National Power Corporation vs. Court of Appeals

Payment of attorney's fees under a contingent fee contract is the personal obligation of the client who benefited from the legal services, and the adverse party cannot be held solidarily liable for such fees. The contingent fee must be computed on the amount actually realized by the client, not on the original judgment award, and the contract for attorney's fees takes effect only between the parties thereto, their assigns, and heirs, pursuant to Article 1311 of the Civil Code.

Spouses Romulo and Elena Javellana were the owners of property affected by transmission lines operated by NPC and Transco. They engaged the legal services of Atty. Rex C. Muzones under a Contract of Legal Services stipulating a contingent fee of 12.5% of whatever award or monetary consideration realized, in connection with a complaint to fix lease rental and just compensation, collect sums of money, and recover damages against NPC and Transco before the RTC of Iloilo City. The contingent fee arrangement is a recognized device in this jurisdiction, permitted because it enables clients of limited means to vindicate their rights through litigation, with the lawyer assuming the risk of receiving nothing should the suit fail.

Spouses Romulo and Elena Javellana owned property affected by the transmission lines of NPC and Transco. They engaged Atty. Rex C. Muzones as counsel under a Contract of Legal Services stipulating a contingent fee of 12.5% of whatever award or monetary consideration realized, covering the preparation and filing of a complaint to fix lease rental and just compensation, collect sums of money, and recover damages against NPC and Transco before the RTC of Iloilo City. The complaint was docketed as Civil Case No. 05-28553.

On July 26, 2007, the RTC rendered a Decision in favor of the Spouses Javellana, with the original award amounting to ₱419,757,280.00. Both NPC and Transco filed their respective appeals. The Spouses Javellana, for their part, filed a Motion for Execution Pending Appeal, which the RTC granted on January 4, 2008. While the appeal was pending, Transco negotiated with the Spouses Javellana for an extrajudicial settlement. Transco agreed to buy the property affected by the transmission lines, and the Spouses Javellana received ₱80,380,822.00 from Transco pursuant to the compromise.

Thereafter, Atty. Muzones filed a Notice of Attorney's Lien. Transco moved to dismiss the case in view of the extrajudicial settlement, while Atty. Muzones filed a Motion for Partial Satisfaction of Judgment and Opposition to the Motion to Dismiss. On June 27, 2008, the respondent judge issued an Order directing NPC and Transco to pay Atty. Muzones ₱52,469,660.00 as his attorney's lien, computed on the basis of the original award of ₱419,757,280.00, and holding the Motion to Dismiss in abeyance pending compliance. On June 30, 2008, a Clarificatory Order was issued stating that the attorney's fees of ₱52,469,660.00 were separate and distinct from the ₱80,380,822.00 already paid to the Spouses Javellana.

Transco filed a Motion for Reconsideration of the orders, while NPC filed a Comment to the Clarificatory Order, praying that the Order directing NPC and Transco to pay be recalled and set aside and that the case be finally dismissed. On August 6, 2008, the respondent judge denied the motion for reconsideration and NPC's Comment. NPC then filed its own motion for reconsideration of the August 6, 2008 Order, which was denied on September 22, 2008. Aggrieved, NPC filed a Petition for Certiorari with the CA assailing the Orders dated June 27, 2008, June 30, 2008, August 6, 2008, and September 22, 2008. The CA, in its Decision dated April 14, 2011, dismissed the petition for being filed beyond the 60-day reglementary period. NPC elevated the matter to the Supreme Court via a Petition for Certiorari under Rule 65.

• Recall of Attorney's Fee Order: NPC prayed that the RTC Order directing NPC and Transco to pay Atty. Muzones ₱52,469,660.00 as attorney's fees be recalled and set aside, and that the case be finally dismissed.
• Assailment of RTC Orders: NPC filed a Petition for Certiorari before the CA assailing the RTC Orders dated June 27, 2008, June 30, 2008, August 6, 2008, and September 22, 2008, on the ground that the RTC committed grave abuse of discretion in directing NPC to pay attorney's fees to which it was not a party under the contract.

• Timeliness of Petition: The CA dismissed NPC's petition on the ground that it was filed beyond the 60-day reglementary period, the Comment filed by NPC before the RTC having been treated as a motion for reconsideration that tolled the period but still resulted in a late filing.
• Nature of NPC's Comment: The CA agreed that the Comment filed by NPC was in the nature of a motion for reconsideration, as its allegations and prayer sought the reconsideration of the June 30, 2008 Clarificatory Order.

• Proper Remedy: Whether a Petition for Certiorari under Rule 65 is the proper remedy to assail the CA's dismissal of NPC's petition.
• Nature of NPC's Comment: Whether the Comment filed by NPC before the RTC is in the nature of a motion for reconsideration.
• Computation of Contingent Fee: Whether the 12.5% contingent fee should be computed on the original award of ₱419,757,280.00 or on the amount actually realized by the Spouses Javellana under the compromise agreement.
• Liability for Attorney's Fees: Whether NPC is liable to pay the attorney's fees of Atty. Muzones.

