pale cases- fulltexts- (nos. 16- 35)

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PROBLEM AREAS IN LEGAL ETHICS CASES (FULLTEXTS) CONT.

NO. 16

G.R. No. 73722 February 26, 1990

THE COMMISSIONER OF CUSTOMS, petitioner,

vs.

K.M.K. GANI, INDRAPAL & CO., and the HONORABLE COURT OF TAX APPEALS, respondents.

This is a review of the decision of the Court of Tax Appeals disposing as follows:

WHEREFORE. the subject ten (10) cartons of articles are hereby released to the carrying airline

for immediate transshipment to the country of destination under the terms of the contract of

carriage. No costs.

SO ORDERED. 1

The pertinent facts may be summarized thus:

On September 11, 1982, two (2,) containers loaded with 103 cartons of merchandise covered by eleven (11) airway

bills of several supposedly Singapore-based consignees arrived at the Manila International Airport on board

Philippine Air Lines (PAL) Flight PR 311 from Hongkong. The cargoes were consigned to these different entities:

K.M.K. Gani (hereafter referred to as K.M.K.) and Indrapal and Company (hereafter referred to as INDRAPAL), the

private respondents in the petition before us; and Sin Hong Lee Trading Co., Ltd., AAR TEE Enterprises, and C.

Ratilal all purportedly based in Singapore.

While the cargoes were at the Manila International Airport, a "reliable source" tipped off the Bureau of customs

that the said cargoes were going to be unloaded in Manila. Forthwith, the Bureau's agency on such matters, theSuspected Cargo and Anti-Narcotics (SCAN), dispatched an agent to verify the information. Upon arriving at the

airport, the SCAN agent saw an empty PAL van parked directly alongside the plane's belly from which cargoes were

being unloaded. When the SCAN agent asked the van's driver why he was at the site, the driver drove away in his

vehicle. The SCAN agent then sequestered the unloaded cargoes.

The seized cargoes consisted of 103 cartons "containing Mogadon and Mandrax tablets, Sony T.V. sets 1546R/176R

kw, Sony Betamax SL5800, and SL5000, Cassette Stereos with Headphone (ala walkman), Casio Calculators, Pioneer

Car Stereos, Yamaha Watches, Eyeglass Frames, Sunglasses, Plastic Utility Bags, Perfumes, etc." These goods were

transferred to the International Cargo Terminal under Warrant of Seizure and Detention and thereafter subjected

to Seizure and Forfeiture proceedings for "technical smuggling."

At the hearing, Atty. Armando S. Padilla entered his appearance for the consignees K.M.K. and INDRAPAL. Therecords of the case do not show any appearance of the consignees in person. Atty. Padilla moved for the

transshipment of the cargoes consigned to his clients. On the other hand, the Solicitor General avers that K.M.K.

and INDRAPAL did not present any testimonial or documentary evidence. The, collector of Customs at the then

Manila International Airport (MIA), now Ninoy Aquino International Airport (NAIA), ruled for the forfeiture of all

the cargoes in the said containers (Seizure Identification No. 4993-82, dated July 14, 1983). Consequently, Atty.

Padilla, ostensibly on behalf of his two clients, K.M.K. and INDRAPAL, appealed the order to the Commissioner. of

Customs.2



The Commissioner of Customs affirmed the finding of the Collector of Customs (Customs Case No. 83-85, January,

1984), of the presence of the intention to import the said goods in violation of the Dangerous Drugs Act3

and

Central Bank Circular No. 808 in relation to the Tariff and Customs Code.4

The Commissioner added the following findings of fact:5

1. There is a direct flight from Hongkong to Singapore, thus making the transit through Manilamore expensive, tedious, and circuitous.

2. The articles were grossly misdeclared, considering that Singapore is a free port.

3. The television sets and betamax units seized were of the American standard which is popularly

used in Manila, and not of the European standard which is used in Singapore.

4. One of the shippers is a Filipino national with no business connection with her alleged

consignee in Singapore.

5. The alleged consignee of the prohibited drugs confiscated has no authority to import Mogadon

or Mandrax.

Upon these findings, the Commissioner concluded that there was an "intent to unlade" in Manila, thus, an attempt

to smuggle goods into the country.

Taking exception to these findings, Atty. Armando S. Padilla, again as counsel of the consignees K.M.K. and

Indrapal, appealed to the respondent Court of Tax Appeals (CTA). He argued in the CTA that K.M.K. and INDRAPAL

were "entitled to the release of their cargoes for transshipment to Singapore so manifested and covered by the

Airway bills as in transit, ... contending that the goods were never intended importations into the Philippines and

the same suffer none of any affiliating breaches allegedly found attributable to the other shipments under the

Customs and related laws."6

The CTA reversed the decision of the Commissioner of Customs. Hence this petition.

The petitioner raises the following errors:

1. THE COURT OF TAX APPEALS ERRED IN ENTERTAINING THE PETITION FOR

REVIEW NOTWITHSTANDING HEREIN PRIVATE RESPONDENTS' FAILURE TO

ESTABLISH THEIR PERSONALITY TO SUE IN A REPRESENTATIVE CAPACITY.

2. THE COURT OF TAX APPEALS ERRED IN RULING THAT THE SUBJECT GOODS

WERE IMPORTATIONS NOT INTENDED FOR THE PHILIPPINES BUT FOR

SINGAPORE, THUS, NOT VIOLATING THE LAW ON TECHNICAL SMUGGLING

UNDER THE TARIFF AND CUSTOMS CODE.

The issues before us are therefore: (1) whether or not the private respondents failed to establish their personality

to sue in a representative capacity, hence making their action dismissable, and (2) whether or not the subject

goods were importations intended for the Philippines in violation of the Tariff and Customs Code.

We answer both questions in the affirmative.



The law is clear: "No foreign corporation transacting business in the Philippines without a license, or its successors

or assigns, shall be permitted to maintain or intervene in any action, suit or proceeding in any court or

administrative agency of the Philippines; but such corporation may be sued or proceeded against before Philippine

courts or administrative tribunals on any valid cause of action recognized under Philippine laws."7

However, the Court in a long line of cases has held that a foreign corporation not engaged in business in the

Philippines may not be denied the right to file an action in the Philippine courts for an isolated transaction.8

Therefore, the issue on whether or not a foreign corporation which does not have a license to engage in business

in this country can seek redress in Philippine courts boils down as to whether it is doing business or merely entered

into an isolated transaction in the Philippines.

The fact that a foreign corporation is not doing business in the Philippines must be disclosed if it desires to sue in

Philippine courts under the "isolated transaction rule." Without this disclosure, the court may choose to deny it the

right to sue.9

In the case at bar, the private respondents K.M.K. and INDRAPAL aver that they are "suing upon a singular and

isolated transaction." But they failed to prove their legal existence or juridical personality as foreign corporations.

Their unverified petition before the respondent Court of Tax Appeals merely stated:

1. That petitioner "K.M.K. Gani" is a single proprietorship doing business in

accordance with the laws of Singapore with address at 99 Greenfield Drive,

Singapore, Rep. of Singapore, while Petitioner INDRAPAL and COMPANY" is a

firm doing business in accordance with the laws of Singapore with office

address at 97 High Street, Singapore 0641, Republic of Singapore, and

summons as well as other Court process may be served to the undersigned

lawyer;

2. That the Petitioner's (sic) are sueing (sic) upon a singular and isolated

transaction.10

We are cognizant of the fact that under the "isolated transaction rule," only foreign corporations and not just any

business organization or entity can avail themselves of the privilege of suing before Philippine courts even without

a license. Counsel Armando S. Padilla stated before the respondent Court of Tax Appeals that his clients are "suing

upon a singular and isolated transaction." But there is no proof to show that K.M.K. and INDRAPAL are indeed what

they are represented to be. It has been simply stated by Attorney Padilla that K.M.K. Gani is "a single

proprietorship," while INDRAPAL is "a firm," and both are "doing business in accordance with the laws of Singapore

... ," with specified addresses in Singapore. In cases of this nature, these allegations are not sufficient to clothe a

claimant of suspected smuggled goods of juridical personality and existence. The "isolated transaction rule" refers

only to foreign corporations. Here the petitioners are not foreign corporations. They do not even pretend to be so.

The first paragraph of their petition before the Court, containing the allegation of their identities, does not even

aver their corporate character. On the contrary, K.M.K. alleges that it is a "single proprietorship" while INDRAPAL

hides under the vague identification as a "firm," although both describe themselves with the phrase "doing

business in accordance with the laws of Singapore."

Absent such proof that the private respondents are corporations (foreign or not), the respondent Court of Tax

Appeals should have barred their invocation of the right to sue within Philippine jurisdiction under the "isolated

transaction rule" since they do not qualify for the availment of such right.

As we had stated before:



But merely to say that a foreign corporation not doing business in the Philippines does not need

a license in order to sue in our courts does not completely resolve the issue in the present case.

The proposition as stated, refers to the right to sue; the question here refers to pleading and

procedure. It should be noted that insofar as the allegations in the complaint have a bearing on

appellant's capacity to sue, all that is averred is that they are both foreign corporations existing

under the laws of the United States. This averment conjures two alternative possibilities: either

they are engaged in business in the Philippines or they are not so engaged. If the first, they musthave been duly licensed in order to maintain this suit; if the second, if (sic) the transaction sued

upon is singular and isolated, no such license is required. In either case, the qualifying

circumstance is an essential part of the element of plaintiffs capacity to sue and must be

affirmatively pleaded.11

In this connection, we note also a fatal defect in the pleadings of the private respondents. There is no allegation as

to who is the duly authorized representative or resident agent in our jurisdiction. All we have on record are the

pleadings filed by Attorney Armando S. Padilla who represents himself as the counsel for the private respondents.

xxx xxx xxx

It is incumbent on plaintiff to allege sufficient facts to show that he is concerned with the causeof action averred, and is the party who has suffered injury by reason of the acts of defendant; in

other words, it is not enough that he alleges a cause of action existing in favor of someone, but

he must show that it exists in favor of himself. The burden should not be placed on defendant to

show that plaintiff is not the aggrieved person and that he has sustained no damages. It is also

necessary for plaintiff to allege facts showing that the causes of action alleged accrued to him in

the capacity in which he sues, and for this purpose it is necessary for someone for one who sues

otherwise than in his individual capacity to allege his authority.

xxx xxx xxx

The plaintiff must show, in his pleading, his right and interest in the subject matter of the suit;

and a complaint which does not show that plaintiff has the requisite interest to enable him to

maintain his action should be dismissed for insufficiency ...12

xxx xxx xxx

The appearance of Atty, Armando S. Padilla as counsel for the two claimants would not suffice. Generally, a

"lawyer is presumed to be properly authorized to represent any cause in which he appears, and no written power

of attorney is required to authorize him to appear in court for his client."13

Nevertheless, although the authority of

an attorney to appear for and on behalf of a party may be assumed, it can still be questioned or challenged by the

adverse party concerned.14

The presumption established under the provision of Section 21, Rule 138 of the Revised Rules of Court is

disputable.15

The requirement for the production of authority is essential because the client will be bound by his

acquiescence resulting from his knowledge that he was being represented by said attorney. 16

The Solicitor General, representing the petitioner-appellant, not only questions the authority of Atty. Armando S.

Padilla to represent the private respondents but also the latter's capacity to sue:

... While it is alleged that the summons and court processes may be served to herein private

respondents' counsel who filed the unverified petition before the Court of Tax Appeals, the

allegation would be insufficient for the purpose of binding foreign corporations as in the instant



case. To be sure, the admitted absence of special power of attorney in favor of their counsel, the

relationship with the latter, if at all, is merely that of a lawyer-client relationship and definitely

not one of a principal agent. Such being the case, said counsel cannot bind nor compromise the

interest of private respondents as it is possible that the latter may disown the former's

representation to avoid civil or criminal liability. In this respect, the Court cannot assume

jurisdiction over the person of private respondents, notwithstanding the filing of the unverified

petition in question.

Apart from the foregoing, Section 4, Rule 8, Revised Rules of Court mandates that facts showing

the capacity of a party to sue or be sued; or the authority of a party to sue or be sued in a

representative capacity; or the legal existence of an organized association of person (sic) that is

made a party, must be averred. In like manner, the rule is settled that in case where the law

denies a foreign corporation to maintain a suit unless it has previously complied with certain

requirements, then such compliance or exemption therefrom, becomes a necessary averment in

the complaint (Atlantic Mutual Inc. Co. v. Cebu Stevedoring Co., Inc. 17 SCRA 1037; vide; Sec. 4,

Rule 8, Revised Rules of Court). In the case at bar, apart from merely alleging that private

respondents are foreign corporation (sic) and that summons may be served to their counsel,

their petition in the Court of Tax Appeals is bereft of any other factual allegation to show their

capacity to sue or be sued in a representative capacity in his jurisdiction.17

The representation and the extent of the authority of Atty. Padilla have thus been expressly challenged. But he

ignored such challenge which leads us to the only conclusion that he has no authority to appear for such clients if

they exist, which we even doubt. In cases like this, it is the duty of the government officials concerned to require

competent proof of the representation and authority of any claimant of any goods coming from abroad and seized

by our customs authorities or otherwise appearing to be illegally imported. This desired meticulousness, strictness

if you may, should extend to their representatives and counsel. Our government has lost considerable sums of

money due to such dubious claims or claimants.

Apropos the second issue, suffice it to state that we agree with the findings, already enumerated and discussed at

the outset, made by the Collector of Customs in his decision, dated July 14, 1983, which was affirmed and

amplified by the decision of the Commissioner of Customs, that those constitute sufficient evidence to support the

conclusion that there was an intention to unlade the seized goods in the Philippines instead of its supposed

destination, Singapore. There is no need of belaboring them anymore.

WHEREFORE, the petition is GRANTED; the decision of the Court of Tax Appeals is SET ASIDE, and the decision of

the petitioner is hereby REINSTATED.

No costs.

SO ORDERED.



NO. 17

G.R. No. 91391 January 24, 1991

FRANCISCO I. CHAVEZ, in his capacity as Solicitor General, petitioner

vs.

THE HON. SANDIGANBAYAN (First Division) and JUAN PONCE ENRILE, respondents.

The petitioner challenges the resolutions dated June 8, 1989 and November 2, 1989 of the Sandiganbayan issued

in Civil Case No. 0033 which granted the motion of private respondent Juan Ponce Enrile, one of the defendants in

the civil case, to implead the petitioner as additional party defendant in Enrile's counterclaim in the same civil case

and denied the petitioner's motion for reconsideration.

On July 31, 1987, the Republic of the Philippines, through the Presidential Commission on Good Government

(PCGG) with the assistance of Solicitor General Francisco Chavez filed with the respondent Sandiganbayan a

complaint docketed as Civil Case No. 0033 against Eduardo Cojuangco, Jr. and Juan Ponce Enrile, among others, for

reconveyance, reversion and accounting, restitution and damages.

After the denial of his motion to dismiss, respondent Enrile filed his answer with compulsory counterclaim andcross-claim with damages.

The Republic filed its reply to the answer and motion to dismiss the counterclaim. The motion was opposed by

respondent Enrile.

On January 30, 1989, respondent Sandiganbayan issued a resolution, to wit:

The resolution of the Motion to Dismiss the Counterclaim against the Plaintiff government is

deferred until after trial, the grounds relied upon not appearing to be indubitable.

On the matter of the additional parties (Solicitor General Chavez, Ex-PCGG Chairman Diaz, former

Commissioners Doromal, Rodrigo, Romero and Bautista), the propriety of impleading them either

under Sec. 14, Rule 6 or even under Sec. 12 as third-party defendant requires leave of Court to

determine the propriety thereof. No such leave has been sought. Consideration thereof cannot

be entertained at this time nor may therefore, the Motion to Dismiss the same be considered.

(Rollo, p. 329; Annex "H", Petition)

Respondent Enrile then requested leave from the Sandiganbayan to implead the petitioner and the PCGG officials

as party defendants for lodging this alleged "harassment suit" against him.

The motion was granted in a resolution dated June 8, 1989, to wit:

In respect to defendant Juan Ponce Enrile's Manifestation and Motion dated February 23, 1989,

praying for leave to implead additional parties to his counterclaim, the Court, finding reason inthe aforesaid Manifestation and Motion, grants leave to implead the defendants named in the

counterclaim and admits defendant Juan Ponce Enrile's answer with counterclaim.

This is without prejudice to the defenses which said defendants may put forth individually or in

common, in their personal capacities or otherwise. (Rollo, p. 27)



In a later resolution dated November 2, 1989, respondent Sandiganbayan denied a motion to reconsider the June

8, 1989 resolution. The dispositive portion of the resolution states:

WHEREFORE, the Motions for Reconsideration of the Solicitor General and former PCGG officials

Ramon Diaz, Quintin Doromal, Orlando Romero, Ramon Rodrigo and Mary Concepcion Bautista

are denied, but, considering these motions as in the nature of motions to dismiss

counterclaim/answers, resolution of these motions is held in abeyance pending trial on themerits. (Rollo, p. 31)

Thereafter, all the PCGG officials filed their answer to the counterclaims invoking their immunity from suits as

provided in Section 4 of Executive Order No. 1. Instead of filing an answer, the petitioner comes to this Court

assailing the resolutions as rendered with grave abuse of discretion amounting to lack of jurisdiction.

The lone issue in this petition is the propriety of impleading the petitioner as additional party defendant in the

counterclaim filed by respondent Enrile in Civil Case No. 0033.

It may be noted that the private respondent did not limit himself to general averments of ma lice, recklessness, and

bad faith but filed specific charges that then PCGG Chairman Jovito Salonga had already cleared the respondent

and yet, knowing the allegations to be false, the petitioner still filed the complaint. This can be gleaned fromexcerpts found in respondent Enrile's Answer with Compulsory Counterclaim and Cross-Claim:

xxx xxx xxx

Defendant-in-counterclaim Francisco Chavez was the Solicitor General who assisted the PCGG in

filing and maintaining the instant Complaint against Defendant. As the incumbent Solicitor

General, he continues to assist the PCGG in prosecuting this case.

He is sued in his personal and official capacities.

On or about October 1986, the PCGG, speaking through the then Chairman, now Senate

President, Hon. Jovito R. Salonga, found and declared that "not one of the documents left bythen President and Mrs. Ferdinand E. Marcos including the 2,300-page evidence turned over to

the PCGG by the US State Department implicates Enrile." Chairman Salonga stressed that in view

of the PCGG's findings, he refused to yield to the "pressure" exerted on him to prosecute

Defendant.

xxx xxx xxx

Notwithstanding the findings of the PCGG that there was absolutely no evidence linking

Defendant to the illegal activities of former President and Mrs. Ferdinand E. Marcos, the PCGG,

this time composed of Chairman Ramon Diaz, the Commissioners Quintin Doromal, Ramon

Rodrigo, Orlando Romero and Mary Concepcion Bautista, filed the Complaint against Defendant,

among others, on or about 22 July 1987.

Defendant has reasons to believe, and so alleges that Chairman Diaz, and Commissioners

Doromal, Rodrigo, Romero and Bautista ordered, authorized, allowed or tolerated the filing of

the utterly baseless complaint against Defendant.

Solicitor General Francisco Chavez assisted or cooperated in, or induced or instigated, the filing

of this harassment suit against Defendant.



In so ordering, authorizing, allowing and tolerating the institution of the action against

Defendant, all the aforenamed officers, with malice and in evident bad faith, and with grave

abuse of power and in excess of their duty and authority, unjustly and unlawfully obstructed,

defeated, violated, impeded or impaired the constitutional rights and liberties of Defendant

. . . . (Rollo, pp. 260-262)

On the other hand, the petitioner submits that no counter-claim can be filed against him in his capacity as SolicitorGeneral since he is only acting as counsel for the Republic. He cites the case of Borja v . Borja, 101 Phil. 911 [1957]

wherein we ruled:

. . . The appearance of a lawyer as counsel for a party and his participation in a case as such

counsel does not make him a party to the action. The fact that he represents the interests of his

client or that he acts in their behalf will not hold him liable for or make him entitled to any award

that the Court may adjudicate to the parties, other than his professional fees. The principle that a

counterclaim cannot be filed against persons who are acting in representation of another — such

as trustees — in their individual capacities (Chambers v. Cameron, 2 Fed. Rules Service, p. 155; 29

F. Supp. 742) could be applied with more force and effect in the case of a counsel whose

participation in the action is merely confined to the preparation of the defense of his client.

Appellant, however, asserted that he filed the counterclaim against said lawyer not in hisindividual capacity but as counsel for the heirs of Quintin de Borja. But as we have already stated

that the existence of a lawyer-client relationship does not make the former a party to the action,

even this allegation of appellant will not alter the result We have arrived at (at pp. 924-925)

Thus, the petitioner argues that since he is simply the lawyer in the case, exercising his duty under the law to ass ist

the Government in the filing and prosecution of all cases pursuant to Section 1, Executive Order No. 14, he cannot

be sued in a counterclaim in the same case.

Presiding Justice Francis Garchitorena correctly observed that there is no general immunity arising solely from

occupying a public office.

The general rule is that public officials can be held personally accountable for acts claimed to have been performed

in connection with official duties where they have acted ultra vires or where there is a showing of bad faith. We

ruled in one case:

A number of cases decided by the Court where the municipal mayor alone was held liable for

back salaries of, or damages to dismissed municipal employees, to the exclusion of the

municipality, are not applicable in this instance. In Salcedo v . Court of Appeals (81 SCRA 408

[1978]) for instance, the municipal mayor was held liable for the back salaries of the Chief of

Police he had dismissed, not only because the dismissal was arbitrary but also because the mayor

refused to reinstate him in defiance of an order of the Commissioner of Civil Service to reinstate .

In Nemenzo v . Sabillano (25 SCRA 1 [1968]), the municipal mayor was held personally liable for

dismissing a police corporal who possessed the necessary civil service eligibility , the dismissal

being done without justifiable cause and without any administrative investigation.

In Rama v . Court of Appeals (G.R. Nos. L-44484, L-44842, L-44591, L-44894, March 16 1987), the

governor, vice-governor, members of the Sangguniang Panlalawigan, provincial auditor,

provincial treasurer and provincial engineer were ordered to pay jointly and severally in their

individual and personal capacity damages to some 200 employees of the province of Cebu who

were eased out from their positions because of their party affiliations. (Laganapan v. Asedillo,

154 SCRA 377 [1987])



Moreover, the petitioner's argument that the immunity proviso under Section 4(a) of Executive Order No. 1 also

extends to him is not well-taken. A mere invocation of the immunity clause does not ipso facto result in the

charges being automatically dropped.

In the case of Presidential Commission on Good Government v . Peña (159 SCRA 556 [1988]) then Chief Justice

Claudio Teehankee, added a clarification of the immunity accorded PCGG officials under Section 4(a) of Executive

Order No. 1 as follows:

With respect to the qualifications expressed by Mr. Justice Feliciano in his separate opinion, I just

wish to point out two things: First , the main opinion does not claim absolute immunity for the

members of the Commission. The cited section of Executive Order No. 1 provides the

Commission's members immunity from suit thus: "No civil action shall lie against the Commission

or any member thereof for anything done or omitted in the discharge of the task contemplated

by this order." No absolute immunity like that sought by Mr . Marcos in his Constitution for

himself and his subordinates is herein involved . It is understood that the immunity granted the

members of the Commission by virtue of the unimaginable magnitude of its task to recover the

plundered wealth and the State's exercise of police power was immunity from liability for

damages in the official discharge of the task granted the members of the Commission much in

the same manner that judges are immune from suit in the official discharge of the functions of their office . . . " (at pp. 581-582)

Justice Florentino P. Feliciano stated in the same case:

It may be further submitted, with equal respect, that Section 4 (a) of Executive Order No. 1 was

intended merely to restate the general principle of the law of public officers that the PCGG or

any member thereof may not be held civilly liable for acts done in the performance of official

duty, provided that such member had acted in good faith and within the scene of his lawful

authority. It may also be assumed that the Sandiganbayan would have jurisdiction to determine

whether the PCGG or any particular official thereof may be held liable in damages to a private

person injured by acts of such manner. It would seem constitutionally offensive to suppose that a

member or staff member of the PCGG could not be required to testify before the Sandiganbayan

or that such members were exempted from complying with orders of this Court. (at pp. 586- 587)

Immunity from suit cannot institutionalize irresponsibility and non-accountability nor grant a privileged status not

claimed by any other official of the Republic. (id ., at page 586)

Where the petitioner exceeds his authority as Solicitor General acts in bad faith, or, as contended by the private

respondent, "maliciously conspir(es) with the PCGG commissioners in persecuting respondent Enrile by filing

against him an evidently baseless suit in derogation of the latter's constitutional rights and liberties" (Rollo, p. 417),

there can be no question that a complaint for damages may be filed against him. High position in government does

not confer a license to persecute or recklessly injure another. The actions governed by Articles 19, 20, 21, and 32

of the Civil Code on Human Relations may be taken against public officers or private citizens alike. The issue is not

the right of respondent Enrile to file an action for damages. He has the right. The issue is whether or not that

action must be filed as a compulsory counterclaim in the case filed against him.

Under the circumstances of this case, we rule that the charges pressed by respondent Enrile for damages under

Article 32 of the Civil Code arising from the filing of an alleged harassment suit with malice and evident bad faith

do not constitute a compulsory counterclaim. To vindicate his rights, Senator Enrile has to file a separate and

distinct civil action for damages against the Solicitor General.



In the case of Tiu Po v . Bautista, (103 SCRA 388 [1981]), we ruled that damages claimed to have been suffered as a

consequence of an action filed against the petitioner must be pleaded in the same action as a compulsory

counterclaim. We were referring, however, to a case fi led by the private respondent against the petitioners or

parties in the litigation. In the present case, the counterclaim was filed against the lawyer, not against the party

plaintiff itself.

To allow a counterclaim against a lawyer who files a complaint for his clients, who is merely their representative incourt and not a plaintiff or complainant in the case would lead to mischievous consequences.

A lawyer owes his client entire devotion to his genuine interest, warm zeal in the maintenance and defense of his

rights and the exertion of his utmost learning and ability. (See Agpalo, Legal Ethics [1980] p. 147 citing Javier v.

Cornejo, 63 Phil. 293 [1936]; In re Tionko, 43 Phil. 191 [1922]; In re: Atty. C. T. Oliva, 103 Phil. 312 [1958]; Lualhati

v. Albert, 57 Phil. 86 [1932]; Toguib v. Tomol, Jr., G.R. Adm. Case No. 554, Jan. 3, 1969; People v. Macellones, 49

SCRA 529 [1973]; Tan Kui v. Court of Appeals, 54 SCRA 199 [1973]). A lawyer cannot properly attend to his duties

towards his client if, in the same case, he is kept busy defending himself.

The problem is particularly perplexing for the Solicitor General. As counsel of the Republic, the Solicitor General

has to appear in controversial and politically charged cases. It is not unusual for high officials of the Government to

unwittingly use shortcuts in the zealous desire to expedite executive programs or reforms. The Solicitor Generalcannot look at these cases with indifferent neutrality. His perception of national interest and obedience to

instructions from above may compel him to take a stance which to a respondent may appear too personal and

biased. It is likewise unreasonable to require Government Prosecutors to defend themselves against counterclaims

in the very same cases they are prosecuting.

As earlier stated, we do not suggest that a lawyer enjoys a special immunity from damage suits. However, when he

acts in the name of a client, he should not be sued on a counterclaim in the very same case he has filed only as

counsel and not as a party. Any claim for alleged damages or other causes of action should be filed in an entirely

separate and distinct civil action.

WHEREFORE, the present petition is GRANTED. The questioned resolutions of the Sandiganbayan are SET ASIDE

insofar as they allow the counterclaim filed against the petitioner.

SO ORDERED.



NO. 18

G.R. No. 92561 September 12, 1990

SECRETARY OSCAR ORBOS OF THE DEPARTMENT OF TRANSPORTATION AND COMMUNICATIONS, petitioner,

vs.

CIVIL SERVICE COMMISSION and NERIO MADARANG, respondents.

Once again the extent of the authority of the Civil Service Commission (CSC) to pass upon contested appointments

is brought into focus in this petition. The appearance of the Solicitor General on behalf of the petitioner is also

questioned.

In the course of the reorganization of the Department of Transportation and Communications (DOTC), Guido C.

Agon and Alfonso Magnayon were appointed to the positions of Head Telecommunications Engineer, range 74.

Nerio Madarang who was also appointed to the position of Supervising Telecommunications Engineer, range 12,

questioned the appointments of Agon and Magnayon by filing an appeal with the Reorganization Appeals Board of

the DOTC composed of Moises S. Tolentino, Jr. of the Office of the Secretary, as Chairman and Assistant Secretary

Rosauro V. Sibal and Graciano L. Sitchon of the Office of the Secretary, as members. In a resolution dated January9, 1989 the said Reorganization Appeals Board dismissed Madarang's appeal for lack of merit. Hence, he appealed

to the public respondent Civil Service Commission (CSC)

In its resolution dated August 29, 1989, respondent CSC revoked the appointments of Agon and Magnayon for the

contested positions and directed the appointment of Madarang to the said position of Heads Telecommunications

Engineer.1

DOTC Assistant Secretary Sibal sought a reconsideration of the said resolution of the CSC but this was

denied in a resolution dated November 2, 1989.2

On November 21, 1989, Assistant Secretary Sibal filed a manifestation with the CSC stating:

The Telecommunications Office through the undersigned, hereby manifests that we received the

CSC resolution in CSC Case No. 393 on November 12, 1989 and in compliance thereto, we willconvene our Selection and Promotion Board to deliberate on the position of Head

Telecommunications Engineer (reclassified to Engineer IV pursuant to National Compensation

Circular No. 58 effective July 1, 1989) with qualified candidates including appellant Nerio

Madarang.3

In a letter dated November 27, 1989, respondent Madarang requested the CSC to take appropriate action by

implementing its resolutions dated August 29, 1989 and November 2, 1989.

In an order dated December 19, 1989, the CSC directed the immediate implementation of its aforementioned

resolution insofar as it concerned the appointment of Madarang.4

Agon and Magnayon filed their separate motions for reconsideration of the aforestated resolutions of the CSC butthese were denied by the said commission in a resolution dated January 19, 1990.

Hence, this petition for certiorari with prayer for a writ of preliminary injunction or restraining order which was

filed by the Solicitor General in behalf of petitioner. On March 29, 1990, the Court required the respondents to

comment on the petition within ten (10) days from notice and issued a restraining order enjoining the CSC from

enforcing its questioned resolutions until further orders.



The sole issue in this case is whether or not the CSC acted in excess of its jurisdiction or with grave abuse of

discretion amounting to lack of jurisdiction when it ordered the appointment of Nerio Madarang to the contested

position.

While petitioner does not question the aforestated resolutions of the CSC insofar as it disapproved the

appointments of Agon and Magnayon to the positions of Head Telecommunications Engineer, petitioner maintains

that as the appointing authority, he has the right of choice and discretion to appoint the persons whom he deemsfit to the position to be filled.

5 Petitioner emphasizes that when the CSC denied his motion for reconsideration in a

resolution dated November 2, 1989, Assistant Secretary Sibal informed the CSC through a manifestation that the

DOTC Selection and Promotions Board will be convened to deliberate on the position of Head Telecommunications

Engineer, taking into consideration qualified candidates including Nerio Madarang. Nevertheless, the CSC stood

pat on its resolution directing the appointment of Nerio Madarang to the contested position.

On the other hand, the CSC contends that it was properly exercising a constitutional and legal duty to enforce the

merit and fitness principle in the appointment of civil servants and to uphold their equally guaranteed right to be

appointed to similar or comparable positions in the reorganized agency consistent with applicable law and

issuances of competent authorities.6

Invoking the following provisions of the Constitution:

Section 3 (Article IX [B]). — The Civil Service Commission, as the central personnel agency of the

Government, shall establish a career service and adopt measures to promote morale, efficiency,

integrity, responsiveness, progressiveness, and courtesy in the civil service. It shall strengthen thewrit and reward system, integrate all human resources development programs for all levels and

ranks, and institutionalize a management climate conducive to public accountability . It shall

submit to the President and the Congress an annual report on its personnel programs.' (Emphasis

supplied.);

Section 19, Book V of Executive Order No. 292 (The Administrative Code of 1987) which provides:

Section 19. Recruitment and Selection of Employees—

(l) Opportunity for governmentemployment shall be open to all qualified citizens, and positive efforts shall be exerted to attract

the best qualified to enter the service. Employees shall be selected on the basis of the fitness to

perform the duties and assume the responsibilities of the position.;

and Section 12 of the same Executive Order:

Sec. 12. — The Commission shall administer the Civil Service and shall have the following powers

and functions: (a) Administer and enforce the constitutional and statutory provision of the said

merit systems... (Emphasis supplied.)

respondent CSC argues that the primary objective of the CSC system is to promote and establish professionalism

by ensuring a high level of morale among the employees and officers in the career civil service. Pursuant to thisconstitutional mandate, the CSC contends it should see to it that the merit system is applied, enforced and

implemented in personnel actions involving appointments affecting all levels and ranks in the civil service at all

times.7

The Court finds the petition to be impressed with merit.

Paragraph H, Section 9 of Presidential Decree No. 807, otherwise known as the 'Civil Service Decree of the

Philippines," provides:



Section 9. Powers and Function of the Commission.—The Commission shall administer the Civil

Service and shall have the following powers and functions:

xxx xxx xxx

(h) Approve all appointments, whether original or promotional, to positions in the civil service,

except those of presidential appointees, members of the Armed Forces of the Phil ippines, policeforces, firemen, and jailguards, and disapprove those where the appointees do not possess the

appropriate eligibility or required qualifications. An appointment shall take effect immediately

upon issue by the appointing authority if the appointee assumes his duties immediately and shall

remain effective until it is disapproved by the Commission, if this should take place, without

prejudice to the liability of the appointing authority for appointments issued in violation of

existing laws or rules: Provided, finally, That the Commission shall keep a record of appointments

of all officers and employees in the civil service. All appointments requiring the approval of the

Commission as herein provided, shall be submitted to it by the appointing authority within thirty

days from issuance, otherwise the appointment becomes ineffective thirty days thereafter.

(Emphasis supplied)

From the foregoing provision it is clear that the CSC has the power to approve or disapprove an appointment andnot the power to make the appointment itself or to direct that such appointment be made by the appointing

authority. The CSC can only inquire into the eligibility of the person chosen to fill a vacant position and it finds the

person qualified it must so attest. The duty of the CSC is to attest appointments.8 That function being discharged,

its participation in the appointment process ceases.9

By the same token, should the CSC find that the appointee is not qualified for the position, it has the duty to

disapprove the appointment. Thereafter, the responsibility of appointing the qualified person in lieu of the

disqualified appointee rests upon the discretion of the appointing authority. The CSC cannot encroach upon such

discretion vested solely in the appointing authority.

This Court has pronounced in no uncertain terms that the CSC has no authority to revoke an appointment on the

ground that another person is more qualified for a particular position. The Court likewise held that the CSC does

not have the authority to direct the appointment of a substitute of its choice.10

Petitioner demonstrated his deference to the resolutions of the CSC disapproving the appointments of Agon and

Magnayon. However, in the implementation of said resolutions he decided to convene the DOTC Selection and

Promotions Board to deliberate on the person who should be appointed as Head Telecommunications Engineer

among qualified candidates including respondent Nerio Madarang. Instead of acknowledging the authority of

petitioner to exercise its discretion in the appointment of a replacement, the CSC, in excess of its jurisdiction and

with grave abuse of discretion amounting to lack of jurisdiction, directed the appointment of Madarang as the

substitute of its choice. This act of the CSC must be struck down.

Private respondent Madarang, besides his comment, filed a motion to disqualify the Office of the Solicitor General

from appearing for petitioner and to cite petitioner in contempt of court for the filing of the petition.

The Solicitor General is the lawyer of the government, its agencies and instrumentalities, and its officials or agents

including petitioner and public respondent. This is so provided under Presidential Decree No. 478:

SECTION 1. Functions and Organization.— (1) The Office of the Solicitor General shall represent

the Government of the Philippines, its agencies and instrumentalities and its officials and agents

in any litigation, proceeding, investigation or matter requiring the services of a lawyer. ....

(Emphasis supplied.)10

-A



In the discharge of this task the Solicitor General must see to it that the best interest of the government is upheld

within the limits set by law. When confronted with a situation where one government office takes an adverse

position against another government agency, as in this case, the Solicitor General should not refrain from

performing his duty as the lawyer of the government. It is incumbent upon him to present to the court what he

considers would legally uphold the best interest of the government although it may run counter to a client's

position.11

In such an instance the government office adversely affected by the position taken by the Solicitor

General, if it still believes in the merit of its case, may appear in its own behalf through its legal personnel orrepresentative.

In the present case, it appears that after the Solicitor General studied the issues he found merit in the cause of the

petitioner based on the applicable law and jurisprudence. Thus, it is his duty to represent the petitioner as he did

by filing this petition. He cannot be disqualified from appearing for the petitioner even if in so doing his

representation runs against the interests of the CSC.

