Tormon v. Cutanda
REITERATIONFacts
The Antecedents: Andrea Tormon alleged that she owned a parcel of land covered by Original Certificate of Title No. 45305. On October 7, 1949, she borrowed P350 from spouses Dominador and Leodegracia Cutanda, offering the land as security. The parties executed a document that appeared to be a sale with a right to repurchase within seven years, but the true agreement was a mortgage. Tormon claimed to have paid usurious interest annually until 1959. In September 1960, she offered to redeem the land, but the Cutanda spouses consolidated their title and obtained a new transfer certificate in their name on September 16, 1960. Procedural History: Tormon filed a complaint for reformation of instrument, seeking to have the contract declared an equitable mortgage, for release of the property upon payment, and for the return of usurious interest, damages, and attorney's fees. The defendants moved to dismiss the complaint based on the affirmative defense of prescription. The Court of First Instance of Iloilo dismissed the complaint, ruling that the cause of action accrued on October 7, 1949, the date of the deed's execution, and had therefore prescribed by the time the complaint was filed in November 1960. The Appeal: Tormon appealed to the Supreme Court, arguing that the lower court erred in dismissing her complaint. The sole issue presented was whether her cause of action accrued upon the execution of the instrument eleven years prior to the suit, which would render it prescribed.
Issue(s)
Whether the plaintiff's cause of action for reformation of instrument, based on an alleged equitable mortgage disguised as a sale with right to repurchase, had prescribed when filed. Whether the prescriptive period began to run from the date of the execution of the deed of sale or from the date the defendants consolidated their title.
Ruling
The Supreme Court set aside the order of dismissal and remanded the case to the lower court for further proceedings. The Court ruled that the plaintiff's cause of action had not prescribed.
Ratio Decidendi
On Whether the plaintiff's cause of action for reformation of instrument, based on an alleged equitable mortgage disguised as a sale with right to repurchase, had prescribed when filed: The Court held that the cause of action had not prescribed. It clarified that the prescriptive period starts to run not from the date of the execution of an instrument, but from the time a cause of action accrues. If the true agreement was a mortgage and the deed of sale was merely a simulated contract, it was void and conferred no rights. The plaintiff's cause of action to enforce the true agreement and have the apparent one reformed or disregarded only arose when the defendants unequivocally manifested their intention to disregard the true agreement through overt acts. The allegation of the complaint established that this overt act was the consolidation of title by the defendants in September 1960, which was only two months before the complaint was filed. On Whether the prescriptive period began to run from the date of the execution of the deed of sale or from the date the defendants consolidated their title: The Court ruled that the prescriptive period began to run from the date the defendants consolidated their title, not from the date of the deed's execution. Relying on the allegations in the complaint, which must be deemed true for the purpose of the motion to dismiss, the execution of the deed of sale was a simulated contract. A simulated contract is void and has no binding effect. Therefore, the plaintiff could not have had a cause of action to complain to the court so long as the defendants were willing to abide by the true agreement of mortgage. The cause of action only arose when the defendants, through the consolidation of title, made known their intention not to abide by the true agreement. This overt act occurred in September 1960, and the complaint was filed shortly thereafter in November 1960, thus, the action had not prescribed.
Main Doctrine
The Supreme Court held that the prescriptive period for an action to reform an instrument or declare it an equitable mortgage does not commence from the date of its execution if the instrument is alleged to be simulated or fictitious. Instead, the period begins to run from the moment the defendant commits an overt act that clearly indicates their intention to disregard the true agreement and violate the plaintiff's rights, such as consolidating title under a purported sale that was actually intended as a mortgage.