Makati Tuscany Condominium Corporation vs. Multi-Realty Development Corporation

Reformation of a written instrument is available under Article 1359 of the Civil Code when subsequent and contemporaneous acts of the parties clearly demonstrate that the instrument does not reflect their true intention regarding the ownership of property designated therein as common areas, provided the party seeking reformation proves by clear and convincing evidence that the failure to express the true intention was due to mistake, fraud, inequitable conduct, or accident.

Multi-Realty Development Corporation developed Makati Tuscany, a 26-storey condominium building in Makati City containing 160 residential units and 270 parking slots. In 1975, Multi-Realty executed the Master Deed and Declaration of Restrictions, registering it in 1977. Pursuant to Republic Act No. 4726, Multi-Realty incorporated Makati Tuscany Condominium Corporation (MATUSCO) in 1977 to hold title over the common areas and executed a Deed of Transfer conveying these areas to MATUSCO. The Master Deed designated 106 parking slots as common areas, but Multi-Realty later claimed that only 8 were intended as guest parking slots while the remaining 98 were to be retained for sale to unit owners.

• The Condominium Project: Makati Tuscany, a 26-storey building constructed by Multi-Realty Development Corporation in 1974, contained 160 residential units (156 ordinary units and 4 penthouse units) and 270 parking slots. The ordinary units were allocated one parking slot each, and the penthouse units two slots each, totaling 164 allocated slots. The remaining 106 slots were designated in the Master Deed as common areas.
• Execution of Instruments: On July 30, 1975, Multi-Realty executed the Master Deed and Declaration of Restrictions, registered in 1977, which designated parking areas not assigned to units as common areas under Section 7(d). In 1977, Multi-Realty incorporated Makati Tuscany Condominium Corporation (MATUSCO) under Republic Act No. 4726 and executed a Deed of Transfer conveying the common areas to MATUSCO.
• Subsequent Transactions: From 1977 to 1986, Multi-Realty sold 26 of the disputed 98 parking slots to unit owners without objection from MATUSCO, which issued Certificates of Management covering these sales. Minutes of MATUSCO's Board of Directors meetings in 1979 revealed offers to purchase the unassigned parking slots from Multi-Realty at a discounted price. Multi-Realty retained the remaining 72 slots until 1989, when MATUSCO first asserted ownership over them as part of the common areas.
• Factual Basis for Reformation: Multi-Realty alleged that due to inexperience with condominium development documentation—Makati Tuscany being among the first such projects in the Philippines—the Master Deed mistakenly included the 98 slots as common areas when only 8 were intended as guest parking. Color-coded floor plans indicated only 8 guest slots as common areas.

• Absence of Grounds for Reformation: MATUSCO argued that no mistake, fraud, inequitable conduct, or accident attended the execution of the Master Deed and Deed of Transfer, asserting that the instruments clearly expressed the parties' agreement to transfer all 106 parking slots to the common areas.
• Illegality of Sales: MATUSCO contended that Multi-Realty's sales of 26 parking slots were patently illegal as they violated the Master Deed's stipulations, rendering inapplicable any claim of estoppel based on acquiescence to these sales.
• Good Faith Mistake: MATUSCO maintained that its failure to object to the sales and its issuance of Certificates of Management resulted from a good faith mistake or confusion regarding the legal nature of the parking slots, not from bad faith or recognition of Multi-Realty's ownership.
• Public Policy and Registration: MATUSCO argued that the Master Deed and Deed of Transfer, being registered public documents, were valid and binding in rem; reforming them over 30 years after registration would contravene public policy and the Condominium Act.
• Res Judicata: MATUSCO asserted that the Supreme Court's prior decision in G.R. No. 146726 contained factual findings establishing Multi-Realty's ownership of the 98 slots, which were conclusive under the doctrine of res judicata.

• Mistake in Drafting: Multi-Realty argued that the Master Deed failed to reflect the true intention to exclude 98 parking slots from the common areas due to its inexperience with first-generation condominium documentation.
• Subsequent Acts as Evidence: Multi-Realty pointed to the parties' subsequent and contemporaneous acts—specifically the floor plans showing only 8 guest slots, the unopposed sales of 26 slots, MATUSCO's issuance of Certificates of Management, and MATUSCO's offers to purchase the slots—as conclusive proof that both parties always understood Multi-Realty to retain ownership of the 98 slots.
• Nature of Appeal: Multi-Realty contended that MATUSCO's petition improperly raised questions of fact in violation of Rule 45, which limits review to questions of law.
• Res Judicata Inapplicable: Multi-Realty maintained that the prior Supreme Court decision resolved only the procedural issue of prescription and did not constitute a judgment on the merits of the ownership dispute.

• Reformation of Instrument: Whether the Master Deed and Deed of Transfer required reformation to exclude the 98 parking slots from the common areas based on the true intention of the parties as evidenced by their subsequent and contemporaneous acts.
• Res Judicata: Whether the principle of res judicata barred the relitigation of the ownership issue in light of the prior Supreme Court decision in Multi-Realty Development Corporation v. The Makati Tuscany Condominium Corporation (G.R. No. 146726).

