THE DIRECTOR OF LANDS, PETITIONER, VS. SILVESTRA ABABA, ET AL., CLAIMANTS. JUAN LARRAZABAL, MARTA C. DE LARRAZABAL, MAXIMO ABARQUEZ AND ANASTACIA CABIGAS, PETITIONERS-APPELLANTS…

This is an appeal from the order of the Court of First Instance
of Cebu dated March
19, 1966 denying the petition for the cancellation of an adverse
claim registered by the adverse claimant on the transfer certificate of title
of the petitioners.

The adverse claimant, Atty. Alberto B. Fernandez, was retained as
counsel by petitioner, Maximo Abarquez,
in Civil Case No. R-6573 of the Court of First Instance of Cebu,
entitled “Maximo Abarquez
vs. Agripina Abarquez“,
for the annulment of a contract of sale with right of repurchase and for the
recovery of the land which was the subject matter thereof.  The Court of First Instance of Cebu rendered a decision on May 29, 1961 adverse to the petitioner and so he appealed
to the Court of Appeals.

Litigating as a pauper in the lower court and engaging the
services of his lawyer on a contingent basis, petitioner, unable to compensate
his lawyer whom he also retained for his appeal, executed a document on June
10, 1961 in the Cebuano-Visayan dialect whereby he
obliged himself to give to his lawyer one-half (½) of whatever he might recover
from Lots 5600 and 5602 should the appeal prosper.  The contents of the document as translated
are as follows:

“AGREEMENT

“KNOW ALL MEN BY THESE PRESENTS:

“That I, MAXIMO ABARQUEZ, plaintiff in Case
No. R-6573 of the Court of First Instance of Cebu,
make known through this agreement that for the services rendered by Atty.
Alberto B. Fernandez, who is my lawyer in this case, if the appeal is won up to
the Supreme Court, I promise and will guarantee that I will give to said lawyer
one-half (½) of what I may recover from the estate of my father in Lots No.
5600 and 5602 which are located at Bulacao, Pardo, City of Cebu.  That with respect to any money which may be
adjudged to me from Agripina Abarquez,
except ‘Attorney’s Fees’, the same shall pertain to me and not to said lawyer.

“IN WITNESS WHEREOF, I have caused my right thumbmark to be affixed hereto this 10th of June, 1961, at
the City of Cebu.

THUMBMARK

MAXIMO ABARQUEZ”

(p. 5,
Petitioner-Appellant’s Brief, p. 26, rec.)

The real property sought to be recovered in Civil Case No. R-6573
was actually the share of the petitioner in Lots 5600 and 5602, which were part
of the estate of his deceased parents and which were partitioned among the
heirs which included petitioner Maximo
Abarquez and his elder sister, Agripina
Abarquez, the defendant in said civil case.

This partition was made pursuant to a project of partition
approved by the Court which provided, among others,
that Lots Nos. 5600 and 5602 were to be divided into three equal parts, one
third of which shall be given to Maximo Abarquez.  However, Agripina Abarquez claimed the
share of her brother, stating that the latter executed an instrument of pacto de retro prior to the partition
conveying to her any or all rights in the estate of their parents.  Peti­tioner discovered later that the claim
of his sister over his share was based on an instrument he was induced to sign
prior to the partition, an instrument he believed all along to be a mere
acknowledgment of the receipt of P700.00 which his sister gave to him as a
consideration for taking care of their father during the latter’s illness and
never an instrument of pacto de retro.  Hence, he instituted an action to annul the
alleged instrument of pacto de retro.

The Court of Appeals in a decision promulgated on August 27, 1963 reversed the decision
of the lower court and annulled the deed of pacto
de retro.  Appellee Agripina Abarquez filed a motion for reconsideration but the same
was denied in a resolution dated January
7, 1964 (p. 56, Record on Appeal; p. 13, rec.) and the judgment
became final and executory on January
22, 1964.

