Notice, Delivery, and Accounting

An owner who entrusts property to a lawyer cannot watch what happens to it. The owner cannot see the trust account, may not know that a check has arrived, and has only the lawyer's word about what was paid out. Model Rule 1.15 answers that imbalance with three duties, stated together in paragraph (d) of the current Model Rule. Upon receiving funds or other property in which a client or third person has an interest, the lawyer must promptly notify that person. Except as stated in the rule or otherwise permitted by law or by agreement with the client, the lawyer must promptly deliver to the client or third person any funds or other property that person is entitled to receive. And upon request, the lawyer must promptly render a full accounting regarding the property.¹ Some states letter the paragraph differently, so an answer should identify each duty by what it requires.

The earlier sections told the lawyer how to hold entrusted property: apart from the lawyer's own, identified, safeguarded, and documented in complete records. This paragraph turns to the owner and asks what the owner must be told, given, and shown.

The three duties follow the property through the lawyer's hands. Notice comes when the property arrives, delivery when it leaves, and the accounting whenever the owner asks. Each guards against a different failure. Silence defeats an owner who never learns that the money exists and so cannot ask for it. Delay turns safe property into a reservoir the lawyer can draw on, because the owner usually cannot see the account. Opacity leaves even a lawyer who has paid out every dollar unanswerable to the question whether the numbers were right. Because the lawyer controls the property and the owner cannot observe it, the three duties force the lawyer to disclose what is held, move it to its owner, and show the work. The accounting rests in turn on the records the previous section required.

Each duty runs to a client and a third person alike, as the rule's text says. A lender whose payoff the lawyer holds at a closing is owed notice that the payoff has arrived, just as a client is owed notice of a settlement. Delivery goes to whoever is entitled to receive the property, and that person may be someone other than the client. We take the duties in sequence, beginning with notice.

Prompt Notice of Receipt

The first duty arrives with the property itself. Upon receiving funds or other property in which a client or third person has an interest, the lawyer "shall promptly notify the client or third person."² Three features of that sentence carry the doctrine. Receipt is the trigger, and nothing waits for the owner to inquire. Any third person with an interest is owed notice along with the client. And the standard is promptness, a word the rule leaves without a fixed number of days. The sentence opens a sequence of three duties, and the hornbook treats all of them as part of the lawyer's core fiduciary duty to safeguard property received from clients and other sources that belongs to clients or third persons.³

Notice comes first because no one can protect an interest in property whose arrival is unknown. When a settlement check reaches the lawyer, the lawyer holds the only knowledge that the money exists, and the client has no bank statement or ledger to consult. Without notice the owner cannot ask for delivery, cannot ask for an accounting, and cannot object if the lawyer is slow to pass the money along. Notice is the event that lets the owner enforce every later duty.

The text of the rule shows that the duty runs without a request. The accounting sentence is expressly conditioned: the lawyer renders a full accounting "upon request by the client or third person." The notice sentence contains no request clause, and the qualifier "except as stated in this rule or otherwise permitted by law or by agreement with the client" belongs to the delivery sentence alone.⁴ A client who never asks about the money therefore leaves the lawyer's duty untouched. So does a lawyer's expectation of taking a fee from the proceeds, because the client has an interest in the funds from the moment they arrive. A dispute over the fee has its own rule, taken up in the next section.

The notice duty also stands apart from the safekeeping duties of the earlier sections. A lawyer can deposit funds in the correct account, keep flawless records, and still violate the rule by leaving the owner in the dark. Exam stems often describe a perfect deposit and a client who never asked, then invite the conclusion that nothing is wrong. The question to ask is whether the lawyer told the owner.

Because the rule fixes no deadline, the measure is whether the lawyer informed the owner quickly enough for the owner to act on the news. A same-day call followed by a letter is comfortably prompt. Months of silence is not, however safe the money has been. The rule prescribes no form of notice, but a dated letter or message lets the lawyer prove later that notice was given.

The words "third person" give the duty its reach, and fee division supplies the standard example. Rule 1.5(a) sets the objective standard for whether a fee is reasonable,⁵ and the profession has historically restricted the division of a fee among lawyers who are not in the same firm.⁶ Those rules decide whether the fee is proper. Once two lawyers in different firms properly agree to divide it, the lawyer who collects the fee holds money in which the other lawyer has an interest. The rule's phrase "client or third person" covers that other lawyer, who has no independent way to learn that payment has come in, and the receiving lawyer must promptly say so.⁷

Other states use the same words. Two state-court opinions, State ex rel. Oklahoma Bar Ass'n v. Israel and Attorney Grievance Commission of Maryland v. James, quote the notice sentence in paragraph (b) of the state rules they apply, not paragraph (d).⁸

Prompt Delivery

The second duty ends the lawyer's custody. Unless the rule itself, other law, or an agreement with the client permits otherwise, the lawyer "shall promptly deliver to the client or third person any funds or other property that the client or third person is entitled to receive."¹⁰ Notice told the owner that property had arrived, and delivery sends it on. The separate account, the labels, and the records all assume the lawyer holds property for a time, and delivery completes that custody.

The rule demands promptness because money a client is entitled to receive already belongs to the client, and every day the lawyer keeps it is a day the client cannot use it. The funds also stay within the lawyer's reach. A balance that sits for months in an account the owner cannot see is a balance the lawyer can draw down without the owner learning of it. Since the owner has no window into the trust account, the speed with which property moves is the owner's main protection, and a rule that required only safe holding would leave that protection out.

