ADELFA PROPERTIES, INC vs.

CA et al
G.R. No. 111238
January 25, 1995

FACTS:

Private respondents and their brothers Jose and Dominador were the registered CO-
OWNERS of a parcel of land in Las Pinas, covered by a TCT.
Jose and Dominador sold their share (eastern portion of the land) to Adelfa.
Thereafter, Adelfa expressed interest in buying the western portion of the property from
private respondents herein. Accordingly, an exclusive Option to Purchase was executed
between Adelfa and Private respondents and an option money of 50,000 was given to the
latter.
A new owners copy of the certificate of title was issued (as the copy with respondent
Salud was lost) was issued but was kept by Adelfas counsel, Atty. Bernardo.
Before Adelfa could make payments, it received summons as a case was filed (RTC
Makati) against Jose and Dominador and Adelfa, because of a complaint in a civil case by
the nephews and nieces of private respondents herein. As a consequence, Adelfa, through a
letter, informed the private respondents that it would hold payment of the full purchase
price and suggested that they settle the case with their said nephews and nieces. Salud did
not heed the suggestion; respondents informed Atty. Bernardo that they are canceling the
transaction. Atty Bernardo made offers but they were all rejected.
RTC Makati dismissed the civil case. A few days after, private respondents executed
a Deed of Conditional Sale in favor of Chua, over the same parcel of land.
Atty Bernardo wrote private respondents informing them that in view of the dismissal
of the case, Adelfa is willing to pay the purchase price, and requested that the
corresponding deed of Absolute Sale be executed. This was ignored by private respondents.
Private respondents sent a letter to Adelfa enclosing therein a check representing the
refund of half the option money paid under the exclusive option to purchase, and requested
Adelfa to return the owners duplicate copy of Salud. Adelfa failed to surrender the
certificate of title, hence the private respondents filed a civil case before the RTC Pasay,
for annulment of contract with damages. The trial court directed the cancellation of the
exclusive option to purchase. On appeal, respondent CA affirmed in toto the decision of the
RTC hence this petition.

ISSUE:

1. WON the agreement between Adelfa and Private respondents was strictly an option contract
2. WON Article 1590 applies in this case, thereby justifiying the refusal by Adelfa to pay
the balance of the purchase price
3. WON Private respondents could unilaterraly and prematurely terminate the option period,
if indeed it is a option contract, as the option period has not lapsed yet.

HELD:

The judgement of the CA is AFFIRMED

1. NO. The agreement between the parties is a contract to sell, and not an option contract
or a contract of sale.
Contract to SELL
by agreement the ownership is reserved in the vendor and is not to pass until the
full payment of the price
title is retained by the vendor until the full payment of the price, such payment
being a positive

Contract of SALE
the title passes to the vendee upon the delivery of the thing sold
 the vendor has lost and cannot recover ownership until and unless the contract is
resolved or rescinded

