Agpalo_chap.viii.lawyer_sfiduciaryobligations.docx

Chapter VIII: Lawyer’s Fiduciary Obligations 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.

instance the executor is not bound to retain him as 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.

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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.

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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.

8.02 Dealings with client closely scrutinized 

A fiduciary relationship exists as a matter of law between attorney and client.

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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.

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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 

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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.

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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.

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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

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.

Rule 16.01: A lawyer shall account for all money or 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).

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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.

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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.

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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.

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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.

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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.

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It is immaterial that the deed of sale is executed at the instance of the client or at the behest of the attorney.

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Any scheme which has the effect of circumventing the law comes within the prohibition such as:

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 

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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.)

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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.

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There must be an attorney-client relationship;

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The property or interest of the client must be in litigation;

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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.

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The purchase by the wife of an attorney for the estate of the decedent, of an interest belonging to the estate;

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The acquisition by the guardian’s lawyer of the ward’s property;

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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.

The attorney at the time of the purchase was not counsel in the case;

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The purchaser of the property in litigation was a corporation even though the attorney was an officer thereof;

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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.

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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.

8.11 Where rule inapplicable

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.

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The absence of any of the elements constitutive of the rule above renders the prohibition inapplicable.

West's Encyclopedia of American Law, edition 2.

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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.

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The severance of the relation must be in good faith and not for the purpose of evading the restriction, otherwise the prohibition applies.

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The prohibition does not apply where:

8.10 Application of rule The rule forbidding an attorney from purchasing his client’s property or interest in litigation involves four elements:

Purchase or lease of the property in litigation is in favor of a partnership, of which counsel is a partner;

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The law makes the incapacity of the attorney to acquire his client’s property in litigation absolute and permanent. 

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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;

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The property purchased by a lawyer was not involved in litigation;

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The sale took place before it became involved in the suit;

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.

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. 

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The purpose is to prevent a lawyer from the temptation to litigate in his own account as a business proposition.

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.

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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.