CHAPTER 2 > 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 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)
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 or property under Article 191. (1458a)
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 intrusted 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)
Art. 1492. The prohibitions in the two preceding articles are applicable to sales in legal redemption, compromises and
renunciations. (n)

OPTION MONEY
What is the effect of failure to determine the price?
1. Where contract is executory ineffective
2. Where the thing has been delivered to and appropriated by the buyer the buyer must pay a reasonable price therefore Note:
The fixing of the price cannot be left to the discretion of one of the parties. However, if the price fixed by one of the parties is
accepted by the other, the sale is perfected.
What is an option money?
The distinct consideration in case of an option contract. It does not form part of the purchase price hence, it cannot be recovered
if the buyer did not continue with the sale.
When is payment considered option money?
Payment is considered option money when it is given as a separate and distinct consideration from the purchase price.
Consideration in an option contract may be anything or undertaking of value.

EARNEST MONEY
What is an earnest money or arras?
This is the money given to the seller by the prospective buyer to show that the latter is truly interested in buying the property,
and its aim is to bind the bargain. (Pineda, p. 75)
What is the effect of giving an earnest money?
It forms part of the purchase price which may be deducted from the total price. It also serves as a proof of the perfection of the
contract of sale. The rule is no more than a disputable presumption and prevails only in the absence of contrary or rebuttable
evidence. (PNB v CA, 262 SCRA 464, 1996)
Note: Option money may become earnest money if the parties so agree.
When is payment considered an earnest money?
When the payment constitutes as part of the purchase price. Hence, in case when the sale did not happen, it must be returned
to the prospective buyer.

Rule 60 of the Revised Rules of Court requires that an applicant for replevin must show that he "is the owner of the property
claimed, particularly describing it, or is entitled to the possession thereof." 5[Section 2 (a)] Where the right of the plaintiff to the
possession of the specified property is so conceded or evident, the action need only be maintained against him who so
possesses the property. In rem action est per quam rem nostram quae ab alio possidetur petimus, et semper adversus eum est
qui rem possidet.6 [BA Finance Corp. vs. CA, 258 SCRA 102,112 (1996)]
Citing Northern Motors, Inc. vs. Herrera, 7 [49 SCRA 392, 396.] the Court said in the case of BA Finance (which is of similar
import with the present case): Sc-jj
"There can be no question that persons having a special right of property in the goods the recovery of which is
sought, such as a chattel mortgagee, may maintain an action for replevin therefor. Where the mortgage
authorizes the mortgagee to take possession of the property on default, he may maintain an action to recover
possession of the mortgaged chattels from the mortgagor or from any person in whose hands he may find
them." 8 [Infra, pp. 111-112.]
Replevin
If the creditor cannot repossess the vehicle without breaching the peace (for example, your car is in a locked garage), it may
then seek help from the court through a process called replevin. With a replevin lawsuit, the creditor seeks an order from the
court requiring you to give the car back to the creditor.
If you fail to abide by the court order, you may be subject to both civil and criminal penalties. The car loan lender may also get a
money judgment against you, usually for the balance owed on the loan or lease, along with charges and costs.
The Recto and Maceda Law(RA6552) in the Philippines
09/11/2012
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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:

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

2.) Cancel or rescind the sale

3.) 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 can't choose the others. These remedies,
believe it or not, are also available to the buyer. You also can't use all or any of them at the same time. The Recto Law also
won't 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 attorney's 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 doesn't apply,however, to the following sales:

1.) Industrial lots

2.) Commercial buildings and lots

3.) 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.


1. 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.
2. 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.

FULL TEXT OF MACEDA LAW:
REPUBLIC ACT NO. 6552REALTY INSTALLMENT BUYER PROTECTION ACTAN ACT TO PROVIDE PROTECTION TO
BUYERS OF REAL ESTATE ON INSTALLMENT PAYMENTS

Section 1. This Act shall be known as the Realty Installment Buyer Act.

Sec. 2. It is hereby declared a public policy to protect buyers of real estate on installment payments against onerous and
oppressive conditions.

Sec. 3. In all transactions or contracts involving the sale or financing of real estate on installment payments, including residential
condominium apartments but excluding industrial lots, commercial buildings and sales to tenants under Republic Act Numbered
Thirty-eight hundred forty-four, as amended by Republic Act Numbered Sixty-three hundred eighty-nine, where the buyer has
paid at least two years of installments, the buyer is entitled to the following rights in case he defaults in the payment of
succeeding installments:

(a) To pay, without additional interest, the unpaid installments due within the total grace period earned by him which is hereby
fixed at the rate of one month grace period for every one year of installment payments made: Provided, That this right shall be
exercised by the buyer only once in every five years of the life of the contract and its extensions, if any.

(b) If the contract is cancelled, the seller shall refund to the buyer the cash surrender value of the payments on the property
equivalent to fifty per cent of the total payments made, and, after five years of installments, an additional five per cent every year
but not to exceed ninety per cent of the total payments made: Provided, That the actual cancellation of the contract shall take
place after thirty days from receipt by the buyer of the notice of cancellation or the demand for rescission of the contract by a
notarial act and upon full payment of the cash surrender value to the buyer.

