ESSENTIAL REQUISITES OF THE CONTRACT

OF SALE

III. PRICE and OTHER CONSIDERATION

Arts. 1469 to 1474

Intro:
By Definition under 1458, the ideal consideration for a
consideration for contract of sale would be “PRICE” as a “sum certain in
MONEY or its equivalent”

PRICE
- Signifies the sum stipulated as the equivalent of the thing sold
AND ALSO every incident taken into consideration for the
fixing of the price put to the debit of the buyer and agreed to
by him .
- Since price has been stipulated upon at the beginning of the contract ,
the seller cannot unilaterally increase the price previously agreed upon ,
even if there is a need to increase the price due to factors not yet
present when the price was agreed upon. Otherwise it would be a
violation of the essential characteristic of “obligatory force” of contracts
of sale.

Question?: is it possible that a “sale” may still be valid when it has for
its consideration an item other than price?

Answer : YES

Explanation :

“ Consideration, more properly denominated as cause can

take different forms, such as the prestation or promise of a
thing or service by another. Therefore, it would be valid for
sale of the subject matter to have for its consideration the
expectation of profits….” ( Torres vs CA 320 SCRA 428)
 In other words, the usual or defined consideration for a sale
is PRICE, but that a contract of sale may still validly exist and
therefore be governed by the Law on Sales , when it is
supported by other valuable consideration.

The concept of “contract of sale” in effect is a “catch-

all” provision which effectively brings into its grasp a whole
gamut (array, scale, range, scope) of transfers whereby ownership
of a thing is ceded (surrendered, relinquished, given up) for a
consideration.

REQUISITES OF A VALID PRICE

The price or consideration of a contract of sale must have
the following requisites AT THE TIME OF PERFECTION of the sale:

(1)It must be REAL

(2)It must be in MONEY or ITS EQUIVALENT (ie. It must be
VALUABLE CONSIDERATION)
(3)It must be CERTAIN or ASCERTAINABLE

Reason for these requisites:

- to preserve the INTEGRITY and ENFORCEABILITY of the underlying
obligation of the buyer to pay.
- promotes the onerous, commutative and bilateral-reciprocal
characteristic of the contract of sale.

I. THE PRICE MUST BE REAL

Since a contract of sale is an onerous and commutative contract, it is
essential that consideration agreed upon must be real.

a. When is PRICE REAL?

- A price is “real” when at the perfection of the sale, there is LEGAL
INTENTION on the part of the BUYER to pay the price, and a LEGAL
EXPECTATION on the part of the SELLER to receive such price as the
value of the subject matter he obligates himself to deliver.
Case : Penalosa vs Santos (363 SCRA 451)

b. When is PRICE SIMULATED?

Art. 1471. If the price is simulated, the sale is void, but the act may be shown to
have been in reality a donation, or some other act or contract.
 - Price is “simulated” when neither of the Party to the deed of Sale has
any intention whatsoever for the said price to be paid .
- It boils down to contract INTENT – that is at the time of perfection the
parties have no intent to pay and to receive the price stipulated therein.
- The sale is VOID for lack of consideration
- Although the act may have been shown to have been in reality a
donation or some other contract

Q: so if the sale is VOID what are its effects? (because simulated nga)
A: (1) The parties may recover from each other what they may have given
under the contract.
(2) Delivery of a subject matter pursuant to a sale that is void for lack of
consideration therefore does not transfer ownership to buyer .

c. When is a price FALSE?

- Price is “false” when there is a real price upon which the minds of the
parties had met and be bound by it, but such price is not declared. What
is stated in the covering deed (ie. Deed of Sale) is not the one intended
to be paid.

Effect:

Contract of Sale is still VALID , but the underlying deed is subject to

REFORMATION to indicate the real price upon which the minds of the
parties have met.
Nevertheless, the parties may be held by the false price indicated in the
instrument under the principle of estoppel , specially when the interest
of the Government or of third parties would adversely be affected by
the reformation of the instrument.

d. Effect of failure to pay

Q: If the buyer fails to pay the price, is the sale still Valid:
A: Yes.

Sale being consensual, failure of buyer to pay the price does not make the
contract of sale void for lack of consideration or simulation , but results in buyers
default for which the seller may exercise his legal remedies
CASE: Balatbat vs CA 261 SCRA 128

The failure to pay the price or the balance thereof does not render the sale
inexistent or invalid but merely gives rise in favor of the seller to either demand
specific performance or rescission of the contract of sale
Remember earlier in our lessons we have said that In a Contract of Sale non payment of the Contract
Price is a resulotory condition that extinguishes the contract ,thus under oblicon unpaid seller can seek
his remedies under the law

Q: If the price for example is condoned, is the contract of sale still valid?
A: Yes
Because then price would not be fictitious . The failure to pay the price
does not cancel a sale for lack of consideration , for there is still a consideration.
The failure to pay the real price goes NOT into perfection of the sale but
into its CONSUMMATION.

II. IT MUST BE IN MONEY OR ITS EQUIVALENT (VALUABLE

CONSIDERATION)

Q: What if the price is not in money but services, will there still be a sale?
A: Yes.
Art. 1468. If the consideration of the contract consists partly in money, and partly
in another thing, the transaction shall be characterized by the manifest intention
of the parties. If such intention does not clearly appear, it shall be considered a
barter if the value of the thing given as a part of the consideration exceeds the
amount of the money or its equivalent; otherwise, it is a sale.

This shows that the consideration for a valid contract of Sale can be PRICE
AND (remember its AND not OR ha ) other ADDITIONAL consideration.

- The significance of the use of the term “price to be in money or its

equivalent” is for the law to demonstrate the ideal example of the
onerous nature of sales – that is that it should be supported by a
valuable consideration –
- MONEY – being the highest form or representation of commercial
value in society removes any doubt that of what is “valuable
consideration” and functions merely as the model of prestation,
cause or consideration that would promote the onerous nature of
a contract of Sale.
There is little doubt therefore that other forms of cause or
consideration which are “valuable” would support a valid contract
of sale.

Consideration for sale can take different forms, such as the prestation
or promise of a thing or service by another, thus:
• When deed provides that the consideration was the expected
profits from the subdivision project.
CASE: Torres v. Court of Appeals, 320 SCRA 428 (1999).
• Cancellation of liabilities on the property in favor of the seller.
CASE :Polytechnic University v.Court of Appeals, 368 SCRA 691 (2001).
• Assumption of mortgage constituted on the property sold.
 CASE :Doles v. Angeles, 492 SCRA 607

III. PRICE MUST BE CERTAIN OR ASCERTAINABLE AT PERFECTION .

Art. 1458. By the contract of sale one of the contracting parties

obligates himself to transfer the ownership and to deliver a
determinate thing, and the other to pay therefor a price certain in
money or its equivalent.

_ pay a “ price certain” - signifies the sum stipulated as the equivalent of

the thing sold and also every incident taken into consideration for the fixing
of the price put to the debit of the buyer and agreed to by him .

Q: When is a price Certain ?

A: When at the time of perfection, the parties have fixed or agreed

upon a definite amount (specific amount) in money or its equivalent
Art. 1473. The fixing of the price can never be left to the
discretion of one of the contracting parties. However, if the
price fixed by one of the parties is accepted by the
other, the sale is perfected

Art. 1475. The contract of sale is perfected at the moment there

is a meeting of minds upon the thing which is the object of the
contract and upon the price.

From that moment, the parties may reciprocally demand

performance, subject to the provisions of the law governing
the form of contracts

Q: How about when no specific amount has been set at perfection, can
price still be certain?

A: Yes. If no specific amount have been agreed upon, the price is still
certain in this case ascertainable as provided in 1469

Art. 1469. In order that the price may be considered certain,

it shall be sufficient that it be so with reference to another thing
certain, or that the determination thereof be left to the judgment of a
special person or persons.

Should such person or persons be unable or unwilling to fix it, the

contract shall be inefficacious, unless the parties subsequently
agree upon the price.

If the third person or persons acted in bad faith or by mistake, the

courts may fix the price.

Where such third person or persons are prevented from fixing the
price or terms by fault of the seller or the buyer, the party not in
 fault may have such remedies against the party in fault as are
allowed the seller or the buyer, as the case may be.

Thus:
(a) It be certain in reference to another thing certain;
(b) If the determination of the price is left to the judgment of a specified
person/s (third person) as appointed by parties at perfection

Exception:
a. When the third parties act in bad faith or by mistake as when the
third person fixed the price having in mind not the thing which is
the object of the sale but another analogous or similar thing, in
which case the court may fix the price
BUT!!!: A mere error in judgment cannot serve as a basis for
disregarding the price fixed;

b. When the third person disregarding the specific instruction or the

procedure laid down by the parties or the data given him, fixed an
arbitrary price

Q: What is the effect if the price was not fixed by the third person specified
by the parties?

A: (1) if the person designated by the parties to fix the price refuses or
cannot fix the price without fault on the part of the buyer or seller, the
contract shall become INEFFECTIVE, as no price has been agreed upon
unless of course, the parties subsequently agree upon a price.

(2) If such 3rd person is prevented from fixing the price by the fault of the
buyer or the seller , the party not in fault may obtain redress against the
party in fault which consist of :

i. rescission; or
ii. fulfilment
with damages in either case
(c ) if the innocent party choses fulfilment, the courts shall fix the price.

