Republic of the Philippines

SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 138074

b) FEBTC Cashiers Check No. 287078, in the amount of P2,087,000.00, dated

December 22, 1987, likewise payable to the order of Fernando David; and
c) FEBTC Dollar Draft No. 4771, drawn on Chemical Bank, New York, in the amount of
US$200,000.00, dated December 22, 1987, payable to PCIB FCDU Account No.
4195-01165-2.

August 15, 2003

CELY YANG, Petitioner,

vs.
HON. COURT OF APPEALS, PHILIPPINE COMMERCIAL INTERNATIONAL BANK, FAR
EAST BANK & TRUST CO., EQUITABLE BANKING CORPORATION, PREM
CHANDIRAMANI and FERNANDO DAVID, Respondents.
DECISION
QUISUMBING, J.:
For review on certiorari is the decision1 of the Court of Appeals, dated March 25, 1999, in CAG.R. CV No. 52398, which affirmed with modification the joint decision of the Regional Trial
Court (RTC) of Pasay City, Branch 117, dated July 4, 1995, in Civil Cases Nos. 54792 and
5492.3 The trial court dismissed the complaint against herein respondents Far East Bank & Trust
Company (FEBTC), Equitable Banking Corporation (Equitable), and Philippine Commercial
International Bank (PCIB) and ruled in favor of respondent Fernando David as to the proceeds
of the two cashiers checks, including the earnings thereof pendente lite. Petitioner Cely Yang
was ordered to pay David moral damages of P100,000.00 and attorneys fees also in the amount
of P100,000.00.
The facts of this case are not disputed, to wit:
On or before December 22, 1987, petitioner Cely Yang and private respondent Prem
Chandiramani entered into an agreement whereby the latter was to give Yang a PCIB managers
check in the amount of P4.2 million in exchange for two (2) of Yangs managers checks, each in
the amount of P2.087 million, both payable to the order of private respondent Fernando David.
Yang and Chandiramani agreed that the difference of P26,000.00 in the exchange would be their
profit to be divided equally between them.
Yang and Chandiramani also further agreed that the former would secure from FEBTC a dollar
draft in the amount of US$200,000.00, payable to PCIB FCDU Account No. 4195-01165-2, which
Chandiramani would exchange for another dollar draft in the same amount to be issued by Hang
Seng Bank Ltd. of Hong Kong.
Accordingly, on December 22, 1987, Yang procured the following:
a) Equitable Cashiers Check No. CCPS 14-009467 in the sum of P2,087,000.00,
dated December 22, 1987, payable to the order of Fernando David;

At about one oclock in the afternoon of the same day, Yang gave the aforementioned cashiers
checks and dollar drafts to her business associate, Albert Liong, to be delivered to Chandiramani
by Liongs messenger, Danilo Ranigo. Ranigo was to meet Chandiramani at Philippine Trust
Bank, Ayala Avenue, Makati City, Metro Manila where he would turn over Yangs cashiers
checks and dollar draft to Chandiramani who, in turn, would deliver to Ranigo a PCIB managers
check in the sum of P4.2 million and a Hang Seng Bank dollar draft for US$200,000.00 in
exchange.
Chandiramani did not appear at the rendezvous and Ranigo allegedly lost the two cashiers
checks and the dollar draft bought by petitioner. Ranigo reported the alleged loss of the checks
and the dollar draft to Liong at half past four in the afternoon of December 22, 1987. Liong, in
turn, informed Yang, and the loss was then reported to the police.
It transpired, however, that the checks and the dollar draft were not lost, for Chandiramani was
able to get hold of said instruments, without delivering the exchange consideration consisting of
the PCIB managers check and the Hang Seng Bank dollar draft.
At three oclock in the afternoon or some two (2) hours after Chandiramani and Ranigo were to
meet in Makati City, Chandiramani delivered to respondent Fernando David at China Banking
Corporation branch in San Fernando City, Pampanga, the following: (a) FEBTC Cashiers Check
No. 287078, dated December 22, 1987, in the sum of P2.087 million; and (b) Equitable
Cashiers Check No. CCPS 14-009467, dated December 22, 1987, also in the amount of P2.087
million. In exchange, Chandiramani got US$360,000.00 from David, which Chandiramani
deposited in the savings account of his wife, Pushpa Chandiramani; and his mother, Rani
Reynandas, who held FCDU Account No. 124 with the United Coconut Planters Bank branch in
Greenhills, San Juan, Metro Manila. Chandiramani also deposited FEBTC Dollar Draft No. 4771,
dated December 22, 1987, drawn upon the Chemical Bank, New York for US$200,000.00 in
PCIB FCDU Account No. 4195-01165-2 on the same date.
Meanwhile, Yang requested FEBTC and Equitable to stop payment on the instruments she
believed to be lost. Both banks complied with her request, but upon the representation of PCIB,
FEBTC subsequently lifted the stop payment order on FEBTC Dollar Draft No. 4771, thus
enabling the holder of PCIB FCDU Account No. 4195-01165-2 to receive the amount of
US$200,000.00.
On December 28, 1987, herein petitioner Yang lodged a Complaint4 for injunction and damages
against Equitable, Chandiramani, and David, with prayer for a temporary restraining order, with
the Regional Trial Court of Pasay City. The Complaint was docketed as Civil Case No. 5479. The
Complaint was subsequently amended to include a prayer for Equitable to return to Yang the
amount of P2.087 million, with interest thereon until fully paid.5

