G.R. No.

86250 February 26, 1990

On October 21, 1988, eleven days after the heirs received a copy of the decision, 6 the
latter filed a notice of appeal.

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 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

SARMIENTO, J.:
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 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.

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.

On March 14, 1988, Atty. Ephraim Serquina filed a "motion for attorney's fees" against
the petitioners, alleging that the heirs had agreed to pay, as and for his legal services
rendered, the sum of P68,000.00.
3

Thereafter summonses were served upon the heirs "as if it were a complaint against said
heirs" 4 directing them to answer the motion.

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.

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:

We take these up seriatim.

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

xxx xxx xxx

I.
Anent docket fees, it has been held that the court acquires jurisdiction over any case
only upon payment of the prescribed docket fee.
11

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.

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.

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. 20With
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," 21the 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 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.

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 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.

G.R. No. 77042-43 February 28, 1990

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.

BIDIN, J.:

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.

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:

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;

(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:

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:

"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).

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.
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.
GUTIERREZ, JR., J.:
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 foregoing disquisition merits our assent.

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:

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

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:

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.

a) The undersigned counsel is entitled to own 97.5 square meters of the plaintiff's share of
the lot in question.

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.

b) The undersigned counsel shall have a usufructuary right for a period of ten (10) years
of plaintiffs' share of the lot in question.

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.

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 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 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.

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 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.

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.

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)

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.

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 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.

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:

d) The skill demanded;

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)

f) The customary charges for similar services and the schedule of fees of the IBP Chapter
to which he belongs;

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:

e) The probability of losing other employment as a result of acceptance of the proferred

case;

g) The amount involved in the controversy and the benefits resulting to the client from the
service;
h) The contingency or certainty of compensation;

In resolving the issue of reasonableness of the attorney's fees, we uphold the timehonoured 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.

i) The character of the employment, whether occasional or established; and

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.

13. Contingent Fees.

j) The professional standing of the lawyer.

SO ORDERED.

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).

A similar provision is contained under Section 24, Rule 138 of the Revised Rules of Court
which partly states that:

G.R. No. L-68838

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.1wphi1In 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;

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.

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.
FERNAN, C.J.:

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 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.

c) The importance of the subject matter;

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 casesto 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
(Witness)

(Sgd.) CRISTETA F. MAGLINTE

(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;

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.

(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;

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.

(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

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.
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.

SARMIENTO, J.:p
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; 19however, 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.

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.
GUTIERREZ, JR., J.:
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.,
Complainantsv. 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;

10

(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

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.

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;

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.

(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

The seven (7) secured creditor banks of Stanford, namely:

(d) The sharing formula for the distribution of the sales proceeds principally took into
account the principal claims of the claimants; and

(a) Philippine Commercial International Bank;

(e) All suits inconsistent with the MOA shall be withdrawn. (Petition, p. 30)

(b) Far East Bank and Trust Company;

The eleven (11) members of the MOA Liquidation Committee are the following:

(c) Private Development Corporation of the Philippines;

(a) Philippine Commercial International Bank;

(d) Equitable Banking Corporation;

(b) Far East Bank and Trust Company;

(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

(e) Union Bank of the Philippines;

(c) Private Development Corporation of the Philippines;

(f) Philippine National Bank; and

(d) Equitable Banking Corporation;

(g) City Trust Banking Corporation

(e) Union Bank of the Philippines;

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

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-InFact 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.

(f) Philippine National Bank;

The principal terms of the MOA are as follows:

(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

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;

(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)

(a) The Secured Creditor Banks will foreclose their real estate and chattel mortgages;
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

(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;

(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;

(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

11

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");

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:

(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)

(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

On the other hand, Atty. Ocampo failed to comply with the directive.

(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.

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

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, entitledLudivina 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:

12

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 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).

(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.

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.

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)

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:

In a resolution dated June 25, 1990 we gave due course to the instant petition.

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

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.

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:

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.

(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;

xxx xxx xxx

(b) A great number of said employees are jobless and/or underemployed with insufficient
incomes; and

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)

IV

13

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.

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:

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:

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:

14

(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

(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:

(iii) Driver's License

xxx xxx xxx
(iv) SSS/GSIS Id
(v) Passport
(vi) Current NBI Id/Certificate
(vii) Other acceptable Ids

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

15

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.

SO ORDERED.
A.M. No. 1625 February 12, 1990
ANGEL L. BAUTISTA, complainant,
vs.
ATTY. RAMON A. GONZALES, respondent.
RESOLUTION
PER CURIAM:

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)

In a verified complaint filed by Angel L. Bautista on May 19, 1976, respondent Ramon A.
Gonzales was charged with malpractice, deceit, gross misconduct and violation of
lawyer's oath. Required by this Court to answer the charges against him, respondent filed
on June 19, 1976 a motion for a bill of particulars asking this Court to order complainant to
amend his complaint by making his charges more definite. In a resolution dated June 28,
1976, the Court granted respondent's motion and required complainant to file an amended
complaint. On July 15, 1976, complainant submitted an amended complaint for
disbarment, alleging that respondent committed the following acts:

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.

1. Accepting a case wherein he agreed with his clients, namely, Alfaro Fortunado, Nestor
Fortunado and Editha Fortunado [hereinafter referred to as the Fortunados] to pay all
expenses, including court fees, for a contingent fee of fifty percent (50%) of the value of
the property in litigation.

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.

2. Acting as counsel for the Fortunados in Civil Case No. Q-15143, wherein Eusebio
Lopez, Jr. is one of the defendants and, without said case being terminated, acting as
counsel for Eusebio Lopez, Jr. in Civil Case No. Q-15490;
3. Transferring to himself one-half of the properties of the Fortunados, which properties
are the subject of the litigation in Civil Case No. Q-15143, while the case was still pending;
4. Inducing complainant, who was his former client, to enter into a contract with him on
August 30, 1971 for the development into a residential subdivision of the land involved in
Civil Case No. Q-15143, covered by TCT No. T-1929, claiming that he acquired fifty
percent (50%) interest thereof as attorney's fees from the Fortunados, while knowing fully
well that the said property was already sold at a public auction on June 30, 1971, by the
Provincial Sheriff of Lanao del Norte and registered with the Register of Deeds of Iligan
City;
5. Submitting to the Court of First Instance of Quezon City falsified documents purporting
to be true copies of "Addendum to the Land Development Agreement dated August 30,
1971" and submitting the same document to the Fiscal's Office of Quezon City, in
connection with the complaint for estafa filed by respondent against complainant
designated as I.S. No. 7512936;

16

6. Committing acts of treachery and disloyalty to complainant who was his client;
7. Harassing the complainant by filing several complaints without legal basis before the
Court of First Instance and the Fiscal's Office of Quezon City;
8. Deliberately misleading the Court of First Instance and the Fiscal's Office by making
false assertion of facts in his pleadings;
9. Filing petitions "cleverly prepared (so) that while he does not intentionally tell a he, he
does not tell the truth either."
Respondent filed an answer on September 29, 1976 and an amended answer on
November 18, 1976, denying the accusations against him. Complainant filed a reply to
respondent's answer on December 29, 1976 and on March 24, 1977 respondent filed a
rejoinder.
In a resolution dated March 16, 1983, the Court referred the case to the Office of the
Solicitor General for investigation, report and recommendation. In the investigation
conducted by the Solicitor General, complainant presented himself as a witness and
submitted Exhibits "A" to "PP", while respondent appeared both as witness and counsel
and submitted Exhibits "1" to "11". The parties were required to submit their respective
memoranda.
On May 16, 1988 respondent filed a motion to dismiss the complaint against him, claiming
that the long delay in the resolution of the complaint against him constitutes a violation of
his constitutional right to due process and speedy disposition of cases. Upon order of the
Court, the Solicitor General filed a comment to the motion to dismiss on August 8, 1988,
explaining that the delay in the investigation of the case was due to the numerous
requests for postponement of scheduled hearings filed by both parties and the motions for
extension of time to file their respective memoranda." [Comment of the Solicitor General,
p. 2; Record, p. 365]. Respondent filed a reply to the Solicitor General's comment on
October 26, 1988. In a resolution dated January 16, 1989 the Court required the Solicitor
General to submit his report and recommendation within thirty (30) days from notice.
On April 11, 1989, the Solicitor General submitted his report with the recommendation that
Atty. Ramon A. Gonzales be suspended for six (6) months. The Solicitor General found
that respondent committed the following acts of misconduct:
a. transferring to himself one-half of the properties of his clients during the pendency of
the case where the properties were involved;
b. concealing from complainant the fact that the property subject of their land development
agreement had already been sold at a public auction prior to the execution of said
agreement; and
c. misleading the court by submitting alleged true copies of a document where two
signatories who had not signed the original (or even the xerox copy) were made to appear

