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Gabato, Vinson Lance S. Generoso, Enrique Dan. C III Problem Areas in Legal Ethics Atty. Capule THE LAWYER AND THE MONEYS OR PROPERTIES OF CLIENTS

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Gabato, Vinson Lance S.

Generoso, Enrique Dan. C III

Problem Areas in Legal Ethics

Atty. Capule

THE LAWYER AND THE MONEYS OR

PROPERTIES OF CLIENTS

The well-established rule that the relation of attorney and client are highly fiduciary and strictly confidential requiring utmost good faith, loyalty, fidelity and disinterestedness on the part of the

attorney is designed to remove all such temptation and to prevent everything of that kind from being

done for the protection of the client (Angeles v. Uy, Jr., 330 SCRA 6, 2000)

CANON 16 – A LAWYER SHALL HOLD IN TRUST ALL MONEYS AND PROPERTIES OF HIS CLIENT THAT MAY

COME INTO HIS POSSESSION

Trust – an equitable or beneficial right or title to land or other property, held for the beneficiary by another person, in whom resides the legal title or ownership, recognized and enforced by courts of

chancery. (Black’s Law Dictionary)

TRUST

It is the court’s duty to look into dealings between attorneys and clients and to guard to protect the

latter from any undue consequences resulting from a situation in which they may stand unequal

(Angeles v. Uy, Jr., 330 SCRA 6, 2000)

Article 24 of the Civil Code provides: In all contractual, property or other relations, when one of the parties is at a disadvantage on account of

his moral dependence, ignorance, indigence, mental weakness, tender age or other handicap,

the courts must be vigilant for his protection.

DEALINGS WITH CLIENTS CLOSELY SCRUTINIZED

Considering that the lawyer is merely holding in trust the moneys and properties he received for his client, he is

accountable therefore to his client.

The highly fiduciary and confidential relation of attorney and client requires that the lawyer should promptly account for

all the funds received or held by him for the client’s benefit. (In re: Bamberger, 49 Phil. 962)

In order to do such duty, he should keep and maintain adequate records of the client’s moneys or properties in his

custody. (McKraken v. Harned 59 NH Eq. 190)

16.01 – A LAWYER SHALL ACCOUNT FOR ALL MONEY OR PROPERTY COLLECTED

OR RECEIVED FOR OR FROM THE CLIENT

Money delivered to the lawyer for specific purpose such as for filing fee for appeal expenses, for arrangement of an

amicable settlement, if not utilized for failure of counsel to take such steps must immediately be returned

(Malabed v. Nanca 60 SCRA 253,, Cruz v. Rivera, 507 SCRA 248)

A lawyer also holds for the benefit of his client any property redeemed with the client’s money and registered in the lawyer’s name (Imbucido v. Manganon, 114 Phil. 695) or any

fund received by him from a judgment creditor as consideration for his desisting from participating in the

public sale of the client’s property. (Diaz v Kapunan, 45 Phil. 482, 1923)

MONEY RECEIVED FOR THE BENEFIT OF THE CLIENT

In Penticostes v Ibañez (304 SCRA 281, 1999), a lawyer who has been entrusted with money by a person who is not his client to remit SSS contributions, may not be considered

strictly as a lawyer handling a client’s fund but the rules relating to a lawyer's handling of funds of a client is

applicable to him. Failure to remit the same gives rise to the presumption that he has misappropriated it for his own use.

This is a gross violation of general morality as well as professional ethics; it impairs public confidence in the legal

profession and deserves punishment.

NO FORMAL LAWYER-CLIENT RELATIONSHIP, NOT

A DEFENSE

Facts: Dhaliwal gave P342,000.00 Atty. Dumaguing to consign with the HLURB regarding a case for the purchase of a lot with FIL-Estate. With the consignment, Atty. Dumaguing filed a petition with the HLURB to compel Fil-Estate to deliver the title to Dhaliwal. A week later, Atty. Dumaguing withdrew the consignment from the HLURB. Dhaliwal later lost in the

HLURB case for failure to pay the purchase price to Fil-Estate. She then demanded Atty. Dumaguing to return to her

the amount she advanced. Atty. Dumaguing refused to return said amount.

