What happens to a sale if the third person we agreed would set the price refuses to fix it?

Inefficacious means there is nothing to enforce

Leaving the price to the judgment of a special person is perfectly valid; a price is certain enough if it can be worked out that way. But the arrangement depends on that person actually doing it. Article 1469 provides that Should such person or persons be unable or unwilling to fix it, the contract shall be inefficacious, unless the parties subsequently agree upon the price. Neither side can be made to perform, because the element that would tell a court what to enforce was never supplied. The cure the article itself offers is the obvious one: agree on a figure now, and the sale stands from that agreement.

When a court will step in instead

There are two situations where the refusal does not end matters. The first is written into the same article: If the third person or persons acted in bad faith or by mistake, the courts may fix the price. That covers an appraiser who was got at by one side, or one who valued the wrong thing. The second is where the third person was prevented from fixing the price or terms by the fault of the seller or the buyer. There the party not in fault has the remedies the law otherwise allows him, so obstruction does not become an escape route for whoever caused it.

Establish which of the three it actually was

The practical work is telling a genuine refusal apart from an engineered one. An appraiser who declines because he was never paid, never given access to the property, or never sent the documents he asked for has been prevented rather than merely unwilling, and the correspondence usually shows which. Keep the instruction letter, the fee arrangement, the requests for access and the reply that closed the matter. If the person gave reasons for standing down, those reasons are the most valuable document in the file, because they decide whether you are arguing inefficacy, fault or mistake.

Drafting so the deal does not die

A price clause that names one valuer and stops there is fragile. Article 1469 allows the price to be certain by reference to another thing certain as well, so a formula, an index or a defined market rate can be written in as a fallback if the nominee does not act, along with a named substitute. Note also that if the thing or part of it has already been delivered to and appropriated by the buyer, Article 1474 requires payment of a reasonable price, so a half-performed deal is not simply unwound and forgotten.

Cases citing this provision

These Supreme Court decisions cite the provision above. We list them so you can read them yourself; the summaries of what each decided are not ours to give.

• Captain Ramon R. Verga, Jr. vs. Harbor Star Shipping Services, Inc, G.R. No. 261323, November 27, 2024 — read the decision on LawPhil →

Related provisions

• Civil Code, Article 1469 — Price Certain
• Civil Code, Article 1474 — Indeterminable Price; Reasonable Price
• Civil Code, Article 1472 — Price by Reference to an Exchange or Market