G.R. No. L-7777 - Grey vs. Insular Lumber Co.

Contingent fees are permissible in the Philippines and are implicitly sanctioned by law.
Such agreements must be supervised by the court to protect clients from unjust charges.
If a contingent fee contract is obtained through undue influence, fraud, or if the fee is excessively high, the court can protect the aggrieved party.

Payments made to an estate from a judgment are considered part of the estate's funds and are thus in custodia legis.
The probate court has jurisdiction over these funds, even if temporarily held by third parties.
Any attorney's fees paid from the estate must be notified to the administrator and approved by the probate court.

The case originated when M. E. Grey filed a suit against Insular Lumber Company to collect a debt.
Following Grey's death, Ruth Grey was appointed as administratrix of his estate and substituted as the plaintiff.
The trial court ruled in favor of the plaintiff, leading to a judgment that was later modified by the Supreme Court.
The Insular Lumber Company issued a check for P88,453.56 to Ruth Grey, which was delivered to Atty. Carlos Hilado, the plaintiff's counsel.

Atty. Hilado filed a motion claiming a 25% contingent fee from the judgment amount, totaling P22,113.39.
He requested the court to cancel the original check and issue two separate checks: one for the administratrix and one for himself.
The Company opposed the motion, asserting it had fulfilled its obligation by paying the administratrix.

The trial court granted Atty. Hilado's amended motion, recording his lien and ordering the issuance of two checks.
The Company appealed the ruling, questioning the necessity of the motion and the attorney's claim.

The Company had no legal interest in the distribution of the judgment amount and had complied with its obligation by issuing the check.
Atty. Hilado's claim for a charging lien was made after the Company had already fulfilled its payment obligation.
The court noted that if Atty. Hilado had established his lien before the payment, the trial court could have ordered separate payments.

The legal representative of the estate must be given an opportunity to contest the claim for the contingent fee.
The court emphasized the importance of hearing from the administratrix, especially since she was residing in the United States.
Atty. Strachan, the attorney for the estate, may not have had sufficient time to communicate with Ruth Grey regarding the claim.