Multistate Professional Responsibility Exam Practice Question
A small business retains a lawyer to handle trademark filings. When the business encounters a cash-flow shortfall, the lawyer offers to lend the company money at a modest interest rate instead of billing the usual hourly fee. The lawyer discusses the arrangement orally but does not (i) put the loan terms in writing, (ii) advise the client in writing to consult independent counsel, or (iii) obtain the client's written consent. Under the ABA Model Rules of Professional Conduct, is the lawyer's approach proper?
No. The lawyer failed to give the written disclosures and obtain the written, informed consent that Rule 1.8(a) mandates for business transactions with clients.
Yes. A personal loan is merely financial assistance to a client and is always allowed.
Yes. As long as the interest rate is reasonable, no additional steps are required.
No. The only problem is that the loan was unsecured; collateral would have cured any ethical issue.
The loan is a business transaction with a current client, so Model Rule 1.8(a) applies. The lawyer must: (1) ensure the terms are fair and reasonable; (2) disclose those terms to the client in writing in language the client can understand; (3) advise the client in writing of the desirability of seeking independent legal counsel and give a reasonable opportunity to do so; and (4) obtain the client's written informed consent to the essential terms and to the lawyer's role. Because none of these written disclosures or consents occurred, the arrangement violates Rule 1.8(a). The fact that the lawyer would charge interest instead of fees does not convert the deal into an ordinary fee agreement or "financial assistance"; it remains a business transaction requiring the safeguards above. Therefore, the approach is not permissible.
Ask Bash
Bash is our AI bot, trained to help you pass your exam. AI Generated Content may display inaccurate information, always double-check anything important.
What are the professional responsibilities of lawyers when engaging in financial dealings with clients?
Open an interactive chat with Bash
Why is written documentation important in attorney-client financial arrangements?
Open an interactive chat with Bash
What are the potential consequences for a lawyer who fails to comply with these professional responsibilities?