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Obligations and Contracts


Reformation of Instruments

Article 1359. When, there having been a meeting of Bentir vs Leanda


the minds of the parties to a contract, their true
intention is not expressed in the instrument Facts:
purporting to embody the agreement, by reason of
mistake, fraud, inequitable conduct or accident, one On May 15, 1992, respondent Leyte Gulf Traders,
of the parties may ask for the reformation of the Inc. (herein referred to as respondent corporation)
instrument to the end that such true intention may be filed a complaint for reformation of instrument,
expressed.
specific performance, annulment of conditional sale
If mistake, fraud, inequitable conduct, or accident has and damages with prayer for writ of injunction against
prevented a meeting of the minds of the parties, the petitioners Yolanda Rosello-Bentir and the spouses
proper remedy is not reformation of the instrument Samuel and Charito Pormida. Respondent
but annulment of the contract. corporation alleged that it entered into a contract of
lease of a parcel of land with petitioner Bentir for a
Article 1360. The principles of the general law on the period of twenty (20) years starting May 5, 1968.
reformation of instruments are hereby adopted
According to respondent corporation, the lease was
insofar as they are not in conflict with the provisions
of this Code. extended for another four (4) years or until May 31,
1992. On May 5, 1989, petitioner Bentir sold the
Article 1361. When a mutual mistake of the parties leased premises to petitioner spouses Samuel
causes the failure of the instrument to disclose their Pormada and Charito Pormada.
real agreement, said instrument may be reformed.

Article 1362. If one party was mistaken and the other


acted fraudulently or inequitably in such a way that Respondent corporation questioned the sale alleging
the instrument does not show their true intention, the that it had a right of first refusal. Rebuffed, it filed Civil
former may ask for the reformation of the instrument.
Case No. 92-05-88 seeking the reformation of the
Article 1363. When one party was mistaken and the expired contract of lease on the ground that its lawyer
other knew or believed that the instrument did not inadvertently omitted to incorporate in the contract of
state their real agreement, but concealed that fact lease executed in 1968, the verbal agreement or
from the former, the instrument may be reformed. understanding between the parties that in the event
petitioner Bentir leases or sells the lot after the
Article 1364. When through the ignorance, lack of expiration of the lease, respondent corporation has
skill, negligence or bad faith on the part of the person
the right to equal the highest offer.
drafting the instrument or of the clerk or typist, the
instrument does not express the true intention of the
parties, the courts may order that the instrument be
reformed.
Issue:
Article 1365. If two parties agree upon the mortgage
Whether the complaint for reformation filed by
or pledge of real or personal property, but the
instrument states that the property is sold absolutely respondent Leyte Gulf Traders, Inc. has prescribed
or with a right of repurchase, reformation of the
instrument is proper. Whether it is entitled to the remedy of reformation
sought
Article 1366. There shall be no reformation in the
following cases:
(1) Simple donations inter vivos wherein no condition
is imposed; Held:
(2) Wills;
(3) When the real agreement is void. The remedy of reformation of an instrument is
grounded on the principle of equity where, in order to
Article 1367. When one of the parties has brought an express the true intention of the contracting parties,
action to enforce the instrument, he cannot an instrument already executed is allowed by law to
subsequently ask for its reformation.
be reformed. The right of reformation is necessarily
Article 1368. Reformation may be ordered at the an invasion or limitation of the parol evidence rule
instance of either party or his successors in interest, since, when a writing is reformed, the result is that an
if the mistake was mutual; otherwise, upon petition of oral agreement is by court decree made legally
the injured party, or his heirs and assigns. effective. The remedy, being an extraordinary one,
must be subject to limitations as may be provided by
Article 1369. The procedure for the reformation of
law. Our law and jurisprudence set such limitations,
instrument shall be governed by rules of court to be
promulgated by the Supreme Court. among which is laches.

A suit for reformation of an instrument may be barred


by lapse of time. The prescriptive period for actions
based upon a written contract and for reformation of
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Obligations and Contracts
Reformation of Instruments

an instrument is ten (10) years under Article 1144 of On December 19, 1996, petitioners Proceso Quiros
the Civil Code. Prescription is intended to suppress and Leonarda Villegas filed with the office of the
stale and fraudulent claims arising from transactions barangay captain of Labney, San Jacinto,
Pangasinan, a complaint for recovery of ownership
like the one at bar which facts had become so
and possession of a parcel of land located at Labney,
obscure from the lapse of time or defective San Jacinto, Pangasinan. Petitioners sought to
memory. In the case at bar, respondent corporation recover from their uncle Marcelo Arjona, one of the
had ten (10) years from 1968, the time when the respondents herein, their lawful share of the
contract of lease was executed, to file an action for inheritance from their late grandmother Rosa Arjona
reformation. Sadly, it did so only on May 15, 1992 or Quiros alias Doza, the same to be segregated from
twenty-four (24) years after the cause of action the following parcels of land:
accrued, hence, its cause of action has become
a) A parcel of land (Lot 1, plan Psu-189983,
stale, hence, time-barred.
L.R. Case No. D-614, LRC Record No. N-
22630), situated in the Barrio of Labney,
Torud, Municipality of San Jacinto, Province
of Pangasinan x x x Containing an area of
The prescriptive period of ten (10) years provided for
Forty Four Thousand Five Hundred and
in Art. 1144 applies by operation of law, not by the Twenty (44,520) square meters, more or
will of the parties. Therefore, the right of action for less, covered by Tax Decl. No. 607;
reformation accrued from the date of execution of the
contract of lease in 1968. b) A parcel of Unirrig. riceland situated at
Brgy. Labney, San Jacinto, San Jacinto,
Pangasinan with an area of 6450 sq. meters,
more or less declared under Tax Decl. No.
2066 of the land records of San Jacinto,
Pangasinan assessed at P2390.00 x x x;

