Court Opinion

ID: 5810945
Source: CourtListenerOpinion
Date Created: 2022-01-12 18:46:45.87284+00
Date Added: 2024-06-11T08:42:51.293164
License: Public Domain

Silverman, J. (dissenting).
I would reverse the judgment of the Supreme Court and grant judgment for the plaintiffs.
The action is essentially one to rescind a mortgage, bond, and related agreements entered into in 1959 and a subsequent 1964 agreement between plaintiffs and the defendant, the latter an attorney. The Supreme Court, this court, and the Court of Appeals are all in agreement that during these transactions plaintiffs and defendant stood in an attorney-client relationship.
The Supreme Court, after trial, granted judgment for defendant. On appeal, this court affirmed the judgment on the ground that plaintiffs’ claim was barred by the statute of limitations; this court did not reach the question of the merits. Presiding Justice McGivern dissented and said: "In view of the attorney-client relationship, which pervaded the trial and which is at the heart of the appeal before us, I believe the trial court erred in upholding the fairness of the transaction”. (Howard v Murray, 46 AD2d 880, 881.) The Court of Appeals disagreed with this court’s holding that the plaintiffs’ claim was barred by the Statute of Limitations and sent the case back to this court for a review of the facts. (Howard v Murray, 38 NY2d 695.)
The Court of Appeals said (supra, p 699): "The crucial question is whether the defendant attorney established that the contract 'was made by the client with full knowledge of all material circumstances known to the attorney, and was in every respect free from fraud * * * and that a reasonable use was made by the attorney of the confidence reposed in him’ (Whitehead v Kennedy, 69 NY 462, 466). The trial court held that he did, and that factual determination is beyond review in this court since the findings of fact have not been thus far *187overturned by the Appellate Division.” It is for determination of this issue that the case has been remitted to this court.
The underlying facts are stated in considerable detail in the opinion of the Court of Appeals and I shall not repeat them here. The end result of the agreement between the parties was as the Court of Appeals said (supra, pp 698-699): "Basically the defendant acquired the right to purchase the property at an amount considerably below its actual value.”
In essence, by this rather complicated set of agreements, defendant attorney obtained an option to buy plaintiffs’ interest as fee owner, then worth approximately $220,000 (now apparently worth much more), for payments which might be as little as $12,000 or as much as $72,000, plus a problematical additional amount if plaintiff wife survived her husband and the income from the property was less than $9,000 per annum above mortgage carrying charges. If plaintiff husband were to die in the first year after the contract, defendant would acquire the property for only the $12,000 payable in the first year plus the problematical annuity to the wife. If, at any time in the future the deal looked less promising, defendant could stop the payments at less than $72,000 and he would still have the mortgage to secure the amounts advanced (interest-free to be sure up to the date of plaintiff husband’s death). As the Court of Appeals said, "It is true, of course, that the property might have decreased in value, but the defendant had insured against this by reserving the right to cease making further payments on the loan. In view of this it would certainly appear that the defendant got the better of the bargain.” (38 NY2d 695, 699, supra.)
The Trial Justice thought that the fairness of the proposal was demonstrated by the fact that the same proposal was offered to the tenant McCrory Corporation, a department store, and the tenant turned it down. The offer was made to McCrory Corporation under the right of first refusal that the tenant had under the lease. As a practical matter one could hardly expect a department store to be interested in so gadgety a deal as here proposed, including a guarantee against theoretical capital gains and estate taxes. Such a deal would be more understandable to a tax lawyer, which defendant was. Furthermore, in the case of this particular tenant, purchase was most unlikely as defendant well knew, having been told it by plaintiffs’ regular attorney, "as you know, the H. L. Green Company has had its problems and at least for *188the moment it would seem that there is no possibility of selling the building to them at any figure.”
"[A]n attorney who seeks to avail himself of a contract made with his client, is bound to establish affirmatively that it was made by the client with full knowledge of all the material circumstances known to the attorney, and was in every respect free from fraud on his part, or misconception on the part of the client, and that a reasonable use was made by the attorney of the confidence reposed in him.” (Whitehead v Kennedy, 69 NY 462, 466.) I think that in such cases the rule generally applicable to transactions between fiduciaries and beneficiaries should apply. "If dual interests are to be served, the disclosure to be effective must lay bare the truth, without ambiguity or reservation, in all its stark significance.” (Wendt v Fischer, 243 NY 439,- 443.)
The transaction was a complicated tax gimmick. A layman could easily be confused as to its implications and ramifications. To sustain such a contract, the lawyer should be called upon to show that he had stated to his client the possible unfavorable contingencies in the bluntest terms as well as telling him flatly, "I am not your attorney in this matter; don’t rely upon me; get outside advice.” Such statements should not be left to implication. The attorney should bluntly have told the client that if he died within a year his lawyer would be able to acquire the property for $12,000. He should have pointed out bluntly the other aspects which could make the bargain a good one for the lawyer and a bad one for his client so as to make sure that the client had "full knowledge of all the material circumstances known to the attorney.” (Whitehead v Kennedy, supra, p 466.) The lawyer should prove that he made to his client a statement similar to the one that the lawyer made to his real estate broker friend Reynolds earlier: "As it appears that Mrs. Howard’s life expectancy is only fourteen years, it does not appear that the annuity to her has any substantial value since she would probably be deceased prior to the eighteen year period. The value of an annuity of $4,000 per year for the term of life of a man aged 54 is roughly $53,600. As the value of this property is somewhere between $460,000 and $500,000, subject to a mortgage of $280,000, it appears that property worth $180,000 to $220,000 can be acquired by the payment of $53,600.” The transaction was later modified so as to include the $12,000 down payment and to increase the guarantee of plaintiff wife’s *189annuity from $8,000 to $9,000, but the disparity would still be startling.
Markewich, J. P., and Nunez, J., concur with Capozzoli, J.; Silverman, J., dissents in an opinion.
Upon remand from the Court of Appeals, judgment of the Supreme Court, New York County, entered on June 13, 1974, affirmed on the law and the facts, without costs and without disbursements.