Denaxas v. Sandstone Court of Bellevue

• Decision Date: 06 February 2003
• Docket Number: No. 71858-0.,71858-0.
• Citation: 148 Wash.2d 654,63 P.3d 125
• Court: Washington Supreme Court
• Parties: Basil DENAXAS and Ruth Denaxas, husband and wife, Petitioners, v. SANDSTONE COURT OF BELLEVUE, L.L.C., Respondent, Kidder, Mathews & Segner Inc., a Washington Corporation, James Klinger and Jane Doe Klinger, husband and wife and the marital community composed thereof, Third Party Defendants, and Pacific Northwest Title Company of Washington, Inc., Third Party Petitioner.

63 P.3d 125

148 Wash.2d 654

Basil DENAXAS and Ruth Denaxas, husband and wife, Petitioners, v. SANDSTONE COURT OF BELLEVUE, L.L.C., Respondent,

Kidder, Mathews & Segner Inc., a Washington Corporation, James Klinger and Jane Doe Klinger, husband and wife and the marital community composed thereof, Third Party Defendants, and

Pacific Northwest Title Company of Washington, Inc., Third Party Petitioner.

No. 71858-0.

Supreme Court of Washington, En Banc.

Argued October 15, 2002.

Decided February 6, 2003.

Thomas F. Peterson, Betts Patterson & Mines, Seattle, for Petitioners.

Don Badgley, Badgley Mullins Law Group, for Defendants.

John K. Wheeler, Douglas Hofmann, Seattle, M. Gerald Herman, Herman Recor Araki Kaufman Simmerly & Jackson, Bellevue, Linda Clapham, Emilia Sweeney, Seattle, for Respondent.

IRELAND, J.

Basil and Ruth Denaxas (collectively Seller) brought this action against Sandstone Court of Bellevue, L.L.C., assignee of Singleton Associates¹ (collectively Purchaser), for failure to pay on a promissory note in a real estate transaction. Purchaser counterclaimed against Seller and filed third party claims against Kidder, Mathews & Segner (Realtor)² and Pacific Northwest Title Company (Title Company). The trial court granted summary judgment against Purchaser, which was reversed by the Court of Appeals in an unpublished opinion. Denaxas v. Sandstone Court of Bellevue, L.L.C., noted at 107 Wash.App. 1055, 2001 WL 950818 (2001). The Title Company and Seller petitioned this court for review, and we granted the petition. Finding that the Title Company did not breach its duty to Purchaser and that Purchaser had constructive knowledge of the correct legal description and the correct square footage at the time of closing, we reverse the Court of Appeals and reinstate the trial court's grant of summary judgment of dismissal.

FACTS

Seller owned commercial property in downtown Bellevue, Washington. Mark McAlister, an agent with Realtor, approached Seller in late 1997 about selling their property. Seller told McAlister that they owned two lots and a strip of a third (Denaxas property) and expressed willingness to consider offers. Seller also mentioned receiving an offer of $1.8 million in the 1980s, but McAlister told them they probably should not expect quite as much in the then current market.

McAlister's associate, James Klinger, contacted his long-time client, Lee Singleton, an architect and real estate developer. Singleton is the sole shareholder of Singleton Associates and one of five managers of Sandstone Court of Bellevue. When Singleton expressed his interest, Klinger prepared a purchase and sale agreement (Agreement). Because the online search McAlister performed reflected that Seller owned three full lots, Klinger inserted in the opening paragraph an erroneous legal description of the Denaxas property and an erroneous approximation of the square footage. The opening paragraph, with the underlined text inserted in a form agreement, read as follows:

The undersigned Buyer, The Singleton Associates—Management, agrees to buy and Seller agrees to sell, on the following terms, the real property and all improvements thereon (collectively, the "Property") commonly known as approximately 27,260 square feet of land and improvements at 10955 N.E. 4th Street, in the city of Bellevue, King County, Washington, legally described as: Lots 3, 8, and 9 Summit Ridge Addition to Bellevue

(Buyer and Seller authorize the Listing Agent, Selling Licensee, or Closing Agents to insert and/or correct, over their signatures, the legal description of the property.)

Clerk's Papers (CP) at 22. During negotiations, Seller had no discussions with either Purchaser or the two agents regarding square footage or price per square foot.

In November, Seller and Purchaser reached a mutually agreeable price of $1.6 million and executed the Agreement. The Agreement allowed 10 days for Purchaser to notify Seller of any objectionable matters in the title commitment, 120 days to give written notice to Seller of the removal of contingencies, and not more than 360 days to close the sale.

Preclosing

Following execution of the Agreement, Purchaser engaged the Title Company to perform a preliminary title report. The Title Company's report, effective November 14, 1997, contained the correct legal description on the second page:

PARCEL A:

Lot 3, Summit Ridge, according to the plat thereof recorded in Volume 47 of Plats, page 17, in King County, Washington.