• Proper Remedy: No. A Petition for Certiorari under Rule 65 is the wrong remedy; the proper remedy is a Petition for Review on Certiorari under Rule 45, since the CA's dismissal was a final judgment and appeal was available. However, the Court set aside this procedural lapse in the interest of substantial justice.
• Nature of NPC's Comment: Yes. The Comment filed by NPC is in the nature of a motion for reconsideration, as its allegations and prayer sought the reconsideration of the June 30, 2008 Clarificatory Order.
• Computation of Contingent Fee: The 12.5% contingent fee should be computed on the amount actually realized — ₱80,380,822.00 — not on the original award of ₱419,757,280.00, yielding ₱10,047,602.75.
• Liability for Attorney's Fees: No. NPC is not liable to pay the attorney's fees of Atty. Muzones, as payment of attorney's fees is the personal obligation of the client who benefited from the legal services, and the contract for attorney's fees takes effect only between the parties thereto under Article 1311 of the Civil Code.

• Proper Remedy: A petition for certiorari under Rule 65 is a special civil action available only in the absence of appeal or any plain, speedy, and adequate remedy in the ordinary course of law. Since the CA's Decision dated April 14, 2011 was a final judgment dismissing NPC's petition, NPC had a plain, speedy, and adequate remedy — a Petition for Review on Certiorari under Rule 45 before the Supreme Court. The existence and availability of the right of appeal prohibits resort to certiorari, as one of the requisites for the latter is that there should be no appeal. Notwithstanding this procedural lapse, the Court opted not to deny the case on merely technical grounds, recognizing that technical rules of procedure should give way to serve substantial justice.

• Nature of NPC's Comment: The allegations of NPC and even the prayer in its Comment sought the reconsideration of the June 30, 2008 Clarificatory Order, specifically praying that the Order directing NPC and Transco to pay be recalled and set aside. Because the Comment was in the nature of a motion for reconsideration, upon the RTC's denial thereof, NPC should have filed a Petition for Certiorari before the CA rather than a second motion for reconsideration before the RTC. Consequently, when NPC filed its Petition for Certiorari on December 2, 2008, the 60-day reglementary period had already lapsed.

• Computation of Contingent Fee: The Contract of Legal Services expressly stipulated a contingent fee of 12.5% of "whatever award or monetary consideration realized." Contingent fee arrangements are valid and binding in this jurisdiction, subject to the stipulation that counsel will be paid only if the suit prospers, and are subject to the supervision and close scrutiny of the court as to reasonableness. The 12.5% rate was deemed reasonable, as the Spouses Javellana did not dispute the percentage nor question Atty. Muzones' right to claim such amount. However, the RTC erred in computing the fee on the original award of ₱419,757,280.00. The phrase "whatever amount realized" refers to the amount actually received by the Spouses Javellana under the compromise agreement — ₱80,380,822.00 — and the 12.5% contingent fee should be pegged on that amount, yielding ₱10,047,602.75.

• Liability for Attorney's Fees: It is settled that payment of attorney's fees is the personal obligation of the clients. A client has the undoubted right to settle a suit without the intervention of counsel, and a claim for attorney's fees does not void a compromise agreement. However, counsel is not without remedy: the compromise settlement cannot bind the lawyer as a third party, and the lawyer is entitled to judicial protection to ensure payment of just fees. Notwithstanding Atty. Muzones' entitlement to ₱10,047,602.75, NPC cannot be held liable because the contract for the payment of attorney's fees is strictly a contract between Spouses Javellana and Atty. Muzones. Under Article 1311 of the Civil Code, contracts take effect only between the parties, their assigns, and heirs. NPC, not being a party to the Contract of Legal Services, cannot be affected by it, especially as to the payment of attorney's fees. Any action for the satisfaction of attorney's fees should be brought against the Spouses Javellana, not against NPC.

• Validity of Contingent Fee Arrangements — A contingent fee arrangement is valid and binding in this jurisdiction, provided it is laid down in an express contract. The amount agreed upon is subject to the stipulation that counsel will be paid only if the suit prospers, with a higher compensation allowed in consideration of the risk that the lawyer may get nothing if the suit fails. Such contracts are permitted because they redound to the benefit of the poor client and the lawyer, especially where the client has a meritorious cause of action but no means to pay for legal services except out of the proceeds of litigation. Contingent fee contracts are subject to the supervision and close scrutiny of the court as to reasonableness, pursuant to Section 13 of the Canons of Professional Ethics. In this case, the 12.5% contingent fee was deemed reasonable, but the computation was corrected to reflect the amount actually realized rather than the original judgment award.

• Attorney's Fees as Personal Obligation of the Client — The payment of attorney's fees is the personal obligation of the client who benefited from the legal services. The adverse party in the litigation cannot be held solidarily liable for attorney's fees stipulated in a contract between the client and counsel, because the contract for attorney's fees takes effect only between the parties thereto, their assigns, and heirs, pursuant to Article 1311 of the Civil Code. The Court applied this doctrine to delete NPC's solidary liability for the attorney's fees owed to Atty. Muzones.

