Martin v. Tikka

• Jurisdiction: Oregon
• Court: Oregon Supreme Court
• Writing for the Court: Before O'CONNELL; BRYSON
• Citation: Martin v. Tikka, 500 P.2d 1209, 263 Or. 350 (Or. 1972)
• Decision Date: 21 September 1972
• Parties: Gus MARTIN et al., Respondents, v. Howard E. TIKKA et al., Appellants.

Page 1209

500 P.2d 1209

263 Or. 350

Gus MARTIN et al., Respondents, v. Howard E. TIKKA et al., Appellants.

Supreme Court of Oregon.

Argued and Submitted June 6, 1972.

Decided Sept. 21, 1972.

Thomas A. Sherwood, Portland, argued the cause for appellants. With him on the briefs were Sherwood & Barnes, Portland.

Morton A. Winkel, Portland, argued the cause for respondents. With him on the brief was Seymour L. Coblens, Portland.

Before O'CONNELL, C.J., and McALLISTER, DENECKE, HOLMAN, HOWELL and BRYSON, JJ.

BRYSON, Justice.

Plaintiffs brought this suit for specific performance of a contract whereby defendants were to purchase a fertilizer plant. Defendants affirmatively allege that they were induced to enter into the agreement to purchase by plaintiffs' fraudulent misrepresentations.

Plaintiffs Martin are husband and wife and owners of all of the shares of plaintiff Portland Organic, Inc., an Oregon corporation. Portland Organic, located in north Portland on land leased from the city of Portland, manufactured fertilizer from sewage sludge from the cities of Portland and Lake Oswego. The sludge was stored, or accumulated, in a lagoon adjacent to plaintiffs' plant and adjoining the city of Portland's sewage disposal plant.

Negotiations between the parties began an August, 1969, and on September 2, 1969, they entered into a contract whereby plaintiffs would sell and defendants Tikka brothers would buy the fertilizer business, assets, and buildings situated at 5303 North Columbia Blvd., Portland, Oregon, on land leased from the city of Portland, for the sum of $30,000. Payments was to be accomplished by defendants conveying to plaintiffs their equity in 'Haven Apts' and an adjoining lot (lots 1 and 2, Block D, Slocums Addition to Vancouver, Vancouver, Washington), and the payment of $5,000 (later $4,500) in cash. The exchange contract provided:

'This deal contingent upon the buyers being able to secure from the City Of Portland, the minimum of a five year lease with the same terms and conditions as previously provided to Portland Organic Inc., buyers shall have the option of buying the stock of Portland, Organic Inc., or it's (sic) assets as described.'

Prior to the exchange agreement, plaintiffs and their agent, Joe DiGregorio, of Allied Realty Co., made a number of material representations to the defendants concerning the transaction. The defendants were told that Portland Organic, Inc., marketed its products under the labels of Gro-King the Portorganite; that Gro-King sold for $120 per ton and Portorganite sold for $70 per ton; that in eight months of operation plaintiffs had sales of $12,000; that the plant production capacity was ten to twelve tons per eight-hour shift; that the kiln had a capacity of sixteen tons; that the depth of the sludge, used in manufacturing the fertilizer, was four to eight feet in the adjoining lagoon; that this sludge could be scooped out by a front end loader; that the plaintiffs had a lease for the land and facilities from the city of Portland, Oregon, which provided for a $50 per month rental, and that the city provided methane gas for the kiln (a by-product of the city sewage plant) free of charge; that the lease granted permission to the lessee to maintain the existing roadway over the city's property for the purpose of ingress and egress; and that the lease permitted plaintiffs to utilize a spur rail track adjacent to the leased premises.

It was agreed that the exchange of properties would take place on November 1, 1969. By this time defendants knew that plaintiffs' lease from the city of Portland had expired, but they were led to believe that the lease would be renewed or a new lease secured, and assigned to defendants, with the same terms and conditions.

David Tikka testified that they went into the plant on November 1, 1969, and made some improvements within the plant structure, improved the access road to the premises, and hired a salesman who was to begin December 1, 1969. Sometime after January 1, 1970, the defendants received their first purchase orders for 188 bags and 117 bags of fertilizer, for a total of 12,120 pounds. At this time they began active production and operation of the plant. After a net of eight hours of operating the kiln, they discovered they did not have enough finished product to fill a six-ton order. The plaintiffs had represented that the plant had a production of ten to twelve tons per eight-hour shift. Portland Organic's federal tax returns for the years 1967 and 1968 were received in evidence and showed gross annual sales of $6,874.20 and $8,646.71, respectively. There is no evidence of gross sales of $12,000.