On January 12, 1988, Yang filed a separate case for injunction and damages, with prayer for a
writ of preliminary injunction against FEBTC, PCIB, Chandiramani and David, with the RTC of
Pasay City, docketed as Civil Case No. 5492. This complaint was later amended to include a
prayer that defendants therein return to Yang the amount of P2.087 million, the value of FEBTC
Dollar Draft No. 4771, with interest at 18% annually until fully paid.6
On February 9, 1988, upon the filing of a bond by Yang, the trial court issued a writ of
preliminary injunction in Civil Case No. 5479. A writ of preliminary injunction was subsequently
issued in Civil Case No. 5492 also.
Meanwhile, herein respondent David moved for dismissal of the cases against him and for
reconsideration of the Orders granting the writ of preliminary injunction, but these motions were
denied. David then elevated the matter to the Court of Appeals in a special civil action for
certiorari docketed as CA-G.R. SP No. 14843, which was dismissed by the appellate court.
As Civil Cases Nos. 5479 and 5492 arose from the same set of facts, the two cases were
consolidated. The trial court then conducted pre-trial and trial of the two cases, but the
proceedings had to be suspended after a fire gutted the Pasay City Hall and destroyed the
records of the courts.
After the records were reconstituted, the proceedings resumed and the parties agreed that the
money in dispute be invested in Treasury Bills to be awarded in favor of the prevailing side. It
was also agreed by the parties to limit the issues at the trial to the following:

In finding for David, the trial court ratiocinated:

The evidence shows that defendant David was a holder in due course for the reason that the
cashiers checks were complete on their face when they were negotiated to him. They were not
yet overdue when he became the holder thereof and he had no notice that said checks were
previously dishonored; he took the cashiers checks in good faith and for value. He parted some
$200,000.00 for the two (2) cashiers checks which were given to defendant Chandiramani; he
had also no notice of any infirmity in the cashiers checks or defect in the title of the drawer. As a
matter of fact, he asked the manager of the China Banking Corporation to inquire as to the
genuineness of the cashiers checks (tsn, February 5, 1988, p. 21, September 20, 1991, pp. 1314). Another proof that defendant David is a holder in due course is the fact that the stop
payment order on [the] FEBTC cashiers check was lifted upon his inquiry at the head office (tsn,
September 20, 1991, pp. 24-25). The apparent reason for lifting the stop payment order was
because of the fact that FEBTC realized that the checks were not actually lost but indeed
reached the payee defendant David.9
Yang then moved for reconsideration of the RTC judgment, but the trial court denied her motion
in its Order of September 20, 1995.
In the belief that the trial court misunderstood the concept of a holder in due course and
misapprehended the factual milieu, Yang seasonably filed an appeal with the Court of Appeals,
docketed as CA-G.R. CV No. 52398.
On March 25, 1999, the appellate court decided CA-G.R. CV No. 52398 in this wise:

1. Who, between David and Yang, is legally entitled to the proceeds of Equitable
Banking Corporation (EBC) Cashiers Check No. CCPS 14-009467 in the sum
of P2,087,000.00 dated December 22, 1987, and Far East Bank and Trust Company
(FEBTC) Cashiers Check No. 287078 in the sum of P2,087,000.00 dated December
22, 1987, together with the earnings derived therefrom pendente lite?

WHEREFORE, this court AFFIRMS the judgment of the lower court with modification and
hereby orders the plaintiff-appellant to pay defendant-appellant PCIB the amount of TwentyFive Thousand Pesos (P25,000.00).
SO ORDERED.10

2. Are the defendants FEBTC and PCIB solidarily liable to Yang for having allowed the
encashment of FEBTC Dollar Draft No. 4771, in the sum of US$200,000.00 plus
interest thereon despite the stop payment order of Cely Yang?7
On July 4, 1995, the trial court handed down its decision in Civil Cases Nos. 5479 and 5492, to
wit:
WHEREFORE, the Court renders judgment in favor of defendant Fernando David against the
plaintiff Cely Yang and declaring the former entitled to the proceeds of the two (2) cashiers
checks, together with the earnings derived therefrom pendente lite; ordering the plaintiff to pay
the defendant Fernando David moral damages in the amount of P100,000.00; attorneys fees in
the amount of P100,000.00 and to pay the costs. The complaint against Far East Bank and Trust
Company (FEBTC), Philippine Commercial International Bank (PCIB) and Equitable Banking
Corporation (EBC) is dismissed. The decision is without prejudice to whatever action plaintiff
Cely Yang will file against defendant Prem Chandiramani for reimbursement of the amounts
received by him from defendant Fernando David.
SO ORDERED.8

In affirming the trial courts judgment with respect to herein respondent David, the appellate
court found that:
In this case, defendant-appellee had taken the necessary precautions to verify, through his bank,
China Banking Corporation, the genuineness of whether (sic) the cashiers checks he received
from Chandiramani. As no stop payment order was made yet (at) the time of the inquiry,
defendant-appellee had no notice of what had transpired earlier between the plaintiff-appellant
and Chandiramani. All he knew was that the checks were issued to Chandiramani with whom he
was he had (sic) a transaction. Further on, David received the checks in question in due course
because Chandiramani, who at the time the checks were delivered to David, was acting as
Yangs agent.
David had no notice, real or constructive, cogent for him to make further inquiry as to any
infirmity in the instrument(s) and defect of title of the holder. To mandate that each holder inquire
about every aspect on how the instrument came about will unduly impede commercial
transactions, Although negotiable instruments do not constitute legal tender, they often
take the place of money as a means of payment.

