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, Parañaque, Metro Manila, covered by Transfer Certificate of Title (TCT) No. (220656) 8941 of the
Registered of Deeds of Parañaque (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.1âwphi1.nêt

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. 335-336).

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 (30) 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, Parañaque, Metro Manila,
covered by Transfer Certificate of Title No. (220656) 8941 of the Registry of Deeds of Rizal Parañaque,
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. 11 The 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, Parañaque 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. 126083             July 12, 2006

ANTONIO R. CORTES (in his capacity as Administrator of the estate of Claro S. Cortes), petitioner,
vs.
HON. COURT OF APPEALS and VILLA ESPERANZA DEVELOPMENT CORPORATION, respondents.

DECISION

YNARES-SANTIAGO, J.:

The instant petition for review seeks the reversal of the June 13, 1996 Decision1 of the Court of Appeals
in CA-G.R. CV No. 47856, setting aside the June 24, 1993 Decision2 of the Regional Trial Court of Makati,
Branch 138, which rescinded the contract of sale entered into by petitioner Antonio Cortes (Cortes) and
private respondent Villa Esperanza Development Corporation (Corporation).

The antecedents show that for the purchase price of P3,700,000.00, the Corporation as buyer, and
Cortes as seller, entered into a contract of sale over the lots covered by Transfer Certificate of Title (TCT)
No. 31113-A, TCT No. 31913-A and TCT No. 32013-A, located at Baclaran, Parañaque, Metro Manila. On
various dates in 1983, the Corporation advanced to Cortes the total sum of P1,213,000.00. Sometime in
September 1983, the parties executed a deed of absolute sale containing the following terms:3

1. Upon execution of this instrument, the Vendee shall pay unto the Vendor sum of TWO MILLION AND
TWO HUNDRED THOUSAND (P2,200,000.00) PESOS, Philippine Currency, less all advances paid by the
Vendee to the Vendor in connection with the sale;

2. The balance of ONE MILLION AND FIVE HUNDRED THOUSAND [P1,500,000.00] PESOS, Phil. Currency
shall be payable within ONE (1) YEAR from date of execution of this instrument, payment of which shall
be secured by an irrevocable standby letter of credit to be issued by any reputable local banking
institution acceptable to the Vendor.

xxxx

4. All expense for the registration of this document with the Register of Deeds concerned, including the
transfer tax, shall be divided equally between the Vendor and the Vendee. Payment of the capital gains
shall be exclusively for the account of the Vendor; 5% commission of Marcosa Sanchez to be deducted
upon signing of sale.4

Said Deed was retained by Cortes for notarization.

On January 14, 1985, the Corporation filed the instant case5 for specific performance seeking to compel
Cortes to deliver the TCTs and the original copy of the Deed of Absolute Sale. According to the
Corporation, despite its readiness and ability to pay the purchase price, Cortes refused delivery of the
sought documents. It thus prayed for the award of damages, attorney's fees and litigation expenses
arising from Cortes' refusal to deliver the same documents.

In his Answer with counterclaim,6 Cortes claimed that the owner's duplicate copy of the three TCTs were
surrendered to the Corporation and it is the latter which refused to pay in full the agreed down
payment. He added that portion of the subject property is occupied by his lessee who agreed to vacate
the premises upon payment of disturbance fee. However, due to the Corporation's failure to pay in full
the sum of P2,200,000.00, he in turn failed to fully pay the disturbance fee of the lessee who now
refused to pay monthly rentals. He thus prayed that the Corporation be ordered to pay the outstanding
balance plus interest and in the alternative, to cancel the sale and forfeit the P1,213,000.00 partial down
payment, with damages in either case.

