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YnaresSantiago:FirstDivision

FIRSTDIVISION

[A.C.No.5804.July1,2003]

BENEDICTO HORNILLA and ATTY. FEDERICO D. RICAFORT, complainants, vs. ATTY. ERNESTO S.
SALUNAT,respondent.

RESOLUTION
YNARESSANTIAGO,J.:

OnNovember21,1997,BenedictoHornillaandFedericoD.Ricafortfiledanadministrativecomplaint[1]withtheIntegratedBarof
thePhilippines(IBP)CommissiononBarDiscipline,againstrespondentAtty.ErnestoS.Salunatforillegalandunethicalpracticeand
conflictofinterest.TheyallegedthatrespondentisamemberoftheASSALawandAssociates,whichwastheretainedcounselofthe
PhilippinePublicSchoolTeachersAssociation(PPSTA).Respondentsbrother,AurelioS.Salunat,wasamemberofthePPSTABoard
whichapprovedrespondentsengagementasretainedcounselofPPSTA.
Complainants,whoaremembersofthePPSTA,filedanintracorporatecaseagainstitsmembersoftheBoardofDirectorsforthe
terms19921995and19951997beforetheSecuritiesandExchangeCommission,whichwasdocketedasSECCaseNo.05975657,
and a complaint before the Office of the Ombudsman, docketed as OMB Case No. 0970695, for unlawful spending and the
undervaluedsaleofrealpropertyofthePPSTA.RespondententeredhisappearanceascounselforthePPSTABoardmembersinthe
saidcases.ComplainantscontendthatrespondentwasguiltyofconflictofinterestbecausehewasengagedbythePPSTA,ofwhich
complainantsweremembers,andwasbeingpaidoutofitscorporatefundswherecomplainantshavecontributed.Despitebeingtoldby
PPSTAmembersofthesaidconflictofinterest,respondentrefusedtowithdrawhisappearanceinthesaidcases.
Moreover,complainantsaverthatrespondentviolatedRule15.06[2]oftheCodeofProfessionalResponsibilitywhenheappearedat
themeetingofthePPSTABoardandassureditsmembersthathewillwinthePPSTAcases.
InhisAnswer,[3]respondentstressedthatheenteredhisappearanceascounselforthePPSTABoardMembersforandinbehalfof
theASSALawandAssociates.Asapartnerinthesaidlawfirm,heonlyfiledaManifestationofExtremeUrgencyinOMBCaseNo.0
970695.[4] On the other hand, SEC Case No. 05975657 was handled by another partner of the firm, Atty. Agustin V. Agustin.
RespondentclaimsthatitwascomplainantAtty.Ricafortwhoinstigated,orchestratedandindiscriminatelyfiledthesaidcasesagainst
membersofthePPSTAanditsBoard.
Respondent pointed out that his relationship to Aurelio S. Salunat was immaterial and that when he entered into the retainer
contractwiththePPSTABoard,hedidso,notinhisindividualcapacity,butinrepresentationoftheASSALawFirm.Hedeniedthathe
ensuredthevictoryofthePPSTABoardinthecasehewashandling.HemerelyassuredtheBoardthatthetruthwillcomeoutandthat
thecasebeforetheOmbudsmanwillbedismissedforlackofjurisdiction,consideringthatrespondentsthereinarenotpublicofficials,
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butprivateemployees.AnenttheSECcase,respondentallegedthatthesamewasbeinghandledbythelawfirmofAtty.Eduardode
Mesa,andnotASSA.
BywayofSpecialandAffirmativeDefenses,respondentaverredthatcomplainantAtty.Ricafortwashimselfguiltyofgrossviolation
ofhisoathofofficeamountingtogrossmisconduct,malpracticeandunethicalconductforfilingtrumpedupchargesagainsthimand
Atty. De Mesa. Thus, he prayed that the complaint against him be dismissed and, instead, complainant Ricafort be disciplined or
disbarred.
ThecomplainantwasdocketedasCBDCaseNo.97531andreferredtotheIBPCommissiononBarDiscipline.Afterinvestigation,
CommissionerLydiaA.Navarrorecommendedthatrespondentbesuspendedfromthepracticeoflawforsix(6)months.TheBoardof
Governors thereafter adopted Resolution No. XV3003230 dated June 29, 2002, approving the report and recommendation of the
InvestigatingCommissioner.
RespondentfiledwiththisCourtaMotionforReconsiderationoftheaboveResolutionoftheIBPBoardofGovernors.
ThepertinentruleoftheCodeofProfessionalResponsibilityprovides:

RULE15.03.Alawyershallnotrepresentconflictinginterestsexceptbywrittenconsentofallconcernedgivenafterafulldisclosureofthefacts.

