Spouses Sabio vs. International Corporate Bank, Inc.

When the terms of a written contract are clear and leave no doubt as to the intention of the contracting parties, the literal meaning of its stipulations shall control, and courts cannot read into the contract obligations that the parties did not expressly stipulate or necessarily imply. The parol evidence rule bars the admission of extrinsic evidence — including testimonial assertions — to modify, explain, or add to the terms of an unambiguous written agreement, absent any pleading putting in issue the agreement’s failure to express the true intent of the parties. Further, the execution of a public instrument of conveyance is equivalent to the delivery of the property and transfers ownership by symbolic delivery, regardless of the presence of illegal occupants on the premises.

A sprawling tract of land covering approximately 152,454 square meters in Tindig na Manga, Almanza, Las Piñas City, designated as Lots 2, 3, and 6 under TCT Nos. 65161 and 65162, was registered in the name of Las Piñas Ventures, Incorporated (LPVI). In the early 1970s, the property became embroiled in multiple land registration and civil cases. On May 25, 1973, the spouses Gerardo and Emma Ledonio assigned all their rights, interests, title, and participation over a 119,429-square-meter contiguous portion (covered by TCT No. 65162) to petitioners Camilo and Ma. Marlene Sabio. A formal deed of assignment with assumption of mortgage was executed on November 23, 1981. Meanwhile, the International Corporate Bank, Inc. (Interbank) acquired rights to the same property from Trans-Resource Management and Development Corporation via a deed of assignment dated July 12, 1984. On March 6, 1985, to settle their opposing claims, the Sabios and Interbank entered into a Memorandum of Agreement (MOA).

The Acquisition of Interests: The property involved was a 152,454-square-meter tract in Almanza, Las Piñas City, covered by TCT Nos. 65161 and 65162 in the name of LPVI. In May 1973, the Ledonio spouses assigned to petitioners Camilo Sabio (a lawyer as well as a public official) and his wife Marlene all their rights over a contiguous 119,429-square-meter portion under TCT No. 65162. In July 1984, Interbank acquired competing rights to the same property from Trans-Resource Management and Development Corporation.

The Memorandum of Agreement (MOA): On March 6, 1985, the Sabios and Interbank settled their conflicting claims by executing an MOA. Under paragraph 1 and 2.a, the Sabios assigned all their rights over the parcel covered by TCT No. 65162 to Interbank for P750,000.00, except for a 58,000-square-meter contiguous portion. Paragraph 2.b obligated Interbank to "complete and perfect its ownership and title" to the entire premises and thereafter "assign, convey and transfer" to the Sabios the 58,000-square-meter portion with all improvements, as indicated in an attached sketch plan (Lot 6-B). Paragraph 2.c required Interbank to bear the costs of segregation, survey, registration, and delivery of a new certificate of title "free from all liens and encumbrances." Paragraph 2.d obliged Interbank to constitute a permanent and perpetual right of way not less than 10 meters wide for the benefit of the Sabios' portion through specified parcels. Paragraph 4 provided that the MOA obligations under 2.b, 2.c, and 2.d would bind all assigns, heirs, and successors, and that the MOA be annotated on TCT Nos. 65161 and 65162. Petitioners themselves — Camilo Sabio being an experienced lawyer — participated in drafting the MOA with the assistance of counsel over negotiations lasting approximately one year.

Transfer to LPVI and the Ayala Group: Interbank subsequently transferred all its rights to LPVI. LPVI later merged with Ayala Land, Inc. (ALI), and new titles were issued to ALI on April 25, 1994: TCT Nos. T-41263 and T-41262 for portions of TCT No. 65161, and TCT No. T-41261 for the remainder of TCT No. 65162. Another contiguous parcel (TCT No. 85717) was acquired by the Ayala Group around 1993. The consolidated property became the site of "Ayala Las Piñas Subdivision" (later "Ayala Southvale"), a first-class residential subdivision.

The Controversy and Complaint: Petitioners alleged that Interbank, and thus its successors-in-interest, was obligated under the MOA to clear the 58,000-square-meter portion of all squatters and illegal occupants, wall-in its perimeter, and only then convey title — asserting this was a "principal commitment" and "inducement" without which they would not have executed the MOA. When approximately 100 to 200 squatter families remained on the parcel and no fencing had been erected, petitioners refused to accept a deed of conveyance prepared by respondents. They filed a complaint for specific performance and damages against Interbank and the Ayala Group, seeking enforcement of these claimed obligations and compensation for losses.