When defendants' salesmen attempted to sell the plant's fertilizer products, they discovered that the plaintiffs had sold Port-organite for $25 per ton, not $70 as represented, and that Gro-King sold for $75 per ton, not $120 as represented. The plaintiffs had represented that the sludge material in the lagoon was four to eight feet in depth, and the defendants had made their sales and sludge supply projections on the basis of this figure. About January 16, 1970, David Tikka was trying to remove sludge from the lagoon and experienced difficulty. He tried several different kinds of front end loaders with rubber-tired wheels and a nine-track vehicle but could remove no further sludge. Finally, defendants employed Stanley McKay, an experienced excavating contractor and equipment operator, to locate sludge material within the lagoon in order to process fertilizer. Mr. McKay testified he used '(a) three-quarter-yard dragline with fifty-foot boom. * * * (A) crane with a dragline bucket attached by a hoist line, which suspends it, lifts it up and down, and another line that pulls it toward the machine.' He testified that he could not remove the sludge and, further, that there was not sufficient depth of sludge to allow removal of the same from the lagoon. He further testified:

'Well, I had discussed the problem with the Tikkas about the problem we had in not getting the sludge out and the depth not being there so we called Mr. Martin, I believe, and he came out and he said, 'Well, it is four to eight foot deep out there,' referring to the north end of the lagoon, 'and then some over on the west end of the lagoon.''

This was about the first of February, 1970. Mr. McKay operated a dragline and bucket all around the lagoon but could find no appreciable depth of sludge that could be removed for processing. By March, 1970, the city of Portland had begun rebuilding their sewage disposal plant and employed a Mr. Richard Blickle as the contractor to drain and remove the sludge from the small lagoon adjacent to the fertilizer plant, as well as from the larger lagoon by the sewage plant. He testified that the sludge material in the small lagoon was 'anything from nothing, you might say, at the edges, where it feathered out, to, in the deepest part, the tractors worked up to the top of the tracks * * *. (I)t is forty-four inches.' However, Mr. Ronald Sluder, foreman and equipment operator for Mr. Blickle, testified regarding the work in connection with the new Portland sewage disposal site. He testified:

'Well, I was first involved with building a new disposal site and, secondly, I was involved in dredging the sludge from the existing lagoon to the new lagoon.

'* * *.

'Q. Can you tell me with respect to the materials that you were trying to push out (of the small lagoon), how deep was it in, say, the deepest place?

'A. The deepest place? We went from nothing to two-and-a-half feet.'

Mr. Burl Bean, Chief Inspector, City of Portland Bureau of Sanitary Engineering, had a field office at the sewage treatment plant and oversaw the activity of Blickle Company. He testified:

'I knew, when I saw the dozers working, I could tell how deep it was (the sludge material).

'Q. And what did you observe when you saw the dozers working?

'A. Well, as the dozers were pushing this material, it was all, oh, a foot or so deep, about even with the drawbar on the Cat as they were pushing it out.'

Mr. Donald Tikka testified:

'* * * (A) soon as Mr. McKay notified us this Saturday morning (February 7, 1970), we immediately determined that, with no sludge, the venture is an impossibility. We vacated the plant immediately on this news. * * * (W)e accomplished the whole thing by Sunday afternoon. We were completely out of the plant, being very careful that we removed no property belonging to Portland Organic. * * * As soon as we got our gear out of the plant, we secured the plant. * * * That evening, the four of us went to Mr. Martin's house, gave him the letter (of contract rescission), returned the keys * * *.'

Originally the plaintiffs represented that they had a valid lease from the city of Portland. Plaintiffs' attorney testified:

'Well, noticing the earnest-money receipt, I first realized that the first thing we had to do was to get a lease on the City property because at that time I knew that the lease which had been in existence had expired and I realized that, obviously, no buyer was going to buy this plant unless he had a lease with the City.

'Consequently, my first duty was to negotiate a lease with the City for the continued operation of the plant.'

This explains the provision in the exchange contract which provides, 'this deal contingent upon the buyers being able to secure from the City Of Portland, the minimum of a five year lease with the same terms and conditions as previously provided to Portland Organic Inc. * * *.' A series of meetings and negotiations were carried on by plaintiffs' attorney to secure the renewal of the original lease, but these negotiations were unsuccessful. Finally, the City Council set a hearing for December 24, 1969, to repeal all lease arrangements on the property. Plaintiffs' attorney was out of the city and defendants appeared personally at the hearing. The matter of repeal of the ordinance was postponed for two...