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Urban Bank, Inc. vs Atty.

Magdaleno Peña

Problem Areas in Legal Ethics – Unconscionable Attorney’s Fees –Quantum Meruit


In 1994, Isabel Sugar Company, Inc. (ISCI) sold a parcel of land to Urban Bank, Inc. (UBI). The land was sold for P240
million. As the land was occupied by unauthorized sub-tenants, ISCI’s lawyer, Atty. Magdaleno Peña had to
negotiate with them for them to relocate. But the said occupants, knowing that the land was already transferred
to UBI, refused to recognize Peña. ISCI then communicated with UBI so that the latter may authorize Peña to
negotiate with the tenants. Peña had to barricade himself inside the property to keep the tenants out who were
forcing their way in especially so that the local cops are now sympathetic to them. Peña then had a phone
conversation with Teodoro Borlongan, president of UBI, where Peña explained to him the situation. In said
conversation, Peña asked authorization from Borlongan to negotiate with the tenants. Peña also asked that he be
paid 10% of the purchase price or (P24 million) for his efforts. Borlongan agreed over the phone on the condition
that Peña should be able to settle with the tenants otherwise he forfeits said 10% fee. Peña also asked that said
authorization be put into writing.
The authorization was put into writing but no mention was made as regards the 10% fee, (in short, that part was
not written in the written authorization released by UBI). Peña was able to settle and relocate the tenants. After
everything was settled and the property is now formally under the possession of UBI, Peña began sending
demands to UBI for the latter to pay him the P24 million fee agreed upon, plus his expenses for the relocation of
the tenants and the hiring of security guards or an additional P3 million. But UBI refused to make payment hence
Peña filed a complaint for recovery against UBI.
The trial court ruled in favor of Peña as it found there indeed was a contract of agency created between and UBI
and that Peña is entitled to the 10% fee plus the expenses he incurred including litigation expenses. In sum, the
trial court awarded him P28 million.
The Court of Appeals however reversed the order of the trial court. It ruled that no agency was formed but for his
legal services, Peña is entitled to payment but applying the principle of unjust enrichment and quantum meruit,
Peña should only be paid P3 million.
ISSUE: Whether or not Atty. Magdaleno Peña is entitled to receive the P28 million.
HELD: No. The Supreme Court ruled that said amount is unconscionable. Peña is entitled to payment for
compensation for services rendered as agent of Urban Bank, but on the basis of the principles of unjust
enrichment and quantum meruit. In the first place, other than the self-serving testimony of Peña, there was no
other evidence presented to support his claim that Borlongan agreed to pay him that 10% over the phone. The
written authorization later issued merely confirms the power granted him to negotiate with the tenants. The
written authorization proved the existence of agency but not the existence of any agreement as to how much Peña
should be paid.
Absent any such agreement, the principle of quantum meruit should be applied. In this case, Peña is entitled to
receive what he merit for his services, or as much as he has earned. In dealing with the tenants, Peña didn’t have
to perform any extraordinary acts or legal maneuvering. Hence, he is entitled to receive P1.5 million for his legal
services. He is also entitled to reimbursement for his expenses in securing the property, to wit, P1.5 million for the
security guards he had to hire and another P1.5 million for settling and relocating the 23 tenants. Total of P4.5
million.
The Supreme Court emphasized that lawyering is not a business; it is a profession in which duty to public service,
not money, is the primary consideration.
Philex Mining Corporation v CIR (1998)

Philex Mining Corporation v CIR GR No 125704, August 28, 1998

FACTS:
BIR sent a letter to Philex asking it to settle its tax liabilities amounting to P124 million. Philex protested
the demand for payment stating that it has pending claims for VAT input credit/refund amounting to P120
million. Therefore, these claims for tax credit/refund should be applied against the tax liabilities.
In reply the BIR found no merit in Philex’s position. On appeal, the CTA reduced the tax liability of
Philex.

