Jayme v. Alampay
REITERATIONFacts
The Antecedents: Petitioners-spouses Antonio Jayme and Ana Solidarios alleged that they entered into an agreement with respondent Benito Ong on December 24, 1964, wherein they intended to borrow P16,500.00 from Ong, secured by a parcel of land. However, the instrument executed was a deed of absolute sale instead of a mortgage, as they reposed trust in Ong and were in dire need of funds. They further alleged that Ong simultaneously executed an option to repurchase the property within six months for the same amount. Petitioners continued to occupy part of the premises without paying rent and collected rentals from other occupants. They claimed the P16,500.00 was grossly inadequate for a definite sale and had offered to pay the loan amount. Due to Ong's refusal to execute a mortgage document and accept payment, they suffered damages. Procedural History: Petitioners filed a complaint for reformation of instrument, recovery of property, and damages against Benito Ong in the Court of First Instance of Negros Occidental. Respondent Ong filed an answer with a counterclaim, raising the defense of prescription. Following a pre-trial conference, the respondent judge directed Ong to file a motion to dismiss based on prescription. Petitioners opposed the motion. On June 10, 1974, the respondent court issued an order granting the motion to dismiss, finding that the action had prescribed and that a mortgage executed by Ong in favor of Jose del Castillo presented an impediment. A motion for reconsideration was denied. The Petition: Petitioners filed a petition for review on certiorari with the Supreme Court, assailing the dismissal order on pure questions of law. They argued that the respondent court erred in dismissing their action for reformation, which they contended was governed by a ten-year prescriptive period, and in concluding that the existence of a mortgage in favor of a third party was an impediment. The Supreme Court resolved to consider the case as a special civil action and the motion to dismiss as the answer to expedite resolution.
Issue(s)
Whether the respondent court erred in dismissing the petitioners' action for reformation of instrument on the ground of prescription. Whether the existence of a mortgage executed by the respondent in favor of a third party constitutes a legal impediment to the petitioners' action for reformation and recovery of title.
Ruling
The Supreme Court rendered judgment setting aside the dismissal order of June 10, 1974, and remanding the case to the respondent court for trial and adjudication on the merits. The Court found that the petition had merit.
Ratio Decidendi
On Issue 1: The Supreme Court held that the respondent court manifestly erred in dismissing the petitioners' action for reformation of instrument on the ground of prescription. The Court reiterated the rule that in a motion to dismiss, the allegations of the complaint are deemed hypothetically admitted. The complaint clearly alleged that the deed of sale did not embody the true agreement of the parties, which was to constitute a mortgage, and prayed for reformation. Such an action falls under Article 1365 of the Civil Code, and the applicable prescriptive period is ten years as provided in Article 1144 of the Civil Code, not the four-year period for annulment of contract based on vitiated consent. The petitioners filed their action less than eight years after the execution of the deed, thus it had not prescribed. The respondent's counter-theory that the transaction was a bona fide sale was a matter of defense to be proven at trial, not a ground for dismissal at the pre-trial stage. On Issue 2: The Supreme Court found clear error in the respondent court's ground for dismissal that the existing P100,000.00 mortgage over the property in favor of Jose del Castillo constituted an impediment to the petitioners' action. The Court explained that while the mortgagee's rights are recognized, this does not defeat the action for reformation and recovery of title. If the petitioners prevail, they would recover title subject to the mortgage, or the respondent could be ordered to discharge the mortgage, as it was obtained for his exclusive benefit after the alleged loan transaction with the petitioners.
Main Doctrine
The Supreme Court held that a motion to dismiss on the ground of prescription must be resolved based on the allegations in the complaint, which are deemed hypothetically admitted. If the complaint avers that a deed of sale was intended to be a mortgage, the action is for reformation, governed by a ten-year prescriptive period under Article 1144 of the Civil Code. The Court emphasized that the respondent court erred in dismissing the case based on the premise that the action was for annulment due to vitiated consent, which has a four-year prescriptive period, as this contradicted the allegations of the complaint. Furthermore, the existence of a mortgage in favor of a third party, even if in good faith, does not preclude an action for reformation; the rights of the mortgagee can be addressed and protected during the trial.