Tolledo, Ronald T.

JD-2B
Notes on Module 4

CAPACITY TO BUY OR SELL (1489-1492)

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.

Incapacity to Buy May Be Absolute or Relative

a. Absolute incapacity – when party cannot bind himself in any case.

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 the capacity to act, he must
pay a reasonable price therefor. Necessaries are those referred to in Art. 290

Art. 1490. The husband and the wife cannot sell property 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.

Reason Why Generally a Husband and Wife Cannot Sell to Each Other

To avoid prejudice to third persons; to prevent one spouse from unduly influencing the other; to avoid
indirection the violation of the prohibition against donations.

Effect of Sale

Generally, a sale by one spouse to another is void. However, not everybody can assail the validity of
the transaction. Thus, creditors who became such after the transaction cannot assail its validity for
the reason that they cannot be said to have been prejudiced. But prior creditors (creditors at the time
of transfer) as well as the heirs of either spouse may invoke the nullity of the sale.

Note: Under the 2 exceptions Under Art. 1490, the sale is generally valid, but of course, should there
be vitiated consent (as in the case of undue influence) the sale is voidable.

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 guardian, 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.

This article refers to relative incapacity. Public policy prohibits the transactions in view of the fiduciary
relationship involved. Generally, sales entered into in disregard of the prohibition under this article
are not void.

Purchase Thru Another

Thru the mediation of another must be proved, that is, that there was really an agreement between
the intermediary and the person disqualified; otherwise, the sale cannot be set aside.

Purchase By an Agent for Himself

An agent is not allowed, without his principal’s permission, to sell to himself what he has been ordered
to buy; or to buy for himself what he has been ordered to sell. The fiduciary relations between them
estop the agent from asserting a title adverse to that of the principal. And therefore, such a sale to
himself would be ineffectual and void, because it is expressly prohibited by law. The agent, may of
course, buy after the termination of the agency.

Purchase by Attorney

A lawyer is not allowed to purchase the property of his client which is in litigation.

Art. 1492. The prohibition in the two preceding articles are applicable to sales in legal redemption,
compromise and renunciations.

The relative incapacity provided in Articles 1490 and 1491 applies also to sales by virtue of legal
redemption (see Art. 1619.), compromises, and renunciations.

(a) Compromise is a contract whereby the parties, by reciprocal concessions, avoid a litigation or put
an end to one already commenced. (Art. 2028.) It is the amicable settlement of a controversy.
(b) By renunciation, a creditor gratuitously abandons his right against his creditor. The other terms
used by the law are condonation and remission. (see Art. 1270.)
The persons disqualified to buy referred to in Articles 1490 and 1491 are also disqualified to become
lessees of the things mentioned therein. (Art. 1646.)

MEDINA VS. CIR (1961) (between spouses)

FACTS:

The husband, Antonio Medina is engaged in the lumber business. His wife, Antonia had also opened
her own lumber business. Antonio sold to Antonia almost all the logs produced in his concession. Mrs.
Medina, in turn, sold in Manila the logs bought from her husband through the same agent, Mariano
Osorio. The proceeds were, upon instructions from petitioner, either received by Osorio for petitioner
or deposited by said agent in petitioner's current account with the Philippine National Bank. The
Collector of Revenue considered the sales made by Mrs. Medina as Mr. Medina’s original sales for
taxation purposes on the ground that the sales made by him to his wife were null and void pursuant
to the provisions of Article 1490 of the Civil Code.

ISSUE:

Whether the sale of logs between a husband and a wife is valid?

RULING:

No.

Contracts violative of the provisions of Article 1490 of the Civil Code are null and void. Being void
transactions, the sales made by the petitioner to his wife were correctly disregarded by the Collector
in his tax assessments that considered as the taxable sales those made by the wife through the
spouses' common agent, Mariano Osorio.

Doctrine: The husband and the wife are prohibited under Art. 1490 from selling property to each
other. A sale between husband and wife in violation of Article 1490 is inexistent and void from the
beginning because such contract is expressly prohibited by law. Art. 1490. The husband and the wife
cannot sell property 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 135.

