The lawyer and the moneys or properties of his clients

Problem Areas in Legal Ethics

Arellano University School of Law – Arellano Law Foundation
2019-2020

CANON 16 - A LAWYER SHALL HOLD IN TRUST ALL MONEYS AND PROPERTIES OF HIS CLIENT THAT
MAY COME INTO HIS POSSESSION.

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

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.

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 16.04 - 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.

Rule 138 Sec. 24. Compensation of attorneys; agreement as to fees. - An attorney shall be entitled to have and
recover from his client no more than a reasonable compensation for his services, with a view to the
importance of the subject matter of the controversy, the extent of the services rendered, and the professional
standing of the attorney. xxx
Rule 138 Sec. 25. Unlawful retention of client's funds; contempt. - When an attorney unjustly retains in his
hands money of 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 transactions; but proceedings under this section shall not be a bar
to a criminal prosecution.

Rule 138 Sec. 37. Attorneys' liens. - An attorney shall have a lien upon the funds, documents and papers of his
client which have lawfully come into his possession and may retain the same until his lawful fees and
disbursements have been paid, and may apply such funds to the satisfaction thereof.

He shall also have a lien to the same extent upon all judgments for the payment of money, and executions
issued in pursuance of such judgments, which he has secured in a litigation of his client, from and after the
time when he shall have caused a statement of his claim of such lien to be entered upon the records of the
court rendering such judgment, or issuing such execution, and shall have caused written notice thereof to be
delivered to his client and to the adverse party; and he shall have the same right and power over such
judgments and executions as his client would have to enforce his lien and secure the payment of his just fees
and disbursements.

Lawyer took custody of 2 cars subject of preliminary attachment

• According to Atty. Salomon, the attaching sheriff of Manila, instead of depositing the attached cars in
the court premises, turned them over to Atty. Frial, Lo’s counsel.

• Very patently, Atty. Frial was remiss in his obligation of taking good care of the attached cars. He also
allowed the use of the Nissan Sentra car by persons who had no business using it. He did not inform
the court or at least the sheriff of the destruction of the Volvo car. What is worse is that he took custody
of them without so much as informing the court, let alone securing, its authority. - Atty. Salomon Jr. v.
Atty. Frial, A.C. No. 7820 [2008]

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Lawyer withdraw money deposited to the Branch Clerk of Court without informing his client

Complainant, through his new counsel Atty. Miguel D. Larida, sent respondent on 30 June 2003 a final
demand letter for the accounting and return of the P255,000. Respondent failed to reply.

Respondent committed a flagrant violation of his oath when he received the sum of money
representing the monthly rentals intended for his client, without accounting for and returning such
sum to its rightful owner. Respondent received the money in his capacity as counsel for complainant.
Therefore, respondent held the money in trust for complainant.

Con’t…
Respondent should have immediately notified complainant of the trial court’s approval of the motion to
withdraw the deposited rentals. Upon release of the funds to him, respondent could have collected any lien
which he had over them in connection with his legal services, provided he gave prompt notice to
complainant. A lawyer is not entitled to unilaterally appropriate his client’s money for himself by the mere
fact that the client owes him attorney’s fees. In this case, respondent did not even seek to prove the existence
of any lien, or any other right that he had to retain the money.
Respondent’s failure to turn over the money to complainant despite the latter’s demands gives rise to the
presumption that he had converted the money for his personal use and benefit. - Almandrez Jr. v. Atty.
Langit, A.C. No. 7057 [2006]

Business transaction between lawyer and client is discourage

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. The measure of good faith which an attorney is required
to exercise in his dealings with his client is a much higher standard that is required in business dealings
where the parties trade at "arms length." Business transactions between an attorney and his client are
disfavored and discouraged by the policy of the law. Hence, courts carefully watch these transactions to
assure that no advantage is taken by a lawyer over his client. This rule is founded on public policy for, by
virtue of his office, an attorney is in an easy position to take advantage of the credulity and ignorance of his
client. Thus, no presumption of innocence or improbability of wrongdoing is considered in an attorney’s
favor. - Chua and Hsia v. Atty. Mesina Jr., A.C. No. 4904 [2004]

No services rendered,
money must be returned
It is now clear to us that since respondent did not take any step to assist complainant in her case, charging
P56,000.00 is improper. While giving legal advice and opinion on complainant’s problems and those of her
family constitutes legal service, however, the attorney’s fee must be reasonable. Obviously, P56,000.00 is
exorbitant.
We cannot understand why respondent initially demanded P8,000.00 as filing fee from complainant when he
very well knew that the docket fee for Civil Case No. 00-044 had been paid. If it was intended as a docket fee
for another case, why did he not file the corresponding complaint?
Respondent lawyer did not return the money to complainant despite demand following his failure to file the
case. - Dalisay v. Atty. Mauricio, Jr., A.C. No. 5655 [2006]

Issuance of receipts is part of ethical practice

Thirdly, Atty. Ricafort explained that he had no copies of the receipts for the P65,000.00 and P15,000.00
issued to the Tarogs because "the practice of lawyers in most instances is that receipt is issued without
duplicate as it behooves upon the client to demand for a receipt." But such explanation does not persuade us.
Ethical and practical considerations made it both natural and imperative for him to issue receipts, even if not
demanded, and to keep copies of the receipts for his own records. He was all too aware that he was
accountable for the moneys entrusted to him by the clients, and that his only means of ensuring
accountability was by issuing and keeping receipts.

