Acquisition of properties

subject of litigation

Problem Areas in Legal Ethics

Arellano University School of Law – Arellano Law Foundation
2017-2018

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• ART. 1491. The following persons cannot acquire any purchase,
even at a public auction, either in person of through the
mediation of another: .
xxx xxx xxx
• (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 of 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 an
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.

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 There is no written prohibition in
CPR from acquiring interest
• However, respondent notes that Canon 10 of the old
Canons of Professional Ethics, which states that "[t]he
lawyer should not purchase any interests in the subject
m atter of the litigation which he is conducting," does
not appear anymore in the new Code of Professional
Responsibility. He therefore concludes that while a
purchase by a lawyer of property in litigation is void
under Art. 1491 of the Civil Code, such purchase is no
longer a ground for disciplinary action under the new
Code of Professional Responsibility.

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 ……
• This contention is without merit. The very first Canon
of the new Code states that "a lawyer shall uphold the
Constitution, obey the laws of the land and promote
respect for law and legal process" (Emphasis supplied),
Moreover, Rule 138, Sec. 3 of the Revised Rules of
Court requires every lawyer to take an oath to obey
the laws [of the Republic of the Philippines] as well as
the legal orders of the duly constituted authorities
therein.“ xxx And for any violation of this oath, a
lawyer may be suspended or disbarred by the
Supreme Court [Rule 138, Sec. 27, Revised Rules of
Court]. – Bautista v. Atty. R. Gonzales, A.M. No.
1625 February 12, 1990

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• Parenthetically,it should be noted that the persons
m entioned in Art. 1491 of the Civil Code are prohibited
from purchasing the property mentioned therein because of
their existing trust relationship with the latter. A lawyer is
disqualified from acquiring by purchase the property and
rights in litigation because of his fiduciary relationship with
such property and rights, as well as with the client. And it
cannot be claimed that the new Code of Professional
Responsibility has failed to emphasize the nature and
consequences of such relationship.

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 ……
• Canon 17 states that "a lawyer owes fidelity to the cause of
his client and he shall be mindful of the trust and
confidence reposed in him." On the other hand, Canon 16
provides that "a lawyer shall hold in trust all m oneys and
properties of his client that may com e into his possession."
Hence, notwithstanding the absence of a specific provision
on the matter in the new Code, the Court, considering the
above quoted provisions of the new Code in relation to Art.
1491 of the Civil Code, as well as the prevailing
jurisprudence, holds that the purchase by a lawyer of his
client's property in litigation constitutes a breach of
professional ethics for which a disciplinary action may be
brought against him. - Bautista v. Atty. R. Gonzales,
A.M. No. 1625 February 12, 1990

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 Contingent fee arrangem ent does not
violate A rticle 1491 (5) of the CivilCode

• Hence,a contract betw een a law yer and his client stipulating a
contingent fee is not covered by said prohibition under 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
ProfessionalResponsibility,a lawyer may have a lien over funds
and property of his client and m ay apply so m uch thereof as
m ay be necessary to satisfy his law fulfees and disbursem ents.-
Fabillo and Tana v. IAC G.R. No. L-68838 [1991]

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 Lim itations of contingent fee

• 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. 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. -Fabillo and
Tana v. IAC G.R. No. L-68838 [1991]

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 What is “a property [is] in
litigation”?

• A property is in litigation if there is a contest or

litigation over it in court or when it is subject of a
judicial action. - Peña v. Delos Santos, et. al., GR
NO. 202223, March 02, 2016

• A thing is said to be in litigation not only if there is

some contest or litigation over itin court, but also
from the m o ment that it becom es subject to the
judicial action of the judge. – Natividad Ariaga vda.
De Gurrea, et. Al. v. against Atty. Enrique
Suplico , G.R. No. 144320, April 26, 2006
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 Mortgage also falls under
Article 1491[5]
• Respondent Am onoy avers that at the tim e of the execution of
the m ortgage on 20 January 1965,subject properties w ere no
longer "properties in litigation" since the Project of Partition (as
signed by the intestate heirs) covering said properties w as
approved by the low er Court as early as 12 January 1965.

