PARAGAS vs.

HEIRS OF DOMINADOR BALACANO

Alleged Seller: Gregorio

Buyer: Spouses Paragas

FACTS:

Gregorio Balacano, married to Lorenza Sumigcay, was the registered owner of Lot
1175-E and Lot 1175-F of the Subd. Plan Psd-38042.

Gregorio and Lorenza had three children, namely: Domingo, Catalino and Alfredo, all
surnamed Balacano.

Lorenza died on December 11, 1991. Gregorio, on the other hand, died on July 28,
1996.

Prior to his death, Gregorio was admitted on June 28, 1996, transferred hospital in the
afternoon of July 19, 1996 until his death.

Gregorio purportedly sold on July 22, 1996, or barely a week prior to his death, a portion
of Lot 1175-E (15,925 square meters out of total area of 22,341 square meters) and the whole
Lot 1175-F to Spouses Paragas for the total consideration of P500,000.00.

This sale appeared in a deed of absolute sale and was notarized by Atty. De Guzman.

Gregorios certificates of title were consequently cancelled and new certificates of title
were issued in favor of the Spouses Paragas.

The Spouses Paragas then sold on October 17, 1996 a portion of Lot 1175-E consisting
of 6,416 square meters to Catalino for the total consideration of P60,000.00.

Domingo’s children filed on October 22, 1996 a complaint for annulment of sale and
partition against Catalino and the Spouses Paragas. They essentially alleged in asking for the
nullification of the deed of sale that:

(1) their grandfather Gregorio could not have appeared before the notary public on July
22, 1996 at Santiago City because he was then confined at the Veterans Memorial Hospital in
Quezon City;

(2) at the time of the alleged execution of the deed of sale, Gregorio was seriously ill, in
fact dying at that time, which vitiated his consent to the disposal of the property; and

(3) Catalino (one of the children) manipulated the execution of the deed and prevailed
upon the dying Gregorio to sign his name on a paper the contents of which he never understood
because of his serious condition.

Alternatively, they alleged that assuming Gregorio was of sound and disposing mind, he
could only transfer a half portion of Lots 1175-E and 1175-F as the other half belongs to their
grandmother Lorenza who predeceased Gregorio they claimed that Lots 1175-E and 1175-F
form part of the conjugal partnership properties of Gregorio and Lorenza.

Finally, they alleged that the sale to the Spouses Paragas covers only a 5-hectare
portion of Lots 1175-E and 1175-F leaving a portion of 6,416 square meters that Catalino is
threatening to dispose. They asked for the nullification of the deed of sale executed by Gregorio
and the partition of Lots 1175-E and 1175-F. They likewise asked for damages.

Plaintiff-appellant Nanette Balacano testified to prove the material allegations of their

complaint. On Gregorios medical condition, she declared that:

(1) Gregorio, who was then 81 years old, weak and sick, was brought to the hospital in
Bayombong, Nueva Vizcaya on June 28, 1996 and stayed there until the afternoon on July 19,
1996;

(2) thereafter, Gregorio, who by then was weak and could no longer talk and whose
condition had worsened, was transferred in the afternoon of July 19, 1996 to the Veterans
Memorial Hospital in Quezon City where Gregorio died.

She claimed that Gregorio could not have signed a deed of sale on July 19, 1996
because she stayed at the hospital the whole of that day and saw no visitors. She likewise
testified on their agreement for attorneys fees with their counsel and the litigation expenses they
incurred.

Defendants said that Gregorio’s consent to the sale should be determined, not at the
time Gregorio signed the deed of sale on July 18, 1996, but at the time when he agreed to sell
the property in June 1996 or a month prior to the deeds signing; and in June 1996, Gregorio
was of sound and disposing mind and his consent to the sale was in no wise vitiated at that
time.

They presented as witnesses Notary Public de Guzman and instrumental witness

Antonio to prove Gregorios execution of the sale and the circumstances under the deed was
executed. They uniformly declared that:

(1) on July 18, 1996, they went to the hospital in Bayombong, Nueva Vizcaya where Gregorio
was confined with Rudy;

(2) Atty. De Guzman read and explained the contents of the deed to Gregorio;

(3) Gregorio signed the deed after receiving the money from Rudy;

(4) Julia and Antonio signed the deed as witnesses.

