Municipality of Tiwi vs. Betito

Judgment on the pleadings is proper only when the answer admits all the material averments of the complaint and fails to tender an issue; where the answer sets up special defenses that, if proven, would nullify the plaintiff's cause of action, a trial on the merits must be conducted to afford each party his day in court.

The case is an offshoot of National Power Corporation vs. Province of Albay (G.R. No. 87479, June 4, 1990) and Salalima vs. Guingona, Jr. (326 Phil. 847 [1996]). In the former, the Supreme Court found the National Power Corporation (NPC) liable for unpaid real estate taxes on its geothermal plants in the Municipality of Tiwi and substations in Daraga, Albay, covering the period from June 11, 1984 to March 10, 1987. The properties had been sold at auction to Albay, which acquired ownership as the sole bidder. On July 29, 1992, NPC and Albay entered into a Memorandum of Agreement (MOA) for the settlement of tax liabilities estimated at ₱214,845,104.76, with ownership over the auctioned properties to revert to NPC upon satisfaction of the tax liabilities. The dispute concerned the distribution of these payments among the province, the municipality of Tiwi, and its barangays under the Local Government Code's sharing scheme.

The Municipality of Tiwi and its barangays sought to recover their rightful share in unpaid realty taxes of the National Power Corporation (NPC), which had been paid to the Province of Albay under a Memorandum of Agreement dated July 29, 1992. On August 3, 1992, then Mayor Naomi C. Corral formally requested Governor Romeo R. Salalima to remit Tiwi's rightful tax shares, but the request was denied on the ground that the initial payment of ₱17,763,000.00 was only "earnest money." On August 30, 1992, the Sangguniang Bayan of Tiwi passed Resolution No. 15-92 authorizing Mayor Corral to hire a lawyer to represent Tiwi and its six geothermal barangays in the execution of the Supreme Court's decision in National Power Corporation vs. Province of Albay. Pursuant to this resolution, Mayor Corral engaged the services of respondent Atty. Antonio B. Betito and Atty. Alberto Lawenko under a Contract of Legal Services dated January 25, 1993, which provided for a 10% contingent fee on whatever amount of realty taxes that would be recovered by Tiwi through their efforts.

On December 3, 1992, the Office of the President, through then Chief Presidential Legal Counsel Antonio T. Carpio, opined that the MOA merely recognized and established NPC's realty taxes and that NPC may pay directly to the municipality of Tiwi the real property taxes accruing to it. Because of this opinion, NPC President Pablo Malixi informed Mayor Corral and Governor Salalima that starting with the January 1993 installment, NPC would directly pay Tiwi its share. As of December 9, 1992, payments made by NPC to Albay reached ₱40,724,471.74. In reaction, the Sangguniang Panlalawigan of Albay passed Ordinance No. 09-92 on December 19, 1992, authorizing the sale of the real properties at public auction and declaring forfeited in favor of Albay all payments already made by NPC under the MOA. From Albay's refusal to remit Tiwi's share stemmed several administrative complaints and court cases that respondent allegedly handled on behalf of Tiwi, including Salalima vs. Guingona, Jr., where the Court held the elective officials of Albay administratively liable for abuse of authority.

Respondent filed a Complaint for sum of money against Tiwi and its officials, claiming that he handled numerous cases that resulted in the recovery of Tiwi's share in the realty taxes, specifically amounts of ₱110,985,181.83 and ₱35,594,480.00 from NPC. He prayed for ₱11,000,000.00 in attorney's fees and 10% of other amounts to be determined during trial. In their Answer, petitioners admitted that the Sangguniang Bayan passed Resolution No. 15-92 but denied that it authorized Mayor Corral to enter into the subject contract, claiming she exceeded her authority by binding Tiwi to a 10% contingent fee. Petitioners further alleged that the legal services should have been limited to the execution of the decision in National Power Corporation vs. Province of Albay; that the contract was void, unenforceable, unconscionable, and unreasonable; that the realty taxes were recovered by virtue of the opinion of Chief Presidential Legal Counsel Carpio and not through respondent's efforts; that the ₱110,985,181.83 was received by Albay and not Tiwi; and that the ₱35,594,480.00 was Tiwi's share in the utilization of national wealth, not realty taxes. Petitioners also invoked a Commission on Audit Memorandum dated January 15, 1996, and Resolution No. 27-98 declaring the subject contract invalid.

