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Accounting during engagement, C3S49 CPRA

Section 49, Canon III

SECTION 49. Accounting during engagement. – A lawyer, during the existence of the lawyer-client relationship, shall account for and prepare an inventory of any fund or property belonging to the client, whether received from the latter or from a third person, immediately upon such receipt.
When funds are entrusted to a lawyer by a client for a specific purpose, the lawyer shall use such funds only for the client’s declared purpose. Any unused amount of the entrusted funds shall be promptly returned to the client upon accomplishment of the stated purpose or the client’s demand. (2023 Code of Professional Responsibility and Accountability or CPRA)

1. Accounting during engagement

a. Duty to account and prepare inventory

During the lawyer-client relationship, and immediately upon receipt, lawyers are required to “account for and prepare an inventory of any fund or property belonging to the client, whether received from the latter or from a third person.”

[T]he failure of a lawyer to render an account of any money received from a client and deliver the same to such client when due or upon demand, is a breach of the said rule; and, that a lawyer is liable for gross misconduct for his failure to return or repay money due to another person upon demand, even in the absence of an attorney-client relationship between them. (Aguilar-Dyquiangco, En Banc, A.C. No. 10541, July 12, 2016, Per Caguioa, J.)

Once money or property is received by a lawyer on behalf of his client, the former has the obligation to account for the said money or property and remit the same immediately to the latter. To ignore consecutive follow-ups and demands from the client without any acceptable reason corrodes the client’s trust and stains the legal profession. (Huang v. Zambrano, En Banc, A.C. No. 12460, March 26, 2019, Per Curiam)

A lawyer is a trustee of all client’s funds and properties, which may come into his possession. The failure to render an accounting upon demand deserves administrative sanctions. (Romo v. Ferrer, En Banc, A.C. No. 12833, November 10, 2020, Per Lopez, J.)

The relationship between a lawyer and his client is highly fiduciary and prescribes on a lawyer a great fidelity and good faith. The highly fiduciary nature of this relationship imposes upon the lawyer the duty to account for the money or property collected or received for or from his client. Thus, a lawyer’s failure to return upon demand the funds held by him on behalf of his client, as in this case, gives rise to the presumption that he has appropriated the same for his own use in violation of the trust reposed in him by his client. Such act is a gross violation of general morality, as well as of professional ethics. (Egger v. Duran, A.C. No. 11323, September 14, 2015, Per Perlas-Bernabe, J.)

1) Failure to account is misappropriation

A lawyer shall account for all money or property collected or received for or from the client. The duty to render an accounting is absolute. The failure to do so upon demand amounts to misappropriation which is a ground for disciplinary action not to mention the possible criminal prosecution. (Romo v. Ferrer, En Banc, A.C. No. 12833, November 10, 2022, Per Lopez, J.)

Romo v. Ferrer, En Banc, A.C. No. 12833, November 10, 2022, Per Lopez, J.:

• Here, convincing evidence exists that Atty. Ferrer represented Salvacion in a criminal case and that he received funds for her in the total amount of ₱375,000.00. However, Atty. Ferrer remitted only ₱80,000.00 and unjustifiably refused to return the balance of ₱295,000.00, despite repeated demands. The special power of attorney, acknowledgment receipts, the memorandum of agreement and the demand letters established these findings. In stark contrast, Atty. Ferrer did not disprove these evidence but merely argued that he gave the amounts to Salvacion’s daughter. Yet, Atty. Ferrer failed to substantiate this theory. We stress that bare assertion is not evidence. As the IBP aptly observed, Atty. Ferrer should know the law better than his client, and there is no other person to blame but him for not requiring receipts. At any rate, Atty. Ferrer admitted his obligation and promised to return the funds on a specific date. The acknowledgment of debt is voluntary and Salvacion’s supposed threat to file a disbarment case to enforce her legal claim against Atty. Ferrer does not vitiate his consent to the agreement. Atty. Ferrer even subsequently offered to pay his obligation on installment basis.

• Verily, Atty. Ferrer breached Salvacion’s trust when he failed to render an account of her funds upon demand. In determining the imposable penalty against an erring lawyer, the purpose of disciplinary proceedings must be considered, which is to protect the administration of justice by requiring that those who exercise this important function shall be competent, honorable, and reliable men in whom courts and clients may repose confidence. While the assessment of disciplinary sanction is primarily addressed to the Court’s sound discretion the penalty should neither be arbitrary or despotic, nor motivated by personal animosity or prejudice. Rather, it should ever be controlled by the imperative need to scrupulously guard the purity and independence of the bar.

