[G.R. No. 135929.

April 20, 2001]

LOURDES ONG LIMSON, vs. COURT OF APPEALS

FACTS:

Petitioner Lourdes Ong Limson, in her 14 May 1979 Complaint filed before the trial court,
alleged that in July 1978 respondent spouses Lorenzo de Vera and Asuncion Santos-de Vera,
through their agent Marcosa Sanchez, offered to sell to petitioner a parcel of land consisting of
48,260 square meters, more or less, situated in Barrio San Dionisio, Paraaque, Metro Manila;
that respondent spouses informed her that they were the owners of the subject property; that on
31 July 1978 she agreed to buy the property at the price of P34.00 per square meter and gave the
sum of P20,000.00 to respondent spouses as "earnest money;" that respondent spouses signed a
receipt therefor and gave her a 10-day option period to purchase the property; that respondent
Lorenzo de Vera then informed her that the subject property was mortgaged to Emilio Ramos
and Isidro Ramos; that respondent Lorenzo de Vera asked her to pay the balance of the purchase
price to enable him and his wife to settle their obligation with the Ramoses.

Petitioner also averred that she agreed to meet respondent spouses and the Ramoses on 5 August
1978 at the Office of the Registry of Deeds of Makati, Metro Manila, to consummate the
transaction but due to the failure of respondent Asuncion Santos-de Vera and the Ramoses to
appear, no transaction was formalized. Petitioner alleged that on 5 September 1978 she was
surprised to learn from the agent of respondent spouses that the property was the subject of a
negotiation for the sale to respondent Sunvar Realty Development Corporation (SUNVAR)
represented by respondent Tomas Cuenca, Jr. On 15 September 1978 petitioner discovered that
although respondent spouses purchased the property from the Ramoses on 20 March 1970 it was
only on 15 September 1978 that TCT No. S-72946 covering the property was issued to
respondent spouses. As a consequence, she filed on the same day an Affidavit of Adverse Claim
with the Office of the Registry of Deeds of Makati, Metro Manila, which was annotated on TCT
No. S-72946. She also claimed that on the same day she informed respondent Cuenca of her
"contract" to purchase the property.

On appeal, the Court of Appeals completely reversed the decision of the trial court. Petitioner
timely filed a Motion for Reconsideration which was denied by the Court of Appeals on 19
October 1998. Hence, this petition.

ISSUE:

WON there was a perfected contract to sell between her and respondent spouses.

WON respondent spouses were at fault for the non-consummation of their contract with
petitioner

HELD:
 1. NO. A scrutiny of the facts as well as the evidence of the parties overwhelmingly leads to
the conclusion that the agreement between the parties was a contract of option and not a
contract to sell.

An option, as used in the law of 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 time certain, 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, i.e., 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 the 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 the 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.

In the interpretation of contracts, the ascertainment of the intention of the contracting parties is 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. The
above Receipt readily shows that respondent spouses and petitioner only entered into a contract
of option; a contract by which respondent spouses agreed with petitioner that the latter shall have
the right to buy the formers property at a fixed price of P34.00 per square meter within ten (10)
days from 31 July 1978. Respondent spouses did not sell their property; they did not also agree
to sell it; but they sold something, i.e., the privilege to buy at the election or option of petitioner.
The agreement imposed no binding obligation on petitioner, aside from the consideration for the
offer.

The consideration of P20,000.00 paid by petitioner to respondent spouses was referred to as

"earnest money." However, a careful examination of the words used indicates that the money is
not earnest money but option money. "Earnest money" and "option money" are not the same but
distinguished thus: (a) earnest money is part of the purchase price, while option money is 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, but may even forfeit it depending on the
terms of the option.
There is nothing in the Receipt which indicates that the P20,000.00 was part of the purchase
price. Moreover, it was not shown that there was a perfected sale between the parties where
earnest money was given. Finally, when petitioner gave the "earnest money," the Receipt did not
reveal that she was bound to pay the balance of the purchase price. In fact, she could even forfeit
the money given if the terms of the option were not met. Thus, the P20,000.00 could only be
money given as consideration for the option contract. That the contract between the parties is one
of option is buttressed by the provision therein that should the transaction of the property not
materialize without fault of petitioner as buyer, respondent Lorenzo de Vera obligates himself to
return the full amount of P20,000.00 "earnest money" with option to buy or forfeit the same on
the fault of petitioner. It is further bolstered by the provision therein that guarantees petitioner
that she or her representative would be notified in case the subject property was sold or
encumbered to a third person. Finally, the Receipt provided for a period within which the option
to buy was to be exercised, i.e., "within ten (10) days" from 31 July 1978.

Doubtless, the agreement between respondent spouses and petitioner was an "option contract" or
what is sometimes called an "unaccepted offer." During the option period the agreement was not
converted into a bilateral promise to sell and to buy where both respondent spouses and
petitioner were then reciprocally bound to comply with their respective undertakings as
petitioner did not timely, affirmatively and clearly accept the offer of respondent spouses.

2. Petitioner is not correct. The dates mentioned, at least 5 and 15 September 1978, are
immaterial as they were beyond the option period given to petitioner. On the other hand,
the referral to sometime in August 1978 in the testimony of Hermigildo Sanchez as
emphasized by petitioner in her petition is very vague. It could be within or beyond the
option period. Clearly then, even assuming that the meeting with Marixi Prieto actually
transpired, it could not necessarily mean that she knew of the agreement between
petitioner and respondent spouses for the purchase of subject property as the meeting
could have occurred beyond the option period. In which case, no bad faith could be
attributed to respondent SUNVAR. If, on the other hand, the meeting was within the
option period, petitioner was remiss in her duty to prove so. Necessarily, we are left with
the conclusion that respondent SUNVAR bought subject property from respondent
spouses in good faith, for value and without knowledge of any flaw or defect in its title.