The Confession of Judgment: On June 18, 1993, respondents filed a Notice of Confession of Judgment and Motion for Partial Decision. They acknowledged their obligations under the MOA to segregate and convey the 58,000-square-meter portion, deliver title free from liens and encumbrances, and provide a right of way, but expressly denied any obligation to clear the property of squatters or fence it. Respondents claimed they had prepared a Deed of Conveyance but petitioners refused to sign it. They further noted that an action for recovery of ownership filed by the Ledonio spouses against the Sabios resulted in a notice of lis pendens that hampered the delivery of title.

• Obligation to Clear and Fence: Petitioners maintained that the obligation to "complete and perfect ownership and title" and convey the property "with all the improvements thereon" under paragraph 2.b necessarily encompassed clearing the land of illegal occupants and unauthorized structures, and fencing the perimeter, because possession is an attribute of ownership and conveyance would be meaningless without actual delivery of physical possession.
• Interpretation of "Liens and Encumbrances": Petitioners argued that the phrase "free from all liens and encumbrances" in paragraph 2.c should be interpreted according to the true intention of the parties as evidenced by the "whereas" clauses and annexes to the MOA, and should include the presence of squatters, adverse claims, notices of lis pendens, and claims of third-party occupants not parties to prior cases.
• Parol Evidence and the MOA's Premises: Petitioners contended that the "whereas" clauses and the series of prior agreements between the parties' predecessors reflected the true intent that Interbank and its successors would clear and wall-in the property; the Court of Appeals thus erred by disregarding these documents and the context of the MOA's execution.
• Insufficiency of the Deed of Conveyance: Petitioners asserted that mere execution of the draft deed of conveyance did not constitute valid compliance with paragraph 2.b since respondents never had actual possession or control of the property; symbolic delivery was allegedly insufficient given the hostile occupation by third parties.
• Right of Way: Petitioners argued that paragraph 2.d intended to grant them the same right to pass through all roads within the entire subdivision as any homeowner therein, not merely a single dedicated right-of-way lane.
• Judicial Admissions: Petitioners maintained that respondents' confession of judgment operated as a judicial admission of certain allegations in the second amended and supplemental complaint regarding the scope of obligations, and that respondent counsel's statement admitting all documentary evidence effectively admitted petitioner Camilo Sabio's testimonial claims.
• Entitlement to Damages: Petitioners claimed the trial court's award of P500,000.00 actual and P250,000.00 exemplary damages should be reinstated because respondents' delay of six years in complying with the MOA caused them substantial loss.
• Cancellation of Annotations: Petitioners challenged the trial court's order canceling the annotation of the MOA and notices of lis pendens on the titles, asserting these were necessary to protect their interests against third-party purchasers and that the MOA mandated annotation.

• No Obligation to Clear or Fence: Respondents countered that the MOA contained no express or implied provision obligating Interbank or its successors to clear the property of squatters, remove structures, or fence the premises. The MOA's terms were clear, and the literal meaning of its stipulations must control under Article 1370 of the Civil Code.
• "Liens and Encumbrances" Does Not Include Squatters: Respondents argued that the settled legal definition of "liens and encumbrances" does not encompass the adverse possession of third persons or squatters; under jurisprudence (People v. RTC), a lien is a legal claim or charge securing a debt, and an encumbrance is a burden such as a mortgage, easement, or judgment lien — not mere occupation without legal right.
• Parol Evidence Rule: Respondents invoked the parol evidence rule to exclude any testimonial or extraneous documentary evidence seeking to vary the terms of the written MOA, stressing that petitioners never alleged that the MOA failed to express the true agreement of the parties.
• Sufficiency of the Deed of Conveyance: Respondents maintained that the execution of a public instrument of conveyance constitutes symbolic delivery equivalent to transfer of ownership under Article 1498 of the Civil Code, and that prior physical delivery or removal of occupants was not legally required.
• Adequacy of the Right of Way: Respondents pointed out that the right-of-way provided was a defined lane, 25 meters wide — more than double the stipulated minimum of 10 meters — which connected directly to the main access road, and that the MOA did not grant petitioners the right to traverse all internal subdivision roads.
• Damages Unsubstantiated: Respondents argued that no actual loss was proven with reasonable certainty, that the delay in compliance was not solely attributable to them (petitioners having refused to sign the deed of conveyance), and that there was no showing of wanton, fraudulent, or malevolent conduct warranting exemplary damages.
• Propriety of Cancellation of Annotations: Respondents countered that cancellation of the notice of lis pendens and MOA annotation was proper under Section 24, Rule 14 of the Rules of Court and Section 77 of PD 1529 once the court found the annotations were no longer necessary to protect petitioners' rights.

