State v. Buyers Service Co., Inc., 22730
| Citation | 357 S.E.2d 15,292 S.C. 426 |
| Decision Date | 20 January 1987 |
| Docket Number | No. 22730,22730 |
| Court | United States State Supreme Court of South Carolina |
| Parties | STATE of South Carolina, Appellant-Respondent, v. BUYERS SERVICE COMPANY, INC., Respondent-Appellant. . Heard |
Ray L. Derrick, of Funderburk and Derrick, Columbia, for respondent-appellant.
Edward G. Menzie, of Nexsen, Pruet, Jacobs and Pollard, Columbia, amicus curiae for South Carolina Bar.
In this action the circuit court issued a declaratory judgment that Buyers Service Company, Inc. (Buyers Service) has illegally engaged in the practice of law. Additionally, Buyers Service was enjoined from performing future acts deemed to constitute the practice of law. We affirm in part and reverse in part.
Buyers Service is a commercial title company which also assists homeowners in purchasing residential real estate. Its principal place of business is Hilton Head Island.
The State brought this action alleging Buyers Service has engaged in the unauthorized practice of law by: (1) providing reports, opinions or certificates as to the status of titles to real estate and mortgage liens; (2) preparing documents affecting title to real property; (3) handling real estate closings; (4) recording legal documents at the courthouse; and (5) advertising to the public that it may handle conveyancing and real estate closings.
Buyers Service's clients are usually prospective home purchasers referred by local real estate agents. Its general procedures for handling a real estate transaction are as follows:
After a client is referred, Buyers Service receives an executed contract of sale from the realtor. If the sale involves a mortgage, the buyer makes an application to a local lender. If the lender approves the loan, it notifies Buyers Service and sends a letter of commitment to the buyer stating the terms. Buyers Service then orders the loan package from the lender. This consists of a set of instructions, a note and mortgage, truth in lending statement, HUD-1 Statement, miscellaneous affidavits regarding employment, and other forms. The documents arrive in various degrees of completion depending upon the particular lender. Buyers Service fills in the mortgagor-mortgagee on the mortgage, the grantor-grantee on the deed, consideration, the legal description and other blank spaces.
Buyers Service sends the completed forms to the purchaser for his examination and signature. Thereafter, the lender examines the loan package and funds the loan. Buyers Service deposits the loan proceeds check in its escrow account and disburses the funds according to the HUD-1 Statement and the closing instructions. Buyers Service also prepares settlement statements after loans are closed.
When a title search is necessary, Buyers Service sends an employee to the courthouse to abstract the title. The purchaser pays $50 for this service. The abstract is reviewed by a non-attorney employee who determines if the seller has fee simple title to the property. Buyers Service gives purchasers a fact sheet describing three ways to hold fee simple title in South Carolina. If a purchaser has questions, an employee of Buyers Service elaborates. The purchasers then tell Buyers Service how they wish to hold title.
Subsequent to the commencement of the litigation, Buyers Service retained an attorney to review its closing documents. The Buyers Service conducts closings without any attorney present. The majority are handled by mail. For these, Buyers Service sends written instructions to the parties as to the manner of signing the legal documents. When the purchaser comes to Buyers Service's office for the closing, an employee supervises the signing of the legal documents. If the purchaser has any questions, the employee answers them or refers the purchaser to the mortgage lender.
attorney, whose name and charges appear on the settlement sheet, receives $35 for this service. Buyers Service pays this fee and passes it on to the purchaser. There is no direct contact between the attorney and the purchaser
Buyers Service has legal instruments hand-carried or mailed to the courthouse for recording. It sends a form instruction letter with each set of documents but does not take responsibility for ensuring proper recording, which it maintains is the responsibility of the clerk of court.
The circuit court's order enjoins Buyers Service from the following activities:
"1. Providing reports, opinions or certificates as to the status of real estate titles to persons other than attorneys licensed to practice law in the State of South Carolina and seeking separate compensation for performing title work in connection with [Buyers Service's] title insurance business.
2. Preparing deeds, mortgages, notes and other legal instruments related to transfer of real property or mortgage loans.
3. Giving legal advice during the closing of real estate transfers or real estate mortgage loan transactions.
4. Advertising to the general public that the Defendant is a full-service closing company and may handle complete real estate closings, practice law, or perform any activity constituting the practice of law."
Both Buyers Service and the State have appealed.
This court in In re Duncan, 83 S.C. 186, 189, 65 S.E. 210, 211 (1909) held the practice of law includes "... conveyancing, the preparation of legal instruments of all kinds, and, in general, all advice to clients, and all action for them in matters connected with the law." See also State v. Wells, 191 S.C. 468, 5 S.E.2d 181 (1939); Matter of Easler, 275 S.C. 400, 272 S.E.2d 32 (1980). Additionally, S.C. Code Ann. § 40-5-320 (1986) strictly prohibits corporations from the practice of law.
Buyers Service contends the circuit court erred in holding it may not prepare deeds, notes and other instruments related to mortgage loans and transfers of real property. It argues the forms are standard and require no creative drafting. The State counters that preparation of instruments falls within the definition of the practice of law of In re Duncan, and that Buyers Service acts as more than a mere scrivener in the process. We agree.
The practice of law is not confined to litigation, but extends to activities in other fields which entail specialized legal knowledge and ability. Often, the line between such activities and permissible business conduct by non-attorneys is unclear. However, courts of other jurisdictions considering the issue of whether preparation of instruments involves the practice of law have held that it does.
In Pioneer Title Ins. & Trust Co. v. State Bar of Nev., 74 Nev. 186, 326 P.2d 408 (1958) escrow agents were enjoined from preparation of instruments necessary to effectuate real estate sales transactions. The court reasoned that preparation of instruments, even with preprinted forms, involves more than a mere scrivener's duties. By necessity, the agents pass upon the legal sufficiency of the instruments to accomplish the contractual agreement of the parties. See also Arkansas Bar Ass'n v. Block, 230 Ark. 430, 323 S.W.2d 912, cert. denied, 361 U.S. 836, 80 S.Ct. 87, 4 L.Ed.2d 76 (1959).
The reason preparation of instruments by lay persons must be held to constitute the unauthorized practice of law is not for the economic protection of the legal profession. Rather, it is for the protection of the public from the potentially severe economic and emotional consequences which may flow from erroneous advice given by persons untrained in the law. This principle was stated by the Supreme Court of Washington in Bennion, Van Camp, Hagen & Ruhl v. Kassler Escrow, Inc., 96 Wash.2d 443, 635 P.2d 730 (1981). There, the legislature had enacted a statute authorizing escrow agents to perform services such as selection, preparation and completion of instruments in real estate transactions. The court previously had held these activities to constitute the unauthorized practice of law. See Washington State Bar Ass'n v. Great W. Union Fed. Sav. & Loan Ass'n, 91 Wash.2d 48, 586 P.2d 870 (1978). The statute was held unconstitutional on the ground it violated the court's exclusive power to regulate the practice of law:
The statute fails to consider who is to determine whether such agents and employees of banks, etc., are possessed of the requisite skill, competence and ethics. Only the Supreme Court has the power to make that determination through a bar examination, yearly Continuing Legal Education requirements, and the Code of Professional Responsibility. The public is also protected against unethical attorneys by a client's security fund maintained by the Washington State Bar Association.
Similar protections are afforded to the public in South Carolina through this Court's regulation of attorneys' competency and conduct.
As noted in the statement of facts, Buyers Service has retained attorneys to review the closing documents. This does not save its activities from constituting the unauthorized practice of law. In State Bar of Ariz. v. Arizona Land...
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