Opinion #27. Client Reneging on Agreement to Pay Creditor Through Attorney
Issued by the Professional Ethics Commission
Date Issued: September 9, 1981
Attorney A represented Client C in a personal injury action. C was being dunned by a collection agency and threatened with legal action for nonpayment. A was approached by the collection agency and asked if part of the proceeds could be held for the debt, indicating that otherwise it would recommend to the creditor that he bring suit. A obtained an ambiguous written confirmation from C followed by an explicit verbal confirmation to his secretary. A then assured the collection agency that C’s debt would be paid once the recovery was received in the personal injury action.
Once the proceeds of the personal injury case were received by A, C changed her mind and wished to renegotiate with the creditor for an amount less than the balance due. A, having given his assurances to the creditor, refused C’s request and issued a check in the names of both C and the creditor for the entire balance due. The Commission is asked whether A was ethically justified in declining to remit the proceeds to C in her name alone.
On the basis of the facts presented, determination of the ethical obligation of A to turn over the proceeds of the settlement to his client and not to the creditor depends on the resolution of legal questions which are beyond the scope of the Commission’s jurisdiction. For example, if the lawyer is under a legal obligation to turn over the funds to the collection agency, under the common law of agency or any other valid legal principle, then he must do so. On the other hand, if he is not under such an obligation and if the client is entitled to receive the funds, the lawyer should remit the proceeds to his client. The Commission notes that, in such cases, a lawyer in the position of Attorney A would be well advised to make clear in advance to a third party such as the collection agency that he could not act as guarantor of his client’s agreement.