Xyst Corporation vs. DMC Urban Properties Development Inc.

A contract of sale is not perfected where acceptance is qualified by the introduction of new terms; such acceptance constitutes a counter-offer that effectively rejects the original offer and precludes the concurrence of consent required under Article 1319 of the Civil Code. A reservation fee paid during the negotiation stage of a contract does not qualify as earnest money absent a perfected sale.

DMC Urban Properties Development, Inc. was allocated the 18th floor of the Citibank Tower, an office condominium building in Makati City, under an agreement with Citibank N.A. The allocation was subject to a restriction: DMC could not transfer any portion of the floor or rights thereto prior to the building’s completion without Citibank’s written consent. DMC subsequently gave selling authority to brokers, including intervenor Fe Aurora Castro, who found a prospective buyer, Saint Agen Et Fils Limited (SAEFL), a foreign corporation. SAEFL later decided to use XYST Corporation, a domestic corporation where William Seitz served as director and shareholder, as the purchasing entity. The entire transaction was conditioned upon Citibank’s consent and conformity to the sale documentation.

• The Offer and Initial Acceptance: SAEFL, through William Seitz, accepted DMC’s offer to sell the 18th floor of Citibank Tower in a letter dated September 14, 1994. The letter specified the property description, total price of ₱99,831,000.00, payment terms including a ₱1,000,000.00 reservation fee, and allocation of taxes. On September 16, 1994, SAEFL sent another letter obliging DMC to cause Citibank N.A. to enter into a Contract to Sell with SAEFL as an additional condition to the reservation fee.
• Substitution of Buyer and Reservation Fee: Seitz later informed DMC that the 18th floor was not available for foreign acquisition and that XYST Corporation, a domestic corporation where he was a director and shareholder, would purchase the property instead. XYST paid the ₱1,000,000.00 reservation fee. DMC advised XYST that formal signing would not proceed because Citibank N.A. was considering exercising its right of first refusal; the parties agreed that should Citibank fail to purchase, the floor would be sold to XYST.
• Citibank’s Refusal and Pro-Forma Contract: Citibank N.A. did not exercise its right of first refusal but reminded DMC that any sale must be consistent with the project’s adopted documents. A pro-forma Contract to Sell was provided by Citibank N.A., and DMC forwarded a copy to XYST. DMC undertook to obtain Citibank’s conformity to the intended sale.
• Proposed Amendments and Counter-Offer: XYST wanted amendments to the pro-forma Contract to Sell. DMC encountered problems securing Citibank’s acceptance of these amendments. Despite direct negotiations between XYST and Citibank N.A., Citibank refused to concur with the amendments XYST imposed.
• Termination of Transaction: Unable to secure Citibank’s consent to the amended terms, DMC decided to call off the deal and returned the ₱1,000,000.00 reservation fee to XYST.

• Perfected Contract of Sale: Petitioner argued that the September 14, 1994 letter and the payment of the ₱1,000,000.00 reservation fee manifested a meeting of the minds upon the object and price, thereby perfecting a contract of sale from which the parties could reciprocally demand performance.
• Earnest Money: Petitioner maintained that the reservation fee paid was in the nature of earnest money or a down payment, constituting part of the purchase price and proof of the contract’s perfection.

• No Perfected Contract: Respondent countered that only a contract to sell was contemplated and that the essential element of consent was absent because XYST’s acceptance was not absolute. The amendments XYST proposed on the pro-forma contract constituted a qualified acceptance, which operated as a counter-offer that DMC did not accept.
• No Earnest Money: Respondent argued that the reservation fee could not be considered earnest money as no contract of sale was ever perfected.

• Perfection of Contract: Whether a perfected contract of sale existed between XYST and DMC, such that DMC could be compelled to perform its alleged obligation.
• Attorney’s Fees for Respondent: Whether the trial court correctly awarded attorney’s fees to DMC under Article 2208 of the Civil Code.

• Perfection of Contract: No perfected contract of sale was formed. Under Article 1319 of the Civil Code, acceptance must be absolute to manifest consent; a qualified acceptance constitutes a counter-offer and effectively rejects the original offer. By introducing amendments to the pro-forma Contract to Sell, XYST made a counter-offer that DMC did not accept. The parties thus remained in the negotiation stage, having exchanged only an offer and a counter-offer without arriving at a final arrangement containing all essential elements. The concurrence of offer and acceptance required for consent never materialized. Consequently, the ₱1,000,000.00 reservation fee could not be characterized as earnest money, which applies only to a perfected sale.
• Attorney’s Fees for Respondent: The award of attorney’s fees to DMC was improper and was deleted. None of the circumstances enumerated under Article 2208 of the Civil Code for the recovery of attorney’s fees in the absence of a stipulation were present.

• Qualified Acceptance as Counter-Offer — Under Article 1319 of the Civil Code, acceptance must be absolute; a qualified acceptance constitutes a counter-offer, which has the effect of rejecting the original offer and prevents the perfection of a contract. The exchange of offer and counter-offer without a final meeting of the minds leaves the parties in the negotiation stage.
• Stages of a Contract — A contract passes through three stages: negotiation, perfection, and consummation. Perfection occurs only when parties agree upon the essential elements; if details beyond the subject matter and consideration remain to be stipulated, the negotiation stage has not been concluded and no contract is perfected.
• Earnest Money — Earnest money is a feature of a perfected sale. A reservation fee paid while the parties are still in the negotiation stage does not prove the perfection of a contract and cannot be considered earnest money.

• “The essence of consent is the conformity of the parties on the terms of the contract, that is, the acceptance by one of the offer made by the other. However, the acceptance must be absolute; otherwise, the same constitutes a counter-offer and has the effect of rejecting the offer.”
• “Where the parties merely exchanged offers and counter-offers, no agreement or contract is perfected.”

• Insular Life Assurance Company, Ltd. v. Asset Builders Corporation, G.R. No. 147410, February 5, 2004, 422 SCRA 148 — Cited as authority on the requirement that acceptance be absolute and that no contract is perfected where matters beyond object and consideration remain to be stipulated.
• Gateway Electronics Corporation v. Land Bank of the Philippines, G.R. Nos. 155217 and 156393, July 30, 2003, 407 SCRA 454 — Cited for the three stages of a contract (negotiation, perfection, consummation) and the rule that perfection occurs only upon agreement on essential elements.
• Salonga v. Farrales, No. L-47088, July 10, 1981, 105 SCRA 359 — Cited for the definition of the essence of consent as the conformity of the parties on the contract’s terms.

• Article 1315, Civil Code — Establishes that contracts are perfected by mere consent. Applied as the starting principle for determining whether a binding contract existed.
• Article 1319, Civil Code — Provides that consent is manifested by the meeting of the offer and acceptance upon the thing and the cause; acceptance must be absolute, and a qualified acceptance constitutes a counter-offer. Applied to hold that XYST’s amendments were a counter-offer that prevented perfection.
• Article 2208, Civil Code — Enumerates the exclusive grounds for recovery of attorney’s fees absent a stipulation. Applied to delete the award of attorney’s fees to DMC, as none of the grounds were present.

Justices Conchita Carpio Morales, Minita V. Chico-Nazario, Teresita J. Leonardo-De Castro, and Diosdado M. Peralta concurred. No separate concurring opinions were registered.