Subsequently, Transfer Certificate of Title No. 31841 was issued
on May 19, 1965 in the name
of Maximo Abarquez, married
to Anastacia Cabigas, over
his adjudged share in Lots Nos. 5600 and 5602 containing an area of 4,085
square meters (p. 110, ROA; p. 13, rec.). 
These parcels of land later became the subject matter of the adverse
claim filed by the claimant.

The case having been resolved and title having been issued to
petitioner, adverse claimant waited for petitioner to comply with his
obligation under the document executed by him on June 10, 1961 by delivering the
one-half (½) portion of the said parcels of land.

Petitioner refused to comply with his obligation and instead
offered to sell the whole parcels of land covered by TCT No. 31841 to
petitioner-spouses Juan Larrazabal and Marta C. de Larrazabal.  Upon being
informed of the intention of the petitioner, adverse claimant immediately took
steps to protect his interest by filing with the trial court a motion to
annotate his attorney’s lien on TCT No. 31841 on June 10, 1965 and by notifying
the prospective buyers of his claim over the one-half portion of the parcels of
land.

Realizing later that the motion to annotate attorney’s lien was a
wrong remedy, as it was not within the purview of Section 37, Rule 138 of the Revised
Rules of Court, but before the same was denied by the trial court, adverse
claimant filed an affidavit of adverse claim on July 19, 1965 with the Register
of Deeds of Cebu (p. 14, ROA; p. 13, rec.).  By virtue of the registration of said
affidavit, the adverse claim for one-half (½) of the lots covered by the June 10, 1961 document was annotated
on TCT No. 31841.

Notwithstanding the annotation of the adverse claim,
petitioner-spouses Maximo Abarquez
and Anastacia Cabigas
conveyed by deed of absolute sale on July 29, 1965 two-thirds (2/3) of the
lands covered by TCT No. 31841 to petitioner-spouses Juan Larrazabal
and Marta C. de Larrazabal.  When the new transfer certificate of title
No. 32996 was issued, the annotation of adverse claim on TCT No. 31841
necessarily had to appear on the new transfer certi­ficate of title.  This adverse claim on TCT No. 32996 became
the subject of cancellation proceedings filed by herein petitioner-spouses on March 7, 1966 with the Court of First
Instance of Cebu (p. 2, ROA; p. 13, rec.).  The adverse claimant, Atty. Alberto B.
Fernandez, filed his opposition to the petition for cancellation on March 18, 1966 (p. 20, ROA; p. 13,
rec.).  The trial court resolved the
issue on March 19, 1966,
when it declared that:

“x x x the
petition to cancel the adverse claim should be denied.

The admission by the petitioners that the
lawyers (Attys. Fernandez and Batiguin) are entitled
to only one-third of the lot described in Transfer Certificate of Title No.
32966 is the best proof of the authority to maintain said adverse claim (p. 57,
ROA; p. 13, rec.).

Petitioner-spouses decided to appeal the order of dismissal to
this Court and correspondingly filed the notice of appeal on April 1, 1966 with the trial
court.  On April 2, 1966, petitioner-spouses filed the appeal bond
and subsequently filed the record on appeal on April 6, 1966.  The
records of the case were forwarded to this Court through the Land Registration
Commission of Manila and were received by this Court on May 5, 1966.

Counsel for the petitioner-spouses filed the printed record on
appeal on July 12, 1966.  Required to file the appellants’ brief,
counsel filed one on August 29, 1966 while that of the appellee
was filed on October 1, 1966 after having been granted an extension to file his
brief.

The case was submitted for decision on December 1, 1966. 
Counsel for the petitioners filed a motion to expunge appellees‘ brief on December
8, 1966 for having been filed beyond the reglementary
period, but the same was denied by this Court in a resolution dated February 13, 1967.

