Boston Bank of the Philippines vs. Manalo

A definite agreement on the manner of payment of the purchase price is an essential element of a perfected contract of sale or contract to sell; where the manner of payment is left for future negotiation, no binding and enforceable contract arises, and courts cannot supply the missing terms merely by referring to agreements with third parties unless a proven usage, habit, or uniform pattern of conduct justifies doing so.

Xavierville Estate, Inc. (XEI) owned a subdivision in Quezon City and sold many of its lots to The Overseas Bank of Manila (OBM) in 1967, but continued selling residential lots as OBM’s agent. In 1972, XEI’s president, Emerito Ramos, Jr., owed Carlos Manalo, Jr. ₱34,887.66 for the installation of a water pump. Manalo proposed to use the debt as part of the downpayment for two lots in the subdivision. XEI agreed. By letter dated August 22, 1972, XEI confirmed the reservation of Lots 1 and 2, Block 2 (total area 1,740.3 sq m) at ₱200.00 per square meter, or ₱348,060.00 total, with a 20% downpayment of ₱69,612.00, less the ₱34,887.66 owed by Ramos. The letter stated that upon resumption of selling operations, the Manalos must pay the balance of the downpayment and “sign the corresponding Contract of Conditional Sale” on or before December 31, 1972, or within five days from written notice of resumption. The spouses took possession, built a house, and installed a fence. XEI later resumed selling but no contract of conditional sale was transmitted to the Manalos, and they did not pay the remaining downpayment or any installment on the balance of the purchase price. Over the years, ownership passed from OBM to Commercial Bank of Manila (later renamed Boston Bank of the Philippines). The bank, after demands to vacate went unheeded, filed an unlawful detainer suit. The Manalos then filed the instant complaint for specific performance to compel the bank to execute a deed of absolute sale.

• The Initial Agreement: In 1972, XEI president Emerito Ramos, Jr. owed Carlos Manalo, Jr. ₱34,887.66 for drilling and pump installation work. Manalo proposed to use this debt as part of the downpayment for two lots in the Xavierville subdivision. XEI agreed and requested Manalo to choose the lots so that the price and terms could be fixed in a conditional sale. The Manalos selected Lots 1 and 2 of Block 2, totaling 1,740.3 square meters.

• The August 22, 1972 Letter-Agreement: XEI’s letter to Perla Manalo confirmed the reservation, fixed the price at ₱200.00 per square meter (total ₱348,060.00), and provided for a 20% downpayment of ₱69,612.00, with the ₱34,887.66 owing from Ramos credited as part thereof. The balance of the downpayment (₱34,724.34) was to be paid, and the “corresponding Contract of Conditional Sale” was to be signed, on or before December 31, 1972, or within five days from written notice of XEI’s resumption of selling operations if resumption occurred after that date. The letter did not specify the schedule or manner of payment of the 80% balance of the purchase price (₱278,448.00); it merely stated that a contract of conditional sale would later be executed. Perla Manalo signified her conformity.

• Entry into Possession and Construction: The spouses took possession on September 2, 1972, constructed a house worth about ₱2,000,000.00, and enclosed the perimeter with a fence.

• Failure to Consummate: XEI resumed selling operations and notified the Manalos. Despite notice, the Manalos did not pay the balance of the downpayment, asserting that Ramos had not prepared the contract of conditional sale for their signature. Perla Manalo requested deferment of payment; XEI rejected the request and sent statements of account reflecting unpaid interests on the downpayment balance and on the full purchase price.

• Subsequent Correspondence: On April 6, 1974, Carlos Manalo, Jr. wrote XEI denying any agreement on interest and demanding the transmittal of a deed of conditional sale. XEI did not comply. The Manalos never paid the balance of the downpayment or any installment on the principal.

• Change of Ownership and Demands: XEI turned over its selling operations to OBM, which had previously acquired the lots. OBM warned Manalo about a prohibited business sign and later demanded removal. On December 5, 1979, TCTs were issued in OBM’s name. The properties eventually passed to Commercial Bank of Manila (CBM), which was renamed Boston Bank of the Philippines. CBM wrote to the Manalos in 1986 demanding they cease construction and vacate, claiming ownership. The Manalos promised to furnish documents proving a contract to purchase but failed to do so. CBM filed an unlawful detainer case in the Metropolitan Trial Court in 1987. During that case, the Manalos offered to pay ₱313,172.34 based on the original agreement; the bank proposed a new price of ₱1,500.00 per square meter. The Manalos rejected the counter-proposal, and the bank eventually withdrew its ejectment complaint.