The duty reaches only what the person is entitled to receive, and that limit shapes every application. Not everything that passes through the lawyer's hands belongs to the client in full. A share may belong to the lawyer under the fee agreement and a share to a third person, so the client's entitlement is what remains once the shares are fixed. A genuine disagreement over ownership changes the analysis for the same reason, and the next section takes it up.

The word "promptly" carries no fixed number of days, so the measure is how long the lawyer took once the property became deliverable. A lawyer who disburses the client's share within days after the settlement check clears has complied, because collecting the funds and settling the shares takes some time. The rule forbids delay for which the lawyer has no justification beyond preference.

The opening clause names three sources of permission to delay: the rule itself, other law, and agreement with the client. Agreement is the exception students meet most often. A client may prefer that funds stay in trust while the client decides how to invest them, and the rule lets the client's wishes control the timing.

Both lawyers held the same sum for a comparable stretch, and the difference lies in who decided that the money would wait. In Bell's office the delay served the lawyer. In Nakamura's it served the client at the client's request. The exception names agreement with the client, so it does not reach a third person who is separately entitled to the property. And holding funds at the client's request leaves every other safekeeping duty in place, since the money stays in the trust account throughout.

Because the duty runs to a client or third person alike, delivery sometimes means paying someone the lawyer does not represent. Fee division shows the point. The profession has historically restricted the division of a fee among lawyers in different firms,¹¹ but once two lawyers properly agree, the lawyer who collects the fee must hold it in trust and deliver the other lawyer's agreed portion, because that lawyer is a third person entitled to receive it.¹²

Delivery also reaches property that is not money. Unless the client permits the lawyer to keep them, the original documents the lawyer generated for the client, such as deeds, mortgages, original notices, pleadings, contracts, and wills, must be delivered to the client, and the client ordinarily is entitled to return of the file or to its transfer to new counsel.¹³ A client who cannot obtain the original instrument cannot use it, and an original may be impossible to replace, so keeping it takes something from the client that no copy restores. The source states this entitlement on the assumption that the client is current in paying fees, which ties the point to the lawyer's claim for payment, a subject taken up later in this chapter under liens.

The duty can also extend to property that belongs to someone other than the client. Rule 1.15 may apply when documents, recordings, or electronic data come into a lawyer's possession that belong, as a matter of property right, to another party.¹⁴ Bailment law supplies the analogy: a person holding another's property generally must return it to its rightful owner, and a lawyer who has reason to know that materials were taken from someone else stands in no better position.¹⁵ Facts that put the lawyer on notice create a duty to investigate. If the inquiry confirms the taking, the lawyer must promptly notify the rightful owner and return the materials, and may not quietly keep them or use them against that owner.¹⁶

Full Accounting on Request

The last duty gives the owner a right that does not depend on anything the lawyer has already done. Upon request by the client or third person, the lawyer must promptly render a full accounting regarding the property.¹⁸ Notice tells the owner that property has arrived, and delivery sends it on, but neither tells the owner what the lawyer did with the property in the interval. The accounting fills that gap. It lets the person for whom the property was held check what the lawyer still holds, what the lawyer has paid out, and what the lawyer has kept.

The word full has content. A full accounting itemizes the amounts the lawyer holds and any deductions the lawyer has taken for fees or expenses.¹⁹ Itemization matters because a trust account may hold the money of many clients at once, and the client sees none of its activity. Only the lawyer's own ledger shows whose dollars are whose. A bare balance therefore asks the owner to accept a number on faith, while an itemized statement shows each withdrawal and the work it paid for, so the owner can compare the deductions against the bills and object to any that do not match.

The request triggers this duty, and that feature separates it from the two before it. Notice is owed from the moment the lawyer receives the property, and delivery is owed once the owner is entitled to receive it, so both operate with no prompting from the owner. The accounting sentence is expressly conditioned on a request by the client or third person.²⁰ A client who never asks has triggered nothing under this clause. A lawyer who has already paid the client every dollar can still be asked to show how the figures were reached, because the right to an accounting does not depend on whether delivery has occurred. Tying the duty to a request keeps routine administration light, since the lawyer need not prepare statements nobody wants, and it still guarantees that the owner can inspect the books whenever the owner chooses. The rule also demands promptness, so a lawyer who stalls after a request violates the duty even when the numbers would have been right.

The accounting duty depends on the record-keeping duty discussed earlier. A lawyer can itemize only what the lawyer's records show, which is why Rule 1.15(a) requires complete records of account funds and other property and their preservation for a period after the representation ends, five years in the Model Rule's brackets.²¹ A request may reach the lawyer after the matter has closed, and a lawyer who discarded the ledger early has no means of answering it.

The duty runs to third persons as well as to clients. When two lawyers at different firms have properly arranged to divide a fee, the lawyer who receives the payment must hold it in trust, promptly notify the other lawyer, deliver the agreed share, and provide a full accounting if the other lawyer asks for one.²² Paying the agreed share does not answer such a request, since delivery and accounting are separate duties. Some state rules attach a heavier label to refusal. One trust-account rule quoted in a state opinion deems a refusal to account for and deliver over client property upon demand a conversion, the unauthorized taking of another's property, a consequence taken up in the final section of this chapter.²³