kinds of obligations.pdf

7/24/2019 Kinds of Obligations.pdf

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KINDS OF OBLIGATIONS

Obligation and Contracts

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Condition imposed on the perfection of the contract and condition imposed on the performance

of the obligation:

Cases:

Republic of the PhilippinesSUPREME COURT

Manila

THIRD DIVISION

G.R. No. 141634 February 5, 2001

Heirs of Spouses REMEDIOS R. SANDEJAS and ELIODORO P. SANDEJAS SR. -- ROBERTO R. SANDEJAS,ANTONIO R. SANDEJAS, CRISTINA SANDEJAS MORELAND, BENJAMIN R.SANDEJAS, REMEDIOS R.SANDEJAS, and heirs of SIXTO S. SANDEJAS II, RAMON R. SANDEJAS, TERESITA R. SANDEJAS, andELIODORO R. SANDEJAS JR., all represented by ROBERTO R. SANDEJAS, petitioners,

vs.ALEX A. LINA, respondent.

PANGANIBAN, J .:

A contract of sale is not invalidated by the fact that it is subject to probate court approval. The transaction remainsbinding on the seller-heir, but not on the other heirs who have not given their consent to it. In settling the estate of thedeceased, a probate court has jurisdiction over matters incidental and collateral to the exercise of its recognizedpowers. Such matters include selling, mortgaging or otherwise encumbering realty belonging to the estate. Rule 89,Section 8 of the Rules of Court, deals with the conveyance of real property contracted by the decedent while stillalive. In contrast with Sections 2 and 4 of the same Rule, the said provision does not limit to the executor oradministrator the right to file the application for authority to sell, mortgage or otherwise encumber realty underadministration. The standing to pursue such course of action before the probate court inures to any person whostands to be benefited or injured by the judgment or to be entitled to the avails of the suit. 1wphi1.nt

The Case

Before us is a Petition for Review under Rule 45 of the Rules of Court, seeking to reverse and set aside theDecision1dated April 16, 1999 and the Resolution2dated January 12, 2000, both promulgated by the Court ofAppeals in CA-GR CV No. 49491. The dispositive portion of the assailed Decision reads as follows:3

"WHEREFORE, for all the foregoing, [w]e hereby MODIFY the [O]rder of the lower court dated January 13,1995, approving the Receipt of Earnest Money With Promise to Buy and Sell dated June 7, 1982, only to thethree-fifth (3/5) portion of the disputed lots covering the share of [A]dministrator Eliodoro Sandejas, Sr. [in]the property. The intervenor is hereby directed to pay appellant the balance of the purchase price of thethree-fifth (3/5) portion of the property within thirty (30) days from receipt of this [O]rder and x x x theadministrator [is directed] to execute the necessary and proper deeds of conveyance in favor of appelleewithin thirty (30) days thereafter."

The assailed Resolution denied reconsideration of the foregoing disposition.

The Facts

The facts of the case, as narrated by the Court of Appeals (CA), are as follows: 4

"On February 17, 1981, Eliodoro Sandejas, Sr. filed a petition (Record, SP. Proc. No. R-83-15601, pp. 8-10)in the lower court praying that letters of administration be issued in his favor for the settlement of the estate


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of his wife, REMEDIOS R. SANDEJAS, who died on April 17, 1955. On July 1, 1981, Letters ofAdministration [were issued by the lower court appointing Eliodoro Sandejas, Sr. as administrator of theestate of the late Remedios Sandejas (Record, SP. Proc. No. R-83-15601, p. 16). Likewise on the samedate, Eliodoro Sandejas, Sr. took his oath as administrator (Record, SP. Proc. No. R-83-15601, p. 17). x x x.

"On November 19, 1981, the 4th floor of Manila City Hall was burned and among the records burned werethe records of Branch XI of the Court of First Instance of Manila. As a result, [A]dministrator EliodoroSandejas, Sr. filed a [M]otion for [R]econstitution of the records of the case on February 9, 1983 (Record,SP. Proc. No. R-83-15601, pp. 1-5). On February 16, 1983, the lower court in its [O]rder granted the saidmotion (Record, SP. Proc. No. R-83-15601, pp. 28-29).

"On April 19, 1983, an Omnibus Pleading for motion to intervene and petition-in-intervention was filed by[M]ovant Alex A. Lina alleging among others that on June 7, 1982, movant and [A]dministrator Eliodoro P.Sandejas, in his capacity as seller, bound and obligated himself, his heirs, administrators, and assigns, tosell forever and absolutely and in their entirety the following parcels of land which formed part of the estateof the late Remedios R. Sandejas, to wit:

1. 'A parcel of land (Lot No.22 Block No. 45 of the subdivision plan Psd-21121, being a portion ofBlock 45 described on plan Psd-19508, G.L.R.O. Rec. No. 2029), situated in the "Municipality ofMakati, province of Rizal, containing an area of TWO HUNDRED SEVENTY (270) SQUAREMETERS, more or less, with TCT No. 13465;

2. 'A parcel of land (Lot No. 21 Block No. 45 of the subdivision plan Psd-21141, being a portion ofBlock 45 described on plan Psd-19508 G.L.R.O. Rec. No. 2029), situated in the Municipality ofMakati, Province of Rizal, containing an area of TWO HUNDRED SEVENTY (270) SQUAREMETERS, more or less, with TCT No. 13464;'

3. 'A parcel of land (Lot No. 5 Block No. 45 of the subdivision plan Psd-21141, being a portion ofBlock 45 described on plan Psd-19508 G.L.R.O. Rec. No. 2029), situated in the Municipality ofMakati, Province of Rizal, containing an area of TWO HUNDRED EIGHT (208) SQUARE METERS,more or less, with TCT No. 13468;'

4. 'A parcel of land (Lot No. 6, Block No. 45 of the subdivision plan Psd-21141, being a portion ofBlock 45 described on plan Psd-19508 G.L.R.O. Rec. No. 2029), situated in the Municipality ofMakati, Province of Rizal, containing an area of TWO HUNDRED EIGHT (208) SQUARE METERS,more or less, with TCT No. 13468;'

"The [R]eceipt of the [E]arnest [M]oney with [P]romise to [S]ell and to [B]uy is hereunder quoted, to wit:

'Received today from MR. ALEX A. LINA the sum of ONE HUNDRED THOUSAND (P100,000.00)PESOS, Philippine Currency, per Metropolitan Bank & Trust Company Chec[k] No. 319913 datedtoday for P100,000.00, x x x as additional earnest money for the following:

xxx xxx xxx

all registered with the Registry of Deeds of the [P]rovince of Rizal (Makati Branch Office) in thename of SELLER 'EL!ODORO SANDEJAS, Filipino Citizen, of legal age, married to RemediosReyes de Sandejas;' and which undersigned, as SELLER, binds and obligates himself, his heirs,administrators and assigns, to sell forever and absolutely in their entirety (all of the four (4) parcelsof land above described, which are contiguous to each other as to form one big lot) to said Mr. AlexA. Lina, who has agreed to buy all of them, also binding on his heirs, administrators and assigns,for the consideration of ONE MILLION (P1,000,000.00) PESOS, Philippine Currency, upon suchreasonable terms of payment as may be agreed upon by them. The parties have, however, agreedon the following terms and conditions:


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'1. The P100,000.00 herein received is in addition to the P70,000.00 earnest money alreadyreceived by SELLER from BUYER, all of which shall form part of, and shall be deducted from, thepurchase price of P1,000,000.00, once the deed of absolute [sale] shall be executed;