The pivotal issue to be resolved in the instant case is the
validity or nullity of the registration of the adverse claim of Atty.
Fernandez, resolution of which in turn hinges on the question of whether or not
the contract for a contingent fee, basis of the interest of Atty. Fernandez, is
prohibited by Article 1491 of the New Civil Code and Canon 13 of the Canons of
Professional Ethics.

Petitioners contend that a contract for a contingent fee violates
Article 1491 because it involves an assignment of a property subject of
litigation.  That article provides:

“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:

“x x x x x x.

“(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” (underscoring supplied).

This contention is without merit. 
Article 1491 prohibits only the sale or assignment between the lawyer
and his client, of property which is the subject of litigation.  As WE have already stated:  “The prohibition in said article applies
only to a sale or assignment to the lawyer by his client of the property which
is the subject of litigation.  In other words, for the prohibition to operate, the sale or
assignment of the property must take place during the pendency
of the litigation involving the property” (Rosario Vda.
de Laig vs. Court of Appeals, et al., L-26882,
November 21, 1978).

Likewise, under American Law, the prohibition does not apply to
“cases where after completion of litigation the lawyer accepts on account
of his fee, an interest in the assets realized by the litigation”
(Drinker, Henry S., Legal Ethics, p. 100 [1953], citing App. A,
280; N.Y. City 714).  “There is
a clear dis­tinction between such cases and one in which the lawyer speculates
on the outcome of the matter in which he is employed” (Drinker, supra,
p. 100 citing A.B.A. Op. 279).

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 of
Atty. Fernandez, con­sisting of one-half (½) of whatever Maximo
Abarquez 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 (½) 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.

While Spanish civilists differ in their
views on the above issue – whether or not a contingent fee contract (quota litis agreement) is covered by Article 1491 – with Manresa advancing that it is
covered, thus:

“Se ha discutido si en la incapacidad de los Procuradores y Abogados esta incluido
el pacto de quota litis.  Consiste este, como es
sabido, en la estipulacion
de que el Abogado o el Procurador han de hacer suyos una
parte alicuota de la cosa que se litiga,
si la sentencia es favorable.  Con
este concepto a la vista, es para nosotros
indudable que el articulo que comentamos
no menciona ese pacto; pero como la incapacidad de los Abogados y Procuradores se extiende al acto de adquirir por cesion; y la efectividad del pacto de quota
litis implica necesariamente una cesion; estimamos que con solo el num. 5.° del articulo 1459 podria pedirse con exito la nulidad de ese pacto tradicionalmente considerado como ilicito.

“x x x x x x x x x x.

“Debe tenerse
tambien en cuenta, respecto del ultimo parrafo del articulo 1459, la sentencia del
Tribunal Supreme de 25 de Enero de 1902, que declara que
si bien el procurador no puede adquirir para si
los bienes, en cuanto a los cuales
tiene incapacidad, puede adquirirlos para otra persona en quien no concurra incapacidad alguna” (Manresa, Comentarios al Codigo Civil Español, Tomo X, p. 110 [4a ed., 1931] underscoring supplied).

Castan, maintaining that it is not
covered, opines thus:

“C. Prohibiciones impuestas a las personas encargadas, mas
o menos directa­mente, de
la administracion de justicia.
— ­El mismo art. 1.459 del Codigo civil prohibe a los Magistrados, Jueces, individuos del Ministerio fiscal, Secretarios de
Tribunales y Juzgados y Oficiales de Justicia adquirir por compra
(aunque sea en subasta publica o judicial, por si ni por
persona alguna intermedia),
‘los bienes y derechos que estuviesen
en litigio ante el Tribunal en cuya jurisdiccion o territorio ejercieran sus respectivas funciones, extendiendo se esta prohibicion al acto de adquirir por cesion‘; y siendo tambien extensiva ‘a los Abogados y Procuradores respecto a los bienes y derechos que fueran objeto
del un litigio en que intervengan por su profesion y oficio.’