• This argum ent m ust failfor the reason that w hile the Project of
Partition w as approved on 12 January 1965,it w as only on 6
August 1969,and after allcharges against the estate had been
paid,that the estate w as declared closed and term inated.In fact,
by his ow n adm ission,he had acted as counselfrom 1959 until
1968.

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 ……
• Thus, at the time of the execution of the mortgage
contract, the Controverted Parcels were stillin litigation and
a fiduciary relationship of lawyer and client, which Article
1491[5] precisely seeks to protect, still existed between the
parties. To state that mortgages are not included within the
prohibition is to open the door to an indirect circumvention
of that statutory injunction, acquisition of the property
being merely postponed till eventual foreclosure.

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 ……
• Respondent asserts further that Article 1491[5] does
not apply to judg ment creditors of which, he claims,
he was one. Under ordinary circu mstances, the
argu ment of respondent could be considered
plausible. Unfortunately, however, as heretofore
explained, the mortgage was executed in violation of
Article 1491[5] so that this Article has a direct
bearing on this case and respondent cannot escape its
provision. Having violated the sam e, he cannot be
considered in the general run of a judg ment creditor. -
Fornilda, et. al. v. Branch 164, RTC Pasig,
G.R.No. L-72306 January 24, 1989

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 A ppearance of im propriety if judge
purchase property after litigation
• Finally, while itis true that respondent Judge did not violate paragraph 5,
Article 1491 of the New Civil Code in acquiring by purchase a portion of
Lot 1184-E which was in litigation in his court,it was, however, improper
for him to have acquired the same. He should be reminded of Canon 3
of the Canons of Judicial Ethics which requires that: "A judge's official
conduct should be free from the appearance of impropriety, and his
personal behavior, not only upon the bench and in the performance of
judicial duties, but also in his everyday life, should be beyond reproach."
And as aptly observed by the Investigating Justice: "...it was unwise and
indiscreet on the part of respondent to have purchased or acquired a
portion of a piece of property that was or had been in litigation in
his court and caused it to be transferred to a corporation of which he
and his wife were ranking officers at the tim e of such transfer. -
Macariola v. Asuncion, A.M. No. 133-J [1982]

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The property m ust be the very subject of
litigation for A rticle 1491 to apply

• It is true that Canon No.10 of the Canons of ProfessionalEthics

prohibits the lawyer from purchasing any interest in the
subject-matter of the litigation which he is conducting, and
Article 1491, paragraph 5, of the New Civil Code prohibits him
from acquiring by purchase or assignm ent the property and
rights w hich m ay be the object of any litigation in w hich he m ay
take part by virtue of his profession.But in those cases w here
these provisions w ere applied,the rights or properties
purchased by the lawyer were the very subject of the litigation
handled by him. - Guevara v. Calalang, A.M. No. 681
[1982]
•

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 Levied property in satisfaction of
dam ages can be properly acquired by
law yer

• In the case at bar,the lot in w hich respondent acquired rights by

assignm ent w as not the subject of CivilCase No.2171 in w hich he
approved (sic) as counselfor Bernabe Flores and others.The said
case w as purely one for dam ages and did not involve the lot in
question.The lot w as sim ply levied upon on execution after
judgm ent w as rendered in favor of the plaintiffs.Therefore
Article 1491 of the New Civil Code did not apply.Consequently,
respondent had not violated the said provision of law.- Guevara
v. Calalang, A.M. No. 681 [1982]

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Con’t…

• It w as not professional misconduct or unethical practice for the

respondent to acquire the rights and interests of his client to the
439 square m eter parcelof land subject of the adm inistrative
charges because the land w as not involved in the litigation he
w as handling.The land w as acquired by Bernabe Flores in an
execution sale conducted to satisfy the judgm ent secured in the
course of CivilCase No.2171.The case handled by the
respondent w as for dam ages.- Guevara v. Calalang, A.M.
No. 681 [1982]

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 W ithdrawalof the am ount deposited in
order to pay attorney’s fees violates
A rticle 1491 of the N CC

