National Irrigation Administration v.

EstanilaoGamit& CA
G.R. No. 85869
November 6, 1992
(Digested by LNR)

Facts:
NIA, whose in-charge of the irrigation program of the national government to increase food
production nationwide, conducted the Magat River Multi-purpose Project, where massive infrastructures
were built to house offices monitoring said project in Cagayan Valley, Isabela. NIA entered into a contract
of lease over Gamit’s urban parcel of land for said project. A rental of P0.10 per sq/m, per year for 10
years was agreed upon. However, it was surreptitiously inserted by the petitioner such stipulations that if
the lessee decides to continue using said property beyond 10 years, the lessee may purchase the same
and all rentals paid to lessor shall be considered part of the purchase price; that 6 months before the
period expires, the lessor shall request the lessee about its final intention on the leased property, and if
there is failure to do such, the contract subsists without additional compensation, and lastly, that upon full
payment of the amount of the purchase price, Gamit, shall be deemed to have conveyed and ceded all
his rights and interests on the subject property in favor of NIA.Since respondent was in financial distress
during that moment, he accepted the payment. Upon knowledge of the stipulations, On January 23, 1985,
Gamit filed a case for reformation of contract, recovery of possession, and damages alleging that the
contract of lease entered into did not contain the real agreement of the parties, that the petitioner took
advantage of his financial distress that time, that the real price of the land was P50.00 per sq/m, and such
stipulations were null and void. Petitioner denies allegations, contending that there could not have been
any fraud or mistake in the execution of said contract because plaintiff appears to be literate, and that the
case should be dismissed for lack of cause of action. The RTC found that since the case only needed an
interpretation of the contract, it only conducted a summary judgment and ruled that the contract’s nature
was that of a contract of lease and there was no need for reformation of the instrument because it had
already expired and that the contract was clear except that the exercise of the option to purchase with
payment along the rentals paid was void. The CA modified the decision that in case petitioner exercise its
option to buy the property, it should be paid in full and not based on the payment of rentals.

Issue:
Whether or not the court erred in not conducting a trial for the reformation of the instrument
executed between the parties.

Ruling:
Yes. An action for reformation of instrument as provided in Article 1359 of the Civil Code may
prosper, provided the following requisites are present: (1) there must have been a meeting of the minds of
the parties to the contract; (2) the instrument does not express the true intention of the parties; and (3) the
failure of the instrument to express the true intention of the parties is due to mistake, fraud, inequitable
conduct or accident. It was shown that the contract of lease did not express the true intention of the
parties, as it show that the respondent was in financial distress during its execution and the petitioner took
advantage of his state, that the real value of the property was not P0.10 per sq/m but P50.00 per sq/m,
and that the value of the purchase price included those paid in the monthly rentals which in fact, it must
first be negotiated upon because Article 1308 of the New Civil Code provides that the validity and
compliance of a contract must not be left to the will of one of them. While the aim in interpretation of
contracts is to ascertain the true intention of the parties, interpretation is not, however, equivalent to
reformation of contracts Reformation is a 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. In granting reformation,
therefore, equity is not really making a new contract for the parties, but is confirming and perpetuating the
real contract between the parties which, under the technical rules of law, could not be enforced but for
such reformation. The lower court should have conducted a trial to determine the true intention of the
parties in the contract since the issue raised in the case was that the contract of lease does not express
the true intention of the parties.