PRICE

Provisions from Syllabus Discussion, Questions, Principle

Article 1350. In onerous contracts the Article 1350 gives you different causes of contracts – depending on the
cause is understood to be, for each type of contract. If it is an onerous contract, the cause or consideration therein
contracting party, the prestation or is the prestation or the promise of a thing or service by the other. It is based
promise of a thing or service by the on some valuable consideration.
other; in remuneratory ones, the
service or benefit which is Classification of contracts as to cause:
remunerated; and in contracts of pure a. Onerous – the cause is for each contracting party, the prestation or
beneficence, the mere liberality of the promise of thing or service.
benefactor. b. Remuneratory – the past service or benefit which by itself is a
recoverable debt.
c. Gratuitous – or contracts of pure beneficence – the cause is the
mere liberality of the benefactor.

 Contract of guaranty is gratuitous unless there is stipulation to the

contrary.
 Cause in accessory contracts like mortgage and pledge – the same
as the cause for principal contract of loan.
 Moral obligation may be the cause of civil obligation – if it does not
exist, no valid cause.
Article 1351. The particular motives of What is cause?
the parties in entering into a contract The reason why a party entered into a contract; essential reason which
are different from the cause thereof. moves the parties to enter into the contract; the immediate, direct, and
proximate reason which justifies the creation of an obligation through the will
of the contracting parties.

Existence of cause is presumed – to exist and is lawful until the contrary

has been shown. A cause or consideration is essential to support a contract.

Accessory contracts – the cause is identical with the cause of the principal
contract.

Is the cause the same as the motive? No.

General rule: No matter how illegal the motive is for as long as the cause is
legal and lawful, it does not affect the validity of the contract.

Exception: if the motive predetermines the purpose of the contract then the
motive becomes the cause of the contract.

Motive Cause
The psychological or personal The objective and juridical reason
purpose of a party in getting the for the establishment of a contract
object. and is always the same.
May be unknown to the other Always known
Its presence cannot cure the
absence of the cause.

What are the exceptional cases where in motive can affect the juridical
act?

 When the motives of a debtor in alienating property is to defraud his

creditors, the alienation is rescissible.
 When the motive of a person in giving his consent is to avoid a
threatened injury, as in case of intimidation, the contract is voidable.
 When the motive of a person induced him to act on the basis of fraud
or misrepresentation by the other party, the contract is voidable.
 Note: Illegal cause makes a contract void, while an illegal motive not
necessarily render the contract void.
Article 1352. Contracts without cause, Requisites for cause
or with unlawful cause, produce no 1. It must be present – no cause, the contract is void.
effect whatever. The cause is unlawful 2. It must be true – if cause is false, contract is void unless some other
if it is contrary to law, morals, good cause which is lawfully really exists.
customs , public order or public policy. 3. It must be lawful.
Article 1353. The statement of a false False cause does not necessarily man that contract is void; the parties are
cause in contracts shall render them given a chance to show that a cause really exists is lawful and true.
void, if it should not be proved that
they were founded upon another What if a contract is simulated or fictitious contract of sale with a false
cause which is true and lawful. consideration?
It is not null and void per se, but merely an annullable contract, under Article
1353.
Article 1354. Although the cause is  The cause must exist but is not necessary to state the cause.
not stated in the contract, it is  Under the Statute of Frauds – certain agreement must be in writing.
presumed that it exists and is lawful,
unless the debtor proves the contrary. Note: No matter how inadequate the consideration is, the presumption is that
the contract is valid. The exception there is when fraud is employed, or there
is mistake or there is undue influence.
Article 1355. Except in cases What is lesion?
specified by law, lesion or inadequacy Inadequacy of cause (such as insufficient price of thing sold)
of cause shall not invalidate a contract,
unless there has been fraud, mistake, What is the effect of lesion?
or undue influence. A contract is not subject to annulment simply because lesion or inadequacy of
cause of consideration. In cases provided by law such as those mentioned in
Articles 1381 and 1098, lesion is a good ground for rescission of contract.

Lesion or inadequacy of cause will also be the basis of rescission of the

contract if the lesion or inadequacy is the result of fraud, mistake, or undue
influence.

What is the effect of bad bargain?

