PARTIES OF SALE The sale of “necessaries” considered valid under Article 1489 can
This chapter focuses on the “integrity” or “quality” of the
consent of the parties to a sale, and thereby leads into discussions
on vitiation of consent, and the absolute and relative
incapacities of the parties to enter into a contract of sale.
General Rule on Capacity of Parties
Who can be proper parties to a sale?
Gen. Rule: any person who has “capacity to act” or “the power
to do acts with legal effects”, “with the power to obligate
himself”
For natural persons, age of majority begins at 18 years, upon
which age they have the capacity to act.
For juridical persons, if expressly recognized by law, with full
juridical capacity to obligate themselves and enter into valid
contracts.
Minors, Insane or Demented Persons, and Deaf-Mutes -
Generally, minors, insane and demented persons, and deaf- mutes
who do not know how to write, have no legal capacity to
contract, thus disqualified from being parties to a sale.
Nonetheless, contracts entered into by such legally incapacitated
persons are not void, but merely voidable, subject to annulment
or ratification
Note: Action for annulment – can only be instituted by the
incapacitated person
Contracts entered into during lucid intervals by insane or
demented persons are generally valid; whereas, those entered into
in a state of drunkenness, or during a hypnotic spell, are merely
voidable.
When the defect of the contract consists in the incapacity of one
of the parties, the incapacitated person is not obliged to make any
restitution, except insofar as he has been benefited by the thing or
price received by him.
1. Necessaries
A minor is without legal capacity to give consent to a sale, and
since consent is an essential requisite of every contract, the
absence thereof cannot give rise to a valid sale;14 nonetheless, the
defective consent gives rise to a voidable sale, meaning “valid until
annulled.”
The Title on Sales in the Civil Code specifically provides that
although a minor is not capacitated to validly enter into a sale,
“[w]here necessaries are sold and delivered to a minor or
other person without capacity to act, he must pay a
reasonable price therefore,” (Art. 1489) and the resulting sale is
valid, and not merely voidable.
“Necessaries,” are now defined by Article 194 of the Family
Code to cover “everything indispensable for sustenance,
dwelling, clothing, medical attendance, education and
transportation, in keeping with the financial capacity of the family
... [and education] include[s] his schooling or training for some
profession, trade or vocation, even beyond the age of majority.
Transportation shall include expenses in going to and from
school, or to and from place of work.”
only cover sales pertaining to sustenance, dwelling, and clothing,
and perhaps medicine and educational books and materials.
In order for the sale of necessaries to minors to be valid, and not
merely voidable, two elements need to be present: (a) perfection
of the sale; and (b) delivery of the subject necessaries. If there is
only perfection at the time the case reaches litigation, the sale of
course is not void, but voidable for vice in consent, and the rules
on voidable contracts apply.
2. Emancipation
The issue on the validity of sales entered into by emancipated
minors no longer exists.
Previously, under the Family Code, “emancipation takes place by
the attainment of majority ... [which] commences at the age of
twenty-one years.” In addition, it was provided that emancipation
also took place “(1) By marriage of the minor; or (2) By the
voluntarily emancipation by recording in the Civil Register of an
agreement in a public instrument executed by the parent
exercising parental authority and the minor at least eighteen years
of age.” Emancipation would terminate parental authority over
the person and property of the minor, who shall then be qualified
and responsible for all acts of civil life,18 including validly entering
into contracts of sale.
Under the present Family Code, marriages entered into below
eighteen years of age are void, rendering emancipation by
marriage at the age of 18 years inutile, since by merely reaching 18
years of age, even without marrying, one is already of legal age.
Voluntary emancipation by registration of the public instrument
requires that the minor be at least 18 years old, which is now
legally impossible, because at eighteen years of age there is no
longer a minor who may be voluntarily emancipated.
3. Senility and Serious Illness
The effects of senility and serious illness of the seller on the
validity of a sale was covered in Domingo v. Court of Appeals,20
where the main issue was whether the proponents were able to
establish the existence and due execution of a deed of sale with
the only evidence adduced being a carbon copy of the alleged
original deed where the signature of the alleged seller was a thumb
mark made while sick on the hospital bed. Domingo agreed with
the trial court’s ruling that sale was “null and void ab initio” on
findings that the “consideration for the nine (9) parcels of land
including the house and bodega is grossly and shockingly
inadequate.
Domingo held that although “[t]he general rule is that a person
is not incompetent to contract merely because of advanced
years or by reason of physical infirmities. (Exception-
However, when such age or infirmities have impaired the
mental faculties so as to prevent the person from properly,
intelligently, and firmly protecting her property rights then she is
undeniably incapacitated. Given these circumstances, there is in
our view sufficient reason to seriously doubt that she consented
to the sale of and the price for the parcels of land. Moreover, there
is no receipt to show that said price was paid to and received by
her. Thus, we are in agreement with the trial court’s finding and
conclusion on the matter.”
