Cortes vs. CA, G.R. No.

126083, July 12, 2006

FIRST DIVISION

ANTONIO R. CORTES (in his G.R. No. 126083

capacity as Administrator of the
estate of Claro S. Cortes),
Petitioner, Present:
Panganiban, C.J. (Chairperson),
- versus - Ynares-Santiago,
Austria-Martinez,
Callejo, Sr., and
Chico-Nazario, JJ.
HON. COURT OF APPEALS
and VILLA ESPERANZA Promulgated:
DEVELOPMENT CORPORATION,
Respondents. July 12, 2006

x ---------------------------------------------------------------------------------------- x

DECISION

YNARES-SANTIAGO, J.:

The instant petition for review seeks the reversal of the June 13, 1996 Decision [1] of
the Court of Appeals in CA-G.R. CV No. 47856, setting aside the June 24, 1993
Decision[2] of the Regional Trial Court of Makati, Branch 138, which rescinded the
contract of sale entered into by petitioner Antonio Cortes (Cortes) and private
respondent Villa Esperanza Development Corporation (Corporation).

The antecedents show that for the purchase price of P3,700,000.00, the Corporation
as buyer, and Cortes as seller, entered into a contract of sale over the lots covered
by Transfer Certificate of Title (TCT) No. 31113-A, TCT No. 31913-A and TCT No.
32013-A, located at Baclaran, Paraaque, Metro Manila. On various dates in 1983, the
Corporation advanced to Cortes the total sum of P1,213,000.00. Sometime in
September 1983, the parties executed a deed of absolute sale containing the
following terms:[3]
1. Upon execution of this instrument, the Vendee shall pay unto the Vendor sum of
TWO MILLION AND TWO HUNDRED THOUSAND (P2,200,000.00) PESOS, Philippine
Currency, less all advances paid by the Vendee to the Vendor in connection with the
sale;
 2. The balance of ONE MILLION AND FIVE HUNDRED THOUSAND [P1,500,000.00]
PESOS, Phil. Currency shall be payable within ONE (1) YEAR from date of execution of
this instrument, payment of which shall be secured by an IRREVOCABLE STANDBY
LETTER OF CREDIT to be issued by any reputable local banking institution acceptable
to the Vendor.

xxxx

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

On January 14, 1985, the Corporation filed the instant case [5] for specific
performance seeking to compel Cortes to deliver the TCTs and the original copy of
the Deed of Absolute Sale. According to the Corporation, despite its readiness and
ability to pay the purchase price, Cortes refused delivery of the sought
documents. It thus prayed for the award of damages, attorneys fees and litigation
expenses arising from Cortes refusal to deliver the same documents.
In his Answer with counterclaim, [6] Cortes claimed that the owners duplicate copy of
the three TCTs were surrendered to the Corporation and it is the latter which refused
to pay in full the agreed down payment. He added that portion of the subject
property is occupied by his lessee who agreed to vacate the premises upon
payment of disturbance fee. However, due to the Corporations failure to pay in full
the sum of P2,200,000.00, he in turn failed to fully pay the disturbance fee of the
lessee who now refused to pay monthly rentals. He thus prayed that the
Corporation be ordered to pay the outstanding balance plus interest and in the
alternative, to cancel the sale and forfeit the P1,213,000.00 partial down payment,
with damages in either case.

On June 24, 1993, the trial court rendered a decision rescinding the sale and
directed Cortes to return to the Corporation the amount of P1,213,000.00, plus
interest. It ruled that pursuant to the contract of the parties, the Corporation should
have fully paid the amount of P2,200,000.00 upon the execution of the contract. It
stressed that such is the law between the parties because the Corporation failed to
present evidence that there was another agreement that modified the terms of
payment as stated in the contract.And, having failed to pay in full the amount of
P2,200,000.00 despite Cortes delivery of the Deed of Absolute Sale and the TCTs,
rescission of the contract is proper.
In its motion for reconsideration, the Corporation contended that the trial court
failed to consider their agreement that it would pay the balance of the down
payment when Cortes delivers the TCTs. The motion was, however, denied by the
trial court holding that the rescission should stand because the Corporation did not
act on the offer of Cortes counsel to deliver the TCTs upon payment of the balance
of the down payment.Thus:

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

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

hereby DENIED.
SO ORDERED.[7]