Additionally, Atty. De Guzman explained that the execution of the deed was merely a
confirmation of a previous agreement between the Spouses Paragas and Gregorio that was
concluded at least a month prior to Gregorios death; that, in fact, Gregorio had previously asked
him to prepare a deed that Gregorio eventually signed on July 18, 1996.
 He also explained that the deed, which appeared to have been executed on July 22,
1996, was actually executed on July 18, 1996;

he notarized the deed and entered it in his register only on July 22, 1996.

He claimed that he did not find it necessary to state the precise date and place of
execution (Bayombong, Nueva Vizcaya, instead of Santiago City) of the deed of sale
because the deed is merely a confirmation of a previously agreed contract between
Gregorio and the Spouses Paragas.

He likewise stated that of the stated P500,000.00 consideration in the deed, Rudy paid
Gregorio P450,000.00 in the hospital because Rudy had previously paid Gregorio
P50,000.00.

For his part, Antonio added that he was asked by Rudy to take pictures of Gregorio
signing the deed.

He also claimed that there was no entry on the date when he signed; nor did he
remember reading Santiago City as the place of execution of the deed.

He described Gregorio as still strong but sickly, who got up from the bed with Julias help.

The lower court, after trial, rendered the decision declaring null and void the deed of sale
purportedly executed by Gregorio Balacano in favor of the spouses Paragas, noting that at the
time Gregorio executed the deed, Gregorio was ill.

Because of the seriousness of his illness, it is not expected that Gregorio

Balacano would be negotiating a contract of sale.

The lower court also ruled that Lots 1175-E and 1175-F were Gregorios and Lorenzas
conjugal partnership properties.

The Court of Appeals affirmed the Decision of the trial court, with the modification that
Lots 1175-E and 1175-F were adjudged as belonging to the estate of Gregorio Balacano.

ISSUE:

(1) WON Gregorio gave an intelligent consent to the sale of Lots 1175-E and 1175-F when
he signed the deed of sale? NO
(2) WON Deed of Sale purportedly executed between petitioners and the late Gregorio
Balacano was null and void - YES

HELD:

It is not disputed that when Gregorio signed the deed of sale, Gregorio was seriously ill,
as he in fact died a week after the deeds signing.

Gregorio died of complications caused by cirrhosis of the liver.

 Gregorios death was neither sudden nor immediate; he fought at least a month-long
battle against the disease until he succumbed to death on July 22, 1996.

Given that Gregorio purportedly executed a deed during the last stages of his
battle against his disease, the Court seriously doubt whether Gregorio could have read,
or fully understood, the contents of the documents he signed or of the consequences of
his act.

There was no conclusive evidence that the contents of the deed were sufficiently
explained to Gregorio before he affixed his signature.

The evidence the defendants-appellants offered to prove Gregorios consent to the sale
consists of the testimonies of Atty. de Guzman and Antonio which the Court did not find
credible.

Additionally, the irregular and invalid notarization of the deed is a falsity that raises
doubts on the regularity of the transaction itself.

While the deed was indeed signed on July 18, 1996 at Bayombong, Nueva Vizcaya, the
deed states otherwise, as it shows that the deed was executed on July 22, 1996 at Santiago
City.

Article 24 of the Civil Code tells us that in all contractual, property or other relations,
when one of the parties is at a disadvantage on account of his moral dependence, ignorance,
indigence, mental weakness, tender age or other handicap, the courts must be vigilant for his
protection.

Gregorio’s consent to the sale of the lots was absent, making the contract null
and void. Consequently, the spouses Paragas could not have made a subsequent transfer of
the property to Catalino Balacano.

In the case at bar, the Deed of Sale was allegedly signed by Gregorio on his death bed
in the hospital. Gregorio was an octogenarian at the time of the alleged execution of the contract
and suffering from liver cirrhosis at that circumstances which raise grave doubts on his physical
and mental capacity to freely consent to the contract.

Adding to the dubiety of the purported sale and further bolstering respondents claim that
their uncle Catalino, one of the children of the decedent, had a hand in the execution of the
deed is the fact that on 17 October 1996, petitioners sold a portion of Lot 1175-E consisting of
6,416 square meters to Catalino for P60,000.00.

One need not stretch his imagination to surmise that Catalino was in cahoots with
petitioners in maneuvering the alleged sale.
 CALIMLIM-CANULLAS vs. FORTUN

Mercedes, the legitimate wife of Fernando Calimlim-Canullas, seeks claim over the conjugal
real property that respondent CFI judge had granted in favor of Corazon Daguines (Fernando’s
mistress) who claims that her right to it come from Fernando’s selling of it to her. The Court
finds that the prohibition on sales and donation done between married couples also apply to
common-law relationships, thus nullifying the sale and admitting favorable ownership to
Mercedes.

