Sales - Red.docx

SALES: 2nd EXAM REVIEWER Red Team 3. Inadequacy of price 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. (n) The same principle or concept is emphasized in a contract of sale and we have Article 1470.

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 some other act or contract. (n)

EFFECT

Gross inadequacy of price

Simulated price

Does not necessarily mean that there is NO perfected contract of sale

NO perfected contract of sale

DIRECTOR OF LANDS VS ABARCA ISSUE: WON the amount of P877.25 for the property is adequate in price. HELD: NO. The sheriff's sale null and void on the ground of the inadequacy of the price paid. It appears that in 1927 the assessed value of the contested property was more than P60,000. A judicial sale of real property will be set aside when the price is so inadequate as to shock the conscience of the court. In the instant case there is another important consideration. In fairness and equity, which after all are the true aims of the law, the amount paid by Datu Bualan and his co-claimants for taxes and penalties due on the contested property should be credited on the judgment obtained by Sarenas and Braganza in civil case No. 607. Such taxes and penalties accrued while the property was in that possession under a claim of ownership _______________________________________________ *General Rule: Gross inadequacy of price does not affect the validity of the contract of sale. *Exception: If it is a judicial sale, if the price is so inadequate as to shock the conscience of the court, then the judicial sale of the real property will be set aside. *Exception to the Exception: When there is a judicial sale, but there is a right of redemption given to the owner. 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 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. Because the lesser the price, the easier it will be for the owner to effect the redemption. BRAVO-GUERRERO VS GUERRERO ISSUE: WON the sale was void for gross inadequacy of price? HELD: NO U P1,000 plus assumption of mortgage is not grossly inadequate to shock the moral senses. U Simulation of contract and gross inadequacy of price are distinct legal concepts, with different effects. When the parties to an alleged contract do not really intend to be bound by it, the contract is simulated and void. A simulated or fictitious contract has no legal effect because there is no real agreement between the parties. U In contrast, a contract with inadequate consideration may nevertheless embody a true agreement between the parties. A contract of sale is a consensual contract, which 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

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there has been fraud, mistake or undue influence. In this case, respondents have not proved any of the instances that would invalidate the Deed of Sale. U Respondents even failed to establish that the consideration paid by the vendees for the Properties was grossly inadequate. As the trial court pointed out, the Deed of Sale stipulates that, in addition to the payment of 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. __________________________________________ Again, just take note of the rules with regard to 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; Article 1381. The following contracts are rescissible: (1) Those which are entered into by guardians whenever the wards whom they represent suffer lesion by more than 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; Xxx Xxx Xxx Article 1386. Rescission referred to in Nos. 1 and 2 of article 1381 shall not take place with respect to contracts approved by the courts. (1296a) Art. 1602. The contract shall be presumed to be an equitable mortgage, in any of the following cases: (1) When the price of a sale with right to repurchase is unusually inadequate; (2) When the vendor remains in possession as lessee or otherwise; (3) When upon or after the expiration of the right to repurchase another instrument extending the period of redemption or granting a new period is executed; (4) When the purchaser retains for himself a part of the purchase price; (5) When the vendor binds himself to pay the taxes on the 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 secure the payment of a debt or the performance of any other obligation. Whether it is an absolute sale or a sale with a right to repurchase, gross inadequacy of the price may give rise to an equitable mortgage under Article 1602. And the parties may seek for the reformation of the contract from sale to a mortgage contract, to show the real intention of the parties.

PARTT 3: FORMATION OF A CONTRACT OF SALE. I. POLICITACION Now what happens in policitacion? There’s an offer, remember it’s a preparatory stage. There is a unilateral promise to buy or sell but there’s still no obligation imposed upon the parties, for the offer given may be withdrawn or it may be accepted. When it is accepted and the acceptance is absolute, there is a meeting of the minds which would give rise now to a perfected contract of sale. In policitacion, negotiation is formally initiated by an offer, which we all know must be certain. At any time prior to perfection, either negotiating party may stop the negotiation; at this stage the offer may be withdrawn. The withdrawal is effective immediately after its manifestation. To convert the offer into a contract, there must be an acceptance which must be absolute and must not qualify the terms of the offer. It must be clear, unequivocal, unconditional and without variance of any sort from the proposal.

