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5.

Difference Between Earnest Money and Option


Money
OESMER VS. PARAISO
FACTS:
Petitioners Rizalino, Ernesto, Leonora, Bibiano, Jr.,
Librado, Enriqueta, Adolfo, and Jesus, all surnamed
Oesmer together with Adolfo Oesmer (Adolfo) and Jesus
Oesmer (Jesus), are brothers and sisters, and the coowners of undivided shares of two parcels of agricultural
and tenanted land. Both lots are unregistered and
originally owned by their parents, Bibiano Oesmer and
Encarnacion Durumpili. When the spouses Oesmer died,
petitioners, together with Adolfo and Jesus, acquired the
lots as heirs of the former by right of succession.
Respondent Paraiso Development Corporation is
engaged in the real estate business. In March 1989, one
Rogelio Paular, brought along petitioner Ernesto to meet
with a certain Sotero Lee, President of respondent
Paraiso Development Corporation. The said meeting
was for the purpose of brokering the sale of petitioners
properties to Respondent Corporation.
Pursuant to the said meeting, a Contract to Sell was
drafted by the Executive Assistant of Lee. On 1 April
1989, petitioners Ernesto and Enriqueta signed the
aforesaid Contract to Sell. A check in the amount of
P100,000.00, payable to Ernesto, was given as option
money.
Sometime thereafter, Rizalino, Leonora, Bibiano, Jr., and
Librado also signed the said Contract to Sell. However,
two of the brothers, Adolfo and Jesus, did not sign the
document.
Petitioners, through a letter, informed the respondent
company of their intention to rescind the Contract to Sell
and to return the amount of P100,000.00 given by
respondent as option money. Respondent did not
respond to the aforesaid letter. Subsequently, the
petitioners, together with Adolfo and Jesus, filed a
Complaint for Declaration of Nullity or for Annulment of
Option Agreement or Contract to Sell with Damages.
ISSUE:
(1) WON the supposed Contract to Sell is really a
unilateral promise to sell without consideration distinct
from the price, and hence, void. (NO, it is indeed a
Contract to Sell.) (2) WON the consideration of P100K
paid is an option money. (It is an earnest money.)
HELD:
In the instant case, the consideration of P100,000.00
paid by respondent to petitioners was referred to as
"option money." However, a careful examination of the
words used in the contract indicates that the money is
not option money but earnest 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. The sum of P100,000.00 was part of the
purchase price. Although the same was denominated as
"option money," it is actually in the nature of earnest
money or down payment when considered with the other
terms of the contract. Doubtless, the agreement is not a
mere unilateral promise to sell, but, indeed, it is a
Contract to Sell as both the trial court and the appellate
court declared in their Decisions.
FORMAL REQUIREMENTS OF SALE
1. Form not Important for Validity of Sale
NARANJA VS. CA
FACTS:
Roque Naranja was the registered owner of a parcel of
land, Bacolod. Roque was also a co-owner of an
adjacent lot (Lot No. 2) which he co-owned with his
brothers, Gabino and Placido Naranja.
When Placido died, his one-third share was inherited by
his children, Nenita, Nazareto, Nilda, Naida and
Neolanda, all surnamed Naranja, herein petitioners. The
adjacent lot is covered by TCT No. T-18762 in the names
of Roque, Gabino and the said children of Placido. TCT
No. T-18762 remained even after Gabino died. The other
petitioners Serafin Naranja, Raul Naranja, and Amelia
Naranja-Rubinos are the children of Gabino.
The two lots were being leased by Esso Standard
Eastern, Inc. for 30 years from 1962-1992. For his
properties, Roque was being paid P200.00 per month by
the company.
Roque had no other source of income except for
the P200.00 monthly rental of his two properties. To
show his gratitude to Belardo, Roque sold Lot No. 4 and
his one-third share in Lot No. 2 to Belardo on August 21,
1981, through a Deed of Sale of Real Property which
was duly notarized by Atty. Eugenio Sanicas.
Roques copies of TCT No. T-18764 and TCT No. T18762 were entrusted to Atty. Sanicas for registration of
the deed of sale and transfer of the titles to Belardo. But
the deed of sale could not be registered because
Belardo did not have the money to pay for the
registration fees.
Belardos only source of income was her store and
coffee shop. Sometimes, her children would give her
money to help with the household expenses, including
the expenses incurred for Roques support. At times, she
would also borrow money from Margarita Dema-ala, a
neighbor. When the amount of her loan
reached P15,000.00, Dema-ala required a security.

