Hicks v. Clayton

136 Cal. Rptr. 512 (Cal. Ct. App. 1977)

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Nature of the Case

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Facts

(These facts are long and tedious, but there is no other way to convey the information). P is a physician specializing in psychiatry. D was an attorney of 23 years' experience, working primarily upon 'corporate' and 'real estate' matters. D represented Ps on a number of legal matters from 1967 into the time period when Costebelle was sold to the Ds. This legal representation encompassed a variety of matters, with primary emphasis upon real property and business transactions. As a result of the four and one-half years of D representing Ps, a relationship of trust and confidence had grown. By D's own admission, P trusted D. D undertook to represent Ps in an action to foreclose a lien on Costebelle brought by Richard Senn against Ps as owners of Costebelle. Senn had originally owned a large lot which he subdivided and sold a portion to Ps for $30,000 ($10,000 cash and $20,000 by way of a purchase money promissory note secured by deed of trust). Ps then borrowed some $50,000 for a construction loan to build a home and gave a first deed of trust on Costebelle as security. This loan was later increased to $53,500. An additional $10,000 was for landscaping and was secured by two deeds of trust on Costebelle of second and third priority. A dispute then arose between Ps and Senn as to the priority of Senn's trust deed securing the $20,000 purchase money promissory note. It was out of this dispute that Senn's suit to foreclose the lien arose. By reason of D's representation of Ps in this foreclosure suit, D, was aware of the various deeds of trust, their order of priority on Costebelle, and their class or type, purchase money or based upon money loaned. Senn offered to buy Costebelle from Ps, and when those negotiations failed, D became interested in acquiring Costebelle. Ps agreed to sell to D. The agreement was prepared by D. D did not tell Ps to seek independent legal advice regarding this transaction. P obtained no independent legal advice. The agreement provided for transfer of Costebelle from Ps to Ds for a consideration of $83,000. The consideration was that Ps were to get some 3,300 shares of stock in a company known as Universal Resources, with a contract-recited value of 53 cents per share. D was to give Senn his $20,000 promissory note secured by a deed of trust on Costebelle in exchange for the release of the Ps' $20,000 note secured by deed of trust as part of the original purchase price of the land. Ps agreed to have responsibility for the notes payable to Imperial Savings (the first deed of trust) and San Diego Federal Savings and Loan Association (the second and third deeds of trust). D agreed to deliver his unsecured notes payable to Ps in an amount exactly equal to the note and trust deed indebtedness on which Ps was concurrently agreeing to have a continuing responsibility. D was to pay P the monies due on the deeds of trust and P was to pay the creditors by his personal check. P was to transfer the existing insurance on Costebelle to D without cost. P was to furnish D with a policy of title insurance and to pay therefor, together with the costs of documentary stamps. There was no provision for escrow. There was no broker representing either party. Both parties agreed that the writing, in part, does not correctly express their basic understanding. P was to receive 3,300 shares of stock, valued on the face of the agreement at 53 cents per share, or a recited consideration of $1,749. But, in essence, P was to receive $14,000 in stock value for their equity. Both parties agreed Costebelle had a sale value of $100,000. From this a 6 percent broker's commission was deducted, in that a broker was not employed, leaving a net price of $94,000. The parties agreed that the total encumbrances against the property approximated $80,000, hence the $14,000 equity figure. D was a substantial shareholder in Universal, owning in excess of 20,000 shares. D was and had been attorney for the company for a number of years and was privy to information not available to the public concerning its condition. D was knowledgeable concerning the proposed merger of Universal Resources with Fabulous Inns of America, a publicly held and traded company. When completed, the Universal Resources stock could be exchanged for Fabulous Inns stock so Ps would own 3,300 shares of publicly traded Fabulous Inns stock with a market value of $4.25 per share. By this process or expectation, 3,300 shares of recited 53-cents-per-share value became the equivalent of the $14,000 equity. D did not tell P of any financial problems facing Universal Resources. The merger did not go through. Universal Resources went into bankruptcy. Ps also sold the furniture in Costebelle to Ds. In consideration, P was to receive an additional 1,500 shares of Universal Resources stock. An appraisal was obtained upon this furniture showing a value of $2,300, but the parties agreed to a price of $1,500. P became concerned about the value of the Universal Resources stock agreed to be transferred. D gave P an option to sell the stock back to D. The price was set at $1.00 per share and was restricted in time to the period between the sixth and twelfth months after the execution of the agreement. After taking possession, Ds failed in gross manner to perform the terms of the written agreement. (1) D did not deliver his promissory notes, referred to in paragraph 6 of the agreement. (2) D did not deliver the Universal Resources stock to Ps until October 15, 1971, although the Department of Corporations had given its approval to the transfer on May 12, 1971, and the certificates were dated and issued May 13, 1971. (3) The deed of trust and note from D to Senn substituting D's obligation for Ps' obligation to Senn was not recorded until October 12, 1972, eight days after the instant lawsuit was filed. (4) The deed of trust given by D to Senn, when recorded, was junior to an Internal Revenue Service lien for $46,827.03, against D, thus depriving Senn of a fourth equity position, contrary to paragraph 3-B of the agreement. (5) From the outset, D was delinquent in his payments to Ps, and consequently, the loans on the property were often in default. Upon D's continued default on the August, September and October 1972 payments, the instant lawsuit was filed. The Senn v. Hicks lawsuit was reactivated, and P was not immediately released from the Senn $20,000 promissory note obligation. D ultimately obtained a dismissal of the Senn lawsuit. However, this occurred some eight days after the instant litigation was commenced. Later, Senn's attorney demanded return of the dismissal given. Universal Resources entered into bankruptcy reorganization proceedings on January 5, 1972. D did not tell P of any difficulties facing Universal Resources from the time they took possession of the house until April 1972. At trial, certain specific factual issues tendered by Ps concerning breach of fiduciary duty by their attorney. Specific findings on this issue were requested by Ps but denied by the trial court. The finding actually made by the trial court that D did not breach a fiduciary duty is a mixed 'conclusion of law' and an 'ultimate fact.' No fact findings support this mixed conclusion.