Daily Development for
August 22, 1995

by: Patrick A. Randolph, Jr.
Professor of Law
UMKC School of Law

ATTORNEY/CLIENT; AGENCY; CONTRACT MODIFICATION: Attorney does not have implied authority to extend orally his clients' option contract deadline when the contract requires modifications to be in writing, but may nevertheless have implied authority to express the position of the client on the same issue. Diversified Development & Investment, Inc. v. Heil, 889 P.2d 1212 (N.M. 1995). Plaintiff, an optionee of land, allowed an option deadline to pass after the optionor's attorney told it that the owners "are not going to hold" plaintiff to the deadline. The parties were in the throes of negotiating alternative seller financing arrangements, and optionee vigorously pressed for optionor's response to its proposals prior to the deadline, but optionor's attorney refused even to meet with optionee, assuring them that no written extension was required. Plaintiff argued that the attorney had apparent authority to extend the deadline. The court refused to find such authority for two reasons: (1) the contract required modifications to be in writing, and (2) attorneys do not, as a rule, have implied authority to modify their clients' agreements. The court stated that the owner failed to "clothe[] the [attorney] with the appearance of authority."

The court went on, however, to shave the issue a bit more narrowly - stating that an agent who lacks apparent authority to make a decision for a client may nevertheless have apparent authority to express the client's position. Here, the attorney's statement that the clients were not going to hold optionee to the deadline could be construed as an authorized communication of the clients' position, since client had communicated its position on other matters through its attorney in the past. Under the circumstances, where optionees relied upon this statement to withhold exercising the option while negotiations proceeded with optionor on alternative financing terms, and where the attorney also assured optionees that a written extension was not requied, the statement could be binding upon optionors even when there was no written extension.

The court remanded, ordering the trial court to permit discovery of the records of telephone conversations between optionors and their lawyer concerning the optionors' position. Such conversations would be relevant to the issue of actual authority, and thus are not protected by attorney-client privilege.

Note: The client, having rejected the option, promptly resold the property for a 25% increase over the option price. The lawsuit included a crosscomplaint by the optionors against their own attorney for malpractice and a claim by the optionees for prima facie tort due to their conduct - the phone logs would be relevant on that point as well.

Comment: The editor has noted several recent cases squarely holding that an attorney lacks authority to negotiate real estate deals for the client. See, e.g. Shafer v. Barrier Island Station, Inc., 946 F.2d 1075 (4th Cir. 1991). Parties engaged in real estate negotiations with lawyers would do well to obtain express authorization from the client of the attorney's degree of authority - both to enter into or modify a contract or to express the client's position on contract terms. Remember that if you don't have an express communication from the client, you may lack the evidence of apparent authority, despite assurances from the lawyer.

For a case upholding the attorney's agency authority, as against a claim that the authority was verbal and therefore invalid under the Statute of Frauds when applied to real estate transactions, see Nelson v. Boone, 890 P.2d 313 (Haw. 1995).

Items in the Daily Development section generally are extracted from the Quarterly Report on Developments in Real Estate Law, published by the ABA Section on Real Property, Probate & Trust Law. Subscriptions to the Quarterly Report are available to Section members only. The cost is nominal. For the last five years, these Reports annually have been collated, updated, indexed and bound into the Annual Survey of Developments in Real Estate Law, volumes 1-5, published by the ABA Press. The Annual Survey volumes are available for sale to the public. Contact Shawn Kaminsky at the ABA. (312) 988 5260.

Items reported here and in the ABA publications are for general information purposes only and should not be relied upon in the course of representation or in the forming of decisions in legal matters. Accuracy of data and opinions expressed are the sole responsibility of the DIRT editor and are in no sense the publication of the ABA.