Roque executed a deed of sale in favor of Dema-ala,


covering his two properties in consideration of
the P15,000.00 outstanding loan and an
additional P15,000.00, for a total ofP30,000.00. Demaala explained that she wanted Roque to execute the
deed of sale himself since the properties were still in his
name. Belardo merely acted as a witness. The titles to
the properties were given to Dema-ala for safekeeping.
Three days later, Roque died of influenza. The proceeds
of the loan were used for his treatment while the rest
was spent for his burial.
In 1985, Belardo fully paid the loan secured by the
second deed of sale. Dema-ala returned the certificates
of title to Belardo, who, in turn, gave them back to Atty.
Sanicas.
Unknown to Belardo, petitioners, the children of Placido
and Gabino Naranja, executed an Extrajudicial
Settlement Among Heirs on October 11, 1985,
adjudicating among themselves Lot No. 4. On February
19, 1986, petitioner Amelia Naranja-Rubinos,
accompanied by Belardo, borrowed the two TCTs,
together with the lease agreement with Esso Standard
Eastern, Inc., from Atty. Sanicas on account of the loan
being proposed by Belardo to her. Thereafter, petitioners
had the Extrajudicial Settlement Among Heirs notarized
on February 25, 1986. With Roques copy of TCT No. T18764 in their possession, they succeeded in having it
cancelled and a new certificate of title, TCT No. T140184, issued in their names.
In 1987, Belardo decided to register the Deed of Sale
dated August 21, 1981. With no title in hand, she was
compelled to file a petition with the RTC to direct the
Register of Deeds to annotate the deed of sale even
without a copy of the TCTs. In an Order dated June 18,
1987, the RTC granted the petition. But she only
succeeded in registering the deed of sale in TCT No. T18762 because TCT No. T-18764 had already been
cancelled.
On December 11, 1989, Atty. Sanicas prepared a
certificate of authorization, giving Belardos daughter,
Jennelyn P. Vargas, the authority to collect the payments
from Esso Standard Eastern, Inc. But it appeared from
the companys Advice of Fixed Payment that payment of
the lease rental had already been transferred from
Belardo to Amelia Naranja-Rubinos because of the
Extrajudicial Settlement Among Heirs.
On June 23, 1992, Belardo, through her daughter and
attorney-in-fact, Rebecca Cordero, instituted a suit for
reconveyance with damages. The complaint prayed that
judgment be rendered declaring Belardo as the sole
legal owner of Lot No. 4, declaring null and void the
Extrajudicial Settlement Among Heirs, and TCT No. T140184, and ordering petitioners to reconvey to her the
subject property and to pay damages.

Subsequently, petitioners also filed a case against


respondent for annulment of sale and quieting of title
with damages, praying, among others, that judgment be
rendered nullifying the Deed of Sale, and ordering the
Register of Deeds of Bacolod City to cancel the
annotation of the Deed of Sale on TCT No. T-18762.
The RTC rendered a Decision in the consolidated cases
in favor of petitioners. The trial court noted that the Deed
of Sale was defective in form since it did not contain a
technical description of the subject properties but merely
indicated that they were Lot No. 4, covered by TCT No.
T-18764 consisting of 136 square meters, and one-third
portion of Lot No. 2 covered by TCT No. T-18762. The
trial court held that, being defective in form, the Deed of
Sale did not vest title in private respondent. Full and
absolute ownership did not pass to private respondent
because she failed to register the Deed of Sale. She was
not a purchaser in good faith since she acted as a
witness to the second sale of the property knowing that
she had already purchased the property from Roque.
Whatever rights private respondent had over the
properties could not be superior to the rights of
petitioners, who are now the registered owners of the
parcels of land
The CA reversed the RTC Decision. The CA held that
the unregisterability of a deed of sale will not undermine
its validity and efficacy in transferring ownership of the
properties to private respondent. The CA noted that the
records were devoid of any proof evidencing the alleged
vitiation of Roques consent to the sale; hence, there is
no reason to invalidate the sale. Registration is only
necessary to bind third parties, which petitioners, being
the heirs of Roque Naranja, are not. The trial court erred
in applying Article 1544 of the Civil Code to the case at
bar since petitioners are not purchasers of the said
properties. Hence, it is not significant that private
respondent failed to register the deed of sale before the
extrajudicial settlement among the heir.
ISSUE:
Whether or not the deed of sale must contain a technical
description of the subject property in order to be valid
HELD:
The Court does not agree with petitioners contention
that a deed of sale must contain a technical description
of the subject property in order to be valid. Petitioners
anchor their theory on Section 127 of Act No. 496, which
provides a sample form of a deed of sale that includes,
in particular, a technical description of the subject
property.
To be valid, a contract of sale need not contain a
technical description of the subject property. Contracts of
sale of real property have no prescribed form for their
validity; they follow the general rule on contracts that
they may be entered into in whatever form, provided all
the essential requisites for their validity are present. The

