Chapter VIII

L AW Y E R S FIDUCIARY OBLIGATION

A. Effects of fiduciary obligation

1. Ge ne ra lly
a. T h e well estab lish e d rule that the relation of att orney a n d client is
h ig h l y fiduciary a n d strictly confidential requiring utmost good faith,
loyalty, fidelity a n d disinterestedne ss on the part of the attorney
REASON:
To remove all s u c h temptation a n d to prevent everyt h in g of that
kin d from b e i n g done for the protection of the client.
2. D e a l i n g s with client closely scrutinized
a. Attorney-client relation is subject to the closest judicial scrutiny
REASON:
It is the courts duty to look into d e a l i n g s between att orneys a n d
their clients a n d to g u a rd a n d protect the latter from a n y u n d u e
c o n s e q u e n c e s resulting from a situation in which they m a y s tan d
un e q u a l.
b. Att orney-relationship is h i gh l y favorable to the client
REASON:

No presumption of in no cence or improbability of wrong doing is

considered in favor of the lawyer.

Bu rd e n of proof rests upon the att orney to show that the

transaction is fair, that it was equitable a n d just, that it did not proceed
from u n d u e influence a n d that the property so acqui red does not
belong constructively to the client.

3. Abuse of clients confidence

a. Any a d v a n t a g e derived b y a lawyer a s a result of a b u s e of the
clients confidence ge n erally INURES to the benefit of the client.
4. Re b a t e s a n d comm i ssion s
a. A lawyer shall not, without the full knowledge a n d consent of the
client, a cc e p t a n y fee, reward, cost omission interest, rebate or
forwarding allowance or other compensation whatsoever related to
h is professional e mp loy m en t form a n y on e other than his client.
REASON:
T h is rule is d e s i g n e d to se c u re the att orneys whole hearted
fidelity to the clients c a u s e a n d to prevent that situation in which
the receipt b y h i m rebate or commissi on from another on
connection with the clients b u s i n e s s m a y interfere with the full
d i sc h a rg e of hi s duty to hi s clients.
5. A lawyer shall not borrow from, nor len d m o n e y to, client
a. Ru l e 1 6 . 0 4 of the code
 i. “A lawyer sh all not borrow m o n e y from his client u n l e s s the
client interest are fully protected b y the nature of the c a s e or
b y ind e pen den t ad v i c e . Neither shall a lawyer le nd m o n e y to
a client exc e p t ,when in the interest of justice, h e h a s to
a d v a n c e n e c e s s a r y e x p e n s e s in a l eg a l matter h e is h a n d l in g
for the client.”
Ru l e consist of two parts:
1. Prohibits a lawyer from borrowing m o n e y from hi s
client.
a. REASON:
i. Prevent the lawyer from t akin g a d v a n t a g e
of h is influence over the client
E XC E P T where the clients interest are fully
protected b y the nature of the c a s e h e is
h a n d li n g for the client or b y inde pe nde nt
a d v i c e from another lawyer, h e should
not a b u s e the clients confidence b y
delaying payment
2. Prohibits a lawyer from le nd in g m o n e y to the client,
E XC E P T when, in the interest of justice, h e h a s to
a d v a n c e n e c e s s a r y e x p e n s e s in a l eg a l matter h e is
h a n d l i ng
a. REASON:
i. Intended to assu re the lawyers
ind ep end e nt professional judg me n t, for if
the lawyer acqu ires a financ ial interest in
the outcome of the c a s e the free exe rci se
of h is j udg men t m a y b e a dv e r se ly
aff ected. Further, the lawyer in eff ect
acq ui re s a n interest in the subject matt er
of the c a s e or a n additional s t ake in its
outcome, either of which , m a y lea d the
lawyer consider his own recovery rather
than of h is client or ac c e p t a sett lement
which might take care of his interest in
the verdict to the sacrifice of that of the
client in violation of his duty of u n d iv i ded
fidelity to the clients c a u s e .
B. Accounting of Clients fun ds
a. A lawyer shall account for clients funds
i. Ca n o n 1 6 requires that a “lawyer shall hold in trust all m o n e y s
a n d properties of his client that m a y co m e into h is possession”
ii. Ca n on 1 6 . 1 states that “lawyer shall account for all m o n e y or
property collected or rece ive d for or from the client”
1. REASONS/JUSTIFICATIONS
 a. A lawyer m a y re ceive m o n e y or property for or from
h is client in the course of h is professional
relationship with his client. T h e lawyer holds s u c h
m o n e y or property in trust a n d h e is under
obligation to m a k e a n accoun ting thereof. So is
m o n e y of a client not u s e d for the purpose for