IMPORTANT PEOPLE
Petitioner: Mercedes Calimlim-Canullas (legitimate wife).
Respondents: Hon. Willelmo Fortun (CFI Judge), Corazon Daguines (mistress).

FACTS
1. Petitioner Mercedes Calimlim-Canullas and Fernando Canullas were married on
December 19, 1962.
2. They had five children and lives in a small house on the land in question (891 sqm),
located at Bacabac, Bugallon, Pangasinan.
3. 1965 - After Fernando's father died, he inherited the land.
4. 1978 - Fernando abandoned his family and was living with private respondent Corazon
Daguines.
5. FERNANDO sold the subject property with the house thereon to DAGUINES for the sum
of P2,000.00.
6. In the document of sale, FERNANDO described the house as "also inherited by me from
my deceased parents."
7. Unable to take possession of the lot and house, DAGUINES initiated a complaint for
quieting of title and damages against MERCEDES.
8. Petitioner resisted and claimed that the house in dispute including the coconut trees on
the land, were built and planted with conjugal funds and through her industry;
that the sale of the land together with the house and improvements to
DAGUINES was null and void because they are conjugal properties and she had
not given her consent to the sale.

Respondent Court principally declared DAGUINES "as the lawful owner of the land in question
as well as the one-half of the house erected on said land."

Upon reconsideration prayed for by MERCEDES, however, respondent Court declared

1) Daguines as the true and lawful owner of the land and the 10 coconut trees and
2) as null and void the sale of the conjugal house to plaintiff on including the 3 coconut
trees and other crops planted during the conjugal relation between Fernando Canullas
(vendor) and his legitimate wife.
 9. During the pendency of this appeal, they were convicted of concubinage in a judgment
rendered on October 27, 1981 by the then Court of First Instance of Pangasinan, Branch
II, which judgment has become final.

ISSUE

1. Whether or not the sale of the lot together with the house and improvements thereon
was valid under the circumstances surrounding the transaction. - NO.

a. Court: The contract of sale was null and void for being contrary to morals and
public policy because it was made by a husband in favor of a concubine after
he had abandoned his family.

The sale was contrary to the stability of the family, a basic social institution which
public policy cherishes and protects.

Article 1409, NCC: Contracts whose cause, object, or purpose is contrary to law,
morals, good customs, public order, or public policy are void and inexistent from
the very beginning.

Article 135, NCC: "Contracts without cause, or with unlawful cause, produce no
effect whatsoever. The cause is unlawful if it is contrary to law, morals, good
customs, public order, or public policy."

b. The law emphatically prohibits the spouses from selling property and donating to
each other subject to certain exceptions.
o If transfers or conveyances between spouses were allowed during
marriage, it would destroy the system of conjugal partnership, a
basic policy in civil law. It was also
o Prohibition also designed to:
 prevent the exercise of undue influence by one spouse
over the other
 protect the institution of marriage, the cornerstone of family
law.
o The prohibitions apply to a couple living as husband and wife
without benefit of marriage, otherwise, "the condition of those who
incurred guilt would turn out to be better than those in legal union."
 Art. 133. Every donation between the spouses during the marriage shall be void. This prohibition
does not apply when the donation takes effect after the death of the donor.

Neither does this prohibition apply to moderate gifts which the spouses may give each other on
the occasion of any family rejoicing. (1334a)

c. Buenaventura vs. Bautista, penned by Justice JBL Reyes discusses this:

 Art. 133 should also apply to a common-law relationship. It states:
Every donation between the spouses during the marriage shall be void.
This prohibition does not apply when the donation takes effect after the
death of the donor.
 The Court said, while ART. 133 of the NCC considers as void a donation
between spouses during marriage, policy considerations of the most
exigent character as well as the dictates of morality require that the same
prohibition should apply to a common law relationship.
 The rationale behind such rule is to prevent undue influence and improper
pressure
 All the more then that the same should be prohibitive policy to
persons living together as husband and wife.

2. Whether or not the construction of a conjugal house on the exclusive property of the
husband ipso facto gave the land the character of conjugal property. - YES.

a. The determination of the first issue revolves around the interpretation to be given
to the second paragraph of Article 158 of the Civil Code.
 Court: Both the land and the building belong to the conjugal partnership but
the conjugal partnership is indebted to the husband for the value of the land.
The spouse owning the lot becomes a creditor of the conjugal partnership for
the value of the lot (value would be reimbursed at the liquidation of the
conjugal partnership).

