Since a contract of sale is an onerous and commutative contract, it is essential that consideration agreed upon, namely the price, must be real.
a. When Price Is Real
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 legal expectation on the part of the seller to receive such price as the value of the subject matter he obligates himself to deliver.
Peñalosa v. Santos,13 held that when the parties execute a
Deed of Absolute Sale over a parcel of land with the understanding that the price indicated therein would be paid from the proceeds of the loan to be obtained by the buyer from a bank using the subject property as mortgage collateral, then neither the contract of sale nor the price can be considered as wholly simulated, for there was valuable consideration, and the non-payment of the price because of the refusal of the seller to turn-over the title to the bank, would not grant the seller the right to rescind the sale after the buyer has duly consigned the price with the courts.
b. When Price Is Simulated
When the price is simulated because neither party to the Deed of Sale had any intention whatsoever that the amount will be paid, the sale is void,14 although the act may be shown to have
12Art. 1458, Civil Code. 13363 SCRA 545 (2001).
been in reality a donation, or some other contract.15 The whole
issue therefore boils down to contractual intent: if there was no intent by the parties at the time of perfection to pay and to receive the price stipulated, then it is a wholly simulated price, and the underlying contract of sale is void for lack of consideration. The Court has held that “[i]n absolute simulation, there is a colorable contract but without any substance, because the parties have no intention to be bound by it. An absolutely simulated contract is void, and the parties may recover from each other what they may have given under the ‘contract.’”16 The determination of what was
the intent of the parties at perfection has been drawn by the Court from the contemporenous and subsequent acts of the parties.
In one case,17 the Court considered it to be the “most
protuberant index of simulation” of the price when there is a “complete absence of an attempt in any manner on the part of the buyer to assert his rights of ownership over the land and rice mill in question. The failure of the buyer to take possession of the property allegedly sold to him is a clear badge of fraud,”18 and
therefore considered the sale utterly void.
In another case,19 the Court held that the admission by the
buyer that he did not pay any centavo for the property, made the sale void, especially when evidence showed that the deed of sale was forged.
As discussed below, the indication in the covering instrument that the price has been agreed upon and paid, when in fact there has been no such payment, has been considered to be an indication of simulation of price.20
When the price is completely simulated, then the principle of in pari delicto nonovitar actio should apply, which denies all recovery to the guilty parties inter se. However, such principle
15Art. 1471, Civil Code.
16Heirs of Spouses Balite v. Lim, 446 SCRA 54, 67 (2004). 17Suntay v. Court of Appeals, 251 SCRA 430 (1995). 18Ibid, at p. 432.
19Labagala v. Santiago, 371 SCRA 360 (2001).
20Perez & Co. v. Flores, 40 Phil. 921 (1920); Vda. de Catindig v. Heirs of Catalina
Roque, 74 SCRA 83 (1976); Ladanga v. Court of Appeals, 131 SCRA 361 (1984); Montecillo v. Reynes, 385 SCRA 244 (2002).
applies to cases where the nullity arises from the illegality of the consideration or the purpose of the contract,21 but does not
apply to inexistent and void contracts where the price is merely simulated.22
c. When Price Is False
Price is “false” when there is a real price upon which the minds of the parties had met, but not declared, and what is stated in the covering deed is not the one intended to be paid.
If the price indicated in the covering instrument is false, the contract of sale is valid, but the underyling deed is subject to
reformation to indicate the real price upon which the minds of the
parties have met.23 In one case,24 when the parties intended to
be bound by the contract except that it did not refl ect the actual purchase price of the property, the Court ruled that there was only a relative simulation of the contract which remained valid and enforceable, but subject to reformation. In another case,25 the
Court held that “if the parties state a false cause in the contract to conceal their real agreement, such a contract is relatively simulated ... the parties’ real agreement binds them.”26
Nevertheless, the parties may be held bound by the false price indicated in the instrument under estoppel principle, espe- cially when the interest of the Government or third parties would be adversely affected by the reformation of the instrument.27
d. Meeting of Minds as to Price
In Mapalo v. Mapalo,28 the spouses Mapalo, who were
simple illiterate farmers, were made to sign a deed of sale over
21Modina v. Court of Appeals, 317 SCRA 696 (1999). 22Yu Bun Guan v. Ong, 367 SCRA 559 (2001).
23Article 1359 of the Civil Code provides that “When, there having been a meeting of the minds of the parties to a contract, their true intention is not expressed in the instrument purporting to embody their agreement . . . one of the parties may ask for the reformation of the instrument to the end that such true intention may be expressed.”
