Starr v. Mooslin
14 Cal. App. 3d 988 (Cal. Ct. App. 1971)
HERNDON, J.
Statement of the Case
Defendant and appellant Carl J. Mooslin, an attorney at law, appeals from the judgment awarding plaintiff damages in this action for legal malpractice. Plaintiff Elena Starr charged that as the result of defendant's negligence in representing her in a transaction involving a sale of real property, she suffered damages in the sum of $ 50,000. The judgment against defendant in the amount of $ 42,000 was entered upon the verdict of a jury. Defendant also appeals from the order denying his motion for judgment notwithstanding the verdict.
Statement of the Facts
Plaintiff, a woman in her eighties, was the owner of real property located at 355 South Alvarado Street, Los Angeles. Defendant, a practicing attorney and engaged in the general practice of law, had handled various legal matters for plaintiff over a period of approximately 10 years.
Some time in the year 1965 plaintiff decided that she would offer her property for sale. Thereafter she received offers from Lucius Foster and William Cooper. Plaintiff discussed some of these offers with the defendant. On January 4, 1966, plaintiff and defendant met with Foster and Cooper at defendant's law office. At this meeting the parties negotiated further with respect to the purchase and sale of the property but no agreement was reached. Foster stated that he would not be participating in the transaction as a principal but that a Mr. Robert Fisher, "an experienced builder and developer" whom he represented, would offer $ 60,000 for the property, $10,000 to be paid in cash at the close of escrow with the balance to be evidenced by a $50,000 promissory note secured by a deed of trust. The offer further provided that the purchase money deed of trust would be subordinated at a later date to a $275,000 construction loan. The money for construction purposes would be borrowed in installments, the first to be in the amount of $30,000. Foster further stated that Fisher would be willing to provide additional security by way of a deed of trust on other real property owned by him.
On the following day, January 5, 1966, Mrs. Starr decided that she would accept the offer as presented by Foster on behalf of Fisher. After calling Foster and informing him of her decision, she called defendant and requested that he appear at the City National Bank in Beverly Hills at the time appointed to represent her in the opening of the escrow for the purpose of effectuating the sale.
In response to plaintiff's request, defendant went to the City National Bank and, after verifying the terms of the sale with the parties present, proceeded to dictate the escrow instructions to an employee of the bank using a printed form.
The escrow instructions thus prepared provided for a total purchase price of $63,000 of which $10,000 was to be paid in cash and the balance to be evidenced by a $50,000 promissory note payable to plaintiff secured by a purchase money deed of trust. Further provision was made for the delivery to Foster of a note in the amount of $3,000 to cover his broker's commission. Fisher and Cooper and/or their nominee were named as purchasers. By a subsequent amendment to these instructions the purchase price was reduced to $60,000 and the provision for the promissory note in payment of Foster's commission was eliminated.
The instructions further provided that the buyer would execute and place in escrow a deed of trust as additional security in favor of the seller on real property located at Roseland and LaBrea, Los Angeles, California, the legal description of said property to be furnished at a later date. Beneath the foregoing provisions the following language as dictated by defendant was typewritten into the instructions:
"The following is stated as a matter of record only with which the escrow holder is not to be concerned: (1) Seller agrees to subordinate on demand, to a 1st trust deed, not to exceed $275,000.00, bearing interest at not more than 7.5% per annum, for not more than 30 years. Seller agrees to subordinate forthwith to $30,000.00, the same being a portion of the above referred to $275,000.00 loan, and will execute upon demand any additional subordination agreement in order to enable Buyer to refinance or to increase the encumbrance to be placed upon the land provided the same shall not exceed in total $275,000.00 represented by a single 1st trust deed."
The escrow instructions thus prepared by defendant were signed by plaintiff as seller and by Fisher and Cooper as buyers and were deposited with City National Bank as escrow agent. By an amendment to the instructions Fisher alone was designated as the buyer and plaintiff's deed to Fisher as grantee was thereafter deposited in escrow.
Within a few days thereafter Fisher made arrangements to borrow $30,000 from Irving and Matilda Scham and Ben and Eva Solomon. This loan was to be evidenced by a promissory note secured by a first deed of trust on the property which plaintiff had agreed to sell to Fisher. On January 18, 1966, Fisher and the parties from whom he was borrowing the $30,000 opened an escrow at LaCienega Escrow Company for the purpose of effectuating that loan. Fisher deposited therein his promissory note and the lenders deposited the $30,000.
On the following day, January 19, 1966, Fisher deposited in the original escrow at City National Bank his promissory note in the amount of $50,000 payable to plaintiff and the two deeds of trust on the subject property, one of which was security for the $30,000 loan and the other was to secure plaintiff's $50,000 note. Plaintiff's deed of trust contained on its face the following provision: "This deed of trust is second and subject to a first deed of trust to record concurrently."
On January 24, 1966, the LaCienega Escrow Company paid out $10,150 to the City National Bank for plaintiff's account, $18,265 to Robert Fisher, $ 300 to Lucius Foster, and $ 1,285 to other persons not involved in this case.
According to the testimony of the employee of City National Bank who handled the escrow for that institution, the instruments deposited therein were recorded pursuant to the oral direction of defendant and the escrow was thereupon closed. As a result of these procedures plaintiff's $50,000 purchase money deed of trust and the $ 30,000 deed of trust held by the Schams and Solomons were recorded concurrently. Plaintiff's deed of trust was thereby subordinated.
Subsequently, Fisher failed to make the payments on the Scham-Solomon note. Fisher's default resulted in foreclosure proceedings instituted by the Schams and the Solomons. At the trustee's sale the property was purchased by the beneficiaries. Plaintiff was unable to bid at the sale because of her lack of sufficient funds. The purchasers at the foreclosure sale thereafter brought an unlawful detainer action against Mrs. Starr to obtain possession. Mrs. Starr filed an answer and cross-complaint naming as cross-defendants Fisher, Cooper, Foster, the Schams, the Solomons, and others, and charging said cross-defendants with fraud and conspiracy to deprive her of her property. This litigation was terminated by a settlement whereby Mrs. Starr repurchased her property for $32,500.
Immediately thereafter plaintiff resold the property for $57,500 of which $32,500 was paid to the buyers at the foreclosure sale. Plaintiff received $1,500 in cash and a promissory note in the amount of $14,035 secured by a deed of trust on the subject property. Approximately $800 was expended in escrow expenses and $8,167 was paid over to Mr. J. J. Brandlin as compensation for his legal services.
Thereafter the instant action against defendant was filed by Mrs. Starr. Her complaint alleges that defendant, as an attorney, undertook to represent her and to act as her attorney in consummating the sale of her property. It is further alleged in substance that defendant negligently performed his duties in that he failed to use that degree of learning, skill and judgment ordinarily used by lawyers of good standing and practicing in the same locality under similar circumstances and as a proximate result of such negligence plaintiff was damaged in the sum of $50,000.
At the trial oral and documentary evidence was introduced proving
the facts as above recited. It is to be observed that except for the opinions of the
expert witnesses hereinafter summarized, the evidence was virtually uncontradicted. On
cross-examination by counsel for plaintiff, defendant testified that he was acquainted
with subordination agreements and recognized that such
agreements ordinarily provided that the proceeds from secured loans would be used to
improve the real property. Defendant did not research the applicable law prior to
preparing the escrow instructions in this case. At the time of this transaction it was
defendant's understanding that it was probably the law that if plaintiff and the buyer
entered into a subordination agreement which provided that the buyer was to use the
$30,000 to improve the property and if the lenders of the $30,000 had notice thereof and
plaintiff did not waive her rights under the subordination agreement and if the $30,000
was not so used, the subordination would not be effective and plaintiff's trust deed would
retain its priority.
Notwithstanding his uncertainty on the subject, however, defendant did not research the
law and the escrow instructions as prepared by him did not contain such provisions.
[Plaintiff's expert witness testified that the requisite degree of learning, care and skill was not employed by the defendant in drawing the escrow instructions. Defendant's expert witnesses testified that in conformity with prevailing custom and practice among escrow agencies, a reasonably careful escrow holder would not have recorded the deeds of trust as was done in the instant case but would have required something more in the way of authorization than was required by the City National Bank in this case and that an attorney engaged in the general practice of law in the community exercising reasonable care could properly rely upon such custom and usage prevailing among escrow holders. On the basis of the testimony of defendant's two expert witnesses, defense counsel argued in the trial court that the conceded deficiencies in the escrow instructions were not the proximate cause of plaintiff's damages.]
* * *
The inadequacy of the escrow instructions to afford plaintiff the protection which the circumstances of the transaction involved in this case obviously required is undeniable and virtually conceded. No lawyer with knowledge of the most elementary rules of law governing such transactions would have failed to insist upon more adequate provisions to insure that all of the proceeds of the $30,000 loan, which was to be given security prior to that of his client's purchase money lien, would be used to improve the property.
The teachings of hindsight were not necessary to prove that it was negligent and hazardous to fail to provide such protection. This truth is emphasized by the fact that there was no requirement that the construction loan would be obtained from an institutional lender which could be relied upon to see that the proceeds of the loan were properly used to improve the real property. Moreover, it is an apparent fact that defendant made no inquiry or investigation for the purpose of ascertaining the reliability, financial or otherwise, of the purchaser or the value of the other property which he had promised to encumber as additional security.
In these circumstances it is understandable that defendant and his trial counsel based their defense entirely upon the contention that it was not the conceded deficiencies in the escrow instructions prepared by defendant, but rather it was the mistake or misconduct of the City National Bank as escrow agent, which constituted the proximate cause of plaintiff's loss. The only possible basis upon which defendant could claim freedom from negligence was his contention that he had justifiably relied upon an asserted custom and practice among escrow agents which the City National Bank violated when it delivered the two deeds of trust for recordation. This contention necessarily implies that defendant contemplated the taking of further unspecified steps to protect his client's interests prior to the closing of the escrow.
* * *
The trial court's instructions clearly advised the jury that plaintiff could not recover unless she had proved by a preponderance of the evidence that defendant's negligence was a proximate cause of her injury. Defendant's argument fails to recognize that an attorney's negligence need not be the sole cause of the client's loss in order to subject him to liability. That is to say, where there is causation in fact it need not be the sole proximate cause. [Citations Omitted.]
Conclusion
* * *
...It is unquestioned and unquestionable that the implied findings of the jury upon the issues of negligence, proximate cause, and damages are supported by substantial evidence.
The judgment and the order denying defendant's motion for judgment notwithstanding the verdict are affirmed.
CONCUR:
FLEMING, J.
I concur in the opinion but find an additional basis for defendant's liability, viz., his negligence in allowing his client to be defrauded and swindled out of her property.
Under the purported sale of plaintiff's real property for $ 60,000, the purchaser put up nothing and used the seller's own property as security to borrow $30,000, out of which he paid $10,000 to the seller and pocketed the balance of $ 20,000 for his own use. When the transaction is stripped of its documentary window dressing, it becomes readily apparent that plaintiff was relieved of assets of a value of $20,000. Such a transaction amounts to elementary fraud, for protection against which persons employ lawyers to provide them with advice and counsel. If a lawyer fails to provide advice and counsel of sufficient quality to enable his client to protect herself against such an obvious swindle, he may be held liable for the ensuing loss.
The foregoing covers the bare-faced swindle. The more genteel, dressed-up version concocted by the buyer and his agents was only slightly less rapacious. Under this version the buyer agreed to put up $10,000, and the seller agreed to subordinate the unpaid balance of the purchase price, $50,000, to a $ 275,000 construction loan. Even if it should turn out that the lien ahead of plaintiff represented moneys actually expended in improving the property, plaintiff's security would remain wholly vulnerable to a complete wipe-out if any mild deflation in real estate values occurred, for her security interest would have been subordinated to 82 percent of the total amount put into the venture, and the entire loan of $275,000 would have to be repaid before she could realize anything on her security. Under such a deal plaintiff would be saddled with the primary risk of speculative loss and wholly excluded from any hope of speculative gain. These terms are so one-sided and so unfair as to be only slightly less fraudulent than the bald fraud which actually took place. [Citations omitted.] Here again, a lawyer who has been employed to represent the interests of the seller is required to provide advice and counsel which will enable his client to protect herself against such imposition, and if he does not adequately do this he may become liable for losses suffered by his client as a result of his negligence.
Needless to say, these considerations have special application to the case at bench, where the client was an 80-year-old, semi-literate widow of limited means and limited business experience. In representing such clients lawyers are required to exercise extra caution, for these clients are not equipped to protect themselves.