G.R. No.

169079 February 12, 2007

FRANCISCO RAYOS, Petitioner,

vs.
ATTY. PONCIANO G. HERNANDEZ, Respondent.

DECISION

CHICO-NAZARIO, J.:

This is a Petition for Review 1 of the Resolution dated 12 March 2005 of the Integrated Bar of the
Philippines (IBP), dismissing petitioner Francisco Rayos’s complaint for disbarment against
respondent Atty. Ponciano Hernandez.

Respondent was the counsel of petitioner in Civil Case No. SM-951 entitled, "Francisco Rayos v.
NAPOCOR," filed before the Regional Trial Court (RTC), Malolos, Bulacan. The complaint alleged,
among other things, that the National Power Corporation (NAPOCOR) recklessly, imprudently and
negligently opened the three floodgates of the spillway of Angat Dam at midnight of 26 October 1978
until the early morning hours of 27 October 1978, during the occurrence of typhoon "Kading" causing
the release of a great volume of stored water, the resultant swelling and flooding of Angat River, and
the consequent loss of lives of some of petitioner’s relatives and destruction of his family’s
properties, for which he sought damages. Of the 10 members of petitioner’s family who perished,
only four bodies were recovered and only petitioner and one of his sons, German Rayos, survived.

On 21 December 1979, the complaint was dismissed 2 on the ground that the State cannot be sued
without its consent as the operation and management of Angat Dam, Norzagaray, were
governmental functions. Said dismissal was questioned directly to this Court which set aside the
RTC decision and ordered the reinstatement of the complaint. 3

On 30 April 1990, however, the complaint was dismissed again by the RTC for lack of sufficient and
credible evidence. 4

The case was subsequently appealed to the Court of Appeals, which reversed the RTC decision and
awarded damages in favor of petitioner, the dispositive portion of which reads:

CONFORMABLY TO THE FOREGOING, the joint decision appealed from is hereby REVERSED
and SET ASIDE, and a new one is hereby rendered:

xxxx

2. In Civil Case No. SM-951, ordering defendants-appellees to pay jointly and severally, plaintiff-
appellant, with legal interest from the date when this decision shall have become final and executory,
the following:

A. Actual damages of Five Hundred Twenty Thousand Pesos (₱520,000.00);

B. Moral Damages of Five Hundred Thousand Pesos (₱500,000.00); and

C. Litigation Expenses of Ten Thousand Pesos (₱10,000.00).

xxxx
In addition, in all the four (4) instant cases, ordering defendants-appellees to pay, jointly and
severally, plaintiffs-appellants, attorney’s fees in an amount equivalent to 15% of the total amount
awarded. 5

The case was appealed to this Court, which affirmed the Court of Appeals Decision. 6 The Decision
of the Supreme Court became final and executory on 4 August 1993.

Thus, a Writ of Execution 7 was issued by the RTC on 10 December 1993, upon motion filed by
respondent. As a consequence, NAPOCOR issued Check No. 014710 dated 5 January 1994, in the
amount of ₱1,060,800.00 payable to petitioner. Thereafter, the check was turned over to respondent
as counsel of petitioner. Petitioner demanded the turn over of the check from respondent, but the
latter refused.

On 24 January 1994 , petitioner filed with the RTC a motion 8 to direct respondent to deliver to him
the check issued by NAPOCOR, corresponding to the damages awarded by the Court of Appeals.
Petitioner sought to recover the check in the amount of ₱1,060,800.00 from respondent, claiming
that respondent had no authority to receive the same as he was already dismissed by petitioner as
his counsel on 21 November 1993. 9 Respondent, on the other hand, justifies his retention as a
means to ensure payment of his attorney’s fees.

On 7 April 1994, the RTC issued an Order directing respondent to deliver the check to the Sheriff of
the court who will subsequently deliver it to petitioner. A Writ of Execution was subsequently issued.
Despite the Court Order, respondent refused to surrender the check.

However, on 4 July 1994, respondent deposited the amount of ₱502,838.79 with Farmers Savings
and Loan Bank, Inc., Norzagaray, Bulacan, in the name of petitioner which was eventually received
by the latter.

Thus, petitioner initiated this complaint for disbarment for the failure of respondent to return the rest
of the award in the amount of ₱557,961.21.

