GENERAL MILLING CORPORATION, Petitioner,

- versus -
SPS. LIBRADO RAMOS and REMEDIOS RAMOS, Respondents.
G.R. No. 193723

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

DECISION

VELASCO, JR., J.:

The Case

This is a petition for review of the April 15, 2010 Decision of the Court of Appeals (CA) in CA-G.R. CR-H.C. No. 85400 entitled
Spouses Librado Ramos & Remedios Ramos v. General Milling Corporation, et al., which affirmed the May 31, 2005 Decision
of the Regional Trial Court (RTC), Branch 12 in Lipa City, in Civil Case No. 00-0129 for Annulment and/or Declaration of
Nullity of Extrajudicial Foreclosure Sale with Damages.

The Facts

On August 24, 1989, General Milling Corporation (GMC) entered into a Growers Contract with spouses Librado and
Remedios Ramos (Spouses Ramos). Under the contract, GMC was to supply broiler chickens for the spouses to raise on their
land in Barangay Banaybanay, Lipa City, Batangas.[1] To guarantee full compliance, the Growers Contract was accompanied
by a Deed of Real Estate Mortgage over a piece of real property upon which their conjugal home was built. The spouses
further agreed to put up a surety bond at the rate of PhP 20,000 per 1,000 chicks delivered by GMC. The Deed of Real Estate
Mortgage extended to Spouses Ramos a maximum credit line of PhP 215,000 payable within an indefinite period with an
interest of twelve percent (12%) per annum.[2]

The Deed of Real Estate Mortgage contained the following provision:

WHEREAS, the MORTGAGOR/S has/have agreed to guarantee and secure the full and faithful compliance of
[MORTGAGORS] obligation/s with the MORTGAGEE by a First Real Estate Mortgage in favor of the MORTGAGEE, over a 1
parcel of land and the improvements existing thereon, situated in the Barrio/s of Banaybanay, Municipality of Lipa City,
Province of Batangas, Philippines, his/her/their title/s thereto being evidenced by Transfer Certificate/s No./s T-9214 of the
Registry of Deeds for the Province of Batangas in the amount of TWO HUNDRED FIFTEEN THOUSAND (P 215,000.00),
Philippine Currency, which the maximum credit line payable within a x x x day term and to secure the payment of the same
plus interest of twelve percent (12%) per annum.

Spouses Ramos eventually were unable to settle their account with GMC. They alleged that they suffered business losses
because of the negligence of GMC and its violation of the Growers Contract.[3]

On March 31, 1997, the counsel for GMC notified Spouses Ramos that GMC would institute foreclosure proceedings on their
mortgaged property.[4]

1
On May 7, 1997, GMC filed a Petition for Extrajudicial Foreclosure of Mortgage. On June 10, 1997, the property subject of
the foreclosure was subsequently sold by public auction to GMC after the required posting and publication.[5] It was
foreclosed for PhP 935,882,075, an amount representing the losses on chicks and feeds exclusive of interest at 12% per
annum and attorneys fees.[6] To complicate matters, on October 27, 1997, GMC informed the spouses that its Agribusiness
Division had closed its business and poultry operations.[7]

On March 3, 2000, Spouses Ramos filed a Complaint for Annulment and/or Declaration of Nullity of the Extrajudicial
Foreclosure Sale with Damages. They contended that the extrajudicial foreclosure sale on June 10, 1997 was null and void,
since there was no compliance with the requirements of posting and publication of notices under Act No. 3135, as amended,
or An Act to Regulate the Sale of Property under Special Powers Inserted in or Annexed to Real Estate Mortgages. They
likewise claimed that there was no sheriffs affidavit to prove compliance with the requirements on posting and publication
of notices. It was further alleged that the Deed of Real Estate Mortgage had no fixed term. A prayer for moral and exemplary
damages and attorneys fees was also included in the complaint.[8] Librado Ramos alleged that, when the property was
foreclosed, GMC did not notify him at all of the foreclosure.[9]

During the trial, the parties agreed to limit the issues to the following: (1) the validity of the Deed of Real Estate Mortgage;
(2) the validity of the extrajudicial foreclosure; and (3) the party liable for damages.[10]

In its Answer, GMC argued that it repeatedly reminded Spouses Ramos of their liabilities under the Growers Contract. It
argued that it was compelled to foreclose the mortgage because of Spouses Ramos failure to pay their obligation. GMC
insisted that it had observed all the requirements of posting and publication of notices under Act No. 3135.[11]

The Ruling of the Trial Court

Holding in favor of Spouses Ramos, the trial court ruled that the Deed of Real Estate Mortgage was valid even if its term was
not fixed. Since the duration of the term was made to depend exclusively upon the will of the debtors-spouses, the trial
court cited jurisprudence and said that the obligation is not due and payable until an action is commenced by the mortgagee
against the mortgagor for the purpose of having the court fix the date on and after which the instrument is payable and the
date of maturity is fixed in pursuance thereto.[12]

The trial court held that the action of GMC in moving for the foreclosure of the spouses properties was premature, because
the latters obligation under their contract was not yet due.

The trial court awarded attorneys fees because of the premature action taken by GMC in filing extrajudicial foreclosure
proceedings before the obligation of the spouses became due.

The RTC ruled, thus:

WHEREFORE, premises considered, judgment is rendered as follows:

1. The Extra-Judicial Foreclosure Proceedings under docket no. 0107-97 is hereby declared null and void;

2. The Deed of Real Estate Mortgage is hereby declared valid and legal for all intents and puposes;

2
 3. Defendant-corporation General Milling Corporation is ordered to pay Spouses Librado and Remedios Ramos
attorneys fees in the total amount of P 57,000.00 representing acceptance fee of P30,000.00 and P3,000.00 appearance fee
for nine (9) trial dates or a total appearance fee of P 27,000.00;

4. The claims for moral and exemplary damages are denied for lack of merit.

IT IS SO ORDERED.[13]

The Ruling of the Appellate Court

On appeal, GMC argued that the trial court erred in: (1) declaring the extrajudicial foreclosure proceedings null and void; (2)
ordering GMC to pay Spouses Ramos attorneys fees; and (3) not awarding damages in favor of GMC.

The CA sustained the decision of the trial court but anchored its ruling on a different ground. Contrary to the findings of the
trial court, the CA ruled that the requirements of posting and publication of notices under Act No. 3135 were complied with.
The CA, however, still found that GMCs action against Spouses Ramos was premature, as they were not in default when the
action was filed on May 7, 1997.[14]

The CA ruled:

In this case, a careful scrutiny of the evidence on record shows that defendant-appellant GMC made no demand to spouses
Ramos for the full payment of their obligation. While it was alleged in the Answer as well as in the Affidavit constituting the
direct testimony of Joseph Dominise, the principal witness of defendant-appellant GMC, that demands were sent to spouses
Ramos, the documentary evidence proves otherwise. A perusal of the letters presented and offered as evidence by
defendant-appellant GMC did not demand but only request spouses Ramos to go to the office of GMC to discuss the
settlement of their account.[15]

According to the CA, however, the RTC erroneously awarded attorneys fees to Spouses Ramos, since the presumption of
good faith on the part of GMC was not overturned.

The CA disposed of the case as follows:

WHEREFORE, and in view of the foregoing considerations, the Decision of the Regional Trial Court of Lipa City, Branch 12,
dated May 21, 2005 is hereby AFFIRMED with MODIFICATION by deleting the award of attorneys fees to plaintiffs-appellees
spouses Librado Ramos and Remedios Ramos.[16]

Hence, We have this appeal.

The Issues

A. WHETHER [THE CA] MAY CONSIDER ISSUES NOT ALLEGED AND DISCUSSED IN THE LOWER COURT AND LIKEWISE NOT
RAISED BY THE PARTIES ON APPEAL, THEREFORE HAD DECIDED THE CASE NOT IN ACCORD WITH LAW AND APPLICABLE
DECISIONS OF THE SUPREME COURT.

B. WHETHER [THE CA] ERRED IN RULING THAT PETITIONER GMC MADE NO DEMAND TO RESPONDENT SPOUSES FOR THE
FULL PAYMENT OF THEIR OBLIGATION CONSIDERING THAT THE LETTER DATED MARCH 31, 1997 OF PETITIONER GMC TO
RESPONDENT SPOUSES IS TANTAMOUNT TO A FINAL DEMAND TO PAY, THEREFORE IT DEPARTED FROM THE ACCEPTED AND
USUAL COURSE OF JUDICIAL PROCEEDINGS.[17]

3
The Ruling of this Court

Can the CA consider matters not alleged?

GMC asserts that since the issue on the existence of the demand letter was not raised in the trial court, the CA, by
considering such issue, violated the basic requirements of fair play, justice, and due process.[18]

In their Comment,[19] respondents-spouses aver that the CA has ample authority to rule on matters not assigned as errors
on appeal if these are indispensable or necessary to the just resolution of the pleaded issues.

In Diamonon v. Department of Labor and Employment,[20] We explained that an appellate court has a broad discretionary
power in waiving the lack of assignment of errors in the following instances:

(a) Grounds not assigned as errors but affecting the jurisdiction of the court over the subject matter;

(b) Matters not assigned as errors on appeal but are evidently plain or clerical errors within contemplation of law;

(c) Matters not assigned as errors on appeal but consideration of which is necessary in arriving at a just decision and
complete resolution of the case or to serve the interests of a justice or to avoid dispensing piecemeal justice;

(d) Matters not specifically assigned as errors on appeal but raised in the trial court and are matters of record having some
bearing on the issue submitted which the parties failed to raise or which the lower court ignored;

(e) Matters not assigned as errors on appeal but closely related to an error assigned;

(f) Matters not assigned as errors on appeal but upon which the determination of a question properly assigned, is
dependent.

