Can a lawyer take a promissory note or a security interest from a client to secure payment of fees?

Currency note

This opinion was issued in 1981, before the State Bar of California's adoption of the November 1, 2018 revisions to the Rules of Professional Conduct. It interprets former Rule 5-101 (avoiding adverse interests; business transactions with a client), an area now addressed by Model Rule 1.8(a) and California Rule 1.8.1. Subsequent rule amendments or later opinions may have changed the analysis. Treat this page as historical context, not current guidance. Verify against current rules before relying on any specific rule, case, or requirement mentioned here.

Disclaimer: This is an advisory ethics opinion. Advisory opinions are not binding; they interpret the State Bar of California's rules of professional conduct and are persuasive authority. This summary is for research purposes only and is not legal advice. Verify current rules before acting on any specific guidance.

About this page: The plain-English summary and Q&A below were written by Ezel based on the official opinion. The opinion text is reproduced at the bottom; the official source (linked) controls.

View original opinion

Plain-English summary

The committee was asked whether a lawyer may ethically take promissory notes or liens as security for fees, a concern that arises because many clients cannot advance fees when retaining counsel. The committee concluded that, subject to strict compliance with former Rule 5-101 (effective January 1, 1975), a lawyer may obtain a lien or security device to protect fees. Rule 5-101 barred a lawyer from acquiring a security or other pecuniary interest adverse to a client unless the transaction and its terms were fair and reasonable and fully disclosed in writing, the client had a reasonable opportunity to seek independent counsel, and the client consented in writing.

Reviewing the history before Rule 5-101, the committee noted that case law generally disfavored liens because they may create an interest adverse to the client, citing Ames v. State Bar, where lawyers who purchased a note and trust deed at their clients' request and with honorable motives were nonetheless disciplined under former Rule 4, and Academy of California Optometrists, which intimated that a lien against tangible property, as opposed to the client's case file, might be valid. The committee observed that an adverse interest can arise when fees go unpaid and may continue during the representation.

Drawing on nonbinding ABA authority (DR 5-103(A)(1), DR 5-104, and related Ethical Considerations) and ABA informal opinion No. 1461 (1980), the committee emphasized that the ethical propriety of asserting a lien is not absolute and that a lawyer should weigh financial interests against the client's interests, foregoing a lien where the client's failure to pay reflects financial inability rather than deliberate refusal. The committee concluded it is unethical to require a lien or security device unless the lawyer adheres to Rule 5-101, and that because a lien may be held, a lawyer may also request a promissory note in compliance with Rule 5-101; it cited Walton v. Broglin, which upheld a fee promissory note's validity. The committee expressly did not address whether a lawyer may institute foreclosure or exercise a sale right under the security instrument while continuing to represent the client.

Common questions

Q: Can a lawyer take a promissory note from a client to secure unpaid fees?

A: Yes. The committee concluded a lawyer may take a promissory note to protect fees, provided the lawyer complies with former Rule 5-101's requirements of fairness, written disclosure, an opportunity to consult independent counsel, and the client's written consent.

Q: Can a lawyer take a lien or other security interest for fees?

A: Yes, but only in strict compliance with former Rule 5-101. The committee concluded it is unethical to require a lien or security device unless the lawyer adheres to that rule.

Q: What did former Rule 5-101 require?

A: That the transaction and terms be fair and reasonable and fully disclosed in writing in terms the client should reasonably understand, that the client be given a reasonable opportunity to seek independent counsel, and that the client consent in writing.

Q: Did the opinion address foreclosing on the security while still representing the client?

A: No. The committee expressly stated it did not address whether a lawyer may institute foreclosure proceedings or exercise sale rights under the security instrument while continuing to represent the client.

Background and rules framework

The opinion interprets former Rule 5-101 of the California Rules of Professional Conduct, which governed business transactions with a client and the acquisition of interests adverse to a client, along with former Rule 2-111 (withdrawal) and nonbinding ABA Code provisions on liens. Business transactions with clients and the acquisition of adverse interests are now addressed by Model Rule 1.8(a) and California Rule 1.8.1.

