Paterno Canlas vs.

Court of Appeals and Francisco Herrera

J. Sarmiento Date Decided G.R. No. L-77691
Doctrine Real Estate Mortgage; Act 3135; Rule 68 ROC; SC AM 99-10-05
Facts  Herrera had various loan with L&R Corp (totaling P420k), secured by Deeds of Mortgage over 8 parcels of land. He
failed to pay the loan when it became due, so L&R Corp caused an extrajudicial foreclosure of the mortgage,
resulting in L&R acquiring the lands at public auction.. Pending redemption, Herrera filed a complaint for
injunction against L&R, to enjoin the consolidation of title in its name, and a preliminary injunction was granted. 2
years later, they entered into a compromise agreement wherein Herrera would be given nother year to redeem the
properties, subject to payment of P600K w 1% interest per month and that Atty. Canlas (Herrera’s counsel) would
be entitled to P100k as attorney’s fees. This was approved by the court.
 Herrera however, was still in dire financial straits. Canlas offered to advance money to redeem the properties that
were foreclosed, provided that Herrera execute a transfer of mortgage in Canlas’ favor. A Deed of Sale and Transfer
of Rights of Redemption and/or to Redeem (allegedly falsified1) enabled Canlas to redeem and register the lands in
his name.
 Herrera caused the annotation of an adverse claim on the certificates of title. However, Canlas moved to cancel the
annotation as well as for a writ of possession, which were both granted. Herrera filed for reconveyance and
reformation of document, but this was denied by the RTC. He then filed a suit for Annulment of Judgment in the CA.
Canlas filed a motion to dismiss, but it was denied. The MR was also denied. Hence this petition.
Ratio/Issues
I. W/N the petition for annulment of judgment is actually a petition for certiorari (YES)
(1) A perusal of the petition reveals no cause of action (extrinsic fraud2) for annulment of judgment. What is
actually assailed are the orders implementing it, not the judgment itself. There is no showing of extrinsic
fraud that vitiated the proceedings in the RTC. His suspected collusion between Atty. Canlas and the RTC
Judge is mere speculation, which cannot justify an annulment.
(2) Even if we look at the petition as a R65 petition for certiorari, it still has serious flaws. Certiorari presupposes
the absence of an appeal. While there is no appeal from execution of judgment, appeal lies in case of irregular
implementation of the writ. However there is no irregular execution to speak of. The assailed orders are
conformable to the judgment approving the compromise agreement.

II. W/N Canlas had a hidden agenda in transferring the properties to himself (YES)
(1) Attorney’s fees. Canlas himself said that because no financing entity was willing to extend Herrera any loan to
pay the redemption price and attorney’s fees, he offered to advance money for Herrera. In doing so, he placed
his interests over those of his client. While lawyers are entitle to make a living, this does not justify the lust
for material wealth at the expense of another. Law advocacy is not capital that yields profits. Accordingly, the
fees due to Atty. Canlas were reduced to P20k
(2) Hidden agenda. Petitioner’s haste in executing the compromise agreement and forcing the transfer of
properties to himself later on. Despite the writ of execution, he refused to implement it, obviously to cause
Herrera to convey the properties in Canlas’ favor. While he would have the Court believe that he was actually
doing Herrera a favor by advancing money for redemption, the fact that this resulted in his benefit does not
escape the Court’s attention. The Court also found that Canlas succeeded in having Herrera sign the Deed of
Sale and Transfer of Rights of Equity of Redemption and/or to Redeem, which allowed Canlas to eventually
acquire ownership of the properties. Again, Canlas says that he was more concerned with the P100k
attorney’s fees awarded in the Compromise Agreement, but the circumstances show his true intentions.
(3) Ban on acquisition of things in litigation. Art. 1491 (5) and Rubias v. Batiller hold such contracts to be void.
However, as held in Director of Lands v. Ababa, this does not apply to contingent contracts, in which
conveyance takes place after judgment. In this case, the Deed was executed following the finality of the
decision approving the compromise agreement, thus not subject to the prohibition. However, the Court found
the contract to be voidable, as it was executed with undue influence (Canlas having moral ascendancy over
his client) thus invalidating the Deed. However, Herrera must still pay Canlas P654K for the redemption
price, as well as P20k for attorney’s fees.

Held Petiition is DISMISSED. The case is remanded to the CA for execution

Canlas is to pay Herrera P326K as damages
Canlas must show case why no disciplinary action is to be imposed on him
Canlas will pay the costs of suit.
Prepared by: VJ Dominguez (Credit Transactions | Prof. Vasquez)

1 As found in the Register of Deeds:

…HERRERA, hereby transfer, assign and convey unto CANLAS any and all my rights of the real properties and/or to redeem from the Mortgagee…
It originally read:
…HERRERA, hereby transfer, assign and convey unto CANLAS any and all my rights of equity of redemption and/or to redeem from the Mortgagee…
2 extrinsic fraud was held in Macabingkil v. People’s Homesite and Housing Corp to refer to “any fraudulent act of the prevailing part in the litigation which is

committed outside the trial of the case, whereby the defeated party has been prevented from exhibiting fully his side of the case, by fraud or deception
practiced on him by his opponent.