Even if bargaining was tedious, coupled with mere inadequacy of price, if both
parties are in the position to form an independent judgment concerning the
sale, is not a sufficient ground for cancellation of the contract.

What is the effect of gross inadequacy?

When the inadequacy of the cause is gross, that fact will naturally suggest
fraud and is evidence of such. It may be sufficient to prove.

What are the rules on lesion?

General rule: lesion or inadequacy of price does not invalidate a contract.
Exception:
(1) When together with lesion there has been fraud.
i. Fraud;
ii. Mistake; or
iii. Undue influence
(2) In cases expressly provided by law.
i. Those which are entered into by guardians whenever
the wards they represent suffer lesion by more than
one-fourth of the value of the things which are the
objects thereof. (Article 1381)
ii. Those agreed upon in representation of absentees, if
the latter suffer lesion stated in the preceding
number. (Article 1381)
iii. Partition among co-heirs, when anyone of them
received things with a value less by at least one-
fourth than the share to which he is entitled. (Article
1098)
 A. General Requirements of Price
a. Price must be certain
b. Price must be real
c. Price must be pecuniary
d. Price must be lawful
Price must be certain
Article 1458. By the contract of sale What is price?
on of the contracting parties obligates The cost at which something is obtained, or something which one ordinarily
himself to transfer the ownership of accepts voluntarily in exchange for something else, or the consideration given
and to deliver a determinate thing, and for the purchase of a thing.
the other to pay therefor a price certain
in money or its equivalent. Essential feature of price:
1. The price must be real;
A contract of sale may be absolute or 2. The price must be certain; (Article 1469)
conditional. 3. The price must be pecuniary; (Article 1468) and
4. The price must be lawful. (Article 1417)
Article 1469. In order that the price When is a price certain?
may be considered certain, it shall be The price is certain when the price is fixed at the time the contract is entered
sufficient that it be so with reference to into or is known by the parties at the time the contract is entered into, even if
another thing certain, or that the the price is not indicated in express terms.
determination thereof be left to the
judgment of a specified person or  It is also certain when the price is ascertainable.
persons.
When is price ascertainable?
Should such person or persons be It is ascertainable when even if the amount is not yet fixed or not known to the
unable or unwilling to fix it, the contract parties, concrete criteria allow the fixing of the price with no doubt and without
shall be inefficacious, unless the the need of a new agreement between the parties.
parties subsequently agree upon the
price.  There can be no sale if the price is not certain or ascertainable.
o The price must be certain or capable of being ascertained in
If the third person or persons acted in money or its equivalent.
bad faith or by mistake, the courts may
fix the price. Money – understood as currency.
Equivalent – promissory notes, checks, and other mercantile
Where such person or persons are instruments generally accepted as representing money.
prevented from fixing the price or
terms by fault of the seller or the
 That the exact amount to be paid for the thing sold is not precisely
buyer, the party not in fault may have
fixed, is no bar to an action to recover the purchase price, provided
such remedies against the party in
the contract, by its terms furnishes a basis or measure for
fault as are allowed the seller or the
ascertaining the amount agreed upon.
buyer, as the case may be.
Instances when price is certain
a. The parties have fixed the amount or agreed upon a definite amount;
or
b. It is certain with reference to another thing certain;
c. The determination of the price is left to the judgment of a specified
person or persons.
d. The price is that which the thing would have on a definite day, or a
particular exchange or market. (Article 1473)

Note: the last three instances are applicable only when the parties have
stipulated no specific amount.

 The price can be determined with respect to another thing certain.

For example: the price is certain if the purchase price is “the total
amount of the debt of the seller to the buyer.” Here the amount of
debt as of the date of the sale can be determined.

Illustrative cases:
 1. Price was fixed at ten (10%) percent below the price in the inventory,
at the invoice price, and in accordance with the price list less twenty
(20%) percent discount.

Held: the price may be considered certain. The articles that were the
subject of the sale were definitely and finally agreed upon. The price
for each article was fixed. It is true that the price of the tobacco, for
example, was not stated in pesos and centavos. But by its terms B
agreed to pay therefor the amount named in the invoices then in
existence. The price could be made certain by a mere reference to
these invoices. (McCullough vs. Aenille & Co.)

2. Price was fixed at a certain amount subject to modifications based on

known factors.