Additional issue: Can the government impugn sales between husband and wife?

YES. The government is always an interested party in all matters involving taxable transactions. It is
competent to question their validity or legitimacy whenever necessary to block tax evasion. It can
impugn sales between husband and wife.

RUBIAS VS. BATILLER (1973)

FACTS:

Petitioner Rubias, a lawyer, filed a suit to recover the ownership and possession of certain portions of
lot in Iloilo which he bought from his father-in-law, Militante, against its present occupant, defendant
Batiller.
The defendant alleged that Rubias has no caused of action against him because the property in dispute
which Rubias allegedly brought from his father-in-law was the subject matter of a land registration
case in which Rubias was the counsel on record of his father-in-law. Defendant invoked Art. 1409 of
the Civil Code which prohibits lawyers from acquiring properties and rights which may be the object
of any litigation in which they may take part by virtue of their profession. Defendant thus claims that
the contract of sale was null and void for being contrary to law.

The RTC finds for the defendant and the CA sustained the lower court’s decision.

ISSUE:

Whether or not the contract of sale between Rubias and his father-in-law, the late Francisco Militante
over the property subject was void because it was made when plaintiff was counsel of his father-in-
law in a land registration case involving the property in dispute.

RULING:

Yes.

No error could be attributed to the lower court's holding that the purchase by a lawyer of the property
in litigation from his client is categorically prohibited by Article 1491, paragraph (5) of the Civil
Code and that consequently, plaintiff's purchase of the property in litigation from his client (assuming
that his client could sell the same) was void and could produce no legal effect, by virtue of Article
1409, paragraph (7) of our Civil Code which provides that contracts "expressly prohibited or declared
void by law' are "inexistent and that "These contracts cannot be ratified. Neither can the right to set
up the defense of illegality be waived."

MAHARLIKA PUBLISHING VS. TAGLE (1986)

FACTS:

GSIS entered into a conditional contract to sell a parcel of land to petitioner Maharlika Publishing
Corporation together with the building thereon as well as the printing machinery and equipment
therein. Among the conditions of the sale are that the petitioner shall pay to the GSIS monthly
installments until the purchase price shall have been fully paid and that upon the failure of Maharlika
to pay any monthly installment within 90 days from due date, the contract shall be deemed
automatically cancelled.

After Maharlika failed to pay the installments for several months, GSIS notified Maharlika in writing
of its arrearages and warned Maharlika that the conditions of the contract would be enforced should
Maharlika fail to settle its account within 15 days from notice. Maharlika failed to settle the unpaid
accounts and GSIS notified Maharlika in writing that the conditional contract of sale was annulled and
cancelled and required Maharlika to sign a lease of contract. Maharlika refused to vacate the premises
and to sign the lease contract.
When GSIS published an invitation to bid for the said property, one day before the scheduled bidding,
the president of Maharlika sent a letter-proposal to repurchase their foreclosed properties wit
proposals on how the payment should be made.

The bidding ensued and the property was sold to Luz Tagle who bid for it. Luz is the wife of the
Retirement Division Chief of GSIS. Maharlika refused to surrender possession of the property.

ISSUE:

Whether the participation of a government official’s wife in the public bidding of the subject property
is void.

RULING:

Yes.

It is the policy of the law that public officers who hold positions of trust may not bid directly or
indirectly to acquire properties foreclosed by their offices and sold at public auction.

Article XIII, Section 1 of the 1987 Constitution provides that public office is a public trust. Public
officers and employees shall serve with the highest degree of responsibility, integrity, loyalty and
efficiency, and shall remain accountable to the people.

Under Article 1491 of the Civil Code, public officers cannot acquire by purchase, even at a public or
judicial auction, either in person or through the mediation of another, the property of the State or of
any subdivisions thereof, or of any government owned or controlled corporation.

In this case, a Division Chief of the GSIS is not an ordinary employee without influence or authority. It
is clear that he is a public officer and his wife acts for and in his name in any transaction with the GSIS.