This is not the first time that the Office of the Solicitor General has taken a position adverse to his clients like the

CSC, the National Labor Relations Commission, among others, and even the People of the Philippines. In such

instances, the Solicitor General nevertheless manifests his opinion and recommendation to the Court which is an

invaluable aid in the disposition of the case. On some occasions he begs leave to be excused from intervening in

the case, more so, when the client had already filed its own comment different from the stand of the SolicitorGeneral or in a situation when he finds the contention of a private party tenable as against that of the government

or any of its agencies. The Solicitor General has recommended the acquittal of the accused in appealed criminal

cases.

There are cases where a government agency declines the services of the Solicitor General or otherwise fails or

refuses to forward the papers of the case to him for appropriate action. The Court finds and so holds that this

practice should be stopped. To repeat, the Solicitor General is the lawyer of the government, any of its agents and

officials in any litigation, proceeding, investigation or matter requiring the services of a lawyer. The exception is

when such officials or agents are being charged criminally or are being civilly sued for damages arising from a

felony.12

His services cannot be lightly rejected, much less ignored by the office or officials concerned.

Indeed, the assistance of the Solicitor General should be welcomed by the parties. He should be given full support

and cooperation by any agency or official involved in litigation. He should be enabled to faithfully discharge his

duties and responsibilities as the government advocate. And he should do no less for his clients. His burden of

assisting in the fair and just administration of justice is clear.

This Court does not expect the Solicitor General to waver in the performance of his duty. As a matter of fact, the

Court appreciates the participation of the Solicitor General in many proceedings and his continued fealty to his

assigned task. He should not therefore desist from appearing before this Court even in those cases he finds his

opinion inconsistent with the Government or any of its agents he is expected to represent. The Court must be

advised of his position just as well.

Private respondent Madarang also seeks to hold petitioner in contempt of court on the ground that the petition

was filed in order to circumvent or obviate the dismissal of a similar petition in this Court filed by Guido Agon and

Alfonso Magnayon. The legal personality of the petitioner to file the petition is also questioned on the ground itwas Assistant Secretary Sibal and not the petitioner who issued the contested appointments.

The petitioner denies this contention. He asserts that the petition was properly brought in his name as head of the

DOTC as what is in issue is the reorganization of the said department. The petitioner does not dispute the

disapproval of the appointments of Agon and Magnayon; he only disagrees with the order of the CSC directing the

appointment of Madarang to the contested position. The petitioner also alleges that he was not aware of the

existence of a separate petition filed in this Court by Agon and Magnayon.



The Court finds the arguments and assertions of petitioner to be well taken.

It is true that the records of this Court show that there is such a case docketed as G.R. No. 92064 entitled "Guido

Agon, et al., vs. CSC et al." which is a special civil action for certiorari with a prayer for a writ of preliminary

injunction. The petition was dismissed for late filing in a resolution dated February 27, 1990.

On March 29, 1990 this Court denied with finality the motion for reconsideration filed by the said petitioners therebeing no compelling reason to warrant the reversal of the questioned resolution.

Apparently, the disapproval of the appointments of Agon and Magnayon was the issue in said petition. In the

present petition as aforestated, petitioner yields to the disapproval of the appointment of the two, but questions

the authority of the CSC to direct the appointment of Madarang to the contested position.

WHEREFORE, the petition is GRANTED and the questioned resolutions of the respondent CSC dated August 29,

1989, November 2, 1989 and January 19, 1990 are hereby annulled insofar as they direct the appointment of Nerio

Madarang to the contested position. The petitioner is hereby authorized to convene the DOTC Selection and

Promotion Board to determine who shall replace Guido Agon and Alfonso Magnayon to the contested position by

considering all qualified candidates including Nerio Madarang. The restraining order dated March 29, 1990 is

hereby made permanent. No costs.

SO ORDERED.



NO. 19

G.R. No. 87977 March 19, 1990

ILUMINADO URBANO and MARCIAL ACAPULCO, petitioners,

vs.

FRANCISCO I. CHAVEZ, RAMON BARCELONA and AMY LAZARO-JAVIER, respondents.

G.R. No. 88578 March 19, 1990

NEMESIO G. CO, petitioner,

vs.

REGIONAL TRIAL COURT OF PASIG (BRANCH 165), THE OFFICE OF THE SOLICITOR GENERAL and FRANCISCO I.CHAVEZ, respondents.

Can the Office of the Solicitor General represent a public officer or employee in the preliminary investigation of a

criminal action against him or in a civil action for damages against him? This is the principal issue in these two

consolidated Petitions.

G.R. No. 87977

Sometime in 1988, the petitioners in G.R. No. 87977, namely, Iluminado Urbano and Marcial Acapulco, instituted a

criminal case against Secretary Luis Santos of the Department of Local Government as well as Sectoral

Representatives Pacifico Conol and Jason Ocampos, Jr. of the Sangguniang Panlungsod of Tangub City, for alleged

violation of the provisions of Republic Act No. 3019, as amended, otherwise known as the Anti-Graft and Corrupt

Practices Act. The complaint against them was filed with the Office of the Ombudsman and was docketed as OSP

Case No. 88-02780. The Office of the Solicitor General, through Solicitor General Francisco I. Chavez, Assistant

Solicitor General Ramon A. Barcelona and Solicitor Amy C. Lazaro-Javier, entered its appearance as counsel for the

said respondents as far as the preliminary investigation of the case is concerned.

By way of a special civil action for prohibition filed with this Court, the said petitioners seek to enjoin the SolicitorGeneral and his associates from acting as counsel for the said respondents in the course of the preliminary

investigation. The said petitioners submit that in the event that the corresponding information is filed against the

said respondents with the Sandiganbayan and a judgment of conviction is rendered by the said court, the

appearance of the Office of the Solicitor General on behalf of the said respondents during the preliminary

investigation will be in conflict with its role as the appellate counsel of the People of the Philippines.

In its Comment filed on June 13, 1989, the Office of the Solicitor General manifested that the issue raised by the

petitioners had been squarely resolved in favor of the said Office in Anti-Graft League of the Philippines, Inc. v .

Hon. Ortega1 and Solicitor General v . Garrido.

2

G.R. No. 88578

On December 29, 1987, the petitioner in G.R. No. 88578, namely, Nemesio G. Co, filed an Amended Complaint for

damages against Solicitor General Francisco I. Chavez, the Businessworld Publishing Corporation, Raul L. Locsin and

one John Doe. The Amended Complaint was filed with Branch 165 of the Regional Trial Court in Pasig, Metro

Manila and was docketed as Civil Case No. 55379. The Honorable Milagros V. Caguioa was the presiding judge

therein.

In sum, the Amended Complaint alleged, inter alia, that the defendant Chavez knowingly, willfully and maliciously

published and/or caused to be published certain defamatory imputations against the petitioner in an article which



appeared in the December 4, 1987 issue of Business World , a periodical publication in Metro Manila, and that he

caused the publication thereof by way of an interview characterized by bad faith and actual malice. The petitioner

also alleged that the defamatory remarks impute that he was a close associate of former President Ferdinand

Marcos and his daughter Imee Marcos-Manotoc and that he was involved in some anomalous transactions relating

to the funds of the national government during the time that President Marcos was in office. It appears that at the

time of the publication of the questioned article, Solicitor General Chavez was the counsel of the Presidential

Commission on Good Government (PCGG), the government agency responsible for the investigation of allegedgraft and corrupt practices relating to the former President, his relatives and his close associates.

On February 11, 1988, the private defendants Businessworld Publishing Corporation and Raul L. Locsin filed a joint

Motion to Dismiss.

On February 12, 1988, the Office of the Solicitor General sought an extension of time to file the required

responsive pleading. On March 14, 1988, the said Office filed a Motion to Dismiss on behalf of Solicitor General

Chavez. Thereafter, the trial court set the case for oral argument on June 23, 1988.

During the scheduled oral argument, the counsel of the petitioner objected to the appearance of the Office of the

Solicitor General on behalf of Solicitor General Chavez. The trial court issued an Order suspending the proceedings

and instructed the parties to submit their respective positions on the propriety of the appearance of the said Officefor the Solicitor General himself. The parties complied with the instructions of the trial court.

By way of a Motion seeking the disqualification of the Office of the Solicitor General to act as counsel of Solicitor

General Chavez, the petitioner manifested to the trial court that he is suing the Solicitor General in his personal

capacity for acts which he committed beyond the scope of his authority and as such he cannot be represented by

the said Office in the civil suit instituted with the trial court.3

On the other hand, the Office of the Solicitor General manifested that the objection raised by the petitioner is an

afterthought on account of its belated character, and that this objection notwithstanding, it is authorized to

represent any public official even if the said official is sued in his personal capacity pursuant to the unconditional

provisions of Presidential Decree No. 478 which defines the functions of the said Office, as well as Executive Order

No. 300 issued on July 26, 1987 which made the said office an independent agency under the Office of the

President of the Philippines.4

In support of this contention, the said Office cited the pronouncement of this Court

in Anti-Graft League of the Philippines, Inc.5

The said office also maintained that the cause of action against the

Solicitor General is for acts committed by him in his official capacity, i .e., as legal counsel of the PCGG under

Executive Order No. 14, series of 1986, and that the assailed actuations of a public official are presumed to have

been done in the lawful performance of his duties.6 In support thereof, the said Office cited the ruling of this Court

in Peralta v . Firme.7

In addition to the arguments above, the Office of the Solicitor General argued that public policy militates against

the disqualification of the said Office from representing the Solicitor General in his capacity as a public official

because, if it where the other way around, public officials will hesitate to perform their official functions for fear of

being haled to court by almost anybody for the purpose of accounting for official acts, not to mention the trouble

of having to hire a private lawyer at his own expense in order to defend himself.8

The petitioner submitted his Reply thereto, alleging therein, among others, that the argument of the Solicitor

General is untenable inasmuch as the expression of his views by way of an interview subsequently featured in a

newspaper article is not an official function of the Solicitor General and that the jurisprudence cited by the Office

of the Solicitor General opposes the position it had taken.9

In an Order dated November 9, 1988, the trial court denied the Motion of the petitioner for lack of merit.10

The

petitioner sought a reconsideration of the Order. On the other hand, the Office of the Solicitor General opposed



the reconsideration sought by the petitioner.11

The petitioner filed a Reply to the opposition on the part of the

said Office12

which, in turn, filed a Rejoinder to the Reply.13

In another Order dated May 26, 1989, the trial court denied the reconsideration sought by the petitioner. The

pertinent portion of the said Order is as follows —

After a careful study, assessment and dissertation of the grounds, arguments advanced by theparties in their respective pleadings now under consideration, as well as the applicable laws and

jurisprudence cited therein, the Court has arrived at the inescapable conclusion, and so holds

that the plaintiff failed to satisfactorily convince the Court that the Office of the Solicitor General

cannot and/or does not have the authority to represent the defendant Francisco I. Chavez in this

case, for the simple reason that it is indisputable that at the time said defendant allegedly made

the malicious imputations against the plaintiff, he was then and still is the incumbent Solicitor

General, and at the same time the counsel for the Presidential Commission on Good Government

or PCGG.14

Thus, the Order of the trial court dated May 26, 1989 is challenged before this Court on the ground that the same

amounts to a grave abuse of discretion amounting to lack of jurisdiction on the part of the trial court.15

The

petitioner now asks the Court to order the Office of the Solicitor General to desist from representing the SolicitorGeneral in the civil suit for damages.

On August 21, 1989, the Office of the Solicitor General filed its Comment on the Petition, reiterating therein its

position before the trial court.16

On August 31, 1989, the Court resolved to consider the said Comment as the Answer to the Petition and to give

due course to the Petition.17

Nonetheless, on October 4, 1989, the petitioner filed his Reply to the Comment,

reiterating therein his arguments raised before the trial court.18

The issue raised in G.R. No. 87977 relates to the authority of the Office of the Solicitor General to appear for

certain government officials in the course of the preliminary investigation of their case before the Office of the

Ombudsman. The issue raised in G.R. No. 88578 pertains to the authority of the said Office to appear for theSolicitor General who was haled to court in a civil suit for damages arising from an alleged defamatory remark

which appeared in a newspaper. Both petitioners raise pure questions of law inasmuch as there are no evidentiary

matters to be evaluated by this Court. Moreover, if the only issue is whether or not the conclusions of the trial

court are in consonance with law and jurisprudence, then the issue is a pure question of law.19

Thus, the Court

resolved to consolidate both Petitions and to treat them as Petitions for certiorari on pure questions of law in

accordance with the provisions of the Rules of Court.20

In due time, both Petitions were deemed submitted for

decision.

In resolving both Petitions, the Court must take into account the duties and functions of the Office of the Solicitor

General. Presidential Decree No. 47821

defines such duties and functions, to wit —

Sec. 1. Functions and Organization. — 1) The Office of the Solicitor General shall represent the

Government of the Philippines, its agencies and instrumentalities and its officials and agents in any litigation, proceeding, investigation or matter requiring the services of a lawyer . . . (Emphasis

supplied)

The Office of the Solicitor General submits that on the basis of this provision, it can represent or otherwise defend

any public official without any qualification or distinction in any litigation, and that an intepretation thereof to the

effect that it is authorized to represent a public official only when the said official is clearly shown to be sued in his

official capacity is erroneous. In short, the said Office argues that inasmuch as the law does not make a distinction



as to the type of litigation wherein the said Office can enter its appearance as counsel, there should be no

distinction made.22

A similar provision can be found in Section 1661 of the Revised Administrative Code. It reads as follows: "As

principal law officer of the Government, the Solicitor General shall have the authority to act for and represent the

Government of the Philippine Islands, its officers and agents in any official investigation, proceeding or matter

requiring the services of a lawyer." Like the cited provision of Presidential Decree No. 478, this provision does nothave any qualifying phrase. The argument of the Office of the Solicitor General as regards Presidential Decree No.

478 seems to apply to this provision as well. Executive Order No. 300, series of 1987 cited by the said Office merely

reiterates the provisions of the aforementioned Presidential Decree.

In Anti-Graft League of the Philippines, Inc.,23

this Court pointed out that the phrase "official investigation,

proceeding or matter requiring the services of a lawyer" found in Section 1661 of the Revised Administrative Code

embraces a preliminary investigation in a criminal case initiated against a public official considering that the law

makes no qualification as to the nature or character of the "official investigation" contemplated. The Court

emphasized, however, that where the investigation results in an information filed against the public official

concerned, then that official may no longer be represented by the Office of the Solicitor General and that,

accordingly, he will have to get his own private counsel. Thus, this Court held that the Office of the Solicitor

General can represent the public official at the preliminary investigation of his case, and that if an information iseventually filed against the said public official, the said Office may no longer represent him in the litigation. This

ruling was reiterated in Solicitor General v . Garrido.24

What is the rationale behind this rule which allows the Office of the Solicitor General to represent a public official

during the preliminary investigation of his case, and which prohibits the said office from further representing the

said public official when an information is filed against him with the appropriate court? In Anti-Graft League of the

Philippines, Inc., this Court stressed that in the performance of their duties, public officials can be subjected to

numerous suits, whether ill-founded or not, and that by threats of possible criminal prosecution, parties adversely

affected by official action can stay the hand of the public official concerned. The Court observed that there may be

hesitancy and diffidence in the execution of their duties if public officials are deterred by the thought that they

could be brought to court and face criminal charges. The Court conluded that as an assurance against timidity the

Office of the Solicitor General sees to it that the public officials concerned are duly represented by counsel in the

preliminary investigation. As to why the public official concerned may no longer be represented by the Office of

the Solicitor General, the ostensible reason is this: the said Office may no longer represent him considering that its

position as counsel for the accused will be in direct conflict with its responsibilities as the appellate counsel of the

People of the Philippines in all criminal cases.

The Court believes that the ruling announced in Anti-Graft League of the Philippines, Inc. and reiterated in Garrido

should be re-examined in the light of the nature of a suit against a public official.

Under the Presidential Decree No. 478 aforecited, the Solicitor General shall represent the Government of the

Philippines, its agencies and instrumentalities and its officials and agents in any litigation, proceeding, investigation

or matter requiring the services of a lawyer. This is as it should be as he is the principal law officer of the

Government.25

In Anti-Graft League of the Philippines, Inc., this Court interpreted this to embrace "both civil and criminal

investigation, proceeding or matter requiring the services of a lawyer.26

In Garrido, the Court sustained the authority of the Solicitor General to enter his appearance on behalf of public

officials charged with violating a penal statute for acts connected with the performance of their official duties.27



It is undisputed that the Office of the Solicitor General is the appellate counsel of the People of the Philippines in

all criminal cases. As such, the said Office participates in a criminal case only when the same has reached the

appellate courts. It is the office of the city, provincial or state prosecutor, as the case may be, and not the Office of

the Solicitor General, which attends to the investigation and the prosecution of criminal cases in the first instance.

However, under the doctrine announced in Anti-Graft League of the Philippines, Inc. and Garrido, the Office of the

Solicitor General is authorized to enter its appearance as counsel for any public official, against whom a criminalcharge had been instituted, during the preliminary investigation stage thereof. Nevertheless, in the same case, this

Court held that once an information is filed against the public official, the Office of the Solicitor General can no

longer represent the said official in the litigation. The anomaly in this paradigm becomes obvious when, in the

event of a judgment of conviction, the case is brought on appeal to the appellate courts. The Office of the Solicitor

General, as the appellate counsel of the People of the Philippines, is expected to take a stand against the accused.

More often than not, it does. Accordingly, there is a clear conflict of interest here, and one which smacks of ethical

considerations, where the Office of the Solicitor General as counsel for the public official, defends the latter in the

preliminary investigation stage of the criminal case, and where the same office, as appellate counsel of the People

of the Philippines, represents the prosecution when the case is brought on appeal. This anomalous situation could

not have been contemplated and allowed by the law, its unconditional terms and provisions notwithstanding. It is

a situation which cannot be countenanced by the Court.

Otherwise, if the Solicitor General who represents the state on appeal in criminal cases can appear for the accused

public official in a preliminary investigation, then by the same token a provincial or city fiscal, his assistant or any

government prosecutor who represents the People of the Philippines at the preliminary investigation of a case up

to the trial thereof can appear for an accused public official at the preliminary investigation being conducted by

another fiscal, prosecutor or municipal judge. The situation would simply be scandalous, to say the least.

There is likewise another reason, as earlier discussed, why the Office of the Solicitor General cannot represent an

accused in a criminal case. Inasmuch as the State can speak and act only by law, whatever it does say and do must

be lawful, and that which is unlawful is not the word or deed of the State, but is the mere wrong or trespass of

those individual persons who falsely speak and act in its name.28

Therefore, the accused public official should not

expect the State, through the Office of the Solicitor General, to defend him for a wrongful act which cannot be

attributed to the State itself. In the same light, a public official who is sued in a criminal case is actually sued in his

personal capacity inasmuch as his principal, the State, can never be the author of a wrongful act, much less commit

a crime.

Thus, the Court rules that the Office of the Solicitor General is not authorized to represent a public official at any

stage of a criminal case. For this reason, the doctrine announced in Anti-Graft League of the Philippines, Inc. v .

Hon. Ortega and Solicitor General v . Garrido, and all decided cases affirming the same; in so far as they are

inconsistent with this pronouncement, should be deemed abandoned. The principle of stare decisis

notwithstanding, it is well-settled that a doctrine which should be abandoned or modified should be abandoned or

modified accordingly. After all, more important than anything else is that this Court should be right.29

This observation should apply as well to a public official who is haled to court on a civil suit for damages arising

from a felony allegedly committed by him.30

Any pecuniary liability he may be held to account for on the occasion

of such civil suit is for his own account. The State is not liable for the same. A fortiori , the Office of the SolicitorGeneral likewise has no authority to represent him in such a civil suit for damages.

For all these reasons, the argument of the Office of the Solicitor General to the effect that it has the authority to

represent or otherwise defend any public official without any qualification or distinction in any litigation pursuant

to the unconditional provisions of Presidential Decree No. 478 and the other cited laws is untenable. Applying

these principles to the case at bar, the Office of the Solicitor General has no authority to represent Solicitor

General Chavez in the civil suit for damages filed against him in the Regional Trial Court arising from allegedly

defamatory remarks uttered by him.



The issues raised in these two Petitions have been resolved on the basis of law and jurisprudence as well as the

pertinent arguments of the parties concerned. The other points raised by them are irrelevant to the proper

disposition of these cases and need not be considered.

The Court is aware of the possibility of public officials being haled to court in an endless array of civil suits. With or

without this pronouncement, and considering the nature of a public office in the Philippines vis-a-vis the litigious

character of most Filipinos as demonstrated by the number of cases filed in the courts daily, this scenario is a factthat must be accepted. The possibility of being brought to court is an occupational hazard of both the public officer

and the citizen, in the same way that every occupation has its own hazards to reckon with. This grim reality

notwithstanding, public officials should know that nobody is above the law.

Of course, there is the Citizens Legal Aid Office of the Department of Justice that may be made to assist in the

defense of any such public official. As to respondent Francisco I. Chavez, he may appear in his own defense in his

private capacity in the action for damages against him. The services of private counsel may also be availed of. And

if it is the intention of the State to protect public officials from alleged harassment suits, then the creation of a

separate office of government lawyers for this purpose may be in order. But certainly the Office of the Solicitor

General can not assume a responsibility in defense of such public officials beyond its statutory authority.

Accordingly, the Court is of the opinion, and so holds that the Office of the Solicitor General is not authorized torepresent a public official at any stage of a criminal case or in a civil suit for damages arising from a felony. This

pronouncement applies to all public officials and employees in the executive, legislative and judicial branches of

the Government.

WHEREFORE, in view of the foregoing, the herein Petitions are hereby GRANTED. The Office of the Solicitor

General is permanently prohibited from representing the said respondents in OSP Case No. 88-02780 pending in

the Office of the Ombudsman and respondent Francisco I. Chavez in Civil Case No. 55379 pending before the

Regional Trial Court of Pasig, Metro Manila. No pronouncement as to costs.

SO ORDERED.



NO. 20

G.R. No. L-961 September 21, 1949

BLANDINA GAMBOA HILADO, petitioner,

vs.

JOSE GUTIERREZ DAVID, VICENTE J. FRANCISCO, JACOB ASSAD and SELIM JACOB ASSAD, respondents.

It appears that on April 23, 1945, Blandina Gamboa Hilado brought an action against Selim Jacob Assad to annul

the sale of several houses and lot executed during the Japanese occupation by Mrs. Hilado's now deceased

husband.

On May 14, Attorneys Ohnick, Velilla and Balonkita filed an answer on behalf of the defendant; and on June 15,

Attorneys Delgado, Dizon, Flores and Rodrigo registered their appearance as counsel for the plaintiff. On October

5, these attorneys filed an amended complaint by including Jacob Assad as party defendant.

On January 28, 1946, Attorney Francisco entered his appearance as attorney of record for the defendant in

substitution for Attorney Ohnick, Velilla and Balonkita who had withdrawn from the case.

On May 29, Attorney Dizon, in the name of his firm, wrote Attorney Francisco urging him to discontinue

representing the defendants on the ground that their client had consulted with him about her case, on which

occasion, it was alleged, "she turned over the papers" to Attorney Francisco, and the latter sent her a written

opinion. Not receiving any answer to this suggestion, Attorney Delgado, Dizon, Flores and Rodrigo on June 3, 1946,

filed a formal motion with the court, wherein the case was and is pending, to disqualify Attorney Francisco.

Attorney Francisco's letter to plaintiff, mentioned above and identified as Exhibit A, is in full as follows:

VICENTE J. FRANCISCO

Attorney-at-Law

1462 Estrada, Manila

July 13, 1945.

Mrs. Blandina Gamboa Hilado

Manila, Philippines

My dear Mrs. Hilado:

From the papers you submitted to me in connection with civil case No. 70075 of the Court of First

Instance of Manila, entitled "Blandina Gamboa Hilado vs. S. J. Assad," I find that the basic facts which

brought about the controversy between you and the defendant therein are as follows:

(a) That you were the equitable owner of the property described in the complaint, as the same was

purchased and/or built with funds exclusively belonging to you, that is to say, the houses and lot

pertained to your paraphernal estate;

(b) That on May 3, 1943, the legal title to the property was with your husband, Mr. Serafin P. Hilado; and



(c) That the property was sold by Mr. Hilado without your knowledge on the aforesaid date of May 3,

1943.

Upon the foregoing facts, I am of the opinion that your action against Mr. Assad will not ordinarily

prosper. Mr. Assad had the right to presume that your husband had the legal right to dispose of the

property as the transfer certificate of title was in his name. Moreover, the price of P110,000 in Japanese

military notes, as of May 3, 1943, does not quite strike me as so grossly inadequate as to warrant theannulment of the sale. I believe, lastly, that the transaction cannot be avoided merely because it was

made during the Japanese occupation, nor on the simple allegation that the real purchaser was not a

citizen of the Philippines. On his last point, furthermore, I expect that you will have great difficulty in

proving that the real purchaser was other than Mr. Assad, considering that death has already sealed your

husband's lips and he cannot now testify as to the circumstances of the sale.

For the foregoing reasons, I regret to advise you that I cannot appear in the proceedings in your behalf.

The records of the case you loaned to me are herewith returned.

Yours very truly,

(Sgd.) VICENTE J. FRANCISCO

VJF/Rag.

In his answer to plaintiff's attorneys' complaint, Attorney Francisco alleged that about May, 1945, a real estate

broker came to his office in connection with the legal separation of a woman who had been deserted by her

husband, and also told him (Francisco) that there was a pending suit brought by Mrs. Hilado against a certain

Syrian to annul the sale of a real estate which the deceased Serafin Hilado had made to the Syrian during the

Japanese occupation; that this woman asked him if he was willing to accept the case if the Syrian should give it to

him; that he told the woman that the sales of real property during the Japanese regime were valid even though it

was paid for in Japanese military notes; that this being his opinion, he told his visitor he would have no objection

to defending the Syrian;

That one month afterwards, Mrs. Hilado came to see him about a suit she had instituted against a certain Syrian to

annul the conveyance of a real estate which her husband had made; that according to her the case was in the

hands of Attorneys Delgado and Dizon, but she wanted to take it away from them; that as he had known the

plaintiff's deceased husband he did not hesitate to tell her frankly that hers was a lost case for the same reason he

had told the broker; that Mrs. Hilado retorted that the basis of her action was not that the money paid her

husband was Japanese military notes, but that the premises were her private and exclusive property; that she

requested him to read the complaint to be convinced that this was the theory of her suit; that he then asked Mrs.

Hilado if there was a Torrens title to the property and she answered yes, in the name of her husband; that he told

Mrs. Hilado that if the property was registered in her husband's favor, her case would not prosper either;

That some days afterward, upon arrival at his law office on Estrada street, he was informed by Attorney Federico

Agrava, his assistant, that Mrs. Hilado had dropped in looking for him and that when he, Agrava, learned that Mrs.

Hilado's visit concerned legal matters he attended to her and requested her to leave the "expediente" which she

was carrying, and she did; that he told Attorney Agrava that the firm should not handle Mrs. Hilado's case and he

should return the papers, calling Agrava's attention to what he (Francisco) already had said to Mrs. Hilado;

That several days later, the stenographer in his law office, Teofilo Ragodon, showed him a letter which had been

dictated in English by Mr. Agrava, returning the "expedients" to Mrs. Hilado; that Ragodon told him (Attorney

Francisco) upon Attorney Agrava's request that Agrava thought it more proper to explain to Mrs. Hilado the



reasons why her case was rejected; that he forthwith signed the letter without reading it and without keeping it

for a minute in his possession; that he never saw Mrs. Hilado since their last meeting until she talked to him at the

Manila Hotel about a proposed extrajudicial settlement of the case;

That in January, 1946, Assad was in his office to request him to handle his case stating that his American lawyer

had gone to the States and left the case in the hands of other attorneys; that he accepted the retainer and on

January 28, 1946, entered his appearance.

Attorney Francisco filed an affidavit of stenographer Ragodon in corroboration of his answer.

The judge trying the case, Honorable Jose Gutierrez David, later promoted to the Court of Appeals, dismissed the

complaint. His Honor believed that no information other than that already alleged in plaintiff's complaint in the

main cause was conveyed to Attorney Francisco, and concluded that the intercourse between the plaintiff and the

respondent did not attain the point of creating the relation of attorney and client.

Stripped of disputed details and collateral matters, this much is undoubted: That Attorney Francisco's law firm

mailed to the plaintiff a written opinion over his signature on the merits of her case; that this opinion was reached

on the basis of papers she had submitted at his office; that Mrs. Hilado's purpose in submitting those papers was

to secure Attorney Francisco's professional services. Granting the facts to be no more than these, we agree withpetitioner's counsel that the relation of attorney and client between Attorney Francisco and Mrs. Hilado ensued.

The following rules accord with the ethics of the legal profession and meet with our approval:

In order to constitute the relation (of attorney and client) a professional one and not merely one of

principal and agent, the attorneys must be employed either to give advice upon a legal point, to prosecute

or defend an action in court of justice, or to prepare and draft, in legal form such papers as deeds, bills,

contracts and the like. (Atkinson vs. Howlett, 11 Ky. Law Rep. (abstract), 364; cited in Vol. 88, A. L. R., p. 6.)

To constitute professional employment it is not essential that the client should have employed the

attorney professionally on any previous occasion. . . . It is not necessary that any retainer should have

been paid, promised, or charged for; neither is it material that the attorney consulted did not afterward

undertake the case about which the consultation was had. If a person, in respect to hi s business affairs ortroubles of any kind, consults with his attorney in his professional capacity with the view to obtaining

professional advice or assistance, and the attorney voluntarily permits or acquiesces in such consultation,

then the professional employment must be regarded as established. . . . (5 Jones Commentaries on

Evidence, pp. 4118-4119.)

An attorney is employed-that is, he is engaged in his professional capacity as a lawyer or counselor-when

he is listening to his client's preliminary statement of his case, or when he is giving advice thereon, just as

truly as when he is drawing his client's pleadings, or advocating his client's cause in open court. (Denver

Tramway Co. vs. Owens, 20 Colo., 107; 36 P., 848.)

Formality is not an essential element of the employment of an attorney. The contract may be express or

implied and it is sufficient that the advice and assistance of the attorney is sought and received, in matters

pertinent to his profession. An acceptance of the relation is implied on the part of the attorney from his

acting in behalf of his client in pursuance of a request by the latter. (7 C. J. S., 848-849; see Hirach Bros.

and Co. vs. R. E. Kennington Co., 88 A. L. R., 1.)

Section 26 (e), Rule 123 of the Rules of Court provides that "an attorney cannot, without the consent of his client,

be examined as to any communication made by the client to him, or his advice given thereon in the course of

professional employment;" and section 19 (e) of Rule 127 imposes upon an attorney the duty "to maintain

inviolate the confidence, and at every peril to himself, to preserve the secrets of his client." There is no law or



provision in the Rules of Court prohibiting attorneys in express terms from acting on behalf of both parties to a

controversy whose interests are opposed to each other, but such prohibition is necessarily implied in the

injunctions above quoted. (In re De la Rosa, 27 Phil., 258.) In fact the prohibition derives validity from sources

higher than written laws and rules. As has been aptly said in In re Merron, 22 N. M., 252, L.R.A., 1917B, 378,

"information so received is sacred to the employment to which it pertains," and "to permit it to be used in the

interest of another, or, worse still, in the interest of the adverse party, is to strike at the element of confidence

which lies at the basis of, and affords the essential security in, the relation of attorney and client."

That only copies of pleadings already filed in court were furnished to Attorney Agrava and that, this being so, no

secret communication was transmitted to him by the plaintiff, would not vary the situation even if we should

discard Mrs. Hilado's statement that other papers, personal and private in character, were turned in by her.

Precedents are at hand to support the doctrine that the mere relation of attorney and client ought to preclude the

attorney from accepting the opposite party's retainer in the same lit igation regardless of what information was

received by him from his first client.

The principle which forbids an attorney who has been engaged to represent a client from thereafter

appearing on behalf of the client's opponent applies equally even though during the continuance of the

employment nothing of a confidential nature was revealed to the attorney by the c lient. (Christian vs.

Waialua Agricultural Co., 30 Hawaii, 553, Footnote 7, C. J. S., 828.)

Where it appeared that an attorney, representing one party in litigation, had formerly represented the

adverse party with respect to the same matter involved in the litigation, the court need not inquire as to

how much knowledge the attorney acquired from his former during that relationship, before refusing to

permit the attorney to represent the adverse party. (Brown vs. Miller, 52 App. D. C. 330; 286, F. 994.)

In order that a court may prevent an attorney from appearing against a former client, it is unnecessary

that the ascertain in detail the extent to which the former client's affairs might have a bearing on the

matters involved in the subsequent litigation on the attorney's knowledge thereof. (Boyd vs. Second

Judicial Dist. Court, 274 P., 7; 51 Nev., 264.)

This rule has been so strictly that it has been held an attorney, on terminating his employment, cannot

thereafter act as counsel against his client in the same general matter, even though, while acting for his

former client, he acquired no knowledge which could operate to his client's disadvantage in the

subsequent adverse employment. (Pierce vs. Palmer [1910], 31 R. I., 432; 77 Atl., 201, Ann. Cas., 1912S,

181.)

Communications between attorney and client are, in a great number of litigations, a complicated affair, consisting

of entangled relevant and irrelevant, secret and well known facts. In the complexity of what is said in the course of

the dealings between an attorney and a client, inquiry of the nature suggested would lead to the revelation, in

advance of the trial, of other matters that might only further prejudice the complainant's cause. And the theory

would be productive of other un salutary results. To make the passing of confidential communication a condition

precedent; i.e., to make the employment conditioned on the scope and character of the knowledge acquired by an

attorney in determining his right to change sides, would not enhance the freedom of litigants, which is to be

sedulously fostered, to consult with lawyers upon what they believe are their rights in litigation. The conditionwould of necessity call for an investigation of what information the attorney has received and in what way it is or it

is not in conflict with his new position. Litigants would in consequence be wary in going to an attorney, lest by an

unfortunate turn of the proceedings, if an investigation be held, the court should accept the attorney's inaccurate

version of the facts that came to him. "Now the abstinence from seeking legal advice in a good cause is by

hypothesis an evil which is fatal to the administration of justice." (John H. Wigmore's Evidence, 1923, Section 2285,

2290, 2291.)



Hence the necessity of setting down the existence of the bare relationship of attorney and client as the yardstick

for testing incompatibility of interests. This stern rule is designed not alone to prevent the dishonest practitioner

from fraudulent conduct, but as well to protect the honest lawyer from unfounded suspicion of unprofessional

practice. (Strong vs. Int. Bldg., etc.; Ass'n, 183 Ill., 97; 47 L.R.A., 792.) It is founded on principles of public policy, on

good taste. As has been said in another case, the question is not necessarily one of the rights of the parties, but as

to whether the attorney has adhered to proper professional standard. With these thoughts in mind, it behooves

attorneys, like Caesar's wife, not only to keep inviolate the client's confidence, but also to avoid the appearance of treachery and double-dealing. Only thus can litigants be encouraged to entrust their secrets to their attorneys

which is of paramount importance in the administration of justice.

So without impugning respondent's good faith, we nevertheless can not sanction his taking up the cause of the

adversary of the party who had sought and obtained legal advice from his firm; this, not necessarily to prevent any

injustice to the plaintiff but to keep above reproach the honor and integrity of the courts and of the bar. Without

condemning the respondents conduct as dishonest, corrupt, or fraudulent, we do believe that upon the admitted

facts it is highly in expedient. It had the tendency to bring the profession, of which he is a distinguished member,

"into public disrepute and suspicion and undermine the integrity of justice."

There is in legal practice what called "retaining fee," the purpose of which stems from the realization that the

attorney is disabled from acting as counsel for the other side after he has given professional advice to the oppositeparty, even if he should decline to perform the contemplated services on behalf of the latter. It is to prevent undue

hardship on the attorney resulting from the rigid observance of the rule that a separate and independent fee for

consultation and advice was conceived and authorized. "A retaining fee is a preliminary fee given to an attorney or

counsel to insure and secure his future services, and induce him to act for the client. It is intended to remunerate

counsel for being deprived, by being retained by one party, of the opportunity of rendering services to the other

and of receiving pay from him, and the payment of such fee, in the absence of an express understanding to the

contrary, is neither made nor received in payment of the services contemplated; its payment has no relation to the

obligation of the client to pay his attorney for the services which he has retained him to perform." (7 C.J.S., 1019.)

The defense that Attorney Agrava wrote the letter Exhibit A and that Attorney Francisco did not take the trouble of

reading it, would not take the case out of the interdiction. If this letter was written under the circumstances

explained by Attorney Francisco and he was unaware of its contents, the fact remains that his firm did give Mrs.

