Sunday, May 30, 2010

Real Estate Conveyances From Clients To Their Attorneys Are "Presumptively Fraudulent" Unless Lawyer Can Prove Otherwise

An old court ruling of the Missouri Supreme Court may come in handy for those who have been ripped off of their real estate by their attorneys and are seeking to undo the bad acts.

In this case, the client, Joseph, had suffered a stroke. Seven days before his death, Joseph executed a deed, presented by the attorney, conveying 275 acres of farmland, plus a 7/12ths interest in a 11.52 acre tract to the attorney and his wife, a niece of the soon-to-expire Joseph. The attorney had informed Joseph's sister, who was later appointed administratrix of her brother's estate, that he was doing this to avoid estate taxes. The notary who acknowledged the deed testified that there was no discussion concerning the contents of the papers at the time Joseph signed them.

The court held that the conveyance of the real estate from Joseph to the attorney was presumptively fraudulent, that the burden was on the attorney to prove the conveyance was fair and equitable, and that the attorney had not met this standard. The court rejected the attorney's argument that Joseph had not, individually, been a client and that he had only represented him in Joseph's capacity as co-guardian of a brother.(1)(2)

For the ruling, see Flanagan v. De Lapp, No. 59053, 533 S.W.2d 592, 1976 Mo. LEXIS 243 (Mo. 1976).

For an example of the kind of story in which the logic of this court ruling could come in handy, see Elderly Man Says Attorney Took His Lake House, in which an elderly Springfield, Tennessee man said a Nashville attorney had him unwittingly sign the title to his lake house away while he was recovering from a stroke.

(1) The foregoing summary of this court ruling is an adaptation of the LexisNexis(R) overview of the case.

(2) In arriving at this conclusion, the Missouri Supreme Court made the following statements regarding the applicable state law (bold text is my emphasis, not in the original text):

  • It is an almost universal rule that any client's transfer of his property to his attorney is subject to being set aside as resulting from undue influence unless the attorney is able to meet the burden of proving that the transaction was fair and equitable. In 7 Am.Jur.2d, Attorneys at Law, § 95 (1963), it is stated that "It is presumed that undue influence or fraud attaches to any assignment or conveyance that an attorney takes from his client while the relation of attorney and client exists." Similarly, 7 C.J.S., Attorney and Client, § 128 (1937) states:


    "* * * The general rule that all transactions and dealings between attorney and client are subject to close scrutiny and presumptively fraudulent or the result of undue influence applies with full force, however, to any purchase or acquisition by an attorney of his client's property. Hence, a transfer, conveyance, or assignment of property by a client to an attorney is subject to avoidance and being set aside as constructively fraudulent or the result of undue influence, except to the extent that it operates as a payment of reasonable and proper fees, if the attorney fails to discharge his burden by showing that the transaction was fair, equitable, and honest, for an adequate consideration, and that the client had the benefit of impartial advice or was fully informed of the nature and effect of his act so that he was in the same position as if he had dealt with a stranger. * * *"

  • See also 7 C.J.S., Attorney and Client, § 129 (1937); 7 Am.Jur.2d, Attorneys at Law, § 96 (1963). In Missouri the rule is in accord. It is stated in Laspy v. Anderson, 361 S.W.2d 680, 682 (Mo. 1962), as follows:


    "The law is well established in this state and elsewhere that public policy dictates the necessity to protect the confidential and fiduciary attorney-client relationship. Consequently, when a conveyance from a client to an attorney is attacked it is considered presumptively fraudulent and the burden is on the attorney to prove by convincing evidence that the transaction evidenced by the conveyance, as well as the conveyance itself, was fair and equitable in every respect. (Citing cases)."

  • Another Missouri case announcing such a rule is Bybee v. S'Renco, 316 Mo. 517, 291 S.W. 459 (1926). See also Cuthbert v. Heidsieck, 364 S.W.2d 583 (Mo. 1963).

***************

The attorney in this case attempted to defend himself by claiming he never represented Joseph in any individual matters, but only represented him in his capacity as a co-guardian for the estate of Joseph's brother. This defense fell on deaf ears, based on these Missouri Supreme Court's statements of law:

  • The conclusion we reach is in accord with the rule stated in 7 C.J.S., Attorney and Client, § 127b(3) (1937):


    "The rule that dealings between attorney and client are presumptively fraudulent is not restricted to contracts or dealings with respect to the rights or property involved in the particular transaction or proceeding in which the attorney is acting for the client, but it may extend to other transactions and contracts, where the relationship may be presumed to give the attorney some advantage over the client."

  • Similarly, in the case of Swaim v. Martin, 158 Ark. 469, 251 S.W. 26, 27 (1923), the court stated:


    "The rule that an attorney who contracts with his client has the burden of proving that no advantage has been taken of the situation of the latter is not restricted to contracts or dealings with respect to the rights or property in controversy in the particular proceeding in which the attorney is acting for the client, but it may extend to other transactions and contracts, where the relationship may be presumed to give the attorney some advantage over the client. * * *"

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