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Problem Areas in Legal Ethics

Arellano University School of Law

Acquisition of Properties
Subject of Litigation

Krizzia D. Calvelo
Jevilyn Mary C. Ruiz
O Article 1491 of the Civil Code
The following persons cannot acquire by purchase, even at a
public or judicial auction, either in person or through the mediation of
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.
O Article 1492 of the Civil Code
The prohibitions in the two preceding articles are
applicable to sales in legal redemption, compromises and

O Canons of Professional Ethics- 10. Acquiring interest in

The lawyer should not purchase any interest in the subject
matter of the litigation which he is conducting.
O Prohibition also includes the leasing of client’s property subject of

O Mortgage is deemed included within the prohibition of Art. 1491

O Purchase cannot be ratified

O Lawyer shall hold the property in trust for the client

O There is violation even if the lawyer did not pay money for it
When Purchase of Client’s Property is Not Violation of
the Law

O Property is not subject of litigation

O He acquired it before he became counsel for the client
O He acquired it after the case involving the property had terminated
In re Attorney MELCHOR E. RUSTE
A.M. No. 632 June 27, 1940
1. Atty. Melchor E. Ruste represented as counsel, Severa Ventura and her husband, Mateo San Juan,
for a cadastral case involving lot No. 3765 in Zamboanga. As result of the proceeding, on December
20, 1933, an undivided eleven-twentieth (11/20) share of said lot was adjudicated.
2. For the said case, there was no agreement the respondent and his said clients as to the amount of
his fees; but that they paid to him upon demand on different occasions the sums of P30 and P25 as
attorney's fees;
3. Atty. Ruste again demanded an additional fee of P25, but they had no money to pay, him, and so he
asked them to execute in his favor a contract of lease, and a contract of sale, of their share in said
lot No. 3764 in order that he may be able to borrow or raise said sum of P25;
4. On September 22, 1930, during the pendency of the proceeding, a contract of lease, whereby in
consideration of P100, they leased to him their coconut and banana plantation in said lot No. 3764
for a term of five years, and also a deed of sale, whereby in consideration of P1,000, they sold and
transferred to him their undivided eleven-twentieth (11/20) share in said lot No . 3764. However, the
spouses did not receive any payment.
5. Atty. Ruste sold to Ong Chua the said undivided eleven-twentieth (11/20) share in lot No. 3764
including the house and its lot.
6. Ong Chua required the spouses to pay the sum of P40.50 representing ten months' rental in arrears,
and thereafter a monthly rental of P1.50
7. Atty. Ruste did not turn over to the complainant and his wife the amount of P370 paid by Ong Chua
nor any part thereof
Issue: Whether Atty. Ruste’s actions (execution of contract of lease and sale) constitutes

Held: Yes.

The property being thus in suit, which the respondent was waging on behalf of his clients, his
acquisition thereof by the deed of sale, Exhibit B, constitutes malpractice. Whether the deed of
sale in question was executed at the instance of the spouses driven by financial necessity, as
contended by the respondent, or at the latter's behest, as contended by the complainant, is of no
moment. In either case as attorney occupies a vantage position to press upon or dictate his terms
to a harassed client, in breach of the "rule so amply protective of the confidential relations, which
must necessarily exist between attorney and client, and of the rights of both."
Spouses Cadavedo v. Victorino Lacaya
G.R. No. 173188 January 15, 2014
O The Spouses Cadavedo acquired a homestead grant over a 230,765-square meter parcel of land in
Zamboanga del Norte, which they subsequently sold to the spouses Ames. After the spouses Ames
failed to pay the balance of the purchase price, spouses Cadavedo filed an action for sum of money
and/or voiding of contract of sale of homestead. The spouses Cadavedo engaged the services of Atty.
Lacaya on a contingency fee basis. The contingency fee stipulation specifically reads:
10. That due to the above circumstances, the plaintiffs were forced to hire a lawyer on contingent
basis and if they become the prevailing parties in the case at bar, they will pay the sum of
P2,000.00 for attorney’s fees.
O Eventually, Atty. Lacaya represented the Cadavedo spouses in two other cases in connection with the
subject lot.
O After a favorable decision on the first case, Atty. Lacaya asked for one-half of the subject lot as
attorney’s fees. Unsatisfied with the division, Vicente Cadavedo and his sons-in-law entered the
portion assigned to the respondents and ejected them. The latter responded by filing a counter-suit for
forcible entry. Cadavedo and Atty. Lacaya entered into an amicable settlement, re-adjusting the area
and portion obtained by each. Atty. Lacaya acquired 10.5383 hectares pursuant to the agreement.
Whether or not agreement on attorney’s fee consisting of one-half of the subject lot is valid.

No, the agreement on attorney’s fee consisting of one-half of the subject lot is void. The
written agreement providing for a contingent fee of P2,000.00 should prevail over the oral
agreement providing for one- half of the subject lot. Atty. Lacaya’s acquisition of the one-half portion
contravenes Article 1491 (5) of the Civil Code. Article 1491 (5) of the Civil Code forbids lawyers from
acquiring, by purchase or assignment, the property that has been the subject of litigation in which
they have taken part by virtue of their profession. The same proscription is provided under Rule 10
of the Canons of Professional Ethics. While contingent fee is a valid exception to the prohibitions
under Article 1491(5) of the Civil Code, this recognition does not apply to the present case. 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. However,
in this case, 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.