LAW ON SALES

By: Atty. Alona Suzell B. Ruyeras, CPA

NOTES ON ELEMENTS OF A CONTRACT OF SALE

FIRST ELEMENT: CONSENT

PART II

C. OTHERS RELATIVELY INCAPACITATED

Last week, we discussed about the concept of “relative incapacity” wherein the incapacitated person
cannot buy or sell a certain property because of a special prohibition. The first provision discussing individuals
who are relatively incapacitated to enter into a contract of sale is discussed in Article 1490 which we have already
tackled in the previous lesson. Now, we go to Article 1491, viz:

Article 1491. The following persons cannot acquire by purchase, even at a public or judicial auction, either in
person or through the mediation of another:

(1) The guardian, the property of the person or persons who may be under his guardianship;

(2) Agents, the property whose administration or sale may have been entrusted to them, unless the consent of
the principal has been given;

(3) Executors and administrators, the property of the estate under administration;

(4) Public officers and employees, the property of the State or of any subdivision thereof, or of any government-
owned or controlled corporation, or institution, the administration of which has been entrusted to them; this
provision shall apply to judges and government experts who, in any manner whatsoever, take part in the sale;

(5) Justices, judges, prosecuting attorneys, clerks of superior and inferior courts, and other officers and
employees connected with the administration of justice, the property and rights in litigation or levied upon an
execution before the court within whose jurisdiction or territory they exercise their respective functions; this
prohibition includes the act of acquiring by assignment and shall apply to 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;

(6) Any others specially disqualified by law.

It is important to discuss at the outset the resultant contracts if the above-cited provision is violated:

a. With respect to Nos. 1 to 3, the sale shall only be voidable because in such cases, only private
interests are affected. The defect can be cured by ratification by the seller.
b. With respect, however, to Nos. 4 to 6, the sale shall be null and void, public interests being
involved therein.1

1
The Law on Sales, Agency, and Credit Transactions by Hector De Leon
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By: Atty. Alona Suzell B. Ruyeras, CPA

The said resultant defective contracts in case of violation of Article 1491 are consistent with the
submissions of renowned authors Hector de Leon and Dean Ernesto L. Pineda2. Note, however, that for another
distinguished legal persona, Cesar L. Villanueva3, 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 other instances covered therein. That would also mean
that, apart from the case of the agents, all cases covered under Article 1491, consent or knowledge by the persons
who is sought to be protected by law, cannot validate any of the transactions covered. While there seems to be a
difference in opinions, I personally lean to the first understanding as the rationalization behind the same is backed
up by jurisprudence.

The reason behind the article is to prevent frauds on the part of the persons enumerated therein and
minimize temptations to the exertion of undue and improper influence. The fear that greed might get the better of
the sentiments of loyalty and disinterestedness is the reason underlying Article 1491. The law does not trust
human nature to resist the temptations arising out of antagonism between the interest of the seller and the buyer.4

We now proceed to dissecting the said provision:

GUARDIANS

Article 1491. The following persons cannot acquire by purchase, even at a public or judicial auction, either in
person or through the mediation of another:

(1) The guardian, the property of the person or persons who may be under his guardianship; xxx

The relationship that exists between a guardian and his ward is so close and intimate. The dependence of
the ward on the guardian is so complete and the influence so great that any transactions between them during the
existence of the relationship, are in the highest sense, suspicious and presumptively fraudulent.5

Avoid confusing, however, the resultant defective contracts when the sale is made TO a guardian vis-a-
vis the one entered into BY a guardian on behalf of his ward. Thus,

a. A sale TO a guardian involving a property of the person or persons who may be under his
guardianship is VOIDABLE by virtue of Article 1491 of the Civil Code;
b. Meanwhile, a sale made BY a guardian on behalf of his ward is RESCISSIBLE if the ward suffers
a lesion by more than one-fourth (1/4) of the value of the subject matter or object of the contract pursuant to
Article 1381 of the Civil Code, to wit:

Article 1381. The following contracts are rescissible:

(1) Those which are entered into by guardians whenever the wards whom they represent suffer lesion by more
than one-fourth of the value of the things which are the object thereof; xxx

2
Sales and Other Special Contracts by Dean Ernesto L. Pineda
3
Law on Sales by Cesar L. Villanueva and Teresa V. Tiansay
4
See Note 1
5
See Note 2
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Case Discussing Prohibition against Sale to Guardian:

Case Title Relevant excerpt of the ruling
and Citation
The Remembering the general doctrine that guardianship is a trust of the highest order, and the
Philippine trustee cannot be allowed to have any inducement to neglect his ward’s interest and in line
Trust with the court’s suspicion whenever the guardian acquires the ward’s property we have no
Company vs. hesitation to declare that in this case, in the eyes of the law, Socorro Roldan took by purchase
Socorro her ward’s parcels thru Dr. Ramos, and that Article 1459 of the Civil Code applies.
Roldan, et. al.,
G.R. No. L- She acted it may be true without malice; there may have been no previous agreement between
8477 dated her and Dr. Ramos to the effect that the latter would buy the lands for her. But the stubborn
May 31, 1956 fact remains that she acquired her protege’s properties, through her brother-in-law. That she
planned to get them for herself at the time of selling them to Dr. Ramos, may be deduced from
the very short time between the two sales (one week). The temptation which naturally besets
a guardian so circumstanced, necessitates the annulment of the transaction, even if no actual
collusion is proved (so hard to prove) between such guardian and the intermediate purchaser.
This would uphold a sound principle of equity and justice.

