A.C. No. 5804            July 1, 2003 Atty.

Ricafort who instigated, orchestrated and indiscriminately filed the said

cases against members of the PPSTA and its Board.
BENEDICTO HORNILLA and ATTY. FEDERICO D.
RICAFORT, complainants,  Respondent pointed out that his relationship to Aurelio S. Salunat was
vs. immaterial; and that when he entered into the retainer contract with the
ATTY. ERNESTO S. SALUNAT, respondent. 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
RESOLUTION 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
YNARES-SANTIAGO, J.:
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
On November 21, 1997, Benedicto Hornilla and Federico D. Ricafort filed an Mesa, and not ASSA.
administrative complaint1 with the Integrated Bar of the Philippines (IBP)
Commission on Bar Discipline, against respondent Atty. Ernesto S. Salunat
By way of Special and Affirmative Defenses, respondent averred that
for illegal and unethical practice and conflict of interest. They alleged that
complainant Atty. Ricafort was himself guilty of gross violation of his oath of
respondent is a member of the ASSA Law and Associates, which was the
office amounting to gross misconduct, malpractice and unethical conduct for
retained counsel of the Philippine Public School Teachers Association
filing trumped-up charges against him and Atty. De Mesa. Thus, he prayed
(PPSTA). Respondent’s brother, Aurelio S. Salunat, was a member of the
that the complaint against him be dismissed and, instead, complainant
PPSTA Board which approved respondent’s engagement as retained
Ricafort be disciplined or disbarred.
counsel of PPSTA.

The complainant was docketed as CBD Case No. 97-531 and referred to the
Complainants, who are members of the PPSTA, filed an intra-corporate case
IBP Commission on Bar Discipline. After investigation, Commissioner Lydia
against its members of the Board of Directors for the terms 1992-1995 and
A. Navarro recommended that respondent be suspended from the practice of
1995-1997 before the Securities and Exchange Commission, which was
law for six (6) months. The Board of Governors thereafter adopted Resolution
docketed as SEC Case No. 05-97-5657, and a complaint before the Office of
No. XV-3003-230 dated June 29, 2002, approving the report and
the Ombudsman, docketed as OMB Case No. 0-97-0695, for unlawful
recommendation of the Investigating Commissioner.
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 Respondent filed with this Court a Motion for Reconsideration of the above
guilty of conflict of interest because he was engaged by the PPSTA, of which Resolution of the IBP Board of Governors.
complainants were members, and was being paid out of its corporate funds
where complainants have contributed. Despite being told by PPSTA The pertinent rule of the Code of Professional Responsibility provides:
members of the said conflict of interest, respondent refused to withdraw his
appearance in the said cases. 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.
Moreover, complainants aver that respondent violated Rule 15.062 of the
Code of Professional Responsibility when he appeared at the meeting of the There is conflict of interest when a lawyer represents inconsistent interests of
PPSTA Board and assured its members that he will win the PPSTA cases. 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
In his Answer,3 respondent stressed that he entered his appearance as oppose it for the other client. In brief, if he argues for one client, this
counsel for the PPSTA Board Members for and in behalf of the ASSA Law argument will be opposed by him when he argues for the other client." 5 This
and Associates. As a partner in the said law firm, he only filed a rule covers not only cases in which confidential communications have been
"Manifestation of Extreme Urgency" in OMB Case No. 0-97-0695.4 On the confided, but also those in which no confidence has been bestowed or will be
other hand, SEC Case No. 05-97-5657 was handled by another partner of used.6 Also, there is conflict of interests if the acceptance of the new retainer
the firm, Atty. Agustin V. Agustin. Respondent claims that it was complainant 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 rise to a conflict of interest. The interest of the corporate client is paramount
called upon in his new relation to use against his first client any knowledge and should not be influenced by any interest of the individual corporate
acquired through their connection.7 Another test of the inconsistency of officials.14 The rulings in these cases have persuasive effect upon us. After
interests is whether the acceptance of a new relation will prevent an attorney due deliberation on the wisdom of this doctrine, we are sufficiently convinced
from the full discharge of his duty of undivided fidelity and loyalty to his client that a lawyer engaged as counsel for a corporation cannot represent
or invite suspicion of unfaithfulness or double dealing in the performance members of the same corporation’s board of directors in a derivative suit
thereof.8 brought against them. To do so would be tantamount to representing
conflicting interests, which is prohibited by the Code of Professional
In this jurisdiction, a corporation’s board of directors is understood to be that Responsibility.
body which (1) exercises all powers provided for under the Corporation
Code; (2) conducts all business of the corporation; and (3) controls and holds In the case at bar, the records show that SEC Case No. 05-97-5657, entitled
all property of the corporation.9 Its members have been characterized as "Philippine Public School Teacher’s Assn., Inc., et al. v. 1992-1995 Board of
trustees or directors clothed with a fiduciary character.10 It is clearly separate Directors of the Philippine Public School Teacher’s Assn. (PPSTA), et al.,"
and distinct from the corporate entity itself. 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
Where corporate directors have committed a breach of trust either by their the retained counsel of PPSTA. Yet, he appeared as counsel of record for
frauds, ultra vires acts, or negligence, and the corporation is unable or the respondent Board of Directors in the said case. Clearly, respondent was
unwilling to institute suit to remedy the wrong, a stockholder may sue on guilty of conflict of interest when he represented the parties against whom his
behalf of himself and other stockholders and for the benefit of the other client, the PPSTA, filed suit.
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 In his Answer, respondent argues that he only represented the Board of
derivative suit, and settled is the doctrine that in a derivative suit, the Directors in OMB Case No. 0-97-0695. In the said case, he filed a
corporation is the real party in interest while the stockholder filing suit for the Manifestation of Extreme Urgency wherein he prayed for the dismissal of the
corporation’s behalf is only nominal party. The corporation should be complaint against his clients, the individual Board Members. By filing the said
included as a party in the suit.12 pleading, he necessarily entered his appearance therein.15 Again, this
constituted conflict of interests, considering that the complaint in the
Having thus laid a suitable foundation of the basic legal principles pertaining Ombudsman, albeit in the name of the individual members of the PPSTA,
to derivative suits, we come now to the threshold question: can a lawyer was brought in behalf of and to protect the interest of the corporation.
engaged by a corporation defend members of the board of the same
corporation in a derivative suit? On this issue, the following disquisition is Therefore, respondent is guilty of representing conflicting interests.
enlightening: Considering however, that this is his first offense, we find the penalty of
suspension, recommended in IBP Resolution No. XV-2002-230 dated June
The possibility for conflict of interest here is universally recognized. Although 29, 2002, to be too harsh. Instead, we resolve to admonish respondent to
early cases found joint representation permissible where no conflict of observe a higher degree of fidelity in the practice of his profession.
interest was obvious, the emerging rule is against dual representation in all
derivative actions. Outside counsel must thus be retained to represent one of ACCORDINGLY, respondent Atty. Ernesto Salunat is found GUILTY of
the defendants. The cases and ethics opinions differ on whether there must representing conflicting interests and is ADMONISHED to observe a higher
be separate representation from the outset or merely from the time the degree of fidelity in the practice of his profession. He is further WARNED that
corporation seeks to take an active role. Furthermore, this restriction on dual a repetition of the same or similar acts will be dealt with more severely.
representation should not be waivable by consent in the usual way; the
corporation should be presumptively incapable of giving valid SO ORDERED.
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