Pay'n Save Corp. v. Eads

• Decision Date: 13 February 1989
• Docket Number: No. 20211-1-I,20211-1-I
• Citation: 767 P.2d 592,53 Wn.App. 443
• Parties: PAY'N SAVE CORPORATION, a Washington corporation, Respondent, v. Kenneth R. EADS and Jane Doe Eads, husband and wife, Appellants.
• Court: Washington Court of Appeals

Page 443

53 Wn.App. 443

767 P.2d 592

PAY'N SAVE CORPORATION, a Washington corporation, Respondent, v. Kenneth R. EADS and Jane Doe Eads, husband and wife, Appellants.

No. 20211-1-I.

Court of Appeals of Washington Division 1.

Feb. 13, 1989.

Michael D. Hunsinger, Neubauer & Hunsinger, Seattle, for Kenneth R. eads.

Dale E. Kremer, Lane, Powell, Moss & Miller, Seattle, for Pay'n Save Corp. now Seattle Standard Corp.

WINSOR, Judge.

Kenneth and Jane Doe Eads (Eads) appeal from a judgment awarding damages to Pay'n Save Corporation in connection with a stock purchase agreement. Eads contends that the trial court erred in: (1) dismissing the counterclaims for malicious prosecution and slander of title; (2) holding that Pay'n Save's prejudgment writ of attachment was not wrongfully obtained; (3) adopting an audited figure as the measure of damages; (4) prohibiting the introduction of evidence regarding the value of Northwestern Drug Company (NWD) to Pay'n Save; and (5) ruling that Pay'n Save had not waived its right to contend that interim statements were not prepared in accordance with generally accepted accounting principles. Pay'n Save cross-appeals from that portion of the judgment denying it prejudgment interest.

The facts pertinent to the published portion of this opinion are as follows: Eads owned 100 percent of the outstanding common stock of NWD. On December 13, 1983, Eads and Pay'n Save signed a stock purchase agreement. Pay'n Save initiated an action against Eads for breach of contract on August 13, 1984.

On October 9, 1986, Pay'n Save, upon receiving notice of Eads' efforts to obtain a loan secured by a second deed of trust on the warehouse he rented to Pay'n Save, filed a lis pendens against the property. In response, Eads filed a motion asking that the lis pendens be removed or, in the alternative, allowing him to amend his pleadings to include counterclaims for slander of title and malicious prosecution based upon the lis pendens.

Before the court ruled on Eads' motion, Pay'n Save obtained an ex parte order authorizing the issuance of a prejudgment writ of attachment on the same property. The affidavit for attachment sets forth three grounds for the issuance of the writ: (1) Eads was living out of state; (2) Pay'n Save's belief that Eads had already, or would soon, remove some of his property from Washington, with intent to delay or defraud creditors; and (3) the claim was based upon a written contract. On October 23, 1986, Eads filed a motion for an order discharging the writ of attachment or, in the alternative, allowing him to amend his pleadings to include a counterclaim for wrongful issuance of a prejudgment writ of attachment.

Eads' motions to amend his pleadings were granted. The motion to remove the lis pendens was denied. The motion to discharge the prejudgment writ of attachment was denied because the court found that there was reasonable probability that Pay'n Save's claim was valid, that Eads' "just credits and offsets" did not exceed Pay'n Save's claim, and that there existed a question as to the residency of Eads.

On the first day of trial, November 17, 1986, Pay'n Save moved to strike Eads' counterclaims. The trial judge granted both motions. Eads appeals both rulings.

The issues on appeal are: (1) whether the filing of a lis pendens can give rise to a claim for slander of title or malicious prosecution; (2) whether the prejudgment writ of attachment was wrongfully obtained; (3) whether the trial court erred in finding that Pay'n Save did not waive its right to challenge the accuracy of the interim statements; (4) whether the trial court erred in its determination of damages on the breach of warranty theory; and (5) whether prejudgment interest should have been awarded. ¹ We answer these questions in Pay'n Save's favor and remand for entry of prejudgment interest.

MALICIOUS PROSECUTION AND SLANDER OF TITLE

Eads asserted counterclaims for malicious prosecution and slander of title based upon Pay'n Save's filing a notice of lis pendens on his warehouse property. Lis pendens is authorized by RCW 4.28.320. The statute permits the plaintiff in an action "affecting the title to real property" to file a notice of the pendency of the action with the auditor of the county in which the property is situated. Lis pendens has the effect of providing constructive notice of the action to a subsequent purchaser or encumbrancer.

Eads contends that the lis pendens was improper because this lawsuit did not affect title to real property. He claims the trial court erred in dismissing his claims for malicious prosecution and slander of title. ²

A. Malicious Prosecution

We affirm the trial court's dismissal of Eads' malicious prosecution claim because he failed to fulfill Washington's common law requirements:

To maintain an action for malicious prosecution, the plaintiff must allege and prove (1) that the prosecution claimed to have been malicious was instituted or continued by the defendant; (2) that there was want of probable cause for the institution or continuation of the prosecution; (3) that the proceedings were instituted or continued through malice; (4) that the proceedings terminated on the merits in favor of the plaintiff, or were abandoned; and (5) that the plaintiff suffered injury or damage as a result of the prosecution.

Peasley v. Puget Sound Tug & Barge Co., 13 Wash.2d 485, 497, 125 P.2d 681 (1942). The Legislature has altered the common law requirements slightly to permit a defendant to assert a counterclaim for malicious prosecution in the principal action. RCW 4.24.350.

Washington has adopted a restrictive view of the "injury or damage" necessary to satisfy condition (5). Gem Trading Co. v. Cudahy Corp., 92 Wash.2d 956, 962-63, 603 P.2d 828 (1979). The plaintiff must allege and submit proof of arrest of his person or seizure of his property. Id., at 965, 603 P.2d 828; Fenner v. Lindsay, 28 Wash.App. 626, 625 P.2d 180 (1981). Washington has not yet decided whether the filing of a lis pendens constitutes a seizure of property.

Only one adherent of the restrictive view, Pennsylvania ³, has ruled on the issue. ⁴ It held that filing a lis pendens did not constitute a seizure. Blumenfeld v. R.M. Shoemaker Co., 286 Pa.Super. 540, 429 A.2d 654, 657-658 (1981). The Blumenfeld court stated:

[A]lthough a lis pendens may temporarily cloud someone's title and therefore make encumbrancing or conveyancing difficult, it is nevertheless clear that it does not even establish a lien upon the affected property. A fortiori, a lis pendens does not constitute a seizure of property within the purview of the English rule. Consequently, appellees failed to establish a cause of action for either malicious use of process or abuse of process.

(Footnotes omitted.) Id.

Pennsylvania's analysis is persuasive. We hold that a lis pendens does not constitute a seizure of property. Accord, Debral Realty, Inc. v. DiChiara, 383 Mass. 559, 420 N.E.2d 343, 347 (1981) ("The filing of a memorandum of lis pendens does not result in seizure of the property or dispossession of the property owner."). Consequently, Eads failed to establish a cause of action for malicious prosecution.

B. Slander of Title

We also affirm the trial court's dismissal of Eads' slander of title claim. The necessary elements of a slander of title action are that the words: (1) must be false; (2) must be maliciously published; (3) must be spoken with reference to some pending sale or purchase of the property; (4) must result in a pecuniary loss or injury to the plaintiff; and (5) must be such as to defeat the plaintiff's title. Brown v. Safeway Stores, Inc., 94 Wash.2d 359, 375, 617 P.2d 704 (1980). At oral argument, Eads conceded that he cannot prove the third element.

PREJUDGMENT WRIT OF ATTACHMENT

In Washington, if a plaintiff meets the statutory requirements s/he may, at the time of commencing an action, or at any time afterward before judgment, have the property of the defendant attached as security for the satisfaction of such judgment as s/he may recover. RCW 7.12.010. Plaintiffs must file an affidavit specifying: (1) the amount of the debt over and above all just credits and offsets; (2) that the attachment is sought in good faith; and (3) that at least one of the ten statutorily specified grounds is present. ⁵ RCW 7.12.020; Brown v. Peoples Nat'l Bank, 39 Wash.2d 776, 780, 238 P.2d 1191 (1951).

When personal property is attached it is seized by the sheriff, and the debtor is deprived of its use. RCW 7.12.130(2). Attachment of real property in Washington is effected by filing a copy of the writ of attachment, together with a description of the property, with the county auditor. RCW 7.12.130(1). The real property is not seized.

The right to use of the state's power to seize goods before a final judgment in order to protect the interest of a creditor is not here questioned. Fuentes v. Shevin, 407 U.S. 67, 96, 92 S.Ct. 1983, 32 L.Ed.2d 556 (1972). Due process, however, requires a hearing aimed at establishing the probable validity of the claim against the alleged debtor before s/he can be deprived of his or her property. Id., at 97, 92 S.Ct. at 2002. A prehearing is not necessary in "extraordinary situations," such as where a creditor can make a showing that a debtor will destroy or conceal the property if the court does not act immediately. Id., at 90-91, 93, 92 S.Ct. at 1999-2000, 2001.

Pay'n Save obtained its writ of attachment in an ex parte proceeding. It alleged three separate statutory grounds: RCW 7.12.020(2), (5), and (10). The writ was levied against real property. Eads contends that the ex parte proceeding violated his constitutional rights of due process because a hearing was not held before the writ was issued. He argues that the facts do not constitute an extraordinary circumstance.

Although Pay'n Save alleged in the language of RCW 7.12.020(5) that Eads was about to remove his property from Washington to...