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G.R. No. 169761 : December 1, 2010

ARRA REALTY CORPORATION, CARLOS D. ARGUELLES and REMEDIOS DE LA RAMA-

ARGUELLES, Petitioners, v. PACES INDUSTRIAL CORPORATION, Responden.

D E C I S I O N

PERALTA,J.:

This resolves the Petition for Review on Certiorari under Rule 45 of the Rules of Court, praying that

the Decision1of the Court of Appeals (CA), dated April 11, 2005, and the Resolution2dated

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 letteraddressed 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 SEVENTY-

SIX 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 asour 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 itsagreement 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.

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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 Judgment5dated 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 certification6from 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 letter7from the Postmaster, Philpost Tanauan, dated May 25, 2005,

stating that Registered Mail No. 4310 (addressed to petitioners' counsel, containing the CA

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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 CERTIORARIIS 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 AGREEMENTENTERED 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,9the 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.)

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x x x x

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 thatonce 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.)

x x x x

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 theresolution 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,11the 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

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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 January24, 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 toremain 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 thenotice of the decision to petitioners' counsel's address of record via registered mail. Respondent

submitted a letter13from 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

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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 Airlines15case, 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 motionfor 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.

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[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.

D E C I S I O N

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 attorneys

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 ofSale[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 notaccept 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.

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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 attorneysfee; 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 theletter[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.

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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 eitherjudicially 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 ofVillaruel 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 withinthe 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 thething, 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

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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 notipso 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 theobligation.[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 agreementof 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 principalmotivation for selling the lot was to raise money to pay his SSS loan.[39]Petitioner would have usreverse 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

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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.

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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 Appeals1in

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 instrumentscontained 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 plaintiff2over the subject property

for the sum of SIX HUNDRED THIRTY THOUSAND PESOS (P630,000.00) payable as follows:

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(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, 19983, 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, 19984, 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

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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 asattorney'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.7Hence 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 COURTSA QUO CORRECTLY RULED THAT RESCISSION WILLNOT 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 ARGUMENTITHE MEMORANDUM OF AGREEMENT

IMPOSES RECIPROCAL OBLIGATIONS, WHETHER THE PETITIONERS MAY BE

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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:

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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 nameof 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 orany 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). Providedhowever, 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 theestate, 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.10From

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

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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 ofan 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.13An option must be supported by

consideration.14An option contract is governed by the second paragraph of Article 1479 of

the Civil Code15, which reads:

Art. 1479. . . .

An accepted unilateral promise to buy or to sell a determinate thing for a pricecertain 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 ownershipover 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

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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.17Whenever 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 bededuced 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.19There 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.20In such cases, ownership of the thing sold passes to the vendee upon actual orconstructive delivery thereof.21The 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.

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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.23However, 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 theirobligation, 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 notnotarized.26It 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.27Besides, 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.28Neither 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 therespondents 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

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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.30The 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 119131of 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.32Under 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.

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

FIDELA DEL CASTILLO Vda. DE MISTICA,petitioner, vs. Spouses BERNARDINO NAGUIAT and

MARIA PAULINA GERONA-NAGUIAT, respondents.

D E C I S I O N

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 landlocated at Malhacan, Meycauayan, Bulacan. A portion thereof was leased to [Respondent

Bernardino Naguiat] sometime in 1970.

On 5 April 19