Can a lawyer keep a percentage or rebate paid by a title insurance company on the client's transaction?

Plain-English summary

An attorney asked whether, without full disclosure to his client, he could properly retain a percentage or rebate paid by a title insurance company. The Committee answered that disclosure and consent are the essential requirements, drawing on Canon 38 of the ABA Canons of Professional Ethics, which bars a lawyer from accepting compensation, commissions, rebates, or other advantages from others without the client's knowledge and consent after full disclosure.

The Committee explained that disclosure avoids the receipt of secret remuneration from a party for whom the attorney is not an agent, and consent satisfies the agency principle that an agent must not put himself in a position that interferes with his duty to his principal. It concluded that if the attorney obtains the client's consent after full disclosure, he may ethically keep the rebate.

If, after full disclosure, the client refuses consent, the Committee held that the attorney must credit the amount of the rebate to the client's account or pay it directly to the client, because funds received by the attorney in the service of his client properly belong to the client.

Currency note

This opinion was issued in November 1963, before New Jersey's September 13, 1971 adoption of the Disciplinary Rules (Code of Professional Responsibility), and well before the 1984 Rules of Professional Conduct and all later revisions. It applied Canon 38 of the former Canons of Professional Ethics. The receipt of advantages from third parties and the handling of client funds are now governed by RPC 1.8, RPC 1.5, and RPC 1.15. Treat this page as historical context, not current guidance. Verify against current rules before relying on any specific rule or requirement mentioned here.

Common questions

Q: Could a lawyer keep a title-insurance rebate without telling the client?

A: No. The Committee held that disclosure and consent are essential; a lawyer could not retain the rebate without full disclosure to, and consent from, the client.

Q: What happens if the client refuses consent after disclosure?

A: The Committee held the rebate then belongs to the client; the attorney must credit it to the client's account or pay it directly to the client.

Background and rules framework

The opinion applied Canon 38 of the former Canons of Professional Ethics (compensation, commissions, and rebates), grounded in agency principles. Those concerns are now addressed by RPC 1.8 (conflict of interest, specific rules, including payment from third parties), RPC 1.5 (fees), and RPC 1.15 (safekeeping property).

Citations and references

Rules of Professional Conduct (as in effect at the time):

• Canon of Professional Ethics 38 (compensation, commissions, and rebates)

Other opinions cited:

• Ass'n of the Bar of the City of N.Y., Committee on Professional Ethics, Opinions 155 (1930), 203 (1931), 637 (1943), 777 (1953)
• Drinker, Legal Ethics 96-97 (1953)

See also

• NJ ACPE Op. 513: Attorney Shareholder of a Title Insurance Company
• NJ ACPE Op. 612: Relationships Between Attorneys and Title Insurance Agencies
• NJ ACPE Op. 514: Broker's Commission to a Purchaser's Attorney

Source

• Landing page: https://law.justia.com/cases/new-jersey/advisory-committee-on-professional-ethics/2004/acp12-1.html

Original opinion text

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

86 N.J.L.J. 621
November 7, 1963

OPINION 12

Title Insurance Rebates
Disclosure to Client

An attorney inquires whether, without full disclosure to his client, he may properly retain a percentage or rebate from a title insurance company.

The comments and opinions on the subject of title insurance rebates to lawyers endorse the policy established in Canon 38 of the Canons of Professional Ethics of the American Bar Association, which reads:

38. Compensation, Commission and Rebates

A lawyer should accept no compensation, commissions, rebates or other advantages from others without the knowledge and consent of his client after full disclosure.

Disclosure and consent are the essential requirements. Disclosure avoids receipt of secret remuneration from a party for whom the attorney is not an agent; consent satisfies the principle of agency that an agent must not put himself in a position that will interfere with his duty to his principal. See Drinker, Legal Ethics 96-97 (1953).

It is the opinion of the Committee that if the attorney obtains the consent of his client after full disclosure, he may ethically keep the rebate. See Ass'n. of the Bar, City of N.Y., Committee on Professional Ethics, Opinions 203 (1931), 637 (1943) and 777 (1953). If, after full disclosure, the client refuses consent, the attorney must credit the amount of the rebate to the client's account or pay it directly to the client, since funds received by the attorney in the service of his client properly belong to the client. City of N.Y., Opinion 155 (1930); Drinker, supra 97.