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HOGAN v. MONROE, 38 Wn. App. 60 (1984)684 P.2d 757

HOGAN v. MONROE, 38 Wn. App. 60 (1984)
684 P.2d 757
JAMES D. HOGAN, ET AL, Appellants, v. DON A. MONROE, ET AL, Respondents.
No. 5196-0-III.
The Court of Appeals of Washington, Division Three.
July 3, 1984.

[1] Attorney and Client — Practice of Law — Unauthorized
    Practice — Lease Option Agreement. Preparation of a lease
    option agreement affecting realty, personal property,
    existing contracts, and the legal rights and relationships of
    different parties is the practice of law. A layman performing
    such a service will be held to the standards of a reasonably
    prudent attorney and responsible for any damages reasonably
    foreseeable if the service is negligently performed.

[2] Attorney and Client — Practice of Law — Unauthorized
    Practice — Pro Se Exception. The recipient of a commission
    is not a person acting on his own behalf, for purposes of the
    right of a layman to act as his own attorney.
Page 61

  Nature of Action: The sellers of a dairy farm sought damages
from the real estate broker and salesman after the salesman
prepared a defective lease option agreement and the purchasers

  Superior Court: The Superior Court for Pend Oreille County,
No. 7709, Larry M. Kristianson, J., on May 3, 1982, dismissed the
action at the close of the plaintiff's case.

  Court of Appeals: Holding that the realtors had engaged in
the practice of law, the court reverses the dismissal and
remands for further proceedings.

  Douglas D. Lambarth and Lambarth & Geissler, for

  William Goss, Jr., Turner, Stoeve, Gagliardi & Goss, Rial R.
Moulton, and Winston & Cashatt, for respondents.


  James D. Hogan and Patricia L. Hogan (Hogans) appeal an order
of dismissal granted at the end of their case. The critical issue
concerns whether the preparation of an addendum to an earnest
money agreement by a real estate agent is the practice of law,
and if so, what standard of care should be applied when
evaluating that addendum. We reverse and remand.

  In 1978, plaintiffs, Mr. and Mrs. Hogan, purchased a dairy farm
near Newport, Washington, and operated it successfully until
1980. At that time, they listed the property for sale with Larry
Brenner, an agent for Pend Oreille Properties. Mr. Brenner showed
the property to Mr. and Mrs. Monroe, and on July 11, the Monroes
signed an earnest money agreement offering to purchase the farm,
equipment, cattle and hay for $340,000, subject to their
obtaining a loan from Farmers Home Administration. The sale was
to close no later than December 12, 1980.

  On July 20, 1980, because the Monroes were having difficulty
obtaining the necessary funds to close by December 12, Mr.
Brenner proposed a lease option agreement, entitled addendum to
earnest money agreement. Mr. Hogan
Page 62
expressed a concern that the down payment would have to be large
to secure the cattle, equipment and hay. Mr. Brenner responded he
"could draw up a lease-option that would sew the Monroes in so
tight they would have to perform on the lease option." Mr. Hogan
testified Mr. Brenner further stated if the Monroes defaulted in
any of the rental payments Mr. Hogan would be able to assume
immediate possession and operation of the farm. The addendum was
signed and the down payment received July 30.

  In the fall, Mr. Brenner informed Mr. Hogan, who was by then in
California, that the Monroes were having a difficult time
operating the farm and selling their home, but that the loan
application could be approved by January 1, 1981. Rent payments
were late in September and October and no payment was received
for November. In December, when rent was not forthcoming, legal
proceedings were commenced. By then there was significant damage
to the farm, cattle, equipment and dairy operation and payments
owed by the Monroes on underlying contracts were in default. The
Monroes were served on December 18 with a notice to pay or
vacate, followed by filing of an unlawful detainer action. The
Superior Court concluded the relationship between the parties was
that of vendor-vendee and dismissed the action. Subsequently, an
action to quiet title, ejectment and damages was filed February
10, 1981. Shortly thereafter the Monroes vacated the premises and
were adjudicated bankrupt in Corvallis, Oregon. The quiet title
action was amended to include an action against Pend Oreille
Properties, Larry Brenner, agent, and George McAvoy, broker, now

  The documents> <prepared> by the realtor, which constituted the
basis of this action, were entitled real estate purchase and sale
agreement, dated July 11, 1980, and addendum to earnest money
agreement, dated July 30, 1980. We concern ourselves only with
the second document, the addendum, and whether the court erred as
a matter of law when it determined the standard of care to be
used in the preparation of this document.
Page 63

  The most recent case involving similar issues is Bowers v.
Transamerica Title Ins. Co., 100 Wn.2d 581, 675 P.2d 193 (1983).
There, the escrow agent prepared escrow instructions, an
unsecured promissory note, a statutory warranty deed, and a
modification of the promissory note. After closing, the purchaser
borrowed heavily and used the property as security. A petition in
bankruptcy was filed against the purchaser and it was
subsequently learned he had departed the jurisdiction. Plaintiff
sued the escrow company alleging it had engaged in the
<unauthorized> <practice> <of> <law> and in so doing had caused the
plaintiffs to lose $35,000, the value of the security interest,
in addition to treble damages, attorney's fees and costs pursuant
to RCW 19.86, Consumer Protection Act. The court stated at page

    The selection and drafting of such documents is the
  work of lawyers and is not to be performed by laymen.
  We recognized in In re Droker, 59 Wn.2d 707, 719,
  370 P.2d 242 (1962) that preparation of legal forms
  is the practice of law. . . .

