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REFORMATION OF INSTRUMENTS

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.

Definition

Reformation – is a special civil action for declaratory relief that serves as a remedy by means of
which a written instrument is amended or rectified in order to express or conform to the real agreement
or intention of the parties.

The action for reformation is called a special civil action for declaratory relief under Rule 63 of
the Rules of Court, and its purpose is to secure an authoritative statement of the rights and obligations
of the parties for their guidance in the enforcement thereof.

Rationale

Basis of reformation is equity. The courts by reformation do not attempt to make a new contract
for the parties, but tries to make the instrument express their real agreement. The rationale for such
doctrine is that it would be unjust and inequitable to allow the enforcement of a written instrument
which does not reflect the parties’ meeting of the minds.

Burden of Proof

Burden of proof is upon the party who insists the party should be reformed based on some legal
ground. It is also a right in personam.

Quantum of Evidence

Clear and Convincing Evidence which is more than a preponderance of evidence.

Prescription

Prescriptive period is within ten years from the time the cause of action accrues.

The cause of action accrues upon:

- knowledge of the ground for reformation; or


- from the date of the execution of the instrument embodying the contract if
the causes for reformation were already known at the time of the execution of the
contract

Implications

1. Applies only to written contracts.

2. No new contract is made.

3. Reforms the instrument embodying the contract and not the contract.

Requisites

1. There is a meeting of the minds or existence of a real and actual contract.

2. The true intention is not expressed in the instrument embodying the contract.

3. Failure to express the true intention is due to mistake, fraud, inequitable conduct, or
accident.

– if these factors prevented the meeting of the minds, then annulment is the remedy.

4. There must be clear and convincing evidence.

Reformation of Instrument vs. Annulment of Contract

Reformation of instrument presupposes a valid, existing contract, in which there had been a meeting of
the minds of the parties but the instrument drawn up and signed by them does not correctly express the
terms of their agreement.

Annulment of a contract, on the other hand, presupposes a defective contract in which the minds of the
parties did not meet, or the consent of one was vitiated. (Veluz vs. Veluz, July 31, 1968)

Breach of Contract

An action for reformation instituted after a breached of contract will not prosper (Rosello-Bentir vs.
Leanda, April 12, 2000).

Art. 1360. The principles of the general law on the reformation of instruments are hereby
adopted insofar as they are not in conflict with the provisions of this Code.

- 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.
Mutual Mistake – mistake of fact that is common to both parties which causes the failure of the
instrument to express true intention.

Requisites

1. The mistake must be mutual.

2. Mistake must be of fact.

- If mistake of law, then annulment is the remedy.

3. Mistake caused the failure of the instrument to express true intention.

4. Mistake must be proved by clear and convincing evidence.

Mutual Mistake; Clear and Convincing Evidence

One of the parties contended that there was a mutual mistake relative to the documentation of the
contract of sale but there was no convincing evidence that the mistake is mutual. The reformation of sale
was denied (Gonzalez Mondragon vs. Santos, October 12, 1950).

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.

Fraudulent Acts

- It must be shown that the other party has acted fraudulently or inequitably resulting in
the drafting of a document which does not correspond to the actual contract agreed upon by the
parties.

General Rule

- mistake of law or ignorance of the law cannot result to reformation.

Exception

- if the other party acted fraudulently or with deception towards the other in executing the
contract.

Right for Reformation


- The right to ask for reformation is given to the party whose mistake was in good
faith.
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.

- Knowledge by one party of the other’s mistake regarding the expression of the
agreement is equivalent to mutual mistake. The concealment of mistake constitutes fraud.

Right for Reformation

- Remedy of reformation may be availed by the party who acted in good faith – injured
party.

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.

- The mistake is deemed mutual and either party may ask for reformation. Neither party is
responsible.

- 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) drafter of the instrument; 2) clerk; 3) 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.

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).

The parties intended that the house subject of the agreement was to be collateral for a
particular loan but the agreement apparently states that the house was the subject of a
conditional sale of a residential building. Reformation of the agreement was allowed (Palileo v.
Cosio, May 31, 1965).

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.

Simple Donations
- Donations are essentially acts of pure liberality. Since act is essentially
gratuitous, donee has no just cause for complaint. Do not involve meeting of minds.

