Smith v. Childs, 9126SC1224

• Decision Date: 07 December 1993
• Docket Number: No. 9126SC1224,9126SC1224
• Parties: Joseph E. SMITH, George V. Smith, Nickolas W. Smith, Jessie B. Smith and Annie Smith, Plaintiffs, v. Stuart R. CHILDS, Defendant.
• Court: North Carolina Court of Appeals

Page 500

437 S.E.2d 500

112 N.C.App. 672

Joseph E. SMITH, George V. Smith, Nickolas W. Smith, Jessie B. Smith and Annie Smith, Plaintiffs, v. Stuart R. CHILDS, Defendant.

No. 9126SC1224.

Court of Appeals of North Carolina.

Dec. 7, 1993.

Griffin, Caldwell, Helder & Lee, P.A. by Thomas J. Caldwell and R. Kenneth Helms, Jr., Monroe and Walker & Walker by John G. Walker, Charlotte, for plaintiffs-appellees.

Bailey & Dixon by Gary S. Parsons, Alan J. Miles and Lauren A. Murphy, Raleigh and Jones, Hewson & Woolard by Harry C. Hewson and Kenneth H. Boyer, Charlotte, for defendant-appellant.

JOHN, Judge.

In this legal malpractice action, defendant appeals a judgment finding him negligent and ordering him to pay plaintiffs $900,000. Defendant contends the trial court erred (1) by allowing plaintiffs to amend their previously amended complaint; (2) by allowing plaintiffs' expert witness to testify to certain legal conclusions; (3) by failing to determine plaintiffs were entitled to a deficiency judgment against the debtor based upon the underlying land transaction; (4) by denying his motion for a directed verdict on the issue of damages; (5) by failing to instruct on the proper measure of damages; and (6) by refusing to accept the jury's original verdict. We agree in part and remand for a new trial.

The evidence presented at trial tended to show the following: around 1980 plaintiffs inherited a twelve acre tract of land located on U.S. Highway 29 in Mecklenburg County. Shortly thereafter, several persons contacted plaintiffs and expressed an interest in purchasing this property.

At some point, plaintiffs entered into negotiations with J.W. Wood (Wood). Plaintiffs and Wood reached provisional accord on a purchase price for the property and thereafter plaintiffs retained defendant as legal counsel to represent them. Plaintiffs informed defendant the following terms had been tentatively agreed upon: (1) a purchase price of $710,000, of which plaintiffs were to receive $10,000 as earnest money, $100,000 at closing, and a $600,000 promissory note secured by a purchase money deed of trust; and (2) payments on the note were to be made in five equal annual installments.

Defendant thereafter entered into formal negotiations with Wood, secured some additional terms favorable to plaintiffs (including a higher interest rate), and on 28 December 1984 plaintiffs executed a land sale contract to convey the property. At closing on 16 May 1985, the purchasers (Wood, Marc Birnbaum and Uri Sheinbaum) executed a promissory note and a purchase money deed of trust. The promissory note provided for five annual installments of $120,000 and a 12.5% annual interest rate. The deed of trust described the property as being divided into two tracts, Tract 1 of 12.08 acres and Tract 2 of .04 acres. The deed of trust instrument also contained the following provision:

[T]he Grantor shall have the right and power by itself without the signature, approval or consent of either the Beneficiary or Trustee to subordinate the lien created by this Deed of Trust to any first lien or liens for any of the purposes described above [for development loans, construction loans, permanent financing, or otherwise], provided such liens do not exceed $8,000,000 ... and ... the Grantor has ... delivered to Beneficiary a guaranty of payment....

The first installment was not paid when due and defendant wrote Wood, stating he had fifteen (15) days to cure the default. This was not done, but, after consulting defendant, plaintiffs agreed: (1) to subordinate their purchase money deed of trust to a deed of trust held by First Federal Savings & Loan of Laredo, Texas (First Federal) which secured a $380,000 loan to Wood; and (2) to receive a personal guaranty from Wood for the full amount of the promissory note. Thereafter, on 18 June 1986, plaintiffs received the first installment (due on 15 May 1986) with interest totalling $207,753.42.

In May 1987, the purchasers again defaulted and Wood also defaulted on the First Federal loan. Defendant thereafter wrote plaintiffs recounting these events and advising "you may wish to have another lawyer look at this letter...." In November 1987, First Federal foreclosed and purchased the property for $430,226--the amount outstanding on its note plus the costs of foreclosure. Plaintiffs neither participated in these foreclosure proceedings nor received any monies thereunder.

