EN BANC
G.R. No. L-26743 October 19, 1927
THE BANK OF THE PHILIPPINE ISLANDS, Plaintiff-Appellee , vs.
FIDELITY & SURETY COMPANY OF THE PHIL., Defendant-Appellant.
MALCOLM, J.:
The purpose of this action is through the reformation of a
written instrument of guaranty upon the ground of mistake - the alleged mistake
consisting of the substitution of the words "Laguna Coconut Oil Co."
for "Bank of the Philippine Islands" - to obtain for the Bank of the
Philippine Islands a judgment for P55,000, with interest, against the Fidelity
and Surety Company of the Philippine Islands. The case is an old friend of the
courts which has been with us twice before, and which, are ungracious enough in
our welcome to hope, has been seen by the court for the last time.
STATEMENT OF THE CASE
The original action was commenced by the Bank of the
Philippine Islands against the Laguna Coconut Oil Co. and the Fidelity and
Surety Company of the Philippine Islands on August 25, 1922. The Fidelity and
Surety Company interposed a demurrer to the plaintiff's complaint which was
sustained by the trial court. The plaintiff thereupon filed an amended
complaint. The Fidelity and Surety Company again demurred to the amended
complaint, and again it was sustained. Plaintiff appealed to the Supreme Court
where the ruling was reversed and the case remanded for further proceedings (44
Phil., 618). Thus ended the preliminary skirmish.
On the return of the record to the lower court, the Fidelity
and Surety Company filed an answer. The Laguna Coconut Oil Co. made no defense,
and judgment by default was obtained against it. The case was submitted to the
court upon a stipulation of facts. Upon the pleadings and the agreed facts, the
trial court rendered judgment against the Fidelity and Surety Company of the
Philippine Islands for the full amount of the note, with interest. From this
judgment, the Fidelity and Surety Company appealed to be well taken, for the
principal reason that the action involved a reformation of the contract of
guaranty, which was not put in issue by the pleadings. Accordingly, the
judgment was reversed and the action dismissed, "without prejudice to the
bringing of another action upon the same cause." (48 Phil., 5.) Thus ended
a major engagement between the parties.
On October 20, 1925, the Bank of Philippine Islands
commenced a new action against the defendant, the Fidelity and Surety Company
of the Philippine Islands, in the Court of First Instance of Manila. The
defendant demurred. The trial court overruled the demurrer, and the defendant
answered. Evidence was produced on behalf of the plaintiff. The judgment was in
favor of the plaintiff for the sum of P50,000 plus interest, attorney's fees,
and costs. It is from this judgment that the defendant has appealed, assigning
six errors which, it is alleged, were committed by the trial court. Our
decision should now conclude the judicial warfare.
STATEMENT OF THE FACTS
On April 26, 1920, the Laguna Coconut Oil Co. executed in
favor of the Philippine Vegetable Oil Company, Inc., the following promissory
note:
LAGUNA COCONUT OIL
CO.
Vegetable Oil
Manufacturers
Manila, P. I.
P50,000
One month
after date, we promise to pay to the Philippine Vegetable Company, Inc., or
order at the City of Manila, Philippine Island, the sum of fifty thousand pesos
(P50,000) Philippine currency; value received.
In case of
non-payment of this note at maturity, we agree to pay interest at the rate of
nine per cent (9%) per annum on the said amount and the further sum of P5,000
in full, without any deduction as and for costs, expenses and attorney's fees
for collection whether actually incurred or not.
Manila,
Philippine Islands, April 26, 1920.
LAGUNA COCONUT
OIL CO.
BY (Sgd.)
BALDOMERO COSME President
On May 3, 1920,
the Fidelity and Surety Company of the Philippine Islands made a notation on
the note reading as follows:
MANILA, May 3, 1920
For value,
received, we hereby obligate ourselves to hold the Laguna Coconut Oil Co. harmless
against loss for having discounted the foregoing note at the value stated
therein.
FIDELITY AND
SURETY CO. OF THE PHILIPPINE ISLANDS
By (Sgd.) J. ELMER
DELANEY
Vice-President
Cedula F-3443,
Jan. 2,1920, Manila, P.I.
Attest:
(Sdg.) A.D.
TANNER
Secretary-Treasurer
Cedula F-3447,
Jan. 2, 1920, Manila, P. I.
On May 4, 1920, the Philippine Vegetable Oil Company endorsed
the note in blank and delivered it to the Bank of the Philippine Islands. It is
possible that the Philippine Vegetable Oil Company was paid the sum of P50,000
therefor. At least after maturity of the note, demand for its payment was made
on the Laguna Coconut Oil Co., the Philippine Vegetable Oil Company, and the
Fidelity and Surety Company of the Philippine Islands, all of whom refused to
pay, the Laguna Coconut Oil Co. being admittedly insolvent. The correspondence
of the bank with the Fidelity and Surety Company is in the record, and is
emphasized by the plaintiff as indicative of responsibility assumed by the
defendant, but is objected to by the defendant as for minor importance.
