Chapter 4 - Reformation of Instruments

Reformation

• It is a legal remedy that allows contracting parties to re-write or correct the terms of their previously executed contract to ensure that the parties' true intentions are reflected in the contract.

Requisites for reformation

1. There is a meeting of the minds (Consent);

2. The true intention of the parties is not expressed in the written document.

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

4. There is clear and convincing proof of the mistake, fraud, inequitable conduct, or accident.

Limitation of Reformation

• Reformation is used as a remedy only to the extent such true intention of the parties may be expressed.

Reformation

• There is a meeting of the minds

• A contract exists but the true intention of the contracting parties is not expressed

Annulment

• No meetings of the minds

• The consent of one or both contracting parties has been vitiated by mistake, fraud or violence 

Illustration:

1. Bobby sold his farm to Kelly. It was agreed by both parties that the farm’s selling price would be P5,000,000. However, the written document signed by the parties, states that the selling price of the farm was P6,000,000. What is the remedy?

In this case, the remedy is reformation because there has been a meeting of the minds.

2. V was selling his house to RM excluding all the furniture and appliances inside the house. However, RM was willing to buy the house including the furniture and appliances. In the contract signed by V and RM, it was stated that V was selling his house to RM excluding all the furniture and appliances. Jean signed the contract in the belief that he was buying the house including all the furniture and appliances. What could be the remedy? 

There has been no meeting of the minds and therefore the remedy is annulment.

Principles of the general law on reformation

The new Civil Code's provisions take precedence over the general law's reformation principles in cases of dispute. The latter will only have a suppletory effect.

Requisites for mutual mistake as basis for reformation. 

• The mistake must be of a fact, for if it is one of the law, the remedy id annulment;

• Such mistake must be proved by clear and convincing evidence;

• The mistake must be mutual, that is, common to both parties to the instrument. 

• The mistake must cause the failure of the instrument to express their true intention. 

Quantum of evidence

“ More than a mere preponderance of evidence”

• The mistake is unilateral but the other party acted fraudulently or inequitable.

• The right to ask for reformation is granted only to the party who was mistaken in good faith.

• Reformation is allowed to avoid injustice and inequity if the party acted in bad faith and guilty of concealment.

• If the second party is not aware of the imperfection and acted in good faith as the first party therefore the mistake becomes mutual and reformation is authorized.

• The remedy of reformation may be availed of only by the party who acted in good faith. The concealment of the mistake by the other party constitutes fraud.

• Ignorance, lack of skill, negligence or bad faith must be on the part of a third person. Neither party has fault or responsible for the mistake in the contract. Hence, either party may ask for the reformation of the contract. 

• Reformation of the instrument is proper, otherwise, the true intention of the parties would be frustrated. 

• true intention must prevail for the contract of mortgage or pledge must be complied with in good faith

1. Simple donations inter vivos wherein no condition is imposed; - Donation is defined in  the Art. 725 of the Civil Code of the Philippines as “an act of liberality whereby a person disposes gratuitously of a thing or right in favor of another, who accepts it” (618a). As opposed to donation mortis causa wherein donation takes place upon the death of the decedent, donation intervivos occurs during the lifetime of the donor.

   • Donation is basically a gratuitous act, therefore the donee has no legitimate reason to object. If an error or fault has been made in the deed of donation, it is only a failure in a bounty that the donor was not bound to make and is not required to be corrected but he has the right to request to have that deed of donation be reformed

   • If there’s a condition or if there’s some kind of consideration required for the donation, only then will the reformation be allowed to express the real intention of the donor and the donee.

2. Wills - According to Art. 783 of the Civil Code, a will is “an act whereby a person is permitted with the formalities prescribed by law to control to a certain degree the disposition of his estate, to take effect after his death.” This is a donation mortis causa where donation occurs upon the death of the decedent. The right of reformation is lost upon the death of the testator because making a will is strictly personal wherein a third party cannot make decisions on the testator’s will. (Art. 784) However, the testator may revoke his will during his lifetime and this right is not subject to waiver or restriction. (Art. 828).

3. When the real agreement is void - There is nothing to reform in this case because it’s basically unenforceable.

When a party acts to enforce the contract, he acknowledges its validity and the fact that it accurately represents the parties' intentions. Therefore, reformation will not make sense in this case since the parties’s intentions are already known, or if there are fraudulent intentions, reformation will allow him to kind of undo his actions.

ILLUSTRATION: 

Thoma entered into a chattel mortgage contract with Ayato to pay for Thoma’s demandable liabilities while using his boat as a security. Thoma signed the contract, not knowing that it is a deed of sale. It was after a month that Thoma realized this scheme so he decided to file a lawsuit against Ayato. 

EXPLANATION

Because Ayato didn’t express his true intentions to the other party, he can no longer seek reformation to consider the chattel mortgage. Not only Ayato will have to face the consequences in accordance with the law, he is estopped which prohibits him from asking for reformation.

The reformation of an instrument cannot be done unless it is ordered by the court. If the mistake was mutual, the successor in interest or the heir of either party may petition for the reformation of the instrument before the court. On the other hand, if the mistake was not mutual, only the successor in interest or the heir of the injured party can petition for the reformation of the instrument within ten (10) years, as the law prescribes.

ILLUSTRATION:

Dori had contracted Kaveh for the construction of her new house. It has been agreed upon that Dori will pay in Euros. However, there was a typographical error in the contract which substituted the Euro (€) for the Philippine Peso (₱)sign.

EXPLANATION:

 Either Dori or Kaveh can petition the court for reformation within 10 years.

Generally speaking, all individuals interested in the subject matter of litigation, regardless of whether it is a legal or equitable interest, may resolve all of their claims at once by being one consolidated party against the other, avoiding the need to have multiple lawsuits. Consequently, in an action to reform a deed of sale, all parties with a claim to the property or any part of it and whose interests will be impacted by the instrument's reform are necessary parties to the action.