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G.R. No. 169761 : December 1, 2010 ARRA REALTY CORPORATION, CARLOS D. ARGUELLES and REMEDIOS DE LA RAMAARGUELLES, Petitioners, v.

PACES INDUSTRIAL CORPORATION, Responden. DECISION PERALTA, J.: This resolves the Petition for Review on Certiorari under Rule 45 of the Rules of Court, praying that the Decision1 of the Court of Appeals (CA), dated April 11, 2005, and the Resolution2 dated September 13, 2005, denying herein petitioner's motion for reconsideration, be reversed and set aside. The records reveal the following antecedent facts. Petitioner ARRA Realty Corporation (hereinafter ARRA) and respondent Paces Industrial Corporation (hereinafter Paces) entered into an agreement which was summarized in ARRA's letter addressed to Paces dated November 18, 1982, to wit:chanroblesvirtuallawlibrary I would like to review the arrangement arrived at our meeting yesterday afternoon. You shall share two (2) floors of the proposed 5-storey office building to be constructed on a 992 sq. m. Lot owned by ARRA Realty Corporation located at Alvarado St., Legaspi Village, Makati, Metro Manila. The consideration for which you shall own two (2) floors is SIX MILLION TWO HUNDRED ELEVEN THOUSAND SIX HUNDRED SEVENTY-SIX PESOS (P6,211,676.00) on a deferred payment plan. The initial payment of ONE MILLION EIGHT HUNDRED THREE THOUSAND FOUR HUNDRED SEVENTYSIX PESOS (P1,803,476.00) shall be paid within sixty (60) days from November 20, 1982 and the balance payable in 20 equal quarterly payments of TWO HUNDRED TWENTY THOUSAND FOUR HUNDRED TEN PESOS (P220,410.00). Every payment that you make, ARRA shall credit your account by way of partial payment to your stock subscriptions of ARRA's capital stock. As soon as our contractor, Pyramid Construction & Engineering Corporation, completes the commitment with us, which is not more than five (5) months, you shall immediately take possession of the floors of your choice. Further, as soon as practicable, the title corresponding to the two (2) floors that you own shall be transferred to your name. However, should you pay in full at the end of the fourth quarter or at any time prior to the 5 year arrangement, the price shall be adjusted accordingly. x x x x3cra Paces' authorized representatives affixed their signatures to the foregoing letter to signify its agreement thereto. Paces was only able to pay ARRA P2,774,992.02 out of the total contract price of P6,211,676.00 but, nevertheless, it was able to take possession of the 3rd and 4th floors of the building, bare as a shell. Paces had to spend the amount of P1,312,935.00 for improvements on said floors, including four air-conditioning units, to make it suitable for use as office spaces.

On the other hand, to complete the construction of the building, ARRA had to obtain a loan from China Banking Corporation (CHINABANK), mortgaging the property subject of this case as security for said loan. Subsequently, the property was foreclosed, with CHINABANK as buyer in the amount ofP13,900,000.00. Within the period of redemption, ARRA was able to sell the property to Guarantee Development Corporation and Insurance Agency (GUARANTEE) for P22,000,000.00, with the condition that ARRA shall deliver the property to GUARANTEE not later than May 15, 1987, totally free of occupants. GUARANTEE only paid ARRA the partial amount of P21,000,000.00, because the latter failed to deliver the property totally vacated. From the proceeds of the sale to GUARANTEE, ARRA was then able to redeem the property from CHINABANK. On May 15, 1987, title to the lot was transferred in the name of GUARANTEE. Thereafter, due to the harassment it allegedly suffered at the hands of GUARANTEE, Paces filed a complaint against GUARANTEE and herein petitioners for "Annulment of Sale, Title and Recovery of Real Property and Damages." However, Paces and GUARANTEE subsequently entered into a Compromise Agreement, which was embodied in the Partial Decision of the Regional Trial Court of Makati (RTC). Pursuant to said Partial Decision, Paces turned over possession of the 3rd and 4th floors to GUARANTEE, for which the latter paid Paces the amount of P2,000,000.00. Paces then filed an Amended Complaint, dropping GUARANTEE as defendant and Emiliano Samson as plaintiff in the case. Paces prayed that petitioners be ordered to pay P5,500,000.00 as actual or compensatory damages, P500,000.00 as attorney's fees, and P500,000.00 as exemplary damages. After trial, the RTC ruled that for Paces' failure to pay the full amount of P6,211,676.00, it did not acquire ownership of the 3rd and 4th floors. Hence, the RTC ordered petitioners to reimburse or pay Paces P2,774,992.02, the amount the latter had already paid ARRA, with legal interest from the time of the filing of the complaint. Both parties appealed to the CA, and on April 11, 2005, the CA rendered its Decision, ruling that Paces obtained ownership of the 3rd and 4th floors, and disposed as follows:chanroblesvirtuallawlibrary WHEREFORE, the appealed decision is hereby AFFIRMED with the MODIFICATION that the defendants-appellants are ordered to pay, jointly and severally, the herein plaintiff-appellant the amount P4,723,316.00, together with the legal interest thereof, from the time of the filing of the complaint. SO ORDERED.4cra Subsequently, Paces filed a Motion for Entry of Judgment5 dated May 19, 2005, where it was pointed out that a copy of the CA Decision was actually delivered to counsel's address of record, but it was returned to sender with the notation "Moved, left no address." Hence, it prayed that entry of judgment be made as the period for filing a motion for reconsideration had lapsed. Petitioners opposed said motion for entry of judgment and filed a motion with leave of court to admit its motion for reconsideration, attaching a certification6 from the Office of the Postmaster stating that as far back as July 18, 2000, petitioners' counsel, Atty. Igmidio C. Lat, had filed with said office a new forwarding address. Paces opposed the motion for reconsideration, reiterating that the CA Decision had attained finality, attaching a letter7 from the Postmaster, Philpost Tanauan, dated May 25, 2005, stating that Registered Mail No. 4310 (addressed to petitioners' counsel, containing the CA

Decision) was delivered to Atty. Lat's address on April 15, 2005, but the addressee has moved out without leaving a forwarding address. The CA then issued a Resolution dated July 22, 2005, admitting petitioners' motion for reconsideration in the interest of justice. Nevertheless, petitioners' motion for reconsideration of the CA Decision was denied, per Resolution dated September 13, 2005. Hence, this petition where the following issues are raised, to wit:chanroblesvirtuallawlibrary (1) WHETHER OR NOT PETITIONERS' APPEAL BY CERTIORARI IS PROPER; (2) WHETHER OR NOT PETITIONERS' APPEAL IN THE COURT OF APPEALS SUBSTANTIALLY CONTAINED AN ASSIGNMENT OF ERRORS; (3) WHETHER OR NOT THE DECISION OF THE COURT OF APPEALS HAS NOT BECOME FINAL AND UNAPPEALABLE; (4) WHETHER OR NOT THE COURT OF APPEALS ERRED IN HOLDING THAT THE AGREEMENT ENTERED INTO BETWEEN THE PARTIES IS ONE OF SALE; (5) WHETHER OR NOT THE COURT OF APPEALS ERRED IN HOLDING THAT PETITIONERS ARE LIABLE TO PAY RESPONDENT BASED ON THE FAIR MARKET VALUE OF THE 3rd AND 4th FLOORS OF THE BUILDING; (6) WHETHER OR NOT THE COURT OF APPEALS ERRED IN NOT RULING THAT RESPONDENT IS BARRED FROM CLAIMING DAMAGES FROM PETITIONERS; (7) WHETHER OR NOT THE COURT OF APPEALS ERRED IN NOT ORDERING RESPONDENT TO PAY RENTALS IN ARREARS, PLUS INTEREST, ON THE LATTER'S OCCUPANCY OF THE 3rd AND 4th FLOORS OF THE BUILDING; (8) WHETHER OR NOT THE COURT OF APPEALS ERRED IN NOT ANNULLING THE CONDITIONAL DEED OF SALE AND THE DEED OF ABSOLUTE SALE ENTERED INTO BETWEEN PETITIONERS AND GUARANTEE; and (9) WHETHER OR NOT THE COURT OF APPEALS ERRED IN NOT AWARDING MORAL AND EXEMPLARY DAMAGES AND ATTORNEY'S FEES TO PETITIONERS FOR RESPONDENT'S FILING OF THE WRIT OF ATTACHMENT AND/OR GARNISHMENT. 8cra The petition is doomed to fail. The foremost question that should be determined is whether the CA Decision has indeed attained finality. The importance of the doctrine of finality of judgment cannot be gainsaid. In Pasiona, Jr. v. Court of Appeals,9 the Court emphasized the oft-repeated ruling, thus:chanroblesvirtuallawlibrary x x x With the full knowledge that courts are not infallible, the litigants submit their respective claims for judgment, and they have a right at some time or other to have final judgment on which they can rely as a final disposition of the issue submitted, and to know that there is an end to the litigation. (Emphasis supplied.)