AGENTS

Article 1491. The following persons cannot acquire by purchase, even at a public or judicial auction, either in
person or through the mediation of another: xxx

(2) Agents, the property whose administration or sale may have been entrusted to them, unless the consent of
the principal has been given; xxx

The agent stands in a fiduciary relation with his principal, just like a guardian with respect to a ward.
Without the consent of the principal, the agent cannot buy the property of his principal which is entrusted to him
for sale. However, with the consent of the principal, the sale is valid.6

Note that “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.7

Case Discussing Prohibition against Sale to Agent:

Case Title Relevant excerpt of the ruling
and Citation
Ricardo Petitioner likewise contends that the sale transactions are void for having been entered into by
Distajo, et.al. the administrator of the properties. We disagree. The pertinent Civil Code provision provides:
vs. Court of
Appeals and
Lagrimas

6
See Note 2
7
See Note 3
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Distajo, G.R. "Art. 1491. The following persons cannot acquire by purchase, even at a public or
No. 112954 judicial auction, either in person or through the mediation of another:
dated August
25, 2000 (1) The guardian, the property of the person or persons who may be under
guardianship;

(2) Agents, the property whose administration or sale may have been entrusted to them,
unless the consent of the principal has been given;

(3) Executors and administrators, the property of the estate under administration; xxx"

Under paragraph (2) of the above article, the prohibition against agents purchasing property
in their hands for sale or management is not absolute. It does not apply if the principal consents
to the sale of the property in the hands of the agent or administrator. In this case, the deeds of
sale signed by Iluminada Abiertas shows that she gave consent to the sale of the properties in
favor of her son, Rufo, who was the administrator of the properties. Thus, the consent of the
principal Iluminada Abiertas removes the transaction out of the prohibition contained in
Article 1491(2).

*Note that while Rufo is an “administrator”, the ruling in this case applied the paragraph in
relation to an agent. This bolsters our discussion a while ago that for paragraphs 1 to 3,
ratification is possible.

EXECUTORS AND ADMINISTRATORS

Article 1491. The following persons cannot acquire by purchase, even at a public or judicial auction, either in
person or through the mediation of another: xxx

(3) Executors and administrators, the property of the estate under administration; xxx

The prohibition on the part of the executors and administrators is only with reference to properties of the
estate of the deceased under administration in the probate court. 8 Guardians, administrators and executors are
necessarily officers of the courts since they are appointed or confirmed to such position pursuant to judicial
proceedings.9

Case Discussing Prohibition against Sale to Administrator:

Case Title Relevant excerpt of the ruling
and Citation
Jesus Ma. Cui, While under article 1459 of the old Civil Code an agent or administrator is disqualified from
et.al. vs. purchasing property in his hands for sale or management, and, in this case, the property in
Antonio Ma. question was sold to Antonio Cui while he was already the agent or administrator of the

8
See Note 2
9
See Note 3
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Cui, et.al., properties of Don Mariano Cui, we however believe that this question cannot now be raised
G.R. No. L- or invoked for the following reasons: xxx
7041 dated
February 21, (3) The prohibition of the law is contained in article 1459 of the old Civil Code, but this
1957 prohibition has already been removed. Under the provisions of article 1491, section 2, of the
new Civil Code, an agent may now buy property placed in his hands for sale or administration,
provided that the principal gives his consent thereto. While the new Code came into effect
only on August 30, 1950, however, since this is a right that is declared for the first time, the
same may be given retroactive effect if no vested or acquired right is impaired (Article 2253,
new Civil Code). During the lifetime of Don Mariano, and particularly on March 8, 1946, the
herein appellants could not claim any vested or acquired right in these properties, for, as heirs,
the most they had was a mere expectancy. We may, therefore, invoke now this practical and
liberal provision of our new Civil Code even if the sale had taken place before its effectivity.

*Note again that Antonio is an “administrator” but it seems that the term is made similar to
an “agent” by the Court.