After employing new counsel, plaintiffs filed a complaint (and later an amended complaint) alleging defendant had been negligent in giving legal advice throughout the land transaction. The case went to trial and at the close of plaintiffs' evidence, the trial court allowed plaintiffs to amend their amended complaint. Ultimately, the jury returned a verdict finding defendant negligent and awarding plaintiffs $480,000 "with interest to date at 13.5% plus total attorney fees and court costs." Over defendant's objections, the verdict sheet was returned to the jury for further deliberations which resulted in a verdict of $900,000.

I.

Defendant argues the trial court erred by allowing plaintiffs to amend their previously amended complaint. We disagree.

Plaintiffs proceeded to trial upon their amended complaint (the complaint) charging defendant with negligence in failing to advise plaintiffs of the legal implications of (1) the 28 December 1984 contract to purchase, (2) the 16 May 1985 promissory note and purchase money deed of trust, and (3) the 6 June 1986 subordination agreement, as well as failing to advise them properly in (4) his 26 June 1987 letter. At the close of plaintiffs' evidence, the parties made several motions. In reliance upon the applicable statute of repose, the court granted defendant's motion for a directed verdict on all allegations concerning matters leading to the execution of the promissory note and deed of trust. However, the court also allowed plaintiffs' motion to amend their complaint in order to allege the following:

The defendant was negligent in that he:

(a) Failed to advise and inform the plaintiffs that at the time the purchase money note and deed of trust were in default that plaintiffs had the absolute right to foreclose their deed of trust thereby getting their property back or receiving the balance owed them in the event some party out bid them and/or to negotiate the terms of the original sale, including renegotiation of the subordination provision;

(b) Failed to advise and inform the plaintiffs that they clearly were not required to subordinate as required by the Contract of Sale and purchase money deed of trust;

(c) Failed to advise and inform the plaintiffs of the continuing inherent risks of the transaction as structured in the Contract of Sale and in the Purchase money deed of trust;

(d) Failed to require that the proceeds from the $380,000 loan to which the plaintiffs subordinated be used to improve the property.

In pertinent part, N.C.R.Civ.P. 15(b) allows for amendment of the pleadings and provides: "[w]hen issues not raised by the pleadings are tried by the express or implied consent of the parties, they shall be treated in all respects as if they had been raised in the pleadings." Implied consent exists when evidence in support of an unpleaded issue is introduced and the opponent fails to object specifically to this evidence as being outside the scope of the pleadings. Eudy v. Eudy, 288 N.C. 71, 76, 215 S.E.2d 782, 786 (1975), overruled on other grounds, Quick v. Quick, 305 N.C. 446, 290 S.E.2d 653 (1982); Mobley v. Hill, 80 N.C.App. 79, 81, 341 S.E.2d 46, 47-48 (1986). Under modern practice, amendments should be freely allowed. Mobley v. Hill, 80 N.C.App. at 81, 341 S.E.2d at 47.

While Rule 15(b) has the practical effect of repealing the former strict rule against variance, it does not permit judgment by ambush. Eudy v. Eudy, 288 N.C. at 76, 215 S.E.2d at 786. "Where the evidence which supports an unpleaded issue also tends to support an issue properly raised by the pleadings, no objection to such evidence is necessary and the failure to object does not amount to implied consent to try the unpleaded issue." Tyson v. Ciba-Geigy Corp., 82 N.C.App. 626, 630, 347 S.E.2d 473, 476 (1986). Nonetheless, a trial court's ruling on a Rule 15(b) motion is not reviewable absent a showing of an abuse of discretion. Id.

Applying these principles to the case sub judice, we observe one of the "new" issues, issue (c), was sufficiently pled in the complaint and therefore defendant had notice and may not complain of its amendment. Defendant may also not complain of the remaining "new" issues. Issue (d) deals with defendant's alleged negligence at the time the 6 June 1986 subordination agreement was executed. Although allegations in the complaint encompassed related matters, these were directed towards defendant's conduct at the time the deed of trust was executed--more than one year before the time referred to in issue (d). Accordingly, evidence relative to issue (d) would not tend to support any properly pled issue. With regard to issues (a) and (b), no assertions in the complaint encompassed these matters and no evidence pertinent to these unpled issues tended to support a properly pled issue. Because evidence sustaining issues (a), (b) and (d) did not tend to support any properly pled issue and because defendant never specifically objected to that evidence as being outside the scope of the pleadings, he impliedly consented to trial on these issues. See Mobley v. Hill, 80 N.C.App. at 81, 341 S.E.2d at 47-48.

Moreover, the trial court has broad discretionary authority to permit amendment to the pleadings at any time, in particular where the opposing party will suffer no prejudice and the amendment will serve to present the action on its merits. See Williams v. Sapp, 83 N.C.App. 116, 118, 349 S.E.2d 304, 305 (1986). In the present case, even before plaintiffs moved to amend, defendant moved for a directed verdict on...