G.R. No. 124574 February 2, 1998
SIMON LACORTE, ROSARIO LACORTE, SEVERINO LACORTE, JEROSALINA LACORTE-FERNANDEZ and CIRILA LACORTE-ANGELES, petitioners, vs. THE HONORABLE COURT OF APPEALS, SPOUSES PEREGRINO and ADELA LACORTE, and JOSE ICACA, respondents.

FACTS

Petitioners and respondent Peregrino Lacorte are heirs of Maria Inocencio Lacorte, the original owner of a parcel of land in Sta. Cruz, Lezo, Aklan. The property was foreclosed by the Rural Bank of Malinao, Aklan, Inc., which later sold it to respondent Jose Icaca. On October 17, 1983, respondent Jose Icaca and petitioner Simon Lacorte, representing the heirs, entered into an Agreement authorizing Icaca to purchase the property from the bank, with the heirs given the right to repurchase it for P33,090.00 within one year. This redemption period was later extended to March 1987 by a second Agreement dated October 16, 1984. Both agreements were signed by Simon Lacorte for himself and the heirs. On November 4, 1984, respondent Adela Lacorte (wife of Peregrino) paid Icaca P26,000.00 as a deposit for the repurchase. Without the knowledge and consent of petitioners, and before the expiration of the grace period, respondents Peregrino and Adela Lacorte purchased the land in their names through a Deed of Reconveyance executed by Icaca on February 3, 1987. Petitioners filed an action for annulment of the Deed of Reconveyance on December 9, 1988, alleging bad faith and violation of prior agreements. The trial court rescinded the deed and ordered Icaca to sell the land to all petitioners and respondent spouses. The Court of Appeals reversed, dismissing the complaint, ruling petitioners had no cause of action as they were not parties to the Deed of Reconveyance.

ISSUE

Whether or not petitioners are entitled to bring an action for annulment and/or rescission of the Deed of Reconveyance entered into by respondent spouses Peregrino and Adela Lacorte with Jose Icaca.

RULING

Yes. The Supreme Court reversed the Court of Appeals and reinstated the trial court’s decision, subject to modifications. The Court found that the Agreement dated October 17, 1983, constituted an equitable mortgage. This was evidenced by: (1) petitioners’ mother and some heirs remained in possession of the property; (2) a second agreement extended the period of redemption; (3) the language of the Agreement referenced the heirs’ “recent mortgage debt”; and (4) the subsequent document was titled “Deed of Reconveyance,” which presupposes a prior agreement to reconvey. Since Simon Lacorte executed the Agreement for and on behalf of all heirs, any payment by one heir inured to the benefit of all. Respondent spouses acted in bad faith by purchasing the property solely in their names, misrepresenting to Icaca that they were buying for all heirs. The Deed of Reconveyance should be reformed to include petitioners as parties, reflecting the true intention that the property be reconveyed to all heirs. Petitioners are entitled to contribute pro rata to the payments and expenses, with details to be determined by the trial court.