There are two features which convince us that the parties never intended to transfer
ownership to petitioner except upon the full payment of the purchase price.
(1) the exclusive option to purchase, although it provided for automatic rescission
of the contract and partial forfeiture of the amount already paid in case of default, does
not mention that petitioner is obliged to return possession or ownership of the property as
a consequence of non-payment. There is no stipulation anent reversion or reconveyance of
the property to herein private respondents in the event that petitioner does not comply
with its obligation. With the absence of such a stipulation, although there is a provision
on the remedies available to the parties in case of breach, it may legally be inferred that
the parties never intended to transfer ownership to the petitioner to completion of payment
of the purchase price.
(2) Secondly, it has not been shown there was delivery of the property, actual or
constructive, made to herein petitioner. The exclusive option to purchase is not contained
in a public instrument the execution of which would have been considered equivalent to
delivery. Neither did petitioner take actual, physical possession of the property at any
given time. It is true that after the reconstitution of private respondents certificate of
title, it remained in the possession of petitioners counsel, Atty. Bayani L. Bernardo, who
thereafter delivered the same to herein petitioner. Normally, under the law, such possession
by the vendee is to be understood as a delivery. 18However, private respondents explained
that there was really no intention on their part to deliver the title to herein petitioner
with the purpose of transferring ownership to it. They claim that Atty. Bernardo had
possession of the title only because he was their counsel in the petition for reconstitution.
In effect, there was an implied agreement that ownership shall not pass to the purchaser
until he had fully paid the price in this case. Article 1478 of the civil code does not
require that such a stipulation be expressly made. Consequently, an implied stipulation to
that effect is considered valid and, therefore, binding and enforceable between the parties.
It should be noted that under the law and jurisprudence, a contract which contains this
kind of stipulation is considered a contract to sell.
The important task in contract interpretation is always the ascertainment of
the intention (parties never intended to transfer ownership to petitioner except upon the
full payment of the purchase price) of the contracting parties and that task is, of course,
to be discharged by looking to the words they used to project that intention in their
contract. The title of a contract does not necessarily determine its true nature. Hence,
the fact that the document under discussion is entitled Exclusive Option to Purchase is
not controlling where the text thereof shows that it is a contract to sell.
The obligation of petitioner consisted of an obligation to give something, that is, the
payment of the purchase price. The contract did not simply give petitioner the discretion
to pay for the property. It will be noted that there is nothing in the said contract to
show that petitioner was merely given a certain period within which to exercise its privilege
to buy. The agreed period was intended to give time to herein petitioner within which to
fulfill and comply with its obligation, that is, to pay the balance of the purchase price.
No evidence was presented by private respondents to prove otherwise.
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 petitioner to pay the purchase price is specific, definite and
certain, and consequently binding and enforceable. Had private respondents chosen to enforce
the contract, they could have specifically compelled petitioner to pay the balance. This is
distinctly made manifest in the contract itself as an integral stipulation, compliance with
which could legally and definitely be demanded from petitioner as a consequence.
While there is jurisprudence to the effect that a contract which provides that the initial
payment shall be totally forfeited in case of default in payment is to be considered as an
option contract, still we are not inclined to conform with the findings of respondent court
and the court a quo that the contract executed between the parties is an option contract,
for the reason that the parties were already contemplating the payment of the balance of
the purchase price, and were not merely quoting an agreed value for the property. The term
balance, connotes a remainder or something remaining from the original total sum already
agreed upon.
In other words, the alleged option money was actually earnest money which was intended to
form part of the purchase price. The amount was not distinct from the cause or consideration
for the sale of the property, but was itself a part thereof. It is a statutory rule that
whenever 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. It constitutes an advance payment
and must, therefore, be deducted from the total price. Also, earnest money is given by the
buyer to the seller to bind the bargain.
There are clear distinctions between earnest money and option money, viz.:
(a) earnest money is part of the purchase price, while option money ids the money given as
a distinct consideration for an option contract;
(b) earnest money is given only where there is already a sale, while option money applies
to a sale not yet perfected; and
(c) when earnest money is given, the buyer is bound to pay the balance, while when the
would-be buyer gives option money, he is not required to buy.
The aforequoted characteristics of earnest money are apparent in the so-called option
contract under review, even though it was called option money by the parties. In addition,
private respondents failed to show that the payment of the balance of the purchase price
was only a condition precedent to the acceptance of the offer or to the exercise of the
right to buy. On the contrary, it has been sufficiently established that such payment was
but an element of the performance of petitioners obligation under the contract to sell.