The decision in Paragas v. Heirs of Dominador Balacano,
which invoked Domingo, again took the unusual step to declare a
sale executed by one who is already of advanced age and senile to
be “null and void,” instead of being merely voidable. In that case,
the alleged seller, shown to have signed the Deed of Sale on his
death bed in the hospital, “was an octogenarian at the time of the
alleged execution of the contract and suffering from liver cirrhosis
at that — circumstances which raise grave doubts on his physical
and mental capacity to freely consent to the contract.”
In Paragas, the Court used the protective provisions of Article 24
of the Civil Code for ruling that the sale was void, i.e., “[i]n all
contractual, property or other relations, when one of the parties is
at a disadvantage on account of his moral dependence, ignorance,
mental weakness, tender age or other handicap, the courts must
be vigilant for his protection.” It does not seem logical for the
Court to declare the sale void, when annulment of the contract by
reason of vitiated consent, would have been the more logical
remedy to apply.
SALES BY AND BETWEEN SPOUSES
1. Sales with Third Parties
Before the enactment of the Family Code, the provisions of the
Civil Code provided limitations on when the husband or the wife
may deal with conjugal partnership property. For example, Heirs
of Ignacia Aguilar-Reyes v. Mijares, recognized that under the
regime of the Civil Code (as contrasted from the rule under the
Family Code), the alienation or encumbrance of a conjugal real property
requires the consent of the wife; that the absence of such consent
rendered the transaction merely voidable and not void; and that
the wife may, during the marriage and within ten years from the
questioned transaction, bring an action for the annulment of the
contract on the entire property, and not just the one-half portion
that pertains to her share.
Under the present Family Code, common provisions apply equally
to both spouses, not only because the default rule is the “absolute
community of property regime,” but more so even when the
spouses chose under their marriage settlements to be governed by
the conjugal partnership of gains, the spouses would still have
joint administration of the conjugal properties.
Under Article 73 of the Family Code, either spouse may exercise
any legitimate profession, occupation, business or activity without
the consent of the other; and the latter may object only on valid,
serious and moral grounds. In cases of disagreements, the
courts shall decide whether or not the objection is proper, and
make rulings on the benefits, depending on whether the benefits
had accrued to the family prior to the objection or thereafter. The
article also provides that if benefits accrued prior to the objection,
the resulting obligation shall be enforced against the separate
property of the spouse who has not obtained consent; otherwise,
the same shall be chargeable against the community property,
without prejudice to the creditors who acted in good faith.
Under the Law on Sales, therefore, it would seem that a spouse
may, without the consent of the other spouse, enter into sale
transactions in the regular or normal pursuit of his or her profession, vocation
or trade. Nevertheless, under Articles 96 and 124 of the Family
Code, the administration and enjoyment of the community
property or the conjugal property, as the case may be, shall belong
to both spouses jointly; and in case of disagreement, the husband’s
decision shall prevail, subject to the wife seeking remedy from the
courts, which must be availed of within five (5) years from the
date of the contract. In addition, the disposition or encumbrance
of community property or conjugal property, as the case may be,
shall be void without authority of the court or the written consent
of the other spouse. In such a case, the transaction shall be
construed as a continuing offer on the part of the consenting
spouse and the third person, and may be perfected as a binding
contract upon the acceptance by the other spouse or authorization
by the court before the offer is withdrawn by either or both
offerors.
In one case (Guiang vs. CA), even when the property regime
prevailing was the conjugal partnership of gains, the Court held
that the sale by the husband of a conjugal property without the
consent of the wife to be not merely voidable but void, under
Article 124 of the Family Code, since the resulting contract lacked
one of the essential elements of “full consent.”
In another case, the Court held that the sale by the husband of
property belonging to the conjugal partnership without the
consent of the wife when there was no showing that the latter was
incapacitated, was held void ab initio because it was in
contravention of the mandatory requirements of Article 166 of
the Civil Code. However, it conceded that as an exception, the
husband may dispose of conjugal property without the wife’s
consent if such sale is necessary to answer for conjugal liabilities
mentioned in Articles 161 and 162 of the Civil Code.
2. Sales Between Spouses
Under Article 1490 of the Civil Code, spouses cannot sell
property to each other, except:
(a) when a separation of property was agreed upon in the marriage
settlements; or (b) when there has been a judicial decree for the
separation of property.
In addition, Article 1492 provides that the prohibition relating to
spouses selling to one another is applicable even to sales in legal
redemption, compromises and renunciations.
a. Status of Prohibited Sales Between Spouses.
Contracts entered into in violation of Articles 1490 and 1492 are
not merely voidable, but have been declared by the Supreme
Court as being null and void.
Who has the right to assail its validity? Spouses? (No, for they
are in pari delicto); Creditors after transaction? (No, it cannot be
said that they are prejudiced. ANS: Practically, the only persons
who can question the sale are the following: the heirs of either of
the spouses who have been prejudiced; prior creditors; and the
State when it comes to the payment of the proper taxes due on
the transactions.