The mere fact that David and Chandiramani knew one another for a long time is not sufficient to
establish that they connived with each other to defraud Yang. There was no concrete proof
presented by Yang to support her theory.11
The appellate court awarded P25,000.00 in attorneys fees to PCIB as it found the action filed by
Yang against said bank to be "clearly unfounded and baseless." Since PCIB was compelled to
litigate to protect itself, then it was entitled under Article 2208 12 of the Civil Code to attorneys
fees and litigation expenses.
Hence, the instant recourse wherein petitioner submits the following issues for resolution:
a - WHETHER THE CHECKS WERE ISSUED TO PREM CHANDIRAMANI BY
PETITIONER;
b - WHETHER THE ALLEGED TRANSACTION BETWEEN PREM CHANDIRAMANI
AND FERNANDO DAVID IS LEGITIMATE OR A SCHEME BY BOTH PRIVATE
RESPONDENTS TO SWINDLE PETITIONER;
c - WHETHER FERNANDO DAVID GAVE PREM CHANDIRAMANI US$360,000.00
OR JUST A FRACTION OF THE AMOUNT REPRESENTING HIS SHARE OF THE
LOOT;
d - WHETHER PRIVATE RESPONDENTS FERNANDO DAVID AND PCIB ARE
ENTITLED TO DAMAGES AND ATTORNEYS FEES. 13
At the outset, we must stress that this is a petition for review under Rule 45 of the 1997 Rules of
Civil Procedure. It is basic that in petitions for review under Rule 45, the jurisdiction of this Court
is limited to reviewing questions of law, questions of fact are not entertained absent a showing
that the factual findings complained of are totally devoid of support in the record or are glaringly
erroneous.14 Given the facts in the instant case, despite petitioners formulation, we find that the
following are the pertinent issues to be resolved:
a) Whether the Court of Appeals erred in holding herein respondent Fernando David
to be a holder in due course; and
b) Whether the appellate court committed a reversible error in awarding damages and
attorneys fees to David and PCIB.
On the first issue, petitioner Yang contends that private respondent Fernando David is not a
holder in due course of the checks in question. While it is true that he was named the payee
thereof, David failed to inquire from Chandiramani about how the latter acquired possession of
said checks. Given his failure to do so, it cannot be said that David was unaware of any defect
or infirmity in the title of Chandiramani to the checks at the time of their negotiation. Moreover,
inasmuch as the checks were crossed, then David should have, pursuant to our ruling inBataan
Cigar & Cigarette Factory, Inc. v. Court of Appeals, G.R. No. 93048, March 3, 1994, 230 SCRA
643, been put on guard that the checks were issued for a definite purpose and accordingly,
made inquiries to determine if he received the checks pursuant to that purpose. His failure to do
so negates the finding in the proceedings below that he was a holder in due course.

Finally, the petitioner argues that there is no showing whatsoever that David gave Chandiramani
any consideration of value in exchange for the aforementioned checks.
Private respondent Fernando David counters that the evidence on record shows that when he
received the checks, he verified their genuineness with his bank, and only after said verification
did he deposit them. David stresses that he had no notice of previous dishonor or any infirmity
that would have aroused his suspicions, the instruments being complete and regular upon their
face. David stresses that the checks in question were cashiers checks. From the very nature of
cashiers checks, it is highly unlikely that he would have suspected that something was amiss.
David also stresses negotiable instruments are presumed to have been issued for valuable
consideration, and he who alleges otherwise must controvert the presumption with sufficient
evidence. The petitioner failed to discharge this burden, according to David. He points out that
the checks were delivered to him as the payee, and he took them as holder and payee thereof.
Clearly, he concludes, he should be deemed to be their holder in due course.
We shall now resolve the first issue.
Every holder of a negotiable instrument is deemed prima facie a holder in due course. However,
this presumption arises only in favor of a person who is a holder as defined in Section 191 of the
Negotiable Instruments Law,15meaning a "payee or indorsee of a bill or note, who is in
possession of it, or the bearer thereof."
In the present case, it is not disputed that David was the payee of the checks in question. The
weight of authority sustains the view that a payee may be a holder in due course.16 Hence, the
presumption that he is a prima facieholder in due course applies in his favor. However, said
presumption may be rebutted. Hence, what is vital to the resolution of this issue is whether
David took possession of the checks under the conditions provided for in Section 5217 of the
Negotiable Instruments Law. All the requisites provided for in Section 52 must concur in Davids
case, otherwise he cannot be deemed a holder in due course.
We find that the petitioners challenge to Davids status as a holder in due course hinges on two
arguments: (1) the lack of proof to show that David tendered any valuable consideration for the
disputed checks; and (2) Davids failure to inquire from Chandiramani as to how the latter
acquired possession of the checks, thus resulting in Davids intentional ignorance tantamount to
bad faith. In sum, petitioner posits that the last two requisites of Section 52 are missing, thereby
preventing David from being considered a holder in due course. Unfortunately for the petitioner,
her arguments on this score are less than meritorious and far from persuasive.
First, with respect to consideration, Section 2418 of the Negotiable Instruments Law creates a
presumption that every party to an instrument acquired the same for a consideration 19 or for
value.20 Thus, the law itself creates a presumption in Davids favor that he gave valuable
consideration for the checks in question. In alleging otherwise, the petitioner has the onus to
prove that David got hold of the checks absent said consideration. In other words, the petitioner
must present convincing evidence to overthrow the presumption. Our scrutiny of the records,
however, shows that the petitioner failed to discharge her burden of proof. The petitioners
averment that David did not give valuable consideration when he took possession of the checks
is unsupported, devoid of any concrete proof to sustain it. Note that both the trial court and the
appellate court found that David did not receive the checks gratis, but instead gave
Chandiramani US$360,000.00 as consideration for the said instruments. Factual findings of the