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……
He reneged on his duty to render an accounting to his clients showing that he had spent the amounts for the
particular purposes intended. He was thereby presumed to have misappropriated the moneys for his own use
to the prejudice of his clients and in violation of the clients’ trust reposed in him. He could not escape
liability, for upon failing to use the moneys for the purposes intended, he should have immediately returned
the moneys to his clients. –Tarog v. Atty. Ricafort, A.C. No. 8253 March 15, 2011

Lawyer should not deposit the funds in his personal account

For him to deposit the amount of P65,000.00 in his personal account without the consent of the Tarogs and
not return it upon demand, and for him to fail to file the memorandum and yet not return the amount of
P15,000.00 upon demand constituted a serious breach of his fiduciary duties as their attorney. He reneged on
his duty to render an accounting to his clients showing that he had spent the amounts for the particular
purposes intended. - Tarog v. Atty. Ricafort, A.C. No. 8253 [2011]

Depositing it in his personal account with the consent of client is ethical?

Purpose of segragation
By segregating client money, the lawyer avoids both the appearance of impropriety and the temptation to use
client money for the lawyer's own purposes.
Moreover, segregation eliminates the possibility that the lawyer will inadvertently use the client's funds. -
John M.A. DiPippa, Lawyers, Clients, and Money, 18 U. Ark. Little Rock L. Rev. 95 (1995)

Duties of a lawyer when it come to moneys and properties

The law imposes the following duties on all fiduciaries:
(1) segregation of funds and property;
(2) notification of receipt of funds or property;
(3) prompt delivery of funds or property;
(4) prompt and accurate accounting for funds or property;
(5) The lawyer must adhere to the same standard of care as any bank or other financial institution acting in a
fiduciary capacity. -John M.A. DiPippa, Lawyers, Clients, and Money, 18 U. Ark. Little Rock L. Rev. 95
(1995)

When to deliver funds of clients

• Thus, having obtained the funds from the [client] in the course of his professional employment, [a
lawyer] had the obligation to deliver such funds to his clients
(a) when they became due, or
(b) upon demand.
- Tarog v. Atty. Ricafort, A.C. No. 8253 [2011]
Lending money to client
• Moreover, by engaging in a money-lending venture with his clients as borrowers, respondent violated
Rule 16.04:
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.
• The rule is that a lawyer shall not lend money to his client. The only exception is, when in the interest
of justice, he has to advance necessary expenses (such as filing fees, stenographer’s fees for transcript of
stenographic notes, cash bond or premium for surety bond, etc.) for a matter that he is handling for the
client. - Linsangan v. Atty. Tolentino, A.C. No. 6672 [2009]

Purpose of prohibiting lending of money to client

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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. - Linsangan v. Atty. Tolentino, A.C. No. 6672 [2009]

Ill-effects of lending money to clients

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:
a. lead the lawyer to consider his own recovery rather than that of his client, or
b. 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. - Linsangan v. Atty. Tolentino, A.C. No. 6672
[2009]

Rule 16.01 includes money judgment in favor of client

There is no question that the money or property received by a lawyer for her client properly belongs to the
latter. Conformably with these canons of professional responsibility, we have held that a lawyer is obliged to
render an accounting of all the property and money she has collected for her client. This obligation includes
the prompt reporting and accounting of the money collected by the lawyer by reason of a favorable judgment
to his client. - Bayonla v. Atty. Reyes, A.C. No. 4808 [2011]

Lawyer and client must agree with the amount before retaining lien is validly applied
In both cases, however, it is to be assumed that the client agrees with the lawyer in the amount of
attorney's fees. In case of a disagreement, 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, it should behoove the lawyer to file, if he still deems it desirable, the necessary
action or the proper motion with the proper court to fix the amount of his attorney's fees. If a lawyer were
allowed to unilaterally apply the funds in his hands in payment of his claimed compensation even
when there is a disagreement between him and his client would not only be violative of the trust
relationship between them but can also open the door to possible abuse by those who are less than
mindful of their fiduciary duty. - J.K. Mercado and Sons v. Atty. De Vera and Atty. Bandalan, A.C. No. 3066
[2001]

Misuse of filing fee violates the rule that lawyers must be scrupulously careful in handling money
entrusted to them in their professional capacity
Central to this case are the following alleged acts of respondent lawyer: (a) his non-filing of the Complaint on
behalf of his client and (b) his appropriation for himself of the money given for the filing fee. - Burbe v. Atty.
Magulta, AC No. 99-634 [2002]

