THIRD DIVISION

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.1awphi1.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.