Held: By stipulation, the price could be made certain by applying

known factors (Article 1469), and for the purposes of this case, it may
assumed that the price was fixed at P9.45 per long ton. (Mitsui
Bussan Kaisha vs. Manila B.R.R. and L. Co.)

3. Price was fixed at “not greater than P210 per square meter.”

Held: Yes, the price is certain or definite, given the circumstances.

“Contracts are to be construed according to the sense and meaning
of the terms which the parties themselves have used. In the present
dispute, there is evidence to show that the intention of the parties is
to peg the price of P210 per square meter. This was confirmed by the
petitioner (lessor) himself in his testimony as follows.

Moreover, by his subsequent acts of having the land titled under the
Torrens system, and in pursuing the back (lessee) manager to effect
the sale immediately means that he understood perfectly well the
terms of the contract. He even had the same property mortgaged to
the respondent back sometime in 1979, without the slightest hint of
wanting to abandon his offer to sell the property at the agreed price of
P210 per square meter. (Serra vs. Court of Appeals)

What is the effect when the price is fixed by a third person?

General rule: The price fixed by a third person designated by the parties is
binding upon them.

Exceptions:
1. When the third person acts in bad faith or by mistake as when the
third person fixed the price having in mind not the thing that is the
object of the sale, but another analogous or similar thing in which
case the court may fix the price. But mere error in judgment cannot
serve as a basis for impugning the price fixed; and
2. When the third person disregards specific instructions or the
procedure marked out by the parties or the data given him, thereby
fixing an arbitrary price.

Illustrative case:
Price was fixed on a certain proportion of total net value of business to be
ascertained by appraisers.

Held: Yes, the price is certain. For the minds of the parties have met on the
thing and the price. Nothing was left unfinished and all questions relating
thereto were settled. This is an example of a perfected sale. (Barretto vs.
Santa Maria)
 What if the price is not fixed by a third person designated?
1. Without the fault of the seller and buyer – the contract shall
become ineffective, as if no price had been agreed upon, unless,
the parties subsequently agree upon the price.
2. Prevented from fixing the price by the fault of the seller and
buyer – the party not in fault may obtain redress against the party in
fault, which consists of a choice between rescission and fulfillment,
with damages in either case. (Article 1191 (2); Article 1594);
 If the innocent party chooses fulfillment, the court shall fix the price.

Summary
(1) Void
a. The price cannot be ascertained because the parties did not
agree on the price. (Article 1409 (3)); or
b. The fixing of the price is left to the discretion of one of the
contracting parties. (Article 1473), however, the sale is
perfected if the party accepts the price fixed by the other
party.
(2) Inefficacious or ineffective
a. The price cannot be determined in accordance with Article
1469 to 1473-1474; or
b. The third party tasked to determine the price is unable or
unwilling to fix it. However, the contract can be enforced if the
parties subsequently agree on the price. (Article 1469)
Article 1472. The price of securities, This provision applies to fungible things like securities, grain, liquids, etc., the
grain, liquids, and other things shall price of which are subject to fluctuations of the market.
also be considered certain, when the
price fixed is that which the thing sold Article 1472 follows the principle in Article 1469 that a price is considered
would have on a certain day, or in a certain if it could be determined with reference to another thing certain.
particular exchange or market, or
when an amount is fixed above or “provided said amount be certain”
below the price on such day, or in such When an amount is fixed below or above the price on a given day or in a
exchange or market, provided said particular exchange or market, the said amount must be certain; otherwise,
amount be certain. the sale is inefficacious (Article 1474) because the price cannot be
determined.
Article 1473. The fixing of the price General rule: if consent is essential to a contract of sale, the determination of
can never be left to the discretion of the price cannot be left to the discretion of one of the contracting parties.
one of the contracting parties. Otherwise, it cannot be said that the other consented to a price he did not and
However, if the price fixed by one of could not previously know.
the parties is accepted by the other,
the sale is perfected. Why?
The validity or compliance of the contract cannot be made to depend upon
the will of one party. To be just, the price must be determined impartially by
both parties, or left to the judgment of a specified person or persons.

What if the only one party fixed the price and the other accepted?
The contract is perfected because there exists a true meeting of minds upon
the price. Also, contract may contain an escalation clause.

