ETHICS OPINION 352-1939

NUMBER 352 1939

Question. Upon the death of A, a practicing lawyer, B, a lawyer who had had no previous association with A, contracted with the administrators of A’s estate to take over A’s practice in so far as this should prove acceptable to A’s former clients. The contract was entered into in entire good faith and with no knowledge on either side that there might be any illegality or impropriety connected with it. B assumed the lease of A’s Offices and paid for the furniture, fixtures, and library, at their appraised value. B did not take over the accounts receivable of A. The contract included a provision that B should pay to A’s estate for a term of years a fixed percentage of the net income (after deducting operating expenses) realized from the practice over and above an allowance in the nature of a salary to B. There was no consideration recited for this provision, nor was there any actual, tangible consideration. The estate has been closed, with the widow and adult children of A as the sole beneficiaries.

Is there any impropriety in B making the payments stipulated in the contract to the widow and children, they performing no services whatever? If such payments are improper, would it be proper for B to secure a release from the contract either by a lump sum payment, or by agreeing to pay a fixed sum annually for the term of the contract? If payments under the contract are improper, would it be proper for B to make gratuitous annual payments to the widow and children of the same sum each year in an amount determined by him in advance as reasonable in view of his prospects, or of an amount determined by him each year in accordance with his current financial situation but not computed in accordance with the contract? If any of the foregoing modes of payment involve no impropriety, would it be proper for B to deduct such payments as an operating expense of his practice in preparing his income tax returns?

Answer. In our answer in Opinion 161, we express the opinion that it is improper for a lawyer to make such a contract. (See Canon 34 of the Canons of Professional Ethics.) It does not necessarily follow from this that the contract cannot properly be performed. A lawyer is ethically bound to fulfill his legal obligations, and, in former times at least, the contract would have been enforceable by the promisee (see Irwin v. Curie, 171 N.Y. 409), Whether the doctrine of the case cited has been affected by subsequent legislation, and to what extent the latter is applicable to professional employment in matters outside the field of litigation, are questions of law on which this Committee expresses no opinion (see Penal Law, Sections 270, 270a. 270d, 275a; Matter of Clark, 184 N.Y. 222; Dudar v. Milej Realty Corp., 227 A pp. Div. 279; Mend els on v. Go go lick, 243 A pp. Div. 115). In any event, if not prohibited by law, there is no professional impropriety in effecting a settlement of the claim on any agreed basis other than a division of fees, and of exacting a general: release in connection therewith, provided the assertion of the claim and the settlement are in good faith and not collusive, The deductibility of the payment in income tax returns is also a question of law on which we express no opinion.