G.R. No.

108253 February 23, 1994

LYDIA L. GERALDEZ, petitioner,

vs.
HON. COURT OF APPEALS and KENSTAR TRAVEL CORPORATION, respondents.

FACTS:

Petitioner Lydia Geraldez came to know about respondent

Kenstar Travel Corp. through numerous advertisements found in
newspapers regarding tour packages in Europe. She then
contacted Kenstar Travel to avail of a European tour package. She
chose the “Volare 3” package for her and her sister, Dolores, which
covers a 22-day tour of Europe worth $2,990. Petitioner alleges in
this complaint against Kenstar Travel that she was very
disappointed and uneasy throughout the duration of the European
tour because things turned out contrary to what was stated and
promised in the brochure for the Volare 3 package: there was no
European tour manager who appeared for their group of tourists,
the hotels they stayed in were substandard when they were
expecting to stay in first-class hotels, the UGC Leather Factory
(which was specifically made a highlight of the tour) was not
visited, and the tour guide provided was a Filipina first-timer in
Europe.

ISSUE:

Whether or not private respondent acted in bad faith or with gross negligence in
discharging its obligations under the contract.

HELD: The Court ruled in the affirmative, holding that the actions
of respondent Kenstar Travel evidently show that it committed
fraudulent misrepresentations when it failed to comply faithfully to
its commitments under the Volare 3 tour package. Firstly, this was
manifested by Kenstar Travel providing an inexperienced and first-
timer Filipino tour guide. Such a person cannot effectively perform
the duties of a tour guide because she herself is new to the place.
She could neither properly acquaint the group with the interesting
sites and places, nor render the necessary assistance. The Court
finds that this was a deliberate and conscious choice on the part of
Kenstar Travel in order to give the said tour guide an on-the-job
training so as to qualify her later on as an “experienced” tour guide
and eventually become an asset of respondent Kenstar Travel.
Secondly, Kenstar Travel failed to provide a European tour
manager, contrary to its promise to provide a local European tour
manager who was supposed to accompany the Filipino tour guide.
The Court holds that Kenstar Travel was obligated to do so.
Thirdly, Kenstar Travel again committed another grave
misrepresentation when it assured the members of its Volare 3
tour package group that the chosen hotels were all first-class with
complete amenities as well as being located conveniently near the
places in the group’s itinerary. However, this all proved to be false.
None of the hotel they stayed in were first-class, and worse, some
hotels lacked even the basic facilities such as soap, bath towels,
and even toilet paper. Some hotels were described to even have
dilapidating floors and cabinets. They were also located far away
from the places they were supposed to visit in the tour. Fourth, one
of the highlights of the tour was the visit to the UGC Leather
Factory. However, they were not able to visit it because the group
arrived too late in the day and the factory was already closed. This
manifests the neglect and ineptness of the supposed Filipino first-
timer tour guide who accompanied the group. It is clear from the
foregoing considerations that respondent Kenstar Travel has
committed dolo causante or dolo incidente by making
misrepresentations in its contracts with petitioner Lydia and the
other members of the tour group. This fraud or dolo which is
present at the birth of a contract may either be dolo causante or
dolo incidente. The former is causal fraud which is found in Art.
1338 and it refers to those deceptions or misrepresentations of a
serious character employed by one party and without which the
other party would not have entered into the contract. The latter is
incidental fraud which is found in Art. 1344 and it refers to those
not of a serious character and without which the other party would
still have entered into the contract.

DISPOSITION: Assailed decision of the CA is set aside, and

respondent Kenstar Travel is ordered to pay petitioner Lydia for
damages.

G.R. No. 179469 February 15, 2012

C.F. SHARP & CO. INC. and JOHN J. ROCHA, Petitioners,

vs.
PIONEER INSURANCE & SURETY CORPORATION, WILFREDO C. AGUSTIN and
HERNANDO G. MINIMO, Respondents.

FACTS:

Respondents Wilfredo C. Agustin and Hernando G. Minimo applied with C.F.

Sharp sometime in August 1990 as sandblasters and painters in Libya. After
passing the interview and submission of the requirements, a Contract of
Employment was executed between respondents and C.F. Sharp. They were
then advised to prepare for immediate deployment and to report to C.F. Sharp
to ascertain the schedule of their deployment.

However, after a month respondents have not yet been deployed prompting
them to request for the release of the documents they had submitted to C.F.
Sharp. C.F. Sharp allegedly refused to surrender the documents which led to
the filing of a complaint by respondents before the POEA.
The POEA found C.F. Sharp guilty of violation of Art. 34(k) of the Labor Code.
Consequently, C.F. Sharp’s license was suspended until the return of the
disputed documents to respondents.

On March 10, 1995, respondents filed a Complaint for breach of contract and
damages against C.F. Sharp and its surety, Pioneer Insurance and Surety
Corporation. Respondents claimed that C.F. Sharp falsely assured them of
deployment and that its refusal to release the disputed documents on the
ground that they were already bound by reason of the Contract of
Employment, denied respondents of employment opportunities abroad and a
guaranteed income.

The trial court ruled that there was a violation of the contract when C.F. Sharp
failed to deploy and release the papers and documents of respondents, hence,
they are entitled to damages.