Prescription; Reformation of an instrument is that c) A parcel of Unirrig. riceland situated at


remedy in equity by means of which a written Brgy. Labney, San Jacinto, Pangasinan with
instrument is made or construed so as to express or an area of 6450 sq. meters, more or less,
conform to the real intention of the parties when declared under Tax Declaration No. 2047 of
the land records of San Jacinto, Pangasinan
some error or mistake has been committed.It is
assessed at P1700.00 x x x
predicated on the equitable maxim that equity treats
as done that which ought to be done. The rationale of
d) A parcel of Unirrig. riceland situated at
the doctrine is that it would be unjust and unequitable Brgy. Labney, San Jacinto, Pangasinan
to allow the enforcement of a written instrument assessed at P5610.00 x x x;
which does not reflect or disclose the real meeting of
the minds of the parties. However, an action for e) A parcel of Cogon land situated at Brgy.
reformation must be brought within the period Labney, San Jacinto, Pangasinan, with an
prescribed by law, otherwise, it will be barred by the area of 14133 sq. meters, more or less
mere lapse of time. declared under Tax Declaration No. 14 of the
land records of San Jacinto, Pangasinan
assessed at P2830.00 x x x.1
FIRST DIVISION
On January 5, 1997, an amicable settlement was
G.R. No. 158901 March 9, 2004 reached between the parties. By reason thereof,
respondent Arjona executed a document
PROCESO QUIROS and LEONARDA denominated as "PAKNAAN" ("Agreement", in
VILLEGAS, petitioners, Pangasinan dialect), which reads:
vs.
MARCELO ARJONA, TERESITA BALARBAR, AGREEMENT
JOSEPHINE ARJONA, and CONCHITA
ARJONA, respondents. I, MARCELO ARJONA, of legal age, resident of
Barangay Sapang, Buho, Palayan City, Nueva Ecija,
DECISION have a land consisting of more or less one (1)
hectare which I gave to Proceso Quiros and
YNARES-SANTIAGO, J.: Leonarda Villegas, this land was inherited by Doza
that is why I am giving the said land to them for it is in
my name, I am affixing my signature on this
Assailed in this petition for review is the decision of
document for this is our agreement besides there are
the Court of Appeals in an action for the
witnesses on the 5th day (Sunday) of January 1997.
execution/enforcement of amicable settlement
between petitioners Proceso Quiros and Leonarda
Villegas and respondent Marcelo Arjona. Appellate Signed in the presence of:
court reversed the decision of the Regional Trial
Court of Dagupan City-Branch 44 and reinstated the (Sgd) Avelino N. De la Masa, Jr.
decision of the Municipal Trial Court of San Fabian-
San Jacinto, Pangasinan. (Sgd) Marcelo Arjona
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Obligations and Contracts
Reformation of Instruments

Witnesses: OR CHANGED BY THE COURT INCLUDING THE


HIGHEST COURT; and
1) (Sgd.) Teresita Balarbar
II
2) (Sgd.) Josephine Arjona
THE SECOND PAKNAAN ALLEGEDLY EXECUTED
3) (Sgd.) Conchita Arjona IN CONJUNCTION WITH THE FIRST PAKNAAN
WAS NEVER ADDUCED AS EVIDENCE BY
EITHER OF THE PARTIES, SO IT IS ERROR OF
On the same date, another "PAKNAAN" was
JURISDICTION TO CONSIDER THE SAME IN THE
executed by Jose Banda, as follows:
DECISION MAKING.
AGREEMENT
The pivotal issue is the validity and enforceability of
the amicable settlement between the parties and
I, JOSE BANDA, married to Cecilia L. Banda, of legal corollary to this, whether a writ of execution may
age, and resident of Sitio Torrod, Barangay Labney, issue on the basis thereof.
San Jacinto, Pangasinan. There is a land in which
they entrusted to me and the same land is situated in
In support of their stance, petitioners rely on Section
Sitio Torrod, Brgy. Labney, San Jacinto, Pangasinan,
416 of the Local Government Code which provides
land of Arjona family.
that an amicable settlement shall have the force and
effect of a final judgment upon the expiration of 10
I am cultivating/tilling this land but if ever Leonarda days from the date thereof, unless repudiated or
Villegas and Proceso Quiros would like to get this nullified by the proper court. They argue that since no
land, I will voluntarily surrender it to them. such repudiation or action to nullify has been
initiated, the municipal court has no discretion but to
In order to attest to the veracity and truthfulness of execute the agreement which has become final and
this agreement, I affixed (sic) my signature voluntarily executory.
below this document this 5th day (Sunday) of January
1997. Petitioners likewise contend that despite the failure of
the Paknaan to describe with certainty the object of
(Sgd.) Jose Banda the contract, the evidence will show that after the
execution of the agreement, respondent Marcelo
Signed in the presence of: Arjona accompanied them to the actual site of the
properties at Sitio Torod, Labney, San Jacinto,
(Sgd) Avelino N. de la Masa, Sr. Pangasinan and pointed to them the 1 hectare
Barangay Captain property referred to in the said agreement.
Brgy. Labney, San Jacinto
Pangasinan In their Comment, respondents insist that respondent
Arjona could not have accompanied petitioners to the
Witnesses: subject land at Torrod, Labney because he was
physically incapacitated and there was no motorized
vehicle to transport him to the said place.
1) Irene Banda
The Civil Code contains salutary provisions that
(sgd.)
encourage and favor compromises and do not even
2) Jose (illegible) x x x
require judicial approval. Thus, under Article 2029 of
the Civil Code, the courts must endeavor to persuade
Petitioners filed a complaint with the Municipal Circuit the litigants in a civil case to agree upon some fair
Trial Court with prayer for the issuance of a writ of compromise. Pursuant to Article 2037 of the Civil
execution of the compromise agreement which was Code, a compromise has upon the parties the effect
denied because the subject property cannot be and authority of res judicata, and this is true even if
determined with certainty. the compromise is not judicially approved. Articles
2039 and 2031 thereof also provide for the
The Regional Trial Court reversed the decision of the suspension of pending actions and mitigation of
municipal court on appeal and ordered the issuance damages to the losing party who has shown a
of the writ of execution. sincere desire for a compromise, in keeping with the
Codes policy of encouraging amicable settlements.3
Respondents appealed to the Court of Appeals,
which reversed the decision of the Regional Trial Cognizant of the beneficial effects of amicable
Court and reinstated the decision of the Municipal settlements, the Katarungang Pambarangay Law
Circuit Trial Court.2 (P.D. 1508) and later the Local Government Code
provide for a mechanism for conciliation where party-
Hence, this petition on the following errors: litigants can enter into an agreement in the barangay
level to reduce the deterioration of the quality of
I justice due to indiscriminate filing of court cases.
Thus, under Section 416 of the said Code, an
amicable settlement shall have the force and effect of
THE PAKNAAN BEING A FINAL AND EXECUTORY a final judgment of the court upon the expiration of 10
JUDGMENT UNDER THE LAW IS AN IMMUTABLE days from the date thereof, unless repudiation of the
JUDGMENT CAN NOT BE ALTERED, MODIFIED
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Obligations and Contracts
Reformation of Instruments

