G.R. No. 137290.

July 31, 2000

This is a petition for review of the decision,1 dated April 8, 1997, of the Court of Appeals which reversed
the decision of the Regional Trial Court, Branch 153, Pasig City dismissing the complaint brought by
respondents against petitioner for enforcement of a contract of sale.

The facts are not in dispute.

Petitioner San Miguel Properties Philippines, Inc. is a domestic corporation engaged in the purchase and
sale of real properties. Part of its inventory are two parcels of land totalling 1, 738 square meters at the
corner of Meralco Avenue and General Capinpin Street, Barrio Oranbo, Pasig City, which are covered by
TCT Nos. PT-82395 and PT-82396 of the Register of Deeds of Pasig City.

On February 21, 1994, the properties were offered for sale for P52,140,000.00 in cash. The offer was
made to Atty. Helena M. Dauz who was acting for respondent spouses as undisclosed principals. In a
letter2 dated March 24, 1994, Atty. Dauz signified her clients interest in purchasing the properties for the
amount for which they were offered by petitioner, under the following terms: the sum of P500,000.00
would be given as earnest money and the balance would be paid in eight equal monthly installments from
May to December, 1994. However, petitioner refused the counter-offer.

On March 29, 1994, Atty. Dauz wrote another letter3 proposing the following terms for the purchase of
the properties, viz:

This is to express our interest to buy your-above-mentioned property with an area of 1, 738 sq. meters.
For this purpose, we are enclosing herewith the sum of P1,000,000.00 representing earnest-deposit
money, subject to the following conditions.

1. We will be given the exclusive option to purchase the property within the 30 days from date of your
acceptance of this offer.

2. During said period, we will negotiate on the terms and conditions of the purchase; SMPPI will secure
the necessary Management and Board approvals; and we initiate the documentation if there is mutual
agreement between us.

3. In the event that we do not come to an agreement on this transaction, the said amount
of P1,000,000.00 shall be refundable to us in full upon demand. . . .

Isidro A. Sobrecarey, petitioners vice-president and operations manager for corporate real estate,
indicated his conformity to the offer by affixing his signature to the letter and accepted the "earnest-
deposit" of P1 million. Upon request of respondent spouses, Sobrecarey ordered the removal of the "FOR
SALE" sign from the properties.

Atty. Dauz and Sobrecarey then commenced negotiations. During their meeting on April 8, 1994,
Sobrecarey informed Atty. Dauz that petitioner was willing to sell the subject properties on a 90-day
term. Atty. Dauz countered with an offer of six months within which to pay.
On April 14, 1994, the parties again met during which Sobrecarey informed Atty. Dauz that petitioner had
not yet acted on her counter-offer. This prompted Atty. Dauz to propose a four-month period of
amortization.

On April 25, 1994, Atty. Dauz asked for an extension of 45 days from April 29, 1994 to June 13, 1994
within which to exercise her option to purchase the property, adding that within that period, "[we] hope
to finalize [our] agreement on the matter."4 Her request was granted.

On July 7, 1994, Petitioner, through its president and chief executive officer, Federico Gonzales, wrote
Atty. Dauz informing her that because the parties failed to agree on the terms and conditions of the sale
despite the extension granted by petitioner, the latter was returning the amount of P1 million given as
"earnest-deposit."5crä lä wvirtualibrä ry

On July 20, 1994, respondent spouses, through counsel, wrote petitioner demanding the execution within
five days of a deed of sale covering the properties. Respondents attempted to return the "earnest-
deposit" but petitioner refused on the ground that respondents option to purchase had already expired.

On August 16, 1994, respondent spouses filed a complaint for specific performance against petitioner
before the Regional Trial Court, Branch 133, Pasig City where it was docketed as Civil Case No. 64660.

Within the period for filing a responsive pleading, petitioner filed a motion to dismiss the complaint
alleging that (1) the alleged "exclusive option" of respondent spouses lacked a consideration separate
and distinct from the purchase price and was thus unenforceable and (2) the complaint did not allege a
cause of action because there was no "meeting of the minds" between the parties and, therefore, no
perfected contract of sale. The motion was opposed by Respondents.

