Young Scholars Academy, Inc. vs. Magalong

A contract of sale is not perfected where the parties fail to reach a meeting of minds on the manner or terms of payment, as a qualified acceptance constitutes a counter-offer that rejects the original offer, and acceptance of a counter-offer must be communicated to and received by the offeror to be binding.

YSAI is a corporation represented by Reynaldo O. Cabansag, its treasurer, who negotiated the purchase of a 240-square meter parcel of land located at Lot 19, Block 2, Filinvest Subdivision, Batasan Hills, Quezon City, registered under Magalong's name and covered by TCT No. RT-22422 (36529). The proposed transaction involved a purchase price of PHP 2,000,000.00, with PHP 40,000.00 paid as earnest money. The dispute centers on whether the parties' exchange of correspondence and the Offer to Purchase executed on May 18, 2015 constituted a perfected contract of sale despite unresolved disagreements on the manner of payment of the balance.

Sometime in 2014, Reynaldo O. Cabansag, representing Young Scholars Academy, Inc. (YSAI) in his capacity as treasurer, saw a notice for sale of a 240-square meter parcel of land located at Lot 19, Block 2, Filinvest Subdivision, Batasan Hills, Quezon City, registered under the name of Erlinda G. Magalong and covered by TCT No. RT-22422 (36529). Cabansag contacted the handling real estate agent, went through negotiations, and eventually met Magalong on May 18, 2015. On that same day, YSAI, through Cabansag, entered into an Offer to Purchase with Magalong, offering to buy the subject property for PHP 2,000,000.00. YSAI paid PHP 40,000.00 as earnest money via a Banco De Oro check, which Magalong deposited in her bank account. Under the agreement, Magalong undertook to deliver certified true copies of the title, tax declaration, and vicinity/lot plan within a month or earlier from the date of execution, but she only provided certifications for the payment of real property tax and the tax declaration of the property.

In a Letter dated June 28, 2015 addressed to the real estate agent, Magalong requested, among other things, a document with a lower purchase price to allow her to pay a lower capital gains tax, and specified that the remaining balance should be paid through a PNB Manager's check upon signing of the Deed of Absolute Sale. YSAI refused Magalong's request for a lower purchase price and instead furnished Magalong with a draft copy of a proposed Revised Agreement enclosed in a Letter dated September 19, 2015, which incorporated the payment terms Magalong had requested — providing for payment of the capital gains tax of PHP 122,400.00 in cash directly to the BIR and the remaining PHP 1,917,600.00 via Manager's Check. Magalong did not act upon the Revised Agreement; she denied receiving it and disowned the signature of the person who supposedly received it on her behalf.

On October 14, 2015, Magalong wrote a Letter with the subject "Notice of Decline," signifying her intention to decline YSAI's offer to purchase, citing that more than five months had passed since the offer was made and no agreement had been reached and finalized within the exclusivity period of one month. She invoked a provision in the Offer to Purchase stating that the earnest money was refundable without need of demand in case the offer was declined or the required documents were not submitted. In a Letter dated March 15, 2016, Magalong returned the earnest money of PHP 40,000.00 via a PNB check. YSAI reached out to Magalong several times, but she refused to negotiate. YSAI likewise sent a Demand Letter dated July 30, 2016, to which Magalong did not respond.

Magalong denied that a perfected contract of sale existed, alleging there was no meeting of minds on the manner of payment of the purchase price. She claimed she had requested payment of the remaining balance through PNB Manager's checks rather than post-dated checks, and having received no feedback from YSAI's representative, decided to decline the offer. She also claimed she never received the letter from YSAI's representative detailing the documents she needed to submit. The RTC found that a perfected contract of sale existed as early as May 18, 2015, crediting the consent manifested by both parties and ruling that it did not matter that YSAI's representative did not show any special power of authority. The CA, however, found that the parties were only in the negotiation phase and had reached an impasse regarding the terms of payment, reversing the RTC's ruling.

• Perfected Contract of Sale: YSAI argued that a perfected contract of sale existed between the parties.
• Credibility of Magalong's Testimony: YSAI maintained that Magalong's testimony should not be given consideration because it has no credibility, among other reasons.
• Entitlement to Damages: YSAI argued that it was entitled to moral damages, exemplary damages, attorney's fees, litigation expenses, and costs of suit.
• Implied Acceptance of Counter-Offer: YSAI argued that the Revised Agreement constituted an implied acceptance of Magalong's counter-offer regarding the manner of payment.