2. Its failure to pay the purchase price within the agreed period, petitioner invokes
Article 1590 of the civil Code which provides:
Art. 1590. Should the vendee be disturbed in the possession or ownership of the thing
acquired, or should he have reasonable grounds to fear such disturbance, by a vindicatory
action or a foreclosure of mortgage, he may suspend the payment of the price until the
vendor has caused the disturbance or danger to cease, unless the latter gives security for
the return of the price in a proper case, or it has been stipulated that, notwithstanding
any such contingency, the vendee shall be bound to make the payment. A mere act of trespass
shall not authorize the suspension of the payment of the price.
Respondent court refused to apply the aforequoted provision of law on the erroneous
assumption that the true agreement between the parties was a contract of option. As we have
hereinbefore discussed, it was not an option contract but a perfected contract to sell.
Verily, therefore, Article 1590 would properly apply.
Both lower courts, are in accord that since the Civil Case in Makati involved only
the eastern half of the land subject of the deed of sale between Adelfa and the Jimenez
brothers, it did not, therefore, have any adverse effect on private respondents title and
ownership over the western half of the land which is covered by the contract subject of the
present case. But at a glance, it is easily discernible that, although the complaint prayed
for the annulment only of the contract of sale executed between petitioner and the Jimenez
brothers, the plaintiffs therein were claiming to be co-owners of the entire parcel of land,
and not only of a portion thereof nor, as incorrectly interpreted by the lower courts, not
pertaining exclusively to the eastern half adjudicated to the Jimenez brothers.
Such being the case, petitioner was justified in suspending payment of the balance of the
purchase price by reason of the aforesaid vindicatory action filed against it. The assurance
made by private respondents that petitioner did not have to worry about the case because it
was pure and simple harassment is not the kind of guaranty contemplated under the exceptive
clause in Article 1590 wherein the vendor is bound to make payment even with the existence
of a vindicatory action if the vendee should give a security for the return of the price.
3. YES. The private respondents may no longer be compelled to sell and deliver the subject
property to petitioner for two reasons, that is, petitioners failure to duly effect the
consignation of the purchase price after the disturbance had ceased; and, secondarily, the
fact that the contract to sell had been validly rescinded by private respondents.
The mere sending of a letter by the vendee expressing the intention to pay, without
the accompanying payment, is not considered a valid tender of payment. Besides, a mere
tender of payment is not sufficient to compel private respondents to deliver the property
and execute the deed of absolute sale. It is consignation which is essential in order to
extinguish petitioners obligation to pay the balance of the purchase price.
The rule is different in case of an option contract or in legal redemption or in a
sale with right to repurchase, wherein consignation is not necessary because these cases
involve an exercise of a right or privilege (to buy, redeem or repurchase) rather than the
discharge of an obligation, hence tender of payment would be sufficient to preserve the
right or privilege. This is because the provisions on consignation are not applicable when
there is no obligation to pay. A contract to sell, as in the case before us, involves the
performance of an obligation, not merely the exercise of a privilege of a right.
Consequently, performance or payment may be effected not by tender of payment alone but by
both tender and consignation.
Furthermore, petitioner no longer had the right to suspend payment after the
disturbance ceased with the dismissal of the civil case filed against it. Necessarily,
therefore, its obligation to pay the balance again arose and resumed after it received
notice of such dismissal. Unfortunately, petitioner failed to seasonably make payment. By
reason of petitioners failure to comply with its obligation, private respondents elected
to resort to and did announce the rescission of the contract through its letter to
petitioner. That written notice of rescission is deemed sufficient under the circumstances.
Article 1592 of the Civil Code which requires rescission either by judicial action or
notarial act is not applicable to a contract to sell. Furthermore, judicial action for
rescission of a contract is not necessary where the contract provides for automatic
rescission in case of breach, as in the contract involved in the present controversy.
In the case at bar, it has been shown that although petitioner was duly furnished and did
receive a written notice of rescission which specified the grounds therefore, it failed to
reply thereto or protest against it. By such cavalier disregard, it has been effectively
estopped from seeking the affirmative relief it now desires but which it had theretofore
disdained.

