Limits of acknowledgment receipts
It is common practice in the sale of real property that involves a series of payments before its title is transferred to the buyer for a downpayment to be covered by an acknowledgment receipt (AR).
Under ordinary circumstances, the AR represents the initial arrangement of the parties on the sale of the property ahead of the signing of a deed of sale and payment of the purchase price.
Depending on its wording, the AR may be considered a contract to sell (or promise to sell) or a contract of sale, which transfers title over the property to the buyer if all the conditions for the sale are met by the parties.
Precision in the preparation of the AR to ensure the accurate reflection of the intention of the parties is at the crux of the recent decision of the Supreme Court in the case of “Chavez vs. Gopez.”
The case involved the sale of two parcels of land by the heirs of the deceased owner to the buyer on condition that the latter, among others, shall handle the settlement of the estate of the deceased, the preparation of the contract of sale and the transfer of the title of the properties to the heirs.
Once those conditions are complied with, they shall enter into a contract of sale. Ahead of those incidents, the buyer gave a downpayment and the AR for that amount read, in substance, as follows: “This is to acknowledge receipt [of] Check No. xxxx, amounting to xxxx as earnest money for the purchase of property located at xxxx for the amount of xxxx with TCT No. xxxx , Contract to Sell, Deed of Absolute Sale & Extrajudicial Settlement of Estate.”
Claiming that the AR should be treated as a contract of sale and that the buyer had failed to meet certain commitments to them, the heirs sought the cancellation of the sale. The buyer countered that the AR partakes the nature of a contract to sell, which the heirs have to honor as per their earlier agreement.
The court ruled the subject AR is a contract to sell because the “… limited statement in the Acknowledgment Receipt suggests that the parties agreed only to draft the preparatory documents to be used in affecting the sale.
“Hence, the agreement pertained to did not contemplate a transfer of ownership yet. These documents would still have to be reviewed, accepted and signed by both parties before they could effect the sale and transfer of the properties.”
Did the mention of “earnest money” in the AR give it the attributes of a contract of sale?
No. The court said, “Although earnest money is usually given in a perfected Contracts of Sale, it may also be given in a Contract to Sell.
“The payment of an earnest money represents the seller’s opportunity cost of not entertaining other buyers or better deals. It is meant as a gesture to assure the other party of one’s willingness to go through with the sale after a specified period or upon compliance with the conditions stated in the Contract to Sell.”
With that explanation, the court allowed the heirs to pull back from their earlier agreement to sell the property and return the downpayment made by the buyer.
This ruling is instructive on the proper wording of ARs that involve downpayment or payment of earnest money in the sale of property to avoid possible conflict in interpretation of the intent of the parties in the future in case things later turn out badly between them.
This is addressed to the often cursory or nonchalant way that some ARs are prepared in the belief that earlier verbal arrangements regarding the sale would be remembered and honored.
Thus, if the downpayment is meant to form part of the purchase price in the contract of sale, that matter should be clearly stated in the AR. The buyer’s signature in the AR constitutes its express agreement to the manner by which that payment should be treated.
Note that the party who prepares the AR is presumed to know the meaning and substance of its contents and so it cannot later claim something different from what can be plainly read and understood in the AR.
