FACTS:

The case involves two consolidated petitions for review on certiorari. The petitioners in G.R. No. 152072, Attys. Romeo G. Roxas and Santiago N. Pastor, seek to reverse and annul the Decision and Resolution of the Court of Appeals. The petitioners in G.R. No. 152104, the Zuzuarreguis, pray for the modification of the said Decision and Resolution. The case originated in 1977 when the National Housing Authority (NHA) filed expropriation proceedings against the Zuzuarreguis for parcels of land in Antipolo, Rizal. The case was archived in 1983. Before the case was archived, the Zuzuarreguis engaged the legal services of Attys. Roxas and Pastor through a Letter-Agreement. The agreement included a contingent fee of 30% of the just compensation. In 1984, Attys. Roxas and Pastor filed a Motion to Set Case for Hearing to revive the case. A Partial Decision was later rendered by the court fixing the just compensation at P30.00 per square meter. The NHA filed a Motion for Reconsideration and a Joint Special Power of Attorney was executed in favor of Attys. Roxas and Pastor.

On November 22, 1985, Beatriz Zuzuarregui vda. De Reyes executed a Special Power of Attorney appointing Attys. Romeo G. Roxas, Santiago Pastor, and Basilio H. Toquero as her attorneys to represent her in the negotiation for a compromise with the National Housing Authority (NHA) regarding her properties subject to her approval in Civil Case No. 26804.

On December 10, 1985, Antonio Zuzuarregui, Jr., Pacita Javier, and Enrique De Zuzuarregui entered into a Letter-Agreement with Attys. Romeo G. Roxas and Santiago Pastor regarding the attorney's fees and the settlement for their properties expropriated by the NHA. They agreed to accept a price of P17.00 per square meter, payable in NHA Bonds, as the settlement for their expropriated property.

On December 16, 1985, the NHA issued Resolution No. 1174 stating that the Zuzuarregui property would be acquired at a cost of P19.50 per square meter, payable in NHA Bonds, subject to the availability of funds.

As a result, a Compromise Agreement was executed between the Zuzuarreguis and the NHA, stipulating that the just compensation for the Zuzuarregui properties would be at P19.50 per square meter payable in NHA Bonds. The Compromise Agreement was approved by the Regional Trial Court (RTC) on December 20, 1985.

On December 27, 1985, the NHA released P20,000,000.00 in NHA Bearer Bonds to Atty. Romeo G. Roxas on behalf of the Zuzuarreguis as partial payment for their parcels of land. Additional amounts were released on February 4, 1986. The total amount released amounted to P54,500,000.00 in NHA Bonds, out of which P30,520,000.00 was turned over to the Zuzuarreguis by Atty. Roxas.

The case involves the expropriation of a property owned by the Zuzuarregui family by the National Housing Authority (NHA). The expropriated property measures 1,790,540.36 square meters and was valued at P34,916,122.00, with the NHA releasing a total amount of P54,500,000.00. The difference of P19,583,878.00 is believed to be the yield on the bonds.

On August 25, 1987, the Zuzuarregui family's new counsel, Jose F. Gonzalez, sent a letter to Attorneys Roxas and Pastor, who represented them in the expropriation proceedings, demanding the turnover of the yield corresponding to the bonds paid by the NHA within 10 days. Failure to comply would result in the filing of administrative, civil, and/or criminal actions.

Attorneys Roxas and Pastor responded on September 21, 1987, explaining that although the amount appeared substantial, it did not actually go to them but merely passed through their hands.

On September 29, 1987, the Zuzuarregui family, through Antonio De Zuzuarregui Jr., sent a letter formally terminating the services of Attorneys Roxas and Pastor in the expropriation proceedings.

Displeased with Attorneys Roxas and Pastor's explanation, the Zuzuarregui family filed a civil action for Sum of Money and Damages on November 14, 1989, before the Regional Trial Court (RTC), Quezon City, against the NHA, Jose B. H. Pedrosa, Attorneys Roxas, and Pastor. The Zuzuarregui family demanded the turnover of the yield on the NHA bonds.

After hearings, the RTC rendered a decision on January 3, 1994, dismissing the complaint. The court ordered the Zuzuarregui family to pay moral damages to Attorneys Roxas, Pastor, and Pedrosa in the amounts of P200,000.00, P200,000.00, and P100,000.00, respectively.

ISSUES:

1. Whether or not the letter-agreement dated 10 December 1985, fixing the exact amount that must go to the Zuzuarreguis, should stand as law between the parties.

