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Prohibition on lending and borrowing; exceptions, C3S52 CPRA

Section 52, Canon III

SECTION 52. Prohibition on lending and borrowing; exceptions. – During the existence of the lawyer-client relationship, a lawyer shall not lend money to a client, except under urgent and justifiable circumstances. Advances for professional fees and necessary expenses in a legal matter the lawyer is handling for a client shall not be covered by this rule.
Neither shall a lawyer borrow money from a client during the existence of the lawyer-client relationship, unless the client’s interests are fully protected by the nature of the case, or by independent advice. This rule does not apply to standard commercial transactions for products or services that the client offers to the public in general, or where the lawyer and the client have an existing or prior business relationship, or where there is a contract between the lawyer and the client. (2023 Code of Professional Responsibility and Accountability or CPRA)

1. Prohibition on lending and borrowing; exceptions

a. Prohibition on lending to a client

Under this section, lawyers are prohibited from lending money to a client while there exists a lawyer-client relationship.

1) Exception

The prohibition on lending and borrowing is subject to the exception: “except under urgent and justifiable circumstances.”

2) Purpose

The rule [i.e., prohibition] 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. 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 lead the lawyer to consider his own recovery rather than that of his client, or 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. Tolentino, A.C. No. 6672, September 4, 2009, Per Corona, J.)

2) Coverage

Further, the prohibition does not cover:

1) Advances for professional fees; and

2) Necessary expenses in a legal matter the lawyer is handling for a client.

NB: For No. 2, necessary expenses may include: filing fees, stenographer’s fees for transcript of stenographic notes, cash bond or premium for surety bond, etc. (See: Linsangan v. Tolentino [2009], supra.)

b. Prohibition on borrowing from a client

Under this section, lawyers are prohibited from borrowing money “from a client during the existence of the lawyer-client relationship.”

[The Supreme Court reminds] lawyers that it is not only important to serve their clients with utmost zeal and competence. It is also an equally important responsibility for them to properly separate and account for any money given to them by their clients, and to resist the temptation to borrow money from their clients, in order to preserve the trust and confidence reposed upon lawyers by every person requiring their legal advice and services. (Aguilar-Dyquiangco v. Arellano, En Banc, A.C. No. 10541, July 12, 2016, Per Caguioa, J.)

The Court has repeatedly emphasized that the relationship between a lawyer and his client is one imbued with trust and confidence. And as true as any natural tendency goes, this “trust and confidence” is prone to abuse. The rule against borrowing of money by a lawyer from his client is intended to prevent the lawyer from taking advantage of his influence over his client. The rule presumes that the client is disadvantaged by the lawyer’s ability to use all the legal maneuverings to renege on his obligation. Suffice it to say, the borrowing of money or property from a client outside the limits laid down in the [old CPR] is an unethical act that warrants sanction. (Yu v. Dela Cruz, En Banc, A.C. No. 10912, January 19, 2016, Per Curiam)

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

• In the instant case, there is no dispute that Respondent obtained several loans from Complainant beginning in 2008 or two (2) years after they established a lawyer-client relationship in 2006, and before they terminated the same in 2009, in violation of Rule 16.04 of the CPR.

• We have previously emphasized that it is unethical for a lawyer to obtain loans from Complainant during the existence of a lawyer-client relationship between them…

• Respondent even exacerbated her infractions when she issued worthless checks to pay for her debts, the existence of which was admitted by Respondent.

Dalumay v. Agustin, A.C. No. 12836, March 17, 2021, Per Delos Santos, J.:

• [T]he Court sustains the finding that Agustin also violated Canon 7 of the [old CPR]. In unduly borrowing money from his client and by blatantly refusing to pay the same, Agustin abused the trust and confidence reposed in him, and in so doing, failed to uphold the integrity and dignity of the legal profession.