'2. As a consideration separate and distinct from the price, undersigned SELLER alsoacknowledges receipt from Mr. Alex A. Lina of the sum of ONE THOUSAND (P1,000.00) PESOS,Philippine Currency, per Metropolitan Bank & Trust Company Check No. 319912 dated today andpayable to SELLER for P1,000.00;

'3. Considering that Mrs. Remedios Reyes de Sandejas is already deceased and as there is apending intestate proceedings for the settlement of her estate (Spec. Proc. No.138393, Manila CFI,Branch XI), wherein SELLER was appointed as administrator of said Estate, and as SELLER, in hiscapacity as administrator of said Estate, has informed BUYER that he (SELLER) already filed a[M]otion with the Court for authority to sell the above parcels of land to herein BUYER, but whichhas been delayed due to the burning of the records of said Spec. Pro. No. 138398, which recordsare presently under reconstitution, the parties shall have at least ninety (90) days from receipt ofthe Order authorizing SELLER, in his capacity as administrator, to sell all THE ABOVEDESCRIBED PARCELS OF LAND TO HEREIN BUYER (but extendible for another period of ninety(90) days upon the request of either of the parties upon the other), within which to execute the deed

of absolute sale covering all above parcels of land;

'4. In the event the deed of absolute sale shall not proceed or not be executed for causes eitherdue to SELLER'S fault, or for causes of which the BUYER is innocent, SELLER binds himself topersonally return to Mr. Alex A. Lina the entire ONE HUNDRED SEVENTY THOUSAND([P]170,000.00) PESOS In earnest money received from said Mr. Lina by SELLER, plus fourteen(14%) percentum interest per annum, all of which shall be considered as liens of said parcels ofland, or at least on the share therein of herein SELLER;

'5. Whether indicated or not, all of above terms and conditions shall be binding on the heirs,administrators, and assigns of both the SELLER (undersigned MR. ELIODORO P. SANDEJAS,SR.) and BUYER (MR. ALEX A. LINA).' (Record, SP. Proc. No. R-83-15601, pp. 52-54)

"On July 17, 1984, the lower court issued an [O]rder granting the intervention of Alex A. Lina (Record, SP.Proc. No. R-83-15601, p. 167).

"On January 7, 1985, the counsel for [A]dministrator Eliodoro P. Sandejas filed a [M]anifestation allegingamong others that the administrator, Mr. Eliodoro P. Sandejas, died sometime in November 1984 in Canadaand said counsel is still waiting for official word on the fact of the death of the administrator. He also alleged,among others that the matter of the claim of Intervenor Alex A. Lina becomes a money claim to be filed inthe estate of the late Mr. Eliodoro P. Sandejas (Record, SP. Proc. No. R-83-15601, p. 220). On February 15,1985, the, lower court issued an [O]rder directing, among others, that the counsel for the four (4) heirs andother heirs of Teresita R. Sandejas to move for the appointment of [a] new administrator within fifteen (15)days from receipt of this [O]rder (Record, SP. Proc. No. R-83-15601, p. 227). In the same manner, onNovember 4, 1985, the lower court again issued an order, the content of which reads:

'On October 2, 1985, all the heirs, Sixto, Roberto, Antonio, Benjamin all surnamed Sandejas wereordered to move for the appointment of [a] new administrator. On October 16, 1985, the same heirs

were given a period of fifteen (15) days from said date within which to move for the appointment ofthe new administrator. Compliance was set for October 30, 1985, no appearance for theaforenamed heirs. The aforenamed heirs are hereby ordered to show cause within fifteen (15) daysfrom receipt of this Order why this Petition for Settlement of Estate should not be dismissed for lackof interest and failure to comply with a lawful order of this Court.

'SO ORDERED.' (Record, SP. Proc. No. R-83-15601, p. 273).

"On November 22, 1985, Alex A. Lina as petitioner filed with the Regional Trial Court of Manila an OmnibusPleading for (1) petition for letters of administration [and] (2) to consolidate instant case with SP. Proc. No.


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R-83-15601 RTC-Branch XI-Manila, docketed therein as SP. Proc. No. 85- 33707 entitled 'IN RE:INTESTATE ESTATE OF ELIODORO P. SANDEJAS, SR., ALEX A. LINA PETITIONER", [for letters ofadministration] (Record, SP. Proc. No.85-33707, pp. 1-7). On November 29, 1985, Branch XXXVI of theRegional Trial Court of Manila issued an [O]rder consolidating SP. Proc. No. 85-33707, with SP. Proc. No.R-83-15601 (Record, SP. Proc. No. 85-33707, p. 13). Likewise, on December 13, 1985, the Regional Trial

Court of Manila, Branch XI, issued an [O]rder stating that 'this Court has no objection to the consolidation ofSpecial proceedings No. 85-331707, now pending before Branch XXXVI of this Court, with the presentproceedings now pending before this Branch' (Record, SP. Proc. No. R-83- 15601, p. 279).

"On January 15, 1986, Intervenor Alex A. Lina filed [a] Motion for his appointment as a new administrator ofthe Intestate Estate of Remedios R. Sandejas on the following reasons:

'5.01. FIRST, as of this date, [i]ntervenor has not received any motion on the part of the heirs Sixto,Antonio, Roberto and Benjamin, all surnamed Sandejas, for the appointment of anew[a]dministrator in place of their father, Mr. Eliodoro P. Sandejas, Sr.;

'5.02. SECOND, since Sp. Proc. 85-33707, wherein the [p]etitioner is herein Intervenor Alex A. Linaand the instant Sp. PROC. R-83-15601, in effect are already consolidated, then the appointment ofMr. Alex Lina as [a]dministrator of the Intestate Estate of Remedios R. Sandejas in instant Sp.Proc. R-83-15601, would be beneficial to the heirs and also to the Intervenor;

'5.03. THIRD, of course, Mr. Alex A. Lina would be willing to give way at anytime to any[a]dministrator who may be proposed by the heirs of the deceased Remedios R. Sandejas, so longas such [a]dministrator is qualified.' (Record, SP. Proc. No. R-83-15601, pp. 281-283)

"On May 15, 1986, the lower court issued an order granting the [M]otion of Alex A. Lina as the new[a]dministrator of the Intestate Estate of Remedios R. Sandejas in this proceedings. (Record, SP. Proc. No.R-83-15601, pp. 288- 290)

"On August 281 1986, heirs Sixto, Roberto, Antonio and Benjamin, all surnamed Sandejas, and heirs [sic]filed a [M]otion for [R]econsideration and the appointment of another administrator Mr. Sixto Sandejasl inlieu of [I]ntervenor Alex A. Lina stating among others that it [was] only lately that Mr. Sixto Sandejas, a son

and heir, expressed his willingness to act as a new administrator of the intestate estate of his mother,Remedios R. Sandejas (Record, SP. Proc. No. 85-33707, pp. 29-31). On October 2, 1986, Intervenor AlexA. Lina filed his [M]anifestation and [C]ounter [M]otion alleging that he ha[d] no objection to the appointmentof Sixto Sandejas as [a]dministrator of the [i]ntestate [e]state of his mother Remedios R. Sandejas (Sp. Proc.No.85-15601), provided that Sixto Sandejas be also appointed as administrator of the [i]ntestate [e]state ofhis father, Eliodoro P . Sandejas, Sr. (Spec. Proc. No. 85-33707), which two (2) cases have beenconsolidated (Record, SP. Proc. No. 85-33707, pp. 34-36). On March 30, 1987, the lower court granted thesaid [M]otion and substituted Alex Lina with Sixto Sandejas as petitioner in the said [P]etitions (Record, SP.Proc. No. 85-33707, p. 52). After the payment of the administrator's bond (Record, SP. Proc. No. 83-15601,pp. 348-349) and approval thereof by the court (Record, SP. Proc. No. 83-15601, p. 361), AdministratorSixto Sandejas on January 16, 1989 took his oath as administrator of the estate of the deceased RemediosR. Sandejas and Eliodoro P. Sandejas (Record, SP. Proc. No. 83-15601, p. 367) and was likewise issuedLetters of Administration on the same day (Record, SP. Proc. No. 83-15601, p. 366).