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SALES: 1ST EXAM REVIEWER Emille Dane S. Viola

1.) Option Contract - An option contract is an agreement between a buyer and seller that gives the purchaser of the option the right to buy or sell a particular property at a later date at an agreed upon price. TAYAG VS LACSON ISSUE: WON there was a valid option contract between petitioner Tayag and the farmers/tillers HELD: NO. In this case, the defendants-tenants-subtenants, under the deeds of assignment, granted to Tayag not only an option but the exclusive right to buy the landholding. BUT the grantors were merely the defendants-tenants, and NOT the Lacsons, the registered owners of the property. Not being the registered owners of the property, the defendantstenants could not legally grant to the petitioner the option, much less the "exclusive right" to buy the property. As the Latin saying goes, "NEMO DAT QUOD NON HABET." ADELFA PROPERTIES VS CA Issue: WON the agreement between Adelfa and Private Respondents was strictly an option contract Ruling: NO. The agreement between the parties is a contract to sell, and not an option contract or a contract of sale. Contract to Sell vs Contract of Sale CONTRACT TO SELL By agreement the ownership is reserved in the vendor and is not to pass until the full payment of the price. Title is retained by the vendor until the full payment of the price, such payment being a positive suspensive condition.

CONTRACT OF SALE The vendor has lost and cannot recover ownership until and unless the contract is resolved or rescinded. The title passes to the vendee upon the delivery of the thing sold.

Here the Supreme Court ruled that the parties never intended to transfer ownership, which is a distinction between a contract of sale and a contract to sell. As to P50,000.00 , the SC ruled that it is an earnest money, however, it is an earnest money to a contract to sell and not to a contract of sale. The court also made a distinction of earnest money and option money to take note of that. Earnest money vs Option money EARNEST MONEY Part of the purchase price

Given only where there is already sale When earnest money is given, the buyer is bound to pay the balance.

OPTION MONEY The money given as a distinct consideration for an option contract Applies to a sale not yet perfected When the would-be buyer gives option money, he is not required to buy.

.i Meaning of Separate Consideration Take note that for a valid option contract, there must be a consideration. What is the nature of this consideration? VILLAMOR VS. CA ISSUE: WON the option contract is void for lack of consideration? HELD: NO. SC, in this case, ruled that there was consideration for the option contract which consists of the difference between the purchase price of the 300 square meter portion of the lot in 1971 (P70.00 per sq.m.) and the prevailing reasonable price of the same lot in 1971. Whatever it is, (P25.00 or P18.00) though not specifically stated in the deed of option, was ascertainable. Consideration is "the why of the contracts, the essential reason which moves the contracting parties to enter into the contract." The cause or the impelling reason on the part of private respondent executing the deed of option as appearing in the deed itself is the petitioner's having