“El fundamento de esta prohibicion es clarisimo.  No solo se trata —
dice Manresa — de quitar
la ocasion al fraude; persiguese, ademas, el proposito de rodear a las personas que intervienen en la administracion
de justicia de todos los prestigios que necesitan para
ejercer su ministerio, librandolos de toda sospecha, que, aunque fuere
infundada, redundaria en descredito de la institucion.

“Por no dar
lugar a recelos de ninguna clase, admite el Codigo (en el apartado penultimo del art. 1.459) algunos casos en que, por excepcion,
no se aplica el principio prohibitivo de que venimos hablando.  Tales son los de que se trate
de acciones hereditarias entre coherederos, de cesion en pago de creditos, o de garantia de los bienes que
posean los funcionarios de justicia.

‘Algunos autores (Goyena, Manresa, Valverde) creen
que en la prohibition del art.
1.459 esta comprendido el pacto de quota litis
(o sea el convenio por el cual se concede al Abogado o Procurador, para el caso de obtener sentencia favorable, una parte alicuota de la cosa o cantidad que se litiga), porque dicho pacto
supone la venta o cesion de una parte
de la cosa o derecho que es objeto
del litigio.  Pero Mucius Scaevola observa, con razon, que en el repetido pacto no hay propiamente caso de compraventa ni
de cesion de derechos, y bastan para estimario
nulo otros preceptos del
Codigo como
los relativos a la ilicitud de la causa‘” (Castan, Derecho Civil Español, Tomo 4, pp. 68-69, [9a
ed., 1956], underscoring supplied).

The Supreme Court of Spain, in its sentencia
of 12 November 1917, has
ruled that Article 1459 of the Spanish Civil Code (Article 1491 of our Civil
Code) does not apply to a contract for a contingent fee because it is not
contrary to morals or to law, holding that:

“x x x que no es susceptible de aplicarse el precepto contenido en el num. 5° del art. 1.459 a un contrato en el que se restringen los honorarios de un Abogado a un tanto por ciento
de lo que se obtuviera en
el litigio, cosa no repudiada por la moral ni por la ley”
(Tolentino, Civil Code of the Philippines, p. 35,
Vol. V [1959]; Castan, supra; Manresa, supra).

In the Philippines,
among the Filipino com­mentators, only Justice Capistrano ventured to state his
view on the said issue, thus:

“The incapacity to purchase or acquire by assignment, which
the law also extends 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, also covers contracts for professional services quota litis.  Such contracts, however, have been declared valid by the Supreme
Court” (Capistrano, Civil Code of the Philip­pines, p. 44, Vol. IV
[1951]).

Dr. Tolentino merely restated the views
of Castan and Manresa as well as the state of
juris­prudence in Spain,
as follows:

“Attorneys-at-law — Some writers, like Goyena,
Manresa and Valverde,
believe that this article covers quota litis
agreements, under which a lawyer is to be given an aliquot part of the property
or amount in litigation if he should win the case for his client.  Scaevola
and Castan, however, believe that such a contract
does not involve a sale or assignment of rights, but it may be void under other
articles of the Code, such as those referring to illicit cause.  On the other hand, the Spanish Supreme Court
has held that this article is not applicable to a con­tract which limits the
fees of a lawyer to a certain percentage of what may be recovered in
litigation, as this is not contrary to morals or to law” (Tolentino, Civil Code of the Philippines, p. 35, Vol. V
[1959]; Castan, supra, underscoring supplied).