Escalation clause – one in which the contract fixes a base price but contains
a provision that in the event of specified cost increase the seller or contractor,
may raise the price up to a fixed percentage of the bases.

Note: Not all clauses such as that are void, since they serve to maintain fiscal
stability and retain the value of the money in long term contracts. (Limso vs.
Philippine National Bank)
Article 1474. Where the price cannot What is the effect if price cannot be determined?
be determined in accordance with the 1. Where contract is executory – the contract is without effect, as
preceding articles, or in any other price is essential to a contract of sale. There is no obligation on the
manner, the contract is inefficacious. part of the vendor to deliver the thing on the part of the vendee to
However, if the thing or any part pay.
thereof has been delivered to and 2. Where delivery is made – The buyer must pay a reasonable price
appropriated by the buyer, he must therefor.
pay a reasonable price therefor. What
is a reasonable price is a question of The obligation of the buyer may be:
fact dependent on the circumstance of a. Contractual – if the agreement omits any reference to the price.
each particular case. (The law merely enforces the intention of the parties.)
b. Quasi-contractual – if the agreement provides that the parties
are thereafter to agree on the price.)

Article 1474 applies only, where the means contemplated by the parties in
fixing the price is proved ineffectual. In this case, the obligation of the buyer to
pay a reasonable price is an obligation imposed by law as distinguished from
a contractual obligation. It is founded in the principle that “no one should
enrich himself at the expense of another.”
c. In case the parties do not intent to be bound until after the price is
settled – the buyer must return the goods already received or if
unable to, must their reasonable value at the time of the delivery,
and the seller must return any portion of the amount received.

What is a reasonable price?

The market price at the time and place fixed by the contract or by law for the
delivery of the goods.

What if there is an unnatural condition in the market?

A reasonable price may or may not agree with the current price of the
commodity at the port of shipment when such shipment is made. The current
price of the day may be highly unreasonable from accidental circumstances,
as on account of the commodity having been purposely kept back by the
vendor himself, or with reference to the price at the other ports in the
immediate vicinity, or from various other causes. This doctrine is applied in
cases where the market is monopolized.

How do you determine a fair market value?

The market value must be both buyer and selling; and the market value be
reasonable sum which property would bring on a fair sale by a man willing but
not obliged to sell to a man willing but not obliged to buy.
Lack of Cause or Consideration
Article 1354. Although the cause is Refer to Price Table.
not stated in the contract, it is
presumed that it exists and is lawful,
unless the debtor proves the contrary.
Article 1409. The following contract Simulate contracts:
are inexistent and void from the a. Absolute – void for lack of consent.
beginning: b. Relative – hidden or intended contract is binding.
(1) Those whose cause, object or
purpose is contrary to law, Characteristics of void contract
morals, good customs, public 1. Right to set up the defense of illegality cannot be waived; appealable
order, or public policy; even if not raised in trial court.
(2) Those which are absolutely 2. Action or defense for declaration as inexistent does not prescribe.
simulated or fictitious; 3. Not available to third persons whose interest are not directly affected.
(3) Those whose cause or 4. Cannot give rise to a contract.
object did not exist at the 5. Procedures no effect.
time of the transaction; (the 6. No action to declare them void is needed.
object could not come into 7. Cannot be ratified.
existence because the
object may legally be a What happens when there is lack of consideration or cause?
future thing) When there is lack of consideration or cause in the contract’s agreement, the
(4) Those whose object is outside contract is invalid, and the terms are unenforceable. Void
the commerce of men;
(5) Those which contemplate an It is an absolute incapacity.
impossible service;
(6) Those where the intention of When is there a lack of cause or consideration?
the parties relative to the
 One party is already legally bound to perform.
principal object of the contract
 When consideration is more like a gift.
cannot be ascertained;
(7) Those expressly prohibited or  When consideration is made as a result of a past event; or
declared void by law.  When consideration is based on an illusory promise.

These contracts cannot be ratified.

