FIRST DIVISION
BENEDICTO
HORNILLA
AND ATTY. FEDERICO
D. RICAFORT,
Complainants,
A.C.
No.
5804
July 1, 2003
-versus-
ATTY.
ERNESTO S.
SALUNAT,
Respondent.
chanroblesvirtualawlibrary
R E S O L U T I O
N
YNARES-SANTIAGO, J.:
On November 21, 1997, Benedicto
Hornilla and Federico D. Ricafort filed an Administrative Complaint[1]
with the Integrated Bar of the Philippines (IBP) Commission on Bar
Discipline,
against respondent Atty. Ernesto S. Salunat for illegal and unethical
practice
and conflict of interest. They alleged that respondent is a
member
of the ASSA Law and Associates, which was the retained counsel of the
Philippine
Public School Teachers Association (PPSTA). Respondent’s brother,
Aurelio S. Salunat, was a member of the PPSTA Board which approved
respondent’s
engagement as retained counsel of PPSTA.
Complainants, who are
members of the PPSTA, filed an intra-corporate case against its members
of the Board of Directors for the terms 1992-1995 and 1995-1997 before
the Securities and Exchange Commission, which was docketed as SEC Case
No. 05-97-5657, and a complaint before the Office of the Ombudsman,
docketed
as OMB Case No. 0-97-0695, for unlawful spending and the undervalued
sale
of real property of the PPSTA. Respondent entered his appearance
as counsel for the PPSTA Board members in the said cases.
Complainants
contend that respondent was guilty of conflict of interest because he
was
engaged by the PPSTA, of which complainants were members, and was being
paid out of its corporate funds where complainants have
contributed.
Despite being told by PPSTA members of the said conflict of interest,
respondent
refused to withdraw his appearance in the said cases.cralaw:red
Moreover, complainants
aver that respondent violated Rule 15.06[2]
of the Code of Professional Responsibility when he appeared at the
meeting
of the PPSTA Board and assured its members that he will win the PPSTA
cases.chanrobles virtual law library
In his Answer,[3]
respondent stressed that he entered his appearance as counsel for the
PPSTA
Board Members for and in behalf of the ASSA Law and Associates.
As
a partner in the said law firm, he only filed a "Manifestation of
Extreme
Urgency" in OMB Case No. 0-97-0695.[4]
On the other hand, SEC Case No. 05-97-5657 was handled by another
partner
of the firm, Atty. Agustin V. Agustin. Respondent claims that it
was complainant Atty. Ricafort who instigated, orchestrated and
indiscriminately
filed the said cases against members of the PPSTA and its Board.cralaw:red
Respondent pointed out
that his relationship to Aurelio S. Salunat was immaterial; and that
when
he entered into the retainer contract with the PPSTA Board, he did so,
not in his individual capacity, but in representation of the ASSA Law
Firm.
He denied that he ensured the victory of the PPSTA Board in the case he
was handling. He merely assured the Board that the truth will
come
out and that the case before the Ombudsman will be dismissed for lack
of
jurisdiction, considering that respondents therein are not public
officials,
but private employees. Anent the SEC case, respondent alleged
that
the same was being handled by the law firm of Atty. Eduardo de Mesa,
and
not ASSA.cralaw:red
By way of Special and
Affirmative Defenses, respondent averred that complainant Atty.
Ricafort
was himself guilty of gross violation of his oath of office amounting
to
gross misconduct, malpractice and unethical conduct for filing
trumped-up
charges against him and Atty. De Mesa. Thus, he prayed that the
complaint
against him be dismissed and, instead, complainant Ricafort be
disciplined
or disbarred.cralaw:red
The complainant was
docketed as CBD Case No. 97-531 and referred to the IBP Commission on
Bar
Discipline. After investigation, Commissioner Lydia A. Navarro
recommended
that respondent be suspended from the practice of law for six (6)
months.
