Case Digest: BA Finance Corporation vs IAC and Rene Tan, G.R. No. 76497

BA Finance Corporation vs IAC and Rene Tan, GR No. 76497, January 20, 1993

Subject: Obligations and Contracts

FACTS

Petitioner lends money to a customer on the condition that a deed of sale is executed in its favor covering some personal property and thereafter the petitioner leases back the said property to the same customer for his own use.

Private respondent is the proprietor-manager of the Martina Industries, allegedly loaned from the petitioner with 1975 Volkswagen Sedan as collateral. After the loan was approved, he received the sum of P15,913.06.

A complaint for fraud and damages was filed by private respondent.

Petitioner alleged that the contract entered into between the corporation and one Reinaldo Tan was one of lease covering the subject car; that there was no unlawful taking of the subject car since it was voluntarily surrendered after the private respondent failed and refused to pay the monthly rental; that the surrender was pursuant to the provisions of the Contract of Lease.

Lower court rendered judgment in favor of the private respondent

Petitioner argues that the document in question cannot be mistaken for any agreement other than a lease contract as its provisions clearly expressed the terms previously discussed by parties.

ISSUE

Whether or not the parties in this case may ask for the reformation of the instrument.

RULING

Yes, the parties in this case may ask for the reformation of the instrument.

Under the law (Art 1359, NCC), (par.1) 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 instrument to the end that such true intention may be expressed. (par.2) 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.

In this case, there is no dispute that there was a meeting of the minds with respect to the arrangement whereby the private respondent borrows money from the petitioner and the subject car serves as security for the payment of the loaned amount. The private respondent had insisted that what he merely intended in contracting with the petitioner was to secure a loan with his Volkswagen Sedan as collateral. On the other hand, the petitioner, by virtue of the private respondent’s loan application, prepared the necessary papers which included a Deed of Absolute Sale of the subject car in its favor in order that its legal ownership shall serve as the security for there payment of the amount being loaned by the private respondent through the payment of monthly rentals under a Contract of Lease which the latter duly signed as earlier discussed.