In his comment, 10 respondent alleged that he handled petitioner’s case, in Civil Case No. SM-951,
for 15 years, from the trial court up to the Supreme Court. On 21 November 1993, he received a
letter from petitioner dismissing him as counsel. Simultaneous thereto, respondent received a letter
dated 15 November 1993 from Atty. Jose G. Bruno asking him to comment on the therein attached
letter dated 19 November 1993 of petitioner addressed to NAPOCOR, requesting that the award of
damages granted by the Court of Appeals and affirmed by the Supreme Court be paid to him.

Respondent also averred that petitioner had a verbal contract for attorney’s fees on a contingent
basis and that the said contract was only reduced in writing on 6 October 1991, duly signed by both
of them. By virtue of the contract, petitioner and respondent supposedly agreed on a 40%-60%
sharing, respectively, of the court award. Respondent was entitled to receive 60% of the award
because petitioner agreed to pay him 40% of the award as attorney’s fees and 20% of the award as
litigation expenses.

Respondent further asseverated that because petitioner dismissed the respondent and refused to
settle his obligation, he deposited the amount of ₱424,320.00 in a bank in petitioner’s name under
Account No. 381 (representing petitioner’s share of 40% of the total award) on 10 May 1994 11 ; and
the amount of ₱63,648.00 in petitioner’s name under Account No. 389 (representing petitioner’s
share of 40% of the ₱159,120.00 awarded as attorney’s fees by the Court of Appeals) on 19 May
1994. 12 Petitioner already received the amount of ₱502,838.79 in accordance with the RTC Order
dated 7 April 1994.
Respondent contended that the petitioner’s complaint was without basis and was meant only to
harass and put him to shame before the residents of Norzagaray, Bulacan.

In a Resolution dated 9 August 1995, 13 the Court referred the case to the Commission on Bar
Discipline of the IBP for investigation, report and recommendation.

A series of hearings were conducted by the Commission on Bar Discipline of the IBP at the IBP
Building, Ortigas Center, Pasig City, from March to September 2001.

On 1 February 2005, Investigating Commissioner Lydia A. Navarro B. Funa submitted her Report
and Recommendation, 14 recommending the dismissal of the case.

Thereafter, the IBP issued its Resolution dated 12 March 2005, approving and adopting the
recommendation of the Investigating Commissioner, thus:

RESOLVED to ADOPT and APPROVE, as it hereby ADOPTED and APPROVED, the Report and
Recommendation of the Investigating Commissioner of the above-entitled case, herein made part of
this Resolution as Annex "A"; and, finding the recommendation fully supported by the evidence on
record and the applicable laws and rules, and considering that the case lacks merit, the same is
hereby DISMISSED. 15

We do not agree in the recommendation of the IBP.

The threshold issue in this petition is: whether respondent is justified in retaining the amount
awarded to petitioner in Civil Case No. SM-951 to assure payment of his attorney’s fees.

Moneys collected by an attorney on a judgment rendered in favor of his client constitute trust funds
and must be immediately paid over to the client. 16 Canon 16 of the Code of Professional
Responsibility provides as follows:

CANON 16 - A lawyer shall hold in trust all moneys and properties of his client that may come into
his possession.

Rule 16.01 – A lawyer shall account for all money or property collected or received for or from the
client.

In the case at bar, when respondent withheld and refused to deliver the NAPOCOR check
representing the amount awarded by the court in Civil Case No. SM-951, which he received on
behalf of his client (petitioner herein), he breached the trust reposed on him. It is only after an Order
was issued by the RTC ordering the delivery of the check to petitioner that the respondent partially
delivered the amount of ₱502,838.79 to the former, but still retaining for himself the amount of
₱557,961.21 as payment for his attorney’s fees. The claim of the respondent that petitioner failed to
pay his attorney’s fees is not an excuse for respondent’s failure to deliver the amount to the
petitioner. A lawyer is not entitled to unilaterally appropriate his client’s money for himself by the
mere fact alone that the client owes him attorney’s fees. 17 The failure of an attorney to return the
client’s money upon demand gives rise to the presumption that he has misappropriated it for his own
use to the prejudice and violation of the general morality, as well as of professional ethics; it also
impairs public confidence in the legal profession and deserves punishment. In short, a lawyer’s
unjustified withholding of money belonging to his client, as in this case, warrants the imposition of
disciplinary action. 18
It is true that under Canon 16.03 of the Code of Professional Responsibility, an attorney has the
following rights;

Rule 16.03- A lawyer shall deliver the funds and property of his client when due or upon demand.
However, he shall have a lien over the funds and may apply so much thereof as may be necessary
to satisfy his lawful fees and disbursements, giving notice promptly thereafter to his client. He shall
also have a lien to the same extent on all judgments and executions he has secured for his client as
provided for in the Rules of Court. (Emphases supplied.)

