Salonga Hernandez & Allado vs. Pascual

A lawyer who renders legal services to an executor or administrator may claim attorney's fees directly against the estate as an administration expense, notwithstanding the general rule that the executor or administrator is primarily liable for such fees, provided that the claim is made with due notice to all heirs and interested parties. The estate is not directly liable for the lawyer's fees, the liability resting primarily on the executor or administrator, who may seek reimbursement from the estate if the services redounded to its benefit. However, if the executor refuses to pay, the lawyer may either file an action against the executor in his personal capacity or file a petition in the testate or intestate proceedings asking the court to direct payment of the fees as expenses of administration, with notice to all heirs and interested parties.

The case involves two related estate proceedings: the intestate estate of Don Andres Pascual, who died before his wife, and the testate estate of Doña Adela Pascual, who died on 18 August 1987 leaving a last will and testament executed in 1978. The dispute over Don Andres's intestate estate had previously been settled by this Court in Pascual vs. Pascual-Bautista (1992), which applied Article 992 of the Civil Code to deny the claims of Olivia and Hermes Pascual, acknowledged natural children of Don Andres's brother, to be recognized as heirs. A Compromise Agreement dated 16 October 1985 allocated three-fourths of Don Andres's estate to Doña Adela and one-fourth to his other heirs, without prejudice to the claims of Olivia and Hermes Pascual. The petitioner, a professional law partnership, was engaged by Olivia Pascual in connection with the settlement of Doña Adela's estate under a Retainer Agreement dated 25 August 1987.

Petitioner Salonga Hernandez & Allado, a professional law partnership, was engaged by Olivia Pascual in connection with the settlement of the testate estate of Doña Adela Pascual. Their agreement on professional fees was contained in a letter dated 25 August 1987, signed by Atty. Esteban Salonga for petitioner and by Olivia Pascual, stipulating that the final professional fee "shall be 3% of the total gross estate as well as the fruits thereof based on the court approved inventory of the estate," payable "upon approval by the court of the agreement for the distribution of the properties to the court designated heirs of the estate." On 26 August 1987, private respondent, represented by petitioner, commenced a petition for probate of Doña Adela's 1978 will before the Malabon RTC, Branch 72, docketed as Sp. Proc. No. 136-MN. The petition was opposed by Miguel Cornejo, Jr. and his siblings, who presented a purported 1985 will in their favor.

After due trial, on 1 July 1993, the Probate Court allowed probate of the 1978 will and disallowed the purported 1985 will, issuing letters testamentary to Olivia Pascual. Cornejo's attempt to appeal was denied for failure to file a record on appeal. On 27 July 1993, petitioner filed a Notice of Attorney's Lien equivalent to three percent of the total gross estate of Doña Adela, pursuant to the Retainer Agreement. In an Order dated 4 November 1993, the Probate Court noted the lien "as a lien that must be satisfied chargeable to the share of Olivia S. Pascual." On 22 November 1993, petitioner filed a Motion to Annotate Attorney's Lien on Properties of the Estate.

On 19 January 1994, the Intestate Court rendered a Decision in Sp. Proc. No. 7554 finally approving the 1985 Compromise Agreement, adjudicating one-fourth of Don Andres's estate to his heirs and three-fourths to the estate of Doña Adela, and awarding attorney's fees to Atty. Jesus I. Santos equivalent to 15% of the three-fourths share. Olivia Pascual's petition for annulment of that award was ultimately denied by this Court in Pascual vs. Court of Appeals (1998).

On 26 April 1994, petitioner filed a Motion for Writ of Execution for partial execution of its attorney's lien estimated at ₱1,198,097.02, based on a Motion to Submit Project Partition alleging the gross appraised value of Doña Adela's estate at ₱39,936,567.19. On 29 April 1994, Olivia Pascual opposed the motion, arguing that a lawyer of an administrator or executor should charge the individual client, not the estate; that sufficient notice to all interested parties was not given; that the motion was premature; that the computation was erroneous; and that execution on the undivided estate would prejudice the other heirs of Don Andres. On 2 June 1994, the Probate Court denied the motion as premature, the bulk of the estate being still tied up with the intestate estate of Don Andres.