• Impropriety of Judgment on the Pleadings: Petitioners claimed that their answer raised factual issues and defenses meriting a full-blown trial, including whether respondent rendered any legal service that accrued to the benefit of Tiwi and whether the 10% contingent fee was reasonable and conscionable.
• Failure to Prove Causation: Petitioners argued that the Contract of Legal Services required respondent's legal services to result in the recovery of Tiwi's claims, and that respondent must prove in a trial on the merits that his efforts led to the collection of the realty taxes; they belittled respondent's services as "mere messengerial service" because what remained was execution of the judgment and the opinion of Chief Presidential Legal Counsel Carpio.
• Lack of Authority: Petitioners contended that Resolution No. 15-92 did not grant Mayor Corral authority to enter into the subject contract providing for a 10% contingent fee, and that the contract made Tiwi liable for services outside those related to the satisfaction of the judgment in National Power Corporation vs. Province of Albay, making such stipulations void and unenforceable; any claim should thus be based on quantum meruit.
• Limited Effect of Admission: Petitioners argued that respondent cannot capitalize on the admission of the genuineness and due execution of the contract because this merely means the signature is authentic and execution complied with formal solemnities, not that the document is substantively valid and efficacious.

• Scope of Services: Respondent countered that the Contract of Legal Services was not limited to the NPC case but covered other services done pursuant to the contract, including prosecuting and defending several administrative and court cases against Albay's elective officials to compel compliance with the Court's ruling and the Carpio opinion.
• Validity and Enforceability: Respondent argued that the contract is valid and enforceable due to petitioners' failure to specifically deny the same under oath in their Answer, and that the law does not require ratification by the Sangguniang Bayan—only prior authorization, which was given through Resolution No. 15-92.
• Reasonableness of Fee: Respondent maintained that the 10% contingent fee is reasonable, more so because it is contingent in nature, and cited a long line of cases ruling that a 10% attorney's fee of the amount recoverable is reasonable.

• Judgment on the Pleadings: Whether the application of the rule on judgment on the pleadings was proper and warranted in this case.
• Reasonableness of Attorney's Fees: Whether the amount of attorney's fees awarded to respondent is unreasonable, unconscionable, and without proof of the extent, nature, and result of his legal services as required by the Contract of Legal Services and Section 24, Rule 138 of the Rules of Court.
• Authority of Mayor Corral: Whether the Contract of Legal Services exceeded the authority of the late Mayor Corral and should have been ratified by the Sangguniang Bayan of Tiwi to be enforceable.

• Judgment on the Pleadings: No. Judgment on the pleadings was improper because the answer tendered several genuine issues—including whether respondent's services actually resulted in the recovery of realty taxes and whether the amounts claimed were received by Tiwi—which required a trial on the merits.
• Reasonableness of Attorney's Fees: Remanded. The reasonable amount of attorney's fees due to respondent cannot be determined from the pleadings alone; the extent and significance of respondent's legal services, the relative importance of the Carpio opinion, and the benefits derived by Tiwi must be weighed based on evidence adduced during trial.
• Authority of Mayor Corral: Partially resolved. Mayor Corral was duly authorized by Resolution No. 15-92 to enter into the Contract of Legal Services, and no ratification was required; however, the legal services contemplated were limited to those reasonably contributing to the recovery of Tiwi's share in the unpaid realty taxes, and paragraph 4 of the contract, insofar as it covers services outside this purpose, is unenforceable.