- However, if donation is onerous in character or involves a condition, the deed


may be reformed so that the true conditions imposed by the donor may expressed.

Wills
- The making of a will is strictly a personal act which is free. Moreover, a will may
be revoked at any time.

- 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.

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. There is no meeting of the minds.

Art. 1367. When one of the parties has brought an action to enforce the instrument, he
cannot subsequently ask for its reformation.

- A party seeking to enforce an agreement necessarily acknowledges that the


instrument embodies the contract intended by the parties and therefore, he estopped from filing
a case for reformation alleging that the contract does not contain the true intent of the parties.

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.

Persons with Legal Standing

1. If mistake is mutual, either parties or successor-in-interest.

2. In all other cases, the injured party or his heirs and assigns.

Art. 1369. The procedure for the reformation of instrument shall be governed by rules of court to
be promulgated by the Supreme Court.

- The power to promulgate procedural rules for the reformation of instruments is


vested to the Supreme Court.

INTERPRETATION OF CONTRACTS

Art. 1370. 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.

If the words appear to be contrary to the evident intention of the parties, the latter
shall prevail over the former.
INTERPRETATION REFORMATION

A remedy in equity where a written instrument


The act of making intelligible what was before not
is made or construed as to express or conform
understood, ambiguous or not obvious.
to the real intention of the parties.

The determination of the meaning attached to


the words written or spoken which make the
contract.

General Rule:
The intention of the parties is reflected from the wordings of the contract, and therefore
the literal stipulations shall control.

Exception:
When the wording is ambiguous, apply the rules in statutory construction.

How to discern the intention?

1. Examine the text. If it is unclear...

2. Consider the context. Context can be ascertained from the following:

a. The prior, contemporaneous, and subsequent acts of the parties

b. Applying ejusdem generis and noscitur a sociis

c. Examining the nature of the contract

d. Customs and usage (but only to fill omissions)

e. Contra proferentem
- rule in contract
law which states that any clause considered
to be ambiguous should be interpreted against the interests of the party
that requested that the clause is included.
f. Applying the gratuitous and onerous rule

Art. 1371. In order to judge the intention of the contracting parties, their contemporaneous
and subsequent acts shall be principally considered.

The import of a word ultimatedly depends upon the consideration of the entire provision,
its nature, the object and the consequences that would follow it from construing it one way or the other.
Thus if a provision demands a mandatory application, the word “may” be construed as “shall.” (Gonzales
v. Previsora Filipina)
Art. 1372. However general the terms of a contract may be, they shall not be understood to
comprehend things that are distinct and cases that are different from those upon which the
parties intended to agree.

NOSCITUR A SOCIIS

- General and unlimited terms are restrained and limited by particular terms that
follow.

EJUSDEM GENERIS

- A general term joined with a specific one will be deemed to include only things that
are like, of the same genus, as the specific one.

Art. 1373. If some stipulation of any contract should admit of several meanings, it shall be
understood as bearing that import which is most adequate to render it effectual.

Construction in terms of a contract which would amount to impairment or loss of right is


not favoured; conservation and preservation, not waiver, abandonment, or forfeiture of a right, is
the rule. (Ridjo Tape and Chemical Corporation v. CA)

Provisions in a contract must be given a construction as will give effect to them. If it were
the intention of the parties to limit the respondent’s obligation to P4M they should have stated so,
and there would have been no need to qualify the statement of said amount with the clause “as of
June 1980 plus any applicable charges on the overdue account,” among others. (Caltex v.
Intermediate Appellate Court)

Art. 1374. The various stipulations of a contract shall be interpreted together, attributing to
the doubtful ones that sense which may result from all of them taken jointly.

- The various provisions of a contract must be read as a whole and not in isolation.
Each provision must be related to each other in order to clearly now the total import and
application of the law, and so that a harmonious whole can be attained.

Mortgages given to secure future advancements or loans are valid and legal contracts, and
amounts named as consideration in said contracts do not limit the amount for which the
mortgage may stand as security, if from the four corners of the instrument the intent to secure
future and other indebtedness can be gathered. (China Banking Corp v. CA)

The important task in contract interpretation is always the ascertainment of the intention
of the parties through looking to the words they used to project the intention of their contract—all
the words, and not just a particular word or two, and words in context and not words standing
alone. (Fernandez v. CA)

Art. 1375. Words which may have different significations shall be understood in that which is
most in keeping with the nature and object of the contract.