• Obligation to Clear, Remove Structures, and Fence: Whether the MOA imposed on Interbank and its successors-in-interest an obligation to clear the 58,000-square-meter portion of squatters and illegal occupants, remove unauthorized structures, and fence its perimeters before conveying title to petitioners.
• Interpretation of "Free from All Liens and Encumbrances": Whether the phrase "free from all liens and encumbrances" in paragraph 2.c of the MOA encompasses the presence of squatters and unauthorized occupants, such that respondents were required to remove them before delivery of title.
• Admissibility of Parol Evidence: Whether the "whereas" clauses and prior agreements attached to the MOA, as well as petitioner Camilo Sabio's testimony, could be admitted to prove that the parties intended to impose clearing, removal, and fencing obligations not stated in the MOA itself.
• Sufficiency of the Deed of Conveyance: Whether the mere execution of the proposed deed of conveyance in a public instrument, without prior physical delivery of possession or removal of illegal occupants, constituted valid compliance with paragraph 2.b of the MOA.
• Scope of the Right of Way: Whether paragraph 2.d of the MOA entitled petitioners to access all roads within the entire Ayala Southvale Subdivision like any homeowner, or whether the dedicated right-of-way lane provided by respondents was sufficient.
• Damages: Whether petitioners were entitled to the actual and exemplary damages awarded by the trial court.
• Judicial Admissions via Confession of Judgment: Whether respondents' confession of judgment and their counsel's admission of documentary evidence constituted judicial admissions of the allegations supporting petitioners' claimed additional obligations.
• Cancellation of Annotations and Lis Pendens: Whether the trial court properly ordered the cancellation of the MOA annotation and notices of lis pendens on the titles covering the subject property.

• Obligation to Clear, Remove Structures, and Fence: No such obligation was imposed. A thorough examination of the MOA yielded no provision — express or implied — obligating Interbank to clear the contiguous portion of squatters, remove unauthorized structures, or fence the perimeter. The trial court correctly found that if clearing and fencing had been a "principal commitment" and "inducement," a stipulation to that effect would have been explicitly stated, especially given that petitioner Camilo Sabio, a practicing lawyer, personally participated in drafting the MOA over year-long negotiations. It was "highly inconceivable and illogical" that he "did not insist on expressly providing the necessary stipulations and in words that leave nothing to further interpretation." Occupation by squatters was a condition known to both parties at execution, yet no term addressed it. Courts cannot amend a contract by construction, make a new contract for the parties by interjecting material stipulations, or read into the contract words it does not contain.

• Interpretation of "Free from All Liens and Encumbrances": The phrase did not include the presence of squatters or unauthorized occupants. Adopting the definition in People v. RTC, a "lien" is a qualified right exercised over the property of another to secure a debt or obligation; an "encumbrance" is a burden such as a mortgage, judgment lien, lease, security interest, easement, or accrued taxes. Adverse possession by a third person is not an encumbrance in law (Yuson and De Guzman v. Diaz), nor is a notice of lis pendens. The documents petitioners themselves relied upon enumerated the specific liens and encumbrances on the property, and none referred to squatters. Courts cannot supply or read into these documents words they clearly do not contain.

• Admissibility of Parol Evidence: Parol evidence was inadmissible. Under Section 9, Rule 130 of the Rules of Court, when an agreement is reduced to writing, it is deemed to contain all terms agreed upon, and no evidence of such terms may be admitted other than the contents of the agreement itself. None of the four recognized exceptions applied: no intrinsic ambiguity, mistake, or imperfection was alleged; petitioners never pleaded that the MOA failed to express the true agreement; the validity of the MOA was never questioned (indeed petitioners vigorously sought its enforcement); and no subsequent agreement was shown. Petitioner Sabio's unsubstantiated testimony regarding verbal understandings contradicting the written MOA was barred by the parol evidence rule. His status as an experienced lawyer who helped draft the document estopped him from later claiming the MOA did not reflect the parties' intentions.

• Sufficiency of the Deed of Conveyance: The proposed deed of conveyance was sufficient. Under Article 1498 of the Civil Code, execution of a sale through a public instrument is equivalent to delivery of the object of the contract, unless the contrary appears or can be inferred from the deed. The deed plainly transferred ownership; nothing in it suggested petitioners could not exercise control over the property. Ownership and possession are distinct legal concepts — non-possession is not inconsistent with ownership (Heirs of George Bofill v. CA). Prior physical delivery or removal of illegal occupants was not legally required. As owners, petitioners could themselves file ejectment suits or secure amicable evacuation, signifying their control. The expenses for ejectment were not among those listed in paragraph 2.c's undertaking to bear costs for "segregation, survey, registration and delivery."