"On November 29, 1993, Intervenor filed [an] Omnibus Motion (a) to approve the deed of conditional sale

executed between Plaintiff-in-lntervention Alex A. Lina and Elidioro [sic] Sandejas, Sr. on June 7, 1982; (b)to compel the heirs of Remedios Sandejas and Eliodoro Sandejas, Sr. thru their administrator, to execute adeed of absolute sale in favor of [I]ntervenor Alex A. Lina pursuant to said conditional deed of sale (Record,SP. Proc. No. 83-15601, pp. 554-561) to which the administrator filed a [M]otion to [D]ismiss and/or[O]pposition to said omnibus motion on December 13, 1993 (Record, SP. Proc. No.83-15601, pp. 591-603).

"On January 13, 1995, the lower court rendered the questioned order granting intervenor's [M]otion for the[A]pproval of the Receipt of Earnest Money with promise to buy between Plaintiff-in-lntervention Alex A. Linaand Eliodoro Sandejas, Sr. dated June 7, 1982 (Record, SP. Proc. No. 83-15601, pp. 652-654 ). x x x."


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The Order of the intestate courts disposed as follows:

"WHEREFORE, [i]ntervenor's motion for the approval of the Receipt Of Earnest Money With Promise ToSell And To Buy dated June 7, 1982, is granted. The [i]ntervenor is directed to pay the balance of thepurchase price amounting to P729,000.00 within thirty (30) days from receipt of this Order and theAdministrator is directed to execute within thirty (30) days thereafter the necessary and proper deeds ofconveyancing."6

Ruling of the Court of Appeals

Overturning the RTC ruling, the CA held that the contract between Eliodoro Sandejas Sr. and respondent was merelya contract to sell, not a perfected contract of sale. It ruled that the ownership of the four lots was to remain in theintestate estate of Remedios Sandejas until the approval of the sale was obtained from the settlement court. Thatapproval was a positive suspensive condition, the nonfulfillment of which was not tantamount to a breach. It wassimply an event that prevented the obligation from maturing or becoming effective. If the condition did not happen, theobligation would not arise or come into existence.

The CA held that Section 1, Rule 897of the Rules of Court was inapplicable, because the lack of written notice to the

other heirs showed the lack of consent of those heirs other than Eliodoro Sandejas Sr. For this reason, bad faith wasimputed to him, for no one is allowed to enjoyed a claim arising from ones own wrongdoing. Thus, Eliodoro Sr. wasbound, as a matter of justice and good faith, to comply with his contractual commitments as an owner and heir. Whenhe entered into the agreement with respondent, he bound his conjugal and successional shares in the property.

Hence, this Petition.8

Issues

In their Memorandum, petitioners submit the following issues for our resolution:

"a) Whether or not Eliodoro P. Sandejas Sr. is legally obligated to convey title to the property referred to inthe subject document which was found to be in the nature of a contract to sell - where the suspensivecondition set forth therein [i.e.] court approval, was not complied with;

"b) Whether or not Eliodoro P. Sandejas Sr. was guilty of bad faith despite the conclusion of the Court ofAppeals that the respondent [bore] the burden of proving that a motion for authority to sell ha[d] been filed incourt;

"c) Whether or not the undivided shares of Eliodoro P. Sandejas Sr. in the subject property is three-fifth (3/5)and the administrator of the latter should execute deeds of conveyance therefor within thirty days fromreceipt of the balance of the purchase price from the respondent; and

"d) Whether or not the respondent's petition-in-intervention was converted to a money claim and whether the[trial court] acting as a probate court could approve the sale and compel the petitioners to execute [a] deedof conveyance even for the share alone of Eliodoro P. Sandejas Sr." 9

In brief, the Petition poses the main issue of whether the CA erred in modifying the trial court's Decision and inobligating petitioners to sell 3/5 of the disputed properties to respondent, even if the suspensive condition had notbeen fulfilled. It also raises the following collateral issues: (1) the settlement court's jurisdiction; (2) respondent-intervenor's standing to file an application for the approval of the sale of realty in the settlement case, (3) thedecedent's bad faith, and (4) the computation of the decedent's share in the realty under administration.

This Courts Ruling

The Petition is partially meritorious.


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Main Issue:

Obligat ion With a Suspensive Condit ion

Petitioners argue that the CA erred in ordering the conveyance of the disputed 3/5 of the parcels of land, despite thenonfulfillment of the suspensive condition -- court approval of the sale -- as contained in the "Receipt of EarnestMoney with Promise to Sell and to Buy" (also referred to as the "Receipt"). Instead, they assert that because thiscondition had not been satisfied, their obligation to deliver the disputed parcels of land was converted into a moneyclaim.

We disagree. Petitioners admit that the agreement between the deceased Eliodoro Sandejas Sr. and respondent wasa contract to sell. Not exactly. In a contract to sell, the payment of the purchase price is a positive suspensivecondition. The vendor's obligation to convey the title does not become effective in case of failure to pay. 10

On the other hand, the agreement between Eliodoro Sr. and respondent is subject to a suspensive condition -- theprocurement of a court approval, not full payment. There was no reservation of ownership in the agreement. Inaccordance with paragraph 1 of the Receipt, petitioners were supposed to deed the disputed lots over to respondent.This they could do upon the court's approval, even before full payment. Hence, their contract was a conditional sale,

rather than a contract to sell as determined by the CA.

When a contract is subject to a suspensive condition, its birth or effectivity can take place only if and when thecondition happens or is fulfilled.11Thus, the intestate court's grant of the Motion for Approval of the sale filed byrespondent resulted in petitioners' obligation to execute the Deed of Sale of the disputed lots in his favor. Thecondition having been satisfied, the contract was perfected. Henceforth, the parties were bound to fulfil what they hadexpressly agreed upon.

Court approval is required in any disposition of the decedent's estate per Rule 89 of the Rules of Court. Reference tojudicial approval, however, cannot adversely affect the substantive rights of heirs to dispose of their own pro indivisoshares in the co-heirship or co-ownership.12In other words, they can sell their rights, interests or participation in theproperty under administration. A stipulation requiring court approval does not affect the validity and the effectivity ofthe sale as regards the selling heirs. It merely implies that the property may be taken out ofcustodia legis, but onlywith the court's permission.13It would seem that the suspensive condition in the present conditional sale was imposed

only for this reason.

Thus, we are not persuaded by petitioners' argument that the obligation was converted into a mere monetary claim.Paragraph 4 of the Receipt, which petitioners rely on, refers to a situation wherein the sale has not materialized. Insuch a case," the seller is bound to return to the buyer the earnest money paid plus interest at fourteen percent perannum. But the sale was approved by the intestate court; hence, the proviso does not apply.

