Reyes vs. De La Cruz

A contingent-fee contract that measures the attorney’s compensation as a percentage of “the amount adjudicated” to the client is interpreted as referring to the assessed value of the properties, not their market value, where the assessed value is the only definite value known to the parties at the time of contracting and the attorney who drafted the contract failed to specify otherwise. Any ambiguity in a contractual stipulation drafted by a lawyer is construed against the lawyer under Article 1377 of the Civil Code.

Attorney Arsenio R. Reyes was engaged by five of the heirs of the late Anselmo S. Hilario to represent them in Special Proceeding No. 7501, then pending before the Court of First Instance of Manila. The probate court had already ordered partition, but its implementation was delayed. The heirs’ primary objective in hiring Reyes was to secure the expeditious partition and distribution of their shares. Reyes assisted in preparing the project of partition, which was subsequently approved and carried out. After the individual and common shares were delivered, Reyes demanded his fees based on a percentage of the market value of the adjudicated properties; the heirs resisted, insisting that the contract referred only to the assessed value.

• The Engagement: On 26 September 1950, Marcial, Asuncion, Eugenio, Lucia, and Alfonso, all surnamed De la Cruz, heirs of Anselmo S. Hilario, entered into a contract of services with Atty. Arsenio R. Reyes. The contract provided that Reyes would represent them in Special Proceeding No. 7501 “in such a way that we will be given all the due share arising out of the will and of the law” and “exercise all duties of an attorney to preserve and defend our rights until the project of partition is approved by the court.” In consideration, the heirs agreed to pay “5 percent of the amount adjudicated to us,” payable not in cash during the pendency of the case but when the case was terminated and their respective shares were delivered by court order.

• Context of the Probate Proceeding: When the contract was signed, the probate court had already ordered partition, but execution was delayed. The main purpose of hiring Reyes was to expedite the partition.

• Services Rendered: Reyes helped prepare the project of partition. After the project was approved, the properties adjudicated individually to each heir were given to them, and the properties to be held in common were determined.

• The Fee Dispute: Reyes sought to recover five per cent of the market value of all the properties, plus P10,000 moral damages, P10,000 consequential damages, and P10,000 attorney’s fees. The defendants took the position that the five per cent should be computed on the assessed value. Marcial de la Cruz had died before the complaint was filed, and no substitution of his legal representative was made; the trial court therefore declined to acquire jurisdiction over his estate and confined the proceedings to the four surviving heirs.

• Trial Court’s Factual Basis: The assessed value of the properties adjudicated to the four heirs was P149,685.69, as reflected in the inventory of the estate. The trial court found that the market value was “too speculative,” that the assessed value was the only value known to the contracting parties at the time, and that Reyes himself had prepared the contract. It also considered that the attorney for the entire estate administration had been paid only about P30,000, and that Reyes had already received approximately P5,000 from the estate of Marcial de la Cruz in a separate case.

• Interpretation of the Fee Clause: Petitioner maintained that the phrase “amount adjudicated” in the contract referred to the market value of the properties adjudicated to the heirs, as that represented the actual worth of what they received. He sought payment of five per cent of that market value, plus damages and attorney’s fees.

• Reference to Assessed Value: Respondents countered that the five per cent fee should be based solely on the assessed value of the properties. They emphasized that at the time the contract was executed, only the assessed value—appearing in the estate inventory—was known, while the market value was speculative and indeterminate.

• Contra Proferentem Rule: Respondents argued that because petitioner himself drafted the contract, any ambiguity or obscurity in its terms should be interpreted against him, consistent with Article 1377 of the Civil Code.

• Interpretation of the Fee Provision: Whether the stipulation “5 percent of the amount adjudicated” in the attorney’s fee contract refers to the assessed value or the market value of the properties delivered to the client-heirs.

• Interpretation of the Fee Provision: The appeal was denied. The phrase “5 percent of the amount adjudicated” was held to refer to the assessed value, not the market value. The assessed value was the sole value known to the parties at the time of the agreement, being the value appearing in the estate inventory and the basis upon which the partition was to be made. Market value, by contrast, was purely speculative; its determination would have been attended by difficulties and disagreements, as shown in expropriation cases where commissioners habitually assigned widely varying figures. Moreover, the contract did not specify the point in time at which market value was to be ascertained, and real estate values tended to rise over time—a circumstance that could create an incentive for the lawyer to delay the proceedings. Because petitioner himself drafted the contract, he was in a position to insert the precise term “market value” had that been the parties’ intention; his failure to do so resulted in an ambiguity that, under Article 1377 of the Civil Code, must be interpreted against the party who caused the obscurity. The total fees of approximately P14,000 (including the P5,000 already received from the estate of Marcial de la Cruz) were deemed adequate for the services rendered, especially in comparison to the P30,000 paid to the attorney who had administered the entire estate from inception. The denial of damages and additional attorney’s fees was likewise affirmed.

• Contra Proferentem (Article 1377, Civil Code) — When a contractual stipulation is ambiguous or obscure, the interpretation that least favors the party who caused the obscurity shall be adopted. The Supreme Court applied this principle because the attorney-plaintiff drafted the contingent-fee contract; the failure to specify “market value” was an ambiguity he created, and it was therefore resolved against him by adopting the assessed value as the base for computation.

• Determination of the Fee Base in Contingent-Fee Contracts — Where an attorney’s contingent-fee contract provides for a percentage of the “amount adjudicated” without further qualification, and the only definite and known value at the time of contracting is the assessed value appearing in the estate inventory, that assessed value—and not the uncertain, fluctuating market value—constitutes the base for computing the fee. The rule rests on the parties’ presumed intention to make a contract capable of certain and contemporaneous measurement, the lawyer-drafter’s responsibility to use clear terms, and the avoidance of incentives for procedural delay.

• “[T]he 5 per cent could refer only to the assessed value, for that was the only value then known to the parties to the contract, said value appearing in the inventory of the estate of the decedent. The market value of a property is, as correctly said by the lower court, too speculative.”

• “It was the plaintiff-appellant who prepared the contract for services. Being a lawyer, he knew the meaning and value of every word or phrase used in said contract. If the parties, including himself, really had in mind not the assessed value but the market value, it would have been so easy for him to have used and inserted said phrase, ‘market value’, in order to remove and avoid all ambiguity and uncertainty.”

• “[I]f there is any ambiguity or obscurity in the interpretation and meaning of said contract, the same ‘shall not favor the party who caused the obscurity’ (art. 1377 of the Civil Code corresponding to art. 1288 of the Spanish Civil Code of 1889).”

• Yatco vs. El Hogar Filipino, 67 Phil. 610 — Cited as authority for the principle of interpretation embodied in Article 1377 of the Civil Code: an ambiguous contract shall be construed against the party who caused the obscurity.

• Calanoc vs. Phil. American Life Insurance Co., 52 O.G. 191, 792 — Similarly cited to support the application of the rule that doubts in contractual interpretation are resolved against the drafter.

• Article 1377, Civil Code of the Philippines (formerly Article 1288, Spanish Civil Code of 1889) — “The interpretation of obscure words or stipulations in a contract shall not favor the party who caused the obscurity.” Applied to construe the ambiguous phrase “amount adjudicated” against the attorney who drafted the contract, thereby fixing the fee base at the assessed value rather than the market value.

Justices Padilla, A. Reyes, Bautista Angelo, Labrador, J.B.L. Reyes, and Endencia concurred.