- The Court interpreted the words “in proportion” to mean that the parties to a
compromise contemplated a divisible obligation. (Pasay City Government v. Court of First
Instance of Manila)
Art. 1376. The usage or custom of the place shall be borne in mind in the interpretation of the
ambiguities of a contract, and shall fill the omission of stipulations which are ordinarily
established.

- It is important to note that usage or custom will only be admissible if a contract’s


provisions are doubtful. An express contract embodying in clear and positive terms the intention
of the parties cannot be varied nor contradicted by evidence of usage or custom. A written and
express contract cannot be controlled, varied, or contradicted by usage or custom.

Art. 1377. The interpretation of obscure words or stipulations in a contract shall


not favor the party who caused the obscurity.

Rationale

- Since he caused the obscurity, the party who drew up the contract with
ambiguous terms should be responsible therefor; so the obscurity must be construed against him.
The drafter of the terms of the contract should, therefore, be careful.

CONTRA PROFERENTEM

- Means “against the proferrer.” If there is an ambiguity in a document and all the
other methods of construction have failed to resolve so that there are two alternative meanings to
certain words, the Court may construe the words against the party who put forward the
document, and give effect to the meaning more favourable to the other party
- Based on the maxim verba accipiuntur fortius contra proferentem: a contract is
interpreted against the person who wrote it.

The interpretation should be in favor of the contractor because they were not
the cause of misunderstanding. The government must state their instruction in a clear
manner. Whatever maybe favorable to the party whose favors the provision was made and to the
one who do not cause misinterpretations. (GOV’T. OF THE PHILIPPINES v. DERHAM
BROTHERS)

Art. 1378. When it is absolutely impossible to settle doubts by the rules established in the
preceding articles, and the doubts refer to incidental circumstances of a gratuitous contract, the
least transmission of rights and interests shall prevail. If the contract is onerous, the doubt shall
be settled in favor of the greatest reciprocity of interests.

If the doubts are cast upon the principal object of the contract in such a way
that it cannot be known what may have been the intention or will of the parties,
the contract shall be null and void.

- When a contract is gratuitous in nature, the least transmission of rights should


prevail.

- Where a donee seeks the execution of a donation even though such done did not
fulfil a condition sought by the donor, because such donor did not seek the enforcement of the
condition for a long time anyway, the Court ruled for the revocation of the donation. (Central
Philippine University v. CA)

- When a contract is onerous in nature, doubt shall be settled in favour of the


greatest reciprocity of interests.(CASTELO vs. CA)

- The Court ruled that a provision in a contract transferring Gaite’s rights to


Fonacier in exchange for an amount of money, and where the remaining balance of the money
will be paid “from and out the first letter of credit covering the first shipment of iron ores and of
the first amount derived from the local sale of iron ore” should be interpreted as providing for a
suspensive period, and not a suspensive condition. The Court ruled that a greater reciprocity of
interests obtains if the buyer’s obligation is deemed to be actually existing, with only its maturity
date postponed or deferred, than if such obligation was viewed as non-binding until the ore was
sold. (Gaite v. Fonacier)

- When the contract’s principal object is expressed in such a way that the intention
of the parties cannot be known, the contract is null and void.

Art. 1379. The principles of interpretation stated in Rule 123 of the Rules of Court
shall likewise be observed in the construction of contracts.

OTHER PRINCIPLES OF INTERPRETATION

Section 10. Interpretation of a writing according to its legal meaning.


Section 11. Instrument construed so as to give effect to all provisions.
Section 12. Interpretation according to intention; general and particular provisions.
Section 13. Interpretation according to circumstances.
Section 14. Peculiar signification of terms.
Section 15. Written words control printed.
Section 16. xperts and interpreters to be used in explaining certain writings.
Section 17. Of two constructions, which preferred.
Section 18. Construction in favor of natural right.
Section 19. Interpretation according to usage.

It is a well-settled rule that in case repugnance exists between written and printed
portions of a policy, the written portion prevails, and there can be no question that as far as any
inconsistency exists, the above-mentioned typed ‘rider’ prevails over the printed clause. (JARQUE v.
SMITH, BELL AND CO.)

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