Because petitioners did not consent to the sale of their ideal shares in the disputed lots, the CA correctly limited thescope of the Receipt to the pro-indiviso share of Eliodoro Sr. Thus, it correctly modified the intestate court's ruling byexcluding their shares from the ambit of the transaction.

First Collateral Issue:

Jur isdict ion of Set t lement Court

Petitioners also fault the CA Decision by arguing, inter alia, (a) jurisdiction over ordinary civil action seeking notmerely to enforce a sale but to compel performance of a contract falls upon a civil court, not upon an intestate court;and (b) that Section 8 of Rule 89 allows the executor or administrator, and no one else, to file an application forapproval of a sale of the property under administration.

Citing Gil v. Cancio14andAcebedo v. Abesamis,15petitioners contend that the CA erred in clothing the settlementcourt with the jurisdiction to approve the sale and to compel petitioners to execute the Deed of Sale. They allegefactual differences between these cases and the instant case, as follows: in Gil, the sale of the realty in administration


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was a clear and an unequivocal agreement for the support of the widow and the adopted child of the decedent; andinAcebedo, a clear sale had been made, and all the heirs consented to the disposition of their shares in the realty inadministration.

We are not persuaded. We hold that Section 8 of Rule 89 allows this action to proceed. The factual differencesalleged by petitioners have no bearing on the intestate court's jurisdiction over the approval of the subject conditionalsale. Probate jurisdiction covers all matters relating to the settlement of estates (Rules 74 & 86-91) and the probate ofwills (Rules 75-77) of deceased persons, including the appointment and the removal of administrators and executors(Rules 78-85). It also extends to matters incidental and collateral to the exercise of a probate court's recognizedpowers such as selling, mortgaging or otherwise encumbering realty belonging to the estate. Indeed, the rules on thispoint are intended to settle the estate in a speedy manner, so that the benefits that may flow from such settlementmay be immediately enjoyed by the heirs and the beneficiaries.16

In the present case, the Motion for Approval was meant to settle the decedent's obligation to respondent; hence, thatobligation clearly falls under the jurisdiction of the settlement court. To require respondent to file a separate action --on whether petitioners should convey the title to Eliodoro Sr.'s share of the disputed realty -- will unnecessarilyprolong the settlement of the intestate estates of the deceased spouses.

The suspensive condition did not reduce the conditional sale between Eliodoro Sr. and respondent to one that was"not a definite, clear and absolute document of sale," as contended by petitioners. Upon the occurrence of thecondition, the conditional sale became a reciprocally demandable obligation that is binding upon theparties.17ThatAcebedo also involved a conditional sale of real property18proves that the existence of the suspensivecondition did not remove that property from the jurisdiction of the intestate court.

Second Collateral Issue:

Intervenor 's Standing

Petitioners contend that under said Rule 89, only the executor or administrator is authorized to apply for the approvalof a sale of realty under administration. Hence, the settlement court allegedly erred in entertaining and grantingrespondent's Motion for Approval. 1wphi1.nt

We read no such limitation. Section 8, Rule 89 of the Rules of Court, provides:

"SEC. 8. When court may authorize conveyance of realty which deceased contracted to convey. Notice.Effect of deed. -- Where the deceased was in his lifetime under contract, binding in law, to deed realproperty, or an interest therein, the court having jurisdiction of the estate may, on application for thatpurpose, authorize the executor or administrator to convey such property according to such contract, or withsuch modifications as are agreed upon by the parties and approved by the court; and if the contract is toconvey real property to the executor or administrator, the clerk of the court shall execute the deed. x x x."

This provision should be differentiated from Sections 2 and 4 of the same Rule, specifically requiring only theexecutor or administrator to file the application for authority to sell, mortgage or otherwise encumber real estate forthe purpose of paying debts, expenses and legacies (Section 2);19or for authority to sell real or personal estatebeneficial to the heirs, devisees or legatees and other interested persons, although such authority is not necessary topay debts, legacies or expenses of administration (Section 4).20Section 8 mentions only an application to authorize

the conveyance of realty under a contract that the deceased entered into while still alive. While this Rule does notspecify who should file the application, it stands to reason that the proper party must be one .who is to be benefited orinjured by the judgment, or one who is to be entitled to the avails of the suit. 21

Third Collateral Issue:

Bad Faith


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Petitioners assert that Eliodoro Sr. was not in bad faith, because (a) he informed respondent of the need to securecourt approval prior to the sale of the lots, and (2) he did not promise that he could obtain the approval.

We agree. Eliodoro Sr. did not misrepresent these lots to respondent as his own properties to which he alone had atitle in fee simple. The fact that he failed to obtain the approval of the conditional sale did not automatically imply badfaith on his part. The CA held him in bad faith only for the purpose of binding him to the conditional sale. This wasunnecessary because his being bound to it is, as already shown, beyond cavil.

Fourth Collateral Issue:

Comp utat ion of El iodoro 's Share

Petitioners aver that the CA's computation of Eliodoro Sr.'s share in the disputed parcels of land was erroneousbecause, as the conjugal partner of Remedios, he owned one half of these lots plus a further one tenth of theremaining half, in his capacity as a one of her legal heirs. Hence, Eliodoro's share should be 11/20 of the entireproperty. Respondent poses no objection to this computation.22

On the other hand, the CA held that, at the very least, the conditional sale should cover the one half (1/2) pro indiviso

conjugal share of Eliodoro plus his one tenth (1/10) hereditary share as one of the ten legal heirs of the decedent, ora total of three fifths (3/5) of the lots in administration. 23

Petitioners' correct. The CA computed Eliodoro's share as an heir based on one tenth of the entire disputed property.It should be based only on the remaining half, after deducting the conjugal share. 24

The proper determination of the seller-heir's shares requires further explanation. Succession laws and jurisprudencerequire that when a marriage is dissolved by the death of the husband or the wife, the decedent's entire estate -under the concept of conjugal properties of gains -- must be divided equally, with one half going to the survivingspouse and the other half to the heirs of the deceased.25After the settlement of the debts and obligations, theremaining half of the estate is then distributed to the legal heirs, legatees and devices. We assume, however, that thispreliminary determination of the decedent's estate has already been taken into account by the parties, since the onlyissue raised in this case is whether Eliodoro's share is 11/20 or 3/5 of the disputed lots.

WHEREFORE, The Petition is hereby PARTIALLY GRANTED. The appealed Decision and ResolutionareAFFIRMED with the MODIFICATION that respondent is entitled to only a pro-indiviso share equivalent to 11/20 ofthe disputed lots.

SO ORDERED.


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Manila

THIRD DIVISION

G.R. No. 107207 November 23, 1995

VIRGILIO R. ROMERO, petitioner,vs.HON. COURT OF APPEALS and ENRIQUETA CHUA VDA. DE ONGSIONG, respondents.

VITUG, J .:

The parties pose this question: May the vendor demand the rescission of a contract for the sale of a parcel of land fora cause traceable to his own failure to have the squatters on the subject property evicted within the contractually-stipulated period?

Petitioner Virgilio R. Romero, a civil engineer, was engaged in the business of production, manufacture andexportation of perlite filter aids, permalite insulation and processed perlite ore. In 1988, petitioner and his foreignpartners decided to put up a central warehouse in Metro Manila on a land area of approximately 2,000 squaremeters. The project was made known to several freelance real estate brokers.

A day or so after the announcement, Alfonso Flores and his wife, accompanied by a broker, offered a parcel of landmeasuring 1,952 square meters. Located in Barangay San Dionisio, Paraaque, Metro Manila, the lot was coveredby TCT No. 361402 in the name of private respondent Enriqueta Chua vda. de Ongsiong. Petitioner visited theproperty and, except for the presence of squatters in the area, he found the place suitable for a central warehouse.

