Veluz v. Veluz
REITERATIONFacts
The Antecedents: Plaintiff Ernesto Veluz asked defendants for a loan of P5,000.00, proposing to mortgage his share in a parcel of land. Defendants agreed and prepared a deed, which plaintiff later discovered was an absolute sale, not a mortgage. Defendants assured him it was merely a formality for possession and that he could redeem the property anytime, given they were siblings. Relying on these assurances, plaintiff signed the deed. In May 1956, plaintiff attempted to redeem the property, but defendants refused, claiming it was an absolute sale. Plaintiff later learned the property was registered in defendants' name. The land's value was estimated at P80,000.00 with a monthly produce of P1,000.00. Procedural History: Plaintiff filed a complaint for reformation of the deed of sale to reflect the true intention of the parties (a mortgage) and for damages. Defendants filed a motion to dismiss, alleging prescription and lack of cause of action. The trial court dismissed the complaint, ruling that the action was for annulment of contract based on fraud, which prescribes in four years from discovery of fraud. The court found that the four-year period had elapsed from January 2, 1953 (date of signing) to July 30, 1958 (date of filing). Plaintiff's motion for reconsideration was denied. The Petition: Plaintiff appealed the dismissal order, arguing that the action was for reformation of instrument, which prescribes in ten years, not annulment. He also contended that even if it were for annulment, the fraud was discovered only in 1958 when defendants refused redemption.
Issue(s)
Whether the action filed by the plaintiff is for reformation of instrument or for annulment of contract. Whether the action has prescribed.
Ruling
The Supreme Court set aside the order of dismissal and remanded the case for further proceedings. The Court ruled that the action is for reformation of instrument, which prescribes in ten (10) years.
Ratio Decidendi
On Whether the action filed by the plaintiff is for reformation of instrument or for annulment of contract: The Court held that the nature of an action and the law governing it are determined by the allegations in the complaint and the relief prayed for. In this case, the complaint alleged that the parties' agreement was for a mortgage, but a deed of absolute sale was prepared and signed due to assurances from the defendants. The instrument, therefore, did not express the true intention of the parties. The prayer for relief explicitly asked for the "reformation of the deed of sale... to express the true intention of the parties... to wit: the same to be made as a deed of mortgage." This clearly indicates an action for reformation of instrument, not annulment. The Court distinguished reformation from annulment, stating that reformation presupposes a valid contract where the instrument fails to express the true agreement, while annulment presupposes a defective contract where consent was vitiated or there was no meeting of the minds. The lower court erred in confusing these two distinct legal remedies. On Whether the action has prescribed: The Court ruled that an action for reformation of instrument prescribes in ten (10) years, as provided by Article 1144 of the Civil Code, citing the case of Conde, et al. vs. Cuenca and Malaga. This is in contrast to an action for annulment of contract based on fraud, which prescribes in four (4) years under Article 1391. Even if the ten-year period were computed from the date of the instrument's execution on January 2, 1953, or from May 1958 when defendants refused redemption, the action filed on July 30, 1958, had not yet prescribed. The Court found the ruling in Conde case more applicable than the Carlota case relied upon by the trial court, as Conde directly addressed the prescriptive period for reformation of instruments.
Main Doctrine
An action for reformation of an instrument, where the parties intended to execute a deed of mortgage but a deed of absolute sale was prepared and signed due to misrepresentation, prescribes in ten (10) years, not four (4) years as in an action for annulment of contract based on fraud.