Down payments, deposits or options on the contract shall be included in the computation of the total number of installment
payments made.

Sec. 4. In case where less than two years of installments were paid, the seller shall give the buyer a grace period of not less
than sixty days from the date the installment became due.

If the buyer fails to pay the installments due at the expiration of the grace period, the seller may cancel the contract after thirty
days from receipt by the buyer of the notice of cancellation or the demand for rescission of the contract by a notarial act.

Sec. 5. Under Section 3 and 4, the buyer shall have the right to sell his rights or assign the same to another person or to
reinstate the contract by updating the account during the grace period and before actual cancellation of the contract. The deed of
sale or assignment shall be done by notarial act.

Sec. 6. The buyer shall have the right to pay in advance any installment or the full unpaid balance of the purchase price any time
without interest and to have such full payment of the purchase price annotated in the certificate of title covering the property.

Sec. 7. Any stipulation in any contract hereafter entered into contrary to the provisions of Sections 3, 4, 5 and 6, shall be null and
void.

Sec. 8. If any provision of this Act is held invalid or unconstitutional, no other provision shall be affected thereby.

Sec. 9. This Act shall take effect upon its approval.
These two laws are relevant and are very often the issue of many court cases. Both laws govern the sale of
property by installments. 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:

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

2.) Cancel or rescind the sale

3.) Foreclose the mortgage on the property bought (if there ever was a chattelmortgage)

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 can't choose
the others. These remedies, believe it or not, are also available to the buyer. You also can't use all or any of
them at the same time. The Recto Law also won't 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 attorney's fees.

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

The Maceda Law

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 doesn't apply,however, to the
following sales:

1.) Industrial lots

2.) Commercial buildings and lots

3.) Lands under the CARP Law

Depending on when the buyer defaults, there are two (2) possible scenarios: if the buyer paid at least two (2)
years' installments and if the buyer paid less than 2 years' installments.

If the buyer paid less than 2 years' installments and defaults, he is given a grace period of sixty (60) days
starting from the date of his last installment to resume paying. This period can be increased by the seller. If
after the grace period the buyer still can't pay, the seller must make a notarial demand to cancel the sale. The
cancellation becomes effective thirty (30) days after the buyer was notified. So it's possible that the buyer could
be notified two months after the 60-day period and then the 30-day period will begin.

If the buyer paid at least two years' installments, the buyer can pay the unpaid balance without interest. The
grace period is computed at one (1) month per year of installment payments. It also begins from the time the
buyer paid his last installment. The grace period can be used only once every five (5) years of the sales
contract's life -including its extensions. So it's possible to have a grace period of a year if the buyer had been
paying his installments faithfully for 12 years. Once the buyer chooses to use the grace period, he can't get it
again until another five years are over.

If the seller wants to cancel the sale, he has to refund the buyer of 50% of the actual payments. If the buyer
paid more than five years' installments another 5% for every year is to be added to the refund, but only up to
90% of the total payments made. The payments mentioned here include the downpayment, options and
deposits. The refund is made in this way: if the buyer paid more 2 to 5 years' installments, he can get back
50% of the cash surrender value. If he paid for more than 5 years, he can get the 50% plus 5% per year up to
90%.

The buyer is also allowed to make advanced payments, or even the full price, without interest. He can also
assign his rights to another person, making that person the new buyer, but he can only do that with a
notarial deed of sale assignment.

The Maceda Law cannot be used by a real estate developer (see here.) It also cannot be used by the highest
bidder in foreclosure proceedings.


What is the Realty Installment Buyer Act?
Commonly known as the Maceda Law. It is embodied in R.A. 6552 which provides for certain protection to particular buyers of
real estate payable on installments. The law declares as "public policy to protect buyers of real estate on installment payments
against onerous and oppressive conditions.
Note: The purpose of the law is to protect buyers in installment against oppressive conditions.

What are the transactions/sale covered by the Maceda Law?
The law involves the sale of immovables on installment (Maceda Law, R.A. 6552).
1. Coverage: Residential Real Estate (Villanueva, p. 431)
2. Exclude:
a. Industrial lots
b. Commercial buildings (and commercial lots by implication)
c. Sale to tenants under agrarian laws

What are the rights granted to buyers?
1. Buyer paid at least 2 years installment
a. Pay without interest the balance within grace period of 1 month for every year of installment payment. Grace period to be
exercised once every 5 years.
b. When no payment cancelled; buyer entitled to 50% of what he has paid + 5% for every year but not exceeding 90% of
payments made
Note: Cancellation to be effected 30 days from notice & upon payment of cash surrender value.
2. Buyer paid less than 2 years installment
a. Grace period is not less than 60 days from due date
b. Cancellation if failure to pay w/in 60 days grace
c. 30 days notice before final cancellation