When Is a Contract of Sale Perfected? Lessons from Villanueva v. PNB

The Supreme Court’s 2006 decision in Villanueva v. Philippine National Bank (G.R. No. 154493) offers a clear lesson on a question that arises in countless property transactions: when exactly does a contract of sale become binding? The case involved a buyer who paid hundreds of thousands of pesos toward a property, only to have the bank back out and sell the lot through a new bidding. The buyer sued for specific performance, but the Court ruled against him—because, under the law of contracts, the parties never actually agreed on all the essential terms.

The Facts of the Case

In 1989, the Philippine National Bank (PNB) advertised several acquired properties for sale through public bidding, including Lot No. 19 in General Santos City. The bidding period lapsed without a sale. In June 1990, Reynaldo Villanueva wrote to PNB offering to buy two lots for P3,677,000.00. PNB replied that only Lot No. 19 was available, at a price of P2,883,300.00, and stated that any sale would be subject to approval by the bank’s Board of Directors.

Villanueva signed his conformity to the price but added a new term: a downpayment of P600,000.00, with the balance payable over two years in quarterly amortizations. He paid P580,000.00, which PNB received as a deposit. Later, however, PNB’s Board ordered a reappraisal and public bidding of the property, returning Villanueva’s deposit. Villanueva sued for specific performance, arguing that a contract had been perfected when PNB accepted his payments.

The Legal Issue

The central question was whether a perfected contract of sale existed between Villanueva and PNB. Under the Civil Code, a contract is perfected when there is consent—meaning an offer that is certain as to the object and price, met by an acceptance that is absolute and unconditional.

The Ruling: No Perfected Contract

The Supreme Court ruled that no contract of sale was ever perfected. The reasoning is instructive:

First, PNB’s July 6, 1990 letter was not an acceptance of Villanueva’s original offer. It was a counter-offer, because it changed the object (only one lot instead of two) and the price.

Second, Villanueva’s July 11, 1990 conformity was itself a further counter-offer. While he agreed to the quoted price, he introduced a new term—the two-year payment schedule—that had never been discussed. Under the Civil Code, an acceptance that varies the terms of an offer is not an acceptance at all; it is a new proposal that must itself be accepted.

Third, PNB never accepted this final counter-offer. Its Board of Directors ordered a reappraisal, which the Court treated as a clear repudiation of Villanueva’s proposal.

The "Earnest Money" Argument Fails

Villanueva argued that PNB’s acceptance of his P580,000.00 payment constituted acceptance of his counter-offer, citing the Civil Code provision on earnest money, which states that earnest money given in a contract of sale is considered part of the price and proof of the perfection of the contract. The exact text of Article 1482 is not reproduced in the library consulted for this article, but the principle it embodies is well established.

The Court rejected this argument on two grounds. First, the PNB branches that received the payments had no authority to bind the bank to a sale; the parties had always understood that any sale required Board approval. Second, the receipts and Villanueva’s own letters described the payments as mere deposits to show sincerity, to be returned if the offer was not accepted. They were not earnest money, and their acceptance did not imply a perfected contract.

Practical Takeaways

• An acceptance that changes any material term—such as the payment schedule—is legally a counter-offer, not an acceptance. It does not create a contract unless the other party accepts it.
• A deposit is not the same as earnest money. If a payment is labeled a deposit, refundable if the offer is not accepted, it does not signal a perfected sale.
• Always check who has authority to bind a corporation. Payments accepted by a branch or department may not bind the company if the transaction requires board approval.
• Get the full agreement in writing. If both the price and the payment terms are not agreed upon in a single, clear document, there may be no enforceable contract.

This article is general information and not legal advice. For your specific situation, consult a lawyer or ask ASG Legal AI.