Who has the capacity to capacity to buy or to sell?

In general all persons who may enter into a simple contract may also enter into a
contract of sale. All persons either natural or juridical is given the legal capacity to
buy and sell. However there are those given by law an absolute and relative
incapacity to enter into a contract of sale.

Art. 1489. All persons who are authorized in this Code to obligate themselves, may
enter into a contract of sale, saving the modifications contained in the following
articles.

Where necessaries are those sold and delivered to a minor or other person without
capacity to act, he must pay a reasonable price therefor. Necessaries are those
referred to in Article 290. (1457a)

*This provision of the New Civil Code mentioned about necessaries which is defined
in Art. 194 of the Family Code as everything indispensable for sustenance, dwelling,
clothing, medical, attendance, education, and transportation.

Kinds of Incapacity:

Absolute incapacity

Relative incapacity

Specific incapacity

Who are those with absolute incapacity according to the law?

Those that are considered absolutely incapable of entering into a contract of sale
are those that cannot bind themselves because of reasons for example like age,
defect intellect and mental capacity.

Article 1327: The following cannot give consent to a contract:

Unemancipated minors

*Those which have not yet reached the age of majority which is 18 years old.

Insane or demented persons and

Deaf-mutes who do not know how to write

Article 1328: Contracts entered into during a lucid interval are valid. Contracts
agreed to in a state of drunkenness or during a hypnotic spell are voidable.
*Lucid interval is the period wherein the person suffering from mental illness is
restored to his normal intellectual capacity, intelligence, judgment and reason.

Article 1390: The following contracts are voidable or annullable, even though there
may have been no damage to the contracting parties:

One of the parties is incapable of giving consent (want of capacity)

Consent is vitiated by mistake, violence, intimidation, undue influence or fraud

(vitiated consent)

These contracts are binding, unless they are annulled by a proper court action. They
are susceptible of ratification.

Who are those with relative incapacity according to the law?

Those that are considered relatively incapable of entering into a contract of sale are
in relation only to certain persons and classes of property.

Articles 1490: Husband and wife cannot sell property to each other, except

When separation of property was agreed upon in marriage settlements

When there has been judicial separation of property under Art 191

*This is to prevent commission of fraud or prejudice to third persons, the other

taking undue influence over the other and to avoid indirect donations. However the
husband and wife cannot sell property to each other except when a separation of
property was agreed upon in the marriage settlements and where there has been a
judicial separation of property as provided by law.

Who are those with specific incapacity according to the law?

Those that are considered specifically incapable of entering into a contract of sale
are in relation only to their occupation and relation to other persons due to public
policy, public order, public morals and so forth.

Art. 1491. The following persons cannot acquire by purchase, even at a public or
judicial auction, either in person or through the mediation of another:

The guardian, the property of the person or persons who may be under his
guardianship;

*The relationship of the guardian and ward is so intimate that the influence is so
great which might cause highly suspicious and fraudulent contract of sale. This
influence is assumed to last while the guardian is still functioning in its capacity, the
property is still under his control and accounts have finally been settled.
Agents, the property whose administration or sale may have been entrusted to
them, unless the consent of the principal has been given;

*This incapacity rests on the principle that the agent and principal rest on one
juridical person. The agent stands on fiduciary relationship with his principal. He is
prohibited to buy the property he is supposed to sell unless the principal consented
thereto.

Executors and administrators, the property of the estate under administration;

*The prohibition applies to properties under the administration of the executor and
administrator. Executors do not administer the hereditary rights of any heir and thus
not part of the property administered by them.

Public officers and employees, the property of the State or of any subdivision
thereof, or of any government-owned or controlled corporation, or institution, the
administration of which has been intrusted to them; this provision shall apply to
judges and government experts who, in any manner whatsoever, take part in the
sale;

*This prohibition applies to properties belonging to the State or any subdivision

thereof or any government-owned or controlled corporations or institutions and
those administered by these public officials.