xxxx This doctrine of finality of judgment is grounded on fundamental considerations of public policy and sound practice. In fact, nothing is more settled in law than that once a judgment attains finality it thereby becomes immutable and unalterable. It may no longer be modified in any respect, even if the modification is meant to correct what is perceived to be an erroneous conclusion of fact or law, and regardless of whether the modification is attempted to be made by the court rendering it or by the highest court of the land. (Emphasis supplied.) xxxx The finality of decision is a jurisdictional event which cannot be made to depend on the convenience of the party. To rule otherwise would completely negate the purpose of the rule on completeness of service, which is to place the date of receipt of pleadings, judgment and processes beyond the power of the party being served to determine at his pleasure. (Emphasis and underscoring supplied) It should be borne in mind that the right of the winning party to enjoy the finality of the resolution of the case is also an essential part of public policy and the orderly administration of justice. Hence, such right is just as weighty or equally important as the right of the losing party to appeal or seek reconsideration within the prescribed period.10(Emphasis supplied.) In this case, petitioners' former counsel, Atty. Lat, never denied that he has not filed a notice of change of address with the CA. He indicated his address in all his pleadings filed with the CA as "N.C. Lat Bldg., Tanauan, Batangas." It was only in his motion for reconsideration of the CA Decision where Atty. Lat stated that he has in fact changed address and had previously notified the Office of the Postmaster of his new address, as shown by a certification from the Office of the Postmaster, Central Post Office, Manila, stating that as far back as July 18, 2000, petitioners' counsel, Atty. Igmidio C. Lat, had filed with said office a new forwarding address. Considering that no notice of change of address was filed with the CA, Atty. Lat's address of record remained as "N.C. Lat Bldg., Tanauan, Batangas," and petitioners' copy of the CA Decision was, of course, sent to said address. Atty. Lat allegedly never received a copy of the decision and it was only on June 23, 2005, when he personally followed-up the status of the case at the CA, that he was able to obtain a copy of the same. The question then is, should petitioners be deemed to have received the CA Decision only on June 23, 2005 and begin counting the 15-day period for filing a motion for reconsideration only from said date? The Court holds in the negative. In Philippine Airlines, Inc. v. Heirs of Bernardin J. Zamora,11 the petitioner therein also moved to another address but failed to file a notice of change of address with the NLRC. Hence, when a copy of the NLRC decision was sent to said petitioner's address of record via registered mail, the same was returned to sender. In said case, the Court ruled, thus:chanroblesvirtuallawlibrary The rule on service by registered mail contemplates two situations: (1) actual service, the completeness of which is determined upon receipt by the addressee of the registered mail; and (2) constructive service, the completeness of which is determined upon expiration of five days from the date the addressee received the first notice of the postmaster. A party who relies on constructive

service or who contends that his adversary has received a copy of a final order or judgment upon the expiration of five days from the date the addressee received the first notice sent by the postmaster must prove that the first notice was actually received by the addressee. Such proof requires a certified or sworn copy of the notice given by the postmaster to the addressee. In the instant case, there is no postmaster's certification to the effect that the registered mail containing the NLRC decision was unclaimed by the addressee and thus returned to sender, after first notice was sent to and received by the addressee on a specified date. All that appears from the records are the envelopes containing the NLRC decision with the stamped markings and notation on the face and dorsal sides thereof showing "RTS" (meaning, "Return To Sender") and "MOVED." Still, we must rule that service upon PAL and the other petitioners was complete. First, the NLRC Deputy Executive Clerk issued a Certification that the envelopes containing the NLRC decision addressed to Mr. Jose Pepiton Garcia and Atty. Bienvenido T. Jamoralin, Jr. were returned to the NLRC with the notation "RTS" and "MOVED." Yet,they and the other petitioners, including PAL, have not filed any notice of change of address at any time prior to the issuance of the NLRC decision up to the date when the Certification was issued on January 24, 2000. Second, the non-receipt by PAL and the other petitioners of the copies of the NLRC decision was due to their own failure to immediately file a notice of change of address with the NLRC, which they expressly admitted. It is settled that where a party appears by attorney in an action or proceeding in a court of record, all notices or orders required to be given therein must be given to the attorney of record. Accordingly, notices to counsel should be properly sent to his address of record, and, unless the counsel files a notice of change of address, his official address remains to be that of his address of record. x x x To our mind, it would have been more prudent had PAL informed the NLRC that it has moved from one floor to another rather than allowed its old address at Allied Bank Center to remain as its official address. To rule in favor of PAL considering the circumstances in the instant case would negate the purpose of the rules on completeness of service and the notice of change of address, which is to place the date of receipt of pleadings, judgments and processes beyond the power of the party being served to determine at his pleasure. Resultantly, service of the NLRC decision via registered mail was deemed completed as of August 16, 1999, or five days after the first notice on August 11, 1999. As such, PAL only had 10 days from August 16, 1999 to file its motion for reconsideration. Its motion filed on October 29, 1999 was, therefore, late. Hence the NLRC decision became final and executory.12cra The factual circumstances in the foregoing case are closely analogous to what transpired in the present case. No notice of change of address was ever filed by petitioners' counsel. The CA sent the notice of the decision to petitioners' counsel's address of record via registered mail. Respondent submitted a letter13 from the Postmaster, Philpost Tanauan, dated May 25, 2005, stating that Registered Mail No. 4310 (addressed to petitioners' counsel, containing the CA Decision) was delivered to Atty. Lat's address on April 15, 2005, but the addressee has moved out without leaving a forwarding address. The records show that the envelope containing the CA Decision was returned to the CA with the notation, "Return to Sender, Moved left no address."14cra

Thus, for failing to seasonably file a notice of change of address with the CA, petitioners' counsel's official address remained as "N.C. Lat Bldg., Tanauan, Batangas," and service of the CA Decision at said official address should be deemed sufficient notice of the decision to petitioners' counsel. Petitioners have no one to blame but themselves for not actually getting a copy of the CA Decision. Hence, as ruled in the Philippine Airlines15 case, such constructive service to herein petitioners should be considered completed five days after the first notice, in this case, five days after April 15, 2005, or April 20, 2005. Petitioners then only had until May 5, 2005, within which to file a motion for reconsideration, but no such motion was filed within the requisite period. The filing of a notice of forwarding address with the Office of the Postmaster can never be a substitute to filing a notice of change of address with the court. Petitioners have not presented any acceptable excuse for their failure to file such notice of change of address. They alone should bear the burden of their carelessness. It is not right to make respondent suffer the consequences of petitioners' fault. Since petitioners failed to file a timely motion for reconsideration, the CA Decision had become final and executory and, thus, immutable. IN VIEW OF THE FOREGOING, the Petition is DENIED. The Decision of the Court of Appeals dated April 11, 2005, and the Resolution dated September 13, 2005, are AFFIRMED. SO ORDERED.

