State Of Kansas v. Callahan

652 P.2d 708 (1982)

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Nature of the Case

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Facts

Fulton, an elderly woman, owned 320 acres of land, which she had inherited from her father. The land had been leased to a neighboring landowner for a number of years. Fulton decided to sell her land. A Lowell Lygrisse was in the market for such property, and Lygrisse called Fulton by phone, and a tentative agreement was reached. Lygrisse suggested that D handle the transaction for both of them. Fulton agreed and retained D's services. Fulton stated that she believed D would act as a California escrow officer would and protect the interests of both parties. D testified that he believed that he represented both parties as a scrivener to draw the papers and close the sale only after the terms of the purchase agreement had been negotiated between the parties. D prepared two contracts. The first was a purchase contract with $24,000 paid on closing and the balance paid in three installments of $24,000 each for the next three years. The contract provided that the seller would execute and deliver a deed to the buyer at closing and that the land would be included with other land in a mortgage to the Federal Land Bank. Fulton signed the contract in reliance upon D. D forwarded a deed for signature. Once Lygrisse secured his loan from Federal, D would purchase a certificate of deposit in the amount of $24,000.00 and pledge it as security for the second payment, and that he would then formalize the agreement on the balance owing. Fulton signed the deed and returned it. The second contract recited the schedule of payments on the unpaid balance and set up an escrow of the certificate of deposit securing the first annual payment due April 1, 1976. It provided for acceleration of the unpaid balance upon default and gave Fulton a specific lien on the real estate covered subject only to the Federal first mortgage of record. Fulton signed the agreement in reliance on D's request as her attorney, believing it would place her in the position of a second mortgagee. Fulton assumed D would record anything necessary to perfect her 'specific lien.' D was Lygrisse's personal attorney, and they were each owner of 50% of the common stock of L-C Farm Co., Inc. This transaction was not purchased for the account of L-C. D did not disclose his business relationship with Lygrisse. Lygrisse defaulted on the final payment. Fulton contacted D again and asked how long she had to file for foreclosure. D advised her that she had five years from the date of default. Eventually, D asked respondent to file a foreclosure action. D declined, citing a conflict of interest. D did not advise them that they did not have a secured interest in the real estate. Eventually, D told them of the true situation; all they had was a promissory note. Fulton filed a malpractice action against D. D filed a voluntary petition in bankruptcy and was ultimately discharged. A formal complaint was filed against D. The hearing panel found that D had violated DR 5-105 (B), DR 6-101 (A) (3), and DR 1-102 (A) (4).