Mananquil vs. Villegas

An administrator may lease estate properties without prior probate court approval, but a lawyer serving as counsel for the administrator may not participate in leases of estate property in favor of a partnership in which he is a member or manager; the prohibition in Articles 1491 and 1646 of the Civil Code is absolute, and good faith is not a defense. Such participation constitutes gross misconduct warranting suspension from the practice of law.

Mauro P. Mananquil was appointed special administrator of the Testate Estate of Felomina Zerna in Special Proceedings No. 460 before the Court of First Instance of Negros Occidental after Felix Leong, the prior administrator, died. Atty. Crisostomo C. Villegas had served as counsel of record for Leong, and was also a member, later manager, of the family partnership HIJOS DE JOSE VILLEGAS. The estate included several parcels of land in the Tanjay Cadastre, and the governing legal backdrop included Articles 1491 and 1646 of the Civil Code, which disqualify certain persons—including lawyers with respect to property involved in litigation in which they take part—from leasing or acquiring such property, and Section 3 of Rule 84 of the Revised Rules of Court, which defines an administrator’s powers of management.

As early as March 21, 1961, respondent Atty. Crisostomo C. Villegas was retained as counsel of record for Felix Leong, one of the heirs of the late Felomina Zerna. On May 22, 1961, Leong was appointed administrator of the Testate Estate of Felomina Zerna in Special Proceedings No. 460 before the Court of First Instance of Negros Occidental. The estate included several parcels of land in the Tanjay Cadastre, specifically Lots Nos. 1124, 1228, 2221, 2402, 3939, 3942, and 3957. Respondent later became a member of the family partnership HIJOS DE JOSE VILLEGAS, formed on April 20, 1965 among the heirs of Jose Villegas, and on March 14, 1968, after the death of Marcelo Pastrano, he was appointed manager by the majority of partners.

On August 13, 1963, a lease contract was executed between Felix Leong and the “Heirs of Jose Villegas,” represented by Marcelo Pastrano, respondent’s brother-in-law, covering, among others, the estate’s sugar lands. Leong was designated in the contract as administrator and “owner, by testamentary disposition, of 5/6 of all said parcels of land.” The lease was for four sugar crop years, with a yearly rental of ten percent of the value of the sugar produced from the leased parcels. On October 18, 1965, another lease contract was executed between Leong and the partnership HIJOS DE JOSE VILLEGAS, containing basically the same terms and conditions as the first, with Pastrano again signing as representative of the lessee.

Renewals of the lease contract were executed between Felix Leong and HIJOS DE JOSE VILLEGAS on January 13, 1975 and December 4, 1978, with respondent signing as representative of the lessee. In the later part of 1980, respondent was replaced by his nephew Geronimo H. Villegas as manager of the family partnership. In a verified complaint dated July 5, 1982, Mauro P. Mananquil, who had been appointed special administrator after Felix Leong died, charged respondent with gross misconduct or malpractice committed while acting as counsel of record of Leong in Special Proceedings No. 460.

Complainant alleged that over a period of 20 years, respondent allowed lease contracts to be executed between his client Felix Leong and HIJOS DE JOSE VILLEGAS, of which respondent was one of the partners, covering several parcels of land of the estate under iniquitous terms and conditions, without the approval of the probate court, and in violation of Articles 1491 and 1646 of the Civil Code. Respondent denied knowledge of or participation in the original lease contract, which had been represented by his brother-in-law Pastrano, but admitted participating in the subsequent renewals as managing partner of HIJOS DE JOSE VILLEGAS; he claimed good faith because the heirs of Filomena Zerna had consented or acquiesced to the original lease terms, and argued that under Tuason vs. Tuason the renewals did not fall within the prohibition because he signed merely as an agent of the partnership.

• Iniquitous Lease Terms: Complainant alleged that over a period of 20 years, respondent allowed lease contracts to be executed between his client Felix Leong and HIJOS DE JOSE VILLEGAS, of which respondent was one of the partners, covering several parcels of land of the estate under iniquitous terms and conditions.
• Lack of Probate Approval: Complainant charged that the lease contracts were made without the approval of the probate court.
• Violation of Articles 1491 and 1646: Complainant charged that the contracts violated Articles 1491 and 1646 of the New Civil Code.
• Gross Misconduct or Malpractice: Complainant charged respondent with gross misconduct or malpractice committed while acting as counsel of record of Felix Leong in Special Proceedings No. 460.

