FIRST DIVISION

[G.R. No. 128991. April 12, 2000.]

YOLANDA ROSELLO-BENTIR, SAMUEL PORMIDA and

CHARITO PORMIDA, petitioners, vs. HONORABLE MATEO M.
LEANDA, in his capacity as Presiding Judge of RTC,
Tacloban City, Branch 8, and LEYTE GULF TRADERS, INC. ,
respondents.

Antonio R. Bautista & Partners and Eduardo M. Polistico for petitioners.

B. C. Lawsin for private respondent.

SYNOPSIS

Respondent Leyte Gulf Traders, Inc., entered into a contract of lease of a

parcel of land with petitioner Yolanda Rosello-Bentir for a period of twenty
years starting May 5, 1968. The said lease was later extended for another four
years or until May 31, 1992. On May 5, 1989, petitioner Bentir sold the leased
premises to petitioner spouses Samuel Pormida and Charito Pormida.
Respondent corporation questioned the sale alleging that it has a right of first
refusal. Hence, it filed a case seeking for the reformation of the expired
contract of lease by claiming that its lawyers inadvertently omitted to
incorporate in the contract of lease executed in 1968, the verbal agreement or
understanding between the parties that in the event petitioner Bentir leases or
sells the lot after the expiration of the lease, respondent corporation has the
right to equal the highest offer. In due time, petitioners filed their answer
alleging, among others, that the respondent corporation is guilty of laches for
not bringing the case for reformation of the lease contract within the
prescriptive period of ten years from its execution. On December 15, 1995, the
Regional Trial Court, Branch 7, of Tacloban City, issued an order dismissing the
complaint on the ground that the action had already prescribed. Respondent
corporation filed a motion for reconsideration. Considering that the Judge was
reassigned to the RTC, Malolos, Bulacan, the case was re-raffled and assigned
to respondent Judge who in turn, issued an order reversing the order of
dismissal, which was affirmed by the Court of Appeals. Hence, this petition.
The Court ruled that a suit for reformation of an instrument may be
barred by lapse of time. The prescriptive period for actions based upon a
written contract and for reformation of an instrument is ten (10) years under
Article 1144 of the Civil Code. Prescription is intended to suppress stale and
fraudulent claims arising from transactions like the one at bar which facts had
become so obscure from the lapse of time or defective memory. In the case at
bar, respondent corporation had ten (10) years from 1968, the time when the
contract of lease was executed, to file an action for reformation. Sadly, it did so
only on May 15, 1992 or twenty-four (24) years after the cause of action
accrued, hence, its cause of action had become stale, or become time-barred.
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 Moreover, under Section 1, Rule 64 of the New Rules of Court, an action
for the reformation of an instrument is instituted as a special civil action for
declaratory relief. Since the purpose of an action for declaratory relief is to
secure an authoritative statement of the rights and obligations of the parties
for their guidance in the enforcement thereof, or compliance therewith, and not
to settle issues arising from an alleged breach thereof, it may be entertained
only before the breach or violation of the law or contract to which it refers.
Here, respondent corporation brought the present action for reformation after
an alleged breach or violation of the contract was already committed by
petitioner Bentir. Consequently, the remedy of reformation no longer lies.

SYLLABUS

1. REMEDIAL LAW; CIVIL PROCEDURE; ACTIONS; REFORMATION OF

INSTRUMENT; ELUCIDATED. — Reformation of an instrument is that remedy in
equity by means of which a written instrument is made or construed so as to
express or conform to the real intention of the parties when some error or
mistake has been committed. It is predicated on the equitable maxim that
equity treats as done that which ought to be done. The rationale of the doctrine
is that it would be unjust and unequitable to allow enforcement of a written
instrument which does not reflect or disclose the real meeting of the minds of
the parties. However, an action for reformation must be brought within the
period prescribed by law, otherwise, it will be barred by the mere lapse of time.
2. ID.; ID.; ID.; ID.; GROUNDED ON PRINCIPLES OF EQUITY; LIMITATION
OF THE PAROL EVIDENCE RULE. — The remedy of reformation of an instrument
is grounded on the principle of equity where, in order to express the true
intention of the contracting parties, an instrument already executed is allowed
by law to be reformed. The right of reformation is necessarily an invasion or
limitation of the parol evidence rule since, when a writing is reformed, the
result is that an oral agreement is by court decree made legally effective.
Consequently, the courts, as the agencies authorized by law to exercise the
power to reform an instrument, must necessarily exercise that power sparingly
and with great caution and zealous care.

