Opinion #43. Purchase Price of Real Estate Deposited in Trust Account of Seller's Attorney

Issued by the Professional Ethics Commission

Date Issued: November 22, 1983

The Commission has received a request for an advisory opinion about the ethical propriety of the attorney’s conduct in the following situation.

Facts

Attorney for Seller (Attorney S) at real estate closing asks Attorney for Buyer (Attorney B) to make out the check for the balance of the purchase price payable to “Attorney S Trust Account.” The contract of sale called for the balance due to be paid by check payable to order of Seller, and provided that no term of the contract could be varied except by agreement in writing signed by both parties. No such written variance was made. Attorney B has in his trust account the amount of the purchase price paid to him by Buyer, and he has no authority to do other than close according to the terms of the contract. Attorney S does not have written authority from his client, Seller, to show Attorney B authorizing Attorney S to have the money paid to Attorney S Trust Account. Attorney S urges Attorney B to comply with request anyway. Attorney S does have a trust account. It has in it only a small amount of the attorney’s personal funds necessary to cover bank charges. Earlier on the day in question Attorney S had deposited a check for $60,000.00 but he has already drawn a check against this deposit for $60,000.00 payable to Client Z who is entitled thereto.

Attorney B draws a check on his trust account for the balance due, $70,000.00, payable to “Attorney S Trust Account,” receives the deed, and records it. Attorney S sends a check drawn on his trust account to his Seller client for the full $70,000.00, having deposited the check received from Attorney B. The next day Client Z cashes his check for $60,000 at the bank. Right after that the check for $60,000.00 which has been deposited is returned, payment refused. When Seller presents his check to the bank for $70,000.00, he is refused payment because of insufficient funds. We assume that Attorney S used his trust account in this transaction for his own purposes and not for the benefit of his client.

Opinion

On the facts given, the Commission does not believe that an ethical infraction has occurred. The facts presented do not tell us what we critically need to know, which is how the problem was resolved and how quickly Seller received his funds, if he ever did.

Maine Bar Rule 3.6(f)(2) provides:

A lawyer shall:

(i) Promptly notify a client of the receipt of his funds, securities, or other properties;

(ii) Identify and label securities and properties of a client promptly upon receipt and place them in a safe‑deposit box or other place of safekeeping as soon as practicable;

(iii) Maintain complete records of all funds, securities, and other properties of a client coming into possession of the lawyer and render prompt and appropriate accounts to his client regarding them; and

(iv) Promptly pay or deliver to the client, as requested by the client, the funds, securities, or other properties in the possession of the lawyer which the client is entitled to receive. (Emphasis added).

On the facts presented by this inquiry, it was the duty of Attorney S to deliver $70,000.00 to his Seller Client. If the funds were no longer available in his trust account, Attorney S was nevertheless obligated to pay that amount to Seller. Attorney S was required to use his own funds if necessary. It is the Commission’s opinion that a brief delay while this payment was arranged would not amount to a violation of 3.6(f)(2)(iv), but any substantial delay would subject Attorney S to disciplinary action.

Obviously the conduct outlined by this inquiry represents very poor judgment on the part of Attorney S and exemplifies the peril of drawing checks against uncollected funds. Attorney B likewise exercised poor judgment, but in our opinion not an ethical violation, by allowing his fellow attorney to persuade him to make the purchase funds payable otherwise than directly to the Seller. This concession subjects his Buyer client to the risk of litigation over the validity of the conveyance, a risk which could easily have been avoided by more exact compliance with the contract.


Enduring Ethics Opinion