Stansbery v. Schroeder

• Decision Date: 18 September 1987
• Docket Number: No. 85-703,85-703
• Parties: Lon Wendell STANSBERY, Appellant and Cross-Appellee, v. David T. SCHROEDER, Appellee and Cross-Appellant.
• Court: Nebraska Supreme Court

Page 447

412 N.W.2d 447

226 Neb. 492

Lon Wendell STANSBERY, Appellant and Cross-Appellee, v. David T. SCHROEDER, Appellee and Cross-Appellant.

No. 85-703.

Supreme Court of Nebraska.

Sept. 18, 1987.

Syllabus by the Court

1. Negligence: Attorney and Client: Proof. As in any negligence case, a plaintiff in a suit for negligence of his or her attorney must prove the duty that existed, a breach of that duty, proximate cause, and resulting damages.

2. Negligence: Attorney and Client: Proof: Guaranty. In basing an action for attorney negligence on failing to obtain the signatures of guarantors on a loan, the burden is on the plaintiff to prove that such guaranties would have prevented the loss.

Leroy P. Shuster, Lincoln, for appellant.

Marvin O. Kieckhafer of Kay & Kay, North Platte, for appellee.

BOSLAUGH, WHITE, HASTINGS, CAPORALE, SHANAHAN and GRANT, JJ., and COLWELL, District Judge, Retired.

HASTINGS, Justice.

The plaintiff appeals from a verdict of $66,346.48 in his favor in a malpractice action against his former attorney. The defendant attorney also cross-appeals.

David T. Schroeder began representing Lon Wendell Stansbery in various legal matters in 1976 or 1977. In April of 1978, Stansbery began to serve some time in the Nebraska Penal and Correctional Complex for a driving while intoxicated conviction and gave Schroeder a durable power of attorney so Schroeder could handle Stansbery's affairs while he was in prison. Stansbery is an alcoholic, which Schroeder knew.

In August of 1979 Stansbery considered lending $110,000 to Albert and Judy Leisy so they could buy a trailer park from BCDJ Investments, Inc. As a part of that transaction, Stansbery was to receive a limited guaranty of the loan by Albert Leisy's mother. Schroeder was an officer, director, and majority shareholder of BCDJ at that time. During negotiations for the deal, Schroeder represented both BCDJ and Stansbery, as is evidenced by the bills he submitted to both.

Schroeder went out of town, and when he came back on October 17, 1979, he discovered that the loan had fallen through. He informed Stansbery of this and spoke to him about just lending BCDJ the money instead. On October 19 Schroeder borrowed $5,000 from Stansbery. Schroeder then presented Stansbery with some loan papers which Stansbery eventually rejected because he did not like the 10-percent interest or the 30-year term of the loan. After this, several more discussions were had about Stansbery's lending money to BCDJ, and Stansbery eventually agreed to a loan of $110,000 at 12 percent for a term of 10 years. The note was signed only by James R. Kohl as president of BCDJ. This $110,000 was applied to an outstanding loan BCDJ had with the Keith County Bank & Trust Company. Schroeder had personally guaranteed this loan with the bank.

As part of Stansbery's loan to BCDJ, Stansbery thought he was to receive a first mortgage on the trailer park BCDJ owned and a second mortgage on the Leisy ranch to secure the debt. He testified that he would not have agreed to loan the money with only the trailer park mortgage, or if he had known that the Leisys were not involved, or if he could not look to Richard Dudden or the Kohls. However, there is nothing in the record to indicate that the Leisys ever had anything to do with the proposed loan to BCDJ, nor were guaranties of Dudden or the Kohls ever proposed. Stansbery had to know when he received the loan papers that there were no guaranties other than the execution of the note and mortgage by Kohl as president of BCDJ. In actuality, he received no mortgage on the Leisy ranch, and, except for a very small portion of the trailer park, his mortgage on that park was inferior to a $190,000 mortgage to the profit sharing retirement plan for Dudden Elevator, Inc. Both Schroeder and Stansbery thought that Stansbery was to receive a personal guaranty from Schroeder at that time, but a written document to that effect was never found. In any event, any personal guaranty was discharged in Schroeder's bankruptcy.

The mortgage and promissory note for the loan were prepared at Schroeder's office under his instructions. Stansbery and Schroeder discussed the loan arrangements several times. Schroeder testified that during the second or third conversation, when Schroeder brought the documents to Stansbery to sign, Schroeder told Stansbery that he could not represent Stansbery in this transaction and that Stansbery should go talk to another attorney. Stansbery testified that Schroeder only told him he could talk to another attorney if he wanted to, but gave him no reason why he should, and that Stansbery responded that one attorney was enough, that was all he could afford. Stansbery did admit he knew Schroeder was an officer and had an ownership interest in BCDJ.