On appeal, C.F. Sharp and Rocha raise a jurisdictional issue—that the RTC has
no jurisdiction over the instant case pursuant to Section 4(a) of Executive
Order No. 797 which vests upon the POEA the jurisdiction over all cases,
including money claims, arising out of or by virtue of any contract involving
workers for overseas employment. C.F. Sharp and Rocha refuted the findings
of the trial court and maintained that the perfection and effectivity of the
Contract of Employment depend upon the actual deployment of respondents.

The CA held that since there is no perfected employment contract between the
parties, it is the RTC and not the POEA, whose jurisdiction pertains only to
claims arising from contracts involving Filipino seamen, which has
jurisdiction over the instant case. Despite the finding that no contract was
perfected between the parties, the Court of Appeals adjudged C.F. Sharp and
Rocha liable for Damages.

ISSUE:

Whether or not there is already a perfected employment contract

RULING:

Under Article 1315 of the Civil Code, a contract is perfected by mere consent
and from that moment the parties are bound not only to the fulfillment of
what has been expressly stipulated but also to all the consequences which,
according to their nature, may be in keeping with good faith, usage and law.

An employment contract, like any other contract, is perfected at the moment

(1) the parties come to agree upon its terms; and (2) concur in the essential
elements thereof: (a) consent of the contracting parties, (b) object certain
which is the subject matter of the contract and (c) cause of the obligation.
The commencement of an employer-employee relationship must be treated
separately from the perfection of an employment contract.

Despite the fact that the employer-employee relationship has not commenced
due to the failure to deploy respondents in this case, respondents are entitled
to rights arising from the perfected Contract of Employment, such as the right
to demand performance by C.F. Sharp of its obligation under the contract.

On the issue of whether respondents are entitled to relief for failure to deploy them, the
RTC ruled in this wise:

The contract of employment entered into by the plaintiffs and the defendant C.F. Sharp is
an actionable document, the same contract having the essential requisites for its validity.
It is worthy to note that there are three stages of a contract: (1) preparation, conception,
or generation which is the period of negotiation and bargaining ending at the moment of
agreement of the parties. (2) Perfection or birth of the contract, which is the moment
when the parties come to agree on the terms of the contract. (3) Consummation or death,
which is the fulfillment or performance of the terms agreed upon in the contract.

Hence, it is imperative to know the stage reached by the contract entered into by the
plaintiffs and C.F. sharp. Based on the testimonies of the witnesses presented in this
Court, there was already a perfected contract between plaintiffs and defendant C.F.
Sharp. Under Article 1315 of the New Civil Code of the Philippines, it states that:

xxxx

Thus, when plaintiffs signed the contract of employment with C.F. Sharp (as agent of the
principal WB Slough) consequently, the latter is under obligation to deploy the plaintiffs,
which is the natural effect and consequence of the contract agreed by them. 8

G.R. No. 125761 April 30, 2003

SALVADOR P. MALBAROSA, petitioner,

vs.
HON. COURT OF APPEALS and S.E.A. DEVELOPMENT CORP., respondents.

CALLEJO, SR., J.:

FACTS:
Petitioner Malbarosa was the president and general manager of Philtectic
Corporation, and an officer of other corporations belonging to the SEADC group of
companies.

The respondent assigned to the petitioner one of its vehicles described as a

1982 model Mitsubishi Gallant Super Saloon. He was also issued membership
certificates in the Architectural Center, Inc.
Da Costa was the president of the Respondent and Commonwealth Insurance Co.,
Inc., while Valero was the Vice-Chairman of the Board of Directors of the respondent
and Vice-Chairman of the Board of Directors of Philtectic Corporation.

On January 8, 1990, the petitioner sent a letter to Valero tendering his resignation,
effective February 28, 1990 from all his positions in the SEADC group of companies
and reiterating therein his request for the payment of his incentive compensation for
1989.

Da Costa met with the petitioner on two occasions & ventured that the petitioner
would be entitled to an incentive compensation in the amount of around P395,000.

March 14, 1990 Respondent, through Valero, signed a letter-offer addressed to

the petitioner stating therein that petitioners resignation had been accepted by the
respondent, and that he was entitled to an incentive compensation in the amount
of P251,057.67, and proposing that the amount be satisfied, thus:
The 1982 Mitsubishi Super saloon car assigned to you by the company shall
be transferred to you at a value of P220,000.00.
The membership share of our subsidiary, Tradestar International, Inc. in the
Architectural Center, Inc. will be transferred to you.

The respondent required that if the petitioner agreed to the offer, he had to
affix his conformity on the space provided therefor and the date thereof on the
right bottom portion of the letter.

MARCH 16, 1990 - Da Costa met with the petitioner and handed to him the original
copy of the March 14, 1990 Letter-offer. The petitioner was dismayed when he read
the letter. The petitioner refused to sign the letter-offer on the space provided
therefor.

Despite the lapse of more than two weeks, the petitioner had not returned the original
copy with his conformity. Thus, the respondent decided to withdraw the offer.

APRIL 4, 1990 - As authorized by respondent, Philtectic Corporation wrote the

petitioner withdrawing the Letter-offer of the respondent and demanding that the
petitioner return the car and his membership certificate in the Architectural Center,
Inc. within 24 hours from his receipt thereof.

