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, the
Suspected 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. The
records 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 Act
3
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 Manila
more 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 must
have 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 cause
of 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 and
cross-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 in
the 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 the
merits. (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 malice, 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 from
excerpts 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 by
then 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 Solicitor
General 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 his
individual 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 assist
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. Pea (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 filed 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 in
court 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 General
cannot 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 January
9, 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 will
convene 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 but
these 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 deems
fit 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 the
writ 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 government
employment 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 this
constitutional 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 Philippines, police
forces, 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 and
not 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 or
representative.
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 Solicitor
General 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 it
was 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 there
being 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 Solicitor
General 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. Ortega
1
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 alleged
graft 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 Office
for 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 Office
12
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 the
parties 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 Solicitor
General 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 the
Solicitor 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. 478
21
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 not
have 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 is
eventually 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 criminal
charge 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 Solicitor
General 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 fact
that 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 to
represent 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 the
annulment 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 with
petitioner'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 his business affairs or
troubles 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 litigation 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 client. (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 condition
would 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 opposite
party, 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 acts
on 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, Branch
22, 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 held
11
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 have
been 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, a
record 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 or
administrator 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 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.'"
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 considered
opinion 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. 08265-08268
1

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 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 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 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 Corporation
4
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 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 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 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 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 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 his
professional 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 for
his 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 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. 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; the
results 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 connection
with 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 Social
Security 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 in
Brunei, 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 and
continued 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, and
later 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 recreation
facilities 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 the
petitioner 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 a
re-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 his
clients.
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 undersigned
counsel.(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 conformity
with 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 be
merged 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 a
motion 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 respondent
lawyer 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 his
clients 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 (Taada 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 that
the 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 exceptionthat 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. 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.
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 a
client 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 Taa.
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 be
litigated 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, I
trust 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, 1964
3

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 bind
myself 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 PER
CENT 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 the
Pugahanay 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
Taa, 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 property
from 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 imposition
applied, 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 his
contingent 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 Judicial
Region, 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 and
twenty 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 in
order 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 as
follows:
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 Appeals
4
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 was
Atty. 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 sum
P300,000.00 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 the
counsel 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 in
consideration 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. Bengson
and /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 their
agreement. 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. Naawa,
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 as
Attorneys-In-Fact of 2,345, Former Daily-Paid Employees of Stanford microsystems. Inc., LUDIVINA L. SABALZA,
ADELIZA E. CANTILLO and REMIGIO P. PESTAO, 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 and
NOEL VILLENA, For Themselves and in Their Capacity As Attorneys-In-Fact of 599 Former Monthly-Paid
Employees 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 and
Confidential 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, and
FERNANDO R.GUMABON, CARMELITA TOLENTINO, RICARTE CABASE, TERESITA ALORAN, ENCARNITA JULIANO,
ANITA DAILEG, ERNESTO ALARCON, JOHNNY ARAGON, LEONCIO PIMENTEL, RODOLFO MERCADO, DANIEL
ALMAZAN, ORLANDO DE LEON, EDITHA LIMA, MARILYN INES, LINDA ESTABA, NELIA DE BORJA, CECILIA CRUZ, FE
RAYALA, ADELIZA MOYA, NATY LAMAN, JANET PONCE, ESTELA ALABASO, MILAGROS CERRA, JOSEPHINE
BAYONETA 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. STANFORD
MICROSYSTEMS, 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
which case has been decided but the execution of the decision and the case archived at the
instance of the complainants;
(d) LUDIVINA L. SABALZA, ADELIZA E. CANTILLO, REMIGIO P. PESTAO, ET AL., Complainants v.
STANFORD MICROSYSTEMS, INC. ET AL., Respondents, CASE NO. 12-4882-86, filed by herein
Petitioners Ludivina L. Ssbalza, Adelina E. Cantillo, and Remegio P. Pestao, acting for themselves
and as the duly appointed Attorneys-In-Fact of Three Thousand Two Hundred Forty Four (3,244)
Daily-Paid employees of Stanford, and formerly assigned to Labor Arbiter Evangeline
Lubaton
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;
(e) SMI LABOR UNION-FFW ET AL., Petitioners v. STANFORD MICROSYSTEMS, INC. Respondent,
NCR-NS-3-124-85, CASE NO. 3-753-86, filed by herein Petitioners Ludivina L. Sabalza, Adelina E.
Cantillo, and Remigio P. Pestao, acting for themselves and as the duly appointed Attorneys-In-
Fact of Three Thousand Two Hundred Forty Four (3,244) Daily-Paid employees of Stanford, and
assigned to Labor Arbiter Dominador M. Cruz
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;
(f) LUDIVINA SABALZA, ET AL., Petitioners v. STANFORD MICROSYSTEMS, INC., Respondent, CASE
NO. 2-628-86, filed by herein Petitioners Ludivina L. Sabalza, Adeliza E. Cantillo, and Remigio P.
Pestao, acting for themselves and as the duly appointed Attorneys-In-Fact of Three Thousand
Two Hundred Forty Four (3,244) Daily-Paid employees of Stanford, and assigned to Labor Arbiter
Dominador M. Cruz
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;
(g) LUDIVINA SABALZA, ET AL., FERNANDO R. GUMABON ET AL., Complainants v. Stanford
Microsystems, Inc., Respondent, CASE NO. 11-4543-86, filed by herein Petitioners Ludivina L.
Sabalza, Adeliza E. Cantillo, and Remigio P. Pestao, acting for themselves and as the duly
appointed Attorneys-In-Fact of Three Thousand Two Hundred Forty Four (3,244) Daily-Paid
employees of Stanford, and formerly assigned to Labor Arbiter Armando Polintan
for payment of separation pay, back (strike duration) pay and thirteenth month pay for 1985,
cash conversion of vacation and sick leave, and other money claims. The petitioner Stanford
Liquidation Committee has intervened in this case and moved to stay proceedings; and
(h) FERNANDO R. GUMABON ET AL., Petitioners v. STANFORD MICROSYSTEMS, INC., Respondent,
CASE NO. 3-803-86, 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 of Stanford, and formerly assigned to Labor Arbiter
Martinez
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 former
daily 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 duly
appointed 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. Pestao, 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 over 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. Pestao 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 letter
reads:
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 Presidential
Decree 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. Pestao 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 Relations
Commission (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.
Pestao, 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 issued
on 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 the
unjust 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 Solicitor
General 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. Pestao 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 the
Commission 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 the
former 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 Commercial
International 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 shall
enforce 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 disputes
was 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 and
unduly disposed of, resolved and prejudged the contentious issues raised in the Stanford Employees' 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 and
Remigio P. Pestao. 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 on
the 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 Pestao, 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's
fees 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. 08265-08268
1