3. ID.; ID.; ID.; ID.; MAY BE BARRED BY LAPSE OF TIME; CASE AT BAR.
— The remedy, being an extraordinary one, must be subject to limitations as
may be provided by law. Our law and jurisprudence set such limitations, among
which is laches. A suit for reformation of an instrument may be barred by lapse
of time. The prescriptive period for actions based upon a written contract and
for reformation of an instrument is ten (10) years under Article 1144 of the Civil
Code. Prescription is intended to suppress stale and fraudulent claims arising
from transactions like the one at bar which facts had become so obscure from
the lapse of time or defective memory. In the case at bar, respondent
corporation had ten (10) years from 1968, the time when the contract of lease
was executed, to file an action for reformation. Sadly, it did so only on May 15,
1992 or twenty-four (24) years after the cause of action accrued, hence, its
cause of action has become stale, hence, time-barred.
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 4. ID.; ID.; ID.; ID.; SHOULD BE FILED BEFORE THE BREACH OR
VIOLATION OF THE LAW OR CONTRACT TO WHICH IT REFERS. — Under Section
1, Rule 64 of the New Rules of Court, an action for the reformation of an
instrument is instituted as a special civil action for declaratory relief. Since the
purpose of an action for declaratory relief is to secure an authoritative
statement of the rights and obligations of the parties for their guidance in the
enforcement thereof, or compliance therewith, and not to settle issues arising
from an alleged breach thereof, it may be entertained only before the breach or
violation of the law or contract to which it refers. Here, respondent corporation
brought the present action for reformation after an alleged breach or violation
of the contract was already committed by petitioner Bentir. Consequently, the
remedy of reformation no longer lies. IcSHTA

5. CIVIL LAW; OBLIGATIONS AND CONTRACTS; IMPLIED NEW LEASE;

NOT APPLICABLE IN CASE AT BAR. — First, if, according to respondent
corporation, there was an agreement between the parties to extend the lease
contract for four (4) years after the original contract expired in 1988, then Art.
1670 would not apply as this provision speaks of an implied new lease (tacita
reconduccion) where at the end of the contract, the lessee continues to enjoy
the thing leased "with the acquiescence of the lessor," so that the duration of
the lease is "not for the period of the original contract, but for the time
established in Articles 1682 and 1687." In other words, if the extended period
of lease was expressly agreed upon by the parties, then the term should be
exactly what the parties stipulated, not more, not less. Second, even if the
supposed 4-year extended lease be considered as an implied new lease under
Art. 1670, "the other terms of the original contract" contemplated in said
provision are only those terms which are germane to the lessee's right of
continued enjoyment of the property leased. The prescriptive period of ten (10)
years provided for in Art. 1144 applies by operation of law, not by the will of the
parties. Therefore, the right of action for reformation accrued from the date of
execution of the contract of lease in 1968.

DECISION

KAPUNAN, J : p

Reformation of an instrument is that remedy in equity by means of which

a written instrument is made or construed so as to express or conform to the
real intention of the parties when some error or mistake has been committed. 1
It is predicated on the equitable maxim that equity treats as done that which
ought to be done. 2 The rationale of the doctrine is that it would be unjust and
unequitable to allow the enforcement of a written instrument which does not
reflect or disclose the real meeting of the minds of the parties. 3 However, an
action for reformation must be brought within the period prescribed by law,
otherwise, it will be barred by the mere lapse of time. The issue in this case is
whether or not the complaint for reformation filed by respondent Leyte Gulf
Traders, Inc. has prescribed and in the negative, whether or not it is entitled to
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 the remedy of reformation sought. dctai