• Lack of Participation in Original Lease: Respondent claimed that he was neither aware of nor participated in the execution of the original lease contract entered into between his client and his family partnership, which was then represented by his brother-in-law Marcelo Pastrano.
• Good Faith and Acquiescence: Although respondent admitted participating in the execution of subsequent renewals as managing partner of HIJOS DE JOSE VILLEGAS, he argued that he acted in good faith considering that the heirs of Filomena Zerna consented or acquiesced to the terms and conditions stipulated in the original lease contract.
• Agency and Tuason vs. Tuason: Respondent contended that pursuant to the ruling in Tuason vs. Tuason, the renewal contracts do not fall within the prohibition of Articles 1491 and 1646 since he signed the same as a mere agent of the partnership.

• Probate Approval: Whether respondent committed misconduct as counsel of administrator Felix Leong for failing to notify the probate court and secure its approval of the lease contracts over estate properties.
• Prohibited Lease under Articles 1491 and 1646: Whether respondent violated Articles 1491 and 1646 of the Civil Code by participating in the 1975 and 1978 renewals of the lease agreement involving estate properties in favor of HIJOS DE JOSE VILLEGAS, a partnership of which he was a member and manager.
• Defenses of Good Faith and Agency: Whether respondent’s claims of good faith, the heirs’ acquiescence, and his signing as mere agent of the partnership excuse him from disciplinary liability.
• Penalty: Whether respondent should be suspended from the practice of law and, if so, for how long.

• Probate Approval: No. An administrator may exercise acts of administration, including entering into lease contracts over estate properties, without prior judicial authority or approval under Section 3, Rule 84 of the Revised Rules of Court; respondent cannot be faulted for failing to secure probate approval.
• Prohibited Lease under Articles 1491 and 1646: Yes. Respondent violated Articles 1491 and 1646 when he participated in the 1975 and 1978 lease renewals in favor of HIJOS DE JOSE VILLEGAS, his family partnership, while serving as counsel for the administrator; the prohibition applies despite the partnership’s separate juridical personality.
• Defenses of Good Faith and Agency: No. The prohibition is absolute and permanent, and good faith or the heirs’ acquiescence is no defense; Tuason vs. Tuason does not exempt leases to a partnership of which the lawyer is a member.
• Penalty: Suspension for four (4) months. The Court suspended respondent from the practice of law for four (4) months effective from receipt of the Resolution, with a warning that future misconduct would be more severely dealt with.

• Probate Approval: Under Section 3, Rule 84 of the Revised Rules of Court, a judicial executor or administrator has the right to the possession and management of the real as well as the personal estate of the deceased so long as it is necessary for the payment of debts and expenses of administration. He may exercise acts of administration without special authority from the court having jurisdiction of the estate. It has long been settled that an administrator has the power to enter into lease contracts involving the properties of the estate even without prior judicial authority and approval, as held in Ferraris vs. Rodas, 65 Phil. 732 (1938); Jocson de Hilado vs. Nava, 69 Phil. 1 (1939); and San Diego, Sr. vs. Hombre, G.R. No. L-19265, May 29, 1964, 11 SCRA 165. Because administrator Felix Leong was not required under the law and prevailing jurisprudence to seek prior authority from the probate court to validly lease real properties of the estate, respondent, as counsel of Felix Leong, cannot be taken to task for failing to notify the probate court of the various lease contracts and to secure its judicial approval.

• Prohibited Lease under Articles 1491 and 1646: Article 1646 of the New Civil Code prohibits the persons referred to in Article 1491 from leasing, either in person or through the mediation of another, the properties or things mentioned in that article. Article 1491 includes 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 disqualification is grounded on public policy considerations which disallow transactions entered into by such persons, whether directly or indirectly, in view of the fiduciary relationship involved or the peculiar control exercised by these individuals over the properties or rights covered, as cited in Rubias vs. Batiller, G.R. No. L-35702, May 29, 1973, 51 SCRA 120; Maharlika Publishing Corporation vs. Tagle, G.R. No. 65594, July 9, 1986, 142 SCRA 553; and Fornilda vs. The Branch 164, RTC Fourth Judicial Region, Pasig, G.R. No. 72306, October 5, 1988, 166 SCRA 281 and January 24, 1989, 169 SCRA 351. Even if the lessees were designated as the “Heirs of Jose Villegas” and the partnership HIJOS DE JOSE VILLEGAS, and respondent signed merely as an agent of the latter, 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 circumvent that which is directly prohibited by law. 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 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. Respondent himself had knowledge of and allowed the subsequent renewals, actively participating in the lease contracts dated January 13, 1975 and December 4, 1978 by signing on behalf of the lessee HIJOS DE JOSE VILLEGAS.

