Chapter VIII: Lawyer’s Fiduciary Obligations instance the executor is not bound to retain him as Rule 16.
im as Rule 16.01: A lawyer shall account for all money or
A. Effects of Fiduciary Relation
8.01 Generally
 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 is
designed to remove all such temptation and to
prevent everything of that kind from being done for
the protection of the client.
8.02 Dealings with client closely scrutinized
 A fiduciary relationship exists as a matter of law
between attorney and client.
 As a rule, a lawyer is not barred from dealing with his
client but the business transaction must be
characterized with utmost honesty and good faith.
 Even when the transaction between an attorney and
his client is not prohibited by law, the 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 the property so
acquired does not belong constructively to the client.
8.03 Abuse of client’s confidence
 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 by his
client” (Canon 11, Canons of Professional Ethics).
 A lawyer may not retain the money of one client to
force a settlement of the disputed claim of another
client against the former. Nor may he obtain money
from his client through false pretense or
misrepresentation.
 The attorney should not ordinarily draw a will under a
circumstance which gives rise to an inference of
undue influence; he may draw a will in that situation
where undue influence may not be inferred and what
he may receive by way of bequest is reasonable and
no more than what would be received under the law.
 An attorney may draw a will containing a provision,
desired by his client, appointing him as executor or
directing the executor name him as counsel for the
estate because in the former instance his
appointment as executor is not final but subject to
the approval of the probate court, and in the latter
counsel.
8.04 Rebates and commissions
 Rule 20.03: A lawyer shall not, without the full
knowledge and consent of the client, accept any fee,
reward, costs, commission, interest, rebate or
forwarding allowance or other compensation
whatsoever related to his professional employment
from anyone other than the client.
 Whatever a lawyer receives from the opposite party
in the service of his client belongs to the client, in the
absence of his client’s consent made after full
disclosure of the facts.
 A lawyer may not claim the attorney’s fees in the
concept of damages awarded by the court in favor of
his client, the latter and the former being entitled
thereto, EXCEPT when he and his client have agreed
that whatever amount the court may award as
attorney’s fees would form part of his compensation.
8.05 A lawyer shall not borrow from, nor lent money to,
client
Rule 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 a legal matter he is handling for the client.
REASONS:
Prohibition to borrow money from client: to prevent the
lawyer from taking advantage of his influence over the
client.
Prohibition to lend money to client: To prevent the lawyer
from acquiring an interest in the subject matter of the case
or an additional stake in its outcome, either of which may
lead the lawyer 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 the client.
B. Accounting of Client’s Funds
8.06 A lawyer shall account for the client’s funds
Canon 16: A lawyer shall hold in trust all moneys and
properties of his client that may come into his possession.
property collected or received for or form the client.
 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 specified
period (Celaje v Soriano).
 Money received by a lawyer form a person who is
NOT a client (not strictly considered as a lawyer
handling the client’s fund) is also held by him in trust
and he is under obligation to account for it.
 The circumstance that an attorney has a lien for his
attorney’s fees on the money in his hands collected
for his client does not relieve from the obligation to
make a prompt accounting.
 XPN: When duly authorized by client, e.g. an attorney
may cash a money order belonging to his client and
retain part of it in payment of his fees.
 The question is not necessarily whether the rights of
the client have been prejudiced, but whether the
lawyer has adhered to the ethical standards of the
bar.
8.07 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.
8.08 A lawyer shall deliver the funds to client, subject to
his lien
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.
 Rule 16.03 assumes that the client agrees with the
lawyer as to the amount of attorney’s fees and as to
the application of the client’s fund to pay his lawful
fees and disbursement, in which case he may deduct
what is due him and remit the balance to his client,
with full disclosure on every detail.
 Without the client’s consent, the lawyer has no
authority to apply the client’s money for his fees. He
should, instead, return the money to his client,
without prejudice to his filing a case to recover his
unsatisfied fees.
 Where there is disagreement as to the lawyer’s fees,
or when the client disputes the amount claimed by
the lawyer for being unconscionable, the lawyer
should not arbitrarily apply the funds in his
possession to the payment of his fees. Instead, he
may file the necessary action to fix and recover the
amount of his fees.
