San Beda College of LawMendiola, Manila

CANON 20.

CODE OF PROFESSIONAL RESPONSIBILITY

In partial fulfillment

of the requirements in

Problem Areas in Legal Ethics

Submitted to:

Judge Selma P. Alaras

Submitted by:

Gaw, Stephanie Mei L.

Escalona, Leo Miguel

Lee, Jassen Ralph

Tajon, Marlowe Doms

3C

5 February 2011

ATTORNEY’S FEES

IntroductionThere are two concepts of attorney’s fees. The ordinary refers to the reasonable

compensation paid to a lawyer by his client for the legal services he has rendered to the latter. The other concept is the amount of damages which the court may award to be paid by the losing party to the prevailing party.1

The rule that the practice of law is a profession and not a money-making trade does not operate to deny a lawyer the right to attorney’s fees for his professional services. He may expect that his client will pay him his just fees in the same manner that a client may expect that his counsel will exert his best efforts to protect his interests.2

He has the right to have and recover from his client a fair and reasonable compensation for his services, except in cases where he has agreed to render service gratuitously or has been appointed counsel de oficio.3

Requisites for the Right to Attorney’s Fees

1. Existence of attorney-client relationship.

2. Rendition by the lawyer of services to the client

Two Concepts of Attorney’s Fees

1. Ordinary – it is the reasonable compensation paid to the lawyer for the legal services he had rendered in favor of his client. The basis of this compensation is the fact of employment by the client

2. Extraordinary – an indemnity for damages ordered by the court to be paid by the losing party to the prevailing party in a litigation. The basis of this is any of the cases authorized by law and is payable not to the lawyer but to the client unless there is an agreement that the award shall pertain to the lawyer as an additional compensation or as part thereof

Who is liable for attorney’s fees.Generally: Only the client who engaged the services of counsel either personally or

through an authorized agent is liable for the attorney’s fees. A party who was not privy to the employment contract or who did not authorize the lawyer’s retainer is not liable for counsel fees.

There are recognized exceptions to the foregoing rule. Such exceptions rest on the equitable principle that a person who accepts the benefits of the legal representation impliedly agrees to pay the lawyer’s services for he may not unjustly enrich himself at the expense of the lawyer.

Liability of persons benefited by counsel’s servicesAs a general rule, a person who had no knowledge of, or objected to, the lawyer’s

representation may not be held liable for attorney’s fees even though such representation redounded to his benefit.4 The objection to the lawyer’s appearance should be raised before and not after beneficial services shall have been rendered by the lawyer, otherwise the party who benefited from the lawyer’s representation may be required to pay counsel fees.5 The liability is based on equity. For it is neither just that the client who retained the lawyer should alone pay the latter’s fees nor is it fair that those who, investing nothing and assuming no risk, received the benefits of the legal representation should not contribute their proportionate share to the counsel fees.

1 Compania Maritima, Inc. vs. Court of Appeals. 318 SCRA 169 (1999).2 Albano vs. Coloma. 21 SCRA 411 (1967)3 Corpuz vs. Court of Appeals. 98 SCRA 424 (1980); Canon 20, Rule 2.04, Code of Professional Responsibility4 Orosco vs. Heirs of Hernandez. 1 Phil.77. (1901.)5 Martinez vs. Union Maquinistas. 19 SCRA 167 (1967.)

Liability of Assignee.

Since an assignee of all interests pendent elite usually steps into the shoes of the assignor and acquires all of the latter’s rights and obligations in the action, the assignee may be held liable for counsel fees from out of the proceeds of a favorable judgment. That obligation gives the assignee the right to intervene in the matter of fixing the amount of fees which may be a proper charge against the judgment rendered in the action.

Liability in Labor Cases.A lawyer who represents a union and its members and with whom he has a retainer for

payment of a fixed percentage of amounts recovered from the company is entitled to be paid his fees not only by the union members but by the non-union members as well who derive benefits from his services. It is but just and fair that the lawyer who represented the struggling members of the union to secure benefits for all employees be paid his just fees by all those who received .such benefits.6

Attorney’s fees in labor cases may not be more than what the law provides and they may not be checked off from any amount due the employees without their written consent.7

The expiration of the retainer contract between the parties during the pendency of the labor case does not extinguish the respondent’s right to attorney’s fees.8

Liability of Derivative SuitsWhere, in a derivative suit, the professional services of counsel who instituted the action

upon request of a stockholder are beneficial to the corporation, the counsel fees may be properly charged against corporate funds. But as any stockholder may file a derivative suit on behalf of the corporation, any other stockholder may intervene and oppose the grant of such fees as a charge against funds of the corporation.9

Liability in Receivership Proceedings.The assets under receivership may be held liable for the fees of a lawyer employed by a

receiver to help him in the discharge of his duties. However, attorney’s fees of the counsel for a defendant in a receivership proceeding are personal obligations of the defendant and may not be paid out of the funds in the hands of the receiver, unless the services rendered by the lawyer have redounded to the benefit of the receivership or of the plaintiff who asked for the appointment of the receiver.10

Liability in Trusteeship or Guardianship Proceedings.The rule is that a trustee may be indemnified out of the trust estate for his expenses in

rendering and proving his accounts and for the counsel fees in connection therewith. The same rule applies in guardianship proceedings. The property of the ward may lawfully answer for counsel fees of the lawyer employed by the guardian. However, no assets of the ward may be spent for attorney’s fees without prior approval of the guardianship court.

