G.R. No. 128991 - Rosello-Bentir vs. Leanda

Case Summary (G.R. No. 128991)

Factual Background

Leyte Gulf Traders, Inc. alleged that it and Yolanda Rosello-Bentir executed a written lease of Lot No. 878-D on May 5, 1968 for twenty years, later purportedly extended for four years until May 31, 1992. The corporation maintained that a verbal agreement accompanying the 1968 lease granted it a right of first refusal should the lessor sell the lot after expiration of the lease. The corporation alleged that on May 5, 1989 Bentir sold the leased premises to spouses Samuel and Charito Pormida, and that a final deed of sale was executed on December 11, 1991, thereby denying the corporation's asserted right.

Trial Court Proceedings and Initial Dismissal

Leyte Gulf Traders, Inc. filed a complaint for reformation of instrument, specific performance, annulment of conditional sale, damages, and injunctive relief on May 15, 1992 (Civil Case No. 92-05-88). The case was raffled to RTC, Tacloban City, Branch 7. Defendants pleaded that the alleged inadvertence of counsel did not constitute ground for reformation and that the action for reformation had prescribed. On December 15, 1995, Branch 7 dismissed the complaint, holding that the action for reformation was barred by the ten-year prescriptive period under Art. 1144, Civil Code, and that prescription ran from the inception of the lease in 1968.

Subsequent RTC Orders Reversing Dismissal and Issuing Status Quo Ante

After reassignment and recusals, the case was re-raffled to RTC, Branch 8 before Judge Mateo M. Leanda. On May 10, 1996, Branch 8 set aside the December 15, 1995 dismissal as premature, finding that the trial court had dismissed the case without considering the remaining causes of action and had thereby denied procedural due process. Branch 8 ordered the parties to be served and set further hearings. On June 10, 1996, Branch 8 issued an order maintaining the status quo ante by enjoining petitioners from occupying the property pending final determination.

Court of Appeals Action

Petitioners filed a petition for certiorari with prayer for injunctive relief in the Court of Appeals seeking annulment of Branch 8's orders and restraint on further proceedings. On January 17, 1997, the Court of Appeals denied the petition after finding no grave abuse of discretion by the trial court and affirmed the Branch 8 orders. A motion for reconsideration was denied on April 16, 1997.

Issues Presented to the Supreme Court

Petitioners raised four principal assignments of error before the Supreme Court: that the Court of Appeals erred in holding that an action for reformation was proper under the circumstances; that the action for reformation had not prescribed; that an option to buy in a lease is not revived by an implied renewal; and that a status quo ante order constitutes injunctive relief subject to Rule 58.

Petitioners' Contentions

Petitioners argued that the action for reformation had prescribed because the cause of action accrued at the execution of the written lease on May 5, 1968, and that Art. 1144, Civil Code established a ten-year prescriptive period for actions upon written contracts. Petitioners contended that the trial court correctly dismissed the complaint in 1995 as time-barred. Petitioners further urged that the alleged verbal right of first refusal could not be established to reform the written instrument after the lapse of the prescriptive period.

Respondent's Contentions

Leyte Gulf Traders, Inc. and the trial court, as affirmed by the Court of Appeals, maintained that the prescriptive period should be reckoned from the end of an alleged four-year extension of the lease and not from the 1968 execution. The corporation relied on Art. 1670, Civil Code, contending that an implied new lease or revival of terms occurred so that the right to reformation remained timely. The corporation additionally sought equitable relief by invoking reformation and injunctive remedies after the alleged sale.

Supreme Court Ruling and Disposition

The Supreme Court granted the petition. The Court held that the action for reformation was time-barred. The Court reversed and set aside the decision of the Court of Appeals dated January 17, 1997, and reinstated the RTC, Branch 7 order dated December 15, 1995 dismissing the action for reformation. The petition was granted on the ground that the cause of action for reformation accrued at the execution of the written lease in 1968 and that the ten-year prescriptive period of Art. 1144, Civil Code had therefore long elapsed when the complaint was filed in 1992.

