MARTIRES V.

CHUA 694 SCRA 38

1359-1369 – Reformation of Instruments

Atty Alabastro continuation of discussion on Martires vs Chua.

ART. 1356. 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.

So this article provides that when the parties agree to mortgage or pledge a real or personal property, but the instrument says it is a sale,
then reformation of the instrument is proper.

In this case, the Supreme Court discussed whether or not this contract was indeed a sale, and whether the transfer or conveyance was an
equitable mortgage. Ultimately, the SC determined that the transaction was in fact an equitable mortgage. Although it was not expressly
stated in the decision, this is an illustration of Art. 1365, wherein the parties only intended a mortgage, but the instrument purports to be
one of sale.

What if the parties agree to enter into a mortgage, but when the mortgagee is in default, the property is transferred to the
mortgagor?
Take note that said agreement is now a pactum commisorium, which automatically transfers the property to the mortgagor without
foreclosure proceedings. Under the law, that is void.

Note this case. Although the discussion of the Supreme Court did not explicitly say it, this case is an illustration of Art. 1365, that is why
this was assigned under Reformation of Instrument.