1. CIVIL LAW; ARTICLE 1491 CIVIL CODE; PROHIBITION TO LAWYERS WITH RESPECT TO PROPERTIES OR RIGHTS UNDER LITIGATION; RATIONALE. — A lawyer is prohibited from acquiring either by purchase or assignment the property or rights involved which are the object of the litigation in which they intervene by virtue of their profession (Padilla, Vol. II Civil Law, 1974 Ed., p. 230 citing Hernandez v. Villanueva, 40 Phil. 773 and Rubias v. Batiller; 51 SCRA 130). The prohibition on purchase is all embracing to include not only sales to private individuals but also public or judicial sales (ibid., p. 221). The rationale advanced for the prohibition is that public policy disallows the transactions in view of the fiduciary relationship involved i.e., the relation of trust and confidence and the peculiar control exercised by these persons (Paras, Civil Code, Vol. V, 1973., p. 70).

2. ID.; ID.; ID.; SUBJECT TRANSACTION FALLS SQUARELY WITHIN THE STATUTORY PROHIBITION. — The transaction involved falls squarely within the prohibition against any acquisition by a lawyer of properties belonging to parties they represent which are still in suit. For, while the Project of Partition was approved on 12 January 1965, it was not until 6 August 1969 that the estate was declared closed and terminated (Record on Appeal, Civil Case No. 3103, p. 44). At the time the mortgage was executed, therefore, the relationship of lawyer and client still existed, the very relation of trust and confidence sought to be protected by the prohibition, when a lawyer occupies a vantage position to press upon or dictate terms to an harassed client. What is more, the mortgage was executed only eight (8) days after approval of the Project of Partition thereby evincing a clear intention on Respondent Amonoy’s part to protect his own interests and ride roughshod over that of his clients. The fact that the properties were first mortgaged and only subsequently acquired in an auction sale long after the termination of the intestate proceedings will not remove it from the scope of the prohibition. To rule otherwise would be to countenance indirectly what cannot be done directly.

3. ID.; MORTGAGE CONTRACT, NULL AND VOID AB INITIO; ACTION FOR DECLARATION OF INEXISTENCE OF CONTRACTS DOES NOT PRESCRIBE. — Considering that the mortgage contract, entered into in contravention of Article 1491 of the Civil Code, supra, is expressly prohibited by law, the same must be held inexistent and void ab initio (Director of Lands v. Abagat, 53 Phil. 147). Being a void contract, the action or defense for the declaration of its inexistence is imprescriptible (Article 1410, Civil Code). The defect of a void or inexistent contract is permanent. Mere lapse of time cannot give it efficacy. Neither can the right to set up the defense of illegality be waived (Article 1409, Civil Code).

4. REMEDIAL LAW; ACTIONS; TRIAL COURT DID NOT ACQUIRE JURISDICTION OVER SUBJECT MATTER; JUDGMENT RENDERED DID NOT ATTAIN FINALITY; RES JUDICATA NO APPLICABLE. — The Controverted Parcels could not have been the object of any mortgage contract in favor of Respondent Amonoy and consequently neither of a foreclosure sale. By analogy, the illegality must be held to extend to whatsoever results directly from the illegal source (Article 1422, Civil Code). Such being the case, the Trial Court did not acquire any jurisdiction over the subject matter of the Foreclosure Case and the judgment rendered therein could not have attained any finality and could be attacked at any time. Neither could it have been a bar to the action brought by petitioners for its annulment by reason of res judicata. (Municipality of Antipolo v. Zapanta, No. L-65334, December 26, 1984, 133 SCRA 820). Two of the requisites of the rule of prior judgment as a bar to a subsequent case, namely, (1) a final judgment and (2) that it must have been rendered by a Court having jurisdiction over the subject matter, are conspicuously absent.