Citations and references

Rules of Professional Conduct:

• Former California Rule 5-101 (avoiding adverse interests; business transactions with a client), effective January 1, 1975
• Former California Rule 2-111 (withdrawal from employment)
• ABA Code of Professional Responsibility, DR 5-103(A)(1), DR 5-104, EC 5-2, 5-3, 5-7 (nonbinding)

Cases:

• Ames v. State Bar (1973) 8 Cal.3d 910 [106 Cal. Rptr. 489]
• Academy of California Optometrists, Inc. v. Superior Court (1975) 51 Cal.App.3d 999 [124 Cal. Rptr. 668]
• Walton v. Broglin (1975) 52 Cal.App.3d 400 [125 Cal. Rptr. 123]

Other opinions cited:

• ABA Committee on Ethics and Professional Responsibility, informal opinion No. 1461 (1980)

See also

• CA Ethics Op. 1981-55: Guaranteeing a Client's Litigation Cost Bond
• CA Ethics Op. 1980-53: Charging Interest on Past-Due Bills

Source

• Landing page: https://www.calbar.ca.gov/legal-professionals/ethics-compliance-practice-resources/ethics/ethics-opinions
• Original opinion: https://www.calbar.org/ethics/Opinions/1981-62.htm

Original opinion text

Reproduced from the official source for research purposes. The linked source is authoritative.

THE STATE BAR OF CALIFORNIA
STANDING COMMITTEE ON PROFESSIONAL RESPONSIBILITY AND CONDUCT
FORMAL OPINION NO. 1981-62

ISSUE:

May an attorney ethically take promissory notes or liens as security for fees?

DIGEST:

An attorney may take a promissory note or obtain a security interest to protect the attorney's fees for services, subject to compliance with rule 5-101 of the Rules of Professional Conduct of the State Bar.

AUTHORITIES INTERPRETED:

Rules 2-111 and 5-101 of the Rules of Professional Conduct of the State Bar.

American Bar Association Code of Professional Responsibility, Disciplinary Rule 5-104.

DISCUSSION

The Committee has been asked whether an attorney may ethically use promissory notes or security interests to protect the attorney's fees for services. Given the fact that many clients are unable to advance fees when retaining an attorney, the attorney's concern about insuring full payment is obvious.

It is the opinion of the Committee that, subject to strict compliance with rule 5-101 of the Rules of Professional Conduct, which became effective on January 1, 1975, an attorney may obtain a lien or security device to protect his or her fees. Rule 5-101 provides:

"A member of the State Bar shall not enter into a business transaction with a client or knowingly acquire an ownership, possessory, security or other pecuniary interest adverse to a client unless (1) the transaction and terms in which the member of the State Bar acquires the interest are fair and reasonable to the client and are fully disclosed and transmitted in writing to the client in manner and terms which should have reasonably been understood by the client, (2) the client is given a reasonable opportunity to seek the advice of independent counsel of the client's choice on the transaction, and (3) the client consents in writing thereto."

A. History Prior to Rule 5-101 of the Rules of Professional Conduct.

Prior to the adoption of rule 5-101 of the Rules of Professional Conduct, case law generally disfavored the use of liens because they may create an interest adverse to the client. (See Ames v. State Bar (1973) 8 Cal.3d 910 [106 Cal. Rptr. 489]; Academy of California Optometrists, Inc. v. Superior Court (1975) 51 Cal.App.3d 999 [124 Cal. Rptr. 668].) This can be so even when the client has come forward initially and offered such security in order to retain the lawyer of his or her choosing. However, when fees are not paid, an adverse interest exists and may continue to exist during the course of representation.

In Ames v. State Bar, supra, 8 Cal. 3d at pages 916-917, the attorneys purchased a note and trust deed on property which was the subject of their clients' litigation. They did so at the clients' request and with honorable motives in seeking to protect their clients' junior interest in the second deed of trust. Nonetheless, they were disciplined under former rule 4 of the Rules of Professional Conduct, which then read as follows: "A member of the State Bar shall not acquire an interest adverse to a client." (Id., at pp. 919, 921.)

