G.R. No. 142731 - Bank of the Philippine Islands vs. Court of Appeals

The plaintiff is the Bank of the Philippine Islands, and the defendant is the Fidelity and Surety Company of the Philippine Islands.
The case involves a written instrument of guaranty allegedly executed by the defendant, which has become the subject of an action for reformation.
The controversy centers on an alleged mistake in the written guaranty wherein the words “Laguna Coconut Oil Co.” were substituted in lieu of “Bank of the Philippine Islands.”

The original action was initiated on August 25, 1922, by the Bank of the Philippine Islands against both the Laguna Coconut Oil Co. and the Fidelity and Surety Company.

The defendant interposed a demurrer to the plaintiff’s complaint, which was sustained.
An amended complaint was subsequently filed, only to meet with a second demurrer that was again sustained by the trial court.
The plaintiff appealed; the Supreme Court reversed this ruling (44 Phil., 618) and remanded the case for further proceedings.

After remand, the Laguna Coconut Oil Co. did not answer, and default judgment was rendered against it, while the Fidelity and Surety Company eventually filed an answer.
In a subsequent proceeding in the Court of First Instance of Manila (commenced on October 20, 1925), the trial court, overruling the defendant’s demurrer, rendered judgment in favor of the plaintiff for P50,000 plus interest, attorney’s fees, and costs.
The defendant appealed from that judgment, assigning several errors allegedly committed by the trial court.

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, including a clause for interest and additional sums in case of non-payment.
On May 3, 1920, the Fidelity and Surety Company made a notation on the said note indicating their obligation “to hold the Laguna Coconut Oil Co. harmless against loss for having discounted the foregoing note.”

The notation was signed by the company’s Vice-President, with an interlined insertion drawing attention to the wording.
The error is alleged to consist of the use of “Laguna Coconut Oil Co.” in a context where “Bank of the Philippine Islands” should have appeared.

On May 4, 1920, the note was endorsed in blank by the Philippine Vegetable Oil Company and delivered to the Bank of the Philippine Islands, which may have involved discounting procedures.

Evidence presented by the plaintiff included bank bookkeeping entries, modified document entries, and correspondence indicating an intention to obligate the defendant.
The defendant argued that such evidence, including the altered bookkeeping entries and correspondence, was inconclusive, speculative, and not sufficiently definite to constitute an admission of guaranty on its part.
The record contained conflicting evidence regarding whether the note was discounted by the Bank of the Philippine Islands or by the Philippine Vegetable Oil Company, and whether the guaranty was intended for the benefit of one or the other.
The plaintiff’s various pleadings over time revealed inconsistencies in the theory of the case, with multiple and sometimes conflicting assertions regarding the identity of the beneficiary and the discounting party.

The case had been litigated previously, and the Supreme Court once reversed and remanded the decision due to issues with the reformation theory not being properly put in issue by the pleadings.
On remand and later proceedings, the trial court sustained a judgment for the plaintiff, only for this decision to be appealed on several assigned errors.
The longstanding nature of the litigation and the multiple opportunities provided to the plaintiff to consolidate its claims were highlighted in the record.

Whether the written instrument of guaranty should be reformed based on an alleged mistaken substitution in the wording (i.e., “Laguna Coconut Oil Co.” instead of “Bank of the Philippine Islands”).

Whether the mistake in the guaranty is one of fact or of legal significance.
Whether the mistake was mutual—that is, whether both parties mistakenly shared a common intention not properly reflected in the document.

The sufficiency and standard of evidence required to justify reformation of the written contract.

Whether the plaintiff’s evidence meets the standard of “clear and convincing” proof, as required by Philippine case law for reformation due to mutual mistake.
Whether the evidence beyond a mere preponderance of the evidence establishes the mutual mistake.

The proper interpretation and legal effect of the insurer’s notation on the note.

Whether the notation evidenced an express or implied obligation on the part of the Fidelity and Surety Company to hold harmless the discounting party.
Whether the indorsement can be construed to bind the defendant based on the intention of the parties.

The implications of the plaintiff’s conflicting pleadings on the admissibility and clarity of its claim.

Whether the oscillation in the plaintiff’s theories of the case (identifying different beneficiaries and discounting parties) undermines its claim for reformation.
Whether the repeated amendments and inconsistent allegations preclude a definitive conclusion regarding the true intent of the parties.