settlement has been made or a petition to nullify the share in the inheritance. The inability of the municipal
award has been filed before the proper court court to identify the exact location of the inherited
property did not negate the principal object of the
Petitioners submit that since the amicable settlement contract. This is an error occasioned by the failure of
had not been repudiated or impugned before the the parties to describe the subject property, which is
court within the 10-day prescriptive period in correctible by reformation and does not indicate the
accordance with Section 416 of the Local absence of the principal object as to render the
Government Code, the enforcement of the same contract void. It cannot be disputed that the object is
must be done as a matter of course and a writ of determinable as to its kind, i.e.1 hectare of land as
execution must accordingly be issued by the court. inheritance, and can be determined without need of a
new contract or agreement.6Clearly, the Paknaan has
all the earmarks of a valid contract.
Generally, the rule is that where no repudiation was
made during the 10-day period, the amicable
settlement attains the status of finality and it becomes Although both parties agreed to transfer one-hectare
the ministerial duty of the court to implement and real property, they failed to include in the written
enforce it. However, such rule is not inflexible for it document a sufficient description of the property to
admits of certain exceptions. In Santos v. Judge convey. This error is not one for nullification of the
Isidro,4 the Court observed that special and instrument but only for reformation.
exceptional circumstances, the imperatives of
substantial justice, or facts that may have transpired Article 1359 of the Civil Code provides:
after the finality of judgment which would render its
execution unjust, may warrant the suspension of When, there having been a meeting of the minds of
execution of a decision that has become final and the parties to a contract, their true intention is not
executory. In the case at bar, the ends of justice expressed in the instrument purporting to embody the
would be frustrated if a writ of execution is issued agreement by reason of mistake, fraud, inequitable
considering the uncertainty of the object of the conduct or accident, one of the parties may ask for
agreement. To do so would open the possibility of the reformation of the instrument to the end that such
error and future litigations. true intention may be expressed.

The Paknaan executed by respondent Marcelo If mistake, fraud, inequitable conduct, or accident has
Arjona purports to convey a parcel of land consisting prevented a meeting of the minds of the parties, the
of more or less 1 hectare to petitioners Quiros and proper remedy is not reformation of the instrument
Villegas. Another Paknaan, prepared on the same but annulment of the contract.
date, and executed by one Jose Banda who signified
his intention to vacate the parcel of land he was tilling Reformation is a remedy in equity whereby a written
located at Torrod, Brgy. Labney, San Jacinto,
instrument is made or construed so as to express or
Pangasinan, for and in behalf of the Arjona family. On
conform to the real intention of the parties where
ocular inspection however, the municipal trial court
some error or mistake has been committed.7 In
found that the land referred to in the second Paknaan
granting reformation, the remedy in equity is not
was different from the land being occupied by making a new contract for the parties, but
petitioners. Hence, no writ of execution could be establishing and perpetuating the real contract
issued for failure to determine with certainty what
between the parties which, under the technical rules
parcel of land respondent intended to convey.
of law, could not be enforced but for such
reformation.
In denying the issuance of the writ of execution, the
appellate court ruled that the contract is null and void In order that an action for reformation of instrument
for its failure to describe with certainty the object
as provided in Article 1359 of the Civil Code may
thereof. While we agree that no writ of execution may
prosper, the following requisites must concur: (1)
issue, we take exception to the appellate courts
there must have been a meeting of the minds of the
reason for its denial.
parties to the contract; (2) the instrument does not
express the true intention of the parties; and (3) the
Since an amicable settlement, which partakes of the failure of the instrument to express the true intention
nature of a contract, is subject to the same legal of the parties is due to mistake, fraud, inequitable
provisions providing for the validity, enforcement, conduct or accident.8
rescission or annulment of ordinary contracts, there is
a need to ascertain whether the Paknaan in question When the terms of an agreement have been reduced
has sufficiently complied with the requisites of validity
to writing, it is considered as containing all the terms
in accordance with Article 1318 of the Civil Code.5
agreed upon and there can be, between the parties
and their successors in interest, no evidence of such
There is no question that there was meeting of the terms other than the contents of the written
minds between the contracting parties. In executing agreement, except when it fails to express the true
the Paknaan, the respondent undertook to convey 1 intent and agreement of the parties thereto, in which
hectare of land to petitioners who accepted. It case, one of the parties may bring an action for the
appears that while the Paknaan was prepared and reformation of the instrument to the end that such
signed by respondent Arjona, petitioners acceded to true intention may be expressed.9
the terms thereof by not disputing its contents and
are in fact now seeking its enforcement. The object is Both parties acknowledge that petitioners are entitled
a 1-hectare parcel of land representing petitioners
to their inheritance, hence, the remedy of nullification,
inheritance from their deceased grandmother. The
which invalidates the Paknaan, would prejudice
cause of the contract is the delivery of petitioners
petitioners and deprive them of their just share of the
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Obligations and Contracts
Reformation of Instruments