NOTES:
1. a deed of sale is considered absolute in nature where there is neither
(a) a stipulation in the deed that title to the property sold is reserved in the seller
until the full payment of the price, nor
(b) one giving the vendor the right to unilaterally resolve the contract the moment the
buyer fails to pay within a fixed period.
2. We are not unaware of the ruling in University of the Philippines vs. De los Angeles,
etc. 50 that the right to rescind is not absolute, being ever subject to scrutiny and review
by the proper court. It is our considered view, however, that this rule applies to a
situation where the extrajudicial rescission is contested by the defaulting party. In other
words, resolution of reciprocal contracts may be made extrajudicially unless successfully
impugned in court. If the debtor impugns the declaration, it shall be subject to judicial
determination 51 otherwise, if said party does not oppose it, the extrajudicial rescission
shall have legal effect. 52
3. Option vs. contract
An option, as used in the law on sales, 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 property but a
sale of the right to purchase. It is simply a contract by which the owner of property
agrees with another person that he shall have the right to buy his property at a fixed price
within a certain time. He does not sell his land; he does not then agree to sell it; but he
does sell something, that it is, the right or privilege to buy at the election or option of
the other party.
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.
On the other hand, a contract, like a contract to sell, involves a meeting of minds two
persons whereby one binds himself, with respect to the other, to give something or to render
some service. Contracts, in general, are perfected by mere consent, which is manifested by
the meeting of the offer and the acceptance upon the thing and the cause which are to
constitute the contract. The offer must be certain and the acceptance absolute.
The distinction between an option and a contract of sale is that an option is an unaccepted
offer. It states the terms and conditions on which the owner is willing to sell the land,
if the holder elects to accept them within the time limited. If the holder does so elect,
he must give notice to the other party, and the accepted offer thereupon becomes a valid
and binding contract. If an acceptance is not made within the time fixed, the owner is no
longer bound by his offer, and the option is at an end.
A contract of sale, on the other hand, fixes definitely the relative rights and obligations
of both parties at the time of its execution. The offer and the acceptance are concurrent,
since the minds of the contracting parties meet in the terms of the agreement.

ISAIAS F. FABRIGAS AND MARCELINA R. FABRIGAS VS. SAN FRANCISCO DEL MONTE, INC.
G.R. No. 152346, November 25, 2005

FACTS:

Spouses Fabrigas(petitioner) and respondent San francisco Del Monte, Inc.(Del Monte) entered
into an agreement, denominated as Contract to Sell No. 2482-V, whereby the latter agreed to
sell to Spouses Fabrigas a parcel of residential land. The said lot was worth P109,200.00
and it was registered in the name of respondent Del Monte. The agreement stipulated that
Spouses Fabrigas shall pay P30,000.00 as downpayment and the balance within ten years in
monthly successive installments of P1,285.69.

After paying P30,000.00, Spouses Fabrigas took possession of the property but failed to
make any installment payments on the balance of the purchase price. Despite the demand
letter made by Del Monte and the grace period given still the said Spouses did not comply
with their obligations.

On January 21, 1985, petitioner Marcelina and Del Monte entered into another agreement
denominated as Contract to Sell No. 2941-V, covering the same property but under restructed
terms of payment. Under the second contract, the parties agreed on a new purchase price of
P131,642.58, the amount of P26,328.52 as downpayment and the balance to be paid in monthly
installments of P2,984.60 each.

After the said deal, the petitioner made some delinquent installments paying less than the
stated amount, to which Del Monte made a demand letter to the petitioners. And this time
they ordered the cancellation of the Contract to Sell No. 2941-V.
ISSUE:

Whether or not the Contract to Sell No. 2941-V was valid.

HELD:

The Court quotes with approval the following factual observations of the trial court, which
cannot be disturbed in this case, to wit:

The Court notes that defendant, Marcelina Fabrigas, although she had to signcontract No.
2491-V, to avoid forfeiture of her downpayment, and her other monthly amortizations, was
entirely free to refuse to accept the newcontract. There was no clear case of intimidation
or threat on the part of plaintiff in offering the new contract to her. At most, since she
was of sufficient intelligence to discern the agreement she is entering into, her signing
of Contract No. 2491-V is taken to be valid and binding. The fact that she has paid monthly
amortizations subsequent to the execution of Contractto Sell No. 2491-V, is an indication
that she had recognized the validity of such contract. . . .

