CECILIA MATA, PETITIONER, VS. HON. COURT OF APPEALS AND METROPOLITAN BANK & TRUST COMPANY, RESPONDENTS.

This controversy arose from a contract of lease between
petitioner Cecilia Mata as lessor with private respondent Metropolitan Bank and
Trust Company (Metrobank) as lessee over a parcel of land belonging to her and
located in Binakayan, Kawit, Cavite.  The contract was executed on August 20, 1973,^[1]
and provided pertinently as follows:

a) That the lessor shall construct on her land described above, at
her own expense, a reinforced
and concrete building in accordance with the plans and specifications prepared
at the instance of the lessor and with the approval of the lessee Metrobank
insofar as the portion to be occupied by the said bank;

b) That the lease shall be for a period of twenty (20) years,
renewable at the option of the lessee bank, starting thirty days from occupancy
of the premises;

c) That the lessee bank
shall grant a loan of P390,000.00 upon signing of the contract to finance the
construction of the aforementioned commercial building under terms and
conditions contained in a separate document of loan and mortgage, which loan
shall be partially settled out of the monthly rentals on the leased premises.

d) That the lessee-appellant shall pay to the lessor-appellee
rentals at the rate of

1. 1st to 5th year      –           P   800.00 a month

2. 6th to 10th year    –           P1,300.00
a month

3. 11th to 15th year –           P1,800.00
a month

4. 16th to 20th year –           P2,200.00
a month

Pursuant thereto, the petitioner received from Metrobank during
the period from October 2, 1973, to February
25, 1974, separate amounts totaling P396,046.00.^[2]

To secure payment thereof, the petitioner executed the following
deeds of real estate mortgage in favor of Metrobank:

a) Real Estate Mortgage for P300,000.00 on September 18, 1973^[3]

b) Real Estate Mortgage for P90,000.00 on January 9, 1974^[4]

c) Real Estate Mortgage for P50,000.00 on March 28, 1974^[5]

and signed the following promissory
notes:

1. Promissory Note dated October
2, 1973 for P100,000.00^[6]

2. Promissory Note dated November
6, 1973 for P100,000.00^[7]

3. Promissory Note dated December
10, 1973 for P60,000.00^[8]

4. Promissory Note dated December
19, 1973 for P40,000.00^[9]

5. Promissory Note dated January
11, 1974 for P90,000.00^[10]

To renew the loans covered by these instruments, the petitioner
executed another promissory note for P435,200.00 on September 12, 1974.^[11]

With the money received from these loans, the petitioner
proceeded to construct the commercial building on her lot, with Metrobank’s
approval as to the part of the
structure to be occupied by it in accordance with their contract.  Concepcion Veles, the petitioner’s niece
acted on her behalf in administering the construction of the building.

On November 4, 1977, the petitioner filed with the then
Court of First Instance of Cavite a
complaint for reformation of the above-mentioned contracts.

She claimed that she was induced into signing the contract of
lease, the deeds of mortgage and the promissory notes as a result of her ignorance, lack of skill and proper advice and
the bad faith of Metrobank.  She said she
had never consented to pay for the construction of the building and neither did
she agree to repay Metrobank with compounded interest.  She pointed out that she could not have
assented to the one-sided contracts, considering that upon the expiration of
the lease after twenty years, her debt would amount to P1,277,946.00,
representing the unpaid principal of P440,000.00 plus the interest of
P1,203,946.00 less the total rental of P366,000.00.

On June 3, 1982,
the court, through Judge Luis L. Victor, ruled for the petitioner, holding inter
alia as follows:

Indeed, the record is bereft of any evidence to establish that
defendant bank took the pains to advise plaintiff, considering her age and educational limitations, that the
details of her loan agreement would entail such heavy burden on the part off
the plaintiff that practically placed her in a situation where, during her lifetime, she may not be able to
fulfill her end of the bargain to the defendant with the concomitant loss of
her property consequent to non-payment of her indebtedness.