APRIL 7, 1990 The petitioner answered that he cannot comply with said demand
as he already accepted the Letter-offer of the respondent when he affixed on
March 28, 1990 his signature on the original copy of the letter-offer.

With the refusal of the petitioner to return the vehicle, the respondent filed a
complaint against the petitioner for recovery of personal property with replevin
with damages and attorneys fees,

PETITIONER’S DEFENSE
he had already agreed on March 28, 1990 to the March 14, 1990 Letter-offer of the
respondent and had notified the said respondent of his acceptance; hence, he had
the right to the possession of the car.
 TRIAL COURT:
Petitioner to pay respondent lease rentals for the use of the motor
vehicle at P1000/day from May 8, 1990 up to the date of actual delivery.

CA: affirmed but period of rentals payment shall start from the time the
judgment becomes final
- the petitioner had not accepted the respondents March 14, 1990 Letter-offer before
the respondent withdrew said offer on April 4, 1990.
Petitioner appealed to SC.

ISSUES:
1. W/N there was a valid acceptance by the petitioner of the March 14, 1990 Letter-
offer of the respondent? NO.
2. W/N there was an effective withdrawal by the respondent of said letter-offer? YES

RULING:
1. NO, THERE WAS NO VALID ACCEPTANCE BY PETITIONER OF THE
LETTER-OFFER.
Art. 1318. There is no contract unless the following requisites concur:
(1) Consent of the contracting parties;
(2) Object certain which is the subject matter of the contract;
(3) Cause of the obligation which is established.

ART. 1319. Consent 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. A qualified acceptance
constitutes a counter-offer.

The acceptance of an offer must be made known to the offeror, otherwise the
contract is not perfected. The offeror may withdraw its offer & revoke the same
before acceptance by the offeree.

If an offeror prescribes the exclusive manner in which acceptance of his offer

shall be indicated by the offeree, an acceptance of the offer in the manner
prescribed will bind the offeror.

An acceptance which is not made in the manner prescribed by the offeror is

not effective but constitutes a counter-offer which the offeror may accept or
reject.30

The acceptance by the offeree of the offer AFTER knowledge of the revocation
or withdrawal of the offer is inefficacious.
In this case, the respondent made its offer through Valero. On March 16, 1990, Da
Costa handed over the original of the March 14, 1990 Letter-offer of the respondent
to the petitioner. The respondent required the petitioner to accept the offer by affixing
his signature on the space provided in said letter-offer and writing the date of said
acceptance.
However, on March 16, 1990, petitioner did not accept or reject the same for the
reason that he needed time to decide whether to reject or accept the same.33 There
was no contract perfected between the petitioner and the respondent corporation.34

The petitioner claims that he had affixed his conformity to the letter-offer on March
28, 1990, BUT he failed to transmit the said copy to the respondent.

April 7, 1990 – petitioner notified respondent of his acceptance of the offer

BUT on April 4, 1990 - respondent had already notified petitioner that it had
withdrawn its offer

Indubitably, there was no contract perfected by the parties on the March 14,
1990 Letter-offer of the respondent.

The petitioner's plaint that he was not accorded by the respondent reasonable time to
accept or reject its offer does not persuade. It must be underscored that there
was no time frame fixed by the respondent for the petitioner to accept or reject
its offer. When the offeror has not fixed a period for the offeree to accept the
offer, and the offer is made to a person present, the acceptance must be made
immediately.

In this case, the respondent made its offer to the petitioner when Da Costa handed
over on March 16, 1990 to the petitioner its March 14, 1990 Letter-offer but that the
petitioner did not accept the offer. The respondent, thus, had the option to withdraw
or revoke the offer, which the respondent did on April 4, 1990.

Even if it is assumed that the petitioner was given a reasonable period to accept or
reject the offer of the respondent, the petitioner had more than two weeks which was
more than sufficient for the petitioner to accept the offer of the respondent.

2. YES, THERE WAS AN EFFECTIVE WITHDRAWAL BY THE RESPONDENT OF

SAID LETTER-OFFER.
Implicit in the authority given to Philtectic Corporation to demand for and
recover from the petitioner the subject car and to institute the appropriate action
against him to recover possession of the car is the authority to withdraw the
respondent's March 14, 1990 Letter-offer.

RECIT-READY: Petitioner was ordered by the trial court to return the subject
car assigned to him by respondent for his failure to agree on the letter-offer of
the respondent for an incentive compensation in the amount of P251,057.67, in
order that the said car shall be transferred to him. The trial court ruled that
there existed no perfected contract between the petitioner and the respondent
for failure of the petitioner to effectively notify the respondent of his
acceptance of the letter-offer before the respondent withdrew the same. The
Court of Appeals (CA) affirmed the decision of the trial court. Hence, this
petition for review on certiorari. In affirming the decision of the CA, the
Supreme Court ruled that the acceptance of an offer must be made known to
the offeror. Unless the offeror knows of the acceptance, there is no meeting of
the minds of the parties, no real concurrence of offer and acceptance. The
offeror may withdraw its offer and revoke the same before acceptance thereof
by the offeree. The contract is perfected only from the time an acceptance of
an offer is made known to the offeror. The contract is not perfected if the
offeror revokes or withdraws its offer and the revocation or withdrawal of the
offeror is the first to reach the offeree. The acceptance of the offeree of the
offer after knowledge of the revocation or withdrawal of the offer is
inefficacious. DOCTRINE:  There is no contract unless the following
requisites concur: (1) consent of the contracting parties; (2) object certain
which is the subject matter of the contract (3) cause of the obligation which is
established (Art. 1318)  Requirements of a valid acceptance to wit: o may be
express or implied o must be absolute, unconditional and without variance of
any sort from the o must be made known to the offeror o must be made in the
manner prescribed by the offeror

