A.C. No. 9119 - Cortez vs. Cortes

Complainant Eugenio E. Cortez filed a Complaint-Affidavit against respondent Atty. Hernando P. Cortes for grave misconduct, violation of the Lawyer’s Oath, and breach of the Code of Professional Responsibility.
The dispute arose from their engagement as counsel in a labor case against Philippine Explosives Corporation (PEC) wherein an illegal dismissal claim was successfully prosecuted by Atty. Cortes on behalf of the complainant.

Complainant alleged that he and Atty. Cortes reached a handshake agreement for a 12% contingency fee based on the awarded claim.
In his defense, Atty. Cortes admitted to being engaged by the complainant but contended that the arrangement was a 50-50 sharing of the proceeds, justifying his demand by citing familial ties and the practical circumstances (geographical distance and other hardships) faced by the complainant.

The labor case was decided in favor of the complainant with the National Labor Relations Commission and affirmed by the Court of Appeals.
PEC was ordered to pay a total award of One Million One Hundred Thousand Pesos (P1,100,000) in three staggered installments, issued by City Bank as:

When the complainant attempted to withdraw the funds from the first check, Atty. Cortes intervened by instructing the bank to hold the transaction, insisting that 50% of the total award belonged to him.
Despite alternate offers from the complainant to settle with a lesser amount (P200,000 or P275,000), Atty. Cortes maintained his claim for 50% of the total award, effectively forcing the complainant to endorse the remaining checks under protest.
With assistance from the Integrated Bar of the Philippines (IBP) lawyers, remedial measures were taken to cancel one of the endorsed checks before encashment.

The IBP Commission on Bar Discipline conducted an investigation and, in its Report and Recommendation dated April 11, 2007, suggested that contingent fee arrangements must be in writing and not solely enforced on quantum meruit.
The Commission highlighted that in labor cases, attorney’s fees are generally capped, referencing Article 111 of the Labor Code, though this limitation applies only to awards as damages and not necessarily to fees agreed between a lawyer and his client.
The IBP Board of Governors adopted the recommendation and imposed a six-month suspension on Atty. Cortes, ordering him to return amounts received in excess of the 10% allowable fees, a decision later contested by a motion for reconsideration.

Atty. Cortes argued that the alleged 12% fee was a fabrication, defending instead the 50% sharing arrangement based on pre-execution discussions and the circumstances surrounding the case.
The disciplinary tribunal, as well as subsequent judicial review, examined the validity of contingent fee agreements, considering existing jurisprudence on the necessity of express written contracts for such arrangements under Philippine law.

Whether the acts of Atty. Hernando P. Cortes in insisting on a 50% fee, contrary to the alleged handshake agreement for a 12% contingency fee, constitute misconduct warranting disciplinary sanctions.
Whether a contingent fee arrangement in labor cases, which is valid only when laid down in an express written contract, can be enforced if only a handshake agreement exists between the parties.
Whether the 10% limitation on attorney’s fees provided under Article 111 of the Labor Code automatically applies to attorney-client fee agreements, or if fees may exceed that threshold based on quantum meruit.
Whether the exorbitant fee demanded by Atty. Cortes in light of the complainant’s financial situation and the nature of the case is unconscionable and in violation of ethical standards as set out in Canon 20 of the Code of Professional Responsibility.