Medina vs. CIR: sale was void; lumber
b. Rationale for Prohibition
Medina gave the rationale for the relative incapacity of spouses to
sell properties to one another to be as follows:
(a) To prevent a spouse defrauding his creditors by transferring
his properties to the other spouse;
(b) To avoid a situation where the dominant spouse would unduly
take advantage of the weaker spouse, thereby effectively
defrauding the latter; and
(c) To avoid an indirect violation of the prohibition against
donations between spouses under Article 133 of the Civil Code.
Art. 87 of the Family Code - “The prohibition shall also apply to
persons living together as husband and wife without a valid
marriage.”
c. Rationale for Exceptions to Prohibition under Article 1490
If one were to take at face value the two exceptions to the
prohibition of sales between spouses (i.e., sales between spouses
governed by complete separation of property regime), it would
seem that the evils sought to be avoided also pertain to such
situations, and indeed, there is greater danger of undue influence
or fraud in situations where the spouses are governed by the
complete separation of property regime. For in a complete
separation of property regime, where the spouses are bound only
by their separate properties to their separate creditors and not to
the creditors of the other spouses, there would seem to be greater
risk that by allowing spouses to sell to one another, as the law
allows, the separate creditors of the selling spouses could equally,
if not with greater degree, be defrauded.
In addition, just because spouses have a complete separation of
property regime does not necessarily discount that one spouse
cannot exercise undue influence or pressure on the other spouse.
Indeed, the fact that one has a weak personality and that the other
has a dominant personality cannot be erased or altered by entering
into a complete separation of property regime, or any other
regime for that matter. In a complete separation of property
regime, the dominant spouse may unduly influence the weaker
spouse, and with greater impunity, legally get away with it.
Finally, Article 133 which prohibits donations between spouses,
does not make an exception to spouses governed by the complete
separation of property regime, and therefore donations between
such spouses would be void. By allowing under Article 1490
spouses governed by complete separation of property regime to
sell to one another, the law would allow the circumvention of the
prohibition against donations between spouses governed by the
complete separation of property regime. If Article 1490 were
meant to be a stop-gap measure to Article 133, why would it leave
sales between spouses governed by the complete separation of
property regime, outside its pale?
If the matter is considered more closely, it would seem that the
exception under Article 1490 on the restriction of sales between
spouses, should apply more to spouses governed by the absolute
community of property regime, because the evils sought to be
avoided by the law cannot for practical purposes happen in such
regime, since no matter what undue influence is exercised by the
dominant spouse, or attempt to defraud the creditor of a spouse,
or attempt to circumvent the prohibition against donation, such
attempts would prove futile because of the continued existence of
the common fund on which both spouses (and their heirs and
creditors) can continue to claim. However, as discussed
previously, a sale between spouses governed by the absolute
community of property regime would be legally meaningless since
they have the same estate and represent the same interest.
The key element, it seems to the author, to the exceptions
provided for the restrictions under Article 1490, lies in the
psychology of the situation. Legally, there are only two ways by
which a complete separation of property regime could exist
between married spouses, namely, by the execution of a pre-
nuptial agreement stipulating such property regime to apply, or by
the spouses going to court to ask for the dissolution of the
prevailing conjugal partnership of gains or absolute community of
property regimes.
In either case, the situation bespeaks clearly of hardness of heart
on the part of the spouses, showing a business-like approach to
the relationship, rather than of two lovers falling head- over-heels
for one another. Whereas, the conjugal partnership of gains or the
absolute community of property regime exemplifies spouses
wishing to share most if not all with one another confirming their
romantic fervor. On the other hand, in a situation where spouses
who before or at the time they say their “I do’s” would be so cold-
hearted and unromantic to pause and stipulate complete
separation of property, or who during marriage would be cold-
blooded as to agree and seek court separation of their properties,
clearly indicates that it would be unlikely that one spouse would
allow the other spouse to influence him or her; or would allow his
or her properties to be involved in a suit covering the creditors of
the other spouse. After all, if a spouse takes time and effort to
insulate his or her properties from the other spouse, why would
he or she later on involve himself or herself in the fraudulent
manipulations of the other spouse, and consequently open
himself or herself (as well as his or her separate properties) to suits
by creditors for fraud and recovery of damages?
But even the foregoing explanation does not adequately cover a
situation where a dominant spouse would insist upon the
complete separation of property regime, either at the time of the
execution of the marriage settlements, or by judicial action during
marriage, precisely to venture upon a future course of
defraudation or being in a position to defraud either his weaker
spouse or his separate creditors. In the end, the absolute
prohibition under Article 133, now Article 87 of the Family Code,
on donations between spouses, should also be made to apply to
sales between spouses, irrespective of their property regime.