Liability in Estate Proceedings.An executor or administrator may employ an attorney to assist him in the execution of

his trust. The professional services are rendered to the executor or administrator and for that reason, the attorney may not hold the estate directly liable for his fees; the liability for payment rests on the executor or administrator who may, if services are beneficial to the estate, either seek reimbursement from the estate if he has already paid them or include them in his account with due notice to all parties interested.11 The attorney’s fees of a lawyer employed by an executor to secure the approval of a will may, if the lawyer is successful, be properly charged against the estate. But the estate may not be liable for counsel fees for services rendered to annul a will at the request of the executor, the latter’s duty being to enforce and not to invalidate the will; only the executor may be held liable personally therefore.12

6 Union de Empleados de Trenes vs. Kapisanan ng mga Manggagawa sa MRRCO. 110 Phil. 308 (1962.) 7 Gabriel vs. Secretary of Labor. 328 SCRA 247 (2000.) 8 Uy vs. Gonzales A.C. No. 5280, March 20049 Lichauco vs. Court of appeals. 63 SCRA 123. (1975.) 10 Philippine National Bank vs. Pardo/ 67 Phil 570 (1939.) 11 Oceña vs. Marquez. 60 SCRA 38. (1974.) 12 Francisco vs. Matias. 10 SCRA 89. (1964.)

Who are entitled to or to share in Attorney’s Fees. The lawyer who has been engaged by a client is the one entitled to have and recover no

more than a reasonable compensation for his services. Partners in a law firm share in the profits in accordance with their partnership agreement even though only of them actually rendered the service. If several lawyers separately employed by a client do not have express agreement with the client as to the amount of fees each would respectively receive or if they have rendered services at one time or another in the action, each of them will be entitled to no more than what his services actually performed are reasonably worth.

The right of a lawyer to share in the professional fees rests on services performed or on his being, based on an agreement, a partner of another or in a law firm. However, a “lawyer shall, in cases of referral, with the consent of the client, be entitled to a division of fees in proportion to the work performed and responsibility assumed.”13 It is improper for an attorney to receive compensation for merely recommending another lawyer to his client. Such practice, if permitted, would tend to germinate the evils of commercialism and to destroy the proper appreciation of professional responsibility.14

Non-lawyer not entitled to fees.The statutory rule that “an attorney shall be entitled to have and recover from his client

no more than a reasonable compensation for his services”15 requires the existence of an attorney-client relationship as a condition to the recovery of attorney’s fees. Such relationship cannot exist unless the client’s representative in court is a lawyer. A non-lawyer cannot recover attorney’s fees even if there is a law authorizing him to represent a litigant in court.

CANON 20: A LAWYER SHALL CHARGE ONLY FAIR AND REASONABLE FEES

Rule 20.01 - A lawyer shall be guided by the following factors in determining his fees:

(a) the time spent and the extent of the service 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.

Attorney’s Fee’s as Damages:

General Rule: Attorney’s Fees as damages is not recoverable because it is not the fact of winning that ipso facto justifies the award but the attendance of any of the special circumstances.

It is not the fact of winning alone but the attendance of any of the special circumstances and, in the case of a public litigant, the existence of the right to private counsel that justify the award of attorney’s fees as damages in favor of the prevailing party.

Public policy requires that no penalty be placed on the right to litigate. Such right is so fundamental that damages may not be charged against those who may exercise it erroneously. A different rule will put a premium on the right to redress grievances in court. It may also open the door of temptation to a party and his counsel to swell the fees to undue proportion and discourage out-of-court settlement of actions in violation of the public policy on the matter.

The claim for attorney’s fees in the concept of damages and the ground relied upon must be pleaded. In the absence of such allegation, neither the trial court not the appellate court may grant attorney’s fees. With the claim for attorney’s fees having been set up, the appellate court

13 Canon 20.2, Code of Professional Responsibility. 14 A.B.A. Op. 97 (May 3, 1933.) 15 Rule 138, Sec. 24, Rules of Court.

may grant such fees even if the party so granted did not appeal from the lower court’s judgment denying the award.

To merit the award of attorney’s fees as an item of damages, the amount thereof must be proved and it must be specifically prayed for, not just in “such other relief and remedy as the court may deem just and equitable.”16 For it is settled that the award of attorney’s fess is the exception rather than the rule; hence, the trial court should make findings of fact and law, which would bring the case within the exception and justify the award.

