CHAPTER 2

CAPACITY TO BUY OR SELL

1. What are the kinds of incapacity? And who are the person or persons covered on each
kind of incapacity? Give examples or explain if necessary.

According to Article 1489, incapacity to buy may be absolute or relative. Absolute

incapacity is when party cannot bind himself in any case like for example; minors, insane or
demented persons, deaf-mutes who do not know how to read and write. Therefore, they have no
capacity to purchase and sell by themselves personally, but only through their legal
representatives.

Whereas, relative incapacity is when certain person, under certain circumstances, cannot
buy certain property. They may generally enter into contract of sale but cannot enter into with
specific persons. An example would be sale by and between spouse; reason for prohibition is to
protect the institution of marriage, which is the cornerstone of family law.

Article 1490. A husband and a wife cannot sell property to each other. Just as a married
couple cannot generally sell to each other, they also generally cannot donate to each other.
Reason is to protect the third persons who enters into a contract with either of them

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)

GENERAL RULE:
All persons who are authorized in the Civil Code to obligate themselves, may enter into a
contract of sale.

Incapacity to Buy may be Absolute or Relative

a. Absolute incapacity
 when party cannot bind himself in any case.
 parties that are absolute incapacitated cannot enter into any form of
contract.

b. Relative incapacity
 when a certain person, under certain circumstances, cannot buy
certain property.
 Probably, this person is capacitated pero with respect to certain
circumstances or property, nagiging incapacitated na siya.

Purchase by Minors
 When minors buy, the contract is generally voidable, but in the case of
necessaries, “where necessaries are sold and delivered to a minor or other
person without capacity to act, he must pay a reasonable price therefor.

Necessaries – include everything that is indispensable for sustenance, dwelling,

clothing, and medical attendance, according to the social position of the family.

Support – also includes education of the person entitled to be supported until he

completes his education or training form some profession, trade, or vocation,
even beyond the age of majority.”

Husbands
Under this Code, the husband may sell, alienate, or encumber, even without
the consent of his wife, his exclusive property acquired before the effectivity of
the Civil
Code. The wife cannot even ask for the annulment of the sale on the ground
that it is in fraud of her rights when the purpose of the transaction is to
benefit the family, that is, to
raise money for a business venture

If the deed of sale of the land lists as purchasers both the husband and the
wife, the presumption is that it is paraphernal property. (Castillo v. Castillo)

If a Filipino sells a parcel of land to a Chinese who later sells the same to
another Filipino, the second sale is VALID because the purpose of the
Constitution of preserving the.

2. What is unpaid seller? What remedy, if there is any, that is

available to an unpaid seller?

According to Article 1525, an unpaid seller is one who has not been
paid or tendered the whole price or who has received a bill of exchange or
other negotiable instrument as conditional payment and the condition on
which it was received has been broken by reason of the dishonor of the
instrument.

Tender of Payment
- Seller will no longer be unpaid seller after the tender of the price.
Payment of Part of the Price
- Seller remains as unpaid seller even if the title has passed to the
buyer.
Payment by negotiable instrument
- Delivery of the of a negotiable instrument does not extinguish the
obligation of the buyer because it may be dishonored by the bank.
Seller remains as unpaid seller, if it is dishonored.
 As provided in Article 1526, remedies of unpaid seller are; possessory
lien on the goods or right to retain them for the price while he is in
possession of them (imbes na ideliver niya, seller will retain the goods), right
of stopping the goods in transit after he has parted with the possession of
them (Istop niya yung delivery in transit para buyer will not take possession
of the goods), the right of resale and the right to rescind the sale. Action for
the price (If not paid, seller can take action for the price para bayaran ni
buyer yung goods). Action for damages. Foreclosure.

3. Distinguish Sale on Approval and Sale on Return.

According to Article 1502, under the sale on return, property is sold but
the buyer becomes the owner of the property on delivery and has the option
to return the same to the seller instead of paying the price.

If the thing is destroyed while in the possession of the buyer/ not

returned in the specified time, then the buyer has the liability to pay the
price as it will be considered as an absolute sale.

Whereas, in the sale on trial or approval, it is a sale with suspensive

condition, the title will remain at the seller until the sale has become
absolute either by the buyer’s approval of the goods, or by his failing to
comply with the express or implied conditions of the contract as to giving
notice of dissatisfaction or as to returning the goods.
Malilipat lang ang ownership kung nabayaran na. Approval is
necessary.