inheritance. Respondent can not, as an afterthought, denied petitioners' Motion for Reconsideration, while
be allowed to renege on his legal obligation to the August 28, 2006 Resolution denied petitioners'
transfer the property to its rightful heirs. A refusal to Second Motion for Reconsideration.
reform the Paknaan under such circumstances would
have the effect of penalizing one party for negligent The factual and procedural antecedents of the case
conduct, and at the same time permitting the other are as follows:
party to escape the consequences of his negligence
and profit thereby. No person shall be unjustly Subject of the instant controversy are twenty-four
enriched at the expense of another. memorial lots located at the Holy Cross Memorial
Park in Barangay Bagbag, Novaliches, Quezon City.
WHEREFORE, in view of the foregoing, the petition The property, more particularly described as "Lot: 24
is DENIED. The Decision dated March 21, 2003 of lots, Block 213, Section: Plaza of Heritage-Reg.," is
the Court of Appeals, which reversed the decision of covered by Transfer Certificate of Title (TCT) No.
the Regional Trial Court and reinstated the decision 342914. Respondent, together with her mother,
of the Municipal Trial Court, is AFFIRMED. This is Florencia R. Calagos, own the disputed property.
without prejudice to the filing by either party of an Their co-ownership is evidenced by a Deed of Sale
action for reformation of the Paknaan executed on and Certificate of Perpetual Care, denominated as
January 5, 1997. Contract No. 31760, which was executed on June 4,
1992.3
SO ORDERED.
On December 18, 1995, respondent borrowed from
Davide, Jr., C.J., (Chairman), Carpio, and Azcuna, petitioner spouses the amount of P150,000.00. The
JJ., concur. loan was secured by a real estate mortgage over the
Panganiban, J., on official leave. abovementioned property. Respondent committed to
pay a monthly interest of 8% and an additional 10%
Footnotes monthly interest in case of default.4
1
Rollo, p. 17.
2
Decision penned by Associate Justice Delilah Vidallon-Magtolis,
concurred in by Associate Justices Andres B. Reyes and Regalado Respondent failed to fully settle her obligation.
E. Maambong.
3
Philippine Bank of Communications v. Hon. Juan F. Echiverri, et
al., G.R. No. L-41795, 29 August 1980, 99 SCRA 508.
Subsequently, without foreclosure of the mortgage,
4
Citing Philippine Veterans Bank v. Intermediate Appellate Court, ownership of the subject lots were transferred in the
178 SCRA 645 (1989). name of petitioners via a Deed of Transfer.5
5
Art. 1318. There is no contract unless the following requisites
concur:
1) Consent of the contracting parties; On June 23, 1997, respondent filed with the Regional
2) Object certain which is the subject matter of the contract; Trial Court (RTC) of Quezon City a Complaint against
3) Cause of the obligation which is established. petitioners, Manila Memorial Park Inc., the company
6
See Article 1349 of the Civil Code which states:
Art. 1349. The object of every contract must be determinate as to
which owns the Holy Cross Memorial Park, and the
its kind. The fact that the quantity is not determinate shall not be Register of Deeds of Quezon City, praying for the
obstacle to the existence of the contract, provided it is possible to annulment of the contract of mortgage between her
determine the same, without the need of a new contract between and petitioners on the ground that the interest rates
the parties.
7
53 Corpus Juris 906.
imposed are unjust and exorbitant. Respondent also
8
The National Irrigation Administration (NIA) represented by the sought accounting to determine her liability under the
Project Manager, Magat River Multi-Purpose Project v. Estanislao law. She likewise prayed that the Register of Deeds
Gamit and The Honorable Court of Appeals, G.R. No. 85869, 6 of Quezon City and Manila Memorial Park, Inc. be
November 1992, 215 SCRA 436.
9
Id.
directed to reconvey the disputed property to her.6

