Seafirst Center Ltd. Partnership v. Erickson

• Decision Date: 20 July 1995
• Docket Number: No. 62011-3,62011-3
• Citation: 127 Wn.2d 355,898 P.2d 299
• Court: Washington Supreme Court
• Parties: SEAFIRST CENTER LIMITED PARTNERSHIP, a Washington Limited Partnership, Respondent, v. Ronald P. ERICKSON, and the Marital Community composed of Ronald P. Erickson and Jane Doe Erickson, Petitioners, and Kargianis, Austin & Erickson, Successor-In-Interest to Kargianis & Erickson, a Washington General Partnership; et al., Defendants.

Page 355

127 Wn.2d 355

898 P.2d 299

SEAFIRST CENTER LIMITED PARTNERSHIP, a Washington Limited Partnership, Respondent, v. Ronald P. ERICKSON, and the Marital Community composed of Ronald P. Erickson and Jane Doe Erickson, Petitioners and Kargianis, Austin & Erickson, Successor-In-Interest to Kargianis & Erickson, a Washington General Partnership; et al., Defendants.

No. 62011-3.

Supreme Court of Washington En Banc.

July 20, 1995.

Reconsideration Denied Sept. 7, 1995.

Edwards, Sieh, Hathaway, Smith & Goodfriend, Catherine Smith, Seattle, for petitioner.

Beresford, Booth & Demarary, Richard Beresford, Eisenhower & Carlson, Bradley D. Fresia, Seattle, for respondent.

TALMADGE, Justice.

The present case originates in the alleged breach of a lease by a law firm for space in the Columbia Seafirst Center in Seattle. The lessor sought damages for breach of the lease from the partners of the law firm. When all but one of the partners settled with the lessor and lessor reserved its right to proceed against the remaining non-settling partner, the final non-settling partner sought dismissal on the principle that the release of one partner from liability releases all partners from liability on the lease contract.

As Washington has observed inconsistent rules in its case law on the release of a joint obligor under a reservation of rights, we now decide that the release of one partner from contractual liability under a reservation of rights does not release all other partners from liability. The decision of the Court of Appeals is affirmed.

ISSUE

In an action for a partnership's breach of a lease, does the settlement between the lessor and a partner, in which the lessor reserves its rights against the non-settling partners, discharge all other partners from liability?

FACTS

On March 8, 1985, Kargianis & Austin, a Washington general law partnership, entered into a lease with Martin Selig for space in the Columbia Seafirst Center. The lease commenced on August 1, 1985, and extended through July 31, 1995.

The partners of Kargianis & Austin at the inception of the lease were George Kargianis, P.S., Russell A. Austin, Jr., John I. Weston, Ronald P. Erickson, Bruce A. Wolf and Anthony W. Dougherty. Clerk's Papers, at 9. All the partners ultimately signed the lease except Weston, who left the partnership prior to executing the lease.

A significant lease term provided that there was limited personal liability on the lease for two of the partners:

51. LIMITATION. Any other provision herein notwithstanding, it is agreed by and between the parties that George Kargianis and Russell A. Austin, Jr. shall be personally liable on the instant lease agreement for the first five years and not thereafter.

Clerk's Papers, at 255. The record is silent as to what consideration Erickson and the other partners received, if any, for this release of Kargianis, P.S. (Kargianis) and Austin's personal liability in the second five years of the lease. ¹

In 1989, Martin Selig sold Columbia Seafirst Center to Seafirst Center Limited Partnership (Seafirst), and assigned to Seafirst his interest in the building's leases, including the Kargianis & Austin lease. Kargianis & Austin changed its name to Kargianis, Austin & Erickson (the Partnership) sometime after execution of the lease.

The Partnership had difficulty paying rent. On October 2, 1990, Seafirst filed suit against the Partnership and all its partners, seeking $218,460.82 (the amount of rental arrearage), and the rent due to accrue for the remainder of the lease, plus interest, and attorney fees. ² Clerk's Papers, at 1-24.

Seafirst and the Partnership subsequently negotiated a settlement agreement. The Partnership would pay all rent due through October 31, 1990, and granted Seafirst a security interest in the Partnership's assets. The Partnership thereafter paid all amounts due on the lease through October 31, 1990, and that portion of the parties' lease is not at issue here. Corrected Br. of Appellant, at 8.

