Real Estate Loan Fund Oreg. Ltd. v. Hevner

• Decision Date: 14 November 1985
• Citation: 709 P.2d 727,76 Or.App. 349
• Parties: REAL ESTATE LOAN FUND OREG. LTD., an Oregon Limited Partnership, Appellant, v. Larry W. HEVNER and Rosalie Hevner, aka Rosemarie Hevner, husband and wife; Frank A. Fast and Ardith B. Fast, husband and wife; Defendants, Association of Unit Owners of Bayshore Inn, an Oregon non-profit corporation, Respondent. 47695; CA A31647.
• Court: Oregon Court of Appeals

Page 727

709 P.2d 727

76 Or.App. 349

REAL ESTATE LOAN FUND OREG. LTD., an Oregon Limited Partnership, Appellant, v. Larry W. HEVNER and Rosalie Hevner, aka Rosemarie Hevner husband and wife; Frank A. Fast and Ardith B Fast, husband and wife; Defendants Association of Unit Owners of Bayshore Inn, an Oregon non-profit corporation, Respondent.

47695; CA A31647.

Court of Appeals of Oregon.

Argued and Submitted Jan. 18, 1985.

Decided Nov. 14, 1985.

Kathleen A. Evans, Salem, argued the cause and filed the brief for appellant.

Taisto Pesola, Salem, argued the cause for respondent. With him on the brief was Michael S. McLaughlin, Certified Law Student, Salem.

Before GILLETTE, P.J., and VAN HOOMISSEN and YOUNG, JJ.

VAN HOOMISSEN, Judge.

Real Estate Loan Fund (RELF), a limited partnership, filed a complaint for strict foreclosure of a land sale contract against defendants Fast and Hevner, ¹ owners of a condominium unit. RELF joined as a defendant the Association of Unit Owners of Bayshore Inn (the Association), which claimed a lien on the unit. The Association cross-claimed for foreclosure of its assessment lien on the unit, claiming a priority. See ORS 94.195. In reply, RELF claimed that it had priority over the Association's lien. RELF alleged that the Association had entered into a contract with RELF to release its liens, so as to permit RELF to foreclose or to accept deeds in lieu of foreclosure where contracts for condominium units were in default, and that the Association was estopped to deny that contract. The trial court found that there was no contract between RELF and the Association, that the Association was not estopped to assert its priority and that the Association's lien had priority. On de novo review, we reverse.

In 1977, Brenneman, then the owner of a motel known as the Bayshore Inn, converted it to condominiums. An association of unit owners was formed. RELF was involved in the formation of the Association and approved its by-laws. See ORS 94.004 et seq. Brenneman sold some of the condominium units on land sale contracts. He later sold sixty of those contracts to RELF. By 1981, RELF was having trouble collecting on some of the contracts. RELF was aware that the Association had filed liens for nonpayment of assessments against some of the units in which RELF had an interest. The Association's aggregate assessments against the units on which RELF had contracts totaled more than $90,000.

In order to avoid a judicial foreclosure of each unit and the necessity of litigating priority between itself and the Association, RELF and MBC, RELF's general partner, wanted the Association to release its priority lien claims against the units on which RELF held a contract. That would allow RELF to accept deeds in lieu of judicial foreclosure. RELF asked Holmes, an attorney who had represented both parties in the past and who was then the Association's registered agent, to convey RELF's offer to the Association. On February 17, 1982, he wrote to the Association:

"S.E. Brenneman, Manager

Association of Unit Owners

The Bayshore Inn

500 Bayshore Drive

Waldport, Oregon 97394

"Re: Bayshore Inn Assessments/Mortgage Bancorporation Lien Priorities

"Dear Ed:

"I would appreciate your presenting this letter to the Board. Mortgage Bancorporation has a number of contracts to foreclose upon. They claim a priority of their lien as being ahead of the assessments made by the Association. As you know, the Court has agreed with that and have (sic) given then (sic) a prior lien in the only case brought to issue.[ ² In many instances they can obtain a deed in lieu of foreclosure and could avoid the time, expense and delay of foreclosing if the Board would release the unit they intend to foreclose from the assessment. In order to eliminate the joining of the association in each lawsuit, Mortgage Bancorporation [RELF's general partner] would offer to do the following:

"(1) Pay the Association $100 for a release of the lien as to the property being foreclosed or deed taken in lieu with the understanding that that assessment can still be collected by the association from the individual against whom the foreclosure action is brought or whoever may own it; and

"(2) During the foreclosure proceedings and until the unit is sold to a third party, who would become a member of the association, the association would be free to rent the unit and retain all the proceeds so long as no continuing assessments or costs were charged Mortgage Bancorporation.

