2006, 504 SCRA 378, 403-405 — Cited for the principle that a party's right to appeal is not lost merely because another party's separate appeal was dismissed.
• De Leon vs. De Leon, 98 Phil. 589, 591-592 (1956) — Cited for the rule that transferees are not bound by a judgment rendered against the vendor when the vendor had already transferred title.
• Asuncion vs. National Labor Relations Commission, 414 Phil. 329, 339 (2001) — Cited to explain the purpose of the Best Evidence Rule: prevention of fraud by requiring production of the best evidence.
• Lechugas vs. Court of Appeals, 227 Phil. 310, 319 (1986) — Cited for the rule that the parol evidence rule may not be invoked where at least one party to the suit is not a party or privy to the written document.
• Kilosbayan, Inc. vs. Guingona, Jr., G.R. No. 113375, May 5, 1994, 232 SCRA 110, 143 — Cited for the principle that the intention of the contracting parties is the soul of a contract.
• Multi-Realty Development Corporation vs. Makati Tuscany Condominium Corporation, G.R. No. 146726, June 16, 2006, 491 SCRA 9, 30-31 — Cited for the rule that a cause of action for reformation arises only when a contracting party manifests an intention not to abide by the true agreement.
• Tormon vs. Cutanda, 119 Phil. 84, 87-88 (1963) — Cited in Multi-Realty for the same reformation principle.

• Rule 130, Section 3, Rules of Court — The Best Evidence Rule; the original document is required when the subject of inquiry is its contents. The Court held it inapplicable because the contents of the Deed of Sale and VLTs were admitted.
• Rule 130, Section 9, Rules of Court — The Parol Evidence Rule; it excludes extrinsic evidence between the parties and their successors-in-interest, but allows evidence for intrinsic ambiguity, mistake or imperfection, or failure to express the true intent of the parties. The Court held it did not bar evidence because respondents were strangers to the VLTs and the exceptions applied.
• Rule 130, Section 13, Rules of Court — Interpretation according to circumstances; the circumstances under which an instrument was made may be shown so the judge may place himself in the position of those whose language he is to interpret. The Court used this to consider contemporaneous and subsequent acts.
• Civil Code, Article 1370 — If the terms of a contract are clear, the literal meaning controls; if the words appear contrary to the evident intention of the parties, the latter prevails. Applied to resolve the erroneous TCT references.
• Civil Code, Article 1371 — In judging the intention of the contracting parties, their contemporaneous and subsequent acts shall principally be considered. Applied to determine the subjects of the Deed of Sale and the VLTs.
• Rule 39, Section 47(b), Rules of Court — Res judicata; a judgment in personam is conclusive only between the parties and their successors-in-interest by title subsequent to the commencement of the action. Applied to hold petitioners not bound by the dismissal of RBBI's appeal.
• Republic Act No. 6657, Sections 20 and 21 — Voluntary Land Transfer and payment of compensation by beneficiaries under the Comprehensive Agrarian Reform Law. Cited as the statutory basis for RBBI's VLTs in favor of petitioners.
• Rule 45, Rules of Court — A petition for review should raise only questions of law, subject to exceptions. The Court applied the exceptions because the Court of Appeals misappreciated the facts and the reviewing bodies rendered disparate rulings.

Renato C. Corona (Chief Justice and Chairperson), Presbitero J. Velasco, Jr., Teresita J. Leonardo-De Castro, and Jose Portugal Perez.