G.R. NO. 165568 (July 13, 2009)
Topics: contract of sale, earnest money
Summary:
Government Service Insurance System (GSIS) loaned Lopez a loan of P22,500 in 1982. When he defaulted on the loan, GSIS foreclosed on the real estate mortgage. Parties entered into a Compromise Agreement, which the MeTC approved in March 1991.
The parties in the current case never moved past the bargaining phase. There is no contract of sale when one party only makes an offer, which the other party does not accept. The Court of Appeals disregarded the fact that GSIS and Lopez engaged into a Compromise Agreement. GSIS is justified in keeping the P15,000 deposit and applying it to Lopez’s outstanding rent obligations, which as of February 26, 1993, totaled P16,800. In light of this, partial legal compensation is due in this matter, according to Articles 1278, 1279, and 1281 of the Civil Code.
Doctrines:
Article 1482 of the Civil Code states 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.”
The stages of a contract of sale are: (1) negotiation, starting 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; and (3) consummation, which commences when the parties perform their respective undertakings under the contract of sale, culminating in the extinguishment of the contract.
When there is merely an offer by one party without acceptance by the other, there is no contract of sale.
Facts:
The Government Service Insurance System (GSIS) loaned Lopez a loan of P22,500 in 1982. When he defaulted on the loan, GSIS foreclosed on the real estate mortgage on 6 February 1984 and obtained title to the property under Transfer Certificate of Title (TCT) No. 125201. GSIS has determined the current market value of subject property is P155,000.00 and the back rentals as of July 31, 1988, amount to P62,919.80. If Lopez is willing to repurchase his former property for that amount plus back rentals, then remit to GSIS the required 10% deposit earnest money of P15,500.00.
GSIS filed a complaint for ejectment against Lopez with the Metropolitan Trial Court, Branch 76, Marikina City (MeTC) in 1991. The parties entered into a Compromise Agreement, which the MeTC approved in a Decision dated 7 March 1991.
The trial court agreed with the contention of GSIS that there was no perfected contract of sale for lack of consent. Therefore, despite the payment of P15,500, the transaction could not be considered a perfected contract of sale. The trial court found that the P15,500 was a mere deposit, which was for the purpose of holding the inclusion of the subject property in the public auction.
The Court of Appeals held that there was a perfected contract of sale between the parties since all the elements of such a contract exist in this case, namely, (1) consent or meeting of the minds; (2) determinative subject matter; and (3) price certain in money or its equivalent. GSIS must, therefore, execute the necessary contract of sale upon full payment in cash by Lopez of the purchase price of P155,000 plus arrears in rent and real property taxes, if any.
Issue:
Whether there is a perfected contract of sale.
Ruling:
The petition is meritorious.
The stages of a contract of sale are: (1) negotiation, starting 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; and (3) consummation, which commences when the parties perform their respective undertakings under the contract of sale, culminating in the extinguishment of the contract
The parties in the current case never moved past the bargaining phase. Nothing indicates that the parties had reached an agreement on a final arrangement encompassing the three components of a contract for sale: (1) consent or the parties’ agreement; (2) the object or subject matter of the transaction; and (3) the price or consideration of the sale.
The 2 August 1988 letter of the GSIS cannot be classified as a perfected contract of sale which binds the parties. The letter was written in response to Lopez’s offer to buy the property back. Both the trial and appeal courts determined that Lopez’s offer to repurchase the land was dependent upon the Board of Trustees of the GSIS’s approval, as stated plainly in the GSIS’ letter dated 2 August 1988. These approvals are not found in the records. There is no contract of sale when one party only makes an offer, which the other party does not accept. There was no finalized contract of sale because GSIS, which can only legally act through its Board of Trustees, did not accept Lopez’s offer to repurchase the land.
The Court of Appeals disregarded the fact that GSIS and Lopez engaged into a Compromise Agreement addressing the leasing of the property in an ejectment proceeding, which was approved by the court. Almost three years after the letter from 2 August 1988, the Compromise Agreement was accepted on 7 March 1991. According to the Compromise Agreement, therefore:
1. Owner of a two-story house with two bedrooms and two bathrooms at No. 15 Marcos Cruz (G. Luna) Street, Sto. Metro Manila, Marikina, and Nio.
2. Despite requests, the defendants (Lopez) failed to sign a lease agreement and were behind on paying the fair remuneration for using and occupying the aforementioned properties.
3. The defendants have decided to fully liquidate their arrearages and sign a formal lease agreement in order to avoid their justifiable and eventual eviction from the property due to their egregious failure to uphold their legitimate commitments.
Considering that there was no perfected contract of sale, the concept of earnest money is certainly not applicable to this case. Article 1482 of the Civil Code states 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.” The earnest money forms part of the consideration only if the sale is consummated upon full payment of the purchase price. Hence, there must first be a perfected contract of sale before we can speak of earnest money. As found by the trial court, the P15,500 paid by Lopez is merely a deposit for the exclusion of the subject property from the list of the properties to be auctioned off by GSIS.
Since the Board of Trustees rejected Lopez’s offer to repurchase the land, as shown by the Compromise Agreement where GSIS claimed ownership of the property, GSIS should return the P15,000 deposit provided by Lopez. Lopez does, however, acknowledge that as of February 26, 1993, he owed GSIS the sum of 16,800 for accumulated rental arrears. In light of these facts, partial legal compensation is due in this matter, according to Articles 1278, 1279, and 1281 of the Civil Code. In essence, though in different sums that are already due and demandable, both parties are each other’s creditors and debtors. GSIS is therefore justified in keeping the P15,000 deposit and immediately applying it to Lopez’s outstanding rent obligations, which as of February 26, 1993, totaled P16,800.