Gustavson v. O'Brien

• Decision Date: 30 January 1979
• Docket Number: No. 76-271,76-271
• Citation: 87 Wis.2d 193,274 N.W.2d 627
• Parties: Terry V. GUSTAVSON, Gerald A. Grant, and Vandor Inn, Inc., a corporation, Plaintiffs-Respondents, v. John N. O'BRIEN, Defendant-Appellant.
• Court: Wisconsin Supreme Court

Page 627

274 N.W.2d 627

87 Wis.2d 193

Terry V. GUSTAVSON, Gerald A. Grant, and Vandor Inn, Inc., a corporation, Plaintiffs-Respondents, v. John N. O'BRIEN, Defendant-Appellant.

No. 76-271.

Supreme Court of Wisconsin.

Argued Jan. 8, 1979.

Decided Jan. 30, 1979.

John N. O'Brien, a lawyer and the defendant-appellant, appeals from a judgment entered on a verdict which awarded damages to Terry V. Gustavson and Gerald A. Grant, plaintiffs-respondents. The judgment awarded damages to the respondents for damages caused by the negligence of the appellant in rendering legal services in the formation of a corporation and the purchase and transfer of real estate.

Godfrey, Neshek, Worth, Howarth & Leibsle, S. C., Elkhorn, on briefs and oral argument by Thomas G. Godfrey, Elkhorn, for appellant.

Thomas E. Greenwald and Graves, Greenwald, Maier & Miner, Rockford, Ill., on brief, and oral argument by Thomas E. Greenwald, Rockford, Ill., for respondents.

HANSEN, Justice.

The respondents retained the appellant to perform the legal services incident to the purchase of a restaurant and tavern business and to form a corporation for the operation of the business. The corporation, Vandor Inn, Inc., was formed. The respondents were the shareholders and they and the appellant were elected directors.

The sellers of the business refused to convey title to the real estate to the corporation. As a result, on January 26, 1970, the respondents, as individuals, entered into a land contract with the sellers. The respondents then instructed the appellant to assign the land contract from them, as individuals, to the newly formed corporation. This transfer was never effected and is the underlying basis for the litigation that followed and this appeal.

Gustavson, one of the respondents, was a real estate broker and casualty insurance agent and he insured the restaurant business in the name of the corporation with six separate insurers for a total amount of $45,000. In December, 1970, eleven months after the closing of the purchase of the business, the restaurant building was extensively damaged by fire. The respondents obtained repair estimates totalling $49,791.20, and the insurers obtained an estimate of $23,393.95. The restaurant was not repaired and following an inspection and order by the Department of Industry, Labor & Human Relations, the village of Darien caused the building to be demolished.

The insurers denied coverage on the ground that the corporation, the named insured, lacked an insurable interest in the property. Therefore in December, 1971, the respondents commenced action against the six insurers on their respective contracts and against the appellant, alleging a cause of action founded on negligence. On motion of the appellant, the action against him was abated pending determination of the action against the insurers. After considerable negotiations and before the trial against the insurers actually commenced, the respondents settled their actions against the insurers for $33,000, and the respondents reserved their rights to proceed against the appellant.

Following the dismissal of the action against the insurers, the order abating the action against the appellant was vacated and the action proceeded to trial before a jury on April 27-28, 1976. The trial court submitted a special verdict and in doing so answered the question as to whether the appellant was negligent in the affirmative. The jury found the appellant causally negligent and awarded the respondents damages in the amounts of $12,000 for the fire loss, $4,250 for legal fees and $3,116 for interest paid on the land contract pending settlement of the action against the insurers.

We are of the opinion the case presents the following issues:

1. Whether it was necessary for the respondents to litigate the coverage issue to judgment before the jury could determine appellant's negligence caused the respondents' damages?

2. Whether it was error for the trial court to refuse to submit a question on contributory negligence to the jury?

The trial court determined that the appellant was negligent as a matter of law and this finding is not challenged on appeal.

On appeal, the appellant contends that a judicial determination of whether the respondents had an insurable interest in the property is essential to a determination of whether the damages sustained by the respondents are the causal result of the negligence of the appellant. In our view the issue resolves itself to whether the evidence was sufficient, in the absence of a judicial determination of insurable interest, to support a finding that the negligence of the appellant was a substantial factor in causing the damages sustained by the respondents.