Court of Appeals are conclusive on the parties and not reviewable by this Court; they carry great
weight when the factual findings of the trial court are affirmed by the appellate court. 21
Second, petitioner fails to point any circumstance which should have put David on inquiry as to
the why and wherefore of the possession of the checks by Chandiramani. David was not privy to
the transaction between petitioner and Chandiramani. Instead, Chandiramani and David had a
separate dealing in which it was precisely Chandiramanis duty to deliver the checks to David as
payee. The evidence shows that Chandiramani performed said task to the letter. Petitioner
admits that David took the step of asking the manager of his bank to verify from FEBTC and
Equitable as to the genuineness of the checks and only accepted the same after being assured
that there was nothing wrong with said checks. At that time, David was not aware of any "stop
payment" order. Under these circumstances, David thus had no obligation to ascertain from
Chandiramani what the nature of the latters title to the checks was, if any, or the nature of his
possession. Thus, we cannot hold him guilty of gross neglect amounting to legal absence of
good faith, absent any showing that there was something amiss about Chandiramanis
acquisition or possession of the checks. David did not close his eyes deliberately to the nature
or the particulars of a fraud allegedly committed by Chandiramani upon the petitioner, absent
any knowledge on his part that the action in taking the instruments amounted to bad faith.22
Belatedly, and we say belatedly since petitioner did not raise this matter in the proceedings
below, petitioner now claims that David should have been put on alert as the instruments in
question were crossed checks. Pursuant toBataan Cigar & Cigarette Factory, Inc. v. Court of
Appeals, David should at least have inquired as to whether he was acquiring said checks for the
purpose for which they were issued, according to petitioners submission.
Petitioners reliance on the Bataan Cigar case, however, is misplaced. The facts in the present
case are not on all fours with Bataan Cigar. In the latter case, the crossed checks were
negotiated and sold at a discount by the payee, while in the instant case, the payee did not
negotiate further the checks in question but promptly deposited them in his bank account.
The Negotiable Instruments Law is silent with respect to crossed checks, although the Code of
Commerce23makes reference to such instruments. Nonetheless, this Court has taken judicial
cognizance of the practice that a check with two parallel lines in the upper left hand corner
means that it could only be deposited and not converted into cash.24 The effects of crossing a
check, thus, relates to the mode of payment, meaning that the drawer had intended the check
for deposit only by the rightful person, i.e., the payee named therein. In Bataan Cigar, the
rediscounting of the check by the payee knowingly violated the avowed intention of crossing the
check. Thus, in accepting the cross checks and paying cash for them, despite the warning of the
crossing, the subsequent holder could not be considered in good faith and thus, not a holder in
due course. Our ruling in Bataan Cigar reiterates that in De Ocampo & Co. v. Gatchalian.25
The factual circumstances in De Ocampo and in Bataan Cigar are not present in this case. For
here, there is no dispute that the crossed checks were delivered and duly deposited by David,
the payee named therein, in his bank account. In other words, the purpose behind the crossing
of the checks was satisfied by the payee.
Proceeding to the issue of damages, petitioner merely argues that respondents David and PCIB
are not entitled to damages, attorneys fees, and costs of suit as both acted in bad faith towards
her, as shown by her version of the facts which gave rise to the instant case.