3. Applicability of Incapacity to Common Law Spouses
In Matabuena v. Cervantes, the Court was asked to decide the
issue of whether the ban in Article 133 of the Civil Code on a
donation between the spouses during a marriage applies to a
common-law relationship. In that case, the sister of the deceased
common-law husband, sought to annul the previous donation by
the deceased during his lifetime to his then common law spouse,
although the two subsequently married thereafter. Today, that
would no longer be an issue because of the all-inclusive coverage
under Article 87 of the Family Code to those living as husband
and wife without the benefit of a valid marriage.
The Court held the donation to be void, although Article 133 of
the Civil Code considers as void a “donation between the spouses
during the marriage.” It held that “[i]f the policy of the law . . . is
to ‘prohibit donations in favor of the other consort and his
descendant because of fear of undue and improper pressure and
influence upon the donor, a prejudice deeply rooted in our ancient
law . . . then there is every reason to apply the same prohibitive
policy to persons living together as husband and wife without the
benefit of nuptials. For it is not to be doubted that assent to such
irregular connection . . . bespeaks greater influence of one party
over the other, so that the danger that the law seeks to avoid is
correspondingly increased.” In addition, the Court held that “[s]o
long as marriage remains the cornerstone of our family law, reason
and morality alike demand that the disabilities attached to
marriage should likewise attach to [common-law relationship].”
In 1984, in Calimlim-Canullas v. Fortun, the Court gave formal
imprimatur to the rationale of Matabuena being applied to sales
by ruling that sales between common-law spouses are void;
that Article 1409 of the Civil Code declares such contracts void as
being contrary to morals and public policy, and not only because
Article 1352 declares them void for having an unlawful cause, but
specifically because Article 1490 prohibits sales between spouses.
And this is so because if transfers or conveyances between
spouses were allowed during marriage, that would destroy the
system of conjugal partnership, a basic policy in civil law. It
was also designed to prevent the exercise of undue influence
by one spouse over the other, as well as to protect the
institution of marriage, which is the cornerstone of family law.
The prohibition applies (sic) to a couple living as husband and
wife without the benefit of marriage, otherwise, “the condition
of those who incurred guilt would turn out to be better that
those in legal union.” Those provisions are dictated by public
interest and their criterion must be imposed upon the will of
the parties.
SPECIFIC INCAPACITY MANDATED BY LAW
Article 1491 of the Civil Code prohibits the following persons
from entering into contracts of sale under the circumstances
covered therein: (AGE POL)
(a) Agent, with respect to the property whose administration or
sale may have been entrusted to him, unless the consent of the
principal has been given;
(b) Guardian, with respect to the property of the person who is
under his guardianship;
(c) Executor or administrator, with respect to the property of the
estate under his administrations;
(d) Public officers and employees, with respect to property of
the State or any subdivision thereof, or of any government-owned
or controlled corporation, or institution, the administration of
which has been entrusted to them; it includes judges and
government experts who, in any manner whatsoever, take part in
the sale;
(e) Justices, judges, prosecuting attorneys, clerks of courts, and
other officers and employees connected with the
administration of justice, with respect to the property and rights
in litigation or levied upon an execution before the court within
whose jurisdiction or territory they exercise their respective
functions; and
(f) 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.
The above-enumerated relative incapacities are, under Article
1492, made to apply to sales in legal redemption, compromises
and renunciations, confirming the policy that what cannot be
done directly, cannot be done by indirection.
1. Legal Status of Contracts Entered into In Violation of
Articles 1491 and 1942
Based on the wordings of Article 1491, only purchases made by
agents of the property covered by the agency are valid and binding
when made with the express consent of their principals; and no
such exception is granted in all the other instances covered by said
article. That would also mean that, apart from the case of the
agents, in all cases covered under Article 1491, consent or
knowledge by the persons who is sought to be protected by the
law, cannot validate any of the transactions covered.
Article 1491 does not also state the legal consequences of having
entered into contracts in violation of said article, i.e., it does not
state expressly that the resulting contracts are “void.”
Now then as the code does not recognize such nullity by the mere
operation of law, the nullity of the acts hereinbefore referred to
must be asserted by the person having the necessary legal
capacity to do so and decreed by a competent court. In other
words, the contract is voidable or annullable.
But, in Rubias v. Batiller, the Court discussed why it became
necessary in Philippine jurisdiction to abandon Manresa’s position
and consider such contracts as void, and not merely voidable,
thus:
The reason thus given by Manresa in considering such
prohibited acquisitions under Article 1459 of the Spanish Civil
Code as merely voidable at the instance and option of the
vendor and not void — “that the Code does not recognize
such nullity de pleno derecho” — is no longer true and
applicable to our own Philippine Civil Code which does
recognize the absolute nullity of contracts “whose cause,
object, or purpose is contrary to laws, morals, good customs,
public order or public policy” or which are “expressly
prohibited or declared void by law” and declares such contracts
“inexistent and void from the beginning.”
