Reviewer- Reformation of Instrument

REFORMATION OF INSTRUMENTS

‘Reformation’ Defined “Reformation is that remedy in equity by means of which a written instrument is made or construed so as to express or conform to the real intention of the parties when some error or mistake has been committed.” (53 Corpus Juris 906). Reason for Reformation “Equity orders the reformation of an instrument in order that the true intention of the contracting parties may be expressed. The courts do not attempt to make another contract for the parties. The rationale of the doctrine is that it would be unjust and inequitable to allow the enforcement of a written instrument which does not refl ect or disclose the real meeting of the minds of the parties. The rigor of the legalistic rule that a written instrument should be the fi nal and infl exible criterion and measure of the rights and obligations of the contracting parties is thus tempered to forestall the effects of mistake, fraud, inequitable conduct or accident.” (Report of the Code Commission, p. 56). Art. 1359. When, there having been a meeting of the minds of the parties to a contract, their true intention is not expressed in the instrument purporting to embody the agreement, by reason of mistake, fraud, inequitable conduct or accident, one of the parties may ask for the reformation of the instrument to the end that such true intention may be expressed. If mistake, fraud, inequitable conduct, or accident has prevented a meeting of the minds of the parties, the proper remedy is not reformation of the instrument but annulment of the contract. Distinctions Between ‘Reformation’ and ‘Annulment’ (a) Where there has been a meeting of the minds, but there is mistake, fraud, inequitable conduct or accident in the contract as written, the remedy is REFORMATION. When there has been no meeting of the minds, because of vitiated consent, the proper remedy is ANNULMENT. Example: If the seller was selling for P1,000,000 but the buyer thought he was buying for P500,000 and the contract states P1,000,000, there has been no meeting of the minds and the remedy is annulment; but if both agreed on P500,000 and the contract as written states P1,000,000, the remedy is reformation, because here, there has been a meeting of the minds. (b) Reformation does not invalidate a contract; annulment invalidates a contract. Requisites for the Action for Reformation (a) There must be a meeting of the minds. (b) The true intention is not expressed in the instrument. (c) There must be clear and convincing proof thereof. [NOTE: Mere preponderance of evidence here would not be suffi cient. (Gonzales Mondragon v. Santos, 48 O.G. 560).] (d) It must be brought within the proper prescriptive period. (e) The document must not refer to a simple unconditional donation inter vivos (Art. 1366), or to wills (Art. 1366), or to a contract where the real agreement is void. (Art. 1366). Art. 1360. The principles of the general law on the reformation of instruments are hereby adopted insofar as they are not in confl ict with the provisions of this Code. Rule in Case of ConflIct In case of conflict between the Civil Code and the principles of the general law on reformation, the former prevails. The latter will have only suppletory effect.

Art. 1361. When a mutual mistake of the parties causes the failure of the instrument to disclose their real agreement, said instrument may be reformed. When Reformation May Be Asked Because of Mutual Mistake (a) Under this Article, the mistake must be mutual. (b) The mistake may be unilateral under the conditions set forth in Arts. 1362 and 1363 of the Civil Code. (c) The mistake must be of fact — usually. Therefore, generally an error of law is not enough. (Bank of the P.I. v. Fidelity & Surety Co. of the P.I., 51 Phil. 57). Example A sold to B orally a house at 16 San Isidro, Malate. In the written public document, both forgot the true number of the house and instead wrote on the contract “No. 18 San Isidro, Malate.” Here, reformation of the instrument is proper. Another Example A made a check in favor of B. C wrote in the note “I guarantee that A will not suffer any harm.” B now seeks to reform the instrument saying that the note should state “I guarantee that B will not suffer any harm” and that the mistake was mutual. But B was not able to satisfactorily prove that there was such a mistake. Should the instrument be reformed? ANS.: No, the instrument should not be reformed. The plaintiff Bank (B) has not established a mutual mistake by proof of the clearest and most satisfactory character constituting more than a preponderance of evidence. To justify the reformation of a written instrument upon the ground of mistake, the concurrence of three things are necessary: First, that the mistake should be of a fact; Second, that the mistake should be proved by clear and convincing evidence; and Third, that the mistake should be common to both parties to the instrument (where mutual mistake is alleged). (Bank of the Philippine Islands v. Fidelity and Surety Company of the P.I., 51 Phil. 57). Art. 1362. If one party was mistaken and the other acted fraudulently or inequitably in such a way that the instrument does not show their true intention, the former may ask for the reformation of the instrument. Unilateral Mistake In this Article, the mistake is unilateral but the other party acted fraudulently or inequitably. Example A agreed with B that A would be loaned P10,000,000 by B. In the contract signed by A and B, it was stated that A was selling his house to B for said amount. A signed the contract in the belief that it was really a contract of loan. Who, if any, may ask for the reformation of the instrument if B had acted fraudulently? ANS.: A may ask for the reformation of the instrument because after the meeting of the minds, one party (B) acted fraudulently or inequitably in such a way that the contract does not show their real intention. In such a case, the law provides that the person who acted by mistake may ask for the reformation of the instrument. Art. 1363. When one party was mistaken and the other knew or believed that the instrument did not state their real agreement, but concealed that fact from the former, the instrument may be reformed. Unilateral Mistake Also (a) Here again, the mistake is unilateral but the other party is guilty of concealment. (b) Only the party in good faith can ask for reformation.

