Can a lawyer borrow money from a client while the client's contested litigation is pending?

Plain-English summary

An attorney learned that another lawyer (the "billing attorney"), who had charged a now-deceased client a flat $45 hourly fee, had on several occasions borrowed money from that client to pay his rent while the client's litigation was pending. The sums had either been repaid per the loan terms or, without any known prior notice to the client, simply credited against the client's bill. The committee was asked whether it is improper for a lawyer to borrow funds from a client during the pendency of contested litigation.

The controlling rule was DR 5-104(A), which bars a lawyer from entering a business transaction with a client where they have differing interests and the client expects the lawyer to exercise professional judgment for the client's protection, unless the client consents after full and adequate disclosure and the transaction is not unconscionable, unfair, or inequitable when made.

The committee concluded that DR 5-103(A) (acquiring a proprietary interest in the litigation) did not apply, because borrowing money gives the lawyer no proprietary interest in the cause of action. It held that borrowing from a client during contested litigation is not per se improper, provided DR 5-104(A) is satisfied first: there must be full and adequate disclosure of all possible consequences, and the transaction must not be unconscionable, unfair, or inequitable when made (citing Giovanazzi v. State Bar and In re Johnson). Disclosure is adequate only if it lets the client make an informed decision, and all doubts about its sufficiency are resolved in favor of the client (citing LE Op. 187, 1097, 1198, 1254). Absent full and adequate disclosure, it was improper for the billing attorney to borrow from the client. The committee further noted that crediting the loan against the client's bill without notice or agreement may have violated DR 9-102(B)(1) and (3) (prompt notice of receipt of client funds, complete records, and appropriate accountings) (citing LE Op. 734).

Currency note

This opinion was issued in 1992, under Virginia's former Code of Professional Responsibility (the disciplinary rules it cites), before the Virginia State Bar's adoption of the Rules of Professional Conduct effective January 1, 2000. As the opinion's committee note observes, current Rule 1.8(a) requires that a client be given an opportunity to seek independent advice and that there be full disclosure and consent in writing before a lawyer enters a business transaction with the client. 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 borrow money from a client during the client's litigation?

A: Under this 1992 opinion, it is not per se improper, but only if the lawyer first complies with DR 5-104(A): full and adequate disclosure of all consequences and a transaction that is not unconscionable, unfair, or inequitable. Without that, the committee said it was improper.

Q: Does borrowing from a client give the lawyer a "proprietary interest" in the case?

A: No. The committee held that DR 5-103(A) did not apply, because a loan does not give the lawyer a proprietary interest in the cause of action or subject matter of the litigation.

Q: Can a lawyer credit a client's loan repayments against the client's bill without telling the client?

A: The committee was concerned that crediting the loan against the bill without notice or agreement may have violated DR 9-102(B)(1) and (3), which require prompt notice of client funds received, complete records, and appropriate accountings.

Background and rules framework

The opinion interpreted former Virginia DR 5-104(A) (business transactions with a client), DR 5-103(A) (proprietary interest in litigation), and DR 9-102(B)(1) and (3) (handling and accounting for client funds). The business-transaction rule is now Virginia Rule 1.8(a), which adds the written-consent and independent-advice requirements noted by the committee.

Citations and references

Rules of Professional Conduct:

• Former Virginia DR 5-104(A); DR 5-103(A); DR 9-102(B)(1), (3) (Code of Professional Responsibility)
• ABA Model Rule 1.8(a) (business transactions with a client)

Cases:

• Giovanazzi v. State Bar, 619 P.2d 1005 (Cal. 1980), lawyer suspended for borrowing large sums from a client without disclosing the consequences.
• In re Johnson, Wash. Sup. Ct. Bar No. 8824 (Mar. 19, 1992), lawyer suspended for borrowing without full written disclosure of his financial condition.

Other opinions cited:

• Virginia LE Op. 1269: a lawyer-client creditor-debtor relationship during litigation.
• Virginia LE Op. 187, 1097, 1198, 1254: what counts as full and adequate disclosure.
• Virginia LE Op. 734: applying funds without notice or agreement.

See also

• VA LEO 1593: Taking Client Stock as a Fee
• VA LEO 1534: Lawyer as Will Beneficiary
• VA LEO 1653: Assigning Marital-Property Proceeds to a Fee

Source

• Landing page: https://vsb.org/Site/about/rules-regulations/leo-opinions.aspx
• Original PDF: https://www.vsb.org/common/Uploaded%20files/LEOs/1489.pdf

Original opinion text

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

Committee Opinion
November 16, 1992
LEGAL ETHICS OPINION 1489

BUSINESS TRANSACTIONS WITH
CLIENT: CLIENT LOANING MONEY TO
ATTORNEY.