On November 20, 1998, respondent moved for the


THIRD DIVISION amendment of her complaint to include the allegation
that she later discovered that ownership of the
G.R. No. 174240 March 20, 2013 subject lots was transferred in the name of petitioners
by virtue of a forged Deed of Transfer and Affidavit of
SPOUSES LEHNER and LUDY Warranty. Respondent prayed that the Deed of
MARTIRES, Petitioners, Transfer and Affidavit of Warranty be annulled.7 In
vs. their Manifestation dated January 25, 1999,
MENELIA CHUA, Respondent. petitioners did not oppose respondent's motion.8 Trial
ensued.
DECISION
After trial, the RTC of Quezon City rendered a
PERALTA, J.: Decision in favor of petitioners, the dispositive portion
of which reads, thus:
Before the Court is a petition for review on certiorari
under Rule 45 of the Rules of Court seeking to Wherefore, premises considered, judgment is hereby
reverse and set aside the Amended Decision,1 as rendered against Menelia R. Chua and in favor of the
well as the Resolutions2 of the Court of Appeals (CA), Sps. Lehner Martires and Ludy Martires; and Manila
dated September 30, 2005, July 5, 2006 and August Memorial Park Cemetery, Inc. as follows:
28, 2006, respectively, in CA-G.R. CV No. 76388.
The assailed Decision of the CA reversed and set 1. The Complaint is denied and dismissed for
aside its earlier Decision, dated April 30, 2004, in lack of merit;
favor of petitioners. The July 5, 2006 Resolution
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Obligations and Contracts
Reformation of Instruments

2. The counterclaims are granted as follows: (2) The loan of P150,000.00 is hereby
subject to an interest of 12% per annum.
a. Menelia R. Chua is ordered to pay the
Sps. Martires the amount of P100,000.00 (3) The Manila Memorial Park Cemetery, Inc.
as moral damages; the amount and the Register of Deeds of Quezon City
of P50,000.00 as exemplary damages; and [are] hereby directed to cancel the
the amount of P30,000.00 as reasonable registration or annotation of ownership of the
attorneys fees plus costs of suit. spouses Martires on Lot: 24 lots, Block 213,
Section: Plaza Heritage Regular, Holy
b. Menelia R. Chua is ordered to pay Cross Memorial Park, being a portion of
Manila Memorial Park Cemetery, Inc. the Transfer Certificate of Title No. 342914
amount of P30,000.00 as reasonable issued by the Register of Deeds of Quezon
attorney's fees plus costs of suit. City, and revert registration of ownership
over the same in the name of appellant
Menelia R. Chua, and Florencia R. Calagos.
SO ORDERED.9

(4) The movant, Menelia R. Chua, is hereby


On appeal, the CA affirmed, with modification, the
judgment of the RTC, disposing as follows: ordered to pay the spouses Martires the
amount of P150,000.00 plus interest of 12%
per annum computed from December 18,
WHEREFORE, premises considered, the instant 1995 up to the time of full payment thereof
appeal is hereby DENIED for lack of merit, and the and, after deducting payments made in the
decision of the trial court dated 03 August 2002 is total amount of P80,000.00, the same shall
hereby AFFIRMED with MODIFICATION as to the be paid within ninety (90) days from the
amount of moral and exemplary damages, and finality of this decision. In case of failure to
attorney's fees. Plaintiff-appellant Menelia R. Chua is pay the aforesaid amount and the accrued
hereby ordered to pay the defendant-appellees interests from the period hereinstated, the
Spouses Martires the amount of P30,000.00 as moral property shall be sold at public auction to
damages; P20,000.00 as exemplary damages; and satisfy the mortgage debt and costs, and if
attorney's fees of P10,000.00 plus costs of suit. there is an excess, the same is to be given to
the owner.
Insofar as defendant-appellee Manila Memorial Park
Cemetery, Inc. is concerned, the attorney's fees No costs.
awarded is reduced to P10,000.00 plus costs of suit.
SO ORDERED.13
SO ORDERED.10
The CA reconsidered its findings and concluded that
The CA ruled that respondent voluntarily entered into the Deed of Transfer which, on its face, transfers
a contract of loan and that the execution of the Deed ownership of the subject property to petitioners, is, in
of Transfer is sufficient evidence of petitioners' fact, an equitable mortgage. The CA held that the
acquisition of ownership of the subject property. true intention of respondent was merely to provide
security for her loan and not to transfer ownership of
Respondent filed a Motion for the property to petitioners. The CA so ruled on the
Reconsideration.11 Petitioners opposed it.12 basis of its findings that: (1) the consideration,
amounting to P150,000.00, for the alleged Deed of
On September 30, 2005, the CA promulgated its Transfer is unusually inadequate, considering that the
assailed Amended Decision with the following subject property consists of 24 memorial lots; (2) the
dispositive portion: Deed of Transfer was executed by reason of the
same loan extended by petitioners to respondent; (3)
WHEREFORE, the Court grants the movant's Motion the Deed of Transfer is incomplete and defective; and
for Reconsideration. (4) the lots subject of the Deed of Transfer are one
and the same property used to secure
respondent's P150,000.00 loan from petitioners.
Accordingly, the decision of this Court dated April 30,
2004 in CA-G.R. CV No. 76388, which had affirmed
the judgment of the Regional Trial Court of Quezon Petitioners filed a Motion for Reconsideration,14 but
City, Branch 221, in Civil Case No. Q-97-31408, is the CA denied it in its Resolution dated July 5, 2006.
REVERSED and SET ASIDE, and it is hereby
declared that: On July 26, 2006, petitioners filed a Second Motion
for Reconsideration,15 but again, the CA denied it via
(1) The assailed decision dated August 3, 2002 of the its Resolution dated August 28, 2006.
Regional Trial Court of Quezon City Branch 221 in
Civil Case No. Q-97-31408 is hereby Reversed with Hence, the present petition based on the following
the following MODIFICATIONS, to wit: grounds:

(1) The Deed of Transfer dated July 3, 1996, A. THE COURT OF APPEALS PATENTLY ERRED
as well as the Affidavit of Warranty, are IN NOT UPHOLDING THE DEED OF TRANSFER
hereby declared void ab initio; EXECUTED BY THE RESPONDENT IN FAVOR OF
THE PETITIONERS BY RULING THAT:
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Obligations and Contracts
Reformation of Instruments

1. The Deed of Transfer executed by mistake in waiting for the CA to resolve their second
respondent in favor of petitioners over the motion for reconsideration before pursuing an appeal.
subject property was not entered in the
Notarial Book of Atty. Francisco Talampas Perfection of an appeal within the reglementary
and reported in the Notarial Section of the period is not only mandatory but also
Regional Trial Court of Makati City. jurisdictional.18 For this reason, petitioners' failure to
file this petition within the 15-day period rendered the
2. The Deed of Transfer was not duly assailed Amended CA Decision and Resolutions final
notarized by Atty. Francisco Talampas and executory, thus, depriving this Court of
inasmuch as there was no convincing proof jurisdiction to entertain an appeal therefrom.19On this
that respondent appeared before Notary ground alone, the instant petition should be
Public Atty. Talampas. dismissed.

B. THE COURT OF APPEALS PATENTLY ERRED In any case, even granting, arguendo, that the
IN RULING THAT THE DEED OF TRANSFER present petition is timely filed, the Court finds no
EXECUTED BETWEEN THE RESPONDENT AND cogent reason to depart from the findings and
THE PETITIONERS CONSTITUTED AN conclusions of the CA in its disputed Amended
EQUITABLE MORTGAGE CONSIDERING THAT: Decision.

1. Said issue was not raised in any pleading Anent the first assigned error, petitioners are correct
in the appellate and trial courts.1w phi1 in pointing out that notarized documents carry
evidentiary weight conferred upon them with respect
2. Respondent herself admitted that a to their due execution and enjoy the presumption of
separate mortgage was executed to secure regularity which may only be rebutted by evidence so
the loan.16 clear, strong and convincing as to exclude all
controversy as to falsity.20However, the presumptions
that attach to notarized documents can be affirmed
The petition lacks merit.
only so long as it is beyond dispute that the
notarization was regular.21 A defective notarization
At the outset, the instant petition should be denied for will strip the document of its public character and
being filed out of time. Petitioners admit in the instant reduce it to a private instrument.22 Consequently,
petition that: (1) on July 18, 2006, they received a when there is a defect in the notarization of a
copy of the July 5, 2006 Resolution of the CA which document, the clear and convincing evidentiary
denied their Motion for Reconsideration of the standard normally attached to a duly-notarized
assailed Amended Decision; (2) on July 26, 2006, document is dispensed with, and the measure to test
they filed a Motion to Admit Second Motion for the validity of such document is preponderance of
Reconsideration attaching thereto the said Second evidence.23
Motion for Reconsideration; (3) on September 5,
2006, they received a copy of the August 28, 2006
Resolution of the CA which denied their Motion to In the present case, the CA has clearly pointed out
Admit as well as their Second Motion for the dubious circumstances and irregularities
attendant in the alleged notarization of the subject
Reconsideration; and (4) they filed the instant petition
Deed of Transfer, to wit: (1) the Certification24 issued
on October 20, 2006.
by the Clerk of Court of the Notarial Section of the
RTC of Makati City which supposedly attested that a
Section 2, Rule 45 of the Rules of Court provides that copy of the subject Deed of Transfer is on file with
a petition for review on certiorari under the said Rule the said court, was contradicted by the
"shall be filed within fifteen (15) days from notice of Certification25 issued by the Administrative Officer of
the judgment or final order or resolution appealed the Notarial Section of the same office as well as by
from or of the denial of the petitioner's motion for new the testimony of the court employee who prepared
trial or reconsideration filed in due time after notice of the Certification issued by the Clerk of Court, to the
the judgment." Relative thereto, Section 2, Rule 52 of effect that the subject Deed of Transfer cannot, in
the same Rules provides that "no second motion for fact, be found in their files; (2) respondent's
reconsideration of a judgment or final resolution by categorical denial that she executed the subject Deed
the same party shall be entertained." Based on the of Transfer; and (3) the subject document did not
abovementioned dates, the start f the 15-day period state the date of execution and lacks the marital
for the filing of this petition should have been consent of respondent's husband.
reckoned from July 18, 2006, the time of petitioners'
receipt of the CA Resolution denying their Motion for
Indeed, petitioners' heavy reliance on the
Reconsideration, and not on September 5, 2006, the
Certification issued by the notary public who
date when they received the CA Resolution denying
supposedly notarized the said deed, as well as the
their Second Motion for Reconsideration. Thus,
petitioners should have filed the instant petition not Certification issued by the Clerk of Court of the
later than August 2, 2006. It is wrong for petitioners to Notarial Section of the RTC of Makati City, is
misplaced for the following reasons: first, the persons
reckon the 15-day period for the filing of the instant
who issued these Certifications were not presented
petition from the date when they received the copy of
as witnesses and, as such, they could not be cross-
the CA Resolution denying their Second Motion for
examined with respect to the truthfulness of the
Reconsideration. Since a second motion for
reconsideration is not allowed, then unavoidably, its contents of their Certifications; second, as mentioned
filing did not toll the running of the period to file an above, these Certifications were contradicted by the
Certification issued by the Administrative Officer of
appeal by certiorari.17 Petitioners made a critical
the Notarial Section of the RTC of Makati City as well
8
Obligations and Contracts
Reformation of Instruments

