The case of RODCO Consultancy and Maritime Services Corporation v. Floserfino G. Ross and Antonia T. Ross (G.R. No. 259832, November 6, 2023)
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A contract for a litigation financing arrangement is void for being similar to a champertous contract, which is contrary to public policy.
Doctrine:
A champertous contract refers to a contract between a stranger and a party to a lawsuit, whereby the stranger pursues the party’s claim in consideration of receiving part or any of the proceeds recovered under the judgment.
It is a bargain by a stranger with a party to a suit, by which such third person undertakes to carry on the litigation at his own cost and risk, in consideration of receiving, if successful, a part of the proceeds or subject sought to be recovered.
Any agreement whereby the attorney agrees to pay expenses of proceedings to enforce the client’s rights is champertous. Such agreements are against public policy especially when the attorney has agreed to carry on the action at its own expense in consideration of some bargain to have part of the thing in dispute. The execution of these contracts violates the fiduciary relationship between the lawyer and his client, for which the former must incur administrative sanction.
Facts of the Case:
RODCO Maritime Consultancy (RODCO) is a domestic corporation engaged in the business of providing consultancy and professional services to repatriated seafarer-clients in pursuing their rights, sickness or disability and monetary benefits, insurance claims and other valuable interests granted to them by law against their local manning agency, insurance company, and principal foreign ship owner. It also extends financial assistance to seafarer-clients in processing their documents, securing medical reports and certificates of disability, and refers cases to lawyers for legal services.
Floserfino was a repatriated seafarer who sough RODCO’s assistance in filing a claim against his local manning agency, foreign shipowner, and insurance company. For this purpose, Floserfino and his wife executed an Irrevocable Memorandum of Agreement with RODCO.
As a consequence thereof, RODCO gave money to finance the labor case instituted by Floserfino against his former employer and assisted him by securing the services of Atty. Napoleon Concepcion to handle the case. In exchange, Floserfino and Antonia undertook to reimburse RODCO the expenses it incurred in litigating his labor case.
A Complaint for Sum of Money and Damages was filed by RODCO Floserfino issued checks in the total amount of PhP1,240,800.00 in favor of RODCO but the same were dishonored. The Regional Trial Court (RTC) ordered Floserfino and Antonia to pay RODCO the amount of the checks plus interest and damages.
On appeal, the Court of Appeals (CA) ruled that the Irrevocable Memorandum of Agreement entered into by the parties was void from the beginning. While the CA recognized the validity and binding effect of contingent fee contracts, it declared that the subject contract is void because RODCO rendered legal services despite the fact that it was not composed of lawyers.
According to the CA, RODCO cannot recover the amounts of the check because under the Civil Code, parties in a void contract who are equally at fault cannot demand recovery, enforcement, or performance from the other.
RODCO filed a Motion for Reconsideration but the same was denied. Thus, RODCO filed a Petition for Review on Certiorari assailing the decision of the CA.
Issue:
Is the Irrevocable Memorandum of Agreement entered into between RODCO on one hand, and Floserfino and Antonia on the other hand valid?
Ruling of the Court:
No. The contract entered into by RODCO, Floserfino and Antonia is void.
Under the principle of autonomy of contracts, the parties are free to establish such stipulations, clauses, terms and conditions as they may deem convenient, provided they are not contrary to law, morals, good customs, public order, or public policy. Equally important is the principle that when the terms of an agreement have been reduced in writing, it is considered as containing all the terms agreed upon and there can be, as between the parties and their successors in interest, no evidence of such terms other than the contents of the written agreement.
The contract entered into by RODCO, Floserfino and Antonia is denominated as “Irrevocable Memorandum of Agreement”, supplemented by an “Affidavit of Undertaking” and a “Special Power of Attorney”. The Court held that such transaction has the features of litigation financing by a third party.
The litigation financing arrangement between RODCO and Floserfino is prohibited because it is similar to a champertous contract. It is grossly disadvantageous to Floserfino as there is no specific agreement as to the amount to be given to RODCO, in the event of successful claim against the employer, to satisfy his obligation in exchange for the supposed consultancy service rendered by RODCO. Here, there is financial overreaching by a third party with superior bargaining position in the case of a financially pressed litigant.
A champertous contract refers to a contract between a stranger and a party to a lawsuit, whereby the stranger pursues the party’s claim in consideration of receiving part or any of the proceeds recovered under the judgment.
Champertous contracts are nullified not only because these arrangements involved intervention of a stranger in financing the litigation of a case, but also because these arrangements were grossly disadvantageous to the litigants, thereby violating the fiduciary duty of the involved counsels to their respective clients.
Related Article/s:
Frequently Asked Questions on Contracts
Key Benefits of Written Contracts in Business
Must-Have Employment Contracts During Hiring Process
Source:
https://sc.judiciary.gov.ph/wp-content/uploads/2024/03/259832.pdf
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