Hilado a formal professional advice from which, as heretofore demonstrated, emerged the relation of attorney and

client. This letter binds and estop him in the same manner and to the same degree as if he personally had written

it. An information obtained from a client by a member or assistant of a law firm is information imparted to the

firm. (6 C. J., 628; 7 C. J. S., 986.) This is not a mere fiction or an arbitrary rule; for such member or assistant, as in

our case, not only acts in the name and interest of the firm, but his information, by the nature of his connection

with the firm is available to his associates or employers. The rule is all the more to be adhered to where, as in the

present instance, the opinion was actually signed by the head of the firm and carries his initials intended to convey

the impression that it was dictated by him personally. No progress could be hoped for in "the public policy that the

client in consulting his legal adviser ought to be free from apprehension of disclosure of his confidence," if the

prohibition were not extended to the attorney's partners, employers or assistants.

The fact that petitioner did not object until after four months had passed from the date Attorney Francisco first

appeared for the defendants does not operate as a waiver of her right to ask for his disqualification. In one case,objection to the appearance of an attorney was allowed even on appeal as a ground for reversal of the judgment.

In that case, in which throughout the conduct of the cause in the court below the attorney had been suffered so to

act without objection, the court said: "We are all of the one mind, that the right of the appellee to make his

objection has not lapsed by reason of failure to make it sooner; that professional confidence once reposed can

never be divested by expiration of professional employment." (Nickels vs. Griffin, 1 Wash. Terr., 374, 321 A. L. R.

1316.)



The complaint that petitioner's remedy is by appeal and not by certiorari deserves scant attention. The courts have

summary jurisdiction to protect the rights of the parties and the public from any conduct of attorneys prejudicial

to the administration of the justice. The summary jurisdiction of the courts over attorneys is not confined to

requiring them to pay over money collected by them but embraces authority to compel them to do whatever

specific acts may be incumbent upon them in their capacity of attorneys to perform. The courts from the general

principles of equity and policy, will always look into the dealings between attorneys and clients and guard the

latter from any undue consequences resulting from a situation in which they may stand unequal. The courts actson the same principles whether the undertaking is to appear, or, for that matter, not to appear, to answer

declaration, etc. (6 C.J., 718 C.J.S., 1005.) This summary remedy against attorneys flows from the facts that they

are officers of the court where they practice, forming a part of the machinery of the law for the administration of

justice and as such subject to the disciplinary authority of the courts and to its orders and directions with respect

to their relations to the court as well as to their clients. (Charest vs. Bishop, 137 Minn., 102; 162, N.W., 1062, Note

26, 7 C. J. S., 1007.) Attorney stand on the same footing as sheriffs and other court officers in respect of matters

just mentioned.

We conclude therefore that the motion for disqualification should be allowed. It is so ordered, without costs.



NO. 21

G.R. No. 86250 February 26, 1990

ALBERTO F. LACSON, EDITHA F. LACSON, ROMEO F. LACSON and ZENA F. VELASCO, petitioners,

vs.

HON. LUIS R. REYES, in his capacity as presiding judge of Branch 22 of the Regional Trial Court of Cavite, Branch22, and/or Multiple Sala, Imus, Cavite, and EPHRAIM J. SERQUINA, respondents.

On August 26, 1987, the private respondent, Ephraim Serquina, petitioned the respondent court for the probate of

the last will and testament of Carmelita Farlin. His petition was docketed as Sp. Proc. No. 127-87 of the respondent

court, entitled "In Re Testate Estate of Carmelita S. Farlin, Ephraim J. Serquina, Petitioner." He also petitioned the

court in his capacity as counsel for the heirs, the herein petitioners, and as executor under the will.

The petition was not opposed and hence, on November 17, 1987, the respondent court issued a "certificate of

allowance,"1

the dispositive part of which reads as follows:

WHEREFORE, upon the foregoing, the Court hereby renders certification that subject will and

testament is accordingly allowed in accordance with Sec. 13 of Rule 76 of the Rules of Court.

SO ORDERED.2

On March 14, 1988, Atty. Ephraim Serquina filed a "motion for attorney's fees"3

against the petitioners, alleging

that the heirs had agreed to pay, as and for his legal services rendered, the sum of P68,000.00.

Thereafter summonses were served upon the heirs "as if it were a complaint against said heirs"4

directing them to

answer the motion.

Thereafter, the heirs filed their answer and denied the claim for P68,000.00 alleging that the sum agreed upon was

only P7,000.00, a sum they had allegedly already paid.

After pre-trial, the respondent court rendered judgment and disposed as follows:

In the light of the foregoing, considering the extent of the legal services rendered to the clients,

the value of the properties gained by the clients out of said services, the petition for attorney's

fees is granted. Judgment is hereby rendered directing the respondent heirs to pay their lawyer

the sum of P65,000.00 as true and reasonable attorney's fees which shall be a lien on the subject

properties. Cost against the respondent.

SO ORDERED.5

On October 21, 1988, eleven days after the heirs received a copy of the decision,6 the latter filed a notice of

appeal.

On November 7, 1988, the respondent court issued an order directing the heirs to amend their notice of appeal.7

On October 27, 1988, the respondent court issued an order "noting" the notice on appeal "appellants [the heirs]

having failed to correct or complete the same within the reglementary period to effect an appeal."8



On November 24, 1988, the respondent court issued yet another order denying the notice of appeal for failure of

the heirs to file a record on appeal.9

Thereafter, Atty. Serquina moved for execution.

On December 5, 1988, the respondent court issued an order granting execution.10

The petitioners submit that the decision, dated October 26, 1988, and the orders, dated October 27, 1988,

November 24, 1988, and December 5, 1988, respectively, are nun and void for the following reasons: (1) the

respondent court never acquired jurisdiction over the "motion for attorney's fees" for failure on the part of the

movant, Ephraim Serquina, to pay docket fees; (2) the respondent court gravely abused its discretion in denying

the heirs' notice of appeal for their failure to file a record on appeal; and (3) the respondent court also gravely

abused its discretion in awarding attorney's fees contrary to the provisions of Section 7, of Rule 85, of the Rules of

Court.

Atty. Serquina now defends the challenged acts of the respondent court: (1) his motion was a mere incident to the

main proceedings; (2) the respondent court rightly denied the notice of appeal in question for failure of the heirs

to submit a record on appeal; and (3) in collecting attorney's fees, he was not acting as executor of Carmelita

Farlin's last will and testament because no letters testamentary had in fact been issued.

We take these up seriatim.

I.

Anent docket fees, it has been held11

that the court acquires jurisdiction over any case only upon payment of the

prescribed docket fee.

Although the rule has since been tempered,12

that is, there must be a clear showing that the party had intended to

evade payment and to cheat the courts, it does not excuse him from paying docket fees as soon as it becomes

apparent that docket fees are indeed payable.

In the case at bar, the "motion for attorney's fees" was clearly in the nature of an action commenced by a lawyer

against his clients for attorney's fees. The very decision of the court states:

This case is an out-growth from Sp. Proc. No. 127-87 of same Court which was long decided (sic).

It resulted from the filing of a petition for attorney's fees by the lawyer of the petitioner's heirs in

the case against the latter.

Upon the filing of the petition for attorney's fees, the heir- respondents (sic) were accordingly

summoned to answer the petition as if it were a complaint against said heirs who retained the

petitioner as their lawyer in the said case.13

In that event, the parties should have known, the respondent court in particular, that docket fees should havebeen priorly paid before the court could lawfully act on the case, and decide it.

It may be true that the claim for attorney's fees was but an incident in the main case, still, it is not an escape valve

from the payment of docket fees because as in all actions, whether separate or as an offshoot of a pending

proceeding, the payment of docket fees is mandatory.



Assuming, therefore, ex gratia argumenti, that Atty. Serquina's demand for attorney's fees in the sum of

P68,000.00 is valid, he, Atty. Serquina, should have paid the fees in question before the respondent court could

validly try his "motion".

II.

With respect to the second issue, it has been held that in appeals arising from an incident in a special proceeding, arecord on appeal is necessary, otherwise, the appeal faces a dismissal.

14 It has likewise been held, however, that in

the interest of justice, an appeal, brought without a record on appeal, may be reinstated under exceptional

circumstances. Thus:

xxx xxx xxx

It is noted, however, that the question presented in this case is one of first impression; that the

petitioner acted in honest, if mistaken, interpretation of the applicable law; that the probate

court itself believed that the record on appeal was unnecessary; and that the private respondent

herself apparently thought so, too, for she did not move to dismiss the appeal and instead

impliedly recognized its validity by filing the appellee's brief.

In view of these circumstances, and in the interest of justice, the Court feels that the petitioner

should be given an opportunity to comply with the above-discussed rules by submitting the

required record on appeal as a condition for the revival of the appeal. The issue raised in his

appeal may then be fully discussed and, in the light of the briefs already filed by the parties,

resolved on the merits by the respondent court.15

In the instant case, the Court notes the apparent impression by the parties at the outset, that a record on appeal

was unnecessary, as evidenced by: (1) the very holding of the respondent court that "[i]t is now easy to appeal as

there is no more need for a record on appeal . . . [b]y merely filing a notice of appeal, the appellant can already

institute his appeal . . . ;"16

(2) in its order to amend notice of appeal, it did not require the appellants to submit a

record on appeal; and (3) Atty. Serquina interposed no objection to the appeal on that ground.

In any event, since we are annulling the decision appealed from, the matter is a dead issue.

III.

As we have indicated, we are granting certiorari and are annulling the decision appealed from, but there seems to

be no reason why we can not dispose of the heirs' appeal in a single proceeding.

It is pointed out that an attorney who is concurrently an executor of a will is barred from recovering attorney's fees

from the estate. The Rule is specifically as follows:

SEC. 7. What expenses and fees allowed executor or administrator. Not to charge for services as

attorney. Compensation provided by will controls unless renounced.—

An executor oradministrator shall be allowed the necessary expenses in the care, management and settlement

of the estate, and for his services, four pesos per day for the time actually and necessarily

employed, or a commission upon the value of so much of the estate as comes into his possession

and is finally disposed of by him in the payment of debts, expenses, legacies, or distributive

shares, or by delivery to heirs or devisees, of two per centum of the first five thousand pesos of

such value, one per centum of so much of such value as exceeds five thousand pesos and does

not exceed thirty thousand pesos, one-half per centum of so much of such value as exceeds thirty

thousand pesos and does not exceed one hundred thousand pesos, and one-quarter per centum



of so much of such value as exceeds one hundred thousand pesos. But in any special case, where

the estate is large, and the settlement has been attended with great difficulty, and has required a

high degree of capacity on the part of the executor or administrator, a greater sum may be

allowed. If objection to the fees allowed be taken, the allowance may be reexamined on appeal.

If there are two or more executors or administrators, the compensation shall be apportioned

among them by the court according to the services actually rendered by them respectively.

When the executor or administrator is an attorney, he shall not charge against the estate any professional fees for legal services rendered by him.

When the deceased by will makes some other provision for the compensation of his executor,

that provision shall be a full satisfaction for his services unless by a written instrument filed in the

court he renounces all claim to the compensation provided by the will.17

The rule is therefore clear that an administrator or executor may be allowed fees for the necessary expenses he

has incurred as such, but he may not recover attorney's fees from the estate. His compensation is fixed by the rule

but such a compensation is in the nature of executor's or administrator's commissions, and never as attorney's

fees. In one case,18

we held that "a greater sum [other than that established by the rule] may be allowed 'in anyspecial case, where the estate is large, and the settlement has been attended with great difficulty, and has

required a high degree of capacity on the part of the executor or administrator.'"19

It is also left to the sound

discretion of the court.20

With respect to attorney's fees, the rule, as we have seen, disallows them. Accordingly,

to the extent that the trial court set aside the sum of P65,000.00 as and for Mr. Serquina's attorney's fees, to

operate as a "lien on the subject properties,"21

the trial judge must be said to have gravely abused its discretion

(apart from the fact that it never acquired jurisdiction, in the first place, to act on said Mr. Serquina's "motion for

attorney's fees").

The next question is quite obvious: Who shoulders attorney's fees? We have held that a lawyer of an administrator

or executor may not charge the estate for his fees, but rather, his client.22

Mutatis mutandis, where the

administrator is himself the counsel for the heirs, it is the latter who must pay therefor.

In that connection, attorney's fees are in the nature of actual damages, which must be duly proved.23

They are

also subject to certain standards, to wit: (1) they must be reasonable, that is to say, they must have a bearing on

the importance of the subject matter in controversy; (2) the extent of the services rendered; and (3) the

professional standing of the lawyer.24

In all cases, they must be addressed in a full-blown trial and not on the bare

word of the parties.25

And always, they are subject to the moderating hand of the courts.

The records show that Atty. Ephraim Serquina, as counsel for the heirs, performed the following:

xxx xxx xxx

5. That after the order of allowance for probate of the will, the undersigned counsel assisted the

heirs to transfer immediately the above-mentioned real estate in their respective names, from(sic) the payment of estate taxes in the Bureau of Internal Revenue to the issuance by the

Registry of Deeds of the titles, in order for the heirs to sell the foregoing real estate of 10,683 sq.

cm (which was also the subject of sale prior to the death of the testator) to settle testator's

obligations and day-to-day subsistence being (sic) that the heirs, except Zena F. Velasco, are not

employed neither doing any business;26

The Court is not persuaded from the facts above that Atty. Serquina is entitled to the sum claimed by him

(P68,000.00) or that awarded by the lower court (P65,000.00). The Court observes that these are acts performed



routinely since they form part of what any lawyer worth his salt is expected to do. The will was furthermore not

contested. They are not, so Justice Pedro Tuason wrote, "a case [where] the administrator was able to stop what

appeared to be an improvident disbursement of a substantial amount without having to employ outside legal help

at an additional expense to the estate,"27

to entitle him to a bigger compensation. He did not exactly achieve

anything out of the ordinary.

The records also reveal that Atty. Serquina has already been paid the sum of P6,000.00.28

It is our consideredopinion that he should be entitled to P15,000.00 for his efforts on a quantum meruit basis. Hence, we hold the

heirs liable for P9,000.00 more.

WHEREFORE, premises considered, judgment is hereby rendered: (1) GRANTING the petition and making the

temporary restraining order issued on January 16, 1989 PERMANENT; and (2) ORDERING the petitioners to PAY the

private respondent, Atty. Ephraim Serquina, attorney's fees in the sum of P9,000.00. The said fees shall not be

recovered from the estate of Carmelita Farlin.

No costs.

SO ORDERED.



NO. 22

G.R. No. 86100-03 January 23, 1990

METROPOLITAN BANK AND TRUST COMPANY, petitioner,

vs.

THE HONORABLE COURT OF APPEALS and ARTURO ALAFRIZ and ASSOCIATES, respondents.

This petition for review on certiorari impugns the decision of the Court of Appeals in CA-G.R. Nos. 08265-082681

affirming the order of Branch 168, Regional Trial Court, National Capital Judicial Region, in Civil Cases Nos. 19123-

28, 19136 and 19144, fixing attorney's fees and directing herein petitioner Metropolitan Bank and Trust Company

(Metrobank, for brevity), as defendant in said civil cases, to pay its attorneys, herein private respondent Arturo

Alafriz and Associates, movant therein, the amount of P936,000.00 as attorney's fees on a quantum meruit basis.

The records show that from March, 1974 to September, 1983, private respondent handled the above-mentioned

civil cases before the then Court of First Instance of Pasig (Branches I, II, VI, X, XIII, XIX, XX AND XXIV) in behalf of

petitioner.2

The civil cases were all for the declaration of nullity of certain deeds of sale, with damages.

The antecedental facts 3 which spawned the filing of said actions are undisputed and are hereinunder set forth asfound by the trial court and adopted substantially in the decision of respondent court. A certain Celedonio Javier

bought seven (7) parcels of land owned by Eustaquio Alejandro, et al., with a total area of about ten (10) hectares.

These properties were thereafter mortgaged by Javier with the petitioner to secure a loan obligation of one Felix

Angelo Bautista and/or International Hotel Corporation. The obligors having defaulted, petitioner foreclosed the

mortgages after which certificates of sale were issued by the provincial sheriff in its favor as purchaser thereof

Subsequently, Alejandro, alleging deceit, fraud and misrepresentation committed against him by Javier in the sale

of the parcels of land, brought suits against Javier et al., and included petitioner as defendant therein.

It was during the pendency of these suits that these parcels of land were sold by petitioner to its sister

corporation, Service Leasing Corporation on March 23, 1983 for the purported price of P600,000.00. On the same

day, the properties were resold by the latter to Herby Commercial and Construction Corporation for the purported

price of P2,500,000.00. Three months later, or on June 7, 1983, Herby mortgaged the same properties with Bancode Oro for P9,200,000.00. The lower court found that private respondent, did not have knowledge of these

transfers and transactions.

As a consequence of the transfer of said parcels of land to Service Leasing Corporation, petitioner filed an urgent

motion for substitution of party on July 28, 1983. Private respondent, on its part, filed on August 16, 1983 a

verified motion to enter in the records of the aforesaid civil cases its charging lien, pursuant to Section 37, Rule 138

of the Rules of Court, equivalent to twenty-five percent (25%) of the actual and current market values of the

litigated properties as its attorney's fees. Despite due notice, petitioner failed to appear and oppose said motion,

as a result of which the lower court granted the same and ordered the, Register of Deeds of Rizal to annotate the

attorney's liens on the certificates of title of the parcels of land.

Meanwhile, the plaintiffs Alejandro, et al. in the aforesaid civil cases, which had been consolidated and werepending before the Regional Trial Court of Pasig, filed a motion to dismiss their complaints therein, which motion

the lower court granted with prejudice in its order dated September 5, 1983. On December 29, 1983, the same

court ordered the Register of Deeds to annotate the attorney's liens of private respondent on the derivative titles

which cancelled Transfer Certificates of Title Nos. 453093 to 453099 of the original seven (7) parcels of land

hereinbefore adverted to.

On May 28,1984, private respondent filed a motion to fix its attorney's fees, based on quantum meruit , which

motion precipitated an exchange of arguments between the parties. On May 30, 1984, petitioner manifested that



it had fully paid private respondent; the latter, in turn, countered that the amount of P50,000.00 given by

petitioner could not be considered as full payment but merely a cash advance, including the amount of P14,000.00

paid to it on December 15, 1980. It further appears that private respondent attempted to arrange a compromise

with petitioner in order to avoid suit, offering a compromise amount of P600,000.00 but the negotiations were

unsuccessful.

Finally, on October 15,1984, the court a quo issued the order assailed on appeal before respondent court, grantingpayment of attorney's fees to private respondent, under the following dispositive portion:

PREMISES CONSIDERED, the motion is hereby granted and the Metropolitan Bank and Trust

Company (METROBANK) and Herby Commercial and Construction Corporation4

are hereby

ordered to pay the movant Arturo Alafriz and Associates the amount of P936,000.00 as its

proper, just and reasonable attorney's fees in these cases.5

On appeal, respondent court affirmed the order of the trial court in its decision promulgated on February 11, 1988.

A motion for reconsideration, dated March 3, 1988, was filed by petitioner but the same was denied in a resolution

promulgated on November 19, 1988, hence the present recourse.

The issues raised and submitted for determination in the present petition may be formulated thus: (1) whether ornot private respondent is entitled to the enforcement of its charging lien for payment of its attorney's fees; (2)

whether or not a separate civil suit is necessary for the enforcement of such lien and (3) whether or not private

respondent is entitled to twenty-five (25%) of the actual and current market values of the litigated properties on a

quantum meruit basis.

On the first issue, petitioner avers that private respondent has no enforceable attorney's charging lien in the civil

cases before the court below because the dismissal of the complaints therein were not, in the words of Section 37,

Rule 138, judgments for the payment of money or executions issued in pursuance of such judgments.6

We agree with petitioner.

On the matter of attorney's liens Section 37, Rule 138 provides:

. . . 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, from and after the time when he shall have caused a statement of his claim of such lien to

be entered upon the records of the court rendering such judgment, or issuing such execution,

and shall have caused written notice thereof to be delivered to his client and to the adverse

party; and he shall have the same right and power over such judgments and executions as his

client would have to enforce his lien and secure the payment of his just fees and disbursements.

Consequent to such provision, a charging lien, to be enforceable as security for the payment of attorney's fees,

requires as a condition sine qua non a judgment for money and execution in pursuance of such judgment secured

in the main action by the attorney in favor of his client. A lawyer may enforce his right to fees by filing thenecessary petition as an incident in the main action in which his services were rendered when something is due his

client in the action from which the fee is to be paid.7

In the case at bar, the civil cases below were dismissed upon the initiative of the plaintiffs "in view of the frill

satisfaction of their claims."8

The dismissal order neither provided for any money judgment nor made any

monetary award to any litigant, much less in favor of petitioner who was a defendant therein. This being so,

private respondent's supposed charging lien is, under our rule, without any legal basis. It is flawed by the fact that



there is nothing to generate it and to which it can attach in the same manner as an ordinary lien arises and

attaches to real or personal property.

In point is Morente vs. Firmalino,9

cited by petitioner in support of its position. In that case, movant-appellant

attorney sought the payment of his fees from his client who was the defendant in a complaint for injunction which

was dismissed by the trial court after the approval of an agreement entered into by the litigants. This Court held:

. . . The defendant having suffered no actual damage by virtue of the issuance of a preliminary

injunction, it follows that no sum can be awarded the defendant for damages. It becomes

apparent, too, that no amount having been awarded the defendant, herein appellant's lien could

not be enforced. The appellant, could, by appropriate action, collect his fees as attorney.

Private respondent would nevertheless insist that the lien attaches to the "proceeds of a judgment of whatever

nature,"10

relying on the case of Bacolod-Murcia Milling Co. Inc. vs. Henares 11

and some American cases holding

that the lien attaches to the judgment recovered by an attorney and the proceeds in whatever form they may be.12

The contention is without merit just as its reliance is misplaced. It is true that there are some American cases

holding that the lien attaches even to properties in litigation. However, the statutory rules on which they are basedand the factual situations involved therein are neither explained nor may it be said that they are of continuing

validity as to be applicable in this jurisdiction. It cannot be gainsaid that legal concepts of foreign origin undergo a

number of variegations or nuances upon adoption by other jurisdictions, especially those with variant legal

systems.

In fact, the same source from which private respondent culled the American cases it cited expressly declares that

"in the absence of a statute or of a special agreement providing otherwise, the general rule is that an attorney has

no lien on the land of his client, notwithstanding such attorney has, with respect to the land in question,

successfully prosecuted a suit to establish the title of his client thereto, recovered title or possession in a suit

prosecuted by such client, or defended successfully such client's right and title against an unjust claim or an

unwarranted attack,"13

as is the situation in the case at bar. This is an inescapable recognition that a contrary rule

obtains in other jurisdictions thereby resulting in doctrinal rulings of converse or modulated import.

To repeat, since in our jurisdiction the applicable rule provides that a charging lien attaches only to judgments for

money and executions in pursuance of such judgment, then it must be taken in haec verba. The language of the

law is clear and unequivocal and, therefore, it must be taken to mean exactly what it says, barring any necessity for

elaborate interpretation.14

Notably, the interpretation, literal as it may appear to be, is not without support in Philippine case law despite the

dearth of cases on all fours with the present case. In Caina et al . vs. Victoriano, et al .,15

the Court had the occasion

to rule that "the lien of respondent is not of a nature which attaches to the property in litigation but is at most a

personal claim enforceable by a writ of execution." In Ampil vs. Juliano-Agrava, et al .,16

the Court once again

declared that a charging lien "presupposes that the attorney has secured a favorable money judgment for his client

. . ." Further, in Director of Lands vs. Ababa, et al .,17

we held that "(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."

Even in the Bacolod-Murcia Milling case, which we previously noted as cited by private respondent, there was an

express declaration that "in this jurisdiction, the lien does not attach to the property in litigation."

Indeed, an attorney may acquire a lien for his compensation upon money due his client from the adverse party in

any action or proceeding in which the attorney is employed, but such lien does not extend to land which is the



subject matter of the litigation.18

More specifically, an attorney merely defeating recovery against his client as a

defendant is not entitled to a lien on the property involved in litigation for fees and the court has no power to fix

the fee of an attorney defending the client's title to property already in the client's

possession.19

While a client cannot defeat an attorney's right to his charging lien by dismissing the case, terminating the services

of his counsel, waiving his cause or interest in favor of the adverse party or compromising his action,20

this rulecannot find application here as the termination of the cases below was not at the instance of private respondent's

client but of the opposing party.

The resolution of the second issue is accordingly subsumed in the preceding discussion which amply demonstrates

that private respondent is not entitled to the enforcement of its charging lien.

Nonetheless, it bears mention at this juncture that an enforceable charging lien, duly recorded, is within the

jurisdiction of the court trying the main case and this jurisdiction subsists until the lien is settled.21

There is

certainly no valid reason why the trial court cannot pass upon a petition to determine attorney's fees if the rule

against multiplicity of suits is to be activated.22

These decisional rules, however, apply only where the charging lien

is valid and enforceable under the rules.

On the last issue, the Court refrains from resolving the same so as not to preempt or interfere with the authority

and adjudicative facility of the proper court to hear and decide the controversy in a proper proceeding which may

be brought by private respondent.

A petition for recovery of attorney's fees, either as a separate civil suit or as an incident in the main action, has to

be prosecuted and the allegations therein established as any other money claim. The persons who are entitled to

or who must pay attorney's fees have the right to be heard upon the question of their propriety or amount.23

Hence, the obvious necessity of a hearing is beyond cavil.

Besides, in fixing a reasonable compensation for the services rendered by a lawyer on the basis of quantum meruit ,

the elements to be considered are generally (1) the importance of the subject matter in controversy, (2) the extent

of the services rendered, and (3) the professional standing of the lawyer.

24

These are aside from the several otherconsiderations laid down by this Court in a number of decisions as pointed out by respondent court.

25A

determination of all these factors would indispensably require nothing less than a full-blown trial where private

respondent can adduce evidence to establish its right to lawful attorney's fees and for petitioner to oppose or

refute the same.

Nothing in this decision should, however, be misconstrued as imposing an unnecessary burden on private

respondent in collecting the fees to which it may rightfully be entitled. But, as in the exercise of any other right

conferred by law, the proper legal remedy should be availed of and the procedural rules duly observed to forestall

and obviate the possibility of abuse or prejudice, or what may be misunderstood to be such, often to the

undeserved discredit of the legal profession.

Law advocacy, it has been stressed, is not capital that yields profits. The returns it births are simple rewards for a

job done or service rendered. It is a calling that, unlike mercantile pursuits which enjoy a greater deal of freedom

from government interference, is impressed with public interest, for which it is subject to State regulation.26

ACCORDINGLY, the instant petition for review is hereby GRANTED and the decision of respondent Court of Appeals

of February 11, 1988 affirming the order of the trial court is hereby REVERSED and SET ASIDE, without prejudice to

such appropriate proceedings as may be brought by private respondent to establish its right to attorney's fees and

the amount thereof.



NO. 23

G.R. No. 85383 August 30, 1990

SEVERO M. LORENZO, petitioner,

vs.

HON. COURT OF APPEALS,* ESTHER BANEZ, and CHARITY BALDONADO, respondents.

On January 19, 1980, petitioner Lorenzo filed Special Proceedings No. 57 in the Municipal Court of Cauayan,

Isabela, for the adoption of Charity Baldonado by one Benjamin S. Baldonado who was then a pensioner of the

Social Security System of the United States Government. On February 27, 1980, Benjamin S. Baldonado died.

Subsequently, on March 5, 1980, the decision was rendered approving the adoption of Charity. In view of said

decision, Charity applied for insurance benefits as heir of Benjamin with the Social Security System of United States

of America. The claim was, however, denied. Petitioner prepared for Charity a motion for reconsideration but was

signed by her guardian, the private respondent Esther Banez. This motion was denied. Private respondent Banez

filed a second motion for reconsideration with petitioner signing as her counsel on July 15, 1981. This time, private

respondent won. Sometime in May, 1983, private respondent informed petitioner of the approval of Charity's

claim which amounted to US$182.00 (P3,891.06 converted to pesos under the current rate) monthly and a three-

year lump sum-monthly pension in arrears. Private respondent Esther Banez gave petitioner P1,000.00 as hisprofessional fee. On June 25, 1983 petitioner sent a letter to private respondent Banez demanding payment of

P33,250 as attorney's fees, plus a monthly share of P500.00 from the pension of Charity. Private respondents

rejected the demand. Thereupon, petitioner filed a complaint for payment of attorney's fees.

The trial court rendered judgment in favor of private respondents. On appeal to the respondent Court of Appeals,

it affirmed the lower court's judgment. Hence, this petition.

The only issue in this case is whether or not P1,000 is a reasonable amount of compensation to which petitioner is

entitled for the legal services he had rendered to the private respondents.

Noteworthy are the following facts: (1) petitioner was paid his fees in the Special Proceedings case which ended

with the adoption of the minor thereby terminating the client and lawyer relationship; (2) petitioner was paid forhis preparation of the first motion for reconsideration with regard to the denial of the claims for insurance benefit

which was signed by Charity's guardian, private respondent Banez; and (3) this particular motion was not signed by

petitioner as counsel for the private respondents.

Petitioner is now asking his fees for his assistance in preparing the second motion for reconsideration.

The petition has no merit.

The relevant provision of law is Section 24 of Rule 138, to wit:

Sec. 24. Compensation of attorneys agreements as to fees. — An attorney shall be entitled to

have and recover from his client no more than a reasonable compensation for his services, with aview to the importance of the subject matter of the controversy, the extent of the services

rendered, and the professional standing of the attorney. No court shall be bound by the opinion

of attorneys as expert witnesses as to the proper compensation, but may disregard such

testimony and base its conclusion on its own professional knowledge. A written contract for

services shall control the amount to be paid therefor unless found by the court to be

unconscionable or unreasonable.



Under the aforecited Rule, it is clear that a lawyer has the right to be paid for the legal services he has extended to

his client. However, the same provides for a limitation in the fixing of said attorney's fees, that is, it must be just

and reasonable. And in determining the reasonableness of attorney's fees, several factors or circumstances must

be taken into account, namely: the amount and character of the services rendered; the nature and importance of

the litigation or business in which the services were rendered; the responsibility imposed; the amount of money or

the value of the property affected by the controversy or involved in the employment; the skill and experience

called for in the performance of the services; the professional character and social standing of the attorney; theresults secured, among others.

We see no reversible error on the part of respondent Court in affirming the lower court's judgment. Said

respondent Court:

Turning to the present controversy, it is at once apparent that the legal work done by herein

plaintiff-appellant, Atty. Severo M. Lorenzo, in preparing the second motion for reconsideration,

a two-page letter addressed to the Social Security Administration of the United States of

America, dated July 18, 1981 (Exh. "E-1" ), was quite simple in nature. It did not require much

time, effort or skill. Certainly, it does not serve to justify a hefty claim to half of the pension due

to the defendant minor, or to P32,260.00 plus P500.00 monthly, to be precise, as attorney's fees.

The records further disclose that plaintiff-appellant never attended any hearing in connectionwith the aforementioned motion for reconsideration in regard to the insurance benefits due

Charity Baldonado. Then, too, a close perusal of the said motion for reconsideration would reveal

that the arguments therein raised by him were merely a reiteration of the points touched upon

by the defendants-appellants in their first motion for reconsideration. (p. 21, Rollo)

We share likewise the observation made by the trial court in applying Section 1 of Republic Act 145 which actually

militates against petitioner's claim. Said law provides:

Any person assisting a claimant in the preparation, presentation and prosecution of his claim for

benefits under the laws of the United States administered by the United States Veterans

Administration who shall directly or indirectly, solicit, contract for, charge or receive, or who shall

attempt to solicit, contract for, charge or receive any fee or compensation exceeding twenty

pesos, in any claim, or who shall collect his fee before the claim is actually paid to a beneficiary or

claimant shall be guilty of an offense and upon conviction thereof shall for every offense be fined

not exceeding one thousand pesos or imprisonment not exceeding five years, or both, in the

discretion of the court.

As aptly put by the trial court:

While the defendants' claim was filed with the Social Security Administration of the United States

of America, the evidence overwhelmingly shows that said claim is being administered by the

United States Veterans Administration. The communications sent by the defendants (Exhs. "1",

"E-1" and "C"), as well as those received from the United States Government (Exhs. "2", "3", "5",

"7", and "D"), show that the claim of Charity Baldonado was being administered by the United

States Veterans Administration. The fact that communications, although pertaining to the SocialSecurity Administration, were coursed through the United States Veterans Administration,

merely supports the view that this particular claim of the defendant is being administered by said

department. Since under the aforequoted law, the plaintiff is only authorized to exact a fee of

P20.00, the plaintiff, therefore, has no cause of action against the defendants for the latter have

paid him more than what the law requires. (pp. 22-23, Rollo)

The principle of quantum meruit applies if a lawyer is employed without a price agreed upon for his services. In

which case, he would be entitled to receive what he merits for his services, as much as he has earned. (Robinol vs.



Montemayor, Adm. Case No. 2180, April 10, 1989). Under the circumstances and on the basis of quantum meruit ,

the, P1,000 paid to appellant is reasonable compensation for his legal work, there being no agreement on the

amount of the fee.

PREMISES CONSIDERED, the appealed judgment is hereby AFFIRMED with costs against the petitioner.

SO ORDERED.



NO. 24

G.R. No. 71459 July 30, 1986

D. M. CONSUNJI, INC., petitioner,

vs.

NATIONAL LABOR RELATIONS COMMISSION, HON. ALCESTIS A. MANGAHAS and APOLINARIO AGBAYANI,respondents.

This is a petition for review king to set aside the June 10, 1985 decision of the respondent National Labor Relations

Commission which affirmed the award made by respondent Ma. Alcestis A. Mangahas of the Philippine Overseas

Employment Administration.

Sometime in November 1981, private respondent Apolinario Agbayani was employed by petitioner D. M. Consunji,

Inc. as Camp Administrator of its New Istana Construction Project in Brunei with a monthly salary of US$800.00 for

a period of two (2) years. As camp administrator, he was responsible for camp security and safety, camp

maintenance, employee services, and rest and recreation.

Pursuant to his contract of employment, the private respondent left for Brunei on December 20, 1981. While inBrunei, he bought a car which he used for R and R Postal Services and Taman Puri Camp Maintenance.

On May 24, 1982, respondent Agbayani was required to return to Manila and report to Mr. Jesus Ferrer, the

petitioner's president on the details of a sit down strike that occured in the camp sometime in March and May,

1982. The petitioner provided respondent Agbayani with a one-way ticket back to Manila.

On June 1, 1982, after submitting his report, the respondent attempted to confirm his flight back to Brunei but was

told that the same had been cancelled. He was likewise informed by the petitioner that a message was received

from the Brunei office advising the Manila office to hold Agbayani until further instructions. In that same month,

respondent Agbayani, on his own initiative secured a re-entry visa and a return plane ticket back to Brunei.

Back in Manila, respondent Agbayani was-detailed with the petitioner company's security department andcontinued to be paid his overseas salary rate at US$800.00 monthly.

On June 26, 1982, the petitioner company terminated Agbayani's services. The termination took effect on June 30,

1982.

When the petitioner did not heed Agbayani's demand to pay his salary up to the date of his termination, grant him

separation pay, reimburse his re-entry visa fee and plane ticket and ship back to Manila the personal belongings he

left in Brunei, including a car he had purchased there, he filed BES Case No. 82-3068 for illegal dismissal with the

Philippine Overseas Employment Administration.

On October 25, 1984, Ma. Alcestis A. Mangahas rendered a decision in favor of respondent Agbayani, the

dispositive portion of which reads:

1. To pay to complainant the sum of US$14,400.00 or its equivalent in Philippine Currency at the

time of payment, as salary corresponding to the unexpired portion of his employment contract;

2. To pay complainant the sum of B$27.00 or its equivalent in Philippine Currency at the time of

payment as reinbursement of re-entry visa fee; and the sum of B$430.00 or its equivalent in

Philippine Currency at the time of payment, as reimbursement of his return plane fare to Brunei;



3. To cause to be brought to the Philippines complainant's personal belongings including his car,

or at least, payment to complainant of the cash equivalent thereof either in US Dollar or its

equivalent in Philippine Currency as of the time of payment; and

4. To pay to complainant's counsel of record the sum equivalent to 10% of the totality of the

judgment award.

No other pronouncement.

As earlier indicated, the respondent Commission affirmed in toto the said decision on June 10, 1985.

The only issue is whether or not respondent Apolinario Agbayani was justifiably dismissed before the expiration of

his two (2) years contract with the petitioner.

The petitioner submits that respondent Agbayani, as a managerial employee, failed to integrate the various facets

of his work as camp administrator and considering his failure to come up to the standard requirements of his

position, was justifiably dismissed on that ground when he was still in Brunei.