You have presented a hypothetical situation in which an attorney's client (who had no
connection with her father's litigation) has been billed by another attorney for services
rendered to/on her father's behalf prior to her father's death earlier this year, indigent and
intestate and leaving four surviving children.
You state that during the attorney's most recent meeting with his client, he was given
certain letters from the billing attorney regarding the decedent's litigation (dismissed
subsequent to decedent's death for lack of legal standing to proceed) and the attorney's
bill. While discussing her father's indigence, the client mentioned to the attorney that the
billing attorney, in order to pay his rent, had borrowed money from her father on several
occasions. The client advised that all sums borrowed had either been repaid according to
the terms of the loan or, without any known prior notice to the decedent, had merely been
credited against his bill to the attorney. The client (who is not aware of the existence of
any formal retainer agreement) believes that the billing attorney was not working on a
contingent fee basis or on a "contingency plus" basis but rather was charging her father a
flat fee of $45 per hour.
You have asked the Committee to opine whether, under the facts of the inquiry, it is
improper for an attorney to borrow funds from his client, during the pendency of
contested litigation.
The appropriate and controlling Disciplinary Rule related to your inquiry is DR:5104(A), which states that a lawyer shall not enter into a business transaction with a client
if they have differing interests therein and if the client expects the lawyer to exercise his
professional judgment therein for the protection of the client, unless the client has
consented after full and adequate disclosure under the circumstances and provided that
the transaction was not unconscionable, unfair or inequitable when made.
The Committee has previously considered the propriety of a loan made to a client for
assistance with living expenses during the course of litigation. LE Op. 1269 was,
however, predicated in part on the improper adverse relationship between the lawyer as
creditor and the client as debtor, as prohibited by DR:5-104(A) and in part on DR:5103(A) which prohibits a lawyer from acquiring a proprietary interest in the cause of
action or subject matter of litigation he is conducting for a client.
The Committee is of the opinion that since the attorney does not acquire a proprietary
interest in the pending litigation, DR:5-103(A) is inapposite to the facts you have
presented. The Committee further opines that it is not per se improper for an attorney to
obtain a loan from his client during the pendency of contested litigation, provided that
there is compliance with the mandates of DR:5-104(A) before entering into such a

Committee Opinion
November 16, 1992
transaction. Specifically, there must be full and adequate disclosure as to all possible
consequences of such a transaction and the transaction must not be unconscionable,
unfair or inequitable when made. See, e.g. Giovanazzi v. State Bar, 619 P.2d 1005 (Cal.
1980) (lawyer suspended for three years for having borrowed large sums of money from
client and agreeing to pay high rate of interest; lawyer failed to inform client as to
consequences of lender charging usurious rates of interest); In re Johnson, Wash. Sup. Ct.
Bar No. 8824, 3/19/92 (lawyer who twice borrowed substantial sum of money without
providing clients with full written disclosure of his precarious financial condition is
suspended for 60 days, placed on probation for two years, and required to make
restitution).
As to what constitutes "full and adequate disclosure," the Committee directs your
attention to prior LE Op. 187, LE Op. 1097, LE Op. 1198, and LE Op. 1254, which
conclude that disclosure is adequate if it is such that the attorney's client is able to make
an informed decision as to whether or not to give consent. The Committee has
consistently opined that all doubts regarding the sufficiency of the disclosure must be
resolved in favor of the client.
Assuming that there was not full and adequate disclosure, the Committee also opines
that it was improper for the billing attorney to borrow money from his client during the
pending litigation, since the attorney would not have complied with the requirements of
DR:5-104(A).
Finally, assuming there was similarly no disclosure as to payments on the loan being
applied to the client's bill, the Committee is concerned by the indications that the billing
attorney merely credited the loan against the client's bill without any notice to, or
agreement of, the client. See LE Op. 734. In so crediting without notice or agreement, the
billing attorney may also have violated DRs 9-102(B)(1) and (3) [ DR:9-102] which, in
pertinent part, require a lawyer to promptly notify a client of the receipt of his funds,
maintain complete records of all funds of the client coming into the possession of the
lawyer, and render appropriate accounts to the client regarding those funds and records.
Legal Ethics Committee Notes. – Under Rule 1.8(a), a lawyer may not enter into a
“business transaction” with a client unless the client is given an opportunity to seek
independent advice, and there has been full disclosure and consent in writing.