Petitioners further contend that a contract for a continent fee violates
the Canons of Professional Ethics.  This
is likewise without merit.  This posture
of petitioners overlooked Canon 13 of the Canons which expressly recognizes
contingent fees by way of exception to Canon 10 upon which petitioners
relied.  For while Canon 10 prohibits a
lawyer from purchasing “x x x
any interest in the subject matter of the litigation which he is
conducting”, Canon 13, on the other hand, allows a reasonable contingent
fee contract, thus: “A contract for a contingent fee where sanctioned by
law, should be reasonable under all the circumstances of the case, including
the risk and uncertainty of the compensation, but should always be subject to
the supervision of a court, as to its reasonableness.” As pointed out by
an authority on Legal Ethics:

“Every lawyer is intensely interested in the successful
outcome of his case, not only as affecting his reputation, but also his
compensation.  Canon 13 specifically
permits the lawyer to contract for a contingent fee which, of itself, negatives
the thought that the Canons preclude the lawyer’s having a stake in his
litigation.  As pointed out by
Professor Cheatham on page 170 n. of his Case Book, there is an inescapable
conflict of interest between lawyer and client in the matter of fees.  Nor, despite some statements to the
contrary in Committee opinions, is it believed that, particularly in view of
Canon 13, Canon 10 precludes in every case an arrangement to make the lawyer’s
fee payable only out of the results of the litigation.  The distinction is between buying an interest
in the litigation as a speculation, which Canon 10 condemns, and agreeing, in a
case which the lawyer undertakes primarily in his professional capacity, to
accept his compensation contingent on the outcome” (Drinker, Henry S.,
Legal Ethics, p. 99, [1953], underscoring supplied).

These Canons of Professional Ethics have already received
“judicial recognition by being cited and applied by the Supreme Court of
the Philippines
in its opinion” (Malcolm, Legal and Judicial Ethics, p. 9 [1949]).  And they have likewise been considered
sources of Legal Ethics.  More
importantly, the American Bar Association, speaking through Chairman Howe of
the Ethics Committee, opined that “The Canons of Professional Ethics are
legislative expressions of professional opinion (A.B.A. Op. 37 [1912])”
[See footnote 25, Drinker, Legal Ethics, p. 27]. Therefore, the Canons have
some binding effect.

Likewise, it must be noted that this Court has already recognized
this type of a contract as early as the case of Ulanday
vs. Manila Railroad Co. (45 Phil. 540 [1923]), where WE held that
“contingent fees are not prohibited in the Philippines, and since
impliedly sanctioned by law ‘should be under the supervision of the court in
order that clients may be protected from unjust charges’ (Canons of
Professional Ethics)”.  The same
doctrine was subsequently reiterated in Grey vs. Insular Lumber Co. (97 Phil.
833 [1955]) and Recto vs. Harden (100 Phil. 427 [1956]).

In the 1967 case of Albano
vs.Ramos (20 SCRA 171 [1967]), the attorney was
allowed to recover in a separate action her attorney’s fees of one-third (1/3)
of the lands and damages recovered as stipulated in the contingent fee
contract.  And this
Court in the recent case of Rosario Vda. de Laig vs. Court of Appeals, et al. (supra), which
involved a contingent fee of one-half (½) of the property in question, held
that “contingent fees are recognized in this juris­diction (Canon 13 of
the Canons of Professional Ethics adopted by the Philippine Bar Association in
1917 [Appendix B, Revised Rules of Court]), which contingent fees may be a
portion of the property in litigation.”

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 a 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 [1906]).  Oftentimes,
contingent fees are the only means by which the poor and helpless can seek
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 persons 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 some one who will conduct
the case for a contingent fee.  That
relations of this kind 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, underscoring supplied).

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

“x x x 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 [l949], underscoring 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 vexatious 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], underscoring 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 will in a proper case protect the aggrieved
party.”

In the present case, there is no iota of proof to show that Atty.
Fernandez had exerted any undue influence or had perpetrated fraud on, or had
in any manner taken advantage of his client, Maximo Abarquez.  And, the
compensation of one-half of the lots in question is not
excessive nor unconscionable considering the contingent nature of the
attorney’s fees.

With these considerations, WE find that the contract for a
contingent fee in question is not violative of the
Canons of Professional Ethics. 
Consequently, both under the provisions of Article 1491 and Canons 10
and 13 of the Canons of Professional Ethics, a contract for a contingent fee is
valid.

