ERNESTO VELUZ, PLAINTIFF-APPELLANT, VS. SOCORRO VELUZ, ET AL., DEFENDANTS-APPELLEES.

Appeal from the order of the Court of First Instance of Quezon, in its Civil Case No. 6103, dis­missing plaintiff’s
complaint.

There was no trial in this case. 
Instead of an answer, the defendants filed a motion to dismiss upon the
grounds of prescription and want of cause of action.  The facts as alleged in the complaint must,
therefore, be considered hypothetically admit­ted.

Original plaintiff Ernesto Veluz^[1]
filed a complaint before the Court of
First Instance of Quezon on July 30,1958.  On a
motion for bill of particulars by
defendants, the court ordered plaintiff to file an amended complaint, which
plaintiff did.  In the amended complaint plaintiff alleged
that on January 2, 1953 he asked defendants for a loan of five thousand pesos,
to secure the payment of which he proposed
to mortgage his share on a parcel of land covered by TCT No. 27247 of
the Registry of Deeds of Quezon; that the defendants
-agreed and caused forthwith the preparation of a deed, a copy of which is
attached to the complaint as Annex A; that when defendants asked
plaintiff to sign the deed as prepared, the latter noticed that the deed was an absolute sale
instead of a mortgage, and so he
asked defendants why the document was couched that way, to which query
defendants answered that it had
to be so in order-that defendants could take possession and enjoy the fruits of
the land and that plaintiff had nothing to worry about the document as
defendants, being his brothers and sisters, would not take advantage of the
deed of sale, and that plaintiff could redeem the property anytime; that because of the assurance of his
brothers and sisters plaintiff affixed his signature on the document; that said
document did not express the real intention of the parties; that in May 1956
plain­tiff wanted to redeem the property but the defendants refused, claiming that what plaintiff had executed was
a deed of sale; that several days later, plaintiff came to know that the
property had been registered already in defendants’ name; that the value of the
land with its improvements would be no less than P80,000.00 yielding a monthly
produce valued at no less than P1,000, 00. 
Plaintiff prayed that judgment be issued “ordering the reformation of the deed of sale
attached hereto as Annex ‘A’ to express the true intention of the parties, to
wit: the same be made as a deed of mortgage” and that defendants be ordered to pay actual and moral damages
and attorney’s fees.

Defendants moved for the
dismissal of the com­plaint upon the grounds that the cause of action has
prescribed and that the complaint states no cause of action, to which motion plaintiff filed
his opposition.

The trial court
issued its order, dated June 28, 1960, dismissing the complaint, upon the
ground that plaintiff’s action was for
annulment of contract based on fraud (although ultimately it was for recovery
of title and possession), which under Article 1391 had to be brought within
four years from the discovery of the fraud; that from January 2, 1953 when the
fraud was discovered to the date of institution of the act­ion on July 30,
1958, more than four years had elapsed. 
Plaintiff moved for the reconsideration of the order of dismissal, but
the motion was denied.  Hence this
appeal.

The plaintiff having died
in the meantime, the trial court ordered the substitution of plaintiff by his
wife Encarnacion Veluz; and
by his children: Sonia Veluz, wife of Antonio Villador; Julia Veluz, wife of
Antonio Peleñio, and Ramon Veluz.

In their appeal brief the
appellants made a lone assignment of error, to wit: that the trial court erred
in finding that the cause of action had already prescribed.  In support thereof appellants argue that the
allegations, as well as the relief sought, in the complaint, clearly show that
the action is for reform­ation of instrument: under Articles 1365 and 1605 of
the Civil Code, which action prescribes in ten years^[2] and not for annulment of contract which
prescribes in four years; that assuming that the action was for an­nulment, it
could be said that original plaintiff Ernesto Veluz
discovered the fraud only in 1953 when his brothers and sisters, taking
advantage of the deed of sale, refused to allow him to redeem the property.

The defendants-appellees rely principally on Article 1391 of the Civil
Code which provides that the action for the annulment of a contract on the
ground of fraud must be brought within four years from the date of the
discovery of the fraud.  The appellees urge that the four-year period of prescription of
the action began on January 2, 1953 when the deed in question was signed by
original plaintiff Ernesto Veluz who already knew of
the fraud.  The appellees
cite the cases of Rone, et al., vs. Claro and Baquiring^[3]
and Heirs of Cariota vs. Benares,^[4]
to support their stand.

We find merit in this appeal.

The purpose of an action
and the law that should govern it, including the period of prescription, should
be determined by the complaint itself – its al­legations and prayer for relief.^[5] The complaint in the instant case alleges
that the agreement of the parties was that the land of plaintiff Ernesto Veluz was to be mortgaged, but the defendants caused to be
prepared a deed of absolute sale
and assured said plaintiff that he had nothing to fear and worry about the
document because he could redeem the property any time.  The complaint specifically alleges that the
instrument does not express the true intention of the parties.  The complaint prayed, among others, that
judgment be issued:

“(b) ordering the reformation of the deed of sale attached
hereto  as Annex ‘A’ to express the
true intention of the part­ies, to wit: the same to be made as a deed of
Mortgage executed by the plaintiff in favor of the defendants for and in con­sideration
of Five Thousand Pesos (P5,000. 00) which plaintiff may redeem at any time he
desires or to such period as this Court may fix and that if this Honorable
Court should fix a period to order in the mean­time the return of the
possession of the premises in question to the plaintiff.” (Underscoring,
supplied).

It is our considered view, based upon the allega­tions,
and the relief prayed for, in the complaint, that the action is clearly one for
the reformation of an instrument as contemplated in Articles 1359 and 1365 of
the Civil Code of the Philippines.