• Judgment on the Pleadings: A motion for judgment on the pleadings admits the truth of all material and relevant allegations of the opposing party, and judgment must rest on those allegations taken together with such other allegations as are admitted in the pleadings. It is proper when an answer fails to tender an issue or otherwise admits the material allegations of the adverse party's pleading. However, when not all material allegations of the complaint were admitted because some were denied or disputed, and the defendant has set up special defenses that, if proven, would nullify the plaintiff's main cause of action, judgment on the pleadings cannot be rendered. Here, the generalized conclusion of both lower courts that petitioners' answer admitted all material averments was without basis. The trial court also erred in ruling that the genuineness and due execution of the Contract of Legal Services was impliedly admitted for failure to make a sworn specific denial under Section 8, Rule 8 of the Rules of Court, because that rule does not apply when the adverse party does not appear to be a party to the instrument—none of the petitioners were parties to the contract. Nonetheless, petitioners subsequently admitted the genuineness and due execution of the contract in their later pleadings, so the Court proceeded from that premise.
• Reasonableness of Attorney's Fees: The subject contract stipulated that respondent's 10% fee shall be based on "whatever amount or payment collected from the National Power Corporation (NPC) as a result of the legal service rendered by [respondent]." The extent and significance of respondent's legal services that reasonably contributed to the recovery of Tiwi's share, as well as the amount of realty taxes recovered arising from these services, require a full-blown trial. The Court took judicial notice of Salalima vs. Guingona, Jr. where respondent appears as counsel of record, which at minimum evidences his efforts. However, the other cases allegedly handled by respondent cannot be deemed admitted because petitioners controverted them on several grounds. More important, petitioners raised the main defense that the realty taxes were recovered by virtue of the Carpio opinion and not through respondent's efforts—a position respondent himself conceded in his Complaint when he stated that "pursuant to the advice of Sec. Carpio, NPC started to remit their shares directly to Tiwi and its barangays in January 1993." The Court found that the recovery of the realty taxes is not solely attributable to respondent's efforts, making it necessary to weigh the relative importance of the Carpio opinion vis-à-vis the cases allegedly handled by respondent. The trial court also erred in applying the negative pregnant rule to the amounts of ₱110,985,181.83 and ₱35,594,480.00. The overall tenor of petitioners' Answer plainly evinced the defense that the first amount was received by Albay and not Tiwi, and the second amount was received as Tiwi's share in the utilization of national wealth under Sections 286-293 of the Local Government Code, not as realty taxes. The Rules of Court were designed to ascertain the truth, not to deprive a party of legitimate defenses by the poor phraseology of counsel.
• Authority of Mayor Corral: Section 444(b)(1)(vi) of the Local Government Code requires the municipal mayor to secure prior authorization from the Sangguniang Bayan before entering into contracts on behalf of the municipality. Resolution No. 15-92 unanimously authorized Mayor Corral to hire a lawyer of her choice to represent Tiwi's interest in the execution of the Court's decision in National Power Corporation vs. Province of Albay. This authority necessarily carried with it the power to negotiate, execute, and sign the Contract of Legal Services. That the authorization did not set the terms and conditions of compensation signifies that the council empowered Mayor Corral to reach a mutually agreeable arrangement, subject to the limitations that stipulations should not be contrary to law, morals, good customs, public order, or public policy, and that attorney's fees must not be unreasonable and unconscionable. The law speaks of prior authorization, not ratification, with respect to the power of the local chief executive to enter into contracts on behalf of the local government unit. However, the wording of Resolution No. 15-92 is clear that the hiring of a lawyer was for the sole purpose of executing the judgment in National Power Corporation vs. Province of Albay. Respondent admitted in his Complaint that he was furnished and read a copy of the resolution before entering the contract and cannot feign ignorance of the limitations of Mayor Corral's authority. The council sought a lawyer because the dispute was between the municipality and the province, falling under the exception in Section 481(b)(3)(i) of the Local Government Code permitting employment of a special legal officer. Thus, paragraph 4 of the Contract of Legal Services, insofar as it covers services outside the purpose of recovering Tiwi's share in the realty taxes, is unenforceable.

• Judgment on the Pleadings — A judgment on the pleadings is proper when the answer fails to tender an issue or otherwise admits the material allegations of the adverse party's pleading. However, where the answer denies or disputes some material allegations and sets up special defenses that, if proven, would nullify the plaintiff's main cause of action, judgment on the pleadings cannot be rendered; a trial on the merits must be conducted to afford each party his day in court. The Court applied this doctrine to find that the petitioners' answer raised genuine issues—including causation, receipt of amounts, and reasonableness of fees—that precluded judgment on the pleadings.
• Negative Pregnant — A negative pregnant is a denial that is not specific, effectively admitting the allegation denied. The Court clarified that the rule on negative pregnant should not be applied where the overall tenor of the answer plainly evinces a defense, even if poorly phrased; the Rules of Court were designed to ascertain the truth and not to deprive a party of legitimate defenses by the poor phraseology of counsel.
• Prior Authorization vs. Ratification — Under Section 444(b)(1)(vi) of the Local Government Code, the municipal mayor must secure prior authorization from the Sangguniang Bayan before entering into contracts on behalf of the municipality. The law speaks of prior authorization, not ratification. Where the Sangguniang Bayan authorizes the mayor to hire a lawyer without setting the terms and conditions of compensation, the mayor is empowered to reach a mutually agreeable arrangement, subject to the limitations that stipulations must not be contrary to law, morals, good customs, public order, or public policy, and that attorney's fees must not be unreasonable and unconscionable.
• Scope of Authority of a Local Chief Executive — The authority granted to a municipal mayor by a Sangguniang Bayan resolution must be construed in light of the resolution's clear wording, including its title and whereas clauses. Where the resolution authorizes the hiring of a lawyer for the sole purpose of executing a specific judgment, the resulting contract of legal services cannot be construed to cover general legal services outside that purpose, especially where the municipality has a municipal legal officer for general legal duties.