There is no dispute that indeed, respondent Agbayani was a managerial employee. As camp administrator, andlater incharge of the implementation of the rest and recreation program of the petitioner's New Istana

Construction Project in Brunei, respondent Agbayani was obviously not a rank-and-file employee. A managerial

employee is one who is vested with powers or prerogatives to lay down and execute management policies and/or

to hire, transfer, suspend, lay-off, recall, discharge, assign or discipline employees or effectively recommend such

managerial actions (Reynolds Philippine Corporation v. Eslava, 1.37 SCRA 259). We agree with the observation of

the Solicitor General that:

x x x x x x x x x

... Although he did not himself lay down management policies, the memorandum quoted above

shows that he could effectively recommend the adoption of such policies by higher

management. And, as one in-charge of specific company operations such as its recreationfacilities and other services, it is implicit that he was in a position to effectively recommend the

hiring and dismissal of employees in these facilities and services. Respondent Agbayani cannot be

classified as a rank-and-file employee. His salary alone at US$800 per month argues against this

proposition."

x x x x x x x x x

It is true that as a managerial employee he may be terminated for just cause such as lack of confidence (Reynolds

Philippine Corporation v. Eslava, supra). An employer has a much wider discretion in terminating the employment

relationship of managerial personnel as compared to rank- and file employees. However, such prerogative of

management to dismiss or lay-off an employee must be made without abuse of discretion, for what is at stake is

not only the private respondent's position but also his means of livelihood (Remerco Garments Manufacturing v.Minister of Labor and Employment, et al, 135 SCRA 167). The matter of determining whether the grounds for loss

of confidence are valid and sufficient cannot be left to the sole discretion of the employer. The rules of fairness

and due process still apply.

The memorandum dated March 9, 1982, directing respondent Agbayani to give priority to rest and recreation is

not evidence of loss of confidence. The memorandum reads:



The urgency of implementing an adequate R and R program for the workers and staff can no

longer be disregarded. Senior Management's attention must be focused on this need.

In view of the foregoing, these directives are issues:

1. Effective immediately, ASA (respondent Agbayani) shall give top priority to and concentrate on

R and R activities. As such he shall be expected to do the following:

a) Formulate a comprehensive R and R Program and submit the same to higher

management on or before 17 March for review and approval.

b) Prepare and submit appropriate budget studies to support the various R and

R activities, prior to implementation.

c) Management the operations of the Recreational Facilities and the conduct of

related activities.

DO Implement the approved R and R program.

2. HAC shall provide the necessary direction and supervision to ASA on above subject.

3. To enable ASA to devote sufficient time to R and R activities he shall temporarily relinquish

administrative responsibility over security, safety, ramp maintenance, employee services and

orientation of incoming personnel to HAC. This arrangement shall remain effective unless

subsequently revoked by order of the undersigned. ASA shall however continue to be responsible

for barracks assignments and accomodations.

4. To assist ASA in the implementation of R and R Program, Santiago Martinez shall be assigned

to him on a full time basis.

5. Victorino Paguirigan, who is presently devoting part of his time to R and R activities shall

concentrate on camp maintenance and employee services, under Diego Bisuna.

For information and implementation of all concerned.

Again, we agree with the following observations of the Solicitor General:

The above is at best equivocal since it makes no specific judgment on respondent Agbayani's

overall performance of his duties under the employment contract. True, he had been relieved of

some of his responsibilities, but this can be read as the company's realization that his skills were

better concentrated in an area of high concern rather than dissipated in unimportant tasks.

Except for this memorandum, the petitioner did not present any other evidence which satisfactorily shows that

respondent Agbayani has been guilty of breach of trust or that it had ample reason to distrust him. If the petitioner

had lost its confidence in its manager, it showed a strange and ambiguous way of showing it. A corporation hiring

personnel for overseas operations should also be more careful and stringent in testing and qualifying the managers

and even employees it recruits for foreign assignments so as to avoid the difficulties incident to summary

dismissals.



Loss of confidence in a managerial employee cannot be deemed present where he was given full responsibility in

the implementation of the R and R program of the petitioner's New Istana Construction Project in Brunei. In fact,

respondent Agbayani was even directed to-(1) formulate a comprehensive Rest and Recreation Program; (2)

prepare and submit an appropriate budget studies to support the various R and R activities; and (3) manage the

operations of the recreational facilities and the conduct of related activities.

In General Bank and Trust Co. v. Court of Appeals (135 SCRA 569), this Court held that:

xxx xxx xxx

...However, loss of confidence should not be simulated. It should not be used as a subterfuge for

causes which are improper, illegal, or unjustified. Loss of confidence may not be arbitrarily

asserted in the face of overwhelming evidence to the contrary. It must be genuine, not a mere

afterthought to justify, earlier action taken in bad faith.

The petitioner should have been more forthright in dismissing its camp manager. It should have come up with

clearer proof of his failure to come up to the standards required of a manager. Since the petitioner failed to

substantiate its claim that Agbayani was validly dismissed, he should be awarded his wages corresponding to the

unexpired portion of his contract of employment. Considering that respondent Agbayani started working with thepetitioner company on December 20, 1981 and his contract was terminated on June 30, 1982, he is entitled to US

$14,400.00 corresponding to the eighteen (18) months unexpired term of his contract at a monthly salary of US

$800.00. In J. Walter Thompson Co. (Phil.) v. National Labor Relations Commission (126 SCRA 458, this Court

awarded the private respondent therein P202,500 (P7.50 x US $31,000.00 x 2 years) equivalent to his salary for the

remaining two (2) years of his contractual service with the petitioner therein less P84,700.00 representing the

transportation costs incurred by the petitioner in bringing his family and household effects to the country.

However, the award ordering the petitioner company to pay respondent Agbayani the sum of B$27.00 as

reimbursement of re-entry visa fee and the sum of B$ 430.00 as reimbursement of his return plane fare to Brunei

or their equivalent in Philippine currency is not justified.

The records show that the petitioner company did not induce, much less, order respondent Agbayani to procure are-entry visa or a return plane ticket to Brunei. In fact, the petitioner company had nothing to do with these

expenses. The records indisputably show that respondent procured a re-entry visa and a return plane ticket back

to Brunei on his own initiative.

Likewise, the award ordering the petitioner company to reimburse respondent Agbayani the cost of his car or to

pay for its shipment to the Philippines is improper. Respondent Agbayani bought the car on his own initiative

without the approval and consent of the petitioner company. In fact, respondent Agbayani did not need the same

for company purposes as he was one of five (5) managerial employees of the petitioner company with direct

access to and use of company vehicles.

Finally, considering the simple nature of the litigation wherein legal services were rendered, the fact that, the

questions involved are neither novel nor difficult, the quantity and character of the services rendered and the

length of time the instant case has been pending, the award of 10% of the totality of the judgment as attorney's

fees or roughly P28,800.00 is utterly excessive and unreasonable. Art. 111(b) of the Labor Code is more of a

limitation on the amount of attorney's fees which a lawyer may recover in any judicial or administrative

proceedings for the recovery of wages and does not preclude us from fixing a lower amount when circumstances

warrant it. Indeed, the same should be strictly construed. An award therefore of P4,000.00 is more appropriate

and commensurate under the circumstances of this petition.



WHEREFORE, the decision appealed from is hereby MODIFIED in that petitioner D. M. Consunji, Inc. should only be

liable to pay respondent Apolinario Agbayani the equivalent of US $14,400.00 in Philippine Currency as salary

corresponding to the unexpired portion of his employment contract, and P4,000.00 as attorney's fees. No costs.

SO ORDERED.



NO. 25

G.R. No. 91958 January 24, 1991

WILFREDO D. LICUDAN and CRISTINA LICUDAN-CAMPOS, petitioners,

vs.

THE HONORABLE COURT OF APPEALS and ATTY. TEODORO O. DOMALANTA, respondents.

The practice of law is a profession rather than trade. Courts must guard against the charging of unconscionable

and excessive fees by lawyers for their services when engaged as counsel. Whether or not the award of attorney's

fees in this case is reasonable, being in the nature of contingent fees, is the principal issue.

This petition for review on certiorari assails:

1) The Decision of the public respondent dated September 12, 1989 which dismissed the petitioners' appeal

thereby upholding the reasonableness of the respondent lawyer's lien as attorney's fees over the properties of his

clients; and

2) The Resolution of the public respondent dated January 30, 1990 which denied the petitioners' motion for

reconsideration.

The grounds relied upon by the petitioners are as follows:

The respondent Court, in upholding the entitlement of private respondent-attorney on the

attorney's fees he claimed, decided the question in a manner not in accord with law or with the

applicable decisions of this Honorable Tribunal.

The respondent Court, in refusing to review and determine the propriety, reasonableness and

validity of the attorney's fees claimed by the private respondent-attorney, departed from the

usual course of judicial proceedings.

The respondent Court, in failing to declare the attorney's fees claimed by the private respondent-

attorney as unconscionable, excessive, unreasonable, immoral and unethical, decided the

question in a way not in accord with law and with applicable decisions of this Honorable Tribunal.

(Petition, pp. 12-13; Rollo, pp. 16-17)

The following are the antecedent facts pertinent to the case at bar:

The respondent lawyer was retained as counsel by his brother-in-law and sister, the now deceased petitioners'

parents, spouses Aurelio and Felicidad Licudan. His services as counsel pertained to two related civil cases

docketed as Civil Case No. Q-12254 for partition and Civil Case No. Q-28655 for a sum of money in connection with

the redemption of the property subject matter of the two cases covered by Transfer Certificate of Title No. 818 of

the Register of Deeds of Quezon City. In both cases, the respondent lawyer obtained a judgment in favor of hisclients.

On August 13,1979, the respondent lawyer filed a Petition for Attorney's Lien with Notification to his Clients which

substantially alleged that his clients executed two written contracts for professional services in his favor which

provided that:



a) The undersigned counsel is entitled to own 97.5 square meters of the plaintiff's share of the

lot in question.

b) The undersigned counsel shall have a usufructuary right for a period of ten (10) years of

plaintiffs' share of the lot in question.

c) And that all damages accruing to plaintiffs to be paid by the defendant is for the undersignedcounsel.(Annex "H" of the Petition, Rollo, p. 54)

On September 19, 1979, the trial court handling Civil Case No. Q-12254 ordered the annotation at the back of TCT

No. 818 of the Register of Deeds of Quezon City of the respondent lawyer's Contract for Professional Services

dated August 30, 1979 signed by petitioner Wilfredo Licudan and Aurelio Licudan on his own behalf and on behalf

of his daughter, petitioner Cristina Licudan-Campos. The said trial court's Order, being one of two Orders being

essentially challenged in this petition, is reproduced below:

Before the court for consideration is a Petition for Attorney's Lien filed by Atty. Teodoro D.

Domalanta, counsel for the plaintiff, praying that his attorney's fees be annotated as a lien at the

back of Transfer Certificate of Title No. 818 of the Register of Deeds of Quezon City, subject

matter of this case.

For the protection of the plaintiffs, the court required the plaintiff Aurelio Licudan as well as his

son to appear this morning. Plaintiff Aurelio Licudan together with his son Wilfredo Licudan, who

appears to be intelligent and in fact he speaks (the) English language well, appeared. Both

Aurelio and Wilfredo Licudan manifested that they have freely and voluntarily signed the

Contract for Professional Services, dated August 30, 1979 and notarized before Notary Public

Amado Garrovillas as Doc. No. 32, Page 8, Book No. XIX, Series of 1979.

Considering the manifestation of plaintiff, Aurelio Licudan and Alfredo (sic) Licudan that they

have entered freely and voluntarily in the said contract of professional services, let the same be

annotated at the back of TCT 818 of the Register of Deeds of Quezon City, upon payment of the

required legal fees. (CA Decision, pp. 7-8; Rollo, pp. 36-37)

The Contract for Professional Services dated August 30, 1979 differs from the earlier contractual provisions in that

it entitled the respondent lawyer to one-third (1/3) of the subject property or 90.5 square meters and provided for

usufructuary rights over the entire lot in question in favor of the respondent lawyer's son, Teodoro M. Domalanta,

Jr. for an agreed consideration. (Annex "J" of the Petition; Rollo, p. 59)

On July 25, 1985, the respondent lawyer filed a motion ex parte to amend the Order dated September 19, 1979 so

as to conform with an additional professional fee covering 31 square meters more of the lot for services rendered

in Civil Case No. Q-28655 as evidenced by a Deed of Absolute Sale dated May 1, 1983 executed by Aurelio Licudan

in favor of the respondent lawyer.

On September 6, 1985, the trial court ordered the respondent lawyer to submit a subdivision plan in conformitywith his attorney's fees contract under which one-third (1/3) of the property or 90.5 square meters was alloted to

him.

On September 23, 1985, the respondent lawyer filed a motion for reconsideration praying for the amendment of

the Order dated September 19, 1979 to conform with the Deed of Absolute Sale dated May 1, 1983 which was

executed after the annotation of the original attorney's lien of 90.5 square meters.



On September 30, 1985, the trial court denied the motion on the ground that the respondent lawyer cannot collect

attorney's fees for other cases in the action for partition.

On October 4, 1985, the respondent lawyer filed a second motion for reconsideration of the Order dated

September 6, 1985 explaining that what he sought to be included in the Order dated September 19, 1979 is the

additional attorney's fees for handling the redemption case which was but a mere offshoot of the partition case

and further manifesting that the additional 31 square meters as compensation for the redemption case must bemerged with the 90.5 square meters for the partition case to enable the said respondent lawyer to comply with

the Order dated September 6,1985 which directed him to submit a subdivision plan as required.

On October 21, 1985, the trial court issued the second Order being assailed in this petition. The said Order reads:

Acting on the "Second Motion for Reconsideration" filed by Atty. Teodoro Domalanta and finding

the same to be justified, let an attorney's lien be annotated in the title of the property for 31

square meters as attorney's fees of said Atty. Teodoro Domalanta in addition to the original 90.5

square meters. (CA Decision, p. 8; Rollo, p. 37)

On August 22, 1986, more than ten (10) months after the Orders of September 6, 1985 and October 21, 1985 had

become final and executory, the petitioners as substituted heirs of the respondent lawyers' deceased clients filed amotion to set aside orders on the ground that the award of professional fees covering 121.5 square meters of the

271.5 square meter lot is unconscionable and excessive.

After the respondent lawyer filed his Opposition to the above petitioners' motion, the lower court, on August 29,

1986, finding that the petitioners as substituted plaintiffs are not in full agreement with the respondent lawyer's

claim for attorney's fees, set aside its Orders dated September 6, 1985 and October 21, 1985.

On September 16, 1986, the respondent lawyer filed a motion for reconsideration stressing the fact that the

payment of the professional services was pursuant to a contract which could no longer be disturbed or set aside

because it has already been implemented and had since then become final. This motion was denied on October 3,

1986.

On November 15, 1986, the respondent lawyer filed a motion to set aside the orders dated August 29, 1986 and

October 3, 1986 reiterating his position that the Orders of September 6, 1985 and October 21, 1985 have become

final and are already implemented. The respondent lawyer further asked for the modification of the October 21,

1985 Order to reflect 60.32 square meters instead of 31 square meters only since the stipulation in the Additional

Contract for Professional Services entitled him to 60.32 square meters.

After the petitioners' Opposition to the said motion was filed, the trial court, on February 26, 1987, rendered an

Order with the following dispositive portion:

WHEREFORE, this Court has no alternative but to set aside its orders of 29 August 1986 and 3

October 1986 and declare its Orders of 19 September 1979 and 21 October 1985 irrevocably final

and executory. (CA Decision, p. 5; Rollo, p. 34)

On Appeal, the Court of Appeals ruled in favor of the respondent lawyer by dismissing the appeal and the prayed

for writ of preliminary injunction. Their subsequent motion for reconsideration having been denied', the

petitioners filed the instant petition.

The petitioners fault the respondent Court for its failure to exercise its inherent power to review and determine

the propriety of the stipulated attorney's fees in favor of the respondent lawyer and accuse the respondent lawyer

of having committed an unfair advantage or legal fraud by virtue of the Contract for Professional Services devised



by him after the trial court awarded him attorney's fees for P1,000.00 only instead of respecting the trust and

confidence of the highest level reposed on him considering the close blood and affinal relationship between him

and his clients.

The petitioners contend that under the award for professional services, they may have won the case but would

lose the entire property won in litigation to their uncle-lawyer. They would be totally deprived of their house and

lot and the recovered damages considering that of the 271.5 square meters of the subject lot, the respondentlawyer is claiming 121.5 square meters and the remaining portion of 150 square meters would also go to

attorney's fees since the said portion pertains to the lawyer's son by way of usufruct for ten (10) years.

The aforesaid submissions by the petitioners merit our consideration.

It is a well-entrenched rule that attorney's fees may be claimed in the very action in which the services in question

have been rendered or as an incident of the main action. The fees may be properly adjudged after such litigation is

terminated and the subject of recovery is at the disposition of the court. (see Camacho v. Court of Appeals, 179

SCRA 604 [1989]; Quirante v. Intermediate Appellate Court, 169 SCRA 769 [1989]).

It is an equally deeply-rooted rule that contingent fees are not per se prohibited by law. They are sanctioned by

Canon 13 of the Canons of Professional Ethics and Canon 20, Rule 20.01 of the recently promulgated Code of Professional Responsibility. However, as we have held in the case of Tanhueco v . De Dumo (172 SCRA 760 [1989]):

. . . When it is shown that a contract for a contingent fee was obtained by undue influence

exercised by the attorney upon his client or by any fraud or imposition, or that the compensation

is clearly excessive, the Court must and will protect the aggrieved party. (Ulanday v. Manila

Railroad Co., 45 Phil. 540 [1923]; Grey v. Insular Lumber Co., 97 Phil. 833 [1955]).

In the case at bar, the respondent lawyer caused the annotation of his attorney's fees lien in the main action for

partition docketed as Civil Case No. Q-12254 on the basis of a Contract for Professional Services dated August 30,

1979. We find reversible error in the Court of Appeals' holding that:

When the reasonableness of the appellee's lien as attorney's fees over the properties of hisclients awarded to him by the trial court had not been questioned by the client, and the said

orders had already become final and executory, the same could no longer be disturbed, not even

by the court which rendered them (Tañada v. Court of Appeals, 139 SCRA 419). (CA Decision p. 7;

Rollo, p. 36)

On the contrary, we rule that the questioned Orders dated September 19, 1979 and October 21, 1985 cannot

become final as they pertain to a contract for a contingent fee which is always subject to the supervision of the

Court with regard to its reasonableness as unequivocally provided in Section 13 of the Canons of Professional

Ethics which reads:

13. Contingent Fees.—

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. (Emphasis supplied).

There is no dispute in the instant case that the attorney's fees claimed by the respondent lawyer are in the nature

of a contingent fee. There is nothing irregular about the execution of a written contract for professional services

even after the termination of a case as long as it is based on a previous agreement on contingent fees by the



parties concerned and as long as the said contract does not contain stipulations which are contrary to law, good

morals, good customs, public policy or public order.

Although the Contract for Professional Services dated August 30, 1979 was apparently voluntarily signed by the

late Aurelio Licudan for himself and on behalf of his daughter, petitioner Cristina Licudan-Campos and by the

petitioner Wilfredo Licudan who both manifested in open court that they gave their free and willing consent to the

said contract we cannot allow the said contract to stand as the law between the parties involved considering thatthe rule that in the presence of a contract for professional services duly executed by the parties thereto, the same

becomes the law between the said parties is not absolute but admits an exception—that the stipulations therein

are not contrary to law, good morals, good customs, public policy or public order (see Philippine American Life

Insurance Company v. Pineda, 175 SCRA 416 [1989]; Syjuco v. Court of Appeals, 172 SCRA 111 [1989]).

Under Canon 20 of the Code of Professional Responsibility, a lawyer shall charge only fair and reasonable fees. In

determining whether or not the lawyer fees are fair and reasonable, Rule 20-01 of the same Code enumerates the

factors to be considered in resolving the said issue. They are as follows:

a) The time spent and the extent of the services rendered or required;

b) The novelty and difficulty of the questions involved;

c) The importance of the subject matter;

d) The skill demanded;

e) The probability of losing other employment as a result of acceptance of the proferred case;

f) The customary charges for similar services and the schedule of fees of the IBP Chapter to which

he belongs;

g) The amount involved in the controversy and the benefits resulting to the client from the

service;

h) The contingency or certainty of compensation;

i) The character of the employment, whether occasional or established; and

j) The professional standing of the lawyer.

A similar provision is contained under Section 24, Rule 138 of the Revised Rules of Court which partly states that:

Sec. 24. Compensation of attorneys; agreement as to fees. — An attorney shall be entitled to

have and recover from his client no more than a reasonable compensation for his services, with a

view to the importance of the subject matter of the controversy, the extent of the services

rendered, and the professional standing of the attorney. . . . A written contract for services shall

control the amount to be paid therefor unless found by the court to be unconscionable or

unreasonable.

All that the respondent lawyer handled for his deceased sister and brother-in-law was a simple case of partition

which necessitated no special skill nor any unusual effort in its preparation. The subsequent case for redemption

was admittedly but an offshot of the partition case. Considering the close blood and affinal relationship between



the respondent lawyer and his clients, there is no doubt that Atty. Domalanta took advantage of the situation to

promote his own personal interests instead of protecting the legal interests of his clients. A careful perusal of the

provisions of the contract for professional services in question readily shows that what the petitioners won was a

pyrrhic victory on account of the fact that despite the successful turnout of the partition case, they are now

practically left with nothing of the whole subject lot won in the litigation. This is because aside from the 121.5

square meters awarded to Atty. Domalanta as attorney's fees, the said contract for professional services provides

that the remaining portion shall pertain to the respondent lawyer's son by way of usufruct for ten (10) years. Thereshould never be an instance where a lawyer gets as attorney's fees the entire property involved in the litigation. It

is unconscionable for the victor in litigation to lose everything he won to the fees of his own lawyer.

The respondent lawyer's argument that it is not he but his son Teodoro M. Domalanta, Jr. who is claiming the

usufructuary right over the remaining portion of the subject lot is inaccurate. The records show that the matter of

usufruct is tied up with this case since the basis for the said usufructuary right is the contract for professional

services the reasonableness of which is being questioned in this petition. We find the ten-year usufruct over the

subject lot part and parcel of the attorney's fees being claimed by the respondent lawyer.

In resolving the issue of reasonableness of the attorney's fees, we uphold the time-honoured legal maxim that a

lawyer shall at all times uphold the integrity and dignity of the legal profession so that his basic ideal becomes one

of rendering service and securing justice, not money-making. For the worst scenario that can ever happen to aclient is to lose the litigated property to his lawyer in whom an trust and confidence were bestowed at the very

inception of the legal controversy. We find the Contract for Professional Services dated August 30, 1979,

unconscionable and unreasonable. The amount of P20,000.00 as attorney's fees, in lieu of the 121.5 square meters

awarded to the respondent lawyer and the ten-year usufructuary right over the remaining portion of 150 square

meters by the respondent lawyer's son, is, in the opinion of this Court, commensurate to the services rendered by

Atty. Domalanta.

WHEREFORE, IN VIEW OF THE FOREGOING, the instant petition is GRANTED. The Court of Appeals' decision of

September 12, 1989 is hereby REVERSED and SET ASIDE. Atty. Domalanta is awarded reasonable attorney's fees in

the amount of P20,000.00.

SO ORDERED.



NO.26

G.R. No. L-68838 March 11, 1991

FLORENCIO FABILLO and JOSEFA TANA (substituted by their heirs Gregorio Fabillo, Roman Fabillo, Cristeta F.Maglinte and Antonio Fabillo), petitioners,

vs.

THE HONORABLE INTERMEDIATE APPELLATE COURT (Third Civil Case Division) and ALFREDO MURILLO(substituted by his heirs Fiamita M. Murillo, Flor M. Agcaoili and Charito M. Babol), respondents.

In the instant petition for review on certiorari , petitioners seek the reversal of the appellate court's decision

interpreting in favor of lawyer Alfredo M. Murillo the contract of services entered into between him and his clients,

spouses Florencio Fabillo and Josefa Taña.

In her last will and testament dated August 16, 1957, Justina Fabillo bequeathed to her brother, Florencio, a house

and lot in San Salvador Street, Palo, Leyte which was covered by tax declaration No. 19335, and to her husband,

Gregorio D. Brioso, a piece of land in Pugahanay, Palo, Leyte.1

After Justina's death, Florencio filed a petition for

the probate of said will. On June 2, 1962, the probate court approved the project of partition "with the reservation

that the ownership of the land declared under Tax Declaration No. 19335 and the house erected thereon belitigated and determined in a separate proceedings."

2

Two years later, Florencio sought the assistance of lawyer Alfredo M. Murillo in recovering the San Salvador

property. Acquiescing to render his services, Murillo wrote Florencio the following handwritten letter:

Dear Mr. Fabillo:

I have instructed my stenographer to prepare the complaint and file the same on Wednesday if

you are ready with the filing fee and sheriffs fee of not less than P86.00 including transportation

expenses.

Considering that Atty. Montilla lost this case and the present action is a revival of a lost case, Itrust that you will gladly give me 40% of the money value of the house and lot as a contigent (sic)

fee in case of a success. When I come back I shall prepare the contract of services for your

signature.

Thank you.

Cordially yours,

(Sgd.) Alfredo M. Murillo

Aug. 9, 19643

Thirteen days later, Florencio and Murillo entered into the following contract:

CONTRACT OF SERVICES

KNOW ALL MEN BY THESE PRESENTS:

That I, FLORENCIO FABILLO, married to JOSEFA TANA, of legal age, Filipino citizen and with

residence and postal address at Palo, Leyte, was the Petitioner in Special Proceedings No. 843,



entitled "In the Matter of the Testate Estate of the late Justina Fabillo, Florencio Fabillo,

Petitioner" of the Court of First Instance of Leyte;

That by reason of the Order of the Court of First Instance of Leyte dated June 2, 1962, my claim

for the house and lot mentioned in paragraph one (1) of the last will and testament of the late

Justina Fabillo, was denied altho the will was probated and allowed by the Court;

That acting upon the counsel of Atty. Alfredo M. Murillo, I have cause(d) the preparation and

filing of another case, entitled "Florencio Fabillo vs. Gregorio D. Brioso," which was docketed as

Civil Case No. 3532 of the Court of First Instance of Leyte;

That I have retained and engaged the services of Atty. ALFREDO M. MURILLO, married and of

legal age, with residence and postal address at Santa Fe, Leyte to be my lawyer not only in Social

Proceedings No. 843 but also in Civil Case No. 3532 under the following terms and conditions;

That he will represent me and my heirs, in case of my demise in the two cases until their

successful conclusion or until the case is settled to my entire satisfaction;

That for and in consideration for his legal services, in the two cases, I hereby promise and bindmyself to pay Atty. ALFREDO M. MURILLO, in case of success in any or both cases the sum

equivalent to FORTY PER CENTUM (40%) of whatever benefit I may derive from such cases to be

implemented as follows:

If the house and lot in question is finally awarded to me or a part of the same by virtue of an

amicable settlement, and the same is sold, Atty. Murillo, is hereby constituted as Atty. in-fact to

sell and convey the said house and lot and he shall be given as his compensation for his services

as counsel and as attorney-in-fact the sum equivalent to forty per centum of the purchase price

of the house and lot;

If the same house and lot is just mortgage(d) to any person, Atty. Murillo shall be given the sum

equivalent to forty per centum (40%) of the proceeds of the mortgage;

If the house and lot is leased to any person, Atty. Murillo shall be entitled to receive an amount

equivalent to 40% (FORTY PER CENTUM) of the rentals of the house and lot, or a part thereof;

If the house and lot or a portion thereof is just occupied by the undersigned or his heirs, Atty.

Murillo shall have the option of either occupying or leasing to any interested party FORTY PERCENT of the house and lot.

Atty. Alfredo M. Murillo shall also be given as part of his compensation for legal services in the

two cases FORTY PER CENTUM of whatever damages, which the undersigned can collect in either

or both cases, provided, that in case I am awarded attorney's fees, the full amount of attorney's

fees shall be given to the said Atty. ALFREDO M. MURILLO;

That in the event the house and lot is (sic) not sold and the same is maintained by the

undersigned or his heirs, the costs of repairs, maintenance, taxes and insurance premiums shall

be for the account of myself or my heirs and Attorney Murillo, in proportion to our rights and

interest thereunder that is forty per cent shall be for the account of Atty. Murillo and sixty per

cent shall be for my account or my heirs.



IN WITNESS HEREOF, I hereby set unto my signature below this 22nd day of August 1964 at

Tacloban City.

(Sgd.) FLORENCIO FABILLO

(Sgd.) JOSEFA T. FABILLO

WITH MY CONFORMITY:

(Sgd.) ALFREDO M. MURILLO

(Sgd.) ROMAN T. FABILLO (Sgd.) CRISTETA F. MAGLINTE

(Witness) (Witness)4

Pursuant to said contract, Murillo filed for Florencio Fabillo Civil Case No. 3532 against Gregorio D. Brioso to

recover the San Salvador property. The case was terminated on October 29, 1964 when the court, upon the

parties' joint motion in the nature of a compromise agreement, declared Florencio Fabillo as the lawful owner not

only of the San Salvador property but also the Pugahanay parcel of land.

Consequently, Murillo proceeded to implement the contract of services between him and Florencio Fabillo by

taking possession and exercising rights of ownership over 40% of said properties. He installed a tenant in thePugahanay property.

Sometime in 1966, Florencio Fabillo claimed exclusive right over the two properties and refused to give Murillo his

share of their produce.5

Inasmuch as his demands for his share of the produce of the Pugahanay property were

unheeded, Murillo filed on March 23, 1970 in the then Court of First Instance of Leyte a complaint captioned

"ownership of a parcel of land, damages and appointment of a receiver" against Florencio Fabillo, his wife Josefa

Taña, and their children Ramon (sic) Fabillo and Cristeta F. Maglinte.6

Murillo prayed that he be declared the lawful owner of forty per cent of the two properties; that defendants be

directed to pay him jointly and severally P900.00 per annum from 1966 until he would be given his share of the

produce of the land plus P5,000 as consequential damages and P1,000 as attorney's fees, and that defendants be

ordered to pay moral and exemplary damages in such amounts as the court might deem just and reasonable.

In their answer, the defendants stated that the consent to the contract of services of the Fabillo spouses was

vitiated by old age and ailment; that Murillo misled them into believing that Special Proceedings No. 843 on the

probate of Justina's will was already terminated when actually it was still pending resolution; and that the

contingent fee of 40% of the value of the San Salvador property was excessive, unfair and unconscionable

considering the nature of the case, the length of time spent for it, the efforts exerted by Murillo, and his

professional standing.

They prayed that the contract of services be declared null and void; that Murillo's fee be fixed at 10% of the

assessed value of P7,780 of the San Salvador property; that Murillo be ordered to account for the P1,000 rental of

the San Salvador property which he withdrew from the court and for the produce of the Pugahanay property from

1965 to 1966; that Murillo be ordered to vacate the portion of the San Salvador property which he had occupied;that the Pugahanay property which was not the subject of either Special Proceedings No. 843 or Civil Case No.

3532 be declared as the exclusive property of Florencio Fabillo, and that Murillo be ordered to pay moral damages

and the total amount of P1,000 representing expenses of litigation and attorney's fees.

In its decision of December 2, 1975,7

the lower court ruled that there was insufficient evidence to prove that the

Fabillo spouses' consent to the contract was vitiated. It noted that the contract was witnessed by two of their

children who appeared to be highly educated. The spouses themselves were old but literate and physically fit.



In claiming jurisdiction over the case, the lower court ruled that the complaint being one "to recover real property

from the defendant spouses and their heirs or to enforce a lien thereon," the case could be decided independent

of the probate proceedings. Ruling that the contract of services did not violate Article 1491 of the Civil Code as said

contract stipulated a contingent fee, the court upheld Murillo's claim for "contingent attorney's fees of 40% of the

value of recoverable properties." However, the court declared Murillo to be the lawful owner of 40% of both the

San Salvador and Pugahanay properties and the improvements thereon. It directed the defendants to pay jointly

and severally to Murillo the amount of P1,200 representing 40% of the net produce of the Pugahanay propertyfrom 1967 to 1973; entitled Murillo to 40% of the 1974 and 1975 income of the Pugahanay property which was on

deposit with a bank, and ordered defendants to pay the costs of the suit.

Both parties filed motions for the reconsideration of said decision: Fabillo, insofar as the lower court awarded 40%

of the properties to Murillo and the latter insofar as it granted only P1,200 for the produce of the properties from

1967 to 1973. On January 29, 1976, the lower court resolved the motions and modified its decision thus:

ACCORDINGLY, the judgment heretofore rendered is modified to read as follows:

(a) Declaring the plaintiff as entitled to and the true and lawful owner of forty percent (40%) of

the parcels of land and improvements thereon covered by Tax Declaration Nos. 19335 and 6229

described in Paragraph 5 of the complaint;

(b) Directing all the defendants to pay jointly and severally to the plaintiff the sum of Two

Thousand Four Hundred Fifty Pesos (P2,450.00) representing 40% of the net produce of the

Pugahanay property from 1967 to 1973;

(c) Declaring the plaintiff entitled to 40% of the 1974 and 1975 income of said riceland now on

deposit with the Prudential Bank, Tacloban City, deposited by Mr. Pedro Elona, designated

receiver of the property;

(d) Ordering the defendants to pay the plaintiff the sum of Three Hundred Pesos (P 300.00) as

attorney's fees; and

(e) Ordering the defendants to pay the costs of this suit.

SO ORDERED.

In view of the death of both Florencio and Justina Fabillo during the pendency of the case in the lower court, their

children, who substituted them as parties to the case, appealed the decision of the lower court to the then

Intermediate Appellate Court. On March 27, 1984, said appellate court affirmed in toto the decision of the lower

court.8

The instant petition for review on certiorari which was interposed by the Fabillo children, was filed shortly after

Murillo himself died. His heirs likewise substituted him in this case. The Fabillos herein question the appellate

court's interpretation of the contract of services and contend that it is in violation of Article 1491 of the Civil Code.

The contract of services did not violate said provision of law. Article 1491 of the Civil Code, specifically paragraph 5

thereof, prohibits lawyers from acquiring by purchase even at a public or judicial auction, properties and rights

which are the objects of litigation in which they may take part by virtue of their profession. The said prohibition,

however, applies only if the sale or assignment of the property takes place during the pendency of the litigation

involving the client's property.9



Hence, a contract between a lawyer and his client stipulating a contingent fee is not covered by said prohibition

under Article 1491 (5) of the Civil Code because the payment of said fee is not made during the pendency of the

litigation but only after judgment has been rendered in the case handled by the lawyer. In fact, under the 1988

Code of Professional Responsibility, a lawyer may have a lien over funds and property of his client and may apply

so much thereof as may be necessary to satisfy his lawful fees and disbursements.10

As long as the lawyer does not exert undue influence on his client, that no fraud is committed or impositionapplied, or that the compensation is clearly not excessive as to amount to extortion, a contract for contingent fee

is valid and enforceable.11

Moreover, contingent fees were impliedly sanctioned by No. 13 of the Canons of

Professional Ethics which governed lawyer-client relationships when the contract of services was entered into

between the Fabillo spouses and Murillo.12

However, we disagree with the courts below that the contingent fee stipulated between the Fabillo spouses and

Murillo is forty percent of the properties subject of the litigation for which Murillo appeared for the Fabillos. A

careful scrutiny of the contract shows that the parties intended forty percent of the value of the properties as

Murillo's contingent fee. This is borne out by the stipulation that "in case of success of any or both cases," Murillo

shall be paid "the sum equivalent to forty per centum of whatever benefit" Fabillo would derive from favorable

judgments. The same stipulation was earlier embodied by Murillo in his letter of August 9, 1964 aforequoted.

Worth noting are the provisions of the contract which clearly states that in case the properties are sold,

mortgaged, or leased, Murillo shall be entitled respectively to 40% of the "purchase price," "proceeds of the

mortgage," or "rentals." The contract is vague, however, with respect to a situation wherein the properties are

neither sold, mortgaged or leased because Murillo is allowed "to have the option of occupying or leasing to any

interested party forty per cent of the house and lot." Had the parties intended that Murillo should become the

lawful owner of 40% of the properties, it would have been clearly and unequivocally stipulated in the contract

considering that the Fabillos would part with actual portions of their properties and cede the same to Murillo.

The ambiguity of said provision, however, should be resolved against Murillo as it was he himself who drafted the

contract.13

This is in consonance with the rule of interpretation that, in construing a contract of professional

services between a lawyer and his client, such construction as would be more favorable to the client should be

adopted even if it would work prejudice to the lawyer.14

Rightly so because of the inequality in situation between

an attorney who knows the technicalities of the law on the one hand and a client who usually is ignorant of the

vagaries of the law on the other hand.15

Considering the nature of the case, the value of the properties subject matter thereof, the length of time and

effort exerted on it by Murillo, we hold that Murillo is entitled to the amount of Three Thousand Pesos (P3,000.00)

as reasonable attorney's fees for services rendered in the case which ended on a compromise agreement. In so

ruling, we uphold "the time-honored legal maxim that a lawyer shall at all times uphold the integrity and dignity of

the legal profession so that his basic ideal becomes one of rendering service and securing justice, not money-

making. For the worst scenario that can ever happen to a client is to lose the litigated property to his lawyer in

whom all trust and confidence were bestowed at the very inception of the legal controversy."16

WHEREFORE, the decision of the then Intermediate Appellate Court is hereby reversed and set aside and a new

one entered (a) ordering the petitioners to pay Atty. Alfredo M. Murillo or his heirs the amount of P3,000.00 as hiscontingent fee with legal interest from October 29, 1964 when Civil Case No. 3532 was terminated until the

amount is fully paid less any and all amounts which Murillo might have received out of the produce or rentals of

the Pugahanay and San Salvador properties, and (b) ordering the receiver of said properties to render a complete

report and accounting of his receivership to the court below within fifteen (15) days from the finality of this

decision. Costs against the private respondent.