as having fixed their signatures [Report and Recommendation of the Solicitor General, pp.
17-18; Rollo, pp. 403-404].
Respondent then filed on April 14, 1989 a motion to refer the case to the Integrated Bar of
the Philippines (IBP) for investigation and disposition pursuant to Rule 139-B of the
Revised Rules of Court. Respondent manifested that he intends to submit more evidence
before the IBP. Finally, on November 27, 1989, respondent filed a supplemental motion to
refer this case to the IBP, containing additional arguments to bolster his contentions in his
previous pleadings.
I.
Preliminarily, the Court will dispose of the procedural issue raised by respondent. It is
respondent's contention that the preliminary investigation conducted by the Solicitor
General was limited to the determination of whether or not there is sufficient ground to
proceed with the case and that under Rule 139 the Solicitor General still has to file an
administrative complaint against him. Respondent claims that the case should be referred
to the IBP since Section 20 of Rule 139-B provides that:
This Rule shall take effect on June 1, 1988 and shall supersede the present Rule 139
entitled DISBARMENT OR SUSPENSION OF ATTORNEYS. All cases pending
investigation by the Office of the Solicitor General shall be transferred to the Integrated
Bar of the Philippines Board of Governors for investigation and disposition as provided in
this Rule except those cases where the investigation has been substantially completed.
The above contention of respondent is untenable. In the first place, contrary to
respondent's claim, reference to the IBP of complaints against lawyers is not mandatory
upon the Court [Zaldivar v. Sandiganbayan, G.R. Nos. 79690-707; Zaldivar v. Gonzales,
G.R. No. 80578, October 7, 1988]. Reference of complaints to the IBP is not an exclusive
procedure under the terms of Rule 139-B of the Revised Rules of Court [Ibid]. Under
Sections 13 and 14 of Rule 139-B, the Supreme Court may conduct disciplinary
proceedings without the intervention of the IBP by referring cases for investigation to the
Solicitor General or to any officer of the Supreme Court or judge of a lower court. In such
a case, the report and recommendation of the investigating official shall be reviewed
directly by the Supreme Court. The Court shall base its final action on the case on the
report and recommendation submitted by the investigating official and the evidence
presented by the parties during the investigation.
Secondly, there is no need to refer the case to the IBP since at the time of the effectivity of
Rule 139-B [June 1, 1988] the investigation conducted by the Office of the Solicitor
General had been substantially completed. Section 20 of Rule 139-B provides that only
pending cases, the investigation of which has not been substantially completed by the
Office of the Solicitor General, shall be transferred to the IBP. In this case the investigation
by the Solicitor General was terminated even before the effectivity of Rule 139-B.
Respondent himself admitted in his motion to dismiss that the Solicitor General terminated
the investigation on November 26, 1986, the date when respondent submitted his reply
memorandum [Motion to Dismiss, p. 1; Record, p. 353].

Thirdly, there is no need for further investigation since the Office of the Solicitor General
already made a thorough and comprehensive investigation of the case. To refer the case
to the IBP, as prayed for by the respondent, will result not only in duplication of the
proceedings conducted by the Solicitor General but also to further delay in the disposition
of the present case which has lasted for more than thirteen (13) years.
Respondent's assertion that he still has some evidence to present does not warrant the
referral of the case to the IBP. Considering that in the investigation conducted by the
Solicitor General respondent was given ample opportunity to present evidence, his failure
to adduce additional evidence is entirely his own fault. There was therefore no denial of
procedural due process. The record shows that respondent appeared as witness for
himself and presented no less than eleven (11) documents to support his contentions. He
was also allowed to cross-examine the complainant who appeared as a witness against
him.
II.
The Court will now address the substantive issue of whether or not respondent committed
the acts of misconduct alleged by complainant Bautista.
After a careful review of the record of the case and the report and recommendation of the
Solicitor General, the Court finds that respondent committed acts of misconduct which
warrant the exercise by this Court of its disciplinary power.
The record shows that respondent prepared a document entitled "Transfer of Rights"
which was signed by the Fortunados on August 31, 1971. The document assigned to
respondent one-half (1/2) of the properties of the Fortunados covered by TCT No. T-1929,
with an area of 239.650 sq. mm., and TCT No. T-3041, with an area of 72.907 sq. m., for
and in consideration of his legal services to the latter. At the time the document was
executed, respondent knew that the abovementioned properties were the subject of a civil
case [Civil Case No. Q-15143] pending before the Court of First Instance of Quezon City
since he was acting as counsel for the Fortunados in said case [See Annex "B" of Original
Complaint, p. 12; Rollo, p. 16]. In executing the document transferring one-half (1/2) of the
subject properties to himself, respondent violated the law expressly prohibiting a lawyer
from acquiring his client's property or interest involved in any litigation in which he may
take part by virtue of his profession [Article 1491, New Civil Code]. This Court has held
that the purchase by a lawyer of his client's property or interest in litigation is a breach of
professional ethics and constitutes malpractice [Hernandez v. Villanueva, 40 Phil. 774
(1920); Go Beltran v. Fernandez, 70 Phil. 248 (1940)].
However, respondent notes that Canon 10 of the old Canons of Professional Ethics, which
states that "[t]he lawyer should not purchase any interests in the subject matter of the
litigation which he is conducting," does not appear anymore in the new Code of
Professional Responsibility. He therefore concludes that while a purchase by a lawyer of
property in litigation is void under Art. 1491 of the Civil Code, such purchase is no longer a
ground for disciplinary action under the new Code of Professional Responsibility.
This contention is without merit. The very first Canon of the new Code states that "a
lawyer shall uphold the Constitution, obey the laws of the land and promote respect for

17

law and legal process" (Emphasis supplied), Moreover, Rule 138, Sec. 3 of the Revised
Rules of Court requires every lawyer to take an oath to 44 obey the laws [of the Republic
of the Philippines] as well as the legal orders of the duly constituted authorities therein."
And for any violation of this oath, a lawyer may be suspended or disbarred by the
Supreme Court [Rule 138, Sec. 27, Revised Rules of Court]. All of these underscore the
role of the lawyer as the vanguard of our legal system. The transgression of any provision
of law by a lawyer is a repulsive and reprehensible act which the Court will not
countenance. In the instant case, respondent, having violated Art. 1491 of the Civil Code,
must be held accountable both to his client and to society.
Parenthetically, it should be noted that the persons mentioned in Art. 1491 of the Civil
Code are prohibited from purchasing the property mentioned therein because of their
existing trust relationship with the latter. A lawyer is disqualified from acquiring by
purchase the property and rights in litigation because of his fiduciary relationship with
such property and rights, as well as with the client. And it cannot be claimed that the new
Code of Professional Responsibility has failed to emphasize the nature and
consequences of such relationship. Canon 17 states that "a lawyer owes fidelity to the
cause of his client and he shall be mindful of the trust and confidence reposed in him." On
the other hand, Canon 16 provides that "a lawyer shall hold in trust all moneys and
properties of his client that may come into his possession." Hence, notwithstanding the
absence of a specific provision on the matter in the new Code, the Court, considering the
abovequoted provisions of the new Code in relation to Art. 1491 of the Civil Code, as well
as the prevailing jurisprudence, holds that the purchase by a lawyer of his client's property
in litigation constitutes a breach of professional ethics for which a disciplinary action may
be brought against him.
Respondent's next contention that the transfer of the properties was not really
implemented, because the land development agreement on which the transfer depended
was later rescinded, is untenable. Nowhere is it provided in the Transfer of Rights that the
assignment of the properties of the Fortunados to respondent was subject to the
implementation of the land development agreement. The last paragraph of the Transfer of
Rights provides that:
... for and in consideration of the legal services of ATTY. RAMON A. GONZALES, Filipino,
married to Lilia Yusay, and a resident of 23 Sunrise Hill, New Manila, Quezon City,
rendered to our entire satisfaction, we hereby, by these presents, do transfer and convey
to the said ATTY. RAMON A. GONZALES, his heirs, successor, and assigns, one-half
(1/2) of our rights and interests in the abovedescribed property, together with all the
improvements found therein [Annex D of the Complaint, Record, p. 28; Emphasis
supplied].
It is clear from the foregoing that the parties intended the transfer of the properties to
respondent to be absolute and unconditional, and irrespective of whether or not the land
development agreement was implemented.
Another misconduct committed by respondent was his failure to disclose to complainant,
at the time the land development agreement was entered into, that the land covered by
TCT No. T-1929 had already been sold at a public auction. The land development
agreement was executed on August 31, 1977 while the public auction was held on June
30, 1971.

Respondent denies that complainant was his former client, claiming that his appearance
for the complainant in an anti-graft case filed by the latter against a certain Gilbert Teodoro
was upon the request of complainant and was understood to be only provisional.
Respondent claims that since complainant was not his client, he had no duty to warn
complainant of the fact that the land involved in their land development agreement had
been sold at a public auction. Moreover, the sale was duly annotated at the back of TCT
No. T-1929 and this, respondent argues, serves as constructive notice to complainant so
that there was no concealment on his part.
The above contentions are unmeritorious. Even assuming that the certificate of sale was
annotated at the back of TCT No. T-1929, the fact remains that respondent failed to inform
the complainant of the sale of the land to Samauna during the negotiations for the land
development agreement. In so doing, respondent failed to live up to the rigorous
standards of ethics of the law profession which place a premium on honesty and condemn
duplicitous conduct. The fact that complainant was not a former client of respondent does
not exempt respondent from his duty to inform complainant of an important fact pertaining
to the land which is subject of their negotiation. Since he was a party to the land
development agreement, respondent should have warned the complainant of the sale of
the land at a public auction so that the latter could make a proper assessment of the
viability of the project they were jointly undertaking. This Court has held that a lawyer
should observe honesty and fairness even in his private dealings and failure to do so is a
ground for disciplinary action against him [Custodio v. Esto, Adm. Case No. 1113,
February 22, 1978, 81 SCRA 517].
Complainant also charges respondent with submitting to the court falsified documents
purporting to be true copies of an addendum to the land development agreement.
Based on evidence submitted by the parties, the Solicitor General found that in the
document filed by respondent with the Court of First Instance of Quezon City, the
signatories to the addendum to the land development agreement namely, Ramon A.
Gonzales, Alfaro T. Fortunado, Editha T. Fortunado, Nestor T. Fortunado, and Angel L.
Bautistawere made to appear as having signed the original document on December 9,
1972, as indicated by the letters (SGD.) before each of their names. However, it was only
respondent Alfaro Fortunado and complainant who signed the original and duplicate
original (Exh. 2) and the two other parties, Edith Fortunado and Nestor Fortunado, never
did. Even respondent himself admitted that Edith and Nestor Fortunado only signed the
xerox copy (Exh. 2-A) after respondent wrote them on May 24, 1973, asking them to sign
the said xerox copyattached to the letter and to send it back to him after signing
[Rejoinder to Complainant's Reply, pp. 4-6; Rollo, pp. 327-329]. Moreover, respondent
acknowledged that Edith and Nestor Fortunado had merely agreed by phone to sign, but
had not actually signed, the alleged true copy of the addendum as of May 23, 1973
[Respondent's Supplemental Motion to Refer this Case to the Integrated Bar of the
Philippines, p. 16]. Thus, when respondent submitted the alleged true copy of the
addendum on May 23, 1973 as Annex "A" of his Manifestation filed with the Court of First
Instance of Quezon City, he knowingly misled the Court into believing that the original
addendum was signed by Edith Fortunado and Nestor Fortunado. Such conduct
constitutes willful disregard of his solemn duty as a lawyer to act at all times in a manner
consistent with the truth. A lawyer should never seek to mislead the court by an artifice or
false statement of fact or law [Section 20 (d), Rule 138, Revised Rules of Court; Canon
22, Canons of Professional Ethics; Canon 10, Rule 10.01, Code of Professional
Responsibility].

