Jun B. Luna vs Atty. Dwight M.

Galarrita
AC 10662, July 07, 2015

Facts:
Luna filed an Affidavit-Complaint against his lawyer, Atty. Galarrita before the IBP.
He alleged that he retained Atty. Galarrita’s legal services in filing a foreclosure
complaint against Jose Calvario who allegedly owed him P100,000 secured by a Real
Estate Mortage. After his formal offer of evidence, Atty. Galarrita opted to enter into a
settlement with the other party without informing him and without delivering to him the
settlement proceeds.
When Luna learned of the settlement, he wrote to the respondent stating that the
settlement is beyond what they discussed. Atty. Galarrita replied that he entered into the
settlement because he was certain that it was better than winning the case and asked
for understanding since he had not received any appearance fee for numerous
hearings. Luna mentioned that delay in retainer’s fee payments was due to Atty.
Galarrita’s negligence in handling the case. The respondent explained that the reason
why the case was archived was because he could not attend several hearings for lack
of meal and transportation allowance going to Gumaca, Quezon, but such fact is moot
because the case was not dismissed by the court.
Luna received a letter from one of the heirs of Jose Calvario, Emma Tayag, and
again from Lutchiare Calvario, regarding the delivery of title since they paid the P100,000
settlement amount.
In his answer, Atty. Glarrita prays for the dismissal of the disbarment case, claiming
that he entered into the Compromise Agreement by virtue of a Special Power of
Attorney. Also, he added that under their General Retainership Agreement, Luna shall
pay him P4,000 monthly and after 4 years, the client owes him an unpaid balance of
P208,000. He argues for an application of the rule on retaining lien.
The Investigating Commissioner found Atty. Galarrita guilty of violation Rule 16.03
of the CPR and recommended his suspension from the practice of law for 1 year. The IBP
board of Governors modified the recommendation, recommending the respondent’s
suspension from the practice of law for 6 months and ordered to return the amount of
P100,000.

Issue:
WON respondent should be held administratively liable for entering into a
Compromise Agreement without his client’s consent, then refusing to turn over the
settlement proceeds received.

Ruling:
Yes. Complainant Luna entrusted Atty. Galarrita with handling the civil case
involving a mortgaged land in Quezon Province, however, without his consent, the latter
settled the case with the other party. There are compelling reasons to believe that Luna
had not given any authority to enter into a Compromise Agreement: firstly, Luna was not
a party to the Compromise Agreement despite the fact that he was not abroad when
the agreement was executed; secondly, there was no indication that he had agreed to
the amountof P100,000; thirdly, he was not seasonable informed of the execution of the
Compromise Agreement.
 Even if such authority was given, the SPA still cannot justify the Compromise
Agreement on February 14, 2006. The SPA was executed on September 16, 2002 before
the filing of the complaint. The conclusion seems to be that the authority given was to
enter into a possible settlement during the preliminary conference or pre-trial.
Rule 16.03 under Canon 6 of the Code of Professional Responsibility: A lawyer shall
deliver the funds and property of his client when due or upon demand. However, he shall
have a lien over the funds and may apply so much thereof as may be necessary to satisfy
his lawful fees and disbursements, giving notice promptly thereafter to his client.
The respondent entered into the Compromise Agreement without the client’s
consent and continued to act in bad faith by refusing to turn over the P100,000 settlement
amount received. It is not amiss to state that he entered into the said agreement with the
motivation to hold on to it and pave the way for the payment of his attorney’s fees. In
doing so, he violated the trust reposed in him by his client and violated Rule 16.03.
The CPR allows the lawyer to apply the money retained to satisfy his lawful fees.
However. This provision assumes that the client agrees with the lawyer as to the amount
of the attorney’s fees and as to the application of the client’s fund to pay his lawful fees
and disbursements.
Atty. Galarrita is suspended from the practice of law for 2 years, with a stern
warning. He is ordered to return to the complainant Luna the amount of P100,000 with
legal interest of 6% per annum from February 2006 until fully paid, without prejudice to
the filing of a collection case for retainer’s fee against complainant Luna.