The import of the real estate mortgages, which plaintiff signed,
Exhibits C, D and E, was not explained to plaintiff, nor its terms clearly
elucidated to her.  The promissory notes,
Exhibits H, I, J and K, were not shown to have been discussed by the parties
and plaintiff Mata made aware of the contents and legal effects thereof.  Evidence is lacking that defendant Metrobank
made plaintiff Mata understood the meaning of the credit line, Exhibit F.  Nor is there ample proof that defendant
explained to plaintiff Mata why she had to sign the promissory note, Exhibit M,
for P435,200.00 when she had already signed four (4) previous promissory notes.

x        x          x

x x x this Court is convinced that the loan agreement between the
parties herein is altogether inequitably one-sided in favor of the defendant
bank and unconscionably disadvantageous to plaintiff.  Had defendant bank explained fully to
plaintiff the terms of the promissory notes she signed and the interest she
will have to assume on the principal obligation, the manner she can offset her
account with the anticipated income derivable from the lease, and such other
details of payment, perhaps this Court may not constitute itself guardian of
plaintiff in the light of the Vales v. Villa pronouncement.  But in the case at bar, defendant, the more
knowledgeable of the contracting parties, did not clear the doubt, contingency
or risk affecting the object of the lease agreement to plaintiff Mata, whose
layman’s grasp of the contract emanated only from a general understanding of
the contents thereof.  Thus, this Court
will intervene between the parties herein to prevent an apparent injustice and
to give meaning and substance to the dictum that when one of the parties is
unable to understand the signification of a contract because of ignorance, or
lack of skill, the person enforcing the contract must show that all the terms
thereof have been fully explained to the former.  As earlier stated, there is no evidence that
defendant Metrobank had taken the necessary steps to enlighten the plaintiff Cecilia
Mata on the signification of the mortgages and promissory notes that she signed
in support of the contract of lease.

Premises considered, in view of the conclusions arrived at by this
Court, as above discussed, judgment is hereby rendered ordering the reformation
of the contract of lease, more particularly the terms and conditions contained
in the separate documents of law, mortgages and promissory notes in accordance
with justice and equity, ever guided by the maxim of law of rendering to
everyone his due.

Metrobank appealed to the respondent court, contending that the
trial court erred in ordering
reformation, this not being allowed by law, let alone the fact that the
petitioner had not adduced sufficient evidence to show that the contracts
sought to be reformed were inequitable.

In its decision dated November
22, 1988,^[12]
the Court of Appeals reversed the trial court and on April 10, 1989, denied reconsideration.  It ruled that it was not legally possible to
reform the contract of lease because it expressed the true intention of the
parties and the petitioner understood its terms and conditions.  If it was true that the contracts were not
explained to her, the lack of meeting of the minds between the parties would
also make reformation legally inapplicable. 
The respondent court also said that there was no factual basis for the
finding that the loan agreement was inequitable.  The error of the trial court, it said, lay in
its misimpression that the total loan granted to Mata would be paid or
amortized solely from the agreed graduated rentals of the portions
occupied by Metrobank.  In fact, the loan
would only be partially paid with its monthly rentals as the rest of the
building was to be leased by Mata to other tenants whose rentals would also be
used for paying the loans.

This Court has carefully examined the questioned decision and
agrees that the lease contract and the other related contracts are not
inequitable as alleged by the petitioner. 
The contract of lease was somewhat complicated by the inclusion of the
loan agreement for P390,000.00 but that did not make the contract
unconscionable.

Like the contract of lease, the real estate mortgages and the
promissory notes are not contrary to law, morals, good customs or public
policy.  They are the usual transactions
entered into by banks in the regular course of their business of lending money
at stipulated interests and for adequate security.

It is not denied that the loan was for P440,000.00 and that at
the end of the 20-year period, the petitioner’s liability with interest at 12%
per annum would amount to P753,512.00, representing the unpaid interest of
P679,512.00 plus the outstanding capital of P74,000.00.^[13]
But this amount would not make the contract per se
inequitable.  The interest rate charged
by Metrobank on the loan was the ordinary banking rate on forebearance of money
at that time and it was definitely not usurious then, nor is it now.

It is noted that in leases of this nature, which are normally for
20 years, the loan granted by the bank will eventually be offset at the end of
the lease period by the rentals it would have paid during that time.  However, this arrangement is not applicable
in the case at bar because Metrobank occupies only a portion of the building
and so does not pay the total revenue derived from the lease of the whole
building.  In her computations, the
petitioner does not take into account the rentals derived from the lease of the
rest of the building, which is the reason why her payments to Metrobank appear
lopsided vis-a-vis the payments of Metrobank to her.  Her total indebtedness to Metrobank should be
juxtaposed against not only the rentals of Metrobank but the total rentals to be derived from the lease of the whole
building.  Let it be added, as a no less
significant consideration, that the building will remain in her name even after
the end of the 20-year lease to Metrobank.