24Macapagal v. Remorin, 458 SCRA 652 (2005). 25Heirs of Spouses Balite v. Lim, 446 SCRA 56 (2004). 26Ibid, at p. 67.
27Spouses Doromal, Sr. v. Court of Appeals, 66 SCRA 575 (1975). 2817 SCRA 114 (1966).
their registered land although they were told that they were signing a donation for the eastern half of said property in favor of the brother. Although the deed of sale stated a consideration of 5500.00, no such consideration was paid.
On the issue over the western part of the land which was never intended to be conveyed by the spouses, the Court differentiated between a contract that had no consideration from one which merely contained a false consideration. It ruled that according to Manresa, what is meant by a contract that states a false consideration is one that has in effect a real consideration but the same is not the one stated in the document. In Mapalo, aside from the false consideration of 5500.00, there was no real consideration as to the western half of the property; therefore, the contract was one with no consideration and not one that merely states a false consideration. It was void, and its inexistence was permanent and incurable and could not be subject of prescription.
Similar is the decision in Rongavilla v. Court of Appeals,29
where the Court held that when two aged ladies, not versed in English, were made to sign a Deed of Absolute Sale on the representation by the buyer that the document was merely to evidence their lending of money, the situation constituted more than just fraud and vitiation of consent to give rise to a voidable contract, since there was in fact no intention to enter into a sale, there was no consent at all, and there was no consideration or price agreed upon, which made the contract void.
e. Effect of Non-Payment of Price
If the price is fi xed but is later on remitted or condoned, this is perfectly all right, for then the price would not be fi ctitious. The failure to pay the price does not cancel a sale for lack of consideration, for there is still consideration. The failure to pay a real price goes not into perfection of the sale but into its consummation.30 The failure to pay the price or the balance
thereof does not render the sale inexistent or invalid, but merely
29294 SCRA 289 (1998).
gives rise to a right in favor of the seller to either demand specifi c performance or rescission of the contract of sale.31
Vda. de Catindig. v. Heirs of Catalina Roque,32 held that a
contract of sale is void and produces no effect whatsoever where the price, which appears thereon as paid, has in fact never been paid by the purchaser to the vendor.33 Although the fi rst part of
the ruling is correct that a contract of sale is void if the price stipulated is simulated, the second portion is hard to accept per
se, where it says that a sale is void where “the purchase price
which appears thereon as paid has in fact never been paid by the purchaser to the vendor.”34
It is not the fact of payment of the price that determines the validity of a contract of sale, since sale is not a “real contract.” Sale is a consensual contract, and it becomes a binding and valid contract upon the meeting of the minds on the price. If the minds of the parties never meet as to the price, because the price stipulated is known by both parties as simulated, the contract is undoubtedly void.35 On the other hand, if the minds of the parties
have met as to the price, the contract of sale is valid, irrespective of the manner of payment they agreed upon, or even by the breach of that manner of payment agreed upon.36
Therefore, in a contract of sale where the price agreed upon was a real price, although the parties showed on the face of the covering deed that the price had been paid, when in fact it has not yet been paid (e.g., a separate promissory note is executed to cover the payment of the purchase price), the contract of sale is still valid, although the non-payment of the price is a cause either for specifi c performance or for rescission.
This position has been confi rmed in Balatbat v. Court of
Appeals,37 which held: “A contract of sale being consensual, it is
perfected by the mere consent of the parties. Delivery of the thing
31Province of Cebu v. Heirs of Rufi na Morales, 546 SCRA 315 (2008). 3274 SCRA 83 (1976).
33Reiterated in Montecillo v. Reynes, 385 SCRA 244 (2002). 3474 SCRA 83, 88 (1976).
35Ladanga v. Court of Appeals, 131 SCRA 361 (1984). 36Ibid.
bought or payment of the price is not necessary for the perfection of the contract; and failure of the vendee to pay the price after the execution of the contract does not make the sale null and void for lack of consideration but results at most in default on the part of the vendee, for which the vendor may exercise his legal remedies.”38
Heirs of Pedro Escanlar v. Court of Appeals,39 also held: “In
a contract of sale, the non-payment of the price is a resolutory condition which extinguishes the transaction that, for a time, existed and discharges the obligations created thereunder. The remedy of an unpaid seller in a contract of sale is to seek either specifi c performance or rescission.”40
It is unfortunate that the Court often states that the non- payment of the price in a contract of sale “is a resolutory condition which extinguishes the transactions.”41 First, a clause becomes
a condition only when the terms of the agreement clearly make it so. Second, the happening of a resolutory condition ipso jure extinguishes the obligation or the contract which it modifi es without need of further action on the part of the obligee. Generally, the non-payment of the price constitutes a mere breach of contract that allows the seller, at his option, either to seek specifi c performance or for rescission.