PUBLIC OFFICIALS AND EMPLOYEES

Article 1491. The following persons cannot acquire by purchase, even at a public or judicial auction, either in
person or through the mediation of another: xxx

(4) Public officers and employees, the property of the State or of any subdivision thereof, or of any government-
owned or controlled corporation, or institution, the administration of which has been entrusted to them; this
provision shall apply to judges and government experts who, in any manner whatsoever, take part in the sale;
xxx

The prohibition leveled against public officers and employees refers only to properties belonging to the
State or of any subdivision thereof, etc. placed under their control or administration. The reason for the prohibition
is grounded on public policy. Assuming the transaction to be fair and not tainted with irregularity, it is still looked
upon with disfavor because it places the officer in a position which might become antagonistic to his public duty.10

JUSTICES, JUDGES AND LAWYERS

Article 1491. The following persons cannot acquire by purchase, even at a public or judicial auction, either in
person or through the mediation of another: xxx

(5) Justices, judges, prosecuting attorneys, clerks of superior and inferior courts, and other officers and
employees connected with the administration of justice, the property and rights in litigation or levied upon an
execution before the court within whose jurisdiction or territory they exercise their respective functions; this
prohibition includes the act of acquiring by assignment and shall apply to 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;
xxx

10
See Note 2
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The prohibition in paragraph 5 refers only to the sale or assignment of a property subject of a litigation.
The sale or assignment, to be assailable, must have been made during the pendency of the litigation. Thus, a
lawyer who purchased a property after the case had been terminated has not violated Article 1491 because the
property is no longer under litigation.11

With respect to judges, the rule is stricter. Even if a judge had purchased the property after his decision
had already become final and executory, it is still unethical for him to have done so, because judges must be free
from all acts of impropriety and suspicion.12

A contingent fee based on a certain percentage of the value of the property or even a part of the property
in litigation is not violative of Article 1491. The reason is that the payment, which is contingent or dependent on
victory, is effected only after the favorable decision had become final and executory. However, a lawyer is not
entitled to a contingent fee if there was co contract for it.13 A 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 he is conducting.14

Cases Discussing Prohibition against Sale to Lawyers:

Case Title Relevant excerpt of the ruling
and Citation
Paulino Under Article 1491 of the New Civil Code:
Valencia vs.
Atty. Arsenio “The following persons cannot acquire by purchase, even at a public of judicial
Fer auction, either in person or through the mediation of another: xxx
Cabanting,
A.C. No. 1302, (5) . . . this prohibition includes the act of acquiring by assignment and shall apply to
1391 and lawyers, with respect to the property and rights which may be the object of any
1543 dated litigation in which they make take part by virtue of their profession.”
April 26, 1991
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 (In re: Attorney Melchor Ruste, 40 O.G. p. 78) and is a ground for
suspension. (Beltran vs. Fernandez, 70 Phil. 248).

Art. 1491, prohibiting the sale to the counsel concerned, applies only while the litigation is
pending. (Director of Lands vs. Adaba, 88 SCRA 513; Hernandez vs. Villanueva, 40 Phil.
775).

In the case at bar, while it is true that Atty. Arsenio Fer. Cabanting purchased the lot after
finality of judgment, there was still a pending certiorari proceeding. A thing is said to be in

11
See Note 2
12
See Note 2
13
See Note 2
14
See Note 3
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litigation not only if there is some contest or litigation over it in court, but also from the
moment that it becomes subject to the judicial action of the judge. (Gan Tingco vs. Pabinguit,
35 Phil. 81). Logic indicates, in certiorari proceedings, that the appellate court may either
grant or dismiss the petition. Hence, it is not safe to conclude, for purposes under Art. 1491
that the litigation has terminated when the judgment of the trial court become final while a
certiorari connected therewith is still in progress. Thus, purchase of the property by Atty.
Cabanting in this case constitutes malpractice in violation of Art. 1491 and the Canons of
Professional Ethics. Clearly, this malpractice is a ground for suspension.
The Director A contract for a contingent fee is not covered by Article 1491 because the transfer or
of Lands vs. assignment of the property in litigation takes effect only after the finality of a favorable
Silveretra judgment. In the instant case, the attorney's fees of Atty. Fernandez, consisting of one-half
Ababa, et.al., (1/2) of whatever Maximo Abarquez might recover from his share in the lots in question, is
G.R. No. L- contingent upon the success of the appeal. Hence, the payment of the attorney's fees, that is,
26096 dated the transfer or assignment of one-half (1/2) of the property in litigation will take place only if
February 27, the appeal prospers. Therefore, the transfer actually takes effect after the finality of a favorable
1979 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.

***

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" (Francisco, Legal
Ethics, p. 294 [1949], citing Lipscomb vs. Adams 91 S.W. 1046, 1048 [1949]). Oftentimes,
contingent fees are the only means by which the poor and helpless can redress for injuries
sustained and have their rights vindicated. Thus:

The reason for allowing compensation for professional services based on contingent
fees is that if a person could not secure counsel by a promise of large fees in case of
success, to be derived from the subject matter of the suit, it would often place the poor
in such a condition as to amount to a practical denial of justice. It not infrequently
happens that person are injured through the negligence or willful misconduct of others,
but by reason of poverty are unable to employ counsel to assert their rights. In such
event their only means of redress lies in gratuitous service, which is rarely given, or in
their ability to find someone who will conduct the case for a contingent fee. That
relations of this king are often abused by speculative attorneys or that suits of this
character are turned into a sort of commercial traffic by the lawyer, does not destroy
the beneficial result to one who is so poor to employ counsel (id, at p. 293, citing
Warvelle, Legal Ethics, p. 92, Emphasis supplied).