Instances when Attorney's Fees may be recovered as damages

1. There is an agreement;

2. Exemplary damages are awarded;

3. Defendant's action or omission in gross bad faith compelled plaintiff to litigate;

4. In criminal cases of malicious prosecution

a. he was acquitted

b. person who charged him knowingly made the false statement of facts or that the filing was prompted by sinister design to vex him;

5. Action is clearly unfounded and is so untenable that it amounts to gross bad faith;

6. Actions for legal support;

7. Cases for the recovery of wages;

8. Defendant acted in gross and evident bad faith;

9. In actions for indemnity under workmen's compensation and employees liability laws;

10. In separate civil action arising from a crime;

11. When at least double costs are awarded which is usually awarded to frivolous actions;

12. When the court deems it just and equitable; and

13. A special law so authorizes

Two Concepts of Retainer

1. Act of a client by which he engages the services of an attorney to render legal advice or to defend or prosecute his cause in court

2. Fee which a client pays to the attorney

Kinds of Retainer Agreement:

1. General retainer - the fee paid to a lawyer to secure his future services as ‘general counsel’ for any ordinary legal problem that may arise in the ordinary business of the client and referred to him for legal action. The client pays fixed retainer fees, which could be monthly or otherwise. The fees are paid whether or not there are cases referred to the lawyer; or

2. Special retainer - fee for a specific case or service rendered by the lawyer for the client.

Kinds of Payment that may be Stipulated upon:

1. Fixed or Absolute Fee - which is payable regardless of the result of the case

a. A fixed fee payable Per Appearance

b. A fixed fee computed upon the Number of Hours Spent

c. A fixed fee based on Piecework

d. Combination of any of the above

2. Contingent Fee - that is conditioned on the securing of a favorable judgment and recovery of money or property and the amount of which may be on a percentage basis.

Validity of Contingent Fee.It is not unusual in a contingent fee contract that a client pays an initial fee either before

or during the progress of the litigation. That such fee is paid does not detract from the

16 Trans-Asia Shipping Lines, Inc. vs. Court of Appeals. 254 SCRA 260 (1996.)

contingent nature of the fees, as long as the bulk thereof is made dependent upon the successful outcome of the action.

A contingent fee is not prohibited by law and is impliedly sanctioned. It is closely supervised by the court to safeguard the client from unjust charges or abuse on the part of his counsel. Its validity depends upon the reasonableness of the amount fixed as contingent fee under the circumstances of the case.

A contingent fee contract is generally valid and binding, unless it is obtained by fraud, imposition or suppression of facts, or the fee is so clearly excessive as to amount to an extortion. A contract for 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.

In the instant case, Atty. Roxas and Pastor received an amount which was equal to forty-four percent (44%) of the just compensation paid or an amount equivalent to P23,980,000.00 of the P54,500,000.00. Considering that there was no full blown hearing in the expropriation case, ending as it did in a Compromise Agreement, the 44% is, undeniably, unconscionable an excessive under the circumstances.17

Situations when Counsel cannot Recover Full Amount, despite a Written Contract for Attorney's Fees.

1. Services, where not performed; as when the counsel withdrew before the case is finished, except when withdrawal is justified.

2. Justified dismissal of the attorney. Payment will be based on quantum meruit.

3. Stipulated Attorney's fees are in excess of what is expressly fixed by law; under the Labor Code, Attorney's fees cannot exceed 10%.

4. When the lawyer is guilty of fraud or bad faith toward his client in the matter of his employment.

5. Counsel's services were worthless because of his negligence.

6. Contract of employment is illegal.

7. Serving adverse interest, unless he acted with to: consent of both parties.

Quantum meruitIt means as much as the lawyer deserves or such amount which his services merit. It is

essential for the proper operation of the principle that there is an acceptance of the benefits by one sought to be charged for the services rendered under circumstances as reasonably to notify him that the lawyer performing the task is expecting to be paid compensation therefor. The doctrine of quantum meruit is a device to prevent undue enrichment based on the equitable postulate that it is unjust for a person to retain benefit without paying for it.18

The circumstance that the services rendered by a lawyer were purely administrative in character and did not require high degree of professional skill and experience does not affect his right to fees.19 Professional services to prepare and prosecute just claims for compensation before an administrative tribunal are as legitimate as services rendered in court in arguing a cause to convince the court that the claim presented or defense set up against the claim by the other party ought to be allowed or rejected. Parties in such cases require advocates, and members of the legal profession must have a right to accept such employment and to receive compensation for their services.

Instances of Recovery of Attorney's Fees on the Basis of Quantum Meruit

1. There is no express contract for payment of attorney's fees agreed upon between the lawyer and the client;

2. When although there is a formal contract for attorney's fees, the fees stipulated are found unconscionable;

3. When the contract for attorney's fees is void due to purely formal defects of execution;

4. When, for justifiable cause, the lawyer was not able to finish the case;

17 Roxas, et al. vs De Zuzuarregui, Jr., et al. G.R. No. 152072, Januaray 31, 2006. 18 Traders Royal Bank Employees Union-Independent vs. National Labor Relations Court. 269 SCRA 733. (1997).19 Sato vs. Rallos. 12 SCRA 84. (1964).

5. When the lawyer and the client disregard the contract for attorney’s fees; and

6. When the client dismissed his counsel before the termination of the case or the latter withdrew therefrom for valid reasons.

