COA Majority: Party Represented By Attorney in Real Estate Transaction Bears the Risk of Loss When Attorney Embezzles Sale Proceeds

Tuesday, in Johnson v. Schultz, the COA held that the party who was represented by an attorney who embezzles sales proceeds from a real estate transaction bears the risk of loss.

In this case the Schultzes entered into contract with Johnsons to the Johnsons' purchase real estate. An attorney named Parker handled the closing. He gave a check to the Johnsons from his trust account in the amount of the proceeds of the sale, but then embezzled the money before the Johnsons cashed the check. The Johnsons sued the Schultzes and Parker. The COA majority held that the Schultzes should bear the loss because Parker was their attorney, saying that where no party to a real estate transaction is at fault, courts should "impose the loss on those parties whom the attorney represented....if the attorney solely represented the buyer or the seller, then the loss should fall solely on that party alone. However, if the attorney represents both buyer and seller, the buyer and seller should share the loss."

Judge Wynn dissented, saying that the Johnsons, not the Schultzes, should bear the loss, because the Johnsons did not abide by the contract terms and accepted the proceeds of the sale in the form of a check rather than in cash (as required by the sales contract). He also noted that the Schultzes should not be penalized for the "intentional and criminal conduct of the attorney" because such conduct violated the attorney-client relationship.