(d ) By reference to a definite day, particular exchange or market

Art. 1472. The price of securities, grain, liquids, and other things shall also
be considered certain, when the price fixed is that which the thing sold
would have on a definite day, or in a particular exchange or market, or
when an amount is fixed above or below the price on such day, or in such
exchange or market, provided said amount be certain.

(e) Certainty of the price can be ascertained in various ways but

remember under 1473:
 Art. 1473. The fixing of the price can never be left to the
discretion of one of the contracting parties. However, if
the price fixed by one of the parties is accepted by the other,
the sale is perfected

Q: What happens now if the price cannot be determined by:

(1) It being certain with reference to another thing certain

(2) Agreement of the parties
(3) Being left to the judgment of a specified person
(4) Court
(5) 1472 in the case of grains, securities etc.
(6) Any other means

A: (1) For Executory contracts..

Art. 1474. Where the price cannot be determined in

accordance with the preceding articles, or in any other
manner, the contract is inefficacious.

(2) For Executed Contracts (partially or otherwise)

However, if the thing or any part thereof has been delivered to

and appropriated by the buyer he must pay a reasonable price
therefor. What is a reasonable price is a question of fact
dependent on the circumstances of each particular case.

The reasonable price or value of goods is generally the MARKET PRICE at the time
and place fixed by the contract or law for the delivery of goods.
The sellers price however must be paid if the buyer knew how much the seller
was charging and there was acceptance of the goods delivered.

(f) Manner of Payment is ESSENTIAL

Although the Civil Code provisions governing contract of sale do not
explicitly require that a meeting of the minds of the parties must include the
terms or manner of payment of the price, the same is deemed to be an essential
ingredient before a valid and binding contract of sale can exist, since it is part of
the prestation of the contract, and without which there can be no valid sale, nor
an action for specific performance be made against the alleged seller.

Manner of payment of the price goes into the essence of what makes a
price certain or ascertainable

Manner and terms of payment of the price is an integral part of the concept
of “price” because of the time value of money. Meaning a seller may be willing to
accept a comparatively lower price for the object of sale if it is payable within a
short period of time ; and yet demanding a higher price if the purchase price were
to be paid over a long stretch of time.
Case: Bortikey vs AFP Retirements and Separation System 477 SCRA 511
Navarro v. Sugar Producers Corp 1 SCRA 1180

INADEQUACY IN PRICE

Effect of gross inadequacy of price

Q: It was mentioned that price is CERTAIN if parties agreed upon a definite

amount. What happens if the price agreed upon is grossly inadequate?

Article 1355. Except in cases specified by law, lesion or inadequacy of

cause shall not invalidate a contract, unless there has been fraud, mistake
or undue influence

Art. 1470. Gross inadequacy of price does not affect a contract of sale,
except as it may indicate a defect in the consent, or that the parties really
intended a donation or some other act or contract.

IN VOLUNTARY SALES
(1) General Rule:
Mere inadequacy of the price or alleged hardness of the bargain generally
do not affect the validity of the sale when both parties are in a position to
form an independent judgment concerning the transaction.
Case : Bautista vs CA 436 SCRA 141

(2) Where low price indicate defect in the consent

The inadequacy of the price, however may indicate a defect in the
consent such as when fraud, mistake or undue influence is present.
REMEDY: Contract may be ANNULLED – not because of the inadequacy of
the price but because of the vitiated consent.
(3) Where price is simulated or false such as when the vendor really intended to
transfer the thing gratuitously, then the sale is void but the contract shall be
valid as a donation, PROVIDED the requirements for donation have been
complied with kung wala din then everything is VOID.
(4) Bravo- Guerrero vs Bravo 465 SCRA 244

(5) Where the parties do not intend to be bound at all

If the contract is shown to be a donation or any other contract
transferring ownership because the parties do not intend to be bound at all,
the ownership of the thing is not transferred.
The contract is VOID and INEXISTENT
IN INVOLUNTARY OR EXECUTION SALES (judicial sales)

(1) General Rule – gross inadequacy of the price is not a sufficient ground for
the cancellation of an execution sale

Execution Sale- it is one made by a court with respect to the

property of a debtor for the satisfaction of his unpaid
indebtedness

(2) Where price is so low as to be shocking to the conscience

- Sale will be set aside

(3) Where seller is given the right to repurchase

The validity of the sale is not necessarily affected where the law gives the
owner the right to redeem – as when the sale is made at a public auction,
upon the theory that the lesser the price the easier it is for the owner to
buy back the property.

Case : UY vs CA 314 SCRA 69,81

Olegario vs CA 238 SCRA 96
Heirs of Spouses Balite vs Lim 446 SCRA 54