Mant v. Gillespie

• Decision Date: 30 March 1983
• Citation: 460 A.2d 172,189 N.J.Super. 368
• Parties: Lionel A. MANT, Jr. and Katherine D. Mant, Plaintiffs-Appellants, v. Frederick S. GILLESPIE, Defendant-Respondent.
• Court: New Jersey Superior Court — Appellate Division

Page 368

189 N.J.Super. 368

460 A.2d 172

Lionel A. MANT, Jr. and Katherine D. Mant, Plaintiffs-Appellants, v. Frederick S. GILLESPIE, Defendant-Respondent.

Superior Court of New Jersey Appellate Division.

Argued Feb. 28, 1983.

Decided March 30, 1983.

John F. Bracaglia, Jr., Somerville, for plaintiffs-appellants (Schachter, Wohl, Cohn & Trombadore, Somerville, P.A., attorneys).

Leonard Rosenstein, West Orange, for defendant-respondent (Feuerstein, Sachs & Maitlin, West Orange, attorneys).

Before Judges BISCHOFF, COLEMAN and GAULKIN.

The opinion of the court was delivered by

GAULKIN, J.A.D.

This case raises issues not previously addressed in our case law concerning the accrual, for limitations purposes, of a legal malpractice cause of action.

On February 26, 1981 plaintiffs Lionel A. Mant, Jr. and Katherine D. Mant (the Mants) filed this action against defendant Frederick S. Gillespie (Gillespie), their former attorney. Their complaint alleged that on October 14, 1969 they had entered into a contract to purchase certain real estate from one Carl Healey (Healey); that Gillespie represented both the Mants and Healey in that transaction and in the execution of a subsequent extension of the purchase money mortgage; that in 1974 Healey filed an action against the Mants "contending that the contract and the subsequent conveyance was fraudulently induced and was a product of undue influence"; that the Mants had prevailed at trial, but Healey prevailed on appeal, and that on retrial it was determined that "the initial purchase money mortgage was on terms that were improvident and that Healey entered into it without the benefit of competent, independent advice, and that the mortgage extension agreement was also entered into without independent advice." The Mants further alleged that Gillespie "knew or should have known" that Healey was "entitled to the benefit and should have competent, independent advice and should have been aware of the danger and risk of the possibility of action by Healey"; that Gillespie never advised the Mants "of the risks involved by representing both sides to the transaction," and that as a result of "the negligence and carelessness" of Gillespie they sustained damage "in that Healey was awarded a judgment of $30,000 ... and [the Mants] were compelled to expend funds in defending themselves in the action instituted against them by Healey."

The answer filed on behalf of Gillespie denied any wrongful conduct and asserted, among other defenses, that the cause of action "was not instituted within six (6) years of the date of the accrual of plaintiffs' alleged cause of action." On Gillespie's subsequent motion for summary judgment and without any evidentiary hearing, the trial judge rejected the Mants' contention "that their cause of action against defendant did not accrue until January 17, 1979, the date of the entry of a final judgment against them in the suit brought by Carl Healey." He determined rather, that the Mants "should have discovered that there existed a basis for an actionable claim" against Gillespie no later than December 19, 1974 when

... at the pretrial conference in the suit of Carl Healey against the [Mants], the right was reserved to Healey and the [Mants] to pursue a claim for malpractice against [Gillespie] by the institution of a separate action.

The trial judge thus found the cause of action time-barred under N.J.S.A. 2A:14-1, and dismissed the complaint. The Mants now appeal.

The parties do not dispute that the Mants' claim is subject to the six-year limitation fixed by N.J.S.A. 2A:14-1. See Carney v. Finn, 145 N.J.Super. 234, 367 A.2d 458 (App.Div.1976). Nor do they dispute that the cause of action is, as found by the trial judge, subject to the "discovery" rule first announced in Fernandi v. Strully, 35 N.J. 434, 173 A.2d 277 (1961), and more recently stated in Tevis v. Tevis, 79 N.J. 422, 400 A.2d 1189 (1979):

... when a party is either unaware that he has sustained an injury, or although aware that an injury has occurred, he does not know that it is, or may be, attributable to the fault of another, the cause of action does not accrue until the discovery of the injury or facts suggesting the fault of another person. [at 432, 400 A.2d 1189]

That principle has been applied in recent years in an increasing variety of settings. See, e.g., O'Keeffe v. Snyder, 83 N.J. 478, 493, 416 A.2d 862 (1980) (replevin of stolen property); Burd v. New Jersey Tel. Co., 76 N.J. 284, 291-292, 386 A.2d 1310 (1978) (products liability); Moran v. Napolitano, 71 N.J. 133, 139-140, 363 A.2d 346 (1976) (medical malpractice); New Market Poultry Farms, Inc. v. Fellows, 51 N.J. 419, 425-426, 241 A.2d 633 (1968) (surveyor liability). We perceive no reason why the discovery rule should not be equally applicable to a legal malpractice cause of action. See Neel v. Magana, Olney, Levy, Cathcart & Gelfand, 6 Cal.3d 176, 98 Cal.Rptr. 837, 845-846, 491 P.2d 421, 429-430 (Sup.Ct.1971); Meiselman, Attorney Malpractice: Law and Procedure, § 5:7 (1980); Annotation, "When statute of limitations begins to run upon action against attorney for malpractice," 18 A.L.R.3d 978 (1968 & Supp.1982). We cannot regard the contrary holding of Sullivan v. Stout, 120 N.J.L. 304, 199 A. 1 (E. & A.1938), as having any continued authority in light of our more recent case law.