Respondent David counters that he was maliciously and unceremoniously dragged into this suit
for reasons which have nothing to do with him at all, but which arose from petitioners failure to
receive her share of the profit promised her by Chandiramani.1wphi1 Moreover, in filing this
suit which has lasted for over a decade now, the petitioner deprived David of the rightful
enjoyment of the two checks, to which he is entitled, under the law, compelled him to hire the
services of counsel to vindicate his rights, and subjected him to social humiliation and
besmirched reputation, thus harming his standing as a person of good repute in the business
community of Pampanga. David thus contends that it is but proper that moral damages,
attorneys fees, and costs of suit be awarded him.
For its part, respondent PCIB stresses that it was established by both the trial court and the
appellate court that it was needlessly dragged into this case. Hence, no error was committed by
the appellate court in declaring PCIB entitled to attorneys fees as it was compelled to litigate to
protect itself.
We have thoroughly perused the records of this case and find no reason to disagree with the
finding of the trial court, as affirmed by the appellate court, that:
[D]efendant David is entitled to [the] award of moral damages as he has been needlessly and
unceremoniously dragged into this case which should have been brought only between the
plaintiff and defendant Chandiramani.26
A careful reading of the findings of facts made by both the trial court and appellate court clearly
shows that the petitioner, in including David as a party in these proceedings, is barking up the
wrong tree. It is apparent from the factual findings that David had no dealings with the petitioner
and was not privy to the agreement of the latter with Chandiramani. Moreover, any loss which
the petitioner incurred was apparently due to the acts or omissions of Chandiramani, and hence,
her recourse should have been against him and not against David. By needlessly dragging
David into this case all because he and Chandiramani knew each other, the petitioner not only
unduly delayed David from obtaining the value of the checks, but also caused him anxiety and
injured his business reputation while waiting for its outcome. Recall that under Article 2217 27 of
the Civil Code, moral damages include mental anguish, serious anxiety, besmirched reputation,
wounded feelings, social humiliation, and similar injury. Hence, we find the award of moral
damages to be in order.
The appellate court likewise found that like David, PCIB was dragged into this case on
unfounded and baseless grounds. Both were thus compelled to litigate to protect their interests,
which makes an award of attorneys fees justified under Article 2208 (2)28 of the Civil Code.
Hence, we rule that the award of attorneys fees to David and PCIB was proper.
WHEREFORE, the instant petition is DENIED. The assailed decision of the Court of Appeals,
dated March 25, 1999, in CA-G.R. CV No. 52398 is AFFIRMED. Costs against the petitioner.
SO ORDERED.

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. 326328). Both agency instruments contained a provision that in any document or
paper to exercise authority granted, the signature of both attorneys-in-fact must
be affixed.
On October 27, 1988, defendant Dennis Z. Laforteza executed a Special Power
of Attorney in favor of defendant Roberto Z. Laforteza for the purpose of selling
the subject property (Exh. "C", Plaintiff, record, pp. 329-330). A year later, on
October 30, 1989, Dennis Z. Laforteza executed another Special Power of
Attorney in favor of defendants Roberto Z. Laforteza and Gonzalo Laforteza, Jr.
naming both attorneys-in-fact for the purpose of selling the subject property and
signing any document for the settlement of the estate of the late Francisco Q.
Laforteza. The subsequent agency instrument (Exh. "2", record, pp. 371-373)
contained similar provisions that both attorneys-in-fact should sign any document
or paper executed in the exercise of their authority.

[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.
DECISION
GONZAGA_REYES, J.:
This Petition for Review on Certiorari seeks the reversal of the Decision of the Court of Appeals[1] in
CA G.R. CV No. 47457 entitled "ALONZO MACHUCA versus ROBERTO Z. LAFORTEZA, GONZALO
Z. LAFORTEZA, LEA ZULUETA-LAFORTEZA MICHAEL Z. LAFORTEZA, and DENNIS Z.
LAFORTEZA".

In the exercise of the above authority, on January 20, 1989, the heirs of the late
Francisco Q. Laforteza represented by Roberto Z. Laforteza and Gonzalo Z.
Laforteza, Jr. entered into a Memorandum of Agreement (Contract to Sell) with
the plaintiff[2] over the subject property for the sum of SIX HUNDRED THIRTY
THOUSAND PESOS (P630,000.00) payable as follows:
(a) P30,000.00 as earnest money, to be forfeited in favor of the defendants if the
sale is not effected due to the fault of the plaintiff;
(b) P600,000.00 upon issuance of the new certificate of title in the name of the
late Francisco Q. Laforteza and upon execution of an extra-judicial settlement of
the decedents 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:

xxx. Upon issuance by the proper Court of the new title, the BUYERLESSEE shall be notified in writing and said BUYER-LESSEE shall
have thirty (30) days to produce the balance of P600,000.00 which
shall be paid to the SELLER-LESSORS upon the execution of the
Extrajudicial Settlement with sale.
On January 20, 1989, plaintiff paid the earnest money of THIRTY THOUSAND
PESOS (P30,000.00), plus rentals for the subject property (Exh. "F", Plaintiff,
record, p. 339).
On September 18, 1998[3], defendant heirs, through their counsel wrote a letter
(Exh. 1, Defendants, record, p. 370) to the plaintiff furnishing the latter a copy of
the reconstituted title to the subject property, advising him that he had thirty (3)
days to produce the balance of SIX HUNDRED PESOS (sic) (P600,000.00)
under the Memorandum of Agreement which plaintiff received on the same date.
On October 18, 1989, plaintiff sent the defendant heirs a letter requesting for an
extension of the THIRTY (30) DAYS deadline up to November 15, 1989 within
which to produce the balance of SIX HUNDRED THOUSAND PESOS
(P600,000.00) (Exh. "G", Plaintiff, record, pp. 341-342). Defendant Roberto Z.
Laforteza, assisted by his counsel Atty. Romeo L. Gutierrez, signed his
conformity to the plaintiffs 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
Managers Check No. 000814 dated November 15, 1989 (TSN, August 25, 1992,
p. 11; Exhs. "H", record, pp. 343-344; "M", records p. 350; and "N", record, p.
351). However, the defendants, refused to accept the balance (TSN, August 24,
1992, p. 14; Exhs. "M-1", Plaintiff, record, p. 350; and "N-1", Plaintiff, record, p.
351). Defendant Roberto Z. Laforteza had told him that the subject property was
no longer for sale (TSN, October 20, 1992, p. 19; Exh. "J", record, p. 347).
On November 20, 1998[4], defendants informed the plaintiff that they were
canceling the Memorandum of Agreement (Contract to Sell) in view of the
plaintiffs failure to comply with his contractual obligations (Exh. "3").
Thereafter, plaintiff reiterated his request to tender payment of the balance of SIX
HUNDRED THOUSAND PESOS (P600,000.00). Defendants, however, insisted
on the rescission of the Memorandum of Agreement. Thereafter, plaintiff filed the
instant action for specific performance. The lower court rendered judgment on
July 6, 1994 in favor of the plaintiff, the dispositive portion of which reads:
WHEREFORE, judgment is hereby rendered in favor of plaintiff Alonzo
Machuca and against the defendant heirs of the late Francisco Q.
Laforteza, ordering the said defendants.