On appeal, the Court of Appeals reversed the decision of the trial court and
directed Cortes to execute a Deed of Absolute Sale conveying the properties and to
deliver the same to the Corporation together with the TCTs, simultaneous with the
Corporations payment of the balance of the purchase price of P2,487,000.00. It
found that the parties agreed that the Corporation will fully pay the balance of the
down payment upon Cortes delivery of the three TCTs to the Corporation. The
records show that no such delivery was made, hence, the Corporation was not
remiss in the performance of its obligation and therefore justified in not paying the
balance. The decretal portion thereof, provides:
WHEREFORE, premises considered, [the Corporations] appeal is GRANTED. The
decision appealed from is hereby REVERSED and SET ASIDE and a new judgment
rendered ordering [Cortes] to execute a deed of absolute sale conveying to [the
Corporation] the parcels of land subject of and described in the deed of absolute sale,
Exhibit D. Simultaneously with the execution of the deed of absolute sale and the
delivery of the corresponding owners duplicate copies of TCT Nos. 31113-A, 31931-A
and 32013-A of the Registry of Deeds for the Province of Rizal, Metro Manila, District IV,
[the Corporation] shall pay [Cortes] the balance of the purchase price of
P2,487,000.00. As agreed upon in paragraph 4 of the Deed of Absolute Sale, Exhibit D,
under terms and conditions, All expenses for the registration of this document (the
deed of sale) with the Register of Deeds concerned, including the transfer tax, shall be
divided equally between [Cortes and the Corporation]. Payment of the capital gains
shall be exclusively for the account of the Vendor; 5% commission of Marcosa Sanchez
to be deducted upon signing of sale. There is no pronouncement as to costs.

SO ORDERED.[8]
 Cortes filed the instant petition praying that the decision of the trial court
rescinding the sale be reinstated.

There is no doubt that the contract of sale in question gave rise to a

reciprocal obligation of the parties. Reciprocal obligations are those which arise from
the same cause, and which each party is a debtor and a creditor of the other, such
that the obligation of one is dependent upon the obligation of the other. They are to
be performed simultaneously, so that the performance of one is conditioned upon
the simultaneous fulfillment of the other. [9]

Article 1191 of the Civil Code, states:

ART. 1191. The power to rescind obligations is implied in reciprocal ones, in
case one of the obligors should not comply with what is incumbent upon him.

xxxx

As to when said failure or delay in performance arise, Article 1169 of the

same Code provides that
ART. 1169

xxxx

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

The issue therefore is whether there is delay in the performance of the

parties obligation that would justify the rescission of the contract of sale. To resolve
this issue, we must first determine the true agreement of the parties.

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

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

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

Q Do you mean to say that the plaintiff agreed to pay in full the down payment of
P2,200,000.00 provided you surrender or entrust to the plaintiff the titles?
A Yes, sir.[12]

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

ATTY. ANTARAN
Q Of course, you have it transferred in the name of the plaintiff, the title?
A Upon full payment.

xxxx

ATTY. SARTE
Q When you said upon full payment, are you referring to the agreed down payment of
P2,200,000.00?
A Yes, sir.[13]

By agreeing to transfer title upon full payment of P2,200,000.00, Cortes

impliedly agreed to deliver the TCTs to the Corporation in order to effect said
transfer. Hence, the phrase execution of this instrument [14] as appearing in the Deed
of Absolute Sale, and which event would give rise to the Corporations obligation to
pay in full the amount of P2,200,000.00, can not be construed as referring solely to
the signing of the deed. The meaning of execution in the instant case is not limited
to the signing of a contract but includes as well the performance or implementation
or accomplishment of the parties agreement.[15] With the transfer of titles as the
corresponding reciprocal obligation of payment, Cortes obligation is not only to affix
his signature in the Deed, but to set into motion the process that would facilitate the
transfer of title of the lots, i.e., to have the Deed notarized and to surrender the
original copy thereof to the Corporation together with the TCTs.
 Having established the true agreement of the parties, the Court must now
determine whether Cortes delivered the TCTs and the original Deed to the
Corporation.The Court of Appeals found that Cortes never surrendered said
documents to the Corporation. Cortes testified that he delivered the same to Manny
Sanchez, the son of the broker, and that Manny told him that her mother, Marcosa
Sanchez, delivered the same to the Corporation.

