Allied Banking Corp. v. Fukuoka
REITERATIONFacts
1. The Antecedents: Crisostomo Borillo, a long-time client of Allied Banking Corporation (Allied Bank), was engaged by Cristina B. Fukuoka for the renovation of her house. Fukuoka, interested in purchasing an adjacent lot but lacking funds, inquired about a P1 million loan from Borillo. Borillo subsequently applied for and obtained a loan from Allied Bank, executing a promissory note. On the same day, Borillo accompanied Fukuoka to Allied Bank, where he handed over P979,000.00 to her. Fukuoka then executed a Real Estate Mortgage (REM) over her property in favor of Allied Bank to secure a P1 million credit accommodation. A note on the REM stated, "To secure the loan of Crisostomo/C.P. Borillo Const." Fukuoka later arranged for automatic monthly deductions from a savings account opened by Evelyn Pajarillaga to cover her loan amortization. However, Borillo also executed several other promissory notes with Allied Bank for substantial amounts between December 1995 and July 1996. 2. Procedural History: In June 1999, Allied Bank refused to deduct Fukuoka's monthly amortization. Upon confronting the bank manager, Fukuoka was advised to seek Crisostomo and a lawyer. On July 7, 1999, Fukuoka filed a complaint against Allied Bank, Ernesto Pascual, and Crisostomo Borillo (later impleading his wife Warlita Borillo) before the Regional Trial Court (RTC) of Las Piñas City, seeking reformation of the REM contract, specific performance, consignation, and damages. Fukuoka prayed for the deletion of Crisostomo's name from the REM and to prevent the use of her property for his obligations. The RTC ruled in favor of Fukuoka, awarding damages and attorney's fees, and dismissed Allied Bank's cross-claim against Crisostomo. The Court of Appeals (CA) affirmed the RTC's decision on appeal, dismissing Allied Bank's appeal and its cross-claim, deeming the cross-claim as a new cause of action. 3. The Petition: Allied Banking Corporation and Ernesto Pascual filed a petition for review on certiorari under Rule 45 of the Rules of Court, assailing the CA's decision. They argued that the requisites for reformation of contract were not met, as Fukuoka bound herself as a surety for Crisostomo's obligations, not as a borrower. They also contended that they were not bound by any internal arrangement between Fukuoka and Crisostomo, and that Crisostomo acted alone in defrauding Fukuoka. Furthermore, they sought the reinstatement of their cross-claim against Crisostomo. The Supreme Court affirmed the CA's ruling that a loan and REM existed between Allied Bank and Fukuoka, making reformation proper. However, the Court modified the decision by reinstating the cross-claim of Allied Bank and Pascual against Crisostomo Borillo for further proceedings at the RTC.
Issue(s)
Whether the requisites for reformation of contract are present, specifically whether Fukuoka bound herself as a surety for Crisostomo's loan obligations. Whether Allied Bank and Pascual are bound by the internal arrangement between Fukuoka and Crisostomo. Whether Crisostomo acted alone, or conspired with Allied Bank and Pascual, in defrauding Fukuoka. Whether the cross-claim of Allied Bank and Pascual against Crisostomo should be granted.
Ruling
The Court affirmed the CA ruling that there exists a contract of loan secured by a REM between Allied Bank and Fukuoka, and that reformation of the instrument is proper. The Court modified the CA decision by reinstating the cross-claim of petitioners Allied Banking Corporation and Ernesto Pascual against Crisostomo Borillo, directing the RTC to proceed with the cross-claim with deliberate dispatch.
Ratio Decidendi
On the issue of reformation of contract and Fukuoka's liability: The Court affirmed the CA's finding that a contract of loan secured by a REM existed between Allied Bank and Fukuoka, making reformation proper. The Court applied Article 1359 of the Civil Code, stating that when the true intention of the parties is not expressed in the instrument due to mistake, fraud, inequitable conduct, or accident, reformation may be sought. The Court considered the contemporaneous and subsequent acts of the parties, as mandated by Article 1371 of the Civil Code, to ascertain their true intention. The issuance of a credit ticket in Fukuoka's name and the matching monthly amortizations deducted from Pajarillaga's account with the Schedule of Monthly Amortizations provided to Fukuoka indicated Allied Bank's intention to loan P1 million to Fukuoka. Fukuoka's consistent monthly payments further supported this intention. The Court found it implausible that either Crisostomo or Fukuoka unilaterally imposed the monthly amortizations, and Allied Bank's acceptance of payments despite claims of not being privy to internal agreements contradicted their assertions. The Court also noted that the REM was tainted with fraud, as Allied Bank's employees inserted the phrase "To secure the loan of Crisostomo/C.P. Borillo Const" without Fukuoka's knowledge or consent, subjecting her property to additional obligations. The Court found it suspicious that the first page of the questioned REMs lacked signatures, supporting Fukuoka's claim of signing blank documents. The Court reiterated that it is not a trier of facts and gives great weight to the factual findings of the lower courts, especially concerning fraud. On the issue of privity and the internal arrangement between Fukuoka and Crisostomo: The Court found that Allied Bank's actions demonstrated their intention to loan to Fukuoka, despite their claims of not being privy to internal arrangements. The bank accepted monthly payments from Fukuoka through automatic deductions, consistent with the Schedule of Monthly Amortizations. This acceptance of payments, which aligned with Fukuoka's understanding of the loan, indicated that Allied Bank was aware of and participated in the arrangement, thereby creating a form of privity or at least acknowledging the transaction as it was understood by Fukuoka. The Court found it illogical for the bank to claim ignorance of an arrangement that it actively facilitated through payment deductions. On the issue of Crisostomo acting alone, or conspiring with Allied Bank and Pascual, in defrauding Fukuoka: The Court found that the circumstances weighed heavily against Allied Bank's claim of ignorance regarding the alleged "trickery" perpetrated by Crisostomo. The Court noted that Allied Bank's employee prepared a credit ticket in Fukuoka's name on the same date the loan release manifold was issued to Crisostomo, causing Fukuoka to believe she obtained the loan. Furthermore, the insertion of the phrase "To secure the loan of Crisostomo/C.P. Borillo Const" in the REM without Fukuoka's consent, and the discrepancy in the stated amount of the REM (P2.2 million in one version submitted by petitioners versus P1 million), coupled with evidence that Fukuoka was not in the Philippines on a date a subsequent REM was allegedly executed, pointed to a conspiracy or at least complicity by Allied Bank and its employee, Pascual, in the fraudulent scheme. The Court concluded that Allied Bank should be held jointly and severally liable with Crisostomo. On the issue of the cross-claim of Allied Bank and Pascual against Crisostomo: The CA dismissed the cross-claim, deeming it a new matter. However, the Supreme Court, in its discretion and to avoid multiplicity of suits, reinstated the cross-claim. The Court acknowledged that it is not a trier of facts and therefore not in the position to resolve the cross-claim based on the records. The reinstatement was directed to the RTC for further proceedings, recognizing that Crisostomo did contract loans from Allied Bank, and the cross-claim was a legitimate issue arising from the overall transaction.
Main Doctrine
Reformation of contract is proper when the true intention of the parties is not expressed in the instrument due to mistake, fraud, inequitable conduct, or accident, and the court may consider contemporaneous and subsequent acts of the parties to ascertain their true intention.