CHAPTER VIII

FIDUCIARY OBLIGATIONS OF LAWYERS TO CLIENT

CANON 16 - A LAWYER SHALL HOLD IN TRUST ALL MONEYS AND

PROPERTIES OF HIS CLIENT THAT MAY COME INTO HIS
PROFESSION.

- A fiduciary relationship exists as a matter of law subject to the closest judicial

scrutiny; lawyer is a trustee
- Relation is highly fiduciary and strictly confidential

- Melendrez vs. Decena, AM No. 2104, 8/24/89

o the exploitative deception exercised by respondent attorney upon the

complainants in his private transactions with them, and the exacting of
unconscionable rates of interest, considered together with the acts of
professional misconduct committed by respondent attorney, compel
this Court to the conviction that he has lost that good moral character
which is indispensable for continued membership in the Bar.
o WHEREFORE, respondent Reynerio I. Decena is hereby
DISBARRED and his name shall be stricken from the Rollo of
Attorneys.

Rule 16.01 - A lawyer shall account for all money or property collected or
received for or from the client.

- Holds money or property held in trust & under an obligation to make a prompt
accounting thereof
- Even money received from a person not his client
- Atty’s lien for his fees does not relieve him from obligation to make a prompt
accounting
- Act of collecting unreasonable fees; retention of client’s funds – professional
indiscretion or misconduct
- Question is not necessarily whether the rights of the clients have been
prejudiced but whether the lawyer has adhered to the ethical standards of the
bar.

Rule 16.02 - A lawyer shall keep the funds of each client separate and apart from
his own and those of others kept by him.

- A lawyer shall not comingle client’s funds

- A lawyer should refrain from any action whereby for his personal benefit or gain
he abuses or takes advantage of the confidence reposed in him his by client.
 Rule 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 he has secured
for his client as provided for in the Rules of Court.

- A lawyer shall deliver funds to his client, subject to his lien

- Lien – the right to keep another person’s property until a debt owed in respect of
it is paid (such as repairing the property)
- May not retain money of client to force settlement; not obtain money through
false pretense or representation; not borrow money from client unless client’s
interests are protected or by independent advice;
- Failure to return money – presumption of misappropriation
- Disagreement on lawyer’s fees – lawyer should not arbitrarily apply the funds in
his possession to the payment of his fees – file the necessary action to fix and
recover the fees

Rule 16.04 - A lawyer shall not borrow money from his client unless the client's
interest 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 a legal matter he is handling
for the client.

- May not lend money to client except when he has to advance necessary
expenses in a legal matter he is handling for the client –to assure lawyer’s
independent and professional judgment
- May not accept, w/o full knowledge of client, any fee, reward, costs,
commission, interest, rebate or forwarding allowance or compensation related to
his professional employment from anyone other than the client – to secure
attorney’s wholehearted fidelity to the client’s cause
- Characterized with utmost honesty and good faith-much higher standard than in
business dealings
- Even if the transaction between lawyer & client is not prohibited-burden of
proof on the lawyer to show that it was fair, equitable and just; no undue
influence; lawyer not taking advantage of client
- Lawyer shall not borrow money from client – to prevent lawyer from taking
advantage of his client

Purchase or Transfer of client’s property in litigation

- Article 1491, Civil Code

Special Disabilities of Lawyers

            The following persons are prohibited from acquiring property under
litigation by reason of the relation of trust or their peculiar control either
directly or indirectly and even at a public or judicial auction:
1. guardians;
2. agents
3. administrators
4. public officers and employees
5. judicial officers and employees
6. prosecuting attorneys and lawyers (Art 1491, NCC)
7. those specially disqualified by law (Rubias vs. Batilles, 31 SCRA 120)

 Elements of Article 1491 (Civil Code; Laig vs. CA, 82 SCRA 294)

1. there must be an attorney-client relationship

2. the property or interest of the client must be in litigation
3. the attorney takes part as counsel in the case
4. the attorney by himself or through another purchases such property or interest
during the pendency of the litigation.

 General Rule: A lawyer may not purchase, even at a public or judicial

auction, in person or through the mediation of another, any property or interest
involved in any litigation in which he may take part by virtue of his profession.
This prohibition is entirely independent of fraud and such need not be alleged
or proven.

- Prohibited from purchasing, even at a public or judicial auction, even in person

or tru mediator, any property or interest involved in any litigation in which he
may take part by virtue of his profession

o To curtail any undue influence of the lawyer upon his client

o Absolute and permanent
o Conflict between self-interest & integrity

- Purpose is to prevent the lawyer from litigating on his own account

- Even if at the instance of the client or at the behest of the lawyer
- Atty occupies a vantage position to press upon or dictate his terms to a harassed
client

- Four elements :
o Attorney-client relationship
o Property/interest in litigation
o Attorney as counsel in the case
o Attorney by himself or another purchases such property or interest
during the litigation

- Any scheme is prohibited, for a partnership where one partner is the

counsel/wife/estate/guardian
- Where the value of the property in litigation deeded by a client in favor of his
atty in payment of the latter’s fees is greatly more than the worth of the atty’s
services, transfer contravenes the law

o Ie. Conjugal partnership of Sps. Vicente Cadavedo et.al. vs. Victorino

Lacanaya, GR NO. 173188, 1/15/14 (atty’s fees)

 The written agreement providing for

a contingent fee of ₱2,000.00 should prevail
over the oral agreement providing for one-
half of the subject lot

 The contingent fee agreement between

the spouses Cadavedo and Atty. Lacaya,
awarding the latter one-half of the subject
lot, is champertous; contrary to public policy

 Champerty, along with maintenance (of which

champerty is an aggravated form), is a common law
doctrine that traces its origin to the medieval
period.19 The doctrine of maintenance was directed
"against wanton and in officious intermeddling in the
disputes of others in which the intermeddler has no
interest whatever, and where the assistance rendered is
without justification or excuse." Champerty, on the
other hand, is characterized by "the receipt of a share of
the proceeds of the litigation by the intermeddler."
Some common law court decisions, however, add a
second factor in determining champertous contracts,
namely, that the lawyer must also, "at his own expense
maintain, and take all the risks of, the litigation."

 any agreement by a lawyer to "conduct the litigation in

his own account, to pay the expenses thereof or to save
his client therefrom and to receive as his fee a portion of
the proceeds of the judgment is obnoxious to the law."