Art. 1364. When through the ignorance, lack of skill, negligence or bad faith on the part of the person drafting the instrument or of the clerk or typist, the instrument does not express the true intention of the parties, the courts may order that the instrument be reformed. Failure to Convey the True Intent The court may order the reformation of the instrument if the instrument does not convey the true intention of the parties because of the: (a) ignorance (b) lack of skill (c) bad faith of 1) the drafter of the instrument 2) or the clerk 3) or the typist. Art. 1365. If two parties agree upon the mortgage or pledge of real or personal property, but the instrument states that the property is sold absolutely or with a right of repurchase, reformation of the instrument is proper. Intent to Have a Mortgage or Pledge Example: B wanted to borrow from L, so he offered by way of mortgage his land as security. Both parties agreed on this point but the contract as drafted contained an absolute sale. May the instrument be reformed? ANS.: Yes; otherwise, the true intention of the parties would be frustrated. How to Judge the Parties’ Intent The intention of the parties can be judged from their contemporaneous and subsequent acts. (Velasquez v. Teodoro, 46 Phil. 757). Art. 1366. There shall be no reformation in the following cases: (1) Simple donations inter vivos wherein no condition is imposed; (2) Will; (3) When the real agreement is void. When Reformation Is Not Allowed The Article gives 3 instances when reformation is not allowed. Reason for Instance No. 1 (Simple Donations) Donations are essentially acts of pure liberality. However, if the donation is conditional, reformation may be resorted to so that the real or true conditions intended by the donor might be brought out. In case the donation is an onerous one, reformation is very much in order inasmuch as in this case, said donation would partake very much of the nature of contracts. Reason for Instance No. 2 (Wills) The making of a will is strictly a personal act (Art. 784, Civil Code) which is free. (Art. 839, Civil Code). Moreover, a will may be revoked at any time. (Art. 828, Civil Code). ( NOTE: However, after the death of the testator, errors or imperfections in descriptions may be corrected under Art. 789 of the Civil Code, but not the manner of property disposal.)

Reason for Instance No. 3 (Void Agreement) Reformation is not allowed in case the real agreement is void because such a procedure would be useless. Once reformation is made, the new instrument would be void precisely because the true agreement and intention are void. Art. 1367. When one of the parties has brought an action to enforce the instrument he cannot subsequently ask for its reformation. Effect of an Action to Enforce the Instrument (a) This Article presents another instance when reformation cannot prosper. (b) Basis is estoppel, waiver or ratifi cation. Example A sold B a house. A fraudulently made the contract one of mortgage instead of sale. Both signed the contract of mortgage, with B believing all the time that it was a contract of sale. B, therefore, has the right to bring an action for the reformation of the instrument; but if B brings an action to foreclose the mortgage, he is by said action enforcing the instrument. He cannot, therefore, subsequently ask for the reformation of the instrument to make it one of sale. Art. 1368. Reformation may be ordered at the instance of either party or his successors in interest, if the mistake was mutual; otherwise, upon petition of the injured party, or his heirs and assigns. Plaintiffs in Action for Reformation (a) If the mistake is mutual, either party or his successors in interest; (b) In all other cases: 1) the injured party; 2) his heirs and assigns. Problem A and B agreed on a certain contract, but A fraudulently made a document reciting another kind of contract. Later, both A and B died. (a) May the son of B bring an action to reform the instrument? (b) May the son of A bring an action to reform the instrument? ANS.: 1) Yes, the son of B may bring an action to reform the instrument because he is the heir of the injured party. 2) No, the son of A cannot bring a successful action to reform the instrument inasmuch as it was the father who caused the fraud. Query: But suppose the son of A wanted to correct the fraud made by his father? ANS.: This is all right but in such a case, no court action is needed anymore, since both parties can agree to reform the instrument by themselves. What Complaint Must Allege Before reformation can be granted, the complaint must allege: (a) that the instrument to be reformed does not express the real agreement or intention of the parties (Ongsiako, et al. v. Ongsiako, et al., L-7510, Mar. 30, 1957); (b) what the real agreement or intention was. (Garcia v. Bisaya, et al., 97 Phil. 609). [NOTE:

1) It is not the function of the remedy of reformation to make a new agreement, but to establish and perpetuate the true existing one. (23 RCL, par. 4, p. 311). 2) Moreover, courts do not reform instruments merely for the sake of reforming them, but only to enable some party to assert rights under them as reformed. (23 RCL, par. 2).] Prescriptive Period for Reformation of a Contract Antonio Jayme, et al. v. Hon. Nestor Alampay L-39592, Jan. 28, 1975 The period of prescription for the reformation of a contract (such as one ostensibly an absolute sale but actually a mortgage) is ten (10) years. Art. 1369. The procedure for the reformation of instruments shall be governed by Rules of Court to be promulgated by the Supreme Court. Procedural Rules These procedural rules are supposed to be promulgated by the Supreme Court.