In the order appealed
from the lower court starts with the statement “This is an action for
reformation of contract with damages…”, but later declared “that the
plaintiff’s action in the case at bar is annulment of contract based on fraud
(although ultimately it is for recovery of title and possession) which, under
Article 1391 of the new Civil Code shall be brought within four years from the
discovery of the fraud.”^[6]

The lower court is in error. 
The action for reformation of instrument should not be confused with the
action for annulment of contract.  Reform­ation
of instrument:  presupposes a valid
existing contract, in which there had been a meeting of the minds of the
parties but the instrument drawn up and signed by them does not correctly
express the terms of their agreement. 
Annulment of a contract, on the other hand, presupposes a defective
contract in which the minds of the parties
did not meet, or the consent of one was vitiated.  The equity of reformation is ordinarily
limited to written agree­ments, and its purpose is to establish and perpet­uate
the true agreement; annulment, on the other hand, is, intended to declare the inefficiency which the
contract already carries in itself and to render the contract inefficacious.

The legal question to be resolved in the instant case, therefore,
is: When does an action for the reformation of instrument prescribed?  Chapter 4, Title IT of Book IV of the Civil
Code, which treats of “Reformation of Instruments” carries no
provision regarding the period when the action for reformation of instrument
shall be brought.  In two decisions of
this Court we find conflicting, pronouncements. 
In the case of Heirs of Carlota vs. Benares,
G. R.
No. L-6438, June 30, 1955,
relied upon by the trial court, this Court said that the action prescribes in
four years, and we quote:

“The fact that Benares,
through fraud and deceit, made them sign ab­solute sales instead, does net
render the sales absolutely void, but merely voidable;
and the remedy of plaintiffs is either
annulment on the ground of fraud, or reformation of the contracts to make them
express the parties’ true intention and agreement.  In either case, the action should be filed within four years from the time
the cause of action
accrues, i.e. from the discovery of the fraud.”

However, in the
subsequent case of Conde, et al., vs. Cuenca and Malaga, G. R. No. L-9405, July 31, 1956, relied
upon by the appellants, wherein the
action was precisely for the
reformation of the instrument of
sale to make it conform with the
intention of the parties to execute a deed of mortgage, under Article 1365 of
the Civil Code, this Court applied Article 1144 of the Civil Code and held that plaintiff had a period of 10 years within which to bring the
action.  We quote:

“As defendants themselves allege in their motion, plaintiff’s
remedy is one for the reformation of an instrument under article 165 of the new Civil
Code.  That article reads:

‘ART. 1365.  If two parties
agree upon the mortgage or pledge of real or personal property, but the
instrument states that the property is sold absolutely or with a right of
repurchase, reformation
of the instrument is proper.’

Plaintiff’s case comes squarely under the
article, and it is precisely the remedy therein prescribed that he wants when
in his complaint:  he prays for judgment declaring
the deed of sale Annex ‘A’ null and void ab initio but one of mortgage.  Stated more explicitly, the prayer is to have
the deed declared void as a sale and construed or given the effect of a mere
mort­gage so as to make it conform to the real intention of the parties.  In other words, what is sought is ‘reform­ation’,
which is defined as that remedy
in equity by means of which a written instrument is mode or construed so as to
express or conform to the real intention of the parties when some error
or mistake has been committed. (53 C. 3. 906, cited in Padilla’s Civil Code.  Annotated, Vol. II, p. 431.) More­over, the
complaint also prays for such remedy as in justice and equity plain­tiff
may be entitled to in the premises, and it is clear that upon the facts pleaded
reformation is proper in accord­ance with article 1365 of the new Civil Code.

“As an action for reformation, plaintiff had 10 years within
which to bring it from the time the right of action accrued.  (Art. 1144, new Civil Code.)….”

We
believe that the decision in the
Conde case should prevail, not only because it
is of a later date but also because the issue decided therein refers to the
period of prescription in an action for reform­ation of instruments; whereas,
in the Carlota case, the issue decided refers to the annulment of
contracts.  The ruling the Conde case is squarely applicable to the case now
before us because, as in the Conde case, the question
involved is the reformation of an instrument which appears to be a deed of
absolute sale when the real intention of the parties was to execute a deed of
mortgage.

Hence, in the case at
bar, even if the ten-year period of prescription be computed from the date of
the execution of the instrument on January 2, 1953, or from May, 1958 when
defendants refused to allow re­demption – evincing thus their intent not to
live up to the true agreement and thereby giving rise to the right of action,^[7] until July 30; 1958 when the instant case
was commenced, the ten-year period for prescription of the action had not yet elapsed.

IN VIEW OF THE
FOREGOING, the appealed
order of the lower court, dated June 28, 1960, dismissing plaintiff’s complaint, should be, as it is hereby, set aside; and this case is remanded
to the court a quo for further proceedings.  Costs against defendants-appellees

IT IS SO ORDERED.

Concepcion, (CJ)., Reyes, JBL, Dizon,, Makalintal, Sanchez,
Angeles, and Fernando, JJ., concur.

Ruiz Castro, J., took no part.

^[1]
Original plaintiff died after this case was decided by the lower court, and he was
substituted by his wife and children.

^[2] Conde et al., vs. Cuenca, et al., G. R.No. L-9405, July
21, 1956.

^[3]  91 Phil. 250.

^[4]
G.R. No. L-6438, June 30, 1955.

^[5] Rone, et al., vs. Clara, et al., supra.

^[6]
Record or. Appeal, pp. 65-66.

^[7] Tormon vs. Cutanda, G. R. No. L-18785, Decem­ber
23, 1963.