In this case a judgment mandating rescission of a sale of real estate and ordering restitution was entered. Many claims of error are presented. We affirm that portion of the judgment requiring rescission, vacate the award of restitution, and costs, and remand for further proceedings.
FACTUAL AND PROCEDURAL SETTING
During February 1976, Eugene and Frances Miller decided to move from Alaska. Their house, where Mr. Miller also practiced law, was put up for sale. Soon thereafter, the Millers began negotiating with Dallas and Sara Sears for the sale of the house.
For at least four years prior to the sale negotiations, Eugene Miller had represented Dallas and Sara Sears as their attorney. Concurrently with the negotiations, Eugene Miller drafted the incorporation papers for Norlite, Inc., which owned the Sears' business holdings and ultimately became the purchaser of the Millers' home.
The documents consummating the sale were prepared by an employee of Eugene Miller. As they were originally prepared, the documents would have conveyed the property to the Sears personally, and the Sears would have been personally liable on the note for the balance of the purchase price. At the time scheduled for closing the sale, the Sears advised Eugene Miller that they wanted these documents changed to designate Norlite, Inc. rather than themselves as purchaser and obligor. The change was made and on June 29, 1976, closing took place. The sale price was $500,000.00. A down payment of $30,000.00 was paid and the balance, $470,000.00, was to be paid under the terms of a promissory note from Norlite, Inc.
The parties differ considerably as to what transpired during the negotiations. The Sears claim that Eugene Miller misrepresented the income-producing capabilities of the property, that Eugene Miller stated that his law associate would continue as a lessee in the building, and that they were never advised to seek independent counsel. They also contend that they did not realize that they would be personally liable as guarantors of the note. Eugene Miller denied making representations concerning the rental value of the property or his associate's intentions. He testified that he had advised the Sears to seek independent counsel and believed that they had done so before the documents were signed. He also testified that he had made it clear to the Sears that they would be personally liable on the note.
Following the sale, the Millers purchased a farm in Missouri and took up residence there. The Sears requested and received several modifications of the sale payment terms.
On January 12, 1977, the Sears, after consulting with another attorney, wrote the Millers, requesting to "just void the contract... ."
When settlement discussions failed, the Millers sued the Sears and Norlite, Inc. for recovery of the amount owing on the promissory note. The Sears answered stating breach of fiduciary duty as an affirmative defense, and counterclaimed on the same theory, requesting rescission of the sale and monetary damages.
BREACH OF ATTORNEY'S FIDUCIARY OBLIGATIONS
The central challenge the Millers raise against the judgment of rescission is that too high a legal standard was imposed upon Eugene Miller in his dealings with the Sears. At trial, the following interrogatories were submitted to the jury in a special verdict:
The jury answered the first three interrogatories in the affirmative and the fourth in the negative.
The Millers claim that interrogatory number 4 is superfluous. They argue that the court should have entered judgment rejecting the remedy of rescission based upon the jury's findings in interrogatories numbers 2 and 3 that the transaction was fair to the Sears and that Eugene Miller had disclosed to the Sears all the facts which he either knew or should have known.
Interpreting interrogatories number 3 and 4 together, it is plain that the word "facts" used in interrogatory number 3 does not include the "significance and legal effect" of the contract terms referred to in interrogatory number 4. There would have been no reason to treat legal effects separate from facts, as they were in interrogatory number 4, if the latter were meant to include the former.
Sales transactions between lawyers and their clients are subject to rescission where the client expects the lawyer to act as such for the client and the lawyer does not fully discharge his fiduciary obligations to the client.
The obligation to disclose the legal consequences of the documents utilized was, under the evidence presented, a matter of some importance to this case. The Sears testified that they desired not to be personally liable for the balance of the purchase price beyond the downpayment, and that they believed that this was the way the transaction had been structured. Their request that Norlite be the purchaser rather than themselves lends a measure of credibility to their position. The final sale documents included, as we have mentioned, an "Indemnity Agreement" which was appended to the Deed of Trust. Under the Indemnity Agreement, the Sears guaranteed the obligations of Norlite under the Deed of Trust.
