286 SCRA 24

FACTS:

Petitioners and private respondent Peregrino Lacorte are the heirs of Maria Inocencio Lacorte who was the original owner of a parcel of land located at Sta. Cruz, Lezo, Aklan with an area of 14,556 square meters, more or less. The subject property was foreclosed by the Rural Bank of Malinao, Aklan, Inc. which, after consolidating its ownership thereover, subsequently sold the same to herein private respondent Jose Icaca.

On October 17, 1983, respondent Jose Icaca and petitioner Simon Lacorte, in behalf of the heirs of Maria Lacorte, entered into an Agreement whereby the former was authorized to purchase the subject property from the bank provided that the heirs of Maria Lacorte shall be given the right to repurchase the same in the amount of P33,090.00 within a period of one year from that date. The one-year redemption period was later extended to March, 1987 pursuant to another Agreement dated October 16, 1984. Both agreements were signed by petitioner Simon Lacorte for himself and in representation of the heirs of Maria Lacorte. On November 4, 1984, respondent Peregrino Lacortes wife, Adela, paid to respondent Icaca the amount of P26,000.00 as deposit for the repurchase of the property.

It appears, however, that without the knowledge and consent of herein petitioners, and before the expiration of the grace period, private respondents Peregrino Lacorte and his wife were able to purchase the land in their names by virtue of a Deed of Reconveyance executed by respondent Icaca dated February 3, 1987.

That prompted herein petitioners to commence this action on December 9, 1988 for annulment of the contract on the ground that the same was entered into in evident bad faith and in violation of the previous agreements between the parties, thereby resulting in prejudice to the property rights of herein petitioners. In their Answer, respondents Peregrino and Adela Lacorte denied that there was an agreement to sell the property collectively to the heirs of Maria Lacorte, and argued that since the land was legally sold by the bank to respondent Icaca, then the sale thereof by the latter to the former is likewise valid.

The trial court rendered judgement in favour of petitioner herein and ordered (a) the rescission of the deed of reconveyance executed in favor of respondent spouses Peregrino and Adela Lacorte, as well as the tax declarations issued in their names, and (b) Jose Icaca to sell the land in question to all the petitioners herein and private respondent spouses.

It also noted that the deed of reconveyance was executed within the period granted under Exhibits B and C for the heirs to collectively repurchase the land from Icaca. Moreover, it observed that if respondent spouses were truly buying the land in good faith for themselves and not for the other heirs, it was not necessary for respondent Adela Lacorte to ask petitioners to look for P7,090.00 which represents the balance and was apparently to be used as part of the purchase price. Finally, it concluded that petitioners had a cause of action against respondents by reason of the promise to buy and sell executed between the Lacortes and Icaca, which is reciprocally demandable pursuant to Article 1479 of the Civil Code.

On appeal, the court of appeals reversed the decision and ruled that petitioners have no cause of action against private respondents since the former were not parties either to the Deed of Reconveyance sought to be annulled or to the Deed of Absolute Sale executed between the bank and Jose Icaca. It applied the general rule under Article 1397 of the Civil Code to the effect that an action for annulment of contract may be instituted only by those who are principally or subsidiarily obliged thereby.

ISSUE:

Whether or not the agreement entered into with ICACA is presumed to be an equitable mortgage.

RULING:

No. A contract is presumed to be an equitable mortgage when the vendor remains in possession as lessee or otherwise, or when upon or after the expiration of the right to repurchase another instrument extending the period of redemption or granting a new period is executed. In the case at bar, it is not disputed that petitioners’ mother, Maria Lacorte, and two of her children, herein petitioners Rosario and Jerosalina, remained in possession of the property despite the existence of the Agreement hereinbefore quoted, and they continue to do so up to the present time. No less than respondent Adela Lacorte admitted these facts in her testimony.

The case records irresistibly reveal that the real intention of Icaca was to reconvey the land to all the heirs of Maria Lacorte.

In order to judge the intention of the contracting parties, their contemporaneous and subsequent acts shall be principally considered. In light of the foregoing disquisition, the inevitable conclusion is that it was really the intention of the parties that the subject parcel of land shall be reconveyed to all the heirs of Maria Lacorte, hence the payment made by Adela Lacorte should be deemed to inure to the benefit of all the aforementioned heirs. Consequently, herein petitioners necessarily stand to be prejudiced by the Deed of Reconveyance executed solely in favor of Adela Lacorte since they should have been included as parties thereto.

Article 1359 of the Civil Code provides that when, there having been a meeting of the minds of the parties to a contract, their true intention is not expressed in the instrument purporting to embody the agreement by reason of mistake, fraud, inequitable conduct or accident, one of the parties may ask for the reformation of the instrument to the end that such true intention may be expressed. If such mistake, fraud, inequitable conduct, or accident has prevented a meeting of the minds of the parties, the proper remedy is not reformation of the instrument but annulment of the contract.

*Case digest by Benjie L. Sumalpong, JD – 4, Andres Bonifacio College, SY 2019 – 2020