On December 12, 1994, the trial court granted petitioners motion and dismissed the action. Respondents
filed a motion for reconsideration, but it was denied by the trial court. They then appealed to the Court of
Appeals which, on April 8, 1997, rendered a decision6 reversing the judgment of the trial court. The
appellate court held that all the requisites of a perfected contract of sale had been complied with as the
offer made on March 29, 1994, in connection with which the earnest money in the amount of P1 million
was tendered by respondents, had already been accepted by petitioner. The court cited Art. 1482 of the
Civil Code which provides that "[w]henever earnest money is given in a contract of sale, it shall be
considered as part of the price and as proof of the perfection of the contract." The fact the parties had not
agreed on the mode of payment did not affect the contract as such is not an essential element for its
validity. In addition, the court found that Sobrecarey had authority to act in behalf of petitioner for the
sale of the properties.7crä lä wvirtualibrä ry

Petitioner moved for reconsideration of the trial courts decision, but its motion was denied. Hence, this
petition.

Petitioner contends that the Court of Appeals erred in finding that there was a perfected contract of sale
between the parties because the March 29, 1994 letter of respondents, which petitioner accepted, merely
resulted in an option contract, albeit it was unenforceable for lack of a distinct consideration. Petitioner
argues that the absence of agreement as to the mode of payment was fatal to the perfection of the
contract of sale. Petitioner also disputes the appellate courts ruling that Isidro A. Sobrecarey had
authority to sell the subject real properties.8crä lä wvirtualibrä ry

Respondents were required to comment within ten (10) days from notice. However, despite 13
extensions totalling 142 days which the Court had given to them, respondents failed to file their
comment. They were thus considered to have waived the filing of a comment.
The petition is meritorious.

In holding that there is a perfected contract of sale, the Court of Appeals relied on the following findings:
(1) earnest money was allegedly given by respondents and accepted by petitioner through its vice-
president and operations manager, Isidro A. Sobrecarey; and (2) the documentary evidence in the
records show that there was a perfected contract of sale.

With regard to the alleged payment and acceptance of earnest money, the Court holds that respondents
did not give the P1 million as "earnest money" as provided by Art. 1482 of the Civil Code. They presented
the amount merely as a deposit of what would eventually become the earnest money or downpayment
should a contract of sale be made by them. The amount was thus given not as a part of the purchase price
and as proof of the perfection of the contract of sale but only as a guarantee that respondents would not
back out of the sale. Respondents in fact described the amount as an "earnest-deposit." In Spouses
Doromal, Sr. v. Court of Appeals,9 it was held:

. . . While the P5,000 might have indeed been paid to Carlos in October, 1967, there is nothing to show
that the same was in the concept of the earnest money contemplated in Art. 1482 of the Civil Code,
invoked by petitioner, as signifying perfection of the sale. Viewed in the backdrop of the factual milieu
thereof extant in the record, We are more inclined to believe that the said  P5,000.00 were paid in the
concept of earnest money as the term was understood under the Old Civil Code, that is, as a guarantee
that the buyer would not back out, considering that it is not clear that there was already a definite
agreement as to the price then and that petitioners were decided to buy 6/7 only of the property should
respondent Javellana refuse to agree to part with her 1/7 share. 10crä lä wvirtualibrä ry

In the present case, the P1 million "earnest-deposit" could not have been given as earnest money as
contemplated in Art. 1482 because, at the time when petitioner accepted the terms of respondents offer
of March 29, 1994, their contract had not yet been perfected. This is evident from the following
conditions attached by respondents to their letter, to wit: (1) that they be given the exclusive option to
purchase the property within 30 days from acceptance of the offer; (2) that during the option period, the
parties would negotiate the terms and conditions of the purchase; and (3) petitioner would secure the
necessary approvals while respondents would handle the documentation.