On June 24, 1993, the trial court rendered a decision rescinding the sale and directed Cortes to return to
the Corporation the amount of P1,213,000.00, plus interest. It ruled that pursuant to the contract of the
parties, the Corporation should have fully paid the amount of P2,200,000.00 upon the execution of the
contract. It stressed that such is the law between the parties because the Corporation failed to present
evidence that there was another agreement that modified the terms of payment as stated in the
contract. And, having failed to pay in full the amount of P2,200,000.00 despite Cortes' delivery of the
Deed of Absolute Sale and the TCTs, rescission of the contract is proper.

In its motion for reconsideration, the Corporation contended that the trial court failed to consider their
agreement that it would pay the balance of the down payment when Cortes delivers the TCTs. The
motion was, however, denied by the trial court holding that the rescission should stand because the
Corporation did not act on the offer of Cortes' counsel to deliver the TCTs upon payment of the balance
of the down payment. Thus:

The Court finds no merit in the [Corporation's] Motion for Reconsideration. As stated in the decision
sought to be reconsidered, [Cortes'] counsel at the pre-trial of this case, proposed that if [the
Corporation] completes the down payment agreed upon and make arrangement for the payment of the
balances of the purchase price, [Cortes] would sign the Deed of Sale and turn over the certificate of title
to the [Corporation]. [The Corporation] did nothing to comply with its undertaking under the agreement
between the parties.

WHEREFORE, in view of the foregoing considerations, the Motion for Reconsideration is hereby DENIED.

SO ORDERED.7

On appeal, the Court of Appeals reversed the decision of the trial court and directed Cortes to execute a
Deed of Absolute Sale conveying the properties and to deliver the same to the Corporation together
with the TCTs, simultaneous with the Corporation's payment of the balance of the purchase price of
P2,487,000.00. It found that the parties agreed that the Corporation will fully pay the balance of the
down payment upon Cortes' delivery of the three TCTs to the Corporation. The records show that no
such delivery was made, hence, the Corporation was not remiss in the performance of its obligation and
therefore justified in not paying the balance. The decretal portion thereof, provides:

WHEREFORE, premises considered, [the Corporation's] appeal is GRANTED. The decision appealed from
is hereby REVERSED and SET ASIDE and a new judgment rendered ordering [Cortes] to execute a deed of
absolute sale conveying to [the Corporation] the parcels of land subject of and described in the deed of
absolute sale, Exhibit D. Simultaneously with the execution of the deed of absolute sale and the delivery
of the corresponding owner's duplicate copies of TCT Nos. 31113-A, 31931-A and 32013-A of the
Registry of Deeds for the Province of Rizal, Metro Manila, District IV, [the Corporation] shall pay [Cortes]
the balance of the purchase price of P2,487,000.00. As agreed upon in paragraph 4 of the Deed of
Absolute Sale, Exhibit D, under terms and conditions, "All expenses for the registration of this document
(the deed of sale) with the Register of Deeds concerned, including the transfer tax, shall be divided
equally between [Cortes and the Corporation]. Payment of the capital gains shall be exclusively for the
account of the Vendor; 5% commission of Marcosa Sanchez to be deducted upon signing of sale." There
is no pronouncement as to costs.

SO ORDERED.8

Cortes filed the instant petition praying that the decision of the trial court rescinding the sale be
reinstated.

There is no doubt that the contract of sale in question gave rise to a reciprocal obligation of the parties.
Reciprocal obligations are those which arise from the same cause, and which each party is a debtor and
a creditor of the other, such that the obligation of one is dependent upon the obligation of the other.
They are to be performed simultaneously, so that the performance of one is conditioned upon the
simultaneous fulfillment of the other.9

Article 1191 of the Civil Code, states:

ART. 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.

xxxx

As to when said failure or delay in performance arise, Article 1169 of the same Code provides that –

ART. 1169

xxxx

In reciprocal obligations, neither party incurs in delay if the other does not comply or is not ready to
comply in a proper manner with what is incumbent upon him. From the moment one of the parties
fulfills his obligation, delay by the other begins. (Emphasis supplied)

The issue therefore is whether there is delay in the performance of the parties' obligation that would
justify the rescission of the contract of sale. To resolve this issue, we must first determine the true
agreement of the parties.