The Millers also challenge interrogatory number 4 on the grounds that it is confusing and inartfully drafted. However, the Millers specifically acquiesced in the court's formulation of the interrogatory and accordingly failed to preserve these points for review. Alaska International Industries v. Musarra, 602 P.2d 1240, 1247 n. 25 (Alaska 1979); Holiday Inns of America, Inc. v. Peck, 520 P.2d 87, 91 (Alaska 1974). We decline to review claims not raised below except to the extent that they may constitute plain error. Plain error exists where an obvious mistake has been made which creates a high likelihood that injustice has resulted. City of Nome v. Ailak, 570 P.2d 162, 171 (Alaska 1977); Holiday Inns of America, Inc. v. Peck, 520 P.2d at 91.
Here, the Millers argue that interrogatory number 4 should have stated: "Did Mr. Miller either fully explain to the Sears the significance and legal effect of each material term ...?" They urge that the failure to include "material" in the interrogatory lead the jury to believe that all terms had to be explained. They also claim that this confusion was aggravated by the testimony of an attorney expert witness who explained and criticized the various terms of the sale documents.
The expert witness testified extensively as to ambiguities in the conveyancing documents which were adverse to the Sears' interests. A few of these points could be considered trivial. However, the Sears testified that they misunderstood the legal effect of the documents on two matters: 1) whether the SBA payments were included in the $2,500.00 monthly payment and 2) the effect of the indemnity agreement on their personal liability. Both of these misconceptions of the legal effect of the documents are material and were alluded to several times during the course of the trial.
The Millers further contend that interrogatory number 4 conflicts with the court's instruction on fiduciary duty.
The Millers also contend that the record does not disclose a basis upon which to sustain a verdict in favor of Norlite, Inc. against the Millers. The case was submitted to the jury under instructions which did not permit separate treatment of the Sears and Norlite. The Millers did not object to the instructions on the basis that separate treatment of the defendants was required. This point must therefore be regarded as waived.
PRESUMPTION OF INVALIDITY AND BURDEN OF PROOF
The Millers claim that the court erred in giving the following instruction:
No objection was made to this instruction and thus only plain error review is appropriate. Holiday Inns of America, Inc. v. Peck, 520 P.2d at 90.
Once the Sears established that an attorney-client relationship existed at the time of the sale, the burden of proof was properly placed upon the Millers. This is in accord with general tenets of the duties of a fiduciary and ensures that the attorney fiduciary discharges his general duties of loyalty and fair play.
The Millers also object to the use of the word "presumption" in the instruction. Although Alaska Rule of Evidence 301(a)
COUNTERCLAIM AS TO FRANCES MILLER
Frances Miller further urges that the trial court erroneously denied her pretrial motion to dismiss the Sears' counterclaims against her. She accompanied her motion with deposition testimony by both Dallas and Sara Sears that established that Frances Miller had made no misrepresentations of fact to them. In opposition, the Sears contend that Eugene Miller's conduct should be imputed to Frances on an agency theory.
It is clear that a transaction entered into by a principal is subject to rescission for the fraud and misrepresentation of the agent.
Frances also contends that the court should have granted her motion for judgment n.o.v. because, as she argues, there was no evidence to support a finding of any breach of duty on her part. As the case was presented to the jury, it was assumed that Eugene was acting as agent for Frances because the instructions called for a finding in favor of the Sears if Eugene was found to have violated his duties as a fiduciary. This aspect of the instructions was not objected to, and therefore we consider the point to have been waived. Alaska Rule of Civil Procedure 51(a). Furthermore, the only reasonable conclusion one could draw from the evidence presented was that Eugene was acting for Frances as well as for himself in dealing with the Sears. Thus, even if there had been an objection that the instructions assumed an agency relationship, the objection could properly have been overruled.
MISCELLANEOUS PRE-TRIAL MOTIONS
The Millers filed a pre-trial motion for a protective order to exclude the testimony of Sara Sears and to prevent the introduction of the corporate minutes of Norlite into evidence. The motion was not acted upon by the court and we see nothing in the record showing that the Millers drew the court's attention to it. The minutes were not introduced into evidence. Finally, no objection was raised to Sara Sears' testimony on the grounds raised in the motion. Consequently, we fail to see what the Millers want us to review and we find no error.
