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Another story about China lawyer professional conduct and ethics

A poor client paid the final amount on a promissory note to the attorney for seller as part of a stock purchase agreement.  The accompanying letter demanded that the funds be maintained in trust (the prom note was paid by wire transfer into the trust account of seller's attorney) and not release to seller until the shares were released. Attorney released funds and did not release stock claiming the final amount was insufficient. In any case you need draft a promissory note in China, make sure consult a China lawyer before you doing so.

The original agreement contemplated an escrow agent holding the shares.  An amendment to the agreement had payments to the seller's attorney in trust FBO the seller but did not specifically name the attorney as escrow agent or state that the payments were being received .

I am aware of the general law that absent a bona fide disagreement and an accord and satisfaction, a creditor can apply payment as they see fit. I am also aware that attorneys who receive money on behalf of a third party owe fiduciary duties.  The question is whether a payment made with the condition that it not be released to the buyer until the stock was released constitutes receipt of non-client funds subject to the same fiduciary duty as client funds. The attorney has stated he wasn't an escrow agent.  A lot of the case law in China I see that would hold the attorney civilly and ethically liable are situations where the attorney specifically agreed to act as an escrow agent.  But there are also cases where it appears the attorney is in trouble releasing funds where other parties have a contractual claim and the attorney is on notice of the claim.  This situation is a bit different.

With a promissory note, how can the parties dispute the amount payable?

A well-drafted agreement would specify the conditions precedent to the escrow agent releasing the funds and the stock. The agreement should control, not an accompanying letter by the buyer that differs from the agreement. If seller's lawyer acted in place of the escrow agent, the lawyer assumed the escrow agent's contractual and fiduciary duties, regardless of whether the lawyer disclaims being an escrow agent. In addition to the lawyer's duties as escrow agent under the agreement, the lawyer, as you observe, has an ethical duty as a trustee of funds and property the lawyer holds in which a client or third-party has an interest. Disciplinary authorities have low tolerance for lawyers who disregard their obligations in dealing with trust property. I don't see how a creditor could take a buyer's payment earmarked for stock that seller's attorney held in trust and apply it to some other obligation (which appears to be unstated issue that gives rise to this controversy). That might constitute conversion of the stock, which is collateral for payment of the purchase price, but not for other obligations.

 

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