Vda. de Laig vs. Court of Appeals

The prohibition under Article 1491, paragraph 5 of the Civil Code, which prevents lawyers from acquiring by purchase the property and rights which are the object of litigation in which they take part, applies only during the pendency of the litigation. A sale of such property to the lawyer after the judgment has become final and the property is no longer in litigation is valid.

The dispute originated from a double sale of a parcel of land originally owned by Petre Galero. Galero first engaged the services of Atty. Benito Laig to recover the property in a civil case. After winning the case and after the decision became final, Galero transferred the entire property to Atty. Laig—one-half by sale and the other half as contingent attorney's fees. Years later, Galero, with the assistance of Atty. Jose L. Lapak, fraudulently obtained a new owner's duplicate title and sold the same property to Carmen Verso. This second sale was registered by the Register of Deeds, Atty. Baldomero M. Lapak, who was the father of Atty. Jose L. Lapak. This prompted the heirs of Atty. Laig to file a suit to annul the second sale and for reconveyance, leading to the present protracted legal battle.

• Atty. Benito Laig represented Petre Galero in Civil Case No. 164-R-14 for the recovery of a parcel of land.
• The decision in favor of Galero became final on March 27, 1948.
• On June 1, 1948, after the finality of the judgment, Galero sold one-half of the property to Atty. Laig and conveyed the other half to him as contingent attorney's fees.
• Subsequently, Galero, assisted by Atty. Jose L. Lapak, filed a petition for a new owner's duplicate certificate of title, falsely claiming the original was lost during the war.
• After securing the new title, Galero sold the entire property to respondent Carmen Verso on July 19, 1952, for P600.00, a price grossly inadequate for the 22-hectare property with coconut trees, which was valued at no less than P3,000.00 in 1948.
• The sale to Verso was prepared and notarized by Atty. Jose L. Lapak, and its registration was facilitated by his father, Atty. Baldomero M. Lapak, who was the Register of Deeds of Camarines Norte.
• A new Transfer Certificate of Title (T-1055) was issued in the name of Carmen Verso.
• The heirs of Atty. Laig filed a complaint against Verso, Galero, and the public officials involved, including Baldomero Lapak.
• Baldomero Lapak was served with summons but failed to file an answer, resulting in an order of default against him on June 15, 1959; he never filed a motion to set aside this order.

• The petitioners, heirs of Atty. Laig, maintained that the first sale to Atty. Laig was valid and that the subsequent sale to Carmen Verso was fraudulent and should be annulled.
• They argued that respondent Baldomero Lapak was not denied due process because he was properly impleaded and declared in default due to his own failure to answer the complaint, thereby waiving his right to be heard.
• They contended that Baldomero Lapak was properly included in their petition for review before the Supreme Court under the term "et als." and that the Court of Appeals erred in exonerating him from liability for malice and gross negligence.

• Respondent Carmen Verso argued that there was no double sale because the first sale to Atty. Laig was void ab initio under Article 1491(5) of the Civil Code, which prohibits lawyers from purchasing property involved in litigation they handle.
• Respondent Verso also claimed that the Supreme Court's main decision was based on hypotheses, assumptions, and conjectures unsupported by the record.
• Atty. Jose Lapak, filing a petition in his and his late father's behalf, argued that his father, Baldomero Lapak, was denied due process by the Supreme Court.
• Atty. Lapak also claimed that the Court of Appeals' decision absolving his father from liability had become final because he was not specifically named as a respondent in the petition for certiorari filed with the Supreme Court.

• Procedural Issues:
  • Whether or not respondent Baldomero Lapak, who was declared in default by the trial court, was denied due process of law by the Supreme Court.
• Substantive Issues:
  • Whether or not the sale of one-half of the property and the assignment of the other half as contingent fees by a client to his lawyer after the judgment in the case has become final is void under Article 1491(5) of the Civil Code.