    More recently, we reaffirmed out commitment "`to
  protect the public from the activity of those who,
  because of lack of professional skills, may cause
  injury whether they are members of the bar or persons
  never qualified for or admitted to the bar.'" Hagan
  & Van Camp, P.S. v. Kassler Escrow, Inc., 96 Wn.2d 443,
  447, 635 P.2d 730 (1981), quoting [Washington
  State Bar Ass'n v. Great W. Union Fed. Sav. & Loan
  Ass'n, 91 Wn.2d 48, 54-55, 586 P.2d 870 (1978)] at

In other real estate cases, escrow agents have been held liable
for negligence under the attorney standard of care, Andersen v.
Northwest Bonded Escrows, Inc., 4 Wn. App. 754, 484 P.2d 488
(1971); Hecomovich v. Nielsen, 10 Wn. App. 563, 518 P.2d 1081
(1974), except where the damages were not reasonably foreseeable.
Hangman Ridge Training Stables, Inc. v. Safeco Title Ins. Co.,
33 Wn. App. 129, 652 P.2d 962 (1982).[fn1]
Page 64

  The Monroes cite Commonwealth v. Jones & Robins, Inc.,
186 Va. 30, 41 S.E.2d 720 (1947), which considers the question of
whether the preparation by realtors of deeds, deeds of trust,
mortgages and deeds of release constituted the illegal practice
of law. The court's decision affirmed a recommendation made by
the Committee on the Integration of the Virginia State Bar that a
realtor was not engaged in the practice of law when he prepared
preprinted forms, including earnest money agreements, as an
incident to the regular transaction of his business.

  [1] In the case before us, the addendum substantially altered
the legal rights of the parties with respect to land and personal
property. In the prior unlawful detainer action, the trial court
characterized the relationship of the parties as vendor to vendee
"where the person in possession has a right of a prospective
purchaser or where an agreement between the parties leaves an
equity of redemption in the person in possession." In addition to
redemption rights, under the addendum the purchasers took
possession of the realty, substantial expendable personal
property, livestock and equipment; they assumed financial
responsibility for making payments on underlying contracts; they
assumed the responsibility of operating a successful dairy. The
sellers, in contrast, were deprived of adequate security and
legal remedies should the purchasers default. Thus, it was
reasonably foreseeable from the face of the document that
problems could occur.

  In Washington State Bar Ass'n v. Great W. Union Fed. Sav. &
Loan Ass'n, 91 Wn.2d 48, 54, 586 P.2d 870 (1978), the court

  It is the nature and character of the service
  performed which governs whether given activities
  constitute the practice of law. . . .

    The "practice of law" does not lend itself easily
  to precise definition. However, it is generally
  acknowledged to include not only the doing or
  performing of services in the courts of justice,
  throughout the various stages thereof, but in a
  larger sense includes legal advice and counsel and
  the preparation of legal instruments by
Page 65
  which legal rights and obligations are established.

  There is no doubt legal rights and obligations were established
by the addendum. In an offer of proof made by the Hogans,
testimony by attorney Paul Bastine would have been presented
showing the high degree of skill and expertise necessary to
adequately protect both parties. That degree of skill was
necessary (1) to completely define the legal relationship between
the parties, (2) to provide a complete explanation of the risks
involved by the transfer of possession of assets, (3) to explain
the types of security agreements which were available, (4) to
provide for default in case either party failed to perform. Under
the circumstances, the addendum was as complicated and legally
significant as the ultimate real estate contract, deed and other
documents necessary to close the sale.

  Thus, under the rule announced in Washington State Bar Ass'n
we conclude that the drafting and use of the addendum constituted
the practice of law because it established legal rights and
obligations of the parties similar to those in a real estate
contract. The realtor who drafted it must be held to the standard
of care of a reasonably prudent attorney. The duties of one who,
without a license, attempts to practice law are the same duties
as those of a licensed attorney. Bowers, at 587 (quoting
Burien Motors, Inc. v. Balch, 9 Wn. App. 573, 513 P.2d 582

  [2] Pend Oreille Properties argues the actions of the
realtors fall within the "pro se" exception[fn2] to the general
rule that one engaged in the practice of law must exercise the
standard of care of a reasonably prudent attorney. Washington
State Bar Ass'n states at pages 56-57:

    Additionally, we have recognized that a party to a
  legal document may select, prepare or draft that
  document without fear of liability for unauthorized
  practice. . . . This exception to our general
  prohibition against the practice of law by laypersons
  is analogous to the "pro se" exception for court
  proceedings. Both exceptions are
Page 66
  founded upon the belief that a layperson may desire
  to act on his own behalf with respect to his
  legal rights and obligations without the benefit of

    The "pro se exceptions" are quite limited and apply
  only if the layperson is acting solely on his own
  behalf. . . . Moreover, a layperson who receives
  compensation for such legal services may not rely
  upon the "pro se" exception. The receipt of
  compensation is conclusive evidence that the
  layperson is not merely acting for himself but has
  assumed the additional burden of acting for another..
   . . In such instances, a layperson will be liable
  for the <unauthorized> <practice> <of> <law even though he
  is a party to, or asserts a substantial interest in,
  the document or court proceeding.

  The earnest money agreement and addendum each refer to a
"commission". Without further explanation, this is convincing
evidence the realtors represented another party, in this
instance, the Hogans. Hence, we find under the present
circumstances the realtors were not acting solely on their own
behalf and did not come within the pro se exception.

  The judgment of the Superior Court is reversed; the case is
remanded for further proceedings to determine whether defendants
met the attorney standard of care in the preparation of the

  GREEN, A.C.J., and THOMPSON, J., concur.

[fn1] Remanded by the Supreme Court to the Court of Appeals,
101 Wn.2d 1009 (1984). The Court of Appeals, by order dated April 5,
1984, remanded the case to the Superior Court for reconsideration
in light of Bowers.

[fn2] See Admission to Practice Rule 12.

Inside HOGAN v. MONROE, 38 Wn. App. 60 (1984)684 P.2d 757