Multi-Realty Development Corporation vs. Condominium Corporation

The prescriptive period for an action for reformation of an instrument based on mistake begins to run only from the time the mistake is discovered or ought to have been discovered, or when the adverse party asserts a claim contrary to the true agreement, not necessarily from the date of execution of the instrument.

Multi-Realty Development Corporation developed the Makati Tuscany Condominium in the 1970s, comprising 160 units and 270 parking slots. Of the parking slots, 164 were assigned to units, 8 were designated as guest parking (common areas), and 98 were retained by Multi-Realty for sale. In 1975, Multi-Realty executed a Master Deed, which defined common areas to include "parking areas other than those assigned to each unit," inadvertently encompassing the 98 retained slots. Multi-Realty sold 26 of these slots between 1977 and 1986 without objection from the Makati Tuscany Condominium Corporation (MATUSCO). In 1989, MATUSCO denied Multi-Realty's request to use two unallocated slots, asserting for the first time that the remaining unassigned slots were common areas owned by the condominium corporation.

• The Condominium Project: Multi-Realty developed the Makati Tuscany Condominium in the 1970s, consisting of 160 units and 270 parking slots.
• Allocation of Parking Slots: 164 slots were assigned to units, 8 were designated as guest parking (common areas), and 98 were retained by Multi-Realty for sale to unit owners needing additional slots.
• The Master Deed: In 1975, Multi-Realty executed the Master Deed. Section 5 assigned parking lots to each unit. Section 7(d) defined common areas to include "parking areas other than those assigned to each unit under Sec. 5." The 98 retained slots were not explicitly excluded from this definition, an omission Multi-Realty attributed to the project being one of the first condominiums in the country.
• Subsequent Transactions: Between 1977 and 1986, Multi-Realty sold 26 of the 98 unassigned slots to third parties. MATUSCO did not object; certificates of title were issued, and MATUSCO issued Certificates of Management. In 1979, MATUSCO's Board even negotiated to buy 36 of the unallocated slots from Multi-Realty.
• The Dispute: In September 1989, Multi-Realty requested to use two unallocated slots for its executives. MATUSCO denied the request, asserting for the first time that the remaining 72 unallocated slots were common areas owned by the condominium corporation.

• Procedural Error by the CA: The Court of Appeals violated due process and Section 8, Rule 51 of the Rules of Court by dismissing the appeal on the ground of prescription, an issue neither party raised in the lower courts or assigned as error on appeal.
• Accrual of the Cause of Action: Under Article 1150 in relation to Article 1144 of the Civil Code, and established jurisprudence (Tormon v. Cutanda, Veluz v. Veluz), the action for reformation accrued only in 1989 when MATUSCO repudiated the true agreement, not in 1975 when the Master Deed was executed; thus, the 1990 filing was well within the 10-year prescriptive period.
• Estoppel: MATUSCO is estopped from asserting title over the unallocated slots because of its consistent recognition of, and participation in, Multi-Realty's sales of the slots and its prior efforts to buy the unallocated slots.

• Prescription: Following Rosello-Bentir v. Hon. Leanda, the prescriptive period for reformation commenced in 1975 upon the execution of the Master Deed, rendering the 1990 action already prescribed.
• Lack of Grounds for Reformation: The Master Deed and Deed of Transfer were prepared with the assistance of renowned lawyers, making a mistake incredible. Reformation requires fraud or inequity, which Multi-Realty failed to prove.
• Illegality of Sale: The sale of the parking slots violated Section 16 of the Condominium Act; thus, Multi-Realty acted in bad faith and cannot invoke estoppel against MATUSCO.

• Propriety of CA Ruling on Prescription: Whether the Court of Appeals erred in dismissing the appeal on the ground of prescription when the issue was not raised in the lower courts or assigned as error on appeal.
• Accrual of Prescriptive Period: Whether the action for reformation of the Master Deed had already prescribed when filed in 1990, given that the Master Deed was executed in 1975.

