Lawyer liability extended to third-party beneficiaries for one-sided inter vivos transfers of property.

The defendant attorney and law firm were retained by a corporation to prepare a quitclaim deed to gift a piece of property from the corporation to the plaintiffs. After recording of the deed, a third-party challenged the conveyance, which was ultimately held to be invalid. The plaintiffs brought suit against the defendants for legal malpractice on the basis that they were third-party beneficiaries to the attorney-client relationship between the defendants and the corporation. The defendants moved to dismiss on the basis that attorneys are not liable to third parties for negligence or misadvice given to a client concerning an inter vivos transfer of property, absent fraud or theft.

On appeal, the court held that the privity requirement needed for legal malpractice claims has often been relaxed in one-sided transactions such as wills, trusts, estate planning and adoptions, and not two-sided transactions such as an inter vivos transfer of property. However, when the real estate transaction is non-adversarial or does not involve differing interests to be protected, the situation is akin to a one-sided transaction, which does not require the privity requirement in order to bring a claim for legal malpractice. Because the plaintiffs’ interests were not adversarial to that of the grantor, and because the plaintiffs were specifically identified as the beneficiaries of the quitclaim deed, the trial court’s dismissal of the plaintiffs’ legal malpractice claim was reversed.

Therefore, attorneys may be liable to third-parties for an inter vivos transfer of property when the transaction is non-adversarial and the plaintiffs are specifically identified as the beneficiaries by the grantor, despite the general rule involving two-sided transactions.

Case Law Alerts, 2nd Quarter, April 2014