which it was entrusted to h is counsel. E x a m p l e for
filing fees a n d other le g a l fees for the
counterclaims .
b. A lawyer also holds for the benefit of h is client n a y
property re d e e m e d with the clients m o n e y a n d
registe red in the lawyers n a m e or a n y fund
re ce ive d b y h i m from a j udg m e n t creditor a s
consideration for hi s desi sti ng from participating in
the public sa l e of the clients property.
c. If the lawyer fails to ac co m p l i sh the purpose for
which the m o n e y is intended, h e should
im m e d i at e l y return the m o n e y to his client. Hi s
failure to m a k e a n accounting or to return the
m o n e y if the purpose for which the m o n e y is
intended h a s failed , constitute blatant dis regard of
rule 1 6 . 0 1 of the code.
d. In Ce laje v Sorianno, the court h el d that a lawyer
entrusted b y hi s client of amounts for specific
purpose but did not s p e n d the m o n e y for s u c h
purpose a n d instead misappropriated the s a m e for
h is personal u s e is guilty of violation of C an o n 1 6 ,
for which h e m a y b e s u s p e n d e d or disbarred, a n d
ordered to restitute the s a m e within a spe cific
period
e. In S m a l l v B a n a re s , the responded was s u s p e n d e d
for two ye a rs for violating C an o n 1 6 of the C PR,
particularly for failing to file a c a s e for which the
am ount of P8 0 ,0 0 0 . 0 0 was g i v e n h i m b y h is client,
a n d for failing to return the sa i d amount upon
demand.
f. H e m a y not, in the a b s e n c e of authority from hi s
client, disbu rse the m o n e y collected for his client in
favor of persons who m a y b e entitled thereto, h e
owing fidelity to the former a n d not to the latt er.
b. A lawyer shall not c o m m i n g l e clients funds
i. A lawyer shall ke e p the funds of e a c h client separate a n d apart
from hi s own a n d those of others kept b y h im.
c. A lawyer shall deliver funds to client, subject to h is lien
 i. Ru l e 1 6 . 0 3 of the C P R provides that “ a lawyer shall deliver the
fu nds a n d property of his client when d u e or upon d e m a n d . TO
B E CONTINUED
C . Restriction ag a in st b u y i n g clients property
a. Pu rchas of clients property in litigation
i. T h e law m a k e s the inc ap acit y of the attorney to acqu ire h is
client property in litigation a n d ABSOLUTE a n d PERMANENT.
Prohibiting from p u rch a s i ng , e v e n at a public or judicial auction,
either in person or through the mediation of another, a n y
property or interest involve in a n y litigation in which h e m a y
take part b y virtue of his profession.
1. REASON
a. It is in tended to curtail a n y u n d u e influence of the
lawyer upon his client on account of h is fiduciary
a n d confidential relation with h im.
b. Application of rule
i. T h e rule forbidding a n att orney from p u rc h a si ng h is clients
property or interest in litigation involve s four ele m en ts:
1. There m u st b e a n att orney-client relationship
2. T h e property or interest of the client mu s t b e in litigation
3. T h e att orney t ake s part a s counsel in the c a s e
4. T h e att orney b y himself or through another pu rch a se s u c h
property or interest during the p e n d e n c y of the litigation
Note:
T h e p re s e nc e of all the foregoing e lem e n t s m a k e s
the acquisition b y a lawyer of his clients property in
litigation violative of the law a n d renders hi s conduct
ethically improper.
c. Where rule in applica bl e
i. T h e a b s e n c e of a n y of the e le m e n t s constitutive of the rule
forbidding a lawyer from p u rch a si n g hi s clients property in
litigation renders the prohibition in appl ic able.
1. T h u s , it h a d b e e n held that the prohibition a p p l y where
the property pu rc h a se d b y a lawyer was not involve d in
litigation, where the sa le took p la c e before it b e c a m e
involve in the suit, where the pu rchaser of the property in
litigation was a corporation e v e n though the att orney was
a n o fi c e r thereof, or where the sa l e took p l a c e after the
termination of the ligation.
2. If at the time of the pu rc h a s e the att orney-client
relationship h a s terminated, the prohibition does not
a p p l y in the a b s e n c e of fraud or the u s e of confidential
information acqui red during the previous e mp loym ent .
D . Eff ects of prohibited pu rch a se
a. T h e p u rch a se b y a n attorney of hi s clients property or interest in
litigation is a breac h of professional ethics. T h e attorney, in a n
appropriate c a s e , m a y b e discip lined for s u c h miscond uct.
b. T h e transaction will b e NULL a n d VOID a b initio