**Facts:**
Lourdes Ong Limson entered into negotiations with spouses Lorenzo de Vera and Asuncion Santos-de Vera, through their agent Marcosa Sanchez, in July 1978 for the purchase of a 48,260 sqm land in San Dionisio, Parañaque, Metro Manila. Limson was informed that the De Veras owned the property and it was mortgaged to Emilio and Isidro Ramos. An agreement was made on July 31, 1978, wherein Limson gave an “earnest money” of P20,000.00 with a 10-day option to purchase at P34.00 per sqm. The deal did not materialize due to several reasons including failure to pay back taxes and the non-appearance of the involved parties in arranged meetings.
On September 5, 1978, Limson learned about negotiations for sale to Sunvar Realty Development Corporation (SUNVAR) represented by Tomas Cuenca, Jr. Discovering the subsequent sale to SUNVAR prompted Limson to file an Affidavit of Adverse Claim on September 15, 1978, the same day the De Veras officially took title over the property from the Ramoses and transferred it to SUNVAR.
Limson instigated a complaint alleging that her right to purchase the property was ignored, and SUNVAR purchased the property in bad faith, knowing about her claim. The trial court ruled in Limson’s favor, ordering the annulment of the sale to SUNVAR and instructing the De Veras to sell the property to Limson upon payment of the balance of the purchase price, among other things.
The Court of Appeals reversed the trial court’s decision, prompting Limson to elevate the case to the Supreme Court under Rule 45 of the Rules of Court.
**Issues:**
1. Whether the agreement between Limson and the De Veras was a contract of option or a contract to sell.
2. Whether Limson had a perfected contract that was violated by the sale of the property to SUNVAR.
3. Whether SUNVAR was a buyer in bad faith.
4. Whether nominal and exemplary damages, as well as attorney’s fees, should be awarded to the respondents (De Veras and SUNVAR).
**Court’s Decision:**
The Supreme Court concluded that the agreement was a contract of option and not a contract to sell, emphasizing the distinctive characteristics of an option contract and how it applied in this situation. The Court noted that the payment made by Limson was option money, not earnest money, and highlighted that an option does not bind the buyer to purchase but merely grants the privilege to buy.
The Court found that there was no concrete evidence showing an affirmative and clear acceptance of the offer by Limson within the 10-day option period, thereby negating the existence of a perfected contract to sell.
Regarding SUNVAR’s alleged bad faith, the Supreme Court determined that the available evidence did not conclusively show that SUNVAR was aware of any perfected sale between Limson and the De Veras prior to their purchase, especially considering the timing of communications and negotiations.
Finally, the Court modified the appellate court’s decision by removing the awards for nominal and exemplary damages as well as attorney’s fees to the respondents, rationalizing that Limson sought relief in good faith and that such awards were not justified under the circumstances.
**Doctrine:**
The key doctrines reiterated in this case involve the distinct legal nature of option contracts versus contracts to sell in the context of real property sales, emphasizing that option money serves as consideration for the option contract and is different from earnest money. Moreover, the Court underscored the necessity of an affirmative and clear acceptance within the option period to perfect a contract to sell. Additionally, the ruling exemplified the criteria for determining a buyer’s good or bad faith.
**Class Notes:**
– **Option Contract vs. Contract to Sell**: An option contract gives the privilege to purchase, with no obligation to do so, distinguished from a contract to sell where mutual promises to buy and sell are made.
– **Consideration**: Option money is not part of the purchase price but is a distinct consideration for granting the option.
– **Perfection of Contracts**: Emphasizes the importance of a clear and affirmative acceptance to convert an option into a binding contract to sell.
– **Buyer in Bad Faith**: Knowledge of a prior claim or defect in title at the time of purchase determines bad faith.
– **Damages and Attorney’s Fees**: These are not automatically awarded and are subject to the discretion of the court based on the circumstances of the case and principles of fairness and justice.
**Historical Background:**
This case typifies the complexities surrounding real estate transactions in the Philippines, particularly involving issues of good faith, the binding nature of option contracts, and the interpretation of earnest versus option money. It reflects the judiciary’s role in clarifying the legal frameworks that govern property sales, underlining the importance of clear, informed consent and adherence to contractual terms.
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