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Putting the carriage before the horse

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PROPERTY RULES

Putting the carriage before the horse

Security Corp. was looking for a new location for its new corporate office. The most suitable was the vacant lot beside its rented office.

Eleazar, the general manager of Security Corp. sent a December 9, 2004 letter addressed to the owner of the land, First Realty Corp., through its executive vice president, Carolina, offering to purchase the subject property at P6,000 per sqm.

A series of telephone calls were made between Eleazar and Carolina’s secretaries. Eleazar personally negotiated with a certain Maria Remoso (Remoso), who was an employee of First Realty. At that point, Eleazar was unable to personally negotiate with Carolina or First Realty’s board of directors.

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Finally, Eleazar got to meet Carolina in person.

Eleazar, with bundles of money in his attaché case, offered to pay for the subject property in cold cash.

Carolina declined the offer. She told Eleazar that she needed to secure her sister’s advice on the matter, and that she also needed to get the prior approval of the company’s board of directors. Eleazar replied that Security Corp. will await such approval.

Few days thereafter, Security Corp. sent a letter to First Realty Corp. It was accompanied by Philippine National Bank Check No. 24677 (the subject check), issued for P100,000 and made payable to First Realty. The letter states thus:

“Gentlemen:

As agreed upon, we are making a deposit of one hundred thousand pesos (P100,000) as earnest money for your property xxx xxx for a total of one million five hundred thirty six thousand pesos (P1,536,000).

Full payment upon clearing of the tenants at said property and signing of the Deed of Sale.

(signed)
Eleazar”

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Eleazar had the letter and check received by Maria, the receiving clerk/receptionist of First Realty Corp. Maria and Eleazar thereafter signed a provisional receipt which reads:

“Received from x x x Eleazar x x x the sum of pesos one hundred thousand x x x

in payment of the following x x x

Earnest money or Partial payment of

xxx Property x x x.

Note: This is issued to transactions not yet cleared but subsequently an official receipt will be issued. x x x”

The check was eventually deposited with and credited to First Realty Corp.’s bank account.

Months passed without a word from First Realty Corp.

To break the impasse, Security Corp., through its counsel, sent a letter to First Realty Corp. demanding in writing that the petitioner proceed with the sale of the property.

In reply, First Realty Corp. informed Security Corp. that its earnest money was given despite the fact that the former was still undecided to sell the said property. Given that there was no perfected contract, First Realty requested Security Corp.’s counsel to coordinate with its officers for the refund of the earnest money.

Q: What are the stages of a contract of a contract of sale?

A: 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. ((First Optima Realty Corporation vs. Securitron Security Services, Inc., G.R. No. 199648, January 28, 2015)

Q: Was there a perfected contract of sale between the parties?

A: None. It cannot be denied that there were negotiations between the parties conducted after the exchange of letters.

In fact, these negotiations culminated in a meeting between Eleazar and Carolina whereby the latter declined to enter into an agreement and accept cash payment then being tendered by the former.

Instead, Carolina informed Eleazar during said meeting that she still had to confer with her sister and petitioner’s board of directors; in turn, Eleazar told Carolina that Security Corp. shall await the necessary approval.

Thus, as between them, there is no sale to speak of. “When there is merely an offer by one party without acceptance of the other, there is no contract.” (First Optima Realty Corporation vs. Securitron Security Services, Inc., G.R. No. 199648, January 28, 2015)

Q: What stage was their discussions?

A: The parties never got past the negotiation stage. Nothing shows that the parties had agreed on any final arrangement containing the essential elements of a contract of sale, namely, (1) consent or the meeting of the minds of the parties; (2) object or subject matter of the contract; and (3) price or consideration of the sale.

The receipt of Security Corp.’s letter and check by First Realty Corp.—without awaiting the approval of the latter’s board of directors and Carolina’s decision, or without making a new offer—constitutes a mere reiteration of its original offer which was already rejected previously. (First Optima Realty Corporation vs. Securitron Security Services, Inc., G.R. No. 199648, January 28, 2015)

Q: Can the check of P100,000 be considered as earnest money?

A: No. Since there is no perfected sale between the parties, respondent had no obligation to make payment through the check; nor did it possess the right to deliver earnest money to petitioner in order to bind the latter to a sale.

As contemplated under Art. 1482 of the Civil Code, “there must first be a perfected contract of sale before we can speak of earnest money.”

“Where the parties merely exchanged offers and counter-offers, no contract is perfected since they did not yet give their consent to such offers. Earnest money applies to a perfected sale. (First Optima Realty Corporation vs. Securitron Security Services, Inc., G.R. No. 199648, January 28, 2015)

Q: When is the payment of earnest money improper?

A: In a potential sale transaction, the prior payment of earnest money even before the property owner can agree to sell his property is irregular, and cannot be used to bind the owner to the obligations of a seller under an otherwise perfected contract of sale; to cite a well-worn cliché, the carriage cannot be placed before the horse.

The property owner-prospective seller may not be legally obliged to enter into a sale with a prospective buyer through the latter’s employment of questionable practices which prevent the owner from freely giving his consent to the transaction; this constitutes a palpable transgression of the prospective seller’s rights of ownership over his property, an anomaly which the court will certainly not condone. (First Optima Realty Corporation vs. Securitron Security Services, Inc., G.R. No. 199648, January 28, 2015)

Ma. Soledad Deriquito-Mawis is currently the Dean, Lyceum of the Philippines University; president of Philippine Association of Law Schools; and Senior Partner at Gatchalian Castro & Mawis Law Office

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