Lately, in Montecillo v. Reynes,42 the Court held — . . . Failure to pay the consideration is different from lack of consideration. The former results in a right to demand the fulfi llment or cancellation of the obligation under an existing valid contract while the latter prevents the existence of a valid contract. Where the deed of sale states that the purchase price has been paid but in fact has never been paid,
38Ibid, at p. 140. Reiterated in Bravo-Guerrero v. Bravo, 465 SCRA 244 (2005). 39281 SCRA 176 (1997).
40Ibid, at p. 188. Reiterated in Soliva v. The Intestate Estate of Marcelo M. Villalba, 417 SCRA 277 (2003).
41Gil v. Court of Appeals, 411 SCRA 18 (2003); Soliva v. The Intestate Estate
of Marcelo M. Villalba, 417 SCRA 277 (2003); Blas v. Angeles-Hutalla, 439 SCRA 273
(2004); Carrascoso, Jr. v. Court of Appeals, 477 SCRA 666 (2005).
the deed of sale is null and void ab initio for lack of consideration. . .43
The ruling of the Court would mean that when the deed of sale declares that the price has been paid, when in fact it has never been paid, that would be considered a “badge of simulation” and would render the contract void.
f. Accommodation Does Not Make Sale Void for Lack of Price
Yu Bun Guan v. Ong,44 held that when the Deed of Sale was
executed merely to facilitate the transfer of the property to the buyer pursuant to an agreement to enable the buyer to construct a commercial building and to sell the property to the children, but that in truth the agreement was a mere subterfuge on the part of the buyer, the agreement cannot be taken as a consideration for the sale which the Court held to be void.
The ruling in Yu Bun Guan is in stark contrast to the Court’s earlier decision in Mate v. Court of Appeals,45 which sustained the
validity of the arrangement even when fraud may have been the intention of the party accommodated, more so when fraud has not been considered an effi cient cause to render a contract void, but rather voidable by reason of vice in the consent of the party-victim.
In Mate, the Court held that where the registered owner of land (Mate), in order to accommodate a relative (Josefi na) who was threatened to be criminally sued by a creditor (Tan) for issuance of bouncing checks, executed a Deed of Absolute Sale with a right of repurchase in favor of said creditor, and for which the registered owner received post-dated checks from the kin to cover the amount necessary for him to repurchase the property, plus interests income for the accommodation, the fact that the checks bounced did not render the sale void for having a fi ctitious consideration. The Court, quoting from the decision of the respondent court, held —
43Ibid, at p. 256. 44367 SCRA 559 (2001). 45290 SCRA 463 (1998).
“In preparing and executing the deed of sale with right of repurchase and in delivering to Tan the land titles, appellant actually accommodated Josefi na so she would not be charged criminally by Tan. To ensure that he could repurchase his lots, appellant got a check of 51,400,000.00 from her. Also, by allowing his titles to be in possession of Tan for a period of six months, appellant secured her another check for 5420,000.00. With this arrangement, appellant was convinced he had a good bargain. Unfortunately his expectation crumbled. . .
x x x x x x x x x
“It is plain that consideration existed at the time of the execution of the deed of sale with right of repurchase. It is not only appellant’s kindness to Josefi na, being his cousin, but also his receipt of 5420,000.00 from her which impelled him to execute such contract.”46
Mate is a prime example to show that even when undoubtedly
the price stipulated in the covering instrument is simulated (i.e., false) the underlying sale would still be valid and enforceable provided there is another consideration (apart from the false price) to support the sale.
g. Simulation of Price Affects Delivery of Subject Matter
When a contract of sale is fi ctitious, and therefore void and inexistent, as there was no consideration for the same, no title over the subject matter of the sale can be conveyed. Nemo potest
nisi quod de jure potest — no man can do anything except what
he can do lawfully.47
Delivery of the subject matter made pursuant to a sale that is void for lack of consideration therefore does not transfer ownership to the buyer. But care should be made to distinguish between a simulated price that affects delivery, on one hand, and the failure to pay the price, on the other hand, which does not affect the effi cacy of delivery of the subject matter.
46Ibid, at pp. 467-468.
Early on, Perez & Co. v. Flores,48 held that a sale is null
and void and produces no effect whatsoever where the same is without cause or consideration in that the purchase price which appears thereon as paid has in fact never been paid by the purchaser to the vendor.49 The essence of the ruling is that there
was never any real price agreed upon, and the failure to delivery the price was one of the indications to show its simulation.
2. Price Must Be in Money or Its Equivalent: