Onita Pacific Corp. v. Trustees of Bronson

• Citation: 315 Or. 149,843 P.2d 890
• Parties: ONITA PACIFIC CORPORATION, an Oregon corporation, John A. Dante and Jeanine Dante, husband and wife, Respondents on Review, v. TRUSTEES of Charles D. BRONSON, and Warde H. Erwin, Clyde Purcell L.A. Swarens, Petitioners on Review, and Lawrence W. Erwin, John Compton, Douglas K. Siebert and Dorothy L. Siebert, husband and wife, and Douglas Cascade Corporation, an Oregon corporation, Defendants. CC A8607 04518; CA A46940; SC S37818, S37945.
• Decision Date: 31 December 1992
• Court: Supreme Court of Oregon

Page 890

843 P.2d 890

315 Or. 149

ONITA PACIFIC CORPORATION, an Oregon corporation, John A Dante and Jeanine Dante, husband and wife Respondents on Review, v. TRUSTEES of Charles D. BRONSON, and Warde H. Erwin, Clyde Purcell L.A. Swarens, Petitioners on Review and Lawrence W. Erwin, John Compton, Douglas K. Siebert and Dorothy L. Siebert, husband and wife, and Douglas Cascade Corporation, an Oregon corporation, Defendants.

CC A8607 04518; CA A46940; SC S37818, S37945.

Supreme Court of Oregon In Banc.

Argued and Submitted Aug. 28, 1991.

Decided Dec. 31, 1992.

James H. Clarke, of Lane Powell Spears Lubersky, Portland, argued the cause and filed the petition for petitioners on review Purcell and Swarens.

Thomas W. Brown, of Cosgrave, Vergeer & Kester, Portland, argued the cause and filed the petition for petitioners on review Erwin and Trustees of Charles D. Bronson.

Lisa E. Lear, of Bullivant, Houser, Bailey, Pendergrass & Hoffman, Portland, argued the cause and filed the response to the petition for respondents on review. With her on the response were I. Franklin Hunsaker and James G. Driscoll.

Gary M. Berne, Steven D. Larson, and Allen Field, of Stoll, Stoll, Berne & Lokting, Portland; Gary I. Grenley and Michael C. Zusman, Portland; and Henry Kantor, of Pozzi, Wilson, Atchison, O'Leary & Conboy, Portland, filed a brief on behalf of amicus curiae Oregon Trial Lawyers Ass'n.

Michael C. McClinton and Steven M. Lippold, Salem, filed a brief on behalf of amici curiae Oregon Ass'n of Defense Counsel and Oregon Ass'n of Realtors.

PETERSON, Justice.

This proceeding stems from a dispute regarding the terms of a real estate development agreement. At trial, after the court directed a verdict in favor of defendants ¹ on plaintiffs' ² fraud claim, the jury returned a verdict in favor of plaintiffs on their claim for negligent misrepresentation. The trial court thereafter granted defendants' motion for a new trial on the ground that the jury instruction on damages was erroneous. Plaintiffs appealed, asserting that the trial court erred in granting a new trial, in awarding attorney fees, and in dismissing plaintiffs' other claims for relief. The Court of Appeals reversed. It upheld the verdict on the claim for negligent misrepresentation, vacated the trial court's order granting a new trial, and reinstated the jury's verdict on the ground that the objection to the jury instruction had not been preserved and thus that the trial court erred in granting a new trial. Onita Pacific Corp. v. Trustees of Bronson, 104 Or.App. 696, 709, 711-12, 803 P.2d 756 (1990).

On defendants' petitions for review, although we agree that damages may be recoverable for some negligent misrepresentations, a claim for negligent misrepresentation is not made out under the facts present here. Therefore, we reverse the Court of Appeals' decision reinstating the verdict for plaintiffs on their claim for negligent misrepresentation. ³ Because the Court of Appeals did not address plaintiffs' contentions that the trial court erred in directing a verdict on their fraud claim and in dismissing their claim for breach of the implied covenant of good faith, we remand the case to the Court of Appeals for consideration of those issues. The Court of Appeals also should reconsider its decision concerning attorney fees in the light of its ultimate disposition of the appeal.

In 1973, Betty Camomile entered into a land sale contract (Camomile contract) with defendants to sell three large tracts of real property. The Camomile contract provided for a stream of payments over time to Camomile as the real property was developed and sold. In 1979, defendants sold their rights in two of the three parcels to Robert Hatch by a land sale contract (Hatch contract), which provided that a deed for each lot would be placed in an escrow with instructions for its release on resale. Hatch then assigned his interest to John Compton, with defendants' and Camomile's consent. Subsequently, Compton decided to sell his interest in the two parcels under the Hatch contract.