Justice George Malcolm, writing on contingent fees, also stated that:

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... the system of contingent compensation has the merit of affording to certain classes
of persons the opportunity to procure the prosecution of their claims which otherwise
would be beyond their means. In many cases in the United States and the Philippines,
the contingent fee is socially necessary (Malcolm, Legal and Judicial Ethics, p. 55
[1949], emphasis supplied).

Stressing further the importance of contingent fees, Professor Max Radin of the University of
California, said that:

The contingent fee certainly increases the possibility that vexatious and unfounded
suits will be brought. On the other hand, it makes possible the enforcement of
legitimate claims which otherwise would be abandoned because of the poverty of the
claimants. Of these two possibilities, the social advantage seems clearly on the side of
the contingent fee. It may in fact be added by way of reply to the first objection that
vexations and unfounded suits have been brought by men who could and did pay
substantial attorney's fees for that purpose (Radin, Contingent Fees in California, 28
Cal. L. Rev. 587, 589 [1940], emphasis supplied).

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. As held in the case of Grey
vs. Insular Lumber Co., supra, citing the case of Ulanday vs. Manila Railroad Co., supra:

Where it is shown that the contract for a contingent fee was obtained by any undue
influence of the attorney over the client, or by any fraud or imposition, or that the
compensation is so clearly excessive as to amount to extortion, the court win in a
proper case protect the aggrieved party.
The Conjugal Granting arguendo that the spouses Cadavedo and Atty. Lacaya indeed entered into an oral
Partnership of contingent fee agreement securing to the latter one-half of the subject lot, the agreement is
the Spouses nevertheless void.
Vicente
Cadavedo vs. In their account, the respondents insist that Atty. Lacaya agreed to represent the spouses
Victorino T. Cadavedo in Civil Case No. 1721 and assumed the litigation expenses, without providing for
Lacaya, G.R. reimbursement, in exchange for a contingency fee consisting of one-half of the subject lot.
No. 173188 This agreement is champertous and is contrary to public policy.
dated January
15, 2014 Champerty, along with maintenance (of which champerty is an aggravated form), is a common
law doctrine that traces its origin to the medieval period. The doctrine of maintenance was
directed “against wanton and inofficious intermeddling in the disputes of others in which the
intermeddler has no interest whatever, and where the assistance rendered is without
justification or excuse.” Champerty, on the other hand, is characterized by “the receipt of a
share of the proceeds of the litigation by the intermeddler.” Some common law court decisions,

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however, add a second factor in determining champertous contracts, namely, that the lawyer
must also, “at his own expense maintain, and take all the risks of, the litigation.”

The doctrines of champerty and maintenance were created in response “to medieval practice
of assigning doubtful or fraudulent claims to persons of wealth and influence in the expectation
that such individuals would enjoy greater success in prosecuting those claims in court, in
exchange for which they would receive an entitlement to the spoils of the litigation.” “In order
to safeguard the administration of justice, instances of champerty and maintenance were made
subject to criminal and tortuous liability and a common law rule was developed, striking down
champertous agreements and contracts of maintenance as being unenforceable on the grounds
of public policy.”

In this jurisdiction, we maintain the rules on champerty, as adopted from American decisions,
for public policy considerations. As matters currently stand, any agreement by a lawyer to
“conduct the litigation in his own account, to pay the expenses thereof or to save his client
therefrom and to receive as his fee a portion of the proceeds of the judgment is obnoxious to
the law.” The rule of the profession that forbids a lawyer from contracting with his client for
part of the thing in litigation in exchange for conducting the case at the lawyer’s expense is
designed to prevent the lawyer from acquiring an interest between him and his client. To
permit these arrangements is to enable the lawyer to “acquire additional stake in the outcome
of the action which might lead him to consider his own recovery rather than that of his client
or to accept a settlement which might take care of his interest in the verdict to the sacrifice of
that of his client in violation of his duty of undivided fidelity to his client’s cause.”

***

While contingent fee agreements are indeed recognized in this jurisdiction as a valid exception
to the prohibitions under Article 1491 (5) of the Civil Code, contrary to the CA’s position,
however, this recognition does not apply to the present case. A contingent fee contract is an
agreement in writing where the fee, often a fixed percentage of what may be recovered in the
action, is made to depend upon the success of the litigation. The payment of the contingent
fee is not made during the pendency of the litigation involving the client’s property but
only after the judgment has been rendered in the case handled by the lawyer.

In the present case, we reiterate that the transfer or assignment of the disputed one-half portion
to Atty. Lacaya took place while the subject lot was still under litigation and the lawyer-client
relationship still existed between him and the spouses Cadavedo. Thus, the general prohibition
provided under Article 1491 of the Civil Code, rather than the exception provided in
jurisprudence, applies. The CA seriously erred in upholding the compromise agreement on the
basis of the unproved oral contingent fee agreement.

