REFORMATION OF INSTRUMENTS Flashcards
What is reformation?
Reformation is that remedy by means of which a written instrument is amended or rectified so as to express or conform to the real agreement or intention of the parties when by reason of mistake, fraud, inequitable conduct, or accident, the instrument fails to express such agreement or intention.
It is to be distinguished from interpretation.
Requisites of reformation.
In order that reformation may be availed of as a remedy, the following requisites must be present:
(1) There is a meeting of the minds of the parties to the contract;
(2) The written instrument does not express the true agreement or
intention of the parties;
(3) The failure to express the true intention is due to mistake, fraud, inequitable conduct, or accident;
(4) The facts upon which relief by way of reformation of the instrument is sought are put in issue by the pleadings; and
(5) There is clear and convincing evidence (which is more than mere preponderance of evidence) of the mistake, fraud, inequitable conduct, or accident.
Facts: An absolute deed of sale of several parcels of land was executed by S (vendor) and B (vendee). In an action by S to compel B to allow the repurchase of the property, S alleged that his verbal agreement with B binding the latter to execute another document giving him the right to redeem the property was the real inducement on his part in making the contract of absolute sale and that B subsequently refused to put this right in writing.
Issue: Should S be allowed to present parol evidence of the verbal agreement?
Held: Yes. This is a case of a clearly established promise on the part of B to give a counter-contract expressing S’s right to redeem. If in case of mutual mistake, the introduction of evidence to show the intention of the parties is allowed, there is no reason why in a case of a more serious nature, like the case presented, evidence to show the existence of a verbal agreement which constitutes a part of the consideration of the written contract should not be allowed.
It is true that the parol evidence has the effect of modifying the agreement but this should not prohibit the court to force B to live up to his contract in its entirety and to prevent him to commit fraud. (Yacapin and Neri Linan vs. Neri, 40 Phil. 61 [1919].)
Facts: X and Y who claimed to be employees of C (corporation), sued C before the NLRC (National Labor Relations Commission) for illegal dismissal. The contract between the parties, designated as peddling con- tract, shows upon its text, an independent contractorship.
Issue: May X and Y adduce evidence before the NLRC of external facts which might establish an employer-employee relationship?
Held: No. The NLRC has no jurisdiction over the case. However, X and Y may sue in the proper Court of First Instance (now Regional Trial Court) and ask for a reformation of the instrument evidencing the contract, or for its annulment or to secure a declaration that, disregarding the peddling contract, the actual juridical relationship between the parties is that of employer and employee. (Mafinco Trading Corp. vs. Ople, 70 SCRA 139 [1976].)
Facts: R, etc. filed a complaint to annul a supposed conditional donation of two (2) parcels of land made by them to PNR for alleged non- fulfillment of the conditions of the donation. PNR objected to a question of plaintiffs’ counsel asking R to tell the court the promise of PNR with respect to the execution of the deed on the ground that the deed had no condition whatsoever.
The plaintiffs did not expressly plead that the deed of donation was incomplete or that its execution was vitiated by mistake or that it did not reflect the intention of the donor and the donee. The lower court ruled that the question should be allowed.
Issue: Would the answer to the question be a transgression of the parol evidence rule?
Held: Yes. The lower court committed a grave abuse of discretion in not sustaining PNR’s objection based on the parol evidence rule. In order that parol or extrinsic evidence may be admitted to vary the terms of a writing, the mistake, etc. should be put in issue by the pleadings. R, etc., in their complaint merely alleged that the donation was subject to five (5) conditions. Then, they prayed that the donation be annulled or rescinded for non-compliance with the supposed resolutory conditions. They could have asked for the reformation of the deed of donation.
But whether the action is for revocation or reformation, it was necessary for them, in order to prove that the donation was conditional, to plead that the deed of donation did not express the true intent of the parties. (Phil. National Railways vs. CFI of Albay, 83 SCRA 569 [1978].)
What constitutes inequitable conduct.
Inequitable conduct, to warrant relief by way of reformation, has been held to consist in doing acts, or omitting to do acts, which the court finds to be unconscionable. Examples are:
(1) Taking advantage by one party of the other party’s illiteracy; abusingconfidence;
concealing what of right should have been disclosed;
(2) previous understanding of the parties and making the other party to believe the instrument other than it actually is;
Reformation and annulment distinguished.
In reformation, there has been a meeting of the minds of the parties (Art. 1359, par. 1.); hence, a contract exists but the written instrument purporting to embody the contract does not express the true intention of the parties by reason of mistake, fraud, inequitable conduct, or accident. Under the technical rules of law, the real contract cannot be enforced until it is reformed.
