Luna Vs Atty Gallarita

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July 7, 2015

A.C. No. 10662


[Formerly CBD Case No. 10-2654]
JUN B. LUNA, Complainant,
vs.
ATTY. DWIGHT M. GALARRITA, Respondent.
Doctrine:
Failure to deliver to client the settlement proceeds after entering into a Compromise
Agreement in the foreclosure case without his client’s consent.
Facts:
On April 7, 2010, Jun B. Luna (Luna) filed an Affidavit-Complaint1 against his lawyer, Atty.
Dwight M. Galarrita (Atty. Galarrita), before the Integrated Bar of the Philippines.
Luna alleged that he retained Atty. Galarrita’s legal services in filing a foreclosure
Complaint2 on October 14, 2002 before the Regional Trial Court of Gumaca, Quezon. 3 The
Complaint against one Jose Calvario (Calvario) alleged that Calvario borrowed P100,000.00 from
Luna. This loan was secured by a Deed of Real Estate Mortgage 4 over a parcel of land in Quezon
Province.5 Due to non-payment of the loan, Luna filed the Complaint praying for payment of the
obligation with interest, and issuance of a foreclosure decree upon Calvario’s failure to fully pay
within the period.6
The parties tried to amicably settle the case during pre-trial, followed by Luna’s presentation
and offer of evidence.7
Atty. Galarrita opted to enter into a settlement with the other party after his formal offer of
evidence.8 They submitted the Kasunduan9 (Compromise Agreement) before the trial court on
February 14, 2006.10 It provided that Calvario would pay Luna P105,000.00 as payment for his
mortgaged land and, in turn, Luna would cause the removal of the encumbrance annotation on
the land title.11 The trial court approved12 the Compromise Agreement in its February 20, 2006
Decision.13 Luna alleged that Atty. Galarrita never informed him of this Compromise
Agreement, and did not deliver to him the P100,000.00 settlement proceeds Atty. Galarrita
had received.14
Luna alleged in his Affidavit-Complaint that Atty. Galarrita has not remitted the P100,000.00 to
date.30 He prays for Atty. Galarrita’s disbarment.31
In his Verified Answer,32 Atty. Galarrita prays for the dismissal of the disbarment
Complaint.33 He argues that he entered the Compromise Agreement by virtue of a Special
Power of Attorney34 that includes this purpose.35 He regularly submitted reports to Luna on
developments and possible settlement before he entered the Compromise Agreement.36 He
submits that Luna "‘slept’ on his rights."37
Atty. Galarrita adds that under their General Retainership Agreement, 38 Luna shall pay him
_4,000.00 monthly.39 Luna should have paid P48,000.00 as of November 17, 2006, and after
four years with no revocation, termination, or nullification, Luna’s unpaid obligation amounted
to P208,000.00.40 He listed other unpaid amounts for his legal services. 41 Atty. Galarrita, thus,
argues for an application of the rule on retaining lien.42 Atty. Galarrita also raises the two-year
prescription under Rule VIII, Section 1 of the Rules of Procedure of the Integrated Bar of the
Philippines Commission on Bar Discipline.43 More than four years elapsed since their last
communication in 2006 when the Compromise Agreement became final.44
In his December 4, 2010 Report and Recommendation,45 the Integrated Bar of the Philippines
Investigating Commissioner46 found that Atty. Galarrita violated Rule 16.03 of the Code of
Professional Responsibility and recommended "his suspension from the practice of law for a
period of one (1) year[.]"47
Issue:
Whether respondent Atty. Galarrita should be held administratively liable for entering into a
Compromise Agreement without his client complainant Luna’s consent, then refusing to turn
over the settlement proceeds received.
Ruling:
This court acknowledges the recommendation of the Integrated Bar of the Philippines Board
of Governors, with modification increasing the period of suspension from the practice of law
to two (2) years.
Those in the legal profession must always conduct themselves with honesty and integrity in all
their dealings.53
Lawyers should maintain, at all times, "a high standard of legal proficiency, morality, honesty,
integrity and fair dealing, and must perform their four-fold duty to society, the legal profession,
the courts and their clients, in accordance with the values and norms embodied in the Code [of
Professional Responsibility]."54
Complainant Luna entrusted respondent Atty. Galarrita with handling the civil case involving a
mortgaged land in Quezon Province. However, without complainant Luna’s consent,
respondent Atty. Galarrita settled this case with the other party.
Article 1878 of the Civil Code provides that "[s]pecial powers of attorney are necessary in the
following cases: . . . (3) To compromise, to submit questions to arbitration, to renounce the right
to appeal from a judgment, to waive objections to the venue of an action or to abandon a
prescription already acquired[.]"
The Rules of Court thus requires lawyers to secure special authority from their clients when
entering into a compromise agreement that dispenses with litigation:
SEC. 23. Authority of attorneys to bind clients. – Attorneys have authority to bind their clients in
any case by any agreement in relation thereto made in writing and in taking appeals, and in all
matters of ordinary judicial procedure. But they cannot, without special authority,
compromise their client’s litigation, or receive anything in discharge of a client’s claim but the
full amount in cash.58 (Emphasis supplied)
Atty. Galarrita contends that he holds a Special Power of Attorney to enter into compromise
agreements, but as found by the Investigating Commissioner:
There seems to be a compelling reason to believe that Complainant had not given any
