If a lawyer promised a client's creditor that a debt would be paid from a settlement, and the client then wants to renegotiate, can the lawyer pay the creditor instead of the client?

Plain-English summary

Attorney A represented Client C in a personal injury action. C was being pursued by a collection agency for a debt and threatened with suit. The agency asked A whether part of any recovery could be held for the debt, indicating it would otherwise recommend the creditor sue. A obtained an ambiguous written confirmation from C, followed by an explicit verbal confirmation to his secretary, and then assured the agency the debt would be paid once the personal injury recovery came in. When the proceeds arrived, C changed her mind and wanted to renegotiate the creditor's claim for less. A, having given his assurances, refused, and issued a check for the full balance in the names of both C and the creditor. The Commission was asked whether A was ethically justified in declining to remit the proceeds to C alone.

The Commission concluded that the answer depended on legal questions beyond its jurisdiction. If the lawyer was under a legal obligation, under the common law of agency or another valid legal principle, to turn the funds over to the collection agency, he had to do so. If he was not under such an obligation and the client was entitled to the funds, he should remit them to the client. The Commission observed that, in such cases, a lawyer in Attorney A's position "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."

Currency note

This opinion was issued in 1981, before Maine's replacement of the former Maine Bar Rules with the Maine Rules of Professional Conduct (effective August 1, 2009). Subsequent rule amendments or later opinions may have changed the analysis. Treat this page as historical context, not current guidance. Verify against current rules before relying on any specific rule, deadline, or requirement mentioned here.

Common questions

Q: Must a lawyer pay a client's creditor from a settlement if the client later objects?

A: The opinion concluded it depends on a legal question outside the Commission's jurisdiction: the lawyer must pay the creditor if legally obligated (for example under agency law), but otherwise should remit the funds to the client.

Q: Did the lawyer's assurance to the creditor settle the ethics question?

A: No. The opinion treated whether that assurance created a binding obligation as a matter of agency law it could not resolve, leaving the ethical duty to follow from the legal answer.

Q: What did the opinion suggest a lawyer do to avoid the problem?

A: The opinion stated a lawyer in this position would be "well advised to make clear in advance" to a third party such as a collection agency that he could not act as guarantor of his client's agreement.

Background and rules framework

The opinion concerns a lawyer's handling of settlement funds subject to a third party's claim, the subject of Model Rule 1.15 (safekeeping property, including funds in which a third person claims an interest) and, in Maine at the time, the client-funds provisions of Bar Rule 3.6(f). The Commission did not cite a numbered Bar Rule; it resolved the question as one of agency law and legal obligation beyond its jurisdiction, holding that the lawyer's ethical duty to disburse follows from the underlying legal entitlement to the funds.

Citations and references

Rules of Professional Conduct:

• Model Rule 1.15 (safekeeping property; funds subject to third-party claims)
• Maine Bar Rule 3.6(f) (client funds), as the governing framework; the opinion cited no numbered rule and turned on agency law

See also

• Maine Ethics Op. 116: Client Funds Owed to Third Parties
• Maine Ethics Op. 30: Client Trust Account Must Be In-State
• Maine Ethics Op. 43: Real Estate Purchase Price in Trust

Source

• Landing page: https://mebaroverseers.org/attorney_services/opinion.html?id=89529

Original opinion text

Reproduced from the official source for research purposes. The linked source is authoritative.

Issued by the Professional Ethics Commission

Date Issued: September 9, 1981

Facts

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.

Opinion

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.