PA Underlying Mortgage Transaction
Facts: The client had executed a mortgage on a real estate he owned to a corporation, which was wholly owned by his attorney. The mortgage was given in exchange for stock representing 25 percent interest in the corporation. The client then died and the attorney was appointed executor of his estate pursuant to the client’s will. That year the corporation through the attorney assigned the mortgage to the Hewitts for a consideration of $100. A couple of years later the mortgagee corporation became insolvent. The estate brought an action against the attorney arguing that the attorney took advantage of the attorney-client relationship when he allowed him to enter into a mortgage in favor of a corporation of which the attorney was the sole owner. The lower court found that the attorney and the client did have a confidential relationship but that there was no abuse of that relationship. The estate appealed.
Issue: Who has the burden of showing whether the attorney-client relationship has been abused?
Ruling: The attorney has the burden to prove that he did not abuse the relationship, that he fully disclosed the facts of the transaction to his client, and that the transaction is fair and conscionable. The court remanded to see whether the attorney met his burden.
Lesson: The standard of conduct that must prevail between an attorney and client when it involves business transactions is that:
“[N]o shadow of anything like deception or unfair dealing upon the part of any attorney can be countenanced…Owing to confidence bestowed upon him, the attorney is presumed to be able to strongly influence his client; hence the law often declares transactions between them void which between other persons would be objectionable.”
Id. at 135 (quoted Kribbs v. Jackson, 387 Pa. 611, 129 A.2d 490 (1957)).
Posted in: Pennsylvania