Paragraph (c) above applies to the instant case, for there would be a just and complete resolution of the appeal if there is a
ruling on whether the Spouses Ramos were actually in default of their obligation to GMC.

Was there sufficient demand?

We now go to the second issue raised by GMC. GMC asserts error on the part of the CA in finding that no demand was
made on Spouses Ramos to pay their obligation. On the contrary, it claims that its March 31, 1997 letter is akin to a demand.

We disagree.

There are three requisites necessary for a finding of default. First, the obligation is demandable and liquidated; second, the
debtor delays performance; and third, the creditor judicially or extrajudicially requires the debtors performance.[21]

According to the CA, GMC did not make a demand on Spouses Ramos but merely requested them to go to GMCs office to
discuss the settlement of their account. In spite of the lack of demand made on the spouses, however, GMC proceeded with
the foreclosure proceedings. Neither was there any provision in the Deed of Real Estate Mortgage allowing GMC to
extrajudicially foreclose the mortgage without need of demand.

Indeed, Article 1169 of the Civil Code on delay requires the following:

4
Those obliged to deliver or to do something incur in delay from the time the obligee judicially or extrajudicially demands
from them the fulfilment of their obligation.

However, the demand by the creditor shall not be necessary in order that delay may exist:

(1) When the obligation or the law expressly so declares; x x x

As the contract in the instant case carries no such provision on demand not being necessary for delay to exist, We agree
with the appellate court that GMC should have first made a demand on the spouses before proceeding to foreclose the real
estate mortgage.

Development Bank of the Philippines v. Licuanan finds application to the instant case:

The issue of whether demand was made before the foreclosure was effected is essential. If demand was made and duly
received by the respondents and the latter still did not pay, then they were already in default and foreclosure was proper.
However, if demand was not made, then the loans had not yet become due and demandable. This meant that respondents
had not defaulted in their payments and the foreclosure by petitioner was premature. Foreclosure is valid only when the
debtor is in default in the payment of his obligation.[22]

In turn, whether or not demand was made is a question of fact.[23] This petition filed under Rule 45 of the Rules of Court
shall raise only questions of law. For a question to be one of law, it must not involve an examination of the probative value
of the evidence presented by the litigants or any of them. The resolution of the issue must rest solely on what the law
provides on the given set of circumstances. Once it is clear that the issue invites a review of the evidence presented, the
question posed is one of fact.[24] It need not be reiterated that this Court is not a trier of facts.[25] We will defer to the
factual findings of the trial court, because petitioner GMC has not shown any circumstances making this case an exception to
the rule.

WHEREFORE, the petition is DENIED. The CA Decision in CA-G.R. CR-H.C. No. 85400 is AFFIRMED.

SO ORDERED.

5
SPOUSES LUIGI M. GUANIO and

ANNA HERNANDEZ-GUANIO,Petitioners,
G.R. No. 190601
- versus -
MAKATI SHANGRI-LA HOTEL and RESORT, INC., also doing business under the name of
Promulgated:
SHANGRI-LA HOTEL MANILA,Respondent.
February 7, 2011

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

MORALES, J.

For their wedding reception on July 28, 2001, spouses Luigi M. Guanio and Anna Hernandez-Guanio (petitioners) booked at
the Shangri-la Hotel Makati (the hotel).

Prior to the event, Makati Shangri-La Hotel & Resort, Inc. (respondent) scheduled an initial food tasting. Petitioners claim
that they requested the hotel to prepare for seven persons the two of them, their respective parents, and the wedding
coordinator. At the scheduled food tasting, however, respondent prepared for only six.

Petitioners initially chose a set menu which included black cod, king prawns and angel hair pasta with wild mushroom sauce
for the main course which cost P1,000.00 per person. They were, however, given an option in which salmon, instead of king
prawns, would be in the menu at P950.00 per person. They in fact partook of the salmon.

Three days before the event, a final food tasting took place. Petitioners aver that the salmon served was half the size of
what they were served during the initial food tasting; and when queried about it, the hotel quoted a much higher price
(P1,200.00) for the size that was initially served to them. The parties eventually agreed on a final price P1,150 per person.

A day before the event or on July 27, 2001, the parties finalized and forged their contract.[1]

Petitioners claim that during the reception, respondents representatives, Catering Director Bea Marquez and Sales Manager
Tessa Alvarez, did not show up despite their assurance that they would; their guests complained of the delay in the service
of the dinner; certain items listed in the published menu were unavailable; the hotels waiters were rude and unapologetic
when confronted about the delay; and despite Alvarezs promise that there would be no charge for the extension of the
reception beyond 12:00 midnight, they were billed and paid P8,000 per hour for the three-hour extension of the event up to
4:00 A.M. the next day.

Petitioners further claim that they brought wine and liquor in accordance with their open bar arrangement, but these were
not served to the guests who were forced to pay for their drinks.

Petitioners thus sent a letter-complaint to the Makati Shangri-la Hotel and Resort, Inc. (respondent) and received an
apologetic reply from Krister Svensson, the hotels Executive Assistant Manager in charge of Food and Beverage. They
nevertheless filed a complaint for breach of contract and damages before the Regional Trial Court (RTC) of Makati City.

In its Answer, respondent claimed that petitioners requested a combination of king prawns and salmon, hence, the price
was increased to P1,200.00 per person, but discounted at P1,150.00; that contrary to petitioners claim, Marquez and Alvarez
were present during the event, albeit they were not permanently stationed thereat as there were three other hotel
functions; that while there was a delay in the service of the meals, the same was occasioned by the sudden increase of

6
guests to 470 from the guaranteed expected minimum number of guests of 350 to a maximum of 380, as stated in the
Banquet Event Order (BEO);[2] and that Isaac Albacea, Banquet Service Director, in fact relayed the delay in the service of
the meals to petitioner Luigis father, Gil Guanio.

Respecting the belated service of meals to some guests, respondent attributed it to the insistence of petitioners wedding
coordinator that certain guests be served first.

On Svenssons letter, respondent, denying it as an admission of liability, claimed that it was meant to maintain goodwill to its
customers.

By Decision of August 17, 2006, Branch 148 of the Makati RTC rendered judgment in favor of petitioners, disposing as
follows:

WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiffs and against the defendant
ordering the defendants to pay the plaintiff the following:

1) The amount of P350,000.00 by way of actual damages;

2) The amount of P250,000.00 for and as moral damages;

3) The amount of P100,000.00 as exemplary damages;

4) The amount of P100,000.00 for and as attorneys fees.

With costs against the defendant.

SO ORDERED.[3]

In finding for petitioners, the trial court relied heavily on the letter of Svensson which is partly quoted below:

Upon receiving your comments on our service rendered during your reception here with us, we are in fact, very distressed.
Right from minor issues pappadums served in the soup instead of the creutons, lack of valet parkers, hard rolls being too
hard till a major one slow service, rude and arrogant waiters, we have disappointed you in all means.

Indeed, we feel as strongly as you do that the services you received were unacceptable and definitely not up to our
standards. We understand that it is our job to provide excellent service and in this instance, we have fallen short of your
expectations. We ask you please to accept our profound apologies for causing such discomfort and annoyance. [4]
(underscoring supplied)

The trial court observed that from the tenor of the letter . . . the defendant[-herein respondent] admits that the services
the plaintiff[-herein petitioners] received were unacceptable and definitely not up to their standards.[5]

On appeal, the Court of Appeals, by Decision of July 27, 2009,[6] reversed the trial courts decision, it holding that the
proximate cause of petitioners injury was an unexpected increase in their guests:

x x x Hence, the alleged damage or injury brought about by the confusion, inconvenience and disarray during the wedding
reception may not be attributed to defendant-appellant Shangri-la.

We find that the said proximate cause, which is entirely attributable to plaintiffs-appellants, set the chain of events which
resulted in the alleged inconveniences, to the plaintiffs-appellants. Given the circumstances that obtained, only the Sps.
Guanio may bear whatever consequential damages that they may have allegedly suffered.[7] (underscoring supplied)

7
 Petitioners motion for reconsideration having been denied by Resolution of November 18, 2009, the present petition for
review was filed.

The Court finds that since petitioners complaint arose from a contract, the doctrine of proximate cause finds no application
to it:

The doctrine of proximate cause is applicable only in actions for quasi-delicts, not in actions involving breach of contract. x x
x The doctrine is a device for imputing liability to a person where there is no relation between him and another party. In
such a case, the obligation is created by law itself. But, where there is a pre-existing contractual relation between the
parties, it is the parties themselves who create the obligation, and the function of the law is merely to regulate the relation
thus created.[8] (emphasis and underscoring supplied)

What applies in the present case is Article 1170 of the Civil Code which reads:

Art. 1170. Those who in the performance of their obligations are guilty of fraud, negligence or delay, and those who in any
manner contravene the tenor thereof, are liable for damages.