• Scope of the Right of Way: The dedicated right-of-way provided by respondents complied with the MOA. The phrase "permanent and perpetual right of way" must be construed in its ordinary signification: to provide ingress to and egress from the dominant estate, and passage to the nearest highway. The MOA did not grant access to all internal subdivision roads. The provided right-of-way — 25 meters wide, exceeding the 10-meter minimum — constituted adequate and convenient access. The law requires a right-of-way to be at the point least prejudicial to the servient estate (Sta. Maria v. CA, Cristobal v. CA). Imposing a broader easement would be an abnormal restriction on respondents' property rights beyond necessity.

• Damages: Petitioners were not entitled to damages. The Court of Appeals correctly reversed the trial court's award. Actual or compensatory damages must be proved with reasonable certainty and cannot be presumed; petitioners presented no persuasive evidence substantiating their claimed pecuniary loss. No factual basis established that delay in implementation was solely respondents' responsibility. Exemplary damages likewise failed because there was no showing of wanton, fraudulent, reckless, or malevolent conduct by respondents.

• Judicial Admissions via Confession of Judgment: No judicial admissions supporting petitioners' claimed obligations were made. The confession of judgment merely acknowledged obligations expressly stipulated in the MOA; it did not admit extraneous allegations. Respondents' counsel admitted only the documentary evidence, not testimonial evidence. No implied admission could be recognized that would contradict the clear documentary stipulations. Even if considered, the supposed admissions would not alter the outcome.

• Cancellation of Annotations and Lis Pendens: The cancellation was proper. The MOA itself required annotation only on TCT Nos. 65161 (now T-5333) and 65162 (now T-5331); there was no basis to annotate on all 18 subdivision titles. The notice of lis pendens was cancelled under Section 24, Rule 14 of the Rules of Court and Section 77 of PD 1529, which allow cancellation even before finality when the notice "is for the purpose of molesting the adverse party, or that it is not necessary to protect the rights of the party who caused it to be registered." In light of the substantive findings, no further necessity existed to maintain the annotations.

• Literal Interpretation of Contracts (Article 1370, Civil Code): When the terms of a contract are clear and leave no doubt as to the intention of the contracting parties, the literal meaning of its stipulations shall control. Courts cannot amend a contract by construction, make a new contract for the parties by interjecting material stipulations, or read into the contract words it does not contain. Applied to reject petitioners' attempt to imply clearing, removal, and fencing obligations not found in the MOA's text.

• Parol Evidence Rule (Section 9, Rule 130, Rules of Court): When the terms of an agreement have been reduced to writing, the writing is deemed to contain all the terms agreed upon, and no evidence of such terms — other than the contents of the written agreement — may be admitted between the parties and their successors-in-interest. Exceptions exist where: (1) there is an intrinsic ambiguity, mistake, or imperfection in the writing; (2) the written agreement fails to express the true agreement and intent of the parties — and this is put in issue in the pleadings; (3) the validity of the written agreement is in question; or (4) there exist other terms agreed upon after execution. Applied to bar petitioner Sabio's testimony and extraneous documents seeking to vary the MOA.

• Definition of "Lien" and "Encumbrance": A "lien" is a qualified right or a proprietary interest exercised over the property of another; a legal claim or charge on property as collateral or security for payment of a debt or obligation. An "encumbrance" is a burden upon land, depreciative of its value, such as a lien, easement, or servitude, which though adverse to the landowner's interest does not conflict with his conveyance in fee; e.g., mortgage, judgment lien, lease, security interest, easement, accrued and unpaid taxes. Applied to rule that the adverse possession of squatters is not a lien or encumbrance within the meaning of paragraph 2.c of the MOA.

• Symbolic Delivery (Article 1498, Civil Code): When a sale is made through a public instrument, the execution thereof is equivalent to the delivery of the object of the contract, if the contrary does not appear or cannot be inferred from the deed. Ownership and possession are distinct legal concepts; prior physical delivery or possession is not legally required for the transfer of ownership. The key concept is control, not possession. Applied to uphold the sufficiency of the proposed deed of conveyance despite the presence of illegal occupants.

• Right of Way — Ordinary Signification and Least Prejudice: A "permanent and perpetual right of way" means a passage providing ingress to and egress from the dominant estate and adequate and convenient access to the nearest highway, not unlimited access to all internal roads of a subdivision. An easement of right of way being an abnormal restriction on the servient estate, its imposition must be at the point least prejudicial to the servient estate and where the distance to a public highway is the shortest, when applicable.