• Procedural:
  • No, Baldomero Lapak was not denied due process. He was properly summoned and served a copy of the complaint but failed to file an answer, leading to a valid order of default. A party in default loses his standing in court and is not entitled to notice of further proceedings or to be heard, unless he files a motion to set aside the order of default, which Lapak never did. His deprivation of the right to a hearing was a direct legal consequence of his own omission. The Court also found that he was properly included in the petition for review under the term "et als."
• Substantive:
  • No, the sale and assignment to Atty. Laig were valid. The prohibition in Article 1491(5) of the Civil Code applies only when the property is the subject of pending litigation. In this case, the transfer occurred after the decision in the civil case had become final and executory. Therefore, the property was no longer "in litigation," and the prohibition against the lawyer acquiring it did not apply. Furthermore, the Court affirmed that contingent fee arrangements, where a lawyer receives a portion of the property recovered, are recognized and valid in this jurisdiction.

• Article 1491(5) of the Civil Code (Prohibition on Lawyers Acquiring Client's Property) — This article prohibits lawyers from acquiring by purchase the property and rights which are the object of any litigation in which they take part by virtue of their profession. The Court interpreted this to mean that the prohibition is operative only while the litigation is pending. The sale to Atty. Laig was deemed valid because it was executed after the judgment for recovery of the land had become final.
• Effect of an Order of Default — A defendant who is declared in default loses his standing in court and is not entitled to notice of subsequent proceedings, to adduce evidence, or to be heard. The Court applied this doctrine to dismiss Baldomero Lapak's claim of denial of due process, stating that his loss of the right to be heard was a consequence of his own failure to answer the complaint and to move for the lifting of the default order.
• Contingent Fee Arrangement — This refers to an agreement between a lawyer and a client where the lawyer's professional fees, usually a fraction of the property or money recovered, are contingent upon the successful outcome of the case. The Court upheld the validity of Atty. Laig receiving one-half of the property as contingent fees, citing it as a recognized practice under the Canons of Professional Ethics.
• Badges of Fraud — These are circumstances indicating that a transaction may be fraudulent. The Court identified the gross inadequacy of the purchase price in the second sale (P600.00 for a property worth at least P3,000.00) as a badge of fraud, which further supported the conclusion that the transaction was collusive and intended to prejudice the heirs of Atty. Laig.

• "The reason why the defaulting defendant is not entitled to notice is because it would be useless or of no purpose to do so, since the defendant cannot appear and be heard in the suit in anyway... If he is out of or has no standing in court before judgment on the merits, he can not be considered as no longer in default after said judgment."

• Araneta vs. Tuazon, et al. (1952) — Cited to support the ruling that the prohibition on lawyers buying their clients' property applies only when the property is the "subject of litigation," meaning the prohibition ceases once litigation has terminated.
• Albano vs. Ramos (1967) — Referenced to affirm the validity and enforceability of contingent fee arrangements where a lawyer receives a portion of the property recovered as payment for legal services.
• Lim Toco vs. Go Fay (1948) — Cited as a key precedent establishing that a defendant in default loses standing in court and is not entitled to notice of proceedings, including on appeal, thereby negating claims of denial of due process.
• Republic vs. Court of First Instance of Manila (1975) — Used to reinforce the doctrine on the effects of a default order, specifically that a defendant in default cannot appear in court, adduce evidence, or be heard.

• Article 1491, paragraph 5, New Civil Code — This was the central substantive provision at issue. The Court's interpretation of when a property is considered "in litigation" under this article was decisive in upholding the validity of the first sale to Atty. Laig.
• Article 1544, New Civil Code — This article on double sales was raised by respondent Verso, but the Court found the more crucial issue to be the validity of the first sale, which, if valid, would render the second sale fraudulent and ineffective against the first buyer.
• Canon 13 of the Canons of Professional Ethics — Cited to provide the basis for recognizing the validity of contingent fee arrangements in the legal profession.
• Section 3, Rule 138, Rules of Court — The Court referenced the lawyer's oath under this rule, implying that Atty. Baldomero M. Lapak violated his duty to "do no falsehood" by facilitating the registration of a fraudulent sale.
• Section 9, Rule 13, Rules of Court (Former) — Cited in conjunction with jurisprudence to explain the procedural consequences of being declared in default, particularly the loss of the right to notice of proceedings.