5. CIVIL LAW; CONTRACTS; ARTICLE 1412, CIVIL CODE; RECOVERY OF WHAT HAS BEEN GIVEN TO PARTY AT FAULT, WARRANTED. — Since the nullity of the transaction herein involved proceeds from the illegality of the cause or object of the contract, and the act does not constitute a criminal offense, the return to petitioners of the Controverted Parcels is in order. "Art. 1412. If the act in which the unlawful or forbidden cause consists does not constitute a criminal offense, the following rules shall be observed: . . . When only one of the contracting parties is at fault, he cannot recover what he has given by reason of the contract, or ask for the fulfillment of what has been promised him. The other, who is not at fault, may demand the return of what he has given without any obligation to comply with his promise." (Civil Code)

The Petition entitled "Petisiyung Makapagpasuri Taglay ang Pagpapapigil ng Utos", translated as one for Certiorari with Preliminary Injunction, was filed on 27 September 1985 by three (3) petitioners, namely David P. Fornilda, Emilia P. Fornilda-Olili, and Angela P. Fornilda-Gutierrez. They seek the reversal of the Order of respondent Trial Court, dated 25 July 1985, granting a Writ of Possession, as well as its Orders, dated 25 April 1986 and 16 May 1986 (p. 241, Rollo), directing and authorizing respondent Sheriff to demolish the houses of petitioners Angela and Leocadia Fornilda (who is listed as a petitioner but who did not sign the Petition). Neither is Juan P. Fornilda a signatory.chanrobles virtualawlibrary chanrobles.com:chanrobles.com.ph

The facts disclose that the deceased, Julio M. Catolos, formerly owned six (6) parcels of land located in Tanay, Rizal, which are the controverted properties in the present litigation. His estate was the subject of settlement in Special Proceedings No. 3103 of the then Court of First Instance of Rizal, at Pasig, Branch I. Francisca Catolos, Agues Catolos, Alfonso I. Fornilda and Asuncion M. Pasamba were some of the legal heirs and were represented in the case by Atty. Sergio Amonoy (hereinafter referred to as Respondent Amonoy). A Project of Partition was filed in the Intestate Court whereby the Controverted Parcels were adjudicated to Alfonso I. Fornilda and Asuncion M. Pasamba.

On 12 January 1965, the Court approved the Project of Partition. It was not until 6 August 1969, however, that the estate was declared closed and terminated after estate and inheritance taxes had been paid, the claims against the estate settled and all properties adjudicated.

Eight (8) days thereafter, or on 20 January 1965, Alfonso I. Fornilda and Asuncion M. Pasamba executed a Contract of Mortgage wherein they mortgaged the Controverted Parcels to Respondent Amonoy as security for the payment of his attorney’s fees for services rendered in the aforementioned intestate proceedings, in the amount of P27,600.00 (Annex "A", Comment).

Asuncion M. Pasamba died on 24 February 1969 while Alfonso I. Fornilda passed away on 2 July 1969. Petitioners are some of the heirs of Alfonso I. Fornilda.

Since the mortgage indebtedness was not paid, on 21 January 1970, Respondent Amonoy instituted foreclosure proceedings before the Court of First Instance of Rizal, at Pasig, Branch VIII, entitled "Sergio I. Amonoy v. Heirs of Asuncion M. Pasamba and Heirs of Alfonso I. Fornilda" [Civil Case No. 12726] (Annex "B", ibid.). Petitioners, as defendants therein, alleged that the amount agreed upon as attorney’s fees was only P11,695.92 and that the sum of P27,600.00 was unconscionable and unreasonable. Appearing as signatory counsel for Respondent Amonoy was Atty. Jose S. Balajadia.chanrobles.com.ph : virtual law library

On 28 September 1972, the Trial Court 1 rendered judgment in the Foreclosure Case ordering the Pasamba and Fornilda heirs to pay Respondent Amonoy, within ninety (90) days from receipt of the decision, the sums of P27,600.00 representing the attorney’s fees secured by the mortgage; P11,880.00 as the value of the harvest from two (2) parcels of land; and 25% of the total of the two amounts, or P9,645.00, as attorney’s fees, failing which the Controverted Parcels would be sold at public auction (Annex "C", ibid.)

