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SALES: 2nd EXAM

REVIEWER
Red Team 1

3. Inadequacy of price there has been fraud, mistake or undue influence. In this
case, respondents have not proved any of the instances
Article 1355. Except in cases specified by law, lesion or that would invalidate the Deed of Sale.
inadequacy of cause shall not invalidate a contract, unless U Respondents even failed to establish that the
there has been fraud, mistake or undue influence. (n) consideration paid by the vendees for the Properties was
grossly inadequate. As the trial court pointed out, the Deed
The same principle or concept is emphasized in of Sale stipulates that, in addition to the payment of
a contract of sale and we have Article 1470. P1,000, the vendees should assume the mortgage loans
from PNB and DBP. The consideration for the sale of the
Properties was thus P1, 000 in cash and the assumption of
the P15, 000 mortgage.
Article 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 Again, just take note of the rules with regard to
some other act or contract. (n) the inadequacy of the price. Inadequacy of price, we could
also relate it to what we have discussed in Obli-Con, lesion
or inadequacy, Article 1381;
Gross inadequacy of price Simulated price
Article 1381. The following contracts are rescissible:
EFFECT Does not necessarily mean NO perfected (1) Those which are entered into by guardians whenever
that there is NO perfected contract contract of sale the wards whom they represent suffer lesion by more than
of sale one-fourth of the value of the things which are the object
thereof;
(2 Those agreed upon in representation of absentees, if the
latter suffer the lesion stated in the preceding number;
DIRECTOR OF LANDS VS ABARCA
Xxx Xxx Xxx

ISSUE: WON the amount of P877.25 for the property is Article 1386. Rescission referred to in Nos. 1 and 2 of
adequate in price. article 1381 shall not take place with respect to contracts approved by
the courts. (1296a)
HELD: NO.
The sheriff's sale null and void on the ground of the Art. 1602. The contract shall be presumed to be an
inadequacy of the price paid. It appears that in 1927 the equitable mortgage, in any of the following cases:
assessed value of the contested property was more than (1) When the price of a sale with right to repurchase is
P60,000. A judicial sale of real property will be set aside unusually inadequate;
when the price is so inadequate as to shock the (2) When the vendor remains in possession as lessee or
conscience of the court. In the instant case there is another otherwise;
important consideration. In fairness and equity, which after (3) When upon or after the expiration of the right to
all are the true aims of the law, the amount paid by Datu repurchase another instrument extending the period of
Bualan and his co-claimants for taxes and penalties due on redemption or granting a new period is executed;
the contested property should be credited on the judgment (4) When the purchaser retains for himself a part of the
obtained by Sarenas and Braganza in civil case No. 607. purchase price;
Such taxes and penalties accrued while the property was in (5) When the vendor binds himself to pay the taxes on the
that possession under a claim of ownership thing sold;
_______________________________________________ (6) In any other case where it may be fairly inferred that the
real intention of the parties is that the transaction shall
*General Rule: Gross inadequacy of price does not affect secure the payment of a debt or the performance of any
the validity of the contract of sale. other obligation.
*Exception: If it is a judicial sale, if the price is so
inadequate as to shock the conscience of the court, then Whether it is an absolute sale or a sale with a
the judicial sale of the real property will be set aside. right to repurchase, gross inadequacy of the price may give
rise to an equitable mortgage under Article 1602. And the
*Exception to the Exception: When there is a parties may seek for the reformation of the contract from
judicial sale, but there is a right of redemption given to the sale to a mortgage contract, to show the real intention of
owner. the parties.
It is because in that instance, lower purchase
price would be favourable to the redemptioner. The proper
remedy for such instance is not to question the sale but to PARTT 3: FORMATION OF A CONTRACT OF SALE.
redeem it because the lower price is favourable to you as
the owner or redemptioner. When there is right to redeem
in a foreclosure sale, inadequacy of price is not material. I. POLICITACION
Because the lesser the price, the easier it will be for the
owner to effect the redemption. Now what happens in policitacion? There’s an
offer, remember it’s a preparatory stage. There is a
BRAVO-GUERRERO VS GUERRERO unilateral promise to buy or sell but there’s still no
obligation imposed upon the parties, for the offer given may
ISSUE: WON the sale was void for gross inadequacy of be withdrawn or it may be accepted. When it is accepted
price? and the acceptance is absolute, there is a meeting of the
minds which would give rise now to a perfected contract of
HELD: NO sale.
U P1,000 plus assumption of mortgage is not grossly
inadequate to shock the moral senses. In policitacion, negotiation is formally initiated
U Simulation of contract and gross inadequacy of price are by an offer, which we all know must be certain. At any time
distinct legal concepts, with different effects. When the prior to perfection, either negotiating party may stop the
parties to an alleged contract do not really intend to be negotiation; at this stage the offer may be withdrawn. The
bound by it, the contract is simulated and void. A simulated withdrawal is effective immediately after its manifestation.
or fictitious contract has no legal effect because there is no To convert the offer into a contract, there must be an
real agreement between the parties. acceptance which must be absolute and must not qualify
U In contrast, a contract with inadequate consideration may the terms of the offer. It must be clear, unequivocal,
nevertheless embody a true agreement between the unconditional and without variance of any sort from the
parties. A contract of sale is a consensual contract, which proposal.
becomes valid and binding upon the meeting of minds of
the parties on the price and the object of the sale. The
concept of a simulated sale is thus incompatible with
inadequacy of price.