Appropriating the entire award is a violation of Canon 16 and Rule 16.01

The Court is not oblivious of the right of a lawyer to be paid for the legal services he has extended to his
client but such right should not be exercised whimsically by appropriating to himself the money
intended for his clients. There should never be an instance where the victor in litigation loses
everything he won to the fees of his own lawyer. - Rivera v. Atty. Angeles, A.C. No. 2519 [2000]
Obligation of lawyer once the money or property intended for his client is received
• should be reported and accounted for promptly and
• should not under any circumstances be commingled with his own or
• be used by him.
- Judge Angeles v. Atty. Uy, Jr., A.C. No. 5019. April 6, 2000

Misappropriation is not required

The records do not clearly show whether Attorney Uy had in fact appropriated the said amount; in fact, Mrs.
Del Rosario acknowledged that she had received it on February 12, 1999. They do show, however, that

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respondent failed to promptly report that amount to her. This is clearly a violation of his
professional responsibility.

Verily, the 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. - Judge Angeles v. Atty. Uy, Jr., A.C. No. 5019. April 6,
2000

Avoid keeping the money of client

Keeping the money in his possession without his client's knowledge only provided Atty. Uy the
tempting opportunity to appropriate for himself the money belonging to his client. This situation should, at
all times, be avoided by members of the bar. Like judges, lawyers must not only be clean; they must also
appear clean. This way, the people's faith in the justice system would remain undisturbed. - Judge Angeles v.
Atty. Uy, Jr., A.C. No. 5019. April 6, 2000

Severe punishment warranted

The conversion of funds entrusted to an attorney is a gross violation of general morality as well as
professional ethics. It impairs public confidence in the legal profession, "It deserves severe punishment." -
Daroy, et. al. v. Atty, Legaspi, A.M. No. 936 July 25, 1975

Unjust retention of client’s money punishable by contempt

Section 25, Rule 138 of the Rules of Court provides that when an attorney unjustly retains in his hands money
of 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 transactions and he is liable to a criminal prosecution. - Daroy, et. al. v. Atty.
Legaspi, A.M. No. 936 July 25, 1975

Duty to account
In any event, even assuming that respondent was authorized to receive payments, the same does not exempt
him from his duty of promptly informing his client of the amounts he received in the course of his
professional employment. "The fiduciary nature of the relationship between counsel and client imposes on a
lawyer the duty to account for the money or property collected or received for or from the client....
……
He is obliged to render a prompt accounting of all the property and money he has collected for his client."
"The fact that a lawyer has a lien for his attorney's fees on the money in his hands collected for his client does
not relieve him from the obligation to make a prompt accounting. "Moreover, a lawyer has no right "to
unilaterally appropriate his client's money for himself by the mere fact alone that the client owes him
attorney's fees.“ – Viray v. Atty. Sanicas, A.C. No. 7337 September 29, 2014

Duty to return immediately

When a lawyer receives money from a client for a particular purpose involving the client - attorney
relationship, he is bound to render an accounting to the client showing that the money was spent for that
particular purpose. If the lawyer does not use the money for the intended purpose, he must immediately
return the money to his client. -Navarro v. Atty. Solidum, Jr., A.C. No. 9872, January 28, 2014
………
Money entrusted to a lawyer for a specific purpose, such as for filing fee, but not used for failure to file the
case must immediately be returned to the client on demand. - Aurora Aguilar-Dyquiangco v. Atty. Diana
Lynn M. Arellano, A.C. No. 10541 (Formerly CBD Case No. 11-3046), July 12, 2016

Gift of client from funds in the hands of attorney

It is well settled that a gift by a client to an attorney of funds which the attorney has in his hands is
presumptively nugatory on the ground of constructive fraud, and the burden of proof is on the attorney to
show by clear and satisfactory evidence that there was no undue influence or undue advantage because of the
relation, and that the client was fully informed as to the nature and effect of the gift.

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 This court said: " all dealings between attorney and client for the benefit of the former, are not only
regarded with jealousy and closely scrutinized, but they are presumptively invalid, on the ground of
constructive fraud; and that presumption can be overcome only by the clearest and most satisfactory
evidence. The rule is founded in public policy, and operates independently of any ingredient of actual
fraud, or of the age or capacity of the client, being intended as a protection to the client against the
strong influence to which the confidential relation naturally gives rise." – Nicholson v. Shockey, 192 Va.
270 (1951)

Non-payment of loan is a violation of PCR not

misappropriation or embezzlement

Respondent’s liability is thus not for misappropriation or embezzlement but for violation of Rule 16.04 of
the Code of Professional Responsibility which forbids lawyers from borrowing money from their clients
unless the latter’s interests are protected by the nature of the case or by independent advice. In this
case, respondent’s liability is compounded by the fact that not only did he not give any security for the
payment of the amount loaned to him but that he has also refused to pay the said amount.

Thank you for your attention!!