agreed to buy the 300 square meter portion of private respondents' land at P70.00 per square meter"which was greatly higher than the actual reasonable prevailing price. .ii What if there’s no separate consideration in An option contract? SANCHEZ VS. RIGOS ISSUE: WON Rigos should accept the payment and execute the deed of conveyance. HELD: YES. This case admittedly hinges on the proper application of Article 1479. In order that said unilateral promise may be binding upon the promisor, Article 1479 requires the concurrence of a condition, namely, that the promise be "supported by a consideration distinct from the price. The Supreme Court held that without a 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 to its withdrawal, that is equivalent to an offer being accepted prior to withdrawal and would give rise to a valid and binding sale. In an accepted unilateral promise to sell, since there may be no valid contract without a cause or consideration, the promissor is not bound by his promise and may, accordingly, withdraw it. Pending notice of its withdrawal, his accepted promise partakes, however, of the nature of an offer to sell which, if accepted, results in a perfected contract of sale. The Sanchez doctrine expressly affirmed the earlier ruling in Atkins, Kroll & Co., Inc. vs. Cua, which treated an accepted promise to sell, although not binding as a contract for lack of separate consideration, nevertheless, having capacity to generate a bilateral contract of sale upon acceptance. It also conformed with the earlier case of Beaumont vs. Prieto, which held that There is in fact practically no difference between a contract of option to purchase land and an offer or promise to sell it. ____________________________________________ Moreover, the Sanchez Doctrine expressly overturned the rulings in Southwestern Sugar Molasses Co. vs. Atlantic Gulf and Pacific Corporation and Mendoza vs. Comple, which held that an option is not supported by a separate consideration, is void and can be withdrawn notwithstanding the acceptance made previously by the offeree. In other words, since there may be no valid contract without a cause or consideration, the promissor is not bound by his promise and may, accordingly, withdraw it. Pending notice of its withdrawal, his accepted promise partakes, however, of the nature of an offer to sell which, if accepted, results in a perfected contract of sale. Art. 1479. A promise to buy and sell a determinate thing for a price certain is reciprocally demandable. An accepted unilateral promise to buy or to sell a determinate thing for a price certain is binding upon the promissor if the promise is supported by a consideration distinct from the price. (1451a) _______________________________________________________ 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) Diamante vs. CA In this case, there was a statement there, even if the promise was accepted, private respondent was not bound in the absence of a distinct consideration, how do you reconcile that with the case of Sanchez? This statement was taken from the case of Mendoza vs Comple (see footnote of above-said statement in the case). If you look at this case, it cited Southwestern case which was already abandoned insofar as inconsistent with Sanchez case. The Sanchez case was not overturned by this statement. Sanchez case still remains; no separate consideration, void option contract, but acceptance before withdrawal gives rise to a perfected COS. Notice in the case of Sanchez vs Rigos, all the elements of a valid COS was present. You already have there the subject matter, as well as the price (P1,510), and there was also consent. If we apply the same in this case of Diamante vs CA, even if there was acceptance, do you think it will still give rise to a perfected COS?

SALES: 2nd EXAM REVIEWER Red Team There was no purchase price for COS. Kahit pa sabihin natin na there was acceptance, there was still no consideration or purchase price for the perfection of COS. The conclusion will still be the same. Consistent man siya sa case of Sanchez vs Rigos, doon lang sa line citing Mendoza vs Comple, yun ang kelangan natin i-address.

convert the purchase price into equity in Keppel. May Lusteveco's option to convert the price for shares be deemed as a sufficient separate consideration for Keppel's option to buy?

Bible Baptist vs. CA ISSUE: WON there is a separate consideration that would render the option contract valid and binding. HELD: NO. An option contract, to be valid and binding, needs to be supported by a separate consideration. The consideration need not be monetary but could consist of other things or undertakings. However, if the consideration is not monetary, these must be things or undertakings of value, in view of the onerous nature of the contract of option. Furthermore, when a consideration for an option contract is not monetary, said consideration must be clearly specified as such in the option contract or clause. Having found that the option to buy granted to the petitioner Baptist Church was not founded upon a separate consideration, and hence, not enforceable against respondents, this Court finds no need to discuss whether a price certain had been fixed as the purchase price. ______________________________________________ If we try to apply what we learned in Sanchez vs Rigos: No separate consideration, no valid option contract. If there is acceptance before withdrawal, there can be valid COS. ______________________________________________________ Navotas vs. Cruz ISSUE: WON there was a valid option? HELD: NO. It must be stressed that an option contract is a contract granting a privilege to buy or sell within an agreed time and at a determined price. Such a contract is a 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 petitioner to exercise its option; it had yet to be determined and fixed at a future time by the parties, subsequent to the execution of the Supplementary Lease Agreement. There was, likewise, no consideration for the option. The amount of P42,000.00 paid by the petitioner to Carmen Cruz on July 30, 1977 was payment for rentals from October 1, 1990 to September 30, 1991, and not as a consideration for the option granted to the petitioner. Here, Carmen was no longer the owner or the property when she executed the supplementary lease and contract of lease, and the claim that petitioner has the option to buy the property or to compel the respondents to sell the property has no legal and factual basis. ______________________________________________________ PNOC V KEPPEL II. II.A

The

validity

of

the

option

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contract

An option contract must be supported by a separate consideration that is either clearly specified as such in the contract or duly proven by the offeree/promisee.

