by Christopher Graham and Joseph Kelly

You’re an attorney. Corporation by its sole shareholder retains you to transfer real estate. The transfer is intended as a gift. You draft a power of attorney. That power supposedly authorizes you to sign a deed conveying the real estate to transferees. Sole shareholder signs the power of attorney. You sign the deed. Thereafter shareholder dies. But then his widow proves the transfer was invalid. The power of attorney was invalid. Transferees are unhappy. They didn’t get their gift. They sue you. But how can that be? They didn’t pay your bill. You never agreed to represent them.

Who wins? Transferees in this Florida case at least alleged enough in a complaint to state a legally sufficient malpractice claim. See Dingle v. Dellinger, et al, Case No. 5D13-1725 (Fla. 5th DCA Feb. 7, 2014).

In Florida and most jurisdictions, including Illinois, attorneys generally owe no duty to non-clients. This is the so-called privity rule. But there are exceptions. Here, transferees alleged enough to qualify as third-party beneficiaries of the corporation’s agreement to retain attorney to prepare the power of attorney and prepare and sign the deed transferring the real estate to transferees.

Although the “privity requirement has been relaxed most frequently in will drafting situations,” “‘the third party intended beneficiary exception to the rule of privity is not limited to will drafting cases.'” As the court explained:

[Transferees] third amended complaint contains sufficient ultimate facts, which, if proved, show that they were the intended beneficiaries of [corporation’s] contract with [attorney and firm]. [Transferees] third amended complaint asserts that the primary intent of [corporation] in hiring [firm] was to directly benefit them. Accepting, without finding, the complaint’s allegations as true, there was no direct benefit to [corporation] or [shareholder], making this transaction similar to a gift or devise made in a trust or in a will. [Corporation] or [shareholder’s] intent was frustrated by the alleged negligence of [attorney and firm] in not preparing an enforceable quitclaim deed as they were contracted to do.

The court cited decisions from around the country allowing similar third-party beneficiary claims including Holsapple v. McGrath, 521 N.W.2d 711 (Iowa 1994), Speedee Oil Change No. 2, Inc. v. Nat’l Union Fire Ins. Co., 444 So. 2d 1304 (4th Cir. 1984), Admiral Merchs. Motor Freight, Inc. v. O’Connor & Hannan, 494 N.W.2d 261, 266 (Minn. 1992), Red River Valley Bank v. Home Ins. Co., 607 So. 2d 892, 896 (La. App. Ct. 1992), and Onita Pac. Corp. v. Trs. of Bronson, 843 P.2d 890, 896-97 (Or. 1992) (en banc).

Lesson for attorneys: If you botch a gift for a client the intended beneficiaries may sue you.

Tags: Florida, legal malpractice, duty, privity, non-client, gift, third party beneficiary, intended beneficiary