• Reformation Granted: Reformation of the Master Deed and Deed of Transfer was warranted under Article 1359 of the Civil Code because Multi-Realty discharged its burden of proving by preponderance of evidence that: (1) there was a meeting of the minds; (2) the instruments did not express the true intention that Multi-Realty retain ownership of the 98 slots; and (3) this failure was due to mistake. The subsequent and contemporaneous acts of the parties—specifically the color-coded floor plans designating only 8 guest slots, Multi-Realty's sale of 26 slots from 1977 to 1986 without MATUSCO's objection, MATUSCO's issuance of Certificates of Management for these sales, and MATUSCO's Board resolutions offering to purchase the slots—demonstrated a consistent recognition that the 98 slots were not part of the common areas.
• Estoppel Rejected: Estoppel by deed did not apply against Multi-Realty because MATUSCO was never induced to rely on false representations regarding the ownership of the slots; rather, MATUSCO's own acts indicated its awareness that Multi-Realty retained ownership.
• Res Judicata Inapplicable: Res judicata did not bar the present action because the prior Supreme Court decision in G.R. No. 146726 resolved only the procedural issue of prescription and did not constitute a judgment on the merits of the ownership dispute or the propriety of reformation.

• Reformation of Instrument (Article 1359, Civil Code) — Reformation is an equitable remedy that allows a valid existing contract to be revised to express the true intentions of the contracting parties when, due to mistake, fraud, inequitable conduct, or accident, the instrument does not reflect the meeting of their minds. The requisites are: (1) a meeting of the minds; (2) the instrument does not express the true intention; and (3) the failure is due to mistake, fraud, inequitable conduct, or accident. The burden of proof rests upon the party seeking reformation to overturn the presumption that a written instrument sets out the true intentions of the parties.
• Subsequent and Contemporaneous Acts as Evidence of Intent — When the written instrument is alleged not to reflect the true intention of the parties, subsequent and contemporaneous acts of the parties are admissible to determine their actual intent, as intentions involve states of mind that are difficult to decipher without objective manifestations.
• Estoppel by Deed — The doctrine of estoppel, grounded on public policy, fair dealing, and good faith, requires that the party claiming estoppel was made to rely on the representor's acts or representations to his detriment. It does not apply where the claimant was aware of the true state of affairs or where no false representation was made.
• Res Judicata — The doctrine applies only when the following concur: (a) the former judgment is final; (b) the court rendering it had jurisdiction over the parties and subject matter; (c) it is a judgment on the merits; and (d) there is identity of parties, subject matter, and cause of action between the first and second actions. A prior judgment resolving only procedural issues without reaching the substantive merits does not bar subsequent litigation on the substantive claims.

• "Reformation of an instrument may be allowed if subsequent and contemporaneous acts of the parties show that their true intention was not accurately reflected in the written instrument." — This encapsulates the evidentiary basis for granting reformation when the written terms contradict the parties' objective conduct.
• "The rationale is that it would be unjust to enforce a written instrument which does not truly reflect the real agreement of the parties." — This states the equitable foundation for the remedy of reformation.
• "Intentions involve a state of mind, making them difficult to decipher; therefore, the subsequent and contemporaneous acts of the parties must be presented into evidence to reflect the parties' intentions." — This explains why extrinsic evidence of conduct is necessary and admissible in reformation cases.
• "The doctrine of estoppel is based upon the grounds of public policy, fair dealing, good faith and justice, and its purpose is to forbid one to speak against his own act, representations, or commitments to the injury of one to whom they were directed and who reasonably relied thereon." — This defines the scope and purpose of estoppel, emphasizing the requirement of detrimental reliance.

• Multi-Realty Development Corporation v. The Makati Tuscany Condominium Corporation, G.R. No. 146726, 524 Phil. 318 (2006) — Distinguished as having resolved only the procedural issue of prescription without reaching the merits of the ownership dispute, thus not constituting a bar under res judicata.
• National Irrigation Administration v. Gamit, 289 Phil. 914 (1992) — Cited for the requisites of an action for reformation of instrument under Article 1359 of the Civil Code.
• Philippine National Bank v. Court of Appeals, 183 Phil. 54 (1979) — Cited for the definition and elements of estoppel based on public policy and fair dealing.
• Heirs of Enrique Diaz v. Virata, 529 Phil. 799 (2006) — Cited for the elements of res judicata.

• Article 1359, Civil Code — Provides for the reformation of an instrument when, despite a meeting of the minds, the true intention is not expressed due to mistake, fraud, inequitable conduct, or accident.
• Republic Act No. 4726 (The Condominium Act) — The law under which MATUSCO was incorporated to hold title over the common areas of the condominium project.

Velasco, Jr. (Chairperson), Bersamin, Martires, and Gesmundo, JJ.