The first condition for an option period of 30 days sufficiently shows that a sale was never perfected. As
petitioner correctly points out, acceptance of this condition did not give rise to a perfected sale but
merely to an option or an accepted unilateral promise on the part of respondents to buy the subject
properties within 30 days from the date of acceptance of the offer. Such option giving respondents the
exclusive right to buy the properties within the period agreed upon is separate and distinct from the
contract of sale which the parties may enter.11 All that respondents had was just the option to buy the
properties which privilege was not, however, exercised by them because there was a failure to agree on
the terms of payment. No contract of sale may thus be enforced by Respondents.

Furthermore, even the option secured by respondents from petitioner was fatally defective. Under the
second paragraph of Art. 1479, an accepted unilateral promise to buy or sell a determinate thing for a
price certain is binding upon the pror only if the promise is supported by a distinct consideration.
Consideration in an option contract may be anything of value, unlike in sale where it must be the price
certain in money or its equivalent. There is no showing here of any consideration for the option. Lacking
any proof of such consideration, the option is unenforceable.

Equally compelling as proof of the absence of a perfected sale is the second condition that, during the
option period, the parties would negotiate the terms and conditions of the purchase. The stages of a
contract of sale are as follows: (1) negotiation, covering the period from the time the prospective
contracting parties indicate interest in the contract to the time the contract is perfected; (2) perfection,
which takes place upon the concurrence of the essential elements of the sale which are the meeting of the
minds of the parties as to the object of the contract and upon the price; and (3) consummation, which
begins when the parties perform their respective undertakings under the contract of sale, culminating in
the extinguishment thereof.12 In the present case, the parties never got past the negotiation stage. The
alleged "indubitable evidence"13 of a perfected sale cited by the appellate court was nothing more than
offers and counter-offers which did not amount to any final arrangement containing the essential
elements of a contract of sale. While the parties already agreed on the real properties which were the
objects of the sale and on the purchase price, the fact remains that they failed to arrive at mutually
acceptable terms of payment, despite the 45-day extension given by petitioner.

The appellate court opined that the failure to agree on the terms of payment was no bar to the perfection
of the sale because Art. 1475 only requires agreement by the parties as to the price of the object. This is
error. In Navarro v. Sugar Producers Cooperative Marketing Association, Inc.,14 we laid down the rule that
the manner of payment of the purchase price is an essential element before a valid and binding contract
of sale can exist. Although the Civil Code does not expressly state that the minds of the parties must also
meet on the terms or manner of payment of the price, the same is needed, otherwise there is no sale. As
held in Toyota Shaw, Inc. v. Court of Appeals,15 agreement on the manner of payment goes into the price
such that a disagreement on the manner of payment is tantamount to a failure to agree on the
price.16 In Velasco v. Court of Appeals,17 the parties to a proposed sale had already agreed on the object of
sale and on the purchase price. By the buyers own admission, however, the parties still had to agree on
how and when the downpayment and the installments were to be paid. It was held:

. . . Such being the situation, it can not, therefore, be said that a definite and firm sales agreement between
the parties had been perfected over the lot in question. Indeed, this Court has already ruled before that a
definite agreement on the manner of payment of the purchase price is an essential element in the
formation of a binding and enforceable contract of sale. The fact, therefore, that the petitioners delivered
to the respondent the sum of P10,000 as part of the down-payment that they had to pay cannot be
considered as sufficient proof of the perfection of any purchase and sale agreement between the parties
herein under Art. 1482 of the new Civil Code, as the petitioners themselves admit that some essential
matter - the terms of the payment - still had to be mutually covenanted.18crä lä wvirtualibrä ry

Thus, it is not the giving of earnest money, but the proof of the concurrence of all the essential elements
of the contract of sale which establishes the existence of a perfected sale.

In the absence of a perfected contract of sale, it is immaterial whether Isidro A. Sobrecarey had the
authority to enter into a contract of sale in behalf of petitioner. This issue, therefore, needs no further
discussion.

WHEREFORE , the decision of the Court of Appeals is REVERSED and respondents complaint is
DISMISSED.

SO ORDERED.