Notably, Atty. Lacaya, in undertaking the spouses Cadavedo’s cause pursuant to the terms of
the alleged oral contingent fee agreement, in effect, became a co-proprietor having an equal,
if not more, stake as the spouses Cadavedo. Again, this is void by reason of public policy; it
undermines the fiduciary relationship between him and his clients.

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Joey R. Peña Article 1491(5) of the Civil Code expressly prohibits lawyers from acquiring property or rights
vs. Jesus that may be the object of any litigation in which they may take part by virtue of their
Delos Santos profession.
and the Heirs
of Rosita A complementary prohibition is also provided in Rule 10 of the Canons of Professional Ethics
Delos Santos which states:
Flores, G.R.
No. 202223 10. Acquiring interest in litigation.
dated March
2, 2016 The lawyer should not purchase any interest in the subject matter of the litigation which
he is conducting.

A property is in litigation if there is a contest or litigation over it in court or when it is subject

of a judicial action. Records show that the judicial action over the subject lots was still in the
appellate proceedings stage when they were conveyed to Jesus and Rosita's counsel, 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 this Court in G.R.
Nos. 141810 and 141812 on February 2, 2007.

Clearly then, since the property conveyed to Atty. Robiso by Jesus and Rosita was still the
object of litigation, the deeds of conveyance executed by the latter are deemed inexistent.
Under Article 1409 of the Code, contracts which are expressly prohibited or declared void by
law are considered inexistent and void from the beginning.28 This being so, Atty. Robiso
could not have transferred a valid title in favor of Peña over the lots awarded to Jesus and
Rosita in Civil Case No. 3683. Consequently, Peña has no legal standing to be substituted in
the stead of or joined with Jesus and Rosita as the first set of intervenors and to move for
issuance of a writ of execution in Civil Case No. 3683.

***

It is true that contingent fee agreements are recognized in this jurisdiction as a valid exception
to the prohibitions under Article 1491(5) of the Civil Code. The Court cannot extend a similar
recognition to the present case, however, since the payment to Atty. Robiso of his contingency
fees was made during the pendency of litigation. "A contingent fee contract is an agreement
in writing where the fee, often a fixed percentage of what may be recovered in the action, is
made to depend upon the success of the litigation. The payment of the contingent fee is not
made during the pendency of the litigation involving the client's property but only after
the judgment has been rendered in the case handled by the lawyer."

***

The rationale advanced for the prohibition in Article 1491(5) is that public policy disallows
the transactions in view of the fiduciary relationship involved, i.e., the relation of trust and
confidence and the peculiar control exercised by these persons. It is founded on public policy
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because, by virtue of his office, an attorney may easily take advantage of the credulity and
ignorance of his client and unduly enrich himself at the expense of his client. The principle of
estoppel runs counter to this policy and to apply it in this case will be tantamount to sanctioning
a prohibited and void transaction.
Regalado Of course, the parties were mistaken in thinking that respondent could not validly acquire the
Daroy vs. land. In Guevara v. Calalang, on facts similar to those in this case, we held that the prohibition
Atty. Esteban in Art. 1491 does not apply to the sale of a parcel of land, acquired by a client to satisfy a
Abecia, A.C. judgment in his favor, to his attorney as long as the property was not the subject of the
No. 3046 litigation. For indeed, while judges, prosecuting attorneys, and others connected with the
dated October administration of justice are prohibited from acquiring "property or rights in litigation or levied
26, 1998 upon in execution," the prohibition with respect to attorneys in the case extends only to
"property and rights which may be the object of any litigation in which they may take part by
virtue of their profession."
Federico N. Under Article 1491(5) of the Civil Code, lawyers are prohibited from acquiring either by
Ramos vs. purchase or assignment the property or rights involved which are the object of the litigation in
Atty. Patricio which they intervene by virtue of their profession. The prohibition on purchase is all
A. Ngaseo, embracing to include not only sales to private individuals but also public or judicial sales. The
A.C. No. 6210 rationale advanced for the prohibition is that public policy disallows the transactions in view
dated of the fiduciary relationship involved, i.e., the relation of trust and confidence and the peculiar
December 9, control exercised by these persons. It is founded on public policy because, by virtue of his
2004 office, an attorney may easily take advantage of the credulity and ignorance of his client and
unduly enrich himself at the expense of his client. However, the said prohibition applies only
if the sale or assignment of the property takes place during the pendency of the litigation
involving the client's property. Consequently, where the property is acquired after the
termination of the case, no violation of paragraph 5, Article 1491 of the Civil Code attaches.

Invariably, in all cases where Article 1491 was violated, the illegal transaction was
consummated with the actual transfer of the litigated property either by purchase or assignment
in favor of the prohibited individual. In Biascan v. Lopez, respondent was found guilty of
serious misconduct and suspended for 6 months from the practice of law when he registered a
deed of assignment in his favor and caused the transfer of title over the part of the estate despite
pendency of Special Proceedings No. 98037 involving the subject property. In the
consolidated administrative cases of Valencia v. Cabanting, the Court suspended respondent
Atty. Arsenio Fer Cabanting for six (6) months from the practice of law when he purchased
his client's property which was still the subject of a pending certiorari proceeding.