• Client's Right to Settle Without Counsel's Intervention — A client has an undoubted right to settle a suit without the intervention, knowledge, or consent of counsel, even if the client has agreed with counsel not to do so. A claim for attorney's fees does not void a compromise agreement and is no obstacle to court approval. However, the compromise settlement cannot bind the lawyer as a third party, and the terms of the compromise should not amount to an entire deprivation of the lawyer's fees, especially under a contingent fee basis. The lawyer is entitled to judicial protection against injustice or imposition on the part of the client.

• Availability of Appeal Prohibits Resort to Certiorari — The proper remedy to obtain a reversal of a judgment on the merits, final order, or resolution is appeal. This holds true even if the error ascribed to the court is lack of jurisdiction, excess of jurisdiction, or grave abuse of discretion. The existence and availability of the right of appeal prohibits resort to certiorari under Rule 65, because one of the requirements for the latter remedy is that there should be no appeal.

• "The existence and availability of the right of appeal prohibits the resort to certiorari because one of the requirements for the latter remedy is that there should be no appeal." — This passage articulates the fundamental distinction between appeal and certiorari, explaining why Rule 65 was the wrong remedy when appeal under Rule 45 was available.

• "A contingent fee arrangement is valid in this jurisdiction and is generally recognized as valid and binding but must be laid down in an express contract. 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." — This is the canonical formulation of the doctrine on contingent fee arrangements, as quoted from Rayos vs. Atty. Hernandez, frequently cited in legal ethics jurisprudence.

• "[A] client has an undoubted right to settle a suit without the intervention of his lawyer, for he is generally conceded to have the exclusive control over the subject-matter of the litigation and may, at any time before judgment, if acting in good faith, compromise, settle, and adjust his cause of action out of court without his attorney's intervention, knowledge, or consent, even though he has agreed with his attorney not to do so." — This passage, quoted from Atty. Gubat vs. National Power Corporation, defines the client's right to compromise and the limits of that right vis-à-vis counsel's entitlement to fees.

• "The contract for the payment of attorney's fees is strictly a contract between Spouses Javellana and Atty. Muzones. It is basic that a contract takes effect only between the parties, their assigns, and heirs." — This passage states the ratio decidendi on NPC's non-liability, applying the principle of relativity of contracts under Article 1311 of the Civil Code to attorney's fee arrangements.

• Malayang Manggagawa ng Stayfast Phils., Inc. vs. NLRC, 716 Phil. 500 (2013) — Followed. Cited for the doctrine that the existence and availability of the right of appeal prohibits resort to certiorari under Rule 65, supporting the Court's observation that NPC availed itself of the wrong remedy.

• Rayos vs. Atty. Hernandez, 544 Phil. 447 (2007) — Followed. Cited for the doctrine that contingent fee arrangements are valid and binding in this jurisdiction, provided they are laid down in an express contract, and are subject to court supervision as to reasonableness.

• Atty. Gubat vs. National Power Corporation, 627 Phil. 551 (2010) — Followed. Cited for the principle that a client has the right to settle a suit without counsel's intervention, but that the compromise cannot bind the lawyer as a third party, and that the lawyer is entitled to judicial protection to ensure payment of just fees.

• Sps. Dycoco vs. CA, 715 Phil. 550 (2013) — Cited for the definition of a petition for certiorari under Rule 65 as a special civil action available only in the absence of appeal or any plain, speedy, and adequate remedy.

• Atty. Agustin vs. Cruz-Herrera, 726 Phil. 533 (2014) — Cited for the settled principle that payment of attorney's fees is the personal obligation of the clients.

• Section 1, Rule 45, Rules of Court — Provides that a party desiring to appeal by certiorari from a judgment or final order of the CA may file with the Supreme Court a verified petition for review on certiorari, raising only questions of law. Applied to show that NPC should have filed a Petition for Review under Rule 45 rather than a Petition for Certiorari under Rule 65.

• Rule 65, Rules of Court — Governs the special civil action of certiorari, available only in the absence of appeal or any plain, speedy, and adequate remedy in the ordinary course of law. Applied to demonstrate that certiorari was the wrong remedy because appeal was available.

• Article 1311, New Civil Code — Provides that contracts take effect only between the parties, their assigns, and heirs. Applied to hold that NPC, not being a party to the Contract of Legal Services between Spouses Javellana and Atty. Muzones, cannot be affected by it, particularly as to the payment of attorney's fees.

• Section 13, Canons of Professional Ethics — Provides that a contract for a contingent fee, where sanctioned by law, should be reasonable under all circumstances, including the risk and uncertainty of compensation, and should always be subject to the supervision of a court as to its reasonableness. Applied to uphold the 12.5% contingent fee as reasonable.

Leonardo-De Castro, Peralta, and Del Castillo, JJ., concurred. Sereno, C.J. (Chairperson), was on leave.