• No Perfected Contract: Magalong denied that a perfected contract of sale existed because there was no meeting of minds on the manner of payment of the purchase price.
• Non-receipt of Revised Agreement: Magalong claimed she never received the letter from YSAI's representative detailing the documents she needed to submit, and denied receiving the Revised Agreement, disowning the signature of the person who supposedly received it.
• Payment Terms: Magalong maintained that she requested payment of the remaining balance through PNB Manager's checks and not through post-dated checks, and having received no feedback from YSAI's representative, decided to decline the offer.

• Perfection of Contract of Sale: Whether the parties entered into a valid contract of sale over the subject property.
• Award of Attorney's Fees and Damages: Whether YSAI is entitled to moral damages, exemplary damages, attorney's fees, litigation expenses, and costs of suit.

• Perfection of Contract of Sale: No. There was no valid contract of sale because the parties reached an impasse regarding the manner or terms of payment, negating the mutual consent required under Articles 1318, 1319, and 1458 of the Civil Code. Magalong's request for payment via PNB Manager's checks constituted a counter-offer that rejected the original offer, and YSAI's acceptance through the Revised Agreement was never communicated to Magalong.
• Award of Attorney's Fees and Damages: No. There being no perfected contract of sale, Magalong committed no breach, and thus there was no basis for the award of attorney's fees, litigation expenses, and costs of suit.

• Perfection of Contract of Sale: Sale is a consensual contract perfected by mere consent. Under Article 1458 in relation to Article 1318 of the Civil Code, the essential elements of a contract of sale are: (a) consent or meeting of minds — consent to transfer ownership in exchange for the price; (b) determinate subject matter; and (c) price certain in money or its equivalent. The Court applied the three stages of a contract of sale — negotiation, perfection, and consummation — as articulated in Manila Metal Container Corporation vs. Philippine National Bank and San Miguel Properties Philippines, Inc. vs. Huang. A negotiation is formally initiated by an offer, which must be certain, and acceptance must be absolute and unqualified to convert the offer into a contract. The Offer to Purchase signed on May 18, 2015 specified the purchase price of PHP 2,000,000.00 but not the manner of payment of the balance. Magalong's June 28, 2015 Letter requiring payment through PNB Manager's checks constituted a counter-offer, which under Article 1319 is a rejection of the original offer. While YSAI's Revised Agreement dated September 19, 2015 incorporated Magalong's requested payment terms, this acceptance was never communicated to Magalong — she denied receiving it and disowned the signature of the person who supposedly received it. Under Article 1319, acceptance made by letter does not bind the offeror except from the time it came to his knowledge. Since there was no proof that the Revised Agreement was received by Magalong, the acceptance was not binding, and no meeting of minds occurred. The parties remained in the negotiation stage, and Magalong validly declined the offer on October 14, 2015. The CA's ruling was therefore affirmed.

• Award of Attorney's Fees and Damages: The RTC awarded attorney's fees and litigation expenses of PHP 81,990.00 plus costs of suit based on its finding that Magalong breached her obligation under a perfected contract of sale. Since no perfected contract existed, there was no breach attributable to Magalong. Accordingly, the CA committed no reversible error in ruling that there was no basis for the award of attorney's fees, litigation expenses, and costs of suit.

• Stages of a Contract of Sale — The three stages are: (1) negotiation, covering the period from the time prospective contracting parties indicate interest until the contract is perfected; (2) perfection, upon concurrence of the essential elements — meeting of minds on the object and the price; and (3) consummation, when the parties perform their respective undertakings, culminating in the extinguishment of the contract. A negotiation is formally initiated by an offer, which must be certain. At any time prior to perfection, either party may stop the negotiation. The Court applied this doctrine by finding the parties remained in the negotiation stage, as no meeting of minds on the manner of payment was achieved.

• Counter-Offer as Rejection of Original Offer — A qualified acceptance or one that involves a new proposal constitutes a counter-offer, which is considered in law a rejection of the original offer and an attempt to end the negotiation on a different basis. Any modification or variation from the terms of the offer annuls the offer; the acceptance must be identical in all respects with the offer to produce consent. The Court applied this by treating Magalong's request for PNB Manager's checks as a counter-offer that rejected YSAI's original offer, which had not specified the manner of payment.