On 14 November 1994, Olivia Pascual filed a Motion to Declare General Default and Distribution of Testamentary Dispositions with Cancellation of Administrator's Bond, noting that no creditor had filed a claim against the estate and that the Intestate Court proceedings had been terminated. In response, petitioner filed a Comment/Manifestation praying for annotation of the attorney's lien, a writ of partial execution for ₱635,368.14 in relation to the Ongpin and Valenzuela properties, appointment of an appraisal company, and issuance of a writ of execution after re-appraisal. On 17 March 1995, the Probate Court denied these motions as prematurely filed, there being no exact estate yet to be inventoried and re-appraised because the bulk of the estate had not yet been turned over to the executrix or the court.

The Court of Appeals affirmed the twin orders, holding that the attorney's lien was chargeable only to the share of Olivia Pascual, not the estate, since it was she who entered into the agreement with petitioner; citing Lacson vs. Reyes, the appellate court asserted that an administrator or executor may not recover attorney's fees from the estate. The appellate court also ruled that the motion for execution was premature because no agreement on the distribution of properties had been submitted and approved by the probate court.

• Governing Rule on Attorney's Fees: Petitioner argued that as held in Occeña vs. Marquez, the counsel seeking to recover attorney's fees for legal services to the executor or administrator is authorized to file a petition in the testate or intestate proceedings asking the court, after notice to all the heirs and interested parties, to direct the payment of his fees as expenses of administration.
• Inapplicability of Lacson vs. Reyes: Petitioner alleged that Lacson was inappropriately cited, since that case involved an executor who concurrently was a lawyer who subsequently claimed attorney's fees as part of the expenses of administration.
• Satisfaction of the Condition Precedent: Petitioner claimed that the decision of the probate court admitting Doña Adela's will to probate sufficiently satisfies the condition in the Retainer Agreement that the final fee be payable "upon approval by the court of the agreement for the distribution of the properties to the court designated heirs of the estate," the court-approved will comprising the agreement referred to in the contract.
• Jurisdiction Over the Estate: Petitioner submitted that the Probate Court ineluctably has jurisdiction over the estate of Doña Adela and has necessarily assumed control over the properties belonging to the estate, so there is no need to await the turnover of properties involved in the intestate estate of Don Andres since the Probate Court and the Intestate Court have concurrent jurisdiction over these properties as they have not yet been physically divided.
• Partial Execution: Petitioner pointed out that the Probate Court had authorized and approved the sale of the Ongpin Property, yet refused to allow the partial execution of its claim for attorney's fees.
• Re-appraisal: Petitioner asserted that the Probate Court erred in refusing to grant the prayer seeking the re-appraisal of the property of Doña Adela's estate, such re-appraisal being necessary to determine the three percent share in the total gross estate committed to petitioner by reason of the Retainer Agreement.

• Liability of the Individual Client: Olivia Pascual argued that a lawyer of an administrator or executor should charge the individual client, not the estate, for professional fees.
• Lack of Notice: Olivia Pascual claimed, citing jurisprudence, that the counsel claiming attorney's fees should give sufficient notice to all interested parties to the estate, and that such was not accomplished by petitioner considering that no notices were given to the several legatees designated in Doña Adela's will.
• Prematurity: Olivia Pascual argued that the motion for execution was premature, considering that the proceedings before the Intestate Court had not yet been terminated.
• Erroneous Computation: Olivia Pascual argued that the computation of the figure of ₱1,198,097.02 was erroneous.
• Prejudice to Other Heirs: Olivia Pascual argued that the enforcement of the writ of execution on the undivided estate of Don Andres would prejudice his other heirs entitled to one-fourth thereof.

• Recovery Against the Estate: Whether a lawyer who renders legal services to the executor or administrator of an estate can claim attorney's fees against the estate instead of the executor or administrator.
• Sufficiency of Notice: Whether petitioner's Motion for Writ of Execution satisfied the requisite notice to all heirs and interested parties for a claim for attorney's fees directly chargeable against the estate.
• Prematurity of the Claim: Whether the claim for attorney's fees was premature for lack of a court-approved agreement for the distribution of the properties of the estate.
• Partial Execution: Whether petitioner was entitled to a partial writ of execution of its attorney's fees claim.

