G.R. No. 137552               June 16, 2000 (b) P600,000.

00 upon issuance of the new

certificate of title in the name of the late Francisco
ROBERTO Z. LAFORTEZA, GONZALO Z. LAFORTEZA, Q. Laforteza and upon execution of an extra-judicial
MICHAEL Z. LAFORTEZA, DENNIS Z. LAFORTEZA, and settlement of the decedent's estate with sale in
LEA Z. LAFORTEZA, petitioners, favor of the plaintiff (Par. 2, Exh. "E", record, pp.
vs. 335-336).
ALONZO MACHUCA, respondent.
Significantly, the fourth paragraph of the Memorandum of
GONZAGA-REYES, J.: Agreement (Contract to Sell) dated January 20, 1989
(Exh. "E", supra.) contained a provision as follows:
This Petition for Review on Certiorari  seeks the reversal of
the Decision of the Court of Appeals 1 in CA G.R. CV No. . . . . Upon issuance by the proper Court of the new
147457 entitled "ALONZO MACHUCA versus ROBERTO Z. title, the BUYER-LESSEE shall be notified in writing
LAFORTEZA, GONZALO Z. LAFORTEZA, LEA ZULUETA- and said BUYER-LESSEE shall have thirty (30) days
LAFORTEZA, MICHAEL Z. LAFORTEZA, and DENNIS Z. to produce the balance of P600,000.00 which shall be
LAFORTEZA". paid to the SELLER-LESSORS upon the execution of
the Extrajudicial Settlement with sale.
The following facts as found by the Court of Appeals are
undisputed: On January 20, 1989, plaintiff paid the earnest money of
THIRTY THOUSAND PESOS (P30,000.00), plus rentals
for the subject property (Exh. "F", Plaintiff, record, p. 339).
The property involved consists of a house and lot located
at No. 7757 Sherwood Street, Marcelo Green Village,
Parañaque, Metro Manila, covered by Transfer Certificate On September 18, 1998 3 , defendant heirs, through their
of Title (TCT) No. (220656) 8941 of the Registered of counsel wrote a letter (Exh. 1, Defendants, record, p. 370)
Deeds of Parañaque (Exhibit "D", Plaintiff, record, pp. 331- to the plaintiff furnishing the latter a copy of the
332). The subject property is registered in the name of the reconstituted title to the subject property, advising him that
late Francisco Q. Laforteza, although it is conjugal in he had thirty (3) days to produce the balance of SIX
nature (Exhibit "8", Defendants, record pp. 331-386). HUNDRED PESOS (sic) (P600,000.00) under the
Memorandum of Agreement which plaintiff received on the
same date.
On August 2, 1988, defendant Lea Zulueta-Laforteza
executed a Special Power of Attorney in favor of
defendants Roberto Z. Laforteza and Gonzalo Z. On October 18, 1989, plaintiff sent the defendant heirs a
Laforteza, Jr., appointing both as her Attorney-in-fact letter requesting for an extension of the THIRTY (30)
authorizing them jointly to sell the subject property and DAYS deadline up to November 15, 1989 within which to
sign any document for the settlement of the estate of the produce the balance of SIX HUNDRED THOUSAND
late Francisco Q. Laforteza (Exh. "A", Plaintiff, record, pp. PESOS (P600,000.00) (Exh. "G", Plaintiff, record, pp. 341-
323-325). 342). Defendant Roberto Z. Laforteza, assisted by his
counsel Atty. Romeo L. Gutierrez, signed his conformity to
the plaintiff's letter request (Exh. "G-1 and "G-2", Plaintiff,
Likewise on the same day, defendant Michael Z. Laforteza
executed a Special Power of Attorney in favor of record, p. 342). The extension, however, does not appear
to have been approved by Gonzalo Z. Laforteza, the
defendants Roberto Z. Laforteza and Gonzalo Laforteza,
second attorney-in-fact as his conformity does not appear
Jr., likewise, granting the same authority (Exh. "B", record,
to have been secured.
pp. 326-328) Both agency instruments contained a
provision that in any document or paper to exercise
authority granted, the signature of both attorneys- in-fact On November 15, 1989, plaintiff informed the defendant
must be affixed. heirs, through defendant Roberto Z. Laforteza, that he
already had the balance of SIX HUNDRED THOUSAND
PESOS (P600,000.00) covered by United Coconut
On October 27, 1988, defendant Dennis Z. Laforteza
Planters Bank Manager's Check No. 000814 dated
executed a Special Power of Attorney in favor of
November 15, 1989 (TSN, August 25, 1992, p. 11; Exhs.
defendant Roberto Z. Laforteza for the purpose of selling
"H", record, pp. 343-344; "M", records p. 350; and "N",
the subject property (Exh. "C", Plaintiff, record, pp. 329-
record, p. 351). However, the defendants, refused to
330). A year later, on October 30, 1989, Dennis Z.
accept the balance (TSN, August 24, 1992, p. 14; Exhs.
Laforteza executed another Special Power of Attorney in
"M-1", Plaintiff, record, p. 350; and "N-1", Plaintiff, record,
favor of defendants Roberto Z. Laforteza and Gonzalo
p. 351). Defendant Roberto Z. Laforteza had told him that
Laforteza, Jr. naming both attorneys-in-fact for the
the subject property was no longer for sale (TSN, October
purpose of selling the subject property and signing any
20, 1992, p. 19; Exh. "J", record, p. 347).
document for the settlement of the estate of the late
Francisco Q. Laforteza. The subsequent agency
instrument (Exh, "2", record, pp. 371-373) contained On November 20, 1998 4 , defendants informed plaintiff
similar provisions that both attorneys-in-fact should sign that they were canceling the Memorandum of Agreement
any document or paper executed in the exercise of their (Contract to Sell) in view of the plaintiff's failure to comply
authority.1âwphi1.nêt with his contractual obligations (Exh. "3").

