2010 Legal and Judicial Ethics, Q14

Farida engaged the services of Atty. Garudo to represent her in a complaint for damages. The two agreed that all expenses incurred in connection with the case would first be shouldered by Atty. Garudo and he would be paid for his legal services and reimbursed for all expenses which he had advanced out of whatever Farida may receive upon the termination of the case. What kind of contract is this? (2%)

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What defines a champertous contract between a lawyer and a client?

How does a valid contingent fee agreement differ from an illegal champertous contract?

What is the legal status of a champertous fee contract under Philippine law?

May a lawyer advance litigation expenses on behalf of a client?

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Why does public policy prohibit champertous agreements in the legal profession?

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1. Champertous Contract Concept
A champertous contract is an agreement whereby a lawyer undertakes to carry on a litigation at his own expense and risk in consideration of receiving a specified share of the recovery if successful. Unlike a valid contingent fee contract where the client remains ultimately liable for litigation costs advanced by the lawyer, a champertous agreement completely releases the client from financial obligation if the suit fails. Such contracts are void ab initio for being contrary to public policy, as they convert the legal profession into a speculative business venture.

2. Contingent Fee Distinguished
A contingent fee agreement is legally permissible and ethically valid, provided the attorney's fee is contingent on success while the client retains the ultimate responsibility to pay or reimburse litigation costs. In contrast, when an attorney agrees not only to make fee recovery contingent on winning but also promises to absorb all litigation expenses without seeking reimbursement if the lawsuit is lost, the contract crosses the line into illegal champerty. Legal ethics allows advancing litigation expenses only when the client remains ultimately liable for reimbursement.

3. Legal Ethics Violation
Under the Code of Professional Responsibility and Accountability, a lawyer is prohibited from acquiring a personal financial interest in the outcome of a client's litigation that compromises independent professional judgment. Entering into a champertous agreement incentivizes improper litigation tactics, encourages champerty and maintenance, and reduces the lawyer's objective fidelity to the administration of justice. Courts consistently invalidate champertous fee arrangements and subject lawyers who execute them to appropriate administrative disciplinary sanctions.

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