The Board of Governors thereafter adopted Resolution No. XV-3003-230
dated
June 29, 2002, approving the report and recommendation of the
Investigating
Commissioner.chanrobles virtual law library
Respondent filed with
this Court a Motion for Reconsideration of the above Resolution of the
IBP Board of Governors.cralaw:red
The pertinent rule of
the Code of Professional Responsibility provides:
RULE 15.03. -
A lawyer shall not represent conflicting interests except by written
consent
of all concerned given after a full disclosure of the facts.cralaw:red
There is conflict of
interest when a lawyer represents inconsistent interests of two or more
opposing parties. The test is "whether or not in behalf of one
client,
it is the lawyer’s duty to fight for an issue or claim, but it is his
duty
to oppose it for the other client. In brief, if he argues for one
client, this argument will be opposed by him when he argues for the
other
client."[5]
This rule covers not only cases in which confidential communications
have
been confided, but also those in which no confidence has been bestowed
or will be used.[6]
Also, there is conflict of interests if the acceptance of the new
retainer
will require the attorney to perform an act which will injuriously
affect
his first client in any matter in which he represents him and also
whether
he will be called upon in his new relation to use against his first
client
any knowledge acquired through their connection.[7]
Another test of the inconsistency of interests is whether the
acceptance
of a new relation will prevent an attorney from the full discharge of
his
duty of undivided fidelity and loyalty to his client or invite
suspicion
of unfaithfulness or double dealing in the performance thereof.[8]
In this jurisdiction,
a corporation’s board of directors is understood to be that body which
(1) exercises all powers provided for under the Corporation Code; (2)
conducts
all business of the corporation; and (3) controls and holds all
property
of the corporation.[9]
Its members have been characterized as trustees or directors clothed
with
a fiduciary character.[10]
It is clearly separate and distinct from the corporate entity itself.chanrobles virtual law library
Where corporate directors
have committed a breach of trust either by their frauds, ultra vires
acts,
or negligence, and the corporation is unable or unwilling to institute
suit to remedy the wrong, a stockholder may sue on behalf of himself
and
other stockholders and for the benefit of the corporation, to bring
about
a redress of the wrong done directly to the corporation and indirectly
to the stockholders.[11]
This is what is known as a derivative suit, and settled is the doctrine
that in a derivative suit, the corporation is the real party in
interest
while the stockholder filing suit for the corporation’s behalf is only
nominal party. The corporation should be included as a party in
the
suit.[12]
Having thus laid a suitable
foundation of the basic legal principles pertaining to derivative
suits,
we come now to the threshold question: can a lawyer engaged by a
corporation
defend members of the board of the same corporation in a derivative
suit?
On this issue, the following disquisition is enlightening:
The possibility for
conflict of interest here is universally recognized. Although
early
cases found joint representation permissible where no conflict of
interest
was obvious, the emerging rule is against dual representation in all
derivative
actions. Outside counsel must thus be retained to represent one
of
the defendants. The cases and ethics opinions differ on whether
there
must be separate representation from the outset or merely from the time
the corporation seeks to take an active role. Furthermore, this
restriction
on dual representation should not be waivable by consent in the usual
way;
the corporation should be presumptively incapable of giving valid
consent.[13]
(Underscoring ours)
In other jurisdictions,
the prevailing rule is that a situation wherein a lawyer represents
both
the corporation and its assailed directors unavoidably gives rise to a
conflict of interest. The interest of the corporate client is
paramount
and should not be influenced by any interest of the individual
corporate
officials.[14]
The rulings in these cases have persuasive effect upon us. After
due deliberation on the wisdom of this doctrine, we are sufficiently
convinced
that a lawyer engaged as counsel for a corporation cannot represent
members
of the same corporation’s board of directors in a derivative suit
brought
against them. To do so would be tantamount to representing
conflicting
interests, which is prohibited by the Code of Professional
Responsibility.cralaw:red
In the case at bar,
the records show that SEC Case No. 05-97-5657, entitled "Philippine
Public
School Teacher’s Assn., Inc., et al. v. 1992-1995 Board of Directors of
the Philippine Public School Teacher’s Assn. (PPSTA), et al.," was
filed
by the PPSTA against its own Board of Directors. Respondent
admits
that the ASSA Law Firm, of which he is the Managing Partner, was the
retained
counsel of PPSTA. Yet, he appeared as counsel of record for the
respondent
Board of Directors in the said case. Clearly, respondent was
guilty
of conflict of interest when he represented the parties against whom
his
other client, the PPSTA, filed suit.chanrobles virtual law library
In his Answer, respondent
argues that he only represented the Board of Directors in OMB Case No.
