ETHICS OPINION 635-1974 COMPENSATION: PAYMENT IN CLIENT’S STOCK. GUARANTEE OF CLIENT’S DEBT.

NEW YORK COUNTY LAWYERS’ ASSOCIATION

COMMITTEE ON PROFESSIONAL ETHICS

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In answering questions this Committee acts by virtue of the following provision of the By-laws of the Association, Article XXIII, Section 3:

 

“This Committee shall have power, when consulted, to advise inquirers respecting questions of proper professional conduct, reporting its action to the Board of Directors from time to time.”

 

It is understood that this Committee acts on specific questions submitted ex parte and in its answers bases its opinion on such facts only as are set forth in the question.

 

QUESTION NO. 635 (74-10)

 

1. Is it proper for an attorney to accept as compensation for professional services rendered to a corporation stock in that corporation where the stock at the time of its issuance to the attorney has no fixed value?

 

2. If a lending institution requires the personal guarantees of the stockholders of the corporation as a condition to its making a loan to the corporation, may the attorney for the corporation, who is also one of the stockholders, give his guarantee?

 

ANSWER TO QUESTION NO. 635

 

A lawyer shall not enter into an agreement for, charge, or collect a clearly excessive fee. DR 2-106(A). “A fee is clearly excessive when, after a review of the facts, a lawyer of ordinary prudence would be left with a definite and firm conviction that the fee is in excess of a reasonable fee.” DR 2-106(B). The determination of the reasonableness of a fee requires consideration of all relevant circumstances. If reasonable, the fee may be paid in property other than cash. The various factors to be considered as guides in determining such reasonableness are set forth in both the Ethical Considerations and the Disciplinary Rules. EC 2-18; DR 2-106(B). “An attorney has the right to contract for any fee he chooses so long as it is not excessive (see Opinion 190), and this Committee is not concerned with the amount of such fees unless so excessive as to constitute a misappropriation of the client’s funds (see Opinion 27).” ABA 320 (1968).

 

Since the question states that the corporate stock given as compensation has no known or currently ascertainable value, it would appear that no problem of excessiveness is present and, accordingly, no ethical question is involved. See Drinker, Legal Ethics 174 (1953); Wise, Legal Ethics 230 (1970).

 

In answer to the second question, there would appear to be nothing improper for the attorney- stockholder to give a personal guarantee requested of all stockholders as a condition of a lending institution’s making a loan to the corporation.

 

September 23, 1974.