ALDERSGATE COLLEGE SALES, AGENCY AND BAILMENT

SCHOOL OF BUSINESS AND ACCOUNTANCY

MODULE 2 CAPACITY TO BUY OR SELL

LEARNING FOCUS

Capacity to Buy or Sell

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 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)

1. Capacity to enter into a contract of sale.

As a rule, only persons who may oblige themselves may enter into a contract of sale. Hence, incapacitated persons
(like minors, demented persons, imbeciles, prodigals, deaf and dumb, insane, and those subject to Civil
interdiction) cannot enter into a contract because their personality is restricted. However, when necessaries are
sold and delivered to a minor or incapacitated person, the latter is obliged to pay reasonable price.

Necessaries is everything indispensable for sustenance, dwelling, clothing, medical attendance, and educational
expenses.

Kinds of incapacity to buy

1. Absolute - when party cannot bind himseif in any case. Example: minors, demented persons, imbeciles.
2. Relative - when certain persons, under certain circumstances cannot buy certain property.

Example: Husband and wife, guardian with respect to the property of the person or persons under his guardianship.

Contract of Sales

ART 1490. The husband and the wife cannot sell properly to each other, except:

1. When a separation of property was agreed upon in the marriage settlements; or

2. When there has been a judicial separation of property under Article 191. (1458a)

1. Reasons for prohibition.

a. To prevent abuse of the influence of one spouse over the other.
b. To avoid donations, in the guise of sale, from one spouse to the other.
c. To protect third persons, especially creditors, against fraud due to the transfer of property from one
spouse to the other.

2. Effect of violation.

A contract executed in violation of this article is absolutely void because of public policy.

31 | Law 166
ALDERSGATE COLLEGE SALES, AGENCY AND BAILMENT
SCHOOL OF BUSINESS AND ACCOUNTANCY

Example:

H (the husband) sold to W (the wife) a certain piece of land. The sale is void unless a separation of property was
agreed upon in the marriage settlement, or there has been a judicial separation of their property. The heirs and
the creditors of the spouses may invoke the nullity of the sale, but the spouses cannot do so, because they have
executed the act with full knowledge of its nullity, the parties therefore are in pari-delicto. Furthermore, it was held
by our courts that person who has got no relation to the parties and had no right or interest inchoate, present,
remote or otherwise, in the property transferred by the husband to the wife, at the time such transfer occurred,
were not entitled to attack the transfer.

3. Article 191 of the Civil Code amended by Articles 134 and 135 of the Family Code.

Art. 134. In the absence of an express declaration in the marriage settlements, the separation of property
between spouses during the marriage shall not take place except by judicial order. Such judicial separation of
property may either be voluntary or for sufficient cause.

Art. 135. Any of the following shall be considered sufficient cause for judicial separation of property:

1. That the spouse of the petitioner has been sentenced to a penalty which carries with it civil interdiction;
2. That the spouse of the petitioner has been judicially declared an absentee;
3. That loss of parental authority of the spouse of petitioner has been decreed by the court;
4. That the spouse of the petitioner has abandoned the latter or failed to comply with his or her obligations to the
family as provided for in Article 101;
5. That the spouse granted the power of administration in the marriage settlements has abused that power; and
6. That at the time of the petition, the spouses have been separated in fact for at least one year and reconciliation
is highly improbable.

In the cases provided for in numbers (1), (2) and (3), the presentation of the final judgment against the guilty or absent
spouse shall be enough basis for the grant of the decree of judicial separation of property.

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.
1. The guardians, the property of the person or persons who may be under his guardianship;
2. Agents, the property whose administration or sale may have been entrusted to them, unless the
consent of the principal has been given;
3. Executors and administrators, the property of the estate under administration;
4. 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
entrusted to them; this provision shall apply to judges and government experts who, in any manner
whatsoever, take part in the sale;
5. 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.
6. Any others specially disqualified by law. (1459a)

32 | Law 166
ALDERSGATE COLLEGE SALES, AGENCY AND BAILMENT
SCHOOL OF BUSINESS AND ACCOUNTANCY

1. Reason for this prohibition.

These prohibitions are established for reasons of public policy and seek to prevent fraud on the part of the
persons enumerated therein and to minimize temptations to the exertion of vendee and improper influence. It also
establishes the incapacity of certain persons to acquire by purchase certain property by reason of their relation to
the vendor or to the property itself. Their relative incapacity laid down in this article is intended to avoid situation
where a person may find his personal interests conflicting with the interest of those whom he represents. It is
feared that greed may overcome the sentiments of loyalty.

2. Duration of the prohibition.

Persons who are relatively incapacitated to buy are disqualified from buying during the existence of the
judiciary relationship only. When this relationship ceased, purchase made after such time is valid.

