FACTS:

Jun B. Luna filed a foreclosure case against one Jose Calvario alleging that Calvario borrowed P100,000.00 from Luna, and the loan was secured by a Deed of Real Estate Mortgage over a parcel of land in Quezon Province. 

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. 

Luna retained Atty. Dwight Galarrita’s legal services for the filing  of the case.

Atty. Galarrita opted to enter into a settlement with the other party after his formal offer of evidence. The Kasunduan (Compromise Agreement) 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. 

The trial court approved the Compromise Agreement.

However, Luna alleged that Atty. Galarrita never informed him of this Compromise Agreement.

After learning of the settlement, Luna wrote Atty. Galarrita: “I was so surprised when you went into plea agreement for Compromise Agreement without my knowledge [a]nd beyond to [sic] what we had discussed.”

Atty. Galarrita replied that he was “certain that in this kind of case, a compromise is better than WINNING it.”

The heirs of Calvario wrote to Luna, seeking delivery of the land title since they paid the P100,000.00 settlement amount.

Luna alleged in his Affidavit-Complaint for disbarment against Atty. Galarrita. that Atty. Galarrita has not remitted the P100,000.00 to date.

In his Answer, Atty. Galarrita prayed for the dismissal of the disbarment Complaint, arguing that he entered the Compromise Agreement by virtue of a Special Power of Attorney that includes this purpose, and that he regularly submitted reports to Luna on developments and possible settlement before he entered the Compromise Agreement.

Atty. Galarrita also alleged Luna’s unpaid obligation amounted to P208,000.00. Atty. Galarrita, thus, argued for an application of the rule on retaining lien.

The IBP Investigating Commissioner 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.”

The IBP Board of Governors adopted and approved with modification the Investigating Commissioner’s Report and Recommendation in that Atty. Galarrita is recommended to be “suspended from the practice of law for six (6) months and ordered to retum the amount of P100,000.00 Pesos to complainant without prejudice to the filing of a collection case for retainer’s fee against complainant.”

The Board of Governors denied reconsideration of their Resolution.

ISSUE:

Whether or not respondent Atty. Galarrita should be held administratively liable for entering into a Compromise Agreement without his client complainant’s consent, then refusing to turn over the settlement proceeds received.

RULING:

Those in the legal profession must always conduct themselves with honesty and integrity in all their dealings.

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].”

Members of the bar took their oath to conduct themselves “according to the best of [their] knowledge and discretion with all good fidelity as well to the courts as to [their] clients,” and to “delay no man for money or malice.”

These mandates apply especially to dealings of lawyers with their clients considering the highly fiduciary nature of their relationship. Clients entrust their causes—life, liberty, and property—to their lawyers, certain that this confidence would not be abused.

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.

As found by the Investigating Commissioner:

There seems to be a compelling reason to believe that Complainant had not given any authority for Atty. Galarrita to enter into a Compromise Agreement at that precise stage of the trial. 

The Complainant was not made a party to the Compromise Agreement despite the fact that he was not abroad when the agreement was executed. There was no indication that he had agreed to the amount of P100,000.00 in exchange for his withdrawal of the complaint. Lastly, 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.

Rule 1.01 of the Code of Professional Responsibility states that “[a] lawyer shall not engage in unlawful, dishonest, immoral or deceitful conduct.” Members of the bar must always conduct themselves in a way that promotes “public confidence in the integrity of the legal profession.”

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].”

Administrative proceedings require only substantial evidence. This court accepts and adopts the findings of the Integrated Bar of the Philippines Board of Governors, but with modification increasing the period of suspension from the practice of law to two (2) years considering that respondent Atty. Galarrita not only compromised litigation without complainant Luna’s consent, but also refused to turn over the settlement proceeds to date.