as by the admission, on cross-examination, of the Transfer would show that the said document was
clerk who prepared the Certification of the Clerk of executed to circumvent the terms of the original
Court, that their office cannot, in fact, find a copy of agreement and deprive respondent of her mortgaged
the subject Deed of Transfer in their files;26 and third, property without the requisite foreclosure.
the further admission of the said clerk that the
Certification, which was issued by the clerk of court With respect to the foregoing discussions, it bears to
and relied upon by petitioners, was not based on point out that in Misena v. Rongavilla,31 a case which
documents existing in their files, but was simply involves a factual background similar to the present
based on the Certification issued by the notary public case, this Court arrived at the same ruling. In the said
who allegedly notarized the said Deed of Transfer.27 case, the respondent mortgaged a parcel of land to
the petitioner as security for the loan which the
Assuming further that the notarization of the disputed former obtained from the latter. Subsequently,
Deed of Transfer was regular, the Court, ownership of the property was conveyed to the
nonetheless, is not persuaded by petitioners' petitioner via a Deed of Absolute Sale. Applying
argument that such Deed is a sufficient evidence of Article 1602 of the Civil Code, this Court ruled in
the validity of the agreement between petitioners and favor of the respondent holding that the supposed
respondent. sale of the property was, in fact, an equitable
mortgage as the real intention of the respondent was
While indeed a notarized document enjoys the to provide security for the loan and not to transfer
presumption of regularity, the fact that a deed is ownership over the property.
notarized is not a guarantee of the validity of its
contents.28 The presumption is not absolute and may Since the original transaction between the parties
be rebutted by clear and convincing evidence to the was a mortgage, the subsequent assignment of
contrary.29 In the present case, the presumption ownership of the subject lots to petitioners without the
cannot be made to apply, because aside from the benefit of foreclosure proceedings, partakes of the
regularity of its notarization, the validity of the nature of a pactum commissorium, as provided for
contents and execution of the subject Deed of under Article 2088 of the Civil Code.
Transfer was challenged in the proceedings below
where its prima facie validity was subsequently Pactum commissorium is a stipulation empowering
overthrown by the questionable circumstances the creditor to appropriate the thing given as guaranty
attendant in its supposed execution. These for the fulfillment of the obligation in the event the
circumstances include: (1) the alleged agreement obligor fails to live up to his undertakings, without
between the parties that the ownership of the subject further formality, such as foreclosure proceedings,
property be simply assigned to petitioners instead of and a public sale.32
foreclosure of the contract of mortgage which was
earlier entered into by them; (2) the Deed of Transfer In the instant case, evidence points to the fact that
was executed by reason of the loan extended by
the sale of the subject property, as proven by the
petitioners to respondent, the amount of the latter's
disputed Deed of Transfer, was simulated to cover up
outstanding obligation being the same as the amount
the automatic transfer of ownership in petitioners'
of the consideration for the assignment of ownership
favor. While there was no stipulation in the mortgage
over the subject property; (3) the inadequacy of the contract which provides for petitioners' automatic
consideration; and (4) the claim of respondent that appropriation of the subject mortgaged property in
she had no intention of transferring ownership of the
the event that respondent fails to pay her obligation,
subject property to petitioners.
the subsequent acts of the parties and the
circumstances surrounding such acts point to no
Based on the foregoing, the Court finds no cogent other conclusion than that petitioners were
reason to depart from the findings of the CA that the empowered to acquire ownership of the disputed
agreement between petitioners and respondent is, in property without need of any foreclosure.
fact, an equitable mortgage.
Indeed, the Court agrees with the CA in not giving
An equitable mortgage has been defined as one credence to petitioners' contention in their Answer
which, although lacking in some formality, or form or filed with the RTC that respondent offered to transfer
words, or other requisites demanded by a statute, ownership of the subject property in their name as
nevertheless reveals the intention of the parties to payment for her outstanding obligation. As this Court
charge real property as security for a debt, there has held, all persons in need of money are liable to
being no impossibility nor anything contrary to law in enter into contractual relationships whatever the
this intent.30 condition if only to alleviate their financial burden
albeit temporarily.33
One of the circumstances provided for under Article
1602 of the Civil Code, where a contract shall be Hence, courts are duty-bound to exercise caution in
presumed to be an equitable mortgage, is "where it the interpretation and resolution of contracts lest the
may be fairly inferred that the real intention of the lenders devour the borrowers like vultures do with
parties is that the transaction shall secure the their prey.34 Aside from this aforementioned reason,
payment of a debt or the performance of any other the Court cannot fathom why respondent would
obligation." In the instant case, it has been agree to transfer ownership of the subject property,
established that the intent of both petitioners and whose value is much higher than her outstanding
respondent is that the subject property shall serve as obligation to petitioners. Considering that the
security for the latter's obligation to the former. As disputed property was mortgaged to secure the
correctly pointed out by the CA, the circumstances payment of her obligation, the most logical and
surrounding the execution of the disputed Deed of practical thing that she could have done, if she is
9
Obligations and Contracts
Reformation of Instruments

unable to pay her debt, is to wait for it to be supposedly executed in petitioners' favor. The Court
foreclosed. She stands to lose less of the value of the agrees with respondent that, under the factual
subject property if the same is foreclosed, rather than circumstances obtaining in the instant case, the
if the title thereto is directly transferred to petitioners. determination of the validity of the subject Deed of
This is so because in foreclosure, unlike in the Transfer would necessarily entail or involve an
present case where ownership of the property was examination of the true nature of the said agreement.
assigned to petitioners, respondent can still claim the In other words, the matter of validity of the disputed
balance from the proceeds of the foreclosure sale, if Deed of Transfer and the question of whether the
there be any. In such a case, she could still recover a agreement evidenced by such Deed was, in fact, an
portion of the value of the subject property rather equitable mortgage are issues which are closely
than losing it completely by assigning its ownership to related, which can, thus, be resolved jointly by the
petitioners. CA.