SO ORDERED.



NO. 27 ( SAME CASE WITH NUMBER 14)

G.R. No. 90983 September 27, 1991

LAW FIRM OF RAYMUNDO A. ARMOVIT, petitioner

vs.

COURT OF APPEALS, JUDGE GENARO C. GINES, Presiding Judge of Branch XXVI, Regional Trial Court, First JudicialRegion, San Fernando, La Union, and BENGSON COMMERCIAL BUILDING, INC., respondents.

Before the Court is Atty. Raymundo Armovit's claim for attorney's fees against the private respondent.

It appears that Atty. Armovit was engaged as counsel for the private respondent in a complaint to have an

extrajudicial foreclosure of certain properties by the Government Service Insurance System declared null and void;

that the parties allegedly agreed that the private respondent shall pay P15,000.00 as initial compensation andtwenty percent in contingent fees; that after trial, the defunct Court of First Instance rendered judgment annulling

foreclosure and ordering the Government Service Insurance System to restructure the private respondent's loan;

that thereafter, the System appealed; the on appeal, the Court of Appeals affirmed the decision of lower court;

and that the Appellate Court's judgment has since attained finality.

It also appears that when Atty. Armovit sought execution with the court a quo, he was informed by Romualdo

Bengson president of the respondent corporation, that the firm has retained the services of Atty. Pacifico Yadao.

He was also informed that the company would pay him the agreed compensation and that Atty. Yadao's fees were



covered by a separate agreement. The private respondent, however, later ignored his billings and over the phone,

directed him allegedly not to take part in the execution proceedings. Forthwith, he sought the entry of an

attorney's lien in the records of the case. The lower court allegedly refused to make the entry and on the contrary

issued an order ordering the Philippine National Bank to "release to the custody of Mr. Romualdo F. Bengzon

and/or Atty Pacifico Yadao"1

the sum of P2,760,000.00 (ordered by the Court of Appeals as rentals payable by the

Government Service Insurance System).

Atty. Armovit then moved, apparently for the hearing of hi motion to recognize attorney's lien, and thereafter, the

trial court. issued an order in the tenor as follows:

When this case was called for hearing on the petition to record attorney's charging lien, Attys.

Armovit and Aglipay appeared for the petitioners.

Atty. Armovit informed the Court that they are withdrawing the petition considering that they

are in the process of amicably settling their differences with the plaintiff, which manifestation

was confirmed by Atty. Yadao as well as the plaintiffs, Romualdo Bengson and Brenda Bengson,

who are present today.

In view of this development, the petition to record attorney charging lien, the same being inorder and not contrary to law, moral and public policy, as prayed for by Attys. Armovit and

Aglipay, it hereby withdrawn. The parties, therefore are hereby directed to co ply faithfully with

their respective obligations.

SO ORDERED.2

However, upon the turnover of the money to the private respondent, Mrs. Brenda Bengson (wife of Romualdo

Bengzon delivered to Atty. Armovit the sum of P300,000.00 only. Armovit protested and demanded the amount of

P552,000.0 twenty percent of P2,760,000.00), for which Mrs. Bengzon made assurances that he will be paid the

balance.

On November 4, 1988, however, Atty. Armovit received a order emanating from the trial court in the tenor asfollows:

During the hearing on the petition to record attorney's charge lien on October 11, 1988, Attys.

Armovit and Aglipay withdrew their petition to record attorney's charging lien, which was duly

approve petition to recordby the Court, after which the Court directed the parties to comp

faithfully with their respective obligations.

In compliance with the Order of this Court, the plaintiff submitted a pleading denominated as

compliance alleging that petition (Atty. Armovit) has already received from the plaintiff the sum

P300,000.00, Philippine Currency, as and by way of attorney's fees With the receipt by the

petitioner from the plaintiff of this amount, the latter has faithfully complied with its obligation.

WHEREFORE, the Order of this Court dated October 11, 1988 approving the withdrawal of the

petition to record attorney's charging lien, on motion of the petitioner, is now final.

SO ORDERED.3

Reconsideration having been denied, Atty. Armovit went the Court of Appeals on a petition for certiorari and

prohibition.



On August 25, 1989, the Court of Appeals4

rendered judgment dismissing the petition. Reconsideration having

been likewise denied by the Appellate Court, Atty. Armovit instituted the instant appeal.

Shortly thereafter, we required the private respondent comment.

The private respondent did not materially traverse Atty. Armorvit's chronicle of events but added: that the private

respondent hired the petitioner after the Government Service Insurance System had answered and that it wasAtty. Benjam Bernardino who prepared the complaint; that for his appearances, Atty. Armovit was paid a total of

P108,000.00, not to mention "beach resort accommodations";5

that Atty. Armovit did not inform the private

respondent that the court had rendered judgment which they would have appealed; that they lost an appeal on

account of Atty. Armovit's indiscretion; that the forthwith engaged the services of another lawyer, Atty. Yadao;

and that it was the latter who prepared the brief in the Court Appeals (on GSIS's appeal).

The private respondent also alleged that it opposed Atty. Armovit's effort to record his attorney's lien on grounds

of allege nullity of the retainer agreement, Atty. Armovit's negligence and because of excessive fees demanded.

The private respondent also insisted that the retainer agreement was signed by only one of seven directors, and it

could no bind the corporation. Atty. Armovit, in any event, had also been allegedly more than sufficiently

compensated.

The private respondent alleged that Atty. Armovit had bee paid P300,000.00 — an amount approved by the court,

and an amount he accepted and for which he is allegedly estoppel from claiming a higher amount. The order of the

court has the effect of res judicata, the private respondent claimed, as well as a compromise agreement which is

immediately executory.

The disposition of the Court of Appeals was that since the receipt evidencing payment to Atty. Armovit of the sum

P300,000.00 "was without any qualification as 'advance' 'partial' or 'incomplete',"6

the intention of the parties was

that was full payment. The Appellate Court also noted Atty. Armorvit's withdrawal of his motion to record

attorney's lien and figured that Atty. Armovit was satisfied with the payment P300,000,00.

The only issue is whether or not Atty. Armovit is entitled to the sum of P252,000.00 more, in addition to the sumP300,000.00 already paid him by the private respondent.There is no question that the parties had agreed on a

compensation as follows:

a) P15,000.00 by way of acceptance and study fee, payable within five (5) days from date;

b) 20% contingent fee computed on the value to be recovered b favorable judgment in the cases;

and

c) the execution and signing of a final retainer agreement complete with all necessary details.7

(While the parties' agreement speaks of "a final retain agreement"8

to be executed later, it does not appear that

the parties did enter into a "final" agreement thereafter.)

The private respondent's version however is that while it may be true that the agreed compensation was twenty

percent of all recoveries, the parties later agreed on a compromise sum approved allegedly by the trial court, per

its Order of October 11, 1988.

The Court is inclined to believe that Atty. Armovit never agreed on the compromise sum of P300,000.00. It is true

that he did agree to withdraw his motion to annotate attorney's lien, but because the parties were "in the process

of amicably settling their differences"9 and not because Atty. Armovit had agreed to accept a lower amount as full



payment. There is nothing, on top of that, Atty. Armovit's manifestation that would suggest that he was accepting

the sum of P300,00.00 as agreed final payment, other than the fact that an agreement was supposedly certain. We

quote:

ATTY. ARMOVIT:

Your Honor, we would like to manifest in Court that we served notice to thecounsel of the plaintiff, Bengson Commercial Building, a copy of the petition to

record attorney's charging lien, and together with the president of the

corporation, Mr. Romualdo Bengson, and his wife, Mrs. Brenda Bengson, we

have discussed the problem and we all agreed upon is an earnest one at this

time, this representation is withdrawing his petition to record charging lien.

ATTY. YADAO:

No objection, Your Honor, because we have to agree with Atty. Armovit. I am in

full accord with this.10

There is nothing there that would indicate Atty. Armovit's willingness to accept, in fact, a lower figure inconsideration of his withdrawal of his request to enter attorney's lien. What the Court takes his statement to mean

is that he was withdrawing his request on the certainty that the private respondent would pay him the money,

presumably, under more becoming circumstances.

The Court does not therefore see how the private respondent can hold Atty. Armovit to have been in estoppel.

The fact that Atty. Armovit did not, after all, accept the sum of P300,000.00 as final compensation is indeed

indicated by the behavior of the private respondent, through Mrs. Romualdo Bengson, when she assured Atty.

Armovit that the balance was forthcoming.11

According to Mrs. Bengson, she wished the rest of the Bengsons to

witness the final payment and when the occasion was present, wished for a postponement on account of "All

Saints Day."12

The parties never therefore amended their original agreement, and what appears to the Court is a clear effort on

the part of a client, with the apparent approval of the trial court, to renege on a valid agreement with its lawyer.

The Court believes that the trial court, in accepting the private respondent's "compliance" as a final payment of

Atty. Armovit's fees, was guilty of a grave abuse of discretion. The private respondent had nothing with which to

comply, and the parties, as manifested by Atty. Armovit, were "in the process [merely] of amicably settling their

differences."13

It is apparent furthermore that the trial judge himself was out to deny Atty. Armovit the agreed compensation. In

his order of October 4, 1988, he commanded:

The PNB is hereby ordered and directed to release to the custody of Mr. Romualdo F. Bengsonand /or Atty. Pacifico Yadao, counsel for the plaintiff, the sum of Two Million Seven Hundred

Sixty Thousand Pesos (P2,760,000.00), Philippine Currency for the satisfaction of the rentals of

the Bengson Building against the GSIS.14

in spite of the fact that Atty. Armovit had remained the private respondent's counsel of record. It is fundamental

that unless a lawyer has been validly discharged, his authority to act for his client continues and should be

recognized by the court.15



The fact that the receipt evidencing payment by the private respondent of the amount of P300,000.00 "was

without any qualification as 'advance' or 'partial' or 'incomplete',"16

as the Court of Appeals noted and the Court of

Appeals took to mean "full payment", will not weaken Atty. Armovit's demand for the balance. There is nothing in

the receipt that will suggest that will suggest that it was full payment either, and the fact that Atty. Armovit

accepted it does not mean that he was satisfied that it was final payment. The fact of the matter is that the private

respondent had assured him that the balance was forthcoming.

The private respondent can not justifiably downplay Atty. Armovit as negligent (for failing to appeal) or his demand

for fees excessive (that he had been paid enough). Atty. Armovit, after all, succeeded in obtaining a favorable

decision for his client, an although his prayer for various damages were denied, he secceeded in obtaining a

substantial award (P1,900,00.00 in unpaid rentals) for his client. On appeal, the Court of Appeals sustained his

theory. It should be noted that the private respondent had in fact stood to lose substantial properties on

foreclosure — Atty. Armovit not only restored to the private respondent its foreclosured properties, he succeeded

in having the private respondent's loans restructed and the Government Service Insurance System pay rentals. No

client can ask a better result from a lawyer.

Obviously, the private respondent's effort to downgrade Atty. Armovit's performance is a wild, if not cheap, shot

of a client out to evade its obligations to its lawyer. The fact that Atty. Armovit may have been paid substantially

(in initial fees) while the case was dragging is no justification for denying him the full amount under theiragreement. It has been held that initial fees and fees paid in the progress of litigation are independent of the

contingent fees.17

That the retainer agreement was never approved by the board of the corporation is also a poor excuse because

the fact of the matter is that the private respondent did deliver to Atty. Armovit the sum of P300,000.00 in partial

payment, and the private respondent can not now deny him the balance bay alleging lack of authority of the

Bengson spouses.

Contingent fees are valid in this jurisdiction.18

It is true that attorney's fees must at all times be reasonable;19

however, we do not find Atty. Armovit's claim for "twenty percent of all recoveries" to be unreasonable. In the

case of Aro v. Nañawa, 20

decided in 1969, this Court awarded the agreed fees amid the efforts of the client to

deny him fees by terminating his services. In parallel vein, we are upholding Atty. Armovit's claim for P252,000.00

more — pursuant to the contingent fee agreement — amid the private respondent's own endeavours to evade its

obligations.

Several times, we have come down hard on erring practitioners. We will not however be slow either, in coming to

the rescue of aggrieved brother-lawyers in protecting the integrity of the bar from unscrupulous litigants.

WHEREFORE, premises considered, the petition is GRANTED. The private respondent is ORDERED to pay the

petitioner the sum of P252,000.00. Costs against the private respondent.

IT IS SO ORDERED.



NO. 28

G.R. Nos. 89971-75 October 17, 1990

CELIA B. CHUA, MARITES P. MARTINEZ and ARACELI A. ELARDO, For Themselves and in Their Capacity asAttorneys-In-Fact of 2,345, Former Daily-Paid Employees of Stanford microsystems. Inc., LUDIVINA L. SABALZA,ADELIZA E. CANTILLO and REMIGIO P. PESTAÑO, For Themselves and in Their Capacity As Attorneys-In-Fact of 3,244 Former Daily-Paid Employees of Stanford Microsystems, Inc., MARIO A. MENTIL, REMIGIO F. SANTOS andNOEL VILLENA, For Themselves and in Their Capacity As Attorneys-In-Fact of 599 Former Monthly-PaidEmployees of Stanford Microsystems Inc., MAXIMO E. DAQUIL, GEORGE T. BARTOLOME and ERNESTO L.CONCEPCION, For Themselves and in Their Capacity As Attorneys-In-Fact of 300 Former Non-Unionized andConfidential Employees of Stanford Microsystems, Inc., and LIQUIDATION COMMITTEE OF STANFORD

MICROSYSTEMS, INC., Duly Appointed by the Securities and Exchange Commission, petitioners,

vs.

NATIONAL LABOR RELATIONS COMMISSION LABOR ARBITER DOMINADOR M. CRUZ, Public Respondents, andFERNANDO R.GUMABON, CARMELITA TOLENTINO, RICARTE CABASE, TERESITA ALORAN, ENCARNITA JULIANO,ANITA DAILEG, ERNESTO ALARCON, JOHNNY ARAGON, LEONCIO PIMENTEL, RODOLFO MERCADO, DANIELALMAZAN, ORLANDO DE LEON, EDITHA LIMA, MARILYN INES, LINDA ESTABA, NELIA DE BORJA, CECILIA CRUZ, FERAYALA, ADELIZA MOYA, NATY LAMAN, JANET PONCE, ESTELA ALABASO, MILAGROS CERRA, JOSEPHINEBAYONETA and ANNABELLE SALABIT private respondents.



The instant petition questions the jurisdiction of the National Labor Relations Commission (NLRC) in issuing three

(3) resolutions dated October 6, 1988, November 3, 1988 and January 3, 1990 in NLRC Injunction Case No. 1793.

The October 6, 1988 resolution denied for lack of merit the petitioners' petition for writ of prohibition to stay

further proceedings in the five (5) consolidated labor cases involving the former employees of Stanford

Microsystems, Inc. pending with respondent Labor Arbiter Dominador M. Cruz. The November 3, 1988 resolution

ordered petitioners' Liquidation Committee of Stanford Microsystems, Inc. to defer the payment of SIX MILLION

PESOS (P6,000,000.00) to the former employees of Stanford Microsystems, Inc. The January 3, 1990 resolution,among others directed petitioner Liquidation Committee to deposit with the NLRC the deducted attorney's fees

representing ten percent (10%) of the amount due and/or to be paid to the former employees of Stanford

Microsystems Inc.

In December, 1985, Stanford Microsystems, Inc. (Stanford) a service conductor corporation filed a petition for

suspension of payments and appointment of rehabilitation receiver (Annex "A", Petition) with the Securities and

Exchange Commission (SEC). The petition was docketed as SEC Case No. 2930. At that time, Stanford had seven (7)

secured creditor banks and more or less seven thousand one hundred twenty-four (7,124) employees.

On February 5, 1986, the SEC declared Stanford to be in a state of suspension of payments. It issued an order

(Annex "B", Petition) appointing Sycip Gorres & Velayo & Co. (SGV) as the rehabilitation receiver.

In view of these developments, the former employees of Stanford filed with the Department of Labor and

Employment (DOLE) cases for money claims, to wit:

(a) STANFORD TECHNICAL AND OFFICE STAFF EMPLOYEES ASSOCIATION (STOSEA)-FFW,

THROUGH ITS PRESIDENT, NOEL VILLENA AND FOR AND IN BEHALF OF ITS EIGHT HUNDRED SIXTY

SUM (860) MEMBERS, Complainants, v. STANFORD MICROSYSTEMS, INC. AND CRISTINO

CONCEPCION, JR., IN HIS CAPACITY AS PRESIDENT AND GENERAL MANAGER, Respondents, NLRC-

NCR CASE NOS. 1-106-86 AND 1-117-86, filed by herein Petitioners Mario A. Mentil, Noel Villena,

and Remigio F. Santos, acting for themselves and as the duly appointed Attorneys-In-Fact of Five

Hundred Ninety Nine (599) Monthly-Paid Employees for Stanford, and assigned to Labor Arbiter

Ceferina Diosana-

-for illegal lockout and payment of thirteenth month pay, vacation leave and sick leave benefits

and subsidiary seminar fund and recreational activities fund. This case has been decided but

execution was suspended upon motion of the complainants;

(b) RODOLFO FERNANDEZ, ET AL., Petitioners, v. STANFORD MICROSYSTEMS, INC. , Respondent,

NCR CASE NO. 1-294-86, filed by herein Petitioners Rodolfo Fernandez, for himself, Maximo E.

Daquil George T. Bartolome and Ernesto L. Concepcion, acting for themselves and as the duly

appointed Attorneys-In-Fact of Three Hundred (300) Confidential and Non-Unionized employees

of Stanford, and assigned to Labor Arbiter Raymundo R. Valenzuela-

— which case have been archived at the instance of the complainants;

(c) STANFORD MICROSYSTEMS, INC. LABOR UNION-FFW Petitioners, v. STANFORDMICROSYSTEMS, INC ., Respondent, CASE NO. 1-039-86, filed by herein Petitioners Celia B. Chua,

Araceli A. Elardo and Marites P. Martinez, acting for themselves and as the duly appointed

Attorneys-In-Fact of Two Thousand Three Hundred Forty Five (2,345) Daily-Paid employees of

Stanford, and formerly assigned to Labor Arbiter Benigno C. Villarente, now assigned to Labor

Arbiter Alex Arcadio Lopez —



— for payment of separation pay, back (strike duration) pay and thirteenth month pay for 1985,

cash conversion of vacation leave and sick leave, and other money claims. The petitioner Stanford Liquidation Committee has intervened in this case and moved to stay proceedings.

(Petition, pp. 40-43)

Except for cases (a), (b) and (c) which were assigned to different labor arbiters, cases (d) to (h) were consolidated

and as signed to respondent Labor Arbiter Dominador M. Cruz. The petitioners in case (d) comprise the formerdaily paid employees of Stanford who were members of the Stanford Microsystems, Inc., Labor Union ("SMILU").

They formed a "Caretaker Committee", and the individual members appointed Ludivina L. Sabalza, Adeliza E.

Cantillo and Remigio P. Pestano as Attorneys-In-Fact for the purpose of prosecuting and settling their claims

against Stanford, both before the SEC and the DOLE. The Attorneys-In-Fact engaged the services of private

respondent, Atty. Vicente Ocampo, to act as their legal counsel.

In January, 1987, the SEC disapproved the Rehabilitation Plan submitted by SGV and dismissed Stanford's Petition

for Suspension of Payments and Appointment of a Rehabilitation Receiver. (Annex "C', Petition) Subsequently, the

SEC ordered Stanford's liquidation.

The seven (7) secured creditor banks of Stanford, namely:

(a) Philippine Commercial International Bank;

(b) Far East Bank and Trust Company;

(c) Private Development Corporation of the Philippines;

(d) Equitable Banking Corporation;

(e) Union Bank of the Philippines;

(f) Philippine National Bank; and

(g) City Trust Banking Corporation

which have an aggregate principal exposure of Two Hundred Thirty One Million Six Hundred Thousand Pesos

(P231,600,000.00), and the twelve (12) duly authorized Attorneys-In-Fact of six thousand three hundred forty one

(6,341) former employees of Stanford (89% of the total employees) with employees' claims of approximately One

Hundred Twenty Five Million Seven Hundred Ten thousand Pesos (P125,710,000.00) reached a mutually

acceptable plan for the speedy and orderly liquidation of Stanford. Hence, representatives of the seven (7) secured

banks and the employees' Attorneys-In- Fact assisted by their respective counsel held marathon meetings and

negotiations in the Office of Director Luna C. Piezas of the DOLE, National Capital Region resulting in the execution

of a Memorandum of Agreement dated March 13, 1987 ("MOA", Annex "D", Petition). The MOA was signed by all

the parties and duly attested by Director Luna C. Piezas.

The principal terms of the MOA are as follows:

(a) The Secured Creditor Banks will foreclose their real estate and chattel mortgages;

(b) The Secured Creditor Banks will consolidate and retain title to the foreclosed properties in

their respective names and contribute the same to a 'Pool of assets' under the control and

administration of a Liquidation Committee composed of eleven (11) members, representing the



Secured Creditor Banks, and the Six Thousand Three Hundred Forty One (6,341) former

employees of Stanford who authorized the MOA;

(c) The MOA Liquidation Committee will sell all the foreclosed properties and distribute the

proceeds among the Secured Creditor Banks and the Six Thousand Three Hundred Forty One

(6,341) employees. The share of the remaining Seven Hundred Eighty Three (783) employees

shall be placed in escrow for their benefit until they claim their share;

(d) The sharing formula for the distribution of the sales proceeds principally took into account

the principal claims of the claimants; and

(e) All suits inconsistent with the MOA shall be withdrawn. (Petition, p. 30)

The eleven (11) members of the MOA Liquidation Committee are the following:

(a) Philippine Commercial International Bank;

(b) Far East Bank and Trust Company;

(c) Private Development Corporation of the Philippines;

(d) Equitable Banking Corporation;

(e) Union Bank of the Philippines;

(f) Philippine National Bank;

(g) Citytrust Banking Corporation;

(h) Celia B. Chua, Araceli A. Elardo and Marites P. Martinez, acting for themselves and as the dulyappointed Attorneys-In-Fact of Two Thousand Three Hundred Forty Five (2,345) former daily Paid

employees of Stanford;

(i) Ludivina L. Sabalza, Adeliza E. Cantillo, and Remigio P. Pestaño, acting for themselves and as

the duly appointed Attorneys In-Fact of Three Thousand Two Hundred Forty Four (3,244) former

Daily-Paid employees of Stanford;

(j) Mario A. Mentil, Noel Villena, and Remigio F. Santos, acting for themselves and as the duly

appointed Attorneys-In-Fact of Five Hundred Ninety Nine (599) former Monthly-Paid employees

of Stanford; and

(k) Rodolfo Fernandez, for himself, Maximo E. Daquil, George T. Bartolome and Ernesto L.

Concepcion, acting for themselves and as the duly appointed Attorneys-In-Fact of Three Hundred

(300) former confidential and Non-Unionized employees of Stanford. (Petition, pp. 30-31)

Pursuant to the MOA, the secured creditor banks foreclosed their mortgages, consolidated title ove r the real

properties and contributed the same to the "Pool of Assets." The MOA Liquidation Committee then proceeded

with the sale of the foreclosed properties.



It is to be noted that the group of employees whose attorneys-in-fact are Ludivina L. Sabalza, Adeliza E. Cantillo

and Remigio P. Pestaño were represented in the negotiations leading to the execution of the MOA by new counsel,

the Bacungan Larcia Bacungan Law Office. Respondent Atty. Vicente Ocampo's legal services were terminated by

the attorneys-in-fact as early as October and November 1986 in view of his refusal to represent the group in the

negotiations with the other former Stanford employees and Stanford creditors towards an out -of-court settlement

of their claims against Stanford. This termination was confirmed in a letter dated March 9, 1987 (Annex "K",

Petition) which was received by Atty. Ocampo on March 11, 1987. The pertinent portion of the termination letterreads:

It is with deep regret that we, the regular daily-paid rank-and-file employees of Stanford

Microsystems, Inc. (SMI), accept your decision not to represent us in our negotiations, with

various creditors of SMI, including former fellow employees, towards an out-of-court settlement

of our claims against the company. . . . We, therefore, have no recourse but to engage the

services of another counsel in connection with the case now pending before the Ministry of

Labor, the Securities and Exchange Commission and other courts or tribunals including the

negotiations for an out-of- court settlement of our claims. ... (Petition, p. 44)

On October 2, 1987, the SEC en banc issued an order (Annex "E", Petition) appointing the same eleven (11)

members of the MOA Liquidation Committee as the permanent SEC Liquidator of Stanford pursuant to PresidentialDecree No. 902-A, as amended.

Atty. Ocampo claiming to be still the counsel for the group represented by Ludivina L. Sabalza, Adeliza E. Cantillo

and Remigio P. Pestaño and other former Stanford employees filed a "class suit" for the reconsideration of the

October 2, 1987 order.

In the hearing en banc held on December 17, 1987, the SEC directed the Stanford Liquidation Committee and Atty.

Ocampo to submit the number and names of the former Stanford employees represented by them.

On January 22, 1988, the Stanford Liquidation Committee, filed a compliance with the directive (Annex "F",

Petition) together with the following documents:

(a) Copies of all the Special Powers of Attorney executed by the Six Thousand Three Hundred

Forty One (6,341) former employees of Stanford [Eighty Nine Percent (89%) of the total

employees] in favor of their Attorneys-In-Fact who signed the MOA;

(b) List of the names of all the Six Thousand Three Hundred Forty One (6,341) former employees

of Stanford who executed Special Powers of Attorney, which list was prepared by Carlos J. Valdes

& Co. on the basis of the special powers of attorney executed (Annex "F-l", but refer to Annex "C-

l" of Annex "Q");

(c) Letters-certifications dated 21 January 1988 and 27 January 1988 of Carlos J. Valdes & Co. that

based on their verification, Six Thousand Three Hundred Forty One (6,341) former Stanford

employees actually executed Special Powers of Attorney in favor of the workers' representatives

in the MOA Liquidation Committee and the Stanford Liquidation Committee (Annexes "F-2" and

"F-2-A"). (Petition, p. 32)

On the other hand, Atty. Ocampo failed to comply with the directive.

On October 12, 1988, the SEC en banc denied Atty. Ocampo's motion for reconsideration of the October 2, 1987

order (Annex "E", Petition) and various other motions. It issued an Omnibus Order (Annex "H") approving the MOA

and confirming the appointment of the members of the MOA Liquidation Committee as members of the Stanford



Liquidation Committee. In the same order, the SEC clarified that Atty. Ocampo represents only thirty four (34)

employees. Actually, Atty. Ocampo represents only twenty five (25) former Stanford employees who are now the

private respondents in the instant petition.

As regards the money claims filed by the former employees of Stanford, the following events meanwhile

transpired:

On June 30, 1988, the Stanford Liquidation Committee filed a Manifestation (Annex "L", Petition) with the labor

arbiters, including Labor Arbiter Cruz, before whom the labor cases filed against Stanford were pending, advising

said labor arbiters of the October 2, 1987 SEC order appointing the Stanford Liquidation Committee as the

permanent liquidator of Stanford and of the execution of the MOA among the secured creditor banks and six

thousand three hundred forty one (6,341) former employees of Stanford.

On September 19, 1988, the petitioners, including the complainants in the consolidated labor cases except the

twenty five (25) private respondents represented by Atty. Ocampo, filed a Joint Motion to Stay Proceedings (Annex

"M", Petition) praying that the Labor Arbiters stay proceedings in the labor cases pending before them. On the

other hand, Atty. Ocampo on behalf of the twenty five (25) private respondents filed an Urgent Petition for

Injunction with Prayer for Issuance of a Temporary Restraining Order in the consolidated labor cases pending

before respondent Labor Arbiter Cruz.

In response to these motions, the Labor Arbiters except respondent Labor Arbiter Cruz issued orders staying

proceedings in the cases pending before them. (Annexes, "N", "N-1" and "N-2", Petition).

For his part, respondent Labor Arbiter Cruz issued an order dated September 2, 1988 (Annex "O", Petition) the

dispositive portion of which reads:

WHEREFORE, pursuant to the provisions of Article 218 (e) of the Labor Code, as amended, in

relation to Rule XIV, Section 1, paragraph 2, of the Revised Rules of the National Labor Relations

Commission, in order to preserve the rights of the parties during the pendency of the cases, the

intervenor liquidation Committee of Stanford Microsystems, Inc., its Chairman, Vice-Chairman,

members, agents and/or representatives should be, as they are hereby:

(1) RESTRAINED from implementing the Memorandum of Agreement dated March 13, 1987

marked as Annex "A" and attached to the record, or from delivering/paying the Six Million Pesos

(P6,000,000.00) to the alleged employees/workers representatives, Ludivina Sabalza, Celia Chua,

Mario Mentil, and Maximo Daquil, for distribution and payment to the employees and workers

concerned in the defunct SMI; and

(2) DIRECTED to deposit the amount of SIX MILLION PESOS (P6,000,000.00) with the Cashier of

the NLRC Main Office at the Phoenix Building, Intramuros, Manila, immediately upon receipt of

this Order, subject to further disposition of the undersigned Labor Arbiter.

In view of this restraining order, the petitioners, on October 6, 1988, filed with the National Labor RelationsCommission (NLRC) a petition for prohibition/injunction with preliminary injunction and/or temporary restraining

order (NLRC Injunction Case No. 1793; Annex "Q", Petition). Attached to the petition was the manifestation of the

attorneys-in-fact for the 3,097 former Stanford employees who were not parties to the consolidated labor cases

pending before respondent Labor Arbiter Cruz asserting the lack of jurisdiction of Labor Arbiter Cruz. On this same

day, October 6, 1988, the NLRC en banc issued the first questioned resolution (Annex "R", Petition) the pertinent

portion of which reads:



INJUNCTION CASE NO. 1793 ... Enjoining respondent Labor Arbiter Dominador M. Cruz, private

respondents, their attorneys, representatives, agents and any other person acting for and in their

behalf from implementing the questioned Order dated September 20, 1988, in NLRC NCR Case

No. NS-3-124-85 Case No. 3-753-86, entitled SMI Labor Union-FFW, LUDIVINA SABALZA, et al.

Fernando Gumabon, et al. Complainants v. Stanford Microsystems, Inc. Respondent, Liquidation

Committee of Stanford Microsystems, Inc., Intervenor , NLRC NCR Case No. 11-4543-86, entitled

Ludivina Sabalza, et al., Fernando R. Gumabon, et al., Complainants v. Stanford Microsystems,Inc., Respondent, Liquidation Committee of Stanford Microsystems, Inc., Intervenor, which

restrained herein SEC Appointed liquidation Committee of Stanford Microsystems Inc., from

implementing the Memorandum of Agreement dated March 13, 1987 in the matter of liquidating

the property of the said company and distributing the amount of P6,000,000.00 to the former

employees of the same company pursuant to the provisions of the Agreement and, the said

amount to be deposited to the Cashier of the Commission, said Order being a patent nullity; and

2) to deny, for lack of merit, the petition for Writ of Prohibition to stay further proceedings in the

five (5) cited labor cases involving the former employees of the company pending before the

respondent Labor Arbiter.

On October 21, 1988, Atty. Ocampo, on behalf of his twenty five (25) clients filed a "Motion For Partial

Reconsideration of Resolution of the Respondent NLRC dated October 6, 1988, etc." (Annex "S", Petition)

On November 3, 1988, the NLRC issued the second questioned resolution (Annex "T", Petition) the relevant portion

of which reads:

INJUNCTION CASE NO. 1793 ... However, Petitioner Liquidation Committee of Stanford

Microsystems, Inc. its attorneys, representatives, agents and any other person acting for and in

its behalf is ordered to hold in abeyance and/or defer the payment of the P6,000,000.00 to the

former employees of the said company after the Commission rules on the said Partial Motion for

Reconsideration.

On November 8, 1988, the petitioners filed a joint opposition/motion for reconsideration (Annex "V", Petition) of

the two (2) NLRC resolutions.

On November 28, 1988, Atty. Ocampo filed an "Amended Motion for Partial Reconsideration of Resolution dated

October 6, 1988 with Memorandum of Agreement ...". (Annex "X", Petition)

On December 21, 1988, petitioner Stanford Liquidation Committee filed an "Urgent Motion for Early Resolution

with Opposition to Atty. Vicente T. Ocampo's Amended Motion for Partial Reconsideration of Resolution dated

October 6, 1988 ...".

Atty. Ocampo, in turn filed a "Motion to Cite For Contempt and Urgent Motion To Stop Delivery of Deducted

Attorney's Fees To Any Lawyers and To Deposit The Same With the NLRC." (Annex "Z", Petition)

On January 3, 1989, the NLRC issued the third questioned resolution (Annex "AA", Petition), to wit:

INJUNCTION CASE NO. 1793 ... After deliberation, the Commission sitting en banc, RESOLVED: 1)

to require the petitioner SEC Liquidation Committee of Stanford Microsystems, Inc., its Chairman

Helen Osias; Co-petitioners Mario A. Mentil; Noel Villena, Remegio (sic) F. Santos, Rodolfo

Fernandez; Maximo F. Daquil, George T. Bartolome, Ernesto C. Concepcion, Celia B. Chua, Araceli

A. Elardo, Marites P. Martinez, Ludivina L. Sabalza, Adelina E. Cantillo and Remegio (sic) F.

Pestaño, as well as their respective counsel of record, to answer the respondents' Motion to Cite

For Contempt and Urgent Motion To Stop Delivery of Deducted Attorney's Fees To Any Lawyer



And To Deposit The Same With The NLRC and to show cause why they should not be cited in

contempt by this Commission within five (5) days from receipt hereof; 2) to direct, as it hereby

directs, the said petitioners to strictly comply with the Resolution of this Commission dated

November 3, 1988 and, 3) to direct said petitioner SEC Appointed Liquidation Committee and its

agents or any person acting in its behalf to deposit to this Committee within five (5) days from

receipt of this Resolution, the deducted attorney's fees representing 10% of the amount due

and/or to be paid to the former employees of Stanford Microsystems, Inc. (Rollo, p. 54)

On January 18 and 24, 1989, the petitioners filed their respective motions for reconsideration (Annex "BB", "BB-1",

and "BB-3", Petition) of the aforementioned NLRC resolution. Also on February 10, 1989, petitioner Stanford

Liquidation Committee filed a Second Urgent Motion for Early Resolution (Annex "CC", Petition) of the motion and

amended motion for partial reconsideration filed by Atty. Ocampo and the motion for reconsideration filed by

petitioner Stanford Liquidation Committee.

On July 11, 1989, petitioner Stanford Liquidation Committee filed a motion to lift restraining order and/or third

urgent motion for early resolution (Annex "DD", Petition).

These motions notwithstanding, the NLRC had not acted upon them nor had it resolved the injunction case despite

the parties' submission of their respective memoranda prompting the petitioners to file the instant petition.

At the time the three questioned NLRC resolutions were issued, the MOA Liquidation Committee was already in

the process of distributing money claims to the former employees of Stanford. The petitioners state:

xxx xxx xxx

8. As of June 1989, the MOA Liquidation Committee has realized the amount of approximately

Forty One Million Four Hundred Twenty Eight Thousand Five Hundred Seventy One and 42/100

Pesos (P41,428,571.42) from net sales proceeds of the properties in the 'Pool of Assets' out of

which Fourteen Million Five Hundred Thousand Pesos (P14,500,000.00) should have already

been distributed to all the employees of Stanford, whether or not signatories of the MOA.

xxx xxx xxx

11. Out of the Fourteen Million Five Hundred Thousand Pesos (P14,500,000.00) which is available

and approved for distribution to the former Stanford employees, only Five billion Two Hundred

Seventy Two Thousand One Hundred Eighty Six and 17/100 Pesos (P5,272,186.17) has been

distributed in the first distribution.

12. The amounts of Seven Hundred Twenty Seven thousand Eight Hundred Thirteen and 83/100

Pesos (P727,813.83) (balance of first distribution), and Eight billion Five Hundred thousand Pesos

(P8,500,000.00) (amount for second distribution), for a total of Nine Million Two Hundred

Twenty Seven Thousand Eight Hundred Thirteen and 83/100 Pesos (P9,227,813.83) remain

undistributed to all the Stanford employees due to respondent NLRC's restraining order issuedon 03 November 1988 or more than Ten (10) months ago.