• "A judgment on the pleadings is proper when the answer admits all the material averments of the complaint. But where several issues are properly tendered by the answer, a trial on the merits must be resorted to in order to afford each party his day in court." — This opening statement articulates the core ratio decidendi of the case, distinguishing when judgment on the pleadings is proper from when a trial is required.
• "The above-quoted authority necessarily carried with it the power to negotiate, execute and sign on behalf of Tiwi the Contract of Legal Services. That the authorization did not set the terms and conditions of the compensation signifies that the council empowered Mayor Corral to reach a mutually agreeable arrangement with the lawyer of her choice subject, of course, to the general limitation that the contract's stipulations should not be contrary to law, morals, good customs, public order or public policy, and, considering that this is a contract of legal services, to the added restriction that the agreed attorney's fees must not be unreasonable and unconscionable." — This passage defines the scope of authority conferred by a Sangguniang Bayan resolution that authorizes a mayor to hire counsel without specifying compensation terms.
• "The Rules of Court were designed to ascertain the truth and not to deprive a party of his legitimate defenses." — This statement explains why the Court declined to apply the negative pregnant rule against petitioners despite the poor phrasing of their Answer, emphasizing the purpose of procedural rules.
• "Verily, a lawyer's compensation for professional services rendered are subject to the supervision of the court, not just to guarantee that the fees he charges and receives remain reasonable and commensurate with the services rendered, but also to maintain the dignity and integrity of the legal profession to which he belongs." — This passage underscores the court's supervisory power over attorney's fees and the policy rationale for remanding the case for trial.

• National Power Corporation vs. Province of Albay, G.R. No. 87479, June 4, 1990, 186 SCRA 198 — Controlling precedent establishing NPC's liability for unpaid real estate taxes on its properties in Albay; the underlying judgment that Resolution No. 15-92 sought to execute.
• Salalima vs. Guingona, Jr., 326 Phil. 847 (1996) — Related case where the Court held Albay's elective officials administratively liable for abuse of authority for refusing to remit Tiwi's share in the realty taxes; relied upon as evidence of respondent's legal efforts on behalf of Tiwi.
• Rodriguez vs. Llorente, 49 Phil. 823 (1926) — Cited for the rule that a motion for judgment on the pleadings admits the truth of all material and relevant allegations of the opposing party.
• Benavides vs. Alabastro, 120 Phil. 1349 (1964) — Cited for the rule that judgment on the pleadings cannot be rendered where the defendant has set up special defenses that, if proven, would nullify the plaintiff's main cause of action.
• Gaw vs. Court of Appeals, G.R. No. 60783, October 31, 1990, 191 SCRA 77 — Cited for the rule that the oath requirement under Section 8, Rule 8 of the Rules of Court does not apply when the adverse party does not appear to be a party to the instrument.
• Constantino vs. Ombudsman, 351 Phil. 896 (1998) — Followed for the principle that a mayor who acts pursuant to a Sangguniang Bayan resolution authorizing a negotiated contract without parameters as to terms commits no wrongdoing.
• Vergara vs. Ombudsman, G.R. No. 174567, March 12, 2009, 580 SCRA 693 — Cited for the proposition that the law speaks of prior authorization, not ratification, with respect to the power of the local chief executive to enter into contracts on behalf of the local government unit.
• Cortes vs. Court of Appeals, 443 Phil. 42 (2003) — Cited for the rule that the amount of reasonable attorney's fees finally determined should be without legal interest.

• Section 8, Rule 8, Rules of Court — Provides that the genuineness and due execution of a written instrument shall be deemed admitted unless the adverse party, under oath, specifically denies them; the Court held this rule does not apply when the adverse party does not appear to be a party to the instrument, as none of the petitioners were parties to the Contract of Legal Services.
• Section 1, Rule 34, Rules of Court — Defines when judgment on the pleadings is proper; the Court applied this provision to find that the answer tendered several issues, making judgment on the pleadings improper.
• Section 24, Rule 138, Rules of Court — Governs attorney's fees, requiring that they be reasonable; the Court noted this as an added restriction on the contingent fee arrangement.
• Section 444(b)(1)(vi), Local Government Code — Requires the municipal mayor to secure prior authorization from the Sangguniang Bayan before representing the municipality in business transactions and signing contracts on its behalf; the Court found this requirement satisfied by Resolution No. 15-92.
• Section 481(b)(3)(i), Local Government Code — Permits a local government unit to employ a special legal officer in actions where a component city or municipality is adverse to the provincial government; the Court applied this exception to justify Tiwi's hiring of respondent.
• Sections 286-293, Local Government Code — Govern the share of local government units in the utilization of national wealth; petitioners invoked these provisions to argue that the ₱35,594,480.00 was received as Tiwi's share in national wealth utilization, not as realty taxes.
• Article 1306, Civil Code — Provides that parties may establish stipulations not contrary to law, morals, good customs, public order, or public policy; the Court cited this as a general limitation on the contract's stipulations.

Corona, C.J. (Chairperson), Brion, J., Abad, J., and Perez, J., concurred in the decision.