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formation of contract of sale; option contract; option to buy not contract of sale ADELFA PROPERTIES v COURT OF APPEALS 25 January

1995 Regalado, ponente petition for review on certiorari of a Court of Appeals decision SHORT VERSION: An option is not of itself a purchase, but merely secures the privilege to buy. It is not a sale of property but a sale of the right to purchase. FACTS: Rosario Jimenez-Castaneda, Salud Jimenez (respondents) and their brothers Jose and Dominador Jimenez were the registered co-owners of a 17710 sq m parcel of land in Barrio Culasi, Las Pinas. o Jose and Dominador sold their share consisting of of the land (the eastern portion) to Adelfa Properties (petitioner) pursuant to a Kasulatan sa Bilihan ng Lupa; the Jimenezes subsequently executed a Confirmatory Extrajudicial Partition Agreement where the 8855 sq m eastern portion was adjudicated to Jose and Dominador, while the western portion went to Rosario and Salud. o Adelfa wanted to buy the western portion; it and Rosario&Salud executed an Exclusive Option to Purchase under the ff. terms:
1. The selling price of said 8,655 square meters of the subject property is TWO MILLION EIGHT HUNDRED FIFTY SIX THOUSAND ONE HUNDRED FIFTY PESOS ONLY (P2,856,150.00) 2. The sum of P50,000.00 which we received from ADELFA PROPERTIES, INC. as an option money shall be credited as partial payment upon the consummation of the sale and the balance in the sum of TWO MILLION EIGHT HUNDRED SIX THOUSAND ONE HUNDRED FIFTY PESOS (P2,806,150.00) to be paid on or before November 30, 1989; 3. In case of default on the part of ADELFA PROPERTIES, INC. to pay said balance in accordance with paragraph 2 hereof, this option shall be cancelled and 50% of the option money to be forfeited in our favor and we will refund the remaining 50% of said money upon the sale of said property to a third party; 4. All expenses including the corresponding capital gains tax, cost of documentary stamps are for the account of the VENDORS, and expenses for the registration of the deed of sale in the Registry of Deeds are for the account of ADELFA PROPERTIES, INC.

The owners copy of the certificate of title issued to Salud had been so lost, so a petition for the reissuance of a new owners copy was filed in court through Atty Bayani Bernardo o The new owners copy was issued but remained in Bernardos possession until he turned it over to Adelfa. Before Adelfa could make payments, it received summons of a complaint filed by the nieces and nephews of Rosario and Salud against R&S, Jose and Dominador and Adelfa in the RTC Makati for the annulment of the deed of sale in favor of Household Corp and recovery of ownership of the parcel of land. o Because of this, Adelfa informed Rosario and Salud that it would hold payment of the full purchase price and suggested they settle the case with their relatives.

Adelfa caused to be annotated on the title of the lot its option contract with Rosario and Salud and its contract of sale with Jose and Dominador. Rosario and Salud, through Francisca Jimenez, informed Bernardo that they were cancelling the transaction; Bernardos offer to pay the purchase price provided that P500000 be deducted from the settlement of the civil case was rejected, The RTC dismissed the civil case, so Adelfa caused a new annotation on the title the exclusive option to purchase. o On the same day, Rosario and Salud executed a deed of conditional sale in favor of Emylene Chua over the same parcel of land for P3M of which P1.5M was paid to them on the same date, with balance to be paid upon transfer of title. Rosario and Salud sent a letter to Adelfa with a check for P25000 representing a refund of 50% of the option money paid under the exclusive option to purchase; they requested the return of the owners copy of the certificate of title, which Adelfa failed to do. Rosario and Salud filed a case with the RTC of Pasay for annulment of contract with damages. o RTC rendered judgment holding that the agreement was merely an option contract and the suspension of payment by Adelfa was a counter-offer that was tantamount to rejection of the option. o The CA affirmed the RTC decision.