Guides for Determining Attorney's Fees on the basis of Quantum Meruit:

1. Time spent and extent of the services rendered or required - a lawyer is justified in fixing higher fees when the case is so complicated and requires more time and effort to finish it

2. Importance of subject matter - the more important the subject matter or the bigger the value of the interest of property in litigation, the higher is the attorney's fees

3. Novelty and difficulty of questions involved - when the questions in a case are novel and difficult, greater effort, deeper study and research are bound to burn the lawyer's time and stamina considering that there are no local precedents to rely upon

4. Skill demanded of a lawyer - the totality of the lawyer's experience provides him the skill and competence admired in lawyers

Champertous Contract - one where the lawyer stipulates with his client in the prosecution of the case that he will bear all of the expenses for the recovery of things or property being claimed by the client, and the latter agrees to pay the former a portion of the thing or property recovered as compensation. It is void for being against public policy

Contingent Contract Champertous Contract

Contingent fee is payable in cash Payable in kind ONLY

Lawyers do not undertake to pay all expenses of litigation

Lawyers undertake to pay all expenses of litigation

Valid Void

Rule 20.02 - A lawyer shall, in case of referral, with the consent of the client, be entitled to a division of fees in proportion to the work performed and responsibility assumed.

Rule 20.02 is not in the nature of a broker’s commission. The referral of a client by a lawyer to another lawyer does not entitle the former to a commission or a portion of the attorney’s fees. He will be entitled to a fee when he performs legal service or assumes responsibility in the case in addition to the referral.

This rule makes it improper for a lawyer to receive compensation for merely recommending another lawyer to his client for if such practice is permitted, it would tend to germinate the evils of commercialism and to destroy the proper appreciation of professional responsibility. The referral of a client by a lawyer to another lawyer does not entitle the former to a commission nor to a portion of the attorney’s fees. It is only when, in addition to the referral, he performs legal service or assumes responsibility in the case that he will be entitled to a fee.

Rule 20.03 - A lawyer shall not, without the full knowledge and consent of the client, accept any fee, reward, costs, commission, interest, rebate or forwarding allowance or other compensation whatsoever related to his professional employment from anyone other than the client.

Rule 20.03 is for the purpose of removing suspicion on the part of the client that his lawyer is receiving a fee, reward, commission, or compensation in connection with the case from third persons with hostile interests. The exception is that a lawyer may receive compensation from a person other than his client when the latter has full knowledge and approval thereof. (Rule 138, Sec. 20 e)

Diaz vs Kapunan, 45 Phil 848 (1932)

- The money received from the judgment creditor by the lawyer of the judgment debtor as consideration for the lawyer’s desisting from participating in the execution sale of the debtor’s property is owned by and must be turned over to the client.

-

Politrade Corp. vs Blanco, 30 SCRA 187 (1969)

- A lawyer may not claim the attorney’s fees in the concept of damages awarded by the court in favor of his client, the latter and not the former being entitled thereto

Recto vs Harden, 100 Phil 427 (1956); Jesus v. Tan, 106 Phil. 554 (1959)

- Except when he and his client have agreed that whatever amount the court may award as attorney’s fees would form part of the lawyer’s compensation.

Rule 20.04 - A lawyer shall avoid controversies with clients concerning his compensation and shall resort to judicial action only to prevent imposition, injustice or fraud.

As a general rule, a lawyer should avoid the filing of any case against a client for the enforcement of attorney's fees. The exceptions to this rule are: (1) To prevent imposition; (2) To prevent injustice; and (3) To prevent fraud.

Palanca vs Pecson, 94 Phil 419 (1954)

- He may take judicial action to protect his right to fees either in the main action where his services were rendered or in an independent civil suit against his client.

Contract for Attorney’s Fees.

Generally: A contract of professional services may either be oral or in writing. The fee stipulated may be absolute or contingent; it may be a fixed percentage of the amount recovered in the action. The contract may call for a down payment; it may also provide a fee per appearance, per piece of work or on an hourly basis. It may be a combination of these arrangements.

A written retainer has a distinct advantage over an oral contract. In case of controversy as to the question of fees, a written contract generally controls the amount thereof. An in the event of a lawyer’s dismissal by the client before the conclusion of the litigation without a justifiable cause, the attorney may be entitled to the full amount of the fees as stipulated in the written agreement. Without such written agreement, he may only recover the reasonable worth of his services up to the date of his dismissal.

Effect of Nullity of Contract on the Right to Attorney's Fees

1. If the nullification is due to the ILLEGALITY OF ITS OBJECT the lawyer is precluded from recovering; and

2. lf the nullity is due to a FORMAL DEFECT or because the court has found the AMOUNT to be UNCONSCIONABLE, the lawyer may recover for any services rendered based on quantum meruit

Procedures to Recover Fees

Generally: It has been said that there is an irreconcilable conflict of interest between a client and his lawyer as to the matter of fees. That conflict should not, of course, interfere with the discharge by the lawyer of his duty of undivided fidelity to his client’s cause. Nor should it diminish his zeal in the prosecution or defense of the client’s interests. But when that conflict has reached such a point that it not only becomes the lawyer’s duty to withdraw from the action but to assert his right to compensation because of the intolerable attitude assumed by his client, he may, in order to prevent injustice, fraud or imposition, rightfully resort to lawsuit to recover his fees. He may take judicial action to protect his right to fees either in the main action where his services were rendered or in an independent civil suit against his client.

A lawyer may enforce his right to fees by filing the necessary petition as an incident of the main action in which his services were rendered only when something is due the client in the action from which the fee is to be paid or when the client settles or waives his cause in favor of the adverse party in fraud of the lawyer’s claim for compensation.