Justices, judges, prosecuting attorneys, clerks of superior and inferior courts, and
other officers and employees connected with the administration of justice, the
property and rights in litigation or levied upon an execution before the court within
whose jurisdiction or territory they exercise their respective functions; this
prohibition includes the act of acquiring by assignment and shall apply to lawyers,
with respect to the property and rights which may be the object of any litigation in
which they may take part by virtue of their profession.

*The prohibition applies to properties subject of litigation to the persons disqualified

by virtue of this provision. It applies during the pendency of litigation involving the
property. Such as when the property is subject to the judicial action of the judge or a
lawyer, who by virtue of his profession, takes part on the purchase of the property.

Any others specially disqualified by law. (1459a)

*These are for example, aliens who cannot purchase agricultural lands prohibited by
the Constitution, an officer managing an execution sale cannot purchase the subject
property as prohibited by the Rules of Court or an unpaid seller who prohibited in
buying the goods in the resale of the same at a public or private sale as barred by
the New Civil Code of the Philippines.

What are the remedies of the seller for breach of contract of sale according to the
law?
When the seller is prejudiced due to the breach of contract by the buyer, the
following provisions of the law shall govern:

Action for payment of the price

Art. 1595. Where, under a contract of sale, the ownership of the goods has passed
to the buyer and he wrongfully neglects or refuses to pay for the goods according to
the terms of the contract of sale, the seller may maintain an action against him for
the price of the goods.

*The seller may maintain an action for payment of the price when the ownership of
the goods sold already passed to the buyer and he fails to pay in a wrongful manner
attributable to him.

Where, under a contract of sale, the price is payable on a certain day, irrespective
of delivery or of transfer of title and the buyer wrongfully neglects or refuses to pay
such price, the seller may maintain an action for the price although the ownership in
the goods has not passed. But it shall be a defense to such an action that the seller
at any time before the judgment in such action has manifested an inability to
perform the contract of sale on his part or an intention not to perform it.

*The seller may also demand payment when he likewise fails to pay and neglects
wrongfully the date certain for its payments, irrespective of delivery and the
transfer of title to the buyer.

Although the ownership in the goods has not passed, if they cannot readily be
resold for a reasonable price, and if the provisions of article 1596, fourth paragraph,
are not applicable, the seller may offer to deliver the goods to the buyer, and, if the
buyer refuses to receive them, may notify the buyer that the goods are thereafter
held by the seller as bailee for the buyer. Thereafter the seller may treat the goods
as the buyers and may maintain an action for the price. (n)

*The seller may ask for payment of the price if the goods cannot be resold for a
reasonable price and the buyer refuses to accept them even before the ownership
to goods has passed.

Action for damages for non-acceptance of the goods

Art. 1596. Where the buyer wrongfully neglects or refuses to accept and pay for the
goods, the seller may maintain an action against him for damages for
nonacceptance.

The measure of damages is the estimated loss directly and naturally resulting in the
ordinary course of events from the buyers breach of contract.

Where there is an available market for the goods in question, the measure of
damages is, in the absence of special circumstances showing proximate damage of
a different amount, the difference between the contract price and the market or
current price at the time or times when the goods ought to have been accepted, or,
if no time was fixed for acceptance, then at the time of the refusal to accept.

If, while labor or expense of material amount is necessary on the part of the seller
to enable him to fulfill his obligations under the contract of sale, the buyer
repudiates the contract or notifies the seller to proceed no further therewith, the
buyer shall be liable to the seller for labor performed or expenses made before
receiving notice of the buyers repudiation or countermand. The profit the seller
would have made if the contract or the sale had been fully performed shall be
considered in awarding the damages. (n)

*The seller may demand for damages when the buyer fails to accept the goods
without lawful case and fails to pay the price agreed upon. He may also demand
damages when the ownership has not yet passed and the seller cannot recover the
price of the goods. He also has an action for damages when the goods are not yet
identified at the time of the contract. The damages may be measured by the labor
performed and expenses incurred for the materials or the profit that would have
been realized have it not for the non-acceptance of the buyer.