On May 15, 1992, respondent Leyte Gulf Traders, Inc. (herein referred to
as respondent corporation) filed a complaint for reformation of instrument,
specific performance, annulment of conditional sale and damages with prayer
for writ of injunction against petitioners Yolanda Rosello-Bentir and the spouses
Samuel and Charito Pormida. The case was docketed as Civil Case No. 92-05-88
and raffled to Judge Pedro S. Espina, RTC, Tacloban City, Branch 7. Respondent
corporation alleged that it entered into a contract of lease of a parcel of land
with petitioner Bentir for a period of twenty (20) years starting May 5, 1968.
According to respondent corporation, the lease was extended for another four
(4) years or until May 31, 1992. On May 5, 1989, petitioner Bentir sold the
leased premises to petitioner spouses Samuel Pormada and Charito Pormada.
Respondent corporation questioned the sale alleging that it had a right of first
refusal. Rebuffed, it filed Civil Case No. 92-05-88 seeking the reformation of the
expired contract of lease on the ground that its lawyer inadvertently omitted to
incorporate in the contract of lease executed in 1968, the verbal agreement or
understanding between the parties that in the event petitioner Bentir leases or
sells the lot after the expiration of the lease, respondent corporation has the
right to equal the highest offer.
In due time, petitioners filed their answer alleging that the inadvertence
of the lawyer who prepared the lease contract is not a ground for reformation.
They further contended that respondent corporation is guilty of laches for not
bringing the case for reformation of the lease contract within the prescriptive
period of ten (10) years from its execution.
Respondent corporation then filed its reply and on November 18, 1992,
filed a motion to admit amended complaint. Said motion was granted by the
lower court. 4

Thereafter, petitioners filed a motion to dismiss reiterating that the

complaint should be dismissed on the ground of prescription.
On December 15, 1995, the trial court through Judge Pedro S. Espina
issued an order dismissing the complaint premised on its finding that the action
for reformation had already prescribed. The order reads:
ORDER
Resolved here is the defendants’ MOTION TO DISMISS
PLAINTIFF’S complaint on ground of prescription of action.
It is claimed by plaintiff that he and defendant Bentir entered
into a contract of lease of a parcel of land on May 5, 1968 for a period
of 20 years (and renewed for an additional 4 years thereafter) with the
verbal agreement that in case the lessor decides to sell the property
after the lease, she shall give the plaintiff the right to equal the offers
of other prospective buyers. It was claimed that the lessor violated this
right of first refusal of the plaintiff when she sureptitiously (sic) sold the
land to co-defendant Pormida on May 5, 1989 under a Deed of
Conditional Sale. Plaintiff’s right was further violated when after
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 discovery of the final sale, plaintiff ordered to equal the price of co-
defendant Pormida was refused and again defendant Bentir
surreptitiously executed a final deed of sale in favor of co-defendant
Pormida in December 11, 1991.
The defendant Bentir denies that she bound herself to give the
plaintiff the right of first refusal in case she sells the property. But
assuming for the sake of argument that such right of first refusal was
made, it is now contended that plaintiff’s cause of action to reform the
contract to reflect such right of first refusal, has already prescribed
after 10 years, counted from May 5, 1988 when the contract of lease
incepted. Counsel for defendant cited Conde vs. Malaga, L-9405 July
31, 1956 and Ramos vs. Court of Appeals, 180 SCRA 635, where the
Supreme Court held that the prescriptive period for reformation of a
written contract is ten (10) years under Article 1144 of the Civil Code.

This Court sustains the position of the defendants that this action
for reformation of contract has prescribed and hereby orders the
dismissal of the case.
SO ORDERED. 5

On December 29, 1995, respondent corporation filed a motion for

reconsideration of the order dismissing the complaint.

On January 11, 1996, respondent corporation filed an urgent ex-parte

motion for issuance of an order directing the petitioners, or their
representatives or agents to refrain from taking possession of the land in
question.

Considering that Judge Pedro S. Espina, to whom the case was raffled for
resolution, was assigned to the RTC, Malolos, Bulacan, Branch 19, Judge
Roberto A. Navidad was designated in his place.

