REV. FR. PABLO B. LOLA AND MAXIMA B. LOLA, PETITIONERS, VS. THE HONORABLE COURT OF APPEALS AND DOLORES SANTILLAN ZABALA, RESPONDENTS.

Lola versus Zabala

The Case

This is a petition for review on certiorari brought by Reverend Father Pablo B. Lola and his sister Maxima B. Lola against Dolores Santillan Zabala. The private respondent sued the petitioners to recover a registered lot in Tacloban City which she claims they occupied without title. The petitioners, in turn, insist that the land was part of what they bought from her in 1936, and that in any event her long silence bars her from recovering it. The case matters because it shows how the Supreme Court allows evidence outside a deed to prove the parties' true intention, and how the equitable defense of laches can defeat even a registered owner.

Procedural History

Dolores Santillan Zabala filed a complaint for recovery of real property and damages with the then Court of First Instance of Leyte. After trial on the merits, the trial court dismissed her complaint, finding that what she sold to Father Lola was her land along Santo Nino Street, which included the disputed lot. She appealed to the Court of Appeals. The appellate court initially affirmed the trial court, with the modification that she was ordered to execute the necessary deed of conveyance covering the disputed lot in favor of Father Lola, applying the equitable defense of laches in lieu of prescription. On her motion for reconsideration, however, the Court of Appeals reversed itself. It declared her the absolute owner of the lot, ordered the petitioners to vacate the premises and demolish whatever improvements encroached on it, and relied on a strict application of the parol evidence rule and on the deed of sale as the sole repository of the agreement. The petitioners' motion for reconsideration was denied. Hence, this petition for review on certiorari before the Supreme Court.

Facts

Dolores Santillan Zabala owned two adjoining lots along Santo Nino Street in Tacloban City. Lot 5516, with an area of 474 square meters, lay in the interior. Lot 5517, with an area of 164 square meters, fronted the street and was covered by her original certificate of title. In 1936, while serving as parish priest of Balangiga, Samar, Father Lola asked his lawyer and cousin, Attorney Joaquin Hacbang, to look for a residential lot in Tacloban. Attorney Hacbang wired him that Zabala was offering her lot along Santo Nino Street. She sent him two letters, the first dated May 20, 1936, and the second dated July 8, 1936, the first accompanied by a sketch showing land abutting Santo Nino Street. Father Lola sent 600 pesos by telegraphic transfer, and on June 29, 1936, Zabala executed an Escritura de Venta Absoluta. The deed mentioned only Lot 5516.

The petitioners immediately occupied the land. In May 1938, Father Lola began building a house, completed in December of that year, and its balcony and a portion of the main house stood on Lot 5517. In January 1938, Zabala executed a transferor's affidavit covering the land in question, which was bounded on the west by Santo Nino Street, in favor of Father Lola. She then moved to Cebu City, leaving the petitioners in continuous, open, adverse, and peaceful occupation of the disputed lot for thirty two years, during which the petitioners paid the taxes on the entire property.

Zabala claimed that her brother notified her that a house was being built on Lot 5517, that she came to Tacloban in 1958 and confronted Father Lola, who offered to pay rentals, which she refused, and that she returned in 1966 and 1968 before finally suing. The trial court found these claims unsubstantiated and noted that her brother admitted that at the time of the sale, Father Lola never asked for a right of way to Santo Nino Street, an indication that he understood he was buying the land fronting the street.

Issues

• Whether or not the Court of Appeals erred in relying solely on the deed of sale and in refusing to consider the letters, the sketch, and the parties' contemporaneous and subsequent acts to ascertain their true intention.
• Whether or not Lot 5517 was included in the sale perfected by the parties' offer and acceptance.
• Whether or not the equitable defense of laches bars the respondent from recovering the disputed lot despite the title remaining in her name.