13. There is extreme urgency in allowing the distribution of the foregoing amount to the former

Stanford employees considering that:

(a) The former Stanford employees, especially the Six thousand Three Hundred

Forty One (6,341) employees who signed the MOA in an amicable settlement of



their claims, are unjustly prevented from getting the amounts due them under

the MOA, having awaited such distribution since 1985 when Stanford closed;

(b) A great number of said employees are jobless and/or underemployed with

insufficient incomes; and

(c) The highly probable danger of an outbreak of violent unrest due to theunjust and unconscionable delay in distribution brought about by the

machinations of Atty. Ocampo.

14. Hence, the instant Petition for certiorari and Prohibition With Prayer for Preliminary

Injunction and/or Temporary Restraining Order under Rule 65 of the Rules of Court. (Petition, pp.

25-27)

In a resolution dated June 25, 1990 we gave due course to the instant petition.

The petitioners aver that the NLRC acted with grave abuse of discretion amounting to lack of jurisdiction and/or

without or in excess of its jurisdiction in issuing the three (3) questioned resolutions considering that:

I

THE SECURITIES AND EXCHANGE COMMISSION HAS ORIGINAL AND EXCLUSIVE JURISDICTION OVER THE

LIQUIDATION OF STANFORD MICROSYSTEMS, INC., INCLUDING THE PROCEDURES FOR SETTLING THE MONEY

CLAIMS OF FORMER WORKERS AND EMPLOYEES.

xxx xxx xxx

II

THE MEMORANDUM OF AGREEMENT DATED 13 MARCH 1987 IS VALID, FAIR AND REASONABLE AND IS IN ACCORD

WITH LAW, MORALS, PUBLIC POLICY AND ESTABLISHED JURISPRUDENCE.

xxx xxx xxx

III

REPUBLIC ACT NO. 6715 ONLY TOOK EFFECT ON 21 MARCH 1989 AND HAS NO RETROACTIVE APPLICATION TO THE

INSTANT CASE, SPECIALLY WHERE SUCH APPLICATION WILL ADVERSELY AFFECT VESTED RIGHTS OF REPUBLIC ACT

NO. 6715.

xxx xxx xxx

IV

INDUBITABLY, ATTY. VICENTE T. OCAMPO DOES NOT HAVE THE INTEREST OF LABOR AT HEART AS HE HAS

CONSISTENTLY AND PERSISTENTLY ATTACKED, DELAYED AND IMPEDED THE LIQUIDATION OF STANFORD

MICROSYSTEMS, INC. AND THE DISTRIBUTION OF THE 'LIQUIDATION' PROCEEDS THEREOF TO THE FORMER

EMPLOYEES OF STANFORD MlCROSYSTEMS, INC. (Petition, pp. 66, 68-69)

xxx xxx xxx



Jurisdiction over liquidation proceedings of insolvent corporations is vested in the Securities and Exchange

Commission (SEC) pursuant to Presidential Decree No. 902-A, as amended. On the other hand, jurisdiction over

money claims of employees against their employers is vested in the Labor Arbiter whose decision may be appealed

to the National Labor Relations Commission (NLRC) pursuant to Article 217 of the Labor Code.

Following these allocations of jurisdiction, the Solicitor General states that the jurisdiction problems between the

NLRC and the SEC can be reconciled with neither one depriving the other of its jurisdiction. Thus, the SolicitorGeneral opines that this can be achieved by simply allowing the Labor Arbiter and the NLRC to continue with their

adjudication of the employees' money claims, subject to the condition that any award they may obtain against

Stanford must be filed with the Liquidation Committee as one of the established claims against the debtor-

company." (Rollo, Vol. II, p. 1630)

The petitioners, however, maintain that the SEC jurisdiction over the liquidation of Stanford should include the

money claims, now pending before respondent Labor Arbiter Dominador Cruz because they refer to claims to be

submitted in the course of the liquidation proceedings.

An insolvency proceeding is similar to the settlement of a decedent's estate in that it is a proceeding in rem and is

binding against the whole world. Therefore, all persons which have interest in the subject matter involved,

whether or not they are given notice are equally bound. Thus, "a liquidation of similar import or other equivalent general liquidation must also necessarily be a proceeding in rem so that all other interested persons whether known to the parties or not may be bound by such proceedings." (Philippine Savings Bank v. Lantin, 124 SCRA 476

[1983]; Emphasis supplied)

The rule is that a declaration of bankruptcy or a judicial liquidation must be present before preferences over

various money claims may be enforced. Since a liquidation proceeding is a proceeding in rem, all claims of creditors

whether preferred or non-preferred, the Identification of the preferred ones and the totality of the employer's

asset should be brought into the picture. There can then be an authoritative, fair and binding adjudication. (See

Development Bank of the Philippines v. Santos, 171 SCRA 138 [1989]).

The money claims of workers pose a special problem of jurisdiction when liquidation proceedings are on-going

because of the highly preferred nature given by law to said claims.

In these cases, however, the problem poses no particular difficulty because the workers themselves have

voluntarily opted to participate in the liquidation proceedings. Their representatives in the MOA Liquidation

Committee participated in the discussions and proceedings which led to the orders to distribute payments to the

various claimants. The workers themselves oppose the orders of the NLRC which have denied them to speedy

receipt of funds they urgently need. It is a grave abuse of discretion on the part of NLRC to raise a technical

question of its own jurisdiction when the workers over whom it is raised reject the assertion of that jurisdiction.

The NLRC has allowed only 25 out of 7,124 employees and a former counsel trying to claim alleged unpaid fees to

delay the immediate payment of the worker's claims.

Consequently, the Solicitor General's submission that the money claims of Stanford's former employees pending

with respondent Labor Arbiter Dominador M. Cruz should be allowed to continue and that the money awards be

later presented to the Stanford Liquidation Committee is not the correct solution. It would only spawn needless

controversy, delays, and confusion. Significantly, the money claims were presented after Stanford filed a petition

for suspension of payments and appointment of a rehabilitation receiver with the SEC. In other words, the money

claims were filed when Stanford was already experiencing financial difficulties. Apparently, the employees filed the

cases to enforce money claims which they might not collect in view of Stanford's financial crisis and impending

closure. Under these circumstances, and bearing in mind the welfare of the workers and their voluntary choices as

to how their claims may be equitably settled to their satisfaction, we rule that such money claims were correctly

submitted in the course of the liquidation proceedings at the SEC.



The petitioners themselves (the former employees who were complainants in the money claims cases pending

with the different labor arbiters including those with respondent Labor Arbiter Cruz except for the twenty-five

private respondents represented by Atty. Ocampo) filed the motion to stay proceedings in the money claim cases

with DOLE on the ground that" ... the proceedings in the instant labor cases which refer to the claims of the

Stanford employees against Stanford should be stayed and the subject claims be submitted in the course of the

liquidation proceedings under the jurisdiction of the SEC." (Petition, p. 77)

Significantly, the petitioners point out that all the other labor arbiters except for the respondent Labor Arbiter

granted the motion to stay proceedings in the money claims pending before them. Respondent Labor Arbiter Cruz

was assigned to handle five (5) consolidated money claims affecting 3,244 former Stanford employees. With this

group, were former employees represented by Ludivina L. Sabalza, Adeliza E. Cantillo and Remigio P. Pestaño who

initially hired the services of Atty. Ocampo. However, because of the questioned NLRC resolution, all the other

workers, or around 3,097 former employees who were never covered by the jurisdiction of respondent Labor

Arbiter Cruz have also been adversely affected.

This brings us to the other issue regarding the effect of the Memorandum of Agreement dated March 13, 1987

(MOA) executed by the seven (7) secured creditor banks of Stanford and the 6,341 former Stanford employees.

As earlier stated, at the time Stanford filed a petition for suspension of payments and appointment of rehabilitation receiver with SEC, Stanford had seven (7) secured creditor banks and approximately 7,124

employees. On March 13, 1987, the seven secured creditor banks of Stanford and 6,341 former employees

executed a Memorandum of Agreement to speed up the orderly liquidation of Stanford. All the creditor banks and

the said employees were represented by their respective counsel in the negotiations which were supervised by

Regional Director Luna C. Piezas of the DOLE, National Capital Region. The SEC approved the MOA. In its en banc

omnibus order dated October 12, 1988 (Annex "H") the SEC said:

The Memorandum of Agreement having been entered into voluntarily and freely by the parties

after taking into consideration all existing conditions appears fair and reasonable. This is the only

available solution to labor's sharing in the proceeds it appearing that all properties of Stanford

had been encumbered by creditor-banks.

xxx xxx xxx

The Memorandum of Agreement (MOA) was executed by the representatives of the secured

creditor-banks and labor on March 13, 1987, prior to the order of dissolution of SMI by this

Commission. The MOA was conceived to pursue extrajudicially money claims of the Parties

thereto to avoid lengthy litigations.

xxx xxx xxx

The purpose of the Commission's directive requiring submission of the special powers of

attorney is precisely to, see for itself if the laborers are given maximum protection and security in

the memorandum of agreement. A reading of its features shows that the agreement is fair and

reasonable and to the best interest of labor considering that almost all the properties of SMI

were mortgaged to and foreclosed by the secured-creditor banks. Yet under this agreement, the

secured-creditor-banks are willing to share to labor 35% of whatever proceeds can be generated

from the disposition of the foreclosed properties.

xxx xxx xxx



In opposing intervenos's manifesatation opposing submission of alleged updated lists and special

powers of attorney, the liquadation committee denies the allegation of fraud employed in

securing the consent of six thousand three hundred forty (6,340) employees to represent them in

the Memorandum of Agreement. Verily, it is incredible for so many employees to have

consented to their misrepresentation; if at all, perhaps a few number can be misled in so doing.

Anyway, as correctly pointed out by the liquidation committee, nobody complained to theCommission regarding such fraud and misrepresentation. (Annex "H", pp. 332-341)

It is precisely because of the execution of the MOA that the petitioners filed the motion to stay proceedings in the

money claims pending before the labor arbiters.

Under the scheme of the MOA the following events transpired:

xxx xxx xxx

13. Petitioner Stanford Liquidation Committee regularly files report on its activities, as well as

those of the MOA Liquidation Committee, with the SEC. For the distribution of the sales proceeds

(realized out of the properties contributed to the Pool in accordance with the MOA) to theformer Stanford employees, petitioner Stanford Liquidation Committee formulated the following

guidelines:

(a) The amounts available for distribution under the MOA shall be distributed to:

(i) All Six Thousand Three Hundred Forty One (6,341) former employees of Stanford who

executed Special Powers of Attorney in favor of the employees' Attorneys-In-Fact who signed the

MOA; and

(ii) All former employees of Stanford willing to be bound by the MOA by signing the Affidavit of

Acceptance/Affirmation [Annex "B" of the Trust Agreement (Annex "I")] upon receipt of his/her

'crossed' cashier's check.

(b) The share of the other Seven Hundred Eighty Three (783) Stanford employees (who have not

yet signed special powers of attorney) shall be held in escrow for their benefit until they claim

the same.

(c) Distribution shall be pro rata on the basis of the General List of Employees and their claims,

duly audited by Carlos J. Valdes & Co.

(d) Authorized deductions for attorney's fees and other expenses shall be deducted and

delivered to the appropriate Attorneys-In-Fact.

(e) Distribution shall be via 'crossed' cashier's checks issused by Philippine CommercialInternational Bank, Far East Bank & Trust Company, Equitable Banking Corporation, Citytrust, and

Philippine National Bank, payable directly to the individual Stanford employees themselves.

(f) The physical distribution of the aforementioned cashier's checks (which shall be on a uniform

but staggered basis) shall be the responsibility of the respective Attorneys-In-Fact (Trustees).

Accordingly, the respective Attorneys-In-Fact (Trustees) shall announce the venue/s and date/s

of actual physical distribution, in coordination with the appropriate banks.



(g) Any two (2) of the following Identification documents shall be required to be presented:

(i) Stanford Id

(ii) Present Employer's Id

(iii) Driver's License

(iv) SSS/GSIS Id

(v) Passport

(vi) Current NBI Id /Certificate

(vii) Other acceptable Ids

(h) A representative from Carlos J. Valdes & Co. will be present at each distribution center to

witness the receipt of the individual 'crossed' cashier's checks and the signing of the

Affidavits/Affirmation, by each Stanford employee.

(i) Any Stanford employee who is not able to claim his/her cashier's check on his/her designated

date may claim the same on the succeeding dates of distribution. Checks which remain

unclaimed for three (3) months shall be returned and kept for safekeeping by the Stanford

Liquidation Committee.

(j) The Attorneys-In-Fact (Trustees) shall submit regular written reports to the Stanford

Liquidation Committee relating to the distribution.

(k) The Notice of Distribution will be published in the Bulletin Today and the People's Journal,

and will be announced over radio and television (DZRH, DZME and DZXL).

(14) Further, the duly appointed Attorneys-In-Fact of the Six Thousand Three Hundred Forty One

(6,341) former Stanford employees [Eighty Nine Percent (89%) of all Stanford employees],

petitioners herein, who authorized the MOA, executed a Trust Agreement dated 12 October

1988 (Annex "I"), as Trustees for the distribution of the individual 'crossed' cashier's checks to

the former Stanford employees.

15. In September 1988, petitioner Stanford Liquidation Committee approved an initial

distribution of Six Million Pesos (P6,000,000.00) in sales proceeds via 'crossed' cashier's checks

payable directly to the former Stanford employees. The share in the sales proceeds of each

Stanford employees was based on computation audited by Carlos J. Valdez & Co. (Petition, pp.

36-39)

Considering these circumstances, we rule that NLRC committed grave abuse of discretion in refusing to stay the

proceedings in the money claims pending before respondent Labor Arbiter Cruz and when it deferred the payment

of P6,000,000.00 to the former Stanford employees.

We agree with the petitioners that the Memorandum of Agreement dated March 13, 1987 is valid, fair and

reasonable, and is in accord with law, morals, public policy and established jurisprudence.



Article XIII of the Constitution (paragraph 3, section 3) provides for voluntary modes of settling labor disputes, to

wit:

xxx xxx xxx

The State shall promote the principle of shared responsibility between workers and employers

and the preferential use of voluntary modes in settling disputes, including conciliation and shallenforce their mutual compliance therewith to foster industrial peace.

This policy is echoed under Article 227 of the Labor Code which provides:

Compromise Agreement.-Any compromise settlement, including those involving labor standard

laws, voluntarily agreed upon by the parties with the assistance of the Bureau or the regional

office of the Department of Labor, shall be final and binding upon the parties. The National Labor

Relations Commission or any court shall not assume jurisdiction over issues involved therein

except in case of non-compliance thereof or if there is prima facie evidence that the settlement

was obtained through fraud, misrepresentation, or coercion.

Recently, in Republic Act 6715, the promotion of the preferential use of voluntary modes of settling labor disputeswas again reiterated.

In fact, as early as 1963, under the Industrial Peace Act, we have ruled that compromise agreements executed by

workers or employees and their employer to settle their differences if done in good faith are Valid and binding

among the parties. (Dionela v. Court of Industrial Relations, 8 SCRA 832 [1963]; Pampanga Sugar Development Co.,

Inc. v. Court of Industrial Relations, 114 SCRA 725 [1982]).

Undoubtedly, the MOA was executed in good faith and the employees were duly represented during the

negotiations which were supervised by a Regional Director of the DOLE. More important, the rights of the

employees were safeguarded and protected not only during the negotiations but also at the implementation of the

compromise agreement.

However, may a minority of the employees which is equivalent to less than 1% of the total employees (25)

represented by Atty. Ocampo prevent the enforcement of the Memorandum of Agreement executed by

employees representing about 89% of the total number of employees (6,341 out of a total 7,124 employees; 783

not represented in the negotiations but their shares placed in escrow for their benefit under the MOA)?

The answer is in the negative. In the case of Dionela vs. Court of Industrial Relations supra, we ruled:

The main question for determination in this case is whether the compromise agreement

pursuant to which the complaint in Case No. 598-ULP had, inter alia, been withdrawn and then

dismissed is binding upon petitioners herein. The latter maintains that it is not, but the lower

court held otherwise, upon the ground that it is an accepted rule under our laws that the will of

the majority should prevail over the minority' citing Betting Ushers Union (PLUM) v. Jai-alai , L-9330, June 29, 1957 and Jesalva et al. v . Bautista, L-11928 to L-11930, March 24, 1959-and that

the action taken by petitioners herein as minority members of the Union 'is contrary to the policy

of the Magna Carta of Labor, which promotes the settlement of differences between

management and labor by mutual agreement,' and that if said action were tolerated, 'no

employer would ever enter into any compromise agreement for the minority members of the

Union will always dishonor the terms of the agreement and demand for better terms.' The view

thus taken by the lower court is correct. Indeed, otherwise, even collective bargaining



agreements would cease to promote industrial peace and the purpose of Republic Act No. 875

would thus be defeated.

As regards the January 3, 1989 NLRC resolution which directed petitioner Stanford Liquidation Committee to

deposit with the NLRC the deducted attorney's fees representing 10% of the amount due and/or to be paid to the

former employees of Stanford Microsystems, Inc. we agree with the petitioners that such directive was

jurisdictionally defective and premature. Such directive is premature because the NLRC, in effect, prematurely andunduly disposed of, resolved and prejudged the contentious issues raised in the Stanford Emp loyees' Injunction

case, based on the bare assertions of Atty. Ocampo and his twenty five (25) clients the private respondents herein.

The Solicitor General, who agrees with the petitioners that the NLRC resolution is premature aptly observed:

... [A]ny attorney's fee that may be awarded in the aforesaid cases would be assessed from

whatever money award is made in favor of the employees. In other words, the attorney's fee is

not a Stanford obligation but a lien on the employees' money award. By requiring the Liquidation

Committee to make deposit, the NLRC in effect would shift the obligation from the employees to

Stanford. (Public respondent's Memorandum, p. 1638)

Obviously, the NLRC directive was for the benefit of respondent Atty. Vicente Ocampo who is claiming attorney's

fees as counsel of the group of former Stanford employees headed by Ludivina L. Sabalza, Adeliza Cantillo andRemigio P. Pestaño. But as stated earlier in this decision, the group terminated the services of Atty. Ocampo when

he refused to represent them in the negotiations with the creditors and other former employees of Stanford. This,

notwithstanding, Atty. Ocampo insisted on acting as counsel of the group by filing pleadings on their behalf with

SEC and NLRC. He opposed the appearance dated June 30, 1988 (Annex "NN", Petition) filed by the Bacungan

Larcia Bacungan law offices in the case pending before the SEC and the respondents Labor Arbiter Cruz and NLRC,

in substitution of Atty. Ocampo, which appearance bears the conformity of the group.

Eventually, however, the SEC found that Atty. Ocampo represented only thirty four (34) employees which is less

than 1% of the total Stanford employees.

The record shows that Atty. Ocampo filed with the SEC a Notice of Attorney's Lien dated November 11, 1987, to

wit:

The undersigned counsel, Atty. VICENTE T. OCAMPO LAW OFFICES, hereby file their Notice of

Attorney's Lien in the above entitled case and its incidents on their claim for attorney's fees onthe contingent basis, in the amount equivalent to twenty five percent (25%) of the back (strike

duration) pay or similar benefit, and ten percent (10%) of the cash conversion of the unused

vacation and sick leave with pay and 13th month's pay for 1985, separation pay, and other money pay claims or benefits which may be due and payable to the workers and employees of

SMI involved herein, and recipients thereof, as a result of the filing and/or prosecution of such

actions as are deemed necessary under the premises and/or judgements which may be rendered

in their favor, pursuant to the constract of legal services by and between the said attorneys and

the said worker and employees represented by the Caretaker Committee, composed of Ludivina

L. Sabalza, Adeliza Cantillo, Remegio Pestaño, Merian Ocampo, and Leticia Tabora, and Fernando

Gumabon. A xerox copy of said contract of legal services is hereby attached as Annex "A" hereof.(Emphasis supplied). (Petition, p. 129)

Since the contract for legal services was on. a contingent basis, Atty. Ocampo as counsel can be paid only if he wins

the case for the group. As it turned out, however, Atty. Ocampo's services were terminated by the group as early

as October and November 1986 when he refused to represent the group in the negotiations with the other

creditors of Stanford for an out of court settlement of their claims resulting in the execution of the Memorandum

of Agreement. In an earlier case involving Atty. Ocampo, entitled Ocampo v. Lerum (162 SCRA 498 [1988]), we

ruled:



The record of the case clearly discloses that The private respondent Atty. Lerum was primarily

responsible for negotiating for the PALEA the retroactive wage increases mentioned earlier, to

the exclusion of petitioner Atty. Ocampo. PAL could validly deal with the Biangco Faction

represented by Atty. Lerum because no court order had been issued restraining PAL from doing

so. The record of the case also reveals that Atty. Ocampo tried his best to enjoin the negotiations

initiated by Atty. Lerum by questioning the same before the Court of Industrial Relations and

even this Court.

On the basis of the foregoing observations, We cannot see how Atty. Ocampo could be entitled

to any part of the said attorney's fees. The attorney's fees emanated from the retroactive wage

increases negotiated by Atty. Lerum. Accordingly, and under the circumstances obtaining in this

case, the said attomey's fees should belong to Atty. Lerum to the exclusion of Atty. Ocampo. We,

therefore, find no grave abuse of discretion on the part of the public respondents in reaching this

conclusion. (at p. 502)

Considering that Atty. Ocampo took no part in the negotiations leading to the execution of the Memorandum of

Agreement, a compromise agreement among the creditors and former employees of Stanford to liquidate

Stanford which we rule as valid, we find no plausible reason for Atty. Ocampo to interfere with its implementation

by filing complaints and/or pleadings with the SEC, the Labor Arbiter and the NLRC in his effort to collect attorney'sfees not due him. With the foregoing findings, we find no need to discuss the other arguments posed by the

petitioners.

WHEREFORE, the instant petition is GRANTED. The questioned resolutions dated October 6, 1988, November 3,

1988 and January 3, 1989 of the National Labor Relations Commission are declared NULL and VOID and are hereby

SET ASIDE. The Court Orders:

1) Respondent Labor Arbiter Dominador M. Cruz to desist from conducting further proceedings in Case No. 12-

4882-86, Case No. 3-753-86; Case No. 2-6280-86; Case No. 11-4543-86 and Case No. 3-803-86;

2) Respondent National Labor Relations Commission and Labor Arbiter Dominador M. Cruz to desist from

interfering in the implementation of the Memorandum of Agreement dated March 13, 1987 in the matter of the

liquidation Committee under the jurisdiction of the Securities and Exchange Commission; and

3) Private respondents and Atty. Vicente T. Ocampo and associates, their representatives, agents and any other

person assisting them or acting for them and on their behalf to desist from interfering with the implementation of

the Memorandum of Agreement, the liquidation of the Stanford Microsystems, Inc., and the exercise by the

Stanford Liquidation Committee duly appointed by the Securities and Exchange Commission of its functions. No

costs.

SO ORDERED.



NO. 29 ( SAME WITH NO 22)

G.R. No. 86100-03 January 23, 1990

METROPOLITAN BANK AND TRUST COMPANY, petitioner,

vs.

THE HONORABLE COURT OF APPEALS and ARTURO ALAFRIZ and ASSOCIATES, respondents.

This petition for review on certiorari impugns the decision of the Court of Appeals in CA-G.R. Nos. 08265-082681

affirming the order of Branch 168, Regional Trial Court, National Capital Judicial Region, in Civil Cases Nos. 19123-

28, 19136 and 19144, fixing attorney's fees and directing herein petitioner Metropolitan Bank and Trust Company

(Metrobank, for brevity), as defendant in said civil cases, to pay its attorneys, herein private respondent Arturo

Alafriz and Associates, movant therein, the amount of P936,000.00 as attorney's fees on a quantum meruit basis.

The records show that from March, 1974 to September, 1983, private respondent handled the above-mentioned

civil cases before the then Court of First Instance of Pasig (Branches I, II, VI, X, XIII, XIX, XX AND XXIV) in behalf of

petitioner.2

The civil cases were all for the declaration of nullity of certain deeds of sale, with damages.

The antecedental facts3

which spawned the filing of said actions are undisputed and are hereinunder set forth as

found by the trial court and adopted substantially in the decision of respondent court. A certain Celedonio Javier

bought seven (7) parcels of land owned by Eustaquio Alejandro, et al., with a total area of about ten (10) hectares.

These properties were thereafter mortgaged by Javier with the petitioner to secure a loan obligation of one Felix



Angelo Bautista and/or International Hotel Corporation. The obligors having defaulted, petitioner foreclosed the

mortgages after which certificates of sale were issued by the provincial sheriff in its favor as purchaser thereof

Subsequently, Alejandro, alleging deceit, fraud and misrepresentation committed against him by Javier in the sale

of the parcels of land, brought suits against Javier et al., and included petitioner as defendant therein.

It was during the pendency of these suits that these parcels of land were sold by petitioner to its sister

corporation, Service Leasing Corporation on March 23, 1983 for the purported price of P600,000.00. On the sameday, the properties were resold by the latter to Herby Commercial and Construction Corporation for the purported

price of P2,500,000.00. Three months later, or on June 7, 1983, Herby mortgaged the same properties with Banco

de Oro for P9,200,000.00. The lower court found that private respondent, did not have knowledge of these

transfers and transactions.

As a consequence of the transfer of said parcels of land to Service Leasing Corporation, petitioner filed an urgent

motion for substitution of party on July 28, 1983. Private respondent, on its part, filed on August 16, 1983 a

verified motion to enter in the records of the aforesaid civil cases its charging lien, pursuant to Section 37, Rule 138

of the Rules of Court, equivalent to twenty-five percent (25%) of the actual and current market values of the

litigated properties as its attorney's fees. Despite due notice, petitioner failed to appear and oppose said motion,

as a result of which the lower court granted the same and ordered the, Register of Deeds of Rizal to annotate the

attorney's liens on the certificates of title of the parcels of land.

Meanwhile, the plaintiffs Alejandro, et al. in the aforesaid civil cases, which had been consolidated and were

pending before the Regional Trial Court of Pasig, filed a motion to dismiss their complaints therein, which motion

the lower court granted with prejudice in its order dated September 5, 1983. On December 29, 1983, the same

court ordered the Register of Deeds to annotate the attorney's liens of private respondent on the derivative titles

which cancelled Transfer Certificates of Title Nos. 453093 to 453099 of the original seven (7) parcels of land

hereinbefore adverted to.

On May 28,1984, private respondent filed a motion to fix its attorney's fees, based on quantum meruit , which

motion precipitated an exchange of arguments between the parties. On May 30, 1984, petitioner manifested that

it had fully paid private respondent; the latter, in turn, countered that the amount of P50,000.00 given by

petitioner could not be considered as full payment but merely a cash advance, including the amount of P14,000.00

paid to it on December 15, 1980. It further appears that private respondent attempted to arrange a compromise

with petitioner in order to avoid suit, offering a compromise amount of P600,000.00 but the negotiations were

unsuccessful.

Finally, on October 15,1984, the court a quo issued the order assailed on appeal before respondent court, granting

payment of attorney's fees to private respondent, under the following dispositive portion:

PREMISES CONSIDERED, the motion is hereby granted and the Metropolitan Bank and Trust

Company (METROBANK) and Herby Commercial and Construction Corporation4

are hereby

ordered to pay the movant Arturo Alafriz and Associates the amount of P936,000.00 as its

proper, just and reasonable attorney's fees in these cases.5

On appeal, respondent court affirmed the order of the trial court in its decision promulgated on February 11, 1988.

A motion for reconsideration, dated March 3, 1988, was filed by petitioner but the same was denied in a resolution

promulgated on November 19, 1988, hence the present recourse.

The issues raised and submitted for determination in the present petition may be formulated thus: (1) whether or

not private respondent is entitled to the enforcement of its charging lien for payment of its attorney's fees; (2)

whether or not a separate civil suit is necessary for the enforcement of such lien and (3) whether or not private



respondent is entitled to twenty-five (25%) of the actual and current market values of the litigated properties on a

quantum meruit basis.

On the first issue, petitioner avers that private respondent has no enforceable attorney's charging lien in the civil

cases before the court below because the dismissal of the complaints therein were not, in the words of Section 37,

Rule 138, judgments for the payment of money or executions issued in pursuance of such judgments.6

We agree with petitioner.

On the matter of attorney's liens Section 37, Rule 138 provides:

. . . 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, from and after the time when he shall have caused a statement of his claim of such lien to

be entered upon the records of the court rendering such judgment, or issuing such execution,

and shall have caused written notice thereof to be delivered to his client and to the adverse

party; and he shall have the same right and power over such judgments and executions as his

client would have to enforce his lien and secure the payment of his just fees and disbursements.

Consequent to such provision, a charging lien, to be enforceable as security for the payment of attorney's fees,

requires as a condition sine qua non a judgment for money and execution in pursuance of such judgment secured

in the main action by the attorney in favor of his client. A lawyer may enforce his right to fees by filing the

necessary petition as an incident in the main action in which his services were rendered when something is due his

client in the action from which the fee is to be paid.7

In the case at bar, the civil cases below were dismissed upon the initiative of the plaintiffs "in view of the frill

satisfaction of their claims."8

The dismissal order neither provided for any money judgment nor made any

monetary award to any litigant, much less in favor of petitioner who was a defendant therein. This being so,

private respondent's supposed charging lien is, under our rule, without any legal basis. It is flawed by the fact that

there is nothing to generate it and to which it can attach in the same manner as an ordinary lien arises and

attaches to real or personal property.

In point is Morente vs. Firmalino,9

cited by petitioner in support of its position. In that case, movant-appellant

attorney sought the payment of his fees from his client who was the defendant in a complaint for injunction which

was dismissed by the trial court after the approval of an agreement entered into by the litigants. This Court held:

. . . The defendant having suffered no actual damage by virtue of the issuance of a preliminary

injunction, it follows that no sum can be awarded the defendant for damages. It becomes

apparent, too, that no amount having been awarded the defendant, herein appellant's lien could

not be enforced. The appellant, could, by appropriate action, collect his fees as attorney.

Private respondent would nevertheless insist that the lien attaches to the "proceeds of a judgment of whatever

nature,"

10

relying on the case of Bacolod-Murcia Milling Co. Inc. vs. Henares

11

and some American cases holdingthat the lien attaches to the judgment recovered by an attorney and the proceeds in whatever form they may be.12

The contention is without merit just as its reliance is misplaced. It is true that there are some American cases

holding that the lien attaches even to properties in litigation. However, the statutory rules on which they are based

and the factual situations involved therein are neither explained nor may it be said that they are of continuing

validity as to be applicable in this jurisdiction. It cannot be gainsaid that legal concepts of foreign origin undergo a



number of variegations or nuances upon adoption by other jurisdictions, especially those with variant legal

systems.

In fact, the same source from which private respondent culled the American cases it cited expressly declares that

"in the absence of a statute or of a special agreement providing otherwise, the general rule is that an attorney has

no lien on the land of his client, notwithstanding such attorney has, with respect to the land in question,

successfully prosecuted a suit to establish the title of his client thereto, recovered title or possession in a suitprosecuted by such client, or defended successfully such client's right and title against an unjust claim or an

unwarranted attack,"13

as is the situation in the case at bar. This is an inescapable recognition that a contrary rule

obtains in other jurisdictions thereby resulting in doctrinal rulings of converse or modulated import.

To repeat, since in our jurisdiction the applicable rule provides that a charging lien attaches only to judgments for

money and executions in pursuance of such judgment, then it must be taken in haec verba. The language of the

law is clear and unequivocal and, therefore, it must be taken to mean exactly what it says, barring any necessity for

elaborate interpretation.14

Notably, the interpretation, literal as it may appear to be, is not without support in Philippine case law despite the

dearth of cases on all fours with the present case. In Caina et al . vs. Victoriano, et al .,15

the Court had the occasion

to rule that "the lien of respondent is not of a nature which attaches to the property in litigation but is at most apersonal claim enforceable by a writ of execution." In Ampil vs. Juliano-Agrava, et al .,

16the Court once again

declared that a charging lien "presupposes that the attorney has secured a favorable money judgment for his client

. . ." Further, in Director of Lands vs. Ababa, et al .,17

we held that "(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."

Even in the Bacolod-Murcia Milling case, which we previously noted as cited by private respondent, there was an

express declaration that "in this jurisdiction, the lien does not attach to the property in litigation."

Indeed, an attorney may acquire a lien for his compensation upon money due his client from the adverse party in

any action or proceeding in which the attorney is employed, but such lien does not extend to land which is the

subject matter of the litigation.18

More specifically, an attorney merely defeating recovery against his client as a

defendant is not entitled to a lien on the property involved in litigation for fees and the court has no power to fix

the fee of an attorney defending the client's title to property already in the client's

possession.19

While a client cannot defeat an attorney's right to his charging lien by dismissing the case, terminating the services

of his counsel, waiving his cause or interest in favor of the adverse party or compromising his action,20

this rule

cannot find application here as the termination of the cases below was not at the instance of private respondent's

client but of the opposing party.

The resolution of the second issue is accordingly subsumed in the preceding discussion which amply demonstrates

that private respondent is not entitled to the enforcement of its charging lien.

Nonetheless, it bears mention at this juncture that an enforceable charging lien, duly recorded, is within the

jurisdiction of the court trying the main case and this jurisdiction subsists until the lien is settled.21

There is

certainly no valid reason why the trial court cannot pass upon a petition to determine attorney's fees if the rule

against multiplicity of suits is to be activated.22

These decisional rules, however, apply only where the charging lien

is valid and enforceable under the rules.



On the last issue, the Court refrains from resolving the same so as not to preempt or interfere with the authority

and adjudicative facility of the proper court to hear and decide the controversy in a proper proceeding which may

be brought by private respondent.

A petition for recovery of attorney's fees, either as a separate civil suit or as an incident in the main action, has to

be prosecuted and the allegations therein established as any other money claim. The persons who are entitled to

or who must pay attorney's fees have the right to be heard upon the question of their propriety or amount.23

Hence, the obvious necessity of a hearing is beyond cavil.

Besides, in fixing a reasonable compensation for the services rendered by a lawyer on the basis of quantum meruit ,

the elements to be considered are generally (1) the importance of the subject matter in controversy, (2) the extent

of the services rendered, and (3) the professional standing of the lawyer.24

These are aside from the several other

considerations laid down by this Court in a number of decisions as pointed out by respondent court.25

A

determination of all these factors would indispensably require nothing less than a full-blown trial where private

respondent can adduce evidence to establish its right to lawful attorney's fees and for petitioner to oppose or

refute the same.

Nothing in this decision should, however, be misconstrued as imposing an unnecessary burden on private

respondent in collecting the fees to which it may rightfully be entitled. But, as in the exercise of any other rightconferred by law, the proper legal remedy should be availed of and the procedural rules duly observed to forestall

and obviate the possibility of abuse or prejudice, or what may be misunderstood to be such, often to the

undeserved discredit of the legal profession.

Law advocacy, it has been stressed, is not capital that yields profits. The returns it births are simple rewards for a

job done or service rendered. It is a calling that, unlike mercantile pursuits which enjoy a greater deal of freedom

from government interference, is impressed with public interest, for which it is subject to State regulation.26

ACCORDINGLY, the instant petition for review is hereby GRANTED and the decision of respondent Court of Appeals

of February 11, 1988 affirming the order of the trial court is hereby REVERSED and SET ASIDE, without prejudice to

such appropriate proceedings as may be brought by private respondent to establish its right to attorney's fees and

the amount thereof.

NO. 30

G.R. No. 73886 January 31, 1989

JOHN C. QUIRANTE and DANTE CRUZ, petitioners,

vs.

THE HONORABLE INTERMEDIATE APPELLATE COURT, MANUEL C. CASASOLA, and ESTRELLITA C. CASASOLA,respondents.

This appeal by certiorari seeks to set aside the judgment'1

of the former Intermediate Appellate Court

promulgated on November 6, 1985 in AC-G.R. No. SP-03640,

2

which found the petition for certiorari thereinmeritorious, thus:

Firstly, there is still pending in the Supreme Court a petition which may or may not ultimately

result in the granting to the Isasola (sic) family of the total amount of damages given by the

respondent Judge. Hence the award of damages confirmed in the two assailed Orders may be

premature. Secondly, assuming that the grant of damages to the family is eventually ratified, the

alleged confirmation of attorney's fees will not and should not adversely affect the non-

signatories thereto.



WHEREFORE, in view of the grave abuse of discretion (amounting to lack of jurisdiction)

committed by the respondent Judge, We hereby SET ASIDE his questioned orders of March 20,

1984 and May 25, 1984. The restraining order previously issued is made permanent.3

The challenged decision of respondent court succinctly sets out the factual origin of this case as follows:

... Dr. Indalecio Casasola (father of respondents) had a contract with a building contractor namedNorman GUERRERO. The Philippine American General Insurance Co. Inc. (PHILAMGEN, for short)

acted as bondsman for GUERRERO. In view of GUERRERO'S failure to perform his part of the

contract within the period specified, Dr. Indalecio Casasola, thru his counsel, Atty. John Quirante,

sued both GUERRERO and PHILAMGEN before the Court of first Instance of Manila, now the

Regional Trial Court (RTC) of Manila for damages, with PHILAMGEN filing a cross-claim against

GUERRERO for indemnification. The RTC rendered a decision dated October 16, 1981. ...4

In said decision, the trial court ruled in favor of the plaintiff by rescinding the contract; ordering GUERRERO and

PHILAMGEN to pay the plaintiff actual damages in the amount of P129,430.00, moral damages in the amount of

P50,000.00, exemplary damages in the amount of P40,000.00 and attorney's fees in the amount of P30,000.00;

ordering Guerrero alone to pay liquidated damages of P300.00 a day from December 15, 1978 to July 16, 1979;

and ordering PHILAMGEN to pay the plaintiff the amount of the surety bond equivalent to P120,000.00.