RCPI v. Verchez, et al. [9] enlightens:

In culpa contractual x x x the mere proof of the existence of the contract and the failure of its compliance justify, prima facie,
a corresponding right of relief. The law, recognizing the obligatory force of contracts, will not permit a party to be set free
from liability for any kind of misperformance of the contractual undertaking or a contravention of the tenor thereof. A
breach upon the contract confers upon the injured party a valid cause for recovering that which may have been lost or
suffered. The remedy serves to preserve the interests of the promissee that may include his expectation interest, which is
his interest in having the benefit of his bargain by being put in as good a position as he would have been in had the contract
been performed, or his reliance interest, which is his interest in being reimbursed for loss caused by reliance on the contract
by being put in as good a position as he would have been in had the contract not been made; or his restitution interest,
which is his interest in having restored to him any benefit that he has conferred on the other party. Indeed, agreements can
accomplish little, either for their makers or for society, unless they are made the basis for action. The effect of every
infraction is to create a new duty, that is, to make RECOMPENSE to the one who has been injured by the failure of another
to observe his contractual obligation unless he can show extenuating circumstances, like proof of his exercise of due
diligence x x x or of the attendance of fortuitous event, to excuse him from his ensuing liability. (emphasis and underscoring
in the original; capitalization supplied)

The pertinent provisions of the Banquet and Meeting Services Contract between the parties read:

4.3 The ENGAGER shall be billed in accordance with the prescribed rate for the minimum guaranteed number of persons
contracted for, regardless of under attendance or non-appearance of the expected number of guests, except where the
ENGAGER cancels the Function in accordance with its Letter of Confirmation with the HOTEL. Should the attendance exceed
the minimum guaranteed attendance, the ENGAGER shall also be billed at the actual rate per cover in excess of the
minimum guaranteed attendance.

xxxx

4.5. The ENGAGER must inform the HOTEL at least forty eight (48) hours before the scheduled date and time of the Function
of any change in the minimum guaranteed covers. In the absence of such notice, paragraph 4.3 shall apply in the event of
under attendance. In case the actual number of attendees exceed the minimum guaranteed number
8
by ten percent (10%), the HOTEL shall not in any way be held liable for any damage or inconvenience which may be caused
thereby. The ENGAGER shall also undertake to advise the guests of the situation and take positive steps to remedy the
same.[10] (emphasis, italics and underscoring supplied)

Breach of contract is defined as the failure without legal reason to comply with the terms of a contract. It is also defined as
the [f]ailure, without legal excuse, to perform any promise which forms the whole or part of the contract.[11]

The appellate court, and even the trial court, observed that petitioners were remiss in their obligation to inform respondent
of the change in the expected number of guests. The observation is reflected in the records of the case. Petitioners failure to
discharge such obligation thus excused, as the above-quoted paragraph 4.5 of the parties contract provide, respondent from
liability for any damage or inconvenience occasioned thereby.

As for petitioners claim that respondent departed from its verbal agreement with petitioners, the same fails, given that the
written contract which the parties entered into the day before the event, being the law between them.

Respecting the letter of Svensson on which the trial court heavily relied as admission of respondents liability but which the
appellate court brushed aside, the Court finds the appellate courts stance in order. It is not uncommon in the hotel industry
to receive comments, criticisms or feedback on the service it delivers. It is also customary for hotel management to try to
smooth ruffled feathers to preserve goodwill among its clientele.

Kalalo v. Luz holds:[12]

Statements which are not estoppels nor judicial admissions have no quality of conclusiveness, and an opponent whose
admissions have been offered against him may offer any evidence which serves as an explanation for his former assertion of
what he now denies as a fact.

Respondents Catering Director, Bea Marquez, explained the hotels procedure on receiving and processing complaints, viz:

ATTY. CALMA:

Q You mentioned that the letter indicates an acknowledgement of the concern and that there was-the first letter there was
an acknowledgment of the concern and an apology, not necessarily indicating that such or admitting fault?

A Yes.

Q Is this the letter that you are referring to?

If I may, Your Honor, that was the letter dated August 4, 2001, previously marked as plaintiffs exhibits, Your Honor. What is
the procedure of the hotel with respect to customer concern?

A Upon receipt of the concern from the guest or client, we acknowledge receipt of such concern, and as part of procedure in
service industry particularly Makati Shangri-la we apologize for whatever inconvenience but at the same time saying, that of
course, we would go through certain investigation and get back to them for the feedback with whatever concern they may
have.

9
Q Your Honor, I just like at this point mark the exhibits, Your Honor, the letter dated August 4, 2001 identified by the
witness, Your Honor, to be marked as Exhibit 14 and the signature of Mr. Krister Svensson be marked as Exhibit 14-A.[13]

xxxx

Q In your opinion, you just mentioned that there is a procedure that the hotel follows with respect to the complaint, in your
opinion was this procedure followed in this particular concern?

A Yes, maam.

Q What makes you say that this procedure was followed?

A As I mentioned earlier, we proved that we did acknowledge the concern of the client in this case and we did emphatize
from the client and apologized, and at the same time got back to them in whatever investigation we have.

Q You said that you apologized, what did you apologize for?

A Well, first of all it is a standard that we apologize, right? Being in the service industry, it is a practice that we apologize if
there is any inconvenience, so the purpose for apologizing is mainly to show empathy and to ensure the client that we are
hearing them out and that we will do a better investigation and it is not in any way that we are admitting any fault.[14]
(underscoring supplied)

To the Court, the foregoing explanation of the hotels Banquet Director overcomes any presumption of admission of breach
which Svenssons letter might have conveyed.

The exculpatory clause notwithstanding, the Court notes that respondent could have managed the situation better, it being
held in high esteem in the hotel and service industry. Given respondents vast experience, it is safe to presume that this is
not its first encounter with booked events exceeding the guaranteed cover. It is not audacious to expect that certain
measures have been placed in case this predicament crops up. That regardless of these measures, respondent still received
complaints as in the present case, does not amuse.

Respondent admitted that three hotel functions coincided with petitioners reception. To the Court, the delay in service
might have been avoided or minimized if respondent exercised prescience in scheduling events. No less than quality service
should be delivered especially in events which possibility of repetition is close to nil. Petitioners are not expected to get
married twice in their lifetimes.

In the present petition, under considerations of equity, the Court deems it just to award the amount of P50,000.00 by way of
nominal damages to petitioners, for the discomfiture that they were subjected to during to the event.[15] The Court
recognizes that every person is entitled to respect of his dignity, personality, privacy and peace of mind.[16] Respondents
lack of prudence is an affront to this right.

WHEREFORE, the Court of Appeals Decision dated July 27, 2009 is PARTIALLY REVERSED. Respondent is, in light of the
foregoing discussion, ORDERED to pay the amount of P50,000.00 to petitioners by way of nominal damages.

SO ORDERED.

10
ROLANDO T. CATUNGAL, JOSE T. CATUNGAL, JR., CAROLYN T. CATUNGAL and ERLINDA CATUNGAL-WESSEL,Petitioners,
- versus -
ANGEL S. RODRIGUEZ,Respondent.
G.R. No. 146839

March 23, 2011

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

DECISION

LEONARDO-DE CASTRO, J.:

Before the Court is a Petition for Review on Certiorari, assailing the following issuances of the Court of Appeals in CA-G.R.
CV No. 40627 consolidated with CA-G.R. SP No. 27565: (a) the August 8, 2000 Decision,[1] which affirmed the Decision[2]
dated May 30, 1992 of the Regional Trial Court (RTC), Branch 27 of Lapu-lapu City, Cebu in Civil Case No. 2365-L, and (b) the
January 30, 2001 Resolution,[3] denying herein petitioners motion for reconsideration of the August 8, 2000 Decision.

The relevant factual and procedural antecedents of this case are as follows:

This controversy arose from a Complaint for Damages and Injunction with Preliminary Injunction/Restraining Order[4] filed
on December 10, 1990 by herein respondent Angel S. Rodriguez (Rodriguez), with the RTC, Branch 27, Lapu-lapu City, Cebu,
docketed as Civil Case No. 2365-L against the spouses Agapita and Jose Catungal (the spouses Catungal), the parents of
petitioners.

In the said Complaint, it was alleged that Agapita T. Catungal (Agapita) owned a parcel of land (Lot 10963) with an area of
65,246 square meters, covered by Original Certificate of Title (OCT) No. 105[5] in her name situated in the Barrio of
Talamban, Cebu City. The said property was allegedly the exclusive paraphernal property of Agapita.

On April 23, 1990, Agapita, with the consent of her husband Jose, entered into a Contract to Sell[6] with respondent
Rodriguez. Subsequently, the Contract to Sell was purportedly upgraded into a Conditional Deed of Sale[7] dated July 26,
1990 between the same parties. Both the Contract to Sell and the Conditional Deed of Sale were annotated on the title.

The provisions of the Conditional Deed of Sale pertinent to the present dispute are quoted below:

1. The VENDOR for and in consideration of the sum of TWENTY[-]FIVE MILLION PESOS (P25,000,000.00) payable as follows:

a. FIVE HUNDRED THOUSAND PESOS (P500,000.00) downpayment upon the signing of this agreement, receipt of which sum
is hereby acknowledged in full from the VENDEE.

b. The balance of TWENTY[-]FOUR MILLION FIVE HUNDRED THOUSAND PESOS (P24,500,000.00) shall be payable in five
separate checks, made to the order of JOSE Ch. CATUNGAL, the first check shall be for FOUR MILLION FIVE HUNDRED
THOUSAND PESOS (P4,500,000.00) and the remaining balance to be paid in four checks in the amounts of FIVE MILLION
PESOS (P5,000,000.00) each after the VENDEE have (sic) successfully negotiated, secured and provided a Road Right of Way
consisting of 12 meters in width cutting across Lot 10884 up to the national road, either by widening the existing Road Right
of Way or by securing a new Road Right of Way of 12 meters in width. If however said Road Right of Way could not be
negotiated, the VENDEE shall give notice to the VENDOR for them to reassess and solve the problem by taking other options
and should the situation ultimately prove futile, he shall take steps to rescind or cancel the herein Conditional Deed of Sale.

11
c. That the access road or Road Right of Way leading to Lot 10963 shall be the responsibility of the VENDEE to secure and
any or all cost relative to the acquisition thereof shall be borne solely by the VENDEE. He shall, however, be accorded with
enough time necessary for the success of his endeavor, granting him a free hand in negotiating for the passage.

