Can a lawyer personally bid on and buy a client's property at an execution sale when no other bidders appear?

Plain-English summary

Attorney A represented a client whose property was being sold by the sheriff at an execution sale. The client had instructed the attorney that, regardless of the equity, the client did not wish to bid for itself, hoping someone else would bid and produce partial or full payment of the judgment. Attorney A attended the sale only to report the results, but it became apparent there would be no bidders, meaning the client would have to pay the sale expenses and the property would return to the judgment debtor. Attorney A thought bidding himself, if personally interested in the property, would benefit the client by saving the sale expenses and possibly producing proceeds to satisfy the judgment. The inquiry asked whether Attorney A could ethically bid in those circumstances.

The opinion concluded that Attorney A could not bid as a matter of course, but that it would be appropriate if he entered his bid with the client's informed consent, having first formed a reasonable belief that his personal interest would not adversely affect the representation and that the transaction would be fair to the client (Rules 5.1(b) and 5.4(a)). The bar's editor's note points to Rule 1.8(a) of the Revised Rules for additional guidance on business transactions with a client.

Currency note

This opinion was issued in 1987, before the North Carolina State Bar's adoption of the 2003 revisions to the Rules of Professional Conduct (the bar's editor's note directs readers to Rule 1.8(a) of the Revised Rules). The provisions it applies (Rule 5.1(b) on personal-interest conflicts and Rule 5.4(a)) have since been renumbered and revised (the corresponding Model Rules are 1.8 on business transactions with a client and 1.7 on conflicts). 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 Treat this page as historical context, not current guidance.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, deadline, or requirement mentioned here.

Common questions

Q: Can a lawyer bid on a client's property at an execution sale?

A: Not as a matter of course. The opinion concluded the lawyer may bid only with the client's informed consent and a reasonable belief that his interest will not adversely affect the representation and that the transaction is fair (Rules 5.1(b) and 5.4(a)).

Q: Does it matter that the lawyer believed bidding would help the client?

A: The opinion concluded that the lawyer's belief that bidding would save sale expenses and produce proceeds did not, by itself, permit the bid; informed consent and a fairness judgment were still required.

Q: What must the lawyer determine before bidding?

A: The opinion concluded the lawyer must first form a reasonable belief that his personal interest will not adversely affect the representation and that the transaction will be fair to the client, and obtain informed consent.

Background and rules framework

The opinion applied North Carolina Rules 5.1(b) and 5.4(a) on conflicts where the lawyer has a personal interest, which the bar's note ties to the business-transaction-with-a-client rule (corresponding to Model Rule 1.8(a)) and the general conflicts rule (corresponding to Model Rule 1.7). The analysis turned on conditioning the lawyer's purchase on informed consent and a fairness-and-no-adverse-effect judgment.

Citations and references

Rules of Professional Conduct:

• North Carolina Rule 5.1(b) (personal-interest conflict)
• North Carolina Rule 5.4(a)
• MR 1.8 (business transactions with a client); MR 1.7 (conflicts of interest)

See also

• NC Ethics Op. RPC 28: representing both crash victims' estates
• NC Ethics Op. RPC 42: representation of interests adverse to a former client

Source

• Landing page: https://www.ncbar.gov/for-lawyers/ethics-and-governing-rules/ethics-opinions/opinions/rpc-24/

Original opinion text

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

Editor's Note: This opinion was originally published as RPC 24 (Revised). For additional guidance, see Rule 1.8(a) of the Revised Rules.

Inquiry:

Attorney A represents a client whose real or personal property is being sold by the sheriff at an execution sale. The client has instructed the attorney that, regardless of the amount of equity in the property, the client does not wish to bid on its own behalf, instead hoping that someone else will bid at the execution sale to produce partial or full payment of the outstanding judgment.

Attorney A attends the execution sale, simply to report the results to the client. At the sale it becomes apparent that there will be no bidders. Accordingly, the client will be forced to pay the expenses of the sale and the property will be returned to the judgment debtor. In such a case, Attorney A feels it would benefit the client for Attorney A to bid at the sale if he personally and individually might be interested in purchasing the property. Attorney A believes this would save the client from incurring the expenses of sale and might also produce proceeds which could be used by the client partially or wholly to satisfy the outstanding judgment.

May Attorney A ethically bid on real or personal property of his client being sold at execution sale under the circumstances set out above?

Opinion:

No, however it would be appropriate if Attorney A entered his bid with the informed consent of his client having first formed a reasonable belief that his personal interest would not adversely effect the representation and that the transaction would be fair to his client. See Rules 5.1(b) and 5.4(a).