Anent the first charge of complainant, the Solicitor General found that no impropriety was
committed by respondent in entering into a contingent fee contract with the Fortunados
[Report and Recommendation, p. 8; Record, p. 394]. The Court, however, finds that the
agreement between the respondent and the Fortunados, which provides in part that:
We the [Fortunados] agree on the 50% contingent fee, provided, you [respondent Ramon
Gonzales] defray all expenses, for the suit, including court fees.
Alfaro T. Fortunado [signed]
Editha T. Fortunado [signed]
Nestor T. Fortunado [signed]
CONFORME
Ramon A. Gonzales [signed]
[Annex A to the Complaint, Record, p. 4].
is contrary to Canon 42 of the Canons of Professional Ethics which provides that a lawyer
may not properly agree with a client to pay or bear the expenses of litigation. [See also
Rule 16.04, Code of Professional Responsibility]. Although a lawyer may in good faith,
advance the expenses of litigation, the same should be subject to reimbursement. The
agreement between respondent and the Fortunados, however, does not provide for
reimbursement to respondent of litigation expenses paid by him. An agreement whereby
an attorney agrees to pay expenses of proceedings to enforce the client's rights is
champertous [JBP Holding Corp. v. U.S. 166 F. Supp. 324 (1958)]. Such agreements are
against public policy especially where, as in this case, the attorney has agreed to carry on
the action at his own expense in consideration of some bargain to have part of the thing in
dispute [See Sampliner v. Motion Pictures Patents Co., et al., 255 F. 242 (1918)]. The
execution of these contracts violates the fiduciary relationship between the lawyer and his
client, for which the former must incur administrative sanctions.
The Solicitor General next concludes that respondent cannot be held liable for acting as
counsel for Eusebio Lopez, Jr. in Civil Case No. Q-15490 while acting as counsel for the
Fortunados against the same Eusebio Lopez, Jr. in Civil Case No. Q-15143. The Court,
after considering the record, agrees with the Solicitor General's findings on the matter.
The evidence presented by respondent shows that his acceptance of Civil Case No. Q15490 was with the knowledge and consent of the Fortunados. The affidavit executed by
the Fortunados on June 23, 1976 clearly states that they gave their consent when
respondent accepted the case of Eusebio Lopez, Jr. [Affidavit of Fortunados, dated June
23, 1976; Rollo, p. 198]. One of the recognized exceptions to the rule against
representation of conflicting interests is where the clients knowingly consent to the dual
representation after full disclosure of the facts by counsel [Canon 6, Canons of
Professional Ethics; Canon 15, Rule 15.03, Code of Professional Responsibility].
Complainant also claims that respondent filed several complaints against him before the
Court of First Instance and the Fiscal's Office of Quezon City for the sole purpose of
harassing him.

18

The record shows that at the time of the Solicitor General's investigation of this case, Civil
Case No. Q-18060 was still pending before the Court of First Instance of Quezon City,
while the complaints for libel (I.S. No. 76-5912) and perjury (I.S. No. 5913) were already
dismissed by the City Fiscal for insufficiency of evidence and lack of interest, respectively
[Report and Recommendation, pp. 16-17; Rollo, pp. 402-403]. The Solicitor General found
no basis for holding that the complaints for libel and perjury were used by respondent to
harass complainant. As to Civil Case No. Q-18060, considering that it was still pending
resolution, the Solicitor General made no finding on complainants claim that it was a mere
ploy by respondent to harass him. The determination of the validity of the complaint in
Civil Case No. Q-18060 was left to the Court of First Instance of Quezon City where the
case was pending resolution.
The Court agrees with the above findings of the Solicitor General, and accordingly holds
that there is no basis for holding that the respondent's sole purpose in filing the
aforementioned cases was to harass complainant.
Grounds 6, 8 and 9 alleged in the complaint need not be discussed separately since the
above discussion on the other grounds sufficiently cover these remaining grounds.
The Court finds clearly established in this case that on four counts the respondent violated
the law and the rules governing the conduct of a member of the legal profession. Sworn to
assist in the administration of justice and to uphold the rule of law, he has "miserably failed
to live up to the standards expected of a member of the Bar." [Artiaga v. Villanueva, Adm.
Matter No. 1892, July 29, 1988, 163 SCRA 638, 647]. The Court agrees with the Solicitor
General that, considering the nature of the offenses committed by respondent and the
facts and circumstances of the case, respondent lawyer should be suspended from the
practice of law for a period of six (6) months.
WHEREFORE, finding that respondent Attorney Ramon A. Gonzales committed serious
misconduct, the Court Resolved to SUSPEND respondent from the practice of law for SIX
(6) months effective from the date of his receipt of this Resolution. Let copies of this
Resolution be circulated to all courts of the country for their information and guidance, and
spread in the personal record of Atty. Gonzales.

.REGALADO, J.:
This petition for review on certiorari impugns the decision of the Court of Appeals in CAG.R. Nos. 08265-08268 1affirming 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.

SO ORDERED.

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.

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 aquantum 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

19

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.

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.

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.

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

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

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. 23Hence, the obvious
necessity of a hearing is beyond cavil.

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."

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.

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

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, 20this 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.

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.
SO ORDERED.
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.
REGALADO, J.:

20

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:

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:

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.

... 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

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.

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.
G.R. No. 84096 January 26, 1995
RAUL H. SESBRENO, petitioner,
vs.
HONORABLE COURT OF APPEALS and HERMILO RODIS, SR., respondents.
QUIASON, J.:

21

Private respondents Hermilo Rodis, Sr., together with Douglas Sandiego and Ricardo
Silverio, Sr., was charged with estafa before the Regional Trial Court, Branch 20, Cebu, in
an information docketed as Criminal Case No. CU-10568, which reads as follows:
That on or about the 9th day of February, 1981, and for sometime prior and subsequent
thereto, in the City of Cebu, Philippines, and within the jurisdiction of this Honorable Court,
the said accused, conniving and confederating together and mutually helping one another,
having received from Atty. Raul H. Sesbreno the sum of P300,000.00 as money market
placement for 32 days at 20% interest with said corporation or a maturity date of March
13, 1981, with the obligation on their part to immediately account for and turn over to said
Atty. Raul H. Sesbreno the aforesaid sum of money including the 20% interest upon
maturity, or the total sum of P305,333.33, the said accused, once in possession of said
sum of money, far from complying with their obligation, with deliberate intent, with intent of
gain and of defrauding the herein complainant, did then and there misappropriate,
misapply and convert into their own personal use and benefit the same, and despite
repeated demands made upon them by Atty. Raul H. Sesbreno, they have failed and
refused and up to the present time still fail and refuse to comply with their obligation, to
the damage and prejudice of Atty. Raul H. Sesbreno, in the aforementioned sum of
P300,000.00 Philippine Currency (Rollo, p. 80).
Respondent Rodis moved to quash the information on the ground that the Securities and
Exchange Commission (SEC), not the regular courts, had jurisdiction over the offense
charged and that the facts stated herein did not constitute an offense (Record [Folio No. I],
p. 309). The trial court denied the motion and private respondent elevated the case to the
then Intermediate Appellate Court on a petition for certiorari docketed as AC-G.R. SP No.
15448.
On August 16, 1983, the appellate court dismissed the petition after finding no grave
abuse of discretion on the part of the trial court in denying the motion to quash (Record
[Folio No. I], p. 633). The motion for reconsideration was, likewise, denied. Thus, private
respondent was, likewise, denied. Thus, private respondent filed a petition for review
on certiorari with this Court, docketed as G.R. No. 65477. On February 6, 1984, the
petition was denied.
Hence, trial ensued in the criminal case. However, after the prosecution had rested its
case, private respondent filed a motion to dismiss on demurrer to evidence based on the
core proposition that there was no criminal offense of estafa from the non-payment of a
money market placement (Record [Folio No. II], p. 210). The motion alleged that herein
petitioner had also filed a similar complaint against Elizabeth de Villa involving the same
money market placement before the City Fiscal of Cebu; but, upon review of the
complaint, then Minister of Justice Estelito Mendoza directed the dismissal of the
complaint on the ground that a money market placement partook of the nature of a loan
and therefore no criminal liability for estafa could arise from non-payment thereof.
On March 13, 1985, the trial court denied the motion to dismiss (Record [Folio No. II], p.
310). On June 21, 1985, it issued an order stating that private respondent had waived his
right to present evidence by his dilatory motions to postpone the trial of the case (Ibid., p.
329).