Thereisconflictofinterestwhenalawyerrepresentsinconsistentinterestsoftwoormoreopposingparties.Thetestiswhetheror
notinbehalfofoneclient,itisthelawyersdutytofightforanissueorclaim,butitishisdutytoopposeitfortheotherclient.Inbrief,if
hearguesforoneclient,thisargumentwillbeopposedbyhimwhenhearguesfortheotherclient.[5]Thisrulecoversnotonlycasesin
which confidential communications have been confided, but also those in which no confidence has been bestowed or will be used.[6]
Also,thereisconflictofinterestsiftheacceptanceofthenewretainerwillrequiretheattorneytoperformanactwhichwillinjuriously
affecthisfirstclientinanymatterinwhichherepresentshimandalsowhetherhewillbecalleduponinhisnewrelationtouseagainst
his first client any knowledge acquired through their connection.[7] Another test of the inconsistency of interests is whether the
acceptanceofanewrelationwillpreventanattorneyfromthefulldischargeofhisdutyofundividedfidelityandloyaltytohisclientor
invitesuspicionofunfaithfulnessordoubledealingintheperformancethereof.[8]
Inthisjurisdiction,acorporationsboardofdirectorsisunderstoodtobethatbodywhich(1)exercisesallpowersprovidedforunder
the Corporation Code (2) conducts all business of the corporation and (3) controls and holds all property of the corporation.[9] Its
membershavebeencharacterizedastrusteesordirectorsclothedwithafiduciarycharacter.[10]Itisclearlyseparateanddistinctfrom
thecorporateentityitself.
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
stockholdersandforthebenefitofthecorporation,tobringaboutaredressofthewrongdonedirectlytothecorporationandindirectly
tothestockholders.[11]Thisiswhatisknownasaderivativesuit,andsettledisthedoctrinethatinaderivativesuit,thecorporationisthe
realpartyininterestwhilethestockholderfilingsuitforthecorporationsbehalfisonlynominalparty.Thecorporationshouldbeincluded
asapartyinthesuit.[12]
Having thus laid a suitable foundation of the basic legal principles pertaining to derivative suits, we come now to the threshold
question:canalawyerengagedbyacorporationdefendmembersoftheboardofthesamecorporationinaderivative suit?On this
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issue,thefollowingdisquisitionisenlightening:

Thepossibilityforconflictofinteresthereisuniversallyrecognized.Althoughearlycasesfoundjointrepresentationpermissiblewherenoconflictof
interestwasobvious,theemergingruleisagainstdualrepresentationinallderivativeactions.Outsidecounselmustthusberetainedtorepresentone
ofthedefendants.Thecasesandethicsopinionsdifferonwhethertheremustbeseparaterepresentationfromtheoutsetormerelyfromthetimethe
corporationseekstotakeanactiverole.Furthermore,thisrestrictionondualrepresentationshouldnotbewaivablebyconsentintheusualwaythe
corporationshouldbepresumptivelyincapableofgivingvalidconsent.[13](underscoringours)

