SPOUSES MARINO AND LINA JOEL SAPUGAY, PETITIONERS, VS. HON. COURT OF APPEALS, RUFINO MOJARES AND NESTOR RECTO, RESPONDENTS.

Sapugay versus Court of Appeals

The Case

This is a petition for review on certiorari brought by the spouses Marino and Lina Joel Sapugay against the Court of Appeals, Rufino Mojares, and Nestor Recto. The petitioners, owners of Romar Trading, sued for reformation of two instruments and for the return of money they had paid for the goodwill of a liquefied petroleum gas dealership. The case matters because it teaches when reformation of a contract is proper, and when a buyer who has already received the goodwill of a business bears the risk of later events beyond the seller's control.

Procedural History

The petitioners filed a civil action for reformation of instruments and sum of money before the Regional Trial Court of Valenzuela. On January 8, 1987, the trial court rendered judgment in their favor. It declared the two documents reformed, condemned the defendants to return 150,000 pesos paid for the goodwill, and awarded attorney's fees and costs. The private respondents appealed to the Court of Appeals. On November 29, 1990, the Court of Appeals reversed the trial court, dismissed the complaint, and on the counterclaim ordered the petitioners to pay the remaining 50,000 pesos balance on the goodwill and 10,000 pesos in attorney's fees. The petitioners moved for reconsideration, which was denied on June 18, 1991. Hence, this petition for review on certiorari before the Supreme Court.

Facts

The petitioners had been selling liquefied petroleum gas since 1972. In early April 1982, Dante Tiquio, authorized by Nemar Marketing Corporation to find buyers, offered them the goodwill of Nemar's Mobilflame gas refilling and dealership business for 200,000 pesos, and the lot and improvements for 500,000 pesos with assumption of the mortgage to Filinvest Finance Corporation. The petitioners inspected the property, found the ownership papers in order, and asked for a meeting with Nemar's president, Rufino Mojares.

Meetings at the Intercontinental Hotel on April 14 and April 23, 1982 produced an agreement: 200,000 pesos for the goodwill, 500,000 pesos for the lot and improvements, with the petitioners assuming the mortgage and paying monthly interest. Nemar's general manager, Nestor Recto, introduced the petitioners to Ricardo Cardenas, manager of Mobil Oil's LPG business, who consented to their taking over the dealership. On June 16, 1982, at Nemar's office, the petitioners signed the Deed of Conveyance with Assumption of Obligation and the Supplementary Agreement, both dated June 18, 1982, and delivered four postdated checks of 50,000 pesos each, totalling 200,000 pesos, for the goodwill and right to operate the business. They made good the first three, but not the fourth.

Nemar resigned as Mobil dealer, turned over the gas tanks and refilling equipment with Mobil's conformity, and furnished a list of subdealers. On June 21, 1982, Mobil signed a letter-agreement constituting the petitioners as its authorized dealer and lending them its equipment. The petitioners hired security guards, insured the equipment, employed personnel, obtained mayor's and internal revenue permits, printed business forms, transferred the electrical registration, advertised, and inaugurated the business. After selling out the remaining supply, they sought to buy gas, but Mobil refused to supply them unless they first submitted a bond of 200,000 pesos, later raised to 500,000 pesos and then to 700,000 pesos. No surety would issue the bond without a copy of the dealership agreement, which Mobil refused to give until the bond was filed. Mobil later rejected them and awarded the dealership to Island Gas Corporation. Mobil sued Lina Joel Sapugay for replevin in Makati, but the case was decided in her favor, and on her counterclaim she was awarded damages of almost one million pesos. Nemar earlier filed a criminal complaint for a bounced check. The petitioners then filed this action for reformation and return of the 150,000 pesos paid for the goodwill.

Issues

• Whether or not the Court of Appeals committed grave abuse of discretion in not holding that the goodwill payment was returnable to the petitioners if they were not finally awarded the right to operate the dealership.
• Whether or not the Court of Appeals committed grave abuse of discretion in not finding that the private respondents had a hand in Mobil's denial of the award to the petitioners.
• Whether or not the Court of Appeals committed grave abuse of discretion in not finding that the real intention of the parties was to make the goodwill payment returnable once the petitioners failed to continue operating the business.

Applicable Provisions

The decision resolves the case on the parties' agreement and the equitable remedy of reformation rather than on a single quoted statute. The governing principle on reformation, as the Court applies it, is that reformation presupposes that the instrument does not express the true intent of the parties. The Court's reasoning turns on this rule: reformation is unavailable where the written documents already embody what the parties actually agreed upon.

Ruling

On the first issue, the Court denied the petition. It found the petitioners' argument tenable only on initial impression, and affirmed the Court of Appeals, quoting its ratiocinations as its own. The appellate court held that there was no need to reform the documents. The petitioner wife was a very intelligent businesswoman who had run their LPG business for years, and she would not have signed the documents if they did not express the parties' true intent. No stipulation for return of the goodwill was included because, when the documents were signed, Nemar had already delivered the goodwill: it had introduced the petitioners to Mobil's manager, Mobil had agreed to let them take over, and Nemar had already resigned as dealer. Nemar had done everything it could to transfer the goodwill before the signing, so there was no reason for it to agree to return what had been paid.

On the second and third issues, which the Court treated as circumlocution of the first, it likewise found no error. The trouble arose after the petitioners had already sold the remaining stock and were asking Mobil to replenish it. Mobil demanded a bond, later increased, which the petitioners could not obtain because surety companies required the dealership contract that Mobil withheld until the bond was filed. The Court of Appeals found that the private respondents had no control over and no participation in these subsequent developments, and that if any party should be sued for the damages, it was Mobil Oil, not the respondents. The Court noted that the petitioners knew all along that their cause of action was against Mobil, as shown by their counterclaim in the replevin case, where they recovered almost one million pesos in damages. Since the goodwill had been fully delivered and it was not the respondents' fault that Mobil did not finally award the dealership, it was the petitioners who should complete payment of the 200,000 pesos price, of which they had paid only 150,000 pesos.

Doctrine

Reformation of an instrument is not a remedy for a bad bargain or for later misfortune. It lies only where the written instrument fails to express the true agreement of the parties. Where the evidence shows that the document embodies the parties' actual intent, and the party seeking reformation is a capable businessperson who signed knowingly, reformation will not lie. A buyer who has received the goodwill of a business, meaning the seller has done all it could to transfer it, bears the risk of subsequent events caused by a third party over whom the seller had no control. The seller who has fully delivered the goodwill may retain what has been paid and may recover the unpaid balance.

Disposition

The petition was denied, and the decision of the Court of Appeals dated November 29, 1990 and its resolution dated June 18, 1991 were affirmed, leaving the petitioners liable for the 50,000 pesos balance and 10,000 pesos in attorney's fees.

Remember This

Reformation presupposes that the instrument does not express the true intent of the parties; where it does, there is nothing to reform. Examiners use this case to test the limits of reformation of instruments and the allocation of risk after the delivery of business goodwill.