• The withdrawal of the amount deposited in order to pay attorney’s fees

to petitioner’s counsel, Atty. De Guz man, Jr., violates Article 1491 of the
Civil Code which forbids lawyers from acquiring by assign ment, property
and rights which are the object of any litigation in which they may take
part by virtue of their profession. Furthermore, Rule 10 of the Canons of
Professional Ethics provides that “the lawyer should not purchase any
interest in the subject matter of the litigation which he is conducting.”
The assailed transaction falls within the prohibition because the Deed
assigning the a mount of P672,900.00 to Atty. De Guz man, Jr., as part of
his attorney’s fees was executed during the pendency of this case with
the Court of Appeals. In his Motion to Intervene, Atty. De Guz man, Jr.,
not only asserted ownership over said amount, but likewise prayed that
the same be released to him.- Pabugais v. Sahijwani G.R. No.
156846 [2004]

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 Even if litigant voluntarily assigned the
am ount
• That petitioner knowingly and voluntarily assigned the subject
amount to his counsel did not rem ove their agreem ent w ithin the
am bit of the prohibitory provisions.- Pabugais v. Sahijwani
G.R. No. 156846 [2004]

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 A ssignm ent of property violates
A rticle 1491
• We agree w ith the Investigating Com m issioner's opinion that the
prohibition applies w hen the law yer has not paid m oney for it
and the property w as merely assigned to him in consideration of
legalservices rendered at a tim e w hen the property is stillthe
subject of a pending case.- Ordonio v. Atty. Eduarte,
A.M. No. 3216 [1992]

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Prohibition stillapplies even if lessee is a
separate juridicalperson
• Thus, even if the parties designated as lessees in the assailed lease
contracts were the "Heirs of Jose Villegas" and the partnership HIJOS DE
JOSE VILLEGAS, and respondent signed merely as an agent of the latter,
the Court rules that the lease contracts are covered by the prohibition
against any acquisition or lease by a lawyer of properties involved in
litigation in which he takes part. To rule otherwise would be to lend a
stamp of judicial approval on an arrange ment which, in effect,
circumvents that which is directly prohibited by law. For,piercing
through the legal fiction of separate juridical personality, the Court
cannot ignore the obvious implication that respondent as one of the
heirs of Jose Villegas and partner,later manager of, in HIJOS DE JOSE
VILLEGAS stands to benefit from the contractual relationship created
between his client Felix Leong and his family partnership over
properties involved in the ongoing testate proceedings. - Mananquil
v. Atty. Villegas, A.M. No. 93-7-696-0 February 21, 1995

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 Mortgage contract included in the
prohibition

• To state that m ortgages are not included w ithin the prohibition is

to open the door to an indirect circum vention of that statutory
injunction,acquisition of the property being merely postponed
till eventual foreclosure.
• Respondent asserts further that Article 1491[5] does not apply
to judgm ent creditors of w hich,he claim s,he w as one.U nder
ordinary circum stances,the argum ent of respondent could be
considered plausible.U nfortunately,how ever,as heretofore
explained,the mortgage was executed in violation of Article
1491[5] so that this Article has a direct bearing on this case and
respondent cannot escape its provision.Having violated the sam e,
he cannot be considered in the generalrun of a judgm ent
creditor.- Fornilda, et. al. v. RTC Branch 164,
G.R.No. L-72306 [1989]
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Mere dem and for delivery of the litigated
property does not
violate the rule

• In the instant case,there w as no actualacquisition of the

property in litigation since the respondent only m ade a w ritten
dem and for its delivery w hich the com plainant refused to com ply.
Mere demand for delivery of the litigated property does not
cause the transfer of ownership, hence,not a prohibited
transaction w ithin the contem plation of Article 1491.Even
assum ing arguendo that such dem and for delivery is unethical,
respondent's act does not fallw ithin the purview of Article 1491.
- Ramos v. Atty. Ngaseo, A.C. No. 6210 [2004]

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 Certiorariproceeding stillbars purchase
of property under A rticle 1491
• In the case at bar,w hile it is true that Atty.Arsenio Fer.Cabanting
purchased the lot after finality of judgm ent,there w as still a
pending certiorari proceeding.A thing is said to be in
litigation not only if there is some contest or litigation over it
in court, but also from the moment that it becomes subject to
the judicial action of the judge.- Valencia v. Atty.
Cabanting, A.M. No. 1302, 1391 and 1543 [1991]

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Thank you for your attention!!

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