FACTS:  Malbarosa was the president and general manager of Philtectic

Corp., a subsidiary of respondent SEADC.  Being an officer, he was issued a
car and membership in the Architectural Center.  One day he intimidated with
the vice-chairman of the BOD of respondent his desire to retire and he
requested that his incentive compensation be paid to him as president of
Philtectic. He then tendered his resignation to said VP. One of the officer met
with petitioner and informed him that he will get roughly around P395k. 
Following his resignation, the VP sent a letter-offer (March 14) to petitioner
stating therein acceptance of petitioner’s resignation and advised him that he
is entitled to P251k as his incentive compensation.  In the same letter, the VP
proposed the satisfaction of his incentive by giving him the car the company
issued and the membership in the Architectural Center will be transferred to
him, instead of cash.  Petitioner was required by respondent through the VP
to affix his signature in the letter if he was agreeable to the proposal. The letter
was given to the petitioner by the officer who told him that he was supposed to
get P395k.  Petitioner was dismayed when he received the letter-offer and
refused to sign it as required by respondent if he was agreeable to it  Two
weeks later, respondent company demanded the return the car and turn over
the membership in the Architectural Center. Petitioner wrote the counsel of
respondent telling him that he cannot comply with the demand since he
already accepted the offer fourteen (14) days after it was made.  In his letter,
he enclosed a Xerox of the original with his affixed signature as required. 
With his refusal, respondent instituted an action for recovery with replevin. He
alleged that he had already agreed on March 28, 1990 to the March 14, 1990
Letter-offer of the respondent, the plaintiff therein, and had notified the said
plaintiff of his acceptance; hence, he had the right to the possession of the car
 After the trial, judgment was rendered against petitioner. The trial court
opined that there existed no perfected contract between the petitioner and the
respondent on the latter’s March 14, 1990 Letter-offer for failure of the
petitioner to effectively notify the respondent of his acceptance of said letter-
offer before the respondent withdrew the same.  He appealed to the CA which
affirmed the decision of the trial court. Hence, this present appeal.

ISSUE: 

WON there was a valid acceptance on Malbarosa's part of the March 14, 1990
letter-offer of respondent? NO!

HELD/RATIO:
Article 1318 of CC says that There is no contract unless the following
requisites concur: o Consent of the contracting parties o Object certain which
is the subject matter of the contract o Cause of the obligation which is
established In this case, there is no contract as Malbarosa failed to meet the
requirements of a valid acceptance to wit: o May be express or implied o Must
be absolute, unconditional and without variance of any sort from the offer o
Must be made known to the offeror o Must be made in the manner prescribed
by the offeror Malabarosa communicated his acceptance only after the
knowledge of revocation or withdrawal of his offer. He failed to transmit his
conformity while the offer was subsisting. o An acceptance which is not made
in the manner prescribed by the offeror is not effective but constitutes a
counter-offer which the offeror may accept or reject. The respondent required
the petitioner to accept the offer by affixing his signature on the space
provided in said letter-offer and writing the date of said acceptance, thus
foreclosing an implied acceptance or any other mode of acceptance by the
petitioner. However, when the letter-offer of the respondent was delivered to
the petitioner on March 16, 1990, he did not accept or reject the same for the
reason that he needed time to decide whether to reject or accept the same.
There was no contract perfected between the petitioner and the respondent
corporation The petitioner’s assailed that he was not accorded by the
respondent reasonable time to accept or reject its offer does not persuade. It
must be underscored that there was no time frame fixed by the respondent for
the petitioner to accept or reject its offer. When the offeror has not fixed a
period for the offeree to accept the offer, and the offer is made to a person
present, the acceptance must be made immediately. In this case, the
respondent made its offer to the petitioner when Da Costa handed over on
March 16, 1990 to the petitioner its March 14, 1990 Letter-offer but that the
petitioner did not accept the offer. The respondent, thus, had the option to
withdraw or revoke the offer, which the respondent did on April 4, 1990

RULING:  Respondent won! There existed no perfected contract between the

petitioner and the respondent on the latter’s March 14, 1990 Letter-offer for
failure of the petitioner to effectively notify the respondent of his acceptance

G.R. No. 111238 January 25, 1995

ADELFA PROPERTIES, INC., petitioner,

vs.
COURT OF APPEALS, ROSARIO JIMENEZ-CASTAÑEDA and SALUD
JIMENEZ, respondents.

