G.R. No. 29512 | January 17, 1929 | Ong Chua vs. Edward Carr, et al.

FACTS:
Ong Chua sold three lots and a house to Edward Carr. The property was originally owned by spouses Henry E. Teck and Magdalena Lim, who had previously sold it to Ong Chua but retained a right to repurchase it within four years. During the sale negotiations, Ong Chua (who did not understand English) explicitly conditioned the sale to Carr on the respect for these existing repurchase rights. Carr, through his lawyer P.J. Moore, agreed. However, to facilitate a loan, Moore drafted the deed of absolute sale without including the condition about the repurchase rights. Moore assured Ong Chua the document was sufficient. It was agreed Moore would hold the deed in escrow until the repurchase period expired. Carr later obtained the deed from a critically ill Moore in violation of their agreement, registered it, and refused to honor the repurchase rights when Teck and Lim sought to exercise them. Ong Chua filed an action for reformation of the deed.

ISSUE

Whether the deed of absolute sale may be reformed to include the stipulation that it was subject to the repurchase rights of the original owners, Teck and Lim.

RULING

Yes, the deed may be reformed. The Court affirmed the trial court’s decision ordering reformation.

The Supreme Court held that reformation of an instrument is proper when there is a mistake on one side and fraud or inequitable conduct on the other. Here, Ong Chua’s mistake (signing an English document he did not understand, which omitted the crucial condition) was induced by the assurances of Moore, who was acting for Carr. Carr, with full knowledge of the true agreement and the escrow condition, acted fraudulently by pressuring a sick Moore to release the deed prematurely and then immediately registering it to obtain an unfair advantage. This conduct constituted fraud against Ong Chua. The defense of the Statute of Frauds was unavailing, as the action was for reformation based on fraud and mistake, not for enforcement of an unwritten contract. The pendency of the reformation action also tolled the period for the exercise of the repurchase rights.