Stroud v. Beck
| Decision Date | 09 September 1987 |
| Docket Number | No. 9508-4-II,9508-4-II |
| Citation | 742 P.2d 735,49 Wn.App. 279 |
| Court | Washington Court of Appeals |
| Parties | Matthew A. STROUD and Linda M., husband and wife, Plaintiffs, v. Douglas A. BECK and Dana I. Beck, husband and wife; Arley R. Conner and Jacqualine Conner, husband and wife; Dennis R. McInteer; Robert C. Benson, Jr.; John R. Walker and LoRay W. Walker, husband and wife; Laurence H. Flinn and Vicki J. Flinn, husband and wife; Dean A. Jepsen and Roberta J. Jepsen, husband and wife; Dominic F. Rebeschini and Carol B. Rebeschini, husband and wife; Wallace R. McGreen and Lois A. McGreen, husband and wife, and Flinn, Scheer & Stewart, Inc., a Washington corporation, all doing business as the Kelso Investment Group, a Washington Joint Venture; State of Washington, Appellants, v. Herbert J. DROKER and Jane Doe Droker; Stuart M. Sulman and Jane Doe Sulman; d/b/a Droker & Sulman, Respondents. |
James S. Irby, Karr, Tuttle, Koch, Campbell, Mawer, Morrow & Sax, Seattle, for appellants.
Dennis A. Ostgard, Schwabe, Williamson, Wyatt & Lenihan, Seattle, for respondents.
Arlie and Jacqualine Connor appeal an order of the Cowlitz County Superior Court granting a partial summary judgment of dismissal to Herbert Droker and Stuart Sulman, et ux (hereinafter Droker & Sulman) attorneys at law, who acted as escrow agents, and denying a partial summary judgment to the Connors. 1 The Connors contend that the trial court erred in granting summary judgment to Droker & Sulman because as escrow agents they breached their fiduciary duty by failing to (1) inquire into the Connors' agent's authority to execute purchase documents, (2) draw up a non-recourse note, (3) advise the Connors of the advisability of seeking independent counsel, and (4) send advance copies of the documents to the Connors. We affirm.
The following facts are taken in the light most favorable to the Connors from the evidence submitted in support of the cross-motions for summary judgment. Arlie Connor and Laurence Flinn had been friends for years. In 1982, Flinn contacted Connor and told him about an opportunity to invest in an apartment complex as a part of a joint venture called the Kelso Investment Group. Connor responded that he was interested in the investment, but that he only wanted to be liable for a $10,000 investment and nothing more. Flinn told him, "There is no way you can lose any money on this." Flinn also told him that the most he could lose was his original investment. With that understanding, Connor agreed to invest $10,000 in order to become a member of the investment group.
Connor and his wife then signed a joint venture agreement and gave Flinn a power of attorney. The Connors did not read either document in detail. The power of attorney authorized Flinn:
(1) To sign [the Connors'] names to the deed of trust WOOD AVENUE APTS.
(2) To sign [the Connors'] names to the note for WOOD
AVENUE APTS.
(3) To execute [on behalf of the Connors] such other documents as may be necessary in connection with the acquisition of WOOD AVENUE APTS.
(4) To execute a certificate of assumed trade name on behalf of the joint venture for WOOD AVENUE APARTMENTS.
(5) To execute such documents [on behalf of the Connors] as may be necessary in connection with the conveyance of WOOD AVENUE APARTMENTS.
Flinn obtained identical powers of attorney from all of the other investors in the joint venture.
The Joint Venture Agreement provided for a management committee, which was comprised of one representative of Flinn, Scheer, and Stewart, Inc. (F.S. & S.), (a corporation dealing in property investments wholly owned by Flinn), and one representative of the individual Kelso Investment Group partners, which included Flinn and his wife, Vicki. The parties to the agreement delegated authority to the management committee to take care of the day-to-day management of the property.
Paragraph 10 of the Joint Venture Agreement provided:
In the event that income received from the operation of the property is not sufficient to cover the operating expenses and the debt service, monies from a previously established reserve fund will be used for that purpose. In the event that the reserve fund is not sufficient to cover the operating expenses and debt service, FS & S shall be required to contribute 100% of the amount needed.
(Italics ours.)
Paragraph 11 of the agreement provided, in pertinent part:
Except as herein provided no party to this Joint Venture agreement may borrow money on behalf of the Joint Venture, ... without the express written permission of the management committee.
