G.R. No. 137290 - San Miguel Properties Philippines, Inc. vs. Spouses Huang

Case Summary (G.R. No. 137290)

Key Dates

• February 21, 1994 – Initial offer to sell at ₱52,140,000 in cash
• March 24 & 29, 1994 – Respondents’ letters proposing payment terms and ₱1 million “earnest-deposit” with option conditions
• April–June 1994 – Meetings and an agreed 45-day extension (to June 13) for exercising the option
• July 7, 1994 – Petitioner returns the ₱1 million, citing expiration of option
• July 20, 1994 – Respondents demand execution of deed of sale; attempt to return deposit
• August 16, 1994 – Complaint for specific performance filed in RTC, Pasig City (Civil Case No. 64660)
• December 12, 1994 – RTC grants petitioner’s motion to dismiss; denial of reconsideration
• April 8, 1997 – CA reverses RTC decision, finds perfected sale
• July 31, 2000 – Supreme Court decision under the 1987 Constitution

Applicable Law

1987 Philippine Constitution;
New Civil Code Articles 1475 (essentials of contract of sale), 1479(2) (unilateral promise/option requires separate consideration), and 1482 (earnest money as proof of perfection and part of price)

Factual Background

Petitioner offered the Pasig properties for ₱52.14 million cash. Through Atty. Dauz, respondents first proposed P500,000 earnest money and eight monthly installments (March 24), which petitioner rejected. On March 29, respondents tendered ₱1 million as “earnest-deposit” and secured an exclusive 30-day option, subject to further negotiation and required corporate approvals. Petitioner’s Sobrecarey accepted those conditions and the deposit. Subsequent meetings in April failed to agree on payment terms; petitioner granted a 45-day extension. When no final terms were reached, petitioner returned the deposit (July 7). Respondents demanded a deed of sale (July 20) and filed for specific performance (August 16).

Trial Court Ruling

The RTC granted petitioner’s motion to dismiss, holding that no perfected contract of sale existed because:

The “option” lacked distinct consideration and, therefore, was unenforceable.
There was no meeting of the minds on the mode of payment, an essential element for a sale.

Court of Appeals Ruling

The CA reversed, finding:

The ₱1 million deposit constituted earnest money under Art. 1482, proving perfection of sale.
Mode of payment is non-essential to validity; agreement on price suffices.
Sobrecarey had authority to bind petitioner.

Issue on Review

Whether respondents’ deposit and correspondence amounted to a perfected contract of sale.
Whether the March 29 letter created only an option contract requiring separate consideration.
Whether agreement on mode or manner of payment is an essential element of a sale.
Whether Sobrecarey had authority to sell.

Earnest Money vs. Deposit

Under Art. 1482, earnest money must form part of the price and prove perfection. Here, the ₱1 million was labeled “earnest-deposit,” serving only as a guarantee, not as part of the purchase price. The conditions attached (exclusive option, further negotiations, corporate approvals) show it was not intended or accepted as earnest money under the Civil Code.

Option Contract and Distinct Consideration

The March 29 letter’s conditions (30-day option; negotiation period; mutual documentation; approvals) created an option, not a sale. Pursuant to Art. 1479(2), an option (unilateral promise) binds only if supported by separate consideration. No distinct consideration (beyond the refu