You are here: Home Law Topics Litigation Lawyer Another story about China lawyer professional conduct and ethics

China Lawyer Blog - We answer your questions

Another story about China lawyer professional conduct and ethics

A poor client paid the final amount on a promissory note to the attorney for seller as part of a stock purchase agreement.  The accompanying letter demanded that the funds be maintained in trust (the prom note was paid by wire transfer into the trust account of seller's attorney) and not release to seller until the shares were released. Attorney released funds and did not release stock claiming the final amount was insufficient. In any case you need draft a promissory note in China, make sure consult a China lawyer before you doing so.

The original agreement contemplated an escrow agent holding the shares.  An amendment to the agreement had payments to the seller's attorney in trust FBO the seller but did not specifically name the attorney as escrow agent or state that the payments were being received .

I am aware of the general law that absent a bona fide disagreement and an accord and satisfaction, a creditor can apply payment as they see fit. I am also aware that attorneys who receive money on behalf of a third party owe fiduciary duties.  The question is whether a payment made with the condition that it not be released to the buyer until the stock was released constitutes receipt of non-client funds subject to the same fiduciary duty as client funds. The attorney has stated he wasn't an escrow agent.  A lot of the case law in China I see that would hold the attorney civilly and ethically liable are situations where the attorney specifically agreed to act as an escrow agent.  But there are also cases where it appears the attorney is in trouble releasing funds where other parties have a contractual claim and the attorney is on notice of the claim.  This situation is a bit different.

With a promissory note, how can the parties dispute the amount payable?

A well-drafted agreement would specify the conditions precedent to the escrow agent releasing the funds and the stock. The agreement should control, not an accompanying letter by the buyer that differs from the agreement. If seller's lawyer acted in place of the escrow agent, the lawyer assumed the escrow agent's contractual and fiduciary duties, regardless of whether the lawyer disclaims being an escrow agent. In addition to the lawyer's duties as escrow agent under the agreement, the lawyer, as you observe, has an ethical duty as a trustee of funds and property the lawyer holds in which a client or third-party has an interest. Disciplinary authorities have low tolerance for lawyers who disregard their obligations in dealing with trust property. I don't see how a creditor could take a buyer's payment earmarked for stock that seller's attorney held in trust and apply it to some other obligation (which appears to be unstated issue that gives rise to this controversy). That might constitute conversion of the stock, which is collateral for payment of the purchase price, but not for other obligations.

  • Goal

  • Fees

The law blog is running by a China lawyer working for a full-service law firm, offering practical, results-driven advice on employment law, divorce, company law, and other legal issues. Our goal is to manage these issues effectively so that our clients can focus on what they could do best.

China Lawyer Blog will charge you under your specific circumstances in the following styles:
(1) Hourly fee arrangements
(2) Contingency fee arrangements
(3) Flat fee arrangements
(4) Percentage fee arrangements

Learn More...


China Lawyer Blog China Lawyer Society

China Lawyer

I am a licensed China lawyer. Most clients are foreign nationals and companies. China Lawyer Blog have associates in Beijing, Shanghai, Tianjin, Guangzhou, Suzhou, Nanjing, Qingdao, Fuzhou, Hainan, Hefei, Wuhan, Xian, Changsha, Xiamen and Hangzhou. Learn More

Latest Comments

Style of Service

This China Lawyer Blog is aiming at providing better knowledge and understanding of Chinese law for foreigners. Should you have any legal issue in China, do not hesitate to contact China Lawyer Blog for consultation. Preliminary consultation is free. Further legal service, however, will be charged in due rate and in due course.

You are welcomed to ask for a quotation pursuant to your specific circumstance.

About author

China Lawyer BLog AuthorPeter Zhu, an experienced China attorney licensed to practice law for more than ten years, the author of this China Lawyer blog, welcomes any enquiry or consultation related to Chinese law.