Kentucky State Bar Ass'n v. First Federal Sav. and Loan Ass'n of Covington

Decision Date09 December 1960
PartiesKENTUCKY STATE BAR ASSOCIATION, Complainant, v. FIRST FEDERAL SAVINGS & LOAN ASSOCIATION OF CONVINGTON, Kentucky, a corporation, Respondent.
CourtUnited States State Supreme Court — District of Kentucky

Carl H. Ebert, Lorimer W. Scott, Newport, for complainant.

Orie S. Ware, William O. Ware, James C. Ware, Ware & Ware, Covington, for respondent.

CLAY, Commissioner.

This is an original contempt proceeding brought in this Court by The Kentucky State Bar Association against the respondent, First Federal Savings and Loan Association of Covington, Kentucky, charging respondent with engaging in the unauthorized practice of law. We have heretofore overruled respondent's motion to dismiss the show cause rule, which motion challenged this Court's jurisdiction to proceed against it, a non-member of the legal profession. As justification for this ruling see Hargett v. Lake, Ky., 305 S.W.2d 523; Carter v. Trevathan, Ky., 309 S.W.2d 746; Carter v. Brien, Ky., 309 S.W.2d 748; In re Sparks, 267 Ky. 93, 101 S.W.2d 194; People ex rel. Illinois State Bar Ass'n v. People's Stock Yards State Bank, 344 Ill. 462, 176 N.E. 901; In re Baker et al., 8 N.J. 321, 85 A.2d 505; Richmond Association of Credit Men v. Bar Association, 167 Va. 327, 189 S.E. 153. The question now before us is whether or not the respondent has engaged in the practice of law in violation of KRS 30.010. That statute forbids such professional activity by a person without a license.

The practice of law is thus defined in RCA 3.020:

"The practice of law' is any service rendered involving legal knowledge or legal advice, whether or representation, counsel, advocacy in or out of court, rendered in respect to the rights, duties, obligations, liabilities, or business relations of one requiring the services. But nothing herein shall prevent any person not holding himself out as a practicing attorney from drawing any instrument to which he is a party without consideration unto himself therefor.'

Respondent is a building and loan association and its principal business consists of making loans secured by mortgages on real estate. Before making any such loan respondent requires that a title examination be made on the property to be mortgaged, and of course loans are not made unless, in the opinion on an attorney, the title is clear.

It is not questioned that a 'title examination' (which includes an analysis of recorded interests in land coupled with an opinion as to its legal status) is a service which lawful can be performed for others only by a licensed attorney. Customerily in this business such service may be rendered by a lawyer representing the borrower (whose certification will be accepted by the lender), or it may be performed by a lawyer of the lender's selection (who is paid an attorney's fee for each such service rendered).

Respondent does not follow either of these courses which involve the normal attorney-client relationship. Instead it engages its own lawyer as a regular employee, paying him a fixed salary of $10,000 a year. This attorney performs various other legal services for respondent, but his principal work consists of examining and passing judgment on the validity of titles to property which will be mortgaged to the respondent as security for its loans. This is the practice of law.

During the years in controversy (1954-1958) respondent had title examinations made by its attorney in connection with all real estate loans financed by it. Since this attorney was on a straight salary, he did not receive a legal fee for each of these examinations, nor was a specific attorney fee therefor charged the borrower. It is respondent's contention that since this legal service was being performed on its behalf and no direct charge was made for the service to the borrower, it could not be engaged in the practice of law.

A corporation may properly employ its own attorney to render legal services for it. The position of the Bar Association is that the title examination service is not being rendered for respondent but for the borrower, and in addition (or in confirmation of that fact), the borrower is required to pay for it. If respondent, a corporation, is actually rendering a legal service to members of the public, and particularly if it is making a charge for such service, it is engaged in the unauthorized practice of the law.

It is apparent that the title examination is not made exclusively for the benefit of respondent. A clear title is one of the conditions upon which it will make a loan. The examination is made primarily for the benefit of the borrower so that he can comply with this essential condition. The fact that a charge is made to the borrower for this service, if such a charge is made, simply confirms the fact that the legal service is being rendered for him.

It is shown by the evidence that in making loans respondent collects from the borrower a 'service charge' which ostensibly is made up of the actual costs of making a loan. On a 'loan settlement statement' furnished the borrower, which respondent at one time used, these 'service charges' were itemized as 'credit report,' 'survey,' 'appraisal,' 'exam. of title' and 'recording fees.' (Our emphasis.) In filling out this statement respondent did not normally list the separate charges but simply wrote in the total amount of the service charge which was fixed in accordance with its graduated scale (based upon the amount of the loan). However, on the veterans' loan forms submitted to the Veterans Administration, a specific charge was sometimes itemized for 'title examination.' In respondent's annual report to the Federal Home Loan Bank a substantial item of 'net operating income' is listed as, 'appraisal fees, legal fees and initial service charges.' (Our emphasis.)

In spite of the vehement denials of respondent's counsel, it is clear from this record that the 'service charge' made by respondent to the borrower included a variable amount which in fact (even if not in form) is a fee for the legal service of title examination. This...

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2 books & journal articles
  • CHAPTER 12 PROFESSIONAL RESPONSIBILITIES OF MINERAL TITLE EXAMINERS
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    • FNREL - Special Institute Mineral Title Examination III (FNREL)
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