Private respondent then filed a petition for certiorari and prohibition before the
Intermediate Appellate Court under Docket No. AC-G.R. SP No. 6315 (Ibid., p. 365)
assailing the Order of March 13, 1985 as tainted with grave abuse of discretion amounting
to lack or excess of jurisdiction.
On December 29, 1987, the appellate court rendered a decision based on Perez v. Court
of Appeals, 127 SCRA 636 (1984), upholding private respondent's contention that a
money market placement is in the nature of a loan which entails the transfer of ownership
of the money so invested and therefore the liability for its return is civil in nature (Rollo, p.
79). The dispositive portion of the decision reads:
WHEREFORE, finding the present petition to be impressed with merit, the same petition
to be impressed with merit, the same is accordingly GRANTED, and the Order of March
13, 1985, as well as that of June 21, 1985 in Criminal Case No. CU-10568, are (sic)
hereby set aside. The respondent Judge is directed to issue in lieu thereof an appropriate
order (i) granting petitioner's motion to dismiss on demurrer to evidence; (ii) dismissing
Criminal Case No. CU-10568 in due course; and (iii) declaring mooted all acts, orders and
processes made and done therein during the pendency of this petition (Rollo, p. 86).
Upon a motion for the reconsideration of said decision, the Court of Appeals modified the
dispositive portion of the decision as follows:
WHEREFORE, finding the present petition to be impressed with merit, the same is
accordingly GRANTED, and the Order of March 13, 1985 in Criminal Case No. CU-10568,
is hereby set aside. The respondent Judge is directed to issue in lieu thereof an
appropriate order (i) granting petitioner's motion to dismiss on demurrer to evidence; (ii)
dismissing Criminal Case No. CU-10568 as against petitioner Hermilo Rodis, Sr. only; and
(iii) directing respondent judge to determine the civil liability, if any, of petitioner Hermilo
Rodis, Sr. to private respondent Raul H. Sesbreno from the evidence extant in the record
of said case (CU-10568) (Rollo, p. 117).
Consequently, petitioner interposed the instant petition alleging that the Court of Appeals
gravely erred in:
a. Taking cognizance over CA-GR SP No. 06315 even if it has NO JURISDICTION over
the issue raised by the petition for certiorari filed therein;
b. Deciding CA-GR SP No. 06315 in a way probably not in accord with law or with the
applicable decisions of this Honorable Supreme Court (Rollo, p. 10).
On the issue of jurisdiction, petitioner contends that by the filing of a motion to dismiss on
demurrer to evidence, private respondent, in effect, admitted the truth of the allegations in
the information, as well as the evidence presented by the prosecution to support said
allegations. Therefore, the only issue raised by private respondent before the Court of
Appeals, i.e., whether or not he can be held liable for estafa under the facts obtaining in
the case, is purely a question of law for which said appellate court had no jurisdiction
(Rollo, pp. 12-13).

In Bernardo v. Court of Appeals, 216 SCRA 224 (1992), this Court clarified the distinction
between a question of law and a question of fact in this wise:
. . . . As distinguished from a question of law which exists "when the doubt or difference
arises as to what the law is on certain state of facts" "there is a question of fact when
the doubt or difference arises as to the truth or the falsehood of alleged facts;" or when the
"query necessarily invites calibration of the whole evidence considering mainly the
credibility of witnesses, existence and relevancy of specific surrounding circumstances,
their relation to each other and to the whole and the probabilities of the situation."
An examination of the petition filed before the Court of Appeals disclosed that indeed no
question of fact was raised. What private respondent asserted therein was that the facts
as alleged and proved by petitioner did not constitute a criminal offense. Clearly then, the
only issue to be resolved by the Court of Appeals, which it did resolve, was whether
private respondent could be held liable for estafa under the facts obtaining in the criminal
case. This certainly is a question of law that should fall within the jurisdiction of this Court.
Petitioner did not assail the jurisdiction of the Court of Appeals during the pendency of his
petition in AC-G.R. SP No. 63151. As a matter of fact, he actively participated in the
proceedings before said appellate court. While it is true that jurisdiction over the subject
matter of a case may be raised at any time of the proceedings, this rule presupposes that
laches or estoppel has not supervened. In this regard, Banaga v. Commission on the
Settlement of Land Problems, 181 SCRA 599, 608-609 (1990) is most enlightening. The
Court therein stated:
This Court has time and again frowned upon the undesirable practice of party submitting
his case for decision and then accepting the judgment, only if favorable when adverse.
Here, a party may be estopped or barred from raising the question of jurisdiction for the
first time in a petition before the Supreme Court when it failed to do so in the early stages
of the proceedings. This principle should deter those who are disposed to tifle with the
courts by taking inconsistent positions contrary to the elementary principles of right
dealing and good faith (Tijam v. Sibonghanoy, No. L-21450, April 15, 1968, 23 SCRA 29;
Capilitan v. dela Cruz, Nos. L-29536-37, February 28, 1974, 55 SCRA 706; Marquez v.
Secretary of Labor, G.R. 80685, March 16, 1989). . . .
On the pivotal issue of whether or not private respondent may be held liable for estafa
under the facts obtaining in the trial court, respondent court held that private respondent's
liability, if any, is only civil. The nature of a money market transaction is explained by the
Court in Perez v. Court of Appeals (supra, pp. 645-646) as follows:
. . . .What is involved here in a money market transaction. As defined by Lawrence Smith,
"the money market is a market dealing in standardized short-term credit instruments
(involving large amounts) where lenders and borrowers do not deal directly with each
other but through a middle man or dealer in the open market." It involves "commercial
papers" which are instruments "evidencing indebtedness of any person or entity . . . which
are issued, endorsed, sold or transferred or in any manner conveyed to another person or
entity, with or without recourse." The fundamental function of the money market device in
its operation is to match and bring together in a most impersonal manner both the "fund
users" and the "fund suppliers." The money market is an "impersonal market", free from

22

personal considerations. The market mechanism is intended "to provide quick mobility of
money and securities."
The impersonal character of the money market device overlooks the individuals or entities
concerned. The issuer of a commercial paper in the money market necessarily knows in
advance that it would be expeditiously transacted and transferred to any investor/lender
without need of notice to said issuer. In practice, no notification is given to the borrower or
issuer of commercial paper of the sale or transfer to the investor.
The Court of Appeals, therefore, correctly ruled that a money market transaction partakes
of the nature of a loan and therefore "nonpayment thereof would not give rise to criminal
liability for estafa through misappropriation or conversion." Citing Yam v. Malik, 94 SCRA
30 (1979), the Court of Appeals noted that private respondent or Philfinance was not
obliged under the money market transaction to return the same money he or the
corporation had received from petitioner. In fact, the Court of Appeals noted that petitioner
admitted on the witness stand that he had "invested" his money; that "he was not
concerned about the same money because what is important is the same amount will be
returned to me plus its earnings, because naturally when you give the money with the
same serial numbers and you entrust it for investment purposes, when it is invested and
there are returns, the same money with the same serial numbers will not be returned to
you;" and that private respondent would be "held liable to me in case of their failure to
account" for the investment (Rollo, p. 83).
In money market placement, the investor is a lender who loans his money to a borrower
through a middleman or dealer. Petitioner here loaned his money to a borrower through
Philfinance. When the latter failed to deliver back petitioner's placement with the
corresponding interest earned at the maturity date, the liability incurred by Philfinance was
a civil one. As such, petitioner could have instituted against Philfinance before the ordinary
courts a simple action for recovery of the amount he had invested and he could have
prayed therein for damages (Lim Sio Bio v. Court of Appeals, 221 SCRA 307 [1993];
Orosa, Jr., v. Court of Appeals, 193 SCRA 391 [1991]; Manila Electric Company v.
Genbancor Development Corporation, 72 SCRA 249 [1976]).
It appears, however, that petitioner did not even implead Philfinance in the complaint for
damages arising from the nonreturn of investment with respect to the same money market
placement involved herein, which he eventually filed against Delta Motors Corporation and
Pilipinas Bank before the Regional Trial Court of Cebu City on September 28, 1982. The
said complaint having been dismissed for lack of merit, petitioner appealed to the Court of
Appeals which, on March 21, 1989, affirmed the dismissal order. The Court of Appeals
held that Philfinance is "solely and legally obligated to return the investment of plaintiff,
together with its earnings, and to answer all the damages plaintiff has suffered incident
thereto." Petitioner thereafter filed a petition for review oncertiorari, which this Court
docketed as G.R. No. 89252.
On May 24, 1993, the Court, through Associate Justice Feliciano, rendered a decision in
G.R. No. 89252 ordering Pilipinas Bank to pay petitioner the amount of P304,533.33 in
damages plus legal interest thereon at the rate of six percent (6%) per annum counted
from April 2, 1981. Pilipinas Bank was the custodian-depositary of DMC PN No. 2731
evidencing petitioner's money market placement. In holding Pilipinas Bank liable for
damages for breach of duty, the Court said:

. . . . By failing to deliver the Note to the petitioner as depositor-beneficiary of the thing

deposited, Pilipinas effectively and unlawfully deprived petitioner of the Note deposited
with it. Whether or not Pilipinas itself benefitted from such conversion or unlawful
deprivation inflicted upon petitioner, is of no moment for present purposes. Prima facie,
the damages suffered by petitioner consisted of P304,533.33, the portion of the DMC PN
No. 2731 assigned to petitioner but lost by him reason of discharge of the Note by
compensation, plus legal interest of six percent (6%) per annum counting from 14 March
1981.
The conclusion we have here reached is, of course, without to such right of
reimbursement as Pilipinas may have vis-a-vis Philfinance (G.R. No. 89252, Rollo, pp.
295-296).
Petitioner's recovery of his investment and the dismissal of the criminal aspect of the case
he had filed against private respondent as a consequence of this decision
notwithstanding, he still has an opportunity to hold private respondent liable in Criminal
Case No. CU-10568. In People v. Tugbang, 196 SCRA 341 (1991), the Court categorically
pronounced that ". . . an accused acquitted of a criminal charge may nevertheless be held
in the same case civilly liable where the facts established by the evidence so warrants."
WHEREFORE, the petition is DENIED and the Decision of the Court of Appeals, as
modified by its Resolution of May 27, 1988, is AFFIRMED in toto.
SO ORDERED.

produced in that district from the milling by any sugar central of the sugar-cane of any
Sugarcane planter or plantation owner, as well as all by- products and derivatives thereof,
shall be divided between them as follows:
Sixty per centum for the planter, and forty per centum for the central in any milling district
the maximum actual production of which is not more than four hundred thousand
piculs: Provided, That the provisions of this section shall not apply to sugar centrals with
an actual production of less than one hundred fifty thousand piculs.
Sixty-two and one-half per centum for the planter, and thirty-seven and one-half per
centum for the central in any milling district the maximum actual production of which
exceeds four hundred thousands piculs but does not exceed six hundred thousand piculs;
Sixty-five per centum for the planter, and thirty-five per centum for the central in any
milling district the maximum actual production of which exceeds six hundred thousand
piculs but does not exceed nine hundred thousand piculs;
Sixty-seven and one-half per centum for the planter, and thirty-two and one-half per
centum for the central in any milling district the maximum actual production of which
exceeds nine hundred thousands piculs but does not exceed one million two hundred
thousand piculs;
Seventy per centum for the planter, and thirty per centum for the central in any milling
district the maximum actual production of which exceeds one million two hundred
thousand piculs.

