Title
Banico vs. Stager
Case
G.R. No. 232825
Decision Date
Sep 16, 2020
Lydia sold Ulysses an 800-sq m lot in Boracay, but the deed mistakenly described the wrong portion. Ulysses sought reformation, which the Supreme Court granted, ruling the deed failed to reflect their true intent. Ulysses owed a small balance for an additional 400-sq m lot, and no damages were awarded.
true intention of parties
location of property
legal battle

Case Summary (G.R. No. 232825)

Factual Background

Ulysses Rudi Banico negotiated with Lydia Bernadette M. Stager for the purchase of a parcel of Lot No. 199 in Barangay Manoc-Manoc, Boracay Island. Lydia executed a Deed of Absolute Sale dated February 8, 1992 purporting to convey an eight-hundred-square-meter portion of Lot No. 199 for P350,000.00. After payment, Banico took possession of a flat terrain suitable for a beach resort, surveyed it, and began construction. He later discovered that the technical description in the deed referred to an elevated rocky northern portion of Lot No. 199 rather than the flat area he had bought and occupied. Lydia promised to correct the description. Lydia thereafter offered and Banico agreed to buy an additional 400-square-meter portion adjacent to the flat terrain for P160,000.00 on installment, and a contract to sell for that portion was executed on October 19, 1992 with payments evidenced by various receipts. Lydia later executed a notarized deed dated December 6, 2001 that accurately described the flat terrain, but Banico did not sign it because it stated a consideration of P80,000.00.

Trial Court Proceedings

On July 9, 2002, Ulysses Rudi Banico filed an action for specific performance, reformation of instrument, and damages against Lydia Bernadette M. Stager before the RTC. The RTC found that there was a mutual mistake in the technical description of the 800-square-meter lot and ordered reformation of the Deed of Absolute Sale dated February 8, 1992 to reflect the exact location of the lot that Banico actually purchased and occupied. The RTC examined the receipts relating to the 400-square-meter contract to sell and found that Banico had paid a total of P153,400.00, leaving a balance of P6,600.00. The RTC denied the parties’ claims for damages for lack of factual and legal basis.

Court of Appeals Proceedings

Both parties appealed to the Court of Appeals. The heirs of Lydia contended that the RTC erred in ordering reformation and execution of another deed. Banico insisted he had fully paid the P160,000.00 for the 400-square-meter lot and sought damages. The CA reversed the RTC insofar as it ordered reformation of the February 8, 1992 deed, holding the action time-barred by the ten-year prescriptive period for actions based upon a written contract. The CA also held that ambiguity in the instrument should be construed against the party who caused it, noting Banico’s lawyer drafted the deed. As to the 400-square-meter transaction, the CA reduced the unpaid balance to P5,860.00 after excluding certain receipts. The CA denied Banico’s claim for damages. Motions for reconsideration filed by both parties were denied by the CA, which reiterated that the February 8, 1992 deed already expressed the parties’ true intention and that Banico bore the burden of proving payment for the second lot.

Issues Presented on Review

The principal issues presented to the Supreme Court were whether the Court of Appeals erred in denying reformation of the Deed of Absolute Sale dated February 8, 1992 on the ground of prescription and whether Banico had fully paid the purchase price of the 400-square-meter lot such that he was entitled to a deed and to damages.

Petitioner's Contentions

Ulysses Rudi Banico argued that the CA erred in ruling that the party whose counsel drafted the ambiguous instrument cannot seek its reformation. He also contended that the prescriptive period was tolled by Lydia’s acknowledgment of the transaction and by her execution of the notarized December 6, 2001 deed accurately describing the 800-square-meter lot, and that he had in fact fully paid the purchase price of the 400-square-meter parcel.

Respondents' Contentions

The heirs of Lydia Bernadette M. Stager contended that the RTC erred in ordering reformation and in compelling execution of another deed. They argued that the deed dated February 8, 1992 was consummated and conformed to the parties’ agreement, that the petition for reformation was prescribed because the complaint was filed more than ten years after the 1992 deed, and that rescission or enforcement should not be ordered because Banico had not completed payments for the 400-square-meter parcel.

Supreme Court Ruling

The Court granted the petition. It held that the RTC correctly found a mutual mistake in the technical description of the 800-square-meter lot and that the Deed of Absolute Sale dated February 8, 1992 failed to express the real intention of the parties. The Supreme Court reversed the Court of Appeals and reinstated and affirmed the RTC Decision dated February 18, 2015, with modification that Banico is ordered to pay the heirs of Lydia the unpaid balance of P5,860.00 for the 400-square-meter lot, with six percent interest per annum from the date of the RTC decision until full payment.

Legal Basis and Reasoning

The Court reiterated that a contract is a meeting of the minds under Art. 1305 Civil Code and that a written instrument is presumed to embody the parties’ agreement, but that reformation is available when the instrument does not express the parties’ true intention by reason of mistake, fraud, inequitable conduct, or accident pursuant to Art. 1359 Civil Code. The Supreme Court found the three requisites for reformation present: a meeting of minds, an instrument that did not express the true intention, and a mistake in the description of the lot that caused the instrument to fail to disclose the real agreement. The Court relied on prior authorities such as Atilano v. Court of Appeals, Sarming v. Dy, and Quiros v. Arjona for the proposition that the physical setting and possession may identify the lot intended despite an erroneous lot number or technical description. The Court distinguished Huibonhoa v. Court of Appeals, where reformation was denied because the petitioner relied merely on counsel’s oversight and failed to prove any mistake that suppressed the real agreement. Here, the Court found preponderant evidence in the parties’ contemporaneous and subsequent acts, Lydia’s promise to correct the deed, Lydia’s presentation of a notarized December 6, 2001 deed accurately describing the flat terrain, and Lydia’s failure to object to Banico’s possession and construction. The Court held that these acts constituted an acknowledgment and validated reformation. On prescription, the Court applied Art. 1144 and Art. 1155 Civil Code principles and concluded that prescription was interrupted by Lydia’s written acknowledgment through the

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