In considering Keppel's submission, we note that the Court's ruling in 1969 in Vda. de Quirino v. Palarcahas been taken out of context and erroneously applied in subsequent cases. In 2004, through Bible Baptist Church v. CA73 we revisited Vda. de Quirino v. Palarca and observed that the option to buy given to the lessee Palarca by the lessor Quirino was in fact supported by a separate consideration: Palarca paid a higher amount of rent and, in the event that he does not exercise the option to buy the leased property, gave Quirino the option to buy the improvements he introduced thereon. These additional concessions were separate from the purchase price and deemed by the Court as sufficient consideration to support the option contract. Vda. de Quirino v. Palarca, therefore, should not be regarded as authority that the mere inclusion of an option contract in a reciprocal lease contract provides it with the requisite separate consideration for its validity. The reciprocal contract should be closely scrutinized and assessed whether it contains additional concessions that the parties intended to constitute as a consideration for the option contract, separate from that of the purchase price. In the present case, paragraph 5 of the agreement provided that should Keppel exercise its option to buy, Lusteveco could opt to

As earlier mentioned, the consideration for an option contract does not need to be monetary and may be anything of value.74 However, when the consideration is not monetary, the consideration must be clearly specified as such in the option contract or clause. When the written agreement itself does not state the consideration for the option contract, the offeree or promisee bears the burden of proving the existence of a separate consideration for the option.81 The offeree cannot rely on Article 1354 of the Civil Code,82 which presumes the existence of consideration, since Article 1479 of the Civil Code is a specific provision on option contracts that explicitly requires the existence of a consideration distinct from the purchaseprice.83 In the present case, none of the above rules were observed. We find nothing in paragraph 5 of the Agreement indicating that the grant to Lusteveco of the option to convert the purchase price for Keppel shares was intended by the parties as the consideration for Keppel's option to buy the land; Keppel itself as the offeree presented no evidence to support this finding. On the contrary, the option to convert the purchase price for shares should be deemed part of the consideration for the contract of sale itself, since the shares are merely an alternative to the actual cash price. For uniformity and consistency in contract interpretation, the better rule to follow is that the consideration for the option contract should be clearly specified as such in the option contract or clause. Otherwise, the offeree must bear the burden of proving that a separate consideration for the option contract exists. Given our finding that the Agreement did not categorically refer to any consideration to support Keppel's option to buy and for Keppel's failure to present evidence in this regard, we cannot uphold the existence of an option contract in this case. II. B.

An option, though unsupported by a separate consideration, remains an offer that, if duly accepted, generates into a contract to sell where the parties' respective obligations become reciprocally demandable

The absence of a consideration supporting the option contract, however, does not invalidate an offer to buy (or to sell). An option unsupported by a separate consideration stands as an unaccepted offer to buy (or to sell) which, when properly accepted, ripens into a contract to sell. This is the rule established by the Court en banc as early as 1958 in Atkins v. Cua Hian Tek,96 and upheld in 1972 in Sanchez v. Rigos.97chanrobleslaw Sanchez v. Rigos reconciled the apparent conflict between Articles 1324 and 1479 of the Civil Code, which are quoted below:ChanRoblesVirtualawlibrary Article 1324. When the offerer has allowed the offeree a certain 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 promised. Article 1479. A promise to buy and sell a determinate thing for a price certain is reciprocally demandable. An accepted unilateral promise to buy or to sell a determinate thing for a price certain is binding upon the promissor if the promise is supported by a consideration distinct from the price, [emphases supplied] The Court en banc declared that there is no distinction between these two provisions because the scenario contemplated in the second paragraph of Article 1479 is the same as that in the last clause of Article 1324.98 Instead of finding a conflict, Sanchez v. Rigos harmonised the two provisions, consistent with the established rules of statutory construction.99chanrobleslaw Thus, when an offer is supported by a separate consideration, a valid option contract exists, i.e., there is a contracted offer100 which the offerer cannot withdraw from without incurring liability in damages. On the other hand, when the offer is not supported by a separate consideration, the offer stands but, in the absence of a binding contract, the offeror may withdraw it any time.101 In either case, once the acceptance of the offer is duly communicated before the withdrawal of the offer, a bilateral contract to buy and sell is generated which, in accordance with the first paragraph of Article

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SALES: 1ST EXAM REVIEWER 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.