On 6 February 1973, the Controverted Parcels were foreclosed and on 23 March 1973, an auction sale was held with Respondent Amonoy as the sole bidder for P23,760.00 (Annex "D", ibid.). Said sale was confirmed by the Trial Court on 2 May 1973 (Annex "E", ibid.). To satisfy the deficiency, another execution sale was conducted with Respondent Amonoy as the sole bidder for P12,137.50. On the basis of an Affidavit of Consolidation of Ownership by Respondent Amonoy, the corresponding tax declarations covering the Controverted Parcels were consolidated in his name.chanrobles law library

On 19 December 1973, or a year after the judgment in the Foreclosure Case, an action for Annulment of Judgment entitled "Maria Penano, Et. Al. v. Sergio Amonoy, Et. Al." (Civil Case No. 18731) was filed before the then Court of First Instance of Rizal, at Pasig [the Annulment Case] (Annex "F", ibid.) Petitioners were also included as plaintiffs. Appearing for the plaintiffs in that case was Atty. Jose F. Tiburcio. Squarely put in issue were the propriety of the mortgage, the validity of the judgment in the Foreclosure Case, and the tenability of the acquisitions by Respondent Amonoy at the Sheriff’s sale. Of particular relevance to the instant Petition is the contention that the mortgage and the Sheriff s sales were null and void as contrary to the positive statutory injunction in Article 1491 (5) of the Civil Code, which prohibits attorneys from purchasing, even at a public or judicial auction, properties and rights in litigation, and that the Trial Court, in the Foreclosure Case, had never acquired jurisdiction over the subject matter of the action, i.e., the Controverted Parcels.chanrobles virtualawlibrary chanrobles.com:chanrobles.com.ph

On 7 November 1977, the Trial Court 2 dismissed the Annulment Case holding that the particular disqualification in Article 1491 of the Civil Code is not of general application nor of universal effect but must be reconciled with the rule that permits judgment creditors to be bidders at sheriffs sales, so that Respondent Amonoy was "clearly not prohibited from bidding his judgment and his acquisitions therefore are sanctioned by law" (Annex "G", ibid.).

On 22 July 1981, the Court of Appeals (in CA-G.R. No. 63214-R) (the Appealed Case) 3 affirmed the aforesaid judgment predicated on three principal grounds: (1) that no legal impediment exists to bar an heir from encumbering his share of the estate after a project of partition has been approved, that act being a valid exercise of his right of ownership; (2) res judicata, since petitioners never questioned the capacity of Respondent Amonoy to acquire the property in the Foreclosure Case; and (3) the complaint in the Annulment Case did not allege extrinsic fraud nor collusion in obtaining the judgment so that the action must fail.chanrobles.com.ph : virtual law library

Upon remand of the Foreclusure Case to respondent Regional Trial Court, Branch 164, at Pasig, Respondent Sheriff, on 26 August 1985, notified petitioners to vacate the premises (p. 17, Rollo), subject of the Writ of Possession issued on 25 July 1985 (p. 18, Rollo).

On 27 September 1985, petitioners came to this Court in a pleading entitled "Petisiyung Makapagpasuri Taglay ang Pagpapapigil ng Utos." On 11 November 1985, we dismissed the petition for non-payment of docket and other fees. However, upon payment thereof, the Order of dismissal was set aside and respondents were directed to submit their Comment.chanrobles virtual lawlibrary

In his Comment, Respondent Amonoy denies that he had acquired the Controverted Parcels through immoral and illegal means contending that "the question of attorney’s fees, the mortgage to secure the same, the sale of the mortgaged properties at public auction, which was confirmed by the Court, and ultimately, the ownership and possession over them, have all been judicially adjudicated." (p. 146, Rollo)

We gave due course to the petition and required the filing of the parties’ respective memoranda.

Meanwhile, on motion of Respondent Amonoy, dated 24 April 1986, respondent Trial Court, in the Foreclosure Case, issued Orders dated 25 April and 16 May 1986 authorizing the demolition of the houses and other structures of petitioners Leocadia and Angela Fornilda (p. 241, Rollo). On 1 June 1986 the house of Angela Fornilda was totally demolished while that of Leocadia was spared due to the latter’s assurance that she would seek postponement.chanrobles lawlibrary : rednad

On 1 June 1986, in a pleading entitled "Mahigpit na Musiyun Para Papanagutin Kaugnay ng Paglalapastangan", followed by a "Musiyung Makahingi ng Utos sa Pagpapapigil ng Pagpapagiba at Papanagutin sa Paglalapastangan" petitioners applied for a Restraining Order, which we granted on 2 June 1986, enjoining respondents and the Sheriff of Rizal from demolishing petitioners’ houses (p. 221, Rollo). In a pleading entitled "Mahigpit na Musiyun para Papanagutin Kaugnay ng Paglalapastangan" and "Masasamang Gawain (Mal-Practices)" and "Parinindigan (Memorandum)" both filed on 16 June 1988, petitioners likewise charged Respondent Amonoy with malpractice and prayed for his disbarment (pp. 224; 226, Rollo).