• The Specific Performance Suit: On October 31, 1989, the Manalos filed a complaint for specific performance and damages in the RTC, alleging they had always been ready, able, and willing to pay the installments but that no contract of conditional sale was forthcoming. They prayed that, upon payment of ₱313,172.34, the bank be ordered to execute a deed of absolute sale free of liens, plus moral and exemplary damages and attorney’s fees. The bank answered that the August 22, 1972 letter was not binding on it and that no contract to sell had ever been perfected.

• Evidence at Trial: The Manalos introduced three conditional contracts of sale executed by XEI with other lot buyers (Soller, Aguila, and Roque) to show that XEI continued selling as OBM’s agent after OBM acquired the lots. Those contracts provided for payment of the balance in 120 or 180 monthly installments. No evidence was presented that the Manalos and XEI had agreed to adopt the same installment terms, nor was any usage or uniform practice pleaded or proven. The bank presented evidence that it considered the lots unsold and that the Manalos had never completed the downpayment.

• No Perfected Contract to Sell: Petitioner argued that the August 22, 1972 letter contained only a reservation and that the essential element of the manner of payment of the balance of the purchase price was left for future agreement. Because the parties never agreed on the schedule of installments or other material terms, no perfected contract to sell arose. The mere fixing of the price and downpayment, without an agreed mode of payment of the balance, rendered the transaction unenforceable.

• Court of Appeals Erred in Supplying Missing Terms: Petitioner maintained that the CA had no basis to impose a 120-month installment schedule with 12% pre-computed interest by borrowing terms from contracts XEI executed with third parties. Doing so violated the parties’ freedom to contract and amounted to making a contract for them. The evidence of other lot buyers’ contracts was offered only to prove that XEI continued selling as OBM’s agent, not to establish a uniform usage or pattern of conduct applicable to the Manalos.

• Non-Applicability of Republic Act No. 6552: Petitioner contended that the Maceda Law applies only to perfected contracts to sell, not to a transaction where no binding agreement was ever formed and where the buyers had not made any installment payments on the principal.

• Rescission or Cancellation Was Effected: Even assuming a contract existed, petitioner argued that its August 5, 1986 letter demanding the Manalos vacate and the subsequent ejectment complaint constituted sufficient demand for rescission or cancellation, satisfying legal requirements.

• Laches: Petitioner asserted that the Manalos’ claim was barred by laches because, despite repeated demands, they failed to pay the balance of the downpayment—let alone the full purchase price—for many years while enjoying possession of the property without paying a centavo.

• Contract Perfected Despite Unsettled Payment Terms: Respondents argued that as long as there is a meeting of the minds on the price, a contract of sale is valid even if the manner of payment is not fixed; in such a case, the balance becomes payable on demand under Article 1169 of the New Civil Code. They relied on Buenaventura v. Court of Appeals for the proposition that agreement on the manner of payment is not a prerequisite to a valid contract to sell.

• Payment Terms Inferable from Other Contracts: Respondents maintained that the letter agreement and subsequent correspondence indicated that the terms of payment would be the same as those in the uniform conditional sale contracts used by XEI with other subdivision lot buyers—120 equal monthly installments inclusive of pre-computed interest. They contended that XEI, as a real estate broker, knew these were the standard terms and that the reference in the letter to the “corresponding Contract of Conditional Sale” incorporated those uniform terms by implication.

• Estoppel of Petitioner: Respondents argued that the bank and its predecessors-in-interest admitted in various letters that the Manalos were lot buyers on installment, and that CBM even referred to Manalo as a “homeowner” in the subdivision. Having adopted the position that a conditional sale existed, the bank was estopped from denying the contract’s perfection.

• Factual Issues Not Proper: Respondents maintained that the issues raised by petitioner were factual and could not be entertained in a petition for review on certiorari under Rule 45, especially since the trial and appellate courts had uniformly found a perfected contract to sell.

• Propriety of Factual Issues: Whether the factual issues raised by petitioner are proper in a petition for review on certiorari under Rule 45 of the Rules of Court.