5

A motionfor reconsideration filed by PHILAMGEN was denied by the trial court on November 4, 1982.

6

Not satisfied with the decision of the trial court, PHILAMGEN filed a notice of appeal but the same was not given

due course because it was allegedly filed out of time. The trial court thereafter issued a writ of execution.7

A petition was filed in AC-G.R. No. 00202 with the Intermediate Appellate Court for the quashal of the writ of

execution and to compel the trial court to give due course to the appeal. The petition was dismissed on May 4,

19838

so the case was elevated to this Court in G.R. No. 64334.9

In the meantime, on November 16, 1981, Dr.

Casasola died leaving his widow and several children as survivors.10

On June 18, 1983, herein petitioner Quirante filed a motion in the trial court for the confirmation of his attorney's

fees. According to him, there was an oral agreement between him and the late Dr. Casasola with regard to hisattorney's fees, which agreement was allegedly confirmed in writing by the widow, Asuncion Vda. de Casasola, and

the two daughters of the deceased, namely Mely C. Garcia and Virginia C. Nazareno. Petitioner avers that pursuant

to said agreement, the attorney's fees would be computed as follows:

A. In case of recovery of the P120,000.00 surety bond, the attorney's fees of the undersigned counsel (Atty.

Quirante) shall be P30,000.00.

B. In case the Honorable Court awards damages in excess of the P120,000.00 bond, it shall be divided equally

between the Heirs of I. Casasola, Atty. John C. Quirante and Atty. Dante Cruz.

The trial court granted the motion for confirmation in an order dated March 20, 1984, despite an opposition

thereto. It also denied the motion for reconsideration of the order of confirmation in its second order dated May25, 1984.11

These are the two orders which are assailed in this case.

Well settled is the rule that counsel's claim for attorney's fees may be asserted either in the very action in which

the services in question have been rendered, or in a separate action. If the first alternative is chosen, the Court

may pass upon said claim, even if its amount were less than the minimum prescribed by law for the jurisdiction of

said court, upon the theory that the right to recover attorney's fees is but an incident of the case in which the



services of counsel have been rendered ."12

It also rests on the assumption that the court trying the case is to a

certain degree already familiar with the nature and extent of the lawyer's services. The rule against multiplicity of

suits will in effect be subserved.13

What is being claimed here as attorney's fees by petitioners is, however, different from attorney's fees as an item

of damages provided for under Article 2208 of the Civil Code, wherein the award is made in favor of the litigant,

not of his counsel, and the litigant, not his counsel, is the judgment creditor who may enforce the judgment forattorney's fees by execution.

14Here, the petitioner's claims are based on an alleged contract for professional

services, with them as the creditors and the private respondents as the debtors.

In filing the motion for confirmation of attorney's fees, petitioners chose to assert their claims in the same action.

This is also a proper remedy under our jurisprudence. Nevertheless, we agree with the respondent court that the

confirmation of attorney's fees is premature. As it correctly pointed out, the petition for review on certiorari filed

by PHILAMGEN in this Court (G.R. No. 64834) "may or may not ultimately result in the granting to the Isasola (sic)

family of the total amount of damages" awarded by the trial court. This especially true in the light of subsequent

developments in G.R. No. 64334. In a decision promulgated on May 21, 1987, the Court rendered judgment setting

aside the decision of May 4, 1983 of the Intermediate Appellate Court in AC-G.R. No. 00202 and ordering the

respondent Regional Trial Court of Manila to certify the appeal of PHILAMGEN from said trial court's decision in

Civil Case No. 122920 to the Court of Appeal. Said decision of the Court became final and executory on June 25,1987.

Since the main case from which the petitioner's claims for their fees may arise has not yet become final, the

determination of the propriety of said fees and the amount thereof should be held in abeyance. This procedure

gains added validity in the light of the rule that the remedy for recovering attorney's fees as an incident of the

main action may be availed of only when something is due to the client. Thus, it was ruled that:

... an attorney's fee cannot be determined until after the main litigation has been decided and

the subject of recovery is at the disposition of the court. The issue over attorney's fee only arises

when something has been recovered from which the fee is to be paid.15

It is further observed that the supposed contract alleged by petitioners as the basis for their fees provides that the

recovery of the amounts claimed is subject to certain contingencies. It is subject to the condition that the fee shall

be P30,000.00 in case of recovery of the P120,000.00 surety bond, plus an additional amount in case the award is

in excess of said P120,000.00 bond, on the sharing basis hereinbefore stated.

With regard to the effect of the alleged confirmation of the attorney's fees by some of the heirs of the deceased.

We are of the considered view that the orderly administration of justice dictates that such issue be likewise

determined by the court a quo inasmuch as it also necessarily involves the same contingencies in determining the

propriety and assessing the extent of recovery of attorney's fees by both petitioners herein. The court below will

be in a better position, after the entire case shall have been adjudicated, inclusive of any liability of PHILAMGEN

and the respective participations of the heirs of Dr. Casasola in the award, to determine with evidentiary support

such matters like the basis for the entitlement in the fees of petitioner Dante Cruz and as to whether the

agreement allegedly entered into with the late Dr. Casasola would be binding on all his heirs, as contended by

petitioner Quirante.

We, therefore, take exception to and reject that portion of the decision of the respondent court which holds that

the alleged confirmation to attorney's fees should not adversely affect the non-signatories thereto, since it is also

premised on the eventual grant of damages to the Casasola family, hence the same objection of prematurity

obtains and such a holding may be pre-emptive of factual and evidentiary matters that may be presented for

consideration by the trial court.



WHEREFORE, with the foregoing observation, the decision of the respondent court subject of the present recourse

is hereby AFFIRMED.

SO ORDERED.

NO. 31

G.R. No. L-30712 February 6, 1991

THE REPARATIONS COMMISSION, plaintiff-appellee,

vs.

THE VISAYAN PACKING CORPORATION and THE FIELDMENS INSURANCE CO., INC., defendants-appellants.

This is an appeal originally filed with the Court of Appeals but certified to this Court for disposition since it involves

purely questions of law, from the decision of the then Court of First Instance of Manila, * Branch IX, dated June 23,

1964, in Civil Case No. 51712, ordering the defendants-appellants herein to pay, jointly and severally, to the

plaintiff-appellee the sum of P124,242.47, with interest at the legal rate from the date of the filing of the complaint

until fully paid and denying plaintiff s prayer for attorney's fees. With respect to the cross-claim of Fieldmen'sInsurance Co., Inc., the said court ordered Visayan Packing Corporation to pay Fieldmen's Insurance Co., Inc. such

amount which the latter may pay to the plaintiff-appellee with interest at 12% per annum until fully paid, and

attorney's fees equivalent to 10% of the amount, paid by Fieldmen's Insurance Co., Inc. to the plaintiff-appellee.

With costs against the defendants-appellants.

As gathered from the records, the antecedent facts of this case are as follows:



Plaintiff Reparations Commission (Repacom, for short) is a government entity created by virtue of Republic Act No.

1789, with offices at the 5th Floor, Development Bank of the Philippines Building No. 2, Port Area, Manila while the

defendants, Visayan Packing Corporation (Vispac, for short) and the Fieldmen's Insurance Co., Inc. (FICI, for short)

are corporations duly organized and registered under the laws of the Philippines, with offices in Bacolod City,

Philippines and Singson Bldg., Plaza Moraga, Manila, respectively.

On May 19, 1960, plaintiff Repacom adopted Resolution No. 262 awarding to the defendant Vispac by way of acontract of conditional purchase and sale subsequently executed on November 15, 1960 (Exhibit "A") the following

reparations goods with a total F.O.B. value of P1,242,424.67 (Exhibit "A-2"): one (1) Cannery Plant, divested from

M/S "Estancia"; two (2) Fishing Boats M/S "SONIA" and M/S "ANA LARES", 75 G.T. and one (1) Fishing Boat M/S

"SALVADOR "B"", 100 G.T.; including all its corresponding accessories and appurtenances. These reparations goods

were delivered to the defendant Vispac, on May 30, 1960 (Exhibit "A-2").

Attached with said contract and forming part thereof is the questioned Schedule of Installment Payments, herein

reproduced, as follows:

SCHEDULE OF INSTALLMENT PAYMENTS

NAME OF USER VISAYAN PACKING CORPORATION

ADDRESS Bacolod City

NATURE OF CAPITAL GOODS/SERVICES One (1) Cannery Plant and appurtenances; Two (2) Fishing

Vessels, 75 G.T. M/S "SONIA" and M/S "ANA LARES" and one (1) fishing vessel "M/S SALVADOR

B", 100 G.T., together with all equipment and appurtenances.

DATE OF COMPLETE DELIVERY May 30,1960

TOTAL F.O.B. COST P1,24 2,424.67

AMOUNT OF FIRST INSTALLMENT (10% of FOB COST

P1,24,242.47)

DUE DATE OF 1ST INSTALLMENT May 30,1962

TERM: Ten (10) EQUAL YEARLY INSTALLMENTS

RATE OF INTEREST: THREE PERCENT (3%) PER ANNUM

NO. OF DATE DUE AMOUNT

INSTALLMENTS

1 May 30, 1963 P131,085.07

2 " " 1964 P131,085.07

3 " " 1965 P131,085.07



4 " " 1966 P131,085.07

5 " " 1967 P131,085.07

6 " " 1968 P131,085.07

7 " " 1969 P131,085.07

8 " " 1970 P131,085.07

9 " " 1971 P131,085.07

10 " " 1972 P131,085.07

MANILA, PHILIPPINES 1960

VISAYAN PACKING CORPORATION REPARATIONS

END-USER COMMISSION

BY: BY:

HERNAN DE LA RAMA RODOLFO MASLOG

President & General Manager Chairman

(Ibid ., Exhibit "A-1", p. 11)

Defendant-appellant FICI is impleaded as bondsman for the principal defendant Vispac, under Surety Bond No.

4122 (Exhibit "B") issued by the former on May 30, 1960, to guarantee "faithful observance and compliance by theprincipal of all its obligations" recited in the Contract of Conditional Purchase and Sale of Reparations Goods

(Exhibit "A") and in the annexed Schedule of Payments (Exhibit "A-1 ").

On September 27, 1962, Repacom filed a complaint for specific performance with the court a quo against Vispac

seeking collection of the amount of P124,242.47 allegedly due on May 30, 1962 as payment of the 1st installment

of the reparations goods and impleaded the FICI as defendant.

In its answer dated November 8, 1962, Vispac claimed that the Schedule of Payments (Exhibit "A") is vague and

ambiguous with respect to the date when the first installment falls due and that by reason thereof, the ambiguity

should be construed against Repacom, the party which drafted the contract.

Thus, while Repacom maintains that the 1st installment is due on May 30, 1962, Vispac, on the other hand, arguesthat it is due on May 30, 1963.

On January 13, 1964, Repacom and Vispac submitted a "Stipulation of Facts" and both prayed that this case be

submitted for decision after their respective memoranda have been filed. FICI joined with this move and request of

the principal parties.

Pertinent provisions of said Stipulation of Facts are quoted as follows:



paragraph 1 ––

That in order to abbreviate proceeding they have agreed that the transcript of notes taken in

Civil Case No. 51713, The Reparations Commission vs. Fieldmen's Insurance Co., Inc., Branch III,

CFI, Manila, be submitted as evidence in the above entitled case. This agreement stemmed from

the fact that both Civil Case 51712, the case now being litigated and Civil Case No. 51713

mentioned earlier in this paragraph are both collection cases instituted by the ReparationsCommission against the defendant, The Visayan Packing Corporation and the Fieldmen's

Insurance Co., Inc., based on similar Contracts of Conditional Purchase and Sale, drafted in the

usual standard form and containing practically the same standard provisions and stipulations.

paragraph 2 ––

That Civil Case No. 51713 has already been decided on March 27, 1963 granting relief for the

plaintiff, The Reparations Commission as prayed for, a copy of said decision is hereto attached

and marked Annex "A" for purposes of identification and is hereby made an integral part of this

Stipulation of Facts.

paragraph 3 ––

That Civil Case No. 51712 refers to reparations goods, denominated, one (1) cannery plant, two

(2) fishing boats, M/S "Sonia" and M/S "Ana Lares", 100 G.T. including all its corresponding

accessories and appurtenances, which is the subject matter of a Contract of Conditional Purchase

and Sale dated November 15, 1960 entered into by and between the plaintiff Reparations

Commission as Conditional Vendor and the defendant, The Visayan Packing Corporation as

Conditional Vendee, the legality and due execution of which is not disputed by the herein

parties, a copy of which contract together with its annex "B" were introduced in evidence by

plaintiffs as Exhibits "A" and "A-1" respectively and were admitted by the Court without

objection on the part of the defendants. That, likewise, there were introduced in evidence and

admitted by the Court without objection on the part of the defendants as additional exhibits,

Exh. "A-2" (Date of complete delivery as it appears in Annex "B" [May 30, 1960]; Exh. "A-1"; Exh.

"A-2", amount due in the sum of P124,242.47; Exh. "A-4", date of first installment as it appears in

Annex "B" (Exh. "A-1") and as Exh. "B", FICI Bond No. 4122.

On the basis of the said Stipulations of Facts and the pleadings submitted by the parties, the court a quo rendered

judgment, the dispositive portion of which reads as follows:

IN VIEW OF THE FOREGOING, the Court hereby renders judgment ordering the defendant to pay,

jointly and severally, to the plaintiff the sum of P124,242.47 with interest at the legal rate from

the date of filing of the complaint until fully paid. The plaintiffs prayer for attorney's fees is

denied, inasmuch as there is no showing that the defendants were motivated with bad faith in

failing to pay plaintiffs claim.

With respect to the cross-claim of defendant Fieldmen's Insurance Co., Inc., the Court hereby

orders defendant Visayan Packing Corporation to pay defendant Fieldmen's Insurance Co., Inc.,

such amount which the latter may pay to the plaintiff by reason of this judgment, with interest at

12% per annum until fully paid, and attorney's fees equivalent to 10% of the amount paid by

Fieldmen's Insurance Co., Inc., to the plaintiff. With costs against the defendants.

From said decision, Vispac and FICI filed on July 24, 1964 and July 27, 1964, respectively, a motion for

reconsideration of the said decision. On August 8, 1 964, the court a quo issued its order denying the said motion.



Feeling aggrieved, Vispac and FICI appealed the case to the Court of Appeals, docketed therein as CA-G.R. No.

34552-R.

After the parties have submitted their respective briefs, Repacom on April 28, 1965; Vispac on January 2, 1965; and

FICI on January 15, 1965, the case was submitted for decision on September 6, 1965. In a resolution promulgated

June 14, 1969, the Court of Appeals ** certified the instant case to this Court for proper disposition for being pure

question of law.

While Vispac and FICI raised several issues, the focal issue involved in the instant case, as correctly stated by the

trial court and the Court of Appeals, is the interpretation of the Schedule of Payments (Exhibit "A-1 ").

It is the contention of the Repacom that under the abovequoted Schedule of Payments, the amount of

P124,242.47 representing the 1st installment without interest, which is equivalent to 10% of the entire F.O.B.

costs, has already become due and demandable on May 30, 1962. However, Vispac and FICI argue that as there are

two dates given for the first installment in the said Schedule of Payment, the lst installment should be on May 30,

1963 considering that it was Repacom which prepared the contract and therefore such ambiguity should be taken

against the latter which caused the ambiguity.

The petition is devoid of merit.

Section 12, Republic Act 1789, reads as follows:

Section 12 –– Terms of Sale ––

Capital goods and complimentary services disposed to private parties as provided for in sub-

section (1) of Section 2 hereof, shall be sold on a cash or credit basis under the rules and

regulations as maybe determined by the Commission. Sales on credit basis shall be paid in

installments. Provided that the lst installment shall be paid within 24 months after complete

delivery of the capital goods and the balance within a period not exceeding 10 years . (Emphasis

supplied)

As indicated in the Schedule of Payments, Exhibit "A-1", the amount of P124,242.47, now being claimed by the

Repacom from Vispac, represents the 1st installment or initial payment without interest as said amount is

equivalent to 10% of the total F.O.B. cost of the reparation goods received by Vispac which is P1,242,424.67.

Exhibit "A-2" of the Schedule of Payments specifically states the date when the reparations goods in question were

delivered which was on May 30, 1960. This particular date was not denied by Vispac as per their Stipulation of

Facts. Consequently, as reflected in the Schedule of Payments, Exhibit "A-1 ", the 1st installment without interest

in the amount of P124,242.47 representing 10% of the F.O.B. cost of reparations goods, became due and

demandable on May 30, 1962, or exactly 24 months from the date of the complete delivery of the reparations

goods to Vispac.

The rest of the schedule clearly refers to the payment of the balance of the sales on credit which in accordance

with law (Section 12, Rep. Act 1789) must be paid within a period not exceeding ten (10) years, and chargeablewith interest at 3% per annum. Said schedule of payment for the balance i .e., after payment of the first installment

is, in turn, payable in ten (10) equal yearly installments, as follows:

Term: Ten (10) equal yearly installments

Rate of Interest: Three per cent (3%) per annum

No. of Date Due Amount



Installments

1 May 30, 1963 P131,086.07

2 " " 1964 P131,086.07

3 " " 1965 P131,086.07

4 " " 1966 P131,086.07

5 " " 1967 P131,086.07

6 " " 1968 P131,086.07

7 " " 1969 P131,086.07

8 " " 1970 P131,086.07

9 " " 1971 P131,086.07

10 " " 1972 P131,086.07

While it is a statutory and decisional rule in this jurisdiction that the contract is the law between the contracting

parties (Art. 1306, Civil Code; Phoenix Assurance Co., Ltd. vs. United States Lines, 22 SCRA 674 [1968]; Phil.

American General Insurance v. Mutuc, 61 SCRA 22 [1974]; Herrera v. Petrophil Corporation, 146 SCRA 360 [1986];

Syjuco v. CA, 172 SCRA 111 [1989]), there is a proviso that nothing therein must be contrary to law, morals, good

customs public policy, or public order (Art. 1306, Civil Code; Lagunsad v. Soto, 92 SCRA 476 [1979]). To sustain the

contention of Vispac and FICI that the 1st installment should be due on May 30, 1963, instead of May 30, 1962.

would render the said installment payment unenforceable as it would run counter to the provision of the said law

(Section 12, R.A. 1789) which specifically provides that "the 1st installment shall be paid within 24 months after

complete delivery of the capital goods", or on May 30, 1962, the complete delivery thereof having been made on

May 30, 1960.

Finally, it is basic that a contract is what the law defines it to be, and not what it is called by the contracting parties

Novesteras v. CA, 149 SCRA 48 [1987]).

Having disposed of the main case, discussion of other ancillary issues raised by the appellant Vispac becomes

unnecessary.

As to the issue of FICI's liability arising from its issuance of Surety Bond No. 4122 dated May 30, 1960, it will be

noted that FICI interposed for the first time, on appeal, the defense that Surety Bond No. 4122 has already expired.

FICI did not allege any defense to the effect that Surety Bond No. 4122 has already expired either in its answer to

the complaint dated October 26, 1962 nor in the entire proceedings below. In fact, it adopted as its own whatever

defenses its co-defendant-appellant Vispac may interpose (Rollo, Record on Appeal, FICI, p. 25; p. 44). It is settled

jurisprudence that an issue which was neither averred in the complaint nor raised during the trial in the court

below cannot be raised for the first time on appeal as it would be offensive to the basic rules of fair play, justice

and due process Dihiansan v. CA, 153 SCRA 713 [1987]; Anchuelo v. IAC, 147 SCRA 434 [1987]; Dulos Realty &

Development Corp. v. CA, 157 SCRA 425 [1988]; Ramos v. IAC, 175 SCRA 70 [1989]; Gevero v. IAC, G.R. 77029,

August 30, 1990).



Anent the contention of FICI that the trial court erred in ordering Vispac to pay to FICI attorney's fees equivalent to

only 10% of the amount due despite the fact that Vispac bound itself to pay to FICI attorney's fees equivalent to

20% of the total amount due but in no case less than P200.00 as per their Indemnity Agreement (Exhibit "1-FICI"),

it has been held that a stipulation regarding the payment of attorney's fees is neither illegal nor immoral and is

enforceable as the law between the parties (Santiago v. Dimayuga, 3 SCRA 919 [1961]), as long as such stipulation

does not contravene law, good morals, good customs, public order or public policy (Polytrade Corp. v. Blanco, 30

SCRA 187 [1969]; Social Security Commission v. Almeda, 168 SCRA 474 [1988]).

Considering, therefore, that the 20% attorney's fees provided under the parties' Indemnity Agreement (Exhibit "1-

FICI") is not contrary to the existing jurisprudence on the matter *** and is not considered excessive nor

unconscionable, the same should be awarded to FICI.

WHEREFORE, the decision appealed from is Affirmed with the modification that the amount of the attorney's fees

due from Vispac to FICI should be 20% of the amount due as per Indemnity Agreement.

SO ORDERED.

NO. 32

G.R. No. 81830 October 1, 1990

RAYMUNDO HIPOLITO, JR., in his capacity as President and Chief Executive of SAN MIGUEL CORPORATIONEMPLOYEES UNION (SMCEU) AND RODOLFO DESTURA, Union Treasurer, petitioners,

vs.

HON. PURA FERRER-CALLEJA, Bureau of Labor Relations Director, Department of Labor and Employment,Manila, HON. EDGARDO DE LA CRUZ, Med-Arbiter, National Capital Region, Department of Labor andEmployment, Manila and DANIEL L. BORBON II, respondents.

Petitioners impugn the decision of the public respondent Bureau of Labor Relations (BLR) in BLR Case No. A-10-

354-87 (NCR-OD-M-5-421-87) which affirms the order of the Med-Arbiter declaring as invalid the disqualification/

expulsion of private respondent from the union and modifies the same order by requiring petitioners to return to

the union the amount of One Hundred Thirty Thousand Pesos (P130,000.00) previously paid by them to Atty.

Raymundo Hipolito III as attorney's fees.

Petitioners Hipolito and Destura were the then President and Treasurer, respectively, of San Miguel Corporation

Employees Union (SMCEU-PTGWO), a legitimate labor organization composed of monthly salaried employees of



San Miguel Corporation. Private respondent Borbon is employed as a Safety Engineer in the Magnolia Division of

the same corporation.

Two complaints, docketed as Case Nos. NCR-IRD-C-5-302-87 and NCR-OD-M-5-421-87, were filed with the Med-

Arbiter by private respondent against petitioners in their capacity as union officers of SMCEU-PTGWO Private

respondent alleged that the following illegal acts were committed by petitioner Hipolito, as hold-over president of

the union:

1. arbitrary, summary and whimsical expulsion of complainant [private respondent] Berbon from

union membership without due process and in utter disregard of the procedure provided in the

union's constitution and by-laws;

2. illegal appointment of Rodolfo Destura as union treasurer;

3. violation of Article 242 (i), (j) and (k) of the Labor Code; (now Art. 214)

4. unilateral appointment by respondent Hipolito, Jr. of his son, Atty. Raymundo Hipolito III as

union counsel without the benefit of an approved Resolution of the Board of Directors and illegal

payment of P130,000 for legal fees; and

5. failure of respondent Hipolito, Jr. to reimburse legitimate expenses incurred by complainant

prior to and including CBA negotiation period up to April 30, 1987 [Rollo, pp. 44-45].

On September 18, 1987, the Med-Arbiter Edgardo dela Cruz rendered a resolution, the dispositive portion of which

reads:

Wherefore, premises considered, judgment is rendered as follows:

1. Declaring the disqualification and/or expulsion of complainant Daniel Borbon II invalid and

ordering his reinstatement as union member from receipt of this resolution;

2. Declaring respondent Rodolfo Destura as the legally constituted Acting Treasurer;

3. Declaring Atty. Raymundo Hipolito III as not duly appointed by the union's Board of Directors

but considers any amount paid as legal, and for services rendered, by an attorney to his client;

4. Denying the claim for reimbursement of complainant for alleged expenses incurred for the

union for lack of sufficient evidence;

5. Dismissing the claim of the removal of respondents for lack of substantial and direct evidence.

The counterclaim for damages, moral and exemplary, fees in the amounts of P500,000.00;

P200,000.00 or P50,000.00 respectively are denied for lack of jurisdiction.

SO ORDERED.

[Resolution of the Med-Arbiter; Rollo, p. 11].



Private respondent appealed item numbers 2, 3, 4 and 5 of the dispositve portion of the resolution to the BLR,

while petitioners appealed item number 1. On January 22, 1988, public respondent BLR Director Pura Ferrer-

Calleja rendered a decision modifying the Med-Arbiter's order as follows:

WHEREFORE, premises considered, the ORDER of the Med-Arbiter dated 18 September 1987 is

modified to the extent that respondents Raymundo Hipolito, Jr. and Rodolfo Destura are hereby

ordered to return to the Union the amount of One Hundred Thirty Thousand Pesos (P130,000.00)that they illegally paid to ATTY. RAYMUNDO HIPOLITO III, as attorney's or professional services

fees.

SO ORDERED.

[Decision of the Director of Bureau of Labor Relations, Annex "B" to the Petition; Rollo, p. 11]

Hence, this petition. Private respondent and the Solicitor General filed their respective Comments. Petitioners

thereafter filed they Reply. The parties submitted their memoranda, after which the case was deemed submitted.

For resolution by the court is whether or not public respondent committed grave abuse of discretion in (1) holding

that private respondent was illegally dismissed from the union and (2) in ordering petitioners to return to theunion the amount of One Hundred Thirty Thousand Pesos (P130,000.00) which they had previously paid to Atty.

Hipolito.

With respect to private respondent's removal from the union, petitioners claim that private respondent is not a

rank and file employee because he holds the position of safety engineer and as such, exercises supervisory

functions in the corporation. Therefore, in accordance with the union's rules which disallow the membership of

persons exercising supervisory powers [Article IV, Sections 2 and 9, par. B of the SMCEU constitution and by-laws;

Annex "I" to the Petition; Rollo, pp. 68, 73,] private respondent is disqualified to be a union member.

The argument is devoid of merit. Public respondent's declaration that private respondent is a rank and file

employee is supported by the evidence. First, there is a certification signed by the Assistant Vice-President and

Personnel and Administrative Manager of San Miguel Corporation, Magnolia Division [Annex "3" to the Comment;Rollo, p. 118] stating that private respondent occupies a position that is non-supervisory. Second, private

respondent's status as a rank and file employee had been recognized in two previous related petitions [G.R. Nos.

82183 and 80141] decided by this Court. Thus, the decision in G.R. No. 80141 incorporated the resolution in G.R.

No. 82183 dated May 4, 1988 [Annex "5" to the Comment of Private Respondent; Rollo, p. 121] which in part,

states: "that petitioner's petition to disqualify Daniel Borbon from running for office in the union had already been

resolved in BLR Case No. 1-354-87 (NCR OD-M-5-421-87) where Borbon was declared a rank and file employee,

hence, qualified to join, form or assist in the formation of a labor organization." [SMCEU-PTGWO v. Ferrer-Calleja,

G.R. No. 80141, July 5, 1989.]

Public respondent, therefore, did not commit grave abuse of discretion when it affirmed the declaration of the

Med-Arbiter that private respondent was a rank and file employee and accordingly, his disqualification and/or

expulsion from the union was invalid.

We now resolve the issue of whether or not public respondent committed grave abuse of discretion when it

ordered petitioners to return to the union the amount of P130,000.00 that they previously paid to Atty. Hipolito.

In the complaint filed before the Med-Arbiter, the illegal acts allegedly committed by petitioner Hipolito included

the unilateral appointment of Atty. Hipolito as union counsel, and the payment to the latter of P130,000.00 as

legal fees. According to private respondent, there was no resolution from the union's board of directors either

appointing Atty. Hipolito as counsel or authorizing the payment of attorney's fees. Under the SMCEU constitution,



it is the board of directors which has the power to engage the services of a legal counsel and to fix his

compensation [Section 2, Article VI; Rollo, pp. 75-76].

The Med-Arbiter found that the union's board did not engage the services of Atty. Hipolito as union counsel, but

ruled that the attorney's fees collected, if any, should be considered as payment for services rendered as a

professional.

On appeal, public respondent BLR upheld the Med-Arbiter's finding that the appointment was made without board

authority but declared that since the appointment was ultra vires, it is illegal, and therefore Atty. Hipolito is not

entitled to any legal fee. As a consequence, petitioners were ordered to return to the union the amount of

P130,000.00 paid to Atty. Hipolito.

There is a need to clarify that Atty. Hipolito is not asked to return to the union the money paid him. He is not even

a party to this case. It is the petitioners who have been ordered to pay back the union the amount of P130,000.00.

ultimately, the order to return the money rests on the premise that the payment by petitioners is a case of illegal

disbursement of unionfunds.

There is no question that there was no board resolution appointing Atty. Hipolito as union counsel. Petitioners,

however, maintain that the absence of a board resolution should not negate the fact that Atty. Hipolito hadrendered service to the union for which he deserved remuneration.

We sustain petitioners' argument. The record establishes clearly that Atty. Hipolito had acted as union counsel in

the negotiation and consummation of the 1986 Collective Bargaining Agreement (CBA) entered into between the

San Miguel Corporation management and SMCEU-PTGWO [Rollo, pp. 149-150]. The same parties signed a

Memorandum of Agreement which outlined the terms as to wage increase, scope of bargaining unit, and

effectivity of the CBA [Rollo, p. 91]. These documents, signed by the members of the board (including private

respondent), evidence two occasions where the members of the board clearly recognized the representation of

the union by Atty. Hipolito.

Thus, while it is true that Atty. Hipolito was not appointed by the board, the facts of the case show that not only

did the board itself acknowledge and make use of the services of Atty. Hipolito, but that such services redoundedto the benefit of the union [Rollo, pp. 141-148]. Taken together, these circumstances, i.e., that notwithstanding the

absence of an express authority from the board, Atty. Hipolito represented the union with the knowledge and

acquiescence of the board, and the acceptance of benefits arising from the service rendered, entitle Atty. Hipolito

to the reasonable value of his professional services on a quantum meruit basis.

In determining the amount of attorney's fees on quantum meruit, the Court invariably takes into account the

amount and character of the services rendered, the labor, time and trouble involved, the nature and importance of

the activity in which the services were rendered, the responsibility imposed, and the results secured [Delgado v. De

la Rama, 43 Phil. 419 (1922); Occena v. Marquez, G.R. No. L-27396, September 30, 1974, 60 SCRA 38].

In this case, We consider the following facts which remain undisputed on the record: Atty. Hipolito served as union

counsel in the 1986-1989 CBA. In the process of negotiations, Atty. Hipolito had to travel to different negotiation

places and offices [Rollo, p. 131]. For nearly ten months prior to the conclusion of the CBA, pickets were staged

and a strike vote had to be taken [Rollo, p. 22, 131]. Upon its conclusion, the CBA extended to each covered

employee benefits ranging from a P2,500.00 salary increase across the board to a P2,000.00 mid-year gratuity pay

[Rollo, pp. 141-148]. In view of the foregoing, the Court declares the amount of P130,000.00 previously paid to

Atty. Hipolito to be reasonable compensation for services rendered.

Thus, petitioners' payment of P130,000.00 as legal fees in favor of Atty. Hipolito is deemed a reasonable

expenditure of union funds. Accordingly, petitioners need not return the said amount to the union.



WHEREFORE, the decision of the Director of Bureau of Labor Relations in BLR Case No. A-10-354-87 (NCR-OD-M-5-

421-87) is AFFIRMED insofar as it declares invalid the disqualification/expulsion of private respondent from the

union. The portion of the decision which orders petitioners to return to the union the amount of One Hundred

Thirty Thousand Pesos (P130,000.00) that they paid to Atty. Raymundo Hipolito III as attorney's or professional

services fees is hereby SET ASIDE.

SO ORDERED.

NO. 33

G.R. No. 77042-43 February 28, 1990

RADIOWEALTH FINANCE CO., INC., et al., petitioners

vs.

INTERNATIONAL CORPORATE BANK AND COURT OF APPEALS, respondents.

This is a petition for review on certiorari of the joint decision * promulgated on December 22, 1986, by the

respondent Court of Appeals in CA-G.R. No. 01063 entitled "International Corporate Bank, plaintiff-appellee vs.Radiowealth, Inc. and Domingo M. Guevara, defendants-appellants" and in CA-G.R. No. 01064 entitled

"International Corporate Bank, plaintiff-appellee vs. Radiowealth Finance Company, Inc., Radiowealth, Inc. and

D.M.G., Inc., defendants-appellants," the dispositive portion of which reads:

WHEREFORE, finding no error in the Order appealed from, the same is hereby affirmed in toto,

with costs against the appellants. (Rollo, p. 101).

The basic facts appear undisputed and they are as follows:



Sometime in 1978, petitioners Radiowealth, Inc. (RWI) and Radiowealth Finance Company, Inc. (RFC) applied for

and obtained credit facilities from private respondent International Corporate Bank (Interbank). Petitioners

Domingo Guevara (Guevara, for short) and D.M.G., Inc., acted as sureties to the obligations contracted by RWI and

RFC. The obligations of petitioners were accordingly covered and evidenced by promissory notes, trust receipts

and agreements.

A common stipulation in the covering promissory notes, trust receipts, and continuing surety agreements betweenthe borrowing petitioners and the lending private respondent provided, to wit:

In the event of the bringing of any action or suit by you or any default of the undersigned

hereunder I/We shall on demand pay you reasonable attorney's fees and other fees and costs of

collection, which shall in no cases be less than ten percentum (10 %) of the value of the property

and the amount involved by the action or suit. (Rollo, p. 211).

From 1978 to 1980, petitioners were not able to comply with their obligations on time with Interbank due to

subsequent severe economic and financial reverses. Petitioners thus asked Interbank for a restructuring of their

outstanding loans, but the parties were not able to arrive at a mutually acceptable proposition.

On December 28, 1979, Interbank, constrained to seek judicial remedy, through its counsel Norberto J.Quisumbing and Associates, lodged before the then Court of First Instance of Manila its first complaint, docketed

thereat as Civil Case No. 128744, for collection of sum of money with an application for a writ of preliminary

attachment against RWI and Guevara covering the principal sum of P1,585,933.61 plus penalties, service charges,

interests, attorney's fees, costs and exemplary damages (Rollo, pp. 31-38).

This was followed by another complaint filed on January 9, 1980 before the same trial court against RFC, RWI and

D.M.G., Inc., also with an application for a writ of preliminary attachment, docketed as Civil Case No. 128897, for

the collection of the principal sum of P2,113,444.58, plus interests, penalties, service charges, attorney's fees,

costs and exemplary damages (Rollo, pp. 39-47).

Petitioners, however, opted to amicably settle their obligations promptly. They, therefore, did not file any answer

nor any responsive pleading to the complaints, and instead entered into a compromise agreement with Interbankshortly about four (4) months later. Said compromise agreement between the parties was embodied in two

Motions for Judgment Based on Compromise dated March 21, 1980 (Rollo, pp. 48-55) corresponding to the

separate claims in the said two complaints which were accordingly submitted to the court a quo for approval.

These motions did not however, cover the payment by the petitioners of Interbank's claims for attorney's fees,

costs of collection and expenses of litigation which were left open by the parties for further negotiations.

In its decision in Civil Case No. 128744, dated March 28, 1980, the trial court approved the parties' corresponding

compromise agreement thereto, with the reservation that "(T)his decision does not terminate this case because

matters respecting payment of attorney's fees, costs and collection."

Similarly, the trial court, in its decision in Civil Case No. 128897 of even date, also approved the parties'

corresponding compromise agreement thereto with the Identical reservation as aforequoted (Rollo, pp. 60-61).

Thereafter, further proceedings were conducted by the trial court particularly on the issue of the alleged

unreasonableness and unconscionableness of the attorney's fees. It appears from the records of the cases,

however, that Atty. Norberto J. Quisumbing, counsel for Interbank, was able to adduce his evidence in support for

the attorney's fees due to his said client, while Attys. Reyes and Guevara, counsel for petitioners in the trial court,

were not given their request for further hearing against the claimed attorney's fees despite some supervening

events as alleged in their motion for reconsideration dated January 29, 1981 (Rollo, pp. 82-84) which was denied in

the Order of January 30, 1981 (Rollo, p. 85).