• Recovery Against the Estate: Yes. A lawyer who renders legal services to the executor or administrator may claim attorney's fees against the estate as an administration expense, notwithstanding the general rule that the executor or administrator is primarily liable. The lawyer may file a petition in the testate or intestate proceedings asking the court to direct payment of the fees as expenses of administration, with notice to all heirs and interested parties.
• Sufficiency of Notice: No. The requisite notice to all heirs and interested parties was not satisfied, as only Olivia Pascual was served with a copy of the Motion for Writ of Execution, despite the will designating 19 other individuals and four institutions as recipients of devises or legacies.
• Prematurity of the Claim: No. The Court disagreed with the Court of Appeals that prematurity of the claim was the fatal impediment; the fatal defect was the absence of requisite notices to all interested persons.
• Partial Execution: No. The prayer for a partial writ of execution could not be granted at that stage due to the fatal absence of due notice to the other designated beneficiaries, although the Probate Court, within its discretion, is capacitated to render the award of attorney's fees as administration expenses either partially or provisionally.

• Recovery Against the Estate: The Court reiterated the rule from Escueta vs. Sy-Juilliong and Occeña vs. Marquez: when a lawyer has rendered legal services to the executor or administrator to assist him in the execution of his trust, his attorney's fees may be allowed as expenses of administration. The estate is not directly liable for his fees, the liability for payment resting primarily on the executor or administrator. If the administrator had paid the fees, he would be entitled to reimbursement from the estate. The procedure to be followed by counsel to collect his fees is to request the administrator to make payment, and should the latter fail to pay, either to (a) file an action against him in his personal capacity, and not as administrator, or (b) file a petition in the testate or intestate proceedings asking the court, after notice to all the heirs and interested parties, to direct the payment of his fees as expenses of administration. Lacson vs. Reyes was distinguished because it involved an executor who also happened to be the lawyer for the heirs, and Section 7, Rule 85 of the Rules of Court of 1985 explicitly prohibits an executor or administrator who is an attorney from charging professional fees against the estate. No such rule exists barring direct recovery of professional legal fees from the estate by a lawyer who is not the executor or administrator. The claim for attorney's fees partakes the nature of an administration expense, which includes attorney's fees incurred in connection with the administration of the estate, and the claim for reimbursement must be superior to the rights of the beneficiaries. However, if the costs of counsel's fees arise out of litigation among the beneficiaries themselves or in the protection of the interests of particular persons, the estate generally cannot be held liable for such costs.
• Sufficiency of Notice: The Court held that the Notice of Attorney's Lien only seeks to serve notice of the pendency of the claim for attorney's fees, and not the payment of such fees itself; on its own, it cannot serve as the basis for the Probate Court to authorize payment. The Motion for Writ of Execution, however, did expressly seek the payment of attorney's fees. The critical question was whether this motion satisfied the requisites set in Escueta for a claim directly chargeable against the estate. It did not, because the requisite notice to all heirs and interested parties was not satisfied. Doña Adela's will designated 19 other individuals apart from Olivia Pascual, and four different institutions as recipients of devises or legacies, yet only Olivia Pascual was served with a copy of the Motion for Writ of Execution. The payment of attorney's fees, especially in the amount of 3% of the total gross estate, substantially diminishes the estate and may cause the diminution of the devises and legacies of the other beneficiaries. The requisite notice is anchored on the constitutional principle that no person shall be deprived of property without due process of law. The heirs, devisees, and legatees acquire proprietary rights by reason of the will upon the moment of the death of the decedent, incipient or inchoate as such rights may be, pursuant to Article 777 of the Civil Code. The failure to notify deprived these interested persons of the right to be heard in a hearing geared towards determining whether petitioner was entitled to the immediate payment of attorney's fees. The claim for attorney's fees is hardly incontrovertible; any party interested in the estate may posit objections, such as that the fees were not necessary expenses in the care, management, and settlement of the estate.
• Prematurity of the Claim: The Court disagreed with the Court of Appeals that prematurity of the claim was the fatal impediment. The Retainer Agreement between petitioner and Olivia Pascual allows petitioner two possible causes of action. The first pivots on the Retainer Agreement, which establishes an obligation on the part of Olivia Pascual to pay the final fee of 3% of the gross total estate, payable upon approval by the Probate Court of the agreement for the distribution of the properties. Since the recovery is premised on the Retainer Agreement, any award thereupon has to await the final ascertainment of value of the gross total estate, as well as the approval by the Probate Court of the agreement for the distribution of the properties. Moreover, the Retainer Agreement was entered into prior to the filing of the probate petition, when Olivia Pascual had no recognized right to represent the estate yet; if petitioner insists on judicial enforcement of the Retainer Agreement, its proper remedy would be a personal action against Olivia Pascual, not against the estate. The second or alternative recourse is the direct claim for attorney's fees against the estate as authorized under Escueta; the character of this claim is not contractual in nature but rather as a reimbursement for a necessary expense of administration, and it will be allowed if it satisfies the criteria for necessary expenses of administration. By filing their claim directly against the estate, petitioner resorted to this second cause of action. Since the claim arises irrespective of the contingencies stipulated in the Retainer Agreement, the attorney's fees may be collected against the estate even before the final determination of its gross total value or the final approval of the project of partition. The one distinct disadvantage is that the Retainer Agreement cannot be deemed binding on the estate or the Probate Court since the estate is not a party to such contract. In any event, whether the claim was pursued through a separate suit against Olivia Pascual or against the estate as reimbursement for necessary administration expenses, it remains essential that a hearing be conducted on the claim, focusing on the value of the services of the petitioner and the necessity of engaging petitioner as counsel.
• Partial Execution: The Court held that the prayer for a partial writ of execution could not be granted at that stage due to the fatal absence of due notice to the other designated beneficiaries. However, to authorize outright denial could unduly delay the settlement of the estate, considering the likelihood that petitioner would again pursue such claim. The Court deemed it proper to mandate the Probate Court to treat the Motion for Writ of Immediate Execution as a petition seeking a court order to direct the payment of attorney's fees as expenses of administration, subject to the condition that petitioner give due notice to the other designated devisees and legatees prior to the requisite hearing. The Probate Court, within its discretion, is capacitated to render the award of attorney's fees as administration expenses either partially or provisionally, depending on the particular circumstances and its ultimate basis for the determination of the appropriate attorney's fees.