0-97-0695. In the said case, he filed a Manifestation of Extreme
Urgency wherein he prayed for the dismissal of the complaint against
his
clients, the individual Board Members. By filing the said
pleading,
he necessarily entered his appearance therein.[15]
Again, this constituted conflict of interests, considering that the
complaint
in the Ombudsman, albeit in the name of the individual members of the
PPSTA,
was brought in behalf of and to protect the interest of the corporation.cralaw:red
Therefore, respondent
is guilty of representing conflicting interests. Considering
however,
that this is his first offense, we find the penalty of suspension,
recommended
in IBP Resolution No. XV-2002-230 dated June 29, 2002, to be too
harsh.
Instead, we resolve to admonish respondent to observe a higher degree
of
fidelity in the practice of his profession.cralaw:red
ACCORDINGLY, respondent
Atty. Ernesto Salunat is found GUILTY of representing conflicting
interests
and is ADMONISHED to observe a higher degree of fidelity in the
practice
of his profession. He is further WARNED that a repetition of the
same or similar acts will be dealt with more severely.cralaw:red
SO ORDERED.cralaw:red
Davide, Jr., C.J., (Chairman),
Vitug, Carpio, and Azcuna, JJ.,
concur.
____________________________
Endnotes:
[1]
Record, Vol. 1, p. 1.
[2]
Rule 15.06 - A lawyer shall not state or imply that he is
able
to influence any public official, tribunal or legislative body.
[3]
Rollo, p. 58.
[4]
Id., p. 79.chanrobles virtual law library
[5]
Pineda, Legal and Judicial Ethics, p. 199 [1999 ed.].chanrobles virtual law library
[6]
Id., citing Hilado v. David, 84 Phil. 569 [1949]; Nombrado v.
Hernandez,
26 SCRA 13 [1968]; Bautista v. Barrios, 9 SCRA 695 [1963].
[7]
Pineda, Legal and Judicial Ethics, supra, p. 199, citing Pierce v.
Palmer,
31 R.I. 432.
[8]
Agpalo, Legal Ethics, supra, p. 220, citing In re De la Rosa, 27 Phil.
258 [1914]; Grievance Committee v. Rottner, 152 Conn. 59, 203 A 2d 82
[1954]
and Titania v. Ocampo, 200 SCRA 472 [1991].
[9]
Corporation Code, sec. 23.chanrobles virtual law library
[10]
3 Fletcher, Cyclopedia Corporations (Permanent Ed.) § 8044
(Importance
of determining whether officer a trustee or agent).
[11]
Pascual v. Del Saz Orozco, 19 Phil. 82 (1911), cited in Gochan v.
Young,
G.R. No. 131889, 12 March 2001.
[12]
Asset Privatization Trust v. CA, 360 Phil. 768 (1998).chanrobles virtual law library
[13]
Harvard Law Review, Developments in the Law: Conflict of Interest, 94
Harv.
L. Rev. 1244, 1339-1342 (1981), cited in Solomon, Schwartz, Bauman
&
Weiss, Corporations: Law and Policy (3rd ed.) 1129 (1994).chanrobles virtual law library
[14]
Cannon v. United States Acoustics Corporation, 398 F. Supp. 209 (N.D.
Ill.
1975), affirmed in relevant part per curiam 532 F. 2d 1118 (7th Circ.
1978),
citing Murphy v. Washington American League Baseball Club, Inc., 116
U.S.
App. D.C. 362, 324 F. 2d 394 (1963).
[15]
Ong Ching v. Ramolete, 151-A Phil. 509, 514 [1973]. |