Stansbery signed the documents, and BCDJ made regular payments on the loan from November 1979 until sometime in 1982. Subsequently, the loan went into default for nonpayment. The certified public accountant who testified for Stansbery stated that based on BCDJ's tax returns and statement of debt of the corporation, BCDJ had insufficient cash coming into the corporation to pay either the debts it owed or the real estate taxes on the property it owned at the time Stansbery made the loan to BCDJ.

Stansbery brought suit against Schroeder, and a jury trial was had on the issue of Schroeder's negligence. Contrary to Schroeder's wishes, the jury was not given instructions regarding Stansbery's alleged contributory negligence or failure to mitigate damages. The jury found for Stansbery in the amount of $66,346.48.

The issues raised by Stansbery regarding the foregoing facts are whether the trial court erred (1) when it instructed the jury that it should not determine the amount of interest, if any, to which the successful party may be entitled, and (2) when it did not add accrued interest due on the promissory note to the amount of the jury's verdict. Schroeder, on cross-appeal, contends the trial court erred (1) in excluding evidence and failing to instruct the jury on the issue of Stansbery's contributory negligence, (2) in excluding evidence and failing to instruct the jury on the issue of Stansbery's failure to mitigate damages, and (3) in giving instruction No. 12 regarding the durable power of attorney. Both parties have raised one additional assignment of error each which does not deal with the above facts, so each will be addressed separately.

Stansbery's two assignments of error can be dealt with together--that is, whether Stansbery is entitled to recover as part of his damages the amount of accrued interest on the promissory note he obtained from BCDJ. We believe the trial court correctly ruled that he was not so entitled. However, in arriving at this conclusion it was necessary for us to make general inquiry into the area of proximate cause. Having done so, we note as plain error under Neb.Ct.R. of Prac. 9 D(1)d (rev. 1986) that Stansbery did not prove that the loss of the unpaid principal or interest was proximately caused by Schroeder's negligence. Accordingly, that issue should never have been submitted to the jury, and we must reverse the judgment of the district court and order the cause dismissed.

In his brief Stansbery argues that he is entitled to the interest on the note as well as the balance of the unpaid principal which the jury awarded him. He then cites us to cases in which we determined that accrued interest on a promissory note was a proper element of damages. See, e.g., First Nat. Bank v. Bolzer, 221 Neb. 415, 377 N.W.2d 533 (1985); Bank of Axtell v. Johnson, 125 Neb. 154, 249 N.W. 302 (1933). Those cases were, however, suits based on breach of contract--failure to pay a note--while this case is one based on negligence.

In a contracts case the proper measure of damages is an amount which will compensate the injured person for loss which a fulfillment of the contract would have prevented or breach of it has entailed. May v. Marijo Corp., 207 Neb. 422, 299 N.W.2d 433 (1980). Thus, in an unpaid note case, one of the elements of damages is the amount of interest the aggrieved party would have obtained had the breach not occurred. In a negligence case, however, the proper measure of damages is that which will place the aggrieved party in the position in which he or she would have been had there been no negligence. 25 C.J.S. Damages § 71 (1966). See R. Mallen & V. Levit, Legal Malpractice § 303 (2d ed. 1981). Thus, each of the plaintiff's allegations of negligence must be addressed in order to determine whether any evidence was presented from which it can be inferred that had the defendant not been negligent, Stansbery would have received either the balance of the unpaid principal, or the accrued interest on the note, or both.

Stansbery alleged that Schroeder breached his duty to Stansbery in the following manner: (1) that Schroeder negligently prepared the mortgage and note accompanying the loan; (2) that Schroeder negligently failed to advise Stansbery of the character of the documents; (3) that Schroeder negligently failed to get personal guaranties for the loan from the other shareholders of BCDJ; (4) that Schroeder negligently failed to fully and completely disclose his involvement in BCDJ to Stansbery; (5) that Schroeder negligently failed to obtain Stansbery's consent to Schroeder's conflicting representation of Stansbery and BCDJ; (6) that Schroeder negligently failed to withdraw his representation of either Stansbery or BCDJ, when Schroeder knew or should have known that such representation of both was adverse to the interest of the other; (7) that Schroeder negligently entered into business transactions which were in conflict with Stansbery's interest; and (8) that Schroeder negligently failed to follow Canon V, DR 5-101(A), 5-104(A), and 5-105(B) and (C), of the Code of Professional Responsibility.

In a malpractice action against an attorney for...