In sum, Contract to Sell No. 2491-V is valid and binding. There is nothing to prevent
respondent Del Monte from enforcing its contractual stipulations and pursuing the proper
court action to hold petitioners liable for their breach thereof.

Bareng vs. Court of Appeals

G.R. No. L-12973
April 25, 1960

FACTS:

Vicente Bareng purchased from respondent Alegria the cinematographic equipment installed at
the Pioneer Theater in Laoag, Ilocos Norte, for the sum of P15,000. P10,000 of which was
paid, and Bareng signed 4 promissory notes for the balance. The first promissory note
amounting to P1,000 was duly paid by Bareng. On February 15, 1952, shortly before the second
note fell due, the other respondent Agustin Ruiz informed Bareng that he was aco-owner of
the equipment in question, and several days later, Ruiz sent Bareng a telegram instructing
him to suspend payments to Alegria for the balance of the price as he was not agreeable to
the sale. When Alegria sought to collect the second note on the same day, Bareng only paid
P400 and refused to make any more payments on account of Ruizs claims. On March 31, 1952,
Ruiz filed suit against Alegria and Bareng for his share in the price of the cinema
equipment. Thereafter in May of the same year, Alegria and Ruiz reached a compromise wherein
the former recognized the latter as co-owner of the equipment sold to Bareng and promised
to pay 2/3 of whatever amount he could recover from the latter. Alegria then sued Bareng
for the amount of P13,500, allegedly the unpaid balance of the price. But Bareng answered
that only P3,600 had not been paid, and prayed for the rescission of the sale for the
supposed violation of Alegria of certain express warranties as to the quality of the
equipment, and asked for payment of damages for alleged violation of Alegrias warranty of
title. Bareng added that he is not liable to pay interests to Alegria because he was
justified in suspending payment of the balance of the price of the equipment from the time
he learned of Ruizs adverse claims over said equipment, pursuant to Art. 1590 of the Civil
Code.

ISSUE:

Whether or not Bareng is liable to pay interest of the unpaid balance of the price of the
equipment.
HELD:

Bareng is liable to pay interest of the unpaid balance of the price of the equipment in
question. Art. 1590 of the Civil Code provides that: Should the vendee be disturbed in the
possession or ownership of the thing acquired, or should he have reasonable grounds to fear
such disturbance, by a vindicatory action or a foreclosure of mortgage, he may suspend
the payment of the price until the vendor has caused the disturbance or danger to cease,
unless the latter gives security for the return of the price in a proper case, or it has
been stipulated that, notwithstanding any such contingency, the vendee shall be bound to
make the payment. A mere act of trespass shall not authorize the suspension of the payment
of the price. It is undisputed that petitioner had the right to suspend payment of the
balance of the price of the cinema equipment in question to his vendor from the time he was
informed by Ruiz of the latters claims of co-ownership thereof, especially upon his receipt
of Ruizs telegram wherein the latter asserted that he was not agreeable to the
sale. However, said right of Bareng ended as soon as the vendor has caused the disturbance
or danger to cease, which, in this case, was when Alegria reached a compromise with Ruiz
whereby Ruiz expressed his conformity to the sale to Bareng, subject to the payment of his
share in the price by Alegria. From the time Alegria and Ruiz reached this settlement, there
was nolonger any danger of threat to Barengs ownership and full enjoyment of the equipment
he bought from Alegria, by virtue of which Alegria sued petitioner for the unpaid balance.
Bareng admitted his indebtedness in the amount of P3,600, yet he did not tender payment of
said amount nor did he deposit the same in court, but instead sought for rescission of the
sale. It is clear that Bareng was in default on the unpaid balance of the price of the
equipment from the date of filing of the complaint by Alegria, and under Art. 2209 of the
Civil Code, he must pay legal interests thereon from said date.