ISSUES:

1. Whether legal compensation can properly take place between the VAT input credit/refund and the
excise tax liabilities of
Philex Mining Corp;
2. Whether the BIR has violated the NIRC which requires the refund of input taxes within 60 days
3. Whether the violation by BIR is sufficient to justify non-payment by Philex

RULING:

1. No, legal compensation cannot take place. The government and the taxpayer are not creditors and
debtors of each other.
2. Yes, the BIR has violated the NIRC. It took five years for the BIR to grant its claim for VAT
input credit. Obviously, had the
BIR been more diligent and judicious with their duty, it could have granted the refund
3. No, despite the lethargic manner by which the BIR handled Philex’s tax claim, it is a settled rule
that in the performance of
government function, the State is not bound by the neglect of its agents and officers. It must be
stressed that the same is not a valid reason for the non-payment of its tax liabilities.
J-PHIL MARINE, INC. v. NLRC and Dumalaog G.R. No. 175366
FACTS:

Dumalaog, filed before the NLRC complaint against petitioners ─ manning agency J-Phil Marine, Inc. (J-
Phil), its then president, and its foreign principal ─ for (1) unpaid money claims, moral and exemplary
damages, attorneys fees and (2) praying for the award of overtime pay, vacation leave pay, sick leave
pay, and disability/medical benefits, he having, by his claim, contracted enlargement of the heart and
severe thyroid enlargement in the discharge of his duties as cook which rendered him disabled.

NLRC awarded US$50,000.00 disability benefit to respondent and dismissed the other claims.

The case reached the Supreme Court and during its pendency therein, respondent, against the advice of
his counsel, entered into a compromise agreement with petitioners where he signed a Quitclaim and
Release subscribed and sworn to before the Labor Arbiter. A manifestation was filed top inform the
court of the forging of the amicable settlement.

Respondents counsel opposed the absolution of petitioners from paying respondent the total amount of
Fifty Thousand US Dollars (US$50,000.00) or approximately P2,300,000.00, the amount awarded by the
NLRC and prayed that the petitioner be ordered to pay the balance to the respondent there being
P450,000 already paid.

ISSUE:

Whether or not the respondent's council may validly impugn the compromise agreement as
unconscionable.

RULING:

The relation of attorney and client is in many respects one of agency, and the general rules of agency.
The acts of an agent are deemed the acts of the principal only if the agent acts within the scope of his
authority. The circumstances of this case indicate that respondents counsel is acting beyond the scope
of his authority in questioning the compromise agreement.

A compromise agreement is valid as long as the consideration is reasonable and the employee signed
the waiver voluntarily, with a full understanding of what he was entering into. All that is required for the
compromise to be deemed voluntarily entered into is personal and specific individual consent. Thus,
contrary to respondents contention, the employees counsel need not be present at the time of the
signing of the compromise agreement.

That a client has undoubtedly the right to compromise a suit without the intervention of his lawyer
cannot be gainsaid, the only qualification being that if such compromise is entered into with the intent
of defrauding the lawyer of the fees justly due him, the compromise must be subject to the said fees. In
the case at bar, there is no showing that respondent intended to defraud his counsel of his fees. In fact,
the Quitclaim and Release, the execution of which was witnessed by petitioner J-Phils president Eulalio
C. Candava and one Antonio C. Casim, notes that the 20% attorneys fees would be paid 12 April 2007
P90,000.
OLAGUE
OLAGUER v. ONJUCO
G.R. No. 173312; August 26, 2008
Ponente: J. Chico-Nazario

FACTS:
Lino Olaguer died on October 3, 1957 so Special Proceedings No. 528 for probate of will was filed in the
then Court of First Instance of Albay. Defendant Olivia P. Olaguer was appointed as administrator
pursuant to the will. Later, defendant Eduardo Olaguer was appointed as co-administrator.
In the order of the probate court dated April 4, 1961, some properties of the estate were authorized to
be sold to pay obligations of the estate.
Relying upon the order, but without prior notice or permission from the Probate Court, defendants Olivia
P. Olaguer and Eduardo Olaguer on November 1, 1965 sold to Estanislao Olaguer 10 parcels of land. The
sale to was approved by the Probate Court on November 12, 1965.

On July 7, 1966, defendant Olivia P. Olaguer executed a Special Power of Attorney in favor of defendant
Jose A. Olaguer, authorizing the latter to "sell, mortgage, assign, transfer, endorse and deliver" of 6
properties.