The settled rule is that the decisive factor in evaluating an agreement is the intention of the parties, as
shown not necessarily by the terminology used in the contract but by their conduct, words, actions and
deeds prior to, during and immediately after executing the agreement. As such, therefore, documentary
and parol evidence may be submitted and admitted to prove such intention.10

In the case at bar, the stipulation in the Deed of Absolute Sale was that the Corporation shall pay in full
the P2,200,000.00 down payment upon execution of the contract. However, as correctly noted by the
Court of Appeals, the transcript of stenographic notes reveal Cortes' admission that he agreed that the
Corporation's full payment of the sum of P2,200,000.00 would depend upon his delivery of the TCTs of
the three lots. In fact, his main defense in the Answer is that, he performed what is incumbent upon him
by delivering to the Corporation the TCTs and the carbon duplicate of the Deed of Absolute Sale, but the
latter refused to pay in full the down payment.11 Pertinent portion of the transcript, reads:

[Q] Now, why did you deliver these three titles to the plaintiff despite the fact that it has not been paid
in full the agreed down payment?
A Well, the broker told me that the down payment will be given if I surrender the titles.

Q Do you mean to say that the plaintiff agreed to pay in full the down payment of P2,200,000.00
provided you surrender or entrust to the plaintiff the titles?

A Yes, sir.12

What further confirmed the agreement to deliver the TCTs is the testimony of Cortes that the title of the
lots will be transferred in the name of the Corporation upon full payment of the P2,200,000.00 down
payment. Thus –

ATTY. ANTARAN

Q Of course, you have it transferred in the name of the plaintiff, the title?

A Upon full payment.

xxxx

ATTY. SARTE

Q When you said upon full payment, are you referring to the agreed down payment of P2,200,000.00?

A Yes, sir.13

By agreeing to transfer title upon full payment of P2,200,000.00, Cortes' impliedly agreed to deliver the
TCTs to the Corporation in order to effect said transfer. Hence, the phrase "execution of this
instrument" 14 as appearing in the Deed of Absolute Sale, and which event would give rise to the
Corporation's obligation to pay in full the amount of P2,200,000.00, can not be construed as referring
solely to the signing of the deed. The meaning of "execution" in the instant case is not limited to the
signing of a contract but includes as well the performance or implementation or accomplishment of the
parties' agreement.15 With the transfer of titles as the corresponding reciprocal obligation of payment,
Cortes' obligation is not only to affix his signature in the Deed, but to set into motion the process that
would facilitate the transfer of title of the lots, i.e., to have the Deed notarized and to surrender the
original copy thereof to the Corporation together with the TCTs.

Having established the true agreement of the parties, the Court must now determine whether Cortes
delivered the TCTs and the original Deed to the Corporation. The Court of Appeals found that Cortes
never surrendered said documents to the Corporation. Cortes testified that he delivered the same to
Manny Sanchez, the son of the broker, and that Manny told him that her mother, Marcosa Sanchez,
delivered the same to the Corporation.

Q Do you have any proof to show that you have indeed surrendered these titles to the plaintiff?

A Yes, sir.

Q I am showing to you a receipt dated October 29, 1983, what relation has this receipt with that receipt
that you have mentioned?

A That is the receipt of the real estate broker when she received the titles.
Q On top of the printed name is Manny Sanchez, there is a signature, do you know who is that Manny
Sanchez?

A That is the son of the broker.

xxxx

Q May we know the full name of the real estate broker?

A Marcosa Sanchez

xxxx

Q Do you know if the broker or Marcosa Sanchez indeed delivered the titles to the plaintiff?

A That is what [s]he told me. She gave them to the plaintiff.

x x x x.16

ATTY. ANTARAN

Q Are you really sure that the title is in the hands of the plaintiff?

xxxx

Q It is in the hands of the broker but there is no showing that it is in the hands of the plaintiff?