4. What is the effect of a sale by a person not the owner of the time
of delivery?
Under Article 1459, although the seller must be the owner, he need not
be the owner at the time of the perfection of the contract. It is sufficient that
he is the owner at the time the object is delivered; otherwise he may be held
liable for breach of warranty against eviction. The contract of sale by itself, is
not a mode of acquiring ownership. The contract transfers no real rights; it
merely causes certain obligations to arise. The seller need not be the owner
at the time of perfection because, after all, “future things or goods” may be
sold.
5. What are the effects of each kind of incapacity to the contract of
sale?
Under Article 1489, in absolute incapacity, contracts entered into by
these persons are not void but merely voidable, subject to annulment or
ratification. This is so because a minor or other incapacitated person (insane or
demented persons, deaf-mutes who do not know how to read and write) is without legal
capacity to give consent to a contract of sale, and since consent is an
essential requisite of every contract, the absence thereof cannot give rise to
a valid sale. Whereas, in relative incapacity, the prohibition extends to sales
by virtue of legal redemption, compromises, and renunciations. Like in case
of sale of husband and wife to each other, except when a separation of
property was agreed upon in the marriage settlements, or when there has
been a judicial separation of property. Under these two exceptions, the sale
is generally valid, but of course as in the case of undue influence there
should be a vitiated consent so that the sale would be voidable.

6. Explain the Following Concepts: (1) Offer; (2) Option Contract; (3)
Right to First Refusal; (4) Mutual Promise to Buy and Sell; (5)
Perfection of the Contract of Sale.
An offer refers to a promise that one party makes in exchange for another
party's performance. In other words, it is an invitation to enter into a contract
on certain terms. It can be expressed in many different ways, from a short
and simple oral statement to a long and detailed written statement.
According to Article 1479, an options contract is a separate and distinct
contract from the contract which the parties may enter into upon the
consummation of the contract; therefore, an option must have its own cause
or consideration.
The right of first refusal or the preferential right is a right which gives a party
a right to have the first opportunity to either purchase or lease a property, or
to enjoy a right. The right of first refusal is provided by contract or by law.
According to Article 1479, the mutual promise to buy and sell is simply a
contract by which the owner of property agrees with another person that he
shall have the right to buy his property at a fixed price within a certain time.
The owner parts with his right to sell his lands, except to the second party,
for a limited period.
Under Article 1458, it stated the stages in a contract of sale and second
stage is the perfection wherein the contract of sale is perfected at the
moment there is a meeting of minds upon the thing which is the object of the
contract and upon the price. From that moment, the parties may reciprocally
demand performance, subject to the provisions of the law governing the
form of contracts.

7. Discuss the Obligations of the seller to: (a) What to deliver; (b)
Where to deliver; (c) When to Deliver.
A. What to deliver – According to Article 1537, the seller is bound to deliver
the thing sold and its accessions and accessories in the condition in which
they were upon the perfection of the contract. All fruits shall pertain to the
vendee from the day on which the contract was perfected.
B. Where to deliver - According to Article 1521, the place of delivery is when
there is an agreement, it is the place specified in the agreement, when there
is no agreement, it is determined by the usage of trade. when there is no
agreement, and when there is no prevalent usage, if is in the seller's place of
business if he has one, and if not, his residence, in case of a contract of sale
of a specific goods, which to the knowledge of the parties when the contract
of the sale was made were in some other place, that place is the place of
delivery.
C. When to deliver - According to Article 1521, the time of deliver is;
stipulated time, and in the absence of agreement, within a reasonable time.

8. What is the effect if the price is inadequate? Is there any

exception to this rule? Explain.
According to Article 1470, the 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.
However, there are exceptions to this rule. A. If consent is vitiated (vitiation
could be through fraud, intimidation, violence, undue influence or mistake),
then it may be annulled or presumed to be equitable mortgage. B. If the
parties intended a donation or some other act/contract. C. If the price is so
low as to be "shocking to the conscience"

Effect of Gross Inadequacy of Price

a. In ordinary sale, the sale remains valid even if the price is very low. If
there was vitiated consent (such as fraud, or undue influence is present) the
contract may be annulled but only due to such vitiated consent.
b. In execution of judicial sales – While mere inadequacy of price will not set
aside a judicial sale of real property, still if the price is so inadequate as to
shock the conscience of the Court, it will not be set aside.
In case Contract was really a Donation
It is possible that a donation, not a sale, was really intended. In such a case,
the parties may prove that the low price is sufficiently explained by the
consideration of liberality.

9. Distinguish Option Money and Earnest Money.

Under Article 1482, earnest money (down payment) is part of the purchase
price and is deducted from the total price. So the balance is to be paid. While
option money is the money given as a distinct consideration for an option
contract.
It is the consideration paid for the purpose of holding one to his promise to
buy or sell a determinate thing for a certain period of time which
consideration is separate from the purchase price.
Earnest money is given only where there is already a sale, while option
money applies to a sale not yet perfected.

