Bentir And Pormida V. Leanda And Leyte Gulf Traders [miranda].docx

Bentir and Pormida v. Leanda and Leyte Gulf Traders G.R. No. 128991 – April 12, 2000 J. Kapunan Topic: Form and Substance of Contracts – Reformation Petitioners: Yolanda Rosello-Bentir, Samuel Pormida and Charito Pormida Respondents: Honorable Mateo M. Leanda (Presiding Judge of RTC, Tacloban City, Branch 8) and Leyte Gulf Traders, Inc. Summary: This case is about a contract of lease of a parcel of land and whether or not its subsequent reformation is barred by prescription. FACTS:  May 5, 1968: Leyte Gulf Traders, Inc. (Leyte Gulf) entered into a contract of lease of a parcel of land located at Sagkahan District, Tacloban City with Yolanda Rosello-Bentir (Bentir) for a period of 20 years starting May 5, 1968. o According to Leyte Gulf, the lease was extended for 4 more years (or until May 31, 1992).  May 5, 1989: Bentir sold the leased premises to spouses Samuel and Charito Pormida (Pormidas). o Leyte Gulf questioned the sale and argued that it had a right of first refusal. At the RTC  May 15, 1992: Leyte Gulf filed a complaint for reformation of instrument, specific performance, annulment of conditional sale and damages with prayer for writ of injunction against Bentir and the Pormidas (petitioners). o The case was raffled to Judge Pedro S. Espina, RTC Tacloban City, Branch 7. o Leyte Gulf sought the reformation of the expired contract of lease on the ground that its lawyer inadvertently omitted to incorporate in the 1968 contract the verbal agreement or understanding between the parties that if Bentir leases or sells the lot after the expiration of the lease, Leyte Gulf has the right to equal the highest offer (“right of first refusal”).  The petitioners filed their answer and alleged that: o The inadvertence of the lawyer who prepared the lease contract is not a ground for reformation; and o Leyte Gulf is guilty of laches for not bringing the case for reformation of the lease contract within the prescriptive period of 10 years from its execution.  (RULING – Judge Espina) December 15, 1995: DISMISSED the complaint on the ground that the action for reformation had already prescribed. o Counted from May 5, 1968 when the contract of lease was executed (prescriptive period for reformation of a written contract is 10 years under NCC 1144).  December 29, 1995: Leyte Gulf filed an MFR on the order dismissing the complaint.  January 11, 1996: Leyte Gulf filed an urgent ex-parte motion for issuance of an order directing the petitioners, or their representatives/agents to refrain from taking possession of the land.  Judge Espina was assigned to the RTC Malolos, Bulacan, Branch 19. Judge Roberto A. Natividad was designated in his place.  March 28, 1996: Upon motion of the petitioners, Judge Natividad inhibited himself from hearing the case. The case was re-raffled and assigned to RTC Tacloban City, Branch 8, presided by Judge Mateo M. Leanda.  (RULING – Judge Leanda) May 10, 1996: REVERSED Judge Espina’s order of dismissal on the grounds that: o The action for reformation had not yet prescribed; and

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The dismissal was premature, denying Leyte Gulf of its right to procedural due process.  Judge Leanda said Judge Espina dismissed the complaint on the lone ground of prescription without considering the remaining causes of action: (a) on Specific Performance; (b) an Annulment of Sale and Title; (c) on Issuance of a Writ of Injunction, and (d) on Damages. June 10, 1996: Judge Leanda issued an order for status quo ante, enjoining the petitioners to desist from occupying the property.