But the fact alone that a lawyer has a lien for fees on moneys in his hands collected for his client, as
above-stated, does not relieve him of his duty to promptly account for the moneys received; his
failure to do so constitutes professional misconduct. 19 Thus, what respondent should have properly
done in the case at bar was to provide the petitioner with an accounting before deducting his
attorney’s fees and then to turn over the remaining balance of the award collected to petitioner. The
Court notes that respondent represented petitioner from the time of filing of the complaint in Civil
Case No. SM-951 before what is now the RTC and of the appeal of the same case to the Court of
Appeals and Supreme Court. But respondent was not justified to hold on the entire amount of award
collected by him until his fees had been paid and received by him.

The relationship of attorney and client has always been rightly regarded as one of special trust and
confidence. An attorney must exercise the utmost good faith and fairness in all his relationship vis-à-
vis his client. Respondent fell far short of this standard when he failed to render an accounting for
the amount actually received by him on behalf of his client and when he refused to turn over any
portion of said amount to his client upon the pretext that his attorney’s fees had not at all been paid.
Respondent had, in fact, placed his private and personal interest above that of his client.

We have held that lawyering is not a moneymaking venture and lawyers are not merchants. 20 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 governmental interference, is impressed with a public interest, for
which it is subject to State regulation. 21

A lawyer is not merely the defender of his client’s cause and a trustee of his 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. 22 It follows that a lawyer’s compensation for
professional services rendered is 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. 23

There is another aspect to this case which the Court cannot just gloss over. Respondent claimed
that he charged petitioner, his client, a contingent fee comprising of forty percent (40%) as attorney’s
fees and twenty percent (20%) as litigation expenses. The agreement provides:

UNAWAIN NG LAHAT SA PAMAMAGITAN NITO:

Ako, si Francisco Rayos, Sr., Pilipino, may sapat na gulang at ngayon ay naninirahan sa
Pinagbarilan, Baliwag, Bulacan, sa pamamagitan ng kasulatang ito, ay nagpapatunay sa mga
sumusunod:
Na, kaugnay sa aking usapin laban sa NPC at Benjamin Chavez (Rayos vs. NPC, et al.) na ngayon
ay nakabinbin sa Court of Appeals, ako ay nakipagkasundo sa aking abogado, Atty. Ponciano G.
Hernandez, gaya ng sumusunod:

1 Sakaling ipanalo ang aking usapin, ang ano mang aking makukuha ay hahatiin gaya ng
sumusunod: 40% ang para sa akin; 40% ang para kay Atty. Ponciano G. Hernandez; 20% ay
ilalabas bilang gastos sa kaso.

2. Kung matalo ako sa kaso ay wala akong sagutin sa aking abogado.

Sa katunayan ng lahat, ako ay lumagda sa kasunduang ito dito sa Norzagaray, Bulacan ngayong
ika-6 ng Oktubre 1991.

(SGD)PONCIANO G. HERNANDEZ (SGD)FRANCISCO RAYOS

Abogado May Usapin 24

A contingent fee arrangement is valid in this jurisdiction 25 and is generally recognized as valid and
binding but must be laid down in an express contract. 26 The amount of contingent fee agreed upon
by the parties is subject to the stipulation that counsel will be paid for his legal services only if the
suit or litigation prospers. A much higher compensation is allowed as contingent fee in consideration
of the risk that the lawyer may get nothing if the suit fails. 27 Contracts of this nature are permitted
because they redound to the benefit of the poor client and the lawyer "especially in cases where the
client has meritorious cause of action, but no means with which to pay for legal services unless he
can, with the sanction of law, make a contract for a contingent fee to be paid out of the proceeds of
the litigation. Oftentimes, the contingent fee arrangement is the only means by which the poor and
helpless can seek redress for injuries sustained and have their rights vindicated." 28

Contingent fee contracts are subject to the supervision and close scrutiny of the court in order that
clients may be protected from unjust charges. 29 Section 13 of the Canons of Professional Ethics
states that "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." Likewise, Rule 138,
Section 24, of the Rules of Court provides:

SEC. 24. Compensation of attorney’s; 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. 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. (Underscoring supplied.)