Flinn and his wife signed a contract on November 8, 1982 on behalf of the Kelso Investment Group to purchase the Wood Avenue Apartments from Matthew and Linda Stroud. The agreement as later amended, called for the buyers to sign two promissory notes, one of which was for $353,000, payable to the sellers and to be secured by a deed of trust in favor of the sellers. Flinn then contacted the law firm of Droker & Sulman to act as escrow agents in connection with the closing of the transaction. Scott Smouse, an associate of that firm, handled the closing transaction for the law firm.
Flinn provided Smouse with the documents relating to the purchase, including the Joint Venture Agreement and the powers of attorney executed by each of the individual Kelso Investment Group investors. Flinn instructed Smouse to prepare two promissory notes, a deed of trust, and other necessary closing documents in accordance with the terms of the contract.
Smouse said that he reviewed the powers of attorney and the Joint Venture Agreement and then prepared the promissory notes and deeds of trust showing Flinn and the individual investors as co-makers. He said that he used documents which contained "standard provisions which are typically used in the type of transaction at issue." Smouse did not communicate with the individual investors other than Laurence and Vicki Flinn. Flinn signed promissory notes for the purchase of the property in the amount of $25,000 and $353,000 in his own name and the names of the individual partners.
After the transaction closed, Flinn gave the Connors an investment notebook that contained copies of all of the documents related to the sale. Connor said that he did not look through the documents in the notebook before 1985. The Connors subsequently reported tax losses from the project which exceeded their $10,000 investment.
In April 1985, Matthew and Linda Stroud filed a complaint in Superior Court to foreclose on the deed of trust after the joint venture defaulted on the $353,000 note. They named all of the individual Kelso Investment Group investors, including the Connors and Flinns, as defendants. The Connors in turn filed a third party complaint against Droker & Sulman, alleging that as escrow agents they had negligently breached their fiduciary duties to the Connors.
The Connors moved for a partial summary judgment against Droker & Sulman on the third party claim on the liability and proximate cause issues. Droker & Sulman cross-moved for summary judgment on liability. The trial court denied the Connors' motion and granted summary judgment to Droker & Sulman. The Connors appeal to this court.
Droker & Sulman initially contend that the Connors have no right of action against them as escrow agent because they had no contract with them. They cite Bowman v. Two, 104 Wash.2d 181, 704 P.2d 140 (1985), for the proposition that a nonclient must establish that he or she is a third-party beneficiary of the attorney-client relationship. We hold that the Connors were entitled to bring a cause of action against Droker & Sulman.
A principal may bring an action on the contract of his agent. United States v. Skinner & Eddy Corp., 5 F.2d 708, 711 (D.C.Wash.1925). See also, Styner v. England, 40 Wash.App. 386, 388, 699 P.2d 234 (1985). Clearly, Flinn was acting as the agent of the joint venturers in their dealings with the sellers. The Connors, as principals of the joint venture, had privity of contract with Droker & Sulman through their agent, Flinn. The Connors, thus, have standing to claim a breach of fiduciary duty.
The Connors contend that the trial court erred in determining, as a matter of law, that the escrow agent did not breach its fiduciary duty to the Connors.
On a motion for summary judgment, the reviewing court, as the trial court, views the facts in the light most favorable to the nonmoving party. Hartley v. State, 103 Wash.2d 768, 774, 698 P.2d 77 (1985). A court should grant a motion for summary judgment only when there are no genuine issues of material fact before the court, and the moving party is entitled to judgment as a matter of law. Peterson v. Pacific First Fed. Sav. & Loan Ass'n, 23 Wash.App. 688, 690, 598 P.2d 407 (1979).
A plaintiff alleging negligence must prove (1) the existence of a duty owed to the plaintiff, (2) breach of that duty, (3) proximate cause, and (4) resultant injury. See Hartley, 103 Wash.2d at 777, 698 P.2d 77. In light of these well-known principles, we examine each of the escrow agent's alleged acts of negligence in turn.
The Connors first argue that Scott Smouse, as the escrow agent, negligently breached his fiduciary duty by relying on the powers of attorney without inquiring further into Flinn's authority to execute the closing documents on behalf of the joint venture. We disagree.
The authority to execute or endorse commercial paper, such as bills, notes, and checks, must be conferred expressly. Coleman v. Seattle Nat'l Bank, 109 Wash. 80, 84-85, 186 P. 275 (1919). If a person has been put on notice of limitations of an agent's authority, the person has a duty to inquire into the limitations, and if he fails to do this, he will be deemed to have actual knowledge of the agent's lack of authority. Glendale Realty, Inc. v. Johnson, 6 Wash.App. 752, 757, 495 P.2d 1375 (1972).
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