The onus probandi is upon the party who
insists that the contract should be reformed because of the unfairness of its
provisions.  It was thus incumbent upon
the petitioner to establish, through a preponderance of evidence, that the
contract was unconscionably operating to her disadvantage.  She has not done so.  In this connection, it bears stressing that a
contract may not be reformed simply because a party later finds itself at the shorter end of an unwise
bargain.  It is only when the agreement
is shown to be so grossly unjust as to be unduly oppressive that the strong arm
of equity may intervene to grant relief to the aggrieved party.

The respondent court was correct when it said that if the
petitioner never really intended to be bound by the said contracts, there
consequently could have been no meeting of the minds between her and
Metrobank.  This would make reformation
unavailable for lack of the first of the requisites of reformation as
enumerated in Article 1359 of the
Civil Code, thus:

1) there must have been a meeting of the minds upon the contract;

2) the instrument or document evidencing the contract does not
express the true agreement between the parties; and

3) the failure of the instrument to express the agreement must be
due to mistake, fraud, inequitable conduct or accident.

The other reason why reformation is not available is that,
contrary to the second requisite, the contracts in question do express the true
agreement between the parties.

The Court does not accept the petitioner’s claim that she did not
understand the terms and conditions of the transactions because she only
reached Grade Three and was already 63 years of age when she signed the
documents.  She was literate, to begin
with, and her age did not make her senile or incompetent.  Moreover, the respondent court found that the
terms of the contracts were explained to her by Edgardo B. Espiritu, the senior
vice-president of Metrobank, and Rodolfo Gaspar, the lawyer in charge of its
building and real estate properties.^[14]

At any rate, Metrobank had no obligation to explain the documents
to the petitioner as nowhere has it been proven that she is unable to read or that
the contracts were written in a language not known to her.  It was her
responsibility to inform herself of the meaning and consequence of the
contracts she was signing and, if she found them difficult to comprehend, to
consult other persons, preferably lawyers, to explain them to her.  After all, the transactions involved not only
a few hundred or thousand pesos but, indeed, hundreds of thousands of pesos.

As the Court has held:

x x x The rule that one who signs a contract is presumed to know
its contents has been applied even to contracts of illiterate persons on the
ground that if such persons are unable to read, they are negligent if they fail
to have the contract read to them.  If a
person cannot read the instrument, it is as much his duty to procure some
reliable persons to read and explain it to him, before he signs it, as it would
be to read it before he signed it if he were able to do so and his failure to
obtain a reading and explanation of it is such gross negligence as will estop
him from avoiding it on the ground that he was ignorant of its contents.^[15]

We see no reversible error in the well-written and exhaustive
decision penned by Justice Regina G. Ordoñez-Benitez, based as it is on the
evidence of record and the pertinent law and jurisprudence.  Indeed, it reflects the careful and
conscientious study given to the case by the members of the appellate court who
participated in its resolution.

ACCORDINGLY, the petition is DENIED and the challenged
decision of the respondent Court of Appeals is AFFIRMED, with costs against the
petitioner.  It is so ordered.

Griño-Aquino and
Medialdea, JJ., concur.

Narvasa, C.J., and Bellosillo,
J., on leave.

^[1]
Annex B, Exhibits for the Plaintiff.

^[2]
Rollo, p. 154.

^[3]
Annex C, Exhibits for the Plaintiff.

^[4]
Annex D, Ibid.

^[5]
Annex E, Id.

^[6]
Annex G, id.

^[7]
Annex H, id.

^[8]
Annex I, id.

^[9]
Annex J, id.

^[10]
Annex K, id.

^[11]
Annex M, id.

^[12]
Ordoñez-Benitez, J., ponente;
Bellosillo and Kalalo, JJ., concurring.

^[13]
This different amount is reached after
deducting from the capital loan of P440,000 the yearly rentals.  And this difference will be used as the basis
for computing the interest rate for that year.

^[14]
Rollo, p. 160.

^[15]
Tan Sua Sia vs. Yu Baio Sontua,
56 Phil. 711.