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 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 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 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 Corporation
4
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 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 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 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 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 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. 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 therein
meritorious, 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 named
Norman 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 motion
for 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,
1983
8
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 his
attorney'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 May
25, 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 for
attorney's fees by execution.
14
Here, 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's
Insurance 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 a
contract 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 the
principal 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, argues
that 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 Reparations
Commission 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 chargeable
with 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 CORPORATION
EMPLOYEES 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 and
Employment, 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 the
union 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 had
rendered 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 redounded
to 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 between
the 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 Interbank
shortly 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 % per
annum 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 pay
the 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 petitioner
Radiowealth 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 agreement
between 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, 93
Phil. 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 fees
here 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 noted
that 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 SESBREO, 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. Sesbreo, 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. Sesbreo, 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 the
petitioning 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. Sesbreo should be 50% of all monies which the petitioners (Suico, et al.) may receive from
the 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 Sesbreo is
fixed 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 parties
6
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 to
the 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. Sesbreo, our lawyer, the following to be taken from our back
salaries:
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 jurisdiction
13
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 services
rendered; 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. The
ratio 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 Decision
1
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. 3098
during 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
1964
2
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 decision
3
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 corresponding
certificate 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 decision
5
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 Appeals
6
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, the
trial 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 Petition
10
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 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 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 a
peso 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 acquired
by 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 resolved
on 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, in
Beatty 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, for all the foregoing, and treating the present Petition as a Petition for Reconveyance of Land, the
Court hereby GRANTS the same. Private respondent Atty. Jorge A. Pascua is hereby ORDERED to reconvey or cause
the reconveyance of one-half (1/2) of the land here involved, plus one-half (1/2) of the net profits derived from or
in respect of such land during the time it has been held by private respondent Pascua, to petitioner and
petitioner's brothers, Vitaliano and Pedro Sumaoang. No pronouncement as to costs.
SO ORDERED.


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