On July 7, 1966, Estanislao Olaguer executed a Special Power of Attorney in favor of Jose A. Olaguer
authorizing the latter to "sell, mortgage, assign, transfer, endorse and deliver" the 9 properties.

By virtue of this Special Power of Attorney, on March 1, 1967, Jose A. Olaguer as Attorney-in-Fact of
Estanislao Olaguer mortgaged Lots 7589, 7593 and 7396 to defendant PNB as security for a loan of
10,000 Pesos. The mortgage was foreclosed by the PNB on June 13, 1973 and the properties mortgage
were sold at public auction to PNB. On December 10, 1990, the PNB transferred the properties to the
Republic of the Philippines pursuant to Exec. Order No. 407 dated June 14, 1990 for agrarian reform
purposes.

On October 29, 1966, Estanislao Olaguer executed a General Power of Attorney in favor of Jose A.
Olaguer, authorizing the latter to exercise general control and supervision over all of his business and
properties, and among others, to sell or mortgage any of his properties.

On December 29, 1966, Estanislao Olaguer sold to Jose A. Olaguer for 15,000 the 10 parcels of land he
bought from Olivia P. Olaguer and Eduardo Olaguer.

On March 16, 1968, Estanislao Olaguer sold to Jose A. Olaguer for 1 Peso and other valuable
consideration 2 parcels of land which have a total area of 2.5 hectares.
On June 5, 1968, Estanislao Olaguer sold another 2 lots to Jose A. Olaguer for 1 Peso and other valuable
consideration.

On May 13, 1971, Jose A. Olaguer in his capacity as Attorney in-Fact of Estanislao Olaguer sold to his son
Virgilio Olaguer for 1 Peso and other valuable consideration.

On July 15, 1974, Jose A. Olaguer sold to his son Virgilio Olaguer Lot No. 4521 and Lot No. 4522 for
1,000 Pesos.

On September 16, 1978 Virgilio Olaguer executed a General Power of Attorney in favor of Jose A. Olaguer
authorizing the latter to exercise general control and supervision over all of his business and properties
and among others, to sell or mortgage the same.
Olivia P. Olaguer and Eduardo Olaguer were removed as administrators of the estate and on February 12,
1980, plaintiff Ma. Linda Olaguer Montayre was appointed administrator by the Probate Court.
The decedent Lino Olaguer have had three marriages. He was first married to Margarita Ofemaria who
died April 6, 1925. His second wife was Gloria Buenaventura who died on July 2, 1937. The third wife
was the defendant Olivia P. Olaguer.

Jose Olaguer acting upon the general power of attorney sold 8 parcels of land to Emilio Ongjoco.

On 28 January 1980, the Estate of Lino Olaguer filed an action for the Annulment of Sales of Real
Property and/or Cancellation of Titles in the then Court of First Instance of Albay. The plaintiffs therein
alleged that the sales of the following properties belonging to the Estate of Lino Olaguer to Estanislao
Olaguer were absolutely simulated or fictitious, the plaintiffs likewise prayed that the resulting Transfer
Certificates of Title issued to Jose Olaguer, Virgilio Olaguer, Cipriano Duran and the PNB be annulled.
ISSUE:
Whether General Power of Attorney was sufficient to effect the sale of the subject properties
HELD:
Yes, the general power of attorney was sufficient

The Supreme Court held that while the law requires a special power of attorney, the general power of
attorney was sufficient in this case, as Jose A. Olaguer was expressly empowered to sell any of Virgilio's
properties; and to sign, execute, acknowledge and deliver any agreement therefor. Even if a document
is designated as a general power of attorney, the requirement of a special power of attorney is met if
there is a clear mandate from the principal specifically authorizing the performance of the act. The
special power of attorney can be included in the general power when the act or transaction for which the
special power is required is specified therein.
On its face, the written power of attorney contained the signature of Virgilio Olaguer and was duly
notarized. As such, the same is considered a public document and it has in its favor the presumption of
authenticity and due execution, which can only be contradicted by clear and convincing evidence.