Dan Bunn, Inc. v. Brown

• Decision Date: 07 February 1979
• Citation: 285 Or. 131,590 P.2d 209
• Parties: DAN BUNN, INC., and Dan Bunn, Individually, Appellants-Cross-Respondents, v. Milton O. BROWN and Donald E. Kettleberg, Respondents-Cross-Appellants, Mary Jean Ratzlaff and Lavern Ratzlaff, Respondents. TC 23149; SC 25446.
• Court: Oregon Supreme Court

Page 209

590 P.2d 209

285 Or. 131

DAN BUNN, INC., and Dan Bunn, Individually Appellants-Cross-Respondents, v. Milton O. BROWN and Donald E. Kettleberg, Respondents-Cross-Appellants Mary Jean Ratzlaff and Lavern Ratzlaff, Respondents.

TC 23149; SC 25446.

Supreme Court of Oregon, Department 2.

Argued and Submitted Dec. 6, 1978.

Decided Feb. 7, 1979.

Robert Mix, Corvallis, argued the cause and filed the brief for appellants-cross-respondents.

Gary Rueter of Marsh, Marsh, Haugeberg, Rueter & Phillips, P. C., McMinnville, argued the cause and filed the brief for respondents-cross-appellants Milton O. Brown and Donald E. Kettleberg.

John Bryan of DeArmond, Sherman & Bryan, Salem, argued the cause and filed a brief of respondents Mary Jean Ratzlaff and Lavern Ratzlaff.

Before DENECKE, C. J., and TONGUE, BRYSON and LINDE, JJ.

TONGUE, Justice.

This is a suit by a real estate developer against two Portland attorneys for specific performance of an earnest money agreement for the sale of approximately one thousand acres of undeveloped land in Polk County. ¹ Defendants alleged as defenses that plaintiff failed and neglected to perform all of the conditions of the sale within 30 days, as provided by the agreement, and that after a request by plaintiff for an extension of time for performance the parties agreed to rescind the earnest money agreement and pay to plaintiff a sum equivalent to 10 percent of the sales price of the property if sold to a subsequent purchaser.

The trial court denied specific performance of the earnest money agreement, based upon findings that neither party "fully or substantially performed their respective obligations under the terms of the earnest money agreement" and that there was a "failure of proof on both sides regarding performance of said agreement." The trial court, however, entered judgment in favor of plaintiff for the sum of $50,000, based upon findings that the parties had "effected a binding oral rescission of said earnest money agreement" and created "a new or substitute contract" under which defendants were obligated to pay $50,000 to plaintiff.

In appealing from that decree plaintiff's principal contentions are: (1) that the trial court erred in denying specific performance of the earnest money agreement and (2) that there was no "clear and convincing" evidence of a rescission or of a "new agreement" and that any such oral agreement was void under the Statute of Frauds. ²

The facts.

Defendants Brown and Kettleberg are Portland attorneys. In 1968 they purchased a tract of approximately one thousand acres of undeveloped land in Polk County. In January 1976 Mr. Kettleberg called Mr. Bunn to inquire whether he might be interested in defendants' land. Defendants testified that they were interested in selling it at that time because of their concern over the possible imposition of increasingly restrictive land use regulations and the adverse effect that such regulations would have on the value of the property. Mr. Bunn had been in the real estate and "subdivision business" since 1964.

1. The meeting on February 6, 1976 preparation of earnest money agreement.

Mr. Bunn, after being contacted by Mr. Kettleberg, made an investigation of the property and met with defendants in their office on February 6, 1976. At that meeting Mr. Bunn explained to defendants his plan for subdividing a part of the property as an "initial phase." The parties then proceeded with negotiations, during which Mr. Bunn offered to pay $350,000 for the property, but with no down payment. According to defendants, Mr. Bunn told them that the contract payments were to be made from funds which he hoped to receive from sales made after obtaining subdivision approval, but that he would provide security for such payments, to be put in escrow. At that meeting Mr. Bunn also provided defendants with a financial statement showing a net worth of over $1,000,000.

After discussing this and other matters an earnest money agreement was prepared and signed. It provided for sale of the property by defendants to plaintiff at a purchase price of $350,000, with no down payment, and with payments of $11,658 every three months. The agreement included a provision for deed releases, so as to permit plaintiff to proceed with the subdivision of the tract. It also acknowledged the receipt of plaintiff's promissory note for $30,000 as earnest money, to be returned "upon closing."

The earnest money agreement also provided, among other things, that time was of the essence and that "closing of this transaction shall be within 30 days." In addition, it was provided that as security for the quarterly contract payments, "Buyer shall deposit in an agreed escrow account at his expense assignments of real property contracts to seller with an approximate $30,000 balance and a bill of sale with endorsed stock certificates * * * conveying all title to Seller of 100% Of stock" in a corporation with assets consisting of a tavern in Washington, with an agreed value of $50,000.

Finally, the agreement provided that:

"This agreement is subject to * * * obtaining a satisfactory report for subdivision purposes. * * *."

With reference to that provision, plaintiff testified that he wanted to know what the attitude of Polk County would be toward approving the subdivision before purchasing the property and that he "wanted an escape clause if I went over there and they told me the comprehensive plan or something was wrong for the area." Plaintiff also testified that a "satisfactory report for subdivision purposes" did not mean formal approval, which would take six to eight months, but meant an oral indication that the Planning Commission would look favorably on the proposed subdivision.

Defendants conceded that plaintiff suggested that provision. They testified, however, that the provision was not included "only at Mr. Bunn's request." They also testified that even though, in the event of a default, they could have sued plaintiff for breach of contract, that provision was of importance to them because plaintiff had told them that "each deal has to stand on its own feet and support itself" and that he intended to make the contract payments after getting subdivision approval and out of the sale of the subdivided parcels.

According to plaintiff, at the conclusion of that meeting it was agreed that the final contract would be prepared by defendant Brown. This was denied by defendants.

2. Intervening events failure to get "satisfactory report for subdivision purposes."

Plaintiff then ordered a title report and hired a sanitary engineer to make septic tank soil tests. He also made an application to Polk County for subdivision approval. That application was put on the agenda of the Planning Commission for March 2, 1976. On February 24, 1976, plaintiff also filed an application for septic tank evaluation, which required a minimum of three weeks for a report by the county sanitarian. For some reason, the hearing on the application for subdivision was not heard on March 2d, and was not heard until March 16th when it was denied.

At some time prior to Friday, March 5, 1976 (three days before the expiration of the 30-day period for closing the transaction), plaintiff called defendants and arranged for a meeting on that date to discuss an extension of time because of the postponement in the meeting of the Planning Commission. Plaintiff claims to have established an escrow with Key Escrow as of that date and to have delivered to it a copy of the earnest money agreement, a copy of the title report, and some ledger sheets representing payment records relating to several contracts being collected. He had not, however, placed in escrow any original land sale contracts or assignments of such contracts, claiming that defendants were to pick out from that group of contracts the ones they desired to have held as security. Neither had plaintiff placed in escrow the bill of sale or stock certificates for the Washington corporation, endorsed for transfer by himself, his wife and his brother. At first plaintiff testified that they had been endorsed and ready for deposit in escrow. He later admitted that they were not endorsed by his wife and brother until March 10th or 15th, but said that he "could have got them in a minute's notice."

The escrow file of Key Escrow, as offered in evidence by plaintiff, included a copy of a letter dated October 15, 1976 from it to plaintiff indicating that the escrow had been opened in its Salem office on March 5th. From a "log book" of the serial numbers of escrow accounts, however, it appears that if those serial numbers were correct this escrow account could not have been opened prior to Monday, March 8th. It also appeared that plaintiff was one of the largest customers of Key Escrow and met with one of its owners the day after his March 5th meeting with defendants in an unsuccessful attempt to secure an extension of the 30-day period for the closing of the transaction, which was to expire on Monday, March 8th.

In addition, it appeared that between the meetings of February 6th and March 5th Mr. Ratzlaff, the tenant on the property, expressed to defendants an interest in purchasing the property and that there had been some negotiating by defendants with him for a possible sale of the property to him at a price of $500,000.

3. The meeting on March 5, 1976 refusal of extension agreement to rescind earnest money agreement.

On Friday, March 5, 1976, plaintiff met with defendants at their office in Portland and offered them $2,000 for an extension of the time for closing the transaction, apparently because of the postponement of the hearing before the Planning Commission. Defendants refused that offer, saying that they had another deal pending with Mr. Ratzlaff for $500,000. Plaintiff testified that there was discussion of the conditions of the earnest money agreement relating to subdivision approval and that he then told defendan...