[G.R. No. 129107. September 26, 2001]

ALFONSO L. IRINGAN, petitioner, vs. HON. COURT OF APPEALS and ANTONIO PALAO, represented by his Attorney-in-Fact, FELISA P. DELOS SANTOS,respondents. DECISION QUISUMBING, J.: This petition assails the Decision[1] dated April 30, 1997 of the Court of Appeals in CA G.R. CV No. 39949, affirming the decision of the Regional Trial Court and deleting the award of attorne ys fee. The facts of the case are based on the records. On March 22, 1985, private respondent Antonio Palao sold to petitioner Alfonso Iringan, an undivided portion of Lot No. 992 of the Tuguegarao Cadastre, located at the Poblacion of Tuguegarao and covered by Transfer Certificate of Title No. T-5790. The parties executed a Deed of Sale[2] on the same date with the purchase price of P295,000.00, payable as follows: (a) P10,000.00 upon the execution of this instrument, and for this purpose, the vendor acknowledges having received the said amount from the vendee as of this date; (b) P140,000.00 on or before April 30, 1985; (c) P145,000.00 on or before December 31, 1985.[3] When the second payment was due, Iringan paid only P40,000. Thus, on July 18, 1985, Palao sent a letter[4] to Iringan stating that he considered the contract as rescinded and that he would not accept any further payment considering that Iringan failed to comply with his obligation to pay the full amount of the second installment. On August 20, 1985, Iringan through his counsel Atty. Hilarion L. Aquino,[5] replied that they were not opposing the revocation of the Deed of Sale but asked for the reimbursement of the following amounts: (a) P50,000.00 cash received by you; (b) P3,200.00 geodetic engineers fee; (c) P500.00 attorneys fee; (d) the current interest on P53,700.00.[6] In response, Palao sent a letter dated January 10, 1986,[7] to Atty. Aquino, stating that he was not amenable to the reimbursements claimed by Iringan. On February 21, 1989, Iringan, now represented by a new counsel Atty. Carmelo Z. Lasam, proposed that the P50,000 which he had already paid Palao be reimbursed[8] or Palao could sell to Iringan, an equivalent portion of the land.

Palao instead wrote Iringan that the latters standing obligation had reached P61,600, representing payment of arrears for rentals from October 1985 up to March 1989.[9] The parties failed to arrive at an agreement. On July 1, 1991, Palao filed a Complaint[10] for Judicial Confirmation of Rescission of Contract and Damages against Iringan and his wife. In their Answer,[11] the spouses alleged that the contract of sale was a consummated contract, hence, the remedy of Palao was for collection of the balance of the purchase price and not rescission. Besides, they said that they had always been ready and willing to comply with their obligations in accordance with said contract. In a Decision[12] dated September 25, 1992, the Regional Trial Court of Cagayan, Branch I, ruled in favor of Palao and affirmed the rescission of the contract. It disposed, WHEREFORE, the Court finds that the evidence preponderates in favor of the plaintiff and against the defendants and judgment is hereby rendered as follows: (a) Affirming the rescission of the contract of sale; (b) Cancelling the adverse claim of the defendants annotated at the back of TCT No. T-5790; (c) Ordering the defendants to vacate the premises; (d) Ordering the defendants to pay jointly and severally the sum of P100,000.00 as reasonable compensation for use of the property minus 50% of the amount paid by them; and to pay P50,000.00 as moral damages;P10,000.00 as exemplary damages; and P50,000.00 as attorneys fee; and to pay the costs of suit. SO ORDERED.[13] As stated, the Court of Appeals affirmed the above decision. Hence, this petition for review. Iringan avers in this petition that the Court of Appeals erred: 1. In holding that the lower court did not err in affirming the rescission of the contract of sale; and 2. In holding that defendant was in bad faith for resisting rescission and was made liable to pay moral and exemplary damages.[14] We find two issues for resolution: (1) whether or not the contract of sale was validly rescinded, and (2) whether or not the award of moral and exemplary damages is proper. On the first issue, petitioner contends that no rescission was effected simply by virtue of the letter[15] sent by respondent stating that he considered the contract of sale rescinded. Petitioner asserts that a judicial or notarial act is necessary before one party can unilaterally effect a rescission. Respondent Palao, on the other hand, contends that the right to rescind is vested by law on the obligee and since petitioner did not oppose the intent to rescind the contract, Iringan in effect agreed to it and had the legal effect of a mutually agreed rescission.

Article 1592 of the Civil Code is the applicable provision regarding the sale of an immovable property. Article 1592. In the sale of immovable property, even though it may have been stipulated that upon failure to pay the price at the time agreed upon the rescission of the contract shall of right take place, the vendee may pay, even after the expiration of the period, as long as no demand for rescission of the contract has been made upon him either judicially or by a notarial act. After the demand, the court may not grant him a new term. (Italics supplied) Article 1592 requires the rescinding party to serve judicial or notarial notice of his intent to resolve the contract.[16] In the case of Villaruel v. Tan King,[17] we ruled in this wise, since the subject-matter of the sale in question is real property, it does not come strictly within the provisions of article 1124 (now Article 1191) of the Civil Code, but is rather subjected to the stipulations agreed upon by the contracting parties and to the provisions of article 1504 (now Article 1592) of the Civil Code.[18] Citing Manresa, the Court said that the requirement of then Article 1504, refers to a demand that the vendor makes upon the vendee for the latter to agree to the resolution of the obligation and to create no obstacles to this contractual mode of extinguishing obligations.[19] Clearly, a judicial or notarial act is necessary before a valid rescission can take place, whether or not automatic rescission has been stipulated. It is to be noted that the law uses the phrase even though[20] emphasizing that when no stipulation is found on automatic rescission, the judicial or notarial requirement still applies. On the first issue, both the trial and appellate courts affirmed the validity of the alleged mutual agreement to rescind based on Article 1191 of the Civil Code, particularly paragraphs 1 and 2 thereof. Article 1191. The power to rescind obligations is implied in reciprocal ones, in case one of the obligors should not comply with what is incumbent upon him. The injured party may choose between the fulfillment and the rescission of the obligation, with payment of damages in either case. He may also seek rescission, even after he has chosen fulfillment, if the latter should become impossible. [Emphasis ours.] The court shall decree the rescission claimed, unless there be just cause authorizing the fixing of a period. This is understood to be without prejudice to the rights of third persons who have acquired the thing, in accordance with articles 1385 and 1388 and the Mortgage Law. But in our view, even if Article 1191 were applicable, petitioner would still not be entitled to automatic rescission. In Escueta v. Pando,[21] we ruled that under Article 1124 (now Article 1191) of the Civil Code, the right to resolve reciprocal obligations, is deemed implied in case one of the obligors shall fail to comply with what is incumbent upon him. But that right must be invoked judicially. The same article also provides: The Court shall decree the resolution demanded, unless