Applicable Provisions

The decision applies the rule on the interpretation of contracts, which provides:

It is a basic and fundamental rule in the interpretation of contracts that if the terms thereof are clear and leave no doubt as to the intention of the contracting parties, then the literal meaning of the stipulations shall control but when the words appear contrary to the evident intention of the parties, the latter shall prevail over the former.

This rule allowed the Court to go behind the deed and give effect to what the parties actually agreed upon.

The decision also applies the exception to the parol evidence rule, which provides:

While it is a general rule that parol evidence is not admissible for the purpose of varying the terms of a contract, when an issue is squarely presented that a contract does not express the true intention of the parties, courts will, when a proper foundation is laid therefore, hear evidence for the purpose of ascertaining the true intention of the parties. Once the intent is clear, then it shall prevail over what on its face the document appears to be.

This exception opened the door to the letters and the surrounding circumstances as proof of the true agreement.

On the weight of tax receipts, the decision states:

While it is true that by themselves tax receipts and declarations of ownership for taxation purposes are not incontrovertible evidence of ownership they become strong evidence of ownership acquired by prescription when accompanied by proof of actual possession of the property.

This supported the finding that the petitioners' long possession and payment of taxes evidenced ownership.

Ruling

On the first issue, the Court ruled that the Court of Appeals erred in strictly applying the parol evidence rule and relying solely on the deed. A closer look at the circumstances surrounding the execution of the deed gives a better understanding of the parties' real intention. The Court applied the exception to the parol evidence rule, holding that when a contract does not express the true intention of the parties, the courts will hear evidence to ascertain that intention, and once the intent is clear, it prevails over what the document appears to be on its face.

On the second issue, the Court held that the two letters of the respondent, whose authenticity she did not even try to impugn, clearly showed that what she offered comprised not only Lot 5516 but Lot 5517 as well, the exterior portion abutting Santo Nino Street. The circumstances after the sale confirmed this. She executed a transferor's affidavit that included the disputed lot, she moved to Cebu City, and she left the petitioners in continuous, open, adverse, and peaceful occupation for thirty two years while they paid the taxes on the entire property. The Court concluded that what the respondent offered to sell and what the petitioners accepted were the lots fronting the street.

On the third issue, the Court held that although prescription was unavailing because the title to Lot 5517 remained registered in the respondent's name, the petitioners acquired title by virtue of the equitable principle of laches due to her failure to assert her claim for thirty two years. The Court found her claim of confronting Father Lola in 1958 and 1966 unfounded, and found it highly improbable that she would let eight years pass before confronting him again and two more years before suing. As the Court put it, courts cannot look with favor at parties who, by their silence, delay, and inaction, knowingly induce another to spend time, effort, and expense in cultivating the land, paying taxes, and making improvements for thirty long years, only to spring from ambush and claim title when the possessor's efforts and the rise of land values offer an opportunity to make easy profit at his expense.

Doctrine

A Bar candidate should retain these rules. First, the parol evidence rule admits an exception: when a contract does not express the true intention of the parties, and a proper foundation is laid, the court may hear evidence to ascertain that intention, and the true intent prevails over the literal text of the document. Second, in interpreting contracts, the contemporaneous and subsequent acts of the parties shall be principally considered to judge their intention. Third, while prescription does not run against a registered owner, the equitable defense of laches may bar the registered owner's action to recover property where his long inaction and neglect, coupled with the possessor's open, adverse, and continuous possession and payment of taxes, would make recovery inequitable and unjust.

Disposition

The petition was granted. The resolution of the Court of Appeals was reversed and set aside, and a new one was entered ordering the respondent to execute the necessary deed of conveyance covering Lot 5517 in favor of the petitioners, with the temporary restraining order made permanent.

Remember This

Remember the line that laches is an equitable defense that does not concern itself with the character of the defendant's title, but only with whether the plaintiff's long inaction or inexcusable neglect should bar him from asserting his claim at all. Examiners use this case to test the exception to the parol evidence rule and the application of laches against a registered owner who sleeps on his rights.