• In several instances, we penalized lawyers for violating their duty to account the funds or properties of their clients despite demand. In Campos, Jr. v. Atty. Estebal, the respondent did not secure the tourist visas on behalf of the clients and failed to return their money. In Medina v. Atty. Lizardo, the respondent refused to surrender the clients’ certificates of title. In Yuzon v. Atty. Agleron, the respondent received money from his client for the purchase of a house and lot. The respondent failed to return the money after the sale did not materialize. In Ong v. Meris, the respondent did not return the money entrusted for the transfer and registration of real property in his client’s name. In all these cases, the respondents were suspended from the practice of law for a period of one year. Considering that this is Atty. Ferrer’s first infraction and that he manifested to pay his obligation, we deem it proper to impose the penalty of suspension from the practice of law for a period of six months.

2) Presumption on misappropriation

[A] lawyer’s failure to return upon demand the funds or property held by him on behalf of his client gives rise to the presumption that he has appropriated the same for his own use to the prejudice of, and in violation of the trust reposed in him by, his client. It is a gross violation of general morality as well as of professional ethics; it impairs the public confidence in the legal profession and deserves punishment. (Espiritu v. Ulep, A.C. No. 5808, May 4, 2005, Per Corona, J.)

b. Funds for a specific purpose

If lawyers are entrusted by clients with funds “for a specific purpose,” lawyers are obligated to “use such funds only for the client’s declared purpose.”

Lawyers shall return to the client any unused amount once the stated purpose or the client’s demand has been duly accomplished.

Where a client gives money to his lawyer for a specific purpose, such as: to file an action, to appeal an adverse judgment, to consummate a settlement, or to pay a purchase price for a parcel of land, the lawyer, upon failure to spend the money entrusted to him or her for the purpose, must immediately return the said money entrusted by the client. (Bondoc v. Licudine, En Banc, A.C. No. 12768, June 23, 2020, Per Gesmundo, J.)

The relationship between a lawyer and his client is highly fiduciary and prescribes on a lawyer great fidelity and good faith. The highly fiduciary nature of this relationship imposes upon the lawyer the duty to account for the money or property collected or received for or from his client. Money entrusted to a lawyer for a specific purpose but not used for the purpose should be immediately returned. A lawyer’s failure, to return upon demand, the funds held by him on behalf of his client gives rise to the presumption that he has appropriated the same for his own use in violation of the trust reposed in him by his client. Such act is a gross violation of general morality as well as of professional ethics. It impairs public confidence in the legal profession and deserves punishment. (BASECO v. Consunji, En Banc, A.C. No. 11439, January 04, 2022, Per Curiam)

BASECO v. Consunji, En Banc, A.C. No. 11439, January 04, 2022, Per Curiam:

• There is no dispute that Atty. Consunji received cash advances from BASECO for his professional fees and for the payment of certain taxes due to the government. According to BASECO, Atty. Consunji failed to liquidate and render an accounting of these cash advances. BASECO sent two demand letters asking Atty. Consunji to account for and liquidate the funds he received from them but Atty. Consunji failed to comply with the said demand.

• On the other hand, Atty. Consunji argues that he was able to render an accounting and liquidation of the fees he received and all these documents were submitted to the Finance Department of BASECO. However, due to the seizure of BASECO’s documents and files by the security personnel of the PCGG, he can no longer obtain access to the accounting and liquidation reports he submitted to BASECO.

• The Court finds Atty. Consunji’s contentions bereft of merit. The explanation he provided is general and lacks substantiation. He merely stated that the receipts were turned over to the Finance Department of BASECO without specifying the OR Nos. per transaction, the dates that these were turned over and the officers who received the same. Further, in the receipt of payment for his professional fees, he merely issued acknowledgment receipts instead of official receipts as required by the law. He did not retain copies of these receipts for his record. All these circumstances lead the Court to believe that no actual accounting and liquidation was done by Atty. Consunji.

• It is incumbent upon a lawyer to keep records of his transactions with clients as a matter of prudence and due diligence. Ethical and practical considerations require lawyers to issue receipts to their clients, even if it was not demanded, and to keep copies of the said receipts for his own records.30 Thus, he cannot simply claim that the records were already with the Finance Department of BASECO. As a dutiful and prudent lawyer, he should have kept copies of these receipts and records of transactions he had with BASECO. Pursuant to Rule 16.01 of the [old CPR], a lawyer must be aware that he is accountable for the money entrusted to him by the clients, and that his only means of ensuring accountability is by issuing and keeping receipts.

