Philippine Sugar Estates Development Co v. Government of Philippine Islands

• Decision Date: 03 June 1918
• Docket Number: No. 189,189
• Citation: 38 S.Ct. 513,62 L.Ed. 1177,247 U.S. 385
• Parties: PHILIPPINE SUGAR ESTATES DEVELOPMENT CO., Limited, v. GOVERNMENT OF PHILIPPINE ISLANDS
• Court: U.S. Supreme Court

247 U.S. 385

38 S.Ct. 513

62 L.Ed. 1177

PHILIPPINE SUGAR ESTATES DEVELOPMENT CO., Limited,

v GOVERNMENT OF PHILIPPINE ISLANDS.

No. 189.

Argued March 13, 1918.

Decided June 3, 1918.

Mr. Antonio M. Opisso, of Manila, P. I., for plaintiff in error and appellant.

Messrs. Edward S. Bailey and Samuel T. Ansell, both of Washington, D. C., for defendant in error and appellee.

Mr. Justice BRANDEIS delivered the opinion of the Court.

When Spain ceded the Philippine Islands to the United States large tracts of agricultural lands were owned by the great religious orders. For political reasons it was deemed advisable that our government should acquire the Friar lands and sell them to tenants in small holdings on easy terms. Lengthy negotiations conducted to that end by the Civil Governor were concluded in 1903. Most of the lands owned by the Dominicans, amounting to 60,461 hectares, had been conveyed to the Philippine Sugar Estates Development Company, Limited; and with that corporation a contract of sale and purchase was executed by the Government of the Philippine Islands under date of December 22, 1903. The agreement covered eight haciendas including that of Calamba in the province of Laguna, said to contain 16,424 hectares and 14 ares. Owing to delays incident to resurveys and perfecting of titles, the deed of the Calamba estate was not delivered until October, 1905, when the purchase price, 1,385,443.29 pesos, was paid and possession taken by the grantee.¹ Later the Philippine Government learned that the grantor had removed certain sugar mill machinery and the rails of a light railroad which had formerly been upon the estate. The contract made no mention of sugar mills, machinery, or railroad; but it contained, after the description of the estates and specified properties to be conveyed, the words, 'and all other improvements'; and these words were also in the deed. The government, claiming that the machinery and railroad were covered by this and other clauses and passed as part of the realty, brought suit, in 1906, against the company² in the Court of First Instance of Manila for their value, alleged to be 50,000 pesos.

The Code of Civil Procedure of the Philippine Islands (section 285) permits to be introduced, in case of written contracts, 'evidence of the terms of agreement other than the contents of the writing,' 'where a mistake or imperfection of the writing, or its failure to express the true intent and agreement of the parties is put in issue by the pleadings.'³ The defense was rested, under appropriate pleadings, on the ground, among others, that the contracting parties understood that the sugar mills or machinery and the railroad were not to be included as a part of the real estate and that they did not come under any of the terms used in the contract or the deed, and that, for this reason, the instrument did not express the intention and actual agreement of the parties. The trial court held this defense good in law and sustained by the evidence; and entered judgment for the defendant. The Supreme Court of the Philippine Islands reversed the judgment of the trial court solely on the ground that, where parties to a written contract have deliberately adopted the language therein used, a court of equity will not reform the instrument because the parties were 'mistaken as to its legal interpretation and effect, nor will such a mistake be recognized as any defense to a suit upon the contract or instrument,' and that relief against such a mistake cannot be afforded under section 285 of the Code. Upon the evidence which had been introduced below the Supreme Court also entered a judgment of 50,000 pesos for the governm nt. 30 Phil. Rep. 27. The case comes here under section 248 of the Judicial Code (Comp. St. 1916, § 1225, 1225a).

