Art. 1470. Gross inadequacy of price does not affect a contract of sale, except as it may indicate a defect in the consent, or that the parties really intended a donation or some other act or contract. (Civil Code)
A. In Voluntary Sales
General Rule: Mere inadequacy of the price does not affect validity of the sale
Exceptions:
1. Where low price indicates a defect in the consent such as when fraud, mistake, or undue influence is present in which case the contract may be annulled not because of the inadequacy of price but because the consent is vitiated.
2. Where the price is so low as to be “shocking to conscience”, sale may be set aside.
● A valuable consideration, however small or nominal, if given or stipulated in good faith is, in the absence of fraud, sufficient. (Rodriguez vs. CA, G.R. No. 84220, March 25, 1992)
● Contracts are valid even though one of the parties entered into it against his own wish and desire, or even against his better judgment (Lagunzad vs Sotto Vda. De Gonzales, 92 SCRA 476, 1979)
● Mere inadequacy of the price does not affect the validity of the sale when both parties are in a position to form an independent judgment concerning the transaction, unless fraud, mistake, or undue influence indicative of a defect in consent is present. The contract may be annulled for vitiated consent and not due to the inadequacy of price. (Bautista vs CA, G.R. No. 158015, August 11, 2004)
In conventional sales with right to repurchase feature, the gross inadequacy of price raises a presumption of equitable mortgage. The proper remedy of the alleged seller, who is actually an equitable mortgagor, is not to rescind the contract of sale but to have it reformed or declared a mortgage contract, and to pay off the indebtedness which is secured. On the other hand, the remedy of the alleged buyer would be to foreclose the equitable mortgage. (Villanueva, Law on Sales)
C. In Judicial Sales
General Rule: Mere inadequacy of the price does not affect validity of the sale
Exceptions:
1. Where the price is so low as to be shocking to the moral conscience, judicial sale may be set aside.
2. In the event of a resale, a better price can be obtained.
● Inadequacy of price, unless shocking to the conscience, is not a sufficient ground for setting aside a sale if there is no showing that, in the event of a resale, a better price can be obtained. (Cu Bie vs CA, G.R. No. L-17294. November 29, 1965)
● A judicial sale of real estate will not be set aside for inadequacy of price, unless the inadequacy be so great as to shock the conscience, or unless there be additional circumstances against its fairness. If the inadequacy of price paid for the purchase of real estate at a sale on an execution be so gross as to shock the conscience, or if in addition to gross inadequacy the purchaser has been guilty of unfairness or has taken any undue advantage, or if the owner of the property or the party interested in it has been for any other reason misled or surprised, then the sale will be regarded as fraudulent and void, and the party injured will be permitted to redeem the property sold. (PNB vs. Gonzalez, G.R. No. L-21026, February 13, 1924)
D. In judicial sale where there is a right of redemption
Unlike in an ordinary sale, inadequacy of the price at a forced sale is immaterial and does not nullify a sale since, in a forced sale, a low price is more beneficial to the mortgage debtor for it makes redemption of the property easier. (Bank of the Philippine Islands, etc. v. Reyes, G.R. No. 182769, February 1, 2012)
As to the inadequacy of the price of the sale, this court has repeatedly held that the fact that a property is sold at public auction for a price lower than its alleged value, is not of itself sufficient to annul said sale, where there has been strict compliance with all the requisites marked out by law to obtain the highest possible price, and where there is no showing that a better price is obtainable. (Government of the Philippines vs. De Asis, G. R. No. 45483, April 12, 1939)
While in ordinary sales for reasons of equity a transaction may be invalidated on the ground of inadequacy of price, or when such inadequacy shocks one’s conscience as to justify the courts to interfere, such does not follow when the law gives to the owner the right to redeem, as when a sale is made at public auction, upon the theory that the lesser the price the easier it is for the owner to effect the redemption. (De Leon vs Salvador, G.R. No. L-30871, December 28, 1970)
When there is a right to redeem, inadequacy of price should not be material because the judgment debtor may re-acquire the property or else sell his right to redeem and thus recover any loss he claims to have suffered by reason of the price obtained at the execution sale. Thus, respondent stood to gain rather than be harmed by the low sale value of the auctioned properties because it possesses the right of redemption.(Sps. Rabat vs PNB, G.R. No. 158755, June 18, 2012)
Rescissible contracts of sale
When is a inadequacy of price a ground for rescission of conventional sales in case of rescissible contracts covered under Art. 1381 of the Civil Code, namely:
● A judicial sale of real estate will not be set aside for inadequacy of price, unless the inadequacy be so great as to shock the conscience, or unless there be additional circumstances against its fairness. If the inadequacy of price paid for the purchase of real estate at a sale on an execution be so gross as to shock the conscience, or if in addition to gross inadequacy the purchaser has been guilty of unfairness or has taken any undue advantage, or if the owner of the property or the party interested in it has been for any other reason misled or surprised, then the sale will be regarded as fraudulent and void, and the party injured will be permitted to redeem the property sold. (PNB vs. Gonzalez, G.R. No. L-21026, February 13, 1924)
D. In judicial sale where there is a right of redemption
Unlike in an ordinary sale, inadequacy of the price at a forced sale is immaterial and does not nullify a sale since, in a forced sale, a low price is more beneficial to the mortgage debtor for it makes redemption of the property easier. (Bank of the Philippine Islands, etc. v. Reyes, G.R. No. 182769, February 1, 2012)
As to the inadequacy of the price of the sale, this court has repeatedly held that the fact that a property is sold at public auction for a price lower than its alleged value, is not of itself sufficient to annul said sale, where there has been strict compliance with all the requisites marked out by law to obtain the highest possible price, and where there is no showing that a better price is obtainable. (Government of the Philippines vs. De Asis, G. R. No. 45483, April 12, 1939)
While in ordinary sales for reasons of equity a transaction may be invalidated on the ground of inadequacy of price, or when such inadequacy shocks one’s conscience as to justify the courts to interfere, such does not follow when the law gives to the owner the right to redeem, as when a sale is made at public auction, upon the theory that the lesser the price the easier it is for the owner to effect the redemption. (De Leon vs Salvador, G.R. No. L-30871, December 28, 1970)
When there is a right to redeem, inadequacy of price should not be material because the judgment debtor may re-acquire the property or else sell his right to redeem and thus recover any loss he claims to have suffered by reason of the price obtained at the execution sale. Thus, respondent stood to gain rather than be harmed by the low sale value of the auctioned properties because it possesses the right of redemption.(Sps. Rabat vs PNB, G.R. No. 158755, June 18, 2012)
Rescissible contracts of sale
When is a inadequacy of price a ground for rescission of conventional sales in case of rescissible contracts covered under Art. 1381 of the Civil Code, namely:
(1) Those which are entered into by guardians whenever the wards whom they represent suffer lesion by more than one-fourth (1/4) of the value of the object of the sale; and
(2) Those agreed upon in representation of absentees, if the latter suffer the lesion by more than one-fourth (1/4) of the value of the object of the sale. (Villanueva, Law on Sales)
(2) Those agreed upon in representation of absentees, if the latter suffer the lesion by more than one-fourth (1/4) of the value of the object of the sale. (Villanueva, Law on Sales)
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