BY THESE PRESENTS, the VENDOR do hereby agree to sell by way of herein CONDITIONAL DEED OF SALE to VENDEE, his
heirs, successors and assigns, the real property described in the Original Certificate of Title No. 105 x x x.

xxxx

5. That the VENDEE has the option to rescind the sale. In the event the VENDEE exercises his option to rescind the herein
Conditional Deed of Sale, the VENDEE shall notify the VENDOR by way of a written notice relinquishing his rights over the
property. The VENDEE shall then be reimbursed by the VENDOR the sum of FIVE HUNDRED THOUSAND PESOS (P500,000.00)
representing the downpayment, interest free, payable but contingent upon the event that the VENDOR shall have been able
to sell the property to another party.[8]

In accordance with the Conditional Deed of Sale, Rodriguez purportedly secured the necessary surveys and plans and
through his efforts, the property was reclassified from agricultural land into residential land which he claimed substantially
increased the propertys value. He likewise alleged that he actively negotiated for the road right of way as stipulated in the
contract.[9]

Rodriguez further claimed that on August 31, 1990 the spouses Catungal requested an advance of P5,000,000.00 on the
purchase price for personal reasons. Rodriquez allegedly refused on the ground that the amount was substantial and was
not due under the terms of their agreement. Shortly after his refusal to pay the advance, he purportedly learned that the
Catungals were offering the property for sale to third parties.[10]

Thereafter, Rodriguez received letters dated October 22, 1990,[11] October 24, 1990[12] and October 29, 1990,[13] all
signed by Jose Catungal who was a lawyer, essentially demanding that the former make up his mind about buying the land
or exercising his option to buy because the spouses Catungal allegedly received other offers and they needed money to pay
for personal obligations and for investing in other properties/business ventures. Should Rodriguez fail to exercise his option
to buy the land, the Catungals warned that they would consider the contract cancelled and that they were free to look for
other buyers.

In a letter dated November 4, 1990,[14] Rodriguez registered his objections to what he termed the Catungals unwarranted
demands in view of the terms of the Conditional Deed of Sale which allowed him sufficient time to negotiate a road right of
way and granted him, the vendee, the exclusive right to rescind the contract. Still, on November 15, 1990, Rodriguez
purportedly received a letter dated November 9, 1990[15] from Atty. Catungal, stating that the contract had been cancelled
and terminated.

Contending that the Catungals unilateral rescission of the Conditional Deed of Sale was unjustified, arbitrary and
unwarranted, Rodriquez prayed in his Complaint, that:

1. Upon the filing of this complaint, a restraining order be issued enjoining defendants [the spouses Catungal], their
employees, agents, representatives or other persons acting in their behalf from offering the property subject of this case for
sale to third persons; from entertaining offers or proposals by third persons to purchase the said property; and, in general,
from performing acts in furtherance or implementation of defendants rescission of their Conditional Deed of Sale with
plaintiff [Rodriguez].

12
2. After hearing, a writ of preliminary injunction be issued upon such reasonable bond as may be fixed by the court
enjoining defendants and other persons acting in their behalf from performing any of the acts mentioned in the next
preceding paragraph.

3. After trial, a Decision be rendered:

a) Making the injunction permanent;

b) Condemning defendants to pay to plaintiff, jointly and solidarily:

Actual damages in the amount of P400,000.00 for their unlawful rescission of the Agreement and their performance of acts
in violation or disregard of the said Agreement;

Moral damages in the amount of P200,000.00;

Exemplary damages in the amount of P200,000.00; Expenses of litigation and attorneys fees in the amount of P100,000.00;
and

Costs of suit.[16]

On December 12, 1990, the trial court issued a temporary restraining order and set the application for a writ of preliminary
injunction for hearing on December 21, 1990 with a directive to the spouses Catungal to show cause within five days from
notice why preliminary injunction should not be granted. The trial court likewise ordered that summons be served on
them.[17]

Thereafter, the spouses Catungal filed their opposition[18] to the issuance of a writ of preliminary injunction and later filed
a motion to dismiss[19] on the ground of improper venue. According to the Catungals, the subject property was located in
Cebu City and thus, the complaint should have been filed in Cebu City, not Lapu-lapu City. Rodriguez opposed the motion to
dismiss on the ground that his action was a personal action as its subject was breach of a contract, the Conditional Deed of
Sale, and not title to, or possession of real property.[20]

In an Order dated January 17, 1991,[21] the trial court denied the motion to dismiss and ruled that the complaint involved a
personal action, being merely for damages with a prayer for injunction.

Subsequently, on January 30, 1991, the trial court ordered the issuance of a writ of preliminary injunction upon posting by
Rodriguez of a bond in the amount of P100,000.00 to answer for damages that the defendants may sustain by reason of the
injunction.

On February 1, 1991, the spouses Catungal filed their Answer with Counterclaim[22] alleging that they had the right to
rescind the contract in view of (1) Rodriguezs failure to negotiate the road right of way despite the lapse of several months
since the signing of the contract, and (2) his refusal to pay the additional amount of P5,000,000.00 asked by the Catungals,
which to them indicated his lack of funds to purchase the property. The Catungals likewise contended that Rodriguez did not
have an exclusive right to rescind the contract and that the contract, being reciprocal, meant both parties had the right to
rescind.[23] The spouses Catungal further claimed that it was Rodriguez who was in breach of their agreement and guilty of
bad faith which justified their rescission of the contract.[24] By way of counterclaim, the spouses Catungal prayed for actual
and consequential damages in the form of unearned interests from the balance (of the purchase price in the amount) of
P24,500,000.00, moral and exemplary damages in the amount of P2,000,000.00, attorneys fees in the amount of

13
P200,000.00 and costs of suits and litigation expenses in the amount of P10,000.00.[25] The spouses Catungal prayed for the
dismissal of the complaint and the grant of their counterclaim.

The Catungals amended their Answer twice,[26] retaining their basic allegations but amplifying their charges of contractual
breach and bad faith on the part of Rodriguez and adding the argument that in view of Article 1191 of the Civil Code, the
power to rescind reciprocal obligations is granted by the law itself to both parties and does not need an express stipulation
to grant the same to the injured party. In the Second Amended Answer with Counterclaim, the spouses Catungal added a
prayer for the trial court to order the Register of Deeds to cancel the annotations of the two contracts at the back of their
OCT.[27]

On October 24, 1991, Rodriguez filed an Amended Complaint,[28] adding allegations to the effect that the Catungals were
guilty of several misrepresentations which purportedly induced Rodriguez to buy the property at the price of
P25,000,000.00. Among others, it was alleged that the spouses Catungal misrepresented that their Lot 10963 includes a flat
portion of land which later turned out to be a separate lot (Lot 10986) owned by Teodora Tudtud who sold the same to one
Antonio Pablo. The Catungals also allegedly misrepresented that the road right of way will only traverse two lots owned by
Anatolia Tudtud and her daughter Sally who were their relatives and who had already agreed to sell a portion of the said lots
for the road right of way at a price of P550.00 per square meter. However, because of the Catungals acts of offering the
property to other buyers who offered to buy the road lots for P2,500.00 per square meter, the adjacent lot owners were no
longer willing to sell the road lots to Rodriguez at P550.00 per square meter but were asking for a price of P3,500.00 per
square meter. In other words, instead of assisting Rodriguez in his efforts to negotiate the road right of way, the spouses
Catungal allegedly intentionally and maliciously defeated Rodriguezs negotiations for a road right of way in order to justify
rescission of the said contract and enable them to offer the property to other buyers.

Despite requesting the trial court for an extension of time to file an amended Answer,[29] the Catungals did not file an
amended Answer and instead filed an Urgent Motion to Dismiss[30] again invoking the ground of improper venue. In the
meantime, for failure to file an amended Answer within the period allowed, the trial court set the case for pre-trial on
December 20, 1991.

During the pre-trial held on December 20, 1991, the trial court denied in open court the Catungals Urgent Motion to Dismiss
for violation of the rules and for being repetitious and having been previously denied.[31] However, Atty. Catungal refused
to enter into pre-trial which prompted the trial court to declare the defendants in default and to set the presentation of the
plaintiffs evidence on February 14, 1992.[32]

On December 23, 1991, the Catungals filed a motion for reconsideration[33] of the December 20, 1991 Order denying their
Urgent Motion to Dismiss but the trial court denied reconsideration in an Order dated February 3, 1992.[34] Undeterred, the
Catungals subsequently filed a Motion to Lift and to Set Aside Order of Default[35] but it was likewise denied for being in
violation of the rules and for being not meritorious.[36] On February 28, 1992, the Catungals filed a Petition for Certiorari
and Prohibition[37] with the Court of Appeals, questioning the denial of their motion to dismiss and the order of default.
This was docketed as CA-G.R. SP No. 27565.

Meanwhile, Rodriguez proceeded to present his evidence before the trial court.

In a Decision dated May 30, 1992, the trial court ruled in favor of Rodriguez, finding that: (a) under the contract it was
complainant (Rodriguez) that had the option to rescind the sale; (b) Rodriguezs obligation to pay the balance of the purchase
price arises only upon successful negotiation of the road right of way; (c) he proved his diligent efforts to negotiate the road
right of way; (d) the spouses Catungal were guilty of misrepresentation which defeated Rodriguezs efforts to acquire the
road right of way; and (e) the Catungals rescission of the contract had no basis and was in bad faith. Thus, the trial court
made the injunction permanent, ordered the Catungals to reduce the purchase price by the amount of acquisition of Lot

14
10963 which they misrepresented was part of the property sold but was in fact owned by a third party and ordered them to
pay P100,000.00 as damages, P30,000.00 as attorneys fees and costs.

The Catungals appealed the decision to the Court of Appeals, asserting the commission of the following errors by the trial
court in their appellants brief[38] dated February 9, 1994:

THE COURT A QUO ERRED IN NOT DISMISSING OF (SIC) THE CASE ON THE GROUNDS OF IMPROPER VENUE AND LACK OF
JURISDICTION.

II

THE COURT A QUO ERRED IN CONSIDERING THE CASE AS A PERSONAL AND NOT A REAL ACTION.

III

GRANTING WITHOUT ADMITTING THAT VENUE WAS PROPERLY LAID AND THE CASE IS A PERSONAL ACTION, THE COURT A
QUO ERRED IN DECLARING THE DEFENDANTS IN DEFAULT DURING THE PRE-TRIAL WHEN AT THAT TIME THE DEFENDANTS
HAD ALREADY FILED THEIR ANSWER TO THE COMPLAINT.

IV

THE COURT A QUO ERRED IN CONSIDERING THE DEFENDANTS AS HAVING LOST THEIR LEGAL STANDING IN COURT WHEN AT
MOST THEY COULD ONLY BE CONSIDERED AS IN DEFAULT AND STILL ENTITLED TO NOTICES OF ALL FURTHER PROCEEDINGS
ESPECIALLY AFTER THEY HAD FILED THE MOTION TO LIFT THE ORDER OF DEFAULT.

THE COURT A QUO ERRED IN ISSUING THE WRIT [OF] PRELIMINARY INJUNCTION RESTRAINING THE EXERCISE OF ACTS OF
OWNERSHIP AND OTHER RIGHTS OVER REAL PROPERTY OUTSIDE OF THE COURTS TERRITORIAL JURISDICTION AND
INCLUDING PERSONS WHO WERE NOT BROUGHT UNDER ITS JURISDICTION, THUS THE NULLITY OF THE WRIT.

VI

THE COURT A QUO ERRED IN NOT RESTRAINING ITSELF MOTU PROP[R]IO FROM CONTINUING WITH THE PROCEEDINGS IN
THE CASE AND IN RENDERING DECISION THEREIN IF ONLY FOR REASON OF COURTESY AND FAIRNESS BEING MANDATED AS
DISPENSER OF FAIR AND EQUAL JUSTICE TO ALL AND SUNDRY WITHOUT FEAR OR FAVOR IT HAVING BEEN SERVED EARLIER
WITH A COPY OF THE PETITION FOR CERTIORARI QUESTIONING ITS VENUE AND JURISDICTION IN CA-G.R. NO. SP 27565 IN
FACT NOTICES FOR THE FILING OF COMMENT THERETO HAD ALREADY BEEN SENT OUT BY THE HONORABLE COURT OF
APPEALS, SECOND DIVISION, AND THE COURT A QUO WAS FURNISHED WITH COPY OF SAID NOTICE.

VII

THE COURT A QUO ERRED IN DECIDING THE CASE IN FAVOR OF THE PLAINTIFF AND AGAINST THE DEFENDANTS ON THE
BASIS OF EVIDENCE WHICH ARE IMAGINARY, FABRICATED, AND DEVOID OF TRUTH, TO BE STATED IN DETAIL IN THE
DISCUSSION OF THIS PARTICULAR ERROR, AND, THEREFORE, THE DECISION IS REVERSIBLE.[39]

On August 31, 1995, after being granted several extensions, Rodriguez filed his appellees brief,[40] essentially arguing the
correctness of the trial courts Decision regarding the foregoing issues raised by the Catungals. Subsequently, the Catungals
filed a Reply Brief[41] dated October 16, 1995.
15
From the filing of the appellants brief in 1994 up to the filing of the Reply Brief, the spouses Catungal were represented by
appellant Jose Catungal himself. However, a new counsel for the Catungals, Atty. Jesus N. Borromeo (Atty. Borromeo),
entered his appearance before the Court of Appeals on September 2, 1997.[42] On the same date, Atty. Borromeo filed a
Motion for Leave of Court to File Citation of Authorities[43] and a Citation of Authorities.[44] This would be followed by Atty.
Borromeos filing of an Additional Citation of Authority and Second Additional Citation of Authority both on November 17,
1997.[45]

During the pendency of the case with the Court of Appeals, Agapita Catungal passed away and thus, her husband, Jose, filed
on February 17, 1999 a motion for Agapitas substitution by her surviving children.[46]

On August 8, 2000, the Court of Appeals rendered a Decision in the consolidated cases CA-G.R. CV No. 40627 and CA-G.R. SP
No. 27565,[47] affirming the trial courts Decision.

In a Motion for Reconsideration dated August 21, 2000,[48] counsel for the Catungals, Atty. Borromeo, argued for the first
time that paragraphs 1(b) and 5[49] of the Conditional Deed of Sale, whether taken separately or jointly, violated the
principle of mutuality of contracts under Article 1308 of the Civil Code and thus, said contract was void ab initio. He adverted
to the cases mentioned in his various citations of authorities to support his argument of nullity of the contract and his
position that this issue may be raised for the first time on appeal.

Meanwhile, a Second Motion for Substitution[50] was filed by Atty. Borromeo in view of the death of Jose Catungal.

In a Resolution dated January 30, 2001, the Court of Appeals allowed the substitution of the deceased Agapita and Jose
Catungal by their surviving heirs and denied the motion for reconsideration for lack of merit

Hence, the heirs of Agapita and Jose Catungal filed on March 27, 2001 the present petition for review,[51] which essentially
argued that the Court of Appeals erred in not finding that paragraphs 1(b) and/or 5 of the Conditional Deed of Sale, violated
the principle of mutuality of contracts under Article 1308 of the Civil Code. Thus, said contract was supposedly void ab initio
and the Catungals rescission thereof was superfluous.

In his Comment,[52] Rodriguez highlighted that (a) petitioners were raising new matters that cannot be passed upon on
appeal; (b) the validity of the Conditional Deed of Sale was already admitted and petitioners cannot be allowed to change
theories on appeal; (c) the questioned paragraphs of the Conditional Deed of Sale were valid; and (d) petitioners were the
ones who committed fraud and breach of contract and were not entitled to relief for not having come to court with clean
hands.

The Court gave due course to the Petition[53] and the parties filed their respective Memoranda.

The issues to be resolved in the case at bar can be summed into two questions:

I. Are petitioners allowed to raise their theory of nullity of the Conditional Deed of Sale for the first time on
appeal?

II. Do paragraphs 1(b) and 5 of the Conditional Deed of Sale violate the principle of mutuality of contracts under
Article 1308 of the Civil Code?

On petitioners change of theory

Petitioners claimed that the Court of Appeals should have reversed the trial courts Decision on the ground of the alleged
nullity of paragraphs 1(b) and 5 of the Conditional Deed of Sale notwithstanding that the same was not raised as an error in
their appellants brief. Citing Catholic Bishop of Balanga v. Court of Appeals,[54] petitioners argued in the Petition that this
case falls under the following exceptions:

16
 (3) Matters not assigned as errors on appeal but consideration of which is necessary in arriving at a just decision and
complete resolution of the case or to serve the interest of justice or to avoid dispensing piecemeal justice;

(4) Matters not specifically assigned as errors on appeal but raised in the trial court and are matters of record having some
bearing on the issue submitted which the parties failed to raise or which the lower court ignored;

(5) Matters not assigned as errors on appeal but closely related to an error assigned; and

(6) Matters not assigned as errors but upon which the determination of a question properly assigned is dependent.[55]

We are not persuaded.

This is not an instance where a party merely failed to assign an issue as an error in the brief nor failed to argue a material
point on appeal that was raised in the trial court and supported by the record. Neither is this a case where a party raised an
error closely related to, nor dependent on the resolution of, an error properly assigned in his brief. This is a situation where
a party completely changes his theory of the case on appeal and abandons his previous assignment of errors in his brief,
which plainly should not be allowed as anathema to due process.

Petitioners should be reminded that the object of pleadings is to draw the lines of battle between the litigants and to
indicate fairly the nature of the claims or defenses of both parties.[56] In Philippine National Construction Corporation v.
Court of Appeals,[57] we held that [w]hen a party adopts a certain theory in the trial court, he will not be permitted to
change his theory on appeal, for to permit him to do so would not only be unfair to the other party but it would also be
offensive to the basic rules of fair play, justice and due process.[58]

We have also previously ruled that courts of justice have no jurisdiction or power to decide a question not in issue. Thus, a
judgment that goes beyond the issues and purports to adjudicate something on which the court did not hear the parties, is
not only irregular but also extrajudicial and invalid. The rule rests on the fundamental tenets of fair play.[59]

During the proceedings before the trial court, the spouses Catungal never claimed that the provisions in the Conditional
Deed of Sale, stipulating that the payment of the balance of the purchase price was contingent upon the successful
negotiation of a road right of way (paragraph 1[b]) and granting Rodriguez the option to rescind (paragraph 5), were void for
allegedly making the fulfillment of the contract dependent solely on the will of Rodriguez.

On the contrary, with respect to paragraph 1(b), the Catungals did not aver in the Answer (and its amended versions) that
the payment of the purchase price was subject to the will of Rodriguez but rather they claimed that paragraph 1(b) in
relation to 1(c) only presupposed a reasonable time be given to Rodriguez to negotiate the road right of way. However, it
was petitioners theory that more than sufficient time had already been given Rodriguez to negotiate the road right of way.
Consequently, Rodriguezs refusal/failure to pay the balance of the purchase price, upon demand, was allegedly indicative of
lack of funds and a breach of the contract on the part of Rodriguez.

Anent paragraph 5 of the Conditional Deed of Sale, regarding Rodriguezs option to rescind, it was petitioners theory in the
court a quo that notwithstanding such provision, they retained the right to rescind the contract for Rodriguezs breach of the
same under Article 1191 of the Civil Code.