Padilla vs. Paterno

 Court: the better rule is that enunciated by Mr. Justice J.B.L. Reyes in the
decision
o Conversion from paraphernal to conjugal assets should be
deemed to retroact to the time the conjugal buildings were first
constructed thereon or at the very latest, to the time immediately
before the death of the husband (ended conjugal relationship).
o They cannot be considered to have become conjugal property
only as of the time their values were paid to the estate of the
widow because by that time the conjugal partnership no longer
existed and it could not acquire the ownership of said properties.
o The acquisition by the partnership of these properties was subject
to the suspensive condition that their values would be reimbursed
to the widow at the liquidation of the conjugal partnership.
 o Once paid, the effects of the fulfillment of the condition should be
deemed to retroact to the date the obligation was constituted (Art.
1187, New Civil Code)

b. The foregoing premises considered, it follows that FERNANDO could not have
alienated the house and lot to DAGUINES since MERCEDES had not given
her consent to said sale.

DISPOSITIVE PORTION
WHEREFORE, the Decision of respondent Judge, dated October 6, 1980, and his
Resolution of November 27, 1980 on petitioner's Motion for Reconsideration, are hereby
set aside and the sale of the lot, house and improvements in question, is hereby
declared null and void. No costs.
G.R. No. L-35702 May 29, 1973
DOMINGO D. RUBIAS, vs. ISAIAS BATILLER – pending appeal

Doctrine:
Prohibition on Article 1491 shall apply to lawyer, 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.

Parties:
Seller – Rubias (counsel of Militante at the time of sale)
Buyer – Militante (Rubias’ father in law)

Object of Sale:
Portions of lot in Iloilo bought by Rubias from his father in law

Contention:
Petitioner Rubias:

Defendant Batiller: He and his predecessors interest have always been in actual, open and continuous possession
since time immemorial under claim of ownership of the portions of the lot in question.

Nature:
Rubias filed forcible entry and unlawful detainer against Batiller

RTC:
Dismissed the complaint of Rubias.

SC:
Affirmed. Sale is null and void.

Plaintiff Domingo D. Rubias, a lawyer, filed a forcible Entry and unlawful Detainer against Isaias
Batiller, who illegally entered said portions of the lot, to recover the ownership and possession
of certain portions of lot located in Iloilo which he bought from his father-in-law, Francisco
Militante,.

In his answer defendant claims that it does not state a cause of action, the truth of the matter
being that he and his predecessors interest have always been in actual, open and continuous
possession since time immemorial under claim of ownership of the portions of the lot in
question.

Predecessor in interest refers to a person or entity who previously held the rights or interests that are now
held by another.

It is contended that the contract of sale between the Rubias and his father-in-law, Francisco
Militante, Sr., of the property was void, because it was made when plaintiff was the counsel of
the latter in the Land Registration case invoking Articles 1409 and 1491 of the Civil Code.

Lower Court - issued an order disclaiming plaintiffs complaint

Issue: Whether the sale of the land is prohibited under Article 1491.

Held: YES.
Article 1491 says that “The following persons cannot acquire any purchase, even at a public or
judicial auction, either in person or through the mediation of another….

(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 lawyer,
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.”

Plaintiff's claim of ownership to the land in question was predicated on the sale thereof
for P2,000.00 made in 1956 by his father-in- law, Francisco Militante, in his favor, at a time
when Militante's application for registration thereof had already been dismissed by the Iloilo land
registration court and was pending appeal in the Court of Appeals.

He was therefore disqualified under Article 1491 from purchasing such property since he
was the counsel of record of the applicant, even though the case was pending appeal.

Issue: Legal effect of a sale falling under Article 1491?

Held: NULL AND VOID.CANNOT BE RATIFIED.

Manresa considered such prohibited acquisitions (which fell under the Spanish Civil
Code) as merely voidable because the Spanish Code did not recognize nullity.

But our Civil Code does recognize the absolute nullity of contracts

“whose cause, object or purpose is contract to law, morals, good customs, public
order or public policy”

or which are “expressly prohibited or declared void by law”

and declares such contracts “inexistent and void from the beginning.”
The nullity of such prohibited contracts is definite and permanent, and cannot be cured
by ratification.

The public interest and public policy remain paramount and do not permit of compromise
or ratification.