Action for rescission

Art. 1597. Where the goods have not been delivered to the buyer, and the buyer
has repudiated the contract of sale, or has manifested his inability to perform his
obligations thereunder, or has committed a breach thereof, the seller may totally
rescind the contract of sale by giving notice of his election so to do to the buyer. (n)

*The remedy afforded by this provision is applicable in the sale of goods which have
not yet been delivered to the buyer and the buyer repudiated the contract of sale,
manifested his inability to perform his obligations or there is mere breach of the
provisions of the contract of sale. The notice of rescission must be given by the
seller. The breach must not be slight or casual but must be substantial enough to
defeat the very essence of the contract.

What are the remedies of the buyer for breach of contract of sale according to the
law?

When the buyer is prejudiced due to the breach of contract by the seller, the
following provisions of the law shall govern:

Action for specific performance

Art. 1598. Where the seller has broken a contract to deliver specific or ascertained
goods, a court may, on the application of the buyer, direct that the contract shall be
performed specifically, without giving the seller the option of retaining the goods on
payment of damages. The judgment or decree may be unconditional, or upon such
terms and conditions as to damages, payment of the price and otherwise, as the
court may deem just. (n)

* The buyer may, without giving the seller the option to retain the goods on
payment of damages, may ask for specific performance. However there may be
instances in a court decision the judgment maybe unconditional, or upon such
terms and conditions as to the payment of damages, payment of the price and
otherwise, the court may order whatever it may deem just.

Action for rescission or damages for breach of warranty

Art. 1599. Where there is a breach of warranty by the seller, the buyer may, at his
election:

(1) Accept or keep the goods and set up against the seller, the breach of warranty
by way of recoupment in diminution or extinction of the price;

(2) Accept or keep the goods and maintain an action against the seller for damages
for the breach of warranty;

(3) Refuse to accept the goods, and maintain an action against the seller for
damages for the breach of warranty;

(4) Rescind the contract of sale and refuse to receive the goods or if the goods have
already been received, return them or offer to return them to the seller and recover
the price or any part thereof which has been paid.

When the buyer has claimed and been granted a remedy in anyone of these ways,
no other remedy can thereafter be granted, without prejudice to the provisions of
the second paragraph of Article 1191.

Where the goods have been delivered to the buyer, he cannot rescind the sale if he
knew of the breach of warranty when he accepted the goods without protest, or if
he fails to notify the seller within a reasonable time of the election to rescind, or if
he fails to return or to offer to return the goods to the seller in substantially as good
condition as they were in at the time the ownership was transferred to the buyer.
But if deterioration or injury of the goods is due to the breach or warranty, such
deterioration or injury shall not prevent the buyer from returning or offering to
return the goods to the seller and rescinding the sale.

Where the buyer is entitled to rescind the sale and elects to do so, he shall cease to
be liable for the price upon returning or offering to return the goods. If the price or
any part thereof has already been paid, the seller shall be liable to repay so much
thereof as has been paid, concurrently with the return of the goods, or immediately
after an offer to return the goods in exchange for repayment of the price.
Where the buyer is entitled to rescind the sale and elects to do so, if the seller
refuses to accept an offer of the buyer to return the goods, the buyer shall
thereafter be deemed to hold the goods as bailee for the seller, but subject to a lien
to secure payment of any portion of the price which has been paid, and with the
remedies for the enforcement of such lien allowed to an unpaid seller by Article
1526.

(5) In the case of breach of warranty of quality, such loss, in the absence of special
circumstances showing proximate damage of a greater amount, is the difference
between the value of the goods at the time of delivery to the buyer and the value
they would have had if they had answered to the warranty. (n)

* In case of recoupment, the buyer may accept the goods and set up the sellers
breach to reduce or extinguish the price. He may accept or not the goods and in
both cases, maintain an action for damages for breach of warranty. In rescission, he
may do such if there is refusal to receive the goods; or if goods have already been
received, return them and recover what was paid or any part of it concurrently with
return or immediately after it.