Inadequacy of cause will not invalidate a contract unless


SALES: 1ST EXAM REVIEWER
2 Emille Dane S. Viola

1.) Option Contract - An option contract is an agreement between a agreed to buy the 300 square meter portion of private
buyer and seller that gives the purchaser of the option the right to respondents' land at P70.00 per square meter"which was
buy or sell a particular property at a later date at an agreed greatly higher than the actual reasonable prevailing price.
upon price.
.ii What if there’s no separate consideration in
TAYAG VS LACSON An option contract?
ISSUE: WON there was a valid option contract between
petitioner Tayag and the farmers/tillers SANCHEZ VS. RIGOS

HELD: NO. ISSUE: WON Rigos should accept the payment and
In this case, the defendants-tenants-subtenants, under the execute the deed of conveyance.
deeds of assignment, granted to Tayag not only an option HELD: YES. This case admittedly hinges on the proper
but the exclusive right to buy the landholding. BUT the application of Article 1479. In order that said unilateral
grantors were merely the defendants-tenants, and NOT the promise may be binding upon the promisor, Article 1479
Lacsons, the registered owners of the property. Not being requires the concurrence of a condition, namely, that the
the registered owners of the property, the defendantstenants promise be "supported by a consideration distinct from the
could not legally grant to the petitioner the option, price.
much less the "exclusive right" to buy the property. As the The Supreme Court held that without a
Latin saying goes, "NEMO DAT QUOD NON HABET." consideration separate from the purchase price, an
option contract would be void as a contract, but would
still constitute a valid offer. If the option is exercised prior
ADELFA PROPERTIES VS CA to its withdrawal, that is equivalent to an offer being
accepted prior to withdrawal and would give rise to a
Issue: WON the agreement between Adelfa and Private valid and binding sale.
Respondents was strictly an option contract In an accepted unilateral promise to sell, since
there may be no valid contract without a cause or
Ruling: NO. The agreement between the parties is a consideration, the promissor is not bound by his promise
contract to sell, and not an option contract or a contract and may, accordingly, withdraw it. Pending notice of its
of sale. withdrawal, his accepted promise partakes, however, of the
nature of an offer to sell which, if accepted, results in a
Contract to Sell vs Contract of Sale perfected contract of sale.
The Sanchez doctrine expressly affirmed the
CONTRACT TO SELL CONTRACT OF SALE earlier ruling in Atkins, Kroll & Co., Inc. vs. Cua, which
By agreement the The vendor has lost and treated an accepted promise to sell, although not binding
ownership is reserved in cannot recover ownership as a contract for lack of separate consideration,
the vendor and is not to until and unless the nevertheless, having capacity to generate a bilateral
pass until the full payment contract is resolved or contract of sale upon acceptance. It also conformed with
of the price. rescinded. the earlier case of Beaumont vs. Prieto, which held that -
Title is retained by the The title passes to the There is in fact practically no difference between a contract
vendor until the full vendee upon the delivery of option to purchase land and an offer or promise to sell it.
payment of the price, such of the thing sold. ____________________________________________
payment being a positive Moreover, the Sanchez Doctrine expressly
suspensive condition. overturned the rulings in Southwestern Sugar Molasses
Co. vs. Atlantic Gulf and Pacific Corporation and Mendoza