In the exercise of the above authority, on January 20, Thereafter, plaintiff reiterated his request to tender
1989, the heirs of the late Francisco Q. Laforteza payment of the balance of SIX HUNDRED THOUSAND
represented by Roberto Z. Laforteza and Gonzalo Z. PESOS (P600,000.00). Defendants, however, insisted on
Laforteza, Jr. entered into a Memorandum of Agreement the rescission of the Memorandum of Agreement.
(Contract to Sell) with the plaintiff 2 over the subject Thereafter, plaintiff filed the instant action for specific
property for the sum of SIX HUNDRED THIRTY performance. The lower court rendered judgment on July
THOUSAND PESOS (P630,000.00) payable as follows: 6, 1994 in favor of the plaintiff, the dispositive portion of
which reads:
(a) P30,000.00 as earnest money, to be forfeited in
favor of the defendants if the sale is not effected WHEREFORE, judgment is hereby rendered in favor
due to the fault of the plaintiff; of plaintiff Alonzo Machuca and against the defendant
 heirs of the late Francisco Q. Laforteza, ordering the a limited period without imposing upon them any obligation
said defendants. to purchase it. Since the respondent's tender of payment
was made after the lapse of the option agreement, his
(a) To accept the balance of P600,000.00 as full tender did not give rise to the perfection of a contract of
payment of the consideration for the purchase of sale.
the house and lot located at No. 7757 Sherwood
Street, Marcelo Green Village, Parañaque, Metro It is further maintained by the petitioners that the Court of
Manila, covered by Transfer Certificate of Title Appeals erred in ruling that rescission of the contract was
No. (220656) 8941 of the Registry of Deeds of already out of the question. Rescission implies that a
Rizal Parañaque, Branch; contract of sale was perfected unlike the Memorandum of
Agreement in question which as previously stated is
(b) To execute a registrable deed of absolute allegedly only an option contract.
sale over the subject property in favor of the
plaintiff; Petitioner adds that at most, the Memorandum of
Agreement (Contract to Sell) is a mere contract to sell, as
(c) Jointly and severally to pay the plaintiff the indicated in its title. The obligation of the petitioners to sell
sum of P20,000.00 as attorney's fees plus cost the property to the respondent was conditioned upon the
of suit. issuance of a new certificate of title and the execution of
the extrajudicial partition with sale and payment of the
P600,000.00. This is why possession of the subject
SO ORDERED. (Rollo, pp. 74-75). 5
property was not delivered to the respondent as the owner
of the property but only as the lessee thereof. And the
Petitioners appealed to the Court of Appeals, which failure of the respondent to pay the purchase price in full
affirmed with modification the decision of the lower court; prevented the petitioners' obligation to convey title from
the dispositive portion of the Decision reads: acquiring obligatory force.