• Escueta Rule on Recovery of Attorney's Fees from the Estate — When a lawyer has rendered legal services to the executor or administrator to assist him in the execution of his trust, his attorney's fees may be allowed as expenses of administration. The estate is not directly liable for his fees, the liability for payment resting primarily on the executor or administrator. If the administrator had paid the fees, he would be entitled to reimbursement from the estate. The procedure to be followed by counsel to collect his fees is to request the administrator to make payment, and should the latter fail to pay, either to (a) file an action against him in his personal capacity, and not as administrator, or (b) file a petition in the testate or intestate proceedings asking the court, after notice to all the heirs and interested parties, to direct the payment of his fees as expenses of administration. Whichever course is adopted, the heirs and other persons interested in the estate will have the right to inquire into the value of the services of the lawyer and on the necessity of his employment. The Court applied this rule to hold that petitioner's claim for attorney's fees against the estate was authorized, but the failure to give notice to all heirs, devisees, and legatees rendered the claim inefficacious.
• Attorney's Fees as Administration Expenses — Attorney's fees incurred in connection with the administration of the estate partake the nature of administration expenses. They are expenses attending the accomplishment of the purpose of administration growing out of the contract or obligation entered into by the personal representative of the estate, and the claim for reimbursement must be superior to the rights of the beneficiaries. However, if the costs of counsel's fees arise out of litigation among the beneficiaries themselves or in the protection of the interests of particular persons, the estate generally cannot be held liable for such costs. The Court applied this doctrine to characterize petitioner's claim as one for reimbursement for necessary administration expenses, superior to the rights of the beneficiaries, but subject to the requisite notice and hearing.
• Due Process Requirement of Notice to Interested Parties — The requisite notice to the heirs, devisees, and legatees of a claim for attorney's fees against the estate is anchored on the constitutional principle that no person shall be deprived of property without due process of law. The fact that these persons were designated in the will as recipients of the testamentary dispositions establishes their rights to the succession, which are transmitted to them from the moment of the death of the decedent. The payment of attorney's fees necessarily diminishes the estate and may effectively diminish the value of the testamentary dispositions. The Court applied this principle to hold that petitioner's failure to notify the other heirs, devisees, and legatees deprived them of the right to be heard on the claim for attorney's fees.

