Court Opinion

ID: 9539958
Source: CourtListenerOpinion
Date Created: 2023-08-07 16:11:55.401415+00
Date Added: 2024-06-11T14:59:29.397404
License: Public Domain

*178WYNN, Judge,
dissenting.
This matter arises from the misappropriation of real estate sales proceeds by the closing attorney after the closing of the real estate transaction. The issue on appeal is whether the residential buyers should be held accountable for the residential sellers’ decision to accept their sales proceeds in the form of a check rather than in cash, as provided for in the sales contract, or some other surer method of payment. Because the sellers chose to accept a check rather than cash, I hold that the buyers are not accountable for the actions of the closing attorney that later rendered that check worthless. Additionally, my holding is supported on the grounds that, after the closing, the buyers had neither a claim to the trust account funds, nor control over how the sellers chose to accept payment of those funds.7
In GE Capital Mortgage Services v. Avent, 114 N.C. App. 430, 432, 442 S.E.2d 98, 100 (1994), this Court held: “[G]enerally when property in the custody of an escrow holder is lost or embezzled by the holder, as between the buyer and the seller, the loss falls on the party who was entitled to the property at the time of the loss or embezzlement.” Further, this Court explained:
Ordinarily, the determination as to which party is entitled to the escrow property depends upon whether the conditions of the escrow were satisfied prior to the loss or embezzlement. For example, if the escrow agent embezzles the purchase price prior to the seller’s performance of the escrow condition, the buyer has retained title to the money and must therefore bear the loss. Conversely, if the embezzlement occurs after the seller has performed the escrow condition, then the seller must bear the loss because he was entitled to it at the time of the embezzlement.
Id. at 432-33, 442 S.E.2d at 100 (internal citations omitted).
*179The majority interprets the decision in Avent, the only North Carolina case to apply the entitlement theory, to stand for the proposition that, in the absence of fault, the courts should impose the loss on the party represented by the wrongdoing attorney. However, I do not agree that the existence of an attorney-client relationship determines the outcome of this case because the conduct of the attorney in this case exceeded the scope of any agency relationship created with either the buyers or the sellers. The attorney was tasked with performing legal services for the closing of the real estate transaction. Indeed, the attorney’s conduct, of criminally misappropriating the real estate sales proceeds from his trust account after the closing, was outside the scope of the attorney-client relationship created to close this transaction. Neither the buyers nor the sellers should be held accountable for the intentional and criminal conduct of the attorney which went beyond the scope of an attorney-client relationship.
I also see no need to remand this matter to the trial court to consider whether the closing attorney acted as the sellers’ attorney. As the majority notes, this real estate closing was conducted via the settlement closing method and all of the conditions for closing this real estate matter were satisfied, including the making of payments to the seller and others from the trust account, which according to the majority, “is exactly what occurred here.”
Rather than holding the buyers liable for the criminal actions of the attorney, which were well beyond the scope of the attorney-client relationship, we should follow the teachings of Avent. Thus, in this case, as was done in Avent, we should ultimately allocate the risk of loss to the party that held title to the funds in escrow at the time of the embezzlement. We should also follow the conclusion of Avent and hold that “[h]aving obtained title to the property [at closing], the [buyers] no longer held title to the funds in escrow. Thus . . . [the sellers] must bear the loss resulting from [the attorney’s] embezzlement of the escrow funds.” Avent, 114 N.C. App. at 434-35, 442 S.E.2d at 101.
The logic of this outcome is confirmed by the conduct of the sellers in the exercise of their choice to receive the sales proceeds in the form of a check which allowed the recalcitrant attorney to misappropriate the funds after the closing date.8 Here, at the time of the clos*180ing, the sales proceeds for the real estate transaction were in the trust account of the closing attorney. In exchange for conveying title to the buyers, the sellers chose to accept those proceeds in the form of a check, drawn upon the attorney’s trust account. Once the buyers obtained title to the property, they no longer had any claim to the funds in the closing attorney’s trust account, nor did they have control over how the seller would choose to accept those funds. The monies in the trust account at that time belonged to the sellers who, under the sales contract, could have required payment in the form of cash. Instead, the sellers chose to accept a check and now desire to place the risk of doing so on the buyers. In my view, the relationship between the buyers and sellers consummated when, in exchange for conveying title to the buyers, the sellers accepted the trust account sales proceeds in the form of a check rather than cash, as provided for in the sales contract.
Indeed, notwithstanding the sales contract requirement that the sales proceeds be paid in cash, the sellers were free to accept any other means of payment — perhaps for their own convenience or out of deference to the “typical” practice of accepting a trust account check. In any event, that was a decision made by the sellers, not the buyers. It is undisputed that the sales proceeds were in the trust account on the date of closing and could have been converted to cash, issued as a certified check or money order, wired to the sellers’ account, or transferred by some other commercial transaction method that would have been surer than a check. Common sense dictates that the risks of accepting a check are far greater than those associated with accepting cash or some other surer method of payment.9
It follows that the buyers should not be held accountable for the sellers’ decision to accept their payment in the form of a check rather than cash or some other surer method of payment. Ultimately, the risk of accepting sales proceeds from a real estate transaction in pay*181ment forms other than cash, as provided for by the sales contract, is on the sellers, not the buyers.10

. The majority emphasizes “common practices” in the “typical” residential real estate closing in North Carolina to defeat the contractual requirement to provide the “balance of the purchase price in cash at Closing.” Surely, this issue would not be before us if the sellers had insisted that the contract requirements be carried out, thus the wisdom of the language in the contract between the seller and the buyer. The “common practice” of accepting an attorney’s trust account check is a practice undertaken by the seller, not the buyer. Indeed, the consideration at closing given to the buyer follows the contractual requirement of delivering a “fee simple, marketable, and insurable title to the buyer via general warrantee deed.” This case illustrates that when a seller chooses, as a matter.of common practice, to substitute the contractual requirement of cash for the convenience of an attorney’s trust account check, then the allocation of the risk falls upon the seller, not the buyer.

. Analyzing this case under contract law rather than the “common practices” in “typical” real estate closings does not, as the majority states, “disrupt the way residential real estate transactions are traditionally closed in North Carolina.” Indeed, any *180disruption in that tradition arises from the malfeasance of the attorney in this matter, which exposed the risk of accepting an attorney’s trust account check — i.e., the attorney could steal the money from the account. When the law explicitly answers an issue, we need not rely upon equitable principles to prop up common practices that create risks.

. The majority points out that following the law under the residential contract “would almost certainly delay the completion of the closing” and that such a delay “may result in the buyer losing its preferred interest rate.” However, this case illustrates how the substitution of “common practices” for the letter of the law arising under the residential contract can delay the closing for years. The closing in this matter occurred on 3 January 2006 arid remains unsettled as a result of the seller’s choice to accept an attorney’s trust account check rather than a surer method of payinent, as provided for under the residential sales contract.

. The majority relies upon In re Will of Turner to analogize an attorney’s trust account check to a certified check. The differences between the two types of checks are far greater than the similarities — e.g., a certified check is based on the integrity of a bank or financial institution whereas an attorney’s trust account check is based on the integrity of the attorney. This case illustrates the greater risk of accepting an attorney’s trust account check rather than a check certified by a financial institution.