Fornilda v. Branch 164, Regional Trial Court, Pasig
REITERATIONFacts
The Antecedents: The deceased Julio M. Catolos owned six parcels of land, the settlement of which occurred in Special Proceedings No. 3103, with Atty. Sergio I. Amonoy representing some heirs. A Project of Partition adjudicated controverted parcels to Alfonso I. Fornilda and Asuncion M. Pasamba, approved on January 12, 1965. Eight days later, on January 20, 1965, Alfonso I. Fornilda and Asuncion M. Pasamba mortgaged these parcels to Atty. Amonoy to secure P27,600.00 in attorney's fees. Asuncion M. Pasamba died on February 24, 1969, and Alfonso I. Fornilda died on July 2, 1969. The petitioners are heirs of Alfonso I. Fornilda. Procedural History: Due to non-payment of the mortgage, Atty. Amonoy initiated a foreclosure proceeding (Civil Case No. 12726) on January 21, 1970. The heirs of Pasamba and Fornilda contested the attorney's fees, leading the trial court to order payment of P27,600.00 plus P11,880.00 for harvest value and P9,645.00 in attorney's fees, with the properties subject to public auction upon failure to pay. The properties were foreclosed on February 6, 1973, and sold at auction on March 23, 1973, to Atty. Amonoy for P23,760.00, with a deficiency judgment also issued. Subsequently, an action for Annulment of Judgment (Civil Case No. 18731) was filed, asserting the mortgage and sheriff's sales were void under Article 1491(5) of the Civil Code. The trial court dismissed this case, ruling Article 1491 was not universally applicable and Amonoy, as a judgment creditor, could bid. The Court of Appeals affirmed this decision, citing no legal impediment for an heir to encumber their share, the principle of res judicata, and the absence of allegations of extrinsic fraud. Upon remand, a Writ of Possession was issued, directing the petitioners to vacate the properties. The Petition: Petitioners have filed a petition for certiorari with preliminary injunction, seeking to reverse the Writ of Possession and subsequent orders authorizing the demolition of their houses. Additionally, they have charged Atty. Amonoy with malpractice.
Issue(s)
Whether the mortgage constituted on the controverted parcels in favor of Respondent Amonoy falls within the prohibition of Article 1491 of the Civil Code. Whether the foreclosure proceedings and subsequent sale are valid. Whether the Trial Court acquired jurisdiction over the subject matter of the foreclosure case. Whether the demolition orders are valid.
Ruling
The Supreme Court granted the petition, set aside the questioned orders of the trial court, and made the temporary restraining order permanent. The controverted parcels of land were ordered returned to the petitioners, unless conveyed to innocent third persons. The prayer for disbarment against Respondent Amonoy was referred to a new docket number for further proceedings.
Ratio Decidendi
On the prohibition under Article 1491 of the Civil Code: The Court held that the mortgage contract executed by Respondent Amonoy in his favor, involving properties that were part of an estate where he acted as counsel for some heirs, falls squarely within the prohibition of Article 1491(5) of the Civil Code. This provision prohibits lawyers from acquiring, even at public or judicial auction, properties and rights in litigation in which they may take part by virtue of their profession. The fiduciary relationship between a lawyer and client necessitates this prohibition to prevent undue influence and protect the client's interests. The Court emphasized that the lawyer-client relationship still existed at the time the mortgage was executed, as the estate had not yet been declared closed and terminated. The execution of the mortgage only eight days after the approval of the Project of Partition evinced a clear intention by Respondent Amonoy to protect his own interests over those of his clients. The Court reiterated that the prohibition is all-embracing and includes judicial sales, and that ruling otherwise would countenance indirectly what cannot be done directly. The rationale behind the prohibition is public policy, which disallows such transactions due to the inherent trust and confidence involved in the lawyer-client relationship. The Court found that Respondent Amonoy occupied a vantage position to press upon or dictate terms to his clients. The fact that the properties were mortgaged and later acquired in an auction sale long after the termination of the intestate proceedings does not remove the transaction from the scope of the prohibition. The Court stressed that the defect of a void or inexistent contract is permanent and cannot be waived, nor can lapse of time give it efficacy. Therefore, the mortgage contract, being in contravention of Article 1491, is inexistent and void ab initio. On the validity of the foreclosure proceedings and subsequent sale: Since the mortgage contract was declared void ab initio, it could not have been the object of any mortgage contract in favor of Respondent Amonoy, and consequently, neither of a foreclosure sale. The illegality extends to whatever results directly from the illegal source, as provided by Article 1422 of the Civil Code. Thus, 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 finality. The Court clarified that while an heir could encumber property adjudicated to him, and the annulment case did not allege fraud, and the auction sale was confirmed, these facts do not cure the fundamental defect of the void mortgage. The prohibition in Article 1491 is a matter of public policy and cannot be waived. The Court cited Director of Lands vs. Abagat to support the principle that a contract expressly prohibited by law is void ab initio. The Court also noted that the action or defense for the declaration of the inexistence of a void contract is imprescriptible under Article 1410 of the Civil Code. On the jurisdiction of the Trial Court and res judicata: Because the mortgage and subsequent foreclosure sale were void ab initio, the Trial Court never acquired jurisdiction over the subject matter of the foreclosure case. Consequently, the judgment rendered therein could not have attained finality and could be attacked at any time. Therefore, the judgment in the foreclosure case could not serve as a bar to the action for annulment by reason of res judicata. The Court explained that two requisites for res judicata – a final judgment and a court having jurisdiction over the subject matter – were absent in this case. The Court cited Municipality of Antipolo vs. Zapanta to support the principle that a judgment rendered without jurisdiction is void and cannot achieve finality. On the demolition orders: As the Writ of Possession and the subsequent demolition orders were based on a void mortgage and foreclosure sale, they were also declared null and void. The Court ordered the return of the controverted parcels to the petitioners, emphasizing that since the act did not constitute a criminal offense, the return of the property is in order, applying Article 1412(2) of the Civil Code. The party not at fault may demand the return of what they have given without obligation to comply with their promise.
Main Doctrine
A mortgage contract executed by a lawyer in favor of himself, involving property that is the subject of litigation in which he intervened by virtue of his profession, is void ab initio as it contravenes Article 1491(5) of the Civil Code. Consequently, any subsequent foreclosure sale and writ of possession based on such void mortgage are also null and void.