The Supreme Court held that an attorney who misappropriated funds belonging to his clients, even after one client’s death, is liable for violating the Code of Professional Responsibility. The ruling clarifies that a lawyer’s duty to protect client assets extends beyond the client’s death and that reliance on a Special Power of Attorney is invalid after the principal’s death. This decision reinforces the high ethical standards expected of lawyers in handling client funds and underscores the importance of fulfilling fiduciary duties.

From Legal Counsel to Keeper: Where Did the Client Trust Go?

This case revolves around Susana de Guzman Buado and Nena Lising’s complaint against Atty. Eufracio T. Layag for malpractice. The core issue stems from Atty. Layag’s handling of funds awarded in a civil case where he represented Lising and her sister, Rosita de Guzman. Inland Trailways, Inc. was ordered to pay Rosita de Guzman et al represented by Atty. Eufracio T. Layag by the RTC of Caloocan City Branch 121 in Civil Case No. C-14265 which the CA affirmed. Rosita de Guzman then died while CA-G.R. CV No. 34012 was pending before the appellate court.

After judgment was rendered, Inland Trailways issued checks payable to Atty. Layag, Lising, and de Guzman. Atty. Layag, however, did not inform Lising and the heirs of de Guzman about these checks. Instead, he gave the checks intended for de Guzman to one Marie Paz Gonzales, purportedly under a Special Power of Attorney (SPA) executed by the now-deceased de Guzman. Lising and de Guzman Buado eventually discovered the judgment and demanded the proceeds, but to no avail, triggering the malpractice complaint. The controversy lies in whether Atty. Layag acted appropriately in disbursing funds based on an SPA after the principal’s death and whether he breached his fiduciary duties to his clients.

The Integrated Bar of the Philippines (IBP) investigated the matter and found Atty. Layag liable for violating Canons 15, 16, and 17 of the Code of Professional Responsibility, which relate to candor, fairness, loyalty, and holding client funds in trust. The IBP Investigating Commissioner noted that any authority granted to Gonzales through the Special Power of Attorney was extinguished upon de Guzman’s death. The Commissioner asserted that upon de Guzman’s death, Atty. Layag had a duty to protect any benefit that accrued to the deceased client on behalf of and for the benefit of her heirs.

The IBP Board of Governors agreed with the Investigating Commissioner and, finding that respondent had betrayed the trust of her (sic) clients in violation of Canon 15, 16 and 17 of the Code of Professional Responsibility, Atty. Eufracio T. Layag was disbarred and ordered to turn over immediately to the Complainants the amounts received in their behalf. Atty. Layag moved for reconsideration of the foregoing decision. The Court En Banc accepted the respondent’s motion for consideration.

The Supreme Court scrutinized the IBP proceedings and found the factual findings well-supported by evidence. Atty. Layag admitted to receiving the checks and turning them over to Gonzales but argued that he was merely complying with the wishes of his deceased client. The Court rejected this argument, emphasizing Atty. Layag’s extensive experience as a lawyer, and charged him with the knowledge that a Special Power of Attorney ceases to be operative upon the principal’s death. Article 1919 of the Civil Code plainly states that agency is extinguished by the death of the principal.

ART. 1919. Agency is extinguished:
(1) By its revocation;
(2) By the withdrawal of the agent;
(3) By the death, civil interdiction, insanity or insolvency of the principal or of the agent;
(4) By the dissolution of the firm or corporation which entrusted or accepted the agency;
(5) By the accomplishment of the object or purpose of the agency;
(6) By the expiration of the period for which the agency was constituted. [Emphasis Supplied]

Even assuming there was indeed an SPA, as pointed out by the IBP Investigating Commissioner, that document ceased to be operative when de Guzman died. When the award of damages was made, respondent’s duty was to preserve and deliver the amount received to the heirs of his client, de Guzman, and not to any other person. Regarding Lising’s check, the Court pointed out that the SPA had nothing to do with Lising as its coverage — assuming again that the document existed –pertained only to de Guzman.

While the IBP recommended disbarment, the Supreme Court considered disbarment to be the most severe form of disciplinary sanction. The Supreme Court ruled that the recommended penalty was too harsh. According to the Court, what they seek to exact from the respondent is strict compliance and fidelity with his duties to his clients. It found suspension would suffice. In its final ruling, the Court modified the IBP’s decision, imposing an indefinite suspension on Atty. Layag and ordering him to turn over the misappropriated funds to the complainants.

FAQs

What was the central legal issue in this case?	The primary issue was whether an attorney violated the Code of Professional Responsibility by misappropriating client funds based on a Special Power of Attorney that was used after the client’s death. The Supreme Court examined whether the attorney breached his fiduciary duty and ethical obligations.
What is a Special Power of Attorney (SPA) and when does it end?	A Special Power of Attorney (SPA) is a legal document authorizing one person to act on behalf of another in specific situations. The SPA typically ends upon the death of the principal or by revocation, completion of the authorized act, or other conditions specified in the document.
What are Canons 15, 16, and 17 of the Code of Professional Responsibility?	These canons pertain to an attorney’s duty of candor, fairness, and loyalty to the client (Canon 15), holding client funds and properties in trust (Canon 16), and maintaining fidelity and mindfulness of the trust and confidence reposed in him (Canon 17). A violation of these canons constitutes professional misconduct.
What happens to an agency relationship when the principal dies?	Generally, an agency relationship is terminated upon the death of the principal, as stated in Article 1919 of the Civil Code. This means the agent can no longer act on behalf of the deceased principal unless the agency falls under specific exceptions, such as being constituted in the common interest of both parties.
What is an attorney’s responsibility when a client dies during litigation?	When a client dies during litigation, the attorney has a responsibility to inform the court and take appropriate steps to protect the client’s interests, which may include assisting in the appointment of an administrator or executor for the deceased client’s estate. The attorney’s duty is to the heirs of his client, de Guzman, and not to any other person.
What was the penalty imposed on Atty. Layag by the Supreme Court?	The Supreme Court modified the IBP’s decision to disbar Atty. Layag and instead imposed an indefinite suspension from the practice of law. He was also ordered to turn over the misappropriated funds to the complainants and report his compliance to the Bar Confidant.
Why did the Court choose suspension over disbarment?	The Court noted that disbarment is the most severe sanction and should be reserved for cases involving significant misconduct. The Court decided that suspension, rather than disbarment, of respondent would suffice.
What is the significance of an attorney’s fiduciary duty to clients?	An attorney’s fiduciary duty requires the highest standard of care, loyalty, and good faith toward their clients. This duty includes properly managing client funds, avoiding conflicts of interest, and acting in the client’s best interests at all times, emphasizing the unique position of trust given to them.

This case underscores the stringent ethical obligations of attorneys, especially regarding client funds. It serves as a reminder that an attorney’s duty to act in the client’s best interest continues even after the client’s death and that ignorance of the law is not an excuse for professional misconduct. Failure to uphold these standards can result in severe penalties, including suspension from the practice of law.

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Disclaimer: This analysis is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please consult with a qualified attorney.
Source: SUSANA DE GUZMAN BUADO AND NENA LISING, COMPLAINANTS, VS. ATTY. EUFRACIO T. LAYAG, 45522