At the CA – Petition for Certiorari  Petitioners sought: o The annulment of the RTC order with prayer for issuance of a writ of preliminary injunction and TRO to restrain Judge Leanda from further hearing the case; and o To direct Leyte Gulf to desist from further possessing the land and to turn over possession to the petitioners.  RULING (January 17, 1997): DENIED the petition and AFFIRMED the May 10, 1996 RTC order, finding no error in the order nor GADALEJ on the part of the RTC.  April 16, 1997: MFR filed by petitioners  DENIED. At the SC – Petition for Review  Petitioners allege that the CA erred in holding that: o An action for reformation is proper and justified under the circumstances of this case; o The action for reformation has not yet prescribed; o An option to buy in a contract of lease is revived from the implied renewal of such lease; o A status quo ante order is not an injunctive relief that should comply with the provisions of Rule 58 of the ROC. ISSUE + HELD: W/N the complaint for reformation of instrument has prescribed – YES Concept of Reformation  The remedy of reformation is grounded on the principle of equity. o The law allows an instrument already executed to be reformed in order to express the true intention of the contracting parties. o The right of reformation is an invasion or limitation of the parol evidence rule 1 because when a writing is reformed, an oral agreement is made legally effective by court decree.  However, reformation is an extraordinary remedy—hence, it is subject to limitations as may be provided by law, such as laches. o A suit for reformation may be barred by lapse of time. o Prescriptive period for actions based upon a written contract and for reformation of an instrument: 10 years under NCC 1144. o Prescription aims to suppress stale and fraudulent claims arising from transactions, like this case, where the facts had become so obscure from the lapse of time or defective memory. SC Ratio  Leyte Gulf had 10 years from 1968 (when the contract of lease was executed) to file an action for reformation (aka until 1978). o It only filed the action on May 15, 1992, or 24 years after its cause of action accrued. o Hence, its cause of action has become stale aka timebarred.  CA: upheld the RTC decision that the action for reformation has not prescribed. Parol evidence rule – forbids any addition to or contradiction of the terms of a written instrument by testimony or other evidence purporting to show that, at or before the execution of the parties' written agreement, other or different terms were agreed upon by the parties, varying the purport of the written contract. 1

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The RTC reckoned the 10 year prescriptive period from the date of the alleged 4 year extension of the lease contract after it expired in 1988, not the date of its execution (1968). o Thus, when the action for reformation was filed in 1992, it was within the 10 year prescriptive period (only 4 years had elapsed counting from 1988). o Leyt Gulf theorized (and the CA agreed) that the extended period of lease was an “implied new lease” under NCC 1670, which provides that the other terms of the original contract were deemed revived in the implied new lease. SC: WRONG! 1) If there was an agreement between the parties to extend the lease contract for 4 years, NCC 1670 is inapplicable.  NCC 1670 talks about an implied new lease (tacita reconduccion): o At the end of the contract, the lessee continues to enjoy the thing leased “with the acquiescence of the lessor;” o Duration of the lease: “not for the period of the original contract, but for the time established in Article 1682 and 1687.”  THUS, if the extended period of lease was expressly agreed upon by the parties, then the term should be exactly what the parties stipulated—not more, not less. 2) The right of action for reformation accrued from the date of the execution of the contract of lease (1968).  Even if the supposed 4 year extended lease were considered an implied new lease under NCC 1670, “the other terms of the original contract” contemplated in the provision refers to only those terms which are germane to the lessees right of continued enjoyment of the property leased.  The prescriptive period of 10 years under NCC 1144 applies by operation of law, not by the will of the parties. Assuming that the action for reformation is not time barred, Leyte Gulf’s action must still fail. o Sec. 1, Rule 64, ROC: an action for the reformation of an instrument is instituted as a special civil action for declaratory relief. o Purpose of an action for declaratory relief: to secure an authoritative statement of the rights and obligations of the parties for their guidance in the enforcement thereof, or compliance therewith, not to settle issues arising from an alleged breach thereof.  Such action may only be entertained before the alleged breach or violation of the law or contract. o In this case, Leyte Gulf brought the action for reformation after an alleged breach or violation of the contract was already committed by Bentir. o THUS, the remedy of reformation no longer lies. No need to discuss the other issues raised as they are predicated upon the SC’s resolution that the action for reformation has prescribed.

RULING: Petition GRANTED. The Decision of the CA (January 17, 1997) is REVERSED and SET ASIDE. The Order of the RTC of Tacloban City, Branch 7 (December 15, 1995) dismissing the action for reformation is REINSTATED.