Later, the Flores spouses called on petitioner with a proposal that should he advance the amount of P50,000.00which could be used in taking up an ejectment case against the squatters, private respondent would agree to sell theproperty for only P800.00 per square meter. Petitioner expressed his concurrence. On 09 June 1988, a contract,denominated "Deed of Conditional Sale," was executed between petitioner and private respondent. The simply-drawncontract read:

DEED OF CONDITIONAL SALE

KNOW ALL MEN BY THESE PRESENTS:

This Contract, made and executed in the Municipality of Makati, Philippines this 9th day of June,1988 by and between:

ENRIQUETA CHUA VDA. DE ONGSIONG, of legal age, widow, Filipino andresiding at 105 Simoun St., Quezon City, Metro Manila, hereinafter referred to asthe VENDOR;

-and-

VIRGILIO R. ROMERO, married to Severina L. Lat, of Legal age, Filipino, andresiding at 110 San Miguel St., Plainview Subd., Mandaluyong Metro Manila,hereinafter referred to as the VENDEE:


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W I T N E S S E T H : That

WHEREAS, the VENDOR is the owner of One (1) parcel of land with a total area of ONETHOUSAND NINE HUNDRED FIFTY TWO (1,952) SQUARE METERS, more or less, located inBarrio San Dionisio, Municipality of Paraaque, Province of Rizal, covered by TCT No. 361402issued by the Registry of Deeds of Pasig and more particularly described as follows:

xxx xxx xxx

WHEREAS, the VENDEE, for (sic) has offered to buy a parcel of land and the VENDOR hasaccepted the offer, subject to the terms and conditions hereinafter stipulated:

NOW, THEREFORE, for and in consideration of the sum of ONE MILLION FIVE HUNDRED SIXTYONE THOUSAND SIX HUNDRED PESOS (P1,561,600.00) ONLY, Philippine Currency, payableby VENDEE to in to (sic) manner set forth, the VENDOR agrees to sell to the VENDEE, their heirs,successors, administrators, executors, assign, all her rights, titles and interest in and to theproperty mentioned in the FIRST WHEREAS CLAUSE, subject to the following terms andconditions:

1. That the sum of FIFTY THOUSAND PESOS (P50,000.00) ONLY PhilippineCurrency, is to be paid upon signing and execution of this instrument.

2. The balance of the purchase price in the amount of ONE MILLION FIVEHUNDRED ELEVEN THOUSAND SIX HUNDRED PESOS (P1,511,600.00)ONLY shall be paid 45 days after the removal of all squatters from the abovedescribed property.

3. Upon full payment of the overall purchase price as aforesaid, VENDORwithout necessity of demand shall immediately sign, execute, acknowledged (sic)and deliver the corresponding deed of absolute sale in favor of the VENDEE freefrom all liens and encumbrances and all Real Estate taxes are all paid andupdated.

It is hereby agreed, covenanted and stipulated by and between the parties hereto that if after 60days from the date of the signing of this contract the VENDOR shall not be able to remove thesquatters from the property being purchased, the downpayment made by the buyer shall bereturned/reimbursed by the VENDOR to the VENDEE.

That in the event that the VENDEE shall not be able to pay the VENDOR the balance of thepurchase price of ONE MILLION FIVE HUNDRED ELEVEN THOUSAND SIX HUNDRED PESOS(P1,511,600.00) ONLY after 45 days from written notification to the VENDEE of the removal of thesquatters from the property being purchased, the FIFTY THOUSAND PESOS (P50,000.00)previously paid as downpayment shall be forfeited in favor of the VENDOR.

Expenses for the registration such as registration fees, documentary stamp, transfer fee,assurances and such other fees and expenses as may be necessary to transfer the title to thename of the VENDEE shall be for the account of the VENDEE while capital gains tax shall be paidby the VENDOR.

IN WITNESS WHEREOF, the parties hereunto signed those (sic) presents in the City of MakatiMM, Philippines on this 9th day of June, 1988.

(Sgd.) (Sgd.)

VIRGILIO R. ROMERO ENRIQUETA CHUA VDA.


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DE ONGSIONG

Vendee Vendor

SIGNED IN THE PRESENCE OF:

(Sgd.) (Sgd.)

Rowena C. Ongsiong Jack M. Cruz1

Alfonso Flores, in behalf of private respondent, forthwith received and acknowledged a check forP50,000.002from petitioner.3

Pursuant to the agreement, private respondent filed a complaint for ejectment (Civil Case No. 7579) against MelchorMusa and 29 other squatter families with the Metropolitan Trial Court of Paraaque. A few months later, or on 21February 1989, judgment was rendered ordering the defendants to vacate the premises. The decision was handeddown beyond the 60-day period (expiring 09 August 1988) stipulated in the contract. The writ of execution of the

judgment was issued, still later, on 30 March 1989.

In a letter, dated 07 April 1989, private respondent sought to return the P50,000.00 she received from petitionersince, she said, she could not "get rid of the squatters" on the lot. Atty. Sergio A.F. Apostol, counsel for petitioner, inhis reply of 17 April 1989, refused the tender and stated:.

Our client believes that with the exercise of reasonable diligence considering the favorable decisionrendered by the Court and the writ of execution issued pursuant thereto, it is now possible to ejectthe squatters from the premises of the subject property, for which reason, he proposes that he shalltake it upon himself to eject the squatters, provided, that expenses which shall be incurred byreason thereof shall be chargeable to the purchase price of the land. 4

Meanwhile, the Presidential Commission for the Urban Poor ("PCUD"), through its Regional Director for Luzon,Farley O. Viloria, asked the Metropolitan Trial Court of Paraaque for a grace period of 45 days from 21 April 1989

within which to relocate and transfer the squatter families. Acting favorably on the request, the court suspended theenforcement of the writ of execution accordingly.

On 08 June 1989, Atty. Apostol reminded private respondent on the expiry of the 45-day grace period and his client'swillingness to "underwrite the expenses for the execution of the judgment and ejectment of the occupants." 5

In his letter of 19 June 1989, Atty. Joaquin Yuseco, Jr., counsel for private respondent, advised Atty. Apostol that theDeed of Conditional Sale had been rendered null and void by virtue of his client's failure to evict the squatters fromthe premises within the agreed 60-day period. He added that private respondent had "decided to retain theproperty."6

On 23 June 1989, Atty. Apostol wrote back to explain:

The contract of sale between the parties was perfected from the very moment that there was ameeting of the minds of the parties upon the subject lot and the price in the amount ofP1,561,600.00. Moreover, the contract had already been partially fulfilled and executed uponreceipt of the downpayment of your client. Ms. Ongsiong is precluded from rejecting its bindingeffects relying upon her inability to eject the squatters from the premises of subject property duringthe agreed period. Suffice it to state that, the provision of the Deed of Conditional Sale do not granther the option or prerogative to rescind the contract and to retain the property should she fail tocomply with the obligation she has assumed under the contract. In fact, a perusal of the terms andconditions of the contract clearly shows that the right to rescind the contract and to demand thereturn/reimbursement of the downpayment is granted to our client for his protection.


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Instead, however, of availing himself of the power to rescind the contract and demand the return,reimbursement of the downpayment, our client had opted to take it upon himself to eject thesquatters from the premises. Precisely, we refer you to our letters addressed to your client datedApril 17, 1989 and June 8, 1989.

