It just never existed

Rey is an illiterate, but a generous and landed man. He owns a 448-sqm lot located in Mabolo, Cebu City.

In need of money, Rey sold 185 sqm of his lot to his friends, spouses Abu and Kay. He thereafter allowed his childhood friend, Jay to build a small house on the portion of the lot that remained with him.

Meanwhile, another neighbor, Mon, expressed interest in acquiring the remaining portion of Rey’s Mabolo property. Mon promised to pay Rey the purchase price within one month from the signing of the Deed of Sale. Rey agreed.

Mon, taking advantage of Rey’s illiteracy, made the latter affix his thumbmark on a document. Contrary to what they agreed upon, the deed of absolute sale provides, among others, that Rey acknowledged receipt of the purchase price in full and that the entire Mabolo property was sold to Mon.

Rey demanded the return of the Deed of Sale when Mon failed to pay the purchase price after the lapse of the one-month period. Since Mon refused to return the Deed of Sale, Rey caused the revocation of the Deed of Sale. Subsequently, Rey sold the entire lot to Abu and Kay.

Much to their consternation, Rey, and spouses Abu and Kay received information that the Register of Deeds issued a new title in the name of Mon.

Rey, Abu and Kay were then forced to file a complaint for Declaration of Nullity and Quieting of Title against Mon.

In court, Rey, Abu and Kay argued that the contract is void from the beginning because there was lack of consideration as there was no meeting of the minds between Rey and Mon.

On the other hand, Mon claimed that he was a buyer in good faith. Mon even represented that he actually paid a portion of the purchase through cash. Mon likewise claimed that he settled the chattel mortgage debt of Jay which was constituted over the house he built on Rey’s land.

Rey argued that he has nothing to do with Jay’s debt and chattel mortgage. He said that the payment by Mon to release the mortgage on Jay’s house is a matter between Mon and Jay. The mortgage on the house, being a chattel mortgage, could not be interpreted in any way as an encumbrance on the Mabolo lot.

Q: Can the payment by Mon of Jay’s loan be considered as partial payment of the purchase price?

A: No, the payment made by Mon to Jay cannot be considered as payment of the purchase price since there is nothing in the Deed of Sale that allowed Mon to pay a portion of the purchase price through the settlement of Jay’s debt.

Absent any evidence showing that Rey had agreed to the payment of the purchase price to any other party, the payment to be effective must be made to Rey, the vendor in the sale. Article 1240 of the Civil Code provides as follows:

“Payment shall be made to the person in whose favor the obligation has been constituted, or his successor in interest, or any person authorized to receive it.”

Q: What are the elements of a valid contract?

A: Under Article 1318 of the Civil Code, “[T]here is no contract unless the following requisites concur: (1) Consent of the contracting parties; (2) Object certain which is the subject matter of the contract; (3) Cause of the obligation which is established.” Article 1352 of the Civil Code also provides that “[C]ontracts without cause x x x produce no effect whatsoever.”

Q: Guided by the above, is the Deed of Sale the parties executed void ab initio or only rescissible?

A: On its face, the parties’ Deed of Absolute Sale appears supported by a valuable consideration. However, based on the evidence presented by both Rey and Mon, it appears that Mon never paid to Rey, and Rey never received from Mon the purchase price.

There was indisputably a total absence of consideration contrary to what is stated in the Deed of Absolute Sale.

Clearly, the purported contract that lacks a cause—one of the three essential requisites of a valid contract. Failure to pay the consideration is different from lack of consideration.

The former results in a right to demand the fulfillment 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, the deed of sale is null and void ab initio for lack of consideration.

Q: Is there another reason for the subject Deed of Sale to be considered void ab initio?

A: Yes. One of the three essential requisites of a valid contract is consent of the parties on the object and cause of the contract. In a contract of sale, the parties must agree not only on the price, but also on the manner of payment of the price.

An agreement on the price but a disagreement on the manner of its payment will not result in consent, thus preventing the existence of a valid contract for lack of consent.

This lack of consent is separate and distinct from lack of consideration where the contract states that the price has been paid when in fact it has never been paid.

Here, Rey expected Mon to pay him directly the purchase price within one month after the signing of the Deed of Sale.

On the other hand, Mon thought that his agreement with Rey required him to pay the creditor of Jay to settle Jay’s mortgage debt. Mon also acknowledged that there remains an unpaid balance in the purchase although this amount is not stated in the subject Deed of Sale.

Thus, there was no consent, or meeting of the minds, between Rey and Mon on the manner of payment. This prevented the existence of a valid contract because of lack of consent.

In summary, the Deed of Sale is null and void ab initio not only for lack of consideration, but also for lack of consent. The cancellation of transfer certificate title in the name of Mon is in order as there was no valid contract transferring ownership of the Mabolo Lot. (Source: MonteMon vs. Reynes, G.R. No. 138018, July 26, 2002)

Ma. Soledad Deriquito-Mawis is currently the Dean for the Lyceum of the Philippines University; president of the Philippines Association of Law Schools; and Senior Partner, Gatchalian Castro & Mawis Law Office