Alpine Mountain Homes v. Bear Creek Homes, 01-3072-L-3; A121618.

• Decision Date: 26 October 2005
• Docket Number: 01-3072-L-3; A121618.
• Citation: 202 Or. App. 390,122 P.3d 111
• Parties: ALPINE MOUNTAIN HOMES, INC., an Oregon corporation, Respondent, v. BEAR CREEK HOMES, INC., an Oregon corporation; Lonny Lee and Kim Lee, Appellants.
• Court: Oregon Supreme Court

Page 111

122 P.3d 111

202 Or. App. 390

ALPINE MOUNTAIN HOMES, INC., an Oregon corporation, Respondent, v. BEAR CREEK HOMES, INC., an Oregon corporation; Lonny Lee and Kim Lee, Appellants.

01-3072-L-3; A121618.

COURT OF APPEALS OF OREGON.

Argued and Submitted May 20, 2004.

Decided October 26, 2005.

W.V. Deatherage argued the cause for appellants. With him on the brief was Frohnmayer, Deatherage, Pratt, Jamieson, Clarke & Moore, P.C.

Walter L. Cauble, Grants Pass, argued the cause for respondent. With him on the brief was Schultz, Salisbury, Cauble & Dole.

Before HASELTON, Presiding Judge, and ORTEGA and ROSENBLUM,^* Judges.

ORTEGA, J.

Defendants appeal a summary judgment in favor of plaintiff. They contend that the trial court erred not only in awarding summary judgment to plaintiff on its breach of contract claim but also in denying defendants' cross-motion for summary judgment. Both sides contend that their interpretation of their contract is the only reasonable interpretation. However, because the contract is ambiguous, neither party was entitled to summary judgment. Accordingly, we reverse and remand.

This case arises out of the sale to plaintiff of defendants' business assets. The dispute turns on whether the sale and purchase agreement required defendants to make certain payments to a financing company that provided inventory credit first to defendants and then to plaintiff. Evidence in the summary judgment record permits the following version of the events in this case and, except where otherwise noted, we understand these facts to be undisputed.

Defendants Lonny Lee and Kim Lee operated a dealership, Bear Creek Homes, Inc. (the dealership), that sold manufactured homes made by Fleetwood Homes (Fleetwood). Defendants purchased their inventory of manufactured homes from Fleetwood and financed it through a "flooring agreement" (a commercial line of inventory credit) with Bombadier Capital, Inc. (BCI).¹ BCI holds the manufacturer's statement or certificate of origin, which shows ownership of each manufactured home, until it is fully paid off.

If inventory financed by the flooring agreement remains unsold for a certain period, usually about a year, "curtailments" start to become due. Curtailments are payments on principal, separate from the interest payments on a flooring agreement. Although it is not entirely clear from the record, it appears that curtailment payments accelerate at some point. According to testimony in the record, when curtailments first accrue, they amount to only two to three percent of the principal amount, but "those curtailments grow monthly and in a short time they grow to 100% due."

With the flooring arrangement in mind, we turn to the parties' contracts with each other. In March 2001, plaintiff and defendants signed a preliminary agreement intended "to document verbal agreements made between all parties." The March agreement included a requirement that plaintiff assume responsibility for some flooring payments:

"[Plaintiff agrees] to pay for the past flooring bill of $4896.37 minus the Fleetwood flooring responsibility of $485.11 for a payment of $4411.26. This shall be wired to [BCI]. It will be reflected as part of the down payment on the purchase of [the dealership]. The next flooring payment, to be received by [BCI] on or before March 14, 2001, for $4410.02 shall be paid directly by [plaintiff]. Future flooring payments reimbursed or paid by Fleetwood shall go to flooring payments."

There is a factual dispute regarding whether defendants were closing down their business immediately before the sale. Plaintiff's general manager stated that defendants were shutting down the dealership and that plaintiff "decided to step in and cover operating expenses to keep the business afloat pending a purchase agreement." One defendant, on the other hand, stated that "[w]e were not shutting down our business since we had others who were interested in purchasing [the dealership]. One of the reasons plaintiff wanted to have [the March] agreement executed was to secure their interests while working on getting a flooring line established."

In late May, plaintiff and defendants executed a sale and purchase agreement.² That agreement provided that plaintiff would purchase defendants' "[a]ssets, including inventories," for $50,000. Specifically, plaintiff was required to pay defendants $25,000 at closing, with the balance of the purchase price to be paid, pursuant to a promissory note, in equal monthly installments starting on July 1, 2001. Plaintiff was to pay the balance in full one year from the closing date.

Defendants agreed to sell to plaintiff, among other assets, "[a]ll inventories of supplies and merchandise owned by [defendants], together with any replacements or additions to the inventories made before the closing date, but excluding inventory disposed of in the ordinary course of [defendants'] business." Defendants further agreed to maintain inventories at normal levels.

Defendants' assets included lot models of manufactured homes that defendants had financed through their flooring agreement with BCI. Certain lot models were the subject of the following contract provision:

"SECTION 6. INVENTORY FLOORING LIABILITY; PENDING TRANSACTIONS

"Inventory-Lot Models described on Exhibit `C' attached hereto and incorporated herein by reference, are the subject of a flooring agreement between [defendants] and [BCI]. On the closing date, [BCI] and [plaintiff] will negotiate a new flooring agreement that will refinance the same Inventory-Lot Models described on Exhibit `C'. Any obligation owed by [defendants] to [BCI] under the current flooring agreement will be the sole responsibility of [defendants] and the Inventory-Lot Models will be transferred from [defendants] to [plaintiff], free and clear of any prior liens. [Defendants agree] to execute any documentation necessary to release any interest of [defendants] in the Inventory-Lot Models and to release such models from the existing financing agreements."

Exhibit C lists eight inventory-lot models.

The precise timing of events before and after the May closing is not entirely clear. However, the exact timing is not critical to our analysis. Pursuant to the sale and purchase agreement, plaintiff entered into relationships with BCI and Fleetwood. Shortly before the May closing, plaintiff obtained a flooring agreement with BCI. At some point, plaintiff also became a dealer of Fleetwood homes.³

Subsequently, a less than fully explained accounting procedure took place between Fleetwood and BCI. In late June or early July, Fleetwood paid off defendants' outstanding account balance with BCI. Shortly thereafter, BCI paid the same amount to Fleetwood; according to BCI's account manager, that payment was "made by [BCI] to [Fleetwood] on behalf of [plaintiff] for the purchase of inventory listed on the referenced invoices."⁴ Because of Fleetwood's payment on defendants' account, BCI indicated that defendants had "a zero balance on their account" with BCI. The "zero balance" on defendants' account was necessary to enable plaintiff to refinance the lot models with BCI.

Meanwhile, between June and August, Fleetwood "reinvoiced" plaintiff for the purchase price of certain lot models. The invoices from Fleetwood to plaintiff were for amounts identical to or less than the prices in the original invoices to defendants, which we understand to be the purchase price that defendants were charged. The prices reflected in Fleetwood's invoices to plaintiff were not reduced by the amount of the curtailments (that is, payments on principal) due from defendants at the time the parties closed their sale and purchase agreement.

The curtailments owing on defendants' account had grown substantially between January and May of 2001. In January, curtailments of three percent were due on two of the eight models listed in the sale and purchase agreement. In March, when the parties entered into their preliminary agreement, curtailments on the models in dispute totaled $9,873.25. The curtailments in May, which were owing on five of the eight inventory lot models, totaled $77,979.19. Those curtailments constituted 100 percent of the principal due on two models, four percent on the third, two percent on the fourth, and six percent on the fifth.

The parties disagree about whether the reinvoicing and treatment of the curtailments were handled in accordance with the sale and purchase agreement. Plaintiff's general manager stated that he did not realize until after the parties entered into that agreement that defendants had not paid the curtailments. He further stated that, before the parties entered into the agreement, he talked with the two individual defendants about statements from BCI listing the curtailments due from defendants and was told that "plaintiff would not have to worry about paying those to [BCI] because defendants had worked it out with [BCI]." Defendants, on the other hand, apparently understood that arranging for Fleetwood to pay BCI, allowing plaintiff to refinance, would mean that the curtailments were "worked out." According to defendants' affidavit testimony, curtailments typically did not become due until a year after the invoice date; the dates on the invoices from Fleetwood to plaintiff are the dates on which BCI would base curtailments on plaintiff's account, apparently meaning that plaintiff would begin owing curtailments of two to three percent one year after the "reinvoices." Additionally, one of the defendants stated that the payment by Fleetwood to BCI was made "pursuant to the understanding of the parties"; it appears from defendant's testimony that the parties contemplated that plaintiff would repurchase the inventory models at the same purchase price that Fleetwood had charged defendants, but would not incur any other obligations related to those models.

In July and August, pursuant to the promissory note, plaintiff made the first...