Peña v. Delos Santos
REITERATIONFacts
The Antecedents: Jesus Delos Santos and Rosita Delos Santos Flores were declared lawful owners of two-thirds (2/3) of certain lots in Boracay Island by the RTC. The losing parties appealed to the CA, and subsequently to the Supreme Court, but their appeals were dismissed or withdrawn. Procedural History: During the execution proceedings before the RTC, petitioner Joey R. Peña filed a Motion for Substitution and for a Writ of Execution, claiming to be a transferee of Jesus and Rosita's adjudged allotments. Peña averred he acquired the properties from Atty. Romeo Robiso, who in turn acquired them from Jesus and Rosita through assignment and sale. The plaintiffs opposed Peña's motion, arguing the conveyance to Atty. Robiso was void as he was their counsel in the case, and the transaction was prohibited under Article 1491(5) of the Civil Code. The RTC partially granted Peña's motion, joining him with the original intervenors and ordering the issuance of a writ of execution, holding that the conveyance was valid as it occurred after judgment. The Petition: Jesus and the heirs of Rosita elevated the matter to the CA via a special civil action for certiorari. The CA reversed the RTC, ruling that the conveyance to Atty. Robiso was null and void because it was a prohibited transaction under Article 1491(5) of the Civil Code, as the case was still pending before the Supreme Court when the deeds were executed. The CA directed the execution of the final judgment in favor of Jesus and the heirs of Rosita. The Supreme Court denied Peña's petition for review on certiorari. Peña filed a Motion for Reconsideration, insisting the deeds were executed after the judgment became final and executory, and even if void, a separate action was needed. The Supreme Court denied the motion.
Issue(s)
Whether the conveyance of the adjudged allotments by Jesus and Rosita to their counsel, Atty. Robiso, during the pendency of the appellate proceedings, is a prohibited transaction under Article 1491(5) of the Civil Code. Whether a separate action for declaration of nullity is necessary for a void contract, even if it is no longer fully executory. Whether the principle of estoppel can validate a prohibited transaction under Article 1491(5) of the Civil Code, and the applicability of contingent fees in this context.
Ruling
The Supreme Court denied the Motion for Reconsideration. The Court held that the conveyance of the lots to Atty. Robiso was a prohibited transaction under Article 1491(5) of the Civil Code because the property was still the object of litigation when the deeds of conveyance were executed. Consequently, the deeds are deemed inexistent and void from the beginning. Atty. Robiso could not have transferred a valid title to Peña, who therefore has no legal standing to be substituted or joined as a party. The Court further ruled that a separate action for declaration of nullity is not necessary for void contracts, and that estoppel cannot validate a prohibited act contrary to public policy.
Ratio Decidendi
On the prohibited transaction under Article 1491(5) of the Civil Code: The Court reiterated that Article 1491(5) of the Civil Code expressly prohibits lawyers from acquiring property or rights that are the object of any litigation in which they may take part by virtue of their profession. The records clearly showed that the judicial action over the subject lots was still in the appellate proceedings stage when they were conveyed to Atty. Robiso. The Deed of Transfer or Conveyance and the Deed of Absolute Sale, both dated May 4, 2005, as well as the Confirmation of Sale and Transfer dated December 5, 2006, were all executed long before the termination of the appellate proceedings before the Supreme Court in G.R. Nos. 141810 and 141812 on February 2, 2007. Therefore, the property conveyed to Atty. Robiso was still the object of litigation, rendering the deeds of conveyance inexistent and void from the beginning under Article 1409 of the Civil Code. Consequently, Atty. Robiso could not have transferred a valid title to Peña. On the necessity of a separate action for declaration of nullity: The Court clarified that a separate action for declaration of nullity is not necessary for void or inexistent contracts. Such contracts have no force and effect from the very beginning and are considered as if they have never been entered into. They cannot be validated by the passage of time or by ratification. The need for a separate action for declaration of nullity applies only if the void contract is no longer fully executory. In this case, the deeds of conveyance were not considered fully executory because the judgment award was not yet implemented at the time of the conveyance. If a party attempts to enforce a void contract that is still executory, the other party can simply set up the nullity as a defense. On the applicability of estoppel and contingent fees: The Court held that the principle of estoppel cannot supplant or contravene a clear provision of law, nor can it give validity to an act prohibited by law or one that is against public policy. The prohibition under Article 1491(5) is founded on public policy due to the fiduciary relationship between a lawyer and client, preventing lawyers from taking advantage of their clients. Applying estoppel in this case would sanction a prohibited and void transaction. Furthermore, while contingent fee agreements are generally recognized as a valid exception to Article 1491(5), this exception does not apply when the payment of the contingent fee is made during the pendency of the litigation, as opposed to after the judgment has been rendered.
Main Doctrine
A contract entered into by a lawyer for the acquisition of property or rights which is the object of litigation in which the lawyer participates by virtue of his profession is void and inexistent from the beginning, as it is a prohibited transaction under Article 1491(5) of the Civil Code. Such a void contract cannot be validated by estoppel, nor can it be considered as a valid exception to the prohibition even if it involves a contingent fee arrangement if the payment is made during the pendency of the litigation.