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Also, the matters contained in the following were written in accordance with the law, rules, and jurisprudence prevailing at the time of writing and posting, and do not include any future developments on the subject matter under discussion.
AT A GLANCE:
A champertous contract is 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 void contract for being contrary to public policy.
Petitioner RODCO Consultancy and Maritime Services Corporation (RODCO) is a domestic corporation engaged in the business of providing consultancy and professional services to repatriated seafarer-clients. It extends financial assistance to seafarer-clients in processing their documents and refers cases to lawyers for legal services.
Respondent Floserfino Ross was a repatriated seafarer who sought RODCO’s assistance in filing a claim against his local manning agency, foreign shipowner, and insurance company. For this purpose, he executed a Special Power of Attorney (SPA) and an Affidavit of Undertaking. Subsequently, Florentino and his wife Antonia executed an Irrevocable Memorandum Agreement which integrated the terms and conditions agreed upon in the SPA and Undertaking.
RODCO hired Atty. Napoleon A. Concepcion to provide the necessary legal services to Floserfino and to other seafarer-clients of RODCO but this contract between RODCO and Atty. Concepcion was later terminated.
RODCO alleged that after the monetary claim of Floserfino had been successfully collected, he issued in its favor two checks. However, when presented to the drawee bank, both checks were dishonored as these were drawn against a closed account. RODCO sent several demand letters informing Floserfino and Antonia about the dishonored checks and demanding them to settle their obligations but the demands remained unheeded, prompting it to file a Complaint for collection of sum of money.
Floserfino and Antonia countered that RODCO did not extend any financial, medical, or legal assistance to them. They claimed that after opening the bank account, Floserfino was asked to issue two blank checks, the details of which were allegedly never made known to him as the officers of RODCO took custody to guaranty payment. Upon learning that 35% of the actual monetary award will be given to RODCO, Floserfino purportedly asked for more time to think about the agreement. They also clarified that they engaged the services of Atty. Concepcion without the aid of RODCO.
The RTC ruled in favor of RODCO ordering the Floserfino and Antonia to pay RODCO PhP 1,240,800. On appeal, the CA reversed the decision of the RTC holding that the contract entered into by the parties was void from the beginning.
Issue: Whether the contract entered into by the parties is void.
The Supreme Court’s Decision:
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.
The Supreme Court discussed the concept of a champertous contract as the transaction between RODCO and Floserfino has the features of litigation. As held in Nocom v. Camerino, a champertous contract is 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.
An agreement whereby the attorney agrees to pay expenses of proceedings to enforce the client’s rights is champertous, these agreements are against public policy. The prohibition against champerty is embodied in Canon III, Sections 43, 44, and 52 of the recently enacted Code of Professional Responsibility and Accountability. The Supreme Court has nullified champertous contracts in this jurisdiction for being contrary to public policy. In declaring these contracts void, the Court took into account the fact that the arrangements were grossly disadvantageous to the litigants, thereby violating the fiduciary duty of the counsels involved to their respective clients.
A careful study of the terms of the Irrevocable Memorandum of Agreement and its supporting documents reveals that the arrangement between Floserfino and RODCO is similar to a litigation financing arrangement. The Court found that RODCO has no interest in the monetary claim of Floserfino against his former employers yet it agreed to finance the expenses necessary to pursue its litigation in exchange for a promise to be reimbursed and a portion of the proceeds of his claim, it shows that the intention of RODCO is primarily to profit from the litigation of the case of Floserfino and this is clear from the terms of the Irrevocable Memorandum of Agreement and the supporting documents. To recall, RODCO gave money to finance the labor case. In exchange, Floserfino and Antonia undertook to reimburse RODCO the expenses it incurred in litigating his labor case.
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 a successful claim against the employer, to satisfy his obligation in exchange for the “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. Therefore, the Irrevocable Memorandum of Agreement, as well as the Special Power of Attorney and Affidavit of Undertaking, are void for being champertous contracts.
SOURCE:
Rodco Consultancy and Maritime Services Corporation herein represented by Froilan G. Clemente, Jr. vs. Floserfino G. Ross and Antonia T. Ross
G.R. No. 259832 | November 6, 2023
SC Voids Contract for Being Grossly Disadvantageous to Seafarer
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