The effort of the plaintiff on its last appearance in the
trial court was to connect up the promissory note of P50,000 with an existing
obligation of the Philippine Vegetable Oil Company in the form of another
promissory note. The evidence was also intended to demonstrate that a clear
error had been committed when reference was made to the Laguna Coconut Oil Co.
in the notation on the note. The plaintiff's theory was confirmed by the trial
judge. His Honor emphasized that the note could not have been discounted by the
Laguna Coconut Oil Co., and that this must logically have been done by the Bank
of the Philippine Islands. Without paying particular attention to certain of
the assignment of errors, let us ascertain if this position is tenable and if
the plaintiff has made out its case.
OPINION
According to section 285 of the Code of Civil Procedure, a
written agreement is presumed to contain all the terms of the agreement. The
Civil Code has articles to the same effect. However, the Code of Civil
Procedure permits evidence of the terms of the agreement other than the
contents of the writing in the following case: Where a mistake or imperfection
of the writing, or its failure to express the true intent and agreement of the
parties, is put in issue by the pleadings. This provision of our local law was
construed by the United States Supreme Court in the well-known case of the
Philippine Sugar Estates Development Company vs. Government of the Philippine
Islands ([1917], 247 U. S.385). It was there announced that the courts of
equity will reform a written contract where, owing to mutual mistake, the
language used therein did not fully or accurately express the agreement and
intent of the parties. It was also stated that the relief by way of reformation
will not be granted unless the proof of mutual mistake be "of the clearest
and most satisfactory character." The court finally said that the evidence
introduced by the appellant met these stringent requirements.
Our local decisions have applied the rule that the amount of
evidence necessary to sustain a prayer for relief where it is sought to impugn
a fact in a document is always more than a mere preponderance of the evidence.
(Centenera vs. Garcia Palicio [1915], 29 Phil., 470; Mendozana vs. Philippine
Sugar Estates Development Co. and De Garay [1921], 41 Phil., 475.) Has the
plaintiff carried the burden of proof in this manner and to this extent? That
is the question.
In reaching out to consider the possibilities of the case,
we are first confronted with the language of the court when the case was last
here. Mr. Justice Ostrand, in the course of the opinion in that instance,
observed: "The writing upon which the action is brought does not in terms
show any obligation in favor of the plaintiff and the action can only be
maintained upon the theory that the writing does not express the true intent of
the parties. We may surmise that the guarantee in question was intended for the
benefit of the party who subsequently discounted the note, but we cannot be
certain." It was then pointed out that the note may have been merely an
accommodation note, and that the guaranty may have been intended for the
protection of the maker. However, the parties have not seen fit to take
advantage of this suggestion.
An examination of the note and the guaranty discloses that
in the notation to the note the word "hold" is interlined. This
indicates that the Vice-President of the Fidelity and Surety Company had his
particular attention called to the language of the note, and corrected the
typewritten matter by inserting in ink the word quoted. That the writer of the
notation fell into a further error in obligating the company to the Laguna
Coconut Oil Co. may be possible. That the writer may have had in mind to use
the words Philippine Vegetable Oil Company, Inc. may also be possible. The
names of the two parties before the guarantor were Laguna Coconut Oil Co. and
Philippine Vegetable Oil Company, Inc. The guaranteeing company could mot very
well have assumed that the Bank of the Philippine Islands at a later date was
contemplating discounting the note.
It is also apparent on the face of the note that it was to
draw interest at maturity. This fact would disprove discount of the note by the
Bank of the Philippine Islands on or before May 3, 1920. In truth, it is not
certain that the bank ever did discount the note. At least, plaintiff in its
second amended complaint averred that the promissory note "was discounted
by Philippine Vegetable Oil Company, Inc."
The bookkeeping entries of the bank are hardly competent
against a stranger to the transaction, such as the defendant in this case.
Moreover, it will not escape notice that one entry at least in plaintiff's
Exhibit E has been changed by erasing the words "y Fidelity and Surety Co.
of the Phil. Islands" and substituting "Philippine Vegetable Oil Co.
garatizado p. Fidelity & Surety Co. of the Phil. Islands." The book
entries taken at their face value are not conclusive.
The correspondence between the parties fails to disclose
either an express or implied admission that the defendant had executed the
guaranty in question in favor of the plaintiff bank. There is nothing in these
exhibits from which any such admission can be inferred. An attempt to interpret
the correspondence merely leads open further into the field of speculation. Yet
the rule is that an admission or declaration to be competent must have been
expressed in definite, certain, and unequivocal language. (1 R. C. L., 481.)
Here the exhibits are couched in language which is neither definite, certain,
nor unequivocal for nowhere do they contain an admission of a guaranty made by
the defendant company for the protection of the Bank of the Philippine Islands.