3. Effect of violation.

A contract executed in violation of this article is not void but only voidable. The nullity of the acts enumerated
herein may be person having legal capacity and it must be decreed by a competent court.

4. Prohibited Guardians.

The prohibition imposed on the guardian of the ward is applicable only during the existence of the guardianship
and not after it is terminated. This refers to the property of the ward under their guardianship.

5. Prohibited agent.

This prohibition is applicable only during the existence of the agency and with respect to the property under
his administration. This also includes the managers and directors of partnerships and corporations or other officers
of such entity because they are agents in the strict legal sense. However, this is limited to the property under the
agent’s administration at the time of acquisition; hence, once it has been sold to a third person, the agent can
validly buy the same unless there is connivance on the part of the agent. Be it noted, that the incapacity of the
agent terminates upon the extinguishment of the contract of agency.

6. Prohibited executors and administrators.

This is applicable only during their administration and to property under their administration. However, the
right of an heir to sell his hereditary right is not subject to administration; therefore, he can sell such right to the
executor or administrator of the estate in question.

7. Prohibited public officers.

Public officers are prohibited from acquiring the property under their administration. They are not prohibited
from acquiring the property of the estate which are not under their control or administration.

8. Prohibited judges and justices.

The prohibition does not apply only to those properties actually and directly in litigation before the courts where
the judge is assigned. It includes property that may be levied upon and sold in execution by virtue of a writ of
execution issued by them. This prohibition is not only intended to avoid fraud, but also to free such officials from
any suspicion which, even if without basis, may cause discredit to the judicial system. (Castan citing Manresa)

33 | Law 166
ALDERSGATE COLLEGE SALES, AGENCY AND BAILMENT
SCHOOL OF BUSINESS AND ACCOUNTANCY

9. Prohibited lawyers.

The prohibition is applicable only to property in litigation in which lawyers may take part by virtue of their
profession. The purchase by a lawyer of property involved in a litigation in which he intervened, is not only voidable
but also subjects the attorney to disciplinary action for malpractice. (Hernandez vs. Villanueva, 40 Phil. 775)

The prohibition does not apply to a contract which limits the fees of a lawyer to a certain percentage of what
may be recovered in the litigation, as this is not contrary to morals or public policy. Likewise, the assignment of
the amount of a judgment by a client to his attorney, who has not taken any part in the case wherein such judgment
was rendered, made in payment of professional services in other cases is not a violation of this article (Municipal
Council vs. Evangelista, 55 Phil. 290). Also, the sale of property of the client to his lawyer before the property
become involved in litigation is not a violation.

Illustrative Case on relative disqualification:

At a mortgage foreclosure sale carried out as a result of a judicial proceeding, A, attorney for the mortgage
creditor, bought the mortgaged real estate.

1. If A had bought the property for his client, is there a violation of the relative incapacity rule as provided in Art.
1491?
2. If A had bought the property for himself, is the sale void or voidable?

Answer:

1. There is no violation because there is no breach of confidence. He is merely acting as an agent of his client.
2. The sale is void because it is prohibited by law.

10. Other persons disqualified.

Aliens are prohibited from acquiring, except by hereditary succession, any private agricultural land.

11. Purchase by intermediary.

To set aside sale by intermediary, it is essential to prove the existence of an agreement between the alleged
intermediary and the person disqualified, that the intermediary would purchase the thing for the person disqualified.
If this cannot be proved, the sale cannot be set aside.

ART. 1492. The prohibitions in the two preceding articles are applicable to sales in legal redemption,
compromises and renunciations.

Example:

If a ward’s property is sold, the guardian, even if he be an adjacent owner, and even if all the other requisites for legal
redemption are present, cannot exercise the right of legal redemption. (Paras, C. C., Volume V)

34 | Law 166
ALDERSGATE COLLEGE SALES, AGENCY AND BAILMENT
SCHOOL OF BUSINESS AND ACCOUNTANCY

POSTTEST

I. Definitions

Define or give the meaning of the following:

1. Necessaries
2. Compromise

II. Discussions

1. Are husband and wife allowed to sell property to each other?

2. Under the law, who may enter into a contract of sale?

III. Problems

Explain or state briefly the rule or reason for your answer.

1. B, minor, bought a pair of imported shoes worth P3,000.00 from a department store. Can F, father,
cancel the sale on the ground of minority of B?
2. Hand W are husband and wife. After selling his property to W, H borrowed a large amount of money
from C. It appears that H is now bankrupt. Has C the right to question the sale of H’s property to W
in order to have said property answer for H’s indebtedness to him?

35 | Law 166