In the instant case, there was no actual acquisition of the property in litigation since the
respondent only made a written demand for its delivery which the complainant refused to
comply. Mere demand for delivery of the litigated property does not cause the transfer of
ownership, hence, not a prohibited transaction within the contemplation of Article 1491. Even
assuming arguendo that such demand for delivery is unethical, respondent's act does not fall
within the purview of Article 1491. The letter of demand dated January 29, 2003 was made
long after the judgment in Civil Case No. SCC-2128 became final and executory on January
18, 2002.

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By: Atty. Alona Suzell B. Ruyeras, CPA

Cases Discussing Prohibition against Sale to Judges:

Case Title Relevant excerpt of the ruling
and Citation
Gan Tiangco Leaving out of account that things which should have been proven at trial were not proven, it
vs. Silvino is a positive fact that Henry Gardner, justice of peace of Guijulngan, was the purchaser at
Pabinguit, public auction of Candida Acabo's lands and carabaos levied upon as a result of the judgment,
G.R. No. L- and that he delivered the price of the sale, P555, to the sheriff; but hte latter returned this sum
10439 dated to the justice of the peace, who said that he wea authorized by Silvestre Basaltos, the supposed
October 17, creditor, to receive the same. At the finish the sheriff delivered nothing to the owner Acabo,
1916 all the proceeds of the auction sale having been expended in one way or another without the
consent of the judgment debtor appearing of record.

Aside from everything else, the trial court was impressed by the circumstance that in the public
auction the purchaser was the justice of the peace himself. This, in the judge's opinion, was
unauthorized, because article 1459, No. 5, of the Civil Code, prohibits judges from acquiring
by purchase, even at public or judicial sale, either in person or by an agent, any property or
rights litigated in the court in the jurisdiction or territory within which they exercise their
respective duties; this prohibition includes taking of property by assignment.

***

Judging from the legal precedents on which the Civil Code is based, it would not seem too
much to conclude that the said article of the Civil Code does not make any distinction between
property in litigation. In effect, it appears to be as delicate a matter for a judge to take part in
the sale of property that had been the subject of litigation in his court, as to intervene in auction
of property which, though not directly litigated in his court, is nevertheless levied upon and
sold as the result of a writ of execution issued by him. What the law intends to avoid is the
improper interference with an interest of a judge in a thing levied upon and sold by his order.
Bernardita R. We find that there is no merit in the contention of complainant Bernardita R. Macariola, under
Macariola vs. her first cause of action, that respondent Judge Elias B. Asuncion violated Article 1491,
Honorable paragraph 5, of the New Civil Code in acquiring by purchase a portion of Lot No. 1184-E
Elias B. which was one of those properties involved in Civil Case No. 3010.
Asuncion,
A.M. No. 133- The prohibition in the aforesaid Article applies only to the sale or assignment of the property
J dated May which is the subject of litigation to the persons disqualified therein. We have already ruled that
31, 1982 "... for the prohibition to operate, the sale or assignment of the property must take place during
the pendency of the litigation involving the property" (The Director of Lands vs. Ababa et al.,
88 SCRA 513, 519 [1979], Rosario vda. de Laig vs. Court of Appeals, 86 SCRA 641, 646
[1978]).

In the case at bar, when the respondent Judge purchased on March 6, 1965 a portion of Lot
1184-E, the decision in Civil Case No. 3010 which he rendered on June 8, 1963 was already
final because none of the parties therein filed an appeal within the reglementary period; hence,
the lot in question was no longer subject of the litigation. Moreover, at the time of the sale on
March 6, 1965, respondent's order dated October 23, 1963 and the amended order dated
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“Fides et Justitia”
 LAW ON SALES
By: Atty. Alona Suzell B. Ruyeras, CPA

November 11, 1963 approving the October 16, 1963 project of partition made pursuant to the
June 8, 1963 decision, had long become final for there was no appeal from said orders.

OTHER PERSONS ESPECIALLY DISQUALIFIED

Article 1491. The following persons cannot acquire by purchase, even at a public or judicial auction, either in
person or through the mediation of another: xxx

(6) Any others specially disqualified by law.

Examples of persons especially disqualified by law are:

(1) Aliens who are disqualified to purchase private agricultural lands (Article XII, Sections 3 and 7 of the
Constitution);
(2) An unpaid seller having a right of lien or having stopped the goods in transitu, who is prohibited from
buying the goods either directly or indirectly in the resale of the same at a public or private sale which he
may make (Article 1533 par.5 and Article 1476 [4]); and
(3) The officer conducting an execution sale of property to enforce a court judgment rendered against the
owner thereof cannot become the purchaser or be interested directly or indirectly in any purchase at such
sale.15

Cases Discussing Prohibition against Sale to Foreigner:

Case Title Relevant excerpt of the ruling
and Citation
Alfred Fritz Section 14, Article XIV of the 1973 Constitution provides, as follows:
Frenzel vs.
Ederlina P. Save in cases of hereditary succession, no private land shall be transferred or conveyed
Catito, G.R. except to individuals, corporations, or associations qualified to acquire or hold lands
No. 143958 in the public domain.
dated July 11,
2003 Lands of the public domain, which include private lands, may be transferred or conveyed only
to individuals or entities qualified to acquire or hold private lands or lands of the public
domain. Aliens, whether individuals or corporations, have been disqualified from acquiring
lands of the public domain. Hence, they have also been disqualified from acquiring private
lands.