The reduction of unreasonable attorney’s fees is within the regulatory powers of the courts. 30 When
the courts find that the stipulated amount is excessive or the contract is unreasonable, or found to
have been marred by fraud, mistake, undue influence or suppression of facts on the part of the
attorney, public policy demands that said contract be disregarded to protect the client from
unreasonable exaction. 31

There is, therefore, now a corollary issue of whether the stipulated attorney’s fees are unreasonable
and unconscionable under the circumstances of the case as to warrant a reduction thereof.
Stipulated attorney’s fees are unconscionable whenever the amount is by far so disproportionate
compared to the value of the services rendered as to amount to fraud perpetrated upon the client.
This means to say that the amount of the fee contracted for, standing alone and unexplained would
be sufficient to show that an unfair advantage had been taken of the client, or that a legal fraud had
been perpetrated on him. 32

The decree of unconscionability or unreasonableness of a stipulated amount in a contingent fee

contract, will not, however, preclude recovery. It merely justifies the fixing by the court of a
reasonable compensation for the lawyer’s services.

Generally, the amount of attorney’s fees due is that stipulated in the retainer agreement which is
conclusive as to the amount of the lawyer’s compensation. A stipulation on a lawyer’s compensation
in a written contract for professional services ordinarily controls the amount of fees that the
contracting lawyer may be allowed, unless the court finds such stipulated amount unreasonable or
unconscionable. 33 In the absence thereof, the amount of attorney’s fees is fixed on the basis of
quantum meruit, i.e., the reasonable worth of the attorney’s services. Courts may ascertain also if
the attorney’s fees are found to be excessive, what is reasonable under the circumstances. 34 In no
case, however, must a lawyer be allowed to recover more than what is reasonable, pursuant to
Section 24, Rule 138 of the Rules of Court.

We have identified the circumstances to be considered in determining the reasonableness of a claim

for attorney’s fees as follows: (1) the amount and character of the service rendered; (2) labor, time,
and trouble involved; (3) the nature and importance of the litigation or business in which the services
were rendered; (4) the responsibility imposed; (5) the amount of money or the value of the property
affected by the controversy or involved in the employment; (6) the skill and experience called for in
the performance of the services; (7) the professional character and social standing of the attorney;
(8) the results secured; (9) whether the fee is absolute or contingent, it being recognized that an
attorney may properly charge a much larger fee when it is contingent than when it is not; 35 and (10)
the financial capacity and economic status of the client have to be taken into account in fixing the
reasonableness of the fee. 36

Rule 20.1, Canon 20 of the Code of Professional Responsibility enumerates the following factors
which should guide a lawyer in determining his fees:

(a) The time spent and the extent of the services rendered or required;

(b) The novelty and difficulty of the questions involved;

(c) The importance of the subject matter;

(d) The skill demanded;

(e) The probability of losing other employment as a result of acceptance of the proffered case;

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

(g) The amount involved in the controversy and the benefits resulting to the client from the service;

(h) The contingency or certainty of compensation;

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

(j) The professional standing of the lawyer.

In the case at bar, respondent retained the amount of ₱557,961.21 out of the ₱1,060,800.00 award
for damages paid by NAPOCOR to petitioner. Under the said scheme, respondent actually collected
fifty-three percent (53%) or more than half of the total amount due the petitioner; indeed, he
appropriated for himself more than the amount which he had already turned over to and actually
received by his client.

As adverted to above, we note that petitioner was unschooled and frustrated and hopeless with the
tragic loss of his loved ones caused by the inundation of the town of Norzagaray, Bulacan, on 26-27
October 1978 because of the negligent release by NAPOCOR of the water through the spillways of
the Angat Dam. Petitioner also had to face the loss and destruction of his family’s properties. Under
such circumstances and given his understandable desire to recover the damages for the loss of his
loved ones and properties, petitioner would easily succumb and readily agree to the demands of
respondent lawyer regarding his attorney’s fees.