Upon the Millers' request, the court ordered the Sears to file a more definite statement of their counterclaim. The defendants filed their First Amended Counterclaim seven months later on June 12, 1978. The Millers moved to strike the First Amended Counterclaim. The court denied the motion and the Millers appeal that ruling.
Trial courts have broad discretion in deciding whether to grant leave to amend. Wright v. Vicaryous, 598 P.2d 490, 495 (Alaska 1979). A comparison between the original counterclaim and its amended version reveals that they both assert the same legal theories; the latter simply makes more factual assertions. Thus we see no merit in the Millers' claims of prejudice and rule accordingly.
The Millers filed a motion to continue the trial date on August 10, 1978, and
Finally, the motion to sever the trial of the Millers' complaint from the trial of the counterclaims was properly denied. Motions for consolidation or severance of claims under Civil Rule 42(a) and (b) are reviewable for abuse of discretion. See, e.g., Brown v. Hawkins, 418 P.2d 28, 31 (Alaska 1966). Separate trials are appropriate to further "convenience or to avoid prejudice" or when the separate trials will be "conducive to expedition and economy." Alaska Rule of Civil Procedure 42(b). Because the Sears raise as defenses to the Millers' action essentially the same issues of fact that underlie their counterclaims, trying the two claims together was "conducive to expedition and economy." We find the Millers' claims of prejudice unconvincing and, consequently, the court did not abuse its discretion in denying the motion to sever.
MOTIONS FOR JUDGMENT NOTWITHSTANDING THE VERDICT AND FOR A NEW TRIAL
We reject the Millers' argument that the court erred in not granting their motion for a judgment notwithstanding the verdict or, in the alternative, for a new trial. That motion was based on the substantive arguments which we have discussed and rejected in this opinion. We note, however, that the Millers failed to move for a directed verdict before the jury retired for deliberations. The clear language of the rule is that a judgment notwithstanding the verdict may not be granted unless it is preceded by a motion for a directed verdict. Alaska Rule of Civil Procedure 50(b); 5A J. Moore, Federal Practice and Procedure § 50.01  at 50-14; § 50.08 at 50-85-7 (1980).
After the jury trial, an evidentiary hearing was conducted to decide the question, as the court put it, "of who owes what to whom as a result of the rescission." Following the conclusion of the hearing and arguments of counsel the court entered a memorandum decision and order concluding that the Sears owed the Millers a balance of $1,857.00.
The court found that the Millers had received benefits of $76,922.00 as a result of the transaction, consisting of a $60,000.00 down payment, $15,422.00 in principal and interest paid by the Sears to the Small Business Administration and $1,500.00 paid by the Sears for new carpeting in a part of the building. The court found that the Millers had lost as a result of the transaction $78,779.00, consisting of the net reasonable rental value of the property for seventeen months, $65,875.00; the cost to restore the walls and the interior of the building which had been altered, $8,490.00; the replacement cost less depreciation for carpet for the residential portion of the building $2,909.00; damage through neglect to the lawn and shrubbery of $1,005.00; and a $500.00 rental deposit paid by a tenant.
The court found that the Sears had custody of the property from November 1976, through August 1978, noting that the Sears "gave legal notice of cancellation of the contract by way of a letter dated March 12, 1977," but concluded that "[c]ancellation did not occur at that time." The court found that Mr. Sears began remodeling the residential portion of the property as soon as possession was received, continued doing so for two months, and could have completed remodeling and had the property available for commercial rental by the end of March of 1977. The seventeen months charged to the Sears' for lost rental value commenced from April 1, 1977, and terminated August 31, 1978. The court also found that the portion of the property which was already used for commercial purposes was rented for seventeen months and generated gross rental income of $33,660.00. The Sears had
The Sears argue that the court erred in charging them with the fair rental value of the property after they gave notice of rescission and offered to restore possession to the Millers. They contend that they should only pay actual receipts ($33,660.00), less expenses ($12,512.94), a net sum of $21,147.06. We agree.
