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Practical Offset, Inc. v. Davis

OPINION FILED APRIL 22, 1980.

PRACTICAL OFFSET, INC., ET AL., PLAINTIFFS-APPELLEES,

v.

JACK R. DAVIS, DEFENDANT-APPELLANT.



APPEAL from the Circuit Court of Cook County; the Hon. DAVID A. CANEL, Judge, presiding.

MR. JUSTICE STAMOS DELIVERED THE OPINION OF THE COURT:

Rehearing denied May 19, 1980.

Plaintiffs brought this legal malpractice action to recover damages caused by defendant's alleged negligence in representing plaintiffs in the sale of their business assets. The specific conduct alleged was that defendant failed to ensure the filing of a financing statement necessary to perfect the security interest retained by plaintiffs in the assets sold.

The trial court entered summary judgment in favor of plaintiffs on the issue of liability. On appeal, defendant contends summary judgment was improper because: (1) genuine issues exist as to material facts and plaintiffs were not entitled to judgment as a matter of law; and (2) the court erroneously considered an affidavit (submitted by an expert on behalf of plaintiffs) that contained conclusions of law.

The trial court based its decision on the facts as established by the pleadings, the depositions of the parties, the affidavit of plaintiffs' expert, and other matters of record. Plaintiff, Practical Offset, Inc. (Practical), is an Illinois corporation formerly engaged in the offset printing business. Plaintiffs Robert and Helen Schmidt are the sole shareholders of Practical. Defendant Jack R. Davis is an attorney engaged in the practice of law in the city of Chicago.

The complaint and answer establish that negotiations took place between plaintiffs and Carriage Press, Inc. (Carriage), for the sale of Practical's assets to Carriage, resulting in a written agreement dated January 30, 1976. Defendant acted as attorney for Practical in connection with the sale of its assets to Carriage.

The agreement provided for a gross sales price of $85,000, $10,000 down and the balance in 84 monthly installments. The unpaid balance was to be evidenced by a promissory note and secured by:

"A security agreement in the form and substance approved by counsel for Practical together with a proper financing statement for filing under the Uniform Commercial Code granting Practical a security interest in the equipment sold and transferred hereunder, subject to existing liens, as security for the unpaid purchase price * * *."

The closing of the sale took place on March 8, 1976. While a security agreement and a financing statement were executed on that date, they were not filed with the Illinois Secretary of State until February 28, 1977. On February 1, 1977, Carriage defaulted on its note to Practical, leaving an unpaid balance of $39,760. Prior to this date Carriage had pledged the same assets to American National Bank, which did file its financing statement, and upon default the Bank took possession of the assets and sold them to satisfy Carriage's obligation to it. (Both plaintiffs and defendant have instituted actions against Carriage and its president.)

At his deposition, defendant gave the following testimony. He had practiced law in Chicago since 1960 and was experienced in secured transactions. He was aware that one way to perfect a security interest is to file a financing statement with the Secretary of State.

Defendant had represented Practical and the Schmidts on several prior occasions, but had never been on retainer. In late January or early February 1976, Robert Schmidt advised defendant that he had found a potential buyer for Practical named Philip Whiting. Whiting was the president of Carriage. Schmidt asked defendant to represent Practical and the Schmidts "in consummating or exploring the possibility of the consummation of a contract with Mr. Whiting." No specific details of the transaction were discussed.

Shortly thereafter, defendant met with Stanley Feinberg, Whiting's attorney, to discuss the terms of the sales contract. At this meeting, which was attended by Whiting and the Schmidts, it was decided that defendant would draft a contract for the sale of Practical's real estate, while Feinberg would draft the agreement for the sale of the business. However, there were several documents relative to the sale of the business that defendant was required to draft, including a security agreement and a "UCC statement" or financing statement, "the statement that is recorded with Springfield." Defendant was also to obtain an "estoppel letter" from a creditor, Iroquois Co., which had a security interest in Practical's assets. Mr. Schmidt gave his assurance that he would procure a letter consenting to the sale.

At the closing on March 8, 1976, the parties to the sale executed the contract and other documents, including the security agreement and financing statement prepared by defendant. But toward the end of the closing, Feinberg noted that no letter from Iroquois consenting to the sale had been obtained. Feinberg stated that he would work out the details with Iroquois; in the meantime, Feinberg said, he would keep the security agreement and financing statement because he did not want them filed until Iroquois had given its written consent. Once he received the consent, Feinberg said, he would file the documents with the Secretary of State. Defendant told the Schmidts "that it would be agreeable to entrust the recording of these documents to Mr. Feinberg." Defendant stated at one point that the Schmidts did not object, and at another that they agreed to the documents being held by Feinberg.

An agreement consenting to the sale was later executed by plaintiffs, Carriage, and Iroquois, on April 7, 1976; defendant did not participate. However, defendant did receive a copy of a letter, dated March 24, 1976, from Iroquois to Feinberg, enclosing a copy of the agreement and suggesting Feinberg discuss with defendant a convenient time and place to execute the agreement. Between the date of the closing (March 8, 1976) and the date of the agreement (April 7, 1976), defendant did have an undetermined number of telephone conversations with Feinberg concerning the financing statement. Defendant could not remember the substance of these conversations, only that he left it to Feinberg to file the documents. Defendant acknowledged that he was not relying on plaintiffs to see that Feinberg made the filings; rather, he was relying on Feinberg. When asked whether it was his view that he had no obligation after the closing to ensure that ...


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