there should be grounds which justify the allowance of a term for the performance of the obligation. This requirement has been retained in the third paragraph of Article 1191, which states that the court shall decree the rescission claimed, unless there be just cause authorizing the fixing of a period. Consequently, even if the right to rescind is made available to the injured party,[22] the obligation is not ipso facto erased by the failure of the other party to comply with what is incumbent upon him. The party entitled to rescind should apply to the court for a decree of rescission.[23] The right cannot be exercised solely on a partys own judgment that the other committed a breach of the obligation.[24] The operative act which produces the resolution of the contract is the decree of the court and not the mere act of the vendor.[25] Since a judicial or notarial act is required by law for a valid rescission to take place, the letter written by respondent declaring his intention to rescind did not operate to validly rescind the contract. Notwithstanding the above, however, in our view when private respondent filed an action for Judicial Confirmation of Rescission and Damages[26] before the RTC, he complied with the requirement of the law for judicial decree of rescission. The complaint[27] categorically stated that the purpose was 1) to compel appellants to formalize in a public document, their mutual agreement of revocation and rescission; and/or 2) to have a judicial confirmation of the said revocation/rescission under terms and conditions fair, proper and just for both parties.[28] In Luzon Brokerage Co., Inc. v. Maritime Building Co., Inc.,[29] we held that even a crossclaim found in the Answer could constitute a judicial demand for rescission that satisfies the requirement of the law.[30] Petitioner contends that even if the filing of the case were considered the judicial act required, the action should be deemed prescribed based on the provisions of Article 1389 of the Civil Code.[31] This provision of law applies to rescissible contracts,[32] as enumerated and defined in Articles 1380[33] and 1381.[34] We must stress however, that the rescission in Article 1381 is not akin to the term rescission in Article 1191 and Article 1592.[35] In Articles 1191 and 1592, the rescission is a principal action which seeks the resolution or cancellation of the contract while in Article 1381, the action is a subsidiary one limited to cases of rescission for lesion as enumerated in said article.[36] The prescriptive period applicable to rescission under Articles 1191 and 1592, is found in Article 1144,[37] which provides that the action upon a written contract should be brought within ten years from the time the right of action accrues. The suit was brought on July 1, 1991, or six years after the default. It was filed within the period for rescission. Thus, the contract of sale between the parties as far as the prescriptive period applies, can still be validly rescinded. On the issue of moral and exemplary damages, petitioner claims that the Court of Appeals erred in finding bad faith on his part when he resisted the rescission[38] and claimed he was ready to pay but never actually paid respondent, notwithstanding that he knew that appellees principal motivation for selling the lot was to raise money to pay his SSS loan.[39] Petitioner would have us reverse the said CA findings based on the exception[40]that these findings were made on a misapprehension of facts. The records do not support petitioners claims. First, per the records, petitioner knew respondents reason for selling his property. As testified to by petitioner[41] and in the deposition[42] of respondent, such fact was made known to petitioner during their negotiations as well as in the letters sent to petitioner by Palao.[43] Second, petitioner adamantly refused to formally

execute an instrument showing their mutual agreement to rescind the contract of sale, notwithstanding that it was petitioner who plainly breached the terms of their contract when he did not pay the stipulated price on time, leaving private respondent desperate to find other sources of funds to pay off his loan. Lastly, petitioner did not substantiate by clear and convincing proof, his allegation that he was ready and willing to pay respondent. We are more inclined to believe his claim of readiness to pay was an afterthought intended to evade the consequence of his breach. There is no record to show the existence of such amount, which could have been reflected, at the very least, in a bank account in his name, if indeed one existed; or, alternatively, the proper deposit made in court which could serve as a formal tender of payment.[44] Thus, we find the award of moral and exemplary damages proper. WHEREFORE, the petition is DENIED. The assailed decision dated April 30, 1997 of the Court of Appeals in CA G.R. CV No. 39949, affirming the Regional Trial Court decision and deleting the award of attorneys fees, is hereby AFFIRMED. Costs against the petitioner. SO ORDERED.

G.R. No. 137552

June 16, 2000

ROBERTO Z. LAFORTEZA, GONZALO Z. LAFORTEZA, MICHAEL Z. LAFORTEZA, DENNIS Z. LAFORTEZA, and LEA Z. LAFORTEZA, petitioners, vs. ALONZO MACHUCA, respondent. GONZAGA-REYES, J.: This Petition for Review on Certiorari seeks the reversal of the Decision of the Court of Appeals 1 in CA G.R. CV No. 147457 entitled "ALONZO MACHUCA versus ROBERTO Z. LAFORTEZA, GONZALO Z. LAFORTEZA, LEA ZULUETA-LAFORTEZA, MICHAEL Z. LAFORTEZA, and DENNIS Z. LAFORTEZA". The following facts as found by the Court of Appeals are undisputed: The property involved consists of a house and lot located at No. 7757 Sherwood Street, Marcelo Green Village, Paraaque, Metro Manila, covered by Transfer Certificate of Title (TCT) No. (220656) 8941 of the Registered of Deeds of Paraaque (Exhibit "D", Plaintiff, record, pp. 331-332). The subject property is registered in the name of the late Francisco Q. Laforteza, although it is conjugal in nature (Exhibit "8", Defendants, record pp. 331-386). On August 2, 1988, defendant Lea Zulueta-Laforteza executed a Special Power of Attorney in favor of defendants Roberto Z. Laforteza and Gonzalo Z. Laforteza, Jr., appointing both as her Attorney-in-fact authorizing them jointly to sell the subject property and sign any document for the settlement of the estate of the late Francisco Q. Laforteza (Exh. "A", Plaintiff, record, pp. 323-325). Likewise on the same day, defendant Michael Z. Laforteza executed a Special Power of Attorney in favor of defendants Roberto Z. Laforteza and Gonzalo Laforteza, Jr., likewise, granting the same authority (Exh. "B", record, 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 must be affixed. On October 27, 1988, defendant Dennis Z. Laforteza executed a Special Power of Attorney in favor of defendant Roberto Z. Laforteza for the purpose of selling the subject property (Exh. "C", Plaintiff, record, pp. 329-330). A year later, on October 30, 1989, Dennis Z. Laforteza executed another Special Power of Attorney in favor of defendants Roberto Z. Laforteza and Gonzalo Laforteza, Jr. naming both attorneys-in-fact for the purpose of selling the subject property and signing any document for the settlement of the estate of the late Francisco Q. Laforteza. The subsequent agency instrument (Exh, "2", record, pp. 371-373) contained similar provisions that both attorneys-in-fact should sign any document or paper executed in the exercise of their authority.1wphi1.nt In the exercise of the above authority, on January 20, 1989, the heirs of the late Francisco Q. Laforteza represented by Roberto Z. Laforteza and Gonzalo Z. Laforteza, Jr. entered into a Memorandum of Agreement (Contract to Sell) with the plaintiff 2 over the subject property for the sum of SIX HUNDRED THIRTY THOUSAND PESOS (P630,000.00) payable as follows:

(a) P30,000.00 as earnest money, to be forfeited in favor of the defendants if the sale is not effected due to the fault of the plaintiff; (b) P600,000.00 upon issuance of the new certificate of title in the name of the late Francisco Q. Laforteza and upon execution of an extra-judicial settlement of the decedent's estate with sale in favor of the plaintiff (Par. 2, Exh. "E", record, pp. 335336). Significantly, the fourth paragraph of the Memorandum of Agreement (Contract to Sell) dated January 20, 1989 (Exh. "E", supra.) contained a provision as follows: . . . . Upon issuance by the proper Court of the new title, the BUYER-LESSEE shall be notified in writing and said BUYER-LESSEE shall have thirty (30) days to produce the balance of P600,000.00 which shall be paid to the SELLER-LESSORS upon the execution of the Extrajudicial Settlement with sale. 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). On September 18, 1998 3, defendant heirs, through their counsel wrote a letter (Exh. 1, Defendants, record, p. 370) to the plaintiff furnishing the latter a copy of the reconstituted title to the subject property, advising him that he had thirty (3) days to produce the balance of SIX HUNDRED PESOS (sic) (P600,000.00) under the Memorandum of Agreement which plaintiff received on the same date. On October 18, 1989, plaintiff sent the defendant heirs a letter requesting for an extension of the THIRTY (30) DAYS deadline up to November 15, 1989 within which to produce the balance of SIX HUNDRED THOUSAND PESOS (P600,000.00) (Exh. "G", Plaintiff, record, pp. 341-342). 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, record, p. 342). The extension, however, does not appear to have been approved by Gonzalo Z. Laforteza, the second attorney-in-fact as his conformity does not appear to have been secured. On November 15, 1989, plaintiff informed the defendant heirs, through defendant Roberto Z. Laforteza, that he already had the balance of SIX HUNDRED THOUSAND PESOS (P600,000.00) covered by United Coconut Planters Bank Manager's Check No. 000814 dated November 15, 1989 (TSN, August 25, 1992, p. 11; Exhs. "H", record, pp. 343-344; "M", records p. 350; and "N", record, p. 351). However, the defendants, refused to accept the balance (TSN, August 24, 1992, p. 14; Exhs. "M-1", Plaintiff, record, p. 350; and "N-1", Plaintiff, record, p. 351). Defendant Roberto Z. Laforteza had told him that the subject property was no longer for sale (TSN, October 20, 1992, p. 19; Exh. "J", record, p. 347). On November 20, 1998 4, defendants informed plaintiff that they were canceling the Memorandum of Agreement (Contract to Sell) in view of the plaintiff's failure to comply with his contractual obligations (Exh. "3"). Thereafter, plaintiff reiterated his request to tender payment of the balance of SIX HUNDRED THOUSAND PESOS (P600,000.00). Defendants, however, insisted on the