The enforcement of the lawyer’s right to attorney’s fees as an incident of the main action in which his services were rendered is preferable than in an independent action as it avoids

multiplicity of suits.20

He may take judicial action to protect his right to fees either in:

1. The very action in which the services in question have been rendered; or

Such is preferable than in an independent action as it avoids multiplicity of suit. Also, the court is already familiar with the lawyer’s services in such litigation, and can properly determine the circumstances such as whether the client dismisses his counsel without just cause, or waives his action in bad faith to defeat the right of the lawyer to fees.

2. A separate civil action

When a judgment has become final without payment of attorney’s fees, a motion for payment of such fees is improper because the court cannot amend its final decision. The proper action will be a separate and independent action to recover his fees.21

A lawyer may enforce his right to fees by filing the necessary petition as an incident to the main action when:

1. Something is due the client in the action from which the fee is to be paid;22

2. The client settles or waives his cause in favor of the adverse party in fraud of the lawyer’s claim for compensation.23

The remedy cannot be availed if the client recovers nothing from the main action because the fees cannot be determined until after the litigation has been decided and the subject of recovery is at the disposition of the court.24

The petition may be filed with the court before the judgment in favor of the client. The court, before judgment is rendered, may not require the client to pay counsel fees, there being nothing from which they may be paid, except when it is certain. Those certain may be as in estate proceedings, that some funds are due the client25 or the client ended the lawyer’s services before the termination of the action and funds are available for the purpose26

Remedies in estate proceedings

Procedure:

1. Lawyer to ask the administrator or executor to pay him his fee

2. If refused or fails to make payment, the lawyer has to remedies

a. File an independent civil action against the administrator or executor in his personal capacity, and should judgment be secured and the latter pays, the administrator or executor may include the amount so paid in his account filed with the probate court.

b. File a petition with the probate court praying that the court, after due notice to all persons interested, allow his claim and direct the administrator or executor to pay his fees as expenses of administration27

3. If the administrator dies before the fees are paid, the lawyer may claim against the estate of the deceased administrator or executor or a petition for the allowance of his fees with the probate court.

The lawyer may enforce his right to fees before the proceeding is finally terminated and the assets are distributed because in such cases the probate court loses the jurisdiction to adjudicate the matter of fees.28The exception is when the petition for allowance of fees is filed before such closure or asset distribution is made without prejudice to the claim of attorney’s

20 Palanca vs. Pecson. 94 Phil. 419 (1954.)21 Lizardo, sr. vs Montano 332 SCRA 163 (2000)22 Quirante vs IAC, 169 SCRA 769 (1989).23 Aro vs Nañawa, 27 SCRA 1090 (1969)24 Lichauco vs CA 63 SCRA 123 (1975)25 Dias vs Corduño, 49 Phil 165 (1962.)26 Bernardo Guerrero & Associates vs Tan, 14 SCRA 451 (1965.)27 Aldamis vs CFI of Mindoro, 85 Phil 228 (1949)28 Sato vs Rallos 12 SCRA (1964.)

fees.29

Independent Civil Action

Instances When an Independent Civil Action to Recover Attorney's Fees is Necessary

1. Main action is dismissed or nothing is awarded;

2. Court has decided that it has no jurisdiction over the action or has already lost it;

3. Person liable for attorney's fees is not a party to the main action;

4. Court reserved to the lawyer the right to file a separate civil suit for recovery of attorney's fees;

5. Services for which the lawyer seeks payment are not connected with the subject litigation;30

6. Judgment debtor has fully paid all of the judgment proceeds to the judgment creditor and the lawyer has not taken any legal step to have his fees paid directly to him from the judgment proceeds.31

Court Jurisdiction

The court having jurisdiction over the main action has jurisdiction to pass upon the question of fees to the lawyer rendering services in such main action. Conversely, the court can have no power to award and fix the attorney’s fees when the court has no jurisdiction over the subject matter of the main action or has already lost jurisdiction over it.32 However, the lawyer may enforce his claim in a separate civil action.

Necessity of hearing

A petition for recovery of attorney’s fees, either as a separate civil suit or as an incident of the main action, has to be prosecuted and the allegations therein established as any other money claim. The persons who are entitled to or must pay attorney’s fees have the right to be heard upon the question of their propriety or amount.

Such persons include the following:

1. The lawyer himself

2. The client

3. The client’s assignee of the interest in litigation

4. The obligor in an action for support stockholders in a derivative suit concerning attorney’s fees sought to be charged against corporate funds

5. The employees in a labor case who benefited from the lawyer’s services, and

6. The administrator, executor, heir and creditor in estate proceedings.

The Burden of proof is upon the lawyer. The trial court may not authorize any payment of counsel fees until there shall have been a hearing at which all parties concerned were given the opportunity to be heard.

Defenses

An action for recovery of attorney’s fees is subject to the usual defenses applicable to an ordinary civil suit, such as:

1) Want of jurisdiction

2) Res judicata

3) Prescription of action

4) Nullity of the contract for professional services

5) Negligence in the discharge of the lawyer’s duties

6) Lack of attorney-client relationship

29 Berceño vs ocampo 74 PHIL 227 (1943)30 Albano vs Ramos, 20 SCRA 171 (1967.)31 Lizardo, Sr. vs Montano, 332 SCRA 163 (2000.)32 Meralco Workers Union vs Gaerlan, 97 SCRA 840 (1970).