At any rate, the trial court, in its Order dated January 2, 1981, had already reduced Interbank's claim for attorney's

fees, from the stipulated 10 % to 8 %, pertinent portions thereof are hereunder quoted, thus:

(T)he 'ten per cent' in the foregoing quoted provisions includes attorney's fees, other fees and

cost of collection. In paragraph No. 2 of the compromise agreement in Civil Case No. 128744

under which the defendants therein acknowledge their indebtedness of Pl,585,933.61 as of

December 28, 1979, it is provided that in paying the same there shall be added to it 16 % perannum as interest, 2 % per annum as service charge, 2 % per month or any fraction thereof as

penalty from January 31, 1980. A similar provision is contained in paragraph No. 2 of the

compromise agreement filed in Civil Case No.. 128897 under which the defendants therein

admitted their indebtedness of P2,113,444.58, payment of which was to commence on or before

January 31, 1980. The service charge of 2 % should be deducted from the 10 % already

mentioned above, to give the rate of attorney's fees which is 8% in accordance with the

provisions already aforequoted. Eight percent (8 %) of l,585,833.61, or P126,824.68 is the

attorney's fees in Civil Case No. 128897 — sums which ... are not excessive and perhaps

acceptable to plaintiff which was willing to have its claim reduced to P73,987.57 had defendants

acceded to its offer to compromise attorney's fees and expenses of litigation.

PREMISES CONSIDERED, the Court hereby orders the defendants in Civil Case No. 128744 to paythe plaintiff jointly and severally P126,824.68 and the defendants in Civil Case No. 128897 to pay

the plaintiff, also jointly and severally, P169,075.56 with interest at 12 % per annum from this

date until the same is paid.

SO ORDERED. (Rollo, pp. 80-81).

Not satisfied with said trial court's order, petitioners appealed the same before the respondent appellate court

raising therewith the following assigned errors:

A. The lower court erred in not giving the defendants the opportunity to be

heard in a hearing set for the purpose of determining the amount of attorney's

fees;

B. The lower court erred in insisting that the amount of attorney's fees should

be governed by the contract signed by the parties;

C. The lower court erred in not substantially reducing the amount of attorney's

fees. (Rollo, pp. 242-243).

The respondent appellate court, however, affirmed in toto the assailed order of the trial court.

Hence, the instant petition.

Petitioners raise the following issues before this Court:

I. Whether or not the reasonableness of attorney's fees in the case at bar is a

question of law;

II. Whether or not the award of attorney's fees in the case at bar is reasonable;

III. Whether or not a contracted stipulation regarding attorney's fees may be

disregarded by this Honorable Court;



IV. whether or not attorney's fees require proof (Rollo, p. 243).

Deducible from the contentions of the parties, is the sole issue of whether or not the amount equivalent to 8 % of

the recovery or sums of money due from the two civil complaints adjudged as attorney's fees by the trial court and

affirmed by the respondent appellate court, is fair and reasonable under the peculiar facts and circumstances

herein. Corollarily, whether or not the court has discretion to modify the attorney's fees previously agreed upon by

the parties under a valid contractual stipulation.

Petitioners assert that the sums of P126,824.68 in Civil Case No. 128744 and P169,075.56 in Civil Case No. 128897

or 8 % of the amount involved in the respective suits, adjudged as attorney's fees due to Norberto J. Quisumbing

and Associates, counsel of record of the judgment creditor the herein private respondent Interbank, per the order

of the trial court, is unreasonable, exhorbitant and unconscionable under the premises considering the following

undisputed facts: that said cases were immediately settled with the execution of a compromise agreement after

the complaints with prayer for preliminary attachment had been filed by the private respondent against the

petitioners in the lower court, and no answer was filed by petitioners; that pursuant to the Compromise

Agreement between the parties, petitioner Radiowealth, Inc. has fully paid to Interbank in Civil Case No. 128744

the total amount of P2,867,802.64, while petitioner Radiowealth Finance Co., Inc. (RFC) has fully paid to Interbank

in Civil Case No. 128897 the total amount of P3,018,192.52; that of the amounts paid to Interbank, petitioner

Radiowealth, Inc., has fully paid the total sum of P118,075.84 as service charge and penalties, while petitionerRadiowealth Finance Co., Inc., had paid the total amount of P135,526.40 as penalties and service charges, all in

addition to the interests paid by petitioners to Interbank.

Interbank, on the other hand, avers that petitioners have omitted to state certain facts and circumstances, as

follows: that the collection suits filed against petitioners involve charges of violation of the trust receipts law for

disposing of the goods they had received from Interbank on trust receipts and failing to surrender the proceeds

thereof; that Atty. Quisumbing had successfully obtained attachment against their properties; that Atty.

Quisumbing succeeded in forcing petitioners to agree in the joint motions for judgment based on compromise to

such stipulation which made them fear a default in the payment of the amortizations or installments of the

compromise amount; that the principal amount collected from petitioners totalled P3,699,378.19, not counting

the interests; that petitioners' obligations to Interbank were not evidenced by one but many letters of credit and

trust receipts; that the records were destroyed by fire and had to be reconstituted; that Interbank had already

given petitioners very substantial discounts on penalty charges; and, despite clear contractual stipulations, the

lower court had already reduced the 10 % stipulated attorney's fees and expenses of litigation to 8 %.

As a basic premise, the contention of petitioners that this Court may alter, modify or change even an admittedly

valid stipulation between the parties regarding attorney's fees is conceded. The high standards of the legal

profession as prescribed by law and the Canons of Professional Ethics regulate if not limit the lawyer's freedom in

fixing his professional fees. The moment he takes his oath, ready to undertake his duties first, as a practitioner in

the exercise of his profession, and second, as an officer of the court in the administration of justice, the lawyer

submits himself to the authority of the court. It becomes axiomatic therefore, that power to determine the

reasonableness or the unconscionable character of attorney's fees stipulated by the parties is a matter falling

within the regulatory prerogative of the courts (Panay Electric Co., Inc. vs. Court of Appeals, 119 SCRA 456 [1982];

De Santos vs. City of Manila, 45 SCRA 409 [1972]; Rolando vs. Luz, 34 SCRA 337 [1970]; Cruz vs. Court of Industrial

Relations, 8 SCRA 826 [1963]). And this Court has consistently ruled that even with the presence of an agreementbetween the parties, the court may nevertheless reduce attorney's fees though fixed in the contract when the

amount thereof appears to be unconscionable or unreasonable (Borcena vs. Intermediate Appellate Court, 147

SCRA 111 [1987]; Mutual Paper Inc. vs. Eastern Scott Paper Co., 110 SCRA 481 [1981]; Gorospe vs. Gochango, 106

Phil. 425 [1959]; Turner vs. Casabar, 65 Phil. 490 [1938]; F.M. Yap Tico & Co. vs. Alejano, 53 Phil. 986 [1929]). For

the law recognizes the validity of stipulations included in documents such as negotiable instruments and

mortgages with respect to attorney's fees in the form of penalty provided that they are not unreasonable or

unconscionable (Philippine Engineering Co. vs. Green, 48 Phil. 466).



There is no mistake, however, that the reasonableness of attorney's fees, though seemingly a matter of fact which

takes into account the peculiar circumstances of the case, is a question of law where the facts are not disputed at

all. For a question of law does not call for an examination of the probative value of the evidence presented by the

parties (Air France vs. Carrascoso, 18 SCRA 155 [1966]), and where the issue is the construction or interpretation to

be placed by the appellate court upon documentary evidence, or when a case is submitted upon an agreed

statement of facts or where all the facts are stated in the judgment, the question is one of law where the issue is

the correctness of the conclusion drawn therefrom (Cunanan vs. Lazatin, 74 Phil. 719 [1944]; Ng Young vs. Villa, 93Phil. 21 [1953]). In the case at bar, the issues do not call for an examination of the probative value of the evidence

because the ultimate facts are admitted by the parties and all the basic facts are stated in the judgment.

Nevertheless, a careful review of the records shows that the modified attorney's fees fixed by the trial court and

affirmed by the respondent appellate court, appears reasonable and fair under the admitted circumstances of the

case. As aptly reasoned out by the said court:

We find nothing wrong in the aforegoing disquisition of the lower court.

It is to be remembered that attorney's fees provided in contracts as recoverable against the

other party and damages are not, strictly speaking, the attorney's fees recoverable as between

attorneys and client spoken of and regulated by the Rules of Court. Rather, the attorney's feeshere are in the nature of liquidated damages and the stipulations therefor is aptly called a penal

clause, So long as such stipulation does not contravene law, morals, or public order, it is strictly

binding upon the defendant (Polytrade Corporation vs. Blanco, 30 SCRA 187 [1969]). However:

"Liquidated damages, whether intended as an indemnity or a penalty, shall be

equitably reduced if they are iniquitous or unconscionable. For this reason, we

do not really have to strictly view the reasonableness of the attorney's fees in

the light of such facts as the amount and character of the service rendered, the

nature and importance of the litigation, and the professional character and the

social standing of the attorney. We do concede, however that these factors

may be an aid in the determination of the inequity or unconscionableness of

attorney's fees as liquidated damages. (Supra)

May the attorney's fees granted by the court be tagged as iniquitous or unconscionable? We give

the answer in the negative. The high standing of plaintiffs counsel has not been challenged.

In the motion for judgment based on compromise agreement, defendants acknowledged and

admitted their default or failure to pay their joint and several obligations or indebtedness arising

from the credit facilities which plaintiff extended to defendants and availed of by the latter, the

punctual payment of which having been guaranteed and warranted by the other defendants.

Having admitted such default in the payment of their obligations, the filing of the action in court

and, consequently, the legal services of counsel became imperative and thereby, set into

operation the contract clause on the payment of attorney's fees.

The complaints are not simple actions for collection. They are accompanied with a prayer for the

issuance of a writ of preliminary attachment, and charge defendants with violation of the trust

receipts law and they involve several letters of credit and trust receipts. The fact that the

compromise agreements were entered into after the complaints were filed against appellants

indubitably proves that the legal action taken by counsel for the plaintiff against the defendants

contributed in no measure to the early settlement of defendants' obligation.



Considering further that, apart from the reduction and waiver of penalty charges due to the

plaintiff to the extent of P79, 191.72, the service charge of 2 % was further deducted by the

lower court thereby, reducing the attorney's fees to 8 % the court is of the considered opinion

and so holds that given the prestige of plaintiff's counsel, the nature of the action and quality of

legal services rendered, the award of attorney's fees in a sum equivalent to 8 % of the judgment

which is below the stipulated fees of 10 % could hardly be suggested as iniquitous and

unconscionable. On the contrary, it easily falls within the rule of conscionable and reasonable.(Rollo, pp. 100-101).

The foregoing disquisition merits our assent.

Moreover, even if the so-called supervening event which ought to have been heard in the trial court as alleged in

petitioners' motion for reconsideration dated January 29, 1981, i.e., "that supervening events happened from the

time the trust receipt agreements were signed in which the defendants agreed to pay 10 % of the amount due as

attorney's fees and costs of collection up to the actual filing of the complaint and these events were the payments

of interest in the amount of P285,341.27, as interest, P41,507.37 as service charges and P76,568.47 as penalty by

Radiowealth, Inc.; that Radiowealth Finance Co., Inc. has paid the amount of P281,940.12 as interest, P38,721.83

as service charges and P96,804.57 as penalty (Rollo, pp. 137-138), were to be considered, they would still be

insufficient to justify a further substantial reduction in the adjudged attorney's fees. At any rate, it would be notedthat petitioners have not even prayed for a specific reduction as to amount or percentage of the attorney's fees

except for their sweeping allegations of unreasonableness, exhorbitance and unconscionableness.

WHEREFORE, the assailed decision of the respondent appellate court is Affirmed, with costs de officio.

SO ORDERED.

NO. 34

G.R. No. 117438 June 8, 1995

RAUL SESBREÑO, petitioner,

vs.

HON, COURT OF APPEALS, and PATRICIA GIAN, SOTERO BRANZUELA, ANDRES C. YPIL, SANTIAGO BACAYO,BRIGIDO COHITMINGAO, VICTORINO DINOY, GUILLERMO MONTEJO and EMILIO RETUBADO, respondents.

ROMERO, J.:

Of interest to all law practitioners is the issue at bench, namely, whether the Court of Appeals had the authority to

reduce the amount of attorney's fees awarded to petitioner Atty. Raul H. Sesbreño, notwithstanding the contract

for professional services signed by private respondents.

The antecedent facts of the case follow.



Fifty-two employees sued the Province of Cebu and then Governor Rene Espina for reinstatement and backwages.1

Herein petitioner, Raul H. Sesbreño, replaced the employees' former counsel Atty. Catalino Pacquiao.

Thirty-two of the fifty-two employees signed two documents whereby the former agreed to pay petitioner 30% as

attorney's fees and 20% as expenses to be taken from their back salaries.

On September 12, 1974, the trial court rendered a decision ordering the Province of Cebu to reinstate thepetitioning employees and pay them back salaries. Said decision became final and executory after it was affirmed

in toto by the Court of Appeals and the petition to review the appellate decision, denied by this Court in 1978.2

A compromise agreement was entered into by the parties below in April 1979 whereby the former employees

waived their right to reinstatement among others. Likewise, pursuant to said compromise agreement, the Province

of Cebu released P2,300,000.00 to the petitioning employees through petitioner as "Partial Satisfaction of

Judgment." The amount represented back salaries, terminal leave pay and gratuity pay due to the employees.

Sometime November and December 1979, ten employees, herein private respondents,3

filed manifestations

before the trial court asserting that they agreed to pay petitioner 40% to be taken only from their back salaries.

The lower court issued two orders, with which petitioner complied, requiring him to release P10,000.00 to each of the ten private respondents and to retain 40% of the back salaries pertaining to the latter out of the P2,300,000.00

released to him.

On March 28, 1980, the trial court fixed petitioner's attorney's fees at 40% of back salaries, terminal leave, gratuity

pay and retirement benefits and 20% as expenses, or a total of 60% of all monies paid to the employees.

Private respondents' motion for reconsideration was granted and on June 10, 1980, the trial court modified the

award after noting that petitioner's attorney's lien was inadvertently placed as 60% when it should have been only

50%. The dispositive portion of the order reads:

WHEREFORE, in view of all the foregoing the order of this Court fixing 60% as attorney's fee[s] of

Atty. Sesbreño should be 50% of all monies which the petitioners (Suico, et al.) may receive fromthe Provincial Government.

Obviously not satisfied with the attorney's fees fixed by the trial court, petitioner appealed to the Court of Appeals

claiming additional fees for legal services before the Supreme Court, reimbursement for expenses and a clear

statement that the fee be likewise taken from retirement pay awarded to his clients. Unfortunately, the

respondent appellate court did not agree with him as the generous award was further reduced.4

The appellate court noted that in this jurisdiction, attorney 's fees are always subject to judicial control and

deemed the award of 20% of the back salaries awarded to private respondents as a fair, equitable and reasonable

amount of attorney's fee. The decretal portion of the decision reads:

WHEREFORE, the questioned order is MODIFIED. The attorney's fees due Atty. Raul Sesbreño isfixed at an amount equivalent to 20% of all back salaries which the Province of Cebu has

awarded to herein 10 petitioners.5

Hence this petition for review where he claims that attorney's fees amounting to 50% of all monies awarded to his

clients as contingent fees should be upheld for being consistent with prevailing case law and the contract of

professional services between the parties. He adds that since private respondents did not appeal, they are not

entitled to affirmative relief other than that granted in the regional trial court.



We find no reversible error in the decision of the Court of Appeals and vote to deny the petition.

Respondent court found that the contract of professional services entered into by the parties6

authorized

petitioner to take a total of 50% from the employees' back salaries only . The trial court, however, fixed the lawyer's

fee on the basis of all monies to be awarded to private respondents.

Fifty per cent of all monies which private respondents may receive from the provincial government, according tothe Court of Appeals, is excessive and unconscionable, not to say, contrary to the contract of professional services.7

After considering the facts and the nature of the case, as well as the length of time and effort exerted by

petitioner, respondent court reduced the amount of attorney's fees due him.

It is a settled rule that what a lawyer may charge and receive as attorney's fees is always subject to judicial control.8

A lawyer is primarily an officer of the court charged with the duty of assisting the court in administering impartial

justice between the parties. When he takes his oath, he submits himself to the authority of the court and subjects

his professional fees to judicial control.9

As stated by the Court in the case of Sumaong v. Judge:10

A lawyer is not merely the defender of his client's cause and a trustee of his client in respect of the client's cause of action and assets; he is also, and first and foremost, an officer of the court

and participates in the fundamental function of administering justice in society. It follows that a

lawyer's compensation for professional services rendered are subject to the supervision of the

court, not just to guarantee that the fees he charges and receives remain reasonable and

commensurate with the services rendered, but also to maintain the dignity and integrity of the

legal profession to which he belongs. Upon taking his attorney 's oath as an officer of the court, a

lawyer submits himself to the authority of the courts to regulate his right to professional fees.11

In the case at bench, the parties entered into a contingent fee contract. The Agreement provides:

WE, the undersigned petitioners in the case of POLICRONIO BELACHO, ET AL., VS. RENE ESPINA

ET AL., hereby agree to pay Atty. Sesbreño, our lawyer, the following to be taken from our backsalaries:

30% as attorney's fees

20% as expenses

That we enter into agreement in order to be paid our back salaries as early as possible and so

that we may be reinstated as early as possible.

A stipulation on a lawyer's compensation in a written contract for professional services ordinarily controls the

amount of fees that the contracting lawyer may be allowed, unless the court finds such stipulated amount

unreasonable unconscionable.12

A contingent fee arrangement is valid in this jurisdiction13

and is generally recognized as valid and binding but

must be laid down in an express contract.14

The amount of contingent fees agreed upon by the parties is subject

to the stipulation that counsel will be paid for his legal services only if the suit or litigation prospers. A much higher

compensation is allowed as contingent fees in consideration of the risk that the lawyer may get nothing if the suit

fails.



Contingent fee contracts are under the supervision and close scrutiny of the court in order that clients may be

protected from unjust charges.15

Its validity depends in large measure on the reasonableness of the stipulated

fees under the circumstances of each case.16

When the courts find that the stipulated amount is excessive or the contract is unreasonable or unconscionable, or

found to have been marred by fraud, mistake, undue influence or suppression of facts on the part of the attorney,

public policy demands that said contract be disregarded to protect the client from unreasonable exaction.17

Stipulated attorney's fees are unconscionable whenever the amount is by far so disproportionate compared to the

value of the services rendered as to amount to fraud perpetrated upon the client. This means to say that the

amount of the fee contracted for, standing alone and unexplained would be sufficient to show that an unfair

advantage had been taken of the client, or that a legal fraud had been perpetrated on him.18

The decree of unconscionability or unreasonableness of a stipulated amount in a contingent fee contract, will not

however, preclude recovery. It merely justifies the court's fixing a reasonable amount for the lawyer's services.

Courts may always ascertain, if the attorney's fees are found to be excessive, what is reasonable under the

circumstances. Quantum meruit , meaning "as much as he deserves," is used as the basis for determining the

lawyer's professional fees in the absence of a contract. Factors such as the time spent and extent of servicesrendered; novelty and difficulty of the questions involved; importance of the subject matter; skill demanded;

probability of losing other employment as a result of acceptance of the proffered case; customary charges for

similar services; amount involved in the controversy and the benefits resulting to the client; certainty of

compensation; character of employment; and professional standing of the lawyer, are considered in determining

his fees.19

There is nothing irregular about the respondent court's finding that the 50% fee of petitioner is unconscionable As

aptly put by the court:

It effectively deprives the appellees of a meaningful victory of the suit they have passionately

pursued. Balancing the allocation of the monetary award, 50% of all monies to the lawyer and

the other 50% to be allocated among all his 52 clients, is too lop-sided in favor of the lawyer. Theratio makes the practice of law a commercial venture, rather than a noble profession.

. . . Also, the 52 employees who are the plaintiffs in the aforementioned civil case were dismissed

from employment, their means of livelihood. All 52 hired claimant-appellant as counsel so that

they could be reinstated and their source of income restored. It would, verily be ironic if the

counsel whom they had hired to help would appropriate for himself 50% or even 60% of the total

amount collectible by these employees. Here is an instance where the courts should intervene.20

Considering the nature of the case, which is a labor case, the amount recovered and petitioner's participation in

the case, an award of 50% of back salaries of his 52 clients indeed strikes us as excessive. Under the circumstances,

a fee of 20% of back salaries would be a fair settlement in this case. In any event, this award pertains only to the

ten private respondents herein. Petitioner has already been compensated in the amount of 50% of all monies

received, by the rest of his clients in the case below.

WHEREFORE, in view of the foregoing, the petition is DENIED and the appealed decision AFFIRMED.

SO ORDERED.



NO. 35

G.R. No. 78173 October 26, 1992

ANDRES SUMAOANG, petitioner,

vs.

HON. JUDGE, REGIONAL TRIAL COURT, BRANCH XXXI, GUIMBA, NUEVA ECIJA and ATTY. JORGE A. PASCUA,respondents.

In the Petition presently before us, Andres Sumaoang seeks to annul the Decision1 dated 31 August 1982,

rendered by the then Court of First Instance ("CFI") of Nueva Ecija in Civil Case No. 697-G, which awarded to

private respondent Atty. Jorge A. Pascua the sum of P110,000.00 as attorney's fees.



On 15 July 1933, the late Sebastian Sumaoang filed with the Bureau of Lands a homestead application over Lot No.

3098 of the Cadastral Survey of Santiago, Isabela, covering an area of 21.3445 hectares. He then took possession of

and cultivated the lot. Due to illness and the dangerous conditions then prevailing in Santiago, Isabela immediately

after the second World War, he transferred his residence to his native town of Sta. Ignacia, Tarlac where he died

on 22 August 1952.

Meanwhile, Florencio and Regino, both surnamed Domingo applied for a homestead patent over Lot No. 3098during Sebastian Sumaoang's absence. On 11 may 1950, Florencio Domingo was granted a homestead patent (HP

No. V-5218) over the land on the strength of which the Register of Deeds of Isabela issued Original Certificate of

Title No. T-1202 to him.

To protect their interests over the homestead, petitioner and his brothers, Vitaliano and Pedro Sumaoang,

engaged the services of private respondent Atty. Jorge A. Pascua, promising him, in a letter dated 17 December

19642

a contingent fee of "not less than one-half (1/2)" of the entire homestead, if recovered.

As counsel for the Sumaoangs, Atty. Pascua filed a formal protest with the Bureau of Lands contesting the legality

of the issuance of Homestead Patent No. V-5218 to Florencio Domingo. On 7 February 1962, the Bureau of Lands

rendered a decision3

declaring Homestead Patent No. V-5218 inoperative and ordered that steps be taken

towards the filing of a reversion case with the view to cancelling that homestead patent and its correspondingcertificate of title, and disposing of the land to petitioner and his brothers — as heirs of Sebastian Sumaoang —

should the facts so warrant.

Pursuant to the above decision of the Bureau of Lands, the Solicitor General filed, on behalf of the Republic of the

Philippines, a reversion case against Florencio and Regino Domingo for the cancellation of Homestead Patent No.

V-5218 and Original Certificate of Title No. T-1201 before the CFI of Isabela. In that case, Atty. Pascua filed, on

behalf of petitioner and his brothers, a complaint-in-intervention claiming preferential rights to the land in favor of

his clients.4

After trial, the lower court rendered a decision5

dated 17 February 1971 declaring the homestead

patent, as well as the certificate of title, null and void and ordered the reversion of the land to the State subject to

the rights of petitioner and his brothers. In its dispositive portion, the decision stated that:

WHEREFORE, judgment is rendered:

(a) Declaring homestead patent No. V-5218 and the corresponding Original Certificate of Title

No. T-1201 both in favor of the defendant Florencio Domingo and covering Lot No. 3098, Cad.

211, null and void and ordering the reversion of the said lot to the State subject to the rights of

the intervenors as the facts may warrant;

(b) Ordering defendant Florencio Domingo to surrender to the defendant Register of Deeds his

owner's duplicate of said torrens title or Original Certificate of Title No. T-1201 for cancellation

and any other transfer certificates of title that might have been issued by the Register of Deeds

emanating from Original Certificate of Title No. T-1201;

(c) Ordering the Register of Deeds of Isabela, upon his receipt of the owner's duplicate certificate

of title to cancel homestead patent No. V-5218 and the original and duplicate of said Original

Certificate of Title No. T-1201 in the name of Florencio Domingo and any other transfer

certificates of title issued emanating from Original Certificate of Title No. T-1201;

(d) Ordering the defendant Florencio Domingo to pay to the intervenors the sum of 160 2/3

cavanes of palay or the value of P1,928.00 computed from P12.00 per cavan, per agricultural

year since 1953 until this judgment becomes final.



This decision was affirmed by both the Court of Appeals6

and the Supreme Court.7

The decision became final and executory on 11 February 1973. In 1977, petitioner and his brothers took possession

of Lot No. 3098 and subdivided it among themselves.

Not having received compensation for his professional services as counsel, Atty. Pascua filed sometime in 1979 a

complaint for collection of attorney's fees against his former clients, petitioner and his brothers, before the CFI of Guimba, Nueva Ecija. The trial court stated in its judgment dated 31 August 1982 that Atty. Pascua was entitled

only to "the equivalent of one-half of the property — in its peso valuation" and somehow ordered petitioner and

his brothers to pay attorney's fees in the amount of P110,000.00. The dispositive portion of this decision reads as

follows:

WHEREFORE, in view of all the foregoing, judgment is hereby rendered in favor of the plaintiff,

Atty. Jorge A. Pascua, ordering the defendants Vitaliano, Andres, and Pedro all surnamed

Sumaoang, to jointly and severally pay the sum of One Hundred Ten Pesos (P110,000.00) as

attorney's fee; the sum of One Thousand Five Hundred Pesos (P1,500.00) as attorney's fee in the

prosecution of the instant case, to pay the cost of the suit.

The decision of 31 August 1982 of the CFI of Guimba became final and executory. On motion of Atty. Pascua, thetrial court on 22 April 1983 ordered the issuance of a writ of execution. The corresponding writ of execution was

issued by the Branch Clerk of Court on 25 January 1985.8 The Deputy Provincial Sheriff then levied upon and sold

at public auction the entire lot of 21.3445 hectares here involved to Atty. Pascua as the sole and hence the highest

bidder, for and in consideration of P110,000.00 as partial payment of the judgment obligation.9

Petitioner brought the present Petition10

asking for the nullification of the 31 August 1982 decision of the Guimba

CFI, as well as the writ of execution, the notice of levy and auction sale and the certificate of sale issued in favor of

Atty. Pascua. Petitioner's cause of action is anchored principally on the contention that the award of P110,000.00

as attorney's fees of Atty. Pascua was unconscionable. Petitioner argues that the Solicitor General, and not Atty.

Pascua, had actively handled the reversion case and that Atty. Pascua's participation therein was limited to the

filing of a complaint-in-intervention on behalf of his clients. In the complaint-in-intervention, Atty. Pascua asked for

the same relief as that sought by the Solicitor General, although the former added the additional prayer that his

clients be accorded preferential rights over the land reverted to the public domain. Petitioner further contended

that the contract for legal services between petitioner and his brothers on the hand and Atty. Pascua on the other,

provided only for attorney's fees of P5,000.00, as Atty. Pascua himself allegedly admitted in the complaint-in-

intervention filed in the reversion case.

Upon the other hand, Atty. Pascua's principal contentions are that award of attorney's fees by the Guimba CFI in

its 31 August 1982 decision was not unconscionable and that decision had already become final and executory.

The ordinary rule is that a judgment may be annulled only on certain defined grounds, lack of jurisdiction, fraud, or

illegality.11

In the case at bar, petitioner has not adduced any jurisdictional defects vitiating the judgment assailed;

neither has petitioner shown that the judgment, as such, is in violation of a particular statute. Petitioner's

allegation that there was improper venue would not suffice to nullify the decision already rendered and final.

From the view we take of this case, however, the circumstances that the Decision of the Guimba CFI of 31 August

1982 became final and executory and that the jurisdiction of the trial court to render that Decision has not been

successfully assailed, are not decisive.

It is essential to note that the relationship between an attorney and his client is a fiduciary one. Canon 17 of the

Code of Professional Responsibility stresses that "a lawyer owes fidelity to the cause of his client and he shall be



mindful of the trust and confidence reposed in him." Canon 16 requires a lawyer to "hold in trust all monies and

properties of his client that may come into his possession.12

A lawyer it not merely the defender of his client's cause and a trustee of his client in respect of the client's cause of

action and assets; he is also, and first and foremost, an officer of the court and participates in the fundamental

function of administering justice in society. It follows that a lawyer's compensation for professional services

rendered are subject to the supervision of the court, not just to guarantee that the fees he charges and receivesremain reasonable and commensurate with the services rendered, but also to maintain the dignity and integrity of

the legal profession to which he belongs. Upon taking his attorney's oath as an officer of the court, a lawyer

submits himself to the authority of the courts to regulate his right to charge professional fees.13

In the instant case, the Court considers that the fees which private respondent Atty. Pascua received from

petitioner and his brothers became unreasonable and unconscionable in character, not because the original

agreement between Atty. Pascua and his clients was itself unreasonable and unconscionable but rather as a result

of the subsequent dispositions of the trial court.

The Decision of the trial court shows that respondent Judge upheld the reasonableness and the lawfulness of the

contingent fee contract between Atty. Pascua and the Sumaoang brothers. Instead, however, of simply awarding

Atty. Pascua a one-half (1/2) portion of the property involved, respondent Judge would up awarding Atty. Pascua apeso amount. In other words, respondent Judge unilaterally and officiously converted the form or medium of

compensation from the (1/2) portion of the land recovered by petitioner and his brothers through the efforts of

Atty. Pascua, into a peso amount representing, in the mind of the Judge, the value of that one-half (1/2) portion. In

his decision, respondent Judge said, among other things:

It is however noted by this Court that plaintiff should only be awarded the equivalent of one-half

of the property as his lawful attorney's fee in its peso valuation. The land of the defendants

commands a high price per hectare in Isabela because NIA had constructed an irrigation canal near it which supplies abundant water supply making it possible for defendants to harvest twice a

year . Per hectare, the land owned by the defendants now commands P10,000 .00 minimum as

price.14

(Emphasis supplied)

Most charitably viewed, respondent Judge was apparently laboring under the impression that the land involved

had greatly appreciated in value during the years of litigation. Without requiring or obtaining any third party

appraisal of the actual or fair market value of the 21.3445 hectares involved, respondent Judge fixed the sum of

P110,000.00 as the "equivalent of 1/2 of the property — in its peso valuation." Thus, the respondent Judge in fact

disregarded the contingent fee contract between attorney and client, after holding that contract lawful. Worse,

the Judge turned out to be grossly uninformed about property valuations, especially the valuation of property sold

at public sale in Guimba, Nueva Ecija, and his judgment allowed Atty. Pascua to acquire the entire parcel of land

which had been the subject matter of the litigation and for the recovery of which, Atty. Pascua had been retained

by the Sumaoang brothers. In brief, Atty. Pascua was able to acquire all the 21.3445 hectares of land although the

respondent court had intended to award him only one-half (1/2) "the [assumed] value of such land."

In Licudan vs. Court of Appeals,15

this Court said:

. . . There should never be an instance where a lawyer gets as attorney's fees the entire property involved in the litigation. It is unconscionable for the victor in litigation to lose everything he won

to the fees of his own lawyer .

xxx xxx xxx



In resolving the issue of reasonableness of the attorney's fees, we uphold the time-honoured

legal maxim that a lawyer shall at all times uphold the integrity and dignity of the legal profession

so that his basic ideal becomes one of rendering service and securing justice, not money-making.

For the worst scenario that can never happen to a client is to lose the litigated property to his

lawyer in whom all trust and confidence were bestowed at the very inception of the legal

controversy . . . . (Emphasis supplied)

We believe and so hold that respondent Atty. Pascua, under the circumstances of this case, must be regarded as

holding the title of the property acquired by him at public sale under an implied trust in favor of petitioner and his

brothers, to the extent of one-half (1/2) of that property. Among the species of implied trusts recognized by our

Civil Code is that set forth in Article 1456:

If property is acquired through mistake or fraud, the person obtaining it is, by force of law,

considered a trustee of an implied trust for the benefit of the person from whom the property

comes.

The "mistakes" or "fraud" that results in an implied trust being impressed upon the property involved, may be the

mistake or fraud of a third person, and need not be a mistake or fraud committed directly by the trustee himself

under the implied trust.

16

Accordingly, in the instant case, an implied trust was established upon the land acquiredby Atty. Pascua even though the operative mistake was a mistake of respondent trial judge. Respondent Judge may

be seen to have intended to convey only one-half (1/2) of the land involved as attorney's fees to Atty. Pascua. Atty.

Pascua, however, took advantage of the Judge's mistake in order to acquire all the 21.3445 hectares for himself.

Atty. Pascua obviously knew that under his contract with his clients, he was entitled to ask only for one-half (1/2)

of the land. When he purchased the entire land at public auction for P110,000.00 (leaving his clients still owing him

P1,500.00), the amount and character of his attorney's fees became unreasonable and unconscionable and

constituted unjust enrichment at the expense of his clients.

The conclusion we reach in this case rests not only on Article 1456 of the Civil Code but also on the principles of

the general law of trusts which, through Article 1442 of the Civil Code, have been adopted or incorporated into our

civil law, to the extent that such principles are not inconsistent with the Civil Code and other statutes and the Rules

of Court.

In Roa, Jr . v . Court of Appeals,17

where petitioner had retained property the beneficial ownership of which

belonged to the private respondents, the Supreme Court affirmed the decision of the Court of Appeals directing

petitioner to convey title to that property to private respondents. The Supreme Court rested its decision on the

principles of the general law of trusts which, the Court held, included the following general principles embedded in

American law and jurisprudence:

A constructive trust , otherwise known as a trust ex maleficio, a trust ex delicto, a trust de son tort ,

an involuntary trust, or an implied trust, is a trust by operation of law which arises contrary to

intention and in invitum, against one who, by fraud, actual or constructive, by duress or abuse of

confidence, by commission of wrong, or by any form of unconscionable conduct , artifice,

concealment, or questionable means, or who in any way against equity and good conscience,

either has obtained or holds the legal right to property which he ought not, in equity and good conscience, hold and enjoy . It is raised by equity to satisfy the demands of justice. However, a

constructive trust does not arise on every moral wrong in acquiring or holding property or on

every abuse of confidence in business or other affairs; ordinarily such a trust arises and will be

declared only on wrongful acquisitions or retentions of property of which equity, in accordance

with its fundamental principles and the traditional exercise of its jurisdiction or in accordance

with statutory provision, takes cognizance. It has been broadly ruled that a breach of confidence,

although in business or social relations, rendering an acquisition or retention of property by one

person unconscionable against another, raises a constructive trust.



And specifically applicable to the case at bar is the doctrine that "A constructive thrust is

substantially an appropriate remedy against unjust enrichment. It is raised by equity in respect of

property, which has been acquired by fraud, or where, although acquired originally without

fraud , it is against equity that it should be retained by the person holding it."

The above principle is not in conflict with the New Civil Code, Code of Commerce, Rules of Court

and special laws. And since We are a court of law and of equity , the case at bar must be resolvedon the general principles of law on constructive trust which basically rest on equitable

considerations in order to satisfy the demands of justice, morality, conscience and fair dealing

and thus protect the innocent against fraud. As the respondent court said, "It behooves upon the

courts to shield fiduciary relations against every manner of chicanery or detestable design

cloaked by legal technicalities."18

(Citations omitted; Emphasis partly supplied and partly in the

original)

A constructive trust, in general usage in the United States,19

is not based on an expressed intent that it shall exist,

or even on an implied or presumed intent. A constructive trust is created by a court of equity as a means of

affording relief.20

Constructive trusts constitute a remedial device "through which preference of self is made

subordinate to loyalty to others."21

In particular, fraud on the part of the person holding or detaining the property

at stake is not essential in order that an implied trust may spring into being. In other words of Judge Cardozo, inBeatty v . Guggenheim Exploration Co.:22

[w]hen property has been acquired in such circumstances that the holder of the legal title may

not in good conscience retain the beneficial interest, equity converts him into a trustee.

The consequences of an implied trust are, principally, that the implied trustee shall deliver the possession and

reconvey title to the property to the beneficiary of the trust, and to pay to the latter the fruits and other net profit

received from such property during the period of wrongful or unconscionable holding, and otherwise to adjust the

equities between the trustee holding the legal title and the beneficiaries of the trust.23

Applying the provisions of Article 1456 of the Civil Code and the foregoing principles of the general law of trusts,

we treat the present so-called "Petition for Annulment of the Decision of the CFI, etc." as a "Petition for

Reconveyance" and, accordingly, require private respondent Atty. Pascua to reconvey or cause the reconveyance

of one-half (1/2) of the 21.3445 hectares of land here involved, plus one-half (1/2) of all profits (net of expenses

and taxes) which Atty. Pascua may have derived from or in respect of such land during the time he has held the

same, to petitioner and his brothers, Vitaliano and Pedro Sumaoang.

WHEREFORE f ll h f i d i h P i i P i i f R f L d h

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