rescission of the Memorandum of Agreement. Thereafter, plaintiff filed the instant action for specific performance. The lower court rendered judgment on July 6, 1994 in favor of the plaintiff, the dispositive portion of which reads: WHEREFORE, judgment is hereby rendered in favor of plaintiff Alonzo Machuca and against the defendant heirs of the late Francisco Q. Laforteza, ordering the said defendants. (a) To accept the balance of P600,000.00 as full payment of the consideration for the purchase of the house and lot located at No. 7757 Sherwood Street, Marcelo Green Village, Paraaque, Metro Manila, covered by Transfer Certificate of Title No. (220656) 8941 of the Registry of Deeds of Rizal Paraaque, Branch; (b) To execute a registrable deed of absolute sale over the subject property in favor of the plaintiff; (c) Jointly and severally to pay the plaintiff the sum of P20,000.00 as attorney's fees plus cost of suit. SO ORDERED. (Rollo, pp. 74-75). 5 Petitioners appealed to the Court of Appeals, which affirmed with modification the decision of the lower court; the dispositive portion of the Decision reads: WHEREFORE, the questioned decision of the lower court is hereby AFFIRMED with the MODIFICATION that defendant heirs Lea Zulueta-Laforteza, Michael Z. Laforteza, Dennis Z. Laforteza and Roberto Z. Laforteza including Gonzalo Z. Laforteza, Jr. are hereby ordered to pay jointly and severally the sum of FIFTY THOUSAND PESOS (P50,000.00) as moral damages. SO ORDERED. 6 Motion for Reconsideration was denied but the Decision was modified so as to absolve Gonzalo Z. Laforteza, Jr. from liability for the payment of moral damages. 7 Hence this petition wherein the petitioners raise the following issues: I. WHETHER THE TRIAL AND APPELLATE COURTS CORRECTLY CONSTRUED THE MEMORANDUM OF AGREEMENT AS IMPOSING RECIPROCAL OBLIGATIONS. II. WHETHER THE COURTS A QUO CORRECTLY RULED THAT RESCISSION WILL NOT LIE IN THE INSTANT CASE. III. WHETHER THE RESPONDENT IS UNDER ESTOPPEL FROM RAISING THE ALLEGED DEFECT IN THE SPECIAL POWER OF ATTORNEY DATED 30 OCTOBER 1989 EXECUTED BY DENNIS LAFORTEZA. IV. SUPPOSING EX GRATIA ARGUMENTI THE MEMORANDUM OF AGREEMENT IMPOSES RECIPROCAL OBLIGATIONS, WHETHER THE PETITIONERS MAY BE

COMPELLED TO SELL THE SUBJECT PROPERTY WHEN THE RESPONDENT FAILED TO MAKE A JUDICIAL CONSIGNATION OF THE PURCHASE PRICE? V. WHETHER THE PETITIONERS ARE IN BAD FAITH SO TO AS MAKE THEM LIABLE FOR MORAL DAMAGES? 8 The petitioners contend that the Memorandum of Agreement is merely a lease agreement with "option to purchase". As it was merely an option, it only gave the respondent a right to purchase the subject property within a limited period without imposing upon them any obligation to purchase it. Since the respondent's tender of payment was made after the lapse of the option agreement, his tender did not give rise to the perfection of a contract of sale. It is further maintained by the petitioners that the Court of Appeals erred in ruling that rescission of the contract was already out of the question. Rescission implies that a contract of sale was perfected unlike the Memorandum of Agreement in question which as previously stated is allegedly only an option contract. Petitioner adds that at most, the Memorandum of Agreement (Contract to Sell) is a mere contract to sell, as indicated in its title. The obligation of the petitioners to sell the property to the respondent was conditioned upon the 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 property was not delivered to the respondent as the owner of the property but only as the lessee thereof. And the failure of the respondent to pay the purchase price in full prevented the petitioners' obligation to convey title from acquiring obligatory force. Petitioners also allege that assuming for the sake of argument that a contract of sale was indeed perfected, the Court of Appeals still erred in holding that respondent's failure to pay the purchase price of P600,000.00 was only a "slight or casual breach". The petitioners also claim that the Court of Appeals erred in ruling that they were not ready to comply with their obligation to execute the extrajudicial settlement. The Power of Attorney to execute a Deed of Sale made by Dennis Z. Laforteza was sufficient and necessarily included the power to execute an extrajudicial settlement. At any rate, the respondent is estopped from claiming that the petitioners were not ready to comply with their obligation for he acknowledged the petitioners' ability to do so when he requested for an extension of time within which to pay the purchase price. Had he truly believed that the petitioners were not ready, he would not have needed to ask for said extension. Finally, the petitioners allege that the respondent's uncorroborated testimony that third persons offered a higher price for the property is hearsay and should not be given any evidentiary weight. Thus, the order of the lower court awarding moral damages was without any legal basis. The appeal is bereft of merit. A perusal of the Memorandum Agreement shows that the transaction between the petitioners and the respondent was one of sale and lease. The terms of the agreement read:

1. For and in consideration of the sum of PESOS: SIX HUNDRED THIRTY THOUSAND (P630,000.00) payable in a manner herein below indicated, SELLER-LESSOR hereby agree to sell unto BUYER-LESSEE the property described in the first WHEREAS of this Agreement within six (6) months from the execution date hereof, or upon issuance by the Court of a new owner's certificate of title and the execution of extrajudicial partition with sale of the estate of Francisco Laforteza, whichever is earlier; 2. The above-mentioned sum of PESOS: SIX HUNDRED THIRTY THOUSAND (P630,000.00) shall be paid in the following manner: P30,000.00 as earnest money and as consideration for this Agreement, which amount shall be forfeited in favor of SELLER-LESSORS if the sale is not effected because of the fault or option of BUYER-LESSEE; P600,000.00 upon the issuance of the new certificate of title in the name of the late Francisco Laforteza and upon the execution of an Extrajudicial Settlement of his estate with sale in favor of BUYER-LESSEE free from lien or any encumbrances. 3. Parties reasonably estimate that the issuance of a new title in place of the lost one, as well as the execution of extrajudicial settlement of estate with sale to herein BUYER-LESSEE will be completed within six (6) months from the execution of this Agreement. It is therefore agreed that during the six months period, BUYER-LESSEE will be leasing the subject property for six months period at the monthly rate of PESOS: THREE THOUSAND FIVE HUNDRED (P3,500.00). Provided however, that if the issuance of new title and the execution of Extrajudicial Partition is completed prior to the expiration of the six months period, BUYER-LESSEE shall only be liable for rentals for the corresponding period commencing from his occupancy of the premises to the execution and completion of the Extrajudicial Settlement of the estate, provided further that if after the expiration of six (6) months, the lost title is not yet replaced and the extra judicial partition is not executed, BUYER-LESSEE shall no longer be required to pay rentals and shall continue to occupy, and use the premises until subject condition is complied by SELLER-LESSOR; 4. It is hereby agreed that within reasonable time from the execution of this Agreement and the payment by BUYER-LESSEE of the amount of P30,000.00 as herein above provided, SELLER-LESSORS shall immediately file the corresponding petition for the issuance of a new title in lieu of the lost one in the proper Courts. Upon issuance by the proper Courts of the new title, the BUYER-LESSEE shall have thirty (30) days to produce the balance of P600,000.00 which shall be paid to the SELLER-LESSORS upon the execution of the Extrajudicial Settlement with sale. 9 A contract of sale is a consensual contract and is perfected at the moment there is a meeting of the minds upon the thing which is the object of the contract and upon the price. 10 From that moment the parties may reciprocally demand performance subject to the provisions of the law governing the form of contracts. 11The elements of a valid contract of sale under Article 1458 of the Civil Code are (1) consent or meeting of the minds; (2) determinate subject matter and (3) price certain money or its equivalent. 12

