Can a building-and-loan association require its own law firm to prepare all loan papers even though the borrower wants his own lawyer?

Plain-English summary

A building and loan association had chosen as its attorneys a law firm that owned stock in the association and one of whose members was an officer of it, though the firm's offices were separate. The association required that only its own attorneys prepare all papers for the loans it made. The inquiry asked whether the selected attorneys violated the Canons by preparing and charging for those loan papers where the borrower strongly wanted his own attorney to prepare them.

A majority concluded that the association has the right to select its own attorneys and to require that they prepare all loan papers, and that the selected attorney does not violate any canon by accepting that employment (5-3). One member voting with the majority added that there would be a violation of Texas Canon 24, and possibly Canon 32, if a firm member who served as a director of the association participated in establishing that policy. All members agreed the interpretation must be confined strictly to the facts stated.

Currency note

This opinion was issued in 1957, under the former Texas Canons of Ethics, which the Texas Disciplinary Rules of Professional Conduct replaced effective January 1, 1990. 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 Treat this page as historical context, not current guidance.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: Could the lender insist its own firm prepare all loan papers over the borrower's objection?

A: Yes, on these facts. A majority held the association may select its own attorneys and require them to prepare the loan papers, and the attorneys do not violate the Canons by accepting the work (5-3).

Q: Did it matter that a firm member was an officer of the association?

A: The majority did not find a violation on these facts, but one concurring member said there would be a violation of Canon 24, and possibly Canon 32, if a firm member acting as a director helped set the policy.

Q: How broadly does the opinion apply?

A: Narrowly. The Committee expressly confined its interpretation strictly to the facts stated in the question.

Background and rules framework

The opinion interprets former Texas Canon 24 (advertising and solicitation) and Canon 32 (a lawyer's responsibilities and relations with lay intermediaries). The modern analogs include ABA Model Rule 5.4 (professional independence from lay control) and Model Rule 1.7 (conflict of interest, current clients) where a lawyer's interest as the lender's officer or stockholder bears on the representation.

Citations and references

Rules of Professional Conduct:

• MR 5.4 (professional independence of a lawyer), as a modern analog
• MR 1.7 (conflict of interest, current clients), as a modern analog
• Texas Canon 24 (advertising and solicitation)
• Texas Canon 32 (relations with lay intermediaries)

See also

• TX Ethics Op. 178: Lawyers and Lay Intermediaries
• TX Ethics Op. 177: Bank Trust-Officer Will Drafting
• TX Ethics Op. 160: Lending Letterhead for Collections

Source

• Landing page: https://www.legalethicstexas.com/resources/opinions/opinion-150/
• Original PDF: https://tcle-web.s3.amazonaws.com/public/documents/Opinion_150.pdf

Original opinion text

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

QUESTION PRESENTED

Where a Building and Loan Association has selected as its own attorneys a law firm which owns stock in said Association, and one of whose members is an officer in said Association, but whose law offices are separate and apart from said Association, and said Association requires before it will make a loan that only its own attorneys prepare all papers in connection with all loans made by it, is it a violation of the canons of ethics for the attorneys thus selected to prepare, and to charge for the preparation of, such loan papers, where the borrower is very desirous that his own attorney prepare such papers?

18 Baylor L. Rev. 258 (1966)

SOLICITATION - INTERMEDIARIES - LOAN PAPERS PREPARED BY INTERESTED FIRM
Notwithstanding a borrowers desire to utilize his own attorney, it is not improper for a building and loan association to demand that all papers incidental to its loan transactions be prepared by a law firm of its choice even though one of the firm's members is an officer of the loan association, and the costs of the preparation are charged as part of the transactions.

Canon 24, 32.

A majority of the members of the committee are of the opinion that a Building and Loan Association has the right to select its own attorneys and to require that its own attorneys prepare all papers in connection with any loan made by it, and that such selected attorney does not violate any canon of ethics in accepting employment to prepare such loan papers. One member so voting thinks, however, there would be a violation of Texas Canon 24 and possibly of Texas Canon 32 if any member of said law firm, as a director in said Association, participated in establishing such policy. All committee members agree that the interpretation given by the committee in this instance must be confined strictly to the facts stated in the question. (5-3)

Tex. Comm. On Professional Ethics, Op. 150 (1957)