Stiley v. Block

• Decision Date: 06 February 1997
• Docket Number: No. 63218-9,63218-9
• Court: Washington Supreme Court
• Parties: Joseph F. STILEY, III, Petitioner, v. Edward T. BLOCK, Respondent.

Page 486

130 Wn.2d 486

925 P.2d 194

Joseph F. STILEY, III, Petitioner, v. Edward T. BLOCK, Respondent.

No. 63218-9.

Supreme Court of Washington En Banc.

Argued March 6, 1996.

Decided Oct. 24, 1996.

Reconsideration Denied Feb. 6, 1997.

Mark A. Johnson, Scott A. Samuelson, Attorneys at Law, Seattle, for petitioner Joseph Stiley.

Lukins & Annis, Terence R. Whitten, Erika Balazs, Spokane, for respondent Edward Block.

SMITH, Justice.

Petitioner Joseph F. Stiley III seeks review of an unpublished opinion of the Court of Appeals, Division Three, which reversed a Spokane County Superior Court judgment upon a jury verdict upholding Petitioner Stiley's claims of fraud, legal malpractice and breach of contract against Respondent Edward T. Block. We granted review. We reverse in part and affirm in part.

QUESTIONS PRESENTED

The questions presented in this case are: (1) whether the trial court erred in instructing the jury on the duty Respondent Block owed to Petitioner Stiley; (2) whether the trial court erred in not instructing the jury on contributory negligence; (3) whether there was sufficient evidence to submit Petitioner Stiley's claim of fraud against Respondent Block to the jury; (4) whether the trial court erred in allowing Petitioner Stiley's attorney to impeach Respondent Block by examining him on the question whether, in violation of RCW 5.28.060, he committed perjury when he falsely notarized a deed of trust, and if so, whether that evidence unduly prejudiced the jury; (5) whether the portion of the jury verdict finding Respondent Block responsible for breach of contract was sufficient to support the judgment against him; and (6) whether the "voluntary exercise of independent business judgment" defense recognized in Marsh v. Commonwealth Land Title Ins. Co., 57 Wash.App. 610, 789 P.2d 792, review denied, 115 Wash.2d 1025, 802 P.2d 127 (1990) and other cases bars recovery by Petitioner Stiley.

STATEMENT OF FACTS

On July 6, 1988, Joseph F. Stiley III (Petitioner Stiley) brought an action in the Spokane County Superior Court against Edward T. Block (Respondent Block), claiming legal malpractice, fraud and breach of contract. ¹ Patrick K. Stiley (Defendant Stiley) was later joined as a defendant, with Petitioner Stiley claiming legal malpractice against him. The jury trial began on July 12, 1993, with the Honorable Richard W. Miller presiding.

In 1983 or early 1984 Petitioner Stiley, who was then living in Virginia, asked his brother, Defendant Stiley, an attorney practicing in Spokane, Washington, to identify investment opportunities for him in that city. ² In April 1984, Defendant Stiley telephoned his brother and told him of an investment opportunity in Westwood Hills, a property in Spokane. Westwood Hills was owned by Aaron "Butch" Stern, Dennis Cullinane, and Robert Webb through Webbco, Inc. (Webbco), a Washington corporation. They were the only shareholders and officers. ³ Webbco bought Westwood Hills from the Waldron family in 1978. ⁴ The property consisted of one hundred lots. ⁵ Seven lots, lots 18 through 24 in block 1, were developed. ⁶ The remaining lots were undeveloped. In addition to owing real estate taxes and other assessments, Webbco had an underlying obligation on Westwood Hills of approximately $85,000.00 owed to the Waldrons. Webbco had agreed the Waldrons would foreclose on the property unless Webbco paid the amount owed by May 25, 1984.

Between April and May of 1984, Petitioner Stiley spoke several times by telephone and in person with the Webbco principals, discussing his potential investment through a loan of $100,000.00 for Westwood Hills. Mr. Webb and Mr. Cullinane testified the conversations indicated Petitioner Stiley's loan would be secured by only seven lots, lots 18 through 24, in Westwood Hills. ⁷ Petitioner Stiley testified he told them he would lend Webbco money only if the loan was secured by all the lots in Westwood Hills. ⁸

Petitioner Stiley testified that included in the transaction between him and Webbco was the "agreement" that "Webbco would have an attorney draft all the ... necessary real estate related papers...." ⁹ Webbco retained its own attorney, Edward T. Block (Respondent Block), for this purpose. Respondent Block also acted as escrow agent. Petitioner Stiley, who still lived in Virginia at the time, asked Defendant Stiley to review documents relating to the transaction for him, even though Defendant Stiley cautioned his brother that he did not practice real estate law. Defendant Stiley agreed to review the documents, but also advised Petitioner Stiley he was not acting as his attorney in the matter.