ISSUE: what kind of agreement had been made between the parties: a contract to sell, an option contract or contract of sale? CONTRACT TO SELL REASONING: There are important distinctions between a contract to sell and a contract of sale. o Contract of sale: title passes to vendee upon delivery of thing sold; vendor has lost and cannot recover ownership until and unless the contract is resolved or rescinded. o Contract to sell: by agreement the ownership is reserved in the vendor and does not pass until full payment of price; title is retained by vendor until full payment and the payment is a positive suspensive condition failure of which is not a breach but an event that prevents the obligation of the vendor to convey title from becoming effective. R&S and Adelfa never intended to transfer ownership to the latter except upon full payment of the purchase price. o The exclusive option to purchase, although providing for automatic rescission of the contract and partial forfeiture of amount already paid in case of default, did not mention that Adelfa was obliged to return possession or ownership as a consequence of nonpayment. There was no stipulation on reversion/reconveyance of property in the event Adelfa failed to comply with its obligation. There was an implied agreement that ownership did not pass to Adelfa until full payment (need not be express; NCC Art 1478). A contract containing this kind of stipulation = contract to sell. o It was not shown that there was actual or constructive delivery of property made to Adelfa. The exclusive option to purchase wasnt in a public instrument the execution of which would have been considered equivalent to delivery; there was also no actual physical possession of the property (that the title was delivered by Bernardo to Adelfa didnt mean that R&S intended delivery, only that Bernardo was their counsel in the petition for reconstitution. The contract was not an option contract as characterized by the CA (although the correct relief was awarded.

An option is a continuing offer or contract by which the owner stipulates with another that the latter shall have the right to buy the property at a fixed price within a certain time, or under, or in compliance with, certain terms and conditions, or which gives to the owner of the property the right to sell or demand a sale. It is also sometimes called an "unaccepted offer." An option is not of itself a purchase, but merely secures the privilege to buy. It is not a sale of property but a sale of the right to purchase. Its distinguishing characteristic is that it imposes no binding obligation on the person holding the option, aside from the consideration for the offer. Until acceptance, it is not, properly speaking, a contract, and does not vest, transfer, or agree to transfer, any title to, or any interest or right in the subject matter, but is merely a contract by which the owner of property gives the optionee the right or privilege of accepting the offer and buying the property on certain terms. o OTOH, a contract like a contract to sell involved the meeting of the mind of two parties etc. o The distinction between an option and a contract of sale is that an option is an unaccepted offer, stating the terms and conditions on which the owner is willing to sell the land, if the holder elects to accept them within the time period. There must be notice of acceptance; otherwise if the time fixed passes, the owner is not longer bound by his offer. In the case, there was a showing of a concurrence of Adelfas offer to buy and Rosario&Saluds acceptance thereof. The records also show that private respondents accepted the offer of petitioner to buy their property under the terms of their contract. At the time petitioner made its offer, private respondents suggested that their transfer certificate of title be first reconstituted, to which petitioner agreed. As a matter of fact, it was petitioner's counsel, Atty. Bayani L. Bernardo, who assisted private respondents in filing a petition for reconstitution. After the title was reconstituted, the parties agreed that petitioner would pay either in cash or manager's check the amount of P2,856,150.00 for the lot. Petitioner was supposed to pay the same on November 25, 1989, but it later offered to make a down payment of P50,000.00, with the balance of P2,806,150.00 to be paid on or before November 30, 1989. Private respondents agreed to the counter-offer made by petitioner. The test in determining whether a contract is a "contract of sale or purchase" or a mere "option" is whether or not the agreement could be specifically enforced. There is no doubt that the obligation of Adelfa to pay the purchase price is specific, definite and certain, and consequently binding and enforceable. Had R&S chosen to enforce the contract, they could have specifically compelled Adelfa to pay the balance of P2M. This is distinctly made manifest in the contract itself as an integral stipulation, compliance with which could legally and definitely be demanded from Adelfa as a consequence. o

RULING: CA judgment affirmed

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