Even if, as claimed by the petitioner, the sales in question were entered into by him as the real
vendee, the said transactions are in violation of the Constitution; hence, are null and void ab
initio. A contract that violates the Constitution and the law, is null and void and vests no rights
and creates no obligations. It produces no legal effect at all. The petitioner, being a party to an
illegal contract, cannot come into a court of law and ask to have his illegal objective carried
out. One who loses his money or property by knowingly engaging in a contract or transaction
which involves his own moral turpitude may not maintain an action for his losses. To him who

15
See Note 1
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“Fides et Justitia”
 LAW ON SALES
By: Atty. Alona Suzell B. Ruyeras, CPA

moves in deliberation and premeditation, the law is unyielding. The law will not aid either
party to an illegal contract or agreement; it leaves the parties where it finds them. Under Article
1412 of the New Civil Code, the petitioner cannot have the subject properties deeded to him
or allow him to recover the money he had spent for the purchase thereof. Equity as a rule will
follow the law and will not permit that to be done indirectly which, because of public policy,
cannot be done directly. Where the wrong of one party equals that of the other, the defendant
is in the stronger position, it signifies that in such a situation, neither a court of equity nor a
court of law will administer a remedy.
Taina The sale of Philippine land to an alien or foreigner, even if titled in the name of his Filipino
Manigque- spouse, violates the Constitution and is thus, void.
Stone vs.
Cattleya ***
Land, Inc.,
G.R. No. Section 7, Article XII of the 1987 Constitution states that:
195975 dated
September 5, Save in cases of hereditary succession, no private lands shall be transferred or
2016 conveyed except to individuals, corporations, or associations qualified to acquire or
hold lands of the public domain.

Given the plain and explicit language of this constitutional mandate, it has been held that
"[a]liens, whether individuals or corporations, are disqualified from acquiring lands of the
public domain. Hence, they are also disqualified from acquiring private lands. The primary
purpose of the constitutional provision is the conservation of the national patrimony.

In the case at bench, Taina herself admitted that it was really Mike who paid with his own
funds the subject lot; hence, Mike was its real purchaser or buyer. More than that, it bears
stressing that if the deed of sale at all proclaimed that she (Taina) was the purchaser or buyer
of the subject property and this subject property was placed under her name, it was simply
because she and Mike wanted to skirt or circumvent the constitutional prohibition barring or
outlawing foreigners or aliens from acquiring or purchasing lands in the Philippines. Indeed,
both the CA and the RTC exposed and laid bare Taina's posturing and pretense for what these
really are: that in the transaction in question, she was a mere dummy, a spurious stand-in, for
her erstwhile common-law husband, who was not a Filipino then, and never attempted to
become a naturalized Filipino citizen thereafter. The CA put things in correct perspective, thus
—

A scrutiny of the records would show that the trial court aptly held that the defendant-
appellant was only a dummy for Mike Stone who is a foreigner. Even if the Deed of
Absolute Sale is in the name of Taina Manigque-Stone that does not change the fact
that the real buyer was Mike Stone, a foreigner. The appellant herself had admitted in
court that the buyer was Mike Stone and at the time of the negotiation she was not yet
legally married to Mike Stone. They cannot do indirectly what is prohibited directly
by the law.

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“Fides et Justitia”
 LAW ON SALES
By: Atty. Alona Suzell B. Ruyeras, CPA

***

By entering into such contract knowing that it was illegal, no implied trust was created in his
favor; no reimbursement for his expenses can be allowed; and no declaration can be made that
the subject property was part of the conjugal/community property of the spouses. To sustain
such a theory would countenance indirect controversion of the constitutional prohibition. If
the property were to be declared conjugal, this would accord the alien husband a substantial
interest and right over the land, as he would then have a decisive vote as to its transfer or
disposition. This is a right that the Constitution does not permit him to have.

Case Discussing Prohibition against Sale to Non-Christian Filipinos as provided by Republic Act 387216:
Case Title Relevant excerpt of the ruling
and Citation
Ali Akang vs. R.A. No. No. 3872 likewise provides that conveyances and encumbrances made by illiterate
Municipality non-Christian or literate non-Christians where the instrument of conveyance or encumbrance
of Isulan, G.R. is in a language not understood by said literate non-Christians shall not be valid unless duly
No. 186014 approved by the Chairman of the Commission on National Integration.
dated June 26,
2013 In Jandoc-Gatdula v. Dimalanta, however, the Court categorically stated that while the
purpose of Sections 145 and 146 of the Administrative Code of Mindanao and Sulu in
requiring executive approval of contracts entered into by cultural minorities is indeed to
protect them, the Court cannot blindly apply that law without considering how the parties
exercised their rights and obligations. In this case, Municipality Resolution No. 70, which
approved the appropriation of P3,000.00, was, in fact, accepted by the Provincial Board of
Cotabato. In approving the appropriation of P3,000.00, the Municipal Council of Isulan and
the Provincial Board of Cotabato, necessarily, scrutinized the Deed of Sale containing the
terms and conditions of the sale. Moreover, there is nothing on record that proves that the
petitioner was duped into signing the contract, that he was taken advantage of by the
respondent and that his rights were not protected.