We must also discount the holding of Sullivan v. Stout that a legal malpractice cause of action can accrue before any damage results from the alleged wrongful conduct. Not only is that holding at odds with the principle that harm is an essential element of a tort action (Prosser, Law of Torts (4 ed. 1971), § 30 at 143; "Development in the Law--Statute of Limitations," 63 Harv.L.Rev. 1177, 1200-1201 (1950)), but the articulation of the discovery rule in our case law makes abundantly clear that, notwithstanding the fact of fault, damage must be sustained before a cause of action accrues:

... the discovery rule centers upon an injured party's knowledge concerning the origin and existence of his injuries as related to the conduct of another person.

[Lynch v. Rubacky, 85 N.J. 65, 70, 424 A.2d 1169 (1981) ]

In applying the discovery rule here, the trial court was thus required to determine when the Mants were or ought to have been aware of facts suggesting that they had sustained damage which was, or might be, attributable to malpractice of Gillespie. That inquiry must be "punctilious and probing" (id. at 73, 424 A.2d 1169), and must consider all relevant facts and circumstances (Lopez v. Swyer, 62 N.J. 267, 276, 300 A.2d 563 (1973)). We find that the trial court did not sufficiently explore or properly analyze the facts bearing on the Mants' knowledge of the "two key elements, injury and fault." Lynch v. Rubacky, supra, 85 N.J. at 70, 424 A.2d 1169.

The injury claimed by the Mants is of two kinds: first, "that Healey was awarded a judgment of $30,000" and, second, that the Mants "were compelled to expend funds in defending themselves in the action instituted against them by Healey." The first of the claimed injuries was not sustained until at least November 27, 1978, when the trial court announced its holding in favor of Healey which was later memorialized in the January 17, 1979 judgment. The mere threat or possibility of an unfavorable judgment did not represent an actual loss which could generate a cause of action. See Budd v. Nixen, 6 Cal.3d 195, 98 Cal.Rptr. 849, 852, 491 P.2d 433, 436 (Sup.Ct.1971); United States Nat'l Bank of Oregon v. Davies, 274 Or. 663, 668, 548 P.2d 966, 969 (Sup.Ct.1976); Prosser, supra, "Developments in the Law," supra. Any accrual of the malpractice cause of action before November 27, 1978 can only be based, then, on a finding that the Mants knew or ought to have known that their legal expenses in defending the Healey transaction were or might be attributable to negligence of Gillespie.

Although the record does not disclose the fact, we can assume that the Mants began to incur legal expenses in defense of the Healey litigation shortly after it was filed on May 15, 1974. Those expenses could qualify as recoverable damages upon a finding that the Mants were required to defend the Healey action as a result of Gillespie's wrongful conduct. See Dorofee v. Pennsauken Tp. Planning Bd., 187 N.J.Super. 141, 453 A.2d 1341 (App.Div.1982). But the fact that the Mants were required to defend the litigation does not necessarily bespeak any malpractice of Gillespie in his handling of the transaction; as in Lynch v. Rubacky, supra, this is a case "where fault is not implicit in injury." 85 N.J. at 71, 424 A.2d 1169. When the Mants ought to have recognized that their expenses might constitute legally recoverable damages thus turns on when they ought to have recognized the possibility of fault of Gillespie.

That determination requires an exploration of the Healey-Mant litigation; the record before us permits only a partial and inconclusive glimpse of that proceeding. Healey's complaint alleged that his conveyance to the Mants had been accompanied by an oral agreement that he would be permitted to occupy an existing cottage on the premises for his lifetime; that the Mants were harassing him in violation of that agreement, and that he was "entitled to a rescission of the contract and a reconveyance of the premises...." The complaint further alleged that Healey was 80 years old; that the property sold by him constituted "his primary assets"; that he was "without the benefit of independent advice and counsel," and that the transaction resulted from fraud and undue influence practiced by the Mants. The answer filed on behalf of the Mants, by counsel other than Gillespie, denied the essential allegations of the complaint, including particularly the alleged oral agreement for the occupancy of the cottage by Healey. The Mants counterclaimed for possession of the cottage, asserting that they had permitted Healey to remain in the...