G.R. No. L-24163; April 28, 1969
REGINO B. ARO, petitioner, vs. THE HON. ARSENIO NAÑAWA, Presiding Judge of Branch IV, Court of First Instance of Laguna, LUIS MAGTIBAY, PABLO MAGTIBAY, AURELIA MARTINEZ, GREGORIO LONTOK, MARIA MENDOZA, MAXIMO PORTO and ROSARIO ANDAYA, respondents.

FACTS

Petitioner Regino B. Aro, a practicing attorney, was engaged by respondents Luis Magtibay and Pablo Magtibay under a written contingent fee agreement dated July 10, 1964 (Annex “A”). The agreement stipulated that Aro would be entitled to one-half (later verbally reduced to one-third or P1,000) of whatever share his clients might recover from the estate of their deceased uncle, Lucio Magtibay, either through court judgment or extrajudicial settlement. Aro filed a pauper’s petition and a complaint (Civil Case No. SC-525) on behalf of his clients against the other respondents, who were in possession of the estate properties. The complaint expressly annexed the contingent fee contract. The respondent judge granted the petition to litigate as a pauper and later denied the defendants’ first motion to dismiss. While discussions for an amicable settlement were ongoing between Aro and the defendants’ counsel, the plaintiffs (Luis and Pablo Magtibay) and defendant Aurelia Martinez (widow of Lucio Magtibay) executed an extrajudicial partition and waiver dated October 23, 1964, without Aro’s knowledge. In this deed, the plaintiffs acknowledged a one-fourth share but waived it in favor of Martinez and requested the court to dismiss the case. Based on this compromise, the defendants filed a second motion to dismiss. Aro filed an opposition and a counter-motion, praying for the annulment of the deed as fraudulent and collusive, and for the court to fix his attorney’s fees as a lien on the plaintiffs’ share. The respondent judge, after inquiring about a Philippine precedent and despite Aro’s citation of American authorities, dismissed the case without prejudice to Aro’s right to file a separate action for his fees. Aro’s motion for reconsideration was denied.

ISSUE

Whether the respondent judge committed grave abuse of discretion in dismissing Civil Case No. SC-525 based on a compromise agreement executed without the knowledge of the plaintiffs’ counsel and without first protecting the counsel’s contingent fee lien, thereby prejudicing the attorney’s right to compensation.

RULING

Yes. The Supreme Court granted the petition for certiorari and set aside the orders of dismissal. The Court held that the respondent judge gravely abused his discretion in dismissing the case without first securing the protection of petitioner Aro’s contingent fee. The Court found that the compromise was tainted with collusion, as it was deliberately entered into by the parties to deprive Aro of his fees, of which the defendants had full knowledge from the complaint. Citing its inherent power to protect its officers, the Court ruled that the attorney’s lien for his contingent fee attached to the subject matter of the litigation (the one-fourth share of his clients) from the moment the complaint was filed. The dismissal based on a collusive settlement could not prejudice this lien. The Court ordered that Aro’s claim for attorney’s fees, either one-third of the one-fourth share or P1,000, be recognized as a lien on that share, notwithstanding its waiver by his clients. The petition for mandamus was deemed unnecessary.