Moreover, it is basic under the law on contracts that the power to rescind is given to the injuredparty. Undoubtedly, under the circumstances, our client is the injured party.

Furthermore, your client has not complied with her obligation under their contract in good faith. It isundeniable that Ms. Ongsiong deliberately refused to exert efforts to eject the squatters from thepremises of the subject property and her decision to retain the property was brought about by thesudden increase in the value of realties in the surrounding areas.

Please consider this letter as a tender of payment to your client and a demand to execute theabsolute Deed of Sale.7

A few days later (or on 27 June 1989), private respondent, prompted by petitioner's continued refusal to accept thereturn of the P50,000.00 advance payment, filed with the Regional Trial Court of Makati, Branch 133, Civil Case No.

89-4394 for rescission of the deed of "conditional" sale, plus damages, and for the consignation of P50,000.00 cash.

Meanwhile, on 25 August 1989, the Metropolitan Trial Court issued an aliaswrit of execution in Civil Case No. 7579on motion of private respondent but the squatters apparently still stayed on.

Back to Civil Case No. 89-4394, on 26 June 1990, the Regional Trial Court of Makati 8rendered decision holdingthat private respondent had no right to rescind the contract since it was she who "violated her obligationto eject the squatters from the subject property" and that petitioner, being the injured party, was the partywho could, under Article 1191 of the Civil Code, rescind the agreement. The court ruled that theprovisions in the contract relating to (a) the return/reimbursement of the P50,000.00 if the vendor were tofail in her obligation to free the property from squatters within the stipulated period or (b), upon the otherhand, the sum's forfeiture by the vendor if the vendee were to fail in paying the agreed purchase price,amounted to "penalty clauses". The court added:

This Court is not convinced of the ground relied upon by the plaintiff in seeking the rescission,namely: (1) he (sic) is afraid of the squatters; and (2) she has spent so much to eject them from thepremises (p. 6, tsn, ses. Jan. 3, 1990). Militating against her profession of good faith is plaintiffsconduct which is not in accord with the rules of fair play and justice. Notably, she caused theissuance of an alias writ of execution on August 25, 1989 (Exh. 6) in the ejectment suit which wasalmost two months after she filed the complaint before this Court on June 27, 1989. If she werereally afraid of the squatters, then she should not have pursued the issuance of an alias writ ofexecution. Besides, she did not even report to the police the alleged phone threats from thesquatters. To the mind of the Court, the so-called squatter factor is simply factuitous ( sic).9

The lower court, accordingly, dismissed the complaint and ordered, instead, private respondent to eject orcause the ejectment of the squatters from the property and to execute the absolute deed of conveyanceupon payment of the full purchase price by petitioner.

Private respondent appealed to the Court of Appeals. On 29 May 1992, the appellate court rendered its decision. 10Itopined that the contract entered into by the parties was subject to a resolutory condition, i.e., theejectment of the squatters from the land, the non-occurrence of which resulted in the failure of the objectof the contract; that private respondent substantially complied with her obligation to evict the squatters;that it was petitioner who was not ready to pay the purchase price and fulfill his part of the contract, andthat the provision requiring a mandatory return/reimbursement of the P50,000.00 in case privaterespondent would fail to eject the squatters within the 60-day period was not a penal clause. Thus, itconcluded.


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WHEREFORE, the decision appealed from is REVERSED and SET ASIDE, and a new oneentered declaring the contract of conditional sale dated June 9, 1988 cancelled and ordering thedefendant-appellee to accept the return of the downpayment in the amount of P50,000.00 whichwas deposited in the court below. No pronouncement as to costs. 11

Failing to obtain a reconsideration, petitioner filed this petition for review on certiorariraising issues that, in fine,center on the nature of the contract adverted to and the P50,000.00 remittance made by petitioner.

A perfected contract of sale may either be absolute or conditional 12depending on whether the agreement isdevoid of, or subject to, any condition imposed on the passingof title of the thing to be conveyed or onthe obligationof a party thereto. When ownership is retained until the fulfillment of a positive condition thebreach of the condition will simply prevent the duty to convey title from acquiring an obligatory force. If thecondition is imposed on an obligationof a party which is not complied with, the other party may eitherrefuse to proceed or waive said condition (Art. 1545, Civil Code). Where, of course, the condition isimposed upon theperfectionof the contract itself, the failure of such condition would prevent the juridicalrelation itself from coming into existence.13

In determining the real character of the contract, the title given to it by the parties is not as much significant as its

substance. For example, a deed of sale, although denominated as a deed of conditional sale, may be treated asabsolute in nature, if title to the property sold is not reserved in the vendor or if the vendor is not granted the right tounilaterally rescind the contract predicatedon the fulfillment or non-fulfillment, as the case may be, of the prescribed condition. 14

The term "condition" in the context of aperfectedcontract of sale pertains, in reality, to the compliance by one partyof an undertaking the fulfillment of which would beckon, in turn, the demandability of the reciprocal prestation of theother party. The reciprocal obligations referred to would normally be, in the case of vendee, the payment of theagreed purchase price and, in the case of the vendor, the fulfillment of certain express warranties (which, in the caseat bench is the timely eviction of the squatters on the property).

It would be futile to challenge the agreement here in question as not being a duly perfected contract. A sale is at onceperfected when a person (the seller) obligates himself, for a price certain, to deliver and to transfer ownership of aspecified thing or right to another (the buyer) over which the latter agrees. 15

The object of the sale, in the case before us, was specifically identified to be a 1,952-square meter lot in SanDionisio, Paraaque, Rizal, covered by Transfer Certificate of Title No. 361402 of the Registry of Deeds for Pasig andtherein technically described. The purchase price was fixed at P1,561,600.00, of which P50,000.00 was to be paidupon the execution of the document of sale and the balance of P1,511,600.00 payable "45 days after the removal ofall squatters from the above described property."

From the moment the contract is perfected, the parties are bound not only to the fulfillment of what has beenexpressly stipulated but also to all the consequences which, according to their nature, may be in keeping with goodfaith, usage and law. Under the agreement, private respondent is obligated to evict the squatters on the property. Theejectment of the squatters is a conditionthe operative act of which sets into motion the period of compliance bypetitioner of his own obligation,i.e., to pay the balance of the purchase price. Private respondent's failure "to removethe squatters from the property" within the stipulated period gives petitioner the right to either refuse to proceed withthe agreement or waive that condition in consonance with Article 1545 of the Civil Code. 16This option clearly

belongs to petitioner and not to private respondent.

We share the opinion of the appellate court that the undertaking required of private respondent does not constitute a"potestative condition dependent solely on his will" that might, otherwise, be void in accordance with Article 1182 ofthe Civil Code17but a "mixed" condition "dependent not on the will of the vendor alone but also of thirdpersons like the squatters and government agencies and personnel concerned." 18We must hasten toadd, however, that where the so-called "potestative condition" is imposed not on the birth of the obligationbut on its fulfillment, only the obligation is avoided, leaving unaffected the obligation itself. 19


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In contracts of sale particularly, Article 1545 of the Civil Code, aforementioned, allows the obligee to choose betweenproceeding with the agreement or waiving the performance of the condition. It is this provision which is the pertinentrule in the case at bench. Here, evidently, petitioner has waived the performance of the condition imposed on privaterespondent to free the property from squatters. 20

In any case, private respondent's action for rescission is not warranted. She is not the injured party. 21The right ofresolution of a party to an obligation under Article 1191 of the Civil Code is predicated on a breach of faithby the other party that violates the reciprocity between them. 22It is private respondent who has failed inher obligation under the contract. Petitioner did not breach the agreement. He has agreed, in fact, toshoulder the expenses of the execution of the judgment in the ejectment case and to make arrangementswith the sheriff to effect such execution. In his letter of 23 June 1989, counsel for petitioner has tenderedpayment and demanded forthwith the execution of the deed of absolute sale. Parenthetically, this offer topay, having been made prior to the demand for rescission, assuming for the sake of argument that such ademand is proper under Article 159223of the Civil Code, would likewise suffice to defeat privaterespondent's prerogative to rescind thereunder.