"I would appreciate your response to this at your earliest convenience. Thank you kindly.

"Very truly yours,

"/s/ Kenneth A. Holmes"

Holmes' letter was received by Brenneman, who at that time was the Association's manager.

A special meeting of the Association was held on February 27, 1982, at which all members of the Association's Board of Directors were present. The minutes of that meeting show that Holmes' letter was read and discussed. The letter, which is included verbatim in the minutes of the meeting, is followed by a notation, "Decision made to comply with request." Immediately following the special meeting, the Association's Board of Directors met. The minutes of the Board of Directors' meeting do not mention Holmes' letter or RELF's proposal.

On March 2, 1982, Holmes received a letter from Brenneman on the Association's stationery. It stated, in relevant part:

"The members of the Board of the Association of Unit Owners unanimously agreed to the proposal of February 17 to accept the terms for the release of liens on properties to be foreclosed or deed taken in lieu of foreclosure in favor of Mortgage Bancorporation.

"I will send you a copy of the minutes as soon as possible." ³

At the Board of Directors' meeting on March 13, 1982, the minutes of the February 27 Association meeting were "read and approved." After receiving Brenneman's March 2 letter, RELF suspended foreclosure and collection activity on the delinquent units. RELF sent release documents to the Association, but they were not returned. After subsequent negotiations failed to resolve the dispute between the parties, this foreclosure action resulted.

The trial court stated:

"After reviewing the facts in this case and the exhibits, the Court is of the opinion and will hold that the plaintiff has failed in [its] burden to establish that the defendant Association entered into an agreement whereby they would subordinate their assessments to the plaintiff's interest. The plaintiff was aware that the Association acted through its board of directors both because it originally examined the prospectives [sic] for the condominiums and because it held one or more of the condominium units and it received the information from the Association concerning the assessments and the meeting of the Unit Holders as well as the Board of Directors. The plaintiff did desire to avoid to have to foreclose each of the contracts individually and did attempt to negotiate through Ed Brenneman and Kenneth Holmes to remove the assessments from their foreclosure proceedings, however, the Court finds that there was never an agreement consummated between the Board of Directors for the Association, as required under the Association's bylaws, and the plaintiff. From the evidence it appears that some of the unit owners did agree to this procedure, however, it was never formally acted upon by the Board of Directors, and therefore there was no agreement. The plaintiff having dealt in real estate transactions for a period of time had the knowledge that it needed formal board action and never formally presented an agreement to the Board of Directors for their approval. Rather the plaintiff relied upon what the Court finds from the evidence to be informal negotiations and felt they had an agreement, but the Court finds they had no basis to rely. Ed Brenneman did not speak on behalf of the Board of the Association and there is nothing in the evidence that would indicate that he did have such authority. The Court further finds that there is no basis to establish estoppel against the Association and therefore will not estop the Association from asserting its lien."

RELF assigns as error the trial court's conclusion that the Association's lien had priority. RELF argues that a binding contract was formed between RELF and the Association.

Oregon subscribes to the objective theory of contract. In determining whether a contract exists and what its terms are, we examine the objective manifestations of intent, as evidenced by the parties' communications and acts. Kabil Developments Corp. v. Mignot, 279 Or. 151, 156, 566 P.2d 505 (1977); Harty v. Bye, 258 Or. 398, 403, 483 P.2d 458 (1971). In Kitzke v. Turnidge, 209 Or. 563, 573, 307 P.2d 522 (1957), the Supreme Court stated:

"The law of contracts is not concerned with the parties' undisclosed intents and ideas. It gives heed only to their communications and overt acts.

"Williston on Contracts, § 22A, says: 'Though assent must be manifested in order to be legally effective, it need not be expressed in words. In the early law of assumpsit stress was laid on the necessity of a promise in terms, but the modern law rightly construes both acts and words as having the meaning which a reasonable person present would put upon them in view of the surrounding circumstances. Even where words are used, "a contract includes not only what the parties said, but also what is necessarily to be implied from what they said." And it may be said broadly that any conduct of one party, from which the other may reasonably draw the inference of a promise, is effective in law as such.' "

A determination whether a contract was formed here is a question of law for the court. Quillin v. Peloquin, 237 Or. 343, 391 P.2d 603 (1964).

The first question is whether Holmes' letter contained an offer from RELF. Whether a communication contains an offer is determined by what a reasonable person in the receiver's position would have...