Q Do you have any proof to show that you have indeed surrendered these titles to the
plaintiff?
A Yes, sir.

Q I am showing to you a receipt dated October 29, 1983, what relation has this receipt
with that receipt that you have mentioned?
A That is the receipt of the real estate broker when she received the titles.

Q On top of the printed name is Manny Sanchez, there is a signature, do you know who
is that Manny Sanchez?
A That is the son of the broker.

xxxx

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

A Marcosa Sanchez

xxxx

Q Do you know if the broker or Marcosa Sanchez indeed delivered the titles to the
plaintiff?
A That is what [s]he told me. She gave them to the plaintiff.

x x x x.[16]

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

xxxx

Q It is in the hands of the broker but there is no showing that it is in the hands of the
plaintiff?
A Yes, sir.

COURT
Q How do you know that it was delivered to the plaintiff by the son of the broker?
A The broker told me that she delivered the title to the plaintiff.

ATTY. ANTARAN
Q Did she not show you any receipt that she delivered to [Mr.] Dragon [17] the title
without any receipt?
A I have not seen any receipt.

Q So, therefore, you are not sure whether the title has been delivered to the plaintiff or
not. It is only upon the allegation of the broker?
A Yes, sir.[18]
 However, Marcosa Sanchezs unrebutted testimony is that, she did not receive
the TCTs. She also denied knowledge of delivery thereof to her son, Manny, thus:

Q The defendant, Antonio Cortes testified during the hearing on March 11, 1986 that
he allegedly gave you the title to the property in question, is it true?
A I did not receive the title.

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

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

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

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

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

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

SO ORDERED.

CONSUELO YNARES-SANTIAGO
Associate Justice

WE CONCUR:

ARTEMIO V. PANGANIBAN
Chief Justice
Chairperson

MA. ALICIA AUSTRIA-MARTINEZ ROMEO J. CALLEJO, SR.

Associate Justice Associate Justice
 MINITA V. CHICO-NAZARIO
Associate Justice

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution, it is hereby certified that the
conclusions in the above Decision were reached in consultation before the case was
assigned to the writer of the opinion of the Courts Division.

ARTEMIO V. PANGANIBAN
Chief Justice

[1]
Penned by Associate Justice Eduardo G. Montenegro and concurred in by Associate Justices Emeterio C. Cui and Jose C. De La
Rama; rollo, pp. 33-51.
[2]
Penned by Judge Fernando P. Agdamag; rollo, pp. 66-68.
[3]
Complaint, records, pp. 1-2.
[4]
Exhibit D, records, p. 10.
[5]
Records, pp. 1-4.
[6]
Id. at 35-39.
[7]
Id. at 102.
[8]
Id. at 50-51. Petitioner filed a motion for reconsideration but was denied on August 30, 1996; rollo, p. 53.
[9]
Asuncion v. Evangelista, 375 Phil. 328, 356 (1999), citing Tolentino, Arturo, Commentaries and Jurisprudence on the Civil Code of
the Phil., Vol. IV, 1985 edition, p. 175.
[10]
Agas v. Sabico, G.R. No. 156447, April 26, 2005, 457 SCRA 263, 275.
[11]
Rollo, p. 62.
[12]
TSN, March 11, 1986, records, p. 324.
[13]
Id. at 373.
[14]
1. Upon execution of this instrument, the Vendee shall pay unto the Vendor sum of TWO MILLION AND TWO HUNDRED
THOUSAND (P2,200,000.00) PESOS, Philippine Currency, less all advances paid by the Vendee to the Vendor in connection with the
sale; (Emphasis supplied)
[15]
Eastern Assurance & Surety Corporation v. Intermediate Appellate Court, G.R. No. 69450, November 22, 1988, 179 SCRA 561,
567.
[16]
TSN, March 11, 1988, records, 321-324.
[17]
Mr. Renato Dragon is the President of respondent Corporation and the signatory to the Deed of Sale. See records, p. 11.
[18]
TSN, March 11, 1988, records, pp. 367-369.
[19]
TSN, October 27, 1989, records, pp. 389-390.
[20]
Paras, Civil Code, Book IV, Fourteenth edition, p. 123.
[21]
Vitug, Compendium of Civil Law and Jurisprudence, 1993 edition, p. 482.
[22]
Paras, supra.