Case Summary (G.R. No. 139173)
Procedural Posture and Courts Below
Respondent filed a complaint for specific performance and damages in the Regional Trial Court (RTC), Branch 63, Makati City (Civil Case No. 90-1067). The RTC rendered judgment in favor of respondent on June 27, 1994, finding a perfected contract of sale and ordering execution of a final deed. The Court of Appeals (CA) affirmed that judgment in a decision dated January 29, 1999 and denied reconsideration by resolution dated July 14, 1999. Petitioners filed a petition for review on certiorari under Rule 45 of the 1997 Rules of Civil Procedure with the Supreme Court.
Key Dates and Procedural Chronology
- March 19, 1990: Receipt for Partial Payment executed by petitioners acknowledging P100,000 partial payment and stating balance to be paid on or before March 23, 1990 with execution of final deed on that date.
- March 28, 1990: Respondent, through counsel, notified petitioners of readiness to pay the balance and requested preparation of the final deed.
- April 4 and April 6, 1990: Petitioners, through counsel, informed respondent of cancellation and delivered a bank manager’s check refunding the P100,000.
- June 27, 1994: RTC decision ordering specific performance for respondent.
- January 29, 1999; July 14, 1999: CA decision and denial of reconsideration.
- February 28, 2007: Supreme Court decision reversing the CA and dismissing respondent’s complaint. Applicable constitutional framework: 1987 Philippine Constitution (decision date is after 1990).
Legal Issue Presented
Whether the March 19, 1990 “Receipt for Partial Payment” constituted a perfected contract of sale (where ownership passes) or a contract to sell/conditional sale (where transfer of ownership is suspended until full payment), thereby determining whether respondent could compel specific performance.
Applicable Law and Precedent
- Civil Code provisions relied upon: Article 1458 (definition of contract of sale), Article 1475 (perfection of sale upon meeting of minds on object and price), and Article 1482 (earnest money as part of price and proof of perfection, expressly referring to a contract of sale).
- Stages of a sale: negotiation, perfection (meeting of minds as to object and price), and consummation (performance and transfer). The Court referenced jurisprudence including San Miguel Properties v. Spouses Huang and earlier cases distinguishing contract of sale from contract to sell (e.g., Sing Yee v. Santos).
Trial Court and Court of Appeals Reasoning
Both the RTC and the CA concluded that the contract was perfected as a contract of sale. Their primary basis was that respondent’s payment of P100,000 constituted earnest money demonstrating the perfection of the contract under Article 1482. They also relied on correspondence showing respondent’s readiness to pay the balance and the alleged failure by petitioners to perform on the agreed date.
Supreme Court’s Interpretation of the Receipt and Contract Nature
The Supreme Court applied the canon of contract interpretation — give words their natural and ordinary meaning unless a technical meaning was clearly intended — and closely examined the receipt’s language. The Court found that the receipt expressly characterized the payment as a “partial payment” and stated that respondent “promised to pay the balance of the purchase price on or before March 23, 1990, and that we will execute and sign the final deed of sale on this date.” The ordinary reading of that language, the Court held, indicated a conditional arrangement: ownership was to pass only upon full payment and execution of the final deed, making the document a contract to sell rather than a contract of sale.
Factors Supporting Classification as a Contract to Sell
The Supreme Court identified several objective indicia, taken from the record, that supported the conclusion of a contract to sell:
- Retention of title: Petitioners retained possession of the certificate of title, a sign that ownership was not intended to transfer immediately.
- Absence of a formal deed of conveyance: No executed deed transferring ownership existed, consistent with an agreement conditioned on future full payment.
- Express conditional language in the receipt: The parties expressly tied transfer and execution of the deed to the payment of the balance by a specified date.
Taken together, these factors supported the characterization of the transaction as a contract to sell (a sale subject to a suspensive condition — full payment).
On the Role of Earnest Money and Article 1482
The Supreme Court carefully distinguished the legal effect of earnest money when given in a contract of sale versus when given in a contract to sell. Article 1482’s statement that earnest money is “part of the price and as proof of the perfection of the contract” applies to transactions that are already contracts of sale. Where the parties’ agreement is instead a contract to sell, the earnest money does not, by itself, convert the nature of the agreement into a contract of sale; the suspensive condition (full payment) must still occur to effect tr
Case Syllabus (G.R. No. 139173)
Procedural History
- Petition for review on certiorari under Rule 45 of the 1997 Rules of Civil Procedure, as amended, filed before the Supreme Court, assailing the Court of Appeals Decision dated January 29, 1999 and its Resolution dated July 14, 1999 in CA-G.R. CV No. 48824.