In Respondent Amonoy’s "Comment and Manifestations" filed on 30 June 1986, he indicated that the Restraining Order received by the Deputy Sheriff of Rizal only on 6 June 1986 had already become moot and academic as Angela Fornilda’s house had been demolished on 2 June 1986 while Leocadia offered to buy the small area of the land where her house is built and he had relented.chanrobles virtual lawlibrary

In the interim, Respondent Amonoy was appointed as Assistant Provincial Fiscal of Rizal, and subsequently as a Regional Trial Court Judge in Pasay City.

The threshold issue is whether or not the mortgage constituted on the Controverted Parcels in favor of Respondent Amonoy comes within the scope of the prohibition in Article 1491 of the Civil Code.

The pertinent portions of the said Articles read:jgc:chanrobles.com.ph

"Art. 1491. The following persons cannot acquire by purchase even at a public or judicial or auction, either in person or through the mediation of another:chanrob1es virtual 1aw library



(5) Justices, judges, prosecuting attorneys, . . . the property and rights in litigation or levied upon on 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)

Under the aforequoted provision, a lawyer is prohibited from acquiring either by purchase or assignment the property or rights involved which are the object of the litigation in which they intervene by virtue of their profession (Padilla, Vol. II Civil Law, 1974 Ed., p. 230 citing Hernandez v. Villanueva, 40 Phil. 773 and Rubias v. Batiller; 51 SCRA 130). The prohibition on purchase is all embracing to include not only sales to private individuals but also public or judicial sales (ibid., p. 221).

The rationale advanced for the prohibition is that public policy disallows the transactions in view of the fiduciary relationship involved i.e., the relation of trust and confidence and the peculiar control exercised by these persons (Paras, Civil Code, Vol. V, 1973., p. 70).

In the instant case, it is undisputed that the Controverted Parcels were part of the estate of the late Julio M. Catolos, subject of intestate estate proceedings, wherein Respondent Amonoy acted as counsel for some of the heirs from 1959 until 1968 by his own admission (Comment, p. 145, Rollo); that these properties were adjudicated to Alfonso Fornilda and Asuncion M. Pasamba in the Project of Partition approved by the Court on 12 January 1965; that on 20 January 1965, or only eight (8) days thereafter, and while he was still intervening in the case as counsel, these properties were mortgaged by petitioners’ predecessor-in-interest to Respondent Amonoy to secure payment of the latter’s attorney’s fees in the amount of P27,600.00; that since the mortgage indebtedness was not paid, Respondent Amonoy instituted an action for judicial foreclosure of mortgage on 21 January 1970; that the mortgage was subsequently ordered foreclosed and auction sale followed where Respondent Amonoy was the sole bidder for P23,600.00; and that being short of the mortgage indebtedness, he applied for and further obtained a deficiency judgment.chanrobles.com : virtual law library

Telling, therefore, is the fact that the transaction involved falls squarely within the prohibition against any acquisition by a lawyer of properties belonging to parties they represent which are still in suit. For, while the Project of Partition was approved on 12 January 1965, it was not until 6 August 1969 that the estate was declared closed and terminated (Record on Appeal, Civil Case No. 3103, p. 44). At the time the mortgage was executed, therefore, the relationship of lawyer and client still existed, the very relation of trust and confidence sought to be protected by the prohibition, when a lawyer occupies a vantage position to press upon or dictate terms to an harassed client. What is more, the mortgage was executed only eight (8) days after approval of the Project of Partition thereby evincing a clear intention on Respondent Amonoy’s part to protect his own interests and ride roughshod over that of his clients. From the time of the execution of the mortgage in his favor, Respondent Amonoy had already asserted a title adverse to his clients’ interests at a time when the relationship of lawyer and client had not yet been severed.chanrobles law library

The fact that the properties were first mortgaged and only subsequently acquired in an auction sale long after the termination of the intestate proceedings will not remove it from the scope of the prohibition. To rule otherwise would be to countenance indirectly what cannot be done directly.

