G.R. No. L-26096 February 27, 1979
THE DIRECTOR OF LANDS, petitioner, vs. SILVERETRA ABABA, ET AL., claimants, JUAN LARRAZABAL, MARTA C. DE LARRAZABAL, MAXIMO ABAROQUEZ and ANASTACIA CABIGAS, petitioners-appellants, ALBERTO FERNANDEZ, adverse claimant-appellee.

FACTS

Maximo Abarquez retained Atty. Alberto Fernandez as counsel on a contingent basis for an appeal concerning the annulment of a pacto de retro sale over his share in Lots 5600 and 5602. On June 10, 1961, Abarquez executed a document promising to give Atty. Fernandez one-half of whatever he might recover from said lots should the appeal prosper. The Court of Appeals ultimately decided in Abarquez’s favor, annulling the sale. Consequently, Transfer Certificate of Title No. 31841 was issued in Abarquez’s name for his share of the lots.
After the favorable judgment, Abarquez refused to comply with the contingent fee agreement. Instead, he offered to sell the entire property to spouses Juan and Marta Larrazabal. To protect his interest, Atty. Fernandez filed an affidavit of adverse claim, which was annotated on TCT No. 31841. Despite this annotation, Abarquez and his wife sold two-thirds of the property to the Larrazabal spouses. The adverse claim was carried over to the new title issued to the Larrazabals, who then filed a petition for its cancellation, which the trial court denied.

ISSUE

Whether the annotation of the adverse claim based on the contingent fee agreement is valid and should be maintained on the certificate of title.

RULING

The Supreme Court affirmed the trial court’s denial of the petition for cancellation, upholding the validity of the adverse claim. The legal logic proceeds from the nature of the attorney’s interest and the remedies available under property registration law. First, the Court clarified that a charging lien under Section 37, Rule 138 of the Rules of Court applies only to money judgments, not to judgments for the recovery or annulment of interests in real property, as in this case. Therefore, Atty. Fernandez could not properly annotate an attorney’s charging lien on the title.
Consequently, the proper remedy to protect his contingent interest in one-half of the recovered property, arising from the valid contract with his client, was to register an adverse claim under Section 110 of the Land Registration Act (Act No. 496). The adverse claim serves as a notice and warning to third parties that someone claims an interest in the property. The Court found substantial compliance with the statutory requirements for such a claim, making its registration valid. A valid adverse claim can only be cancelled if found to be unmeritorious, which was not the case here.
Furthermore, the Larrazabal spouses purchased the property with full knowledge of the annotated adverse claim on the predecessor title. This annotation constituted constructive notice, rendering them purchasers in bad faith. They are therefore estopped from questioning the validity of the claim and must respect Atty. Fernandez’s prior interest. The one-half interest of Atty. Fernandez, based on the contingent fee contract, is superior to the rights acquired by the Larrazabals.