LEO: Attorney-Client Relationship - Business  LE Op. 1216

 

Attorney-Client Relationship - Business Transaction - Misconduct-

Multiple Representation - Real Estate Practice: Attorney/Settlement

Agent Representing to Sellers to be Purchaser and Later Listing

Different Purchasers on the Deed.

 

May 8, 1989

 

You have asked the Committee to consider whether an

attorney/purchaser/settlement agent represented the sellers' interest as

well as his own. You have further asked the Committee to determine whether

the actions by the attorney/purchaser/settlement agent violated Virginia's

ethical rules governing the conduct of attorneys. As noted in your inquiry,

the situation involves an attorney who, as buyer, executed a contract to

purchase real estate from a husband and wife. Under the terms of the

contract, the attorney/purchaser was also named as settlement agent. In

addition to the standard form real estate contract, the attorney added the

following provisions:

 

(1) No portion of the subject property may be resold or improved prior to

the payment of the note or upon written permission of both sellers;

 

(2) The sale would be financed by the sellers,and the promissory note

would be secured by a first deed of trust requiring five annual

installment payments;

 

(3) Buyer had the right to survey the property prior to closing; if there

were any differences between the survey and the number of acres stated in

the contract, the selling price would be adjusted at the rate of $865.00

per acre;

 

(4) The purchaser was a licensed real estate agent; and,

 

(5) The contract would expire on June 5, 1988, if closing had not taken

place by the date.

 

Subsequent to the execution of the contract and prior to closing, the

attorney had the property surveyed, which survey reflected 80 acres, more

or less, and not 104 acres as set forth in the contract. Prior to the

expiration date of the contract, the attorney prepared and tendered a deed

in which he was not named as the purchaser. Rather, the deed reflected a

Virginia corporation, the surveyor, and the attorney's law partner as the

purchasers. The attorney also prepared the deed of trust naming another

law partner and local attorney as trustees under the deed of trust. In

addition, the attorney demanded in writing that the sellers accept

approximately $16,000 less than the originally agreed upon purchase price

of $90,000. As a result, the sellers refused to close and thereafter, the

attorney filed suit for breach of contract.

 

This Committee has previously opined that simultaneous representation of

a real estate purchaser and seller is not improper provided that consent

is received from both parties after full and adequate disclosure, as

required by DR:5-105. (See LE Op. 414, LE Op. 437.) However, the

November 30, 1988 letter (provided with your inquiry) from a partner of

the attorney/purchaser states that at no point did either he or the

attorney/purchaser represent the sellers and that this matter was made

clear to the sellers. Based on these facts, the Committee is of the view

that the attorney/client relationship with the sellers may not have been

created. The resolution of any factual dispute as to the claim propounded

by the attorney/purchaser relative to non-representation of the seller is

beyond the purview of the Committee. The Committee believes that the

designation of the place of settlement or of a settlement attorney does

not automatically create an attorney/client relationship between that

attorney and the sellers or the opposing parties to a real estate

transaction. The Committee is also of the opinion that the mere tendering

of a deed on behalf of a party, here, the purchasers, does not necessarily

create an attorney/client relationship with the sellers.

 

With regard to that part of your inquiry related to the ethical propriety

of the attorney/purchaser's conduct, the Committee is of the opinion that

the conduct described should be evaluated in light of the prohibitions of

 DR:1-102(A)(4). That Rule prohibits a lawyer from engaging in conduct

involving dishonesty, fraud, deceit or misrepresentation which reflects

adversely on a lawyer's fitness to practice law. Whether the conduct

described in your inquiry, including the attorney/purchaser's preparation

of a deed naming purchasers other than the one originally presented to the

sellers, rises to that level is factual matter for determination by the

appropriate District Disciplinary Committee of the Virginia State Bar. The

Standing Committee on Legal Ethics does not resolve factual disputes.

Furthermore, if an attorney/client relationship is found to have existed

between the attorney/purchaser and either the sellers or the ultimate

purchasers, the attorney/purchaser is bound by the requirements of Canon 5,

and particularly by DR:5-101(A), which governs personal conflicts

between a lawyer and his client; DR:5-104(A), which addresses the

judicious limiting of business transactions between a lawyer and his

client; and DR:5-105, which speaks to the factors involving permissible

representation of multiple clients. As noted above, since the facts as to

the establishment of an attorney/client relationship between the

attorney/purchaser and the sellers are in dispute, the Committee will not

attempt to address the resolution of that dispute. If no attorney/client

relationship is determined to have existed, the provisions of Canon 5 are

inapposite.

 

Committee Opinion May 8, 1989