FACTS:

Herein private respondents and their brothers, Jose and Dominador Jimenez,
were registered co-owners of a parcel of land in Barrio Culasi, Las Pinas, MM.
On July 28, 1988, Jose and Dominador Jimenez sold their share consisting of
½ of said parcel of land, specifically the eastern portion thereof, to herein
petitioner.

Thereafter, petitioner expressed interest in buying the western portion of the

property from private respondents. Accordingly, on November 25, 1989, an
“Exclusive Option to Purchase” was executed between petitioner and private
respondents. One of the terms of said contract was that the P50,000.00 which
was received from Adelfa Properties, Inc. as an option money shall be credited
as partial payment upon the consummation of the sale and the P2,806,150.00
balance to be paid on or before November 30, 1989.

Before petitioner could make payment, a case for annulment of the deed of
sale was filed against Adelfa Inc., Jose and Dominador Jimenez by the
nephews and nieces of private respondents. As a consequence, petitioner
informed private respondents that it would hold payment of the full purchase
price and suggest that private respondents settle the case with their nephews
and nieces. Respondent Salud Jimenez refused to heed the suggestion of
petitioner and attributed the suspension of payment of the purchase price to
“lack of word of honor.”

On December 14, 1989, private respondents informed the petitioner’s counsel

that they were cancelling the transaction. On February 23, 1990 the RTC of
Makati dismissed the civil case against petitioner. On February 28, 1990,
private respondents executed a Deed of Conditional Sale in favor of Emylene
Chua over the same parcel of land.

ISSUE:

Whether or not the “Exclusive Option to Purchase” executed between

petitioner Adelfa Properties, Inc and private respondents is an option contract

RULING:

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 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 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 between 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 his 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.

A perusal of the contract in this case, as well as the oral and documentary
evidence presented by the parties, readily shows that there is indeed a
concurrence of petitioner’s offer to buy and private respondents’ acceptance
thereof. The rule is that except where a formal acceptance is so required,
although the acceptance must be affirmatively and clearly made and must be
evidenced by some acts or conduct communicated to the offeror, it may be
made either in a formal or an informal manner, and may be shown by acts,
conduct, or words of the accepting party that clearly manifest a present
intention or determination to accept the offer to buy or sell. Thus, acceptance
may be shown by the acts, conduct, or words of a party recognizing the
existence of the contract of sale.

FACTS
Private respondents and their brothers, Jose and Dominador Jimenez are owners
of a
parcel of land. It consists of 17,710sqm. The one half share of Jose and Dominador
Jimenez
consisting of 8,855sqm was sold to Adelfa. Adelfa expressed also its desire to buy
also the
share of private respondents. An Exclusive Option to Purchase was executed. Ade
lfa paid
50,000 as an option money which shall be credited as partial payment upon the co
nsummation of the sale and the balance to be paid on the specified date.

ISSUE Is the P50,000 received from Adelfa an option money?

RULING
No. In other words, the alleged option money of P50,000.00 was actually earnest
money which was intended to form part of the purchase price. The amount of P50,0
00.00 was
not distinct from the cause or consideration for the sale of the property, but was its
elf 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. 38
It
constitutes an advance payment and must, therefore, be deducted from the total pr
ice. 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) ear
nest
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 i
s 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.

An analysis of the facts obtaining in this case, as well as the evidence presented
by the parties, irresistibly leads to the conclusion that the agreement between the
parties is a contract to sell, and not an option contract or a contract of sale.

1. In view of the extended disquisition thereon by respondent court, it would be

worthwhile at this juncture to briefly discourse on the rationale behind our
treatment of the alleged option contract as a contract to sell, rather than a contract
of sale. The distinction between the two is important for in contract of sale, the title
passes to the vendee upon the delivery of the thing sold; whereas in a contract to
sell, by agreement the ownership is reserved in the vendor and is not to pass until
the full payment of the price. In a contract of sale, the vendor has lost and cannot
recover ownership until and unless the contract is resolved or rescinded; whereas
in a contract to sell, title is retained by the vendor until the full payment of the
price, such payment being a positive suspensive condition and failure of which is
not a breach but an event that prevents the obligation of the vendor to convey title
from becoming effective. Thus, a deed of sale is considered absolute in nature
where there is neither a stipulation in the deed that title to the property sold is
reserved in the seller until the full payment of the price, nor one giving the vendor
the right to unilaterally resolve the contract the moment the buyer fails to pay
within a fixed period.15

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. Firstly, 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.

In effect, there was an implied agreement that ownership shall not pass to the
purchaser until he had fully paid the price. 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.

Moreover, that the parties really intended to execute a contract to sell, and not a
contract of sale, is bolstered by the fact that the deed of absolute sale would have
been issued only upon the payment of the balance of the purchase price, as may
be gleaned from petitioner's letter dated April 16, 1990 wherein it informed private
16

respondents that it "is now ready and willing to pay you simultaneously with the
execution of the corresponding deed of absolute sale."

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
17

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
petitioner's 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. However, private respondents explained that there
18

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. We have no reason not to believe this explanation of private
respondents, aside from the fact that such contention was never refuted or
contradicted by petitioner.

2. Irrefragably, the controverted document should legally be considered as a

perfected contract to sell. On this particular point, therefore, we reject the position
and ratiocination of respondent Court of Appeals which, while awarding the
correct relief to private respondents, categorized the instrument as "strictly an
option contract."

