Title
Bank of the Philippine Islands vs. Fidelity and Surety Company of the Philippine Islands
Case
G.R. No. 26743
Decision Date
Oct 19, 1927
Bank sought reformation of guaranty due to alleged mutual mistake; Supreme Court dismissed, citing insufficient evidence to prove mutual mistake.
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Case Digest (G.R. No. 26743)

Facts:

  1. Promissory Note Execution
    On April 26, 1920, the Laguna Coconut Oil Co. executed a promissory note in favor of the Philippine Vegetable Oil Company, Inc., for P50,000, payable one month after the date. The note included provisions for interest and attorney's fees in case of non-payment.

  2. Guaranty Notation
    On May 3, 1920, the Fidelity and Surety Company of the Philippine Islands made a notation on the note, obligating itself to hold the Laguna Coconut Oil Co. harmless against loss for discounting the note.

  3. Endorsement to the Bank
    On May 4, 1920, the Philippine Vegetable Oil Company endorsed the note in blank and delivered it to the Bank of the Philippine Islands. However, it was unclear whether the bank actually discounted the note.

  4. Non-Payment and Insolvency
    After the note matured, demand for payment was made on the Laguna Coconut Oil Co., the Philippine Vegetable Oil Company, and the Fidelity and Surety Company, all of whom refused to pay. The Laguna Coconut Oil Co. was insolvent.

  5. Legal Proceedings
    The Bank of the Philippine Islands filed multiple actions against the Fidelity and Surety Company to enforce the guaranty. The case had been remanded twice before reaching the Supreme Court again.

  6. Claim of Mutual Mistake
    The Bank sought reformation of the guaranty instrument, alleging a mistake in the notation where "Laguna Coconut Oil Co." was mistakenly used instead of "Bank of the Philippine Islands."

Issue:

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Ruling:

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Ratio:

  1. Burden of Proof for Reformation
    Under the Code of Civil Procedure, a written agreement is presumed to contain all the terms of the agreement. Reformation of a contract based on mutual mistake requires clear and convincing evidence that the writing does not express the true intent of the parties.

  2. Mutual Mistake Must Be Proven
    The Court emphasized that the mistake must be mutual, meaning both parties must have shared the same misunderstanding. The Bank failed to demonstrate that the Fidelity and Surety Company was party to the alleged mistake.

  3. Insufficient Evidence
    The evidence presented by the Bank, including bookkeeping entries and correspondence, was deemed insufficient to meet the strict standard of proof required for reformation. The Court found the evidence speculative and inconclusive.

  4. Dismissal Without Prejudice
    The Court dismissed the case without prejudice, allowing the Bank to file another action if it could present stronger evidence in the future.


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