In addition, Rubias held that even the Supreme Court of Spain
and modern authors have likewise veered away from Manresa’s
view of the Spanish codal provision itself, holding that since the
provision is based on public policy, that violation of the
prohibition cannot be validated by confirmation or
ratification. It adopted Castan’s rationale for his conclusion “that
fundamental considerations of public policy render void and
inexistent such expressly prohibited purchase (e.g., by public
officers and employees of government property entrusted [sic] to
them and by justices, judges, fiscals and lawyers of property and
rights in litigation submitted to or handled by them, under Art.
1492, paragraphs [4] and [5] of our Civil Code) has been adopted
in a new article of our Civil Code, viz., Art. 1409 declaring such
prohibited contracts as ‘inexistent and void from the beginning.”
Rubias therefore holds that a purchase by a lawyer of property of
a client in litigation, in which the purchasing lawyer appeared as
counsel of record, “was void and could produce no legal effect,
by virtue of Article 1409(7) of our Civil Code which provides that
contracts ‘expressly prohibited or declared void by law’ are
‘inexistent and void from the beginning’ and that ‘(t)hese contracts
cannot be ratified. Neither can the right to set up the defense of
illegality be waived.’”
a. A Different Form of “Ratification”
Rubias, however, sought to declare a difference in the state of
“nullity” between prohibited contracts entered into by guardians,
agents, administrators and executors, from those entered into by
judges, judicial officers, fiscals and lawyers, thus —
In this aspect, the permanent disqualification of public and
judicial officers and lawyers grounded on public policy differs
from the first three cases of guardians, agents and
administrators (Art. 1491, Civil Code), as to whose
transactions, it has been opined that they may be “ratified” by
means of and in “the form of a new contract, in which case
its validity shall be determined only by the circumstances at the
time of execution of such new contract. The causes of nullity
which have ceased to exist cannot impair the validity of
the new contract. Thus, the object which was illegal at the
time of the first contract, may have already become lawful at
the time of the ratification or second contract; or the service
which was impossible may have become possible; or the
intention which could not be ascertained may have been
clarified by the parties. The ratification or second contract
would then be valid from its execution; however, it does not
retroact to the date of the first contract.”
The functional difference between the two groups of contracts
declared void under Article 1491, is that in the first group after
the inhibition has ceased, the only real wrong that subsists is the
private wrong to the ward, principal or estate; and therefore, if
private parties wish to condone the private wrongs among
themselves, the State would not stand in the way. When it comes
to the second group, however, even when the inhibition has
ceased, there exists not only the private wrong, but in fact a public
wrong, which is damage to public service or to the high esteem
that should be accorded to the administration of justice in our
society. Therefore, in the second group, even when the private
parties seek to “ratify” the private wrong by executing a new
contract between themselves when the inhibition no longer exists,
such cannot resurrect and validate a relationship, which continues
to be tainted with a public wrong. As the policy goes, private
parties cannot ratify or compromise among themselves matters
contrary to public interests.
What remains at issue with respect to the “ratification” by the
execution of a “new contract” in the cases of purchases by the
guardian, agent, administrator or executor, is whether such
ratification involves only a new meeting of the minds with respect
to the same subject matter and the same price, or it would require
in addition the payment of a new price or consideration as part of
the new meeting of the minds when the inhibition no longer
prevails. These are issues yet to be addressed by the Court.
b. Proper Party to Raise Issue of Nullity
Rubias quoted Tolentino in discussing who would be the proper
parties who could raise the nullity of contracts entered into in
violation of Article 1491, stating that “[A]ny person may invoke
the inexistence of the contract whenever juridical effects found
thereon are asserted against him,” and that “If the contract has
already been fulfilled, an action is necessary to declare its
inexistence since nobody can take the law into his own hands and
thus the intervention of the competent court is necessary to
declare the absolute nullity of the contract and to decree the
restitution of what has been given under it. If the contract is still
fully executory, no party need bring an action to declare its nullity;
but if any party should bring an action to enforce it, the other
party can simply set up the nullity as defense.”
c. Fraud or Lesion Not Relevant for Nullity
The existence of fraud or lesion is not a factor at all in the
application of the prohibitions covered by Article 1491, and the
proof that the person disqualified has paid more than an adequate
consideration for the property he purchased is no defense in an
action to declare the sale void.
The rationale for the absolute disqualifications set by Article 1491,
is in line with “the general doctrine that each of [such
relationships] is a trust of the highest order, and the trustee cannot
be allowed to have any inducement to neglect his ward’s interest;”
and therefore to avoid “[t]he temptation which naturally besets a
[person holding such a fiduciary position] so circumstanced,
necessitates the annulment of the transaction.”
Even in situations where the purchase by a disqualified person
under Article 1491 had received approval by the court as in the
case of probate court approving the purchase by the administrator
or executor, the sale would still be void.