Neither can the right to set up the
defense of illegality be waived.
Inadequacy of the Price
Article 1355. Except in cases Refer to Price Table.
specified by law, lesion or inadequacy
of cause shall not invalidate a contract,
unless there has been fraud, mistake,
or undue influence.
Article 1381. The following contracts What is lesion?
are rescissible: Disparity between the price and value. Mere inadequacy of price, unless
(1) Those which entered into by shocking to the conscience is not sufficient ground for setting aside a sale, if
guardian whenever the there is no showing that, in the event of a resale, a better price can be
wards whom they represent obtained.
suffer lesion by more than
one-fourth of the value of What is the effect of contract entered in behalf of ward?
the things which are the 1. If an the act ownership – the court approval is required otherwise it is
object thereof; unenforceable whether there is lesion or not.
(2) Those agreed upon in 2. If in the act of administration -
representation of absentees, if  With court approval – valid regardless of lesion.
the latter suffer the lesion  Without court approval – rescissible, if lesion is more than
stated in the preceding one fourth of the value.
number;
(3) Those undertaken in fraud of Contract may be rescinded on the ground of lesion in a partition of
creditors when the latter inheritance.
cannot in any other manner
collect the claims due them; 3. Accion pauliana – action to rescind made in fraud of creditors.
(4) Those which refer to things
 under litgation if they have
been entered into by the Requisites:
defendant without the a. There must be a creditor who became such prior to the
knowledge and approval of the contract sought to be rescinded.
litigants or of competent b. There must be an alienation made subsequent to such credit.
judicial authority; c. The party alienating must be in bad faith.
(5) All other contract specially d. There must be no other remedy for the prejudiced creditor.
declared by law to be subject (inability to collect to the claims due them)
to rescission.
Action to rescind may be brought even if the debtor has not been judicially
declared insolvent and even if the creditor has not yet brought an action to
collect.

4. Things in litigation – property is in litigation after defendant received

service of summons.

The guardian with respect to the ward, are only given the power of
administration. The powers mentioned in Article 1381 are powers of
administration and the guardian entered into a contract and the object of the
contract resulted to the economic injury of the ward, by more than one-fourth
of the value of the object thereof.

Note:
 If the guardian would exercise acts of ownership beyond what is
authorized, the act will not be rescissible but rather is unenforceable.
That is acted without or in excess of the authority granted to him.
 if it were acts of administration, to fall in paragraph 1 it must exceed
one-fourth of the value of the object of the contract.

Exception: when there is judicial authorization, no rescission if with

court approval.
Article 1470. Gross inadequacy of General rule: Inadequacy of price does not affect a contract of sale’s validity.
price does not affect the contract of
sale, except as it may indicate a defect Exceptions:
in the consent, or that the parties a. Voluntary Sales
intended a donation or some other act  Where low price indicates a vice of consent, sale may be
or contract. annulled.
 Mere inadequacy of price is not sufficient ground for the
cancellation of an execution sale if there is no showing that in
the event of a resale, a better price can be obtained.
 Where price is so low to be shocking to the conscience
(fraud, mistake, undue influence), then sale may be set
aside.
 Where price is simulated such as when the real intention was
a donation or some other contract.
 Where the parties did not intend to be bound at all, sale is
void.
b. Involuntary Sales
 A judicial or execution sale is one made by a court with
respect to the property of a debtor for the satisfaction of his
indebtedness.
 Rescissible contracts of sale – inadequacy of price is a
ground for rescission of conventional sale. (Article 1381(1))
Simulated Price
When is a contract simulated What is a simulation of contract?
Effect of simulated contract A process of intentionally deceiving other by producing the appearance of a
Article 1345. Simulation of a contract contract that really does not exist (absolute) or which it different from the true
may be absolute or relative. The agreement (relative).
former takes place when the parties do
not intent to be bound at all; the latter, Requisites
when the parties conceal their true a. Outward declaration of will different from the will of the parties;
agreement. b. False appearance must have been intended by mutual agreement;
c. The purpose is to deceive third persons.
Article 1346. An absolutely simulated
or fictitious contract is void. A relative What is the effect of a simulated contract?
simulation, when it does not prejudice Absolute simulation – the contract is void. The parties did not intend to be
a third person and is not intended for bound by the agreement.
any purpose contrary to law, morals,
good customs, public order, or public Relative simulation – then it shall be bind the parties provided no third
policy binds the parties to their real person shall be prejudiced by such simulation.
agreement.
Kinds of simulated contracts
a. Absolutely simulated (fictitious contracts)
 Parties do not intend to be bound.
 Effect – contract is void.
b. Relatively Simulated (disguised contracts)
 Parties conceal their true agreement.
 Effect – parties are bound to the real or true agreement or
contract, except:
o If contract should prejudice a third person; or
o If the purpose is contrary to law, moral, good
customs, public order, or public policy.