In this aspect, the permanent disqualification of public and judicial officers and lawyers
grounded on public policy differs from the first three cases of guardians agents and
administrators (under Art 1491).

As to their transactions, it has been opined that they may be “ratified” by means of and in
“the form of a new contract, in which case its validity shall be determined only by the
circumstances at the time of execution of such new contract.”

In those cases, the object which was illegal at the time of the first contract may have
already become lawful at the time of the ratification or second contract, or the intent, or the
service which was impossible.

The ratification or second contract would then be valid from its execution; however, it
does not retroact to the date of the first contract.
The functional difference between the two groups of contracts declared void under Article 1491,
is that in the first group after the inhibition has ceased, the only real wrong that subsists is the
private wrong to the ward, principal or estate; and therefore, if private parties wish to condone
the private wrongs among themselves, the State would not stand in the way.

When it comes to the second group, however, even when the inhibition has ceased, there exists
not only the private wrong, but in fact a public wrong, which is damage to public service or to the
high esteem that should be accorded to the administration of justice in our society.

Therefore, in the second group, even when the private parties seek to “ratify” the private wrong
by executing a new contract between themselves when the inhibition no longer exists, such
cannot resurrect and validate a relationship, which continues to be tainted with a public wrong.

As the policy goes, private parties cannot ratify or compromise among themselves matters
contrary to public interests.

Decision affirmed.

[12] v. PHILIPPINE TRUST CO. v. ROLDAN

GR No.L-8477; May 31, 1956; Bengzon, J.

Doctrine:
The temptation which naturally besets a guardian so circumstanced, necessitates the annulment of the transaction,
even if no actual collusion is proved, – which is so hard to do – between such guardian and the intermediate
purchaser.

Parties:
Seller – Soccoro (step mother guardian)
Buyer – Ramos (Soccoro’s brother in law)

Object of Sale:
17 parcels of land inherited by minor Bernardo

Soccoro sold 17 parcels of land to Ramos > Ramos executed deed of conveyance to Soccoro > Soccoro sold 4 out of
17 parcels to Emilio Cruz

Contention:
Petitioner Phil Trust: Sale is in violation of Art. 1459

Nature:
Phil. Trust Co. (who replaced Socorro as guardian) filed a complaint to annul the two contracts regarding the 17
parcels of land

RTC:
In favor of Soccoro. No proof that Ramos (brother in law) was a mere intermediary

CA:
Affirmed adding that the minor knew the particulars of, and approved the transactions

SC:
Reversed. Two contracts of sale were not valid.
TOPIC: Special Disqualifications > Guardians, Agents, and Administrators

SUMMARY
Mariano Bernardo is a minor who inherited from his father 17 parcels of land. The court
appointed Socorro, his step mother, as his guardian. Socorro filed a motion asking
authority to sell the said 17 parcels to Fidel Ramos, her brother-in-law, for the purpose of
investing money in a residential house which the minor desired to have. The motion was
granted and a proper deed of sale was executed in favor of the brother- in-law. Phil.
Trust Co. replaced Socorro as guardian and filed a complaint to annul the two contracts
regarding the 17 parcels of land. SC held that [see doctrine].

RELEVANT PROVISION(S)
Art. 1459, NCC. The thing must be licit and the vendor must have a right to transfer the
ownership thereof at the time it is delivered. (n)

Art. 1303, NCC. Subrogation transfers to the persons subrogated the credit with all the
rights thereto appertaining, either against the debtor or against third person, be they
guarantors or possessors of mortgages, subject to stipulation in a conventional
subrogation. (1212a)

FACTS
 Mariano L. Bernardo, a minor, inherited from his father, Marcelo Bernardo 17 parcels of
land located in Guiguinto, Bulacan.

 In view of his minority, guardianship proceedings were instituted on July 27, 1947, where
Socorro Roland, surviving spouse of Marcelo and step-mother of Mariano, was
appointed as guardian of the latter.
o Also, Socorro filed a motion asking authority to sell as guardian the 17 parcels for
the sum of P14,700 to his brother-in-law, Dr. Fidel C. Ramos,
o the purpose of the sale being allegedly to invest money in a residential house,
which the minor desired to have on Tindalo St., Manila.
o The motion was granted.
o On August 5, 1947, Socorro, as guardian, then executed the proper deed of sale
in favor of Fidel Ramos and on August 12, 1947, she asked for and obtained
judicial confirmation of the sale.
o However, on August 13, 1947, Fidel Ramos executed in favor of Socorro
personally, a deed of conveyance covering the same 17 parcels for the sum of
P15,000.
o And on October 21, 1947 Socorro sold 4 out of the 17 parcels to Emilio Cruz for
P3,000, reserving herself the right to repurchase.