(a) To accept the balance of P600,000.00 as full payment of the consideration for
the purchase of the house and lot located at No. 7757 Sherwood Street, Marcelo
Green Village, Paraaque, Metro Manila, covered by Transfer Certificate of Title
No. (220656) 8941 of the Registry of Deeds of Rizal Paraaque, Branch;
(b) To execute a registrable deed of absolute sale over the subject property in
favor of the plaintiff;
(c) Jointly and severally to pay the plaintiff the sum of P20,000.00 as attorneys
fees plus cost of suit.
SO ORDERED. (Rollo, pp. 74-75)."[5]
Petitioners appealed to the Court of Appeals, which affirmed with modification the decision of the lower
court; the dispositive portion of the Decision reads:
"WHEREFORE, the questioned decision of the lower court is hereby AFFIRMED
with the MODIFICATION that defendant heirs Lea Zulueta-Laforteza, Michael Z.
Laforteza, Dennis Z. Laforteza and Roberto Z. Laforteza including Gonzalo Z.
Laforteza, Jr. are hereby ordered to pay jointly and severally the sum of FIFTY
THOUSAND PESOS (P50,000.00) as moral damages.
SO ORDERED."[6]
Motion for Reconsideration was denied but the Decision was modified so as to absolve Gonzalo Z.
Laforteza, Jr. from liability for the payment of moral damages.[7] Hence this petition wherein the
petitioners raise the following issues:
"I. WHETHER THE TRIAL AND APPELLATE COURTS CORRECTLY
CONSTRUED THE MEMORANDUM OF AGREEMENT AS IMPOSING
RECIPROCAL OBLIGATIONS.
II. WHETHER THE COURTS A QUO CORRECTLY RULED THAT RESCISSION
WILL NOT LIE IN THE INSTANT CASE.
III. WHETHER THE RESPONDENT IS UNDER ESTOPPEL FROM RAISING
THE ALLEGED DEFECT IN THE SPECIAL POWER OF ATTORNEY DATED 30
OCTOBER 1989 EXECUTED BY DENNIS LAFORTEZA.
IV. SUPPOSING EX GRATIA ARGUMENTI THE MEMORANDUM OF
AGREEMENT IMPOSES RECIPROCAL OBLIGATIONS, WHETHER THE
PETITIONERS MAY BE COMPELLED TO SELL THE SUBJECT PROPERTY
WHEN THE RESPONDENT FAILED TO MAKE A JUDICIAL CONSIGNATION
OF THE PURCHASE PRICE?
V. WHETHER THE PETITIONERS ARE IN BAD FAITH SO TO AS MAKE THEM
LIABLE FOR MORAL DAMAGES?"[8]