These remedies are alternative, without prejudice to paragraph 2 of Art. 1191 (that
a party may still seek rescission after choosing specific performance if the latter is
impossible). Buyer cannot rescind if he is knowledgeable of the breach and still
accepted the goods without protest, or fails within reasonable time to notify the
seller of his election to rescind, or fails to return or offer to return the goods in
substantially as good condition as it was. If seller refuses to accept an offer to return
the goods and the buyer elected rescission, buyer shall be deemed to hold the
goods as bailee for the seller subject to lien to secure payment of any portion of the
price which has been paid. There is loss, in case of breach of warranty of quality,
when there was a difference between value of the goods at the time of delivery and
value they would have had if they had answered to the warranty.

What are the remedies of the seller in case of default in payment of price?

Anticipatory breach- The seller has reasonable grounds to believe that the property
sold will be lost so he may rescind the sale

Failure of the buyer to pay the purchase price-In the sale of immovable property
even though it may have been stipulated that rescission will only take place upon
failure to pay the price, he may still demand payment until the judicial or
extrajudicial rescission of the contract.

What are the remedies of the buyer in case of disturbance in the property and in
condominium projects?

Suspension of payment-If the buyer gets disturbed in the possession and ownership
or has a reasonable grounds to fear such disturbance of the property, by a
vindicatory action or a foreclosure of mortgage, the buyer may suspend payment
until the disturbance is removed by the seller or seller gives security for the return
of the price in proper case unless otherwise stipulated.

Subdivision and condominium projects-PD 957 provides that when the owner or
developer of the condominium project fails to develop it according to the approved
plan and within the time limit for complying with the same, the buyer who pays in
installment may desist from paying further provided he gives due notice to the
seller. The law also allows the buyer to be reimbursed of all the amount paid.

What is Equitable Mortgage?

Pacto de retro is presumed to be Equitable Mortgage when:

Art. 1602: The contract shall be presumed to be an equitable mortgage, in any of

the following cases:

(1) When the price of a sale with right to repurchase is unusually inadequate;

(2) When the vendor remains in possession as lessee or otherwise;

(3) When upon or after the expiration of the right to repurchase another instrument
extending the period of redemption or granting a new period is executed;

(4) When the purchaser retains for himself a part of the purchase price;

(5) When the vendor binds himself to pay the taxes on the thing sold;

(6) In any other case where it may be fairly inferred that the real intention of the
parties is that the transaction shall secure the payment of a debt or the
performance of any other obligation.

What are the effects when the thing sold is lost?

Loss before perfection of the contract- Contract is void

Loss at the time of perfection of contract of sale-Contract is Void

If thing is partially lost-the vendee may choose between withdrawing from the
contract and demanding the remaining part, paying its price in proportion to the
total sum agreed upon

Loss after perfection of the contract of sale

After delivery to buyer- buyer bears the loss

Before delivery to the buyer

-Non fungible/ fungible thing without consideration as to its weight, number or
measure- buyer bears the loss

-fungible thing for a price fixed in accordance with its weight, number or measure-
seller bears the loss

REMEDIES OF AN UNPAID SELLER

What are the remedies of an Unpaid Seller?