On March 28, 1996, upon motion of herein petitioners, Judge Navidad

inhibited himself from hearing the case. Consequently, the case was re-raffled
and assigned to RTC, Tacloban City, Branch 8, presided by herein respondent
judge Mateo M. Leanda.
On May 10, 1996, respondent judge issued an order reversing the order of
dismissal on the grounds that the action for reformation had not yet prescribed
and the dismissal was "premature and precipitate", denying respondent
corporation of its right to procedural due process. The order reads:
ORDER

Stated briefly, the principal objectives of the twin motions

submitted by the plaintiffs, for resolution are:

(1) for the reconsideration of the Order of 15 December 1995

of the Court (RTC, Br. 7), dismissing this case, on the sole
ground of prescription of one (1) of the five (5) causes of
action of plaintiff in its complaint for "reformation" of a
contract of lease; and,

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 (2) for issuance by this Court of an Order prohibiting the
defendants and their privies-in-interest, from taking
possession of the leased premises, until a final court order
issues for their exercise of dominical or possessory right
thereto.
The records of this case reveal that co-defendant BENTER
(Yolanda) and plaintiff Leyte Gulf Traders Incorporation, represented by
Chairman Benito Ang, entered into a contract of lease of a parcel of
land, denominated as Lot No. 878-D, located at Sagkahan District,
Tacloban City, on 05 May 1968, for a period of twenty (20) years, (later
renewed for an additional two (2) years). Included in said covenant of
lease is the verbal understanding and agreement between the
contracting parties, that when the defendant (as lessor) will sell the
subject property, the plaintiff as (lessee) has the "right of first refusal",
that is, the right to equal the offer of any other prospective third-party
buyer. This agreement (sic) is made apparent by paragraph 4 of the
lease agreement stating:
"4. IMPROVEMENT. The lessee shall have the right to
erect on the leased premises any building or structure that it may
desire without the consent or approval of the Lessor . . . provided
that any improvements existing at the termination of the lease
shall remain as the property of the Lessor without right to
reimbursement to the Lessee of the cost or value thereof."

That the foregoing provision has been included in the lease

agreement if only to convince the defendant-lessor that plaintiff
desired a priority right to acquire the property (ibid) by purchase, upon
expiration of the effectivity of the deed of lease. cda

In the course of the interplay of several procedural moves of the

parties herein, the defendants filed their motion to admit their
amended answer to plaintiff’s amended complaint. Correspondingly,
the plaintiff filed its opposition to said motion. The former court branch
admitted the amended answer, to which order of admission, the
plaintiff seasonably filed its motion for reconsideration. But, before the
said motion for reconsideration was acted upon by the court, the latter
issued an Order on 15 December 1995, DISMISSING this case on the
lone ground of prescription of the cause of action of plaintiff’s
complaint on "reformation" of the lease contract, without anymore
considering the remaining cause of action, viz.: (a) on Specific
Performance; (b) an Annulment of Sale and Title; (c) on Issuance of a
Writ of Injunction, and (d) on Damages.
With due respect to the judicial opinion of the Honorable
Presiding Judge of Branch 7 of this Court, the undersigned, to whom
this case was raffled to after the inhibition of Judge Roberto Navidad, as
acting magistrate of Branch 7, feels not necessary any more to discuss
at length that even the cause of action for "reformation" has not, as
yet, prescribed.

To the mind of this Court, the dismissal order adverted to above,

was obviously premature and precipitate, thus resulting denial upon
the right of plaintiff that procedural due process. The other remaining
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 four (4) causes of action of the complaint must have been deliberated
upon before that court acted hastily in dismissing this case.
WHEREFORE, in the interest of substantial justice, the Order of
the court, (Branch 7, RTC) dismissing this case, is hereby ordered
RECONSIDERED and SET ASIDE.
Let, therefore, the motion of plaintiff to reconsider the Order
admitting the amended answer and the Motion to Dismiss this case
(ibid), be set for hearing on May 24, 1996, at 8:30 o’clock in the
morning. Service of notices must be effected upon parties and counsel
as early as possible before said scheduled date.
Concomitantly, the defendants and their privies-in-interest or
agents, are hereby STERNLY WARNED not to enter, in the meantime,
the litigated premises, before a final court order issues granting them
dominical as well as possessory right thereto.
To the motion or petition for contempt, filed by plaintiff, thru
Atty. Bartolome C. Lawsin, the defendants may, if they so desire, file
their answer or rejoinder thereto, before the said petition will be set for
hearing. The latter are given ten (10) days to do so, from the date of
their receipt of a copy of this Order.