Verily, the first time petitioners raised their theory of the nullity of the Conditional Deed of Sale in view of the questioned
provisions was only in their Motion for Reconsideration of the Court of Appeals Decision, affirming the trial courts judgment.
The previous filing of various citations of authorities by Atty. Borromeo and the Court of Appeals resolutions noting such
citations were of no moment. The citations of authorities merely listed cases and their main rulings without even any
mention of their relevance to the present case or any prayer for the Court of Appeals to consider them. In sum, the Court of

17
Appeals did not err in disregarding the citations of authorities or in denying petitioners motion for reconsideration of the
assailed August 8, 2000 Decision in view of the proscription against changing legal theories on appeal.

Ruling on the questioned provisions of the Conditional Deed of Sale

Even assuming for the sake of argument that this Court may overlook the procedural misstep of petitioners, we still cannot
uphold their belatedly proffered arguments.

At the outset, it should be noted that what the parties entered into is a Conditional Deed of Sale, whereby the spouses
Catungal agreed to sell and Rodriguez agreed to buy Lot 10963 conditioned on the payment of a certain price but the
payment of the purchase price was additionally made contingent on the successful negotiation of a road right of way. It is
elementary that [i]n conditional obligations, the acquisition of rights, as well as the extinguishment or loss of those already
acquired, shall depend upon the happening of the event which constitutes the condition.[60]

Petitioners rely on Article 1308 of the Civil Code to support their conclusion regarding the claimed nullity of the
aforementioned provisions. Article 1308 states that [t]he contract must bind both contracting parties; its validity or
compliance cannot be left to the will of one of them.

Article 1182 of the Civil Code, in turn, provides:

Art. 1182. When the fulfillment of the condition depends upon the sole will of the debtor, the conditional obligation shall be
void. If it depends upon chance or upon the will of a third person, the obligation shall take effect in conformity with the
provisions of this Code.

In the past, this Court has distinguished between a condition imposed on the perfection of a contract and a condition
imposed merely on the performance of an obligation. While failure to comply with the first condition results in the failure of
a contract, failure to comply with the second merely gives the other party the option to either refuse to proceed with the
sale or to waive the condition.[61] This principle is evident in Article 1545 of the Civil Code on sales, which provides in part:

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 x x x.

Paragraph 1(b) of the Conditional Deed of Sale, stating that respondent shall pay the balance of the purchase price when he
has successfully negotiated and secured a road right of way, is not a condition on the perfection of the contract nor on the
validity of the entire contract or its compliance as contemplated in Article 1308. It is a condition imposed only on
respondents obligation to pay the remainder of the purchase price. In our view and applying Article 1182, such a condition is
not purely potestative as petitioners contend. It is not dependent on the sole will of the debtor but also on the will of third
persons who own the adjacent land and from whom the road right of way shall be negotiated. In a manner of speaking, such
a condition is likewise dependent on chance as there is no guarantee that respondent and the third party-landowners would
come to an agreement regarding the road right of way. This type of mixed condition is expressly allowed under Article 1182
of the Civil Code.

Analogous to the present case is Romero v. Court of Appeals,[62] wherein the Court interpreted the legal effect of a
condition in a deed of sale that the balance of the purchase price would be paid by the vendee when the vendor has
successfully ejected the informal settlers occupying the property. In Romero, we found that such a condition did not affect
the perfection of the contract but only imposed a condition on the fulfillment of the obligation to pay the balance of the
purchase price, to wit:

From the moment the contract is perfected, the parties are bound not only to the fulfillment of what has been expressly
stipulated but also to all the consequences which, according to their nature, may be in keeping with good faith, usage and
law. Under the agreement, private respondent is obligated to evict the squatters on the property. The ejectment of the
18
squatters is a condition the operative act of which sets into motion the period of compliance by petitioner of his own
obligation, i.e., to pay the balance of the purchase price. Private respondent's failure to remove the squatters from the
property" within the stipulated period gives petitioner the right to either refuse to proceed with the agreement or waive
that condition in consonance with Article 1545 of the Civil Code. This 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 of the
Civil Code but a "mixed" condition "dependent not on the will of the vendor alone but also of third persons like the squatters
and government agencies and personnel concerned." We must hasten to add, however, that where the so-called
"potestative condition" is imposed not on the birth of the obligation but on its fulfillment, only the condition is avoided,
leaving unaffected the obligation itself.[63] (Emphases supplied.)

From the provisions of the Conditional Deed of Sale subject matter of this case, it was the vendee (Rodriguez) that had the
obligation to successfully negotiate and secure the road right of way. However, in the decision of the trial court, which was
affirmed by the Court of Appeals, it was found that respondent Rodriguez diligently exerted efforts to secure the road right
of way but the spouses Catungal, in bad faith, contributed to the collapse of the negotiations for said road right of way. To
quote from the trial courts decision:

It is therefore apparent that the vendees obligations (sic) to pay the balance of the purchase price arises only when the
road-right-of-way to the property shall have been successfully negotiated, secured and provided. In other words, the
obligation to pay the balance is conditioned upon the acquisition of the road-right-of-way, in accordance with paragraph 2 of
Article 1181 of the New Civil Code. Accordingly, an obligation dependent upon a suspensive condition cannot be demanded
until after the condition takes place because it is only after the fulfillment of the condition that the obligation arises. (Javier
v[s] CA 183 SCRA) Exhibits H, D, P, R, T, FF and JJ show that plaintiff [Rodriguez] indeed was diligent in his efforts to negotiate
for a road-right-of-way to the property. The written offers, proposals and follow-up of his proposals show that plaintiff
[Rodriguez] went all out in his efforts to immediately acquire an access road to the property, even going to the extent of
offering P3,000.00 per square meter for the road lots (Exh. Q) from the original P550.00 per sq. meter. This Court also notes
that defendant (sic) [the Catungals] made misrepresentation in the negotiation they have entered into with plaintiff
[Rodriguez]. (Exhs. F and G) The misrepresentation of defendant (sic) [the Catungals] as to the third lot (Lot 10986) to be
part and parcel of the subject property [(]Lot 10963) contributed in defeating the plaintiffs [Rodriguezs] effort in acquiring
the road-right-of-way to the property. Defendants [the Catungals] cannot now invoke the non-fulfillment of the condition in
the contract as a ground for rescission when defendants [the Catungals] themselves are guilty of preventing the fulfillment
of such condition.

From the foregoing, this Court is of the considered view that rescission of the conditional deed of sale by the defendants is
without any legal or factual basis.[64] x x x. (Emphases supplied.)

In all, we see no cogent reason to disturb the foregoing factual findings of the trial court.

Furthermore, it is evident from the language of paragraph 1(b) that the condition precedent (for respondents obligation to
pay the balance of the purchase price to arise) in itself partly involves an obligation to do, i.e., the undertaking of respondent
to negotiate and secure a road right of way at his own expense.[65] It does not escape our notice as well, that far from
disclaiming paragraph 1(b) as void, it was the Catungals contention before the trial court that said provision should be read
in relation to paragraph 1(c) which stated:

c. That the access road or Road Right of Way leading to Lot 10963 shall be the responsibility of the VENDEE to secure and
any or all cost relative to the acquisition thereof shall be borne solely by the VENDEE. He shall, however, be accorded with
19
enough time necessary for the success of his endeavor, granting him a free hand in negotiating for the passage.[66]
(Emphasis supplied.)

The Catungals interpretation of the foregoing stipulation was that Rodriguezs obligation to negotiate and secure a road right
of way was one with a period and that period, i.e., enough time to negotiate, had already lapsed by the time they demanded
the payment of P5,000,000.00 from respondent. Even assuming arguendo that the Catungals were correct that the
respondents obligation to negotiate a road right of way was one with an uncertain period, their rescission of the Conditional
Deed of Sale would still be unwarranted. Based on their own theory, the Catungals had a remedy under Article 1197 of the
Civil Code, which mandates:

Art. 1197. If the obligation does not fix a period, but from its nature and the circumstances it can be inferred that a period
was intended, the courts may fix the duration thereof.

The courts shall also fix the duration of the period when it depends upon the will of the debtor.

In every case, the courts shall determine such period as may under the circumstances have been probably contemplated by
the parties. Once fixed by the courts, the period cannot be changed by them.

What the Catungals should have done was to first file an action in court to fix the period within which Rodriguez should
accomplish the successful negotiation of the road right of way pursuant to the above quoted provision. Thus, the Catungals
demand for Rodriguez to make an additional payment of P5,000,000.00 was premature and Rodriguezs failure to accede to
such demand did not justify the rescission of the contract.

With respect to petitioners argument that paragraph 5 of the Conditional Deed of Sale likewise rendered the said contract
void, we find no merit to this theory. Paragraph 5 provides:

5. That the VENDEE has the option to rescind the sale. In the event the VENDEE exercises his option to rescind the herein
Conditional Deed of Sale, the VENDEE shall notify the VENDOR by way of a written notice relinquishing his rights over the
property. The VENDEE shall then be reimbursed by the VENDOR the sum of FIVE HUNDRED THOUSAND PESOS (P500,000.00)
representing the downpayment, interest free, payable but contingent upon the event that the VENDOR shall have been able
to sell the property to another party.[67]

Petitioners posited that the above stipulation was the deadliest provision in the Conditional Deed of Sale for violating the
principle of mutuality of contracts since it purportedly rendered the contract subject to the will of respondent.

We do not agree.

It is petitioners strategy to insist that the Court examine the first sentence of paragraph 5 alone and resist a correlation of
such sentence with other provisions of the contract. Petitioners view, however, ignores a basic rule in the interpretation of
contracts that the contract should be taken as a whole.