• As regards the penalty to be imposed considering the foregoing violations, the Court, however, takes exception to the recommendation of the IBP based on established precedent. In the case of Spouses Concepcion v. Atty. Dela Rosa, the respondent was sanctioned with the penalty of suspension of three years from the practice of law for borrowing P2,500,000.00 from his client and violating Canon 7 and Rule 16.04 of the [old CPR]. In arriving at such penalty, the Court took due consideration of the case of Frias v. Atty. Lozada, where the respondent was suspended from the practice of law for two years under similar charges, but the amount involved was less. As the amount involved in the instant case is less than that in Frias and considering that this is Agustin’s first transgression of the [old CPR], the Court deems it appropriate to modify the period of suspension to one year.

• Furthermore, the Court cannot order or require Agustin to return the money he loaned from Dalumay under these same proceedings. In disciplinary proceedings against lawyers, the only issue is whether the officer of the court is still fit to be allowed to continue as a member of the Bar. Thus, the Court is not concerned with the erring lawyer’s civil liability for money received from his client in a transaction separate, distinct, and not intrinsically linked to his professional engagement. Thus, the directive to return the amounts of P300,000.00 and US$9,000.00 under the IBP recommendation cannot be sustained.

• WHEREFORE, respondent Atty. Ferdinand M. Agustin is found liable of violating Canons 7 and 16, and Rule 16.04 of the [old Code of Professional Responsibility] and is hereby SUSPENDED from the practice of law for a period of ONE (1) YEAR. Respondent is also STERNLY WARNED that a repetition of the same or similar acts in the future shall be dealt with more severely.

Yu v. Dela Cruz, En Banc, A.C. No. 10912, January 19, 2016, Per Curiam:

• In the case at bench, the complaint stemmed from the use by respondent lawyer of his client’s property. He had, indeed, come into possession of valuable pieces of jewelry which he presented as security in a contract of pledge. Complainant voluntarily and willingly delivered her jewelry worth P135,000.00 to respondent lawyer who meant to borrow it and pawn it thereafter. This act alone shows respondent lawyer’s blatant disregard of Rule 16.04. Complainant’s acquiescence to the “pawning” of her jewelry becomes immaterial considering that the CPR is clear in that lawyers are proscribed from borrowing money or property from clients, unless the latter’s interests are fully protected by the nature of the case or by independent advice. Here, respondent lawyer’s act of borrowing does not constitute an exception. Respondent lawyer used his client’s jewelry in order to obtain, and then appropriate for himself, the proceeds from the pledge. In so doing, he had abused the trust and confidence reposed upon him by his client. That he might have intended to subsequently pay his client the value of the jewelry is inconsequential. What deserves detestation was the very act of his exercising influence and persuasion over his client in order to gain undue benefits from the latter’s property.

1) Exception

The prohibition on lending and borrowing is subject to the exception: “unless the client’s interests are fully protected by the nature of the case, or by independent advice.”

Domingo v. Sacdalan, En Banc, A.C. No. 12475, March 26, 2019, Per Curiam:

• Respondent’s argument – that the borrowed amount was fully protected by the nature of the case or by independent advice – deserves scant consideration. Aside from this bare allegation, respondent did not provide any detail or justification regarding such protections surrounding the loan that he secured from his client.

• It must be underscored that borrowing money from a client is prohibited under Rule 16.04 [of the old CPR]. A lawyer’s act of asking a client for a loan, as what respondent did, is very unethical. It comes within those acts considered as abuse of client’s confidence. The canon presumes that the client is disadvantaged by the lawyer’s ability to use all the legal maneuverings to renege on his or her obligation. Unless the client’s interests are fully protected, a lawyer must never borrow money from his or her client.

• Further, respondent obtained the amount of ₱50,000.00 from complainant as deposit for his legal fees, on top of the ₱75,000.00 he received as his acceptance fee. However, as discussed above, respondent did not perform any substantial legal service for complainant because he simply furnished her with a fake complaint. Even when the actual complaint was filed in court, it was immediately dismissed for lack of jurisdiction. Thus, respondent should not have received the said amount from complainant because he did not render any significant service in the furtherance of his client’s case.