• Communication of Acceptance — Under Article 1319 of the Civil Code, acceptance made by letter or telegram does not bind the offeror except from the time it came to his knowledge. The contract is presumed to have been entered into in the place where the offer was made. The Court applied this by ruling that YSAI's Revised Agreement, though incorporating Magalong's counter-offer terms, was not binding because it was never communicated to or received by Magalong, as evidenced by her denial of receipt and disavowal of the receiving party's signature.

• "A negotiation is formally initiated by an offer, which, however, must be certain. At any time prior to the perfection of the contract, either negotiating party may stop the negotiation. At this stage, the offer may be withdrawn; the withdrawal is effective immediately after its manifestation. To convert the offer into a contract, the acceptance must be absolute and must not qualify the terms of the offer; it must be plain, unequivocal, unconditional and without variance of any sort from the proposal." — This passage articulates the negotiation stage of a contract of sale and the requirement that acceptance be absolute and unqualified, forming the analytical framework for the Court's conclusion that no perfected contract existed.

• "A qualified acceptance or one that involves a new proposal constitutes a counter-offer and a rejection of the original offer. A counter-offer is considered in law, a rejection of the original offer and an attempt to end the negotiation between the parties on a different basis. Consequently, when something is desired which is not exactly what is proposed in the offer, such acceptance is not sufficient to guarantee consent because any modification or variation from the terms of the offer annuls the offer." — This passage defines the doctrine of counter-offer as rejection, which the Court applied to Magalong's request for PNB Manager's checks as a modification of the original offer's payment terms.

• "Acceptance made by letter or telegram does not bind the offerer except from the time it came to his knowledge. The contract, in such a case, is presumed to have been entered into in the place where the offer was made." — This passage states the rule on communication of acceptance under Article 1319, which the Court applied to hold that YSAI's Revised Agreement was not binding on Magalong because it was never received by her.

• Manila Metal Container Corporation vs. Philippine National Bank, 540 Phil. 451 (2006) — Followed. The Court relied on this case for its exposition of the three stages of a contract of sale (negotiation, perfection, consummation) and the requirement that acceptance must be absolute and unqualified to convert an offer into a contract.

• San Miguel Properties Philippines, Inc. vs. Huang — Followed. Cited within Manila Metal Container for the formulation of the three stages of a contract of sale, which the Court adopted as the analytical framework.

• Adelfa Properties, Inc. vs. Court of Appeals — Followed. Cited for the principle that acceptance may be shown by acts, conduct, or words of the accepting party, but a qualified acceptance constitutes a counter-offer and a rejection of the original offer.

• Traders Royal Bank vs. Cuison Lumber Co., Inc., 606 Phil. 700 (2009) — Followed. Cited for the rule that the offer must be certain and the acceptance absolute and unqualified, and that a qualified offer constitutes a counter-offer.

• Heirs of Gonzales vs. Spouses Basas, G.R. No. 206847, June 15, 2022 — Followed. Cited for the essential elements of a contract of sale under Article 1458 in relation to Article 1318 of the Civil Code.

• Development Bank of the Philippines vs. Medrano, 656 Phil. 575 (2011) — Followed. Cited by the CA for the principle that a qualified acceptance constitutes a counter-offer and a rejection of the original offer, which the Supreme Court adopted in its ruling.

• Article 1458, Civil Code — Defines the contract of sale as one whereby a party obligates himself to transfer ownership of and deliver a determinate thing, and the other to pay a price certain in money or its equivalent. Applied to identify the essential elements of a contract of sale.

• Article 1318, Civil Code — Provides that 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, and (3) cause of the obligation which is established. Applied in conjunction with Article 1458 to enumerate the elements of a valid contract of sale.

• Article 1319, Civil Code — Provides that consent is manifested by the meeting of the offer and the acceptance upon the thing and the cause constituting the contract; the offer must be certain and the acceptance absolute; a qualified acceptance constitutes a counter-offer; and acceptance made by letter or telegram does not bind the offeror except from the time it came to his knowledge. Applied as the central provision governing the requirement of mutual consent and the effect of a counter-offer and the communication of acceptance.

• Article 1475, Civil Code — Provides that the contract of sale is perfected at the moment there is a meeting of minds upon the thing which is the object of the contract and upon the price. Applied to confirm that perfection requires meeting of minds on both the object and the price, including the manner of payment.

Zalameda, J., Rosario, J., and Marquez, J., concurred. Gesmundo, C.J. (Chairperson) was on official leave.