DHALIWAL V. DUMAGUING (A.C. NO. 9390, 2012)

Held: citing Adrimisin v. Javier, “Money entrusted to a lawyer for a specific purpose, such as payment for the

balance of the purchase price of a parcel of land as in the present case, but not used for the purpose, should be

immediately returned.“

A lawyer's failure to return upon demand the funds held by him on behalf of his client gives rise to the presumption that he has appropriated the same for his own use in violation of

the trust reposed in him by his client. Such act is a gross violation of general morality as well as of professional ethics.

It impairs public confidence in the legal profession and deserves punishment.

Facts: Brennisen entrusted to Atty. Catawi the administration of a real property together with its title. Unbeknownst to Brennisen, Atty. Catawi

through a spurious Special Power of Attorney mortgaged and subsequently sold the subject property. Brennisen filed a complaint.

Atty. Catawi denied liability claiming to have merely extended his services for free.

Held: Respondent acted with deceit when, through the use of a falsified document, he effected the unauthorized mortgage and sale of his client's property for his personal benefit. Respondent's argument that there was no formal lawyer-client relationship between him and

complainant will not serve to mitigate his liability. There is no distinction as to whether the transgression is committed in a lawyer's

private or professional capacity, for a lawyer may not divide his personality as an attorney at one time and a mere citizen at another.”

BRENNISEN V. ATTY. CATAWI (AC NO. 7481, 2012)

The lawyer is under strict obligation to label and to identify his client’s property and keep it separate and apart from his

own. (CBA, Code of Professional Conduct)

He must not commingle his client’s moneys with other moneys in his possession. The prohibition against

commingling is not only to prevent confusion but also to “avoid the appearance of impropriety.”

(ABA, Code of Professional Responsibility)

If funds are kept in separate account, the temptation to convert them to personal use is one step removed.

(Report of IBP Committee)

16.02 – A LAWYER SHALL KEEP THE FUNDS OF EACH

CLIENT SEPARATE AND APART FROM HIS OWN AND

THOSE OF OTHERS KEPT BY HIM

In Espiritu v. Cabredo (395 SCRA 19), it was held that the relationship between a lawyer and a client

is highly fiduciary; it requires a high degree of fidelity and good faith. Hence, in dealing with trust

property, a lawyer should be very scrupulous. Money or other trust property of the client coming

into the possession of the lawyer should be reported by the latter and accounted for promptly

and should not under any circumstances, be commingled with his own or be used by him.

LAWYER SHOULD NOT USE CLIENT’S FUND FOR

PERSONAL USE

In Daroy v Legaspi (65 SCRA 304, 1975), it was stated that “he should not commingle a client’s

money with that of other clients and with his private funds, nor use the client’s money for

personal purposes without client’s consent. He should maintain a reputation for honesty and

fidelity to private trust.”

LAWYER MUST NOT COMMINGLE FUNDS WITH

OTHER CLIENTS

Facts: Atty. Narvajal was approached by Consarcia Rollon regarding a case filed against her. After agreeing to represent her case, she paid P8,000 for the filing and partial service fee. The case was not acted upon and after

several weeks of repeatedly following up the case, Atty. Narvajal cites he was busy with other cases. Rollon decided to withdraw the amount she advanced

from Atty. Narvajal but he refused on the ground that he does not have money.

Held: Lawyers are deemed to hold in trust their client’s money and property that may come into their possession. As respondent obviously did nothing on

the case of complainant, the amount she had given -- as evidenced by the receipt issued by his law office -- was never applied to the filing fee. His

failure to return her money upon demand gave rise to the presumption that he had converted it to his own use and thereby betrayed the trust she had

reposed in him. His failure to do so constituted a gross violation of professional ethics and a betrayal of public confidence in the legal

profession.