• Existence of a Perfected Contract to Sell: Whether the letter agreement of August 22, 1972 and the parties’ subsequent conduct gave rise to a perfected and enforceable contract to sell over Lots 1 and 2 of Block 2.

• Estoppel: Whether petitioner is estopped from denying the existence of a perfected contract to sell.

• Cause of Action for Specific Performance: Whether respondents have a cause of action for specific performance against petitioner.

• Propriety of Factual Issues: Factual issues may be considered by the Supreme Court when the findings of the Court of Appeals are contrary to law, not supported by evidence, or grounded on misapprehension of facts. The issue of whether XEI or OBM and the Manalos had perfected a contract to sell was raised in the trial court and appellate court, and the CA’s ruling that a contract existed despite the parties’ failure to agree on the schedule of payment constituted plain error warranting review.

• Existence of a Perfected Contract to Sell: No perfected contract to sell was formed. Article 1458 of the New Civil Code requires not only agreement on the object and the price but also a definite agreement on the manner of payment of the purchase price; the manner of payment goes into the price, such that a disagreement on it is tantamount to a failure to agree on the price. The August 22, 1972 letter fixed the total price, the downpayment, and the deadline for the downpayment balance, but expressly left the terms of payment of the ₱278,448.00 balance—as well as all other substantial terms and conditions—to a future “corresponding Contract of Conditional Sale” to be signed later. No such contract was ever executed, and no subsequent agreement on the installment schedule was ever reached. Where a material element of a contemplated contract is reserved for future negotiation, the agreement is too indefinite to be enforceable; no legal obligation arises until such future agreement is concluded. The Court of Appeals erred in supplying the missing terms by referring to the conditional sale contracts XEI executed with other lot buyers in the subdivision. Those contracts were admitted solely to show that XEI continued selling as agent of OBM, not to establish a uniform usage or habit. Evidence of similar acts is inadmissible to prove that one did the same thing at another time (Section 34, Rule 130). No foundation was laid to prove a binding usage, habit, or pattern of conduct of XEI that would permit the court to read the missing terms into the parties’ agreement. Courts cannot create a contract for the parties or supply material stipulations the parties themselves left open.

• Estoppel: Petitioner is not estopped from denying the existence of a perfected contract. While the bank’s predecessors referred to the Manalos as lot buyers and even mentioned a purchase “on installment basis,” none of those references cured the fundamental defect: the absence of a definite agreement on the manner of payment. Estoppel cannot supply an essential element that was never agreed upon.

• Cause of Action for Specific Performance: Since no perfected contract to sell ever came into existence, the Manalos had no cause of action for specific performance. Republic Act No. 6552 applies only to perfected contracts to sell, not to a transaction that failed to attain binding effect. The failure to agree on the essential terms of payment meant there was no contract to rescind or enforce.

• Essential Element of Manner of Payment — A definite agreement on the manner of payment of the purchase price is an essential element of a perfected contract of sale or contract to sell. The manner of payment goes into the price; a disagreement on it is equivalent to a failure to agree on the price itself. Even if the parties agree on the total price and downpayment, the absence of an agreed schedule for the balance renders the contract incomplete and unenforceable.

• Incompleteness of Contract Reserving Essential Terms for Future Agreement — If a material element of a contemplated contract is left for future negotiation, the same is too indefinite to be enforceable. When an essential element is reserved for future agreement, no legal obligation arises until that agreement is concluded. The contract lacks the necessary qualities of definiteness, certainty, and mutuality.

• Courts May Not Supply Missing Essential Terms — Courts cannot undertake to make a contract for the parties or enforce one whose terms are in doubt. It is not the province of a court to alter a contract by construction or to make a new contract; its duty is confined to interpreting the one the parties have made, without supplying material stipulations or reading words the contract does not contain. Where the manner of payment is left open, the court cannot unilaterally impose terms borrowed from third-party contracts.

• Admissibility of Similar Acts to Prove Habit or Usage (Section 34, Rule 130) — Evidence that one did a certain thing at one time is not admissible to prove that he did the same or a similar thing at another time. Such evidence may be received to prove habit, custom, usage, pattern of conduct, or specific intent, but only when the offering party establishes a degree of specificity, frequency, and uniformity of response that ensures more than a mere tendency to act in a given manner. Adequacy of sampling and uniformity of response are the key criteria. The burden to plead and prove the existence of a binding usage or pattern of conduct lies on the party seeking to rely on it.