G.R. No. 87597 August 3, 1990

CENTRAL AZUCARERA DE BAIS, petitioner,
vs.
THE HONORABLE COURT OF APPEALS, DAVID BAROT, ET AL.,* respondents.
REGALADO, J.:
Petitioner seeks the review and reversal of the decision of respondent Court of Appeals,
dated March 20, 1989, 1which affirmed in toto the original decision of the Regional Trial
Court of Manila, Branch XX, dated December 28,1984, in Civil Case No. 39650, entitled
"David Barot, et al. vs. Central Azucarera de Bais," and set aside the partial modification
thereof by the same trial court in its order of May 7, 1985.
The present litigation started thirty-one (31) years ago in the then Court of First Instance
of Manila when private respondents filed a complaint for a sum of money against
petitioner Central Azucarera de Bais on March 19, 1959. In their complaint, private
respondents, consisting of David Barot and one hundred eighty (180) other sugar cane
planters in Bais, Negros Oriental, relied on Section 1 of Republic Act No. 809, otherwise
known as the Sugar Act of 1952, which in part provides that:

By actual production is meant the total production of the mill for the crop year immediately
preceeding.
The facts as found by the respondent court are as follows:
As alleged in the complaint, the plaintiffs-appellants were all sugar cane planters in the
milling district of Bais, Negros Oriental, who have been milling their sugarcane with
appellant Central Azucarera de Bais since 1952, without any written milling contracts or
agreements between plaintiffs-appellants and defendant-appellant. Further, plaintiffsappellants averred that prior to the enactment of the Sugar Act of 1952 (RA 809) as
planters, they only had a 60% share in the sugar produced and milled with appellant
Central while the latter had 40%. With the enactment of R.A. 809, however, the
percentage of the share of the planters was gradually increased depending upon the
actual sugar production for each crop year and on whether or not the majority of the
planters had executed milling agreements with appellant Central. Hence, the plaintiffsappellants who have been milling their sugarcane with the appellant Central from 1952-53
to 1958-59, without any written milling contracts sought to compel the latter to give to them
the increased participation as provided for in R.A. 809 alleging that they constituted the
majority of the sugarcane planters who milled with the appellant Central during these crop
years.

SECTION 1. In the absence of written milling agreements between the majority of planters
and the millers of sugar-cane in any milling district in the Philippines, the unrefined sugar

23

The defendant-appellant denied in its Answer all the material allegations in the complaint
and averred that the plaintiffs-appellants who milled with the Central did not constitute the
majority of the sugarcane planters without written milling contracts arguing that it had
written milling contracts with the majority of its, planters during the crop years in question,
thus, Sec. 1 of R.A. 809 could not apply. Defendant-appellant likewise argued that R.A.
809 was unconstitutional on the ground that it not only deprived the appellant Central of its
properties without due process of law but it also impaired the obligation of contracts.
As an affirmative defense, appellant Central averred, among others, that when the milling
agreements executed in 1919 between the Central and its adherent planters expired in
1949, defendant-appellant and the majority of the planters in the milling district entered
into a new milling contract to be effective for ten (10) years commencing from 1949. The
new contract provided that the subscribing planters receive as their share 62% of the
unrefined sugar and molasses resulting from the milling of their cane and they have
certain obligations which are not assumed by the non-subscribing planters. The contract
also provided that the appellant Central shall not grant to other planters, not signatories
thereof, terms and conditions more advantageous than those provided for in the said
contract. In compliance with the aforesaid restriction, appellant Central has laid down the
policy of granting to the planters who did not sign the milling agreement, only 60% of the
unrefined sugar produced from their cane. The plaintiffs-appellants therefore, who had
been continuously delivering their sugarcane for milling with full knowledge of the
aforesaid restrictions imposed in the contract and without protest, have thereby impliedly,
if not expressly accepted the conditions under which their sugarcane had been milled by
the appellant Central and have thus entered into a valid contract that they cannot now
demand for a bigger participation than that provided for in the said contract.
(Emphasis in the original text) . 2
During the pendency of the case, upon motion of herein petitioner central, the trial court
suspended the proceedings in an order dated August 25, 1970, on the ground that the
issues in the present case are similar to the issues presented in the case before the
Supreme Court entitled Associacion de Agricultores de Talisay-Silay, Inc., et al. vs.
Talisay-Silay Milling Co., Inc., et al., docketed as G.R. No. L-19937. Eventually, this Court
promulgated judgment in said case on February 19, 1979. 3
The court a quo resumed trial of the case and on December 28, 1984, it rendered a
decision in favor of the private respondents finding that the majority of the planters did not
have milling contracts with the petitioner. After determining the private respondents'
increased participation in the sugar, molasses and bagasse and the money value thereof,
the trial court decreed:
WHEREFORE, judgment is hereby rendered in favor of the plaintiffs David Barot and
others whose names appear in the attached list marked Annex 'A' and against the
defendant Central Azucarera de Bais, ordering the latter to pay the former the following:
1.The increased participation of the plaintiffs in sugar for the crop years 1952-53 to 195859, inclusive, consisting of 19,909.85 piculs, with a money value of P4,290,915.03 as of
December 31, 1982 as hereinabove shown;

2.The increased participation of plaintiffs in molasses for the crop years 1952-53 to 195859, inclusive, consisting of 2,775.241 tons, with a money value of P995,938.01 as of
December 31, 1982 as hereinabove shown;
3.The increased participation of the plaintiffs in bagasse for the crop years 1952-53 to
1958-59, inclusive, consisting of 386,114.79 bales, with a money value of P1,259,854.81
as of December 31, 1982 as hereinabove shown;
4.Interest at the current rate on the aggregate totality of plaintiffs claim worth
P6,546,707.85, starting January 1, 1983, until such time as the same shall be fully paid;
5.25% of the total amount due the plaintiffs as for (sic) and attorney's fee; and
6.To pay the costs.
IT IS SO ORDERED. 4
Petitioner filed on January 20, 1985 a motion for reconsideration of the aforestated
decision, which was granted in part in an order of May 7, 1985. The dispositive portion
was modified to read as follows:
WHEREFORE, premises considered, the motion for reconsideration is granted in part and
the dispositive portion of the decision dated December 28,1984 is hereby amended to
read as follows:
1. WHEREFORE, judgment is hereby rendered in favor of the plaintiffs David Barot and
others whose names appear in the attached list marked Annex A and against defendant
Central Azucarera de Bais ordering the former to pay the following:
1. The increased participation of the plaintiffs in sugar for the crop years 1952-53 to 195859, inclusive, consisting of 19,909.85 piculs, with a value of P265,223.45;
2. The increased participation of the plaintiffs in molasses for the crop years 1952-53 to
1958-59, inclusive, consisting of 2,775.03 tons, with a value of P59,294.89;
3. The increased participation of the plaintiffs in bagasse for the crop years 1952-53 to
1958-59, inclusive, consisting of 986.114 bales with a value of P77,222.96;
4. 10% of the total amount due the plaintiffs as and for attorney's fees; and
5. To pay the costs, "All amounts herein ordered to be paid shall bear interest at 12% per
annum, the legal rate from the finality of this decision until full payment.
SO ORDERED. 5

Petitioner appealed to respondent Court of Appeals the decision dated December 28,1984
and the order dated May 7,1985. Private respondents likewise appealed from the order of
May 7, 1985 insofar as said order partially modified the trial court's decision of December
28, 1984, particularly on the question of interest and on the ground that said order is
contrary to law and the evidence presented. Both appeals were docketed as and
adjudicated in CA-G.R. CV No. 07759.
On March 20, 1989, respondent court promulgated its decision setting aside the May 7,
1985 order of the trial court and reinstated the decision dated December 28,1984. The
appellate court approved the findings of the court below that the majority of the planters
who milled their sugar cane with petitioner in the crop years involved did not have written
milling contracts. Likewise, it sustained the ruling that one hundred per cent (100%) of the
computed increased participation of the planters should be paid to the latter, it being
understood that under Section 9 of Republic Act No. 809 sixty per centum (60%) thereof
belongs to the laborers. It adopted the rule that after paying the entire amount to the
planters, they are in turn "directed to pay 60% of the increased participation to their
laborers under the supervision of the Ministry (now Department) of Labor." Respondent
court also ordered the payment of interest at the rate of twelve per cent (1 2%) per annum,
on the basis of the rates charged by the Philippine National Bank on its regular loans.
Petitioner takes issue with the decision of the Court of Appeals, hence this petition
wherein it contends that respondent court erred in:
A. Granting interest computed on the basis of the PNB lending rates, instead of the legal
rate of six per cent;
B. Granting interest commencing from 1952 and not from the date plaintiffs' claim can be
considered liquidated;
C. Granting an award of attorney's fees in favor of private respondents when even the
courts were of divergent views on the issues involved;
D. Ruling that majority of the planters who milled with the petitioner had no written milling
agreements, based on a manner of counting planters not sanctioned by the Talisay Silay
case;
E. In not directing that sixty per cent of the award, if any, should be segregated for the
benefit of the planters' laborers. 6
An initial discussion of the fourth assignment of error is necessary, it being a threshold
issue. On this score, petitioner claims that the Court of Appeals erred in assuming that
only those who actually affixed their signatures on the milling agreements shall be
considered contract planters or planters with milling contracts; and, further, in declaring
that the heirs of planters who signed milling agreements can be counted as planters with
milling contracts only if they have already received their respective shares in their
respective inheritance, otherwise, they shall be counted only as one.
Respondent Court of Appeals, in so holding, explicated as follows:

24

The lower court likewise was correct in observing and concluding that of the 79 milling
contracts presented by the defendant-appellant, fifteen (15) thereof should be considered
only singly and not by the numbers of the planters which are named in the said contracts.
The reason behind this is that the numerous signatories are but heirs, legatees or
successors-in-interest of a deceased planter, and which could only be counted as one
planter per contract, whose plantation remained whole as before his death, unsubdivided
among his heirs, legatees or successors-in-interest and, which in fact, continues to be
reflected in the books of the appellant Central as one plantation just as it appeared in its
records before the death of the original owner-planter. In the case of Asociacion (sic) de
Agricultores de Talisay-Silay Inc., et al. versus Talisay Milling Co., Inc., 88 SCRA 294, the
heirs or successors-in-interest of a deceased planter-relative to the applicability of R.A.
809 (Sugar Act of 1952) was enunciated, along this line we quote:
... for the purpose of the application of R.A. 809 to the Talisay- Silay Milling District for the
crop year 1952-53, the milling contracts, Exh. C-37, executed by the administrator of the
estate of Esteban de la Rama, should be considered not as merely the contracts of two
planters but as the separate 'contracts of the individual successors-in-interest of said
estate who have already received their respective shares in the respective inheritance
and who were actually holding separate and distinct plantation Audit Numbers
respectively and who were actually dealing with the Central independently of each other,
as they were deemed by the Central to be such. (As underscored in the original). 7
We find no compelling reason to deviate from said ruling of respondent court. From our
examination of petitioner's allegations, it is easily discernible that this particular issue is
factual. As petitioner itself avers, the determination of whether a majority of the planters
had mulling agreements requires a review of the evidence presented to substantiate the
respective positions of both parties. 8 Hence, we are constrained to submit to the wellknown procedural rule that findings of fact of the Court of Appeals and the trial courts are
final and conclusive if they are borne out by the records or supported by the requisite
quantum of evidence. 9 Besides, petitioner failed to show by clear and convincing proof
that the instant case falls under any of the exceptions to the aforesaid rule on
conclusiveness of findings of fact. We are satisfied that the findings of the court below are
amply supported by the evidence of record. The finding that the majority of the planters
who determined their sugar cane with petitioner did not have milling contracts was arrived
at after scrupulously examining and evaluating the evidence presented, including the
written agreements produced by the parties in court. This is in addition to the fact that
petitioner failed to explain and substantiate its allegation that the majority of the planters
had milling contracts.
Against this factual setting, the applicability of Section 1 of Republic Act No. 809 and the
entitlement of the private respondents to the increased participation are unquestionable.
Parenthetically, this increased participation should be given in their entirety to the planters.
We cannot accept petitioner's insistence that the sixty per centum (60%) share of the
laborers provided under Section 9 of Republic Act No. 809 should be paid directly to them.
Said provision states:
SEC. 9. In addition to the benefits granted by the Minimum Wage Law, the proceeds of
any increase in the participation granted the planters under this Act and above their
present share shall be divided between the planter and his laborer in the plantation in the
following proportion:

Sixty per centum of the increased participation for the laborers and forty per centum for
planters. The distribution of the share corresponding to the laborers shall be made under
the supervision of the Department of Labor.
xxx xxx xxx
Nothing in the quoted provision can be said to indicate that direct payment to the laborers
is required. In fact, under Section 1 of the law, the increased participation clearly pertains
to the planters. This construction of Republic Act No. 809 was applied in the case
of Ernesto, et al. vs. The Court of appeals, et al., 10 where the planters, after receipt of the
increased participation, were in turn ordered to pay their respective laborers sixty per
centum (60%) of such difference as will be paid to them by the central, and the then
Minister of Labor was directed to supervise the corresponding payments to the laborers.
The correctness of this procedure is evident since the planters are in a better position to
distribute the proportionate shares in the increased participation to their respective
laborers. The planters are correctly assumed to know the amounts to be paid to each of
their laborers by simply examining their company records.
We are, however, of the considered opinion that respondent court erred in awarding
interest on the basis of the lending rates imposed by the Philippine National Bank. Such
an award is bereft of statutory and jurisprudential basis. In the present case, the proper
interest rate to be imposed should be the legal rate of six per cent (6%) per annum
provided for in Article 2209 of the Civil Code. This express provision of the law cannot be
disregarded, since it categorically declares that "(i)f the obligation consists in the payment
of a sum of money, and the debtor incurs in delay, the indemnity for damages, there being
no stipulation to the contrary, shall be the payment of interest agreed upon, and in the
absence of stipulation, the legal interest which is six per cent per annum."
The rate of interest should not be twelve per cent (12%) as provided in the May 7, 1985
order of the trial court. It is well settled that the rate of interest of twelve per cent (12%)
under Central Bank Circular No. 416 is applicable only to loans or renewals thereof or
forbearance of money, goods, or credits or judgments in connection therewith. Any other
judgment, as in the present case, is not covered - thereby. 11
Neither may equity be validly invoked nor aptly relied upon in this case. Equity is available
only in the absence of law and not as its replacement. Equity is justice outside legality,
which simply means that it cannot supplant, although it may, as it often happens,
supplement the law. 12 Thus liberal interpretation in favor of private respondents is not in
point because no such interpretation is, in fact, necessary. The law is clear that it is the
legal interest that shall be paid and an unwarranted deviation therefrom would entail
judicial legislation. Obviously, this objectionable result is anathema to our deeply rooted
doctrine of separation of powers.
The rule is that interest is due from the moment there is delay on the part of the obligor to
perform his obligation, that is, from the time it was judicially or extrajudicially
demanded. 13 Nonetheless, under Article 2213 of the Civil Code, "(i)nterest cannot be
recovered upon unliquidated claims or damages, except when the demand can be
established with reasonable certainty." Unliquidated damages or claims, it is said, are

those which are not or cannot be known until defenitely ascertained, assessed and
determined by the courts after presentation of proof. 14
In the case at bar, however we hold that the claim of private respondents is for a definite
sum of money. What they are claiming are specific percentages definitely provided under
the law. It is merely a matter of mathematically computing the exact money value thereof,
inasmuch as the annual sugar production and the amount of molasses and bagasse,
derived from the production during the crop years involved, are undisputed and are in fact
based on the records of petitioner. Irremissibly, therefore, the claim cannot be considered
unliquidated. But even assuming ex gratia arguntenti that it is unliquidated, the same will
nevertheless fall under the exception in Article 2213 because the demand therefor can be
established with reasonable certainty. Thus, in the absence of the law expressly declaring
that demand is not necessary, the interest must be computed from the time of extrajudicial
demand which, as held by respondent court in this case, was established to have been
made in 1952 to comply with Republic Act No. 809 15 which was enacted in that year.
On the matter of attorney's fees, it is an accepted doctrine that the award thereof as an
item of damages is the exception rather than the rule, and counsel's fees are not to be
awarded every time a party wins a suit. The power of the court to award attorney's fees
under Article 2208 of the Civil Code demands factual, legal and equitable justification,
without which the award is a conclusion without a premise, its basis being improperly left
to speculation and conjecture. In all events, the court must explicitly state in the text of the
decision, and not only in the decretal portion thereof, the legal reason for the award of
attorney's fees. 16
It is undeniable and evident that both the respondent appellate court and the trial court
completely violated the aforestated doctrinal rule. In awarding attorney's fees as damages,
no justification therefor is advanced either in the decision of the trial court or of respondent
appellate court which affirmed the former. Even for this reason alone, the award must be
deleted and any advertence we would make herein to petitioner's alleged bad faith or
good faith, as discussed in the exchanges of the parties but disregarded in the aforesaid
decisions of both lower courts, would be unnecessary and pointless.
WHEREFORE, the judgment of respondent Court of Appeals is hereby AFFIRMED,
subject to the MODIFICATION reducing the interest awarded to private respondents to six
per cent (6%) per annum to commence in 1952, and deleting the award of attorney's fees.
SO ORDERED.
G.R. No. 85383 August 30, 1990
SEVERO M. LORENZO, petitioner,
vs.
HON. COURT OF APPEALS,* ESTHER BANEZ, and CHARITY
BALDONADO, respondents.
PARAS, J.:

25

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.

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.
G.R. No. 87182 February 17, 1992
PACIFIC MILLS, INC. and GEORGE U. LIM, petitioners,
vs.
THE HON. COURT OF APPEALS and PHILIPPINE COTTON
CORPORATION, respondents.
FELICIANO, J.:
On various dates during the period from April 1980 to October 1982; petitioner Pacific
Mills, Inc. ("Pacific") purchased on credit from respondent Philippine Cotton Corporation
("Philcotton") varying quantities of cottonlint. The parties had agreed that Pacific would
issue promissory notes in favor of Philcotton should the former fail to pay the purchase
price of the cottonlint within sixty (60) days after delivery thereof. Hence, when Pacific was
unable to pay the price of various purchases of cottonlint within the stipulated sixty (60)day period, Pacific and George U. Lim, Executive Vice-President of Pacific, executed
jointly and severally four (4) promissory notes in favor of Philcotton. Two (2) promissory
notes were dated 1 April 1982 and 1 October 1982, respectively; the two (2) other
promissory notes were both dated 1 December 1982. The promissory notes, which had a
total stated value of P16,598,725.84, had identical terms and conditions, save for the
amount payable under each:

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

For value received, we, jointly and severally, promise to pay the Philippine Cotton
Corporation or order at its office at 31 Shaw Blvd., Pasig, Metro Manila, the sum of . . .
with interest rate of twenty one per centum (21%) per annum. We hereby bind ourselves
to make payments, per attached Schedule which forms part of this Promissory Note,
which shall cover amortizations on the principal and interest at the above- mentioned rate.
We further bind ourselves to pay additional interest and penalty charges on account
amortizations or portions thereof in arrears as follows:

26

a. If in arrears for thirty days or less:

i. additional interest at the basic account interest rate per annum computed on the total
amortizations past due irrespective of age.
ii. no penalty charge.
b. If in arrears for more than thirty days:
i. Additional interest as provided above, Plus
ii. Penalty charge of 8% per annum computed on amortizations in arrears for more than
thirty days.
In addition to the above, we also bind ourselves to pay for PhilCotton's advances for
insurance premiums, taxes, litigation and acquired assets expenses and other out-ofpocket expenses not covered by inspection and processing fees as follows:
a. One time service charge of 2% of amount advanced, same to be included in the
receivable account;
b. Interest at basic account interest rate; and
c. Penalty charge from date of advance at 8% per annum.
PHILCOTTON further reserves the right to increase, with notice to the borrower, the rate
of interest on the account as well as all other fees and charges on account and advances
pursuant to such policy as it may adopt from time to time during the period of the
account; provided, that the rate of interest on the account shall be reduced in the event
that the applicable maximum rate of interest is reduced by law: Provided further that the
adjustment in the rate of interest shall take effect on or after the effectivity of the increase
or decrease in the maximum rate interest.
In case of non-payment of the amount or any portion of it on demand, when due, or any
other amount or amounts due on account the entire obligation shall become due and
demandable, and if, for the enforcement of the payment thereof, PhilCotton is constrained
to entrust the case to its Attorneys, we jointly and severally bind ourselves to pay for
attorney's fees, in addition to the legal fees and other incidental expenses,

1982, plus interest, attorney's fees and cost of the suit. A writ of preliminary attachment
was prayed for.

On appeal, the Court of Appeals affirmed with modifications the decision of the trial court
and ordered petitioners to pay jointly and severally Philcotton:

On 11 January 1984, Philcotton filed another complaint also against petitioners for
collection of sums of money aggregating P8,658,496.45, covered by the other two (2)
promissory notes both dated 1 December 1982, plus interest, attorney's fees and
expenses for litigation. A second writ of preliminary attachment was sought.

(a) the principal amount of P13,998,725.84 with twenty-one percent (21%) regular
interest per annum to be computed starting on 7 January 1985 (the date of the first joint
manifestation and motion) until fully paid;

The two (2) actions were consolidated and writs of preliminary attachment were issued.
Petitioners sought discharge of those writs, without success. Petitioners went
on certiorari before the then Intermediate Appellate Court, contending that the trial court
had acted with grave abuse of discretion amounting to lack of jurisdiction in issuing the
writs. The appellate court, however, dismissed the petition and affirmed the trial court's
orders granting the writs of preliminary attachment.
Subsequently, the parties-litigant submitted to the trial court three (3) joint manifestations
and motions to discharge certain properties of petitioners from attachment. In the first joint
manifestation and motion executed on 7 January 1985, the parties stated that the total
principal obligation of petitioners was P16,598,725.84, excluding interest, charges,
penalties and attorney's fees, and that petitioners would deliver to Philcotton postdated
checks with a face value of P1,800,000.00 to be applied to the principal of petitioners'
obligation. Under the second and the third joint manifestations, petitioners undertook to
issue postdated checks with face amounts of P600,000.00 and P200,000,00, respectively.
The joint manifestations and motions were approved by the trial court. and petitioners
delivered postdated checks to Philcotton with a total face value of P2,600,000.00 which,
upon encashment, would reduce petitioners' principal obligation to P13,998.725.84.
On 27 December 1985, after trial, the trial court rendered a decision, the dispositive
portion of which read as follows:
WHEREFORE, judgment is hereby rendered in favor of plaintiff Philippine Cotton
Corporation and against defendants Pacific Mills, Inc. and George U. Lim who are ordered
to pay plaintiff jointly and severally the following:
1. The amount of P13,998,725.84 plus 21% regular interest per annum as indicated in the
promissory notes and 21% additional interest per annum on the total principal and regular
interest, also computed from the due date until fully paid;
2. An amount equivalent to 8% of the total principal amount and regular interest
representing penalty charges, computed 30 days after the due dates until fully paid;

PACIFIC MILLS, INC.

3. An amount equivalent to 25% of the total amount due as attorney's fees; and

GEORGE U. LIM (Sgd.)

EVP & General Manager 1

4. The costs of the suit

On 23 June 1983, Philcotton filed a suit against petitioners for collection of sums of money
totalling P7,940,229.39 due under the promissory notes dated 1 April 1982 and 1 October

SO ORDERED.

(b) [an] amount equivalent to fourteen percent (14%) per annum of the principal amount
and regular interest, representing penalty charges to be computed thirty (30) days after 7
January 1985 until fully paid; and
(c) [an] amount equivalent to ten percent (10%) of the principal amount recoverable, by
way of attorney's fees.
In the petition at bar, the principal claims of petitioners are that, firstly, the Court of Appeals
erred in not holding that Philcotton, a government-owned or -controlled corporation, is not
entitled to an award of attorney's fees; and, secondly, that the Court of Appeals erred in
not reducing further the penalty charges to a rate lower than fourteen percent (14%) of the
principal amount due plus regular interest thereon.
In their first claim, petitioners contend that the award of attorney's fees (reduced from
twenty-five percent [25%] to ten percent [10%] by the Court of Appeals) was unwarranted
and contrary to law, considering that Philcotton is a government-owned and -controlled
corporation which was represented by the Office of the Government Corporate Counsel in
this and other litigations. Petitioner argues that for an award of attorney's fees to be
proper, one or more of the special circumstances mentioned in Article 2208 of the Civil
Code must exist and that Philcotton must have availed itself lawfully of the services
of private counsel.
The Court is not persuaded. R.A. No. 6000, which was enacted on 4 August 1969, and
which further amended R.A. No. 2327 creating the Office of the Government Corporate
Counsel, expressly contemplates awards of attorney's fees to government-owned or
-controlled corporations in judicial proceedings handled for such corporations by the Office
of the Government Corporate Counsel:
Sec. 4. The expenses for the maintenance of the Office of the Government Corporate
Counsel, shall be paid from assessments which the President of the Philippines shall
determine and make upon government-owned or controlled corporations, or corporations
the majority stock of which is owned or controlled by the Government, and
instrumentalities of the Government performing proprietary functions, and which
assessments shall be paid by said entries to the General Fund within the first quarter of
every fiscal year. Provided, that the General Fund shall advance such sums as may be
necessary for said maintenance, which is hereby appropriated.
In addition to said assessments, whenever a government-owned and controlled
corporation, or corporation the majority stock of which is owned or controlled by the
Government, or an instrumentality of the Government performing proprietary functions,
is awarded attorney's fees in a judicial proceeding handled by the Office of the

27

Government Corporate Counsel, one-half of said attorney's fees shall be paid directly to
the General Fund. (Emphasis supplied)
We note that the second paragraph of Section 4 of R.A. No. 6000 has not been repeated
in Section 4 of P.D. No. 1415, dated 9 June 1978 which reads as follows:
Sec. 4. The funds necessary for the operation and maintenance of the Office of the
Government Corporate Counsel shall be assessed on its client corporations. The
assessments to be determined annually by the Government Corporate Counsel and
approved by the Office of the President, upon the recommendation by the Secretary of
Justice shall be remitted by said corporations within the first quarter or every calendar
year, provided that such sums as may be necessary and required hereunder shall be
advanced from the General Fund.
The Government Corporate Counsel is hereby authorized to make special assessment
upon government-owned or controlled corporations serviced by his office, to meet
contingencies, obligations and undertakings, necessary to maintain and promote the
efficiency and interests of the service.
We do not believe, however, that the second paragraph of Section 4 of R.A No 6000 was
repealed or deleted by P.D. No. 1415, considering that there appears no necessary and
irreconcilable conflict between the two (2) statutes, nor between regular and special
assessments by the Office of the Government Corporate Counsel upon the governmentowned or -controlled corporations serviced by that Office and the lawfulness and propriety
of awarding attorney's fees to government corporations in litigations for them by the Office
of the Government Corporation Counsel and his staff. This view is strengthened by
consideration of the provisions of Section 10, Chapter III of the 1987 Revised
Administrative Code which reads as follows:
The OGCC is authorized to receive the attorney's fees adjudged in favor of their
government-owned or controlled corporations, their subsidiaries, other corporate
offsprings and government acquired asset corporations. These attorney's fees shall
accrue to a Special Fund of the OGCC, and shall be deposited in an authorized
government depository as a trust liability and shall be made available for expenditure
without the need for a Cash Disbursement Ceiling, for purposes of upgrading facilities and
equipment, granting of employees' incentive pay and other benefits, and defraying such
other incentive expenses not provided for in the General Appropriations Act as may be
determined by the Government Corporate Counsel. (Emphasis supplied)
Quite apart from the specific statutory provisions quoted above, the Court considers that
there is, as a matter of principle, no reason why a government-owned or -controlled
corporation, or any other government agency or entity for that matter, which is compelled
to bring suit against a private person or entity in order to protect its rights and interests,
should not be granted an award of attorney's fees, where such an award would be proper
if the suit had been brought by a private entity. While such a corporation, agency or entity
may be represented by government lawyers, clearly, costs are incurred either by the
plaintiff-corporation or entity directly or by the general tax-paying public indirectly, by
reason of the default or other breach of contract or violation of law committed by the
defendant. Under Article 2209 of the Civil Code, an award of attorney's fees is proper