• In this case, Atty. Consunji failed to provide evidence to show that he has already accounted for and liquidated the cash advances he received from BASECO. It is his duty to show that all moneys received from his client have been accounted for, that the money has been utilized for the purpose it was given, and that there are corresponding receipts issued with respect to these transactions. Atty. Consunji has not submitted any copies of the receipts he issued to BASECO with respect to the professional fees he received in processing the titling of the unregistered lands and reconstitution of lost titles in the Engineering Island. Further, he has failed to show copies of Official Receipts issued by the Province of Bataan and BIR with respect to the payment of transfer taxes, capital gains taxes, documentary stamp taxes and registration fees made by BASECO.

• The taxes payable to the Province of Bataan and BIR were released to Atty. Consunji, as the legal counsel of BASECO, in order to facilitate and process its payment to the concerned government units. It is incumbent upon him to show that these moneys he received were properly utilized to its purpose and that there are Official Receipts issued by the government as evidence of payment of these taxes. The claim that the liquidation records of these cash advances were already with the Finance Department of BASECO, which were seized by the PCGG, deserves scant consideration. If the custody of these documents and records were really with BASECO or PCGG, Atty. Consunji could have easily requested the IBP or the Court to order the former to produce these records pursuant to Rules 21 and 27 of the Rules of Court. The IBP Investigators have the power to issue subpoenas, take depositions and administer oaths pursuant to Sections 8 and 9 of Rule 139-B of the Rules of Court. However, Atty. Consunji failed to avail of these legal remedies. He failed to rebut the allegation of BASECO that no accounting and liquidation has been made to the cash advances released to him.

c. Prohibited acts

[U]sing a client’s funds for the lawyer’s personal use and depositing the same in his personal account is prohibited. (Aguilar-Dyquiangco v. Arellano [2016], supra.)

1) Gross violation

Lawyers who misappropriate the funds entrusted to them are in gross violation of professional ethics and are guilty of betrayal of public confidence in the legal profession. Those who are guilty of such infraction may be disbarred or suspended indefinitely from the practice of law. (Espiritu v. Ulep [2005], supra.)

[T]he failure of a lawyer to render an account of any money received from a client and deliver the same to such client when due or upon demand, is a breach of the said rule; and, that a lawyer is liable for gross misconduct for his failure to return or repay money due to another person upon demand, even in the absence of an attorney-client relationship between them. (Aguilar-Dyquiangco v. Arellano, En Banc, A.C. No. 10541, July 12, 2016, Per Caguioa, J.)

Espiritu v. Ulep, A.C. No. 5808, May 4, 2005, Per Corona, J.:

• Here, it was established that respondent lawyer received for his client Ricardo Maon the amount of P50,000 as settlement of Civil Case No. 1028 and that he did not deliver the same upon demand. As summarized by the IBP Investigating Commissioner:

First, Exhibit “F” proved that there was an obligation on the part of complainant Espiritu to deliver to Ricardo Maon, who was respondent’s client, the amount of P50,000 as full settlement of Civil Case No. 1028. Second, Exhibit “B” proved that complainant Espiritu gave to respondent lawyer who acknowledged receipt thereof the amount of P50,000 as settlement of Civil Case No. 1028. And finally, Exhibit “E” proved that Ricardo Maon, respondent’s client, did not receive any amount of P50,000 from his lawyer as settlement of Civil Case No. 1028.

• His failure to appear on five consecutive, scheduled hearing dates — requesting the cancellation and resetting of three and absolutely ignoring two — showed an evasive attitude towards the resolution of the administrative case filed against him and of which he himself sought a formal hearing. Aside from his patent lack of respect for the Commission and its proceedings, his repeated and obviously deliberate failure to appear in the scheduled hearings revealed an attempt to wiggle away from having to explain and ventilate his side. Worse, he did not file an answer to controvert the allegations in the complaint. Instead, he filed a counter-affidavit he had earlier submitted in a criminal case which, upon scrutiny, referred only to a transaction involving what appeared to be a sale of real property documented in exhibit “D” of the complainant.

• Respondent has no one else to blame but himself. Had he taken the time to appear before the Commission and present his defenses, he could have explained why he kept the money delivered to him by the complainant as settlement of the civil case. As things stand therefore, complainant’s allegations against respondent remain completely uncontroverted.

Aguilar-Dyquiangco v. Arellano, En Banc, A.C. No. 10541, July 12, 2016, Per Caguioa, J.:

• In this case, [Respondent-lawyer] admitted that she commingled her money and those of the Complainant for the bracelet business by opening an East West Bank joint account for the said purpose. To be sure, Commissioner Cachapero noted that Respondent has not shown that she had made any effort to separate her funds from Complainant’s money and properly account for the same, including any withdrawals Respondent made therefrom.