In the case at bench, there was a perfected agreement between the petitioners and the respondent whereby the petitioners obligated themselves to transfer the ownership of and deliver the house and lot located at 7757 Sherwood St., Marcelo Green Village, Paraaque and the respondent to pay the price amounting to six hundred thousand pesos (P600,000.00). All the elements of a contract of sale were thus present. However, the balance of the purchase price was to be paid only upon the issuance of the new certificate of title in lieu of the one in the name of the late Francisco Laforteza and upon the execution of an extrajudicial settlement of his estate. Prior to the issuance of the "reconstituted" title, the respondent was already placed in possession of the house and lot as lessee thereof for six months at a monthly rate of three thousand five hundred pesos (P3,500.00). It was stipulated that should the issuance of the new title and the execution of the extrajudicial settlement be completed prior to expiration of the six-month period, the respondent would be liable only for the rentals pertaining to the period commencing from the date of the execution of the agreement up to the execution of the extrajudicial settlement. It was also expressly stipulated that if after the expiration of the six month period, the lost title was not yet replaced and the extrajudicial partition was not yet executed, the respondent would no longer be required to pay rentals and would continue to occupy and use the premises until the subject condition was complied with the petitioners. The six-month period during which the respondent would be in possession of the property as lessee, was clearly not a period within which to exercise an option. An option is a contract granting a privilege to buy or sell within an agreed time and at a determined price. An option contract is a separate and distinct contract from that which the parties may enter into upon the consummation of the option. 13 An option must be supported by consideration.14 An option contract is governed by the second paragraph of Article 1479 of the Civil Code 15, which reads: Art. 1479. . . . An accepted unilateral promise to buy or to sell a determinate thing for a price certain is binding upon the promissor if the promise is supported by a consideration distinct from the price. In the present case, the six-month period merely delayed the demandability of the contract of sale and did not determine its perfection for after the expiration of the six-month period, there was an absolute obligation on the part of the petitioners and the respondent to comply with the terms of the sale. The parties made a "reasonable estimate" that the reconstitution the lost title of the house and lot would take approximately six months and thus presumed that after six months, both parties would be able to comply with what was reciprocally incumbent upon them. The fact that after the expiration of the six-month period, the respondent would retain possession of the house and lot without need of paying rentals for the use therefor, clearly indicated that the parties contemplated that ownership over the property would already be transferred by that time. The issuance of the new certificate of title in the name of the late Francisco Laforteza and the execution of an extrajudicial settlement of his estate was not a condition which determined the perfection of the contract of sale. Petitioners' contention that since the condition was not met, they no longer had an obligation to proceed with the sale of the house and lot is unconvincing. The petitioners fail to distinguish between a condition imposed upon the perfection of the contract and

a condition imposed on the performance of an obligation. Failure to comply with the first condition results in the failure of a contract, while the failure to comply with the second condition only gives the other party the option either to refuse to proceed with the sale or to waive the condition. Thus, Art. 1545 of the Civil Code states: Art. 1545. Where the obligation of either party to a contract of sale is subject to any condition which is not performed, such party may refuse to proceed with the contract or he may waive performance of the condition. If the other party has promised that the condition should happen or be performed, such first mentioned party may also treat the nonperformance of the condition as a breach of warranty. Where the ownership in the things has not passed, the buyer may treat the fulfillment by the seller of his obligation to deliver the same as described and as warranted expressly or by implication in the contract of sale as a condition of the obligation of the buyer to perform his promise to accept and pay for the thing. 16 In the case at bar, there was already a perfected contract. The condition was imposed only on the performance of the obligations contained therein. Considering however that the title was eventually "reconstituted" and that the petitioners admit their ability to execute the extrajudicial settlement of their father's estate, the respondent had a right to demand fulfillment of the petitioners' obligation to deliver and transfer ownership of the house and lot. What further militates against petitioners' argument that they did not enter into a contract or sale is the fact that the respondent paid thirty thousand pesos (P30,000.00) as earnest money. Earnest money is something of value to show that the buyer was really in earnest, and given to the seller to bind the bargain.17 Whenever earnest money is given in a contract of sale, it is considered as part of the purchase price and proof of the perfection of the contract. 18 We do not subscribe to the petitioners' view that the Memorandum Agreement was a contract to sell. There is nothing contained in the Memorandum Agreement from which it can reasonably be deduced that the parties intended to enter into a contract to sell, i.e. one whereby the prospective seller would explicitly reserve the transfer of title to the prospective buyer, meaning, the prospective seller does not as yet agree or consent to transfer ownership of the property subject of the contract to sell until the full payment of the price, such payment being a positive suspensive condition, the failure of which is not considered a breach, casual or serious, but simply an event which prevented the obligation from acquiring any obligatory force. 19 There is clearly no express reservation of title made by the petitioners over the property, or any provision which would impose non-payment of the price as a condition for the contract's entering into force. Although the memorandum agreement was also denominated as a "Contract to Sell", we hold that the parties contemplated a contract of sale. A deed of sale is absolute in nature although denominated a conditional sale in the absence of a stipulation reserving title in the petitioners until full payment of the purchase price. 20 In such cases, ownership of the thing sold passes to the vendee upon actual or constructive delivery thereof. 21 The mere fact that the obligation of the respondent to pay the balance of the purchase price was made subject to the condition that the petitioners first deliver the reconstituted title of the house and lot does not make the contract a contract to sell for such condition is not inconsistent with a contract of sale. 22 The next issue to be addressed is whether the failure of the respondent to pay the balance of the purchase price within the period allowed is fatal to his right to enforce the agreement.