Article 1374 of the Civil Code provides that [t]he various stipulations of a contract shall be interpreted together, attributing
to the doubtful ones that sense which may result from all of them taken jointly. The same Code further sets down the rule
that [i]f some stipulation of any contract should admit of several meanings, it shall be understood as bearing that import
which is most adequate to render it effectual.[68]

Similarly, under the Rules of Court it is prescribed that [i]n the construction of an instrument where there are several
provisions or particulars, such a construction is, if possible, to be adopted as will give effect to all[69] and for the proper
20
construction of an instrument, the circumstances under which it was made, including the situation of the subject thereof
and of the parties to it, may be shown, so that the judge may be placed in the position of those whose language he is to
interpret.[70]

Bearing in mind the aforementioned interpretative rules, we find that the first sentence of paragraph 5 must be taken in
relation with the rest of paragraph 5 and with the other provisions of the Conditional Deed of Sale.

Reading paragraph 5 in its entirety will show that Rodriguezs option to rescind the contract is not absolute as it is subject to
the requirement that there should be written notice to the vendor and the vendor shall only return Rodriguezs
downpayment of P500,000.00, without interest, when the vendor shall have been able to sell the property to another party.
That what is stipulated to be returned is only the downpayment of P500,000.00 in the event that Rodriguez exercises his
option to rescind is significant. To recall, paragraph 1(b) of the contract clearly states that the installments on the balance of
the purchase price shall only be paid upon successful negotiation and procurement of a road right of way. It is clear from
such provision that the existence of a road right of way is a material consideration for Rodriguez to purchase the property.
Thus, prior to him being able to procure the road right of way, by express stipulation in the contract, he is not bound to
make additional payments to the Catungals. It was further stipulated in paragraph 1(b) that: [i]f however said road right of
way cannot be negotiated, the VENDEE shall give notice to the VENDOR for them to reassess and solve the problem by
taking other options and should the situation ultimately prove futile, he [Rodriguez] shall take steps to rescind or [cancel]
the herein Conditional Deed of Sale. The intention of the parties for providing subsequently in paragraph 5 that Rodriguez
has the option to rescind the sale is undeniably only limited to the contingency that Rodriguez shall not be able to secure the
road right of way. Indeed, if the parties intended to give Rodriguez the absolute option to rescind the sale at any time, the
contract would have provided for the return of all payments made by Rodriguez and not only the downpayment. To our
mind, the reason only the downpayment was stipulated to be returned is that the vendees option to rescind can only be
exercised in the event that no road right of way is secured and, thus, the vendee has not made any additional payments,
other than his downpayment.

In sum, Rodriguezs option to rescind the contract is not purely potestative but rather also subject to the same mixed
condition as his obligation to pay the balance of the purchase price i.e., the negotiation of a road right of way. In the event
the condition is fulfilled (or the negotiation is successful), Rodriguez must pay the balance of the purchase price. In the event
the condition is not fulfilled (or the negotiation fails), Rodriguez has the choice either (a) to not proceed with the sale and
demand return of his downpayment or (b) considering that the condition was imposed for his benefit, to waive the condition
and still pay the purchase price despite the lack of road access. This is the most just interpretation of the parties contract
that gives effect to all its provisions.

In any event, even if we assume for the sake of argument that the grant to Rodriguez of an option to rescind, in the manner
provided for in the contract, is tantamount to a potestative condition, not being a condition affecting the perfection of the
contract, only the said condition would be considered void and the rest of the contract will remain valid. In Romero, the
Court observed that where the so-called potestative condition is imposed not on the birth of the obligation but on its
fulfillment, only the condition is avoided, leaving unaffected the obligation itself.[71]

It cannot be gainsaid that contracts have the force of law between the contracting parties and should be complied with in
good faith.[72] We have also previously ruled that [b]eing the primary law between the parties, the contract governs the
adjudication of their rights and obligations. A court has no alternative but to enforce the contractual stipulations in the
manner they have been agreed upon and written.[73] We find no merit in petitioners contention that their parents were
merely duped into accepting the questioned provisions in the Conditional Deed of Sale. We note that although the contract
was between Agapita Catungal and Rodriguez, Jose Catungal nonetheless signed thereon to signify his marital consent to the
same. We concur with the trial courts finding that the spouses Catungals claim of being misled into signing the contract was
contrary to human experience and conventional wisdom since it was Jose Catungal who was a practicing lawyer while

21
Rodriquez was a non-lawyer.[74] It can be reasonably presumed that Atty. Catungal and his wife reviewed the provisions of
the contract, understood and accepted its provisions before they affixed their signatures thereon.

After thorough review of the records of this case, we have come to the conclusion that petitioners failed to demonstrate
that the Court of Appeals committed any reversible error in deciding the present controversy. However, having made the
observation that it was desirable for the Catungals to file a separate action to fix the period for respondent Rodriguezs
obligation to negotiate a road right of way, the Court finds it necessary to fix said period in these proceedings. It is but
equitable for us to make a determination of the issue here to obviate further delay and in line with the judicial policy of
avoiding multiplicity of suits.

If still warranted, Rodriguez is given a period of thirty (30) days from the finality of this decision to negotiate a road right of
way. In the event no road right of way is secured by Rodriquez at the end of said period, the parties shall reassess and
discuss other options as stipulated in paragraph 1(b) of the Conditional Deed of Sale and, for this purpose, they are given a
period of thirty (30) days to agree on a course of action. Should the discussions of the parties prove futile after the said
thirty (30)-day period, immediately upon the expiration of said period for discussion, Rodriguez may (a) exercise his option
to rescind the contract, subject to the return of his downpayment, in accordance with the provisions of paragraphs 1(b) and
5 of the Conditional Deed of Sale or (b) waive the road right of way and pay the balance of the deducted purchase price as
determined in the RTC Decision dated May 30, 1992.

WHEREFORE, the Decision dated August 8, 2000 and the Resolution dated January 30, 2001 of the Court of Appeals in CA-
G.R. CV No. 40627 consolidated with CA-G.R. SP No. 27565 are AFFIRMED with the following MODIFICATION:

If still warranted, respondent Angel S. Rodriguez is given a period of thirty (30) days from the finality of this Decision to
negotiate a road right of way. In the event no road right of way is secured by respondent at the end of said period, the
parties shall reassess and discuss other options as stipulated in paragraph 1(b) of the Conditional Deed of Sale and, for this
purpose, they are given a period of thirty (30) days to agree on a course of action. Should the discussions of the parties
prove futile after the said thirty (30)-day period, immediately upon the expiration of said period for discussion, Rodriguez
may (a) exercise his option to rescind the contract, subject to the return of his downpayment, in accordance with the
provisions of paragraphs 1(b) and 5 of the Conditional Deed of Sale or (b) waive the road right of way and pay the balance of
the deducted purchase price as determined in the RTC Decision dated May 30, 1992.

No pronouncement as to costs.

SO ORDERED.

22
PILIPINO TELEPHONE G.R. No. 160322 CORPORATION,Petitioner, Present:

VELASCO, JR., J., Chairperson,

- versus - LEONARDO-DE CASTRO,*

(SMARTNET) PHILIPPINES, INC., Promulgated:Respondent.

August 24, 2011

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

DECISION

ABAD, J.:

This case is about a partys right to summary judgment when the pleadings show that there are no genuine issues of fact to
be tried.

The Facts and the Case

On December 11, 1996 petitioner Pilipino Telephone Corporation (Piltel) expressed its willingness, on purely best effort, to
buy in 1997 from respondent Radiomarine Network, Inc. (Smartnet) 300,000 units of various brands of cellular phones and
accessories (Motorola, Mitsubishi, and Ericsson).[1]

On the following day, December 12, 1996, Piltel agreed to sell to Smartnet a 3,500-square meter lot,[2] known as the
Valgoson Property, in Makati City for P560 million. Smartnet agreed to pay Piltel P180 million as down payment with the
balance of P380 million to be partly set off against the obligations that Piltel was to incur from its projected purchase of
cellular phones and accessories from Smartnet. Smartnet agreed to settle any unpaid portion of the purchase price of the
land after the set off on or about April 30, 1997.

The contract to sell between the parties provides:

The total consideration of FIVE HUNDRED SIXTY MILLION PESOS (P560,000,000.00) shall be paid by the VENDEE [Smartnet],
without the need of any demand, to the VENDOR [Piltel] in the following manner:

(a) a downpayment in the amount of ONE HUNDRED EIGHTY MILLION (P180,000,000.00) PESOS, to be paid on or before
December 28, 1996;

(b) Any and all outstanding payables which the VENDOR [Piltel] owes to the VENDEE [Smartnet] in consideration of the
cellular phone units and accessories ordered by the VENDOR [Piltel] and delivered by the VENDEE [Smartnet] between the
initial downpayment date i.e. December 28, 1996 and April 30, 1997, shall be credited to the VENDEE [Smartnet] as
additional payment of the purchase price.

(c) The remaining balance, after deducting (a) and (b) above, shall be paid on or about April 30, 1997. It is expressly
understood however, that the VENDOR [Piltel] shall submit to the VENDEE [Smartnet], on or about April 20, 1997, a
Statement of Account updating the deliveries of cellular phones and its outstanding amount in order that the VENDEE
[Smartnet] can prepare the final payment. In this way, the amount of final payment shall be made to the VENDOR [Piltel] on
or before April 30, 1997. Should the VENDOR [Piltel] be delayed in the submission of the said Statement on the stipulated
date, the date of payment of the remaining balance shall be automatically adjusted for a period equivalent to the number of
days by which the VENDOR [Piltel] is delayed in the submission thereof.[3]
23
The parties also agreed on a rescission and forfeiture clause[4] which provided that, if Smartnet fails to pay the full price of
the land within the stipulated period and within five days after receipt of a notice of delinquency, it would automatically
forfeit to Piltel 10% of the P180 million down payment or P18 million and the contract shall be without force and effect.

