G.R. No. L-29256. June 30, 1971.
THE CITY OF CABANATUAN, represented by the City Mayor, plaintiff-appellant, vs. DR. JUAN S. LAZARO AND NIEVES MANINGAS, defendants-appellees.

FACTS

The City of Cabanatuan, through its City Mayor, entered into a ten-year lease contract with Dr. Juan S. Lazaro and Nieves Maningas over a city-owned lot. The contract contained a paragraph granting the lessees an option to renew the lease for another ten years after the original term. The City later filed a complaint for reformation of the contract under Article 1359 of the Civil Code, seeking to delete this renewal option. It alleged that the inclusion of the option was due to mistake or accident and did not reflect the true intention of the parties, as the municipal board resolution authorizing the City Mayor only empowered him to enter into a lease “for a period of 10 years” without any mention of authority to grant an extension.
The defendants moved to dismiss the complaint, arguing the action was premature, lacked cause of action, and the court lacked jurisdiction. The trial court granted the motion to dismiss. The City moved for reconsideration. While this motion was pending, the defendants manifested that the City had already sold the leased lot to third parties. The trial court subsequently denied the motion for reconsideration, prompting the City’s appeal.

ISSUE

Whether the trial court correctly dismissed the complaint for reformation of contract.

RULING

No. The Supreme Court reversed the trial court’s orders and remanded the case for further proceedings. The legal logic is clear: an action for reformation is precisely intended to correct an instrument that, due to mistake, fraud, inequitable conduct, or accident, does not express the true agreement of the parties. Its purpose is to forestall future litigation by conforming the written document to the actual meeting of the minds. Therefore, the action is not premature even if the option to renew is not yet exercisable. Waiting for the original lease term to expire before seeking reformation would be counterproductive, as evidence of the true intent could be lost over time.
Furthermore, the City’s subsequent sale of the property did not extinguish its legal interest in the litigation. The transferee, not being a party to the original lease, cannot maintain the action for reformation. The outcome of the reformation case directly affects the extent of the City’s obligations to its vendee, thus preserving the City’s standing. The proper course, if the trial court was concerned, was to order the joinder of the purchaser, not to dismiss the complaint. Finally, the existence of a cause of action is determined from the allegations in the complaint, which must be hypothetically admitted in a motion to dismiss. The complaint sufficiently alleged grounds for reformation, and any doubts regarding the veracity of these allegations or potential defenses must be resolved in a full trial on the merits.