2. Agents
“Brokers” do not come within the coverage of the prohibition as
their authority consist merely in looking for a buyer or a seller,
and to bring the former and the latter together to consummate the
transaction; therefore, they are not prohibited to buy for
themselves. As held in Schmid & Oberly v. RJL Martinez Fishing
Corp., “[a] broker is generally defined as one who is engaged, for
others, on a commission, negotiating contracts relative to
property with the custody of which he has no concern; the
negotiation between other parties, never acting in his own name
but in the name of those who employed him; he is strictly a
middleman and for some purpose the agent of both parties. ... A
broker is one whose occupation it is to bring parties together to
bargain, or to bargain for them, in matters of trade, commerce or
navigation.”
3. Guardians, Administrators and Executors
Guardians, administrators and executors are necessarily officers
of the courts since they are appointed or confirmed to such
position pursuant to judicial proceedings.
In Philippine Trust Co. v. Roldan, the court-appointed
guardian had filed a motion with the trial court for authority to
sell as guardian the parcels of land of the ward for the purpose of
being able to invest the proceeds for a residential house for the
ward. When the court authority was granted, the guardian sold the
parcels of land in favor of her brother-in-law in the sum approved
by the court. The guardian subsequently asked for and was
granted judicial confirmation of the sale. Immediately thereafter,
the brother-in-law sold the same parcels of land to the guardian.
The Philippine Trust Co., which became the substitute guardian,
brought an action to annul the contract, on the ground that the
prohibition under the Civil Code prevented the guardian from
purchasing “either in person or through the mediation of
another.”
In the earlier case of Rodriquez v. Mactal, the Court held that
the prohibition under the Civil Code cannot be made to apply
unless there was proof that a third-party buyer was a mere
intermediary of the guardian, or that the latter had previously
agreed with the third-party buyer to buy the property for the
disqualified guardian. In Philippine Trust Co., the Court
abandoned such doctrine and held that even without such proof,
the sale can be rescinded: “Remembering the general doctrine that
guardianship is a trust of the highest order, and the trustee cannot
be allowed to have any inducement to neglect his ward’s interest
and in line with the court’s suspicion whenever the guardian
acquires the ward’s property,” the Court held that the re-sale of
the parcels of land to the guardian herself, should be declared
void.
Philippine Trust Co. shows that even a court-approved sale
would not stand against the inhibition provided by Article
1491.
There were discussions in the decision of the proof sought to be
shown by the guardian that the transaction benefited the ward;
however, the Court disproved such benefit and showed that the
“minor was on the losing end.” It therefore decreed that “from
both the legal and equitable standpoints these three sales should
not be sustained.”
These statements of the Court in Philippine Trust Co. bring up
the issue of whether proof of advantage or benefit to the ward,
estate or the principal, would be sufficient basis to take the
transaction out of the prohibition of Article 1491. The author
believes that any matter relating to advantage or benefit is wholly
irrelevant under Article 1491, which by clear language imposes an
absolute disqualification on the persons stated therein occupying
fiduciary positions. To imply otherwise, would indeed open the
floodgates to abuse, as it would be very easy for such persons to
justify gain or advantage on the part of the ward, estate or
principal whom they represent. Precisely to avoid such temptation
and quibbling, Article 1491 has entirely shut the door to such
persons occupying fiduciary positions, to even desire to acquire,
directly or indirectly, properties of their ward, estate or principal,
as the case may be.
a. Hereditary Rights Not Included in Coverage
Prescinding from the doctrine of Philippine Trust Co., it is hard
to accept the earlier ruling in Naval v. Enriquez,66 which held that
hereditary rights are not included in the prohibition insofar as the
administrator or executor of the estate of the deceased. Although
strictly the legal reasoning of Naval is correct in that hereditary
rights pertain immediately to the heirs upon the death of the
decedent and do not form part of the estate under the
administration of the administrator or executor; nevertheless,
from both the practical and equity points of view, such hereditary
rights derive their value only from the assets that constitute the
estate of the decedent, which is clearly within the fiduciary control
of the administrator or executor.
If an administrator or executor were not disqualified from
purchasing or having interests in the hereditary rights, once he
validly acquires any of such hereditary rights from any of the heirs,
such administrator or executor would already be in clear conflict-
of-interests’ situation, or that in fact he may even use his fiduciary
position to compel or convince the remaining heirs to sell or
assign their hereditary rights to him.
Besides, the language and spirit of Article 1492 would embrace
within the prohibition under Article 1491 personal dealings of
administrators and executors on the hereditary rights of the heirs.
4. Judges, Justices and Those Involved in Administration of
Justice
The early case of Gan Tingco v. Pabinguit, clarified that for the
prohibition under Article 1491 to apply to judges, it is not required
that some contest or litigation over the property itself should have
been tried by the said judge; such property is in litigation from the
moment that it became subject to the judicial action of the judge,
such as levy on execution.