2. Whether or not the Zuzuarreguis are entitled to the principal amount of P17,073,122.70.

3. Whether the Letter-Agreement dated 10 December 1985 is binding between the parties.

4. Whether there was a conspiracy between Attys. Roxas and Pastor, and the NHA and Atty. Pedrosa.

5. Whether the amount awarded to the Zuzuarreguis is correct.

6. Whether the contingent fees received by Attys. Roxas and Pastor are reasonable and should be upheld

7. Whether moral and exemplary damages should be awarded.

8. Whether the NHA and Atty. Pedrosa should be held jointly and severally liable.

9. Whether Attys. Romeo G. Roxas and Santiago N. Pastor should be ordered to return a specific amount to the Zuzuarreguis.

RULING:

1. The Court ruled that the letter-agreement dated 10 December 1985 should stand as law between the parties. The Zuzuarreguis are entitled to the principal amount of P17,073,122.70. The Court reversed and set aside the decision of the Regional Trial Court dismissing the complaint and ordered Attys. Roxas and Pastor to return the balance of the amount received from NHA bonds, deducting the reasonable attorney's fees.

2. The Letter-Agreement dated 10 December 1985 is binding between the parties. All the essential requisites for a valid contract, namely, consent, object certain, and cause, were present in the execution of the Letter-Agreement. The Zuzuarreguis gave their full consent to the agreement and its existence, due execution, and contents were admitted by them. The amount that will go to the Zuzuarreguis and the amount that will go to Attys. Roxas and Pastor were clearly stipulated.

3. There was no conspiracy between Attys. Roxas and Pastor, and the NHA and Atty. Pedrosa. The Zuzuarreguis failed to substantiate and establish conspiracy between the parties.

4. The computation of the amount awarded to the Zuzuarreguis needs to be modified. The Court of Appeals erred in deducting the product of the area of the expropriated land and the agreed attorney's fees from the Zuzuarreguis' share in the yield. The correct computation should be P17,073,122.70 as the corresponding share of the Zuzuarreguis out of the total yield of P20,000,000.00. Legal interest on the awarded amount should be imposed from the date of filing of the complaint.

5. The contingent fees received by Attys. Roxas and Pastor are deemed excessive and unconscionable. The Court has the power to determine the reasonableness of attorney's fees and can reduce them if found to be excessive. In this case, the attorney's fees of 44% of the just compensation paid by the NHA to the Zuzuarreguis, amounting to P23,980,000.00, are considered excessive and should be reduced. The Court reduces the attorney's fees to a pro rata division of the yield on the NHA bonds, with 87.18% going to the Zuzuarreguis and 12.82% going to Attys. Roxas and Pastor. Attys. Roxas and Pastor are still entitled to attorney's fees in the amount of P6,987,078.75.

6. The court cannot award moral and exemplary damages because there was no direct showing of bad faith on the part of Attys. Roxas and Pastor.

7. The NHA and Atty. Pedrosa cannot be held jointly and severally liable as there is no evidence to show conspiracy between them.

8. Attys. Romeo G. Roxas and Santiago N. Pastor are ordered to return the amount of P17,073,224.84 to the Zuzuarreguis.

PRINCIPLES:

• Parties are bound by the terms of a valid and binding contract they voluntarily entered into.

• The amount agreed upon in a contract should be enforced, unless there are valid reasons to disregard it.

• The award of damages and attorney's fees should be based on existing laws and legal principles.

• A contract is a meeting of the minds between two persons whereby one binds himself, with respect to the other, to give something or to render some service. Contracts shall be obligatory, in whatever form they may have been entered into, provided all the essential requisites for their validity are present. (Article 1318 of the Civil Code)

• Consent is manifested by the meeting of the offer and the acceptance upon the thing and the cause which are to constitute the contract.

• The objects of a contract must be certain. In this case, the objects are the amount that will go to the Zuzuarreguis and the amount that will go to Attys. Roxas and Pastor.

• Cause refers to the legal service provided by the attorneys.

• A contract is binding between the parties and should be complied with in good faith, unless the stipulations are contrary to law, morals, good customs, public order, or public policy.

• Unconscionable and unreasonable stipulations in a contract may render it invalid.

• Contingent fees are not per se prohibited by law and are sanctioned by the Canons of Professional Ethics and the Code of Professional Responsibility.

• Lawyers should charge only fair and reasonable fees, and the reasonableness of attorney's fees can be determined by the Court.

• The Court has the power to reduce attorney's fees if found to be excessive and unconscionable.

• Attorney's fees are considered unconscionable if they affront one's sense of justice, decency, or reasonableness.

• The amount of attorney's fees to be paid should be reasonable under all the circumstances of the case, including factors such as the time spent, services rendered, novelty and difficulty of the question involved, and amount involved in the controversy.

• Contingency fees are not per se prohibited by law.

• However, contingency fees should be reduced when excessive and unconscionable.