Here the Supreme Court ruled that the parties never vs. Comple, which held that an option is not supported by a
intended to transfer ownership, which is a distinction separate consideration, is void and can be withdrawn
between a contract of sale and a contract to sell. notwithstanding the acceptance made previously by the
As to P50,000.00 , the SC ruled that it is an earnest offeree.
money, however, it is an earnest money to a contract to In other words, since there may be no valid
sell and not to a contract of sale. contract without a cause or consideration, the
The court also made a distinction of earnest money and promissor is not bound by his promise and may,
option money to take note of that. accordingly, withdraw it. Pending notice of its
withdrawal, his accepted promise partakes, however,
Earnest money vs Option money of the nature of an offer to sell which, if accepted,
results in a perfected contract of sale.
EARNEST MONEY OPTION MONEY
Part of the purchase price The money given as a Art. 1479. A promise to buy and sell a determinate thing for
distinct consideration for a price certain is reciprocally demandable.
an option contract An accepted unilateral promise to buy or to sell a
Given only where there is Applies to a sale not yet determinate thing for a price certain is binding upon the
already sale perfected promissor if the promise is supported by a consideration
When earnest money is When the would-be buyer distinct from the price. (1451a)
given, the buyer is bound gives option money, he is _______________________________________________________
to pay the balance. not required to buy. Art. 1354. Although the cause is not stated in the contract,
it is presumed that it exists and is lawful, unless the debtor
proves the contrary. (1277)
.i Meaning of Separate Consideration
Diamante vs. CA
Take note that for a valid option contract,
there must be a consideration. What is the nature of In this case, there was a statement there, even if
this consideration? the promise was accepted, private respondent was not
bound in the absence of a distinct consideration, how do
VILLAMOR VS. CA you reconcile that with the case of Sanchez?
This statement was taken from the case of
ISSUE: WON the option contract is void for lack of Mendoza vs Comple (see footnote of above-said statement
consideration? in the case). If you look at this case, it cited Southwestern
HELD: NO. SC, in this case, ruled that there was case which was already abandoned insofar as inconsistent
consideration for the option contract which consists of the with Sanchez case. The Sanchez case was not overturned
difference between the purchase price of the 300 square by this statement. Sanchez case still remains; no separate
meter portion of the lot in 1971 (P70.00 per sq.m.) and the consideration, void option contract, but acceptance before
prevailing reasonable price of the same lot in 1971. withdrawal gives rise to a perfected COS.
Whatever it is, (P25.00 or P18.00) though not specifically Notice in the case of Sanchez vs Rigos, all the
stated in the deed of option, was ascertainable. elements of a valid COS was present. You already have
Consideration is "the why of the contracts, the essential there the subject matter, as well as the price (P1,510), and
reason which moves the contracting parties to enter into there was also consent.
the contract." The cause or the impelling reason on the part If we apply the same in this case of Diamante vs
of private respondent executing the deed of option as CA, even if there was acceptance, do you think it will
appearing in the deed itself is the petitioner's having still give rise to a perfected COS?
SALES: 2nd EXAM
REVIEWER
Red Team 3