There is no need to still belabor the question of whether the P50,000.00 advance payment is reimbursable topetitioner or forfeitable by private respondent, since, on the basis of our foregoing conclusions, the matter has ceased

to be an issue. Suffice it to say that petitioner having opted to proceed with the sale, neither may petitioner demandits reimbursement from private respondent nor may private respondent subject it to forfeiture.

WHEREFORE, the questioned decision of the Court of Appeals is hereby REVERSED AND SET ASIDE, and anotheris entered ordering petitioner to pay private respondent the balance of the purchase price and the latter to executethe deed of absolute sale in favor of petitioner. No costs.

SO ORDERED.

Suspensive and Resolutory (Art. 1181)

Cases:


Manila

THIRD DIVISION

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, LEAZULUETA-LAFORTEZA, MICHAEL Z. LAFORTEZA, and DENNIS Z. LAFORTEZA".

The following facts as found by the Court of Appeals are undisputed:
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The property involved consists of a house and lot located at No. 7757 Sherwood Street, Marcelo GreenVillage, Paraaque, Metro Manila, covered by Transfer Certificate of Title (TCT) No. (220656) 8941 of theRegistered of Deeds of Paraaque (Exhibit "D", Plaintiff, record, pp. 331-332). The subject property isregistered 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 ofdefendants Roberto Z. Laforteza and Gonzalo Z. Laforteza, Jr., appointing both as her Attorney-in-factauthorizing them jointly to sell the subject property and sign any document for the settlement of the estate ofthe 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 ofdefendants 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 toexercise 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 ofdefendant 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 ofAttorney 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 estateof 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 theexercise of their authority. 1wphi1.nt

In the exercise of the above authority, on January 20, 1989, the heirs of the late Francisco Q. Lafortezarepresented by Roberto Z. Laforteza and Gonzalo Z. Laforteza, Jr. entered into a Memorandum ofAgreement (Contract to Sell) with the plaintiff2over the subject property for the sum of SIX HUNDREDTHIRTY 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 noteffected 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 infavor 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 inwriting and said BUYER-LESSEE shall have thirty (30) days to produce the balance ofP600,000.00 which shall be paid to the SELLER-LESSORS upon the execution of the ExtrajudicialSettlement 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, advisinghim that he had thirty (3) days to produce the balance of SIX HUNDRED PESOS (sic) (P600,000.00) underthe 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 HUNDREDTHOUSAND PESOS (P600,000.00) (Exh. "G", Plaintiff, record, pp. 341-342). Defendant Roberto Z.
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Laforteza, assisted by his counsel Atty. Romeo L. Gutierrez, signed his conformity to the plaintiff's letterrequest (Exh. "G-1 and "G-2", Plaintiff, record, p. 342). The extension, however, does not appear to havebeen approved by Gonzalo Z. Laforteza, the second attorney-in-fact as his conformity does not appear tohave been secured.

On November 15, 1989, plaintiff informed the defendant heirs, through defendant Roberto Z. Laforteza, thathe already had the balance of SIX HUNDRED THOUSAND PESOS (P600,000.00) covered by UnitedCoconut 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 nolonger 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 ofAgreement (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 THOUSANDPESOS (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 onJuly 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 thedefendant 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 thepurchase of the house and lot located at No. 7757 Sherwood Street, Marcelo GreenVillage, 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 theplaintiff;

(c) Jointly and severally to pay the plaintiff the sum of P20,000.00 as attorney's fees pluscost of suit.

SO ORDERED. (Rollo, pp. 74-75).5

Petitioners appealed to the Court of Appeals, which affirmed with modification the decision of the lowercourt; the dispositive portion of the Decision reads:

WHEREFORE, the questioned decision of the lower court is hereby AFFIRMED with theMODIFICATION 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 payjointly 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 petitionersraise the following issues:

I. WHETHER THE TRIAL AND APPELLATE COURTS CORRECTLY CONSTRUED THEMEMORANDUM OF AGREEMENT AS IMPOSING RECIPROCAL OBLIGATIONS.
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II. WHETHER THE COURTSA QUO CORRECTLY RULED THAT RESCISSION WILL NOT LIE INTHE INSTANT CASE.

III. WHETHER THE RESPONDENT IS UNDER ESTOPPEL FROM RAISING THE ALLEGEDDEFECT IN THE SPECIAL POWER OF ATTORNEY DATED 30 OCTOBER 1989 EXECUTED BYDENNIS LAFORTEZA.

IV. SUPPOSING EX GRATIA ARGUMENTI THE MEMORANDUM OF AGREEMENT IMPOSESRECIPROCAL OBLIGATIONS, WHETHER THE PETITIONERS MAY BE COMPELLED TO SELLTHE SUBJECT PROPERTY WHEN THE RESPONDENT FAILED TO MAKE A JUDICIALCONSIGNATION OF THE PURCHASE PRICE?

V. WHETHER THE PETITIONERS ARE IN BAD FAITH SO TO AS MAKE THEM LIABLE FORMORAL DAMAGES?8

The petitioners contend that the Memorandum of Agreement is merely a lease agreement with "option topurchase". As it was merely an option, it only gave the respondent a right to purchase the subject propertywithin 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 theperfection of a contract of sale.

It is further maintained by the petitioners that the Court of Appeals erred in ruling that rescission of thecontract was already out of the question. Rescission implies that a contract of sale was perfected unlike theMemorandum 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, asindicated in its title. The obligation of the petitioners to sell the property to the respondent was conditionedupon the issuance of a new certificate of title and the execution of the extrajudicial partition with sale andpayment of the P600,000.00. This is why possession of the subject property was not delivered to therespondent as the owner of the property but only as the lessee thereof. And the failure of the respondent topay the purchase price in full prevented the petitioners' obligation to convey title from acquiring obligatoryforce.

