Banico v. Stager
REITERATIONFacts
The Antecedents: Lydia Bernadette M. Stager (Lydia) owned a 6,100 sq m lot in Boracay. She offered to sell a portion to Ulysses Rudi V. Banico (Ulysses). Ulysses' lawyer drafted a Deed of Absolute Sale for an 800 sq m portion for P350,000.00, signed on February 8, 1992. Upon payment, Ulysses occupied the flat terrain but discovered the deed described the elevated, rocky portion. Lydia promised to correct it and convinced Ulysses to buy an additional 400 sq m for P160,000.00 on installment, conditioned on amending the deed to reflect the correct location, area, and consideration. Ulysses began construction and paid the balance for the 400 sq m lot. In 1997, Lydia refused to amend the deed, claiming an unpaid balance of P12,000.00 for the 400 sq m lot, which Ulysses disputed. Procedural History: Ulysses filed an action for specific performance and damages before the RTC, seeking an amended contract reflecting all stipulations. Lydia claimed the two transactions were distinct and Ulysses had an unpaid balance for the second lot. Lydia died and was substituted by her heirs. The RTC ordered the reformation of the February 8, 1992 Deed of Absolute Sale to reflect the correct location of the 800 sq m lot. It found Ulysses had a P6,600.00 balance for the 400 sq m lot and denied damages. Both parties appealed to the CA. The CA denied reformation, ruling Ulysses' cause of action had prescribed, as the complaint was filed more than 10 years after the deed's execution. It also noted the ambiguity should be construed against Ulysses, whose lawyer drafted the contract. The CA reduced the unpaid balance for the 400 sq m lot to P5,860.00 and ordered the execution of a deed of sale upon payment. Both parties moved for reconsideration. The CA denied both motions, reiterating that the February 8, 1992 deed reflected the true intention of the parties and that Ulysses' lawyer's error was his own fault. It also affirmed the finding of an unpaid balance for the 400 sq m lot. The Petition: Ulysses filed a petition for review on certiorari, arguing the CA erred in ruling that the party who caused the ambiguity cannot seek reformation, in its appreciation of receipts, and in finding an unpaid balance.
Issue(s)
Whether the CA erred in denying the reformation of the Deed of Absolute Sale dated February 8, 1992, on the ground of prescription, and whether the Deed of Absolute Sale failed to express the true intention of the parties due to mistake. Whether Ulysses Rudi V. Banico is liable for an unpaid balance for the 400-square meter lot, and if so, the correct amount. Whether either party is entitled to damages.
Ruling
The Supreme Court granted the petition, reversed the CA's decision, and reinstated the RTC's decision with modification. It ordered the reformation of the Deed of Absolute Sale dated February 8, 1992, to reflect the exact location of the 800 sq m lot. It also ordered Ulysses to pay the Heirs of Lydia Bernadette Stager the amount of P5,860.00 representing the unpaid balance for the 400 sq m lot, with 6% interest per annum from February 18, 2015, until full payment. Upon full payment, the Heirs of Lydia were directed to execute the necessary deed of sale for the 400 sq m lot.
Ratio Decidendi
On the reformation of the Deed of Absolute Sale dated February 8, 1992: The Court held that the CA erred in denying reformation on the ground of prescription. It reiterated the requisites for reformation: (1) meeting of the minds, (2) instrument not expressing true intention, and (3) failure due to mistake, fraud, inequitable conduct, or accident. The Court found all requisites present. There was a clear meeting of the minds on the sale of the 800 sq m flat terrain, evidenced by Ulysses' occupation, construction, Lydia's promise to correct the deed, and her subsequent execution of a deed with the accurate description. The Court clarified that the lawyer's mistake in drafting the instrument does not prevent reformation, especially when the parties are not experts in technical descriptions, citing Atilano, et al. v. Atilano, et al. and Sarming v. Dy. The Court also found that Lydia's execution of a notarized Deed of Absolute Sale dated December 6, 2001, containing the accurate description, constituted a written acknowledgment of the obligation, which interrupted the ten-year prescriptive period for reformation. Therefore, the complaint filed on July 9, 2002, was well within the prescriptive period. On the unpaid balance for the 400-square meter lot: The Court affirmed the CA and RTC's findings that Ulysses had an unpaid balance for the 400 sq m lot, as this was a question of fact. The Court adopted the CA's computation, reducing the balance to P5,860.00. The Court noted that while Ulysses presented receipts totaling P167,840.00, several receipts were rejected by the RTC for various reasons, including lack of signature, unclear purpose, or unrelated transactions. The Court agreed with the RTC's rejection of specific receipts totaling P13,700.00, which, when subtracted from the total payments, left a balance of P5,860.00. The Court reiterated that the burden of proof for payment rests on the debtor, and Ulysses failed to sufficiently prove payment for the rejected receipts. On the entitlement to damages: Both the CA and RTC correctly denied the parties' claims for damages. The Court found that the mistake in the Deed of Absolute Sale was not malicious or deliberate, as neither party was aware of the error until the land was surveyed. Furthermore, there was no substantial breach of the contract to sell the 400 sq m lot that would warrant an award of damages. The Court emphasized that Ulysses had paid a considerable amount and was permitted to complete the payment, and rescission was not allowed absent a substantial breach.
Main Doctrine
The lawyer's mistake in drafting a written instrument will not prevent its reformation if the contemporaneous and subsequent acts of the parties show that their true intention was not disclosed in the document. Furthermore, the ten-year prescriptive period for actions for reformation of instrument is interrupted by a written acknowledgment of the obligation, such as the execution of a deed of sale containing the accurate description of the property.