PARCEL B:

Lot 9 and the east 26 feet of Lot 8, Green's Bellevue Addition, according to the plat thereof recorded in Volume 42 of Plats, page 37, in King County, Washington; EXCEPT the north 4 feet thereof.

CP at 408-09. This report was sent to both Singleton and Realtor. However, neither party noted the discrepancy in the legal descriptions found in the Agreement and the title report. In fact, Singleton claimed he read only the "exceptions" section and did not look specifically at the legal description.

In December 1997, Singleton Associates entered into a purchase and sale agreement with the owners of an adjoining lot of 8,060 square feet (McDermott property).³ The site area of the Sandstone Court project included the McDermott property and the Denaxas property.

Singleton visited the Denaxas property on a number of occasions, but said he could not ascertain its boundaries or square footage from a visual inspection. In March 1998 Purchaser ordered a survey. Purchaser provided the surveyor with the correct legal description. The survey, completed in April, revealed that the combined square footage of the Denaxas property and the McDermott property was 28,195, only 935 square feet more than the incorrect approximation of the Denaxas property alone. Although the total number would have been over 35,000 square feet had the approximation in the Agreement been correct, Singleton said he did not notice the error because the survey went "straight to Ted Panton, the architect on the project." CP at 573. Singleton did not review the survey.

In August 1998, Purchaser submitted a Description of Proposal to the City of Bellevue. The proposal included the correct square footage from the survey.

In November 1998, the transaction closed. The escrow instructions, which were signed by Singleton for Purchaser and by Seller, included the representation that

[t]he undersigned PURCHASER and SELLER have received, reviewed and approved for use in this escrow the preliminary commitment for title insurance, including any supplementals thereto and have reviewed and approved the legal description and general and special exceptions including the covenants, conditions and restrictions affecting said property as stated on the commitment.

Attach. to Pet. for Review (emphasis added). An additional clause stated, "THE PURCHASER AND SELLER HAVE EXAMINED AND HEREBY APPROVE FOR USE IN THIS ESCROW THE ABOVE LISTED DOCUMENTS," which included the deed of trust. Id. The correct legal description was included in the deed and deed of trust, which were on the Title Company's forms.⁴ The Title Company did not expressly state that the legal description in the closing documents was different from the one in the Agreement.

Postclosing

Eight months later, in June 1999, Singleton became personally aware of the error in the square footage approximation when he attempted to get construction financing. The project architect informed him of the correct square footage of the Denaxas property. Purchaser contacted Seller in an attempt to lower the contract price. Seller refused. Purchaser stopped making the agreed payments to Seller.

PROCEDURAL HISTORY

Subsequently, Seller accelerated the note and sued Purchaser for failure to pay. Purchaser answered and counterclaimed against Seller for, inter alia, mutual mistake and breach of warranty. In addition, Purchaser, as third party plaintiff, sued the Title Company for breach of fiduciary duty and for negligence.

Seller and the Title Company moved for summary judgment against Purchaser. The trial court granted both motions and entered judgment in favor of Seller, dismissing Purchaser's counterclaims and third party claims. After its motion for reconsideration was denied, Purchaser appealed.

The Court of Appeals reversed the trial court, reinstating the mutual mistake counterclaim against Seller and the negligence and breach of fiduciary duty claims against the Title Company. Denaxas, noted at 107 Wash.App. 1055, slip op. at 2. The Title Company petitioned this court for review and made a motion to supplement the record with the escrow instructions. Seller joined in the petition. This court granted the petition and granted the Title Company's motion to supplement the record with the escrow instructions. In its supplemental brief, Purchaser argued that the trial court erred in dismissing the breach of warranty claim, a claim the Court of Appeals did not reinstate or even discuss.

ISSUES

Where there is a variance between a legal description in a purchase and sale agreement and the closing documents:

1. Does an escrow agent have a duty to affirmatively advise a party of the difference? 2. Under what circumstances may a purchaser be charged with constructive knowledge of the variance?

3. May the doctrine of mutual mistake be invoked where a purchaser had constructive knowledge of the mistake before closing?

ANALYSIS

A. Standard of Review

An appellate court engages in the same inquiry as the trial court when reviewing an order of summary judgment. Wilson v. Steinbach, 98 Wash.2d 434, 437, 656 P.2d 1030 (1982). Summary judgment is appropriate if the pleadings, affidavits, depositions, and admissions on file demonstrate the absence of any genuine issues of material fact, and that the moving party is entitled to judgment as a matter of law. CR 56(c). The court must consider all facts submitted and all reasonable inferences drawn from them in the light most favorable to the nonmoving party...