Johnson Bldg. Co. v. River Bluff Development Co., C4-84-1919

• Decision Date: 10 September 1985
• Docket Number: No. C4-84-1919,C4-84-1919
• Citation: 374 N.W.2d 187
• Parties: JOHNSON BUILDING COMPANY, Plaintiff, Coon Rapids Properties, Appellant, v. RIVER BLUFF DEVELOPMENT COMPANY, et al., Respondents, Alan Smith, et al., Defendants.
• Court: Minnesota Court of Appeals

Page 187

374 N.W.2d 187

JOHNSON BUILDING COMPANY, Plaintiff Coon Rapids Properties, Appellant, v. RIVER BLUFF DEVELOPMENT COMPANY, et al., Respondents Alan Smith, et al., Defendants.

No. C4-84-1919.

Court of Appeals of Minnesota.

Sept. 10, 1985.

Review Denied Nov. 18, 1985.

Syllabus by the Court

1. The trial court properly admitted parol evidence.

2. The trial court did not err in determining that appellant made fraudulent representations to respondent.

3. The trial court did not err in determining that respondent did not ratify appellant's fraud.

4. The trial court properly awarded respondent damages except for an award of security and insurance costs which were not causally related to appellant's fraud.

Phillip J. Martini, Minneapolis, for appellant.

Jerrold M. Hartke, South St. Paul, for respondents.

Considered and decided by RANDALL, P.J., and SEDGWICK and HUSPENI, JJ., with oral argument waived.

OPINION

HUSPENI, Judge.

Coon Rapids Properties (CRP) and Johnson Building Company (JBC) brought this action against River Bluff Development Company (River Bluff) for specific performance of a real estate purchase agreement. River Bluff counterclaimed against CRP and JBC and alleged that, among other things, CRP and JBC made fraudulent misrepresentations to River Bluff. The trial court determined that the purchase agreement was void as a result of fraud in its inception or, in the alternative, that the requirements of the purchase agreement were not complied with, and consequently, CRP is not entitled to specific performance. River Bluff was awarded judgment against CRP for $71,209.84. CRP's motion for amended findings was denied and CRP appeals. We affirm the trial court as modified.

FACTS

This case involves a proposed development of the Crown Roller Mill (Crown Mill) property which is located in the old milling district near St. Anthony Falls in Minneapolis.

River Bluff is a general partnership and the vendee in a contract for deed for the purchase of the Crown Mill property. The partners in River Bluff are Charles D. Gross, Sr., Charles J. Gross, Jr., Glen Olson and Alan Smith. In late 1982, River Bluff began discussing a potential co-development of the Crown Mill property with CRP. CRP is a general partnership consisting of Viking Investment Company, Inc. (Viking) and Proplan Properties, Ltd. Bruce Burton is one of the three shareholders in Viking and he represented CRP both as a shareholder and as CRP's attorney during all the dealings with River Bluff.

On January 10, 1983, River Bluff and CRP entered into a development agreement providing for the formation of a new partnership between River Bluff and CRP which would develop the Crown Mill property. Subsequently, River Bluff and CRP disagreed on certain aspects of the project. In particular, the River Bluff partners disagreed with CRP's proposed changes in the development plan which River Bluff had already formulated.

As a result of these disagreements, River Bluff and CRP changed their agreement to a purchase agreement whereby CRP would purchase the Crown Mill property from River Bluff. River Bluff was to retain equity in the project as a limited partner in the partnership that was to be formed between CRP and River Bluff. This revised agreement was intended to protect River Bluff's substantial investment in the Crown Mill property while giving CRP more latitude to follow its own ideas about the project.

Throughout the parties' negotiations both CRP and River Bluff discussed other potential investors. River Bluff saw a need for a strong "balance sheet partner"--a partner who had a substantial net worth which could cover any operating deficits that the project incurred.

Representatives of River Bluff testified that Burton represented to them that Williams Steel and Hardware Company (WSH) was interested in being a general partner in the proposed partnership. WSH is a wholesaler of steel and industrial supplies and it also has subsidiaries which deal in real estate development. It is undisputed that WSH would have been a strong "balance sheet partner." Burton testified that he indicated to River Bluff representatives that WSH was a potential investor, but he did not tell them that WSH was a potential general partner. The president of WSH's real estate development subsidiaries testified that he had some preliminary discussions with the persons involved in developing the Crown Mill property, but WSH never reached any decision or made any commitment regarding its participation in the project.