Plaintiffs were interested in purchasing Compton's interest. Camomile refused to consent to Compton's delegation of his obligations to her under the Hatch and Camomile contracts. In order to eliminate the need for Camomile's consent, plaintiffs agreed to make a payment of $200,000 that would be used by defendants to pay the balance owing to Camomile. Plaintiffs transferred property worth approximately $850,000 to Compton for his interest in the Hatch contract and borrowed $200,000 in cash from Compton to make the $200,000 payment to defendants. Plaintiffs gave Compton a promissory note for $200,000 and security interests in their interest as assignees of the Hatch contract and in other property that they owned.

Defendants, plaintiffs, and Compton negotiated a "Modification of Agreement," pursuant to which the parties agreed to change some of the restrictions on the development of the lots for resale. After setting forth the modifications to the development plan, the Modification of Agreement provided:

"In all other respects the contract between CHARLES D. BRONSON, CLYDE PURCELL, L.A. SWARENS and WARDE H. ERWIN, a joint venture, and ROBERT HATCH and JOHN COMPTON shall remain in full force and effect.

"Vendors-sellers [defendants] hereby consent to sale-assignment by JOHN COMPTON to DOUGLAS K. SIEBERT, and his WIFE, and to DR. and MRS. JOHN 'JACK' A. DANTE, and to the DOUGLAS CASCADE CORPORATION and ONITA PACIFIC CORPORATION, as tenants in common, each to be jointly and severally liable and responsible for performance of the contract above referenced and herein modified."

The Hatch contract, to which the Modification of Agreement referred, included a clause that provided that "[t]here are no representations or warranties made by either party except as contained in this document." There is no written memorandum in the record that reflects the details of the sale-assignment by Compton to plaintiffs.

Plaintiffs contend that they agreed to make the $200,000 payment because defendants told them that lots worth $200,000 would be released to them. Specifically, Douglas Siebert testified that Lawrence Erwin, defendants' attorney, had assured him that the $200,000 payment would be processed through the escrow that held the deeds and that the escrow would release lots worth $200,000 to plaintiffs. ⁴ Siebert testified that he relied on Lawrence Erwin's representations, because defendant Warde Erwin had told him that Lawrence Erwin would handle the negotiations on defendants' behalf. Just before the transaction was to close, Lawrence Erwin informed Siebert that defendants wanted to use a different escrow to avoid a processing fee and that they proposed that plaintiffs' payment be processed through Lawrence Erwin's client trust account. Lawrence Erwin assured Siebert that the payment would be treated just as it would have been if processed through the original escrow and that the new escrow would have the same instructions as the previous one. Siebert, who believed that the existing escrow instructions permitted releases of lots without resale, agreed to this procedure on behalf of plaintiffs.

After making the $200,000 payment and executing the Modification of Agreement, plaintiffs requested the release of 16 lots worth $192,000. Defendants refused to release the 16 lots on the ground that the Hatch contract required releases of lots only upon resale. Lawrence Erwin then drafted instructions for the new escrow that clearly limited releases of lots to third-party resales. Further, in his cover letter accompanying the proposed new escrow instructions, Lawrence Erwin acknowledged that Douglas Siebert may have been confused about the availability of releases of lots without a resale. Without the released lots, plaintiffs had no collateral and were unable to obtain financing to develop the lots for resale, and they defaulted on their obligation to Compton. Compton foreclosed on the security, i.e., plaintiffs' interests as assignees of the Hatch contract and plaintiffs' other property that had been pledged as security for the $200,000 loan.

Plaintiffs brought suit against defendants seeking reformation of the Hatch contract and the Modification of Agreement to provide for the release of lots upon the payment of $200,000 by plaintiffs. Plaintiffs also sought damages for fraud, negligent misrepresentation, breach of the implied covenant of good faith, and intentional interference with contractual relations. The reformation claim was tried to the court first. The trial court denied reformation, stating that plaintiffs had failed to prove that defendants intentionally deceived plaintiffs regarding the release of lots and that Lawrence Erwin was not shown to have authority to bind defendants by his representations. The trial court also dismissed plaintiffs' claims for breach of the implied covenant of good faith and for intentional interference with contract.

Plaintiffs' fraud and negligent misrepresentation claims were then tried to the jury. At the close of plaintiffs' evidence, the trial court granted defendants' motion for directed verdict on the fraud claim. The jury thereafter returned a verdict in favor of plaintiffs on their negligent misrepresentation claim. Defendants moved for judgment notwithstanding the verdict, arguing that Oregon law does not recognize the tort of negligent misrepresentation and, even if it did, that it would not arise in these circumstances. Defendants also moved for a new trial, arguing that, assuming the legal sufficiency of plaintiffs' claim for negligent misrepresentation, the trial court's instruction on damages was incorrect. The trial court denied the motion for judgment notwithstanding the verdict and granted the motion for a new trial, stating that its instruction on damages was incorrect.

Plaintiffs appealed, assigning as error the trial court's granting of the new...