A.C. No. 12839 - Reyes vs. Gubatan

The dispute arises from a disbarment complaint filed by Rommel N. Reyes against Atty. Gerald Z. Gubatan for alleged violations of the Code of Professional Responsibility (CPR).
Reyes, who is the President and Chairman of Integra Asia Konstruct, Inc. (the Corporation), and Atty. Gubatan were long-time friends from their college days.
Their relationship evolved into a lawyer-client dynamic when Atty. Gubatan was employed by the Corporation and retained as legal consultant and special assistant to Reyes.

Multiple loans were extended by Reyes (and subsequently, through the Corporation) to Atty. Gubatan between 2006 and 2007:

On October 3, 2006, Reyes lent Atty. Gubatan P88,000.00, evidenced by a promissory note, with a 30-day repayment period.
On November 20, 2006, despite non-payment of the first loan, Atty. Gubatan borrowed P150,000.00 with a 2% per month interest, evidenced by an Acknowledgment/Agreement promising repayment after the release of his loan from Banco de Oro.
On November 24, 2006, he borrowed P17,000.00 payable in 30 days, also evidenced by a promissory note.

Due to Reyes’ insufficient personal funds after these transactions, Atty. Gubatan persuaded Reyes to enable him to borrow on behalf of the Corporation:

On December 19, 2006, Atty. Gubatan borrowed P200,000.00 from the Corporation at 2% interest per month, evidenced by a promissory note.
On August 12, 2007, he borrowed an additional amount of P57,676.00, again evidenced by a promissory note.

Despite all these duly signed and executed instruments, Atty. Gubatan persistently failed and refused to settle these loans.

On March 13, 2009, Reyes sent a demand letter requiring payment of the outstanding loans, which totaled P769,014.00 inclusive of interest.
Following non-payment, Reyes filed the administrative complaint on September 15, 2009.
In parallel, both Reyes and the Corporation initiated civil actions (two separate complaints for collection of sum with damages) against Atty. Gubatan in the Metropolitan Trial Court in Quezon City.

In his Answer, Atty. Gubatan claimed that his loans were taken in the context of his employment and personal legal service for Reyes and the Corporation.
He asserted that, when executing the promissory notes and acknowledgment/agreement, there had been an understanding or agreement that the amounts borrowed would be set off against his compensation and professional fees for services rendered.
He also argued that there were no disputes regarding the settlement of the loans or the handling of the assigned cases until he declined Reyes’ request to prepare an affidavit related to allegations against officials of the Region I Medical Center.

The Integrated Bar of the Philippines - Commission on Bar Discipline (IBP-CBD) investigated the matter and, in its Report and Recommendation dated October 25, 2011, recommended that Atty. Gubatan be censured for violating Rule 16.04 of the CPR.

The rule prohibits a lawyer from borrowing money from a client unless the client’s interests are fully protected.

The evidence included multiple promissory notes and Reyes’ initiation of civil cases for collection, which substantiated Atty. Gubatan’s indebtedness and refusal to pay.
Subsequent IBP Board actions:

On February 13, 2013, the Board adopted the Investigating Commissioner’s findings and dismissed the case.
Reyes then moved for reconsideration, criticizing the dismissal and arguing for a harsher penalty, namely disbarment.
On March 22, 2014, the IBP Board granted Reyes’ Motion for Reconsideration, setting aside the earlier resolution and instead reprimanding Atty. Gubatan.
On June 18, 2019, an Extended Resolution by the IBP Board elaborated on the misconduct and underscored that Atty. Gubatan improperly borrowed from his clients without sufficient security and without a valid offset agreement.

Whether Atty. Gubatan, by borrowing money from Reyes and the Corporation—clients with whom he maintained a lawyer-client relationship—violated Rule 16.04 of the Code of Professional Responsibility.
Whether the purported agreement to set off the borrowed amounts against Atty. Gubatan’s compensation for legal services sufficed as a legal justification for his actions.
What penalty should be imposed, considering the evidence of deliberate non-payment and an abuse of the trust reposed by his clients.
Whether the IBP Board rightly modified the penalty from the initial recommendation of reprimand to another disciplinary measure.