• Propriety of CA Ruling on Prescription: The appellate court erred in motu proprio dismissing the appeal based on prescription. While appellate courts possess broad discretionary power to resolve unassigned errors essential for a just decision, it was inappropriate here given the factual backdrop. Prescription was not raised as an affirmative defense in the RTC, nor assigned as error in the CA, depriving the petitioner of due process.
• Accrual of Prescriptive Period: The action had not prescribed. The right of action for reformation accrues only when the legal right is denied, challenged, or refused by another. A party is under no obligation to seek reformation while unaware of any opposition to the true agreement. The mistake was discovered, and the cause of action accrued, only in 1989 when MATUSCO denied Multi-Realty's request and claimed ownership. The CA erred in relying on Rosello-Bentir, which involved a breached contract, distinct from the present case where the true agreement was merely denied or challenged before any breach occurred.

• Accrual of Action for Reformation of Instrument — The right of action to file a complaint for reformation of an instrument accrues when the legal right is denied, challenged, or refused by another, or when there is an antagonistic assertion of a legal right and a denial thereof. A party is under no obligation to seek reformation while unaware that opposition will be made to carrying out the actual agreement. The statute of limitations does not begin to run against an equitable cause of action for reformation based on mistake until the mistake has been discovered or ought to have been discovered. Applied to hold that Multi-Realty's cause of action accrued only in 1989 when MATUSCO denied its ownership, making the 1990 filing timely.
• Appellate Court's Authority to Resolve Unassigned Errors — An appellate court has broad discretionary power to review matters not assigned as errors if their consideration is necessary to arrive at a just decision. However, it is inappropriate to motu proprio resolve an issue like prescription when it was not raised in the lower court or assigned as error, as it violates basic considerations of due process. Applied to set aside the CA's dismissal of the appeal on the ground of prescription.

• "A party to an instrument is under no obligation to seek a reformation of an instrument while he is unaware that any opposition will be made to carry out the actual agreement." — Articulates the rationale for delaying the accrual of the cause of action until the adverse claim is asserted.
• "The statute of limitations does not begin to run against an equitable cause of action for the reformation of an instrument because of mistake until the mistake has been discovered or ought to have been discovered." — Defines the trigger for the prescriptive period in reformation suits based on mistake.

• Tormon v. Cutanda, 119 Phil. 84 (1963) — Followed. Established that a cause of action for reformation arises only when the adverse party makes known by overt acts their intention not to abide by the true agreement.
• Rosello-Bentir v. Hon. Leanda, 386 Phil. 802 (2000) — Distinguished. The Court clarified that Rosello-Bentir involved a breached contract where the prescriptive period runs from execution, whereas the present case involved a mere denial or challenge of the true agreement before breach.
• Naga Telephone Co., Inc. v. Court of Appeals, 230 SCRA 351 (1994) — Followed. Reiterated that the right of action accrues not necessarily from the date of execution of the contract but from the discovery of the mistake or disadvantage.

• Article 1144, Civil Code — Provides that actions upon a written contract must be brought within 10 years from the time the right of action accrues. Applied to determine the prescriptive period for the reformation of the Master Deed.
• Article 1150, Civil Code — Provides that the time for prescription is counted from the day the action may be brought. Applied to establish that the action accrues, and prescription begins to run, only when the right is denied or challenged.
• Section 1, Rule 63, Rules of Court — Allows an action for reformation of an instrument before breach or violation. Applied to explain the nature of a reformation action and when the cause of action accrues (upon denial or challenge of right).
• Section 16, Republic Act No. 4726 (Condominium Act) — Restricts the sale of common areas by a condominium corporation without the affirmative vote of a simple majority of registered owners. Cited by respondent to argue the illegality of Multi-Realty's sale of parking slots.

Artemio V. Panganiban, Consuelo Ynares-Santiago, Ma. Alicia Austria-Martinez, Minita V. Chico-Nazario