Chapter VIII

LAWYERS FIDUCIARY OBLIGATION

A. Effects of fiduciary obligation
1. Generally
a. The well established rule that the relation of attorney and client is
highly fiduciary and strictly confidential requiring utmost good faith,
loyalty, fidelity and disinterestedness on the part of the attorney
REASON:
To remove all such temptation and to prevent everything of that
kind from being done for the protection of the client.
2. Dealings with client closely scrutinized
a. Attorney-client relation is subject to the closest judicial scrutiny
REASON:
It is the courts duty to look into dealings between attorneys and
their clients and to guard and protect the latter from any undue
consequences resulting from a situation in which they may stand
unequal.
b. Attorney-relationship is highly favorable to the client
REASON:
No presumption of innocence or improbability of wrong doing is
considered in favor of the lawyer.
Burden of proof rests upon the attorney to show that the
transaction is fair, that it was equitable and just, that it did not proceed
from undue influence and that the property so acquired does not
belong constructively to the client.
3. Abuse of clients confidence
a. Any advantage derived by a lawyer as a result of abuse of the
clients confidence generally INURES to the benefit of the client.
4. Rebates and commissions
a. A lawyer shall not, without the full knowledge and consent of the
client, accept any fee, reward, cost omission interest, rebate or
forwarding allowance or other compensation whatsoever related to
his professional employment form anyone other than his client.
REASON:
This rule is designed to secure the attorneys whole hearted
fidelity to the clients cause and to prevent that situation in which
the receipt by him rebate or commission from another on
connection with the clients business may interfere with the full
discharge of his duty to his clients.
5. A lawyer shall not borrow from, nor lend money to, client
a. Rule 16.04 of the code

i. A lawyer shall not borrow money from his client unless the
client 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.
Rule consist of two parts:
1. Prohibits a lawyer from borrowing money from his
client.
a. REASON:
i. Prevent the lawyer from taking advantage
of his influence over the client
EXCEPT where the clients interest are fully
protected by the nature of the case he is
handling for the client or by independent
advice from another lawyer, he should
not abuse the clients confidence by
delaying payment
2. Prohibits a lawyer from lending money to the client,
EXCEPT when, in the interest of justice, he has to
advance necessary expenses in a legal matter he is
handling
a. REASON:
i. Intended to assure the lawyers
independent professional judgment, for if
the lawyer acquires a financial interest in
the outcome of the case the free exercise
of his judgment may be adversely
affected. Further, the lawyer in effect
acquires an interest in the subject matter
of the case or an additional stake in its
outcome, either of which ,may lead the
lawyer consider his own recovery rather
than of his client or accept a settlement
which might take care of his interest in
the verdict to the sacrifice of that of the
client in violation of his duty of undivided
fidelity to the clients cause.
B. Accounting of Clients funds
a. A lawyer shall account for clients funds
i. Canon 16 requires that a lawyer shall hold in trust all moneys
and properties of his client that may come into his possession
ii. Canon 16.1 states that lawyer shall account for all money or
property collected or received for or from the client
1. REASONS/JUSTIFICATIONS

a. A lawyer may receive money or property for or from

his client in the course of his professional
relationship with his client. The lawyer holds such
money or property in trust and he is under
obligation to make an accounting thereof. So is
money of a client not used for the purpose for
which it was entrusted to his counsel. Example for
filing fees and other legal fees for the
counterclaims .
b. A lawyer also holds for the benefit of his client nay
property redeemed with the clients money and
registered in the lawyers name or any fund
received by him from a judgment creditor as
consideration for his desisting from participating in
the public sale of the clients property.
c. If the lawyer fails to accomplish the purpose for
which the money is intended, he should
immediately return the money to his client. His
failure to make an accounting or to return the
money if the purpose for which the money is
intended has failed , constitute blatant disregard of
rule 16.01 of the code.
d. In Celaje v Sorianno, the court held that a lawyer
entrusted by his client of amounts for specific
purpose but did not spend the money for such
purpose and instead misappropriated the same for
his personal use is guilty of violation of Canon 16,
for which he may be suspended or disbarred, and
ordered to restitute the same within a specific
period
e. In Small v Banares, the responded was suspended
for two years for violating Canon 16 of the CPR,
particularly for failing to file a case for which the
amount of P80,000.00 was given him by his client,
and for failing to return the said amount upon
demand.
f. He may not, in the absence of authority from his
client, disburse the money collected for his client in
favor of persons who may be entitled thereto, he
owing fidelity to the former and not to the latter.
b. A lawyer shall not commingle clients funds
i. A lawyer shall keep the funds of each client separate and apart
from his own and those of others kept by him.
c. A lawyer shall deliver funds to client, subject to his lien

i. Rule 16.03 of the CPR provides that a lawyer shall deliver the
funds and property of his client when due or upon demand. TO
BE CONTINUED
C. Restriction against buying clients property
a. Purchas of clients property in litigation
i. The law makes the incapacity of the attorney to acquire his
client property in litigation and ABSOLUTE and PERMANENT.
Prohibiting from purchasing, even at a public or judicial auction,
either in person or through the mediation of another, any
property or interest involve in any litigation in which he may
take part by virtue of his profession.
1. REASON
a. It is intended to curtail any undue influence of the
lawyer upon his client on account of his fiduciary
and confidential relation with him.
b. Application of rule
i. The rule forbidding an attorney from purchasing his clients
property or interest in litigation involves four elements:
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 purchase such
property or interest during the pendency of the litigation
Note:
The presence of all the foregoing elements makes
the acquisition by a lawyer of his clients property in
litigation violative of the law and renders his conduct
ethically improper.
c. Where rule inapplicable
i. The absence of any of the elements constitutive of the rule
forbidding a lawyer from purchasing his clients property in
litigation renders the prohibition in applicable.
1. Thus, it had been held that the prohibition apply where
the property purchased by a lawyer was not involved in
litigation, where the sale took place before it became
involve in the suit, where the purchaser of the property in
litigation was a corporation even though the attorney was
an officer thereof, or where the sale took place after the
termination of the ligation.
2. If at the time of the purchase the attorney-client
relationship has terminated, the prohibition does not
apply in the absence of fraud or the use of confidential
information acquired during the previous employment.
D. Effects of prohibited purchase

a. The purchase by an attorney of his clients property or interest in

litigation is a breach of professional ethics. The attorney, in an
appropriate case, may be disciplined for such misconduct.
b. The transaction will be NULL and VOID ab initio