• "The rule is that when a lawyer has rendered legal services to the executor or administrator to assist him in the execution of his trust, his attorney's fees may be allowed as expenses of administration. The estate is, however, not directly liable for his fees, the liability for payment resting primarily on the executor or administrator. If the administrator had paid the fees, he would be entitled to reimbursement from the estate. The procedure to be followed by counsel in order to collect his fees is to request the administrator to make payment, and should the latter fail to pay, either to (a) file an action against him in his personal capacity, and not as administrator, or (b) file a petition in the testate or intestate proceedings asking the court, after notice to all the heirs and interested parties, to direct the payment of his fees as expenses of administration." — This passage, quoted from Occeña v. Marquez citing Escueta v. Sy-Juilliong, states the governing rule on the two modes of recovery of attorney's fees by counsel of an executor or administrator and is the ratio decidendi of the case.
• "The requisite notice to the heirs, devisees, and legatees is anchored on the constitutional principle that no person shall be deprived of property without due process of law." — This passage articulates the constitutional basis for requiring notice to all interested parties before attorney's fees may be claimed against the estate, and is central to the Court's holding that petitioner's claim was inefficacious for lack of notice.
• "The fact that these persons were designated in the will as recipients of the testamentary dispositions from the decedent establishes their rights to the succession, which are transmitted to them from the moment of the death of the decedent." — This passage explains why heirs, devisees, and legatees have proprietary rights requiring due process protection, citing Article 777 of the Civil Code, and why notice of claims for attorney's fees is integral to allow them to pose objections.

• Escueta vs. Sy-Juilliong, 5 Phil. 405 (1905) — Controlling precedent establishing the rule on recovery of attorney's fees from the estate by counsel of an executor or administrator, including the two modes of recourse and the requirement of notice to all heirs and interested parties. The Court applied this case as the governing rule.
• Occeña vs. Marquez, 158 Phil. 249 (1974) — Followed; reiterated the rule from Escueta and was cited by petitioner as the governing rule on recovery of attorney's fees as expenses of administration.
• Lacson vs. Reyes, G.R. No. 86250, 26 February 1990, 182 SCRA 729 — Distinguished; involved an executor who concurrently was a lawyer who claimed attorney's fees as part of the expenses of administration, and was governed by Section 7, Rule 85 of the Rules of Court of 1985 prohibiting such recovery. The Court held this case was not squarely in point.
• Pascual vs. Pascual-Bautista, G.R. No. 84240, 25 March 1992, 207 SCRA 561 — Prior related litigation; affirmed the denial of the claims of Olivia and Hermes Pascual to be recognized as heirs of Don Andres, applying Article 992 of the Civil Code.
• Pascual vs. Court of Appeals, 360 Phil. 403 (1998) — Prior related litigation; denied Olivia Pascual's petition for annulment of the award of attorney's fees to Atty. Jesus I. Santos in the intestate estate of Don Andres.

• Article 992, Civil Code — Applied in prior litigation (Pascual vs. Pascual-Bautista) to deny the claims of acknowledged natural children of a brother of the decedent to inherit from the decedent, on the ground that an illegitimate child cannot inherit from the legitimate relatives of his father or mother.
• Section 7, Rule 85, Rules of Court of 1985 — Provides that "[w]hen the executor or administrator is an attorney, he shall not charge against the estate any professional fees for legal services rendered by him." The Court distinguished Lacson vs. Reyes on this basis, noting that no such rule exists barring direct recovery of professional legal fees from the estate by a lawyer who is not the executor or administrator.
• Section 1, Rule 86, Rules of Court — Cited in Olivia Pascual's Motion to Declare General Default, noting that no creditor had filed a claim against the estate of Doña Adela despite due notice published pursuant to this provision.
• Article III, Section 1, Constitution — The due process clause, which the Court held anchors the requisite notice to heirs, devisees, and legatees of claims for attorney's fees against the estate.
• Article 777, Civil Code — Provides that the rights to the succession are transmitted from the moment of the death of the decedent; the Court cited this to explain why heirs, devisees, and legatees acquire proprietary rights by reason of the will upon the moment of the death of the decedent, incipient or inchoate as such rights may be.

Justice Leonardo A. Quisumbing (Chairperson), Justice Antonio T. Carpio, Justice Conchita Carpio Morales, and Justice Presbitero J. Velasco, Jr. concurred in the decision.