I. Ordinary

1. Action for Price Exercised when:

a. ownership has passed to buyer;

b. price is payable on a day certain

c. goods cannot readily be resold for reasonable price and Art. 1596 is
inapplicable

2. Action for Damages In case of wrongful neglect or refusal by the buyer to

accept or pay for the thing sold

II. Special 1. Possessory Lien Seller not bound to deliver if buyer has not paid him
the price. It is exercisable only in following circumstances:

a. goods sold without stipulation as to credit

b. goods sold on credit but term of credit has expired

c. buyer becomes insolvent Note: When part of goods delivered, may still
exercise right on goods undelivered

2. Stoppage in Transitu

Requisites:

a. Insolvent buyer

b. Seller must Surrender the negotiable document of title, if any

c. Seller must bear the Expenses of delivery of the goods after the exercise of
the right.
 d. Seller must either actually take possession of the goods sold or give Notice of
his claim to the carrier or other person in possession

e. Goods must be in Transit

f. Unpaid seller

3. Special Right to Resell the Goods Exercised when:

a. Goods are perishable,

b. Stipulated the right of resale in case of default, or

c. Buyer in default for unreasonable time

4. Special Right to Rescind Requisites:

a. Expressly stipulated OR buyer is in default for unreasonable time

b. Notice needed to be given by seller to buyer

Note: Ownership of goods already with buyer but seller may still rescind; ownership
is destroyed even without court intervention but in ordinary sale, need to go to
court.

The Recto Law, which forms part of the Civil Code, covers installment sales of
personal property while the Maceda Law governs installment sales of real property.

The Recto Law

The Recto Law comprises Articles 1484 to 1486 of the Civil Code. It was added to
the Civil Code to prevent abuses in the foreclosure of chattel mortgages, such as
when mortgagee-creditors foreclosed mortgaged property, bought them at a low
price (on purpose,) then prosecuted the mortgagor-debtors to recover the
deficiencies.

In the event a buyer of personal property defaults by failing to pay two or more of
the agreed installments, the seller can do any of the following:

Demand that the buyer pay (a.k.a. specific performance)

Cancel or rescind the sale

Foreclose the mortgage on the property bought (if there ever was a chattel
mortgage)

Regarding no. 3, this happens when a person takes a loan to buy something and he
mortgages the thing he bought to ensure the creditor that he will pay the loan.
Remember: If you choose one remedy, you cant choose the others. These
remedies, believe it or not, are also available to the buyer. You also cant use all or
any of them at the same time. The Recto Law also wont apply to a straight sale (i.e.
a sale where there is a downpayment and the balance is payable in the future in a
single payment only.) The seller can also assign his credit to another person, making
that person the new creditor.

If the buyer refuses to surrender the items to the seller, he becomes a perverse
buyer-mortgagor. When that happens, the seller can recover expenses and
attorneys fees.

The Recto Law also covers leases with the option to purchase.

The Maceda Law, Ra 6552

Do you want to know your rights as a real estate investor, or simply as a real estate
buyer who is making installment payments? The first logical step would be to know
what law applies and what that particular law contains, which in this case would be
the full text of Republic Act No. 6552. More popularly known as the Maceda Law, the
RA 6552 follows.

The Maceda Law, RA 6552, is the real estate equivalent of the Recto Law. Like the
Recto Law, it also covers financing of sales of real property (which is why mortgages
also come in.) It doesnt apply,however, to the following sales:

Industrial lots

Commercial buildings and lots

Lands under the CARP Law

MACEDA LAW (RA6552) Maceda Law in the Philippines applies to the purchaser of
real property by installment payments when the purchase becomes cancelled by a
delinquency in payment. It provides the buyer with a right to a refund as a requisite
for cancellation of contract due to delinquency when the buyer has paid at least two
years. The refund is 50% of total payments; additional 5% per year after 5th year.

To qualify for the Maceda Law, the buyer must have already paid at least 2 years of
installment payments.

The buyer has the right to continue the unpaid installments due without additional
interest provided that the buyer must pay within the grace period. The grace period
provided is one month for every one year of installments paid.

The buyer has the right to opt for a refund of the installment payments being made
(This includes the down payments, deposits or options on the contract). The buyer
is entitled to 50% refund from his total payments made. An additional of 5% refund
per year for every 5 years.
If the buyer has paid less than two years installment:
The buyer has the right to continue his payments within a grace period of 60 days.