The important task in contract interpretation is always the ascertainment of the

intention 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, all the
words not just a particular word or two, and words in context not words standing
alone. Moreover, judging from the subsequent acts of the parties which will
19

hereinafter be discussed, it is undeniable that the intention of the parties was to

enter into a contract to sell. In addition, the title of a contract does not
20

necessarily determine its true nature. Hence, the fact that the document under
21

discussion is entitled "Exclusive Option to Purchase" is not controlling where the

text thereof shows that it is a contract to sell.

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
22

a sale of property but a sale of property but a sale of the right to purchase. It is23

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
24
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. 25

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
26

mere consent, which is manifested by the meeting of the offer and the
27

acceptance upon the thing and the cause which are to constitute the contract. The
offer must be certain and the acceptance absolute. 28

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. 29

A perusal of the contract in this case, as well as the oral and documentary
evidence presented by the parties, readily shows that there is indeed a
concurrence of petitioner's offer to buy and private respondents' acceptance
thereof. The rule is that except where a formal acceptance is so required, although
the acceptance must be affirmatively and clearly made and must be evidenced by
some acts or conduct communicated to the offeror, it may be made either in a
formal or an informal manner, and may be shown by acts, conduct, or words of the
accepting party that clearly manifest a present intention or determination to accept
the offer to buy or sell. Thus, acceptance may be shown by the acts, conduct, or
words of a party recognizing the existence of the contract of sale. 30

The records also show that private respondents accepted the offer of petitioner to
buy their property under the terms of their contract. At the time petitioner made its
offer, private respondents suggested that their transfer certificate of title be first
reconstituted, to which petitioner agreed. As a matter of fact, it was petitioner's
counsel, Atty. Bayani L. Bernardo, who assisted private respondents in filing a
petition for reconstitution. After the title was reconstituted, the parties agreed that
petitioner would pay either in cash or manager's check the amount of
P2,856,150.00 for the lot. Petitioner was supposed to pay the same on November
25, 1989, but it later offered to make a down payment of P50,000.00, with the
balance of P2,806,150.00 to be paid on or before November 30, 1989. Private
respondents agreed to the counter-offer made by petitioner. As a result, the so-
31

called exclusive option to purchase was prepared by petitioner and was

subsequently signed by private respondents, thereby creating a perfected contract
to sell between them.

It cannot be gainsaid that the offer to buy a specific piece of land was definite and
certain, while the acceptance thereof was absolute and without any condition or
qualification. The agreement as to the object, the price of the property, and the
terms of payment was clear and well-defined. No other significance could be given
to such acts that than they were meant to finalize and perfect the transaction. The
parties even went beyond the basic requirements of the law by stipulating that "all
expenses including the corresponding capital gains tax, cost of documentary
stamps are for the account of the vendors, and expenses for the registration of the
deed of sale in the Registry of Deeds are for the account of Adelfa properties, Inc."
Hence, there was nothing left to be done except the performance of the respective
obligations of the parties.

We do not subscribe to private respondents' submission, which was upheld by

both the trial court and respondent court of appeals, that the offer of petitioner to
deduct P500,000.00, (later reduced to P300,000.00) from the purchase price for the
settlement of the civil case was tantamount to a counter-offer. It must be stressed
that there already existed a perfected contract between the parties at the time the
alleged counter-offer was made. Thus, any new offer by a party becomes binding
only when it is accepted by the other. In the case of private respondents, they
actually refused to concur in said offer of petitioner, by reason of which the
original terms of the contract continued to be enforceable.

At any rate, the same cannot be considered a counter-offer for the simple reason
that petitioner's sole purpose was to settle the civil case in order that it could
already comply with its obligation. In fact, it was even indicative of a desire by
petitioner to immediately comply therewith, except that it was being prevented
from doing so because of the filing of the civil case which, it believed in good faith,
rendered compliance improbable at that time. In addition, no inference can be
drawn from that suggestion given by petitioner that it was totally abandoning the
original contract.

More importantly, it will be noted that the failure of petitioner to pay the balance of
the purchase price within the agreed period was attributed by private respondents
to "lack of word of honor" on the part of the former. The reason of "lack of word of
honor" is to us a clear indication that private respondents considered petitioner
already bound by its obligation to pay the balance of the consideration. In effect,
private respondents were demanding or exacting fulfillment of the obligation from
herein petitioner. with the arrival of the period agreed upon by the parties,
petitioner was supposed to comply with the obligation incumbent upon it to
perform, not merely to exercise an option or a right to buy the property.

The obligation of petitioner on November 30, 1993 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
32

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
33

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 of P2,806,150.00. 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.
This is not a case where no right is as yet created nor an obligation declared, as
where something further remains to be done before the buyer and seller obligate
themselves. An agreement is only an "option" when no obligation rests on the
34

party to make any payment except such as may be agreed on between the parties
as consideration to support the option until he has made up his mind within the
time specified. An option, and not a contract to purchase, is effected by an
35

agreement to sell real estate for payments to be made within specified time and
providing forfeiture of money paid upon failure to make payment, where the
purchaser does not agree to purchase, to make payment, or to bind himself in any
way other than the forfeiture of the payments made. As hereinbefore discussed,
36

this is not the situation obtaining in the case at bar.