ROLLON V. ATTY. NARVAJAL (A.C. NO. 6424, 2005)

16.03 – A LAWYER SHALL DELIVER THE FUNDS AND PROPERTY OF HIS CLIENT

WHEN DUE OR UPON DEMAND.  HOWEVER, HE

SHALL HAVE A LIEN OVER THE FUNDS AND MAY APPLY SO MUCH THEREOF AS MAY BE NECESSARY TO SATISFY HIS

LAWFUL FEES AND DISBURSEMENTS, GIVING

NOTICE PROMPTLY THEREAFTER TO HIS CLIENT.  HE SHALL ALSO HAVE A LIEN TO THE SAME EXTENT ON ALL JUDGMENTS AND EXECUTIONS

AND HAS SECURED FOR HIS CLIENT AS PROVIDED FOR THE

RULES OF COURT

Unlawful retention of client’s funds is contemptuous. When an attorney unjustly retains

in his hands money his client after it has been demanded, he may be punished for contempt as an officer of the Court who has misbehaved in his

official transaction: but proceedings under this section shall not be a bar to a criminal

prosecution. (Sec 25, Rule 138, 1997 Rules of Court)

A lawyer who obtained possession of the fund and properties belonging to his client in the course of his professional employment shall deliver the same to his client when they become due or upon demand.

(Dumadag v. Lumaya 197 SCRA 303)

The lawyer’s failure to deliver upon demand gives rise to the presumption that he has misappropriated

the funds for his own use to prejudice of the client and in violation of the trust reposed in him.

(In re: David, 84 Phil. 627)

PRESUMPTION OF MISAPPROPRIATION

A lawyer cannot unilaterally appropriate the client’s money for himself by the mere fact that the client

owes him attorney’s fee. What he can do is exercise the right of lien if proper.

(Almendarez Jr. V. Langit, 496 SCRA 402)

A lawyer shall have a lien over the client’s funds and may apply so much thereof to satisfy his lawful fees and disbursements but must give prompt notice to

his client for the latter’s advisement. (Report of IBP Committee)

ATTORNEY’S LIEN

For further protection of the lawyer, Rule 138, Sec. 37 of the Rules of Court provides for charging lien. He shall have a lien to the extent of his attorney’s fees and legal disbursement on all judgments and executions he has secured for his client. To enforce

such, it is necessary that the lawyer shall have caused a statement of such lien to be entered

upon the records of the court which rendered the favorable judgment with written notice to the

client and to the adverse party.

The attorney’s lien does not apply to the public documents introduced in court as exhibits. These documents are subject to the court’s custody. To hold otherwise would be a curtail

unduly the inherent power of a judicial tribunal in the conduct of the proceedings before it.

When the documents are subject to lien, the lawyer cannot be compelled to surrender the same without prior proof that

his fees are fully satisfied. If the court needs to gain possession of the documents, the claimant is required to file a security for the lawyer’s fees before it can be surrendered.

(Matute v. Matute, 33 SCRA 35)

LIEN NOT APPLICABLE TO COURT EXHIBITS

The attorney’s fee which had already been registered as a charging lien, cannot be altered or defeated by the

client’s act of terminating the lawyer’s services, compromising the case or waiving his rights in favor of

the adverse party.

A client has a prerogative to dismiss his lawyer anytime as the relationship is one based on trust and confidence.

There is no such thing as illegal dismissal in a client-lawyer relationship. However, if the dismissal is without

cause, then the client will pay in full attorney’s fees expressly granted on their contract.

(Aro v. Navana, 27 SCRA 1090)

TERMINATION OF SERVICES DOES NOT AFFECT LIEN

When a lawyer enforces a charging lien against his client, the client-lawyer relationship is terminated.

Rule 22.02 provides that, “A lawyer who withdraws or is discharged shall, subject to a retainer lien, immediately turn over all papers and property to which the client is entitled, and shall cooperate with his successor in the orderly transfer of the

matter, including all information necessary for the proper handling of the matter”.

Attorney’s Lien is not an excuse for non-rendition of accounting. The lawyer is not relieved of the obligation to

make a proper accounting even if he has an attorney’s lien over the client’s moneys or funds in his possession.