We rule in the negative. Admittedly, the failure of the respondent to pay the balance of the purchase price was a breach of the contract and was a ground for rescission thereof. The extension of thirty (30) days allegedly granted to the respondent by Roberto Z. Laforteza (assisted by his counsel Attorney Romeo Gutierrez) was correctly found by the Court of Appeals to be ineffective inasmuch as the signature of Gonzalo Z. Laforteza did not appear thereon as required by the Special Powers of Attorney. 23 However, the evidence reveals that after the expiration of the six-month period provided for in the contract, the petitioners were not ready to comply with what was incumbent upon them, i.e. the delivery of the reconstituted title of the house and lot. It was only on September 18, 1989 or nearly eight months after the execution of the Memorandum of Agreement when the petitioners informed the respondent that they already had a copy of the reconstituted title and demanded the payment of the balance of the purchase price. The respondent could not therefore be considered in delay for in reciprocal obligations, neither party incurs in delay if the other party does not comply or is not ready to comply in a proper manner with what was incumbent upon him.24 Even assuming for the sake of argument that the petitioners were ready to comply with their obligation, we find that rescission of the contract will still not prosper. The rescission of a sale of an immovable property is specifically governed by Article 1592 of the New Civil Code, which reads: In the sale of immovable property, even though it may have been stipulated that upon failure to pay the price at the time agreed upon the rescission of the contract shall of right take place, the vendee may pay, even after the expiration of the period, as long as no demand for rescission of the contract has been made upon him either judicially or by a notarial act. After the demand, the court may not grant him a new term. 25 It is not disputed that the petitioners did not make a judicial or notarial demand for rescission.1avvphi1 The November 20, 1989 letter of the petitioners informing the respondent of the automatic rescission of the agreement did not amount to a demand for rescission, as it was not notarized. 26 It was also made five days after the respondent's attempt to make the payment of the purchase price. This offer to pay prior to the demand for rescission is sufficient to defeat the petitioners' right under article 1592 of the Civil Code. 27 Besides, the Memorandum Agreement between the parties did not contain a clause expressly authorizing the automatic cancellation of the contract without court intervention in the event that the terms thereof were violated. A seller cannot unilaterally and extrajudicially rescind a contract or sale where there is no express stipulation authorizing him to extrajudicially rescind. 28 Neither was there a judicial demand for the rescission thereof. Thus, when the respondent filed his complaint for specific performance, the agreement was still in force inasmuch as the contract was not yet rescinded. At any rate, considering that the six-month period was merely an approximation of the time if would take to reconstitute the lost title and was not a condition imposed on the perfection of the contract and considering further that the delay in payment was only thirty days which was caused by the respondents justified but mistaken belief that an extension to pay was granted to him, we agree with the Court of Appeals that the delay of one month in payment was a mere casual breach that would not entitle the respondents to rescind the contract. Rescission of a contract will not be permitted for a slight or casual breach, but only such substantial and fundamental breach as would defeat the very object of the parties in making the agreemant. 29

Petitioners' insistence that the respondent should have consignated the amount is not determinative of whether respondent's action for specific performance will lie. Petitioners themselves point out that the effect of cansignation is to extinguish the obligation. It releases the debtor from responsibility therefor. 30 The failure of the respondent to consignate the P600,000.00 is not tantamount to a breach of the contract for by the fact of tendering payment, he was willing and able to comply with his obligation. The Court of Appeals correctly found the petitioners guilty of bad faith and awarded moral damages to the respondent. As found by the said Court, the petitioners refused to comply with, their obligation for the reason that they were offered a higher price therefor and the respondent was even offered P100,000.00 by the petitioners' lawyer, Attorney Gutierrez, to relinquish his rights over the property. The award of moral damages is in accordance with Article 1191 31 of the Civil Code pursuant to Article 2220 which provides that moral damages may be awarded in case of breach of contract where the defendant acted in bad faith. The amount awarded 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.

[G.R. No. 137909. December 11, 2003]

FIDELA DEL CASTILLO Vda. DE MISTICA, petitioner, vs. Spouses BERNARDINO NAGUIAT and MARIA PAULINA GERONA-NAGUIAT, respondents. DECISION PANGANIBAN, J.: The failure to pay in full the purchase price stipulated in a deed of sale does not ipso facto grant the seller the right to rescind the agreement. Unless otherwise stipulated by the parties, rescission is allowed only when the breach of the contract is substantial and fundamental to the fulfillment of the obligation.

The Case Before us is a Petition for Review[1] under Rule 45 of the Rules of Court, seeking to nullify the October 31, 1997 Decision[2] and the February 23, 1999 Resolution[3] of the Court of Appeals (CA) in CA-GR CV No. 51067. The assailed Decision disposed as follows: WHEREFORE, modified as indicated above, the decision of the Regional Trial Court is hereby AFFIRMED.[4] The assailed Resolution denied petitioners Motion for Reconsideration.

The Facts The facts of the case are summarized by the CA as follows: Eulalio Mistica, predecessor-in-interest of herein [petitioner], is the owner of a parcel of land located at Malhacan, Meycauayan, Bulacan. A portion thereof was leased to [Respondent Bernardino Naguiat] sometime in 1970. On 5 April 1979, Eulalio Mistica entered into a contract to sell with [Respondent Bernardino Naguiat] over a portion of the aforementioned lot containing an area of 200 square meters. This agreement was reduced to writing in a document entitled Kasulatan sa Pagbibilihan which reads as follows: NAGSASALAYSAY: Na ang NAGBIBILI ay nagmamay-aring tunay at naghahawak ng isang lagay na lupa na nasa Nayon ng Malhacan, Bayan ng Meycauayan, Lalawigan ng Bulacan, na ang kabuuan sukat at mga kahangga nito gaya ng sumusunod:

xxx

xxx

xxx

Na alang-alang sa halagang DALAWANG PUNG LIBONG PISO (P20,000.00) Kualtang Pilipino, ang NAGBIBILI ay nakipagkasundo ng kanyang ipagbibili ang isang bahagi o sukat na DALAWANG DAAN (200) METROS PARISUKAT, sa lupang nabanggit sa itaas, na ang mga kahangga nito ay gaya ng sumusunod: xxx xxx xxx

Na magbibigay ng paunang bayad ang BUMIBILI SA NAGBIBILI na halagang DALAWANG LIBONG PISO (P2,000.00) Kualtang Pilipino, sa sandaling lagdaan ang kasulatang ito. Na ang natitirang halagang LABING WALONG LIBONG PISO (P18,000.00) Kualtang Pilipino, ay babayaran ng BUM[I]BILI sa loob ng Sampung (10) taon, na magsisimula sa araw din ng lagdaan ang kasulatang ito. Sakaling hindi makakabayad ang Bumibili sa loob ng panahon pinagkasunduan, an[g] BUMIBILI ay magbabayad ng pakinabang o interes ng 12% isang taon, sa taon nilakaran hanggang sa itoy mabayaran tuluyan ng Bumibili: Sa katunayan ng lahat ay nilagdaan ng Magkabilang Panig ang kasulatang ito, ngayon ika 5 ng Abril, 1979, sa Bayan ng Meycauayan. Lalawigan ng Bulacan, Pilipinas. (signed) (signed) BERNARDINO NAGUIAT EULALIO MISTICA Bumibili Nagbibili Pursuant to said agreement, [Respondent Bernardino Naguiat] gave a downpayment of P2,000.00. He made another partial payment of P1,000.00 on 7 February 1980. He failed to make any payments thereafter. Eulalio Mistica died sometime in October 1986. On 4 December 1991, [petitioner] filed a complaint for rescission alleging inter alia: that the failure and refusal of [respondents] to pay the balance of the purchase price constitutes a violation of the contract which entitles her to rescind the same; that [respondents] have been in possession of the subject portion and they should be ordered to vacate and surrender possession of the same to [petitioner] ; that the reasonable amount of rental for the subject land is P200.00 a month; that on account of the unjustified actuations of [respondents], [petitioner] has been constrained to litigate where she incurred expenses for attorneys fees and litigation expenses in the sum of P20,000.00. In their answer and amended answer, [respondents] contended that the contract cannot be rescinded on the ground that it clearly stipulates that in case of failure to pay the balance as stipulated, a yearly interest of 12% is to be paid. [Respondent Bernardino Naguiat] likewise alleged that sometime in October 1986, during the wake of the late Eulalio Mistica, he offered to pay the remaining balance to [petitioner] but the latter refused and hence, there is no breach or violation committed by them and no damages could yet be incurred by the late Eulalio Mistica, his heirs or assigns pursuant to the said document; that he is presently the owner in fee simple of the subject lot having acquired the same by virtue of a Free Patent Title duly awarded to him by the Bureau of Lands; and that his title and ownership had already become indefeasible and incontrovertible. As counterclaim, [respondents] pray for moral damages in the amount of P50,000.00; exemplary

damages in the amount of P30,000.00; attorneys fees in the amount of P10,000.00 and other litigation expenses. On 8 July 1992, [respondents] also filed a motion to dismiss which was denied by the court on 29 July 1992. The motion for reconsideration was likewise denied per its Order of 17 March 1993. After the presentation of evidence, the court on 27 January 1995 rendered the now assailed judgment, the dispositive portion of which reads: WHEREFORE, premises considered, judgment is hereby rendered: 1. Dismissing the complaint and ordering the [petitioner] to pay the [respondents] attorneys fee in the amount of P10,000.00 and costs of the suit; 2. Ordering the [respondents]: a. To pay [petitioner] and the heirs of Eulalio Mistica the balance of the purchase price in the amount of P17,000.00, with interest thereon at the rate of 12% per annum computed from April 5, 1989 until full payment is made, subject to the application of the consigned amount to such payment; b. To return to [petitioner] and the heirs of Eulalio Mistica the extra area of 58 square meters from the land covered by OCT No. 4917 (M), the corresponding price therefor based on the prevailing market price thereof.[5] (Citations omitted)