Legal Basis and Reasoning

The Court explained that reformation is an equitable remedy permitting a written instrument to be made to conform to the parties' real intention when mistake or error exists. The remedy necessarily intrudes upon the parol evidence rule and is extraordinary; courts must apply it sparingly and subject to limitations. The Court reaffirmed that the prescriptive period for actions upon a written contract and for reformation is ten years under Art. 1144, Civil Code, and that prescription seeks to suppress stale claims whose facts have become obscure from lapse of time. The Court found that Leyte Gulf Traders, Inc. had ten years from May 5, 1968 to file for reformation but waited until May 15, 1992, twenty-four years after accrual, rendering the cause of action stale and time-barred.

The Court rejected the proposition that the prescriptive period should be computed from an alleged later extension. It held that if the extension was express, Art. 1670 did not apply because that article contemplates an implied new lease arising from the lessee's continued enjoyment with lessor acquiescenc

Case Syllabus (G.R. No. 128991)

Parties and Procedural Posture

Yolanda Rosello-Bentir, Samuel Pormida and Charito Pormida were the petitioners who sought certiorari relief from the Court of Appeals.
Honorable Mateo M. Leanda was the respondent judge of the Regional Trial Court, Tacloban City, Branch 8, against whom the petition for certiorari was filed.
Leyte Gulf Traders, Inc. was the private respondent and original plaintiff in the action for reformation of instrument, specific performance, annulment of conditional sale, damages, and injunction.
The petition to the Supreme Court arose from the Court of Appeals' denial of certiorari directed to an RTC order that set aside a dismissal for prescription and directed further proceedings and status quo.

Key Factual Allegations

Leyte Gulf Traders, Inc. alleged that it and Yolanda Bentir executed a lease of Lot No. 878-D on May 5, 1968 for twenty years with an alleged verbal understanding that the lessee had a right of first refusal upon sale.
Leyte Gulf Traders, Inc. alleged that Bentir sold the leased premises to Samuel and Charito Pormida on May 5, 1989 by a Deed of Conditional Sale and later executed a final deed of sale on December 11, 1991.
Leyte Gulf Traders, Inc. alleged that its counsel inadvertently omitted the right of first refusal from the written lease and sought reformation to reflect the parties' true agreement.

Procedural History

Leyte Gulf Traders, Inc. filed its complaint for reformation and other reliefs on May 15, 1992 as Civil Case No. 92-05-88 before RTC, Tacloban City, Branch 7.
RTC, Branch 7 dismissed the complaint for reformation on December 15, 1995 on the ground that the action had prescribed.
After transfers and an inhibition, RTC, Branch 8 under Judge Mateo M. Leanda reversed the dismissal and set the case for further hearing on May 10, 1996, and thereafter issued a status quo ante order on June 10, 1996.
The Court of Appeals denied the petition for certiorari challenging the RTC, Branch 8 order on January 17, 1997 and denied reconsideration on April 16, 1997.
The present petition to the Supreme Court raised four assignments of error challenging the Court of Appeals' holdings on reformation, prescription, revival of option to buy, and the nature of the status quo order.

Issues Presented

Whether the action for reformation of instrument filed by Leyte Gulf Traders, Inc. had prescribed.
Whether the alleged extension or implied renewal of the lease revived the contractual terms so as to affect the accrual of prescription under Art. 1144.
Whether the remedy of reformation remained available after the alleged breach by the lessor.
Whether the status quo ante order constituted injunctive relief subject to the requisites of Rule 58 of the Rules of Court.

Contentions of the Parties

Petitioners contended that the action for reformation had prescribed because the cause of action accrued at the execution of the written lease in 1968 and that the ten-year prescriptive period under Art. 1144 had long lapsed.
Leyte Gulf Traders, Inc. contended that an extension of the lease for four years after 1988 operated as an implied new lease under Art. 1670, that the other terms of the original contract were revived, and that the action for reformation was timely.
Leyte Gulf Traders, Inc. also contended that reformation was appropriate to give effect to the parties' true agreement omitted by in