To justify the reformation of a written instrument upon the
ground of mistake, the concurrence of three things are necessary: First, that
the mistake should be of a fact; second, that the mistake should be proved by
clear and convincing evidence; and, third, that the mistake should be common to
both parties to the instrument. The rule is, as has been above stated, that the
mistake must be mutual. There may have been a mistake here. It would, however,
seem to be straining the natural course of events to hold the Fidelity and
Surety Company of the Philippine Islands a party to that mistake.
It may be that the majority has not approached a decision in
this case in a spirit of tolerant sympathy. The plaintiff has filed three
distinct and conflicting complaints. It has not remained loyal to any one
theory of the case. For instance, it has alleged at various times that the
guaranty of the defendant was in favor of the Laguna Coconut Oil Co., and that
the guaranty was in favor of the Bank of the Philippine Islands; that the note
was discounted by the Philippine Vegetable Oil Company and that the note was
discounted by the Bank of the Philippine Islands; that there was no mutual
mistake and that there was mutual mistake. The court was thus justified in its
statement when the case was here before when it said: In view of the fact that
the case has been pending for several years, that it has been before this court
once before, and that the plaintiff has had ample opportunity to remedy the
defect in its pleadings, we would be warranted in definitely absolving the
appellant from the complaint, but the majority of the court is of the opinion
that the plaintiff should be given another opportunity to prosecute its claim."
With all the various pleadings, all the various incidents,
all the various facts, all the various legal principles, and all the various
possibilities to the forefront, we cannot bring ourselves to conclude that the
plaintiff, by proof of the clearest and most satisfactory character
constituting more than a preponderance of the evidence, has established a
mutual mistake. Instead, the proof is left far behind that goal.
In accordance with the foregoing, the judgment appealed from
will be reversed, and the proceedings definitely dismissed, without special
pronouncement as to costs in either instance. This order will also serve to
deny the two motions of reconsideration filed by the appellee.
Johnson, Ostrand, Johns and Villa-Real, JJ., concur.
Separate Opinions
AVANCEÑA, C.J., STREET, VILLAMOR and ROMUALDEZ, JJ., dissenting:
In the opinion of the undersigned this is a clear case for
reformation of an instrument and enforcement of the same as reformed. The
contract which is the subject of the action is found in the indorsement of the
defendant Fidelity and Surety Company appended to a note for P50,000, signed by
the Laguna Coconut Oil Co., and payable to the Philippine Vegetable Oil Co.,
Inc. The indorsement referred to reads as follows:
MANILA, May 3, 1920
For value received, we hereby obligated ourselves to hold
the Laguna Coconut Oil Co. harmless against loss for having discounted the
foregoing note at the value stated therein.
FIDELITY AND SURETY CO. OF THE P.I.
BY J. ELMER DELANEY"
This contract has already been the subject of a former
action by the same plaintiff against the same defendant and the Coconut Oil
Co.; but in that case reformation of the contract was not sought and this court
held that, as the contract did not purport to bind the defendant Surety Company
to the Bank of the Philippine Islands no recovery could be had thereon by the
bank. But at the same time the decision was made without prejudice to another
action, the idea evidently being that an action could be maintained for the
reformation and enforcement of the instrument.
The parties concerned are now before us in an action seeking
in effect reformation and enforcement of the contract as reformed, though in
the petitory part of the complaint it is not put exactly in that way. Under the
facts proved and prayer for general relief, a right to obtain reformation and
enforcement of the reformed contract is evident.
An examination of the indorsement, or contract, which is the
subject of the action shows that the Fidelity and Surety Company acknowledges
that it has received value for placing its signature on said indorsement,
thereby nominally obligating itself to hold that Laguna Coconut Oil Co. (sic?)
harmless against loss for having discounted the note. Although the mistake is
not obvious to the superficial reader, the words used make an impossible situation
and completely frustrate the manifest intention of the parties. It is proved as
a fact that the Laguna Coconut Oil Co. was debtor to the Philippine Vegetable
Oil Co. and that the note to which the indorsement of guaranty is appended was
given for that indebtedness. That an error was made in the wording of the
indorsement is obvious and undeniable. The intention of the contracting parties
could only have been that the Fidelity and Surety Company should hold harmless
the person or entity discounting the note. The plaintiff did in fact discount
said note on the faith of this indorsement, and the instrument should be
reformed so as to give expression to the liability of the defendant company to
the bank.
In dealing with this situation, it should not be forgotten
that the defendant company evidently intended to obligate itself to someone or
other, and the attitude of the court should be favorable to the giving of
effect to the intention of the parties rather than favorable to its
frustration. By the decision of the court in this case, the Fidelity and Surety
Company is entirely free from the obligation of guaranty in respect to this
note, although it received value for that very undertaking. We therefore
dissent.