• Worse, when complainant sought to recover the amounts of ₱50,000.00, as deposit, and ₱100,000.00, as cash advance, from respondent, it fell on deaf ears. Respondent initially gave an assurance that he would eventually pay complainant but it did not materialize. Even assuming that respondent borrowed the ₱100,000.00 for a genuine purpose of financing his wife’s hospitalization, it neither justifies his non-observance of the high moral standards required from a member of the legal profession nor extinguishes his obligation to repay his client promptly and fully. Indeed, respondent’s misdealing towards his client is manifest and obvious.

• That being said, the Court has consistently held that deliberate failure to pay just debts constitutes gross misconduct, for which a lawyer may be sanctioned. Lawyers are instruments for the administration of justice and vanguards of our legal system. They are expected to maintain not only legal proficiency, but also a high standard of morality, honesty, integrity and fair dealing so that the people’s faith and confidence in the judicial system is ensured. They must, at all times, faithfully perform their duties to society, to the bar, the courts and to their clients, which include prompt payment of financial obligations.

2) Coverage

Further, the prohibition does not cover:

1) Standard commercial transactions for products or services that the client offers to the public in general; 

2) Where the lawyer and the client have an existing or prior business relationship; or

3) Where there is a contract between the lawyer and the client.

3) Purpose

The relationship between lawyers and their clients is inherently imbued with trust and confidence — and as true as any natural tendency goes, this trust and confidence is susceptible to abuse. The rule prohibiting lawyers from borrowing from their clients is intended to prevent the lawyer from taking advantage of his influence over the client as the rule presumes that the client is disadvantaged by the lawyer’s ability to use all legal maneuverings to renege on his obligation. (Reyes v. Gubatan, A.C. No. 12839, November 03, 2020, Per Caguioa, J.)

Foster v. Agtang, En Banc, A.C. No. 10579, December 10, 2014, Per Curiam:

• Respondent’s unbecoming conduct towards complainant did not stop here. Records reveal that he likewise violated Rule 16.04, Canon 16 of the [old CPR prohibiting the act of borrowing from a client]. In his private capacity, he requested from his client, not just one, but two loans of considerable amounts. The first time, he visited his client in her home and borrowed ₱100,000.00 for the repair of his car; and the next time, he implored her to extend to him a loan of ₱70,000.00 or ₱50,000.00 “in the moment of urgency or emergency” but was only given ₱22,000.00 by complainant. These transactions were evidenced by promissory notes and receipts, the authenticity of which was never questioned by respondent. These acts were committed by respondent in his private capacity, seemingly unrelated to his relationship with complainant, but were indubitably acquiesced to by complainant because of the trust and confidence reposed in him as a lawyer. Nowhere in the records, particularly in the defenses raised by respondent, was it implied that these loans fell within the exceptions provided by the rules. The loans of ₱100,000.00 and ₱22,000.00 were surely not protected by the nature of the case or by independent advice. Respondent’s assertion that the amounts were given to him out of the liberality of complainant and were, thus, considered as “no loan,” does not justify his inappropriate behavior. The acts of requesting and receiving money as loans from his client and thereafter failing to pay the same are indicative of his lack of integrity and sense of fair dealing. Up to the present, respondent has not yet paid his obligations to complainant.

•Time and again, the Court has consistently held that deliberate failure to pay just debts constitutes gross misconduct, for which a lawyer may be sanctioned with suspension from the practice of law. Lawyers are instruments for the administration of justice and vanguards of our legal system. They are expected to maintain not only legal proficiency, but also a high standard of morality, honesty, integrity and fair dealing so that the people’s faith and confidence in the judicial system is ensured. They must, at all times, faithfully perform their duties to society, to the bar, the courts and their clients, which include prompt payment of financial obligations. Verily, when the Code or the Rules speaks of “conduct” or “misconduct,” the reference is not confined to one’s behavior exhibited in connection with the performance of the lawyer’s professional duties, but also covers any misconduct which, albeit unrelated to the actual practice of his profession, would show him to be unfit for the office and unworthy of the privileges which his license and the law vest him with. Unfortunately, respondent must be found guilty of misconduct on both scores.

References

Canon III, 2023 Code of Professional Responsibility

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