Huang v. Zambrano, En Banc, A.C. No. 12460, March 26, 2019, Per Curiam:

• Sometime in October 2014, Huang engaged Atty. Zambrano’s services to pursue a money claim against certain individuals. In view of such engagement, Atty. Zambrano filed on November 11, 2014, on Huang’s behalf, a criminal case for estafa against several individuals (Estafa Case) before the Office of the City Prosecutor of Pasig City. Huang paid the amount of PhP50,000.00 to Atty. Zambrano for his legal services. As Huang was often out of the country, his communication with Atty. Zambrano was through electronic mail or Facebook chat messages.

• On or about the first week of January 2015, Atty. Zambrano informed Huang that the respondents in the pending Estafa Case had expressed their willingness to settle and pay Huang PhP250,000.00. Huang accepted the settlement proposal per Atty. Zambrano’s advice.

• Huang asked Atty. Zambrano how the settlement would be facilitated. Being abroad at that time, Huang suggested that either: (1) Atty. Zambrano would relay Huang’s bank account details to the respondents in the Estafa Case so they could directly deposit the settlement money to the said account; or (2) Huang’s friend, Ang Kevin Kar Wai (Ang), could personally collect the amount after Atty. Zambrano had secured the same from the respondents in the Estafa Case. However, Atty. Zambrano rejected both of Huang’s suggestions. He rebuffed the first option, insisting that the payment should be coursed through him before it was to be transferred to Huang; while he disagreed with the second option as he would be unable to track the money once he has transferred it to Ang, whom he does not know.

• The respondents in the Estafa Case eventually paid Huang the settlement money via Atty. Zambrano. When Huang inquired as to how he could get his money, Atty. Zambrano answered that the dismissal of the Estafa Case should first be processed. For two months, Huang constantly followed-up and demanded his money from Atty. Zambrano but to no avail. Atty. Zambrano would proffer to Huang various excuses, to wit: the Estafa Case has not yet been formally dismissed; his busy schedule; or he was dealing with personal and family issues.

• By his actuations, Atty. Zambrano damaged his reliability and reputation as a lawyer. There is no dispute that he had received the PhP250,000.00 from the respondents in the Estafa Case. He rejected Huang’s sound suggestion to have the settlement money directly deposited by said respondents to his account. He also refused Huang’s alternative proposition to have his friend receive the money on his behalf. There is evidently a premeditated effort by Atty. Zambrano to ensure that the settlement money would be given to him.

• Furthermore, the reasons he gave for failing to remit the settlement money to Huang were highly dubious, if not shallow and baseless.

• There is no law or jurisprudence which requires the formal dismissal of the case before the lawyer yields possession of his client’s money. In advising Huang of the same, Atty. Zambrano had acted deceitfully – willfully misleading Huang and abusing the trust and confidence his client reposed in him. This is in contravention of Rule 1.01, Canon 1 of the [old CPR] which bids lawyers not to engage in unlawful, dishonest, immoral, or deceitful conduct.

• The foregoing likewise renders highly doubtful Atty. Zambrano’s claims of heavy workload and family problems as additional excuses for failing to remit the settlement money to Huang, which were seemingly meant only to further thwart Huang’s efforts to get his money. Even assuming that Atty. Zambrano’s claims were true, these do not absolve him from complying with his professional obligations as a lawyer. It would not have taken much time or effort for him to transfer the settlement money to Huang especially given the different remote and online options now available for fund transfers.

• It bears to note that after all this time, Atty. Zambrano still has not made any effort to remit the settlement money which rightfully belongs to Huang. Being undisputed, the presumption that he had appropriated Huang’s settlement money for his own use becomes conclusive.

• Worse, Atty. Zambrano exhibited disrespect to the IBP by disregarding the orders of the CBD-IBP as an investigating body and failing to participate in much of the investigation proceedings. He neither proffered any explanation nor expressed any remorse for his disreputable actions not only towards Huang, but also towards the IBP.

• In the case at bar, Atty. Zambrano’s unprofessional and unethical actuations in breach of his attorney-client relationship with Huang and his insolent comportment towards the IBP which was investigating the administrative complaint against him demonstrate attitude and conduct unbecoming a member of the legal profession and an officer of the Court, thus, justifying his disbarment.

References

Canon III, 2023 Code of Professional Responsibility

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