There is no gainsaying that petitioners’ predecessor-in-interest, as an heir, could encumber the property adjudicated to him; that the Complaint in the Annulment Case did not contain any specific allegation of fraud or collusion in obtaining the judgment appealed from as opined by the Court of Appeals in the Appealed Case; and that the auction sale of the properties to Respondent Amonoy was judicially confirmed and ownership and possession of the Controverted Parcels ultimately transferred to him.

Nonetheless, considering that the mortgage contract, entered into in contravention of Article 1491 of the Civil Code, supra, is expressly prohibited by law, the same must be held inexistent and void ab initio (Director of Lands v. Abagat, 53 Phil. 147).

"Art. 1409. The following contracts are inexistent and void from the beginning:chanrob1es virtual 1aw library

(1) Those whose cause, object or purpose is contrary to law, morals, good customs, public order or public policy;



(7) Those expressly prohibited or declared void by law.

These contracts cannot be ratified. Neither can the right to set up the defense of illegality be waived." (Civil Code)

Being a void contract, the action or defense for the declaration of its inexistence is imprescriptible (Article 1410, Civil Code). The defect of a void or inexistent contract is permanent. Mere lapse of time cannot give it efficacy. Neither can the right to set up the defense of illegality be waived (Article 1409, Civil Code).

The Controverted Parcels could not have been the object of any mortgage contract in favor of Respondent Amonoy and consequently neither of a foreclosure sale. By analogy, the illegality must be held to extend to whatsoever results directly from the illegal source (Article 1422, Civil Code). Such being the case, the Trial Court did not acquire any jurisdiction over the subject matter of the Foreclosure Case and the judgment rendered therein could not have attained any finality and could be attacked at any time. Neither could it have been a bar to the action brought by petitioners for its annulment by reason of res judicata. (Municipality of Antipolo v. Zapanta, No. L-65334, December 26, 1984, 133 SCRA 820). Two of the requisites of the rule of prior judgment as a bar to a subsequent case, namely, (1) a final judgment and (2) that it must have been rendered by a Court having jurisdiction over the subject matter, are conspicuously absent.chanrobles law library : red

And since the nullity of the transaction herein involved proceeds from the illegality of the cause or object of the contract, and the act does not constitute a criminal offense, the return to petitioners of the Controverted Parcels is in order.

"Art. 1412. If the act in which the unlawful or forbidden cause consists does not constitute a criminal offense, the following rules shall be observed:chanrob1es virtual 1aw library



(2) When only one of the contracting parties is at fault, he cannot recover what he has given by reason of the contract, or ask for the fulfillment of what has been promised him. The other, who is not at fault, may demand the return of what he has given without any obligation to comply with his promise." (Civil Code).

WHEREFORE, Certiorari is granted; the Order of respondent Trial Court, dated 25 July 1985, granting a Writ of Possession, as well as its Orders, dated 25 April 1986 and 16 May 1986, directing and authorizing respondent Sheriff to demolish the houses of petitioners Angela and Leocadia Fornilda are hereby set aside, and the Temporary Restraining Order heretofore issued, is made permanent. The six (6) parcels of land herein controverted are hereby ordered returned to petitioners unless some of them have been conveyed to innocent third persons.

With respect to petitioners’ prayer for disbarment by reason of malpractice of Respondent Amonoy embodied in their pleading entitled "Mahigpit na Musiyun para Papanagutin Kaugnay ng Paglalapastangan" and "Masasamang Gawain (Mal-Practices)" and "Paninindigan (Memorandum)" both filed on 16 June 1988, Respondent Sergio I. Amonoy is hereby required, within fifteen (15) days from notice hereof, to submit an Answer thereto. After receipt of the same, a new docket number will be assigned to the case.

Costs against respondent, Sergio I. Amonoy.

SO ORDERED.

Paras, Sarmiento and Regalado, JJ., concur.

Padilla, J., took no part.

Endnotes:

---

1. Judge Benjamin H. Aquino, presiding.

2. Decision penned by Judge Serafin E. Camilon.

3. Decision penned by Justice Guillermo F. Villasor, and concurred in by Justices Mama D. Busran, Chairman, and Jose A. R. Melo, Members.