SO ORDERED. 6

On June 10, 1996, respondent judge issued an order for status quo ante,
enjoining petitioners to desist from occupying the property. 7
Aggrieved, petitioners herein filed a petition for certiorari to the Court of
Appeals seeking the annulment of the order of respondent court with prayer for
issuance of a writ of preliminary injunction and temporary restraining order to
restrain respondent judge from further hearing the case and to direct
respondent corporation to desist from further possessing the litigated premises
and to turn over possession to petitioners.
On January 17, 1997, the Court of Appeals, after finding no error in the
questioned order nor grave abuse of discretion on the part of the trial court
that would amount to lack, or in excess of jurisdiction, denied the petition and
affirmed the questioned order. 8 A reconsideration of said decision was,
likewise, denied on April 16, 1997. 9

Thus, the instant petition for review based on the following assigned
errors, viz:
6.01 THE COURT OF APPEALS ERRED IN HOLDING THAT AN ACTION
FOR REFORMATION IS PROPER AND JUSTIFIED UNDER THE
CIRCUMSTANCES OF THE PRESENT CASE;
6.02 THE COURT OF APPEALS ERRED IN HOLDING THAT THE
ACTION FOR REFORMATION HAS NOT YET PRESCRIBED;
6.03 THE COURT OF APPEALS ERRED IN HOLDING THAT AN OPTION
TO BUY IN A CONTRACT OF LEASE IS REVIVED FROM THE IMPLIED
RENEWAL OF SUCH LEASE; AND,
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 6.04 THE COURT OF APPEALS ERRED IN HOLDING THAT A STATUS
QUO ANTE ORDER IS NOT AN INJUNCTIVE RELIEF THAT SHOULD
COMPLY WITH THE PROVISIONS OF RULE 58 OF THE RULES OF
COURT. 10

The petition has merit.