CAs Decision Disallowing rescission, the CA held that respondents did not breach the Contract of Sale. It explained that the conclusion of the ten-year period was not a resolutory term, because the Contract had stipulated that payment -- with interest of 12 percent -- could still be made if respondents failed to pay within the period. According to the appellate court, petitioner did not disprove the allegation of respondents that they had tendered payment of the balance of the purchase price during her husbands funeral, which was well within the ten-year period. Moreover, rescission would be unjust to respondents, because they had already transferred the land title to their names. The proper recourse, the CA held, was to order them to pay the balance of the purchase price, with 12 percent interest. As to the matter of the extra 58 square meters, the CA held that its reconveyance was no longer feasible, because it had been included in the title issued to them. The appellate court ruled that the only remedy available was to order them to pay petitioner the fair market value of the usurped portion. Hence, this Petition.[6]

Issues In her Memorandum,[7] petitioner raises the following issues: 1. Whether or not the Honorable Court of Appeals erred in the application of Art. 1191 of the New Civil Code, as it ruled that there is no breach of obligation inspite of the lapse of the stipulated period and the failure of the private respondents to pay. Whether or not the Honorable Court of Appeals [e]rred in ruling that rescission of the contract is no longer feasible considering that a certificate of title had been issued in favor of the private respondents. Whether or not the Honorable Court of Appeals erred in ruling that since the 58 sq. m. portion in question is covered by a certificate of title in the names of private respondents reconveyance is no longer feasible and proper.[8]

2.

3.

The Courts Ruling The Petition is without merit.

First Issue: Rescission in Article 1191 Petitioner claims that she is entitled to rescind the Contract under Article 1191 of the Civil Code, because respondents committed a substantial breach when they did not pay the balance of the purchase price within the ten-year period. She further avers that the proviso on the payment of interest did not extend the period to pay. To interpret it in that way would make the obligation purely potestative and, thus, void under Article 1182 of the Civil Code. We disagree. The transaction between Eulalio Mistica and respondents, as evidenced by the Kasulatan, was clearly a Contract of Sale. A deed of sale is considered absolute in nature when there is neither a stipulation in the deed that title to the property sold is reserved to the seller until the full payment of the price; nor a stipulation giving the vendor the right to unilaterally resolve the contract the moment the buyer fails to pay within a fixed period.[9] In a contract of sale, the remedy of an unpaid seller is either specific performance or rescission.[10] Under Article 1191 of the Civil Code, the right to rescind an obligation is predicated on the violation of the reciprocity between parties, brought about by a breach of faith by one of them.[11] Rescission, however, is allowed only where the breach is substantial and fundamental to the fulfillment of the obligation.[12] In the present case, the failure of respondents to pay the balance of the purchase price within ten years from the execution of the Deed did not amount to a substantial breach. In theKasulatan, it was stipulated that payment could be made even after ten years from the execution of the Contract, provided the vendee paid 12 percent interest. The stipulations of the contract constitute the law

between the parties; thus, courts have no alternative but to enforce them as agreed upon and written.[13] Moreover, it is undisputed that during the ten-year period, petitioner and her deceased husband never made any demand for the balance of the purchase price. Petitioner even refused the payment tendered by respondents during her husbands funeral, thus showing that she was not exactly blameless for the lapse of the ten-year period. Had she accepted the tender, payment would have been made well within the agreed period. If petitioner would like to impress upon this Court that the parties intended otherwise, she has to show competent proof to support her contention. Instead, she argues that the period cannot be extended beyond ten years, because to do so would convert the buyers obligation to a purely potestative obligation that would annul the contract under Article 1182 of the Civil Code. This contention is likewise untenable. The Code prohibits purely potestative, suspensive, conditional obligations that depend on the whims of the debtor, because such obligations are usually not meant to be fulfilled.[14] Indeed, to allow the fulfillment of conditions to depend exclusively on the debtors will would be to sanction illusory obligations. [15] The Kasulatan does not allow such thing. First, nowhere is it stated in the Deed that payment of the purchase price is dependent upon whether respondents want to pay it or not. Second, the fact that they already made partial payment thereof only shows that the parties intended to be bound by the Kasulatan. Both the trial and the appellate courts arrived at this finding. Well-settled is the rule that findings of fact by the CA are generally binding upon this Court and will not be disturbed on appeal, especially when they are the same as those of the trial court.[16] Petitioner has not given us sufficient reasons to depart from this rule.

Second Issue: Rescission Unrelated to Registration The CA further ruled that rescission in this case would be unjust to respondents, because a certificate of title had already been issued in their names. Petitioner nonetheless argues that the Court is still empowered to order rescission. We clarify. The issuance of a certificate of title in favor of respondents does not determine whether petitioner is entitled to rescission. It is a fundamental principle in land registration that such title serves merely as an evidence of an indefeasible and incontrovertible title to the property in favor of the person whose name appears therein.[17] While a review of the decree of registration is no longer possible after the expiration of the one-year period from entry, an equitable remedy is still available to those wrongfully deprived of their property.[18] A certificate of title cannot be subject to collateral attack and can only be altered, modified or canceled in direct proceedings in accordance with law.[19] Hence, the CA correctly held that the propriety of the issuance of title in the name of respondents was an issue that was not determinable in these proceedings.

Third Issue: Reconveyance of the Portion Importunately Included Petitioner argues that it would be reasonable for respondents to pay her the value of the lot, because the CA erred in ruling that the reconveyance of the extra 58-square meter lot, which had been included in the certificate of title issued to them, was no longer feasible. In principle, we agree with petitioner. Registration has never been a mode of acquiring ownership over immovable property, because it does not create or vest title, but merely confirms one already created or vested.[20] Registration does not give holders any better title than what they actually have.[21] Land erroneously included in the certificate of title of another must be reconveyed in favor of its true and actual owner.[22] Section 48 of Presidential Decree 1529, however, provides that the certificate of title shall not be subject to collateral attack, alteration, modification, or cancellation except in a direct proceeding.[23] The cancellation or removal of the extra portion from the title of respondents is not permissible in an action for rescission of the contract of sale between them and petitioners late husband, because such action is tantamount to allowing a collateral attack on the title. It appears that an action for cancellation/annulment of patent and title and for reversion was already filed by the State in favor of petitioner and the heirs of her husband. [24] Hence, there is no need in this case to pass upon the right of respondents to the registration of the subject land under their names. For the same reason, there is no necessity to order them to pay petitioner the fair market value of the extra 58-square meter lot importunately included in the title. WHEREFORE, the assailed Decision and Resolution are AFFIRMED with the MODIFICATION that the payment for the extra 58-square meter lot included in respondents title is DELETED. SO ORDERED.

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