C. Restriction Against Buying the Client’s Property
8.09 Purchase of client’s property in litigation
 A lawyer is prohibited from purchasing, even at a
public or judicial auction, either 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 (Art 1491, Civil Code.)
 The law makes the incapacity of the attorney to
acquire his client’s property in litigation absolute and
permanent.
 This prohibition is intended to curtail any undue
influence of the lawyer upon his client on
account of his fiduciary and confidential relation
with him.
 The prohibition is entirely independent of any
fraud that might have intervened. No fraud in
fact need be shown and no excuse will be heard.
It is to avoid necessity of any such inquiry that
the prohibition is made absolute.
8.10 Application of rule
The rule forbidding an attorney from purchasing his
client’s property or interest in litigation involves four
elements:
a. There must be an attorney-client relationship;
b. The property or interest of the client must be in
litigation;
c. The attorney takes part as counsel in the case;
and
d. The attorney by himself or through another
purchases such property or interest during the
pendency of the litigation.
 It is immaterial that the deed of sale is executed at
the instance of the client or at the behest of the
attorney.
 Any scheme which has the effect of circumventing
the law comes within the prohibition such as:
 Purchase or lease of the property in litigation is
in favor of a partnership, of which counsel is a
partner;
 The purchase by the wife of an attorney for the
estate of the decedent, of an interest belonging
to the estate;
 The acquisition by the guardian’s lawyer of the
ward’s property;
 A lawyer who makes financial advances to his
client for the latter’s living or family expenses to
be reimbursed out of the prospective verdict
acquires thereby an interest in the subject
matter of the litigation in violation of the
restriction.
 A lawyer who executed with his client a transfer
of right over a parcel of land involved in a
pending litigation as this attorney’s fees violates
the rule prohibiting the purchase or property in
litigation by a lawyer from his client.
8.11 Where rule inapplicable
 The absence of any of the elements constitutive of
the rule above renders the prohibition inapplicable.
 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 or abuse of
confidential information acquired during the previous
employment.
 The severance of the relation must be in good faith
and not for the purpose of evading the restriction,
otherwise the prohibition applies.
 The prohibition does not apply where:
 Sale by the client to his attorney of a parcel of
land, acquired by the client to satisfy the
judgment in his favor, as long as the property
was not the subject of the litigation;
 The property purchased by a lawyer was not
involved in litigation;
 The sale took place before it became involved in
the suit;
 The attorney at the time of the purchase was not
counsel in the case;
 The purchaser of the property in litigation was a
corporation even though the attorney was an
officer thereof;
 The sale took place after the termination of the
litigation.
8.12 Effects of prohibited purchase
 The transaction being categorically prohibited by law
is null and void ab initio.
 Its nullity is definite and permanent and cannot be
cured by ratification (or compromise).
8.13 Purchase of choses in action
Chose in Action
The right to bring a lawsuit to recover chattels, money, or a
debt.
A chose in action is a comprehensive term used to describe
a property right or the right to possession of something
that can only be obtained or enforced through legal action.
Examples of a chose in action are the right of an heir to
interest in the estate of his or her decedent; the right to
sue for damages for an injury; and the right of an
employee to unpaid wages.
West's Encyclopedia of American Law, edition 2.
 The question as to whether the purchase of a chose
in action by an attorney is improper calls for
application the spirit of the rule against the
acquisition of a client’s property in litigation and the
injunction against stirring up the strife.
 The purpose is to prevent a lawyer from the
temptation to litigate in his own account as a
business proposition.
 A lawyer may not accumulate distinct causes of action
in himself by assignment from hundreds of small
claimants and sue in his name for the benefit of the
clients directly interested.
 The attorney places himself in the category of a
voluntary litigant for a profit, which renders his
conduct improper.
 It is improper for a lawyer to enter into an
arrangement with one who purchases future interests
in estates by the terms of which in consideration of
 his work in securing the interests, he becomes part
owner thereof and shares in the profit obtained
therefrom.
 An attorney may, however, properly acquire choses in
action not in his professional capacity but as a
legitimate investment.
 He may also make investments in a collection agency
which solicits business under its name provided that
he does no participate in the agency’s collection
activities or in the handling of its claims in court.