• "Plaintiff Camilo Sabio is a member of the bar who engaged in the practice of law for over twenty years and is currently holding public office. In drafting the MOA and/or agreeing to the stipulations in the same, a person of his stature could have been more circumspect. The occupants were already in the contiguous portion of the property when the MOA was executed and if plaintiffs had wanted to ensure that defendant Interbank would take responsibility for clearing the property of occupants, they could have specifically provided for it." — This passage from the trial court, quoted with approval by both the Court of Appeals and Supreme Court, underscores the core rationale: a legally trained party who drafts a contract must be held to its express terms.

• "It is highly inconceivable and illogical that the plaintiffs did not insist on expressly providing the necessary stipulations and in words that leave nothing to further interpretation. Plaintiff Sabio, a lawyer, took part personally and with the assistance of another lawyer, in the drafting of the MOA, and the negotiations took about a year, and no reason is suggested why he refrained from including therein specific language containing what he considers the principal commitment of the second party to remove the squatters and wall-in the 58,000 portion to be conveyed to him." — The Court of Appeals' observation, endorsed by the Supreme Court, firmly applies the principle that courts will not supply terms a sophisticated party neglected to include.

• "A 'lien' is a qualified right or a propriety interest, which may be exercised over the property of another. It is a right which the law gives to have a debt satisfied out of a particular thing. … An encumbrance is a burden upon land, depreciative of its value, such as lien, easement, or servitude, which, though adverse to (the) interest of (the) landowner, does not conflict with his conveyance of (the) land in fee." (Quoting People v. RTC, 178 SCRA 299) — This definition, controlling in the decision, excludes squatters from the scope of "liens and encumbrances."

• "It is not the province of the courts to amend a contract by construction, or to make a new contract for the parties by interjecting material stipulations, or even to read into the contract words which it does not contain." — A crisp summation of the judicial restraint doctrine applied.

• Ortañez v. Court of Appeals, 266 SCRA 561 (1997) — Cited for the rule that the written document is the best evidence of its own contents and that the parol evidence rule bars extrinsic evidence to vary the terms of a written agreement.
• People v. RTC, 178 SCRA 299 (1989) — The definitive source for the definitions of "lien" and "encumbrance" adopted by the Court.
• Cuizon v. Court of Appeals, 260 SCRA 645 (1996) — Cited to support the rule that courts cannot amend a contract by construction or insert new stipulations.
• Dulay Enterprises, Inc. v. Court of Appeals, 225 SCRA 678 (1993) and Garcia v. Court of Appeals, 312 SCRA 180 (1999) — Applied for the principle that execution of a public instrument is equivalent to delivery of the property sold.
• Power Commercial and Industrial Corp. v. Court of Appeals, 274 SCRA 597 (1997) — Relied upon for the rule that the key concept in symbolic delivery is control, not physical possession.
• Yuson and De Guzman v. Diaz, 42 Phil. 22 (1921) — The vintage authority for the proposition that adverse possession by another is not an "encumbrance" in law.
• Mactan Cebu International Airport Authority v. Court of Appeals, 263 SCRA 736 (1996) — Cited for the requirement that a party must put in issue in the pleadings the failure of a written agreement to express the true intent before parol evidence may be admitted.
• Sta. Maria v. Court of Appeals, 285 SCRA 351 (1998) and Cristobal v. Court of Appeals, 291 SCRA 122 (1998) — Applied for the rule that an easement of right of way must be situated at the point least prejudicial to the servient estate.

• Article 1370, Civil Code of the Philippines: 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 shall control. Applied to bar a reading of the MOA that would impose unstated clearing and fencing obligations.
• Article 1375, Civil Code: Words which may have different significations shall be understood in that which is most in keeping with the nature and object of the contract. Used to construe the term "improvements" in the MOA.
• Article 1498, Civil Code: When the sale is made through a public instrument, the execution thereof shall be equivalent to the delivery of the thing which is the object of the contract, if from the deed the contrary does not appear or cannot clearly be inferred. Applied to uphold the proposed deed of conveyance as sufficient symbolic delivery.
• Section 9, Rule 130, Rules of Court (Parol Evidence Rule): The written agreement is deemed to contain all the terms agreed upon; evidence of other terms is inadmissible except in specified exceptions. Strictly applied to bar petitioners' testimonial and extraneous documentary evidence.
• Section 24, Rule 14, Rules of Court and Section 77, Presidential Decree No. 1529: Authority for a court to cancel a notice of lis pendens even before final resolution when the notice is for the purpose of molesting the adverse party or is no longer necessary to protect the rights of the party who caused its registration. Applied to affirm the cancellation of annotations.

Davide, Jr., C.J. (Chairman), Puno, and Pardo, JJ., concurred. Kapunan, J., took no part, being related to one of the parties.

N/A — The decision was unanimous among the participating justices.