• Defenses of Good Faith and Agency: Respondent’s claim that the heirs of Filomena Zerna acquiesced and consented to the assailed lease contracts does not militate against his liability under the rules of professional ethics. The prohibition in Articles 1491 and 1646, as far as lawyers are concerned, is intended to curtail any undue influence of the lawyer upon his client on account of his fiduciary and confidential association, as stated in Sotto vs. Samson, G.R. No. L-16917, July 31, 1962, 5 SCRA 733. The law makes the prohibition absolute and permanent, as held in Rubias vs. Batiller. Under Canon 1 of the Code of Professional Responsibility and Sections 3 and 27 of Rule 138 of the Revised Rules of Court, lawyers are duty-bound to obey and uphold the laws of the land; participation in the execution of prohibited contracts under Articles 1491 and 1646 constitutes a breach of professional ethics for which disciplinary action may be brought, as held in Bautista vs. Gonzalez, Adm. Matter No. 1625, February 12, 1990. The claim of good faith is no defense to a lawyer who has failed to adhere faithfully to the legal disqualifications imposed upon him, designed to protect the interests of his client, as held in In re Ruste, 70 Phil. 243 (1940), and Severino vs. Severino, 44 Phil. 343 (1923). Neither is there merit in respondent’s reliance on Tuason vs. Tuason; it cannot be inferred from that case that contracts of sale or lease where the vendee or lessee is a partnership, of which a lawyer is a member, over a property involved in litigation in which he takes part by virtue of his profession, are not covered by the prohibition under Articles 1491 and 1646.

• Penalty: Considering the nature of the acts of misconduct committed by respondent and the facts and circumstances of the case, the Court found sufficient grounds to suspend respondent from the practice of law. The dispositive portion suspended him for four (4) months effective from the date of his receipt of the Resolution, with a warning that future misconduct on his part would be more severely dealt with.

• Prohibition against lawyers leasing property involved in litigation (Articles 1491 and 1646, Civil Code) — Article 1491 disqualifies certain persons, including lawyers with respect to property and rights which may be the object of any litigation in which they may take part by virtue of their profession, from acquiring by purchase or assignment. Article 1646 prohibits those persons from leasing, either in person or through the mediation of another, the properties mentioned in Article 1491. The disqualification is grounded on public policy, fiduciary relationship, and peculiar control over the properties or rights covered. The prohibition is absolute and permanent. In this case, respondent, as counsel for the administrator in the testate proceedings, participated in lease renewals of estate properties in favor of his family partnership; despite the partnership’s separate juridical personality and his signing as an agent, he stood to benefit from the transaction, and the Court held that the contracts were covered by the prohibition.

• Administrator’s power to lease estate property without prior court approval — Under Section 3, Rule 84 of the Revised Rules of Court, a judicial executor or administrator has the right to the possession and management of the real and personal estate of the deceased so long as necessary for the payment of debts and expenses of administration. He may exercise acts of administration without special authority from the court. Settled jurisprudence holds that an administrator may enter into lease contracts involving estate properties even without prior judicial authority and approval. Applied here, respondent could not be disciplined for failing to notify the probate court and secure approval of the lease contracts.

• Good faith is not a defense to violation of legal disqualifications by lawyers — A lawyer’s claim of good faith does not excuse him from adhering faithfully to the legal disqualifications imposed upon him, which are designed to protect the interests of his client. The prohibition in Articles 1491 and 1646 is intended to curtail undue influence arising from the lawyer’s fiduciary and confidential association with the client. Applied here, respondent’s claim that the heirs consented or acquiesced to the lease terms did not negate his liability.

• Piercing the veil of separate juridical personality to prevent circumvention of the prohibition — The Court may disregard the separate juridical personality of a partnership where it is used to circumvent a direct legal prohibition. In this case, although the lessee was the partnership HIJOS DE JOSE VILLEGAS, the Court looked through the legal fiction because respondent was a member and later manager of the partnership and stood to benefit from the lease of estate properties involved in litigation in which he took part as counsel.

• Breach of professional ethics for participating in prohibited contracts — Under Canon 1 of the Code of Professional Responsibility and Sections 3 and 27 of Rule 138 of the Revised Rules of Court, lawyers are duty-bound to obey and uphold the laws of the land. Participation in the execution of contracts prohibited by Articles 1491 and 1646 of the Civil Code constitutes a breach of professional ethics for which disciplinary action may be brought. Applied here, respondent’s participation in the 1975 and 1978 lease renewals warranted suspension.

• "Pursuant to Section 3 of Rule 84 of the Revised Rules of Court, a judicial executor or administrator has the right to the possession and management of the real as well as the personal estate of the deceased so long as it is necessary for the payment of the debts and the expenses of administration. He may, therefore, exercise acts of administration without special authority from the court having jurisdiction of the estate." — This passage states the basis for rejecting the charge that respondent should have secured probate court approval of the lease contracts.
• "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." — This is the core holding that the prohibition applies despite the partnership’s separate juridical personality and respondent’s signing as an agent.
• "The prohibition referred to in Articles 1491 and 1646 of the new Civil Code, as far as lawyers are concerned, is intended to curtail any undue influence of the lawyer upon his client on account of his fiduciary and confidential association [Sotto v. Samson, G.R. No. L-16917, July 31, 1962, 5 SCRA 733]. Thus, the law makes the prohibition absolute and permanent [Rubias v. Batiller, supra]." — This passage defines the purpose and absolute character of the prohibition against lawyers leasing property involved in litigation.
• "Accordingly, the Court must reiterate the rule that the claim of good faith is no defense to a lawyer who has failed to adhere faithfully to the legal disqualifications imposed upon him, designed to protect the interests of his client [See In re Ruste, 70 Phil. 243 (1940); Also, Severino v. Severino, 44 Phil. 343 (1923)]." — This passage rejects respondent’s good faith defense and reinforces the disciplinary consequence of violating the legal disqualification.

• Ferraris vs. Rodas, 65 Phil. 732 (1938) — Cited for the settled rule that an administrator has the power to enter into lease contracts involving estate properties even without prior judicial authority and approval.
• Jocson de Hilado vs. Nava, 69 Phil. 1 (1939) — Cited for the same rule on an administrator’s power to lease estate properties without prior court approval.
• San Diego, Sr. vs. Hombre, G.R. No. L-19265, May 29, 1964, 11 SCRA 165 — Cited for the same rule on an administrator’s power to lease estate properties without prior court approval.
• Rubias vs. Batiller, G.R. No. L-35702, May 29, 1973, 51 SCRA 120 — Cited for the public policy grounding of the disqualification and for the rule that the prohibition is absolute and permanent.
• Sotto vs. Samson, G.R. No. L-16917, July 31, 1962, 5 SCRA 733 — Cited for the purpose of the prohibition: to curtail any undue influence of the lawyer upon his client on account of his fiduciary and confidential association.
• Bautista vs. Gonzalez, Adm. Matter No. 1625, February 12, 1990 — Cited for the rule that participation in prohibited contracts under Articles 1491 and 1646 constitutes a breach of professional ethics for which disciplinary action may be brought.
• In re Ruste, 70 Phil. 243 (1940) — Cited for the rule that good faith is not a defense to a lawyer who fails to adhere faithfully to the legal disqualifications imposed upon him.
• Severino vs. Severino, 44 Phil. 343 (1923) — Cited for the same rule that good faith is not a defense to a lawyer who violates legal disqualifications.
• Tuason vs. Tuason, 88 Phil. 428 (1951) — Distinguished; the Court held that it cannot be inferred from that case that contracts of sale or lease where the vendee or lessee is a partnership, of which a lawyer is a member, over a property involved in litigation in which he takes part by virtue of his profession, are not covered by the prohibition under Articles 1491 and 1646.

• Section 3, Rule 84, Revised Rules of Court — Provides that a judicial executor or administrator has the right to the possession and management of the real and personal estate of the deceased so long as necessary for the payment of debts and expenses of administration, and may exercise acts of administration without special authority from the court. Applied to hold that respondent could not be disciplined for failing to secure probate court approval of the lease contracts.
• Article 1491, New Civil Code — Lists persons disqualified from acquiring by purchase or assignment certain properties, including lawyers with respect to property and rights which may be the object of any litigation in which they may take part by virtue of their profession. Applied to respondent as counsel in Special Proceedings No. 460.
• Article 1646, New Civil Code — Prohibits the persons referred to in Article 1491 from leasing, either in person or through the mediation of another, the properties mentioned in that article. Applied to the 1975 and 1978 lease renewals in favor of respondent’s family partnership.
• Canon 1, Code of Professional Responsibility — Provides that lawyers are duty-bound to obey and uphold the laws of the land. Applied to hold that participation in prohibited contracts constitutes a breach of professional ethics.
• Sections 3 and 27, Rule 138, Revised Rules of Court — Cited with Canon 1 for the lawyer’s duty to obey the laws and for the disciplinary action that may be imposed for breach of professional ethics. Applied to justify respondent’s suspension.

Fernan, C.J., Gutierrez, Jr., Feliciano, and Bidin, JJ., concurred.