The appellant argues he should have been given notice of the intention of the respondents to settle with the insurers. No authority is cited to support this proposition and we have found none. The respondents and the appellant were not joint contractors, neither were they joint tort-feasors. The respondents' action against the insurers was based upon their contracts, their action against the appellant was founded on negligence. We conclude the respondents were free to settle with their insurers without notifying the appellant of their intention to do so.

The appellant also argues that the settlement of the insurance claim precluded him from litigating the issue of insurable interest. Our attention has likewise not been directed to authority supporting this proposition. We again observe that the action against the appellant was abated on his own motion and over the objection of the respondents. The appellant elected not to participate in the action as it was originally commenced and we find nothing in the record to indicate he attempted to litigate the issue of insurable interest in the instant action.

This court set forth the rule on a lawyer's liability in Malone v. Gerth, 100 Wis. 166, 75 N.W. 972 (1898):

". . . 'an attorney must be held to undertake to use a reasonable degree of care and skill, and to possess to a reasonable extent the knowledge requisite to a proper performance of the duties of his profession, and, if injury results to the client as a proximate consequence of the lack of such knowledge or skill, or from the failure to exercise it, the client may recover damages to the extent of the injury sustained; . . .' " Id. at 173, 75 N.W. at 974.

More recently the matter of lawyers' liability was considered in General Acc. F. & L. Assur. Corp. v. Cosgrove, 257 Wis. 25, 42 N.W.2d 155 (1950), and Widemshek v. Fale, 17 Wis.2d 337, 117 N.W.2d 275 (1962). However, both of these cases are readily distinguishable from the facts of the instant case.

Cosgrove involved a "suit within a suit" situation. In Cosgrove the lawyer's failure to settle the bill of exceptions resulted in the client losing his right to appeal. The court said the client would have to show that he would have been successful on appeal in order to prove that the lawyer's negligence had resulted in damage. Since loss of a right to appeal in itself has no value the court's conclusion was consistent with the law on negligence. An appeal has value only if it can be won.

In Widemshek, the lawyer failed to notify his client of a judgment against the parties with whom his client was about to enter into an exchange of properties. The exchange took place and the judgment became a lien on the property the client held a mortgage on. The court said:

"An attorney negligent in the performance of his duties to his client is liable for all the damages sustained as a proximate result of his negligence. . . ." Id. at 339, 340, 117 N.W.2d at 276,

then concluded that no damages were sustained since the client's mortgage interest had been satisfied in full.

In the case here under consideration, the respondents established specific damages. They proved that the building was ordered demolished and therefore was "wholly destroyed" under the valued policy law, sec. 203.21, Stats.1973 (repealed by Laws of 1975, ch. 375, sec. 10, effective June 22, 1976), entitling them to the full policy limits of $45,000. They proved that the insurers denied coverage because of a lack of insurable interest and ultimately settled for $33,000 leaving a $12,000 loss. They proved that the reason the insurers were able to deny coverage was because appellant had failed to transfer title to the corporation as instructed. They proved that they had to bring suit against the insurers in order to obtain coverage, thus entitling them to lawyers' fees as an item of damages. They also proved that they had to continue to pay interest on the land contract from the time the property had been destroyed until the insurers settled and they were able to pay the vendor.

Respondents proved very specific damages which they would not have suffered if appellant had transferred the property as instructed. The causal connection between appellant's negligence and the denial of coverage is clear. Appellant's failure to follow his clients' instructions was a substantial factor in allowing the insurers to deny coverage.

Having negligently put the respondents in the position of having to engage in litigation to protect their rights, appellant is responsible for all damages proximately resulting. The question that remains is the amount of those damages. The precise factual situation presented here has not been considered by this court. In Widemshek the client recovered his full mortgage interest through a foreclosure. In Behnke v. Radtke, 65 Wis.2d 403, 222 N.W.2d 686 (1974), where it was alleged the lawyer's negligence left the client uninsured as to property he sold on a land contract, the client recovered part of his loss in the vendees' chapter 128 proceeding. The client brought an action against the lawyer for the deficiency and for litigation costs but as the case was on appeal from an order overruling a demurrer this court was not called...