WHEREFORE, the questioned decision of the lower Petitioners also allege that assuming for the sake of
court is hereby AFFIRMED with the argument that a contract of sale was indeed perfected, the
MODIFICATION that defendant heirs Lea Zulueta- Court of Appeals still erred in holding that respondent's
Laforteza, Michael Z. Laforteza, Dennis Z. Laforteza failure to pay the purchase price of P600,000.00 was only
and Roberto Z. Laforteza including Gonzalo Z. a "slight or casual breach".
Laforteza, Jr. are hereby ordered to pay jointly and
severally the sum of FIFTY THOUSAND PESOS
The petitioners also claim that the Court of Appeals erred
(P50,000.00) as moral damages.
in ruling that they were not ready to comply with their
obligation to execute the extrajudicial settlement. The
SO ORDERED. 6 Power of Attorney to execute a Deed of Sale made by
Dennis Z. Laforteza was sufficient and necessarily
Motion for Reconsideration was denied but the Decision included the power to execute an extrajudicial settlement.
was modified so as to absolve Gonzalo Z. Laforteza, Jr. At any rate, the respondent is estopped from claiming that
from liability for the payment of moral damages. 7 Hence the petitioners were not ready to comply with their
this petition wherein the petitioners raise the following obligation for he acknowledged the petitioners' ability to do
issues: so when he requested for an extension of time within
which to pay the purchase price. Had he truly believed that
I. WHETHER THE TRIAL AND APPELLATE COURTS the petitioners were not ready, he would not have needed
CORRECTLY CONSTRUED THE MEMORANDUM OF to ask for said extension.
AGREEMENT AS IMPOSING RECIPROCAL
OBLIGATIONS. Finally, the petitioners allege that the respondent's
uncorroborated testimony that third persons offered a
II. WHETHER THE COURTS A QUO CORRECTLY higher price for the property is hearsay and should not be
RULED THAT RESCISSION WILL NOT LIE IN THE given any evidentiary weight. Thus, the order of the lower
INSTANT CASE. court awarding moral damages was without any legal
basis.
III. WHETHER THE RESPONDENT IS UNDER
ESTOPPEL FROM RAISING THE ALLEGED DEFECT The appeal is bereft of merit.
IN THE SPECIAL POWER OF ATTORNEY DATED 30
OCTOBER 1989 EXECUTED BY DENNIS A perusal of the Memorandum Agreement shows that the
LAFORTEZA. transaction between the petitioners and the respondent
was one of sale and lease. The terms of the agreement
IV. SUPPOSING EX GRATIA ARGUMENTI THE read:
MEMORANDUM OF AGREEMENT IMPOSES
RECIPROCAL OBLIGATIONS, WHETHER THE 1. For and in consideration of the sum of PESOS: SIX
PETITIONERS MAY BE COMPELLED TO SELL THE HUNDRED THIRTY THOUSAND (P630,000.00) payable
SUBJECT PROPERTY WHEN THE RESPONDENT in a manner herein below indicated, SELLER-LESSOR
FAILED TO MAKE A JUDICIAL CONSIGNATION OF hereby agree to sell unto BUYER-LESSEE the property
THE PURCHASE PRICE? described in the first WHEREAS of this Agreement within
six (6) months from the execution date hereof, or upon
V. WHETHER THE PETITIONERS ARE IN BAD issuance by the Court of a new owner's certificate of title
FAITH SO TO AS MAKE THEM LIABLE FOR MORAL and the execution of extrajudicial partition with sale of
DAMAGES? 8 the estate of Francisco Laforteza, whichever is earlier;