In annulment, there has been no meeting of the minds, the consent of one of the parties being vitiated by mistake, etc. (Ibid., par. 2; see Art. 1390.)
Reformation and annulment are thus inconsistent with each other. While the first gives life to a contract upon certain conditions, the sec- ond involves a complete nullification of it.
S sold his land to B. It was agreed that the sale will include all the improvements. However, the contract as signed by the parties, states that the land is being sold, excluding the improvements thereon.
In this case, the remedy is reformation because there has been a meeting of the minds. But if S was selling his land “excluding” the improvements and B was buying the land “including” the improvements, then there has been no meeting of the minds and the remedy, therefore, is annulment. Reformation cannot be the remedy because, either way, it would not make the instrument express the real intention of both parties.
Mutual mistake as basis for reformation.
(1) The mistake must be of fact (see Art. 1331.), for if it is one of law, the remedy is annulment (see Art. 1334.);
(2) Such mistake must be proved by clear and convincing evidence;
(3) The mistake must be mutual, that is, common to both parties to the instrument; and
(4) The mistake must cause the failure of the instrument to express their true intention.
Facts: S sold to B lot No. 5 which was erroneously designated as lot No. 10 in the deed of sale. Subsequently, S sold to C lot No. 10 which, through mistake, was designated as lot No. 5 in the deed of sale. B and C occupied the lots respectively sold to them.
Issue: Is reformation proper?
Held: Yes. Here, there is simple mistake in drafting the documents of sale. Reformation is proper, there being a meeting of the minds of the parties to their contracts. “One sells or buys property as he sees it, in its actual setting and by its physical metes and bounds, and not by the mere lot number assigned to it in the certificate of title.”
In this case, however, the deeds of sale need not be reformed. Having
retained possession of their respective properties conformably to the real
intention of the parties, all that B and C should do is to execute mutual
deeds of conveyance
Facts: M (maker) executed a promissory note in favor of P (payee). S (surety) made a notation on the note obligating itself, for value received, “to hold M harmless against loss for having discounted the note.” P indorsed the note to B (bank). After maturity of the note, demand was made by B on M, P, and S, all of whom refused to pay. M, being insolvent, B now seeks the reformation of the instrument of guaranty upon the ground of mutual mistake, by substituting B for M.
The correspondence between the parties and the exhibits presented failed to disclose either an express or implied admission that S had executed the guaranty in question for the protection of B (bank).
Issue: Is the reformation of the instrument justified?
Held: No. To justify reformation, upon the ground of mistake, the concurrence of the requisites mentioned are necessary. B has not established by clear and convincing evidence that there was a mutual mistake.
Facts: S sold a parcel of land to B with the understanding that the sale was subject to S’s right to repurchase. With the help of a lawyer, B had the deed prepared in the English language with which S was unfamiliar. The deed did not include the condition of repurchase which fact was known to B.
Before S signed the deed, he inquired whether it contained said condition and he was told by B that it was sufficient. S relied upon the statement of B as to the contents and effect of the deed. Later, when S demanded the reconveyance of the property, B refused on the ground that he was the absolute owner of the same.
Issue: Is S entitled to reformation?
Held: Yes. S was mistaken. The conduct of B amounts to fraud or unfair dealing which warrants the reformation of the instrument. (Ong Chua vs. Carr, 53 Phil. 975 [1929].)
Cases when reformation not allowed.
ART. 1366. There shall be no reformation in the following cases:
(1) Simple donations inter vivos wherein no condition is imposed;
(2) Wills;
(3) When the real agreement is void.
ART. 1367. When one of the parties has brought an action to enforce the instrument, he cannot subsequently ask for its reformation.
Party entitled to reformation.
ART. 1368. Reformation may be ordered at the instance of either party or his successors in interest, if the mistake was mu- tual; otherwise, upon petition of the injured party, or his heirs and assigns.
Party entitled to reformation.
The above article enumerates the persons who can bring an action to reform an instrument:
(1) Either of the parties, if the mistake is mutual under Articles 1361, 1364, and 1365;
(2) In all other cases, the injured party, under Articles 1362, 1363, 1364, and 1365; and
(3) The heirs or successors in interest, in lieu of the party entitled. (Art. 1368.)
The effect of reformation is retroactive from the time of the execution of the original instrument.
Prescriptive Period for Reformation
The prescriptive period for actions based upon a written contract and for reformation of an instrument is ten (10) years under Art. 1144, Civil Code