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
37

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 of P50,000.00 was actually earnest
money which was intended to form part of the purchase price. The amount of
P50,000.00 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
38

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. 39

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 petitioner's obligation under the contract to sell.

G.R. No. 163687 March 28, 2006

GAUDENCIO VALERIO for himself and as attorney-in-fact of BIENVENIDO

VALERIO, CONRADO VALERIO, DIONISIO VALERIO, EFEPANIA VALERIO and
CARLOTA DE LEON VALENZUELA, Petitioners,
vs.
VICENTA REFRESCA, MARIANO1 REFRESCA, DOMINGO REFRESCA, REMEDIOS
REFRESCA, OLY REFRESCA, LALET REFRESCA and BENITO
REFRESCA, Respondents.

Facts:

Narciso Valerio, married to Nieves Valerio, owned two (2) adjacent

agricultural lots in Calamba, Laguna, with a total area of 6.5
hectares. One of these lots, Lot 428, was a four-hectare land. A
portion thereof, consisting of 511 sq. m. and known as Lot 428-A,
is... the subject of the petition in the case at bar.

It is undisputed that as early as 1963, spouses Alejandro and

Vicenta Refresca started cultivating the 6.5-hectare land as
tenants. In 1968, Narciso Valerio acquired ownership over the
land. The tenancy relations between the Valerios and Refrescas
were established... and their harmonious relations continued
uninterrupted. In 1974, the Valerios entered into a leasehold
contract [2] with tenant Alejandro Refresca whereby the latter was
allowed to continue tilling the 6.5-hectare land in exchange for
fixed... rentals.

On February 10, 1975, Narciso Valerio, with the consent of his wife
Nieves, executed a Deed of Sale whereby he sold his 6.5-hectare
landholding to his heirs, namely: Susana de Leon, Leslie de Leon,
petitioners Carlota de Leon Valenzuela, and Bienvenido, Dionisio,
Conrado,... Gaudencio, and Efepania, all surnamed Valerio.
Narciso likewise conveyed 511 sq. m. of his landholding, known as
Lot 428-A, in favor of his tenant Alejandro Refresca in recognition of
his long service and cultivation of the subject land. On February
15,... 1975, Narciso Valerio died.

On December 13, 1982, the parties to the Deed of Sale, as co-

owners, subdivided the 6.5-hectare land and executed a Deed of
Agreement of Subdivision. [3] The same 511 sq. m. of land was
granted to tenant Alejandro Refresca.

Individual titles over the apportioned areas were subsequently

issued to the vendees.

On March 4, 1987, petitioners' mother, Nieves Valerio, died. After

tenant Alejandro's demise in 1994, his widow, respondent Vicenta
Refresca, succeeded him by operation of law in tilling the land.

At the pre-trial conference, the parties stipulated that the transfer of

the 511 sq. m. lot to Alejandro was without monetary
consideration. At the trial, petitioners themselves admitted that
they did not pay monetary consideration for the transfer of the
specific portions... of the land to them.

After the trial, the

TC ruled in favor of petitioners.

Issues:

Whether or not 1975 Deed of Sale is a void contract for being absolutely simulated.

Ruling:

No.

Article 1345 of the Civil Code [10] provides that the simulation of a
contract may either be absolute or relative. In absolute simulation,
there is a colorable contract but it has no substance as the parties
have no intention... to be bound by it. The main characteristic of an
absolute simulation is that the apparent contract is not really
desired or intended to produce legal effect or in any way alter the
juridical situation of the parties. [11] As a... result, an absolutely
simulated or fictitious contract is void, and the parties may recover
from each other what they may have given under the contract.
However, if the parties state a false cause in the contract to
conceal their real agreement, the contract is... relatively simulated
and the parties are still bound by their real agreement. Hence,
where the essential requisites of a contract are present and the
simulation refers only to the content or terms of the contract, the
agreement is absolutely binding and enforceable... between the
parties and their successors in interest. [12]

In the case at bar, the records re... veal that the clear intent of
Narciso Valerio in executing the 1975 Deed of Sale was to transfer
ownership of the apportioned areas of his 6.5-hectare land to
petitioners as his heirs and to his tenant Alejandro. Although no...
monetary consideration was received by landowner Narciso from
any of the vendees, it cannot be said that the contract was not
supported by a cause or consideration or that Narciso never
intended to transfer ownership thereof.

IN VIEW WHEREOF, the petition is dismissed. No pronouncement

as to costs.
Article 1345 of the Civil Code10provides that the simulation of a contract may either
be absolute or relative. In absolute simulation, there is a colorable contract but it
has no substance as the parties have no intention to be bound by it. The main
characteristic of an absolute simulation is that the apparent contract is not really
desired or intended to produce legal effect or in any way alter the juridical
situation of the parties.11As a result, an absolutely simulated or fictitious contract
is void, and the parties may recover from each other what they may have given
under the contract. However, if the parties state a false cause in the contract to
conceal their real agreement, the contract is relatively simulated and the parties
are still bound by their real agreement. Hence, where the essential requisites of a
contract are present and the simulation refers only to the content or terms of the
contract, the agreement is absolutely binding and enforceable between the parties
and their successors in interest.12

In the case at bar, the records reveal that the clear intent of Narciso Valerio in
executing the 1975 Deed of Sale was to transfer ownership of the apportioned
areas of his 6.5-hectare land to petitioners as his heirs and to his tenant
Alejandro. Although no monetary consideration was received by landowner
Narciso from any of the vendees, it cannot be said that the contract was not
supported by a cause or consideration or that Narciso never intended to transfer
ownership thereof.