(In re: Bamberger, 49 Phil. 962, Daroy v. Legaspi, 65 SCRA 304)

In the absence of authority from his client, he is not allowed to disburse the money collected for his client in favor of persons who may be entitled thereto considering that he owes fidelity to the client and not to the creditor. He needs a special power

to effect such payment under Art. 1878 of the Civil Code.(In re: Abad, 98 Phil. 899)

EXISTENCE OF LIEN NOT AN EXCUSE NOT TO ACCOUNT

Held: “Respondent has no right to retain or appropriate unilaterally, as lawyer’s lien, as

attorney’s fees. Obviously, his failure to return the money to complainants upon demand gave rise to

the presumption that he misappropriated it in violation of the trust reposed on him. His act of

holding on to their money without their acquiescence is conduct indicative of lack of

integrity and propriety. He was clinging to something not his and to which he had no right.”

ALDOVINO V PUJALTE (A.C. NO. 5082, 2004)

Held: First, the respondent in this case has been a practicing lawyer since 1974 and even runs his own small law firm. For all his vast

experience, however, he claims that he has done nothing wrong by concealing and withholding his clients’ money from them. Coming

from a seasoned practitioner of the law, this attitude is inexcusable.

Second, the respondent had other means of recovering his fees, having filed a case for that purpose which was, however, dismissed for his failure to properly implead an indispensable party.  In short,

having botched his own effort to recover his fees, he sought to simply subvert both law and proper procedure by holding on to the money.

Clearly, the respondent’s actuations were thoroughly tainted with bad faith, deceit and utter contempt of his sworn duty as a lawyer.

MORTERA V ATTY. PAGATPATAN

(A.C. NO. 4562, 2005)

A lawyer who has borrowed money for his benefit without court approval is guilty of misconduct.

(In re: Pelayo, 44 Phil. 569)

16.04 – A LAWYER SHALL NOT BORROW MONEY FROM HIS

CLIENT UNLESS THE CLIENT’S INTERESTS ARE FULLY

PROTECTED BY THE NATURE OF THE CASE OR BY

INDEPENDENT ADVICE.  NEITHER SHALL A LAWYER LEND MONEY TO A CLIENT

EXCEPT, WHEN IN THE INTEREST OF JUSTICE, HE HAS

TO ADVANCE NECESSARY EXPENSES IN THE LEGAL

MATTER HE IS HANDLING FOR THE CLIENT.

The rule against borrowing of money by a lawyer from his client is intended to prevent the former from taking advantage of his influence over the

latter. The second part of the rule is to assure the lawyer’s independent professional judgment.

(Report of IBP Committee)

RATIONALE

The lawyer is allowed to borrow money provided the interests of the client are fully protected by the nature of the

case or by independent advice.

The lawyer may lend money to a client when it is necessary in the interest of justice to advance necessary expenses in a legal matter he is handling for the client. It shall be subject

to reimbursement, otherwise it will be champertous.

EXCEPTION

Labiano’s calling card contained the phrase "with financial assistance." The phrase was clearly used to

entice clients (who already had representation) to change counsels with a promise of loans to finance their legal actions. Money was dangled to lure clients away from

their original lawyers, thereby taking advantage of their financial distress and emotional vulnerability. This crass

commercialism degraded the integrity of the bar and deserved no place in the legal profession. Moreover, by engaging in a money-lending venture with his clients as

borrowers, respondent violated Rule 16.04

LINSANGAN V. ATTY. TOLENTINO

(A.C. NO. 6672, 2009)

The rule is intended to safeguard the lawyer’s independence of mind so that the free exercise of his judgment may not be

adversely affected. It seeks to ensure his undivided attention to the case he is handling as well as his entire

devotion and fidelity to the client’s cause. If the lawyer lends money to the client in connection with the client’s case, the lawyer in effect acquires an interest in the subject matter of

the case or an additional stake in its outcome. Either of these circumstances may lead the lawyer to consider his own recovery rather than that of his client, or to accept a

settlement which may take care of his interest in the verdict to the prejudice of the client in violation of his duty of

undivided fidelity to the client’s cause.

Thank You!

Sources:Legal and Judicial Ethics (Agpalo, 2009)

Legal and Judicial Ethics (Pineda, 1999)

Cases (LawPhil)

FIN