7) Payment or unconscionableness of the amount claimed.

Execution

A final award of attorney’s fees may be enforced by execution. The award may be enforced against any property of the client, including the proceeds of the judgment secured for the client in the main action.

Compensation to Which a Lawyer is Entitled to Depending on His Capacity

1. Counsel de Parte - He is entitled to the reasonable attorney's fees agreed upon, or in the absence thereof, on quantum meruit basis.

2. Counsel de Oficio - The counsel may not demand from the accused attorney's fees even if he wins the case. He may, however, collect from the government funds, if available based on the amount fixed by the court.

3. Amicus Curiae - not entitled to attorney's fees

PERTINENT CASES in CANON 20

Rule 20.01

Written contract of Attorney’s fees is the law between the lawyer and the client:

Reparations Commission vs. Visayan Packing Corporation (193 SCRA 540)Held: Anent the contention of FICI that the trial court erred in ordering Vispac to pay to FICI attorney's fees equivalent to only 10% of the amount due despite the fact that Vispac bound itself to pay to FICI attorney's fees equivalent to 20% of the total amount due but in no case less than P200.00 as per their Indemnity Agreement (Exhibit "1-FICI"), it has been held that a stipulation regarding the payment of attorney's fees is neither illegal nor immoral and is enforceable as the law between the parties (Santiago v. Dimayuga, 3 SCRA 919 [1961]), as long as such stipulation does not contravene law, good morals, good customs, public order or public policy (Polytrade Corp. v. Blanco, 30 SCRA 187 [1969]; Social Security Commission v. Almeda, 168 SCRA 474 [1988]).

Attorney’s fees to be justified, its reason must be mentioned in the text of the decision

Agustin vs. Court of Appeals (186 SCRA 375)Held: The award to private respondent of attorney's fees, however, must be disallowed considering that the award of exemplary damages was eliminated by respondent court and the text of the decision of the trial court, which was aimed by the Court of Appeals, is bereft of any findings of fact and law to justify such award. The accepted rule is that the reason for the award of attorney's fees must be stated in the text of the court's decision; otherwise, if it is stated only in the dispositive portion of the decision, the same must be disallowed on appeal. The award of attorney's fees being an exception rather than the general rule, it is necessary for the court to make findings of facts and law that would bring the case within the exception and justify the grant of such award.

Contingency or certainty of compensationA contingent fee contract is one which stipulates that the lawyer will be paid for his legal

services only if the suit or litigation ends favorably to the client.33

Licudan vs. Court of Appeals (193 SCRA 293)Held: 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]):

33 Felicer v. Madrilejos, 51 Phil 24; Jayme v. Bualan, 58 Phil 422; Taganas v. NLRC, 248 SCRA 133

. . . 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]).

Contract for contingent fee is not prohibited under Article 1491 of the Civil Code and the Canons

Director of Lands vs. Ababa (88 SCRA 513)Held: Petitioners contend that a contract for a contingent fee violates Article 1491 because it involves an assignment of a property subject of litigation. That article provides:

Article 1491. The following persons cannot acquire by purchase even at a public or judicial auction, either in person or through the petition of another.

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(5) Justices, judges, prosecuting attorneys, clerks of superior and inferior and other o and employees connected with the administration of justice, the property and rights in litigation or levied upon an execution before the court within whose jurisdiction or territory they exercise their respective functions; this prohibition includes the act of acquiring by assignment and shall apply to lawyers, with respect to the property and rights which may be the object of any litigation in which they may take part by virtue of their profession (Emphasis supplied).

This contention is without merit. Article 1491 prohibits only the sale or assignment between the lawyer and his client, of property which is the subject of litigation, as the Court has already stated: " The prohibition in said article applies only to a sale or assignment to the lawyer by his client of the property which is the subject of litigation. In other words, for the prohibition to operate, the sale or transfer of the property must take place during the pendency of the litigation involving the property" (Rosario Vda. de Laig vs. Court of Appeals, et al., L-26882, November 21, 1978).

Likewise, under American Law, the prohibition does not apply to "cases where after completion of litigation the lawyer accepts on account of his fee, an interest the assets realized by the litigation" (Drinker, Henry S., Legal Ethics, p. 100 [1953], citing App. A, 280; N.Y. Ciu 714). "There is a clear distraction between such cases and one in which the lawyer speculates on the outcome of the matter in which he is employed" (Drinker, supra, p. 100 citing A.B.A. Op. 279).

A contract for a contingent fee is not covered by Article 1491 because the transfer or assignment of the property in litigation takes effect only after the finality of a favorable judgment. In the instant case, the attorney's fees of Atty. Fernandez, consisting of one-half (1/2) of whatever Maximo Abarquez might recover from his share in the lots in question, is contingent upon the success of the appeal. Hence, the payment of the attorney's fees, that is, the transfer or assignment of one-half (1/2) of the property in litigation will take place only if the appeal prospers. Therefore, the tranfer actually takes effect after the finality of a favorable judgment rendered on appeal and not during the pendency of the litigation involving the property in question. Consequently, the contract for a contingent fee is not covered by Article 1491