Inotherjurisdictions,theprevailingruleisthatasituationwhereinalawyerrepresentsboththecorporationanditsassaileddirectors
unavoidablygivesrisetoaconflictofinterest.The interest of the corporate client is paramount and should not be influenced by any
interestoftheindividualcorporateofficials.[14]Therulingsinthesecaseshavepersuasiveeffectuponus.Afterduedeliberationonthe
wisdomofthisdoctrine,wearesufficientlyconvincedthatalawyerengagedascounselforacorporationcannotrepresentmembersof
the same corporations board of directors in a derivative suit brought against them. To do so would be tantamount to representing
conflictinginterests,whichisprohibitedbytheCodeofProfessionalResponsibility.
Inthecaseatbar,therecordsshowthatSECCaseNo.05975657,entitledPhilippinePublicSchoolTeachersAssn.,Inc.,etal.v.
19921995BoardofDirectorsofthePhilippinePublicSchoolTeachersAssn.(PPSTA),etal.,wasfiledbythePPSTAagainstitsown
Board of Directors. Respondent admits that the ASSA Law Firm, of which he is the Managing Partner, was the retained counsel of
PPSTA.Yet,heappearedascounselofrecordfortherespondentBoardofDirectorsinthesaidcase.Clearly,respondentwasguiltyof
conflictofinterestwhenherepresentedthepartiesagainstwhomhisotherclient,thePPSTA,filedsuit.
InhisAnswer,respondentarguesthatheonlyrepresentedtheBoardofDirectorsinOMBCaseNo.0970695.Inthesaidcase,he
filedaManifestationofExtremeUrgencywhereinheprayedforthedismissalofthecomplaintagainsthisclients,theindividualBoard
Members. By filing the said pleading, he necessarily entered his appearance therein.[15] Again, this constituted conflict of interests,
consideringthatthecomplaintintheOmbudsman,albeitinthenameoftheindividualmembersofthePPSTA,wasbroughtinbehalfof
andtoprotecttheinterestofthecorporation.
Therefore,respondentisguiltyofrepresentingconflictinginterests.Considering however, that this is his first offense, we find the
penaltyofsuspension,recommendedinIBPResolutionNo.XV2002230datedJune29,2002,tobetooharsh.Instead,weresolveto
admonishrespondenttoobserveahigherdegreeoffidelityinthepracticeofhisprofession.
ACCORDINGLY,respondentAtty.ErnestoSalunatisfoundGUILTYofrepresentingconflictinginterestsandisADMONISHEDto
observeahigherdegreeoffidelityinthepracticeofhisprofession.HeisfurtherWARNEDthatarepetitionofthesameorsimilaracts
willbedealtwithmoreseverely.
SOORDERED.
Davide,Jr.,C.J.,(Chairman),Vitug,Carpio,andAzcuna,JJ.,concur.

[1]Record,Vol.1,p.1.

[2]Rule15.06Alawyershallnotstateorimplythatheisabletoinfluenceanypublicofficial,tribunalorlegislativebody.

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[3]Rollo,p.58.

[4]Id.,p.79.

[5]Pineda,LegalandJudicialEthics,p.199[1999ed.].

[6]Id.,citingHiladov.David,84Phil.569[1949]Nombradov.Hernandez,26SCRA13[1968]Bautistav.Barrios,9SCRA695[1963].

[7]Pineda,LegalandJudicialEthics,supra,p.199,citingPiercev.Palmer,31R.I.432.

[8]Agpalo,LegalEthics,supra,p.220,citingInreDelaRosa,27Phil.258[1914]GrievanceCommitteev.Rottner,152Conn.59,203A2d82[1954]andTitaniav.
Ocampo,200SCRA472[1991].
[9]CORPORATIONCODE,sec.23.

[10]3FLETCHER,CYCLOPEDIACORPORATIONS(PermanentEd.)8044(Importanceofdeterminingwhetherofficeratrusteeoragent).

[11]Pascualv.DelSazOrozco,19Phil.82(1911),citedinGochanv.Young,G.R.No.131889,12March2001.

[12]AssetPrivatizationTrustv.CA,360Phil.768(1998).

[13]HarvardLawReview,DevelopmentsintheLaw:ConflictofInterest,94HARV.L.REV.1244,13391342(1981),citedinSOLOMON,SCHWARTZ,BAUMAN&

WEISS,CORPORATIONS:LAWANDPOLICY(3rded.)1129(1994).
[14]Cannonv. United States Acoustics Corporation, 398 F. Supp. 209 (N.D. Ill. 1975), affirmed in relevant part percuriam 532 F. 2d 1118 (7th Circ. 1978), citing
Murphyv.WashingtonAmericanLeagueBaseballClub,Inc.,116U.S.App.D.C.362,324F.2d394(1963).
[15]OngChingv.Ramolete,151APhil.509,514[1973].

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