XYST CORPORATION vs. DMC URBAN PROPERTIES DEVELOPMENT INC., FE AURORA C. CASTRO, Intervenor GR No.

171968, July 31, 2009 Petition for Review QUISUMBING, J.: FACTS: DMC Urban Properties Development, Inc (hereinafter DMC) and Citibank N.A. entered into an agreement whereby the former would take part in the construction of Citibank Tower. The said agreement allocated in favour of DMC the 18th floor of the building with the condition that DMC shall not transfer any portion of the floor or rights or interests thereto prior to the completion of the building without the written consent of Citibank N.A. Later, DMC, through intervenor Fe Aurora Castro, found a prospective buyer, Saint Agen Et Fils Limited (hereinafter SAEFL), which is a foreign corporation represented by one William Seitz. This was done despite the fact that construction was not yet completed. In a letter dated September 14, 1994, SAEFL accepted DMCs offer to sell. The letter included a property description and terms of payment. In September 16, 1994, SAEFL sent a letter obliging DMC to cause Citibank N.A. to give its consent and enter into a contract to sell with SAEFL. Seitz was informed that the 18th floor is not available for foreign acquisition and so XYST Corporation (hereinafter XYST), a domestic corporation and where Seitz is a director and shareholder was substituted. XYST then paid reservation fee but was later advised by DMC that the signing of the formal contract will not take place since Citibank N.A. opted to exercise its right of first refusal. XYST and DMC agreed that if Citibank N.A. fails to purchase the 18th floor on the agreed date, the same should be sold to XYST. Citibank N.A. did not exercise its right of first refusal but it reminded DMC that the sale of the floor must be consistent with the documents adopted by the co-founders of the project. Hence a copy of a pro-forma Contract to Sell was given to DMC and a copy of this was forwarded to XYST. XYST made amendments to the pro-forma contract and was allowed by DMC to directly negotiate with Citibank N.A. to facilitate the transaction. But Citibank N.A. refused to concur with the changes imposed by XYST hence DMC decided to call off the deal and returned the reservation fee of P1,000,000.00 to XYST. A complaint was filed in the RTC by XYST for specific performance but this was dismissed. A motion for reconsideration was filed but was likewise denied. Hence, the instant petition in the Supreme Court. ISSUES: HELD: Whether there is a perfected contract between DMC and XYST. No contract was perfected, petition DENIED

RATIO: XYST argues that there exists a perfected contract of sale between the parties. This was perfected from the moment there was a meeting of the minds upon the thing which is the object of the contract and upon the price as manifested by the Sept 14, 1994 letter. Further, XYST contends that the P1,000,000.00 reservation fee it pad is actually in the nature of earnest money or down payment and shall be considered part of the price and proof of perfection of contract. On the other hand, DMC insists that a contract to sell was entered into by the parties. In contract to sell, the element of consent is lacking and since the acceptance by XYST is not absolute, no contract of sale existed between the parties. It claims that the terms, conditions, and amendments which XYST tried to impose were proof of qualified acceptance. Supreme Court found the petition of XYST bereft of merit.

Firstly, XYST and DMC were still in the negotiation stage when the latter called off the deal. There are three stages to a contract: (1) preparation or negotiation, (2) perfection, and (3) consummation. Thus, negotiation begins from the time the prospective contracting parties manifest their interest in the contract and ends at the moment of agreement of the parties. The perfection or birth of the contract takes place when the parties agree upon the essential elements of the contract. The last stage is the consummation of the contract wherein the parties fulfil or perform the terms agreed upon in the contract, culminating in the extinguishment thereof. Citibank N.A.s consent to the intended sale cannot be obtained since it did not conform to the amendments introduced by XYST to the pro-forma contract. There was only an offer and a counter-offer that did not sum up to a final arrangement and no meeting of the minds was established. Therefore, since the element of consent is absent, there is no contract to speak of. Where the parties merely exchanged offers and counter-offers, no agreement or contract is perfected. Second, on holding that the P1,000,000.00 reservation fee is not earnest money, the Court reasoned that earnest money applies (only) to perfected sale. In this case, no contract was perfected since consent was lacking.