There was no purchase price for COS. Kahit pa convert the purchase price into equity in Keppel. May Lusteveco's
sabihin natin na there was acceptance, there was still no option to convert the price for shares be deemed as a sufficient
consideration or purchase price for the perfection of COS. separate consideration for Keppel's option to buy?
The conclusion will still be the same. Consistent man siya
sa case of Sanchez vs Rigos, doon lang sa line citing As earlier mentioned, the consideration for an option contract does
Mendoza vs Comple, yun ang kelangan natin i-address. not need to be monetary and may be anything of
value.74 However, when the consideration is not monetary, the
Bible Baptist vs. CA consideration must be clearly specified as such in the option contract
ISSUE: WON there is a separate consideration that would or clause. When the written agreement itself does not state the
render the option contract valid and binding. consideration for the option contract, the offeree or promisee bears
HELD: NO. An option contract, to be valid and binding, the burden of proving the existence of a separate consideration for
needs to be supported by a separate consideration. The the option.81 The offeree cannot rely on Article 1354 of the Civil
consideration need not be monetary but could consist of Code,82 which presumes the existence of consideration, since Article
other things or undertakings. 1479 of the Civil Code is a specific provision on option contracts that
However, if the consideration is not monetary, these must explicitly requires the existence of a consideration distinct from the
be things or undertakings of value, in view of the onerous purchaseprice.83
nature of the contract of option. Furthermore, when a
consideration for an option contract is not monetary, said In the present case, none of the above rules were observed. We find
consideration must be clearly specified as such in the nothing in paragraph 5 of the Agreement indicating that the grant to
option contract or clause. Lusteveco of the option to convert the purchase price for Keppel
Having found that the option to buy granted to the shares was intended by the parties as the consideration for Keppel's
petitioner Baptist Church was not founded upon a separate option to buy the land; Keppel itself as the offeree presented no
consideration, and hence, not enforceable against evidence to support this finding. On the contrary, the option to convert
respondents, this Court finds no need to discuss whether a the purchase price for shares should be deemed part of the
price certain had been fixed as the purchase price. consideration for the contract of sale itself, since the shares are
______________________________________________ merely an alternative to the actual cash price.
If we try to apply what we learned in Sanchez vs Rigos: No separate
consideration, no valid option For uniformity and consistency in contract interpretation, the better
contract. If there is acceptance before withdrawal, rule to follow is that the consideration for the option contract
there can be valid COS. should be clearly specified as such in the option contract or
______________________________________________________ clause. Otherwise, the offeree must bear the burden of proving
Navotas vs. Cruz that a separate consideration for the option contract exists.