• Applicability of Republic Act No. 6552 (Maceda Law) — Republic Act No. 6552 applies only to a perfected contract to sell. It does not govern transactions that never attained juridical binding effect due to lack of essential agreement.

• “A definite agreement as to the price is an essential element of a binding agreement to sell personal or real property because it seriously affects the rights and obligations of the parties. … It is not enough for the parties to agree on the price of the property. The parties must also agree on the manner of payment of the price of the property to give rise to a binding and enforceable contract of sale or contract to sell. This is so because the agreement as to the manner of payment goes into the price, such that a disagreement on the manner of payment is tantamount to a failure to agree on the price.”

• “[I]f a material element of a contemplated contract is left for future negotiations, the same is too indefinite to be enforceable. And when an essential element of a contract is reserved for future agreement of the parties, no legal obligation arises until such future agreement is concluded. … The reason is that such a contract is lacking in the necessary qualities of definiteness, certainty and mutuality.”

• “Courts should not undertake to make a contract for the parties, nor can it enforce one, the terms of which are in doubt. … it is not the province of a court to alter a contract by construction or to make a new contract for the parties; its duty is confined to the interpretation of the one which they have made for themselves, without regard to its wisdom or folly, as the court cannot supply material stipulations or read into contract words which it does not contain.”

• “The bare fact that other lot buyers were allowed to pay the balance of the purchase price … in 120 or 180 monthly installments does not constitute evidence that XEI also agreed to give the respondents the same mode and timeline of payment ….”

• Velasco v. Court of Appeals, 151-A Phil. 868 (1973) — Followed. It established that a definite agreement on the manner of payment is an essential element of a binding and enforceable contract of sale; a partial downpayment does not perfect the sale if the terms of payment are still to be mutually covenanted.

• Buenaventura v. Court of Appeals, G.R. No. 126376, November 20, 2003 — Distinguished. The issue of the manner of payment was not raised in that case, so its holding could not support respondents’ argument that agreement on the manner of payment is unnecessary.

• Mitsui Bussan Kaisha v. Manila Electric Railroad and Light Company, 39 Phil. 624 (1919) — Distinguished. In that case, the contract provided a method for adjusting the price. Here, the parties did not fix any method or mode for determining the terms of payment of the balance.

• Chua v. Court of Appeals, 361 Phil. 308 (1999) — Followed. Reiterated the rule that courts cannot alter a contract or supply material stipulations.

• San Miguel Properties Philippines, Inc. v. Huang, 391 Phil. 636 (2000); Montecillo v. Reynes, 434 Phil. 456 (2002); Co v. Court of Appeals, 349 Phil. 749 (1998); Uraca v. Court of Appeals, 344 Phil. 253 (1997); Toyota Car, Inc. v. Court of Appeals, 314 Phil. 201 (1995) — Cited collectively as support for the rule that the manner of payment is an essential element whose absence prevents perfection.

• Article 1458, New Civil Code — Defines a contract of sale; requires a determinate thing and a price certain in money or its equivalent. The Court used this to underscore that both the thing and the price—including its manner of payment—must be definitively agreed upon.

• Article 1469, New Civil Code — The price may be considered certain if it is determinable by reference to another thing certain or by stipulations in the contract. The Court held that the August 22, 1972 letter contained no reference to any external criterion for determining the manner of payment, thus the price was not “certain” in the sense required for a perfected sale.

• Article 1473, New Civil Code — A price fixed by one party, if accepted by the other, gives rise to a perfected sale. This was noted but found inapplicable because no price—much less a payment scheme—was unilaterally fixed and accepted.

• Section 34, Rule 130 of the Revised Rules of Court — Provides that evidence of similar acts is not admissible to prove that a person did the same thing at another time, although it may be received to prove habit, custom, usage, or pattern of conduct. The Court applied this to exclude the inference that the Manalos’ payment terms would mirror those granted to other lot buyers.

• Republic Act No. 6552 (Maceda Law) — Protects buyers of real estate on installment payments. The Court clarified that it applies only to perfected contracts to sell, not to an unperfected transaction.

Chief Justice Artemio V. Panganiban (Chairperson), Associate Justice Consuelo Ynares-Santiago, Associate Justice Ma. Alicia Austria-Martinez, and Associate Justice Minita V. Chico-Nazario concurred.