 The rule of the profession that forbids a lawyer from

contracting with his client for part of the thing in
litigation in exchange for conducting the case at the
lawyer’s expense is designed to prevent the lawyer from
acquiring an interest between him and his client. To
permit these arrangements is to enable the lawyer to
"acquire additional stake in the outcome of the action
which might lead him to consider his own recovery
rather than that of his client or to accept a settlement
which might take care of his interest in the verdict to the
sacrifice of that of his client in violation of his duty of
undivided fidelity to his client’s cause."27
  The attorney’s fee consisting of
one-half of the subject lot is excessive
and unconscionable

 Atty. Lacaya’s acquisition of

the one-half portion contravenes
Article 1491 (5) of the Civil Code

 The compromise agreement could not

validate the void oral contingent fee
agreement; neither did it supersede the
written contingent fee agreement

- Lawyer’s financial advances to be reimbursed out of the prospective verdict-

violation

- Absence of any of the elements – makes the prohibition inapplicable

o Ie. Property not in litigation

o Sale before the suit
o Atty. Not counsel in the case
o Purchaser is a corp even if atty is an officer
o Sale after the litigation
o During sale, atty-client rel already terminated – prohibition not applied
if no fraud/use/abuse of confidential info
o Severance of relation in good faith & not to evade restriction
o Atty’s fees contingent upon outcome of the case – as long as fee is
reasonable

- Prohibition not applicable to collect contingent fees

- Distinction between purchasing an interest in the litigation as a device to enable

the lawyer to litigate on his account or to abuse his client’s confidence

o Except if unreasonable

- Constitutes malpractice; transaction void ab initio; cannot be cured by

ratification

- The fact that a person happens to be a lawyer does not deprive him of the
privilege to engage in business activities as enjoyed by any other person, but his
being a lawyer in the practice of law enjoins him from doing any such act as
may bring dishonor to the profession and violate any of its ethical rules
concerning advertising or solicitation of business.

- Nakpil vs. Valdez, AC No. 2040, 3/4/98

o No atty-client relationship
 o Article 1450 presupposes a situation where a person, using his own
funds, purchases a certain piece of land in behalf of another who, in the
meantime, may not have sufficient funds to purchase the land. The
property is then transferred in the name of the trustee, the person who
paid for the land, until he is reimbursed by the beneficiary, the person
for whom the land is purchased. It is only after the beneficiary
reimburses the trustee of the purchase price that the former can compel
conveyance of the purchased property from the latter.c

o From the evidence adduced, it may be concluded that respondent

Valdes, using his own funds, purchased Pulong Maulap in behalf of the
late Nakpil.

o Such loan was actually secured by the late Nakpil by merely using
Valdes’ name

o Constructive trust under Art. 1450 of the New Civil Code existed
between the parties.

o The arrangement entered into between the parties, whereby Pulong

Maulap was to be "considered sold to him (respondent) . . ." in case
petitioner fails to reimburse Valdes, must then be construed as
tantamount to a pactum commissorium 21 which is expressly
prohibited by Art. 2088 of the Civil Code. 22 For, there was to be
automatic appropriation of the property by Valdes in the event of
failure of petitioner to pay the value of the advances. Thus, contrary to
respondent’s manifestations, all the elements of a pactum
commissorium were present: there was a creditor-debtor relationship
between the parties; the property was used as security for the loan; and,
there was automatic appropriation by respondent of Pulong Maulap in
case of default of petitioner.

CANON 16 - A LAWYER SHALL HOLD IN TRUST ALL MONEYS AND

PROPERTIES OF HIS CLIENT THAT MAY COME INTO HIS
PROFESSION.

Rule 16.01 - A lawyer shall account for all money or property

collected or received for or from the client.

- A lawyer holds money/property in trust and under an obligation to make prompt

accounting thereof

- Even money received from a person not his client

- Atty’s lien is for his fees but does not relieve him from his obligation to make a
prompt accounting
 - Act of collecting unreasonable fees – retention of client’s funds – professional
indiscretion or misconduct

- Question is not necessarily whether the rights of the clients have been
prejudiced; but whether the lawyer has adhered to the ethical standards of the
bar.

- A lawyer shall not commingle client’s funds

Rule 16.02 - A lawyer shall keep the funds of each client separate
and apart from his own and those of others kept by him.

- A lawyer shall not commingle client’s funds

Rule 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 he has secured for his client
as provided for in the Rules of Court.

- Lien – the right to keep another person’s property until a debt owed in respect of
it (such as repairing it) is paid

- Failure to return money – presumption of misappropriation

- Disagreement on lawyer’s fees – lawyer should not arbitrarily apply the funds in
his possession to the payment of his fees – file the necessary action to fix and
recover the fees

Rule 16.04 - A lawyer shall not borrow money from his client unless
the client's interest 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 a legal matter he is handling for the client.