The petitioners contend that the Memorandum of Agreement is merely a lease agreement with "option
to purchase". As it was merely an option, it only gave the respondent a right to purchase the subject
property within a limited period without imposing upon them any obligation to purchase it. Since the
respondents 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 respondents 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 respondents uncorroborated testimony that third persons offered
a higher price for the property is hearsay and should not be given any evidentiary weight. Thus, the
order of the lower court awarding moral damages was without any legal basis.
The appeal is bereft of merit.
A perusal of the Memorandum Agreement shows that the transaction between the petitioners and the
respondent was one of sale and lease. The terms of the agreement read:
"1. For and in consideration of the sum of PESOS: SIX HUNDRED THIRTY
THOUSAND (P630,000.00) payable in a manner herein below indicated,
SELLER-LESSOR hereby agree to sell unto BUYER-LESSEE the property
described in the first WHEREAS of this Agreement within six (6) months from the
execution date hereof, or upon issuance by the Court of a new owners 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 SELLERLESSORS if the sale is not effected because of the fault or option of
BUYER-LESSEE;
P600,000.00- upon the issuance of the new certificate of title in the
name of the late Francisco Laforteza and upon the execution of an
Extrajudicial Settlement of his estate with sale in favor of BUYERLESSEE free from lien or any encumbrances.
3. Parties reasonably estimate that the issuance of a new title in place of the lost
one, as well as the execution of extrajudicial settlement of estate with sale to
herein BUYER-LESSEE will be completed within six (6) months from the
execution of this Agreement. It is therefore agreed that during the six months
period, BUYER-LESSEE will be leasing the subject property for six months
period at the monthly rate of PESOS: THREE THOUSAND FIVE HUNDRED
(P3,500.00). Provided however, that if the issuance of new title and the execution
of Extrajudicial Partition is completed prior to the expiration of the six months
period, BUYER-LESSEE shall only be liable for rentals for the corresponding
period commencing from his occupancy of the premises to the execution and
completion of the Extrajudicial Settlement of the estate, provided further that if
after the expiration of six (6) months, the lost title is not yet replaced and the
extra judicial partition is not executed, BUYER-LESSEE shall no longer be
required to pay rentals and shall continue to occupy, and use the premises until
subject condition is complied by SELLER-LESSOR;
4. It is hereby agreed that within reasonable time from the execution of this
Agreement and the payment by BUYER-LESSEE of the amount of P30,000.00
as herein above provided, SELLER-LESSORS shall immediately file the
corresponding petition for the issuance of a new title in lieu of the lost one in the
proper Courts. Upon issuance by the proper Courts of the new title, the BUYERLESSEE shall have thirty (30) days to produce the balance of P600,000.00 which
shall be paid to the SELLER-LESSORS upon the execution of the Extrajudicial
Settlement with sale."[9]
A contract of sale is a consensual contract and is perfected at the moment there is a meeting of the
minds upon the thing which is the object of the contract and upon the price.[10] From that moment the
parties may reciprocally demand performance subject to the provisions of the law governing the form
of contracts.[11] The elements of a valid contract of sale under Article 1458 of the Civil Code are (1)
consent or meeting of the minds; (2) determinate subject matter and (3) price certain in money or its
equivalent.[12]
In the case at bench, there was a perfected agreement between the petitioners and the respondent
whereby the petitioners obligated themselves to transfer the ownership of and deliver the house and lot
located at 7757 Sherwood St., Marcelo Green Village, Paraaque and the respondent to pay the price
amounting to six hundred thousand pesos (P600,000.00). All the elements of a contract of sale were
thus present. However, the balance of the purchase price was to be paid only upon the issuance of the
new certificate of title in lieu of the one in the name of the late Francisco Laforteza and upon the
execution of an extrajudicial settlement of his estate. Prior to the issuance of the "reconstituted" title,
the respondent was already placed in possession of the house and lot as lessee thereof for six months
at a monthly rate of three thousand five hundred pesos (P3,500.00). It was stipulated that should the
issuance of the new title and the execution of the extrajudicial settlement be completed prior to

expiration of the six-month period, the respondent would be liable only for the rentals pertaining to the
period commencing from the date of the execution of the agreement up to the execution of the
extrajudicial settlement. It was also expressly stipulated that if after the expiration of the six month
period, the lost title was not yet replaced and the extrajudicial partition was not yet executed, the
respondent would no longer be required to pay rentals and would continue to occupy and use the
premises until the subject condition was complied with by the petitioners.
The six-month period during which the respondent would be in possession of the property as lessee,
was clearly not a period within which to exercise an option. An option is a contract granting a privilege
to buy or sell within an agreed time and at a determined price. An option contract is a separate and
distinct contract from that which the parties may enter into upon the consummation of the option.[13]
An option must be supported by consideration.[14] An option contract is governed by the second
paragraph of Article 1479 of the Civil Code[15], which reads:
"Article 1479. xxx
An accepted unilateral promise to buy or to sell a determinate thing for a price
certain is binding upon the promissor if the promise is supported by a
consideration distinct from the price."
In the present case, the six-month period merely delayed the demandability of the contract of sale and
did not determine its perfection for after the expiration of the six-month period, there was an absolute
obligation on the part of the petitioners and the respondent to comply with the terms of the sale. The
parties made a "reasonable estimate" that the reconstitution of 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 sixmonth period, the respondent would retain possession of the house and lot without need of paying
rentals for the use therefor, clearly indicated that the parties contemplated that ownership over the
property would already be transferred by that time.
The issuance of the new certificate of title in the name of the late Francisco Laforteza and the
execution of an extrajudicial settlement of his estate was not a condition which determined the
perfection of the contract of sale. Petitioners contention that since the condition was not met, they no
longer had an obligation to proceed with the sale of the house and lot is unconvincing. The petitioners
fail to distinguish between a condition imposed upon the perfection of the contract and a condition
imposed on the performance of an obligation. Failure to comply with the first condition results in the
failure of a contract, while the failure to comply with the second condition only gives the other party the
option either to refuse to proceed with the sale or to waive the condition. Thus, Art. 1545 of the Civil
Code states:

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
fathers 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 of sale is the
fact that the respondent paid thirty thousand pesos (P30,000.00) as earnest money. Earnest money is
something of value to show that the buyer was really in earnest, and given to the seller to bind the
bargain.[17] Whenever earnest money is given in a contract of sale, it is considered as part of the
purchase price and proof of the perfection of the contract.[18]
We do not subscribe to the petitioners view that the Memorandum Agreement was a contract to sell.
There is nothing contained in the Memorandum Agreement from which it can reasonably be deduced
that the parties intended to enter into a contract to sell, i.e. one whereby the prospective seller would
explicitly reserve the transfer of title to the prospective buyer, meaning, the prospective seller does not
as yet agree or consent to transfer ownership of the property subject of the contract to sell until the full
payment of the price, such payment being a positive suspensive condition, the failure of which is not
considered a breach, casual or serious, but simply an event which prevented the obligation from
acquiring any obligatory force.[19] There is clearly no express reservation of title made by the
petitioners over the property, or any provision which would impose non-payment of the price as a
condition for the contracts entering into force. Although the memorandum agreement was also
denominated as a "Contract to Sell", we hold that the parties contemplated a contract of sale. A deed of
sale is absolute in nature although denominated a conditional sale in the absence of a stipulation
reserving title in the petitioners until full payment of the purchase price.[20] In such cases, ownership of
the thing sold passes to the vendee upon actual or constructive delivery thereof.[21] The mere fact that
the obligation of the respondent to pay the balance of the purchase price was made subject to the
condition that the petitioners first deliver the reconstituted title of the house and lot does not make the
contract a contract to sell for such condition is not inconsistent with a contract of sale.[22]
The next issue to be addressed is whether the failure of the respondent to pay the balance of the
purchase price within the period allowed is fatal to his right to enforce the agreement.
We rule in the negative.

"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.

Admittedly, the failure of the respondent to pay the balance of the purchase price was a breach of the
contract and was a ground for rescission thereof. The extension of thirty (30) days allegedly granted to
the respondent by Roberto Z. Laforteza (assisted by his counsel Attorney Romeo Gutierrez) was
correctly found by the Court of Appeals to be ineffective inasmuch as the signature of Gonzalo Z.
Laforteza did not appear thereon as required by the Special Powers of Attorney.[23] However, the
evidence reveals that after the expiration of the six-month period provided for in the contract, the
petitioners were not ready to comply with what was incumbent upon them, i.e. the delivery of the
reconstituted title of the house and lot. It was only on September 18, 1989 or nearly eight months after
the execution of the Memorandum of Agreement when the petitioners informed the respondent that
they already had a copy of the reconstituted title and demanded the payment of the balance of the
purchase price. The respondent could not therefore be considered in delay for in reciprocal obligations,

neither party incurs in delay if the other party does not comply or is not ready to comply in a proper
manner with what was incumbent upon him.[24]
Even assuming for the sake of argument that the petitioners were ready to comply with their obligation,
we find that rescission of the contract will still not prosper. The rescission of a sale of an immovable
property is specifically governed by Article 1592 of the New Civil Code, which reads:
"In the sale of immovable property, even though it may have been stipulated that
upon failure to pay the price at the time agreed upon the rescission of the
contract shall of right take place, the vendee may pay, even after the expiration of
the period, as long as no demand for rescission of the contract has been made
upon him either judicially or by a notarial act. After the demand, the court may not
grant him a new term."[25]
It is not disputed that the petitioners did not make a judicial or notarial demand for rescission. The
November 20, 1989 letter of the petitioners informing the respondent of the automatic rescission of the
agreement did not amount to a demand for rescission, as it was not notarized.[26] It was also made
five days after the respondents attempt to make the payment of the purchase price. This offer to pay
prior to the demand for rescission is sufficient to defeat the petitioners right under article 1592 of the
Civil Code.[27] Besides, the Memorandum Agreement between the parties did not contain a clause
expressly authorizing the automatic cancellation of the contract without court intervention in the event
that the terms thereof were violated. A seller cannot unilaterally and extrajudicially rescind a contract of
sale where there is no express stipulation authorizing him to extrajudicially rescind.[28] Neither was
there a judicial demand for the rescission thereof. Thus, when the respondent filed his complaint for
specific performance, the agreement was still in force inasmuch as the contract was not yet rescinded.
At any rate, considering that the six-month period was merely an approximation of the time it would
take to reconstitute the lost title and was not a condition imposed on the perfection of the contract and
considering further that the delay in payment was only thirty days which was caused by the
respondents justified but mistaken belief that an extension to pay was granted to him, we agree with
the Court of Appeals that the delay of one month in payment was a mere casual breach that would not

entitle the respondents to rescind the contract. Rescission of a contract will not be permitted for a slight
or casual breach, but only such substantial and fundamental breach as would defeat the very object of
the parties in making the agreement.[29]
Petitioners insistence that the respondent should have consignated the amount is not determinative of
whether respondents action for specific performance will lie. Petitioners themselves point out that the
effect of consignation is to extinguish the obligation. It releases the debtor from responsibility therefor.
[30] The failure of the respondent to consignate the P600,000.00 is not tantamount to a breach of the
contract for by the fact of tendering payment, he was willing and able to comply with his obligation.
The Court of Appeals correctly found the petitioners guilty of bad faith and awarded moral damages to
the respondent. As found by the said Court, the petitioners refused to comply with their obligation for
the reason that they were offered a higher price therefor and the respondent was even offered
P100,000.00 by the petitioners lawyer, Attorney Gutierrez, to relinquish his rights over the property. The
award of moral damages is in accordance with Article 1191[31] of the Civil Code pursuant to Article
2220 which provides that moral damages may be awarded in case of a breach of contract where the
defendant acted in bad faith. The amount awarded depends on the discretion of the court based on the
circumstances of each case.[32] Under the circumstances, the award given by the Court of Appeals
amounting to P50,000.00 appears to us to be fair and reasonable.
ACCORDINGLY, the decision of the Court of Appeals in CA G.R. CV No. 47457 is AFFIRMED and the
instant petition is hereby DENIED.
No pronouncement as to costs.
SO ORDERED.