G.R. No. 201501 - Republic vs. N. Dela Merced and Sons, Inc.

The petitioner, Premier Insurance & Surety Corporation, resolved through its board of directors to purchase a 17,121-square-meter lot in Ibayo, Parañaque.
The property was covered by Transfer Certificate of Title No. 254170 in the name of Benjamin R. Sarmiento and supported by ancillary documents (a certificate of payment of real property taxes, a subdivision plan, and a vicinity map).
A condition was imposed by the petitioner that the location and vicinity plans be verified by a reputable surveyor and that the legal papers be confirmed as genuine, true, and correct.

The petitioner’s board authorized its treasurer, Mr. Manuel Chua, to negotiate and consummate the sale.
The services of Honorato R. Sta. Maria, a geodetic engineer and surveyor, were engaged to verify the ownership, title, and to identify/relocate the property.
During the verification process, respondent Castro, handling the sale for the registered owner, submitted a deed of absolute sale executed by Benjamin R. Sarmiento, with the understanding that the purchase price would be paid only upon receipt of the full surveyor’s report.

The sale was duly registered with a transfer certificate of title issued in the name of the petitioner.
Upon delivery of the title and related documents, respondent Castro noted that the surveyor’s report would be submitted within a day, and he secured an acknowledgment that the agreed consideration had not yet been paid.
Initially, based on the surveyor’s satisfactory report, four checks amounting to ₱150,000.00 each were issued to respondent Castro for partial payment. Shortly thereafter, the petitioner ordered a stop-payment on the checks due to ensuing complications with their encashment.
To facilitate the remaining payment, respondent Castro presented a special power of attorney from Sarmiento and executed the “Agreement and Statement of Warranties.”
The Agreement explicitly warranted, among other things, that Sarmiento was the true and absolute owner of the property, free from liens and encumbrances, and that respondent Castro assumed personal, joint, and several liability with Sarmiento.

Later, when the petitioner attempted to resell the property to Solid Realty and Financing Corporation, it was discovered that two Torrens titles existed for the same land.
One title belonged to Benjamin R. Sarmiento (acquired from Teresita Lorenzo via an absolute deed of sale executed on June 11, 1969) and the other to Caridad Almendras and Alejandro D. Almendras (originating from Justina Lorenzo’s sale on February 10, 1970).
The trial court eventually sustained the Almendras’ title as the valid title, declared Sarmiento’s title null and void, and absolved the Register of Deeds and the Assurance Fund from liability.
Sarmiento and respondent Castro were simultaneously held jointly and solidarily liable for the total consideration, sale expenses, interest, attorney’s fees, and costs.

The petitioner filed a petition for review challenging an amended decision of the Intermediate Appellate Court which had absolved respondent Castro from being jointly and severally liable under the disputed “Agreement and Statement of Warranties.”
The petitioner’s assignments of errors included:

The respondent court granted a reformation of the agreement without the respondent satisfying the strict requirements for instrument reformation.
The court’s reversal of its original decision by finding that the agreement did not truly reflect the intent of the parties, alleging that it was simulated or merely a formality.
The holding that petitioner could not enforce the stipulations of the agreement because respondent Castro signed in his personal capacity rather than as an agent of Sarmiento.
The finding that there was no cloud of doubt regarding the partnership or title of Benjamin Sarmiento, allegedly based on a misinterpretation of the evidence.

Key testimony addressed issues concerning the handling of the checks, including details regarding the cancellation of their payment due to insufficient funds and the requirements for endorsement.
The surveyor’s report by Engineer Sta. Maria confirmed that, in terms of authenticity, Sarmiento’s title was genuine and that any risk was minimal, being attributed solely to procedural government errors.
The petitioner had undertaken due diligence by verifying all relevant documents and reports before releasing full payment.
The close personal and professional relationship between respondent Castro and the officers of the petitioner (including past associations with the petitioner’s counsel and officers) was emphasized in explaining the understanding behind the Agreement and the representations made during the transaction.

Whether the “Agreement and Statement of Warranties” genuinely reflected the true intention of the parties or whether it was a simulated formality subject to reformation.

Whether the court erred in granting a reformation of the instrument without the stringent requirements being met.

Whether his signing of the agreement in his personal capacity, rather than clearly as an agent of Benjamin R. Sarmiento, precludes the enforcement of the warranty provisions.

Whether the petitioner was justified in ordering a stop-payment on the initial checks due, in part, to concerns regarding the validity of Sarmiento’s title.

Whether the petitioner’s actions can be reconciled with the findings of the surveyor’s report indicating the genuineness of the title.

Whether the application of the parol evidence rule and its exceptions was proper in allowing extrinsic evidence to elucidate the parties’ true intent.

Whether the extrinsic evidence should be admitted to interpret the disputed agreement.

Whether the factual findings of the appellate court—regarding the clarity of the surveyor’s report and the conduct of the parties—are conclusive and supported by substantial evidence.