either because of a contractual stipulation for the payment of attorney's fees or because of
the existence of one or more of the circumstances listed in Article 2208. In the instant
case, the promissory notes on which Philcotton sued contained, as already noted, a
stipulation for payment of attorney's fees in case judicial enforcement thereof became
necessary. There can be no dispute that the petitioners' failure to comply with their
obligations under the promissory notes compelled Philcotton to resort to enforcement of
its rights under those notes through the judicial process. Finally, the reduction by the Court
of Appeals of the attorney's fees stipulated under the relevant promissory notes from
twenty-five percent (25%) to ten percent (10%) of the principal amount recoverable,
appears to the Court to be more than reasonable.
We turn to the second principal claim of petitioners. Petitioners contend that the Court of
Appeals should have reduced further the penalty charges stipulated under the promissory
notes because there had been partial compliance by petitioners and because of "equitable
considerations" such as good faith on the part of petitioners. Petitioners also suggest that
further reduction of the stipulated penalty charge was justified because the loans
extended by Philcotton to petitioners came from the Development Bank of the Philippines
and were intended to aid or promote the cotton industry.
Once more, the Court is not persuaded, Article 2209 of the Civil Code specifies the
appropriate measure of damages where the obligation breached consisted of the payment
of sum of money:
Art. 2209. If the obligation consists an the payment of a sum of money, and the debtor
incurs in delay, the indemnity for damages, there being no stipulation to the contrary, shall
be the payment of the interest agreed upon, and in the absence of stipulation, the legal
interest, which is six percent (6%) per annum.
Article 2209 was, in measure, elaborated upon by the Court in State Investment House,
Inc. v. Court of Appeals, et al.: 3
[T]he appropriate measure for damages in case of delay in discharging an obligation
consisting of the payment of a sum of money, is the payment of penalty interest at the rate
agreed upon; and in the absence of a stipulation of a particular rate of penalty interest,
then the payment of additional interest at a rate equal to the regular monetary interest;
and if no regular interest had been agreed upon, then payment of legal interest or six
percent (6%) per annum.
In the instant case, the promissory notes, as earlier pointed out, stipulated both for regular
or "monetary interest" of twenty-one percent (21%) per annum, and penalty or
"compensatory interest" 4 consisting of (a) additional interest also at the rate of twenty-one
percent (21%) per annum; and (b) a penalty charge of eight percent (8%) per
annumcomputed on amortizations in arrears for more than thirty (30) days. The Court of
Appeals correctly held that the "additional interest" at the rate of twenty-one percent
(21%) per annum was effectively part of the penalty clause of the promissory notes
activated by default on the part of the makers of those notes.

(8%) penalty charges per annum to fourteen percent (14%) of the principal amount and
the regular interest thereon, holding in the process that the aggregate penalty or
compensatory interest was "iniquitous and unconscionable" and because there had been
partial performance on the part of petitioners Pacific and Lim.
Insofar as the partial performance is concerned, it may be noted that petitioners paid only
after suit had commenced and in order to lift preliminary attachment writs on their property
P2.6M out of their total obligation of P16,598,725.64 (excluding interest and penalty
charges). In determining whether a penalty clause is "iniquitous and unconscionable," a
court may very well take into account the actual damages sustained by a creditor who has
been compelled to sue the defaulting debtor, which actual damages would include the
interest and penalties which the creditor may have had to pay on its own loan from its
funding source. In the instant case it is worth noting that the funds which Philcotton loaned
to Pacific had originated from the Development Bank of the Philippines ("DBP") and that
Philcotton was obligated to repay those loans to the DBP on the same terms and
conditions as those extended by Philcotton to Pacific upon relending them to the
latter. 5 Presumably because Philcotton's counsel had failed to allege or prove the full level
of actual damages which Philcotton had sustained, Philcotton has not questioned before
this Court the depth of the reduction of the penalty clause effected by the Court of
Appeals. At the same time, we do not believe that petitioners' claim for an even deeper
reduction of the penalty clause merits serious consideration. Petitioners have not been
able to point to any special "equitable consideration" that might justify such further
reduction of the stipulated penalty charge.
While we find no merit in the contentions of the petitioners, we must note that the Court of
Appeals had fallen into reversible error in holding that the regular interest of twenty-one
percent (21%) of the unpaid principal obligation of P13,998,725.84 plus penalty charges of
fourteen percent (14%) on that principal amount shall be computed only from 7 January
1985, the date when the parties entered into a joint manifestation. That joint manifestation
read as follows:
COME NOW the parties in the above-entitled case assisted by their respective counsel
and unto this Honorable Court respectfully manifest that;
1. Defendants are indebted to the plaintiff in the aggregate amount of Sixteen Million Five
Hundred Ninety Eight Thousand Seven Hundred Twenty Five & 84/100 (P16,598,725.84)
Pesos, excluding interest, charges penalties and attorney's fees;
2. Defendant offer and agree to pay plaintiff the amount of One Million Eight Hundred
Thousand (P1,800,000.00) Pesos, in the following manner:
a. the amount of P500,000.00 to be paid by a 30-day postdated check;
b. the amount of P1,300,000.00 to be paid by a 60-day postdated check;
Said amount shall be applied to the principal of said obligations of the defendants.

The Court of Appeals reduced the penalty charges or compensatory interest from twentynine percent (29%) twenty-one percent (21%) additional interest plus eight percent

28

3. Plaintiff is willing to release and/or discharge the following properties/merchandise

subject of a writ of attachment issued by this Honorable Court, to wit:
a. 219 boxes = 11,870.02 kgs. of 20 s/2 stretch yarn;
b. 40 boxes = 2,600 kgs. of 45/1 PR;

Court of Appeals. The argument is completely untenable. The price of the equipment in
question under petitioner and Alegria's contract of sale was determined and known,
hence, liquidated; and the obligation to pay any unpaid balance thereof did not cease to
be liquidated and determined simply because vendor and vendee, in the suit for
collection, disagreed as to its amount. If petitioner had wanted to free himself from any
responsibility for interest on the amount he had always acknowledged he still owed his
vendor, he should have deposited the same in Court at the very start of the
action. 11 (Emphasis supplied)

c. 70 boxes = 4,550 kgs. of 36/1 PR;

d. 69 bales at 200 kgs./bale of polyester;
e. 50 bales at 200 kgs./bale of Rayon.
WHEREFORE, it is respectfully prayed that the foregoing agreement of the parties be
approved and that an order be issued by this Honorable Court releasing and discharging
from attachment the properties/merchandise mentioned in Paragraph 3 hereof. 6
In the first place, while the parties to the joint manifestation agreed upon or confirmed the
aggregate principal amount of P16,598,725.84 (excluding interest, charges, penalties and
attorney's fees) as due from petitioners, there was no agreement of any kind in respect of
the date(s) from which monetary interest and penalty charges are to be computed on the
principal amount due. The applicable rule is that novation or change of the object, cause
or principal terms and conditions of an obligation is never presumed; that novation must
be clearly proven.7 And even if novation were sufficiently shown, the presumptive rule is
that conditions attached to the old obligation also attach to the new obligation. 8
In the second place, insofar as the principal amount of the obligation of petitioners is
concerned, the joint manifestation partook of the nature merely of a stipulation of facts.
There is no basis for supposing that Philcotton intended to waive interest and penalty
charges already accrued under the terms of the several promissory notes on 7 January
1985, and the rule is well-settled that an intent to waive valuable rights cannot be casually
presumed. 9
In the third place, assuming (arguendo merely) that the Court of Appeals had impliedly
considered the joint manifestation and motion dated 7 January 1985 as having the effect
of liquidating Philcotton's claims for payment of sums of money, that assumed view is
clearly erroneous. Article 2213 of the Civil Code provides that "interest cannot be
recovered upon unliquidated claims or damages, except when the demand can be
established with reasonable certainty." Philcotton's claims, however,
were not unliquidated; they were, on the contrary, known and easily determined or
determinable by inspection of the terms and conditions of the relevant promissory notes
and related documentation. In Bareng v. Court of Appeals, et al., 10 much the same
argument was made by the petitioner. In rejecting this argument, the Court, through Mr.
Justice J.B.L. Reyes, said:
Petitioner also argues that his indebtedness to respondent Alegria was unliquidated until
its amount was determined by the Court of Appeals at P3,600.00, and that consequently,
he cannot be made answerable for interests on the amount due before judgment in the

We, therefore, believe and so hold that the interest and penalty charges here due from
petitioners under the Decision of the Court of Appeals must be computed from the date or
dates specified in the schedules attached to the respective promissory notes,
and not from 7 January 1985.
We are aware that the above error into which the Court of Appeals had fallen was not
brought out by Philcotton. It is well-settled, however, that the Supreme Court is vested
with plenary authority to review matters and resolve issues not assigned as errors in an
appeal, if it finds that consideration and resolution thereof are indispensable for arriving at
a just decision in a particular case. 12 That the funds involved here are public funds can
only serve to reinforce the applicability of this doctrine in the instant case.
WHEREFORE, the Decision of the Court of Appeals in C.A.-G.R. No. CV 15085, dated 24
November 1988, is hereby MODIFIED. Petitioners Pacific and George U. Lim are hereby
ORDERED to pay, jointly and severally, private respondent Philcotton the principal amount
of P13,998,725.84 with twenty-one percent (21%) regular interest per annum to be
computed thereon from the due dates specified in the relevant promissory notes until fully
paid; an amount equivalent to fourteen percent (14%) per annum of the principal amount
due and regular interest thereon, representing penalty charges to be computed starting
thirty (30) days after the respective due dates under the relevant promissory notes, until
fully paid; and an amount equivalent to ten percent (10%) of the principal amount
recoverable, as attorney's fees. Costs against petitioners. This Decision is immediately
executory.
SO ORDERED.

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:

G.R. No. 78173 October 26, 1992

WHEREFORE, judgment is rendered:
ANDRES SUMAOANG, petitioner,
vs.
HON. JUDGE, REGIONAL TRIAL COURT, BRANCH XXXI, GUIMBA, NUEVA ECIJA
and ATTY. JORGE A. PASCUA, respondents.

(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;

FELICIANO, J.:
In the Petition presently before us, Andres Sumaoang seeks to annul the Decision 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.
1

(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;

29

(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. T1201;
(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 timehonoured 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

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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.

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."

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:

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 thegeneral 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, 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

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. 20Constructive 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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