THE CITY OF CABANATUAN, REPRESENTED BY THE CITY MAYOR, PLAINTIFF-APPELLANT, VS. DR. JUAN S. LAZARO AND NIEVES MANINGAS, DEFENDANTS-APPELLEES.

Direct appeal from orders of the Court of First
Instance of Nueva Ecija in
Civil Case No. 4768 dismissing plaintiff-appellant’s complaint and denying its motion
to reconsider the same.

In its said complaint, plaintiff-appellant sought the reformation
of a lease agreement^[1] pursuant to Article 1359 of the New Civil Code.^[2] The said lease was entered into on 28 December 1959 between
plaintiff-appellant, through its City Mayor, and defendants-appellees
over a portion of Lot No. 1511 of Cabanatuan Cadastre
(Cad. Case No. 3, G.L.R.O.
Rec. No. 94) situated in the City of Cabanatuan which plaintiff-appellant
owned, by specifically deleting paragraph 6 thereof.  The
said paragraph gives the defendants-appellees an
option to renew the lease for another 10 years after the expiration of the
original period, and reads:

“6. That after
the expiration of the ten (10) years from January 1, 1960, the party of the
second part may, at his option choose to extend this lease for another period
of ten years.”

It is alleged, among others, that due to mistake or accident, the
aforesaid provision was inserted in the agreement; and that the same does not
reflect the true intention of the parties. 
It is contended that while Resolution No. 1030 of the Municipal Board of
the City of Cabanatuan, approved on 17 December 1959,^[3] authorizes the City Mayor to enter
into a contract of lease on its behalf “for
a period of 10 years”,
it does not provide for authority to extend the period.^[4]

Defendants-appellees moved for the
dismissal of the complaint for the reasons that:  (a) the action is premature; (b) there is no
cause of action; and (c) the court has no jurisdiction over the subject and
nature of the action.  The court a quo granted the motion to dismiss in its order of 11 November 1967 finding
the same to be meritorious.

Plaintiff-appellant moved to have the order reconsidered.  Defendants-appellees
opposed the motion.  While the motion for
reconsideration was pending, defendants-appellees
manifested to the court that plaintiff-appellant already sold the lot, subject
matter of the lease, to third persons. 
Since plaintiff-appellant is no longer the owner of the property,
defendants-appellees reiterated their prayer for the
denial of the motion for reconsideration.

The motion for
reconsideration was denied by the lower court in its order of 2 February 1968 for lack of merit, hence this appeal.  The following errors are assigned in
plaintiff-appellant’s brief:  The lower
court erred in –

1.         
Dismissing the complaint without first determining whether or not the true intention of the parties was
expressed in the contract;

2.         
Holding that the action for
reformation was filed prematurely; and that it could only be filed after the
lessees have manifested their intention to exercise their option to renew the
contract for another 10 years; and

3.         
Denying the motion for reconsideration
filed by plaintiff-appellant by giving weight to the assertion that the City
has no more interest to pursue this action for reformation because it has
already sold the property to third persons.

In our opinion, the appealed order was incorrect.  Every party to a contract has a clear
interest that the instrument embodying its terms should conform to the actual
and true agreement had by and between the con­tracting parties.  Hence, if by accident or mistake, as expressly
pleaded in the complaint, the document does not conform to or reflect the
actual agreement, either party can ask for the reformation of the instrument as
provided by Articles 1359, et
seq. (Chapter 4, Title 2, Book 4) of the Civil Code of the Philippines, to forestall future
litigations on the true import of the agreement.  As stated by the Code Commission in its
Report, page 56,

“The rationale of the doctrine is that it would be unjust and
inequitable to allow the enforcement of a written instrument which does not reflect or disclose the
real meeting of the minds of the
parties.  The rigor of the legalistic
rule that a written instrument should be the final or inflexible criterion and
measure of the rights and obligations of the contracting parties is thus
tempered, to forestall the effect of mistake, fraud, inequitable conduct or
accident.”

That the lessee’s option to renew the contract for another term
of 10 years (which is alleged by appellant not to have been intended by the
parties) was not yet exercisable when the suit for reformation was instituted by
the petitioner City (plaintiff below), because the original and uncontested lease term of 10 years had
not yet expired, does not render the action premature, for precisely its
purpose was to have such option embodied in the instrument declared
ineffective as one not agreed upon by the parties.  No cogent reason exists why the
plaintiff-appellant should wait for the lapse of the first ten years before
having the instrument reformed, when the inconsis­tency between it and the true agreement existed right
from the time the document was executed. 
The contrary rule invoked by the appellee, and
sustained by the court below, tends to make the reformation more difficult, for
the evidence on the true intent of the parties may disappear before the first
ten years are over.

That plaintiff-appellant City of Cabanatuan disposed of the land leased after the suit for reformation
had been filed does not deprive the City of personality or real interest in the litigation.  The transferee of the property can not
maintain this action, for the plain reason that it was not a party to the
original agreement, and, therefore, was
not in a position to know what was the true contract agreed to by and
between the appellant and the appellee.  Upon the other hand, success or failure of
the action for reformation
necessarily reacts upon the extent of the City’s obligations to its vendee, so
the former’s interest still exists.  If the trial court desired to find out the
transferee’s stand on the issue, the logical action for it to take was to order the impleading or the joinder of the
purchaser, and thereby avoid future multiplicity of actions.

Whether or not the City bound itself not to raise the question
of reformation until after the expiration of the first ten years of the lease,
as claimed by the appellees (defendants below), is a
matter of defense to be raised in the
answer, for that circumstance does not appear on the face of the complaint. 
It is elementary that the existence
or non-existence of a cause of action must be determined on the face of
the complaint,^[5] the allegations of which must be deemed admitted for
the purposes of a motion to dismiss for
failure to state a cause of action.  The
same rule applies to the court’s doubting the veracity
of the allegations of the
complaint for the reason that the contract of lease appears on its face without
defect.  Such doubt must be resolved only
after trial on the merits.^[6]

WHEREFORE, the order of dismissal appealed from is reversed and set aside, without prejudice to the impleading
of the purchaser of the lot in question, and the records are ordered remanded
for further proceedings.  Costs against appellees, Juan S. Lazaro and Nieves Maningas.

Concepcion, C.J., Dizon,
Makalintal, Zaldivar,
Fernando, Teehankee, Barredo,
Villamor, and Makasiar, JJ., concur.

Ruiz Castro, J., on leave, did
not take part.

^[1]
Annex “B”, pages 7–9,
Record on Appeal.

^[2]
Art. 1359 of the New Civil Code
reads:

“When, there having been a
meeting of the minds of the parties to a contract, their true intention is not
expressed in the instrument purporting to embody the agreement, by reason of
mistake, fraud, inequitable conduct or accident, one of the parties may ask for
the reformation of the instrument to the end that such true intention may be
expressed.

If mistake, fraud, inequitable
conduct, or accident has prevented a meeting of the minds of the parties, the proper
remedy is not reformation of the instrument but annulment of the
contract.”

^[3]
Annex “A”, pages 6-7, Record
on Appeal.

^[4]
Resolution No. 1030 reads in part:

“RESOLVED:  That the City Mayor be, as he is hereby
authorized to enter into a contract with the lessees-occupants of the
government lot for a period of 10
years on the basis of
the following schedules:”

^[5]
Acuña vs. Batao
Producers Coop. Marketing Assoc., L-20333,
30 June 1967,
20 SCRA 527, and cases cited.

^[6]
Alquique vs. De Leon,
L-15039, 30 March 1963.