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Petitioners further contend that a contract for a contingent fee violates the Canons of Professional Ethics. this is likewise without merit This posture of petitioners overlooked Canon 13 of the Canons which expressly contingent fees by way of exception to Canon 10 upon which petitioners relied. For while Canon 10 prohibits a lawyer from purchasing ...any interest in the subject matter of the litigation which he is conducting", Canon 13, on the other hand, allowed a reasonable contingent fee contract, thus: "A contract for a con. tangent fee where sanctioned by law, should be reasonable under all the circumstances of the ca including the risk and uncertainty of the compensation, but should always be subject to the supervision of a court, as to its reasonableness

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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" (Francisco, Legal Ethics, p. 294 [1949], citing Lipscomb vs. Adams 91 S.W. 1046, 1048 [1949]). Oftentimes, contingent fees are the only means by which the poor and helpless can redress for injuries sustained and have their rights vindicated

Opinion of a judge as to the capacity of a lawyer is not the basis of the right to a lawyer’s fee

Fernandez vs. Hon. Bello (107 Phil. 1140)

Held: In his answer before this Court respondent judge justifies his order for the return of the P200.00 on the ground that petitioner is "below average standard of a lawyer." The opinion of a judge as to the capacity of a lawyer is not the basis of the right to a lawyer's fee. It is the contract between the lawyer and client and the nature of the services rendered. Petitioner claims that he won a civil case for his client, the deceased father of the guardian and the wards. That P200.00 is the amount of the fee of petitioner is admitted by the guardian. We find that the court's order directing petitioner to return the P200.00, and in effect denying him the right to collect the same, is not justified, to say the least.

A counterclaim for Attorney’s fee partakes of the nature of compulsory counterclaim

Intestate Estate of Amado B. Dalisay vs. Marasigan (257 SCRA 511)

Held: Petitioner comes before us through the instant petition for certiorari raising a sole question of law, that is, whether or not the RTC had jurisdiction to award attorney's fees after affirming the dismissal of the case by the MTCC for lack of jurisdiction to try, hear and decide the case. Petitioner asseverates that as the MTCC and the RTC had no jurisdiction over the principal action for unlawful detainer, then it had no jurisdiction over the compulsory counterclaim of attorney's fees either. The petition is meritorious.

A counterclaim is compulsory where: (1) it arises out of, or is necessarily connected with, the transaction or occurrence that is the subject matter of the opposing party's claim; (2) it does not require the presence of third parties of whom the court cannot acquire jurisdiction; and, (3) the trial court has jurisdiction to entertain the claim. Tested by these requirements, private respondent's claim for attorney's fees is indubitably in the nature of a compulsory counterclaim.

And We have consistently held that a compulsory counterclaim cannot remain pending for independent adjudication by the court

Rule 20.02

Attorney’s fees for legal services shared or divided to non-lawyers, prohibited

Amalgamated Laborer’s Assn. vs. Court of Industrial Relations (22 SCRA 1266)

Held: Petitioners, on the other hand, contend that the verbal agreement entered into by the union and its officers thru its President Javier and said two lawyers, Atty. Carbonell and Atty. Fernandez, is that the 30% attorneys' fees, shall be divided equally ("share and share alike") amongst Atty. Carbonell, Atty. Fernandez and Felisberto Javier, the union president.

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We strike down the alleged oral agreement that the union president should share in the attorneys' fees. Canon 34 of Legal Ethics condemns this arrangement in terms clear and

explicit. It says: "No division of fees for legal services is proper, except with another lawyer, based upon a division of service or responsibility." The union president is not the attorney for the laborers. He may seek compensation only as such president. An agreement whereby a union president is allowed to share in attorneys' fees is immoral. Such a contract we emphatically reject. It cannot be justified.

Rule 20.03

Diaz vs Kapunan, 45 Phil 848 (1932)

This action for malpractice brought by Vicente Diaz against Attorney Ruperto Kapunan, has to do with the conduct of Attorney Kapunan during the legal proceedings which followed the business troubles of Vicente Diaz and Secundino de Mendezona, and particularly relates to the conduct of Attorney Kapunan in civil case No. 2098 of the Court of First Instance of Leyte. The ultimate question concerns the agreement between Diaz and Kapunan at the time of the sale of the property of Mendoza, whereby Kapunan, on the promise of Diaz to pay him P1,000, agreed to desist from further participation in the sale, all in alleged violation of article 1459 of the Civil Code and article 542 of the Penal Code.

The more puzzling question relates to the alleged violation by Attorney Kapunan of article 542 of the Penal Code. This article punishes "any person who shall solicit any gift or promise as a consideration for agreeing to refrain from taking part in any public auction." The crime is consummated by the mere act of soliciting a gift or promise for the purpose of abstaining from taking part in the auction.

HELD: The money received from the judgment creditor by the lawyer of the judgment debtor as consideration for the lawyer’s desisting from participating in the execution sale of the debtor’s property is owned by and must be turned over to the client.

Politrade Corp. vs Blanco, 30 SCRA 187 (1969)

Suit before the Court of First Instance of Bulacan on four causes of action to recover the purchase price of rawhide delivered by plaintiff to defendant.1 Plaintiff corporation has its principal office and place of business in Makati, Rizal. Defendant is a resident of Meycauayan, Bulacan. Defendant moved to dismiss upon the ground of improper venue. He claims that by contract suit may only be lodged in the courts of Manila. The Bulacan court overruled him. He did not answer the complaint. In consequence, a default judgment was rendered against him on September 21, 1966

In addition, defendant shall pay plaintiff attorney's fees amounting to 25% of the principal amount due in each cause of action, and the costs of the suit. The amount of P400.00 shall be deducted from the total amount due plaintiff in accordance with this judgment. Defendant appealed.