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 P600,000.00was 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 withtheir obligation to execute the extrajudicial settlement. The Power of Attorney to execute a Deed of Salemade by Dennis Z. Laforteza was sufficient and necessarily included the power to execute an extrajudicialsettlement. At any rate, the respondent is estopped from claiming that the petitioners were not ready tocomply with their obligation for he acknowledged the petitioners' ability to do so when he requested for anextension of time within which to pay the purchase price. Had he truly believed that the petitioners were notready, 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 ofthe 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 therespondent 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 sellunto 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'scertificate 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 amountshall be forfeited in favor of SELLER-LESSORS if the sale is not effected because of thefault or option of BUYER-LESSEE;

P600,000.00 upon the issuance of the new certificate of title in the name of the lateFrancisco Laforteza and upon the execution of an Extrajudicial Settlement of his estatewith 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 asthe execution of extrajudicial settlement of estate with sale to herein BUYER-LESSEE will becompleted within six (6) months from the execution of this Agreement. It is therefore agreed thatduring the six months period, BUYER-LESSEE will be leasing the subject property for six monthsperiod 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 ExtrajudicialPartition is completed prior to the expiration of the six months period, BUYER-LESSEE shall onlybe liable for rentals for the corresponding period commencing from his occupancy of the premisesto the execution and completion of the Extrajudicial Settlement of the estate, provided further that ifafter the expiration of six (6) months, the lost title is not yet replaced and the extra judicial partitionis not executed, BUYER-LESSEE shall no longer be required to pay rentals and shall continue tooccupy, 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 thepayment 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 ofthe 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 tothe 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 mindsupon the thing which is the object of the contract and upon the price.10From that moment the parties mayreciprocally demand performance subject to the provisions of the law governing the form of contracts. 11Theelements of a valid contract of sale under Article 1458 of the Civil Code are (1) consent or meeting of theminds; (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 wherebythe petitioners obligated themselves to transfer the ownership of and deliver the house and lot located at7757 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 lieuof the one in the name of the late Francisco Laforteza and upon the execution of an extrajudicial settlementof his estate. Prior to the issuance of the "reconstituted" title, the respondent was already placed inpossession of the house and lot as lessee thereof for six months at a monthly rate of three thousand fivehundred pesos (P3,500.00). It was stipulated that should the issuance of the new title and the execution ofthe extrajudicial settlement be completed prior to expiration of the six-month period, the respondent wouldbe liable only for the rentals pertaining to the period commencing from the date of the execution of theagreement up to the execution of the extrajudicial settlement. It was also expressly stipulated that if after theexpiration of the six month period, the lost title was not yet replaced and the extrajudicial partition was not
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yet executed, the respondent would no longer be required to pay rentals and would continue to occupy anduse 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, wasclearly not a period within which to exercise an option. An option is a contract granting a privilege to buy orsell within an agreed time and at a determined price. An option contract is a separate and distinct contractfrom that which the parties may enter into upon the consummation of the option. 13An option must besupported by consideration.14An option contract is governed by the second paragraph of Article 1479 of theCivil Code15,which reads:

Art. 1479. . . .

An accepted unilateral promise to buy or to sell a determinate thing for a price certain is bindingupon 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 didnot determine its perfection for after the expiration of the six-month period, there was an absolute obligationon 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 sixmonths and thus presumed that after six months, both parties would be able to comply with what wasreciprocally incumbent upon them. The fact that after the expiration of the six-month period, the respondentwould retain possession of the house and lot without need of paying rentals for the use therefor, clearlyindicated that the parties contemplated that ownership over the property would already be transferred bythat time.

The issuance of the new certificate of title in the name of the late Francisco Laforteza and the execution of anextrajudicial 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 saleof the house and lot is unconvincing. The petitioners fail to distinguish between a condition imposed upon theperfection of the contract and a condition imposed on the performance of an obligation. Failure to comply with the firstcondition results in the failure of a contract, while the failure to comply with the second condition only gives the otherparty the option either to refuse to proceed with the sale or to waive the condition. Thus, Art. 1545 of the Civil Codestates:

Art. 1545. Where the obligation of either party to a contract of sale is subject to any condition which is notperformed, such party may refuse to proceed with the contract or he may waive performance of thecondition. If the other party has promised that the condition should happen or be performed, such firstmentioned 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 hisobligation to deliver the same as described and as warranted expressly or by implication in the contract ofsale 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 theobligations contained therein. Considering however that the title was eventually "reconstituted" and that thepetitioners 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 therespondent paid thirty thousand pesos (P30,000.00) as earnest money. Earnest money is something of value to showthat the buyer was really in earnest, and given to the seller to bind the bargain.17Whenever earnest money is given ina 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 nothingcontained in the Memorandum Agreement from which it can reasonably be deduced that the parties intended to enterinto a contract to sell, i.e. one whereby the prospective seller would explicitly reserve the transfer of title to the
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prospective buyer, meaning, the prospective seller does not as yet agree or consent to transfer ownership of theproperty subject of the contract to sell until the full payment of the price, such payment being a positive suspensivecondition, the failure of which is not considered a breach, casual or serious, but simply an event which prevented theobligation from acquiring any obligatory force.19There is clearly no express reservation of title made by thepetitioners 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 aconditional sale in the absence of a stipulation reserving title in the petitioners until full payment of the purchaseprice.20In such cases, ownership of the thing sold passes to the vendee upon actual or constructive deliverythereof.21The mere fact that the obligation of the respondent to pay the balance of the purchase price was madesubject to the condition that the petitioners first deliver the reconstituted title of the house and lot does not make thecontract 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 pricewithin 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 andwas a ground for rescission thereof. The extension of thirty (30) days allegedly granted to the respondent by RobertoZ. Laforteza (assisted by his counsel Attorney Romeo Gutierrez) was correctly found by the Court of Appeals to beineffective inasmuch as the signature of Gonzalo Z. Laforteza did not appear thereon as required by the SpecialPowers of Attorney.23However, the evidence reveals that after the expiration of the six-month period provided for inthe contract, the petitioners were not ready to comply with what was incumbent upon them, i.e. the delivery of thereconstituted title of the house and lot. It was only on September 18, 1989 or nearly eight months after the executionof the Memorandum of Agreement when the petitioners informed the respondent that they already had a copy of thereconstituted title and demanded the payment of the balance of the purchase price. The respondent could nottherefore be considered in delay for in reciprocal obligations, neither party incurs in delay if the other party does notcomply 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 thatrescission of the contract will still not prosper. The rescission of a sale of an immovable property is specificallygoverned 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 priceat the time agreed upon the rescission of the contract shall of right take place, the vendee may pay, evenafter the expiration of the period, as long as no demand for rescission of the contract has been made uponhim 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. 1avvphi1The November 20,1989 letter of the petitioners informing the respondent of the automatic rescission of the agreement did not amount toa demand for rescission, as it was not notarized.26It was also made five days after the respondent's attempt to makethe payment of the purchase price. This offer to pay prior to the demand for rescission is sufficient to defeat thepetitioners' right under article 1592 of the Civil Code.27Besides, the Memorandum Agreement between the partiesdid not contain a clause expressly authorizing the automatic cancellation of the contract without court intervention inthe event that the terms thereof were violated. A seller cannot unilaterally and extrajudicially rescind a contract or salewhere 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 wasstill in force inasmuch as the contract was not yet rescinded. At any rate, considering that the six-month period wasmerely an approximation of the time if would take to reconstitute the lost title and was not a condition imposed on theperfection of the contract and considering further that the delay in payment was only thirty days which was caused bythe respondents justified but mistaken belief that an extension to pay was granted to him, we agree with the Court ofAppeals that the delay of one month in payment was a mere casual breach that would not entitle the respondents torescind the contract. Rescission of a contract will not be permitted for a slight or casual breach, but only suchsubstantial 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 whetherrespondent's action for specific performance will lie. Petitioners themselves point out that the effect of cansignation isto extinguish the obligation. It releases the debtor from responsibility therefor.30The failure of the respondent toconsignate the P600,000.00 is not tantamount to a breach of the contract for by the fact of tendering payment, hewas 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 therespondent. As found by the said Court, the petitioners refused to comply with, their obligation for the reasonthat they were offered a higher price therefor and the respondent was even offered P100,000.00 by thepetitioners' lawyer, Attorney Gutierrez, to relinquish his rights over the property. The award of moraldamages is in accordance with Article 119131of the Civil Code pursuant to Article 2220 which provides thatmoral damages may be awarded in case of breach of contract where the defendant acted in bad faith. Theamount awarded depends on the discretion of the court based on the circum

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