- Original action: complaint for specific performance and damages filed by respondent Godofredo Caguiat in the Regional Trial Court, Branch 63, Makati City, docketed as Civil Case No. 90-1067.
- Trial court rendered its Decision on June 27, 1994, finding a perfected contract of sale and ordering petitioners to execute a final deed of sale.
- Court of Appeals affirmed the trial court in its Decision of January 29, 1999; petitioners’ motion for reconsideration was denied by the appellate court in its Resolution dated July 14, 1999.
- Supreme Court decision penned by Justice Sandoval-Gutierrez, J., dated February 28, 2007 (545 Phil. 660, G.R. No. 139173), reversing the Court of Appeals and dismissing respondent’s complaint.
- Concurrence noted: Puno, C.J. (Chairperson), Corona, and Garcia, JJ.; Azcuna, J., on official leave.
Parties and Counsel
- Petitioners: Spouses Onnie Serrano and Amparo Herrera — registered owners of the subject lot in Las Piñas, Metro Manila, covered by Transfer Certificate of Title No. T-9905.
- Respondent: Godofredo Caguiat — prospective purchaser.
- Counsel referenced in the record: respondent’s counsel Atty. Ponciano Espiritu (sent March 28, 1990 letter); petitioners’ counsel Atty. Ruben V. Lopez (sent April 4, 1990 letter).
Material Facts
- Petitioners were registered owners of a lot in Las Piñas, Metro Manila, covered by TCT No. T-9905; area stated as 439 square meters in documents.
- Around March 1990 respondent offered to buy the lot; parties agreed on a selling price of P1,500.00 per square meter.
- On March 19, 1990 respondent gave petitioners P100,000.00 as partial payment; petitioners issued a document titled “RECEIPT FOR PARTIAL PAYMENT OF LOT NO. 23 COVERED BY TCT NO. T-9905, LAS PIÑAS, METRO MANILA” acknowledging receipt of P100,000.00 “AS PARTIAL PAYMENT” and stating: “MR. CAGUIAT PROMISED TO PAY THE BALANCE OF THE PURCHASE PRICE ON OR BEFORE MARCH 23, 1990, AND THAT WE WILL EXECUTE AND SIGN THE FINAL DEED OF SALE ON THIS DATE.” The receipt was signed by Amparo Herrera and Onnie Serrano (Exhibit “B,” Records, p. 124).
- On March 28, 1990 respondent, through his counsel, informed petitioners of his readiness to pay the balance and requested preparation of the final deed of sale (Exhibit “D,” Records, p. 125).
- On April 4, 1990 petitioners, through Atty. Ruben V. Lopez, sent a letter stating petitioner Amparo Herrera would leave abroad on or before April 15, 1990 and that they were cancelling the transaction; they advised respondent he could recover the earnest money of P100,000.00 anytime (Exhibit “2,” Records, p. 173).
- On April 6, 1990 petitioners wrote respondent that they delivered to respondent’s counsel Philippine National Bank Manager’s Check No. 790537 dated April 6, 1990 in the amount of P100,000.00 payable to him (Exhibit “5,” Rollo, p. 177).
- Respondent filed suit for specific performance and damages after petitioners’ cancellation and return of the manager’s check.
Issue Presented
- Whether the document entitled “Receipt for Partial Payment” dated March 19, 1990 constitutes a contract of sale (i.e., a perfected sale) or a contract to sell (i.e., a conditional contract of sale subject to full payment).
Trial Court Findings and Rationale
- Trial court (RTC Branch 63, Makati) found there was a perfected contract of sale and ordered petitioners to execute a final deed of sale in favor of respondent.
- Key bases for trial court decision:
- The P100,000.00 paid by respondent, whether characterized as downpayment or earnest money, showed perfection of a contract under Article 1482 of the Civil Code (“earnest money” as proof of perfection).
- Plaintiff/respondent was the first to react and show eagerness to push through (letter dated March 25, 1990, Exhibit “D”), and reiterated intent in letter dated April 6, 1990.
- Plaintiff/respondent had the balance of the purchase price ready for payment (Exhibit “C” referenced).
- Defendants’ (petitioners’) allegation that respondent failed to appear on March 23, 1990 was unavailing; defendants’ letters appeared to be afterthoughts.
Court of Appeals Disposition
- Court of Appeals affirmed the trial court’s judgment (Decision dated January 29, 1999).
- Petitioners’ motion for reconsideration before the Court of Appeals was denied in its Resolution dated July 14, 1999.
Petitioners’ Contentions on Review
- Petitioners argued that the Receipt is not a perfected contract of sale under Article 1458 in relation to Article 1475 of the Civil Code because:
- The delivery of P100,000.00 as downpayment cannot be c