Before a purchase agreement was executed between CRP and River Bluff, JBC became interested in the Crown Mill project. Robert Johnson was the president and principal owner of JBC. JBC is primarily a general contractor; occasionally, it is a construction manager for a project. CRP and JBC wanted JBC to be involved in the Crown Mill project both as the general contractor and as a general partner. River Bluff opposed JBC's dual participation in the project. River Bluff was concerned that the dual roles of a general contractor and general partner would create a conflict, since the general contractor could funnel potential profits to itself as construction costs and decrease the partnership's profits. River Bluff was also concerned that, with a general contractor as a general partner, the project would not be subject to bids from other companies, and thus, the project costs would be higher and River Bluff's profit share lower. River Bluff was further concerned that JBC did not have the financial capability to be a general partner in the project.

Between February 22-24, 1983, CRP and River Bluff met several times to negotiate and review the purchase agreement. River Bluff was represented by legal counsel throughout these negotiations and all of River Bluff's other dealings with CRP. The final purchase agreement provided that River Bluff would transfer the Crown Mill property to CRP and, in return, River Bluff would receive $750,000 and an interest in a partnership or corporation whereby River Bluff would receive twenty percent of the profits from the project and a ten percent interest in the losses.

The purchase agreement provided a typical assignment clause as follows:

Purchaser may assign its rights, duties and obligations under this Purchase Agreement without the consent of Seller, before or after the closing.

With respect to the assignment clause, Gross, Jr. and Charles Nixon, River Bluff's attorney, testified that Burton represented that the only purpose of the assignment clause was so that the property could be transferred to the partnership that was to be formed between CRP and River Bluff. Burton denied making this statement.

The purchase agreement also included the following clause:

This written Purchase Agreement constitutes the entire and complete agreement between the parties hereto and supersedes any prior oral or written agreements between the parties hereto with respect to the [Crown Mill property] including that certain Agreement dated January 10.

One of the drafts of the purchase agreement identified JBC as a general partner and purchaser of the property. Smith and Gross, Jr. testified that they told Burton that they did not want JBC involved in the purchase agreement and, therefore, Burton deleted JBC from the agreement. Burton and Johnson testified that JBC was deleted from the purchase agreement because Johnson could not be present to sign the agreement and JBC's participation in the purchase agreement was not crucial to the project since the purchase agreement was only between River Bluff and CRP.

On February 22, 1983, Burton, on behalf of CRP, sent a letter of intent to Roger Johnson which proposed that CRP and JBC would serve as general partners of a limited partnership which would develop the Crown Mill property and Johnson would be the managing general partner of all the construction. The letter of intent also provided that CRP would transfer its rights to the Crown Mill property to the newly-formed partnership. Johnson, on behalf of JBC, signed the letter of intent on February 24, 1983. River Bluff did not know about the development agreement between CRP and JBC until this litigation began.

On February 26, 1983, representatives of River Bluff, CRP and JBC met to discuss the project. At that meeting, JBC's involvement in the project was discussed. Minutes of the meeting prepared by JBC state, among other things, that "[o]verall project coordination will be the responsibilty of Johnson Building Company." There is conflicting testimony whether JBC was identified at that meeting as the general contractor. Smith testified that he understood that JBC was the construction manager, not the general contractor. Along with the minutes from this meeting, River Bluff received a copy of a list of participants in the Crown Mill project. The list identified JBC as a general partner.

The February 24 purchase agreement provided that CRP would pay the holding costs of the Crown Mill property through the date of closing. On March 18, 1983, River Bluff accepted a $3,027.23 check from JBC for holding costs. On April 8, 1983, River Bluff sent CRP notice of its intention to cancel the purchase agreement if certain defaults on holding costs were not cured within thirty days. This notice was without legal effect because it failed to comply with Minn.Stat. § 559.21 (1982) (statutory requirements for terminating a contract of sale of real estate). On May 2, 1983, JBC tendered to River Bluff a check for $9,560.18, an amount sufficient to cure the defaults. River Bluff rejected this check.

On April 25, 1983, CRP and JBC entered into a purchase agreement whereby CRP was to sell the Crown Mill property to JBC for $781,000. On April 26, 1983, Viking (one of the partners of CRP) and JBC entered into a partnership agreement for the development of the Crown Mill property. River Bluff was not included in this partnership agreement and it was not aware of...