ROSARIO V.
ALVAR 839 SCRA 138
1359-1369 – Reformation of Instruments
FACTS: On separate dates in 1989, petitioner Agnes Annabelle Dean- Rosario (Agnes) borrowed from respondent Priscilla Alvar (Priscilla) a total of
P600,000.00, secured by real estate mortgages over two parcels of land (residence of petitioner spouses Agnes and Firmo Rosario and a five-door rental apartment).
In December 1990, the mortgages were discharged. On March 16, 1992 and July 17, 1992, Agnes executed two Deeds of Absolute Sale over the two lots in favor of Priscilla’s
daughter, Evangeline Arceo (Evangeline), for the amount of P900,000.00 each. Evangeline later sold the lots to Priscilla also for the price of P900,000.00 each.
Priscilla sent a demand letter to petitioner spouses Rosario asking them to vacate Lot 1. This prompted petitioner spouses Rosario to file before the Regional Trial Court (RTC) of
Makati City a Complaint for Declaration of Nullity of Contract of Sale and Mortgage, Cancellation of Transfer Certificates of Title and Issuance of new TCTs with Damages
against Priscilla. Petitioner spouses Rosario alleged that Priscilla deceived Agnes into signing the Deeds of Absolute Sale in favor of Evangeline, as Agnes merely intended to
renew the mortgages over the two lots.
Priscilla, in turn, filed with the RTC a Complaint for Recovery of Possession. She claimed that she is the absolute owner of the subject lots and that Agnes sold the lots because
she was in dire need of money.
The RTC rendered a Decision granting Priscilla’s complaint for recovery of possession while denying petitioner spouses Rosario’s complaint for declaration of nullity of contract
of
Sale.
On appeal, the CA reversed the Decision of the RTC. The CA ruled that although the transfers from Agnes to Priscilla were identified as absolute sales, the contracts are deemed
equitable mortgages pursuant to Article 1602 of the Civil Code.
On the issuance of new TCTs. The CA held the cancellation of Agnes’ title overt the 2 lots void. Titles to the subject lots, which had supposedly been transferred to
[Evangeline] and later to [Priscilla], actually remained with [petitioner Agnes], as owner-mortgagor, conformably with the well- established doctrine that the mortgagee does not
automatically become the owner of the mortgaged property as the ownership thereof remains with the mortgagor. Hence, it is not necessary for Us to order the issuance of new
titles under the name of [petitioner Agnes]. Accordingly, TCTs issued under the name of [petitioner Agnes] must be reinstated, while the TCTs issued in the name of [Priscilla]
must be nullified.
On the nullification of Deeds of Absolute Sale and the Mortgage. Although the subject deeds of sale in favor of [Evangeline] were actually for mortgage, said type of
simulation of contracts does not result in the nullification of the deeds but requires the reformation of the instrument, pursuant to Article 1365 of the Civil Code.
Moreover, as [petitioner spouses Rosario] admitted they mortgaged the 2 lots to [Priscilla] as security for the payment of their loans. Absent any proof that [petitioner spouses
Rosario] had fully paid their loans to [Priscilla], [Priscilla] may seek the foreclosure of the 2 lots if [petitioner spouses Rosario] failed to pay their loans of P1.8 Million, the
amounts appearing in the Deeds of Absolute Sale.
Since the parties did not file a motion for reconsideration or an appeal, the CA’s Decision became final and executory.
Agnes failed to pay the outstanding obligation of P1.8M. Priscilla filed a complaint for Judicial Foreclosure against of Real Estate Mortgage.
Petitioner spouses Rosario contended that before subject lots can be judicially foreclosed, a reformation of the fake and simulated Deeds of Absolute Sale must first be done to
enable them to present documentary and parol evidence. Priscilla asserts that there is no need for such reformation as the declaration in the CA Decision is sufficient.
ISSUE: Whether a reformation of the contract is required before the subject lots may be foreclosed.
HELD: We rule in the negative.
Reformation of an instrument is a remedy in equity where a written instrument already executed is allowed by law to be reformed or construed to express or conform to the real
intention of the parties. The rationale of the doctrine is that
it would be unjust and inequitable to allow the enforcement of a written instrument that does not express or reflect the real intention of the parties.
In its Decision, the CA denied petitioner spouses’ Complaint for declaration of nullity of contract of sale on the ground that what was required was the reformation of
the instruments, pursuant to Article 1365 of the Civil Code. In ruling that the Deeds of Absolute Sale were actually mortgages, the CA, in effect, had reformed the instruments
based on the true intention of the parties. Thus, the filing of a separate complaint for reformation of instrument is no longer necessary because it would only be redundant and a
waste of time.
Atty. Alabastro’s discussion: The peculiarity in this case is that the SC discussed the effects of different judgment. A case was first filed and upon reaching CA, the sale
was declared to be an equitable mortgage, in accordance to Art. 1365. As the decision of the CA declaring the purported sale to be in fact an equitable mortgage became final
and executory, the filing for reformation of the aforementioned instrument was no longer necessary. The CA Decision had the effect of reforming the instrument. An action for
reformation of instrument is also filed before the courts; it cannot be extrajudicial. Once the court, in one of its decisions resolving an issue, reforms an instrument, when such
decision becomes final and executory there is no need for any other action for reformation of instrument.
This reformation of instrument is before the courts. It is already judicial reformation, not extrajudicial. Once the courts, in any action, has already reformed the instrument, it will
take away the necessity between the parties to reform that instrument further. Because of the nature of finality of the Nov. 15, 2006 CA Decision, it takes away the need for
filing an action for reformation.