The case is brought here both by writ of error and by appeal. The complaint set forth a cause of action at law on the contract. The answer was, in effect, a bill in equity for reformation and incidentally to enjoin the action at law. Compare Bradbury v. Higginson, 167 Cal. 553, 140 Pac. 254. The proceeding became thus an equitable one. See Surgett v. Lapice, 8 How. 48, 64, 65, 12 L. Ed. 982; Clark v. Mosher, 107 N. Y. 118, 14 N. E. 96, 1 Am. St. Rep. 798; Turner v. Johnson, 93 S. W. 1038, 29 Ky. Law Rep. 543. The proper method of review by this court is therefore by appeal, and the writ of error is dismissed. Gsell v. Insular Collector of Customs, 239 U. S. 93, 36 Sup. Ct. 39, 60 L. Ed. 163; Montelibanoy Ramos v. La Compania General de Tabacos de Filipinas, 241 U. S. 455, 461, 36 Sup. Ct. 617, 60 L. Ed. 1099.

It is well settled that courts of equity will reform a written contract where, owing to mutual mistake, the language used therein did not fully or accurately express the agreement and intention of the parties. The fact that interpretation or construction of a contract presents a question of law and that, therefore, the mistake was one of law is not a bar to granting relief. Snell v. Insurance Co., 98 U. S. 85, 88-91, 25 L. Ed. 52; Griswold v. Hazard, 141 U. S. 260, 283, 284, 11 Sup. Ct. 972, 999, 35 L. Ed. 678⁴. This rule of equity was adopted in the Philippine Code without restriction; and the relief is afforded, under appropriate pleadings, without resort to an independent suit for reformation of the contract. The language of section 285 is clearly broad enough to include relief for such mistakes of law; and the earlier decisions of the Supreme Court of the Philippine Islands to which that court refers in its opinion, are not inconsistent with this conclusion. Some of them are instances of the futile attempt to vary, supplement, or contradict a written contract by parol evidence. In none of them was evidence offered under appropriate pleadings with a view to reforming the instrument.⁵ It is urged that section 285 was borrowed from section 1856 of the Code of Civil Procedure of California, and that the courts of that state deny relief under circumstances like those here under consideration. No case sustaining this assertion was cited by counsel and none has been found by us. Furthermore the provisions of the two sections differ materially; the significant clause of section 285, namely, 'or its failure to express the true intent and agreement of the parties,' is not contained in section 1856 of the California Code. It is also urged that, since the construction of section 285 is a matter of purely local concern, we should not disturb the decision of the Supreme Court of the Philippine Islands. This court is always disposed to accept the construction which the highest court of a territory or possession has placed upon a local statute. Phoenix Railway Co. v. Landis, 231 U. S. 578, 34 Sup. Ct. 179, 58 L. Ed. 377. But that disposition may not be yielded to, where the lower court has clearly erred. Carrington v. Unites States, 208 U. S. 1, 28 Sup. Ct. 203, 52 L.Ed. 367. Here the construction adopted was rested upon a clearly erroneous assumption as to an established rule of equity. The Supreme Court erred in refusing to consider the evidence of mutual mistake; and its judgment must be reversed.

It remains to consider the further proceedings which should be taken. The judgment of the trial court was reversed by the Supreme Court solely on the ground that the defense of mutual mistake relied upon was not good in law; but the case had been taken to that court on a bill of exceptions which contained the whole record in the trial court, including all the evidence introduced; and the refusal of the trial judge to grant a new trial on the ground that the evidence did not justify the findings of the court had been duly excepted o. This exception was apparently insisted upon before the Philippine Supreme Court, and the same contention is made by the government here. Its purpose was obviously to seek a review of those findings under section 497, par. 2, of the Code of Civil Procedure, which provides that where a motion was made in the trial court for a new trial 'upon the ground that the evidence was insufficient to justify the decision, and the judge overruled said motion, and due exception was taken to his overruling the same, the Supreme Court may review the evidence and make such findings upon the facts by a preponderance of the evidence, and render such final judgment, as justice and equity may require.' We might require that the review of the evidence to which the government is entitled should be made by that court. But, as the case is here on appeal and all proffered evidence was admitted below and is in the record...