 On August 10, 1948, petitioner Phil. Trust Co. replaced Socorro as guardian.

 Petitioner filed a complaint to annul the two contracts regarding the 17 parcels of land:
 a. The sale thereof by Socorro, as guardian, to Fidel Ramos; and
b. Sale thereof by Fidel Ramos to Socorro personally.

 Petitioner contends that the step-mother in effect, sold to herself, the properties of her
ward thus should be annulled as it violates Art. 1459 prohibiting the guardian from
purchasing “either in person or through the mediation of another” the property of her
ward.
o As to the third conveyance, that Socorro had acquired no valid title to convey to
Cruz.
 TC: Art. 1459 is not controlling as there was no proof that Ramos (brother in law) was a
mere intermediary or that the latter agreed with Socorro to buy the parcels of land for her
benefit.
 CA: affirmed the judgment, adding that the minor knew the particulars of, and approved
the transactions, and that ‘only clear and positive evidence of fraud and bad faith, and
not mere insinuations and interferences will overcome the presumptions that a sale was
concluded in all good faith for value. Hence, this petition.

ISSUE(S)/HELD – SC reversed the decision

WoN the two contracts of sale made by Socorro was valid. – NO

 The Court held that even it is without proof that Socorro had connived with Fidel Ramos,
remembering the general doctrine that guardianship is a trust of the highest order, and
the trustee cannot be allowed to have any inducement to neglect his ward's interest, and
in line with the court's suspicion whenever the guardian acquires the ward's property we
have no hesitation to declare that in this case, in the eyes of the law, Socorro Roldan
took by purchase her ward's parcels thru Ramos which is in violation of Article 1459 of
the Civil Code

 ***The temptation which naturally besets a guardian so circumstanced, necessitates the

annulment of the transaction, even if no actual collusion is proved, – which is so hard to
do – between such guardian and the intermediate purchaser.
o This would uphold a sound principle of equity and justice. From both the legal
and equitable standpoints these three sales should not be sustained:

the first two for violation of Article 1459 of the Civil Code;

and the third because Socorro Roldan could pass no title to Emilio Cruz.

The annulment carries with it (Article 1303, Civil Code) the obligation of
Socorro Roldan to return the 17 parcels together with their fruits and the
duty of the minor, through his guardian to repay P14,700 with legal
interest.

DISPOSITIVE: Judgment is therefore rendered:

a. Annulling the three contracts of sale in question;
b. Declaring the minor as the owner of the seventeen parcels of land, with the obligation to
return to Socorro Roldan the price of P14,700 with legal interest from August 12, 1947;
c. Ordering Socorro Roldan and Emilio Cruz to deliver said parcels of land to the minor;
d. Requiring Socorro Roldan to pay him beginning with 1947 the fruits, which her attorney
admits, amounted to P1,522 a year;
e. Authorizing the minor to deliver directly to Emilio Cruz, out of the price of P14,700 above
mentioned, the sum of P3,000; and A charging appellees with the costs.

SO ORDERED.
FABILLO V. IAC
195 SCRA 28, March 11, 1991

Doctrine:

Parties:
Seller – Florencio Fabillo
Buyer – Murillo (lawyer)

Object of Sale:
Contingent fee of 40% from the lots in Leyte

Contention:
Petitioner:

Defendant:

Nature:
Murillo filed a complaint captioned "ownership of a parcel of land, damages and appointment of a receiver

CFI:
In favor of Murillo. Murillo to be the lawful owner of 40% of both the San Salvador and Pugahanay properties

IAC:
In favor of Murillo.

SC:
Reversed.

Case: Petition for review on certiorari, petitioners seek the reversal of the appellate court's
decision interpreting in favor of lawyer Alfredo M. Murillo the contract of services entered into
between him and his clients, spouses Florencio Fabillo and Josefa Taña.

FACTS
The 2 Properties
 In her last will and testament, Justina Fabillo give to
o her brother, Florencio, a house and lot in San Salvador Street, Palo, Leyte which
was covered by tax declaration No. 19335, and
o to her husband, Gregorio D. Brioso, a piece of land in Pugahanay, Palo, Leyte.