Indeed, the primary consideration in determining the true nature of a contract is

the intention of the parties. If the words of a contract appear to contravene the
evident intention of the parties, the latter shall prevail. Such intention is
determined not only from the express terms of their agreement, but also from the
contemporaneous and subsequent acts of the parties. 13In the case at bar, the
circumstances reveal that when landowner Narciso executed the 1975 Deed of
Sale, he intended to transfer ownership of his entire 6.5-hectare landholding and
apportion the area among Alejandro and the petitioners. Neither he nor his wife,
during their lifetime, exerted effort to evict respondents when the latter allegedly
failed to comply with the condition to surrender their tenancy rights after the sale.
That petitioners and tenant Alejandro then took possession of their respective
portions of the land additionally shows that Narciso divested himself of his title
and control over the property. Truly, one of the most striking badges of absolute
simulation is the complete absence of any attempt on the part of a vendee to
assert his right of dominion over the property.14In the case at bar, petitioners and
respondents were not amiss in claiming their right over their respective lots.

Petitioners urge that the transfer of the lot to Alejandro was subject to the
condition that the latter shall waive his tenancy rights over the 6.5-hectare land.
They now impugn the transfer of ownership as the Refrescas allegedly failed to
abide by the condition. Respondents, on the other hand, assert that it was
generosity that motivated Narciso to cede the 511 sq. m. land to Alejandro
Refresca, as an acknowledgment of his long years of cultivating the land as tenant.
As the contract is one of pure beneficence, the respondents contend that the
cause or consideration therefor is the liberality of the benefactor Narciso Valerio.

We find that the transfer of the lot to petitioners and Alejandro is supported by a
cause or consideration. If, as alleged by petitioners, the transfer was conditioned
on the surrender of respondents of their tenancy rights, said condition is the
consideration for the contract. If no such condition was imposed by Narciso prior
to the execution of the deed of sale, the cause for the transfer of the lot to
Alejandro is clearly the liberality or generosity of landowner Narciso. In either
case, we agree with the ruling of the Court of Appeals that there was a cause or
consideration for the transfer of the land although the parties cannot agree on
what it is.

On the issue of consideration, the Court is more inclined to give credence to

respondents’ claim that the cause of the contract is the generosity of Narciso
Valerio who intended to divest himself of ownership over the land. The alleged
condition imposed by Narciso on respondents, i.e., for the latter to surrender their
tenancy rights in exchange for the transfer of the 511 sq. m. lot to them, is belied
by the records. Respondents testified that no such condition attached to the
transfer as after the execution of the Deed of Sale and even after Alejandro’s
death, respondents were allowed to continue cultivating the entire land as tenants.
The records show that after the 1975 Deed of Sale, Nieves Valerio, widow of
Narciso, executed a leasehold contract in favor of Vicenta Refresca, widow of
Alejandro, allowing her to continue tilling the land in exchange for payment of the
rentals. In fact, the tenancy right of the respondents to succeed Alejandro in tilling
the land has been recognized by the DAR. Petitioners themselves admitted that
Narciso transferred ownership of the 511 sq. m. land to Alejandro and the other
apportioned lots to them out of the liberality of Narciso as neither the petitioners
nor Alejandro paid monetary consideration therefor.15Clearly, Narciso was
motivated by generosity when he divested himself of ownership over the land. This
was the true intent of the parties although they tried to conceal it with the
execution of a deed of sale, when the contract is in reality one of donation inter
vivos.

We likewise agree with the findings of the Court of Appeals that petitioners are
estopped in impugning the sale as they overtly recognized the validity of the
transfer of the apportioned lot to tenant Alejandro. Indeed, subsequent to the
execution of the Deed of Sale, petitioners and Alejandro, as co-owners, voluntarily
partitioned the 6.5-hectare lot which became the basis for the issuance of separate
titles in their names.16By this explicit act, petitioners clearly intended to be bound
by the 1975 Deed of Sale which transferred the subdivided lots to each of the
parties.

Thus, we rule that the 1975 Deed of Sale between the parties is a relatively
simulated contract as the clear intent was to transfer ownership over the
land. Hence, the contract binds the parties to their true agreement, i.e., to cause
the transfer of the specific apportioned areas to Alejandro and petitioners.
Petitioners failed to discharge the burden of proving their allegation that the 1975
Deed of Sale is a void contract for being absolutely simulated.

As this Court has ruled on the validity of the 1975 Deed of Sale, we find no reason
to pass upon the issue of prescription raised by petitioners.

IN VIEW WHEREOF, the petition is dismissed. No pronouncement as to costs.

SO ORDERED.