Macariola v. Asuncion, held that the doctrine that prohibition
under Article 1491 is “applicable only during the period of
litigation,” should cover not only lawyers, but judges as well. In
that case, the presiding judge, through a corporation of which he
was a stockholder, acquired pieces of land, which previously had
been part of a partition case finally decided by him. The Court in
exonerating the judge from the provisions of Article 1491 held
that since the particular provision relating to judges covered only
“property and rights in litigation” said that the article applies only
to the sale or assignment of the property under litigation, which
must take place “during the pendency of the litigation involving
the property.” Nevertheless, the judge was held liable for violating
the canons of judicial ethics.
5. Attorneys
Valencia v. Cabanting, explained the reason for the
disqualification as it applies to lawyers in this wise: “Public policy
prohibits the transactions in view of the fiduciary relationship
involved. It is intended to curtail any undue influence of the
lawyer upon his client. Greed may get the better of the
sentiments of loyalty and disinterestedness. Any violation of this
prohibition would constitute malpractice ... and is a ground for
suspension.”
In Rubias v. Batiller, the facts proven showed that the plaintiff’s
claim of ownership over the disputed land was predicated on his
purchase made in 1956 from his father-in-law at a time when the
latter’s application for registration there had already been
dismissed by the land registration court and was pending appeal
in the Court of Appeals. He was therefore disqualified under
Article 1491 from purchasing such property since he was the
counsel of record of the applicant, even though the case was
pending appeal. The Court declared that “The nullity of such
prohibited contracts is definite and permanent and cannot be
cured by ratification. The public interest and public policy remain
paramount and do not permit of compromise or ratification.”
In Gregorio Araneta, Inc. v. Tuason de Paterno, it was held
that the prohibition under Article 1491 applies only to attorneys
when the property they are buying is the subject of litigation, and
does not apply to a sale to attorneys who were not the defendant’s
attorneys in that case. In Del Rosario v. Millado,75 the Court also
held that the prohibition does not apply to a lawyer who acquired
the property prior to the time he intervened as counsel in an
ejectment suit involving such property.
In one case, the Court held that the prohibition applies only to
sale to a lawyer who in fact represented the client in the
particular suit involving the object of the sale, and cannot
cover the assignment of the property given in judgment made by
a client to an attorney, who has not taken part in the case wherein
said judgment was rendered, made in payment of professional
services in other cases. In another case,77 it was held that the
prohibition does not apply to the sale of a parcel of land, acquired
by a client to satisfy a judgment in his favor, to his attorney as long
as the property was not the subject of the litigation.
Also, the prohibition applies only during the period the litigation
is pending. However, when there is a certiorari proceeding still
pending, although the subject property is the subject of a final
judgment, the disqualification still applies, and the purchase by the
lawyer during the pendency of the certiorari proceedings would
constitute malpractice in violation of Article1491 and the canons
of professional ethics.
a. Contingent Fee Arrangements
Recto v. Harden, held that the prohibition under Article 1491
does not apply to a contingent fee based on the value of property
involved in litigation and therefore does not prohibit a lawyer
from acquiring a certain percentage of the value of the
properties in litigation that may be awarded to his client.
Vda. de Laig v. Court of Appeals, held that the agreement on
contingent fee based on the value of the property involved is not
prohibited since 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.
Director of Lands v. Ababa, recognized that contingent fee
arrangement is recognized under Canon 13 of the Canons of
Professional Ethics, as an exception to Canon 10 thereof which
prohibits a lawyer from purchasing any interest in the subject
matter of the litigation which he is conducting. But it recognized
that 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; so that 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.
In excluding contingent fee arrangement from the coverage of
Article 1491, even when the very terms of the arrangement would
grant to the lawyer an interest in the property subject of the
litigation, Ababa held: “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. In the instant case, the attorney’s fees . . .
consisting of one-half (1/2) of whatever [the client] might recover
from his share in the lots in question, is contingent upon the
success of the appeal. Hence, the payment of the attorney’s fees,
that is, the transfer or assignment of one-half (1/2) of the property
in litigation will take place only if the appeal prospers. Therefore,
the transfer actually takes effect after the finality of a favorable
judgment rendered on appeal and not during the pendency of the
litigation involving the property in question. Consequently, the
contract for a contingent fee is not covered by Article 1491.”
In Fabillo v. Intermediate Appellate Court, the Court justified
excluding contingency fee arrangement from the coverage of
 to-
Article 1491 “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 Professional Responsibility, a lawyer may have a lien
over funds and property of his client and may apply so much
thereof as may be necessary to satisfy his lawful fees and
disbursements.”
However, immediately Fabillo drew the following limitations on
contingency fee arrangements: “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.” But precisely,
these are the burdens that Article 1491 intends to avoid.
