BY ATTY. JULIUS GREGORY B. DELGADO
HENRY G. LACIDA VS. ATTY. REJOICE S. SUBEJANO, A.C. NO. 13361 (CBD CASE NO. 17-5314): EXCEPTIONS TO THE PROHIBITION OF LAWYER BORROWING MONEY FROM A CLIENT
This case stemmed from a complaint for disbarment filed by Henry G. Lacida on behalf of Megamitch Financial Resources Corporation (Megamitch) against respondent Atty. Rejoice S. Subejano in connection with a loan obtained by respondent from Megamitch. Respondent and Mr. Alejandro Rentillosa (Rentillosa) applied for a loan of Php15,000,000.00 from Megamitch to finance their aggregate business in Iligan City and Lanao del Norte. At that time, Subejano and Ditucalan (SD Law), of which respondent is a founding partner, was Megamitch’s retained legal counsel. Complainant alleged that respondent supposedly took advantage of his personal relationship with Megamitch’s Chief Executive Officer, Mr. Alain de Schouwer (De Schouwer), and supposedly misrepresented that he and Mr. Rentillosa were engaged in sand and gravel business in Iligan City and Lanao del Norte.
On different dates, De Schouwer authorized the release of funds totaling to Php11,679,900.00, under a purported agreement that respondent would later execute a loan contract and provide the necessary security as required under Megamitch’s loan application procedure.
Respondent subsequently submitted a Loan Contract with Chattel Mortgage to Megamitch. However, the security was deemed unacceptable by Megamitch. Megamitch also supposedly discovered from the Office of the Treasurer of Iligan City that respondent had no business record with the city. Megamitch refused to release the balance of the approved loan and demanded the return of the amounts already released to respondent. When respondent failed to heed these demands, Megamitch filed a criminal case for Estafa against respondent and Rentillosa and the instant disbarment case against respondent.
For his defense, respondent admitted having obtained a loan from Megamitch for their business venture. He also alleged that he previously obtained a loan from Megamitch in the amount of Php500,000.00, which he fully repaid in December 2016. Respondent averred that he did not make any misrepresentation or employed deceit to secure the loan having presented a business proposal and feasibility study which were evaluated by Megamitch officers. Respondent also said that the loan proceeds were used to purchase heavy equipment, which was inspected by Megamitch, and proof of purchase was submitted to the latter. Finally, respondent alleged that he already made several payments to Megamitch but was unable to fully comply with the loan agreement because their business venture failed due to unfavorable political climate in Iligan.
Investigating Commissioner Rebecca Villanueva-Maala found respondent liable for violating Rule 16.04, Canon 16 of the Code of Professional Responsibility (CPR), which states that: “A lawyer shall not borrow from his client unless the client’s interests are fully protected by the nature of the case or by independent advice. x x x” Investigating Commissioner Maala imposed the penalty of suspension from the practice of law for a period of 5 years but was reduced by the Board of Governors to 6 months suspension. Upon Motion for Reconsideration and Supplemental Motion for Reconsideration evidencing payment and compromise agreement, the case was recommended for dismissal by the Board of Governors.
The Supreme Court adopted the recommendation for dismissal of the case applying the Code of Professional Responsibility and Accountability (CPRA) which was issued on April 11, 2023. The Court held that the Transitory Provision of the CPRA provides that it shall apply retroactively to all pending cases. Under the CPRA, the new provision, Section 52, Canon III, outlines three exceptions to the prohibition on borrowing money or property from a client: “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.” (Emphasis, italics, and underscoring supplied)
The Supreme Court held that in these cases/exceptions, the client’s interests are safeguarded through formal agreements or through the client’s knowledge of the business arrangement, ensuring that the transaction does not compromise the lawyer’s duties of trust and loyalty to the client. The Court held that these exceptions are extant in the instant case in favor of the respondent. First, the subject loan is a standard commercial transaction relating to the business of Megamitch. Second, Megamitch had an existing business relationship with respondent when the latter borrowed money from the former in January 2015 and fully paid the same in December 2016. Lastly, while the transaction does not fall squarely under the third exception since no formal agreement was executed because of Megamitch’s refusal to sign the Loan Agreement with Chattel Mortgage, the parties’ allegations still prove that a contract of loan was perfected between Megamitch and respondent. In fact, complainant’s claim for repayment and complaint for Estafa is based on the said loan.