We believe and so hold that the contingent fee here claimed was, under the facts obtaining in this
case, grossly excessive and unconscionable. Such a fee structure, when considered in conjunction
with the circumstances of this case, also shows that an unfair advantage was taken of the client and
legal fraud and imposition perpetrated upon him. Lawyers should not be permitted to get a lion’s
share of the benefits due the poor and the helpless. Contracts for legal services between the
helpless and attorney should be zealously scrutinized to the end that a fair share of the benefits be
not denied to the former. This Court has the power to guard a client, 37 especially an aged and
necessitous client, 38 against such a contract.

A survey of existing jurisprudence regarding attorney’s fees would reveal the following: in the case of
Amalgamated Laborers’ Association v. Court of Industrial Relations, 39 the rate of attorney’s fees
allowed was 25%; in Law Firm of Raymundo A. Armovit v. Court of Appeals, 40 the rate allowed was
20%; in Polytrade Corporation v. Blanco, 41 25%; in Santiago v. Dimayuga, 42 20%; in Cosmopolitan
Insurance Co., Inc. v. Reyes, 43 15%; in Reyes v. Court of Appeals, 44 15%; and in Social Security
Commission v. Almeda, 45 15%.

In the present case, respondent Atty. Hernandez, after all, succeeded in obtaining a favorable
decision for his client, the petitioner. At first, respondent failed to obtain a favorable judgment in the
RTC as the case was dismissed. But on appeal to the Court of Appeals, the RTC Decision was
reversed and petitioner was awarded the amount of ₱1,060,800.00 as damages and ₱159,120.00 as
attorney’s fees. Said award was sustained by the Supreme Court. We also take note respondent’s
efforts in litigating petitioner’s case for a long period of 15 years. Lastly, the respondent took risk in
representing petitioner on a contingent fee basis.

In consideration of the foregoing, a fee of 35% of the amount awarded to petitioner would be a fair
compensation for respondent’s legal services.

The misconduct of a lawyer, whether in his professional or private capacity, which shows him to be
wanting in moral character, honesty, probity and good demeanor, renders him unworthy to the
privileges which his license and the law confer upon him, may be sanctioned with disbarment or
suspension. 46

The court should also exercise a sound discretion in determining whether a lawyer should be
disbarred or merely suspended. It should bear in mind that admission to the Bar is obtained only
after years of labor and study and the office acquired often becomes the source of great honor and
emolument to its possessor. To most members of the legal profession, it is a means of support for
themselves and their families. To deprive one of such an office is often to decree poverty to the
lawyer and destitution to his family. 47 Disbarment, therefore, should never be decreed where any
lesser penalty, such as temporary suspension, would accomplish the end desired. 48

In the case of Schulz v. Atty. Flores, 49 a lawyer was suspended for six months for not returning his
client’s money despite demands, for unjustifiably refusing to return his client’s papers, and for
collecting excessive and unreasonable fees. Also in the case of Tanhueco v. Atty. De Dumo, 50 a
lawyer was suspended for a period of six months for failure to return the money received by him on
behalf of his client and for collecting excessive and unconscionable fees.

Guided by our rulings in the abovestated cases, suspension of respondent for six months is justified
in the case at bar.
1aw phi 1.net

WHEREFORE the Court Resolves that:

1. Respondent is guilty of violation of the attorney’s oath and of serious professional misconduct and
shall be SUSPENDED from the practice of law for six (6) months and WARNED that repetition of the
same or similar offense will be dealt with more severely;

2. Respondent is entitled to attorney’s fees in the amount equivalent to thirty-five percent (35%) of
the total amount awarded 51 to petitioner in Civil Case No. SM-951; and

3. Respondent is to return the amount of Two Hundred Ninety Thousand One Hundred Nine Pesos
and Twenty-One Centavos (₱290,109.21), 52 which he retained in excess of what we herein declared
as fair and reasonable attorney’s fees, plus legal interest from date of finality of this judgment until
full payment thereof.

Let copies of this Decision be entered in the personal record of respondent as member of the Bar
and furnished the Office of the Bar Confidant, the IBP, and the Court Administrator for circulation to
all courts of the country.

SO ORDERED.

MINITA V. CHICO-NAZARIO
Associate Justice