Because the lease commenced on August 1, 1985, and five years expired on July 31, 1990, Kargianis and Austin moved for dismissal, arguing that they were no longer personally liable pursuant to p 51 of the lease. Despite Seafirst's vigorous opposition, on February 15, 1991, the trial court granted the motion, and Kargianis and Austin were dismissed from the case. Clerk's Papers, at 199-201. Seafirst then filed a notice of appeal to the Court of Appeals. Clerk's Papers, at 197-98. Seafirst did not litigate the appeal, however; in return for their agreement not to pursue attorney fees and costs, Seafirst entered into covenants not to sue with George Kargianis, Russell A. Austin, Jr., and Anthony W. Dougherty in April 1991. Clerk's Papers, at 460-61. Seafirst later entered into a covenant not to sue with Bruce Wolf. Clerk's Papers, at 335-36. Erickson was the only partner of the Partnership with whom Seafirst did not settle. As the only remaining defendant, Erickson moved for a summary judgment of dismissal on April 8, 1992, Clerk's Papers, at 386-401, contending that Seafirst's covenants not to sue constituted releases and that a discharge of one partner from all liability on a partnership debt discharged all partners.

Seafirst moved for summary judgment on the same day as Erickson, asking for past-due rent payments from the Partnership for November 1, 1990, to December 31, 1991; prejudgment interest on each rental payment due; the difference between the Partnership's rent and the new tenant's rent from January 1, 1992, through July 31, 1995; tenant improvement expenses; and attorney fees. Clerk's Papers, at 402-18. Seafirst later responded to Erickson's motion by arguing that it had not released any of the defendants; it had merely entered into covenants not to sue, preserving rights against Erickson as the non-settling defendant. Clerk's Papers, at 422.

The trial court granted Erickson's motion, denied Seafirst's motion, and awarded attorney fees to Erickson. Seafirst timely appealed to the Court of Appeals. In Seafirst Ctr. Ltd. Partnership v. Kargianis, Austin & Erickson, 73 Wash.App. 471, 866 P.2d 60 (1994) (hereinafter Erickson ), the court reversed the summary judgment order dismissing Erickson and remanded the case for trial of Seafirst's damages from the breach of the lease agreement, as well as for a determination of Seafirst's attorney fees. The Court of Appeals' decision was based on the Restatement (Second) of Contracts §§ 294-295 (1981), which the court determined to be the more appropriate modern rules on the release of joint contractual obligors. Confronted with two distinct lines of cases on whether the discharge of a partner on a contractual obligation discharges all partners from liability, we agree with the Court of Appeals and adopt the modern rule that the settlement by one partner of a joint obligation does not discharge all partners, provided that rights are reserved against non-settling partners.

ANALYSIS

A. Nature of Erickson's Liability

The appropriate starting point for the court's analysis is the nature of Erickson's liability. The characterization of that liability is complicated by the fact that the liability on the lease is in the nature of a joint contractual obligation. There are special and distinct rules for the liability of a partner under Washington's Uniform Partnership Act (WUPA).

The Court of Appeals focused on the contractual aspect of the liability. ³ The Court of Appeals cited the Restatement (Second) of Contracts § 294 (1981) for the ancient ⁴ common law rule on release of joint obligors:

(1) Except as stated in § 295, where the obligee of promises of the same performance discharges one promisor by release, rescission or accord and satisfaction,

(a) co-promisors who are bound only by a joint duty are discharged unless the discharged promisor is a surety for the co-promisor[.]

The court said, "We agree, but only when the release contains no reservation of rights against the other obligors." Erickson, at 475, 866 P.2d 60. The court then modified the rule by adopting the Restatement (Second) of Contracts § 295:

(1) Where the obligee of promises of the same performance contracts not to sue one promisor, the other promisors are not discharged except to the extent required by the law of suretyship.

(2) Words which purport to release or discharge a promisor and also to reserve rights against other promisors of the same performance have the effect of a contract not to sue rather than a release or discharge.

(3) Any consideration received by the obligee for a contract not to sue one promisor discharges the duty of each other promisor of the same performance to the extent of the amount or value received.

Erickson, at 477, 866 P.2d 60 (quoting Restatement (Second) of Contracts § 295 (1991)).

Erickson appropriately notes that WUPA draws a distinction between joint liability of partners for contracts, and joint and several liability for torts. RCW 25.04.150 states:

All partners are liable:

(1) Jointly and severally for everything chargeable to the partnership under RCW 25.04.130 and 25.04.140; and

(2) Jointly for all other debts and obligations of the partnership; but any partner may enter into a separate obligation to perform a partnership contract;

Whether characterized as a joint partnership obligation or a joint contractual obligation, however, the joint obligation of the partner on a lease is subject to the same rule for the discharge of a partner under a reservation of rights articulated in the Restatement (Second) of Contracts § 295.

B. The Rule of Discharge and Covenants Not To Sue

With regard to the discharge of a joint, non-tort ⁵ obligor, Washington has observed two separate and distinct rules. In Blodgett v. Inglis, 63 Wash. 513, 517-18, 115 P. 1043 (1911), a case involving the joint obligation of partners, the court stated: "The rule is that a discharge of one partner from all liability on account of a...