Hayden Corp. v. Glacier Park Co.

Citations: 1995 Ore. App. LEXIS 819; 134 Or. App. 604; 896 P.2d 604Docket: 9309-05667; CA A84751

Court: Court of Appeals of Oregon; May 31, 1995; Oregon; State Appellate Court

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Plaintiff Hayden Corporation appeals a judgment dismissing its claims for fraud and breach of contract against defendant Glacier Park Riverpoint Company, following the granting of summary judgment in favor of the defendant. The case stems from a joint venture agreement established in August 1988 to develop a 41-acre property in Spokane, with defendant contributing the real estate and plaintiff managing the project and sharing development costs. The agreement required the defendant to pay the Local Improvement District (LID) assessment, which created a lien on the property. Plaintiff paid defendant $150,000 to satisfy this obligation, but defendant chose to pay the assessment in installments.

In 1992, after a dispute, the parties executed an 'Assignment of Interest in Partnership' where defendant warranted that there were no outstanding claims against the venture interest other than existing joint venture debts. However, at that time, the unpaid balance of the LID assessment exceeded $200,000, creating a lien on the property. Following the assignment, defendant began sending LID assessment bills to plaintiff, who demanded payment, leading to this lawsuit.

Plaintiff's claims include breach of contract for defendant's failure to pay the LID assessment and fraud for allegedly misrepresenting the absence of liens against the property. Defendant argued that the release clause in the assignment agreement barred the contract claim and contended there were no representations made regarding liens, nor a duty to disclose the LID assessment balance.

The trial court granted summary judgment for the defendant without elaboration and awarded attorney fees and costs. Plaintiff's appeal focuses on two key issues related to the fraud claim: whether the warranty in the assignment agreement constituted an actionable representation regarding the absence of claims and whether there was a disputed factual issue regarding the reasonableness of plaintiff's reliance on that warranty. The appellate court has reversed the lower court's judgment and remanded the case for further proceedings.

Plaintiff contends that under Washington law and the assignment agreement, defendant’s "venture interest" encompassed its stake in the partnership's real property. Consequently, plaintiff argues that defendant's warranty regarding its unencumbered venture interest implied that its real property interest was free from liens or claims. Plaintiff claims this representation was false due to an LID lien against the partnership's real property, which constituted a claim against defendant’s interest.

Defendant counters that the warranty is misinterpreted and only pertains to liens or claims against its individual interest in partnership income, arguing that the warranty was meant to assure plaintiff that defendant had not assigned its interest to a bank or pledged its income. However, the court agrees with plaintiff, asserting that defendant's interpretation conflicts with the warranty's language and Washington partnership law. 

Defendant intended to transfer its entire property rights in the joint venture to plaintiff, as defined in their agreement. Under Washington law, a partner's property rights include rights in specific partnership property, interest in the partnership, and management rights. This means that any lien on partnership property also encumbered defendant's joint venture interest. The LID assessment constituted a claim against the partnership, making defendant’s interest in the property subject to attachment.

Defendant must demonstrate that the warranty was made to the best of its knowledge after reasonable inquiry to avoid liability for misrepresentation. Moreover, defendant argues against plaintiff's fraud claim by claiming that plaintiff was aware of the warranty's falsity. However, the court finds the evidence presented by defendant open to various interpretations, and a party is entitled to rely on an express warranty without further investigation.

The court concludes that it erred in granting summary judgment against plaintiff's fraud and breach of contract claims. Defendant's assertion that the release provision in the assignment agreement barred plaintiff's claims regarding the LID assessments was accepted by the trial court, which contributed to the error.

If the warranty in the assignment agreement was fraudulently provided, the defendant violated its obligation to transfer an unencumbered property interest to the plaintiff, making the breach material enough to negate the release provision's enforcement. Consequently, factual issues preventing summary judgment on the plaintiff's fraud claim also obstruct summary judgment on the breach of contract claim. The reversal of the summary judgment, which led to the trial court’s supplemental judgment awarding fees and costs, necessitates the reversal of that supplemental judgment as well. Both Glacier Park Company and Glacier Park Riverpoint Company are defendants in this appeal, with Riverpoint being the primary focus referred to as 'defendant.' The facts are analyzed favorably for the plaintiff, who is the non-moving party. The assignment agreement specifies 'venture interest' as the defendant’s complete rights in the joint venture and identifies 'Joint Venture Debt' as a 1988 construction loan; however, it does not define 'other Joint Venture obligations.' The defendant's argument that the plaintiff did not demonstrate intent to defraud is deemed insufficient as it misinterprets the burden of proof for summary judgment. Washington law governs this dispute per paragraph 7.4 of the assignment agreement. The 'interest in the partnership' pertains to a partner's share of profits and surplus as defined by RCW 25.04.260. In its motion for summary judgment, the defendant did not assert that the warranty was given accurately after reasonable inquiry, nor did it argue that the LID assessment fell under 'Joint Venture Debt or other Joint Venture Obligations.' The defendant references deposition testimony suggesting the plaintiff was aware of the unpaid LID assessment but failed to consider it during negotiations; however, this testimony could also imply that the plaintiff recognized the LID assessment as a lien until paid but was unaware of the defendant's non-payment.