You have asked the Professional Guidance Committee for advice in your inquiry of January 3, 1989. The inquiry was presented to the Professional Guidance Committee at its meeting in January. This will constitute the formal opinion of the committee.
Your inquiry asks whether you may now pay a security deposit held by you in escrow, pursuant to an agreement of sale, to your client-relative which was received by you from the putative buyer of your client-relative's business.
You have informed us that the putative buyer has defaulted under the terms of the agreement of sale in that he (1) failed to make any application for appropriate license approval as required by the agreement (2) failed to make settlement and (3) was financially unable to close.
Rule 1.15 of the Rules of Professional Conduct regulates an attorney's obligations and responsibilities with respect to the safekeeping of property of clients or third persons. Specifically, Rule 1.l5(b) provides, inter alia, that a lawyer shall promptly deliver to the client or third person any funds or other property that the client or third party is entitled to receive... [emphasis added].
Therefore under Rule 1 15(b) if a client or third person is entitled to receive funds, the lawyer must forthwith deliver the funds.
If under the terms of the agreement of sale your-client-relative or the buyer is now entitled to the security deposit, it must be paid. Entitlement is a legal issue upon which the Professional Guidance Committee cannot opine. That determination must be made by you or, if you deem it appropriate, a court after interpleader. As stated in the comment to Rule 1.15, [T]he obligations of a lawyer under this Rule are independent of those arising from activity other than rendering legal services. For example, a lawyer who serves as an escrow agent is governed by the applicable law relating to fiduciaries even though the lawyer does not render legal services in the transaction.
In connection with your decision, you may also wish to consider Rule 4.1(a) in the context of advising the defaulting buyer and his counsel, if represented, that the funds, in fact, have not been distributed so as to afford the defaulting buyer or his counsel the opportunity to contest the issue of entitlement.