In resolving now the issue of the validity or nullity of the
registration of the adverse claim, Section 110 of the Land Registration Act
(Act 496) should be considered.  Under
said section, an adverse claim may be registered only by:

“Whoever claims any part or interest in registered land
adverse to the registered owner, arising sub­sequent to the date of the
original registration … if no other provision is made in this Act for
registering the same x x x.”

The contract for a contingent fee, being valid, vested in Atty.
Fernandez an interest or right over the lots in question to the extent of
one-half thereof.  Said interest became
vested in Atty. Fernandez after the case was won on appeal because only then
did the assignment of the one-half (½) portion of the lots in question became
effective and binding.  So that when he
filed his affidavit of adverse claim his interest was already an existing one.  There was there­fore a valid interest in the
lots to be registered in favor of Atty. Fernandez adverse to Maximo Abarquez.

Moreover, the interest or claim of Atty. Fernandez in the lots in
question arose long after the original registration which took place many years
ago.  And, there is no other provision of
the Land Registration Act under which the interest or claim may be registered
except as an adverse claim under Section 110 thereof.  The interest or claim cannot be registered as
an attorney’s charging lien.  The lower
court was correct in denying the motion to annotate the attorney’s lien.  A charging lien under Section 37, Rule 138 of
the Revised Rules of Court is limited only to money judgments and not to
judgments for the annulment of a contract or for delivery of real property as
in the instant case.  Said Section
provides that:

“Section 37. An attorney shall have a
lien upon the funds, documents and papers of his client which have lawfully
come into his possession and may retain the same until his lawful fees and
disbursements have been paid, and may apply such funds to the satisfaction
thereof.  He shall also have a lien to
the same extent upon all judgments, for the payment of money, and executions
issued in pursuance of such judgments, which he has secured in a litigation of
his client x x x”
(underscoring supplied).

Therefore, as an interest in registered
land, the only adequate remedy open to Atty. Fernandez is to register such
interest as an adverse claim.  Con­sequently,
there being a substantial compliance with Section 110 of Act 496, the
registration of the adverse claim is held to be valid.  Being valid, its registra­tion should not be
cancelled because as WE have already stated, “it is only when such claim
is found unmerito­rious that the registration thereof may be cancelled”
(Paz Ty Sin Tei vs. Jose
Lee Dy Piao, 103 Phil. 867  [1958]).

The one-half (½) interest of Atty. Fernandez in the lots in
question should therefore be respected. 
Indeed, he has a better right than petitioner-spouses, Juan Larrazabal and Marta C. de Larrazabal.  They purchased their two-thirds (2/3)
interest in the lots in question with the knowledge of the adverse claim of
Atty. Fernandez.  The adverse claim was
annotated on the old transfer certificate of title and was later annotated on
the new transfer certificate of title issued to them.  As held by this Court:

“The annotation of an adverse claim is a measure designed to
protect the interest of a person over a piece of real property where the
registration of such interest or right is not other­wise provided for by the
Land Registration Act, and serves as a notice and warning to third parties
dealing with said property that someone is claiming an interest on the same or
a better right than the registered owner thereof” (Sanchez, Jr. vs. Court
of Appeals, 69 SCRA 332 [1976]; Paz Ty Sin Tei vs. Jose Lee Dy Piao, supra).

Having purchased the property with the know­ledge of the adverse
claim, they are therefore in bad faith. 
Consequently, they are estopped from
questioning the validity of the adverse claim.

WHEREFORE, THE DECISION OF THE LOWER
COURT DENYING THE PETITION FOR THE CANCELLATION OF
THE ADVERSE CLAIM SHOULD BE, AS IT IS HEREBY AFFIRMED, WITH COSTS AGAINST
PETITIONER-APPELLANTS JUAN LARRAZABAL AND MARTA C. DE LARRAZABAL.

SO ORDERED.

Teehankee, (Chairman), Fernandez,
Guerrero, De Castro, and Melencio-Herrera, JJ., concur.