The petitioners contend that the Memorandum of 2. The above-mentioned sum of PESOS: SIX
Agreement is merely a lease agreement with "option to HUNDRED THIRTY THOUSAND (P630,000.00) shall be
purchase". As it was merely an option, it only gave the paid in the following manner:
respondent a right to purchase the subject property within
 P30,000.00 — as earnest money and as the six-month period, the respondent would be liable only
consideration for this Agreement, which amount shall for the rentals pertaining to the period commencing from the
be forfeited in favor of SELLER-LESSORS if the sale date of the execution of the agreement up to the execution
is not effected because of the fault or option of of the extrajudicial settlement. It was also expressly
BUYER-LESSEE; stipulated that if after the expiration of the six month period,
the lost title was not yet replaced and the extrajudicial
P600,000.00 — upon the issuance of the new partition was not yet executed, the respondent would no
certificate of title in the name of the late Francisco longer be required to pay rentals and would continue to
Laforteza and upon the execution of an Extrajudicial occupy and use the premises until the subject condition was
Settlement of his estate with sale in favor of BUYER- complied with the petitioners.
LESSEE free from lien or any encumbrances.
The six-month period during which the respondent would be
3. Parties reasonably estimate that the issuance of a in possession of the property as lessee, was clearly not a
new title in place of the lost one, as well as the execution period within which to exercise an option. An option is a
of extrajudicial settlement of estate with sale to herein contract granting a privilege to buy or sell within an agreed
BUYER-LESSEE will be completed within six (6) months time and at a determined price. An option contract is a
from the execution of this Agreement. It is therefore separate and distinct contract from that which the parties
agreed that during the six months period, BUYER- may enter into upon the consummation of the option. 13 An
LESSEE will be leasing the subject property for six option must be supported by consideration.14 An option
months period at the monthly rate of PESOS: THREE contract is governed by the second paragraph of Article
THOUSAND FIVE HUNDRED 1479 of the Civil Code 15 , which reads:
(P3,500.00). Provided however, that if the issuance of
new title and the execution of Extrajudicial Partition is Art. 1479. . . .
completed prior to the expiration of the six months
period, BUYER-LESSEE shall only be liable for rentals An accepted unilateral promise to buy or to sell a
for the corresponding period commencing from his determinate thing for a price certain is binding upon the
occupancy of the premises to the execution and promissor if the promise is supported by a
completion of the Extrajudicial Settlement of the estate, consideration distinct from the price.
provided further that if after the expiration of six (6)
months, the lost title is not yet replaced and the extra In the present case, the six-month period merely delayed
judicial partition is not executed, BUYER-LESSEE shall the demandability of the contract of sale and did not
no longer be required to pay rentals and shall continue to determine its perfection for after the expiration of the six-
occupy, and use the premises until subject condition is
month period, there was an absolute obligation on the part
complied by SELLER-LESSOR; of the petitioners and the respondent to comply with the
terms of the sale. The parties made a "reasonable
4. It is hereby agreed that within reasonable time from estimate" that the reconstitution the lost title of the house
the execution of this Agreement and the payment by and lot would take approximately six months and thus
BUYER-LESSEE of the amount of P30,000.00 as herein presumed that after six months, both parties would be able
above provided, SELLER-LESSORS shall immediately to comply with what was reciprocally incumbent upon
file the corresponding petition for the issuance of a new them. The fact that after the expiration of the six-month
title in lieu of the lost one in the proper Courts. Upon period, the respondent would retain possession of the