10. How is price determined? Explain each method and provide

examples?
Price can be determined when:
1. Parties have fixed or agreed upon a definite price (Art. 1473) fixing of the
price can never be left alone to the decision of one contracting party
however, if the price is fixed by one party and accepted by the other, sale is
perfected. Example would be, if one of the contracting parties said that the
price would be 200,000 and then the other party agreed/accepted to the
price, then the sale is perfected.
2. If it is in reference to another thing certain (Art. 1469), the price of the
thing is being referred to another certain thing. Example would be if the price
of the G-shock watch will be thrice as the price of your only watch.
3. The determination is left to the judgment of a specified person/persons is
the price fixed by the third persons designated by the parties is binding upon
them. Exemptions would be if unable or unwilling, sale is inefficacious
(Article 1469) or if in bad faith or mistake/by mistake, courts may fix the
price (Article 1469)
Like for example, board of assessors will fix the price as per stipulated by the
parties.

11. What are the formalities for a contract of sale?

As to the formalities of a contract of sale, it may be oral. But this is
subject to other rules of the matter such as when the law may require a
certain form in order for the contract to be valid, enforceable, or for greater
convenience to bind third party.
The rule in the statute of frauds is that sales have to be in some writing
whether it be in memorandum, note, or other form of writing. This only
applies to executory contract. Sale under statute of frauds are; Sale of
personal or movable property where the price is not less than 500.00; Sale of
real property or an interest in real property; Sale of property which is not to
be performed within one year from the date of the contract; and any other
law which requires that the sale be in a certain form.

12. What is double sale? What the requisites for a double sale to
occur?
According to Article 1544, double sale means that there is one seller selling
to two different buyers the same property. Requisites for double sale are two
or more valid contract, two or more buyers who are at odds over the rightful
ownership of the object must represent conflicting interest, that they must
pertain exactly to the same object and that they must be bought from the
same seller.

13. Distinguish Sale and Option Contract.

In an option contract, the subject matter is the right or privilege to buy (or to
sell) a determinate thing for a price certain and it imposes no binding
obligation on the person holding the option, aside from the consideration for
the offer. Whereas in a sales contract, the subject matter is the determinate
thing itself and it fixes definitely the relative rights and obligations of both
parties at the time of its execution.

13. Distinguish Express Reservation and Implied Reservation.

According to Article 1546, There are two main types of warranties, which are
express and implied warranties. An express warranty is one that is clearly
stated either verbally or in writing, while an implied warranty automatically
covers most consumer goods valued over a certain amount, but only
provides a base level of protection for consumers. An express warranty can
take several different forms, whether spoken or written, and is basically a
guarantee that the product will meet a certain level of quality and reliability.
If the product fails in this regard, the manufacturer will fix or replace the
product for no additional charge. Many such warranties are printed on a
product's packaging or made available as an option. A verbal express
warranty may be as simple as a car dealer telling a customer. Other
warranties may be expressed in writing but do not necessarily look like
traditional warranties.
Whereas, according to Article 1547, implied warranties, by contrast, do not
arise by agreement of the buyer and seller. It is presumed to exist. These
warranties attach to the products being sold automatically. The philosophy
behind these warranties is that implied warranties are in place to protect the
buyer when a good does not conform to normal commercial standards, or
does not conform to the buyer’s particular purpose for purchasing the good.

14. What are the requisites for a valid price?

Requisites for a VALID price are as follows:
1. Real. The legal intention on the part of the buyer should be the payment
of price and the legal expectation on the part of the seller is the receipt of
such price as the value of the subject matter he obligates himself to deliver
2. Must be in money or its equivalent wherein Article 1548 requires that
‘equivalent’ be something representative of money o If consideration is
partly in money and partly in another thing - can still be considered a
contract of sale when such is the manifest intention of the parties. This is for
the law to demonstrate the ideal example of the onerous nature of sales
3. Ascertainable or certain. The price is certain when expressed and agreed
in terms of specific persons and/or centavos; which affirms the proposition
that money represents the best model for valuable consideration. As
provided by Article 1469, in order that a price may be considered
ascertainable, it shall be sufficient that it be so with reference to another
thing certain, or that the determination thereof be left to the judgement of a
specified person or persons

15. What is the effect of a sale by a person having a voidable title?

According to Article 1506, the effect if seller has only voidable title is that the
buyer acquires a good title to the goods, provided he buys them before the
title of the seller has been avoided, he buys them in good faith, for value,
and without notice of the seller's defect of title.
Kapag in good faith and hindi pa avoided, the buyer can acquire good title to
the goods.