 After Justina's death, Florencio filed a petition for the probate of said will. (Probate - The
court process by which a will is proved valid or invalid. The legal process wherein the
estate of a decedent is administered.)

 The probate court approved the project of partition "with the reservation that the
ownership of the land declared under Tax Declaration No. 19335 and the house erected
thereon be litigated and determined in a separate proceedings."

 Florencio sought the assistance of lawyer Alfredo M. Murillo in recovering the San
Salvador property.
  Acquiescing to render his services, Murillo wrote Florencio a letter asking for 40% of the
money value of the house and lot as a contingent fee in case of success because the
present action is a revival of a lost case.

 Thirteen days later, Florencio and Murillo entered into a contract.

 Murillo filed for Florencio Fabillo Civil Case No. 3532 against Gregorio D. Brioso
(husband of the deceased) to recover the San Salvador property.

 The case was terminated on October 29, 1964 when the court, upon the parties' joint
motion in the nature of a compromise agreement, declared Florencio Fabillo (brother) as
the lawful owner not only of the San Salvador property but also the Pugahanay parcel of
land.

 Consequently, Murillo proceeded to implement the contract of services between him and
Florencio Fabillo by taking possession and exercising rights of ownership over 40% of
said properties.
 Murillo installed a tenant in the Pugahanay property

Conflict regarding the agreement for 40% of the properties, Case filed by Murillo in CFI of
Leyte
 Sometime in 1966, Florencio Fabillo claimed exclusive right over the two properties and
refused to give Murillo his share of their produce. Inasmuch as his demands for his
share of the produce of the Pugahanay property were unheeded, Murillo filed on March
23, 1970 in the then Court of First Instance of Leyte a complaint captioned "ownership of
a parcel of land, damages and appointment of a receiver" against Florencio Fabillo, his
wife Josefa Taña, and their children Ramon Fabillo and Cristeta F. Maglinte.
 MURILLO prayed:
-that he be declared the lawful owner of 40 percent of the two properties;
-that defendants be directed to pay him jointly and severally P900.00 per annum from
1966 until he would be given his share of the produce of the land plus P5,000 as
consequential damages and P1,000 as attorney's fees,
-and that defendants be ordered to pay moral and exemplary damages in such amounts
as the court might deem just and reasonable.

 The defendants FABILLO’ answer:

o The consent to the contract of services of the Fabillo spouses was vitiated by old
age and ailment
o Murillo misled them into believing that Special Proceedings No. 843 on the
probate of Justina's will was already terminated when actually it was still pending
resolution
o The contingent fee of 40% of the value of the San Salvador property was
excessive, unfair and unconscionable considering the nature of the case, the
length of time spent for it, the efforts exerted by Murillo, and his professional
standing.
o They prayed that the contract of services be declared null and void; that Murillo's
fee be fixed at 10% of the assessed value of P7,780 of the San Salvador
property; that Murillo be ordered to account for the P1,000 rental of the San
Salvador property which he withdrew from the court and for the produce of the
 Pugahanay property from 1965 to 1966; that Murillo be ordered to vacate the
portion of the San Salvador property which he had occupied; that the Pugahanay
property which was not the subject of either Special Proceedings No. 843 or Civil
Case No. 3532 be declared as the exclusive property of Florencio Fabillo, and
that Murillo be ordered to pay moral damages and the total amount of P1,000
representing expenses of litigation and attorney's fees.

 CFI’s decision:
o There was insufficient evidence to prove that the Fabillo spouses' consent to the
contract was vitiated.
o It noted that the contract was witnessed by two of their children who appeared to
be highly educated.
o The spouses themselves were old but literate and physically fit.
o Ruling that the contract of services did not violate Article 1491 of the Civil Code
as said contract stipulated a contingent fee, the court upheld Murillo's claim for
"contingent attorney's fees of 40% of the value of recoverable properties."
o The court declared Murillo to be the lawful owner of 40% of both the San
Salvador and Pugahanay properties and the improvements thereon.

 In view of the death of both Florencio and Justina Fabillo during the pendency of the
case in the lower court, their children, who substituted them as parties to the case,
appealed the decision of the lower court to the then Intermediate Appellate Court.
 On March 27, 1984, said appellate court affirmed in toto the decision of the lower court.
(in favor of Murillo)
 The instant petition for review on certiorari which was interposed by the Fabillo children,
was filed shortly after Murillo himself died. His heirs likewise substituted him in this case.
 The Fabillos herein question the appellate court's interpretation of the contract of
services and contend that it is in violation of Article 1491 of the Civil Code.

