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Respondent Spouses tan bought from petitioner RN Development
Corporation two class "D" shares of stock in petitioner Fontana Resort worth P 387,
300.00, enticed by the promises of petitioners' sales agents, that they would construct a
park with frist class leisure facilities in Clark Field, Pampanga to be called Fontana
Leisure Park and that those class "D" shareholders would be admitted to one membership
in the country club, which will entitled them to use park facilities and stay at a twobedroom villa for five ordinary weekdays and two weekends every year for free.
Two years later, respondents filed before the SEC a complaint for a refund of their P
387, 300.00 they spent to purchase shares of stock form Fontana. Respondents alleged
that they have been deceive into buying the Fontana shares because of petitioners
fraudulent misrepresentations. The construction of the park turned out to be still
unfinished and the policies, rules and regulations of the country club were obscure. The
respondent spouses after availing one free accommodation at the villa, but the succeeding
reservations were refused.
Petitioners filed their answer in which they asserted that respondents had been fully
informed of the privileges given to them as shareholders of class "D" , since these were
all explicitly provided in the promotional materials for the country club, the articles of
incorporation and the by laws of Fontana Resort and they denied that they unjustly
canceled respondents' reservation. Lastly, petitioners averred that when respondents were
first accommodated at FLP, minor or finishing construction works were left to be done
and that facilities of the country club were already operational.
SEC-SICD Hearing Officer Bacalla rendered a decision in favor of Spouses Tan.
They appealed the said decision of Bacalla before the SEC en banc but their appeal was
denied. Petitioners filed before the CA a petition for review and find their appeal to be
partly meritorious. Petitioner filed a motion for reconsideration, but it was denied, hence
the petition for review.
ISSUE: WON Petitioner committed fraud or defaulted on their promises as would justify
the annulment or recission of their contract of sale with Respondents.
RULING: NO, the petitioners did not commit fraud or default on their promises as
would justify the annulment or recission of their contract of sale with Respondents.
Article 1330 provides that fraud refers to dolo causante or causal fraud, in which,
prior to or simultaneous with the execution of the contract, one party secures the consent
of the other party by using deception, without which such consent would not have been
given. The fraud must be the determining cause of the contract or must have caused the

consent to be given.
The general rule is that he who alleges fraud or mistake in a transaction must
substantiate his allegation as the presumption is that a person takes ordinary care for his
concerns and that private dealings have been entered into fairly and regularly.
In this case, respondents have miserably failed to prove how petitioners employed
fraud to induced respondents to buy shares of stock. It can only be expected that
petitioners presented the Fontana Leisure Park and the country club in the most positive
light in order to attract investor-members.
There is no showing that in their sales talk to respondents, petitioner actually used
insidious words or machinations, without which, respondents would not have brought
shares from Fontana. Respondents appears to be literate and of above-average means,
who may not be easily deceived into parting with a substantial amount of money.
What is apparent is that respondents knowingly and willingly consented to buying
the shares from Fontana, but were later on disappointed with the actual FLP facilities and
club membership benefits.
Respondents' complaint sufficiently alleged a cause of action for the annulment or
recission of the contract of sale of Fontana class "D" shares by petitioners to respondents,
however, respondents were unable to establish preponderance of evidence that they are
entitled to said annulment or recission.
Petition granted, judgment and resolution reversed and set aside.


FACTS: 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
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.
On May 5, 1989, petitioner Bentir sold the leased premises to petitioner spouses
Pormada. Respondent corporation questioned the sale alleging that it had a right of first
refusal. 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.
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.
Trial court dismissed the complaint premised on its finding that the action for reformation
had already prescribed. 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. 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. He also issued an order status quo ante,
enjoining the petitioners to desist from occupying the property. The CA affirmed the
decision of the respondent judge, hence the petition for instant review.
ISSUE: WON the complaint for reformation of instrument has prescribed.
RULING: YES, the complaint for reformation of instrument has prescribed.
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.
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.
The supreme 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. 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. 1144applies 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 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, an action for the reformation of an
instrument is instituted as a special civil action for declaratory relief. 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.
Petition granted, judgment reversed and set aside. Order of the trial court reinstated.