ISSUE: WON there was a valid option? Given our finding that the Agreement did not categorically refer to any
HELD: NO. It must be stressed that an option contract is consideration to support Keppel's option to buy and for Keppel's
a contract granting a privilege to buy or sell within an failure to present evidence in this regard, we cannot uphold the
agreed time and at a determined price. Such a contract is a existence of an option contract in this case.
separate and distinct contract from the time the parties may
enter into upon the construction of the option.
In the present case, there was no given period for the II. An option, though unsupported by a separate
petitioner to exercise its option; it had yet to be determined B. consideration, remains an offer that, if duly accepted,
and fixed at a future time by the parties, subsequent to the generates into a contract to sell where the parties'
execution of the Supplementary Lease Agreement. There respective obligations become reciprocally demandable
was, likewise, no consideration for the option. The amount of
P42,000.00 paid by the petitioner to Carmen Cruz on The absence of a consideration supporting the option contract,
July 30, 1977 was payment for rentals from October 1, however, does not invalidate an offer to buy (or to sell). An option
1990 to September 30, 1991, and not as a consideration unsupported by a separate consideration stands as an
for the option granted to the petitioner. Here, Carmen was no longer unaccepted offer to buy (or to sell) which, when properly
the owner or the accepted, ripens into a contract to sell. This is the rule established
property when she executed the supplementary lease by the Court en banc as early as 1958 in Atkins v. Cua Hian
and contract of lease, and the claim that petitioner has Tek,96 and upheld in 1972 in Sanchez v. Rigos.97chanrobleslaw
the option to buy the property or to compel the respondents
to sell the property has no legal and factual basis. Sanchez v. Rigos reconciled the apparent conflict between Articles
______________________________________________________ 1324 and 1479 of the Civil Code, which are quoted
below:ChanRoblesVirtualawlibrary
PNOC V KEPPEL
Article 1324. When the offerer has allowed the offeree a certain
II. The validity of the option contract period to accept, the offer may be withdrawn at any time before
acceptance by communicating such withdrawal, except when the
option is founded upon a consideration, as something paid or
II.A An option contract must be supported by a separate promised.
consideration that is either clearly specified as such in the
contract or duly proven by the offeree/promisee. Article 1479. A promise to buy and sell a determinate thing for a price
certain is reciprocally demandable.
In considering Keppel's submission, we note that the Court's ruling in An accepted unilateral promise to buy or to sell a determinate
1969 in Vda. de Quirino v. Palarcahas been taken out of context and thing for a price certain is binding upon the promissor if the
erroneously applied in subsequent cases. In 2004, through Bible promise is supported by a consideration distinct from the
Baptist Church v. CA73 we revisited Vda. de Quirino v. Palarca and price, [emphases supplied]
observed that the option to buy given to the lessee Palarca by the The Court en banc declared that there is no distinction between these
lessor Quirino was in fact supported by a separate consideration: two provisions because the scenario contemplated in the second
Palarca paid a higher amount of rent and, in the event that he does paragraph of
not exercise the option to buy the leased property, gave Quirino the
option to buy the improvements he introduced thereon. These Article 1479 is the same as that in the last clause of Article
additional concessions were separate from the purchase price and 1324.98 Instead of finding a conflict, Sanchez v. Rigos harmonised the
deemed by the Court as sufficient consideration to support the option two provisions, consistent with the established rules of statutory
contract. construction.99chanrobleslaw

Vda. de Quirino v. Palarca, therefore, should not be regarded as Thus, when an offer is supported by a separate consideration, a valid
authority that the mere inclusion of an option contract in a reciprocal option contract exists, i.e., there is a contracted offer100 which the
lease contract provides it with the requisite separate consideration for offerer cannot withdraw from without incurring liability in damages.
its validity. The reciprocal contract should be closely scrutinized
and assessed whether it contains additional concessions that On the other hand, when the offer is not supported by a separate
the parties intended to constitute as a consideration for the consideration, the offer stands but, in the absence of a binding
option contract, separate from that of the purchase price. contract, the offeror may withdraw it any time.101 In either case, once
the acceptance of the offer is duly communicated before the
In the present case, paragraph 5 of the agreement provided that withdrawal of the offer, a bilateral contract to buy and sell is
should Keppel exercise its option to buy, Lusteveco could opt to generated which, in accordance with the first paragraph of Article
SALES: 1ST EXAM REVIEWER
4 Emille Dane S. Viola

1479 of the Civil Code, becomes reciprocally demandable

.iii How do you properly exercise an option contract?

1. It must be timely after all it is one that must


exercised within a specified time period, it must
be affirmative and clearly accepted;

2. The optionee must clearly advice the optioner of


his acceptance and readiness to pay the price;
If the option period lapses without any acceptance,
then he forfeits his right to purchase the property. However,
please do take note that acceptance need not be coupled
with immediate payment. What is essential is that payment
should actually be made when the sale is eventually
consummated.

So, what will be the effect of acceptance? It would


give rise to a perfected contract of sale.