A purchaser of real property who is innocent of any wrongdoing leading to the claim for restitution has a very limited obligation toward the property after he makes a timely offer to restore it to the seller, and the offer is refused. He may upon reasonable notice, abandon the property,
Applying these principles to the facts of this case necessitates a modification of the money judgment. The Sears did not personally occupy the premises as their residence. They should be charged with net proceeds, $21,147.06, rather than net fair rental value, $65,875.00.
The Sears also argue that the court erred in finding that they first offered to restore the property to the Millers on March 12, 1977. They contend that such an offer was made in their letter of January 12,
It contained a clear offer to restore the property. By contrast, the letter of January 12 did not contain language of present cancellation or an explicit offer to restore the property.
The Sears challenge the trial court's award to the Millers of $8,490.00 as the cost to restore the walls and interior of the building and $2,909.00 as the replacement cost less depreciation for carpeting which had been removed. Their argument here is that it was inconsistent of the court to charge the Sears for fair rental value based on the use of the property for commercial purposes and also award the challenged sums which are necessary to restore the property to its prior condition as a residence. This inconsistency, however, has been eliminated as a result of our opinion. When the Sears gave notice of their intent to rescind the contract and their offer to restore the property to the Millers, they were obligated to return the property in substantially as good a condition as when they received it, or its value. See Restatement of Restitution §§ 65, 66 (1937). The court found that the uncompleted remodeling "unquestionably adversely affected the value of the property... ." Because that finding is supported by evidence, we find no error.
The Sears claim that the court erred in concluding that labor done by Dallas Sears had not been shown by a preponderance of the evidence to have improved the property. The Sears do not refer us to any part of the record which shows that Mr. Sears' labor expenses did contribute to improvements of the property. Because this finding is not clearly erroneous, it must stand. Alaska Rule of Civil Procedure 52(a).
The Sears also contend that the court erred in failing to grant them prejudgment interest on their $60,000.00 down payment, while awarding interest to the Millers on the sum of $1,857.00 from November 1, 1976.
We agree that the court erred in not awarding the Sears prejudgment interest on their down payment. In a case such as this, based on breach of a fiduciary duty, the interest should run from the time each payment was made.
The Millers are also entitled to prejudgment interest on the amounts credited to them. Prejudgment interest on the rental receipts should be assessed as of the time of receipt, after making necessary deductions
EXPERT WITNESS COSTS AND ATTORNEY'S FEES
The Millers challenge the court's award of $2,289.58 to pay the fees of expert witnesses who testified on behalf of the Sears, arguing that Administrative Rule 9(c) limits the allowable taxable cost to expert witnesses to $25.00 per hour. Administrative Rule 9(c) provided at the time of trial:
Our general cost rule, Rule 79(b)
Because it is a fundamental principle of construction that where two enactments conflict, the one which is more specific is to govern,
It follows that the award of costs must be modified. Absent extraordinary circumstances, such as bad faith or reprehensible conduct,
The Millers' arguments concerning attorney's fees are premised on the fact that such fees were awarded following the jury trial, but before the evidentiary hearing at which the Millers received an affirmative
AFFIRMED in part; VACATED in part; and REMANDED.
COMPTON, J., not participating.
CONNOR, Justice, with whom COATS, Judge, joins, dissenting in part.
I disagree with the majority opinion as to the expert witness fees. I believe that the trial judge has discretion to award fees to an expert witness in excess of $25.00 per hour under that part of Civil Rule 79(b) which reads:
Expert witnesses are frequently necessary to bring or defend a lawsuit. The fees of expert witnesses called by private litigants are a matter of negotiation between the expert and the litigant. It is well-known that these fees can vary greatly, depending upon the subject matter and the particular field of expertise as to which the expert may testify. The trial court needs to have the discretion to award expert witness fees in order for the prevailing party to recover some of the necessary costs of litigation. In my view, Civil Rule 79(b) gives the trial judge this authority.
R. Mallen, J. Levit, Legal Malpractice § 98 at 143-44 (1977). See G. Bogert, Trusts & Trustees § 544 (2nd ed. 1978).
Under general principles applicable to fiduciaries, a fiduciary must bear a heavy burden to discharge his burden of proof. G. Bogert, supra note 12, at 448.
Illustration 5 provides: