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Stiley v. Block

October 24, 1996

JOSEPH F. STILEY, III, PETITIONER
v.
EDWARD T. BLOCK, RESPONDENT AND PATRICK K. STILEY, DEFENDANT.



Appeal from Superior Court, Spokane County; 882024744. Honorable Richard W. Miller, Judge.

As Corrected October 25, 1996.

Authored by Charles Z. Smith. Concurring: James M. Dolliver, Barbara A. Madsen, Gerry L. Alexander, Richard B. Sanders, Philip A. Talmadge, Charles W. Johnson, Barbara Durham, Richard P. Guy

The opinion of the court was delivered by: Smith

En Banc

SMITH, J. Petitioner Joseph F. Stiley III seeks review of an unpublished opinion of the Court of Appeals, Division Three, which reversed a Spokane County Superior Court judgment upon a jury verdict upholding Petitioner Stiley's claims of fraud, legal malpractice and breach of contract against Respondent Edward T. Block. We granted review. We reverse in part and affirm in part.

QUESTIONS PRESENTED

The questions presented in this case are: (1) whether the trial court erred in instructing the jury on the duty Respondent Block owed to Petitioner Stiley; (2) whether the trial court erred in not instructing the jury on contributory negligence; (3) whether there was sufficient evidence to submit Petitioner Stiley's claim of fraud against Respondent Block to the jury; (4) whether the trial court erred in allowing Petitioner Stiley's attorney to impeach Respondent Block by examining him on the question whether, in violation of RCW 5.28.060, he committed perjury when he falsely notarized a deed of trust, and if so, whether that evidence unduly prejudiced the jury; (5) whether the portion of the jury verdict finding Respondent Block responsible for breach of contract was sufficient to support the judgment against him; and (6) whether the "voluntary exercise of independent business judgment" defense recognized in Marsh v. Commonwealth Land Title Ins. Co., 57 Wash. App. 610, 789 P.2d 792, review denied, 115 Wash. 2d 1025, 802 P.2d 127 (1990) and other cases bars recovery by Petitioner Stiley.

STATEMENT OF FACTS

On July 6, 1988, Joseph F. Stiley III (Petitioner Stiley) brought an action in the Spokane County Superior Court against Edward T. Block (Respondent Block), claiming legal malpractice, fraud and breach of contract. *fn1 Patrick K. Stiley (Defendant Stiley) was later joined as a defendant, with Petitioner Stiley claiming legal malpractice against him. The jury trial began on July 12, 1993, with the Honorable Richard W. Miller presiding.

In 1983 or early 1984 Petitioner Stiley, who was then living in Virginia, asked his brother, Defendant Stiley, an attorney practicing in Spokane, Washington, to identify investment opportunities for him in that city. *fn2 In April 1984, Defendant Stiley telephoned his brother and told him of an investment opportunity in Westwood Hills, a property in Spokane. Westwood Hills was owned by Aaron "Butch" Stern, Dennis Cullinane, and Robert Webb through Webbco, Inc. (Webbco), a Washington corporation. They were the only shareholders and officers. *fn3 Webbco bought Westwood Hills from the Waldron family in 1978. *fn4 The property consisted of one hundred lots. *fn5 Seven lots, lots 18 through 24 in block 1, were developed. *fn6 The remaining lots were undeveloped. In addition to owing real estate taxes and other assessments, Webbco had an underlying obligation on Westwood Hills of approximately $85,000.00 owed to the Waldrons. Webbco had agreed the Waldrons would foreclose on the property unless Webbco paid the amount owed by May 25, 1984.

Between April and May of 1984, Petitioner Stiley spoke several times by telephone and in person with the Webbco principals, discussing his potential investment through a loan of $100,000.00 for Westwood Hills. Mr. Webb and Mr. Cullinane testified the conversations indicated Petitioner Stiley's loan would be secured by only seven lots, lots 18 through 24, in Westwood Hills. *fn7 Petitioner Stiley testified he told them he would lend Webbco money only if the loan was secured by all the lots in Westwood Hills. *fn8

Petitioner Stiley testified that included in the transaction between him and Webbco was the "agreement" that "Webbco would have an attorney draft all the . . . necessary real estate related papers. . . ." *fn9 Webbco retained its own attorney, Edward T. Block (Respondent Block), for this purpose. Respondent Block also acted as escrow agent. Petitioner Stiley, who still lived in Virginia at the time, asked Defendant Stiley to review documents relating to the transaction for him, even though Defendant Stiley cautioned his brother that he did not practice real estate law. Defendant Stiley agreed to review the documents, but also advised Petitioner Stiley he was not acting as his attorney in the matter.

Petitioner Stiley decided to invest $100,000 through a loan on Westwood Hills. *fn10 Respondent Block by letter dated May 22, 1984 sent Defendant Stiley the documents he drafted for the transaction *fn11 the loan agreement, promissory note, deed of trust and corporate resolution. Robert Webb had already signed all the documents, including the deed of trust dated May 23, 1984. The deed of trust put Petitioner Joseph F. Stiley III in a first lien position on all the lots in Westwood Hills, except Lots 18 through 24. *fn12 Sometime around May 22, 1984, Petitioner Stiley received a letter dated May 22, 1984 *fn13 from Respondent Block with copies of the documents, including the deed of trust, and discussed the documents with his brother, Defendant Stiley, by telephone.

Petitioner Stiley, Mr. Stern and Mr. Webb all testified the agreement between Webbco and Petitioner Stiley provided that $15,000 of Petitioner Stiley's $100,000 would buy him a lot of his choice in Westwood Hills and he would receive 25 percent of the net profits realized when Webbco sold Westwood Hills. *fn14 The transaction also included a promissory note which recited that Petitioner Stiley's $85,000 loan would be interest free until June 1, 1985, when payment would become due in full; and, if Petitioner did not foreclose when the loan was due, the loan would then bear interest at 15 percent per year. *fn15 The transaction between Webbco and Petitioner Stiley also included a deed of trust on the Westwood Hills property securing Petitioner Stiley's loan. *fn16

On May 24, 1984, Petitioner Stiley transferred $100,000 by wire from his bank in Virginia to Defendant Patrick K. Stiley's trust account in Spokane. On May 25, 1984, Defendant Stiley sent his trust account check for $99,929.62 by letter to Respondent Edward T. Block. *fn17 The letter instructed Respondent Block to disburse the funds only after filing the documents placing Petitioner Stiley "in first position as secured creditor on the 92 parcels of real property [in Westwood Hills] and as second creditor on the other seven parcels." *fn18 Later that day, on May 24, 1984, Respondent Block sent Defendant Stiley a letter stating it was his "understanding" that "in consideration for [Petitioner Stiley's] loan to Webbco of $85,000 . . . he is to receive a first mortgage against the real property . . . [in Westwood Hills] and a second mortgage against the remaining seven lots." *fn19 The letter then stated "upon clearing title, we will record [Petitioner Stiley's] Deed of Trust against the subject property, which will give him a first lien position against this property . . . ." *fn20 The letter stated a "second mortgage against the remaining seven lots" was being prepared and would be signed by Robert Webb and Aaron Stern the following Tuesday.

Later, on May 25, 1984, both Mr. Webb and Mr. Stern went to Respondent Block's office to review and sign the documents. They and Respondent Block testified that Mr. Stern then telephoned Defendant Stiley about the transaction. *fn21 Mr. Stern testified that during the telephone conversation he talked to Defendant Stiley about the agreement, reminding him or confirming that Petitioner Stiley was to get a security interest only in Lots 18 through 24, and not in all the lots in Westwood Hills. *fn22 Respondent Block testified he then confirmed by telephone with Defendant Stiley the changes in the transaction, which then provided that Petitioner Stiley would have a first lien position on only Lots 18 through 24 and no security interest in the remaining lots of Westwood Hills. *fn23 Respondent Block testified Defendant Patrick K. Stiley agreed to this lessened security interest. *fn24 At trial, though, Defendant Stiley testified he never agreed to a lesser security interest on behalf of his brother, Petitioner Stiley. *fn25 He also stated he did not speak to anyone about changing his brother's security interest and did not have authority to negotiate any change in the agreement. *fn26 He acknowledged someone may have in his presence suggested a change, but he did not recall it. *fn27 No one disputes Petitioner Joseph F. Stiley's testimony that he never spoke with anyone about making any changes in the original agreement. *fn28

At trial, the Webbco principals and Petitioner Stiley disputed what they originally "agreed" was Petitioner Stiley's security interest in Westwood Hills. Both Defendant Stiley and Petitioner Stiley testified Petitioner Stiley was to receive a deed of trust giving him a first lien position as secured creditor on 92 lots, but not lots 18 through 24. *fn29 They testified the agreement, supported by letters between Defendant Stiley and Respondent Block, both dated May 25, 1984, *fn30 also included a second deed of trust giving Petitioner Stiley a second lien position as secured creditor on lots 18 through 24, the developed lots. *fn31

Referring in part to conversations with Petitioner Stiley and Defendant Stiley, Mr. Stern, Mr. Webb and Mr. Cullinane testified they "understood" that under the agreement Petitioner Stiley was to receive one deed of trust giving him a first lien position as secured creditor on only seven lots, lots 18 through 24. *fn32 In support of this position, Mr. Webb read a letter he sent to Webbco's attorney, Respondent Block, about the middle of May 1984, which stated Petitioner Stiley would get a deed of trust on the "D" Street lots, or lots 18 through 24, under terms of the "agreement." *fn33 Mr. Webb also testified Lots 18 through 24 had been appraised at $135,000 to $140,000, enough to cover Petitioner Stiley's loan. *fn34 But Petitioner testified the Webbco principals told him they needed $100,000 and he agreed to lend the money only if it was secured by all the lots in Westwood Hills. *fn35

Respondent Block testified that on May 25, 1984, after his telephone conversation with Defendant Stiley, his secretary at his direction replaced the first page of the deed of trust to show Petitioner Stiley's security interest in only lots 18 through 24, as opposed to the original document giving him a first lien position on 92 lots. *fn36 Mr. Stern then signed the "revised" deed of trust, which Mr. Webb had signed on May 23, 1984 before the change. On the deed of trust, Respondent Block, as notary public, certified that both Mr. Webb and Mr. Stern executed the document in his presence on May 23, 1984. Respondent Block then disbursed the funds received from Defendant Stiley, acting for Petitioner Stiley, to the Waldrons' attorney that day.

On May 31, 1984, Respondent Block recorded the "revised" deed of trust which gave Petitioner Stiley a first lien position on only lots 18 through 24. *fn37 Mr. Webb testified both he and Mr. Stern delivered a copy of the recorded deed of trust to Defendant Stiley's office the next day, June 1, 1984. Defendant Patrick K. Stiley and Petitioner Joseph F. Stiley III both testified they did not receive a copy of the recorded deed on that date and were not aware of substitution of the first page by Respondent Block at that time.

In early 1985, Petitioner Stiley learned that Webbco could not repay his $100,000 loan on time. *fn38 He decided not to foreclose, but instead invested more money in Westwood Hills. *fn39 On February 12, 1986, he signed an agreement subordinating his interest in lots 18 through 24. *fn40 He testified he did not know then that he was subordinating his entire security interest, and if he had known it, he would not have signed the subordination agreement. *fn41

Petitioner Stiley testified he learned for the first time between April and May 1987 that his security interest was only in lots 18 through 24 of Westwood Hills. *fn42 At that time Webbco was having financial difficulties with Westwood Hills. Petitioner testified he nevertheless continued to invest money in Westwood Hills in an effort to collect his loan and perhaps realize some profits. *fn43 Westwood Hills continued to experience financial problems. Petitioner Stiley ultimately lost the money he loaned and his investment.

During trial, the court allowed Petitioner Stiley's attorney to impeach Respondent Block by referring to RCW 5.28.060, in questioning him in the presence of the jury, to support an assertion that Respondent Block committed perjury when he falsely notarized the deed of trust.

After close of Petitioner Stiley's case, the trial court denied Respondent Block's motion for a directed verdict on Petitioner Stiley's claim of fraud against him. *fn44 The court instructed the jury on fraud in Instructions 16 and 17. *fn45 While there was some evidence to justify submitting the issue of fraud to the jury, the Court of Appeals correctly appraised the scarcity of evidence to support a Conclusion of fraud under the "clear, cogent and convincing" evidence standard.

The trial court did not instruct the jury on contributory negligence by Petitioner Stiley as requested by Respondent Block's attorney and Defendant Stiley's attorney. *fn46 The court also refused to instruct the jury that Respondent Block was not Petitioner Stiley's attorney and that Defendant Stiley was Petitioner Stiley's attorney, as requested by Respondent Block's attorney. *fn47 Proper exceptions were taken by counsel.

In addition, the trial court did not allow evidence of subsequent advances Petitioner Stiley made to Webbco, after his $85,000 loan to the company, to be considered by the jury in determining damages.

The jury unanimously determined Defendant Patrick K. Stiley did not commit legal malpractice. *fn48 It unanimously determined Respondent Edward T. Block committed fraud, legal malpractice and breach of contract. *fn49 On September 7, 1993, the court entered judgment for $168,292.55 (jury award of $85,000, prejudgment interest of $83,053.15 and attorney fees and costs of $239.40) against Respondent Block. *fn50

On July 18, 1995, the Court of Appeals, Division Three, in an unpublished opinion, reversed the Superior Court and remanded for retrial. *fn51 This Court granted review on December 5, 1995.

Jury Instructions

Whether to give a particular instruction to the jury is a matter within the discretion of the trial court. *fn52 Thus a trial court's refusal to give a requested instruction is reviewed only for abuse of discretion. *fn53 A trial court is required to instruct the jury on a theory only where there is substantial evidence to support it. *fn54

Trial court error on jury instructions is not a ground for reversal unless it is prejudicial. *fn55 An error is prejudicial if it affects the outcome of the trial. *fn56

Duty of Care

Petitioner Stiley argues the Court of Appeals erred in concluding the trial court instructed the jury that Respondent Block was Petitioner Stiley's attorney. *fn57 The Court of Appeals reasoned the trial court should have let the jury decide whether Respondent Block was ...


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