requisites of a valid contract of sale under Article 1458 of


the Civil Code are: (1) consent or meeting of the minds;
(2) determinate subject matter; and (3) price certain in
money or its equivalent.
The failure of the parties to specify with absolute clarity
the object of a contract by including its technical
description is of no moment. What is important is that
there is, in fact, an object that is determinate or at least
determinable, as subject of the contract of sale. The form
of a deed of sale provided in Section 127 of Act No. 496
is only a suggested form. It is not a mandatory form that
must be strictly followed by the parties to a contract.
In the instant case, the deed of sale clearly identifies the
subject properties by indicating their respective lot
numbers, lot areas, and the certificate of title covering
them. Resort can always be made to the technical
description as stated in the certificates of title covering
the two properties.
DALION VS. CA
FACTS:
This is a petition to annul and set aside the decision of
the Court of Appeals rendered on May 26, 1987,
upholding the validity of the sale of a parcel of land by
petitioner Segundo Dalion (hereafter, "Dalion") in favor of
private respondent Ruperto Sabesaje, Jr. (hereafter,
"Sabesaje").

ISSUE:
Whether or not the sale is valid?
HELD:
Yes. The provision of Art. 1358 on the necessity of a
public document is only for convenience, not for validity
or enforceability. It is not a requirement for the validity of
a contract of sale of a parcel of land that this be
embodied in a public instrument. A contract of sale is a
consensual contract, which means that the sale is
perfected by mere consent. No particular form is
required for its validity. Upon perfection of the contract,
the parties may reciprocally demand performance (Art.
1475, NCC), i.e., the vendee may compel transfer of
ownership of the object of the sale, and the vendor may
require the vendee to pay the thing sold (Art. 1458,
NCC). The trial court thus rightly and legally ordered
Dalion to deliver to Sabesaje the parcel of land and to
execute corresponding formal deed of conveyance in a
public document. Under Art. 1498, NCC, when the sale
is made through a public instrument, the execution
thereof is equivalent to the delivery of the thing. Delivery
may either be actual (real) or constructive. Thus delivery
of a parcel of land may be done by placing the vendee in
control and possession of the land (real) or by
embodying the sale in a public instrument (constructive).
HEIRS OF BIONA VS. CA

On May 28, 1973, Sabesaje sued to recover ownership


of a parcel of land, based on a private document of
absolute sale, dated July 1, 1965, allegedly executed by
Dalion, who, however denied the fact of sale, contending
that the document sued upon is fictitious, his signature
thereon, a forgery, and that subject land is conjugal
property, which he and his wife acquired in 1960 from
Saturnina Sabesaje as evidenced by the "Escritura de
Venta Absoluta".
The spouses denied claims of Sabesaje that after
executing a deed of sale over the parcel of land, they
had pleaded with Sabesaje, their relative, to be allowed
to administer the land because Dalion did not have any
means of livelihood. They admitted, however,
administering since 1958, five (5) parcels of land in
Sogod, Southern Leyte, which belonged to Leonardo
Sabesaje, grandfather of Sabesaje, who died in 1956.
They never received their agreed 10% and 15%
commission on the sales of copra and abaca,
respectively. Sabesaje's suit, they countered, was
intended merely to harass, preempt and forestall
Dalion's threat to sue for these unpaid commissions.
Dalion nonetheless still impugns the validity of the sale
on the ground that the same is embodied in a private
document, and did not thus convey title or right to the lot
in question since "acts and contracts which have for their
object the creation, transmission, modification or
extinction of real rights over immovable property must
appear in a public instrument."

