Director of Lands v.

Ababa

G.R. No. L-26096 | February 27, 1979

Petitioners: Spouses Larrazabal & Spouses Abarquez

Adverse claimant: Atty. Alberto Fernandez

FACTS:

 Atty. Fernandez was the counsel of petitioner Maximo Abarquez in a civil case for annulment of
contract of sale and for recovery of the land which was the subject matter thereof. Petitioner,
filing as a pauper, was unable to compensate his lawyer so he executed a document whereby he
obliged himself to give to his lawyer ½ of whatever he might recover from Lots 5600 and 5602
should the appeal prosper.

1st case
 The real property in the civil case was petitioner’s share in the said 2 lots which were part of the
estate of his deceased parents and which were partitioned among the heirs, including petitioner
and his elder sister, Agripina (defendant in the civil case).
 The partition, approved by the court, provided that the 2 lots were to be divided into 3 equal
parts, where 1/3 was to be given to Maximo.
 Agripina claimed the share of Maximo, stating that Maximo executed an instrument of pacto de
retro prior to the partition conveying to her all his rights in the estate.
 Maximo discovered that the instrument in which he was induced to sign was an instrument he
believed to be a mere acknowledgment of the receipt of P700 (given by her sister as
consideration for taking care of their father when the latter was sick).
 Maximo filed to annul the instrument.
 CFI: against Maximo; CA: reversed and annulled the deed of pacto de recto.

2nd case
 Adverse claimant Atty. Fernandez waited for petitioner to comply with his obligation under the
document regarding the ½ portion of the parcels of land.
 Petitioner refused and offered to sell the whole parcels of land to spouses Larrazabal.
 Atty. Fernandez filed to annotate his attorney’s lien.
- Wrong remedy so before the same was denied, he filed for an affidavit of adverse claim
 His claim was annotated on the TCT.

3rd case
 Spouses Abarquez conveyed by deed of absolute sale on 2/3 of the lands to spouses Larrazabal.
 Spouses Larrazabal filed a petition to cancel the adverse claim.
 TC: denied, stating that the admission by the petitioners that the lawyers (Fernandez and
Batiguin) are entitled to only 1/3 is the best proof of the authority to maintain said adverse
claim.
  Petitioners contend that a contract for a contingent fee violates Art. 1491 as it involves an
assignment of a property subject of litigation; and that Canon 10 prohibits a lawyer from
purchasing any interest in the subject matter of the litigation which he is conducting.

ISSUES:
1. Whether or not the contract for a contingent fee, which is the basis of Atty. Fernandez’s
interest, is prohibited by Art. 1491 – NO (MAIN)
2. Whether the contract for a contingent fee violates the Canons of Professional Ethics - NO

PROVISION:

Article 1491. The following persons cannot acquire by purchase even at a public or judicial auction,
either in person or through the petition of another.

xxx xxx xxx

(5) Justices, judges, prosecuting attorneys, clerks of superior and inferior and other o 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 (Emphasis supplied).

RULING:
1. NO
 Art. 1491 prohibits only the sale or assignment between the lawyer and his client, of
property which is the subject of litigation. For the prohibition to operate, the sale or
assignment of the property must take place during the pendency of the litigation involving
the property.
 A contract for a contingent fee is not covered by Article 1491 because the transfer or
assignment of the property in litigation takes effect only after the finality of a favorable
judgment.
- Here, the attorney’s fees of Atty. Fernandez (1/2 of whatever Maximo might recover
from his share in the lots) is contingent upon the success of the appeal.
- The transfer actually takes effect after the finality of a favorable judgment
rendered on appeal and not during the pendency of the litigation.

2. NO
 Canon 13 allows a reasonable contingent fee contract, adding that it should always be
subject to the supervision of a court, as to its reasonableness.
 Jurisprudence has allowed contingent fees as they redound to the benefit of the poor client
and the lawyer "especially in cases where the client has meritorious cause of action, but no
means with which to pay for legal services unless he can, with the sanction of law, make a
contract for a contingent fee to be paid out of the proceeds of the litigation.”
  A contingent fee contract is always subject to the supervision of the courts with respect to
the stipulated amount and may be reduced or nullified. In the event that there is any undue
influence or fraud in the execution of the contract or that the fee is excessive, the client is
not without remedy because the court will amply protect him.
- Here, there is no iota of proof that Atty. Fernandez had exerted any undue
inluence or had perpetrated fraud on, or had in any manner taken advantage of
his client, Maximo. And, the compensation of one-half of the lots in question is not
excessive nor unconscionable considering the contingent nature of the attorney's
fees.
 Thus, Atty. Fernandez has a better right than spouses Larrazabal (the latter being in bad
faith as they purchased with the knowledge of the adverse claim).

DISPOSITION:

WHEREFORE, THE DECISION OF THE LOWER COURT DENYING THE PETITION FOR THE CANCELLATION OF
THE ADVERSE CLAIM SHOULD BE, AS IT IS HEREBY AFFIRMED, WITH COSTS AGAINST PETITIONER-
APPELLANTS JUAN LARRAZABAL AND MARTA C. DE LARRAZABAL.