FACTS:

Petitioner Francisco Rayos filed a complaint against the National Power Corporation (NAPOCOR) for damages caused by the release of water from Angat Dam during a typhoon. The Supreme Court reinstated the complaint after its dismissal. The Court of Appeals reversed the trial court's decision and awarded damages in favor of the petitioner. A writ of execution was issued, and NAPOCOR issued a check in the amount of P1,060,800.00 to the petitioner. However, the check was turned over to respondent Atty. Ponciano Hernandez, the petitioner's counsel, who refused to deliver it to the petitioner. Petitioner filed a motion with the RTC to direct the respondent to deliver the check, but respondent claimed it was retained as payment for his attorney's fees. After much refusal, respondent eventually deposited a portion of the amount in the petitioner's name but failed to return the remainder.

Petitioner filed a complaint against the respondent for withholding the amount awarded in a civil case. The investigating commissioner recommended the dismissal of the case, but petitioner appealed, alleging that respondent breached his duty as a lawyer by withholding the amount and appropriating it as attorney's fees. Respondent argued that petitioner had not paid the attorney's fees and failed to provide an accounting before deducting it. The court emphasized the duty of a lawyer to promptly account for money received from the client and held that respondent breached this duty by failing to render an accounting and refusing to turn over any portion of the amount. The court highlighted the special trust and confidence between a lawyer and client, requiring the lawyer to exercise utmost good faith and fairness towards the client.

ISSUES:

1. Whether the attorney-client relationship was breached when the respondent held on to the entire amount of the award until his fees were paid.

2. Whether the contingent fee agreement between the petitioner and the respondent is valid and enforceable.

3. Whether the stipulated attorney's fees are unreasonable and unconscionable.

4. Whether the attorney's fees collected by the respondent lawyer were excessive and unconscionable.

5. Whether the respondent lawyer is entitled to attorney's fees for his services rendered.

6. Whether the respondent lawyer should be sanctioned for his misconduct.

RULING:

1. The attorney-client relationship was breached when the respondent failed to render an accounting for the amount received on behalf of the client and refused to turn over any portion of said amount until his attorney's fees were paid. The respondent placed his personal interest above that of his client, which falls short of the standard of utmost good faith and fairness required from an attorney.

2. The contingent fee agreement is valid and enforceable, provided that it is laid down in an express contract. However, such contracts are subject to the supervision and close scrutiny of the court to protect clients from unjust charges. The court has the power to reduce unreasonable attorney's fees and deem a contract unconscionable or unreasonable if necessary.

3. Stipulated attorney's fees are unconscionable if the amount is far disproportionate compared to the value of the services rendered. If the amount of the fee contracted for is sufficient to show that an unfair advantage had been taken of the client or a legal fraud had been perpetrated, then it is unreasonable and unconscionable. The court may fix a reasonable compensation for the lawyer's services if the stipulated amount is unconscionable.

4. Generally, the stipulated attorney's fees in a written contract control the amount of fees that the lawyer may be allowed unless the court finds it unreasonable or unconscionable. If no stipulation is present, the attorney's fees are fixed based on the reasonable worth of the attorney's services. The court must ensure that the lawyer does not recover more than what is reasonable. The circumstances to be considered in determining the reasonableness of attorney's fees include the amount and character of the services rendered, the labor, time, and trouble involved, the skill and experience required, and the financial capacity of the client.

5. The contingent fee claimed by the respondent lawyer in this case was deemed grossly excessive and unconscionable, considering the circumstances. Lawyers should not be allowed to take advantage of the helpless and should receive only a fair share of the benefits. The court has the power to protect the client, especially if they are aged and necessitous.

6. The respondent lawyer is entitled to attorney's fees in the amount equivalent to 35% of the total amount awarded to the petitioner in the case.

7. The respondent lawyer is found guilty of violating the attorney's oath and serious professional misconduct. He is suspended from the practice of law for six months and warned that repetition of the same or similar offense will be dealt with more severely.

PRINCIPLES:

• The relationship between an attorney and client is one of special trust and confidence, and the attorney must exercise utmost good faith and fairness in all their dealings.

• Lawyering is not a moneymaking venture and lawyers are not merchants. Lawyers' compensation for professional services rendered is subject to the supervision of the court to ensure reasonableness and maintain the dignity and integrity of the legal profession.

• Contingent fee arrangements are valid and recognized in the Philippines as long as they are laid down in an express contract. They are allowed particularly in cases where the client has a meritorious cause of action but lacks the means to pay for legal services.

• Contracts for contingent fees are subject to the supervision and scrutiny of the court to protect clients from unjust charges. The court has the power to reduce unreasonable fees and deem contracts unconscionable or unreasonable if necessary.

• Stipulated attorney's fees are unconscionable if they are far disproportionate to the services rendered.

• The court may fix a reasonable compensation for the lawyer's services if the stipulated amount is unconscionable.

• The stipulated attorney's fees in a written contract control the amount of fees, unless found unreasonable or unconscionable.

• If no stipulation is present, attorney's fees are fixed based on the reasonable worth of the services rendered.

• The court must ensure that the attorney does not recover more than what is reasonable.

• The circumstances to be considered in determining the reasonableness of attorney's fees include the amount and character of services rendered, labor, time, and trouble involved, skill and experience required, and the financial capacity of the client.

• Lawyers should not take unfair advantage of the helpless and should receive a fair share of the benefits.

• The court has the power to protect clients, especially if they are aged and necessitous.

• Misconduct of a lawyer, whether in his professional or private capacity, which shows him to be wanting in moral character, honesty, probity, and good demeanor, renders him unworthy of the privileges that his license and the law confer upon him. It may be sanctioned with disbarment or suspension.

• The court should exercise sound discretion in determining whether a lawyer should be disbarred or merely suspended. Disbarment should not be decreed where any lesser penalty, such as temporary suspension, would accomplish the desired end.

• Lawyers can be sanctioned for not returning client's money despite demands, unjustifiably refusing to return client's papers, and collecting excessive and unreasonable fees.

• Suspension for a period of six months is justified for failure to return money received on behalf of a client and collecting excessive and unconscionable fees.