Urban Bank, Inc. vs Atty. Magdaleno Peña

December 7, 2012
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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.


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