Smartnet failed to pay the P380 million balance of the purchase price on or about the date it fell due. On December 19,
1997 Piltel returned P50 million to Smartnet, a portion of the P180 million down payment that it received. Smartnet later
requested Piltel for the return of the remaining P130 million but the latter failed to do so.[5]

On December 1, 1999 Smartnet filed a complaint[6] against Piltel for rescission of their contract to sell involving the
Valgoson Property or its partial specific performance before the Regional Trial Court (RTC)[7] of Makati City in Civil Case 99-
2041. Smartnet alleged, among other things, that it withheld payment of the balance of the purchase price of the subject
property because Piltel reneged on its commitment to purchase from Smartnet 300,000 units of cellular phones and
accessories.

Smartnet asked the court to (a) order Piltel to convey to Smartnet at least 32% interest in the Valgoson Property,
representing the value of its down payment of P180 million or, in the alternative, order Piltel to return to Smartnet its P180
million down payment plus interest; (b) order Piltel to pay Smartnet P81,300,764.96, representing the value of the 300,000
units of various cellular phones which it acquired pursuant to Piltels commitment to buy them but which commitment Piltel
disregarded, plus interest, as actual and compensatory damages; and (c) order Piltel to pay Smartnet P500,000.00 in
attorneys fees.

In its answer with counterclaims,[8] Piltel claimed that the agreement to purchase cellular phones and accessories was not
part of its contract with Smartnet for the sale of the Valgoson Property and that Piltel committed to buy equipment from
Smartnet only on a best effort basis. For this reason, Piltel pointed out, Smartnet did not have the power to rescind the
contract to sell the Valgoson Property and, hence, cannot invoke that contracts rescission and forfeiture clause. Piltel sought
full payment by Smartnet of the purchase price for the Valgoson Property, moral damages, exemplary damages, and
litigation expenses.

On October 3, 2000 Smartnet filed a motion for partial summary judgment[9] for the return of the down payment it paid
Piltel. The RTC granted the motion on November 13, 2000[10] and ordered Piltel to return the P180 million down payment
that it received less the forfeited amount of P18 million and the cash advance of P50 million or a net of P112 million, with
interest at 6% per annum from the time of the extrajudicial demand on it on October 20, 1998 until finality of the judgment
and an additional 12% legal interest after the judgment becomes final and executory until the same is satisfied. Piltel filed a
motion for reconsideration which the RTC denied for lack of merit on January 30, 2001.

On March 15, 2001 Smartnet filed a manifestation and motion, withdrawing its two remaining causes of action and praying
for the issuance of a writ of execution. On March 20, 2001 it filed an alternative motion for execution pending appeal of the
RTCs partial decision.

On April 4, 2001 Piltel filed with the Court of Appeals (CA)[11] a special civil action for certiorari with application for a
temporary restraining order and a writ of preliminary injunction. Piltel alleged that the RTC presiding judge, Reinato G.
Quilala, gravely abused his discretion when he issued a partial summary judgment in the case and denied Piltels motion for
reconsideration. But the CA dismissed the petition, prompting Piltel to challenge such dismissal before this Court in G.R.
152092.

Meantime, on April 23, 2001 the RTC granted (a) Smartnets motion to withdraw its remaining causes of action and (b) its
motion for execution pending appeal.[12] Consequently, a writ of execution was issued on April 24, 2001.

On April 25, 2001 Piltel filed a notice of appeal to the CA from the judgment of November 13, 2000 and from the April 23,
2001 Order that allowed execution pending appeal. The appeal to the CA was docketed as CA-G.R. CV 71805.
24
On April 26, 2001 Piltel filed with the RTC a motion to defer execution pending appeal upon the posting of a supersedeas
bond. The RTC denied the motion. Piltel filed a motion for reconsideration but the court denied it on August 14, 2001[13]
and directed Piltel to pay 12% interest on the judgment amount from April 23, 2001, when it allowed the execution pending
appeal. Piltel filed a supplemental notice of appeal to the CA from this last order.

On June 11, 2003 the CA dismissed Piltels appeal in CA-G.R. CV 71805.[14] The appellate court held that the RTC did not err
when it granted summary judgment since there were no genuine issues involved in the case. The CA said that Smartnets
failure to pay the balance of the purchase price ipso facto avoids the contract to sell. With the denial of its motion for
reconsideration,[15] Piltel filed this petition under Rule 45 of the Rules of Court.

Meantime, the Court in G.R. 152092[16] denied Piltels petition on August 4, 2010. The Court affirmed the CAs ruling in CA-
G.R. SP 64155 that appeal, and not certiorari, is the proper remedy. Moreover, it held that Piltel committed forum shopping
when it filed a petition for certiorari and a notice of appeal to assail the same resolutions and orders of the RTC.

With the denial of G.R. 152092, the Court is now left with this petition assailing the CAs dismissal of Piltels appeal in CA-G.R.
CV 71805.

The Issue Presented

The core issue for resolution is whether or not there are genuine issues of fact to be tried in this case.

The Courts Ruling

A genuine issue of fact is that which requires the presentation of evidence, as distinguished from a sham, fictitious,
contrived or false issue. When the facts as pleaded appear uncontested or undisputed, then there is no real or genuine
issue. Summary judgment is proper in such a case.[17]

Here, Piltel contends that summary judgment is out of place because the parties raise factual issues of fraud and breach of
contract. Although their contract has a built-in rescission and forfeiture clause, this becomes operative only upon the
occurrence of the following conditions: 1) Piltel sends a Statement of Account to Smartnet; 2) Smartnet fails to pay within 10
days from receipt of the statement; 3) Piltel sends a Notice of Delinquency to Smartnet; and 4) Smartnet fails to pay within
five days from receipt of the notice.

The rescission and forfeiture clause thus reads:

In case the VENDEE fails to fully pay, within the stipulated period, the balance of the total consideration under Article 2(c) of
this Contract to Sell, the VENDOR shall send a notice of delinquency to the VENDEE. Failure on the part of the VENDEE to pay
within five (5) days from receipt of said notice, ten (10%) percent of the downpayment or EIGHTEEN MILLION PESOS
(P18,000,000.00) PESOS, Philippine Currency shall automatically be forfeited in favor of the VENDOR and the Contract to Sell
shall be without force and effect.[18]

Notably, however, both Piltel and Smartnet admit that they entered into a contract to sell covering the Valgoson Property;
that Smartnet agreed to pay Piltel P560 million for it, with a down payment of P180 million; and that Smartnet failed to pay
the balance of the purchase price on or about April 30, 1997.

With these common admissions, it is clear that there are no genuine issues of fact as to the existence and nature of the
contract to sell as well as Smartnets failure to pay the balance of the purchase price within the agreed period. Thus, the RTC
was correct in skipping trial and deciding the case through a summary judgment based on the undisputed facts.

Smartnets allegations respecting fraud and breach of contract referred to what appears to be Piltels non-binding promise to
buy cellular phones and accessories from Smartnet. These are matters independent of the parties agreement concerning

25
Piltels sale of the Valgoson Property to Smartnet. The contract to sell of such property was not legally linked or made
dependent on the aborted cellular phone deal between the parties. Indeed, Smartnet dropped with leave of court its causes
of action relating to such deal.

All that matters is that since Smartnet failed to pay the balance of the purchase price, automatic rescission set in and this
placed Piltel under an obligation to return the down payment it received, less the portion that it forfeited due to Smartnets
default. Consequently, it is but proper for Piltel to fully abide by such obligation. Piltel cannot avoid rescission since it in fact
partially abided by rescissions consequences when it returned to Smartnet on December 19, 1997 a P50 million portion of
the down payment it received.

By returning part of the down payment, it is clear that Piltel recognized that the contract to sell the Valgoson Property had
reached the point of automatic rescission. Piltel is, therefore, in estoppel to deny rescission based on a claim that it had not
yet sent a statement of account or a notice of delinquency to Smartnet regarding the latters default. Such statement of
account and notice of delinquency had become academic.

Piltel argues that Smartnet cannot, as a defaulting buyer, rescind the contract to sell between them by the simple act of
refusing to pay. But, Smartnets nonpayment of the full price of the property was not an act of rescission. It was but an event
that rendered the contract to sell without force and effect. In a contract to sell, the prospective seller binds himself to part
with his property only upon fulfillment of the condition agreed, in this case, the payment in full of the purchase price. If this
condition is not fulfilled, the seller is then released from his obligation to sell.

As the Court said in Heirs of Cayetano Pangan and Consuelo Pangan v. Perreras,[19] the payment of the purchase price in a
contract to sell is a positive suspensive condition, the failure of which is not a breach but a situation that results in the
cancellation of the contract. Strictly speaking, therefore, there can be no rescission or resolution of an obligation that is still
non-existent due to the non-happening of the suspensive condition.[20]

Likewise, a cause of action for specific performance does not arise where the contract to sell has been cancelled due to
nonpayment of the purchase price.[21] Smartnet obviously cannot demand title to the Valgoson Property because it did not
pay the purchase price in full. For its part, Piltel also cannot insist on full payment since Smartnets failure to pay resulted in
the cancellation of the contract to sell. Indeed, in the case of Ayala Life Assurance, Inc. v. Ray Burton Devt. Corp.,[22] the
Court rejected the sellers demand for full payment and instead ordered it to refund to the buyer all sums previously paid.
The order to refund is correct based on the principle that no one should unjustly enrich himself at the expense of
another.[23]

Lastly, the Court sustains the CAs imposition of 12% interest pursuant to our ruling in Eastern Shipping Lines, Inc. v. Court of
Appeals.[24]

WHEREFORE, premises considered, the Court DENIES the petition and AFFIRMS the June 11, 2003 Decision and the October
6, 2003 Resolution of the Court of Appeals in CA-G.R. CV 71805.

SO ORDERED.

26