The court’s duty to protect the native vendor, however, should not be carried out to such an
extent as to deny justice to the vendee when truth and justice happen to be on the latter’s side.
The law cannot be used to shield the enrichment of one at the expense of another. More
important, the law will not be applied so stringently as to render ineffective a contract that is
otherwise valid, except for want of approval by the CNI. This principle holds, especially when
the evils sought to be avoided are not obtaining.

-End-

“Ora et Labora”

16
See “Annex A”
Page 15 of 16
“Fides et Justitia”
 LAW ON SALES
By: Atty. Alona Suzell B. Ruyeras, CPA

“ANNEX A”

REPUBLIC ACT No. 3872

AN ACT TO AMEND SECTIONS FORTY-FOUR, FORTY-EIGHT AND ONE HUNDRED TWENTY OF COMMONWEALTH ACT
NUMBERED ONE HUNDRED FORTY-ONE, AS AMENDED, OTHERWISE KNOWN AS THE "PUBLIC LAND ACT", AND FOR
OTHER PURPOSES.

Section 1. A new paragraph is hereby added to Section 44 of Commonwealth Act Numbered One hundred forty-one, to read as follows:

"Sec. 44. Any natural-born citizen of the Philippines who is not the owner of more than twenty-four hectares and who since July fourth, nineteen
hundred and twenty-six or prior thereto, has continuously occupied and cultivated, either by himself or through his predecessors-in-interest, a tract or
tracts of agricultural public lands subject to disposition, or who shall have paid the real estate tax thereon while the same has not been occupied by any
person shall be entitled, under the provisions of this chapter, to have a free patent issued to him for such tract or tracts of such land not to exceed twenty-
four hectares.

"A member of the national cultural minorities who has continuously occupied and cultivated, either by himself or through his predecessors-in-interest,
a tract or tracts of land, whether disposable or not since July 4, 1955, shall be entitled to the right granted in the preceding paragraph of this section:
Provided, That at the time he files his free patent application he is not the owner of any real estate secured or disposable under this provision of the
Public Land Law."

Section 2. A new sub-section (c) is hereby added to Section 48 of the same Act to read as follows:

"Sec. 48. The following-described citizens of the Philippines, occupying lands of the public domain or claiming to own any such lands or an interest
therein, but whose titles have not been perfected or completed, may apply to the Court of First Instance of the province where the land is located for
confirmation of their claims and the issuance of a certificate of title therefor, under the Land Registration Act, to wit:

"(a) Those who prior to the transfer of sovereignty from Spain to the United States have applied for the purchase, composition or other form of grant
of lands if the public domain under the laws and royal decrees then in force and have instituted and prosecuted the proceedings in connection therewith,
but have, with or without default upon their part, or for any other cause, not received title therefor, if such applicants or grantees and their heirs have
occupied and cultivated said lands continuously since the filing of their applications.

"(b) Those who by themselves or through their predecessors-in-interest have been, in continuous, exclusive, and notorious possession and occupation
of agricultural lands of the public domain, under a bona fide claim of acquisition or ownership, for at least thirty years immediately preceding the filing
of the application for confirmation of title, except when prevented by war of force majeure. Those shall be conclusively presumed to have performed
all the conditions essential to a government grant and shall be entitled to a certificate of title under the provisions of this chapter.

"(c) Members of the national cultural minorities who by themselves or through their predecessors-in-interest have been in open, continuous, exclusive
and notorious possession and occupation of lands of the public domain suitable to agriculture, whether disposable or not, under a bona fide claim of
ownership for at least 30 years shall be entitled to the rights granted in sub-section (b) hereof".

Section 3. Section 120 of the same Act is hereby amended to read as follows:

"Sec. 120. Conveyance and encumbrance made by persons belonging to the so-called "non-christian Filipinos" or national cultural minorities, when
proper, shall be valid if the person making the conveyance or encumbrance is able to read and can understand the language in which the instrument of
conveyance or encumbrances is written. Conveyances or encumbrances made by illiterate non-Christian or literate non-Christians where the instrument
of conveyance or encumbrance is in a language not understood by the said literate non-Christians shall not be valid unless duly approved by the
Chairman of the Commission on National Integration."

Section 4. Any Act, law, rule and regulation or executive order contrary hereto are hereby amended and/or repealed accordingly.

Section 5. This Act shall take effect upon its approval.

Approved: June 18, 1964

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