In Academy of California Optometrists, Inc. v. Superior Court, supra, 51 Cal.App.3d at pages 1003, 1006, the majority of the California Court of Appeal for the Third Appellate District intimated that, if a lien were asserted against tangible real or personal property, as opposed to the client's case file, such a lien might be valid and enforceable.

B. Other Authority.

Nonbinding guidance is found in American Bar Association Code of Professional Responsibility, Disciplinary Rule 5-103(A)(1) and Ethical Consideration 5-7, which permit liens to secure an attorney's fee if "granted by law." Although the American Bar Association Code of Professional Responsibility states that a lawyer may acquire a lien granted by law to secure his or her fee, nonetheless, the ethical propriety of asserting a lien is far from absolute. However, Disciplinary Rule 5-104 and Ethical Considerations 5-2 and 5-3 all appear strongly to caution the use of such security devices; not only because of the potential for a conflict of interest between attorney and client, but also because of the inherent danger that a lawyer's independent judgment might be influenced by the transaction with the client. Further, there is an expressed concern about attorneys taking unfair contractual advantage of their clients.

American Bar Association Committee on Ethics and Professional Responsibility, informal opinion No. 1461 (1980) is instructive. The fact situation in this opinion involves a lawyer who drew up a stipulation and agreement for his client and thereafter was not paid. He asked if he could withhold the partly signed stipulation and agreement in order to place leverage on the client to pay the fee, or at least part of it, thus presenting a situation similar to that in Academy of California Optometrists, Inc., v. Superior Court, supra. The opinion stated that:

"Financial inability of the client to pay the amount owing should also cause the lawyer to forego the lien because the failure to pay the fee is not deliberate and thus does not constitute fraud or gross imposition by the client. The lawyer should forego the lien if he knew of the client's inability at the beginning or if he failed to assure agreement as to the amount or method of calculating the fee." (Id., at p. 4.)

In a more general sense, the opinion addressed the appropriateness of liens themselves, opining:

"The Model Code states that a lawyer may acquire a lien granted by law to secure his fee or expenses, and may protect his right to collect a fee by the assertion of legally permissible liens. DR 5-103(A)(1); EC 5-7. Nonetheless, the ethical propriety of asserting a retaining lien is not absolute under the Model Code. A proper sense of regard for the nature of the profession, and for the Model Code provisions discussed below, should lead a lawyer to evaluate his financial interests in light of the interests of the client when he is making a decision to invoke an attorney's lien to which he may be entitled under law." (Id., at p. 2.)

Based upon the foregoing authorities, the Committee concludes that it is unethical to require a lien or security device unless the member adheres to the provisions of rule 5-101.1

Because a lien or security device may be held by an attorney, so too may a member request that a client execute a promissory note in compliance with rule 5-101 of the Rules of Professional Conduct. Such a note also has been held legally enforceable in Walton v. Broglin (1975) 52 Cal.App.3d 400 [125 Cal. Rptr. 123]. That case involved an action by an attorney to enforce collection of a promissory note given to secure payment of a fee for the defense of a criminal case. The promissory note was signed by the clients midway through their case. The California Court of Appeal for the Third Appellate District upheld the validity of the promissory note without discussion of the Rules of Professional Conduct.

Accordingly, the Committee concludes that an attorney may legally and ethically obtain such notes in order to protect the attorney's fees for services, provided that the attorney comply with rule 5-101 of the Rules of Professional Conduct.

This opinion is issued by the Standing Committee on Professional Responsibility and Conduct of The State Bar of California. It is advisory only. It is not binding upon the courts, The State Bar of California, its Board of Governors, any persons or tribunals charged with regulatory responsibilities, or any member of the State Bar.

1 Because that issue is not presented, we do not address whether an attorney ethically may institute foreclosure proceedings or exercise rights of sale under the security instrument while continuing to represent the client.