As to the second assigned error, the Court is not WHEREFORE, the instant petition is DENIED. The
persuaded by petitioners' contention that the issue of assailed Amended Decision and Resolutions of the
whether or not the subject Deed of Transfer is, in Court of Appeals, dated September 30, 2005, July 5,
fact, an equitable mortgage was not raised by the 2006 and August 28, 2006, respectively, in CA-G.R.
latter either in the RTC or the CA. CV No. 76388, are AFFIRMED.

It is true that, as a rule, no issue may be raised on SO ORDERED.


appeal unless it has been brought before the lower
tribunal for its consideration.35 Higher courts are DIOSDADO M. PERALTA
precluded from entertaining matters neither alleged in Associate Justice
the pleadings nor raised during the proceedings
below, but ventilated for the first time only in a motion Footnotes
for reconsideration or on appeal.36 However, as with *
Designated Acting Member, in lieu of Associate Justice Jose
most procedural rules, this maxim is subject to Catral Mendoza, per Raffle dated March 18, 2013.
exceptions.37 In this regard, the Court's ruling in
1
Penned by Associate Justice Bienvenido L. Reyes (now a
member of this Court), with Associate Justices Ruben T. Reyes
Mendoza v. Bautista38 is instructive, to wit: (now a retired member of this Court) and Jose C. Mendoza (now a
member of this Court), concurring; rollo, pp. 32-52.
x x x Indeed, our rules recognize the broad
2
Annexes "B" and "C" to Petition, rollo, pp. 54-59.
3
Exhibit "A," records, p. 237.
discretionary power of an appellate court to waive the 4
Exhibit "D"/"7," id. at 241.
lack of proper assignment of errors and to consider 5
Exhibit "B"/"8," id. at 239.
errors not assigned. Section 8 of Rule 51 of the Rules 6
Records, pp. 1-6.
7
Id. at 170-177.
of Court provides: 8
Id. at 195.
9
Id. at 365-366.
SEC. 8 Questions that may be decided. - No error 10
CA rollo, p. 109. (Emphasis in the original)
11
Id. at 113-125.
which does not affect the jurisdiction over the subject 12
Id. at 135-152.
matter or the validity of the judgment appealed from 13
Id. at 183-184.
or the proceedings therein will be considered, unless 14
Id. at 185-195.
stated in the assignment of errors, or closely related 15
Id. at 260-270.
16
Rollo, pp. 16-17.
to or dependent on an assigned error and properly 17
Tagle v. Equitable PCI Bank, G.R. No. 172299, April 22, 2008,
argued in the brief, save as the court may pass upon 552 SCRA 424, 445.
plain errors and clerical errors. 18
Ong v. Philippine Deposit Insurance Corp., G.R. No. 175116,
August 18, 2010, 628 SCRA 415, 426.
19
Id.
Thus, an appellate court is clothed with ample 20
Meneses v. Venturozo, G.R. No. 172196, October 19, 2011, 659
authority to review rulings even if they are not SCRA 577, 586.
assigned as errors in the appeal in these instances: 21
Id.
22
Id.
(a) grounds not assigned as errors but affecting 23
Id.
jurisdiction over the subject matter; (b) matters not 24
Exhibit "20," records, p. 325.
assigned as errors on appeal but are evidently plain 25
Exhibit "H," id. at 291.
or clerical errors within contemplation of law; (c) 26
TSN, November 20, 2001, pp. 12-17.
27
Id. at 7-17.
matters not assigned as errors on appeal but 28
Lazaro v. Agustin, G.R. No. 152364, April 15, 2010, 618 SCRA
consideration of which is necessary in arriving at a 298, 311; San Juan v. Offril, G.R. No. 154609, April 24, 2009, 586
just decision and complete resolution of the case or SCRA 439, 445-446.
to serve the interests of justice or to avoid dispensing 29
Id; id. at 446.
30
Muoz, Jr. v. Ramirez, G.R. No. 156125, August 25, 2010, 629
piecemeal justice; (d) matters not specifically SCRA 38, 51; Rockville Excel International Exim Corporation v.
assigned as errors on appeal but raised in the trial Culla, G.R. No. 155716, October 2, 2009, 602 SCRA 128, 136.
court and are matters of record having some bearing 31
363 Phil. 361 (1999).
on the issue submitted which the parties failed to 32
Edralin v. Philippine Veterans Bank, G.R. No. 168523, March 9,
2011, 645 SCRA 75, 89.
raise or which the lower court ignored; (e) matters not 33
Bustamante v. Rosel, 377 Phil. 436, 445 (1999).
assigned as errors on appeal but closely related to an 34
Id.
error assigned; and (f) matters not assigned as errors 35
Ang v. Associated Bank, G.R. No. 146511, September 5, 2007,
on appeal but upon which the determination of a 532 SCRA 244, 267.
36
Id.
question properly assigned, is dependent.39 37
Id.
38
493 Phil. 804 (2005).
In the present case, petitioners must be reminded 39
Id. at 813-814. (Emphasis supplied)
that one of the main issues raised by respondent in
her appeal with the CA is the validity and due
execution of the Deed of Transfer which she