A Yes, sir.

COURT

Q How do you know that it was delivered to the plaintiff by the son of the broker?

A The broker told me that she delivered the title to the plaintiff.

ATTY. ANTARAN

Q Did she not show you any receipt that she delivered to [Mr.] Dragon17 the title without any receipt?

A I have not seen any receipt.

Q So, therefore, you are not sure whether the title has been delivered to the plaintiff or not. It is only
upon the allegation of the broker?

A Yes, sir.18

However, Marcosa Sanchez's unrebutted testimony is that, she did not receive the TCTs. She also denied
knowledge of delivery thereof to her son, Manny, thus:

Q The defendant, Antonio Cortes testified during the hearing on March 11, 1986 that he allegedly gave
you the title to the property in question, is it true?

A I did not receive the title.

Q He likewise said that the title was delivered to your son, do you know about that?
A I do not know anything about that.19

What further strengthened the findings of the Court of Appeals that Cortes did not surrender the
subject documents was the offer of Cortes' counsel at the pre-trial to deliver the TCTs and the Deed of
Absolute Sale if the Corporation will pay the balance of the down payment. Indeed, if the said
documents were already in the hands of the Corporation, there was no need for Cortes' counsel to make
such offer.

Since Cortes did not perform his obligation to have the Deed notarized and to surrender the same
together with the TCTs, the trial court erred in concluding that he performed his part in the contract of
sale and that it is the Corporation alone that was remiss in the performance of its obligation. Actually,
both parties were in delay. Considering that their obligation was reciprocal, performance thereof must
be simultaneous. The mutual inaction of Cortes and the Corporation therefore gave rise to
a compensation morae or default on the part of both parties because neither has completed their part in
their reciprocal obligation.20 Cortes is yet to deliver the original copy of the notarized Deed and the TCTs,
while the Corporation is yet to pay in full the agreed down payment of P2,200,000.00. This mutual delay
of the parties cancels out the effects of default,21 such that it is as if no one is guilty of delay.22

We find no merit in Cortes' contention that the failure of the Corporation to act on the proposed
settlement at the pre-trial must be construed against the latter. Cortes argued that with his counsel's
offer to surrender the original Deed and the TCTs, the Corporation should have consigned the balance of
the down payment. This argument would have been correct if Cortes actually surrendered the Deed and
the TCTs to the Corporation. With such delivery, the Corporation would have been placed in default if it
chose not to pay in full the required down payment. Under Article 1169 of the Civil Code, from the
moment one of the parties fulfills his obligation, delay by the other begins. Since Cortes did not perform
his part, the provision of the contract requiring the Corporation to pay in full the down payment never
acquired obligatory force. Moreover, the Corporation could not be faulted for not automatically heeding
to the offer of Cortes. For one, its complaint has a prayer for damages which it may not want to waive by
agreeing to the offer of Cortes' counsel. For another, the previous representation of Cortes that the TCTs
were already delivered to the Corporation when no such delivery was in fact made, is enough reason for
the Corporation to be more cautious in dealing with him.

The Court of Appeals therefore correctly ordered the parties to perform their respective obligation in
the contract of sale, i.e., for Cortes to, among others, deliver the necessary documents to the
Corporation and for the latter to pay in full, not only the down payment, but the entire purchase price.
And since the Corporation did not question the Court of Appeal's decision and even prayed for its
affirmance, its payment should rightfully consist not only of the amount of P987,000.00, representing
the balance of the P2,200,000.00 down payment, but the total amount of P2,487,000.00, the remaining
balance in the P3,700,000.00 purchase price.

WHEREFORE, the petition is DENIED and the June 13, 1996 Decision of the Court of Appeals in CA-G.R.
CV No. 47856, is AFFIRMED.

SO ORDERED.