issuance by the proper Courts of the new title, the house and lot without need of paying rentals for the use
BUYER-LESSEE shall have thirty (30) days to produce therefor, clearly indicated that the parties contemplated
the balance of P600,000.00 which shall be paid to the that ownership over the property would already be
SELLER-LESSORS upon the execution of the transferred by that time.
Extrajudicial Settlement with sale. 9
The issuance of the new certificate of title in the name of the
A contract of sale is a consensual contract and is perfected late Francisco Laforteza and the execution of an extrajudicial
at the moment there is a meeting of the minds upon the settlement of his estate was not a condition which determined
thing which is the object of the contract and upon the the perfection of the contract of sale. Petitioners' contention
price. 10 From that moment the parties may reciprocally that since the condition was not met, they no longer had an
demand performance subject to the provisions of the law obligation to proceed with the sale of the house and lot is
governing the form of contracts. 11 The elements of a valid unconvincing. The petitioners fail to distinguish between a
contract of sale under Article 1458 of the Civil Code are (1) condition imposed upon the perfection of the contract and a
consent or meeting of the minds; (2) determinate subject condition imposed on the performance of an obligation.
matter and (3) price certain money or its equivalent. 12 Failure to comply with the first condition results in the failure
of a contract, while the failure to comply with the second
In the case at bench, there was a perfected agreement condition only gives the other party the option either to refuse
between the petitioners and the respondent whereby the to proceed with the sale or to waive the condition. Thus, Art.
petitioners obligated themselves to transfer the ownership of 1545 of the Civil Code states:
and deliver the house and lot located at 7757 Sherwood St.,
Marcelo Green Village, Parañaque and the respondent to Art. 1545. Where the obligation of either party to a contract
pay the price amounting to six hundred thousand pesos of sale is subject to any condition which is not performed,
(P600,000.00). All the elements of a contract of sale were such party may refuse to proceed with the contract or he
thus present. However, the balance of the purchase price may waive performance of the condition. If the other party
was to be paid only upon the issuance of the new certificate has promised that the condition should happen or be
of title in lieu of the one in the name of the late Francisco performed, such first mentioned party may also treat the
Laforteza and upon the execution of an extrajudicial nonperformance of the condition as a breach of warranty.
settlement of his estate. Prior to the issuance of the
"reconstituted" title, the respondent was already placed in Where the ownership in the things has not passed, the
possession of the house and lot as lessee thereof for six buyer may treat the fulfillment by the seller of his
months at a monthly rate of three thousand five hundred obligation to deliver the same as described and as
pesos (P3,500.00). It was stipulated that should the warranted expressly or by implication in the contract of
issuance of the new title and the execution of the sale as a condition of the obligation of the buyer to
extrajudicial settlement be completed prior to expiration of perform his promise to accept and pay for the thing. 16
In the case at bar, there was already a perfected contract. ready to comply in a proper manner with what was incumbent
The condition was imposed only on the performance of the upon him. 24
obligations contained therein. Considering however that the
title was eventually "reconstituted" and that the petitioners Even assuming for the sake of argument that the petitioners
admit their ability to execute the extrajudicial settlement of were ready to comply with their obligation, we find that
their father's estate, the respondent had a right to demand rescission of the contract will still not prosper. The rescission
fulfillment of the petitioners' obligation to deliver and transfer of a sale of an immovable property is specifically governed by
ownership of the house and lot. Article 1592 of the New Civil Code, which reads:

What further militates against petitioners' argument that they In the sale of immovable property, even though it may
did not enter into a contract or sale is the fact that the have been stipulated that upon failure to pay the price at
respondent paid thirty thousand pesos (P30,000.00) as the time agreed upon the rescission of the contract shall of
earnest money. Earnest money is something of value to show right take place, the vendee may pay, even after the
that the buyer was really in earnest, and given to the seller to expiration of the period, as long as no demand for
bind the bargain.17 Whenever earnest money is given in a rescission of the contract has been made upon him either
contract of sale, it is considered as part of the purchase price judicially or by a notarial act. After the demand, the court
and proof of the perfection of the contract. 18 may not grant him a new term. 25

We do not subscribe to the petitioners' view that the It is not disputed that the petitioners did not make a judicial or
Memorandum Agreement was a contract to sell. There is notarial demand for rescission.1avvphi1 The November 20,
nothing contained in the Memorandum Agreement from which 1989 letter of the petitioners informing the respondent of the
it can reasonably be deduced that the parties intended to automatic rescission of the agreement did not amount to a
enter into a contract to sell, i.e. one whereby the prospective demand for rescission, as it was not notarized. 26 It was also
seller would explicitly reserve the transfer of title to the made five days after the respondent's attempt to make the
prospective buyer, meaning, the prospective seller does not payment of the purchase price. This offer to pay prior to the
as yet agree or consent to transfer ownership of the property demand for rescission is sufficient to defeat the petitioners'
subject of the contract to sell until the full payment of the right under article 1592 of the Civil Code. 27 Besides, the
price, such payment being a positive suspensive condition, Memorandum Agreement between the parties did not contain
the failure of which is not considered a breach, casual or a clause expressly authorizing the automatic cancellation of
serious, but simply an event which prevented the obligation the contract without court intervention in the event that the
from acquiring any obligatory force. 19 There is clearly no terms thereof were violated. A seller cannot unilaterally and
express reservation of title made by the petitioners over the extrajudicially rescind a contract or sale where there is no
property, or any provision which would impose non-payment express stipulation authorizing him to extrajudicially
of the price as a condition for the contract's entering into rescind. 28 Neither was there a judicial demand for the
force. Although the memorandum agreement was also rescission thereof. Thus, when the respondent filed his
denominated as a "Contract to Sell", we hold that the parties complaint for specific performance, the agreement was still in
contemplated a contract of sale. A deed of sale is absolute in force inasmuch as the contract was not yet rescinded. At any
nature although denominated a conditional sale in the rate, considering that the six-month period was merely an
absence of a stipulation reserving title in the petitioners until approximation of the time if would take to reconstitute the lost
full payment of the purchase price. 20 In such cases, title and was not a condition imposed on the perfection of the
ownership of the thing sold passes to the vendee upon actual contract and considering further that the delay in payment
or constructive delivery thereof. 21 The mere fact that the was only thirty days which was caused by the respondents
obligation of the respondent to pay the balance of the justified but mistaken belief that an extension to pay was
purchase price was made subject to the condition that the granted to him, we agree with the Court of Appeals that the
petitioners first deliver the reconstituted title of the house and delay of one month in payment was a mere casual breach
lot does not make the contract a contract to sell for such that would not entitle the respondents to rescind the contract.
condition is not inconsistent with a contract of sale. 22 Rescission of a contract will not be permitted for a slight or
casual breach, but only such substantial and fundamental
The next issue to be addressed is whether the failure of the breach as would defeat the very object of the parties in
respondent to pay the balance of the purchase price within making the agreemant. 29
the period allowed is fatal to his right to enforce the
agreement. Petitioners' insistence that the respondent should have
consignated the amount is not determinative of whether
We rule in the negative. respondent's action for specific performance will lie.
Petitioners themselves point out that the effect of
Admittedly, the failure of the respondent to pay the balance of cansignation is to extinguish the obligation. It releases the
the purchase price was a breach of the contract and was a debtor from responsibility therefor. 30 The failure of the
ground for rescission thereof. The extension of thirty (30) respondent to consignate the P600,000.00 is not tantamount
days allegedly granted to the respondent by Roberto Z. to a breach of the contract for by the fact of tendering
Laforteza (assisted by his counsel Attorney Romeo Gutierrez) payment, he was willing and able to comply with his
was correctly found by the Court of Appeals to be ineffective obligation.
inasmuch as the signature of Gonzalo Z. Laforteza did not
appear thereon as required by the Special Powers of The Court of Appeals correctly found the petitioners guilty
Attorney. 23 However, the evidence reveals that after the of bad faith and awarded moral damages to the
expiration of the six-month period provided for in the contract, respondent. As found by the said Court, the petitioners
the petitioners were not ready to comply with what was refused to comply with, their obligation for the reason that
incumbent upon them, i.e. the delivery of the reconstituted they were offered a higher price therefor and the
title of the house and lot. It was only on September 18, 1989 respondent was even offered P100,000.00 by the
or nearly eight months after the execution of the petitioners' lawyer, Attorney Gutierrez, to relinquish his
Memorandum of Agreement when the petitioners informed rights over the property. The award of moral damages is in
the respondent that they already had a copy of the accordance with Article 1191 31 of the Civil Code pursuant
reconstituted title and demanded the payment of the balance to Article 2220 which provides that moral damages may be
of the purchase price. The respondent could not therefore be awarded in case of breach of contract where the
considered in delay for in reciprocal obligations, neither party defendant acted in bad faith. The amount awarded
incurs in delay if the other party does not comply or is not depends on the discretion of the court based on the
 circumstances of each
case. 32 Under the circumstances, the award given by the
Court of Appeals amounting to P50,000.00 appears to us
to be fair and reasonable.

ACCORDINGLY, the decision of the Court of Appeals in CA

G.R. CV No. 47457 is AFFIRMED and the instant petition is
hereby DENIED.

No pronouncement as to costs.

SO ORDERED.

Melo, Panganiban and Purisima, JJ., concur.

Vitug, J., abroad on official business.