Petitioner Stiley decided to invest $100,000 through a loan on Westwood Hills. ¹⁰ Respondent Block by letter dated May 22, 1984 sent Defendant Stiley the documents he drafted for the transaction ¹¹--the loan agreement, promissory note, deed of trust and corporate resolution. Robert Webb had already signed all the documents, including the deed of trust dated May 23, 1984. The deed of trust put Petitioner Joseph F. Stiley III in a first lien position on all the lots in Westwood Hills, except Lots 18 through 24. ¹² Sometime around May 22, 1984, Petitioner Stiley received a letter dated May 22, 1984 ¹³ from Respondent Block with copies of the documents, including the deed of trust, and discussed the documents with his brother, Defendant Stiley, by telephone.

Petitioner Stiley, Mr. Stern and Mr. Webb all testified the agreement between Webbco and Petitioner Stiley provided that $15,000 of Petitioner Stiley's $100,000 would buy him a lot of his choice in Westwood Hills and he would receive 25 percent of the net profits realized when Webbco sold Westwood Hills. ¹⁴ The transaction also included a promissory note which recited that Petitioner Stiley's $85,000 loan would be interest free until June 1, 1985, when payment would become due in full; and, if Petitioner did not foreclose when the loan was due, the loan would then bear interest at 15 percent per year. ¹⁵ The transaction between Webbco and Petitioner Stiley also included a deed of trust on the Westwood Hills property securing Petitioner Stiley's loan. ¹⁶

On May 24, 1984, Petitioner Stiley transferred $100,000 by wire from his bank in Virginia to Defendant Patrick K. Stiley's trust account in Spokane. On May 25, 1984, Defendant Stiley sent his trust account check for $99,929.62 by letter to Respondent Edward T. Block. ¹⁷ The letter instructed Respondent Block to disburse the funds only after filing the documents placing Petitioner Stiley "in first position as secured creditor on the 92 parcels of real property [in Westwood Hills] and as second creditor on the other seven parcels." ¹⁸ Later that day, on May 24, 1984, Respondent Block sent Defendant Stiley a letter stating it was his "understanding" that "in consideration for [Petitioner Stiley's] loan to Webbco of $85,000 ... he is to receive a first mortgage against the real property ... [in Westwood Hills] and a second mortgage against the remaining seven lots." ¹⁹ The letter then stated "[u]pon clearing title, we will record [Petitioner Stiley's] Deed of Trust against the subject property, which will give him a first lien position against this property...." ²⁰ The letter stated a "second mortgage against the remaining seven lots" was being prepared and would be signed by Robert Webb and Aaron Stern the following Tuesday.

Later, on May 25, 1984, both Mr. Webb and Mr. Stern went to Respondent Block's office to review and sign the documents. They and Respondent Block testified that Mr. Stern then telephoned Defendant Stiley about the transaction. ²¹ Mr. Stern testified that during the telephone conversation he talked to Defendant Stiley about the agreement, reminding him or confirming that Petitioner Stiley was to get a security interest only in Lots 18 through 24, and not in all the lots in Westwood Hills. ²² Respondent Block testified he then confirmed by telephone with Defendant Stiley the changes in the transaction, which then provided that Petitioner Stiley would have a first lien position on only Lots 18 through 24 and no security interest in the remaining lots of Westwood Hills. ²³ Respondent Block testified Defendant Patrick K. Stiley agreed to this lessened security interest. ²⁴ At trial, though, Defendant Stiley testified he never agreed to a lesser security interest on behalf of his brother, Petitioner Stiley. ²⁵ He also stated he did not speak to anyone about changing his brother's security interest and did not have authority to negotiate any change in the agreement. ²⁶ He acknowledged someone may have in his presence suggested a change, but he did not recall it. ²⁷ No one disputes Petitioner Joseph F. Stiley's testimony that he never spoke with anyone about making any changes in the original agreement. ²⁸

At trial, the Webbco principals and Petitioner Stiley disputed what they originally "agreed" was Petitioner Stiley's security interest in Westwood Hills. Both Defendant Stiley and Petitioner Stiley testified Petitioner Stiley was to receive a deed of trust giving him a first lien position as secured creditor on 92 lots, but not lots 18 through 24. ²⁹ They testified the agreement, supported by letters between Defendant Stiley and Respondent Block, both dated May 25, 1984, ³⁰ also included a second deed of trust giving Petitioner Stiley a second lien position as secured creditor on lots 18 through 24, the developed lots. ³¹

Referring in part to conversations with Petitioner Stiley and Defendant Stiley, Mr. Stern, Mr. Webb and Mr. Cullinane testified they "understood" that under the agreement Petitioner Stiley was to receive one deed of trust giving him a first lien position as secured creditor on only seven lots, lots 18 through 24. ³² In support of this position, Mr. Webb read a letter he sent to Webbco's attorney, Respondent Block, about the middle of May 1984, which stated Petitioner Stiley would get a deed of trust on the "D"...