Note: If the absolute simulation does not have an illicit purpose, the parties to
the contract may prove the simulation in order to recover whatever may have
been given under such simulated act. But, if the simulated contract has an
illegal object, the provisions of Article 1411 and 1412 will apply.
When is a price simulated Although the cause is not stated in the contract, it is presumed that it exists
Effect of simulated price and is lawful, unless the debtor proves the contrary. (Article 1354)
Article 1471. If the price is simulated,
the sale is void, but the act may be Illustrative case:
shown to have been in reality a Conveyance of property is for P1.00 and other valuable consideration.
donation or some other act or contract. Held: Yes, the quitclaim deed is with a valid cause or consideration. The
cause or consideration is not the P1.00 alone but also other valuable
consideration. Although the cause is not stated in the contract, it is presumed
that it is existing unless the debtor probes the contrary. This presumption
cannot be overcome by a simple assertion of lack of consideration especially
when the contract itself states that consideration was given, and the same
has been reduced into a public instrument with all due formalities and
solemnities.

When is a price real?

The price is real if the buyer truly has the intention to pay the purchase price
and the seller truly has the intention of receiving the purchase price.

What is the effect when price is simulated?

If the price is simulated 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.

When does simulation occur?

When an apparent contract is a declaration of a fictitious will deliberately
made by agreement of the parties, to produce, for deception, the appearance
of a juridical act which does not exist or differs from that which was really
executed.

Requisites
1. An outward declaration of will different from the will of the parties;
 2. The false appearance must have been intended by agreement; and
3. The purpose is to deceive third persons.

What if the price is stated in the contract as paid but is actually not?
It is a badge that the price is simulated. It will be void for lack of consideration.
It produces no effect whatsoever. Unless it can be shown that the parties
intended some act or contract, such as donation. (Article 1470)

What if the payment was mistakenly stated?

It does necessarily make the price simulated. The seller can compel the
payment of the purchase price of the buyer, if they really intend to follow the
contract.

What is the remedy of the unpaid seller?

The nonpayment of the price does not necessarily prove simulation. It gives
the seller the right to sue for collection.

What if half is real and the other portion is intended to be a donation?

There will exist a negotium mixtum cum donatione or an indirect donation.

What if they do not intend to transfer, donate, or whatsoever because

they do not really intend to be bound at all?
The contract is void and inexistent.
False Price When is the price false?
If the parties agreed on the price but the true price is not reflected in the
contract of sale. The parties intended to be bound by the true price. The
parties conceal their true agreement (in relation to price) which makes it false.

What is the effect of a false price?

It is still valid and enforceable, but it is subject to reformation (Article 1359).

What is the difference of a false price and a simulated price?

A false price is when the true price is not reflected on the contract of sale,
there is an intention to be bound by the true price; while simulated, when the
parties did not intend that the purchase price be paid.
Lawful Price
Article 1409. The following contracts When is the price lawful?
are inexistent and void from the The price is real if the buyer truly has the intention to pay the purchase price
beginning: and the seller truly has the intention of receiving the purchase price.
(1) Those whose cause, object
or purpose is contrary to When is price lawful?
law, morals, good customs,
public order or public
when it is simulated or false. (refer to these topic’s table)
policy; What is the effect when the price is unlawful?
(2) Those which are absolutely In relation to Article 1353, false cause does not necessarily mean that
simulated or fictitious; contract is void, the parties are given a chance to show that a cause really
(3) Those whose cause or object exists and is lawful and true.
did not exist at the time of the
transaction;
(4) Those whose object is outside
the commerce of men;
(5) Those which contemplate an
impossible service;
(6) Those where the intention of
the parties relative to the
principal object of the contract
be ascertained;
(7) Those expressly prohibited or
declared void by the law.
These contracts cannot be ratified.
Neither can the right to set up the
defense of illegality be waived.

Article 1417. When the price of any

article or commodity is determined by
statute, or authority of law, any person
paying any amount in excess of the
maximum price allowed may recover
such excess.