This case serves as a valuable lesson in property law and contracts, particularly in distinguishing a Contract of Sale from a Contract to Sell—a crucial distinction in real estate transactions. The Supreme Court clarified how courts must determine the nature of a property agreement not by labels used by the parties, but by analyzing the intent, obligations, and documentary evidence.
In a recent decision, the Supreme Court emphasized that the mere exchange of money and a signed document does not automatically result in a sale of real property. In Chavez, Jr., et al. v. Spouses Gopez, the Court ruled that a handwritten Acknowledgment Receipt referring to “earnest money” and the anticipated execution of a Deed of Sale was not a perfected Contract of Sale, but a Contract to Sell that never became effective due to the buyer’s failure to comply with agreed conditions.
This case arose from a proposed sale of two residential lots in Quezon City. The sellers—heirs of the registered owners—engaged in negotiations with Spouses Joselito and Adriana Gopez, who expressed interest in purchasing the properties. In 2011, the parties signed a handwritten Acknowledgment Receipt, where the Spouses Gopez tendered a check for ₱200,000.00 described as earnest money for the ₱31.5 million transaction. The same document made reference to the eventual execution of a Contract to Sell, a Deed of Absolute Sale, and an Extrajudicial Settlement of Estate.
The petitioners (Chavez et al.) contended that the transaction was subject to multiple conditions: that the Spouses Gopez would pay a ₱5 million downpayment, shoulder the capital gains, transfer, and estate taxes, and prepare all the required documents, including special powers of attorney and an extrajudicial settlement. They alleged that the buyers repeatedly failed to comply, causing significant delays and ultimately prompting the sellers to consider the agreement void.
On the other hand, the respondents (Spouses Gopez) insisted that they had already partially paid ₱1.5 million, and that the Acknowledgment Receipt itself was proof of a perfected Contract of Sale. They claimed that the sellers’ failure to produce certain documents caused the delay and sought specific performance.
The Court disagreed with the buyers’ position and ruled in favor of the petitioners.
According to the Court, the Acknowledgment Receipt lacked the essential element of consent to transfer ownership. There was no clear undertaking on the part of the sellers to convey title to the property. Rather, the document contemplated future acts and conditions, including the preparation of multiple legal instruments. The Court held that the parties did not intend to be immediately bound by a sale, but were still in the process of preparing for one.
The ruling distinguished this case from Coronel v. Court of Appeals, a 1996 decision where a receipt for downpayment was deemed sufficient to evidence a perfected sale. In Coronel, the sellers expressly committed to transferring the title after receiving a downpayment. In Chavez, however, the Court noted the absence of such a commitment. The agreement imposed obligations solely on the buyers—such as preparing the documentation and advancing taxes—which underscored the executory nature of the arrangement.
The Court also addressed the significance of “earnest money.” While Article 1482 of the Civil Code states that earnest money is evidence of a perfected sale, this presupposes that a Contract of Sale already exists. In this case, since the parties were merely in the process of negotiating and formalizing their obligations, the amount paid could not serve as evidence of a perfected contract. The Court reiterated that in a Contract to Sell, earnest money may serve as proof of good faith, but does not transfer any right or title in the absence of compliance with suspensive conditions.
Ultimately, the Court held that the buyers’ failure to fulfill the agreed-upon conditions—including the completion of the ₱5 million downpayment and delivery of necessary documents—meant that the Contract to Sell never became effective. There being no perfected sale, the sellers were well within their rights to consider the agreement at an end and to return the payments received.
This decision underscores a crucial legal point in real estate transactions: not all written agreements coupled with payment amount to a binding sale. The presence or absence of consent to transfer ownership, coupled with the satisfaction of suspensive conditions, is determinative. Parties should exercise caution when using informal or incomplete instruments—especially when large sums or valuable properties are involved—as courts will look beyond terminology to assess the true nature of the agreement.
This guide provides a general overview of the above transactions at the time of writing only and is not intended to be a comprehensive legal advice. This should also not be taken as an opinion on the topic. For more details and information, you may coordinate with any GVES Law Partner regarding the matter.
Atty. Ludanielle N. Legarde is a Partner of GVES Law.