The core issue that merits our consideration is whether the complaint for
reformation of instrument has prescribed.
The remedy of reformation of an instrument is grounded on the principle
of equity where, in order to express the true intention of the contracting
parties, an instrument already executed is allowed by law to be reformed. The
right of reformation is necessarily an invasion or limitation of the parol
evidence rule since, when a writing is reformed, the result is that an oral
agreement is by court decree made legally effective. 11 Consequently, the
courts, as the agencies authorized by law to exercise the power to reform an
instrument, must necessarily exercise that power sparingly and with great
caution and zealous care. Moreover, the remedy, being an extraordinary one,
must be subject to limitations as may be provided by law. Our law and
jurisprudence set such limitations, among which is laches. A suit for reformation
of an instrument may be barred by lapse of time. The prescriptive period for
actions based upon a written contract and for reformation of an instrument is
ten (10) years under Article 1144 of the Civil Code. 12 Prescription is intended to
suppress stale and fraudulent claims arising from transactions like the one at
bar which facts had become so obscure from the lapse of time or defective
memory. 13 In the case at bar, respondent corporation had ten (10) years from
1968, the time when the contract of lease was executed, to file an action for
reformation. Sadly, it did so only on May 15, 1992 or twenty-four (24) years
after the cause of action accrued, hence, its cause of action has become stale,
hence, time-barred.
In holding that the action for reformation has not prescribed, the Court of
Appeals upheld the ruling of the Regional Trial Court that the 10-year
prescriptive period should be reckoned not from the execution of the contract
of lease in 1968, but from the date of the alleged 4-year extension of the lease
contract after it expired in 1988. Consequently, when the action for reformation
of instrument was filed in 1992 it was within ten (10) years from the extended
period of the lease. Private respondent theorized, and the Court of Appeals
agreed, that the extended period of lease was an "implied new lease" within
the contemplation of Article 1670 of the Civil Code, 14 under which provision,
the other terms of the original contract were deemed revived in the implied
new lease.
We do not agree. First, if, according to respondent corporation, there was
an agreement between the parties to extend the lease contract for four (4)
years after the original contract expired in 1988, then Art. 1670 would not
apply as this provision speaks of an implied new lease (tacita reconduccion)
where at the end of the contract, the lessee continues to enjoy the thing leased
"with the acquiescence of the lessor", so that the duration of the lease is "not
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 for the period of the original contract, but for the time established in Article
1682 and 1687." In other words, if the extended period of lease was expressly
agreed upon by the parties, then the term should be exactly what the parties
stipulated, not more, not less. Second, even if the supposed 4-year extended
lease be considered as an implied new lease under Art. 1670, "the other terms
of the original contract" contemplated in said provision are only those terms
which are germane to the lessee’s right of continued enjoyment of the property
leased. 15 The prescriptive period of ten (10) years provided for in Art. 114416
applies by operation of law, not by the will of the parties. Therefore, the right of
action for reformation accrued from the date of execution of the contract of
lease in 1968.
Even if we were to assume for the sake of argument that the instant
action for reformation is not time-barred, respondent corporation’s action will
still not prosper. Under Section 1, Rule 64 of the New Rules of Court, 17 an
action for the reformation of an instrument is instituted as a special civil action
for declaratory relief. Since the purpose of an action for declaratory relief is to
secure an authoritative statement of the rights and obligations of the parties
for their guidance in the enforcement thereof, or compliance therewith, and not
to settle issues arising from an alleged breach thereof, it may be entertained
only before the breach or violation of the law or contract to which it refers. 18
Here, respondent corporation brought the present action for reformation after
an alleged breach or violation of the contract was already committed by
petitioner Bentir. Consequently, the remedy of reformation no longer lies.
We no longer find it necessary to discuss the other issues raised
considering that the same are predicated upon our affirmative resolution on the
issue of the prescription of the action for reformation.
WHEREFORE, the petition is hereby GRANTED. The Decision of the Court
of Appeals dated January 17, 1997 is REVERSED and SET ASIDE. The Order of
the Regional Trial Court of Tacloban City, Branch 7, dated December 15, 1995
dismissing the action for reformation is REINSTATED. LLpr

SO ORDERED.
Davide, Jr., C.J., Puno, Pardo and Ynares-Santiago, JJ., concur.

Footnotes
1. 76 C.J.S. Reformation of Instruments § 1.
2. Id., at § 4.
3. 2-a Report of the Code Commission, p. 56.
4. The order granting the motion and admitting the amended complaint was
raised in a petition for certiorari before the Court of Appeals. Said petition,
docketed as CA-G.R. SP No. 30994, was eventually dismissed by the
appellate court.
5. Rollo , pp. 23-26.
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 6. Id., at 27-29.
7. Id., at 36-37.
8. Id., at 31-40.
9. Id., at 42.
10. Id., at 10-11.
11. See Note 1.
12. Ramos vs. Court of Appeals, 180 SCRA 635 (1989); Spouses Jayme and
Solidarios vs. Alampay, 62 SCRA 131 (1975); Conde vs. Cuenca, 99 Phil. 1056
(1956).

13. Ochagabia vs. Court of Appeals, 304 SCRA 587 (1999); Peñaflor vs. IAC,
145 SCRA 223 (1986).

14. ART. 1670. If at the end of the contract the lessee should continue
enjoying the thing leased for fifteen days with the acquiescence of the lessor,
and unless a notice to the contrary by either party has previously been given,
it is understood that there is an implied new lease, not for the period of the
original contract, but for the time established in articles 1682 and 1687. The
other terms of the original contract shall be revived.
15. Dizon v. Magsaysay, 57 SCRA 250 [1974].
16. ART. 1144. The following actions must be brought within ten years from
the time the right of action accrues:

(1) Upon a written contract;

(2) Upon an obligation created by law;
(3) Upon a judgment.
17. The second paragraph of said section was deleted in the present Section 1,
Rule 63 of the 1997 Rules of Civil Procedure.
18. Reparations Commission vs. Northern Lines, Inc. 34 SCRA 203 (1970).

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