ISSUE:
W/N the contract of services violated Article 1491 of the Civil Code. – NO but the contract was
vague, hence the decision was reversed

RATIO:

Validity of the contract of services

 The contract of services did not violate said provision of law.
 Article 1491 of the Civil Code, specifically paragraph 5 thereof, prohibits lawyers
from acquiring by purchase even at a public or judicial auction, properties and
rights which are the objects of litigation in which they may take part by virtue of
their profession.

 The said prohibition, however, applies only if the sale or assignment of the property
takes place during the pendency of the litigation involving the client's property.

 Hence, a contract between a lawyer and his client stipulating a contingent fee is not
covered by said prohibition under Article 1491 (5) of the Civil Code because the payment
of said fee is not made during the pendency of the litigation but only after judgment has
been rendered in the case handled by the lawyer.
  In fact, under the 1988 Code of Professional Responsibility, a lawyer may have a lien
over funds and property of his client and may apply so much thereof as may be
necessary to satisfy his lawful fees and disbursements.

 As long as the lawyer does not exert undue influence on his client, that no fraud is
committed or imposition applied, or that the compensation is clearly not excessive as to
amount to extortion, a contract for contingent fee is valid and enforceable. 11

 Moreover, contingent fees were impliedly sanctioned by No. 13 of the Canons of

Professional Ethics which governed lawyer-client relationships when the contract of
services was entered into between the Fabillo spouses and Murillo.

40% of the properties or 40% of the value

 However, we disagree with the courts below that the contingent fee stipulated between
the Fabillo spouses and Murillo is forty percent of the properties subject of the litigation
for which Murillo appeared for the Fabillos.

 A careful scrutiny of the contract shows that the parties intended forty percent of the
value of the properties as Murillo's contingent fee.

 This is borne out by the stipulation that "in case of success of any or both cases,"
Murillo shall be paid "the sum equivalent to forty per centum of whatever benefit"
Fabillo would derive from favorable judgments. The same stipulation was earlier
embodied by Murillo in his letter of August 9, 1964 aforequoted.

 ***Worth noting are the provisions of the contract which clearly states that in case the
properties are sold, mortgaged, or leased, Murillo shall be entitled respectively to 40% of
the "purchase price," "proceeds of the mortgage," or "rentals."

 The contract is vague, however, with respect to a situation wherein the properties are
neither sold, mortgaged or leased because Murillo is allowed "to have the option of
occupying or leasing to any interested party forty per cent of the house and lot."

 Had the parties intended that Murillo should become the lawful owner of 40% of the
properties, it would have been clearly and unequivocally stipulated in the contract
considering that the Fabillos would part with actual portions of their properties and cede
the same to Murillo.

 The ambiguity of said provision, however, should be resolved against Murillo as it was
he himself who drafted the contract.

 This is in consonance with the rule of interpretation that, in construing a contract of

professional services between a lawyer and his client, such construction as would
be more favorable to the client should be adopted even if it would work prejudice
to the lawyer.
  Rightly so because of the inequality in situation between an attorney who knows the
technicalities of the law on the one hand and a client who usually is ignorant of the
vagaries of the law on the other hand.

 Considering the nature of the case, the value of the properties subject matter thereof,
the length of time and effort exerted on it by Murillo, we hold that Murillo is entitled to the
amount of Three Thousand Pesos (P3,000.00) as reasonable attorney's fees for
services rendered in the case which ended on a compromise agreement.

 In so ruling, we uphold "the time-honored legal maxim that a lawyer shall at all times
uphold the integrity and dignity of the legal profession so that his basic ideal becomes
one of rendering service and securing justice, not money-making.

 For the worst scenario that can ever happen to a client is to lose the litigated property to
his lawyer in whom all trust and confidence were bestowed at the very inception of the
legal controversy."

WHEREFORE, the decision of the then Intermediate Appellate Court is hereby reversed and set
aside and a new one entered (a) ordering the petitioners to pay Atty. Alfredo M. Murillo or his
heirs the amount of P3,000.00 as his contingent fee with legal interest from October 29, 1964
when Civil Case No. 3532 was terminated until the amount is fully paid less any and all amounts
which Murillo might have received out of the produce or rentals of the Pugahanay and San
Salvador properties, and (b) ordering the receiver of said properties to render a complete report
and accounting of his receivership to the court below within fifteen (15) days from the finality of
this decision. Costs against the private respondent.dfdsdeezz