Issue: Whether the sum is "exorbitant and unconscionable."

HELD: To be borne in mind is that the attorneys' fees here provided is not, strictly speaking, the attorneys' fees recoverable as between attorney and client spoken of and regulated by the Rules of Court. Rather, the attorneys' fees here are in the nature of liquidated damages and the stipulation therefor is aptly called a penal clause.4 It has been said that so long as such stipulation does not contravene law, morals, or public order, it is strictly binding upon defendant.5 The attorneys' fees so provided are awarded in favor of the litigant, not his counsel. It is the litigant, not counsel, who is the judgment creditor entitled to enforce the judgment by execution.

A lawyer may not claim the attorney’s fees in the concept of damages awarded by the court in favor of his client, the latter and not the former being entitled thereto

Recto vs Harden, 100 Phil 427 (1956)

Mrs. Harden sought Recto's services to protect her interest in the conjugal property in preparation for a divorce proceeding in US. She won but on appeal, the SPS mutually agreed to desist claiming from each other. Since Recto's Attorney's Fees is 20% of Mrs. Harden's part in the conjugal property, he now contests the agreement. As a defense, the American sps. Claimed divorce is not valid in RP, thus, invalid object of contract, thus, cannot be enforced in RP

Held: RECTO can still recover. Object valid (not really for divorce). Except when he and his client have agreed that whatever amount the court may award as attorney’s fees would form part of the lawyer’s compensation.

Rule 20.04

Palanca vs Pecson, 94 Phil 419 (1954)

In Special Proceedings No. 12126 of the Court of First Instance of Manila, Rafael Dinglasan was the attorney of Sebastian Palanca, one of the heirs and an oppositor to the probate of the will of his deceased father Carlos Palanca y Tanguinlay. Due to differences of opinion, Sebastian Palanca did away with the services of Atty. Dinglasan who in fact withdrew as Palanca's counsel after the appeal from the decision of the Court of First Instance of Manila probating the will had been elevated to the Supreme Court. On July 7, 1952, Atty. Dinglasan filed in the testate proceedings a notice of attorney's lien, alleging that he was counsel of Sebastian Palanca from September 1950 until March 1952; that the reasonable value of his services is at least P20,000; that Palanca had paid upon account only the sum of P3,083, leaving an unpaid balance of P16,917; and praying that the statement be entered upon the records to be henceforth a lien on the property or money that may be adjudged to Sebastian Palanca, or that may be ordered paid to him by the court. On August 16, 1952, Judge Potenciano Pecson ordered that the notice of attorney's lien be attached to the record for all legal intents and purposes. On July 9, 1952, Atty. Dinglasan filed in the same testate proceedings a petition, praying the Court of First Instance of Manila to fix and declare his attorney's fees at not less than P20,000 and to enforce the unpaid balance of P16,917 as a lien upon the property or money that may be adjudged in favor of Sebastian Palanca or upon any sum that may be ordered paid to the latter. Sebastian Palanca moved to dismiss the foregoing petition, but the motion was denied on August 30, 1952. Palanca's subsequent motion for reconsideration was also denied for lack of merit. The action of Judge Pecson in ordering that Atty. Dinglasan's notice of attorney's lien be attached to the record and in taking cognizance of the petition to determine his fees in Special Proceedings No. 12126, is assailed by Sebastian Palanca in a petition for certiorari filed with this Court against Judge Potenciano Pecson and Rafael Dinglasan (G.R. No. L-6334).

Issue: Whether the notice of attorney's lien may be allowed at the stage when it was filed, namely, before final judgment in favor of Palanca was secured by respondent attorney.

Held:

Section 24 of Rule 127, which as amended by Republic Act No. 636 provides as follows: "A client may at anytime dismiss his attorney or substitute another in his place, but if the contract between client and attorney has been reduced to writing and the dismissal of the attorney was without justifiable cause, he shall be entitled to recover from the client the full compensation stipulated in the contract. For the payment of such compensation the attorney shall have a lien upon all judgments, for the payment of money and executions issued in pursuance of such judgment rendered in the cases wherein his services had been retained by the client." The petitioner, however, argues that this provision cannot be availed of by respondent Dinglasan because there is neither a written contract for attorney's fees nor a showing that his dismissal was unjustified. This argument is without merit, inasmuch as if there was a written contract and the dismissal was unjustified, Atty. Dinglasan would be entitled to the entirety of the stipulated compensation, even if the case was not yet finished when he was dismissed. In situations like that of respondent Dinglasan the lawyer may claim compensation only up to the date of his dismissal. For the payment of such compensation he shall nevertheless have a lien "upon all judgments, for the payment of money and executions issued in pursuance of such judgments rendered in the cases wherein his services have been retained by the client." Section 24 does not state that the judgment must be secured by the attorney claiming the lien.

He may take judicial action to protect his right to fees either in the main action where his services were rendered or in an independent civil suit against his client.