If we pin-down the core of reasoning in Ababa and Fabillo, it
would not justify exclusion contingency fee arrangement from
Article 1491 coverage on the basis of the improbability of the use
of undue influence by the lawyer on the judgment of his client,
but rather on the timing of the effectivity of the obligation to pay
attorney’s fees. In fact, Ababa follows to incongruous end the
“pendency of litigation” doctrine which states that the restriction
under Article 1491, as it applies to lawyers cover only the period
during which the property is still subject to litigation. Ababa thus
held that since a contingent fee arrangement is demandable only
by its nature after the termination of litigation incident on the
property subject to litigation, then it is not covered “by the during
the pendency of litigation” doctrine.
Precisely, the “pendency of litigation” doctrine is sound mainly
because when litigation has finally been terminated, and the client
legally and practically is no longer at the mercy of his lawyer,
negotiation and bargaining between the lawyer and the client on
the property that was the subject of litigation would be on arms-
length basis, and no undue influence can be exercised anymore by
the lawyer on the client. A contingency fee arrangement, although
effective and demandable only after litigation, may in fact be
negotiated and bargained for between the lawyer and the client
during the pendency of litigation, a period in which the lawyer would
exercise moral and professional influence over his client, and
therefore would rightly be covered by Article 1491.
After all, a contingency fee arrangement is simply an obligation
subject to a suspensive condition. If it is void and against public
policy for a lawyer to purchase the property of his client under
litigation, does the purchase become less reprehensible, if not
void, just because the purchase is made subject to the suspensive
condition that the client should win the case and effective only
after litigation has ended? It would not seem so with the positive
and clear language of Article 1491.
Why then are contingent fee arrangements that directly
grant to the lawyer a proprietary interest in the property of
his client that is the subject of litigation so sacrosanct that
the Supreme Court would exempt them from what seems to
be unyielding provision of Article 1491? Certainly, not because
contingent fee arrangements are recognized in the Canons of
Professional Ethics, since the canons cannot override a direct
statutory provision. Perhaps, aside from the fact that the Court is
composed of members who necessarily are members of the legal
profession and subconsciously have turfs to protect, a
contingency fee arrangement actually puts two negotiators toe-
toe who are both handicapped, so that one cannot rightly say that
the other occupies a superior or advantageous position as to the
other: the client is disadvantaged by the fact that he must rely on
the lawyer for the legal assessment of the case and the legal battle
that must be fought; and the lawyer, by the fact that he is actually
taking a risk since by the contingent fee arrangement he really
would get nothing for all his efforts and trouble, by the loss of the
case. It may be a case of two handicapped persons venturing
together into the unknown, or at least the uncertain.
Also the Court is faced with a public policy issue of allowing
pauper litigants to be ably represented before the courts for their
just claims. Without a contingency fee arrangement, even one that
grants to the lawyer a proprietary claim on the subject matter of
litigation, many otherwise meritorious causes of action would
never find competent legal representation. As Ababa held:
“Contracts of this nature are permitted because 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.’”86 But even that reasoning
only supports a contingency fee arrangement in general, and does
not justify a particular contingency fee arrangement that directly
grants to the lawyer proprietary interests in the property subject
of litigation. Indeed, the same public policy can still be achieved
by allowing contingency fee arrangement that allows the lawyer a
percentage of the “value” of the property in litigation, which is
essentially still a monetary claim with the property subject of
litigation not being sold or assigned to the lawyer, but as a measure
to determine the value of the attorney’s fee.

In addition, the Court deems itself solicitous when it comes to

contingency fee arrangement, since lawyers are officers of the
courts, whose actuations are always subject to court supervision,
and that contingency fee arrangement are not just contracts, and
are always subject to the courts’ discretionary review to ensure
that clients are protected from over-bearing lawyers. As held in
Fabillo, “the time-honored legal maxim that a lawyer shall at all
times uphold the integrity and dignity of the legal profession so
that his basic ideal becomes one of rendering service and securing
justice, not money-making. For the worst scenario that can ever
happen to a client is to lose the litigated property to his lawyer in
whom all trust and confidence were bestowed at the very
inception of the legal controversy.”

Perhaps the only true justification is what Ababa held that:

“Finally, 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. So that 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.”88 But even then such a
safeguard is also present with respect to the prohibited contracts
entered into by guardians, administrators or executors, who are
also court officers, and yet jurisprudence does not allow exception
to their contracts.

The final issue to tackle is why a contingency fee arrangement,

which essentially is a contract for service, is to be governed at all
by Article 1491 which covers only contracts of sale? The
resolution of this issue rightfully brings into focus the ruling of
the Supreme Court, discussed in the next chapter, that the Law on
Sales is a “catch-all” provision engulfing within its operations all
onerous contracts which have within their coverage the transfer
of ownership and delivery of possession of a thing. Although a
contingency fee arrangement has for its main subject matter the
service of the lawyer, nevertheless when the consideration for
such service allows the lawyer to obtain ownership and possession
of the client’s property in litigation, the Court does not hesitate to
apply Article 1491 prohibitions to test the validity of such an
arrangement.