ETHICS OPINION 387-1949

NUMBER 387 APRIL 1949

Question. The following situation has arisen in connection with my professional activity and I should be grateful for your opinion.

A client of mine manufactures and sells a hair formula, advertising a double money back refund in the event the user is dissatisfied. By way of information, requests for these refunds during the past year has amounted to a fraction of one percent of its total business, and payments have been made to any dissatisfied customers without question.

In its advertising the client states that the users of its product, by its policy of insurance, are guaranteed that only U.S.P. standard ingredients are used and that the double money refund is assured. The client carries product insurance with an authorized insurance company, but has been unable to obtain a bond or guarantee in the form of insurance from any bond or insurance company whereby the refund feature of its offer would be insured there under to every consumer.

In order to provide for the refund guarantee this client has requested that I enter into a bond and trust agreement with it whereby I, as such surety and trustee, will guarantee payment of any refunds to its customers, properly entitled thereto, should the client fail to make the same. For this purpose it is anticipated that several thousand dollars will be held by me in a trust account and the aforesaid agreements will be renewable each year. I will receive no fee or other payment for this particular service as surety and trustee.

Will you please advise me if entering into the above described agreements would, in any way, violate the Canons of Ethics.

Answer. The giving of the proposed guaranty or undertaking by the attorney under the circumstances here disclosed is disapproved.

The advertisement in question states that the users of this product “by its policy of insurance” are guaranteed that . . . the double money refund is assured. The proposed agreement would not be a “policy of insurance” in the ordinary sense of those words and if some other form of guarantee is to be adopted, the advertisement would have to be changed so as not to be misleading.

Assuming that the advertisement were changed so as to fully and fairly show what the guarantee is, the question remains whether the attorney should act both as attorney for the manufacturer and as a surety or guarantor for its customers.

This is not the ordinary case of a lawyer holding money of his client in escrow to pay certain definite claims, The attorney in this case would be more than an escrow holder—he would affirmatively hold himself out to the public as a guarantor that his client’s promises will be kept. In our opinion, this would be objectionable on two grounds.

In the first place, the attorney will be engaging in the business of a surety or a guarantor while also practicing law, and we have already disapproved of such dual activities if conducted in the same jurisdiction. (See Opinion 368,) The fact that the attorney will receive no fee or other payment for acting as surety and trustee we regard as immaterial.

 

A second objection is that there may develop a conflict of interests. The proposed guarantee agreement is to guarantee payment of any refunds to customers “properly entitled thereto.” If the client should in a given case contend that a customer is not “properly entitled” to a refund, the lawyer may be put in the equivocal position of having to pass on a dispute between his client and a customer to whom he has assumed an obligation as surety or guarantor. (See Opinion 279 and Opinion 328 and Canon 6.)