authority for the Complainant [sic] to enter into Compromise Agreement at that precise stage
of the trial. Firstly, the Complainant was not made a party to the Compromise Agreement
despite the fact that he was not abroad when the agreement was executed. Secondly, there
was no indication that he had agreed to the amount of P100,000.00 in exchange for his
withdrawal of the complaint. Thirdly, he was not seasonably informed of the execution of the
Compromise Agreement/payment of the P100,000.00 and came to know of the same only
much later.
To dissect, the SPA was executed on September 16, 2002 or a month before the filing of the
Complaint for Foreclosure of Mortgage. Thus, the conclusion seems to be that the authority
given therein to Respondent to enter into a possible settlement referred only to a possible
settlement that could be secured or firmed up during the preliminary conference or pre-trial
of the case. In fact, the tenor of the SPA indicates that the SPA was precisely executed in order
to constitute Respondent as Complainant’s representative during the preliminary conference or
pre-trial.
Rule 1.01 of the Code of Professional Responsibility states that "[a] lawyer shall not engage in
unlawful, dishonest, immoral or deceitful conduct."60 Members of the bar must always
conduct themselves in a way that promotes "public confidence in the integrity of the legal
profession."61 Even though complainant Luna effectively abandoned the issue on respondent
Atty. Galarrita’s lack of authority to compromise the civil case when he demanded the payment
of the settlement proceeds, this does not erase his acts of abusing the trust and confidence
reposed in him by complainant Luna.
Worse, respondent Atty. Galarrita not only failed to promptly inform complainant Luna of the
former’s receipt of the P100,000.00 settlement proceeds but also refused to turn over the
amount to complainant Luna. This court has held that "any money collected for the client or
other trust property coming into the lawyer’s possession should promptly be reported by him
[or her]."62 Rule 16.03 under Canon 6 of the Code of Professional Responsibility provides that:
CANON 16 – A lawyer shall hold in trust all moneys and properties of his client that may come
into his possession.
....
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.
In this case, respondent Atty. Galarrita entered into the Compromise Agreement involving
complainant Luna’s property without informing him. Even though complainant Luna forewent
the lack of authority issue, respondent Atty. Galarrita still continued to act in bad faith by
refusing to turn over the P100,000.00 settlement amount received.
As to Respondent’s invocation of the lawyer’s retaining lien and his retention of the money,
the undersigned deems the same unlawful. True, the Code of Professional Responsibility allows
the lawyer to apply so much thereof as may be necessary to satisfy his lawful fees and
disbursements, giving notice promptly thereafter to his client." But this provision assumes that
the client agrees with the lawyer as to the amount of attorney’s fees and as to the application
of the client’s fund to pay his lawful fees and disbursements, in which case he may deduct
what is due him and remit the balance to his client, with full disclosure on every detail. Without
the client’s consent, the lawyer has no authority to apply the client’s money for his fees, but
he should instead return the money to his client, without prejudice to his filing a case to
recover his unsatisfied fees.
SEC. 37. Attorney’s liens. – An attorney shall have a lien upon the funds, documents and papers
of his client which have lawfully come into his possession and may retain the same until his
lawful fees and disbursements have been paid, and may apply such funds to the satisfaction
thereof. He shall also have a lien to the same extent upon all judgments for the payment of
money, and executions issued in pursuance of such judgments, which he has secured in a
litigation of his client, from and after the time when he shall have caused a statement of his
claim of such lien to be entered upon the records of the court rendering such judgment, or
issuing such execution, and shall have caused written notice thereof to be delivered to his client
and to the adverse party; and he shall have the same right and power over such judgments and
executions as his client would have enforce his lien and secure the payment of his just fees and
disbursements.99
First, "lawyer[s] [are] not entitled to unilaterally appropriate [their] clients[’] money for
[themselves] by the mere fact that the client[s] [owe] [them] attorney’s fees." 100 They must give
prompt notice to their clients of any receipt of funds for or on behalf of their clients.101
Rule 16.01 of the Code of Professional Responsibility provides for a lawyer’s duty to "account
for all money or property collected or received for or from the client."
Respondent Atty. Galarrita refused to comply with these duties, warranting his suspension from
the practice of law.
Second, the elements required for full recognition of attorney’s lien are: "(1) lawyer-client
relationship; (2) lawful possession of the client’s funds, documents and papers; and (3)
unsatisfied claim for attorney’s fees."102
WHEREFORE, respondent Atty. Dwight M. Galarrita is SUSPENDED from the practice of law for
two (2) years, with a stem warning that a repetition of the same or similar acts shall be dealt
with more severely. He is ORDERED to return to complainant Jun B. Luna the amount of
Pl00,000.00, with legal interest of 6% per annum from February 2006105 until fully paid, without
prejudice to the filing of a collection case for retainer's fee against complainant Luna.

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