G.R. No. 86100-03 - Metropolitan Bank and Trust Co. vs. Court of Appeals

Case Summary (G.R. No. 86100-03)

Factual Background

From March 1974 to September 1983, ARTURO ALAFRIZ AND ASSOCIATES acted as counsel for METROPOLITAN BANK AND TRUST COMPANY in consolidated suits originally filed in the then Court of First Instance of Pasig. The suits sought annulment of certain deeds of sale and damages arising from alleged fraud by Celedonio Javier in transactions involving seven parcels totaling about ten hectares. Certificates of sale issued to METROPOLITAN BANK AND TRUST COMPANY followed foreclosure on mortgages that had secured obligations of Felix Angelo Bautista and/or International Hotel Corporation. On March 23, 1983, METROPOLITAN BANK AND TRUST COMPANY sold the parcels to Service Leasing Corporation for P600,000.00; Service Leasing resold the parcels the same day to Herby Commercial and Construction Corporation for P2,500,000.00. On June 7, 1983, Herby mortgaged the parcels to Banco de Oro for P9,200,000.00. The trial court found that ARTURO ALAFRIZ AND ASSOCIATES lacked knowledge of these transfers.

Trial Court Proceedings

During the litigation, METROPOLITAN BANK AND TRUST COMPANY moved for substitution of party on July 28, 1983. ARTURO ALAFRIZ AND ASSOCIATES filed a verified motion on August 16, 1983 to enter a charging lien under Section 37, Rule 138 equivalent to twenty-five percent of the actual and current market values of the properties. METROPOLITAN BANK AND TRUST COMPANY did not oppose the motion, and the trial court ordered the Register of Deeds of Rizal to annotate the attorney’s liens. Plaintiffs thereafter moved to dismiss their complaints, and the trial court dismissed the consolidated actions with prejudice on September 5, 1983, stating that the plaintiffs’ claims were fully satisfied. The trial court later ordered annotation of the attorney’s liens on derivative titles on December 29, 1983. On May 28, 1984, ARTURO ALAFRIZ AND ASSOCIATES moved to fix attorney’s fees on a quantum meruit basis. The trial court ultimately ordered on October 15, 1984 that METROPOLITAN BANK AND TRUST COMPANY and Herby pay ARTURO ALAFRIZ AND ASSOCIATES the amount of P936,000.00 as attorney’s fees.

Court of Appeals Ruling and Procedural History

The Court of Appeals, in a decision promulgated February 11, 1988, affirmed the trial court’s order fixing fees and directing payment of P936,000.00. METROPOLITAN BANK AND TRUST COMPANY appealed to the Supreme Court by petition for review on certiorari. A motion for reconsideration filed with the Court of Appeals on March 3, 1988 was denied by resolution dated November 19, 1988. The present petition sought review of the affirmance.

Issues Presented

The petition framed three principal issues: first, whether ARTURO ALAFRIZ AND ASSOCIATES was entitled to enforcement of its charging lien; second, whether a separate civil suit was necessary to enforce such lien; and third, whether ARTURO ALAFRIZ AND ASSOCIATES was entitled to twenty-five percent of the actual and current market values of the litigated properties on a quantum meruit basis.

Parties’ Contentions

METROPOLITAN BANK AND TRUST COMPANY contended that no enforceable charging lien arose because the dismissal of the complaints produced no judgment for the payment of money nor any execution issued in pursuance of such a judgment, requisites explicitly stated in Section 37, Rule 138. ARTURO ALAFRIZ AND ASSOCIATES maintained that its charging lien attached to the proceeds of any judgment or to the property in litigation, relying on Bacolod-Murcia Milling Co., Inc. vs. Henares and certain foreign authorities to the effect that a lawyer’s lien may attach to the judgment recovered and its proceeds in whatever form.

Supreme Court’s Ruling

The Court agreed with METROPOLITAN BANK AND TRUST COMPANY and held that Section 37, Rule 138 conditions an enforceable charging lien upon the existence of a money judgment and an execution issued in pursuance of that judgment. Because the trial court’s dismissal order granted no money judgment and produced no execution, ARTURO ALAFRIZ AND ASSOCIATES had no statutory charging lien enforceable against the litigated properties or their titles. The Court therefore reversed and set aside the decision of the Court of Appeals and the trial court order insofar as these enforced payment of P936,000.00 against METROPOLITAN BANK AND TRUST COMPANY, but left intact the procedural right of counsel to pursue an appropriate action to establish any right to fees.