FACTS:
On October 23, 1953, the late Ernesto Biona, married to
plaintiff-appellee Soledad Biona, was awarded
Homestead Patent over the property subject of this suit,
a parcel of agricultural land, located in Bo. 3, Banga,
Cotabato,
On June 3, 1954, Ernesto and Soledad Biona obtained a
loan from the then Rehabilitation Finance Corporation
(now the Development Bank of the Philippines) and put
up as collateral the subject property. On June 12, 1956,
Ernesto Biona died leaving as his heirs herein plaintiffsappellees, namely, his wife, Soledad Estrobillo Vda. De
Biona, and five daughters, Editha B. Blancaflor,
Marianita B. de Jesus, Vilma B. Blancaflor, Elsie B.
Ramos and Perlita B. Carmen.
On March 1, 1960, plaintiff-appellee Soledad Biona
obtained a loan from defendant-appellant in the amount
of P1,000 and as security therefore, the subject property
was mortgaged. It was further agreed upon by the
contracting parties that for a period of two years until the
debt is paid, defendant-appellant shall occupy the land in
dispute and enjoy the usufruct thereof.
The two-year period elapsed but Soledad Biona was not
able to pay her indebtedness. Defendant-appellant
continued occupying and cultivating the subject property
without protest from plaintiffs-appellees.

On July 3, 1962, defendant-appellant paid the sum of


P1,400.00 to the Development Bank of the Philippines to
cancel the mortgage previously constituted by the Biona
spouses on June 3, 1953.
Thereafter, and for a period of not less than twenty-five
years, defendant-appellant continued his peaceful and
public occupation of the property, declaring it in his name
for taxation purposes, paying real estate property taxes
thereon, and causing the same to be tenanted.

HELD:
YES but with regard only to Soledads share (7/12). But
since the daughters of Biona failed to assert their rights
and allowed defendant Hilajos to occupy the land in
peace for more than 30 years, they are now stopped due
to laches.

On June 19, 1985, plaintiffs-appellees, filed a complaint


for recovery of ownership, possession, accounting and
damages, with a prayer for a writ of preliminary
mandatory injunction and/ or restraining order against
defendant-appellant alleging, among others, that the
latter had unlawfully been depriving them of the use,
possession and enjoyment of the subject property; that
the entire parcel of land, which was devoted and highly
suited to palay and corn, was yielding three harvests
annually, with an average of one hundred twenty (120)
sacks of corn and eighty cavans of rice per hectare; that
plaintiffs-appellees were deprived of its total produce
amounting to P150,000.00.

All the requisites for a valid contract of sale are present


in the instant case. For a valuable consideration of
P4,500.00, Soledad Biona agreed to sell and actually
conveyed the subject property to private respondent.
The fact that the deed of sale was not notarized does not
render the agreement null and void and without any
effect. The provision of Article 1358 of the Civil Code9 on
the necessity of a public document is only for
convenience, and not for validity or enforceability.10 The
observance of which is only necessary to insure its
efficacy, so that after the existence of said contract had
been admitted, the party bound may be compelled to
execute the proper document.11 Undeniably, a contract
has been entered into by Soledad Biona and the private
respondent. Regardless of its form, it was valid, binding
and enforceable between the parties.

One of the claims of defendant-appellant was that by


virtue of his continuous and peaceful occupation of the
property from the time of its sale and for more than
twenty- five years thereafter, defendant possesses a
better right thereto subject only to the rights of the
tenants whom he had allowed to cultivate the land under
the Land Reform Program of the government; and that
plaintiffs alleged right, if any, is barred by the statutes of
fraud.

Under Art. 1356 of the Civil Code, contracts shall be


obligatory in whatever form they may have been entered
into provided all the essential requisites for their
necessary elements for a valid contract of sale were met
when Soledad Biona agreed to sell and actually
conveyed Lot 177 to defendant-appellant who paid the
amount of P4,500.00 therefore. The deed of sale (Exh.
2) is not made ineffective merely because it is not
notarized or does not appear in a public document.

ISSUE:
Whether or not the deed of sale was valid and if it
effectively conveyed to the private respondents the
subject property