Legal Basis and Reasoning

The Court construed Section 37, Rule 138 in haec verba and concluded that Philippine law limited the charging lien to judgments for money and executions in pursuance of such judgments. The Court found persuasive precedent that a charging lien is not a lien upon the property in litigation but is at most a personal claim enforceable by execution, citing Caina, et al. vs. Victoriano, et al., Ampil vs. Juliano-Aqrava, et al., and Director of Lands vs. Ababa, et al. The Court distinguished foreign authority to the contrary because of differences in statutory bases and legal systems and noted that even in Bacolod-Murcia Milling Co., Inc. vs. Henares there was an express declaration that in the Philippines a attorney’s lien does not attach to the property in litigation. The Court likewise treated as inapposite the argument that the lien attached to proceeds in whatever form in the absence of a money judgment. The Court acknowledged that an attorney may enforce fees incident to the main action when a money judgment establishes a fund to which the lien may attach, and that the trial court had jurisdiction to determine attorney’s fees where such a lien is valid and enforceable. On the matter of procedure, the Court observed that termination of the action by the opposing party’s dismissal, rather than by action of the client, precluded application of equitable rules shielding counsel’s lien against client maneuvers in the circumstances of this case.

Quantum Meruit and Procedural Observations

The Court declined to resolve the third issue on quantum meruit and avoided fixing any fee on the merits. The Court explained that a claim for attorney’s fees by quantum meruit must be prosecuted

Case Syllabus (G.R. No. 86100-03)

Parties and Procedural Posture

Metropolitan Bank and Trust Company filed a petition for review on certiorari assailing the decision of the Court of Appeals in CA-G.R. Nos. 08265-08268.
The Honorable Court of Appeals affirmed the order of Branch 168, Regional Trial Court, fixing attorney's fees and ordering payment of P936,000.00 to Arturo Alafriz and Associates.
The present petition challenged the trial court order of October 15, 1984 and the decision of the Court of Appeals promulgated February 11, 1988, with a reconsideration denied November 19, 1988.
The petition concerned one-half of the disputed judgment of P936,000.00 rendered against petitioner, amounting to P468,000.00, because the other half against Herby Commercial and Construction Corporation became final and executory.

Key Factual Allegations

A certain Celedonio Javier purchased seven parcels from Eustaquio Alejandro and mortgaged them to Metropolitan Bank and Trust Company to secure a loan of Felix Angelo Bautista and/or International Hotel Corporation.
Following default, Metropolitan Bank and Trust Company foreclosed the mortgages and acquired certificates of sale as purchaser.
Alejandro sued Javier and included Metropolitan Bank and Trust Company in actions for nullity of deeds and damages, and Arturo Alafriz and Associates represented petitioner in those actions from March 1974 to September 1983.
On March 23, 1983, petitioner sold the parcels to Service Leasing Corporation for P600,000.00 and the same day Service Leasing resold to Herby Commercial and Construction Corporation for P2,500,000.00.
On June 7, 1983, Herby mortgaged the parcels to Banco de Oro for P9,200,000.00.
Arturo Alafriz and Associates filed a verified motion on August 16, 1983 to enter a charging lien under Section 37, Rule 138 equivalent to twenty-five percent of the actual and current market values of the properties.
The plaintiffs moved to dismiss their consolidated complaints and the trial court granted dismissal with prejudice on September 5, 1983.
The trial court ordered annotation of the attorney's liens on December 29, 1983.
Arturo Alafriz and Associates thereafter moved on May 28, 1984 to fix attorney's fees on a quantum meruit basis, contending that payments by petitioner amounted only to advances.
The trial court awarded P936,000.00 as attorney's fees on October 15, 1984, an award later affirmed by the Court of Appeals.

Issues Presented

Whether Arturo Alafriz and Associates was entitled to enforcement of its charging lien in the civil cases below.
Whether a separate civil suit was necessary for enforcement of the charging lien.
Whether Arturo Alafriz and Associates was entitled to twenty-five percent of the actual and current market values of the litigated properties on a quantum meruit basis.

Relevant Law

Section 37, Rule 138, Rules of Court provides that an attorney has a lien upon all judgments for the payment of money and executions issued in pursuance of such judgments upon filing a